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[2020] ZAWCHC 73
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Barrie-Smith v Marsicano Merchants CC t/a South Atlantic Cables (A292/2019) [2020] ZAWCHC 73 (5 August 2020)
SAFLII Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
and
SAFLII
Policy
Republic of South
Africa
IN
THE HIGH COURT OF SOUTH AFRICA
WESTERN
CAPE DIVISION, CAPE TOWN
Case
number: A292/2019
Before:
The Hon. Mr Justice Le Grange
The Hon. Mr Justice
Binns-Ward
The Hon. Mr Justice Wille
Hearing:
30 July 2020
Judgment: 5 August 2020
In
the matter between:
DAVID
ALEXANDER
BARRIE-SMITH
Appellant
and
MARSICANO
MERCHANTS CC
t/a
SOUTH ATLANTIC
CABLES
Respondent
JUDGMENT
(Delivered
by email to the parties and release to SAFLII.)
BINNS-WARD
J (LE GRANGE and WILLE JJ concurring):
[1]
This is an appeal from the judgment of Le
Roux AJ upholding the
respondent corporation’s claim for compensation for the damages
that it suffered as a consequence
of being induced by an allegedly
fraudulent representation by the appellant to extend credit terms to
a new concern that was then,
in late July 2011, about to commence
trading as Wilson Payne Electrical. The owner of the business
was Marble Race Property
58 CC (‘Marble Race’), which
subsequently converted to a company and changed its name to become
Wilson Payne Electrical
Distributors (Pty) Ltd. From its
inception Wilson Payne Electrical conducted business on open account
with the respondent,
Marsicano Merchants CC t/a South Atlantic
Cables. In mid 2014, however, it fell into arrears with its
payments for the goods
that it had purchased on credit. The
amount outstanding to South Atlantic Cables when the latter
consequently ceased to do
business with Wilson Payne Electrical was
R520 906,05 (excluding VAT). Wilson Payne Electrical
Distributors (Pty) Ltd
has since been wound up, with no dividend
being paid to its concurrent creditors. The winding-up
application, which was at
the company’s own instance, was
instituted in November 2014. The appellant deposed to the
principal affidavit in support
of the liquidation.
[2]
The trial ran in two sessions during September
and October 2017, and
for some reason closing arguments were heard only in April 2018.
The judge made an order on 10 September
2018, and furnished written
reasons for the order only on 1 November 2018. The reasons gave
no explanation for the delay,
nor for the unconventional course in
action proceedings of making an order followed only later with the
reasons for it. As
it was, the order that was issued did not
read sensibly. It provided that the court granted judgment in
favour of the plaintiff
for ‘[p]ayment of R520 986,05,
alternatively R457 963,13’. It is not clear from the
record whether
the problem was of the judge’s making, or that
of the court registrar. It was in any event of a sort that
would be
unlikely to occur had the judge, having reserved judgment at
the end of the trial, followed the usual course of incorporating the
order in a subsequently delivered reasoned judgment. The error
does not yet appear to have been corrected, presumably because
an
application for leave to appeal was made shortly after the reasons
for judgment were provided. Leave to appeal was granted
by
another judge more than nine months later, on 12 August 2019.
[3]
The trial
judge was informed during the course of the hearing that there was no
dispute between the parties in respect of the quantum
of the
respondent’s claim (which had been agreed during the week
preceding the trial in the sum of R520 906.05
[1]
),
and that the only issues for trial were therefore whether the credit
arrangements entered into between Wilson Payne Electrical
and the
respondent had been induced by the alleged fraudulent representation
by the appellant (baldly referred to as ‘the
merits’).
The intimation to the judge concerning the parties’ agreement
on the quantum of damages would appear
to have implied an acceptance
by them that judgment in the respondent’s favour should follow
if it succeeded in proving (i)
the alleged fraudulent
misrepresentation and (ii) its inducing effect in the conclusion of
the agreement to extend credit terms
to Wilson Payne Electrical.
In other words, it would seem that causation was also conceded
contingent upon the establishment
of those two elements. The
appellant’s counsel acknowledged as much in his heads of
argument for the appeal.
[4]
The grounds upon which the respondent brought
the claim were pleaded
in the following terms in its particulars of claim, as finally
amended:
8.
In the course of a meeting held at the plaintiff’s
premises
during or about the time that the credit application was submitted,
the defendant stated or represented to the plaintiff,
represented by
Eugenio Fabrizio Marsicano, (‘Marsicano’) that an
agreement had been concluded in terms of which Marble
Race had
secured funding by way of an investment of “one million pounds”
(i.e. a multi-million Rand investment)
from the defendant's
Irish acquaintances (‘the Irish investment’).
9.
The defendants aforementioned statement:
9.1
was false in that no such investment had been secured;
9.2
was made fraudulently, alternatively negligently;
9.3
induced the plaintiff to hold the belief at all material times that
Marble
Race:
9.3.1
was owned by the defendant and funded by Irish investors, when in
truth Marble Race was
owned and funded by JF Engelbrecht;
9.3.2
had secured adequate funding (more particularly, funding in the
amount of “one million
pounds”, i.e. several million
Rand), when in truth it had not;
9.4
caused the plaintiff to suffer loss in the respects pleaded more
fully
below.
10.
In the alternative to paragraph 10.1 above (
sic
):
10.1
Subsequent to the meeting referred to in paragraph 9 above (
sic
),
the Irish investment was withdrawn or did not materialise;
10.2
the defendant failed to disclose this fact to the plaintiff despite
being under a
duty to do so.
11.
The defendants breach of his aforementioned duty of disclosure:
11.1
was wrongful;
11.2
was fraudulent, alternatively negligent;
11.3
induced the plaintiff to hold the belief at all material times that
Marble Race had
secured adequate funding (more particularly, funding
in the amount of “one million pounds”, i.e several
million Rands),
when in truth it had not;
11.4
caused the plaintiff to suffer loss in the respects pleaded more
fully below.
Inducement and loss
12.
As a result of the defendant's aforementioned misrepresentation,
alternatively
non-disclosure:
12.1
The plaintiff, acting on the strength of such misrepresentation,
alternatively such
non-disclosure, granted the credit application and
commenced and continued to supply goods on credit to Marble Race.
12.2
The plaintiff suffered loss in the aforementioned amount of
R520 906.05 (being
the amount of Marble Race’s
indebtedness to the plaintiff (excluding VAT) which is
irrecoverable), alternatively in the amount
of R457 963.13 being
the plaintiff’s cost of sales in respect of the aforementioned
goods supplied on credit to Marble
Race (the composition of which
appears from the column headed ‘Total Cost’ in annexure
PC 2 hereto).
12.3
The defendant is accordingly liable to the plaintiff in the amount of
R520 906.05,
alternatively R457 963.13.
[5]
It was rightly common ground between counsel
that the case turned on
questions of fact, there being no issue between the parties on the
applicable legal principles, which are
well-established. As to
be expected in the circumstances, the trial court’s
determination of the action adversely to
the appellant was squarely
founded on the judge’s findings on the facts. It was
perhaps predictable therefore that
in his heads of argument the
respondent’s counsel placed considerable emphasis on the
general rule of appellate practice
that an appeal court will not
readily interfere with a trial court’s findings on issues of
fact and credibility.
[6]
While the
incidence of the rule is trite, the nature of its import is, however,
all too often mischaracterised. The true position
was
succinctly elucidated in the following terms in
Bernert
v ABSA Bank Ltd
[2010] ZACC 28
(9 December
2010); 2011 (3) SA 92
(CC);
2011 (4) BCLR
329
at para. 106: ‘
The
principle that an appellate court will not ordinarily interfere with
a factual finding by a trial court is not an inflexible
rule. It is a
recognition of the advantages that the trial court enjoys which the
appellate court does not. These advantages flow
from observing and
hearing witnesses as opposed to reading “the cold printed
word.” The main advantage being the opportunity
to observe the
demeanour of the witnesses. But this rule of practice should not be
used to “tie the hands of appellate courts”.
It should be
used to assist, and not to hamper, an appellate court to do justice
to the case before it. Thus, where there is a
misdirection on the
facts by the trial court, the appellate court is entitled to
disregard the findings on facts and come to its
own conclusion on the
facts as they appear on the record. Similarly, where the appellate
court is convinced that the conclusion
reached by the trial court is
clearly wrong, it will reverse it.
’
(footnotes omitted). The correct approach to the rule was
reiterated by the Constitutional Court in
Makate
v Vodacom (Pty) Ltd
[2016] ZACC 13
(26 April
2016); 2016 (4) SA 121
(CC);
2016 (6) BCLR
709
, at para. 40: ‘…
the
deference afforded to a trial court’s credibility findings must
not be overstated. If it emerges from the record
that the trial
court misdirected itself on the facts or that it came to a wrong
conclusion, the appellate court is duty-bound to
overrule factual
findings of the trial court so as to do justice to the case
’.
And, in what is widely accepted as the locus classicus on the
subject,
R
v Dhlumayo
1948 (2) SA 677
(A);
[1948] 2 All SA 566
, Davis AJA stressed
that the practice by appellate courts to ordinarily show due
deference to the factual and credibility
findings of trial courts
should not negate their duty to give meaningful effect to the object
of an appeal, which is to afford
‘
a
rehearing
’
on the record (supplemented, only in exceptional cases, by additional
evidence that the appeal court might admit).
[2]
[7]
It was therefore required of us to consider
the evidence adduced at
the trial, not with a view to looking to find fault with the trial
judge’s findings, but to satisfy
ourselves that there was not
valid reason to hold on reconsideration that the result of the trial
was wrong.
[8]
The first witness called by the respondent
was Mr Michael Cooke,
who was the Cape Town manager of a business known as Glo Elec. He
described Glo Elec as a competitor
of the respondent’s
business. It supplied electrical products to wholesalers.
It did not do business directly
with electrical contractors.
The latter purchased their electrical product needs from wholesalers,
such as Voltex.
[9]
Cooke described how, in July 2011, in response
to an approach from
the appellant, whom he had known through the industry for about 35
years, he had attended at Wilson Payne Electrical’s
place of
business with a credit application to be completed on behalf of the
new business. He understood at the time that
the respondent was
starting a new wholesale business from the premises at which the
business of Wilson & Herd had operated
a similar business, and
wished to purchase supplies from Glo Elec. Cooke engaged in
general conversation with the appellant
during his visit, in the
course of which the appellant told him that the new business was
being capitalised by his wife’s
wealthy aunt’s family
business. Mr Cooke was aware that the appellant’s wife
was Irish, or of Irish extraction.
This information gave Cooke
some assurance about the financial strength of the new business,
although he said it did not affect
his decision to recommend to his
head office that the credit application completed by the appellant
should be approved. Cooke
said Glo Elec would not, however,
have extended credit terms to, or done business with, Wilson Payne
Electrical had it been appreciated
that the new concern was actually
controlled by one JF Engelbrecht. This would have been so
because, using the vehicle JFE Electrical,
Engelbrecht was a
contractor, and by doing business with him though Wilson Payne
Electrical Glo Elec would be undermining their
other wholesaler
customers. Something that could possibly lead to a boycott of
Glo Elec by those established customers.
[10]
The next witness was one Sean Roetz, who was the regional manager
of
Voltex, an electrical wholesale business. He also described
having received a credit application from the appellant on
behalf of
Wilson Payne Electrical. He said that he had heard from various
sources that the appellant was involved in a managerial
capacity in a
start-up wholesale business. Like the preceding witness, he
said that he would not have approved the credit
application had he
been aware that the person behind the new business was in fact
JF Engelbrecht. He stated that although
he had been told
by other people that the new business was being funded by Irish
interests, the appellant had never communicated
such information to
him directly.
[11]
Mr Roetz testified that at the time Marble Race converted to
a
company with the Wilson Payne name it had been necessary, in
accordance with Voltex’s policy, for it to submit a new
application
for credit. That happened in March 2012. The
respondent corporation was given as one of the referees named by
Wilson
Payne Electrical in the new application for credit.
Roetz said that he had therefore discussed the application with Mr
Marsicano
of the respondent, with whom he had occasional meetings
about once a quarter. Marsicano told him that it was his
understanding
that that Wilson Payne Electrical was funded by Irish
investors. Roetz showed no interest in ascertaining more
specific evidence
concerning the identity of the reported Irish
investors, or the nature and size of their investment. It does
not appear that
the information that he had been given second-hand
was regarded as material. He appeared to have been satisfied as
to the
new business’s creditworthiness simply by reason of his
glowing view of the appellant’s highly regarded personal
reputation
and depth of business experience. The pertinence of
Roetz’s evidence was that it served to confirm that Marsicano’s
understanding as of March 2012 that the new business had been
capitalised by Irish investors. It negated the argument
addressed
to us by the appellant’s counsel that Marsicano’s
evidence concerning his understanding that the business had been
capitalised by Irish investors had been ‘retrofitted’, to
use the expression employed by counsel.
[12]
The third witness to testify in support of the respondent’s
claim was Mr Eugenio Marsicano, the sole member of the
respondent close corporation. He testified that the respondent
had previously done business on a cash only basis with Wilson &
Herd. This was because he had had two previous unhappy
experiences with entities with which a certain Mr Raad had been
associated going under while heavily in debt to the respondent.
Mr Raad’s sister was the owner of Wilson & Herd and the
business was managed by Raad. Marsicano had gathered from
the
letter that the appellant had sent out to suppliers in late July 2011
that Wilson & Herd was being ‘revamped’,
as he put
it, into Wilson Payne Electrical.
[13]
The letter in question, which was dated 21 July 2011, was attached
as
annexure PC 1 to the respondent’s particulars of claim.
The document had Marble Race’s name and registration
number in
the header and carried the new business’s trading name, ‘Wilson
Payne Electrical’ in large bold font
at the top of the body of
the letter. The letter went as follows:
Dear Supplier,
This will serve to advise
you of the changes which will take place at this month end.
The business of Wilson &
Herd will cease trading on the 29th July; Wilson Payne Electrical
will purchase the stock, assets,
employ some of the staff and take
over the lease of the existing premises.
Wilson & Herd will
remain responsible for collecting their data's book and the payment
of creditors.
Wilson Payne Electrical
will commence trading on the 1st August 2011.
Our bankers are ABSA
Business Bank Durbanville T/phone no. 021-9155318.
Cheque account name:
Marble Race Property 58 CC.
Check account number:
406[…].
All other detail is to be
found on our letterhead.
We attach our credit
application.
Sincerely,
[signature]
David Barrie-Smith
The
footer of the document recorded the following information:
‘
Directors: D.A. Barrie-Smith (M.D.) (Pending appointment
with CIPC)
. (The abbreviation CIPC would appear from the
context to refer to the Companies and Intellectual Property
Commission, which
is the body responsible under the
Companies Act,
2008
, for the registration of companies.)
[14]
The letter had been accompanied by an application for credit.
The pro forma application form, which was completed by the appellant,
had been collected by him from Mr Marsicano during an
unannounced visit to the respondent’s offices two or three days
earlier. The appellant had been accompanied by Mr Raad.
Marsicano testified that he had been struck by the incongruity of the
two men visiting him in each other’s company because
he
considered them to be most unlikely business associates. He
said the appellant had a ‘sterling’ reputation
in the
electrical business community, whereas Mr Raad’s was ‘somewhat
tarnished by his previous failed business dealings’.
[15]
Mr Marsicano related that his two visitors told him about how the
appellant was going to take over Wilson & Herd’s business
using a new vehicle in which the appellant would hold a 100%
proprietary interest. The appellant would be responsible for
running the business, whilst Raad would be in charge of sales.
Marsicano said that the appellant reminded him of the chance
encounter that they had had at Istanbul Airport two months previously
when the appellant was on his way back to Cape Town after a visit to
Ireland. The appellant told Marsicano that he had secured
financing for the new venture worth £1 million during that
visit. Asked by the respondent’s counsel what
he saw as
being the significance of the mention of the ‘Irish
investment’, Marsicano answered: ‘Well the way
I see
things now is not the way I saw things then. The way I saw
things then it was a statement that they had significant
financial
muscle behind them.’ He said that he considered that the
mention of the investment had been directed at allaying
his fears
arising from his prior unhappy dealings with Raab. He
considered that the appellant, who had an excellent reputation,
could
be trusted to protect and maximise the benefit of an investment by
his wife’s family. He therefore told the appellant
then
and there that he could consider the credit facility to have been
granted.
[16]
The appellant nevertheless took away a form to complete in respect
for the application for credit, which was returned to Marsicano on
22 July 2011, together with a copy of the letter quoted
in
paragraph [13] above.
[17]
There was a degree of ambivalence in the evidence concerning whether
it had been the plaintiff or Raad who had expressly represented that
the new business was being funded by Irish investors.
Nothing
turns on it in my judgment, however, because the evidence that both
men were making a joint pitch was clear. If it
had been Raad
rather than the appellant who uttered the critical words does not
matter. If that were the case, it is clear
from the evidence
concerning the context in which the words were uttered that the
appellant associated himself with the representation
and was party to
their intended misleading effect. I shall come presently to the
documentary evidence to which the respondent’s
counsel took us
in argument, which established very clearly that the reference at the
meeting to the Irish investment was not idle
chatter.
[18]
Mr Marsicano said that he was unaware that Mr JF Engelbrecht
had
bound Crystal Ball Properties 132 (Pty) Ltd as surety for Wilson
Payne Electrical. He said that he knew Engelbrecht was
major
player in the electrical contracting field and, for the same reasons
as those given by a previous witness, Mr Cooke, in respect
of the
position of Glo Elec, would not have been prepared to supply product
to him directly. He said that had he known of
Engelbrecht’s
proprietary interest in Wilson Payne Electrical he would not have
been willing to extend credit terms to the
new business. The
deed of suretyship signed by Engelbrecht on behalf of Crystal Ball
Properties was dated 24 August 2011.
[19]
Mr Marsicano was also taken to a deed of cession executed by the
appellant on behalf of Wilson Payne Electrical Distributors (Pty) Ltd
in March 2012, in terms of which the latter ceded its book
debt to
Crystal Ball Properties 132 (Pty) Ltd
in securitatem debiti
.
Marsicano stated he had not been informed about the cession at the
time. Crystal Ball Properties, which was another
entity
controlled by Engelbrecht, was the only creditor to receive a
substantial dividend when Wilson Payne Electrical Distributors
(Pty)
Ltd was wound up.
[20]
Mr Marsicano testified that he heard in or about June 2013 that
Mr
Dave Collins was replacing the appellant as managing director of
Wilson Payne Electrical Distributors (Pty) Ltd. He understood
at the time that the change was in consequence of a deterioration in
relations between the appellant and Mr Raab concerning the
running of
Wilson Payne Electrical. He contacted the appellant because of
his concern about where that left the appellant
and his Irish
investors. The nature of Marsicano’s concern could only
have been related to the question whether he
could continue to regard
Wilson Payne Electrical as creditworthy. The appellant assured
him that he would remain the sole
shareholder in the company and that
he would be looking after the investment and visiting the business on
a regular basis.
[21]
Wilson Payne Electrical Distributors (Pty) Ltd circulated a letter
to
the company’s suppliers and customers, dated 20 June 2013,
concerning the appellant’s retirement. It went
as
follows:
To our Suppliers and
Customers.
Re: Retirement: David
Barrie-Smith
Dear Sir/Madam
I need to advise you that
due to health related problems, which are debilitating rather than
life threatening, I am unable to continue
in my position at W.P.E.D.
There would be risk in
remedial operations which might improve my condition, I do not
consider this option viable.
I will still be available
to W.P.E.D to assist with the change over.
We are just completing
our second year of trading at W.P.E; and I believe have established
ourselves favourably with both customers
and suppliers.
My investors have
indicated their intention to remain invested in the business, having
been appraised
(sic)
of my health problems and the
changes it necessitates
.
Mr Dave Collins has been
appointed Managing Director.
In thanking you for your
support over the past year I would like to assure you that there will
be at no time be a lack of continuity.
Yours Sincerely,
David Barrie-Smith.
The
sentence that I have underlined is indicative, in my judgment, of the
appellant’s appreciation that at least some of the
business’s
suppliers had a material interest in being reassured that what they
understood to be the third party financial
investment underpinning
the business would not be affected by his departure. There is
no reason to believe that the nature
of the appellant’s
appreciation in this regard would have been any different at the
inception of the business when he was
endeavouring to get those
suppliers to transact with the business on terms of credit. It
is also notable that the statement
was made in the context of the
appellant’s encouragement of a widespread misperception that
the investors were Irish, a matter
I shall deal with in more detail
presently.
[22]
At the time that word began to spread about the pending liquidation
of Wilson Payne Electrical Distributors (Pty) Ltd in late 2014, Mr
Marsicano, being concerned about the extent of the respondent’s
exposure in respect of Wilson Payne Electrical’s indebtedness
for goods purchased from the respondent on credit, made enquiries
of
the appellant as to whether he still retained his proprietary
interest in the business, who was actually in control of it, and
what
had become of the Irish investors. Some of these communications
were telephonic and others by email. The appellant’s
documented replies were vague and unsatisfactory. He claimed a
loss of memory and said that, as far as he was aware, the
investors
in the business remained the same as they had been when the business
was launched. He did not deny having represented
to Marsicano
that there had been an Irish investment, yet it was starkly apparent
in the evasive manner in which his emails were
couched that he
studiously sought at that stage to avoid confirming the identity of
the investor(s) as Irish.
[23]
The appellant gave evidence. He testified that in May 2011
he
had accompanied his wife on a visit to latter’s extensive
family in the Republic of Ireland. While there, he had
attended
the funeral of a distant relation of his wife’s. Another
distant cousin had engaged him in conversation at
the graveside, and
on learning that he was retired suggested that he should acquire a
business to keep himself busy. The
cousin, a Mrs Dornan,
indicated that she would be able to assist him in raising capital to
finance the business if he were to send
her a credible business plan.
[24]
According to the appellant, this indication from Mrs Dorner chimed
harmoniously with an indication that Mr Johan Engelbrecht had given
him, only a few days before, of the possibility of a business
opportunity becoming available. The indication had been given
during a telephone conversation that the appellant had with
Engelbrecht on the eve of his departure for his trip to Ireland. He
had told Engelbrecht that he was finding his retirement
‘chilling’,
by which it would appear that he meant boring and depressing.
Engelbrecht had told him he should
contact him about a business
opportunity immediately upon his return from Ireland.
[25]
He also regarded it as portentous that on his journey back to Cape
Town from Ireland he had by chance encountered Mr Marsicano at
Istanbul Airport, where they had both been in the lounge waiting
to
catch a connecting flight home. He actually said that when he
saw Marsicano he could have jumped up and down with excitement.
It was not altogether clear why the appellant should have regarded
his chance encounter with Marsicano as cause for such exuberance.
It would seem, however, that he was trying to convey to the trial
court that he had regarded his conversations with Engelbrecht
and Mrs
Dornan and his meeting with Marsicano as a constellation of
happenings that afforded some sort of providential confirmation
that
he would soon be escaping the boredom of retirement and getting back
into the electrical business.
[26]
The appellant testified that he visited Engelbrecht on the day after
his return to Cape Town. Engelbrecht introduced him to the idea
of taking over and resuscitating the ailing business of Wilson
&
Herd. With the assistance of Engelbrecht’s daughter, he
undertook a two-week long due diligence investigation
into the
business and concluded that it was beyond salvation. It was
decided instead that a new business could feasibly take
over the
lease of Wilson & Herd’s business premises in Goodwood and
purchase some of its stock and engage some of its
employees.
The essence of that decision was what was subsequently conveyed to
suppliers in the letter of 21 July 2011
quoted in paragraph [13]
above.
[27]
As to capitalising the new business, the appellant testified that
he
had spent time putting together a business plan to be considered by
the Irish investors that Mrs Dornan had indicated she could
interest
in the project. No documentary evidence in corroboration of
this exercise was produced at the trial. As I
understood the
appellant’s evidence which, by reason of his inclination to
ramble, was often unclear, he seemed to indicate
that red tape had
frustrated his ability to make meaningful progress with the idea of
attracting foreign investment into the venture.
This, he
claimed, caused him to abandon his intention to submit a business
plan for consideration by Irish investors. It
does seem,
however, from Mr Roetz’s evidence, summarised earlier, that in
the apparently closely-knit electrical business
circles in Cape Town
it had become widely understood that the new business being set up by
the appellant was to be funded by Irish
investors.
[28]
The appellant said that in the circumstances it had been arranged
instead that the new business would instead be capitalised by way of
a R3 million overdraft facility from Absa Bank that would
be
underwritten with a suretyship to be provided in favour of the bank
by Crystal Ball Properties 132 (Pty) Ltd, a company controlled
by Mr
Engelbrecht. It had been arranged that Absa Bank would be able
to indicate the financial integrity of the nascent enterprise
to any
persons making enquiry to it.
[29]
As already mentioned, the deed of suretyship by Crystal Ball
Properties
was executed only in August 2011, but the appellant
claimed that the arrangement was in place when he met with
Mr Marsicano
in July to discuss the respondent doing business
with the new venture. In other words, it would appear that the
appellant
admitted that by the time he and Mr Raad met with Marsicano
the prospect of an Irish investment had been discounted and replaced
by the overdraft arrangement.
[30]
The
appellant’s evidence was equivocal and contradictory on the
matter of whether an Irish investment had been mentioned to
Mr
Marsicano. In his plea he had bluntly denied each and every
allegation in paragraph 8 of the respondent’s particulars
of
claim.
[3]
At times he
seemed to suggest that Marsicano’s allegation that he had been
told about the Irish investment originated
from something he had told
Marsicano when they had a conversation at Istanbul Airport, whereas
at other times he seemed to conceded
that either he or Raad had
mentioned it when they met Marsicano in July, and yet sometimes also
denied that this had happened.
The net effect of this is that
the appellant’s evidence on this critical question was, to say
the least, wholly unreliable.
[31]
What is beyond dispute, however, is that as the apparent sole member,
and later 100% shareholder, in the entity in which the business of
Wilson Payne Electrical was conducted, the appellant was fronting
for
Mr Engelbrecht. The appellant candidly admitted as much under
cross-examination. He conceded the proposition put
to him by
the respondent’s counsel that he had held the shares in Wilson
Payne Electrical Distributors (Pty) Ltd as Mr Engelbrecht’s
nominee. It also emerged during his cross-examination that the
appellant had held his appointment as managing director in
terms of a
letter of appointment that bound him to keep Engelbrecht’s
interest in the business secret. He also conceded
that
Engelbrecht had independently approached Mr Raad to become involved
in the proposed new venture as an employee of the Wayne
Payne
Electrical, even before the appellant’s trip to Ireland.
(Mr Raad’s evidence suggested that he was
first approached
by the appellant, which would have been after the latter’s
return from Ireland, but I regard that as improbable.
Raad, we
should remind ourselves, was closely associated with running the
business of Wilson & Herd, which was owned by his
sister, and it
is plain that the idea put to the appellant by Mr Engelbrecht
involved investigating the viability of taking
over Wilson &
Herd. In my view it is unlikely that Engelbrecht would have
propounded that idea without some prior interaction
with Raad.
I therefore find that the appellant’s evidence in this respect
was probably more reliable than that of Mr Raad.)
[32]
The implication of the secrecy clause for the appellant’s
ability to frankly disclose the financing of the new business was
obvious. It was unlikely to satisfy the curiosity of an
astute
businessman to be told only that the business had secured an
overdraft. The existence of an overdraft facility made
available without strong collateral would offer very tenuous comfort
to a potential trade creditor. A keen businessman being
asked
to deal on credit terms with a new business entirely reliant on
overdraft finance for its operational expenditure would want
to know
on what basis the bank had been persuaded to extend loan financing.
During his evidence the appellant let slip that
he actually regarded
Mr Marsicano as one of the very few personalities in their
business field that would want to enquire
into by whom the new
business was being financed. The unguarded observation
obviously carried considerable significance in
the context of the
case.
[33]
The appellant’s evidence that any enquiry to the bank would
be
met with the assurance that the bank had given the new business a ‘C’
credit rating, did not warrant any inference
that the bank would be
willing to disclose that it had done so on the strength of a
suretyship from one of Mr Engelbrecht’s
companies. On the
contrary, having regard to the critical importance attached by
Engelbrecht, and accepted by the appellant,
to keeping Engelbrecht’s
involvement sub rosa, the inherent probability is that the bank would
have been instructed to strictly
maintain customer confidentiality in
regard to such information.
[34]
As a matter of probability, it may also be inferred from the
evidence,
including that of the appellant himself, that the idea that
the new business was to be funded by Irish investors had been given
wide currency in local electrical business circles. In the
context of the apparent absence of any documentary evidence to
substantiate the claim that an Irish investment was ever actively
pursued, one is driven to wonder why this was so. Putting
the
story about would certainly help to put people off any idea that the
new business was in fact that of Mr JF Engelbrecht,
which,
it was shown, was a crucial objective at the time. Events
showed that Mr Engelbrecht would never have had any need
for outside
funding. There was certainly no demonstrated need for the
appellant to find funding for
Engelbrecht
’s business,
whether in Ireland or locally.
[35]
The following passages in the appellant’s evidence under
cross-examination were revealing:
There was a rumour around
town that I had come back with money bags full of money which came
from Irish investors. One didn't have
to do anything else. It was
there in the marketplace. One had to do absolutely nothing, and
didn’t.
Q. You, yourself, never
did anything to stoke that rumour? - I can't answer that
truthfully, M’Lady, for the simple
fact that I don't believe I
ever did anything positive to stoke it, but from the point of view of
passively fending off if somebody
said ‘How did you get all
this Irish money?’, or this or that or the other thing,
certainly, I colluded therewith -
I allowed the preconceived idea to
hold sway.
And a little later:
…
You allowed it
to be said that there was an Irish investment when you knew that to
be false? – Probably, ja.
And later still:
…
But for the next
two or three weeks I was inundated with calls about who this was and
who that was for no practical business reason
or anything other than
just the interest of people. We were a very small community.
I was a senior person. They
all wanted to know what the heck I
was doing. … I had already told everybody that I was
going to take Irish finance.
There was no point in …
There was absolutely no point or any reason that I could see to
change that it was an Irish investment.
…
[36]
In all probability the Irish investment had always been a phantom,
except for deceptive purposes. It is evident from the context
that the deception was considered a necessary stratagem to
induce
suppliers to agree to extend credit terms to the new business.
[37]
In
Hulett
and Others v Hulett
[1992] ZASCA 111
(2 June
1992); 1992 (4) SA 291
(A);
[1992] 2 All SA
308
, at 310 fin -311B (SALR), Hoexter JA endorsed the following
dictum of Wilson J in the High Court of Australia in
Gould
and Another v Vaggelas and Others
,
[1985] LRC (Comm) 497
[4]
at 517
d-f:
Where
a plaintiff shows that a defendant has made false statements to him
intending thereby to induce him to enter into a contract
and those
statements are of such a nature as would be likely to provide such
inducement and the plaintiff did in fact enter into
that contract and
thereby suffered damage and nothing more appears, common sense would
demand the conclusion that the false representations
played at least
some part in inducing the plaintiff to enter into the contract.
However, it is open to the defendant to obstruct
the drawing of that
natural inference of fact by showing that there were other relevant
circumstances. Examples commonly given
of such circumstances are that
the plaintiff not only actually knew the true facts but knew them to
be the truth or that the plaintiff
either by his words or conduct
disavowed any reliance on the fraudulent representations.
In
the current matter the appellant did not adduce any relevant evidence
‘to obstruct the drawing of th[e] natural inference
of fact’.
[38]
The appellant maintained, however, that there had been no intention
to prejudice the creditors of the new venture because its actual
financial backer (Engelbrecht) was good for ‘many, many
more
million rands than a million pounds’ worth of rands’.
He said that it made no difference to Wilson Payne
Electrical’s
creditworthiness whether it was funded by an Irish investor or by
Engelbrecht. It was not altogether clear
whether the contention
was directed at materiality or causality, but irrespective of its
basis it missed the point in my judgment.
[39]
The misrepresentation was directed at inducing the respondent to
enter into a contractual arrangement that it would not have entered
into if the true facts had been disclosed. The representation
was therefore not only prejudicial, but also calculated to
prejudice. It was known to the appellant and Raad that
Marsicano
would have considered it to be against the respondent’s
best interests to extend credit to an electrical contractor
clandestinely
seeking to set up business as a wholesaler in
competition with its established customers. They appreciated
that that was
the very reason why it was so important that
Engelbrecht’s involvement be kept secret. That
Engelbrecht’s financial
support objectively might have been
regarded by a prospective credit grantor as adequate to sustain the
viability of the new business
was irrelevant. The
respondent
would not have granted the credit application on the strength of
Engelbrecht’s support. The representation concerning
an
Irish investment was a deception conceived to hide the reality.
It was as a result of the respondent having entered into
the
arrangement that it subsequently sustained the damages that it would
have not been exposed to if the facts not been misrepresented.
[40]
The appellant’s counsel contended that anything that may have
been said by the appellant or Raad to give Marsicano the impression
that the new business was funded by Irish investors was mere
idle
chatter (or ‘braaivleis chat’, as he put it colloquially)
and fell short of amounting to fraudulent misrepresentation.
The respondent’s counsel put that suggestion effectively to
rest by reference to various documents that made it clear that
the
Irish investment story had been a deliberate stratagem employed to
deceive parties from which the new business intended to
obtain terms
of credit and that it had been devised in the context of a
realisation that the new business’s viability would
actually be
dependent upon it obtaining terms of credit from its suppliers.
[41]
Mr
Blumberg
demonstrated with reference to the terms of the
application for credit form completed by the appellant how the
ownership of Wilson
Payne Electrical was a material consideration in
the extension of credit to new business. He drew attention to a
provision
in the contract that obliged the credit applicant to inform
the respondent of any change of ownership of the business, coupled
with the acknowledgement that any change of ownership would result in
any amount then owing to the credit grantor thereupon becoming
immediately payable. Mr
Blumberg
submitted that that
provision fell to be understood in the context of the draft deed of
contract between the appellant, Raad and
Engelbrecht, which contained
a clause that Engelbrecht’s ‘
involvement must at all
times remain a secret; all parties will vehemently protect this
secret ..
.’. Another document that appeared to record
points under discussion between the principal parties when the
setting
up of a new business from the ashes of Wilson & Herd was
being investigated confirmed that it had been contemplated that the
new business would be dependent upon obtaining credit terms from
Wilson & Herd’s existing suppliers. Under
subheading ‘
Confidentiality
’, it
recorded ‘
The use of an auditor independent of both
W&H and JFE
[i.e. Engelbrecht]
might be advantageous ...;
if practical and effective could be briefed to answer queries from
suppliers as to the source of funds
etc, DBS
[i.e. the appellant]
has possible person
.’
[42]
In a letter to Johan Engelbrecht, dated 28 August 2012, in
the
context of discussions concerning who might succeed him as the
managing director of Wilson Payne Electrical, the appellant
wrote:
‘
Finally, please at this stage do not consider me, you owe
me nothing, I have been able to get out of my head, the love of
wholesaling
and have not enjoyed the responsibility the way I used
to. I will remain very happy to have people believe I have
contact
with financiers in Ireland who guarantee the overdraft and
want to remain invested with WPE, and that my health requires me to
play a lesser role at WPE
.’
[43]
When communicating with suppliers and customers concerning his
intended departure from an active role in the business of Wilson
Payne Electrical on account of his ill health in August 2012, the
appellant’s circular letter advised ‘
... my investors
have indicated their intention to remain invested in the business
having been appraised
(sic)
of the above’
. An
intended follow up to that letter, drafted at a time when it was
contemplated that one Henry Ekkermans would succeed
him as managing
director of Wilson Payne Electrical, provided for the appellant to
say to suppliers and customers ‘
Our overseas financier,
fully apprised of the changes, supports them
’. This
was consistent with the representations actually made in 2013 when Mr
Collins succeeded to the position; see
paragraph [21] above.
[44]
I agree with Mr
Blumberg
’s submission that the
documentation clearly illustrates that the representations made by
the appellant and Raad about an
Irish investment in the business were
made and maintained as part of a deliberately preconceived strategy
to conceal the identity
of the business’s actual financier and
to deceive the suppliers, including the respondent, from whom terms
of credit were
to be sought. The misrepresentation was
unquestionably fraudulent.
[45]
That the damages were sustained in circumstances not foreseen or
intended by the appellant does not detract from the fact that they
would not have been sustained but for the appellant’s
fraudulent misrepresentation having induced the contract.
Factual causation having been established, there are no
considerations
of legal policy that would militate in favour of
relieving the appellant from the consequences of the fraud. The
causal link
was sufficiently direct.
[46]
There was
also no merit in the appellant’s suggestion that Mr Marsicano
could have ascertained the facts upon enquiry to Absa
Bank.
That much is affirmed by the fairly recent reiteration by Brand JA in
Fourie v
First Rand Bank Ltd
[2012] ZASCA 119
(18 September 2012); 2013 (1) SA 204 (SCA); [2013] 1
All SA 291
[5]
of the following
statement of the law in
Oranje
Benefit Society v Central Merchant Bank Ltd
1976 (4) SA 659
(A) at 673H:
‘…
once
it is established that there has been any fraudulent
misrepresentation or wilful concealment by which a person has been
induced
to enter into a contract it is no answer to his claim to be
relieved from it to tell him that he might have known the truth by
proper enquiry.’
The learned judge also
cited
Central Merchant Bank Ltd v Oranje Benefit Society
1975
(4) SA 588
(C) 594E-H and De Wet & Van Wyk,
Die
Suid-Afrikaanse Kontraktereg & Handelsreg
5 ed vol 1 at
47 in support of the proposition.
[47]
In the result the following order is made:
Save
that the order of the court a quo is rectified by deletion therein of
the words ‘…
, alternatively R457 963,13
’,
the appeal is dismissed with costs.
A.G.
BINNS-WARD
Judge
of the High Court
A. LE GRANGE
Judge
of the High Court
E.D.
WILLE
Judge
of the High Court
APPEARANCES
Appellant’s
counsel:
A. Ferreira
Appellant’s
attorneys:
Visagie Vos Incorporated
Goodwood
Respondent’s
counsel:
M. Blumberg SC
Respondent’s
attorneys:
Brian Lutzno, Kraus & Associates
Cape Town
[1]
The
amount equated to the sum in which Wilson Payne Electrical was
indebted to the respondent for goods purchased on credit when
it was
placed into liquidation. The notion that the respondent’s
damages could be justifiably quantified in that
way is supported by
the approach adopted in comparable circumstances by the appeal court
in
Fourie
v First Rand Bank Ltd
[2012] ZASCA 119
(18 September
2012); 2013 (1) SA 204
(SCA);
[2013] 1 All SA 291
,
at
para 38-39.
[2]
At 698-700 (SALR).
[3]
Paragraph
8 of the respondent’s particulars of claim is quoted in full
in paragraph [4]
above.
[4]
Also
reported at
[1984] HCA 68
(6 November 1984);
(1984) 157 CLR 215
;
(1984) 56 ALR 31
;
(1984) 58 ALJR 560
and accessible on Auslii.
[5]
In para 22.