18 April 2018 by Dispute Resolution Alert

Payment of legal costs: State officials to feel the pinch

There has been, over the last two years, a number of high profile cases before the Courts involving various Government departments and state-owned entities. The bulk of these cases involved State officials who were often found wanting in exercising, among other things, public power of performing a public function in terms of their Constitutional obligations.

This alert is a follow up to our previous article titled “Courts to order errant state officials to pay legal costs out of their own pockets” published on 27 July 2016 and aims to analyse judicial trends with regard to cost orders against State officials who behave in a high-handed manner in exercising their functions.

In a recent judgment in the case of Absa Bank Limited & Others v Public Protector and Others handed down on 16 February 2018 by the High Court, the Public Protector was ordered, in her personal capacity, to pay 15% of costs of the South African Reserve Bank on a punitive scale, including the costs of counsel, which were estimated to be in the amount of R1million.

In this case, the Public Protector made certain factual findings and came to certain conclusions including, inter alia, that:

  1. the South African Government and the South African Reserve Bank (Reserve Bank) had improperly failed to recover R3.2billion from BankCorp Limited/Absa; and
  2. the South African public was prejudiced by the conduct of the South African Government and the Reserve Bank.

The remedial action

The Public Protector’s findings led her to prescribe certain remedial action in her final report, which included the referral of the matter to the Special Investigating Unit to investigate alleged misappropriated public funds given to various institutions with a view to recover the funds given to Absa Bank (Absa) in the amount of R1.125billion. Included in her remedial action was that the Special Investigating Unit, the Reserve Bank and the Chairperson of the Portfolio Committee of Justice and Correctional Services must submit an action plan within 60 days of publication of her report on the initiatives taken in regard to the remedial action. This caused the Reserve Bank, the Minister of Finance and Absa respectively, to institute review proceedings challenging the Public Protector’s report.

Grounds for the review

In considering the grounds for the review application, the court established that the Public Protector did not disclose in her report that she had meetings with the Presidency and other State officials pertaining to the Reserve Bank on numerous occasions before the publication of her final report. It was only in her answering affidavit that she admitted to such meetings taking place but gave no explanation for the non-disclosure when she had the opportunity to do so. There was no record of these minutes, although it was customary to record all meetings, as she could not supply transcripts of the meetings nor any minutes.

The Public Protector did not engage either Absa or the Reserve Bank after her meetings with the Presidency and State Security and before issuing her final report, and did not give them the opportunity to comment on her final report nor did she inform any of the parties of these meetings, requested their comments, if any, before releasing the final report.

The court’s findings

The court stated that a reasonable, objective and informed person, taking into account the facts of the matter, would reasonably have an apprehension that the Public Protector would not have brought an impartial mind to bear on the issues before her and concluded that it had been proven that the Public Protector was reasonably suspected of bias.

In its judgment, the court found that the Public Protector did not conduct herself in a manner which should be expected from a person occupying the office of the Public Protector.

Legal costs

As to what order of costs would be appropriate, the court found that this issue fell within its discretion and had to be exercised in a judicial manner. In this matter, the court had found that the Public Protector did not fully understand her constitutional duty to be impartial and to perform her functions without fear, favour or prejudice.

Section 35(3) of the Public Protector Act, No 22 of 2003 provides for an indemnification of legal costs with regard to conduct performed in good faith. However, the court found that the Public Protector had demonstrated that she exceeded the bounds of this indemnification. In making its findings as to costs, the court showed its displeasure with the unacceptable way in which she conducted her investigation as well as her persistence to oppose all review applications to the end.

Having regard to the above, the court concluded that this was a case that warranted a simple punitive costs order against the Public Protector in her official capacity would not be appropriate. The court found that this was a case where it should go further and order the Public Protector to pay at least a certain percentage of the costs incurred on a punitive scale.

The Public Protector has applied for leave to appeal against the section of the judgment that ordered her to pay part of the Reserve Bank’s costs in her personal capacity.

The full impact of this judgment and the outcome of the appeal on Government officials exercising their functions recklessly will soon become apparent.

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