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JUSTICE AND CONSTITUTIONAL DEVELOPMENT PORTFOLIO COMMITTEE
20 October 2003
JUDICIAL MATTERS SECOND AMENDMENT BILL: DELIBERATIONS
Chairperson: Adv J H de Lange (ANC)
Working draft of Judicial Matters Second Amendment Bill - 13 October 2003
Banking Council Submission
Rand Merchant Bank Submission
Legal Opinion on Bill re Clauses 1 and 2 being retrospective
The Legal Opinion submitted by the State Law Advisors on Clauses 1 and 2 of the Bill concluded that it would not be worth the Committee's while to make those clauses retrospective in nature. Members sought clarity on the powers granted to the Minister to proclaim contracts as master agreements in Clause 3(2)(b) and 3(c). Clause 3(2)(a)(ii) was reformulated to now exclude assets pledged or ceded in securitatem debiti, and would now only refer to the transfer of assets for collateral, as requested by the Banking Council of South Africa. Clause 6 would be redrafted to clarify the fact that the courts could impose correctional supervision as a competent verdict even if another piece of legislation imposed a different sentence. Clause 8 was amended to clearly refer to the specific court in which the trial would be heard, and certain provisions in the Long Title were reformulated and amended.
State Law Advisor's Legal Opinion on Clauses 1 and 2
The Chair requested Adv Otto Kellner, State Law Advisor, to provide the Opinion on whether the appointment mechanism for the divorce courts could be made retrospective, because concern had been raised with the constitutionality of such a provision.
Adv Kellner stated that the he agreed with the conclusion reached by the Chair, that it would not be worth the Committee's while to proceed with the retrospectivity clause. It would not have the desired result, and it would result in more disadvantages than advantages.
The Chair agreed. He stated that a new appointment mechanism would then be created in the new proposed section 10(3)(b) in Clause 1, which would deal with permanent appointments. A new clause would also be introduced which would deal with acting and temporary appointments, in terms of Section 9 of the Magistrates Court Act. The current clause 2 would then be deleted completely, and the footnote which stated that the Legal Opinion was awaited would also fall away.
Adv Kellner suggested that the Committee then consider an appropriate amendment to the Long Title of the Bill and the Memorandum, in order to clarify the reason for these amendments.
The Chair requested Mr Basset, Legal Drafter: Department, to formulate this. It should state clearly that separate clauses would be introduced to deal with temporary and permanent appointments, because concerns were raised with the validity of the appointments. He stated that the phrase "Subject to subsection (3A) in the current proposed section 10(3)(b) would have to be deleted, because it would not fall away. The remainder of the current proposed section 10(3)(b) would then be split in two, with the first part dealing with the appointment mechanism, and the second with the position to be held by the judicial officer. The proposed section 10(3A) should also be inserted.
The Chair asked Mr T Cronje, South African Law Commission (SALC), to take Members through the two submissions received from Rand Merchant Bank and The Banking Council of South Africa.
Mr Cronje informed Members that the Banking Council document contained the amendments proposed by the Committee during the previous meeting. The comments in the document merely explained those amendments.
Mr Basset stated that those amendments were identical to those included in the Bill.
Mr Cronje stated that the Rand Merhcant Bank document contained its comments and this new proposal. Rand Merchant Bank was very happy with most of the amendments proposed, and the queries raised were neither here nor there.
The Chair noted that the phrase "or any similar agreement" in the proposed subsection 2(a), and the phrase "upon the sequestration of one of the parties" had been inserted. He stated that the proposed section 2(a)(ii) had also been introduced. The proposed subsection 3 was also included, which dealt with the exclusions from being classified as a "master agreement". The Chair asked Mr Cronje to explain the reason for the inclusion of the proposed subsection 3(c), because it appeared to duplicate the proposed subsection 2(b).
Mr Cronje responded that the proposed subsection 2(b) allowed the Minister to include contracts as "master agreements", whereas the proposed subsection 3(c) allowed him to exclude certain contracts from being regarded as "master agreements". There was thus a difference.
The Chair stated if that was the case, he asked why the Minister was not then granted the power to perform the function stipulated in the proposed subsection 3(c). He asked the Department to explain the origin of the Minister's power in the proposed subsection 3(c), if it was not from the converse of the proposed subsection 2(b).
Mr Cronje proposed that it arose from the proposed subsection 3(c) itself.
The Chair disagreed. He stated that that provision did not grant the Minister a power, because the powers provided in the proposed subsection 3(a) and (b) all arose from those Acts stipulated in those provisions. This did not appear to be the case in the proposed subsection 3(c).
Mr Cronje replied that the proposed subsection 3(c) could then be deleted, following the reasoning employed by the Chair.
Mr Basset agreed with the Chair.
The Chair stated that the formulation of Sub clause 1 did not reflect the Committee's intentions, because the amendment merely made the obligation to return assets as part of the master agreement. He stated that he was under the impression that it should be a separate jurisdictional fact that would have to be proven under the proposed subsection 1. The proposed wording amounted to a duplication, because the proposed subsection 2(a)(ii) already indicated that the master agreement could include that in securitatem debiti.
Mr Kevin Daly, Consultant: Banking Council, reminded the Committee that attempts were made to accommodate this via a definition of an "unperformed obligation". The Committee then suggested that this was clumsy and that it should instead be accommodated in the substantive provision, which is what has now been done.
The Chair asked whether this was done in the proposed subsection 2(a)(ii).
Mr Daly answered in the negative. He stated that that provision was part of the definition of a master agreement, and contained one of the requirements that had to be included in the contract for it to be regarded as a master contract. The substantive provision in the proposed subsection 1, however, stipulated the effect of the sequestration of a party to a master agreement. He stated that it was important to note that this did not necessarily mean that those obligations arose out of that specific master agreement. Thus the obligation to return assets in which was transferred as security or collateral could thus arise from the master agreement, or from a different agreement concluded between the parties.
The Chair asked how exactly the securities would be terminated.
Mr Daly replied this would be possible because it has been an outright transfer. He stated that the attempts to bring that provision into the definition of "master agreement" has actually resulted in an absurdity. The obligation to return assets, whether under a pledge or whether those assets have been transferred, was clearly contingent on who was sequestrated. For example, if X had transferred assets to Y and X went insolvent, there would clearly no be an obligation on Y to return those assets to X. This clearly did not make sense
He stated that the Chair's proposal that the provision not provide for those obligations relating to collateral by dealing with it via a definition, but rather by including it in the substantive provision without having to further modify the definition of a "master agreement" could be done. Mr Daly stated that although the banks were all satisfied that it had been included in the proposed subsection 1, the substantive provision, the attempts to include it in the definition of the master agreement has resulted in the effect that many master agreements in use today would not qualify as master agreements.
The Chair stated that in a previous meeting Mr Daly informed this Committee that there were only two ways in which such contracts could be entered into: via pledges or a security. Both these have now been included in the Bill, and asked Mr Daly to indicate the third category of such contracts which was not included in the provision.
Mr Daly responded that there was not a third category. He stated that in practice institutions would quite often sign a number of master agreements between themselves, dealing with repurchase agreements and bonds, credit derivatives and more general derivative instruments and also with securities and lending. Quite often the security aspect of their relationship would be governed by yet another agreement. In other words, not every agreement which the Banking Council would want to be included under the umbrella of "master agreement" would deal with security aspects.
He stated that the second problem was that, because this was related to margin, there was quite often a period of time between entering into the master agreement and the subsequent conclusion of the "collateral security annexure".
Mr Daly stated that the biggest problem here was that outlined earlier which dealt with the absurdity created.
The Chair stated that the wording of the proposed subsection 2(a)(ii) was clear, and stipulated that the assets would be returned to the first-mentioned party.
Mr Daly replied that the problem was that the body of the proposed subsection 2(a) did not stipulate clearly which of the parties would be sequestrated, as it merely indicated "of one of the parties".
The Chair proposed that "the first-mentioned party" in the proposed subsection 2(a)(ii) be replaced with "the non-sequestrated party".
Mr Daly responded that the problem here was that there was a possibility that the sequestrated party actually owed the payment of the net amount to the non-sequestrated party. It could thus work both ways, and there was no way of knowing beforehand which party would come out with the net obligation.
The Chair stated that if this was not clear, a clause should be drafted which stated clearly that it did not matter. He stated that the proposed subsection 2(a)(ii) was of no consequence, other than that such a clause must be contained in the agreement.
Mr Cronje stated that his problem with the proposed subsection 2(a)(ii) was that this provision would make no sense if the person who gave the security was an insolvent person, because the other party would never receive the asset.
The Chair stated that this could easily be cured by changing the formulation of the provision to state that the agreement must contain a clause which stipulated that the pledge or security between the two parties would become part of the netting. He stated that this was not a principled problem but as instead a drafting problem, and could thus be resolved by changing the formulation of the provision.
He stated that if Mr Daly only wanted the transfer of assets to be included in the proposed subsection 2(a)(ii), and not the pledge or security, this could be done, but it must also then be reflected in the proposed subsection 1.
Mr Daly responded that the proposed subsection 1 did only provide for the transfer, and not the pledge or security. He suggested that the proposed subsection 2(a)(ii) be drafted as follows: if the agreement makes provision for the transfer of assets, if that is the mode of security which it uses, in such a case it would be included in the netting pool. He stated that this formulation would solve the problem by excluding the cessions and pledges from the ambit of the definition of "master agreement".
The Chair stated that this would be in order, if it was in accordance with the wishes of the Banking Council. He stated that the only reason the pledges and security were included in proposed subsection was because it was requested by the Banking Council on a previous occasion.
Mr Daly stated that the last phrase "be returned to the first-mentioned party" in proposed subsection 2(a)(ii) would no longer be necessary, and could be deleted.
The Chair agreed. He asked whether the obligation to return assets in the proposed subsection 1 was an unperformed obligation.
Mr Daly replied that the transfer of assets as collateral was still a new concept in South African law. The rules applicable to cession and pledges were quite clear yet this was not the case with transfer, and for that reason it was considered necessary to spell it out in the Bill.
The Chair stated that he actually wanted to know why the word "including" was inserted in the proposed subsection 1, and not an "or".
Mr Daly responded "or" did read better, and could be inserted. A consequential problem would then be created in the proposed subsection 2(a)(iii).
The Chair stated that that provision had to be addressed, and could perhaps include the words "or other obligation" after the word "obligations" in the proposed subsection 2(a)(iii).
Mr Daly requested that the Committee include the words "or any similar agreement" in the proposed subsection 2(a). He stated that the main reason given by the banks was that there were instances in which they dealt with a party in respect of only one instrument, and the most common agreement would be a "forex swap". This entails the banks taking the values of two currencies as against each other.
The Chair stated that the phrase should be inserted in square brackets, and the Committee would probably agree on its inclusion as long as the proposed subsections 2(a)(i)-(iv) were clear.
Mr Cronje stated that the Rand Merchant Bank proposal in Point 6 of their document be considered, because it would allow the provision to read better.
The Chair agreed, and requested Mr Daly and Mr Cronje to effect the changes that were just decided upon. He asked whether the letter from Treasury had been received yet.
Mr Daly replied that both officials from the Financial Services Board (FSB) and Treasury were both in Korea last week. He stated that they were both aware of the amendments made, and would be corresponding with the Committee.
Clauses 4 and 5
The Chair noted that no questions were raised with these clauses.
Mr Basset stated that the Committee had requested the Department to create a link between the proposed subsections 3 and 4 or, alternatively, to collapse the two into a single provision. He stated that the Department had opted for the latter. Comments received on the clause during lunchtime indicated that the reworked provision might still be perpetuating the problem, because the wording of the Criminal Procedure Act (CPA) stipulated that the provision was not specifically authorising the court to impose correctional supervision. He stated that this appeared to be the reason for the court cases, because the courts argued that there was no provision in the CPA that stipulated that the courts could not impose correction supervision, but there was also no empowering provision which granted the courts the power to impose such a sentence. He stated that this would have to be worked into the provision.
He stated that he had a few minutes to draft the reworked wording that would include this enabling provision. The proposed subsection (b) would stipulate:
(b) from imposing the punishment referred to in subsection (1)((h) or (I) in respect of any offence, and the court may, when convicting any person of any offence, whether under the common law or a statutory provision, irrespective of whether the law in question provides for such sentence or not, sentence such person to undergo correctional supervision as referred to in the said subsection (1)(h)( or (I): Provided that any sentence contemplated in this paragraph may not be imposed in any case where the court intends imposing a sentence contemplated in â€¦.
Mr Basset stated that the "when convicting any person of any offence" would be the new insertion.
The Chair disagreed. He stated that Section 276(1) of the CPA was an empowering clause.
Mr Basset responded that the courts have disagreed with the Chair's line of reasoning. He stated that the court held that:
Die fondametele probleem met die betoog namens die appellante lê hierin: volgens Artikel 276(3)(b) word die bepalings van subartikel 1 nie so uitgelê as so dat die hof verbied om subartikel 1(h) of (i) bedoel te straf ten opsigte van enige misdryf op te lê nie. Dit magtig egter nie 'n hof om so 'n vonnis op te lê as 'n ander wet 'n bepaalde vonnis voorskryf nie.
The Chair stated that this argument appeared to misread the proposed subsection 3, because it specifically stipulated "notwithstanding anything to the contrary in any law" the court could still impose the punishment in Subsection (h) or (i).
Mr Basset stated that the Supreme Court of Appeal had decided in no uncertain terms that correctional supervision was a competent sentence, even where a statutory provision did not specifically provide for that.
The Chair stated that this was not what the courts were arguing, as they were saying that were a statute provided for a different sentence, correctional supervision would not be possible. He asked whether the portion of the provision before the proviso should simply be deleted.
Mr Basset replied that the Department was specifically requested to include this amendment because there was uncertainty in this area, albeit only at a High Court level.
The Chair stated that he did not understand the concern raised by the commentator referred to by Mr Basset. The proposed subsection 3(b) stipulated clearly that "irrespective of whether the law in question provides for such punishment or not", the sentence of correction supervision could still be handed down.
He requested Mr Basset to redraft the provision to make it clear that the proposed subsection was not an empowering clause but an interpretation clause. It thus directed the court to interpret the provision as contained in the proposed subsection 3. The Chair proposed that the words "or other punishment" be inserted after the phrase "provides for such punishment" in the proposed subsection 3(b). This would clarify matters further.
The Chair proposed that the proposed subsection 3(b)(ii) be deleted.
Mr Basset agreed.
The Chair noted that no questions were raised with this clause.
The Chair stated that he was concerned with the interpretation of the provision. The proposed that the word "pending" in subsections 7(a)(i)-(iii) be replaced with the phrase "which is going to be heard". He stated that the word "pending" was not clear enough, and did not necessarily refer to the court in which the trial would take place.
Ms F Chohan-Kota (ANC) asked whether this clause would not include a reference to children who were in detention.
The Chair answered in the negative, because all matters pertaining to children would be dealt with in the Child Justice Bill.
Mr Basset stated that there was no corresponding reporting provision in the Child Justice Bill, but it could possibly be inserted in the Child Justice Bill.
The Chair agreed. He stated that the remainder of the proposed subsection 7(b) after the phrase "table such report in Parliament" should be deleted, because it was not relevant.
Mr Basset informed Members that an extra column had been added to the column at the end of the proposed subsection 7, and it dealt with whether bail had been granted or not.
The Chair disagreed with the inclusion of "why accused has not been released", because only the accused would know that. He stated that that phrase must be reworded similar to "the conditions".
The Chair noted that no questions were raised with these clauses.
The Chair noted that Members agreed to the amendment which altered the time period to one month.
The Chair noted that no questions were raised with these clauses.
The Chair noted that Members agreed to the amendment which altered the time period to three years.
Mr Basset informed Members that the wording of this provision had been changed, and the proposed subsection 12(d) had been inserted as requested by the Committee.
The Chair noted that Members agreed with the amendment.
Mr Basset informed Members that this was a new formulation.
The Chair stated that it did not exclude the Magistrates Commission. He stated that the Committee would have to consider this issue further.
Mr Basset stated that Footnote 2 stipulated that the definition of "administrative action" in Section 1 of the Promotion of Administrative Justice Act of 2000 did not include "a decision relating to any aspect regarding the appointment of a judicial officer, by the Judicial Service Commission".
The Chair stated that Clause 27 broadened this aspect. The problem was that appointments have been excluded from the Promotion of Administrative Justice Act, and the current Section 44(4) here was thus incorrect because it was too broad. The amendment has now been proposed to exclude the appointment. He stated that the provision should properly state "relates to a decision referred to in Section 1(gg) of the Promotion of Administrative Act, relating to any aspect of the nomination".
The Chair noted that Members agreed with the amendment which alters the time period to four years.
The Chair noted that Members agreed with the this clause.
Mr Basset stated that the Department was asked to ensure that a failure to comply with regulations relating to the manual were criminalised. He stated that this provision was added in the proposed subsection 92(4).
The Chair noted that Members agreed with the amendment.
The Chair requested the Department to provide the regulations referred to.
Mr Basset replied that he had informed Ms Botha, State Law Advisor, who was busy with them.
The Chair noted that this clause had already been dealt with by Members in the discussion on Clause 23.
The Chair noted that Members agreed with the amendment with changes the time period to three years.
The Chair noted that Members agreed with the amendment.
The Chair noted that Members agreed with these clauses.
The Chair noted that the Act number was still not stipulated.
Mr Basset responded that no Act number has yet been allocated.
to amend the Insolvency Act, 1936, so as to regulate agreements providing for termination and netting of unperformed obligations
The Chair stated that this was not completely correct and had to be reworded, because it related also to the transfer of assets used as security and not only to unperformed obligations..
to amend the Prevention of Counterfeiting of Currency Act, 1965, so as to make further provision regarding the onus of proof on an accused person
The Chair questioned whether it was actually the "onus of proof", but was actually an evidentiary burden. He requested Mr Basset to consult the judgments that dealt with presumptions.
to make new provision regarding correctional supervision as a sentencing option
Mr Basset proposed that the phrase "in certain circumstances" be inserted at the end of this provision.
The Chair noted that Members agreed.
to make provision for a complainant to make representations with regard to placement of accused persons on parole
The Chair proposed that reference also be made to their duty.
and to make provision for the submission of a report to Parliament containing certain particulars in respect of each accused in custody for a particular period awaiting trial
The Chair stated the phrase "whose trials have not begun" be inserted, so that the provision could be clarified.
Mr Basset stated that the Department was awaiting the comments on this from the National Director of Public Prosecutions, as requested by the Committee.
to make further provision regarding the application of the Act to certain public bodies or officials
Mr Basset stated that this dealt with the Judicial Service Commission, and reflected the heading of Section 12 of the Promotion of Access to Information Act.
The Chair stated that this should also state "to exclude appointments by the Judicial Services Commission from the application of the Act".
to further regulate the rules of procedure
The Chair asked what this referred to.
Mr Basset responded that this referred to the time period within which the Rules Board would have to pass rules. He stated that this could be made more specific.
and to further regulate the rules of procedure for judicial review
Mr Basset stated that here again it could be clarified that the time period was being referred to.
The Chair stated that there were several amendments that still had to be effected to the Bill.
The meeting was adjourned.