FSCA’s investigation into Tongaat Hulett accused not unlawful

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The Full Bench of the High Court in Pretoria has found that the FSCA’s investigation into Michael Deighton (pictured), the former managing director of Tongaat Hulett Developments (Pty) Ltd, was not procedurally unfair.

Deighton, along with other former Tongaat Hulett executives, is facing criminal charges relating to an alleged multibillion-rand scheme involving sales of land owned by the agriculture and agri-processing business.

In 2022, the High Court declared that the Authority’s investigation into Deighton was unlawful on procedural grounds.

In May 2019, Tongaat Hulett appointed PwC to probe allegations relating to its financial statements. The auditing firm reported “certain matters of concern” that involved certain senior executives, including Deighton, who, it was reported, has been engaged in “undesirable accounting practices”, including the early recognition of sales revenue from the sale of land.

Tongaat reported itself to the FSCA and provided the Authority with the PwC report, acknowledging that it had contravened sections of the Financial Markets Act.

In August 2020, by agreement between Tongaat and the FSCA, an administrative penalty of R118 million was imposed on Tongaat, although only R20m was payable.

In October that year, the FSCA instituted another investigation to determine whether any former executives were involved in the publication of false, misleading, or deceptive statements about the performance of Tongaat Hulett between 2017 and 2018.

Deighton appeared before the panel in November 2020.

In his application to the High Court, Deighton complained that the FSCA’s investigation, conducted through an interview, “offended his right to a fair and just administrative process”.

He said he was forced to participate in the investigation and respond to questions without being afforded prior access to the documents on which the investigators relied.

The FSCA contended that the investigators’ discretion to refuse prior access to the documents was valid. The investigation was at a sensitive stage, and their disclosure of the documents would prejudice the proper execution of the investigation.

The court a quo found that the panel members had not conducted themselves in an impartial or unbiased way, and its refusal by the panel to give Deighton the documents was “manifestly unjust” and procedurally unfair.

It ordered that the three members of the panel must be removed from the investigation.

Distinction between the investigation stage and the adjudication stage

In its decision handed down on 7 February, the Full Bench said a distinction must be drawn between the investigation stage and the adjudication stage when determining procedural fairness.

At investigation stage, affected persons merely have a right to know the substance of the case about which they are required to provide evidence, hence they are not entitled to full disclosure of documents on which they are to be questioned. At the investigation stage, the documents were on which the investigators relied were sensitive, and their disclosure had the tendency to compromise their investigation.

The appeal court found that Deighton was given fair notice of his interview, was furnished with a detailed list of the issues to be covered, was informed of his rights, and was allowed legal representation. The investigators informed him that he could consult his legal representatives at any stage, prior and during questioning. He was afforded an opportunity during questioning to consider each document put to him.

“Applying the fairness standard at the investigation stage, the refusal to allow Mr Deighton prior access does not fall short of the standards demanded by the Constitution,” said Judge Harshila Kooverjie, with judges Stanley Nyathi and Linda Retief concurring.

The Full Bench also set aside the order of the court a quo to remove the three investigators from the investigation. It said no adverse findings were made against them, and the order was therefore incompetent.

In a statement on Friday, the FSCA said it welcomed the appeal court’s approval of the investigators’ procedures, “especially because this is the FSCA’s standard investigation protocol”.

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