Corpclo 2290 cc t/a U-Care v The Registrar of Banks

The appellants operated a multi-tiered business called U-Care where members of the public made monthly contributions (initially R125, later R165) deposited into an Absa account. Of these contributions, 60% was paid back as commissions/bonuses to members for recruiting others across four levels, 20% went to the management company for administration, and 20% was donated to charities. Members earned commissions for signing up new members in a four-level structure and qualified for various 'Club' bonuses based on the number of people in their structure. The business advertised on a website. In April 2009, the Registrar of Banks appointed inspectors who investigated and determined the appellants were conducting 'the business of a bank' as defined in Notice 498 issued under s 1(e) of the Banks Act 94 of 1990. The appellants were not public companies and were not registered as banks. In the first two years, U-Care received almost R15 million in donations, and in the next three and a half years, over R60 million. The appellants claimed to operate a legitimate charity funding business but provided no supporting financial documentation. The Registrar applied for an interdict under s 81 of the Banks Act to prohibit the appellants from continuing their business practice.

• Whether the appellants were conducting 'the business of a bank' as defined in Notice 498 issued under s 1(e) of the Banks Act 94 of 1990
• Whether the appellants' business practice contravened s 11(1) of the Banks Act which prohibits conducting the business of a bank unless registered as a public company bank
• Whether the court a quo correctly granted an interdict under s 81 of the Banks Act
• Whether the appellants could raise new constitutional defences on appeal that were not pleaded in the court a quo
• Whether Notice 498 should be interpreted in light of the Constitution and whether it was ultra vires or unconstitutional
• Whether the Registrar's power to define 'the business of a bank' in s 1(e) was constitutionally limited
• Whether the Registrar's decisions to investigate and institute proceedings constituted administrative action subject to PAJA

The appeal was dismissed with costs, including costs of two counsel.

The binding legal principles established are: (1) Parties challenging the constitutionality of statutory provisions must raise such challenges at first instance with proper factual foundations in their pleadings/affidavits; constitutional complaints not properly pleaded cannot be raised on appeal (applying Prince v President, Cape Law Society). (2) In motion proceedings, affidavits constitute both pleadings and evidence, and parties' contentions must appear clearly so opposing parties can respond; new defences cannot be introduced in heads of argument or on appeal. (3) A business practice that involves accepting money from the public as a regular feature with members receiving payments or benefits upon introduction of new members from whom money is also obtained falls within the definition of 'the business of a bank' as declared in Notice 498 issued under s 1(e) of the Banks Act. (4) The Registrar's decisions to investigate potential contraventions and to institute interdict proceedings under s 81 do not constitute 'administrative action' under PAJA as they do not adversely affect rights or have direct external legal effect; it is the court's decision granting the interdict that affects rights. (5) Statutory provisions that are clear and unambiguous on their ordinary grammatical meaning should be applied accordingly, and interpretation through the prism of the Constitution (s 39(2)) does not permit changing clear meaning—if clear meaning conflicts with the Bill of Rights, the remedy is to strike down the provision, not reinterpret it. (6) The internal limitations in constitutional rights (such as s 22 allowing regulation of trade by law, and s 25 allowing deprivation of property under law of general application) permit regulatory prohibitions like s 11(1) of the Banks Act.

The court made several non-binding observations: (1) The appellants' conduct in failing to seek proper legal advice after the Department of Trade and Industry did not grant approval, and their inaction even after the Registrar's investigation in April 2009, was difficult to understand if they were truly concerned about operating lawfully. (2) The court noted the lack of transparency in the appellants' operations, observing they provided no financial statements, information about donors, amounts distributed to charities, commissions paid, or the second appellant's cost structure despite receiving almost R15 million in the first two years and over R60 million in the next three and a half years. (3) The court commented that the appellants' heads of argument were 'incoherent and unintelligible' and did not become more coherent during oral argument, with counsel at one stage appearing to abandon arguments only to return to them in reply. (4) The court observed that if this were a proper constitutional challenge, amici curiae such as the Reserve Bank, Minister of Finance and Minister of Trade and Industry would have had an interest and should have been given opportunity to participate. (5) The court noted that while it might have been inclined to consider interpretation issues, the appellants' arguments were too vague and general, failing to identify specific provisions requiring interpretation or explain how rules of interpretation would yield different meanings.

This case is significant in South African banking regulation law as it affirms the wide regulatory powers of the Registrar of Banks under the Banks Act 94 of 1990, particularly the power under s 1(e) to declare business practices to be 'the business of a bank' through gazette notices. It establishes that multi-level marketing or pyramid-type schemes involving collection of money from the public with benefits derived from recruiting new members fall squarely within such regulatory definitions. The case is also important for procedural law, reinforcing strict requirements that constitutional challenges must be properly pleaded at first instance with adequate factual foundations in motion proceedings (per Rule 16A), and that new defences cannot be raised for the first time on appeal, particularly where they would require evidence and participation by other affected parties. The judgment reaffirms the distinction between decisions to investigate/institute proceedings (not administrative action) and final determinations affecting rights (which may be administrative action or court decisions). It demonstrates the courts' intolerance for attempts to evade financial regulation through claims of charitable purposes without transparent financial documentation.