The South African Reserve Bank v Mzilikazi Godfrey Khumalo and Mawenzi Resources and Finance Company (Pty) Ltd

The South African Reserve Bank (the appellant) held discussions with the two respondents from August 2002 regarding whether various transactions had contravened the Exchange Control Regulations. On 12 August 2008, the appellant issued a notice purporting to attach various assets of the respondents under Regulation 22C(1) of the Exchange Control Regulations, promulgated under the Currency and Exchanges Act 9 of 1933. The first respondent was a businessman and director of various companies including the second respondent. The respondents sought urgent interim relief including orders declaring the notice invalid and interdicting the appellant from giving effect to it pending a review application, on the ground that Regulation 22C(1) itself was invalid because it did not conform to the authorizing statute. The matter came before a full bench of the North Gauteng High Court (Southwood, Murphy and Raulinga JJ), which found in favour of the respondents and made a final order that the notice was invalid. The appellant appealed with leave.

• Whether Regulation 22C(1) of the Exchange Control Regulations is invalid for failing to incorporate or specify a time period not exceeding that laid down in section 9(2)(g) of the Currency and Exchanges Act 9 of 1933
• Whether section 9(2) of the Act requires the President to stipulate a time period in the regulations for the attachment and freezing of money and goods
• Whether an attachment notice issued under Regulation 22C(1) must specify a time limit to be valid
• Whether regulations must be read together with their enabling statute when interpreting their scope and validity

The appeal succeeded with costs, including costs of two counsel. The order of the full bench was set aside and replaced with an order dismissing the application with costs, including the costs of two counsel.

The binding legal principle established is that regulations made under an empowering statute must be read and construed consistently with that statute, and statutory time limits imposed by the enabling legislation apply to actions taken under regulations as a matter of law, even where the regulations themselves do not expressly restate those limits. Specifically, the time period prescribed in section 9(2)(g) of the Currency and Exchanges Act 9 of 1933 applies to attachments made under Regulation 22C(1) of the Exchange Control Regulations, notwithstanding the regulation's failure to expressly incorporate that time limit. The purpose of section 9(2)(g) is to set a statutory maximum duration for attachments and freezing orders as an objective matter of law, not to prescribe mandatory content for the regulations themselves.

The court made observations describing both section 9 of the Currency and Exchanges Act and Regulations 22A, 22B and 22C as 'lengthy and convoluted', endorsing the description previously used by Harms JA in South African Reserve Bank v Torwood Properties (Pty) Ltd 1997(2) SA 169 (A). The court also noted the distinction drawn between 'tainted' money and goods (involved or suspected of involvement in contraventions) and 'untainted' money and goods, and explained the general scheme of the regulations whereby tainted money may be attached first and, if that cannot be recovered, untainted money and goods may be attached to recover the shortfall. The court also observed that if the legislature had intended the comparatively complicated formulation in section 9(2)(g) to be spelt out in the regulations, it would have said so expressly.

This judgment is significant in South African law for establishing the proper approach to interpreting subordinate legislation (regulations) in relation to their enabling statute. It confirms that statutory time limits imposed by enabling legislation apply to regulations made under that legislation as a matter of law, even where the regulations themselves do not expressly restate those limits. The case clarifies the relationship between the Currency and Exchanges Act and the Exchange Control Regulations, particularly regarding the attachment and freezing of assets suspected of being involved in exchange control contraventions. It demonstrates the principle that regulations should be construed consistently with their empowering Act and that their validity depends on conformity with the enabling provisions, not on whether they restate all limitations contained in the parent statute. The judgment provides important guidance on the validity of administrative action taken under the Exchange Control Regulations, which have significant practical implications for financial regulation in South Africa.