About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Western Cape High Court, Cape Town
SAFLII
>>
Databases
>>
South Africa: Western Cape High Court, Cape Town
>>
2020
>>
[2020] ZAWCHC 80
|
|
Bester NO and Others v Quintado 120 (Pty) Ltd (15274/2019) [2020] ZAWCHC 80 (18 August 2020)
Republic of South Africa
IN THE HIGH COURT OF SOUTH AFRICA
WESTERN
CAPE DIVISION, CAPE TOWN
Case
number: 15274/2019
Before:
The Hon. Mr Justice Binns-Ward
Hearing:
13 August 2020
Judgment:
18 August 2020
In
the matter between:
CHRISTIAN
FINDLAY BESTER
N.O.
First
Applicant
LEGADIMANE
ARTHUR MAISELA
N.O.
Second
Applicant
THOMAS
CHRISTOPHER VAN ZYL
N.O.
Third
Applicant
and
QUINTADO
120 (PTY)
LTD
Respondent
Registration Number: 2008/002818/07
Registered office: 2 Harmonie Ave., Boston, Bellville.
JUDGMENT
(Delivered by email to the parties and release to SAFLII.)
BINNS-WARD J:
[1]
On 24 February 2020 an order was made
placing the respondent company under provisional liquidation.
On the extended return
day of the accompanying rule
nisi
the applicants have applied for a final winding up order. The
respondent opposed the application, as indeed it also had the
application for the provisional order.
[2]
The applicants are the joint trustees of
the insolvent estate of Petrus Serdyn Louw (‘Louw’)
and Martha Maria Sophia
Louw. Louw was at all material times
prior to his sequestration one of the two directors of the respondent
company.
The other director was his brother-in-law, one Markram
Jan Kellerman (Kellerman).
[3]
Louw, who is a chartered accountant, was
the ‘executive director’ in the sense that it was he who
operated the bank
account, kept the company’s books and carried
on the farming operations that were conducted on a property near
Porterville
that is the company’s principal asset. The
accounting firm of which he was a founding member and senior
director, Louw
& Cronje Inc., was also engaged to undertake the
supposedly ‘independent review’ of the company’s
annual
financial statements required in terms of
Companies Act 71 of
2008
read with the company’s memorandum of incorporation.
Having regard to Louw’s association with the accounting firm,
I
would have thought that the inappropriateness of Louw & Cronje’s
engagement was manifest. Kellerman, who is also
a chartered
accountant, and the co-founder and chief executive officer of an
investment company, Gryphon Asset Management Ltd,
reportedly acted as
a non-executive director. The shareholders in the company at
all material times were the HNP Trust, representing
Louw’s
family interests, and the Markram de Jager Trust, apparently
representing Kellerman’s interests. Each
trust held 50%
of the shares in the respondent company.
[4]
The HNP Trust’s shares in the company
were transferred to Kellerman on 18 December 2018, purportedly
pursuant to the exercise
by the latter of his rights as cessionary in
terms of an agreement he had concluded with the HNP Trust on or about
19 October 2018,
whereby he was given security for the repayment of a
loan he had made to Louw, very shortly before the latter’s
sequestration,
in the sum of R17 680 000 for which the
Trust had assumed liability. (The probity of the agreement in
terms of
which Kellerman obtained the HNP Trust’s shares in the
respondent is a matter in dispute, but that is not a matter for
determination
in these proceedings.) Kellerman is currently the
respondent’s sole director, Louw having been disqualified from
continuing
in office consequent upon his sequestration.
[5]
It is not in dispute that over a period of
several years before his sequestration Louw had misappropriated funds
entrusted to him
for investment by the clients of his accounting
firm. An amount of approximately R110 million is said to have
been involved.
Louw had misled his clients into believing that
their instructions had been duly carried out by issuing them
falsified share certificates
and investment statements and the like.
It is also undisputed that Louw laundered much of the misappropriated
money through
a number of entities under his control, including the
respondent company. A substantial part of the misappropriated
funds
that flowed into the respondent company’s bank account
was paid on to Pholaco (Pty) Ltd - a company through which Louw
conducted
a manufacturing business at Atlantis, and which has since
been liquidated - and the rest to the other entities.
[6]
Louw also used the respondent company’s
status as a registered VAT vendor for the purpose of an income tax
evasion scheme
that he executed on behalf of some of his clients.
The scheme involved fictitious agreements of purchase and sale
for which
VAT invoices were issued. Some of the VAT invoices
that Louw gave out to his clients for the purposes of his scheme
purported
to have been issued by the respondent company. Others
were issued by other VAT registered entities over which Louw
exercised
de facto control. Quite how the flow of funds
associated with this scheme worked is not clear on the papers.
It would
appear from an affidavit made by Louw in February 2019
(annexure AA3 to the answering affidavit of Kellerman
jurat
20 September 2019) that the clients would pay the amount of the
price indicated on the VAT invoices issued by the respondent
into the
respondent’s account and that they would subsequently, in a
later tax period, be reimbursed by way of payment on
a fictitious
invoice in the same amount issued by the client to the respondent.
That the scheme was Louw’s, not the
respondent’s, was
borne out by the fact that Louw made some of the repayments from his
own account. I remarked that
it is not clear how the flow of
funds worked because the evidence does not explain where the clients’
money was held or applied
in the period between the issue of the
respective VAT invoices. The VAT that was represented on the
invoices as being payable
in respect of the fictitious transactions
was reportedly paid over to the revenue service, but as for the rest
it would seem that
it would be disposed of as Louw would determine
for his own purposes.
[7]
In a voluntary disclosure application in
terms of Part B of Chapter 16 of the
Tax Administration Act 28 of
2011
that was submitted on the respondent’s behalf in September
2019 it was stated that the fictitious purchase and sale transactions
to which Louw had been party from 2011 to 2018 had resulted in an
overpayment of VAT by the company. I do not think that
it is
necessary to dwell for present purposes on this aspect of Louw’s
activities because it seems clear from what I have
described that
should any claims arise against the respondent therefrom they would
be claims by Louw’s clients, and not by
his insolvent estate.
[8]
Kellerman claims to have been unaware of
Louw’s shenanigans,
[1]
and to have been misled by the financial statements prepared by Louw
for the company that were approved by the directors during
the years
in question. He does not appear, however, to have been troubled
by the lack of any proper independent review mechanisms
during the
relevant period, for which he undoubtedly bore shared
responsibility. The financial statements did not disclose
the
flow of substantial funds through the respondent’s bank
account.
[9]
Louw’s ability to disguise the flow
of funds through the company’s accounts appears to have been
assisted by a peculiar
arrangement entered into with the company in
terms of which he was permitted to conduct a farming operation for
his own account
on the company’s property using the facility of
the company’s corporate personality and tax status. There
was
no evidence that the terms of the arrangement were ever reduced
to writing. The arrangement would appear to reflect a verbal
understanding between the company’s directors. The manner
in which
the company’s
farming operation was treated as being for Louw’s own account
was that the profit or loss of the farming operation was reflected
as
a credit or debit, as the case might be, to his loan account in the
company. The explanation given for this arrangement
was that
Kellerman did not wish the value of his indirectly held interest in
the company to be exposed to the risks of the farming
business,
having invested in the company on the basis that it would only be a
property holding enterprise. The applicants
contend that the
manner in which Louw was permitted to run a business for his own
account through the company constituted an irregular
use of the
company’s juristic personality and entailed a contravention of
the
Companies Act, 2008
. This is indeed one of the bases upon
which they contend, with some justification in my view, that it would
be just and equitable
for the company to be wound up.
[10]
Indeed, it appears from the judgment in
respect of the provisional winding up order that the judge (Papier J)
was persuaded that
the manner in which the company’s juristic
personality had been misused made it just and equitable that it
should be wound
up. He was unimpressed by Kellerman’s
explanation as to his ignorance about Louw’s misuse of the
company as a
conduit for laundering misappropriated money. He
held that Kellerman had ‘
at best
abandoned his fiduciary duties and responsibilities, which in
[the
learned judge’s]
view amounted to
a material breach of his fiduciary duties and obligations
’.
[11]
The order placing the respondent into
provisional liquidation was, according to the judgment, made in terms
of
s 81(1)(c)(ii)
of the Companies Act 71 of 2008. Section
81 applies only in respect of the winding up of solvent companies.
And the
provision thereof referred to concerns applications by
creditors of such a company on the grounds that it would be just and
equitable
for it to be wound up. In their founding papers the
applicants had, however, in point of fact alleged that the company’s
assets were probably of insufficient value to satisfy their claim,
which was tantamount to an allegation that the company was
insolvent. The judge, however, made no finding on the solvency
status of the company. He also did not make any determination
explicitly on the applicants’ disputed standing as creditors of
the company.
[12]
A positive finding that the insolvent
estate is a creditor of the company is a juristic prerequisite to the
applicants’ ability
to seek a winding up order, whether it be
on the grounds of the company’s inability to pay its debts or
that it would be
just and equitable for it to be liquidated. If
the applicants do not succeed in establishing their standing as a
creditor,
the question whether the respondent should be wound up on
either of the grounds contended for is not reached.
[13]
The making of the provisional order in
terms of s 81 of the 2008
Companies Act, rather
than in terms of
s 344 of the 1973 Act, suggests that the judge must have
proceeded on the basis of an acceptance, prima facie,
of the third of
three alternative bases (described below) on which the applicants
contended that the insolvent estate was possessed
of a claim against
the respondent company, viz. in the sum of R606 047 reflected in
the respondent’s financial statements
for the year ended
February 2019 as being owing to Louw on loan account, for a
quantification of the insolvent estate’s claim
in any of the
higher amounts ventured in the applicants’ founding papers
would be difficult, to say the least, to reconcile
with a finding
that the company was solvent. There is no indication in the
judgment, however, of the basis upon which the
judge on that approach
must necessarily have rejected Kellerman’s evidence that the
company’s indebtedness to Louw
as at the date of his
sequestration had been actually only in the sum of R209 977,
payment of which was tendered before the
provisional order was made.
[14]
Now that a final order is sought, the
evidence must be assessed in a different manner from that undertaken
for the purpose of making
the provisional order. As the
respondent’s counsel reminded me, in a previous case,
Absa
Bank Ltd v Erf 1252 Marine Drive (Pty) Ltd and Another
[2012] ZAWCHC 43
(15 May 2012),
[2]
I described the distinction between the approach adopted in the
adjudication of applications for a final winding up order and that
in
respect of applications for a provisional order as follows:
‘
While the evidence might be
the same as it was when the provisional order was granted, the
approach to be taken to it for the purposes
of considering whether a
final order should be made is different. At the provisional
stage the applicant had to make out
only a prima facie case –
in the peculiar sense of that term explained in
Kalil
v Decotex (Pty)
Ltd
and another
1988 (1) SA 943
at 976D – 978F. In order to
succeed in obtaining a final order the applicant has to prove its
case on the evidence
as it falls to be assessed in the usual manner
in proceedings on motion for final relief. The practical
distinction between
the two requirements thus arises out of the
application of the
Plascon-Evans
evidentiary rule in opposed proceedings for a final order; cf.
Export
Harness Supplies (Pty) Limited v Pasdec Automative Technologies (Pty)
Limited
2005 JDR
0304 (SCA) [[2005] ZASCA 24 (29 March 2005)], at para. 4. The
effect has been described in terms which suggest that
a higher
‘degree of proof…on a balance of probabilities’ is
required for a final order than for a provisional
order (
Paarwater
v South Sahara Investments (Pty) Ltd
[2005] 4 All SA 185
(SCA), at para. 3). While the basis for
that description is understandable, I would suggest respectfully that
the position
might more accurately be described as being that while
the applicant must establish its case on the probabilities to obtain
either
a provisional or a final order, in an opposed application, a
different, and more stringent approach to the evidence, consistent
with the
Plascons-Evans
rule, must be adopted by a court in deciding whether the applicant
has made a case for a final order. This is in contradistinction
to the approach to an opposed application for a provisional order,
when the case is decided on the probabilities as they appear
from the
papers.’ (Footnote omitted.)
In the current matter I have before me not only the evidence that was
before the judge who made the provisional winding up order,
but also
the further papers exchanged between the parties for the return
date. The papers have grown like topsy to run in
total to just
short of 2000 pages. The primary purpose of affidavits in
motion proceedings is to set forth what in action
proceedings would
be contained in the pleadings and to adduce the relevant evidence.
Regrettably, in the current matter far too
much ink has been used to
advance arguments on affidavit rather than to state facts, and there
is also an excessive amount of repetitive
material in the papers.
Both sides were at fault in this regard.
[15]
The applicants predicated their claim that
the Louws’ insolvent estate enjoys a creditor’s claim
against the respondent
company on any one of three bases, each of
them put up in the alternative to the others.
[16]
The first basis asserted a claim by Louw’s
insolvent estate in the sum of R31 141 000,90, identified
as the total
amount transferred from Louw’s banking accounts
into that of the respondent company between January 2015 and his
sequestration
in November 2018. In the alternative, but
essentially on the same predicate, it was alleged that the
respondent’s indebtedness
to the insolvent estate was in the
sum of R13 686 794,48, being the difference between the
aforesaid amount of R31 141 000,90
and the amount of
R17 454 206,42 paid from the company into Louw’s bank
accounts during the same period.
[17]
Kellerman, who deposed to the principal
answering affidavits on behalf of the respondent, pointed out that
most of the money transferred
by Louw into the company’s bank
account was simply paid on to other entities in which Louw had an
interest, notably Pholaco
(Pty) Ltd. He also showed that the
flow of funds into Pholaco was accounted for in the accounts of that
company as an indebtedness
on loan account to HNP Trust in an amount
of more than R14 million. In other words, according to the
respondent, it
is apparent that Louw used his control of the
respondent’s bank account to use it as a conduit for payments
that
he
(
not
the
respondent) was actually making to third parties. Having regard
to the origin of the channelled funds, and the purposes
for which
Louw’s clients had provided them, I think it may reasonably be
inferred that the reverse flows were probably necessary
to pay those
of Louw’s clients who wanted to cash in the investments that
they had been misled into believing he had made
on their behalf or to
pay them the income that such investments should have generated.
[18]
Unless it were established that the
respondent was party to the receipt and disposal of the funds that
Louw channelled through its
banking account, a question I shall
address presently, the first basis upon which the applicants’
standing is asserted cannot
be sustained.
[19]
The second, and further alternative, basis
of the applicants’ case asserts a claim by the insolvent estate
against the respondent
company of just over R9 million, being
the amount reflected in the company’s general ledger as owing
by the company
to Louw on loan account. The correctness of that
record was spoken to by Louw’s son, Henz Louw, at an enquiry in
terms
of
s 152
of the
Insolvency Act 24 of 1936
. Henz Louw
was one of the directors of Louw & Cronje Inc, the accountancy
firm established by Louw that acted as the
company’s
accountants and auditors. Henz Louw, however, qualified that
evidence at a subsequent sitting of the enquiry,
when he conceded
that the ledger account reflecting an apparent indebtedness by the
company in that amount fell to be understood
in the context of
certain other identified ledger accounts, and agreed that the
‘consolidated’ position was that Louw
was in point of
fact indebted to the company in the amount of just over R7 million.
Henz Louw made a confirmatory affidavit
in these proceedings
confirming his evidence at the insolvency enquiry.
[20]
The applicants argued that Henz Louw’s
evidence is meaningless because it is based on cooked accounts.
That might well
be so, but then so is the computation of the claim by
the insolvent estate. If I understood him correctly,
Mr
L. Olivier
SC
for the applicants (together with Mr
White
)
eventually conceded, advisedly in my view, that the attempted
formulation of the claim on the second basis asserted in the founding
papers was ‘an exercise in futility’.
[21]
The third basis asserted in the alternative
in support of the applicants’ standing involved a claim in the
amount of R606 047
being the sum reflected in the company’s
financial statements for the year ended 28 February 2019 as owing to
Louw in respect
of a ‘directors loan’.
[22]
What strikes one immediately about these
permutations of the applicants’ claim is that the first of them
of them is based
on nothing but a represented flow of funds with no
meaningful indication of the basis therefor, the second is predicated
on sets
of accounts that cannot be relied upon as a true reflection
of reality, and the third is premised on a reconstruction of the
respondent’s
accounts by a firm of accountants acting on
Kellerman’s instructions given on the basis of an uncompleted
investigation.
They are mutually inconsistent. This begs
the question what confidence can there be had in the probative
character of any
of them.
[23]
The applicants also contend, although this
was not discernibly their case in the founding papers, that the
respondent was complicit
in the fraudulent disposition by Louw of his
assets and is therefore liable to the estate for having acted
collusively in this
regard. The most obvious difficulty that I
have with that contention is that it was primarily not Louw’s
money that
was being channelled to the respondent’s banking
account, but rather that of Louw’s clients. The other
difficulty,
even if one accepts for the purpose of the argument that
the funds in question had become Louw’s after his clients paid
them
into his account (which was the approach adopted in argument by
the applicants’ counsel), is that payment is a bilateral
transaction,
[3]
and there is no evidence that the respondent intended to accept
payments from Louw. Indeed, the effect of the evidence is
to
the contrary; namely, that Louw was using the respondent’s
banking facilities, over which he exercised sole control, to
launder
the pilfered funds and to facilitate the fabrication of accounts that
would misrepresent that the beneficiaries of the
payments, notably
Pholaco (Pty) Ltd, were indebted on loan account to the HNP Trust in
respect of the stolen monies they had received.
This suggests
that in making and processing the payments Louw was wearing his own
hat, rather than his cap as a director of the
respondent. He
was acting in his personal capacity, not for and on behalf of the
respondent company. That being the
case, there is no basis for
the applicants’ argument that the respondent colluded with Louw
in dealing with the funds.
[24]
The applicants’ counsel sought to
argue, however, that applying the ‘directing mind’ or
alter ego’ doctrine
[4]
the acts of Louw in channelling the funds through the respondent fell
to be regarded as the acts of the company, and that the company
had
in consequence to be taken as having accepted the payments.
They referred me in this regard to the discussion on the
doctrine in
LAWSA Vol. 4(1) 2nd ed. at para 79. But, as the commentators
note at that place, citing, amongst other authorities,
the judgment
of the Supreme Court of Canada in
Canadian
Dredge & Dock Co v R
19 DLR (4
th
)
314,
[5]
the doctrine operates only when the action taken by the so-called
directing mind (i) was within the field of the company’s
operation assigned to him or her, (ii) was not totally a fraud
on the company and (iii) was by design or result partly
for the
benefit of the company.
[6]
[25]
As
Heher JA observed in
Consolidated News
Agencies v Mobile Telephone Networks
[2009]
ZASCA 130
(29 September 2009),
[2010] 2 All SA 9
(SCA),
2010 (3) SA
382
, at para 31, with reference to
Canadian
Dredge
and related English and
Australian jurisprudence,
[7]
‘
Each
[case]
must of course be read in
context. In each case the court strives to determine whether it
is the company which has spoken
or acted to a particular effect
through the voice or conduct of a human agency and thereby to be held
to the consequences or whether
that agency was engaged in an activity
which cannot fairly be attributed to the company. Each case
raises different facts
and the eventual conclusion must depend upon
inference and probability in the absence of express evidence of
adoption of the statements
or conduct as the company’s own.
’
The essence of the learned judge of appeal’s remarks
echoed the observations of Lord Hoffmann to similar effect
in
Meridian Global Funds Management Asia
Ltd v Securities Commission
[1995]
3 All ER 918
(PC) at 928: ‘
It is a
question of construction in each case as to whether the particular
rule requires that the knowledge that an act has been
done, or the
state of mind with which it was done, should be attributed to the
company. Sometimes, as in the
Ready
Mixed Concrete
[
[8]
]
case and this case, it will be
appropriate. Likewise in a case in which a company was required to
make a return for revenue purposes
and the statute made it an offence
to make a false return with intent to deceive, the Divisional Court
held that the mens rea of
the servant authorised to discharge the
duty to make the return should be attributed to the company:
see
Moore v I Bresler
Ltd
[1944] 2 All ER 515.
On
the other hand, the fact that a company’s employee is
authorised to drive a lorry does not in itself lead to the conclusion
that if he kills someone by reckless driving, the company will be
guilty of manslaughter. There is no inconsistency. Each is an
example
of an attribution rule for a particular purpose, tailored as it
always must be to the terms and policies of the substantive
rule.
’
[9]
In
H L Bolton (Engineering Co Ltd) v T K
Graham & Sons Ltd
[1957] 1 QB 159
at 173, Denning LJ said ‘
Whether
their
intention
[i.e. the intention of the officers and
agents of the company]
is the company’s
intention depends on the nature of the matter under consideration,
the relevant position of the officer or
agent and the other relevant
facts and circumstances of the case.
’
In
El Ajou v Dollar Holdings plc
supra,
[10]
Nourse LJ endorsed the adoption of ‘a pragmatic approach’
as being appropriate in the application of the doctrine.
[26]
In my view, the use by Louw of its banking
account for money laundering purposes in relation to his personal
defalcations or fraudulent
tax schemes was in a sense a fraud on the
company in the broad meaning of the word. I am also not
persuaded that his fraudulent
activity could fairly be said to be
within the field of the respondent company’s operations
assigned to him. It in
fact had nothing to do with the
respondent’s operations. And even if I am wrong on those
counts, the action of utilising
the respondent’s banking
account as a conduit for the execution of his own nefarious purposes
was not by design or result
for the company’s benefit. I
am also unable to conceive of any reason in legal policy why, in the
peculiar facts and
circumstances of the case, Louw’s fraudulent
actions should be attributed to the respondent.
[27]
Mr
Olivier
also sought to make the respondent a party to Louw’s fraud for
the purpose of establishing that it received the payments
knowingly
and therefore with the intention to receive them, and consequently
was not merely an uninvolved conduit for the stolen
monies, by
relying on the dictum of Trollip J in
Connock’s
(SA) Motor Co Ltd v Sentraal Westelike Ko-operatiewe Maatskappy Bpk
1964 (2) SA 47
(T) at 53G-H that ‘…
that
where the representor is a company the knowledge of the relevant
facts that is required is its actual or imputed, and not merely
constructive, knowledge (
Houghton
& Co. Ltd v Nothard, Lowe & Wills
,
1928 A.C. 1
at pp. 14 - 15, 18 - 19 and 33). That would, therefore,
include the knowledge of any of its agents or servants possessed and
acquired
by him in the course of his employment under such
circumstances and being of such a nature that it was his duty to
communicate
it to the proper authority in the company (
Barberton
Town Council v Ocean Accident & Guarantee Corporation Ltd.
,
1945 T.P.D. 306)
unless that agent or servant is perpetrating a fraud
on the company in relation to the matters of which he so possesses or
acquires
knowledge (
R v
Kritzinger
, 1953 (2) P.H. H 109
(A.D.); Houghton & Co. Ltd.'s case, supra;
Halsbury, 3rd ed. vol. 6 p. 436)
’.
As counsel pointed out, the dictum was subsequently referred to with
approval by the appeal court in
Afrisure
CC and Another v Watson NO and Another
[2008] ZASCA 89
;
2009 (2) SA 127
(SCA) at para 42.
[28]
In my judgment, counsel’s reliance on
the dictum in
Connock’s Motor Co
was misconceived. The dictum was uttered in wholly
distinguishable circumstances. The learned judge was dealing
with
the position of a defendant company as representor in the
context of an alleged estoppel. In
Connock’s
Motor Co
the plaintiff sued for payment
of the price of goods ostensibly sold and delivered to the defendant
company on open account.
It was common cause that the orders
had been placed by an employee of the defendant who had been acting
fraudulently to procure
the goods for himself. The plaintiff
replicated to the defendant’s denial of liability for the
unauthorised actions
of its fraudulent employee by pleading that the
defendant was estopped from denying that the fraudulently placed
orders had been
authorised. In the course of a general
discussion on the developing law on estoppel the learned judge noted
that it appeared
to be accepted in our law, as distinct from the
position in England, that the reasonable effect of the representation
involved
had to be judged taking into account not only the position
of the representee, but also with regard to the representor’s
knowledge of the relevant facts. It was in the latter
connection that the dictum was uttered. The plaintiff’s
reliance on estoppel in
Connock’s
Motor Co
was unsuccessful for a reason
adumbrated in the dictum, and which has some resonance on the facts
of the current matter; viz. the
employee who had placed the orders
had, obviously unbeknown to the defendant company, been perpetrating
a fraud on his employer
by his abuse of his inside knowledge of the
company’s ordering procedures when he put in the orders in the
defendant’s
name.
[29]
In relevant part the matter in
Afrisure
concerned the
par delictum
defence raised by the first appellant to the respondents’ claim
under the
condictio
ob turpem vel iniustam causam
for the repayment of more than R5 million paid to the appellant
in terms of an unlawful brokerage agreement with the medical
aid
scheme of which the respondents were the liquidators. The
respondents sought to avoid the incidence of the
par
delictum
rule by contending that the
dishonourable conduct of the medical scheme’s principal
officer, who had concluded the agreement
on its behalf, could not be
attributed to the scheme because the directing mind of the scheme in
law resided with its board of
trustees, not its principal officer.
It was in rejecting that contention that Brand JA made reference
to the dictum
uttered by Trollip J in a quite distinguishable context
in
Connock’s Motor Co
.
Trollip J was concerned with the principles of agency when he uttered
the dictum relied on by the applicants’ counsel,
not the
directing will doctrine.
[30]
The difference between the position of the
principal officer in
Afrisure
and
that of Louw in the current case is that the principal officer was
acting within the ordinary ambit of his authority as agent
of the
scheme in concluding the contract. The agreement that he
concluded on the scheme’s behalf might, to his knowledge,
have
been unlawful by reason of the statutory contraventions that were
involved, but he was not on a frolic of his own for his
own purposes
when he entered into the contract.
[11]
On the contrary, he was exercising his functions as principal officer
entirely for the purposes of the scheme. The scheme’s
responsibility for its principal officer’s actions in
concluding the contract could just as easily (and probably more
appropriately)
be attributed to the scheme under the well-established
principles of agency. By contrast, in the current case, Louw
acted
for himself in using the respondent company’s bank
account for his own nefarious purposes; he did not act for the
company.
Louw’s conduct was excluded from being
attributed to be that of the respondent company in the circumstances
because he was
in fact acting in fraud of it and with no intention to
benefit it and not within the field of the company’s operation
assigned
to him.
[31]
Kellerman pointed out that the applicants
have, by their own conduct, actually acknowledged that Louw utilised
the bank accounts
of the respondent company in order to make payments
to third parties thereby using the respondent as nothing other than a
conduit,
that is in a way that did not give rise to any advantage to
or liability for the respondent, but merely gave rise to the
misleading
impression that payments had been made by the company
instead of by him. Kellerman referred in this regard to an
action instituted
by the applicants in this court under case no.
9723/19 against various defendants who were the ultimate
beneficiaries of a number
of payments made by Louw from the proceeds
of the above-mentioned loan made to him by Kellerman in October
2018. The particulars
of claim in the action allege that the
payments in question, which the applicants seek to have set aside as
voidable dispositions
in terms of the
Insolvency Act, were
effected
from funds transferred by Louw to the respondent company. The
tenor of the case pleaded by the applicants in the
action is that the
payments were made by
Louw
using the respondent company’s bank account as a conduit.
Similar allegations were made by the applicants in their
application
for the sequestration of the HNP Trust. In that matter the
applicants alleged that Louw had lent and advanced
moneys to Pholaco
(Pty) Ltd through the conduit of the banking accounts of entities
that he controlled, including that of the respondent
company.
[32]
Relying on the judgment of the appeal court
in
Trustees Estate Whitehead v Dumas
2013 (3) SA 331
(SCA), the appellants’
counsel submitted that the funds credited to the respondent’s
account pursuant to the deposit
therein by Louw of the funds
misappropriated from his clients fell to be regarded as having been
appropriated by the respondent
by reason of what they contended was
the personal right that the company had against its bankers to all of
the money standing to
the credit of its account in the banks books.
The case in
Dumas
is, however, quite distinguishable on its facts from the current
case. I shall pause to discuss
Dumas
at greater length than might ordinarily have been warranted. It
is appropriate to do so because of the emphasis placed on
it by the
applicants’ counsel, who sought to equate the respondent’s
position in the current case with that of D in
that matter. I
shall simplify the facts slightly for the purpose of narration.
[33]
The essence of the matter in
Dumas
was that D, an innocent party, was induced by the fraudulent
misrepresentation of W or his agent to invest a sum of money in a
Ponzi scheme operated by W. He did so by causing the funds to
be transferred to W’s banking account. The moneys
were
transferred with the common intention by transferor and transferee
that the payment was for investment by W in the purported
investment
scheme. Very soon after the transfer had been effected, D
became aware of the fraud and sought to recover his
funds from the
bank on the basis that W had no entitlement to the benefit of them by
reason of the fraud. The affected funds
were then held in a
suspense account that was frozen pending the determination of the
claims on them. A short time thereafter
W’s estate
was provisionally sequestrated in terms of an order which directed
the bank to pay the frozen funds into
the account of the provisional
trustees, which happened to be conducted at the same bank. D
then instituted a claim under
the
condictio
ob turpem vel iniustam causam
— a
remedy available to a plaintiff who innocently transfers money to a
defendant under an agreement which, to the knowledge
of the
defendant, is illegal. A number of parties were joined as
defendants, including the bank and the trustees of W’s
insolvent estate. As Cachalia JA pointed out, the first
problem with the claim advanced against the bank was that it
was had
not been party to the agreement or illegality.
[34]
The bank understandably took the position
of a stakeholder and abided the court’s determination.
The only parties to
oppose D’s claim were the trustees of W’s
insolvent estate, who asserted W’s right against the bank to
the monies
standing to the credit of his account at the date of his
sequestration.
[35]
The court of first instance upheld D’s
claim on the basis of the judge’s understanding of the import
of the appeal court’s
judgment in
Nissan
South Africa (Pty) Ltd v Marnitz NO and Others (Stand 186 Aeroport
(Pty) Ltd Intervening)
2005 (1) SA
441
(SCA),
[2006] 4 All SA 120.
On appeal, the Supreme Court of
Appeal held that the circumstances of the case in
Nissan
were materially distinguishable, and that the first instance judge
had been incorrect to apply that judgment in respect of D’s
claim. Cachalia JA identified the character of the issue in D’s
matter as follows at para 16 of
Dumas
:
‘
The enquiry in this case …
turns on whether or not
[W]
acquired
a personal right to the credit when
[D]
caused the money to be transferred to
[W’s]
account. If he did, the
funds accrued to
[W's]
estate
upon sequestration. However, if
[W]
himself did not acquire a personal right
to the funds, neither would his estate have upon sequestration; the
funds then remain the
property of the bank, with
[W's]
estate having no claim to its
payment. And the bank would be unjustly enriched, at
[D’s]
expense, if it retained the
funds without incurring an obligation to release it to the
trustees.
’ The learned
judge of appeal proceeded, in para 23: ‘
So
both
Nissan
and
Bank
of Lisbon
[
[12]
]
were concerned with theft or fraud
outside a contractual context
.
By contrast the investment transaction between
[D]
and
[W],
though tainted by fraud, nevertheless
constituted the causa for the payment.
[D]
intended
to pay
[W]
and
voluntarily made the payment into
[W’s]
account
;
it is immaterial that the payment was solicited through
[W]
misrepresentation and fraud
.’
(My underlining.) Just as much as D intended to pay W, so W
also intended to receive the payment; thus, in
contradistinction to
the position in the current matter, the payment transaction in
Dumas
was truly bilateral.
[36]
In the current case the funds were taken by
Louw from his investors to be legitimately invested for them
according to their instructions.
In breach of his contractual
obligations to his clients and for his own purposes, viz. to apply
the funds in the businesses he
conducted in Pholaco (Pty) Ltd and
certain other entities, Louw transferred the funds into the
respondent company’s banking
account. He did that to
launder the funds. He did not do that by any arrangement with
the respondent company.
He was not acting for the respondent
when he made the transfers into and out of the respondent’s
bank account, and the respondent
did not in the circumstances receive
or accept the funds by virtue of any transactional relationship with
Louw or his clients.
The money was paid into the respondent’s
account as part of Louw’s fraudulent scheme of which the
respondent was no
part. Its bank account, which is merely one
of its facilities and does not equate to its corporate personality,
was utilised
irregularly by the person (Louw) who had control of it
for his own purposes.
[37]
As
Cachalia JA acknowledged in
Dumas,
at para 14, ‘…
a
customer does not always acquire an enforceable personal right to the
credit in his account merely by virtue of the deposit. A
bank is
entitled to reverse a credit in the account-holder’s bank
account if it transpires that the account had been credited
in error,
that the customer had acquired the money by fraud or theft, that the
drawer’s signature on a cheque had been forged,
or that the
bank notes deposited into the account were forgeries
’.
In my judgment, the facts in the current case demonstrate just
such a situation. Unless Louw was acting on
its behalf as much
as he was on his own account in making the deposit to the
respondent’s account, which in my view he was
not, the
respondent obtained no enforceable right against the bank to payment
of the funds so deposited.
[38]
In the circumstances of the current case,
the persons entitled to proceed against the bank to recover the
stolen funds, for so long
as those funds remained to the credit of
the respondent’s account in the bank’s books, were Louw’s
clients, not
Louw; cf.
First National
Bank of Southern Africa Ltd v Perry N.O. and Others
2001 (3) SA 960
(SCA) at 972C, cited in
Nissan
supra, in para 21 and note 16.
When Louw caused the funds that he had stolen and deposited into the
respondent’s banking
account to be paid on to his actually
intended beneficiaries, he was not disposing of funds to which the
respondent had any entitlement
and, despite superficial appearances,
he was obviously therefore also not acting on the respondent’s
behalf in doing so.
[39]
In argument it was variously contended by
the applicants’ counsel that the insolvent estate’s claim
against the respondent
– they were evidently referring to the
first of the abovementioned alternative bases of claim - is of a
nature enforceable
by means of a
condictio
sine causa
or a claim under the
actio
Pauliana
. In my judgment there is
no merit in either of these contentions. As to the first, there
is no evidence that the respondent
was enriched and Louw impoverished
by the funnelling of funds through the respondent. As to the
second, the
actio Pauliana
is a remedy available to creditors of an insolvent estate from which
dispositions have been made to the prejudice of the creditors
to
recover the dispositions from the party to which they have been
made. It is available when the creditors can show that
the
recipient of the disposition was complicit in the fraud on the
creditors or when the recipient has received the disposition
ex
titulo lucrativa
(ie gratuitously).
In
Nedcor Bank Ltd v ABSA Bank and
Another
1995 (4) SA 727
(W);
[1995] 3
All SA 291
(W) at 729 G-I (SALR), Nugent J explained the nature of
the
actio
as follows: ‘
The
actio
Pauliana
is not a remedy for
recovery by a claimant of property which he has lost as a result of
fraud. It is a remedy to set aside a disposition
of assets which a
debtor has made for the purpose of avoiding the assets falling into
his estate on insolvency and thereby becoming
available for
distribution to his creditors. The party to whom the disposition was
made can be made to restore the property for
the benefit of creditors
if he colluded in the disposition or if he received the property
gratuitously. This I think is clear from
the cases referred to above.
(See, too,
Mars The Law of
Insolvency in South Africa
8th
ed at 233,
[
[13]
]
and the authorities cited
in
Commissioner of Customs
and Excise v Bank of Lisbon International Ltd and Another
1994
(1) SA 205
(N).).
’ It has
not been established that the respondent was complicit in the fraud,
nor indeed that it ‘received’
the funds in the relevant
sense. It is also less than clear that the dispositions were
made for the purpose of avoiding the
assets falling into his estate
on insolvency.
[40]
The applicants’ counsel also
submitted in their heads of argument that the respondent’s
financial records were kept
in such a manner as to reflect that
Pholaco was its debtor in respect of the funds channelled through the
company. The implication
of the submission being that the
accounts evidenced an appropriation by the respondent of the funds
paid into its account by Louw.
While there may be some basis to
the contention in regard to the manner in which certain ledger
accounts were written up, the annual
financial statements of the
respondent that were approved by Louw and Kellerman as the directors
during the relevant period did
not reflect that the respondent’s
assets included any claim against Pholaco (Pty) Ltd. The
respondent’s financial
statements did not reflect the
channelled funds in any way whatsoever. In all the
circumstances of the case I do not think
any credence can be attached
to the manner in which Louw had the respondent’s accounts
written up.
[41]
Reverting now to the third of the
aforementioned bases for the applicants’ assertion that the
insolvent estate is a creditor
of the respondent. Kellerman
averred that he had the respondent’s financial statements
redrawn after the discovery
of Louw’s misfeasance, and that the
amount owed to Louw on loan account as at the date of his
sequestration was in fact only
in the sum of R209 977, which has
since been paid to the applicants. It is therefore denied that
the applicants have
any outstanding claim against the company.
The calculation of the admitted claim of R209 977, which arose
out of the
aforementioned arrangements in terms of which Louw had
conducted the farming operations on the respondent’s property,
was
set out in detail by Kellerman in his answering affidavit
jurat
20 September 2019.
[42]
Mr
Olivier
contended, without much conviction it seemed to me, that Kellerman’s
qualification of his earlier admission that the extent
of the
company’s indebtedness to Louw on loan account was in the sum
of R606 047, being the figure reflected in the
company’s
February 2019 financials (in the drafting of which Kellerman had been
personally involved) was so far-fetched it
could be rejected on the
papers on the basis of the qualification to the
Plascon-Evans
rule. The test for departing from the general tenet of the
Plascon-Evans
rule and rejecting a respondent’s evidence on the papers has
been described as a ‘stringent’ one.
[14]
The applicants’ criticism of Kellerman’s evidence does
not come near to satisfying it. On the contrary,
on the face of
it the explanation that has been given in the respondent’s
papers of Kellerman’s recalculation of Louw’s
claim on
loan account is cogent.
[15]
There is certainly no basis to reject it on the papers as far-fetched
or untenable.
[43]
In the circumstances described above it
does not appear to me, assessing the evidence in accordance with the
rule in
Plascon-Evans
,
that the applicants have established on a balance of probabilities
that the insolvent estate has an outstanding claim against
the
respondent. Certainly, the applicants have not established that
the estate enjoys a liquidated claim that is not genuinely
disputed
by the respondent. Payment of the admitted claim was tendered
before the provisional order was made.
[44]
The provisional order must therefore be
discharged and the application dismissed. In my view it would
be fair, however, having
regard to its admitted indebtedness when the
application was instituted, for the respondent to be held liable for
the applicants’
costs of suit up incurred up the delivery of
the respondent’s answering papers including their costs in
respect of the perusal
and consideration of those papers, and for
such costs to include the fees of two counsel where such were
engaged. Save as
aforesaid, the applicants will be ordered to
pay the respondent’s costs of suit, also including the costs of
two counsel.
[45]
It only remains to dispose of an
application by the respondent for the striking out of certain parts
of the applicants’ replying
papers delivered in response to the
affidavits delivered by the respondent in opposition to the
application for a final winding-up
order. When the matter was
argued, Mr
van Eeden
SC, who appeared for the respondent together with Mr
Baguley
,
defined the material sought to be struck out more narrowly than in
the notice of application. He restricted the attack to
paragraphs 22.2, 22.3, 22.5, 22.6, 27, 28 and 29 of the applicants’
further replying affidavit and the whole of the affidavit
of Barend
Ferreira
jurat
25 June 2020. The application in respect of the identified
parts of the further replying affidavit was made on the grounds
that
those parts constituted new matter or were vexatious, scandalous or
irrelevant. It was contended that the content of
Ferreira’s
affidavit was irrelevant and that it constituted new matter.
[46]
The impugned subparagraphs in paragraph 22
of the further replying affidavit bore on certain emails exchanged
between Louw and Kellerman
concerning what may have been fictitious
transactions in H Investments (Pty) Ltd of the nature of those used
in Louw’s tax
evasion scheme that had resulted in VAT invoices
being issued by the respondent in respect of fictitious
transactions. The
evidence went to the issue of the credibility
of Kellerman’s professed ignorance about the tax evasion
scheme. I agree
that it was irrelevant. I do not agree
that it was scandalous or vexatious. In terms of
rule 6(15)
a
court may not uphold a striking out application in respect of
irrelevant matter unless it is satisfied that the applicant will
be
prejudiced if the application is not granted. The reason for
this qualification is obvious. Much unnecessary time
and effort
would be taken up if courts were required to deal with applications
to strike out objectionable material in affidavits
that despite its
objectionable nature nevertheless did not occasion the affected
litigant cognisable prejudice in the principal
litigation. The
parts of paragraph 22 to which objection has been taken by the
respondent were so patently irrelevant to
the case against the
respondent that it should have been reasonably apparent that the
court would pay no regard to them in the
determination of the
application. Insofar as they might be regarded by Kellerman as
prejudicial to his reputation and good
character, it should be
remembered that he is not a party to the litigation, and nor does he
stand for relevant purposes to be
regarded as the respondent’s
alter ego. It is only with the question of prejudice to the
respondent company that I
must concern myself with. I am not
satisfied that the parts of paragraph 22 to which objection has been
taken occasion any
such prejudice.
[47]
There is no reason to deal with the
application to strike out paragraphs 27-29 of the further replying
affidavit any differently
from the subparagraphs of paragraph 22
discussed above. The evidence in those paragraphs might aptly
be described as ‘more
of the same’.
[48]
In my judgment, the content of the
affidavit of Barend Ferreira was neither irrelevant, nor ‘new
matter’. It was
a legitimate response to the evidence put
in by the respondent premised on the redrawing or revision of the
company’s financials
by Mr Boshoff of Merlin Chartered
Accountants based on the information provided by Kellerman concerning
the investigative work
that he had undertaken of the company’s
accounting records subsequent to the exposure of Louw’s
fraudulent activities.
[49]
In the result the striking out application
will be dismissed with costs.
[50]
The following orders are therefore made:
1.
The
provisional order of liquidation in respect of the respondent
(Quintado 120 (Pty) Ltd) is hereby discharged and the winding-up
application is dismissed.
2.
The
respondent shall the applicants’ costs of suit in the
winding-up application incurred up to the delivery of the
respondent’s
answering papers including their costs in respect
of the perusal and consideration of those papers, and such costs
shall include
the fees of two counsel where such were engaged.
3.
Save
as provided in paragraph 2 above, the applicants shall pay the
respondent’s costs of suit in the winding-up application,
including the fees of two counsel where such were engaged.
4.
The
respondent’s application to strike out is dismissed with costs,
including the fees of two counsel.
A.G. BINNS-WARD
Judge
of the High Court
APPEARANCES
Applicants’ counsel:
L.M. Olivier SC
J.P. White
Applicants’ attorneys:
Mostert & Bosman
Bellville
MacRobert Inc.
Cape Town
Respondent’s counsel:
P.A. van Eeden SC
D. Baguley
Respondent’s attorneys:
Assheton-Smith Ginsberg
Cape Town
[1]
Certain email exchanges between Louw and
Kellerman concerning various transactions involving a farming
enterprise conducted by
H Investments (Pty) Ltd included in the
applicants’ papers call into question the veracity of
Kellerman’s claimed
ignorance of Louw’s use of a scheme
involving VAT invoices related to fictitious transactions. The
emails were in
Afrikaans and their subject line was ‘
Smokkels
’.
It appears from a communication from Louw to Kellerman after his
sequestration (annexure AA26 to the answering
affidavit by Kellerman
jurat 20 September 2019) that Louw was in the habit of
describing the tax evasion transactions he
engaged in as
‘
smokkels
’.
Despite the scepticism concerning Kellerman’s asserted
ignorance to which the email exchanges understandably
give rise, it
is not necessary to make any determination however, because on their
face they pertain to a different company.
[2]
In para 4.
[3]
Cf.
Vereins und
Westbank AG v Veren Investments and Others
2002 (4) SA 421
(SCA) at para 11 (Cameron JA), citing
Volkskas
Bank Bpk v Bankorp Bpk (h/a Trust Bank) en 'n Ander
[1991] ZASCA 57
;
1991
(3) SA 605
(A)
at
612C-D (Hefer JA). See also
Saambou-Nasionale
Bouvereniging v
Friedman
1979 (3)
SA 978
(A) at 993 A-B, where Jansen JA referred with approval to the
following statement in De Wet & Yeats
Kontraktereg
en Handelsreg
4ed.
at p. 236: ‘
Behoudens
enkele uitsonderinge, is voldoening 'n tweesydige regshandeling, wat
slegs met die medewerking en wilsooreenstemming
van albei partye kan
plaasvind
.’
[4]
Also called the ‘identification theory’,
Canadian Dredge & Dock Co v R
19 DLR (4
th
)
314; or ‘the directing mind and will principle’,
Mostert
NO v Old Mutual Life Assurance Co (SA) Ltd (2)
[2001] ZASCA 104
(1 June 2001);
[2001] 4 All SA 250
(A) at para
64-65. The ‘directing mind and will’ nomenclature
derives from the speech of Viscount Haldane LC
in
Lennard’s
Carrying Co Ltd v Asiatic Petroleum Co Ltd
[1915] AC 705
(at 713).
[5]
Also reported at
[1985] 1 SCR 662
and 1985 CanLII
32 (SCC).
[6]
The commentator in LAWSA loc. cit. (RC Williams,
original text by the late MS Blackman) adopts the threefold test
framed by Estey
J in para 66 of
Canadian
Dredge & Dock Co
supra.
[7]
El Ajou v Dollar Holdings plc
[1994] 2 All ER 684
(CA
), Re Bank of
Credit and Commerce International SA (in liquidation) (No. 15):
Morris v Bank of India
[2005] 2 BCLC
328
(CA);
[2005] EWCA Civ 693
,
Brambles
Holdings Ltd v Carey
(1976) 2 ACLR 176
(SA),
Chisum Services (Pty) Ltd and the
Companies Act 1961 (
1982) 4 ACLR 641
SC (NSW) and
Entwells (Pty) Ltd v
National and General Insurance Co Ltd
(1991) 5 ACLR 424
SC (WA); [1991] WASC 286.
[8]
Supply of Ready Mixed Concrete
,
Re
(
No
2
),
Director
General of Fair Trading v Pioneer Concrete (UK) Ltd
[1995]
1 All ER 135
(HL).
[9]
Quoted by Wunsh J in
Simon
NO and Others v Mitsui and Co Ltd and Others
1997
(2) SA 475
(W) at 530G-531A.
[10]
Note 7
above.
[11]
Cf.
Beach Petroleum
Nl and Claremont Petroleum Nl v Malcolm Keith Johnson and Others
[1993] FCA 283
;
(1993) 115 ALR 411
;
(1993) 11 ACSR 103
, at para
575.22.35, as to when a director’s conduct might
not
be treated as a ‘frolic of his own’.
[12]
Commissioner of Customs and Excise v Bank of
Lisbon International Ltd and Another
1994 (1) SA 205 (N).
[13]
See p. 307 of the current (10
th
ed.) edition.
[14]
See
National Scrap
Metal (Cape Town) (Pty) Ltd and Another v Murray & Roberts Ltd
and Others
2012 (5) SA 300
(SCA)
at para 21-22 and
Mathewson and
Another v Van Niekerk and Others
[2012]
ZASCA 12
at para 7.
[15]
The explanation was set out in detail in
Kellerman’s affidavit
jurat
20
September 2019 and further in his affidavit opposing the application
for a final order,
jurat
22
May 2020.