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[2017] ZAWCHC 27
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Devland Cash and Carry (Pty) Limited v Attorneys Fidelity Fund (7307/2016) [2017] ZAWCHC 27; [2017] 2 All SA 825 (WCC) (22 March 2017)
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Certain
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IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
No: 7307/2016
In
the matter between:
DEVLAND
CASH AND CARRY (PTY)
LIMITED
Applicant
and
ATTORNEYS
FIDELITY
FUND
Respondent
Court
:
Justice J Cloete
Heard
:
1 March 2017 (supplementary notes delivered on 7 March 2017 and 8
March 2017)
Delivered
:
22 March 2017
JUDGMENT
CLOETE
J
:
Introduction
[1]
The applicant seeks two orders. The first is to declare that an
irrevocable undertaking issued to it by LBG Attorneys (‘
LBG’
)
on 15 June 2009 ‘
constituted trust funds’
held for
and/or on its behalf as contemplated in s 26(a) of the Attorneys
Act 53 of 1979 (‘
the Act’
). The second is for
payment by the respondent of R814 962.35 together with interest
thereon as a consequence of the failure
by LBG to adhere to that
undertaking.
[2]
The respondent raised various defences in its answering affidavit but
persisted only with three, all of which centre around
entrustment.
First, the applicant has not established that monies were in fact
paid into LBG’s trust account. Second, there
was no other
“entrustment” as envisaged in s 26(a) of the Act.
Third, in any event, payment was not made to the
attorney concerned
in the course of his practice.
Background
facts
[3]
On 15 June 2009, ostensibly on the instructions of his client,
Mr Naven Naidoo of Coifax Investments (Pty) Ltd (a company
registered and trading in Harare, Zimbabwe), attorney Leslie Brian
Ganas of LBG furnished the applicant (represented by Mr Shiraz
Gathoo) with the following irrevocable undertaking:
‘
Sirs
RE:
NAVEN NAIDOO
We
act for Mr Naven Naidoo and have been instructed as follows:
(a)
Our client has
placed an amount of R1 000 000,00 (one million rand) in our
trust account.
(b)
Acting on the
instructions of Naven Naidoo, we hereby provide this irrevocable
undertaking:
For
the Credit : Devland Cash & Carry, for the amount of
R1 000 000,00 (one million rand only).
Conditions
of payment:
(a)
Payment to be effected 45 days after the issue of an invoice.
(b)
Invoice/s shall in total not exceed an amount of R1 000 000,00
(one million rand
We
trust the above to be in order,
Yours
faithfully
LBG
ATTORNEYS
Per
LB Ganas
BANK
ACCOUNT DETAILS: LBG Attorneys Trust Account, ABSA Bank Randburg,
Account no. […], ACB Code. 632005
’
[4]
On 1 July 2009 Ganas provided the applicant with a further
irrevocable undertaking in the following terms:
‘
Dear
Sir
RE
: NAVEN NAIDOO
We
act for Mr Naven Naidoo and have been instructed as follows :-
(a)
our client has
placed an amount of R1,000,000.00 (ONE MILLION RAND) in our Trust
Account;
(b)
acting on the
instructions of Mr Naven Naidoo, we hereby provide this irrevocable
undertaking:
For
the Credit of
:
COIFAX
INVESTMENTS (PROPRIETARY) LIMITED
REGISTRATION
NO. 6558 2004.
NO.
1 ELSWORTH ROAD, BELGRAVIA, HARARE, ZIMBABWE
Conditions
of payment
:
a)
payment to be
effected 45 (FORTY FIVE) days after the issue of an invoice;
b)
Invoice/s shall in
total not exceed an amount of R1,000,000.00 (ONE MILLION RAND).’
[The
same trust account details are reflected thereunder].
[5]
In the founding affidavit Gathoo alleged that, acting on the strength
of these undertakings, the applicant sold and delivered
goods on a
running account facility to Coifax at Naidoo’s special instance
and request during the period 2 July 2009
to 12 November
2009. The applicant was aware at the time that trading with Coifax
posed a substantial credit risk, given its
operation in Zimbabwe
during a period of adverse economic conditions and a prevailing
climate of political instability. Gathoo
alleged that this was the
very reason why the applicant insisted on the irrevocable undertaking
of 15 June 2009 as security to
discharge the debt.
[6]
The applicant’s statements annexed to the founding affidavit
reflect that Coifax itself made regular payments directly
to the
applicant until about 24 August 2010 whereafter they appear to
have ceased. This resulted in the applicant reconciling
the Coifax
account on 4 February 2011, at which date the amount owed to it
was R814 962.35.
[7]
On 28 February 2011 the applicant called upon LBG to effect payment
of the sum owed ‘
as per the conditions of the irrevocable
undertakings
’ but received no response. During the period
28 February 2011 to 1 August 2011 Gathoo also continued
communicating
directly with Naidoo regarding settlement of the amount
owed. He did not divulge details of these discussions, or indeed, if
Naidoo
ever directed him to Ganas for payment in terms of the
irrevocable undertakings. According to Gathoo the applicant first
became
aware of LBG’s ‘
potential theft and or
misappropriation’
on 1 August 2011 when he was
notified by Naidoo that LBG had been ‘
liquidated’.
It was thereafter established that Ganas (and LBG) had been
interdicted or suspended from practicing on 7 June 2011 due to
‘
an ongoing investigation against the conduct of affairs of
[Ganas]
for impropriety’
by the Law Society.
[8]
The applicant thereafter submitted a claim to the respondent in
accordance with s 26 of the Act. Having set out the history,
Gathoo alleged that:
‘
15.15
The firm LBG Attorneys is therefore no longer trading and this
provides cogent reasons as to the difficulty by the Claimant’s
Attorneys of record in contacting the firm or its principal member.
15.16
The Claimant now therefore has no reasonable prospect of calling upon
the security of trust funds as per the letters
of irrevocable
undertaking.
15.17
It is axiomatic from the undertaking, marked as “Annexure DCC1”
[i.e. the undertaking of 15 June
2009]
, that the trust
funds placed with LBG Attorneys
was
placed as unconditional security and the trust funds thereto indeed
belong to the Claimant
.
It is on this cause of action that the Attorneys Fidelity Fund claim
is made in terms of the provisions of section 26 of the Act.’
[my
emphasis]
[9]
Although in its founding affidavit and the heads of argument the
applicant relied on both undertakings, the relief sought in
its
notice of motion was based squarely on the undertaking of 15 June
2009 and it was confirmed by Mr Patel, who appeared
on behalf of
the applicant, that reliance was placed only on that undertaking,
although he stated that the later one of 1 July
2009 must also
be considered when having regard to the context in which the first
was furnished. Given that no details were provided
by Gathoo as to
how the second undertaking came about (other than to baldly allege
that its purpose was ‘
that funds were also held in trust for
the credit of Coifax…’
), I am constrained to have
regard to its wording only.
[10]
From the outset the respondent took the position that the applicant
was required to provide proof ‘
to show how, when and where
the R1 million was entrusted to Mr Ganas for the issue of the
irrevocable undertakings’
before proceeding to consider the
claim. In a letter dated 25 October 2012 it informed the
applicant’s attorney, Mr Patel,
that:
‘
Please
note that it is not clear from the annexures mentioned in your
aforementioned fax whether there were any underlying funds
to back up
the undertakings issued by the alleged defaulter. The alleged
defaulter had a pattern of dishonest and fraudulent behaviour
and one
cannot exclude the possibility of him putting up a fraudulent
irrevocable guarantee, where there is no underlying funds
to back up
such undertakings.’
[11]
The applicant disputed that it was required to provide such proof on
two grounds. The first was that it was the ‘
primary onus and
responsibility’
of the respondent to ‘
investigate
the modus operandi of LBG Attorneys, its assigned
representatives/employees and/or intermediaries involved herein’.
The second was that ‘
the issued irrevocable undertakings in
favour of the Claimant provide prima facie and/or sufficient proof to
the Claimant that it
was backed by underlying trust funds, when the
Claimant supplied goods on the strength of the irrevocable
undertakings’.
[12]
In a letter addressed by Mr Patel to the respondent on 7 July 2014
the applicant maintained that it accepted in good faith
that there
were underlying trust funds at the time when the irrevocable
undertakings were issued. Mr Patel stated that: ‘
To expect
our client as a member of the public to investigate the existence of
underlying trust funds lacks any legal basis and
sends a message to
the public of the Fund’s lack of trust and credibility in the
attorneys profession’.
The respondent was also advised
that: ‘
There is no present contact by our client with Mr
Ganas nor with Coifax Investments (Pty) Ltd and/or intermediaries
that were involved…’
.
[13]
In its reply dated 22 September 2014 the respondent’s Mr Losper
wrote:
‘
As
previously advised, the onus is on your client to prove that the
money claimed herein was entrusted by or on behalf of your client
in
order to succeed with its claim. Without such proof the fund will not
be in a position to consider this claim favourably. The
irrevocable
undertakings do not, in our view, constitute sufficient proof of
entrustment of the money that your client claims herein.
I find it
hard to believe that your client is not in a position to make contact
with Coifax Investments (Pty) Ltd and/or any intermediaries
in order
to establish whether there were underlying trust funds at the time
when the irrevocable undertakings were issued by LB
Ganas Attorneys.
Lastly,
if your client is not in a position to provide us with such proof, I
will refer the matter to the Fund’s Board of
Control for final
consideration.’
[14]
The requested proof was not provided. On 6 March 2015 the applicant
was notified that the respondent’s Board of Control
had
resolved that the irrevocable undertakings did not constitute
sufficient proof of entrustment. The applicant was again asked
to
contact Coifax Investments (Pty) Ltd for ‘
confirmation to
show how, when and where the R1 million was entrusted to Mr Ganas for
the issue of the irrevocable undertakings’.
Still it was
not provided. By letter dated 20 May 2015 the respondent formally
rejected the claim:
‘
The
Fund’s Board of Control resolved to reject this claim as there
is no evidence on record that the funds were entrusted
to the alleged
defaulting attorney, as required in terms of section 26(a)…
The
reason(s) for the rejection of the claim as set out above are not
necessarily exhaustive…’
[15]
The applicant persists in its view that it is not obliged to
establish payment by Coifax to LBG because, so it contends, an
attorney’s irrevocable undertaking is no different to a
guarantee issued by a financial institution. The rationale advanced
is that both of ‘
these industries represent by
[their]
very nature a degree of trust and fiduciary duty towards members
of the public’.
[16]
Without conceding that it was obliged to do so, the respondent
obtained from the Law Society the trust account bank statements
of
LBG for the year 2009. It is apparent therefrom that an amount of R1
million was paid into that account on 28 May 2009
but the
depositor is not identified. The applicant contended that this
payment constitutes sufficient proof that it was in fact
made by
Naidoo because of its proximity to the date when LBG issued the
irrevocable undertaking of 15 June 2009. However, even
though this
payment is reflected, it takes the matter no further from an
evidential point of view, given the absence of independent
confirmation that the depositor was Naidoo on Coifax’s behalf.
Discussion
[17]
Section 26(a) of the Act provides that:
‘
26.
Purpose of fund.
—Subject
to the provisions of this Act, the fund shall be applied for the
purpose of reimbursing persons who may suffer pecuniary
loss as a
result of—
(a)
theft
committed by a practising practitioner, his or her candidate attorney
or his or her employee, of any money or other property
entrusted by
or on behalf of such person to him or her or to his or her candidate
attorney or employee in the course of his or
her practice or while
acting as executor or administrator in the estate of a deceased
person or as a trustee in an insolvent estate
or in any other similar
capacity;…’
[18]
For purposes of s 26(a) ‘
entrusted’
comprises
two elements: (a) to place someone else in the possession of
something; (b) subject to a trust, which means
that the person
entrusted is bound to deal with it for the benefit of another:
Provident Fund for the Clothing Industry v Attorneys, Notaries and
Conveyancers Fidelity Guarantee Fund
1981 (3) SA 539
(W) at
543E-F.
[19]
The respondent’s liability is not limited to those cases where
the money or property concerned was impressed with a trust
in the
‘
technical legal sense of the word’
. S 26(a) makes
provision for reimbursement (provided of course that the other
requirements are met) to either (a) the person
by whom
the
money has been entrusted; or (b) the person
on whose behalf
it has been entrusted:
Industrial and Commercial Factors (Pty) Ltd
v Attorneys Fidelity Fund Board of Control
[1996] ZASCA 84
;
1997 (1) SA 136
AD at
144B-E and 145E-F.
[20]
The first issue that arises is whether the applicant bears the onus
to establish what I will call “physical entrustment”,
i.e. that LBG was in fact placed in possession of the money,
notwithstanding the furnishing of the irrevocable undertaking of
15 June 2009. This in turn involves a consideration of whether
the undertaking established a contractual obligation on the
part of
LBG to pay the applicant, independent of the underlying arrangement
between the applicant and Coifax.
[21]
As previously stated the applicant’s assertion that it bears no
such onus proceeds from the premise that an attorney’s
irrevocable undertaking (in whatever form) must be placed on the same
footing as a guarantee issued by a financial institution,
although
neither party was able to provide me with any direct authority to
this effect. The applicant also contends that this must
be so because
both the attorney’s profession and the financial services
industry ‘
have a fiduciary duty towards members of the
public’
. The applicant accordingly argues that the fact of
the irrevocable undertaking is, of its own, sufficient to prove
physical entrustment.
I will accept for present purposes that Gathoo
in good faith believed that the irrevocable undertaking necessarily
implied that
it was furnished pursuant to a physical entrustment by
Naidoo.
[22]
Section 26(a) of the Act speaks only of ‘
entrustment’
which is not defined. It is settled law that an essential element of
entrustment, for purposes of s 26(a), is physical entrustment,
i.e. placing someone else in the possession of something.
[23]
In support of his argument Mr Patel referred
inter alia
to the
Guidelines of the Law Society of KwaZulu Natal for the Conduct of
Property Law Matters where, in clause 2.4, the following
is stated:
‘
2.4
Care should be taken in drafting undertakings. Attorneys issuing
undertakings should be aware of the application of the “reliance
theory” pursuant to which the substance of an undertaking may
take precedence over its form. Reference in this regard should
be
made to
Ridon vs Van
der Spuy & Partners (Wes Kaap Inc)
2002
(2) SA 121
(C) in which it was held that an undertaking by the
defendant firm of attorneys to pay on behalf of its client was
properly construed
as a personal undertaking of the firm and not that
of the client.’
[24]
In
Ridon
the attorney concerned issued the plaintiff with the
following written undertaking:
‘
Dear
sir
Ashanti
Estates/J V Ridon
Our
transfer Factaprops 131 (Pty) Ltd/Signal Hill Farm
On
behalf of Mr M Schoeni we hereby undertake to pay to yourself the
amount of R358 000 upon registration of the above property
in
the name of the purchaser.
We
confirm that we expect transfer to be registered by more or less the
end of May 2000.
Yours
faithfully
Van
der Spuy & Partners
Per:
S
van den Berg’
[25]
The plaintiff had based his claim squarely on contract. He alleged
that the defendant gave him a written undertaking that the
sum of
R358 000 would be paid by
the defendant
to the plaintiff
upon registration of transfer of the immovable property concerned;
and that, to the defendant’s knowledge,
this written
undertaking was accepted by the plaintiff, thereby giving rise to a
binding contract between the parties. The plaintiff
also alleged
that, in breach of this contract, the defendant failed to pay the
full amount but only R177 596, leaving a balance
due of
R180 403. This was because the defendant’s client
instructed it not to pay the full amount to him as certain
other
amounts, yet to be quantified, had to be set off against it. These
instructions had been received by the defendant approximately
one
month prior to registration of transfer and, despite the plaintiff’s
several telephonic enquiries thereafter about progress
of the
transfer, the defendant had never informed him of such instructions.
The defendant however maintained that the undertaking
was given by it
in its capacity as the agent and attorney of its client. This being
so, the admitted acceptance thereof by the
plaintiff did not give
rise to a contract between the plaintiff and the defendant and
accordingly there could be no breach giving
rise to liability on the
part of the defendant.
[26]
Accepting the attorney’s evidence that, by drafting and signing
the letter of undertaking, he did not intend to bind
the defendant
but to act as agent for his client, the court at 135C-I stated:
‘
In
a case such as this one, where there is no subjective
consensus
(meeting of the minds)
between the plaintiff and the defendant, resort must be had to the
so-called “reliance theory”
in order to determine whether
a binding contract has come into being between the parties (see
further below). However, in order
to apply the reliance theory, it is
necessary to determine what the defendant’s “expressed
intention” (“declared
intention”) was by reference
to and interpretation of “the words which he used or to which
he appears to have assented”
(see
Irvin
& Johnson (SA) Ltd v Kaplan
1940
CPD 647
at 651).’
[27]
In
Natal Joint Municipal Pension Fund v Endumeni Municipality
2012
(4) SA 593
(SCA) it was held at para [18]:
‘
The
present state of the law can be expressed as follows: Interpretation
is the process of attributing meaning to the words used
in a
document, be it legislation, some other statutory instrument, or
contract, having regard to the context provided by reading
the
particular provision or provisions in the light of the document as a
whole and the circumstances attendant upon its coming
into existence.
Whatever the nature of the document, consideration must be given to
the language used in the light of the ordinary
rules of grammar and
syntax; the context in which the provision appears; the apparent
purpose to which it is directed and material
known to those
responsible for its production. Where more than one meaning is
possible each possibility must be weighed in the
light of all these
factors. The process is objective, not subjective. A sensible meaning
is to be preferred to one that leads to
insensible or unbusinesslike
results or undermines the apparent purpose of the document. Judges
must be alert to, and guard against,
the temptation to substitute
what they regard as reasonable, sensible or businesslike for the
words actually used. To do so in
regard to a statute or statutory
instrument is to cross the divide between interpretation and
legislation; in a contractual context
it is to make a contract for
the parties other than the one they in fact made. The “inevitable
point of departure is the
language of the provision itself”,
read in context and having regard to the purpose of the provision and
the background to
the preparation and production of the document.’
[28]
During his evidence the attorney had conceded that, had the
undertaking not been qualified by the phrase ‘
on behalf of
Mr M Schoeni’
, the defendant would have been personally
liable for payment to the plaintiff of the sum specified therein.
Rejecting the argument
advanced by the defendant that the
aforementioned phrase, properly interpreted, necessarily indicated
that the author was merely
acting as authorised agent for his client,
the court found at 136C-138B:
‘
In
my view, Mr
Smit’s
approach ignores the
reality that, like most words and phrases, the phrase “on
behalf of” does not have a single “ordinary”
or
“literal” meaning and that,
where
such phrase appears in a document, the meaning thereof will
necessarily depend upon the context in which it is used, its
interrelation to the language of the document as a whole and the
nature and purpose of the transaction
as it appears from such document (see, in this regard,
Sassoon
Confirming and Acceptance Co (Pty) Ltd v Barclays National Bank Ltd
1974 (1) SA 641
(A) at
646B-C). As was pointed out by Diemont JA in
List
v Jungers
1979 (3) SA
106
(A) at 118D-E:
“
It is,
in my view, an unrewarding and misleading exercise to seize on one
word [phrase] in a document, determine its more usual
or ordinary
meaning, and then, having done so, to seek to interpret the document
in the light of the meaning so ascribed to that
word [phrase]. Apart
from the fact that to decide on the more usual or ordinary meaning of
the word [phrase] may be a delicate
task…it is clear that the
context in which the word [phrase] is used is of prime importance”…
It
is clear from the South African case law that the phrase “on
behalf of” does not
necessarily
suggest agency. So,
for example, in
Hills
v Stanley
1930 NPD 268
it was held that, notwithstanding the use by an attorney of the
phrase “on my client’s behalf” in a letter
addressed
to a third party, this letter created a
vinculum
juris
between the
attorney and the addressee thereof. In that case the appellant, an
attorney, wrote a letter to the respondent in which
he first referred
to a contract made between his client and the respondent (the
addressee of the letter). Having recorded the terms
of that contract,
the letter further provided that:
“
Payment will be
made by me on my client’s behalf out of the monies to be
received by me on his behalf from the South Coast
Junction Area Local
Administration and Health Board without binding myself to a definite
date.
The
Court interpreted this passage as containing an undertaking by the
appellant to pay to the respondent such moneys as might come
into the
appellant’s hands from a particular source in discharge of his
client’s debt to the respondent:
“
While the
letter undoubtedly does purport to be, and is in fact, a record of
the contract between the appellant’s principal
and the
respondent, the passage which I have read imposed upon the appellant,
in his personal capacity,
a
duty to apply the funds coming into his hands on behalf of his
principal, in payment of the debt of the principal to the respondent.
The respondent accepted that undertaking by his signature, and it
then became the duty of the appellant to apply the moneys to
the
payment of [his principal’s] debt to the respondent and to no
other purpose”…
At
the time this undertaking was given, the author thereof (Van den
Berg) was the conveyancer attending to the transfer of Signal
Hill
Farm from Factaprops to the purchaser…
Prior
to the giving of the undertaking, the plaintiff had been involved in
settlement negotiations with the Ashanti group of companies,
represented by Schoeni. The outcome of these settlement negotiations
was reflected in the e-mail communication dated 26 April 2000
addressed by Schoeni to the defendant. In terms hereof, the plaintiff
was obliged to comply with certain conditions and, in return
for such
compliance, he was to receive the sum of R358 000 from the
proceeds of the sale of Signal Hill Farm. To Van den Berg’s
knowledge the plaintiff had complied with all these conditions. More
particularly, the plaintiff had signed a document, drafted
by Van den
Berg on the instructions of Schoeni and/or Grabowski, in which the
plaintiff waived certain rights. This document, which
was signed by
the plaintiff in Van Den Berg’s presence (as required by
Schoeni and/or Grabowski), made specific reference
to the plaintiff’s
“claims” against Factaprops in relation to Signal Hill
Farm. To Van den Berg’s knowledge
the plaintiff required the
undertaking in “exchange for” the waiver of his rights
and as written confirmation of the
fact that he (the plaintiff) would
be receiving
from
the defendant
the
sum of R358 000 on registration of transfer of the farm---this
was the very purpose of the undertaking…
Against
this factual background the balance of probabilities favours the
conclusion that the use of the words “on behalf of
Mr M
Schoeni” must
not
be interpreted
to mean that the written undertaking was given by the defendant
only
in its capacity
as the agent and attorney of its client. On the contrary, while the
undertaking was clearly given by Van den Berg
on
the instructions of
his
client, a contextual interpretation of the undertaking
(along the lines set out in
Coopers & Lybrand
and Others v Bryant
(
supra
))
indicates, in
my view, that, irrespective of Van den Berg’s
actual
intention, his
“expressed intention” was that the defendant was assuming
personal liability to pay the sum of R358 000
to the plaintiff,
upon registration of transfer of Signal Hill Farm, out of the
proceeds of such transfer coming into its hands
on behalf of
Factaprops, and that this personal liability could not be terminated
by a purported withdrawal by its client of the
underlying mandate to
pay
.’
[my
emphasis]
[29]
Mr Patel also referred to
Kruger v Property Lawyer
(420/2010)
[2011] ZASCA 80
(27 May 2011). In that matter the attorney furnished
a written letter of undertaking to the respondent who provided
bridging finance
to sellers of immovable property. The bridging loan
was to be made pending transfer of certain properties in which the
attorney
was engaged on behalf of the sellers (albeit not as
conveyancer). The relevant part of the undertaking read that:
‘
Ons
onderneem hiermee onherroeplik
om die bedrag van R500 000,00 (Vyfhonderd Duisend Rand) tesame
met 20% (twintig persent) en 10% (“raising fee”)
in die
volgende rekening in te betaal op datum van registrasie van die
bogemelde eiendomme in die Aktekantoor te Pretoria:
Proplaw
Bridging
Absa,
Brooklyn
Branch:
632 005
Account
Number: […]
tensy
ons van regsweë verhoed word of aangestel word as agente namens
die Suid Afrikaanse Inkomste Diens ooreenkomstig Art
99 van die Wet
op Inkomstebelasting No.58/1962 soos gewysig.’
[my
emphasis]
[30]
Two issues arose on appeal, the first being the proper construction
of the undertaking, and in particular whether it constituted
an
undertaking independent of the underlying transaction. The second is
not relevant for present purposes.
[31]
The court, pointing out that the undertaking was issued pursuant to
the bridging loan (and should therefore be construed in
that context,
i.e. the factual matrix in which the parties operated, so as to give
it a commercially sensible meaning), found that
it was clear from the
wording of the undertaking that the appellant: (a) undertook to pay
against registration of transfer of the
properties; (b) on the
instructions of the client; and (c) that the word ‘
onherroeplik’
implied that the appellant’s mandate could not be revoked by
the client. At paras [8] – [10] it found that:
‘
[8]
…The fact that the appellant acted as the agent of the
borrowers
[i.e. the
sellers]
in giving the
undertaking does not mean, of course, that it could not have incurred
a personal liability in terms of the letter
of undertaking
[Cf
Ridon v Van der Spuy
and Partners (Wes-Kaap) Inc
2002
(2) SA 121
(C) at 137I-138B].
The
word used is “onderneem” leaving no doubt that a personal
obligation was envisaged.
The
real question, however, is not whether the appellant undertook to pay
but what the content of this undertaking was.
[9]
The purpose of the undertaking was that the appellant, as the
attorney involved in the transfer of the properties, would make
payment
to the respondent of the money lent and other charges from
the proceeds received from the sale of the seven properties by the
company
and Mr Bell
. This is clear from the terms of the
bridging request…
[10]
The undertaking
is not to pay “regardless” but to effect payment from the
receipt of the proceeds of the sales. Nor
was it envisaged that the
proceeds would vest in the appellant: by virtue of the “cession”
the proceeds in the
agreed amount had to be paid to the respondent. It would have been
absurd for the appellant to have given an
unconditional, independent
undertaking in these circumstances. The letter of undertaking itself
contains a reference to the bridging
finance provided to Mr Bell and
the Trust, recites the properties to be transferred and links payment
of the undertaking to registration
of transfer. Seen in this context,
the undertaking amounts to no more than an undertaking to make
payment from the proceeds of
the sales
.
It is common cause that the sales of the company’s properties
left a deficit. The proceeds of the sale of the seventh property
by
Mr Bell left a net balance which was paid to the respondent. It
follows that the respondent is not entitled to any further payment
from the appellant.’
[32]
Mr Patel submitted that the court in
Kruger
used the words
“undertaking” and “bank guarantee”
interchangeably in paragraphs 8 and 9 of that judgment,
and also
submitted that, in the particular circumstances of the present
matter, LBG’s representation to the applicant in
its
undertaking of 15 June 2009 ‘
of the record of the placement
and entrustment of funds in the section 78(1) account…is as
good, if not better, than a bank
guarantee’.
[33]
I can find no reference in paragraphs 8 and 9 of the
Kruger
judgment to the word “bank guarantee”, nor any indication
that the court considered the undertaking to be on the same
footing
as a bank guarantee. Moreover, unlike the case in
Ridon
, the
applicant’s claim is not based on a contract between itself and
LBG. Indeed, there is no evidence that Gathoo ever conveyed
his
acceptance of the undertaking to LBG. It is instead founded on the
contention that, because security was provided by LBG pursuant
to a
purported payment by Naidoo of R1 million into its trust
account, the money therefore automatically became the applicant’s
money to call on when required (i.e. ‘
It is axiomatic from
the undertaking that the trust funds placed with LBG Attorneys was
placed as unconditional security and the
trust funds thereto indeed
belong to the Claimant. It is on this cause of action that the claim
is made…in terms of section
26 of the Act’.
)
[34]
Having regard to the content of the undertaking, it cannot be said
that LBG undertook to pay “regardless” but rather
to
effect payment from the monies purportedly already placed by Naidoo
in its trust account upon the conditions set forth therein.
The
physical entrustment was the express basis on which the undertaking
was issued when regard is had to the plain wording thereof.
The
“expressed intention” was premised on the purported
payment. Furthermore, the later undertaking of 1 July 2009
is in
substantially similar terms, with the only material difference being
that the monies purportedly paid by Naidoo were being
held by LGB for
the credit of Coifax instead of the applicant. Seen in this context,
the undertaking of 15 June 2009 amounts to
no more than an
undertaking to make payment from those monies upon the happening of
certain events. Accordingly, and adopting the
court’s words in
Kruger
, it would have been absurd for LBG to have personally
given an unconditional, independent undertaking in the circumstances.
(Cf
Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd and
Others
2010 (2) SA 86
(SCA) especially at paras 19-20).
[35]
I am furthermore not aware of any authority to the effect that an
attorney has a fiduciary duty towards members of the public
at large.
In LAWSA 2ed Vol 14(2) at para 306 the following is stated:
‘
Duties
The
standard of ethical conduct required of an attorney in his or her
dealings
with the courts and clients
, and the vital role he or
she plays in the administration of justice have often been stated.
The attorney has an overriding duty
to the court
, even when
adherence to such duty may create an unfavourable result
for the
client
: and that duty is to disclose
to the court
all
factors and matters relevant to the matter in issue in order that a
fair and just result may be obtained. Failure to observe
and have
regard to this duty and responsibility
to the court
in any
proceedings…may well amount to a serious breach of
professional conduct.
Of
the
attorney
and client
relationship Van Zyl
[Judicial
Practice 33]
says: “He
must manifest in all business matters an inflexible regard for truth:
there must be a vigorous accuracy in minutiae,
a high sense of honour
and incorruptible integrity; he must serve
his
client
faithfully and diligently…
Liability
towards third parties
An
attorney is not responsible for any wrongful act committed by him or
her
qua
attorney
within the scope of his or her authority…There is, however, a
duty of care owed by an attorney conducting litigation
on behalf of
a
client, to the court, and a duty of care towards the opponent. An
attorney drawing a contract between the client and an unrepresented
party has a duty to be fair to both parties
.’
[my
emphasis]
[36]
I am also not aware of any authority to the effect that, in matters
such as these, the respondent bears the onus to disprove
physical
entrustment, which the applicant appears to suggest. The general
approach of our courts is that it is the claimant who
bears the onus
to show that the requirements of s 26(a) have been met.
[37]
Having regard to the aforegoing, I conclude that it was indeed
incumbent upon the applicant to show, on a balance of probabilities,
that monies were in fact paid by Naidoo to LGB prior to the
furnishing of the undertaking of 15 June 2009. This is also not
a matter where Gathoo was brought under the impression by the
respondent that this would never be an issue in this litigation.
As
far back as 25 October 2012 it was made clear to the applicant
that the respondent required some sort of proof that there
were
underlying funds to support the undertakings issued by LGB. There is
simply no evidence that Gathoo ever made the appropriate
enquiries
with Naidoo or anyone else. The applicant throughout adopted the
stance that it had no obligation to do so and therefore
would not do
so. There is no cogent evidence that such physical entrustment ever
in fact took place. On this ground the applicant’s
claims must
therefore fail.
[38]
However, if I am wrong, it is nonetheless necessary to consider the
other defences raised. For this purpose I will assume that
physical
entrustment occurred.
[39]
The remaining questions are whether: (a) the money was
“entrusted” to Ganas by the applicant; and (b) if
it
was, whether the money was entrusted to Ganas “in the course of
his practice as an attorney”.
[40]
Mr Patel relied on the following passage in
British Kaffrarian
Savings Bank Society v Attorneys, Notaries and Conveyancers Fidelity
Guarantee Fund Board of Control
1978 (3) SA (ECD) at 249D-F:
‘
It
seems to me, when an attorney steals money entrusted to him in the
course of his practice, the person who “may suffer pecuniary
loss” by reason of the theft is the person on whose behalf the
money is held “in trust”. The section refers to
money
entrusted “by or on behalf of such persons” to the
attorney, ie by or on behalf of the person who suffers the
loss.
A
person towards whom the attorney has a fiduciary relationship pays
money to an attorney or someone else pays money to an attorney
on
behalf of such a one. Money has then been entrusted to an attorney by
or on behalf of his client, ie the person with whom he
has a
fiduciary relationship. This is the situation protected by the Act.
There must be a relationship of this fiduciary nature
between the
attorney and the person who has suffered loss before the latter can
claim to be compensated in terms of section 26
.’
[my
emphasis]
[41]
When asked to explain why he placed reliance on this passage, given
the basis upon which the applicant had formulated its claim,
Mr Patel
submitted that the issuing of the irrevocable undertaking per se gave
rise to a fiduciary duty on the part of Ganas
vis-à-vis
the applicant and, because that duty was breached, the respondent is
liable to reimburse the applicant for the pecuniary loss suffered.
However this is not the case made out in the applicant’s
founding affidavit. Moreover I have certain fundamental difficulties
with this submission.
[42]
In
Attorneys Fidelity Fund Board of Control v Mettle Property
Finance (Pty) Ltd
2012 (3) SA 611
(SCA) the latter paid money
into an attorney’s trust account pursuant to various
bridging-finance transactions. The attorney
in turn undertook to pay
Mettle from the proceeds of a bond and two property transfers upon
registration thereof. He failed to
pay and Mettle sued the Fund
alleging entrustment as envisaged in s 26(a) of the Act. The
Supreme Court of Appeal found that,
although the attorney had
irrevocably undertaken to pay, both in terms of the bridging-finance
agreements and various warranties
and undertakings, there had in fact
been no entrustment. After referring to the meaning of the word
‘
entrust’
for purposes of a claim in terms of
s 26(a) it held that:
‘
[12]
The first element is not contentious – the moneys,
representing the initial purchase price in each case, were indeed
placed in Langerak’s possession. The second element is more
problematic. There is no doubt that Mettle trusted the various
warranties and the undertakings given by Langerak, and relied upon
Langerak for repayment of, inter alia, the initial purchase
price on
the date of registration. That does not, however, mean that Mettle
“entrusted” the money to Langerak as required
by s 26(
a
)
of the Act…
[15]
…Mettle – in paying the initial purchase price in each
transaction to Langerak as the representative of the mortgagor
or
seller from whom Mettle had purchased a loan claim or a seller’s
claim – was simply discharging its debt to such
mortgagor or
seller. The payment was unconditional and, the moment the initial
purchase price was paid into Langerak’s trust
account in terms
of the master agreement, Mettle’s debt was discharged. Langerak
was no more than a conduit for the money…
[16]
This being so, there was no “entrustment” of money by
Mettle to Langerak. In the words of FH Grosskopf JA in the
Industrial
and Commercial Factors
case:
“
Where
money is paid into the trust account of an attorney it does not
follow that such money is in fact trust money … If
money is
simply handed over to an attorney by a debtor who thereby wishes to
discharge a debt, and the attorney has a mandate to
receive it on
behalf of the creditor, it may be difficult to establish an
entrustment.”
’
[43]
In the present matter the undertaking of 15 June 2009 reflects that
the money was held in trust by LBG for the credit of the
applicant
or, put differently, on its behalf. However the later undertaking of
1 July 2009 made it clear that the same money (it
is not suggested
that R2 million was ever paid by Naidoo into LBG’s trust
account) was henceforth to be held, not for the
credit of the
applicant, but for the credit of the applicant’s debtor Coifax,
which was not a client of Ganas (according
to both undertakings the
client was Naidoo). Therefore, from that date onwards, it should have
been clear to the applicant that
the money had not been entrusted on
its behalf but on behalf of someone else, notwithstanding that the
purpose of the undertaking,
as far as Gathoo was concerned, was to
provide security for the payment obligations of Coifax. As pointed
out in
Industrial and Commercial Factors
(
supra
),
s 26(a) makes provision for reimbursement to either the person
by whom
the money has been entrusted, or the person
on
whose behalf
it has been entrusted. The applicant does not fall
into either category.
[44]
Moreover, the applicant does not rely on theft of the money by Ganas
and/or LBG, which is one of the fundamental requirements
of s 26(a).
Instead it relies on the breach of an irrevocable undertaking
furnished by LBG as the basis for claiming pecuniary
loss from the
respondent in terms of s 26(a) of the Act.
[45]
In
Attorneys Fidelity Fund v Injo Investments CC
2016 (3) SA
62
(WCC) it was found that :
‘
[32]
In the appeal before us it is clear that at all material times PV
purported to represent the client in accepting payment
of the money
into its trust account. This is borne out by the terms of the
discounting agreement, the warrantee, and indeed Swanepoel’s
own evidence. PV’s obligation was not to retain the money in
trust and to deal with it on the client’s behalf, but
simply to
pay it straight over to the “client”. In other words,
PV’s trust account was nothing other than a conduit,
as was
found in
Mettle
(
supra
)
– notwithstanding the respondent’s claim that it sought
to obtain security by payment into that account.’
[46]
To my mind, and as submitted by Mr Bisschoff who appeared for the
respondent, similar considerations apply in the present matter.
The
only role that Ganas played in the transaction between the applicant
and Coifax was to irrevocably undertake to pay over money
to the
applicant 45 days after presentation of invoices which had
purportedly been entrusted to it for the credit of Coifax by
Naidoo.
Moreover, the facts show that the applicant itself did not regard the
undertaking furnished as the first port of call for
payment, but
rather that it would only call upon Ganas to pay in the event of
Coifax’s default. There is no evidence that
Ganas (or LBG)
accepted the money and issued the irrevocable undertaking in the
context of any transaction in which Ganas was involved
in the course
of his practice as an attorney.
[47]
Furthermore,in
Mettle
at para [17] the court concluded as
follows:
‘
[17]
It must be remembered that:
“
The
indemnity against loss for which the Act provides is not unlimited in
its scope. It does not provide indemnification against
any kind of
loss suffered as a consequence of any conceivable kind of knavery in
which an attorney might indulge in the course
of his or her
practice.”
It
is not an insurance policy against all ills that may befall money
paid to an attorney. In this case, Mettle may well have claims
in
contract or delict against Langerak based on the warranties and
undertakings given – and, in some instances, breached
–
by Langerak. But Mettle does not have a claim against the Fidelity
Fund in terms of section 26(a) of the Act.’
[48]
The abovementioned considerations lead me to conclude that LBG merely
served as a conduit for the money. The applicant may
well have claims
in contract or delict against Ganas and/or LBG based on the breach of
the irrevocable undertaking, but it does
not have a claim against the
respondent in terms of s 26(a) of the Act. (Cf
Industrial and
Commercial Factors (Pty) Ltd
(
supra)
which is
distinguishable on its facts, as was set out in
Injo Investments
(
supra)
at paras 25 – 31).
Conclusion
[49]
There is no reason why costs should not follow the result.
[50]
The following order is made:
‘
The application is
dismissed with costs, including any reserved costs orders.’
_______________________
J
I CLOETE
For
applicant
: Mr Z
Patel
– 011-7822644, 0833095238
Instructed
by: Ziyaad Patel Attorneys – Johannesburg
For
respondent
: Adv Christo
Bisschoff
– 4260949
Instructed
by: Nongogo Nuku Attorneys – J Smal – 4195421