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[2014] ZASCA 1
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ABSA Bank Limited v Mahomed and Another (876/12) [2014] ZASCA 1; 2014 (2) SA 466 (SCA); [2014] 2 All SA 1 (SCA) (20 January 2014)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No: 876/12
Reportable
DATE:
20 JANUARY 2014
In
the matter between:
ABSA
BANK
LIMITED
..............................................................
Appellant
And
MAHOMED
ARIF
........................................................
First
Respondent
ABDUL
SHIRAZ
..................................................
Second
Respondent
Neutral
citation: Absa Bank Ltd v Mahomed (876/12) [2012] ZASCA 1 (20
January
2014)
Coram: Maya,
Malan, Petse, Willis and Saldulker JJA
Heard: 21
November 2013
Delivered: 20
January 2014
Summary:
Banker
– liability of a commercial bank for illegal and unauthorised
transactions purportedly concluded in its name by its
agent –
appellant bank’s agent and respondents concluding interest
bearing deposit investment agreements using fictitious
account holder
names to conceal undeclared taxable funds from SARS – bank
agent misappropriating funds – no trace
of respondents’
deposits on bank’s processing systems and records – bank
agent not duly authorised to represent
bank in concluding illegal
agreements designed to defraud the fiscus – respondents failing
to establish their pleaded causes
of action and bank’s appeal
upheld.
ORDER
On
appeal from: South Gauteng High Court, Johannesburg (Maluleke J
sitting as court of first instance):
1
The appeal is upheld with costs, including the costs of two counsel.
2
The order of the court below is set aside and replaced with the
following:
‘
(a)
The first plaintiff’s action is dismissed with costs, including
the costs of two counsel.
(b)
The second plaintiff’s action is dismissed with costs,
including the costs of two counsel.’
JUDGMENT
MAYA
JA (MALAN, PETSE, WILLIS and SALDULKER concurring):
[1]
This is an appeal against the judgment of the South Gauteng High
Court (Maluleke J) which granted the respondents’ claims
against the appellant, Absa Bank Limited (Absa), for payment of money
together with interest. The appeal is with the leave of the
court
below.
[2]
The two respondents, Mr Arif Mohamed and his nephew Mr Shiraz Abdul,
are retail businessmen based in Pretoria. The litigation
arose out of
interest bearing deposit investment agreements which the respondents
alleged they concluded with Absa’s agent,
Mr Naresh Rama
Mistry. The transactions were made at Absa’s Marabastad agency,
one of two Absa agencies in Pretoria (the
second agency was in
Laudium) that were operated by Mistry, as a sole proprietor of
Mistry’s Financial Services and Mistry’s
Estate Agencies,
on Absa’s behalf. Mistry ran the agencies under an agency
agreement concluded between his entities and United
Bank Limited,
Absa’s predecessor, before the latter was amalgamated with
three other commercial banks (Volkskas, Allied and
Trust Banks) to
form Absa (formerly called the Amalgamated Banks of South Africa
Limited) in the 1990’s.
[3]
In February 2009, it came to light that Mistry had perpetrated
massive frauds at the two Absa agencies. A forensic investigation
and
audit revealed that he had stolen millions of Absa clients’
investments. Absa promptly launched sequestration proceedings
against
Mistry, which were unopposed, and obtained a final order in May 2009.
It does not appear though that any of the misappropriated
proceeds
were ultimately recovered from Mistry who reportedly fled the
country.
[4]
The respondents, armed with purported Absa investment (deposit)
certificates (receipts), were among Absa’s clients who
came
forward claiming to be victims of the swindle and seeking
compensation from Absa. Mahomed alleged that he invested various
sums
of cash, handed to Mistry for deposit, totalling R5 432 099.88 under
four investment accounts as follows: R1 million paid
into JT
Investments account on 24 May 2007, R1million paid into RD Family
Fund account on 1 June 2007, R3 million paid into Rishi
Family Fund
account on 11 August 2007 and R432 099.88 paid into Judson Trading
account on 18 August 2007. The investments would
mature in 12 months
and bear interest at the rate of 17,5 per cent per annum. Abdul on
the other hand claimed payment of a sum
of R2 020 843 which he
alleged to have handed to Mistry as cash for investment into three
accounts: R808 752.34 into Goden Store
account on 19 March 2008, R246
419.91 into Judson Agency account on 5 February 2007 and R965 670.85
into HIF Investments account
on 15 May 2007. The investments would
earn interest at 7,45, 7,35 and 7,20 per cent per annum,
respectively, over a 12 month investment
period.
[5]
None of the alleged investment accounts showed on Absa’s
banking systems and records. And as it emerged, the respondents
and
Mistry, unbeknown to Absa, used fictitious names in concluding the
investment agreements to conceal the substantial taxable
funds which
the respondents had deliberately failed to declare to the South
African Revenue Service (SARS) to evade tax. Therefore,
the entities
in which the investments accounts were held did not exist. Except for
the deposit receipts relied upon by the respondents,
which Absa’s
on-going forensic investigation (conducted in tandem with police
investigations) suggested were forgeries, the
respondents did not
furnish Absa with documentation requested by its investigators which
would facilitate the verification and
investigation of their claims.
Instead they threatened, through their attorneys, to liquidate Absa
and lay criminal charges against
its directors and Chief Executive
Officer for breach of the provisions of the Financial Intelligence
Centre Act 38 of 2001 (FICA).
1
[6]
Absa denied any liability to the respondents who then turned to the
high court and launched application proceedings for payment
of their
respective claims as described above.
2
The respondents based their claims on contract.
3
They alleged a breach of the investment contracts by Absa which they
pleaded misappropriated, divested, lost or stole their investments
and failed to automatically reinvest the investment funds. In
addition to the claims for the capital investment deposits, Mahomed
sought interest at the agreed rate of 17,5 per cent per annum whilst
Abdul demanded interest at the legal rate. They contended
that their
investment contracts were substantiated by the deposit receipts
issued by Absa. These receipts, they alleged, bore the
material terms
of each of the investment agreements with which they complied. The
receipts each bore the names of the fictitious
account holders, the
capital amount of the purported investments, the purported maturity
date of the investments and the purported
applicable interest rates.
They also contained the following terms:
‘
On
maturity, unless you instruct Absa otherwise, your investment will
automatically be renewed for the original term, but at the
rate
applicable at the time of maturity. Should you find this
unsatisfactory you may change details of this automatic reinvestment
within 30 days from the date of reinvestment, without incurring a
penalty fee.
Clients
are requested to insist on this receipt bearing a teller’s
stamp which is the only official form of receipt issued
by Absa
Bank.’
[7]
In its pleas, Absa admitted only Mistry’s authority to operate
its Marabastad agency as its agent and denied liability.
It disputed
the genuineness of the deposit receipts. It further denied the
conclusion of the alleged investment agreements alternatively,
if
they were so concluded, Mistry’s authority to act as its
authorised agent or representative when contracting with the
respondents and the payment to it of the funds represented by the
deposit receipts. It then pleaded that the respondents, acting
independently or in concert with Mistry, intentionally and unlawfully
concealed the investments, their entitlement thereto and
the source
of the investment funds from SARS to evade tax. Absa proclaimed its
innocence and alleged that the respondents assumed
all risks
associated with such conduct from which it did not benefit. It
finally pleaded that granting the respondents’ claims
would
offend public policy, fairness and equity as it would constitute the
enforcement of illegal, dishonest and immoral conduct.
[8]
The respondents replicated jointly and admitted that the underlying
intent of the investments was to evade tax. But they contended
that
they subsequently sought and obtained amnesty from SARS for their
non-disclosure and that this cured any illegality that tainted
the
investments. They contended further that as Mistry concluded the
investments agreements on Absa’s behalf with the full
knowledge
of their intent to defraud the fiscus, it would be unjust and against
public policy to allow Absa to be enriched by retaining
the funds.
[9]
The key issue at the trial was whether Mistry was duly authorised to
represent Absa in concluding the investment agreements.
Both
respondents testified in support of their claims. Their respective
versions were substantially similar. The nub of their evidence
was
that they invested with Absa, represented by Mistry, large sums of
cash – Abdul stated that he also transferred some
of the funds
he invested from three business accounts he held with Absa, BEE
Central, Shy Prop Investments CC and SM Store Manufacturers
–
made from their business activities which they had squirreled away
over the years. Neither of them was a registered taxpayer
and they
had no intention of paying tax. They had legitimate accounts with
Absa and had known Mistry, whom they trusted, for years.
They used
fictitious investment account names to hide the investments from SARS
on advice given by Mistry who doubled as their
financial adviser and
bookkeeper.
4
In 2007, they applied to SARS for the Small Business Tax Amnesty,
again on Mistry’s advice. They declared all their income
including the investments, which they declared as assets. Mahomed,
who had declared all his income from 1989 to 2007, was allegedly
granted amnesty and SARS’ response in respect of Abdul’s
application was still pending at the time of the trial.
[10]
Several flaws in the respondents’ evidence were laid bare in
their cross-examination. Apart from the disputed deposit
receipts,
neither respondent had any other record or accurate recollection of
the actual amounts of the initial deposits, the agreed
interest rates
applicable to the investments and the calculation of capitalised
interest. It transpired that an addition of the
alleged accrued
interest to the capital amounts of the investments oddly resulted in
figures which did not tally with the investment
amounts reflected in
the deposit receipts.
[11]
Mahomed could not say with any certainty whether the deposit receipts
upon which he relied for his claim were the most recent
ones from
Mistry. He contradicted himself on whether he ever witnessed a teller
affix a stamp on them. (Abdul, on the other hand,
said he always
collected his receipts from Mistry who would hand them to him in an
envelope and never saw a teller affix stamps
on them.) Nor could he
explain the exorbitant interest rates applicable to his investments,
which were glaringly out of kilter
with the normal bank rates. He
also could not explain why Absa periodically corresponded with him in
respect of his other investments
with it but sent him no
communications, including the mandatory income tax certificates, at
all in respect of the disputed investments,
which he did not query.
It turned out that he lied in his evidence-in-chief about the extent
of his honesty to SARS in his tax
amnesty application, and had sought
amnesty only in respect of a sum of R225 000 generated as rental
income in the 2006 tax year.
He was then constrained to admit that he
did not make full disclosures regarding the 2002/2003 tax returns and
perpetrated yet
another fraud on SARS.
[12]
Mahomed’s evidence that the amounts reflected in his deposit
receipts in 2008 represented the amounts actually invested
in 2005
did not withstand scrutiny. He changed this version cross-examination
and stated, as did Abdul, that the interest on his
investments was
automatically capitalised when reinvested 12 months after initial
investment. But he then said as a Muslim he could
not keep the
interest and gave it to charities in accordance with the prescripts
of his faith. Strangely though, the amounts stated
in the deposit
receipts were in the round figures which were allegedly deposited
with Mistry initially. And he still claimed payment
of capitalised
interest which, on his version, would already have been included in
these amounts.
[13]
As mentioned, there were material defects in Abdul’s evidence
too. He admitted when questioned about the transfers he
now alleged
to have made from his trading accounts into the investment accounts
that he had previously given Absa’s attorney,
Ms Wright, a
contrary version that the funds he invested comprised of cash that he
kept and accumulated in a safe. He could not
explain satisfactorily
why he said he invested ‘R1.4 million to R1.5 million’ in
his founding affidavit whereas his
oral version was that the
investment amount was ‘approximately R2 million’. It also
came about that his tax amnesty
application, which SARS ultimately
rejected, was curiously brought under his wife’s business,
Nadrav Wholesalers CC, to which
he said he advanced his ‘total
capital investment held with [Absa] in the names of Goden Stores,
Judson Agencies and HIF
Investments’ in 2009.
[14]
Absa called only one witness, Mr Uwe Erich Otto, its long-time
employee and ‘specialised forensic investigator’.
Otto’s
evidence mainly concerned his investigations into and findings on
Mistry’s large scale fraud which he said spanned
2007 to 2009.
He explained the investment deposit process and significance of a
teller’s stamp as follows. The cardinal requirements
whenever
the bank collected funds from a client for saving or investment were
(a) the completion of application documents by recording
the client’s
details and stipulations for the relevant transaction and (b) the
issue of an official acknowledgement of the
receipt of funds by a
bank official in the form of a deposit receipt or certificate. In the
case of an investment transaction,
the receipt had to be endorsed by
a teller’s stamp which identified the official who collected
the deposit and indicated
the date of collection and the site or
branch code. The importance of the teller stamp was that it enabled
the bank, if any problem
arose with a transaction, to trace it back
to the specific branch and the specific staff member, who attended
the transaction,
for confirmation and rectification.
[15]
His investigation, prompted by an anonymous tipoff received in
February 2009, revealed that the account numbers on the respondents’
deposit receipts did not exist in Absa’s systems and platform,
as he called it. The only exception was the number which suspiciously
appeared on the deposit receipts in respect of both Judson Trading
and JT Investments. His search revealed that this account number
was
in fact a genuine Absa number. But it was allocated to a different
client, Judson Timber CC, which had no connection whatsoever
to
Mahomed and his entities.
5
This went against Absa’s practice of allocating a unique
account number to each client. He confirmed that the trading
accounts,
BEE Central, Shy Prop Investments CC and SM Store
Manufacturers, from which Abdul claimed to have transferred funds for
his investments,
in fact existed in Absa’s client records. But
according to him, no withdrawals or transfers matching the alleged
investments
were made from these entities’ accounts. He also
disputed Abdul’s version that he made the investment transfers
in
2003 and 2004 with the use of the old style, barcoded bank books
which Mistry had given him. Absa had phased out the bank book system
in 1998 and replaced it with the bank card system and regularly
issued bank statements in respect of all accounts. Otto also
dismissed
the respondents’ deposit receipts, which he said bore
an unfamiliar print font and style and no teller stamps but generic
bank stamps, as falsified. But he could not dispute the respondents’
evidence that they concluded the investment agreements
and deposited
money with Mistry.
[16]
Against this background, the court below found that Absa’s
denial of the agreements and deposits was without substance
as no
evidence supporting it was adduced. The court below found that it was
not disputed that Mistry held himself out as, and was
in fact,
Absa’s duly authorised agent with actual and ostensible
authority to transact on Absa’s behalf as he did
when the
investment transactions were effected. In the court’s view,
‘the contract to make a fixed deposit investment
. . . was
separate and distinguishable from the financial advice on how to
evade . . . tax . . . [and] was irrelevant to the issue
that the
branch manager of the bank, with the requisite actual or ostensible
authority, solicited and took deposits from the [respondents]
and
issued fixed deposit deposits in respect thereof’. Thus, the
respondents had established the requirements to hold Absa
liable for
its agent’s acts on the basis of estoppel and proved their
pleaded case on a balance of probabilities. Absa was
held liable and
ordered to pay the respondents’ claims as prayed plus interest
on the total capital amount at the legal rate
from the date of the
institution of the proceedings to date of payment. It is this
decision that is the subject of this appeal.
[17]
A few weeks before the hearing of the appeal, long after the parties
had filed their heads of argument, Mahomed lodged an application
to
amend his replication by adding that Absa was estopped from denying
Mistry’s authority to represent it. The reason given
for his
failure to raise this defence previously was that Absa had admitted
its liability for Mistry’s fraud and other facts
satisfying
estoppel in the sequestration proceedings it launched against Mistry.
It was also contended that Absa waived its right
to object to the
amendment, which would not occasion any prejudice to it anyway, as
the subject matter was canvassed in the court
below and that if Absa
‘was genuinely prejudiced it would have asked for remittal’.
Absa opposed the amendment application
on various grounds, including
its lateness and the attendant prejudice it said it would suffer
because the defence was not properly
canvassed at trial and is not
supported by available evidence.
[18]
The application, which was argued during the appeal hearing, may be
dealt with shortly. According to Mahomed’s affidavit,
the
reason given for the lateness of the application was known to him
even before he approached the high court for relief. As indicated
above, Absa expressly denied that Mistry was authorised to represent
it in the circumstances of the respondents’ claims in
its plea.
Neither respondent raised estoppel to this denial in their
replication. And it appears from the affidavit filed in support
of
the amendment application that this was a deliberate choice by
Mahomed and his legal representatives. Significantly, on several
occasions thereafter, Absa pertinently raised the respondents’
failure to plead estoppel in respect of Mistry’s authority,
the
genuineness of the deposit receipts and the issue of the teller
stamps – in its heads of argument filed in the court
below and,
subsequently, in further submissions filed in support of its
application for leave to appeal in that court, in its notice
of
appeal as a specific ground of appeal and in its heads of argument in
this appeal. None of these repeated cautions evoked any
response
until the eleventh hour and it remains unclear why Mahomed suddenly
saw the need to raise it at this late stage.
[19]
Quite obviously, the introduction of this defence, if allowed, will
alter the foundation of Mahomed’s case and the issues
that were
to be determined by the court below. That has a direct bearing on the
manner in which the parties would have conducted
their cases at the
trial. For example, had the defence been raised properly, Absa could
well have filed a rejoinder, interrogated
the issue in further
particulars if necessary and dealt with it in evidence. Allowing the
proposed amendment at this stage would
undoubtedly prejudice Absa as
it would deprive it of its right to have taken the above steps. It
would also deprive the trial court,
this court and the parties
themselves of a proper ventilation of the issue. As a result, the
amendment cannot be allowed and is
refused. Furthermore, as neither
respondent relied on the apparent authority of Mistry at the trial,
it simply was not an issue
before the court below despite the
latter’s finding in this regard, which I deal with later in the
judgment.
[20]
About two weeks before the appeal hearing, Mahomed’s attorneys
made yet another approach to this court on his behalf.
They wrote the
Acting President of the court recording Mahomed’s apprehension
that two of the justices assigned to adjudicate
the appeal, Malan and
Willis JJA, were biased against his cause. This perceived partiality
reportedly arose from the justices’
‘interest’ in
or ‘association’ with Absa, discovered by the attorneys
pursuant to their investigation into
the issue. According to the
letter, Malan JA was a director at HRSC-RAU research unit for Banking
Law between 1987 and 1997 and
Willis JA was a Fellow of the Institute
of Bankers of South Africa in 1995.
[21]
The attorneys’ letter continued:
‘
The
reported case from the Constitutional Court Bernert v Absa Bank 2011
(3) SA (CC) revealed that:
i)
Prior to Malan JA’s appointment to the bench he was employed
by the Institute of Banking and Finance Law at Rand Afrikaans
University (now the University of Johannesburg).
ii)
The Institute founded by Malan JA, was mainly sponsored by five
major South African Banks, with Absa Bank being the main
sponsor.
iii)
Absa Bank paid the salary of Malan JA.
iv)
Absa Bank paid for Malan JA’s overseas research trips
whilst he was employed by the Institute.
.
. .
The
interest and / or association Malan JA and Willis JA have with [Absa]
was information exclusively in the domain of Absa, Malan
JA and
Willis JA. [They] did not at any stage disclose this to [Mahomed].The
suppression of this material information in disregard
to the law as
expressed by the Chief Justice in Bernert … has undermined
[Mahomed’s] confidence in the judiciary.
. . . The failure by
Malan JA and Willis JA to discharge the obligation of disclosure
imposed by them by law of the land fortifies
our client’s
reasonable apprehension of bias.’
[22]
In response to this letter, the Acting President of this court
referred to the Constitutional Court’s ratio in this regard
in
the Bernert judgment which decided the exact issue. But he directed
Mahomed to file a substantive application for the justices’
recusal by the date of the appeal hearing, if he so wished. All was
quiet until three days before the hearing when another letter
from
Mahomed’s attorneys addressed to the two justices, was
delivered at the court. Referring to the Bernert judgment, the
letter
stated that Mahomed was considering his options and needed to know
‘the current nature, extent and value of Malan
JA and Willis
JA’s interest and / or association with Absa Bank’. No
recusal application had been filed when the appeal
was called in
court on the date of its hearing. Instead, Mahomed’s attorney
informed us that he would not be pursuing a recusal
application and
sought the court’s leave merely to place on record that the two
justices failed to disclose their ties with
Absa, as they were
enjoined by the law, and did not timeously respond to his written
query.
[23]
First, Willis JA has never had any ‘interest and/or
association’ with Absa as alleged in Mahomed’s first
letter and has never had any dealings of whatever nature with the
bank. The objection against him was unfounded also in so far
as the
objection against Willis JA was premised on the fact that he is a
Fellow of the Institute of Bankers in South Africa. The
insitute is a
professional body whose objective is to further the interests of the
banking profession, bankers and the general
public. It exists to
raise the professional standards of the banking industry in this
country, a fact which Mahomed’s attorney
conceded during the
hearing of the appeal. An enquiry into the nature of the institute,
which Mahomed’s attorney admitted
he did not exactly know,
would have been expected before an objection against Willis JA’s
involvement in the appeal was
raised.
[24]
As for Malan JA, the precise allegations about his purported ties
with Absa contained in Mahomed’s letter were raised
to support
a finding of bias against Malan JA in the Bernert case. At the foot
of page 92 of that judgment it is recorded that
they are ‘wholly
untrue or substantively incorrect’. And the Constitutional
Court dealt pertinently with the issue,
on the exact set of facts,
and had this to say:
6
‘
Prior
association with an institution cannot form the basis of a reasonable
apprehension of bias, “unless the subject-matter
of the
litigation in question arises from such associations or activities”.
Most judicial officials would have been engaged
in a number of
activities in pursuit of their professional lives before their
appointment. These activities contribute to the expertise
that
judicial officers bring to the bench. What is required is that
judicial officers should decide cases that come before them
without
fear, favour or prejudice, according to the facts and the law, and
not according to their subjective personal views. Of
course, where a
judicial officer, in his or her former capacity, either advised or
acquired personal knowledge relevant to a case
before the court, it
would not be proper for that judicial officer to sit in that case. .
. . There is no suggestion in this case
that the subject-matter of
the litigation arises from the association which ... Malan JA had
with Absa Bank prior to [his] appointment
to the bench. Nor is there
any suggestion that in the course of [his] association with Absa
Bank, [he] acquired personal information
that was relevant to the
appeal before [him]. Nor do I consider that there was any obligation
on [him] to disclose [his] prior
association with Absa Bank. In SARFU
II [1999 (4) SA 147 (CC) para 89] this court said that “(j)udicial
officers are obliged
to disclose only such facts as might reasonably
be relevant to a recusal application”. Non-disclosure of
irrelevant facts
cannot, therefore, be a basis for a reasonable
apprehension of bias. . . . No case, therefore, has been made that
... Malan JA
should have recused [himself] because of prior
association with Absa Bank.’
[25]
The above comments are clear and need no explanation. Without doubt,
the subject-matter of this appeal does not arise from
any association
Malan JA might have had with Absa. Nor is there even a hint that in
the course of that association they acquired
personal information
that is relevant to this appeal. Mahomed’s or his attorneys’
apprehension of bias had no basis
whatsoever in the circumstances.
The justices owed Mahomed no obligation to disclose their prior
association with Absa.
It
must be said that it seems rather mischievous of Mahomed and his
attorneys (who incidentally invited television media to record
the
appeal proceedings without first asking this court’s permission
as is required), with the full awareness of the Bernert
decision, to
raise this issue as they did and to persist with their allegations of
bias even after their correspondence with the
Acting President of
this court which pointed out that the Bernert judgment to which they
referred did not support Mahomed’s
‘apprehension of
bias’.
[26]
I turn to deal with the merits of the appeal. The issues on appeal
were whether (a) Mistry was duly authorised to represent
Absa in
concluding the investment agreements, which were designed to defraud
SARS (and whether the court below was entitled to
have regard to the
issue of estoppel which had not been pleaded), (b) the respondents
had established and proved their pleaded
causes of action, (c) the
respondents were to be non-suited in enforcing illegal agreements
against Absa from which it did not
benefit, and (d) the respondents
were satisfactory witnesses.
[27]
It was contended on Absa’s behalf that the respondents, who
were poor witnesses, failed to prove the alleged agreements.
Mistry
was not, and could not, have been authorised to represent Absa in
concluding the unlawful agreements, it was argued. And
the issues of
ostensible authority and estoppel were irrelevant because the
respondents did not replicate an estoppel. But even
if they had done
so, their claims would still fail. This was so, it was argued,
because the relevant representations were made
by Mistry and not by
Absa, and the respondents could not reasonably have understood that
Mistry was authorised to bind Absa to
unlawful agreements. And the
respondents failed to prove an essential requirement of the
agreements, that the deposit receipts
bore Absa’s teller
stamps. It was finally contended that even if the respondents
succeeded on these points, the claims could
not be allowed as to do
so would sanction their unlawful conduct in circumstances where Absa
is an innocent party.
[28]
The respondents contended that the court below decided the matter
correctly. Their main submission was that Absa was liable
and could
not distance itself from its agent’s action with whom they
contracted and secured deposit receipts as proof of
payment. They
emphasised that Otto was unable to gainsay that they concluded the
agreements with Mistry and gave him money. It
was insisted that they
honestly made full disclosures in their tax amnesty applications and
relied entirely on their financial
advisor and accountant, Mistry, at
all material times. Absa’s omission to call Mr Sheldon Martin
of its legal department,
who deposed to the sequestration affidavit,
as a witness was criticised. A point was made that Absa suppressed
the full reports
of its forensic investigation and insurance claims
in respect of Mistry’s fraud and could well have been
reimbursed for all
its losses, including for the respondents’
stolen investments, by its underwriters. Absa was also castigated for
failing
to comply with FICA requirements. Mahomed’s attorney
further urged us to consider the matter with reference to the
country’s
apartheid past as the respondents decided to evade
tax so as not to empower the apartheid government and that they were
granted
amnesty by SARS upon full disclosure of their financial
status. For Abdul it was also argued that his case was different
because
Absa had records of his investment accounts and the bank did
not disclose what was yielded by its search into the four legitimate
accounts from which he claimed to have transferred funds to the
investment accounts.
[29]
MAs I see it, the real issue in the parties’ dispute, in light
of their pleadings, having regard to the refusal of the
amendment
application to introduce estoppel to Mahomed’s replication, and
the evidence adduced at the trial, is whether Mistry
was duly
authorised to represent Absa in concluding the alleged investment
agreements. In view of Absa’s categorical denial
of such
authority, the respondents were obliged to prove that Mistry had
actual authority ie express authority given by words or
implied
authority inferred from the conduct of the parties and the
circumstances of the case.
7
[30]
Even assuming that the respondents concluded the investment
agreements with Mistry and handed him money as they alleged, it
nevertheless remains clear from the evidence led at the trial and the
agency agreement concluded between Mistry and Absa that the
latter
did not give express authority to Mistry to conclude the alleged
agreements. Clause 5.5 of the agency agreement specifically
set out
the precise scope of Mistry’s authority regarding the
collection of money from the bank’s clients as follows:
‘
Subject
to the Agency directives at all times being strictly complied with,
the Agent may receive money from clients on United’s
behalf
only against completion of the necessary documents in each case and
in each case the Agent shall give the official United
acknowledgement
to the person making the deposit or payment.’
Otto’s
testimony that the official bank acknowledgement was in the form of
teller stamps and that the stamps on the respondents’
deposit
receipts were ordinary bank stamps and not the teller stamps demanded
by the very receipts, was not gainsaid. Therefore,
the respondents
did not have official Absa acknowledgement of their deposits. Whether
the difference between the two types of bank
stamps was readily
discernible to a bank customer is irrelevant in the light of the
pleaded terms of the agreements.
[31]
Moreover, on their own version, the respondents intentionally and
knowingly colluded with Mistry to open investments accounts
with Absa
in fictitious names to facilitate their tax evasion, unlawful conduct
which Absa was not shown to have authorised Mistry,
expressly (or
otherwise), to undertake on its behalf. In this regard, I cannot
agree with the view espoused by the court below
that the respondents’
underlying unlawful intent to circumvent tax laws has no bearing on
the validity of their claims and
is a matter to be dealt with by
SARS.
[32]
Having failed to establish express authority, the respondents were
obliged to prove that Mistry had implied authority to contract
with
them under the circumstances and on the terms they alleged he did,
within the usual scope of his office.
8
As this court has pointed out:
‘
The
appointment by a bank of a branch manager [or, as in this case, an
agent] implies a representation to the outside world that
the branch
manager [or agent] is empowered to represent the bank in the sort of
business (and transactions) that a branch of the
bank and its manager
[or agent] would ordinarily conduct. The notion of “ordinary
business” in turn implies a qualification
in the form of a
limitation: that the branch manager [or agent] is not authorised to
bind the bank to a transaction that is not
of the ordinary kind. What
the ordinary kind of business is remains a matter of fact and hence
of evidence. . . . A branch manager
[or agent] clearly does not have,
nor can he reasonably be believed by anyone to have, free hand to
bind the bank at will. His
authority to do so is not unlimited both
as to the nature and the extent of the business he purports to
transact in the bank’s
name. . . . An outsider dealing with a
branch manager [or agent] is entitled to assume that the latter’s
functions encompass,
but do not exceed, the activities that a branch
manager [or agent] would commonly be known to perform.’
9
[33]
It should go without saying that the type of agreements which Mistry
purportedly concluded with the respondents on Absa’s
behalf do
not fall within the
category
of business or transactions that a branch of a bank and its agent
would ordinarily conduct. And the respondents most certainly
could
not reasonably have believed that engaging in fraudulent conduct fell
within Mistry’s functions and that Absa had authorised
him to
represent it in unlawful activity. The respondents, therefore, failed
to prove that Mistry had implied authority to conclude
the alleged
investment agreements on Absa’s behalf. The court below, which
referred to the Glofinco judgment for its finding
in this regard,
obviously misapplied the decision of the majority judgment in that
case.
[34]
I have dealt with the issue of estoppel which bears on ostensible
authority, albeit in another context. As I have said, the
court below
was not entitled to address it for the simple but compelling reason
that it was not pleaded and was therefore not an
issue between the
parties. The court’s finding that it was not in dispute that
Mistry had (actual and) ostensible authority
to represent Absa as he
did was, of course, wrong. That should be the end of this issue. But
I should perhaps add that even if
the defence of estoppel had been
raised pertinently the respondents would not have succeeded in their
claims. They simply would
not be able, on the available evidence, to
meet the essentials of estoppel: a representation by words or
conduct, made by Absa
as the principal that Mistry had the authority
to conclude the unlawful agreements, that their belief in the
representation was
reasonable and that they acted on that belief to
their prejudice.
10
A party which knows that a transaction is unlawful or is part of an
unlawful scheme and is aware or should reasonably be aware
that the
principal of the agent with whom it is contracting would not
countenance the conclusion of such a transaction, is, in
any event,
precluded from relying on ostensible authority.
11
[35]
In sum, in the light of the terms of the agreements pleaded by the
respondents and the absence of the teller stamps on the
deposit
receipts, there was no admissible acknowledgement or admission by
Absa of the amounts allegedly deposited with Mistry.
The respondents
thus failed to prove not only that Absa misappropriated their
investments but even the very quantum of their claims.
They failed to
establish their pleaded causes of action. For these reasons, their
claims should have been dismissed and there is
no need to consider
the other issues raised in the appeal and the further misdirections
of the court below.
[36]
Lastly, there is another matter that requires mention. After we heard
the appeal, a document titled ‘1st Respondent’s
Elucidation on Issues Raised by Learned Judges on the 21 November
2013’ was filed on Mahomed’s behalf without our
permission. According to this court’s practice, parties may not
file new material after the hearing of an appeal without the
court’s
leave.
12
But, in any event, the document essentially rehashes submissions
that were made during the appeal and does not add any value to
Mahomed’s case. Nothing more need be said about it.
[37]
In the result, the following order is made:
1
The appeal is upheld with costs, including the costs of two counsel.
2
The order of the court below is set aside and replaced with the
following:
‘
(a)
The first plaintiff’s action is dismissed with costs, including
the costs of two counsel.
(b)
The second plaintiff’s action is dismissed with costs,
including the costs of two counsel.’
MML
Maya
Judge
of Appeal
APPEARANCES
APPELLANT: KW
Luderitz SC (with GW Amm)
Instructed
by:Lowndes Dlamini Attorneys, Johannesburg
Matsepes
Inc., Bloemfontein
1ST
RESPONDENT: Z Omar
Instructed
by:
Zehir
Omar Attorneys, Johannesburg
Ben
van der Merwe Attorneys, Bloemfontein
2ND
RESPONDENT: DR Thompson / S Ebrahim
Instructed
by: Saleem Ebrahim Attorneys
Bokwa
Attorneys, Bloemfontein
1
Absa
consequently launched urgent proceedings, which were successful, to
interdict the threatened liquidation application. And,
interestingly, the respondents’ threats were carried out.
These proceedings were preceded by litigation supported by Mahomed
which challenged the appointment of the then Governor of the Reserve
Bank,
Ms
Gill Marcus, Absa’s chairperson at the material time, for
allegedly suppressing fraudulent activities at Absa. Mahomed
had
also laid criminal charges against the Governor and Ms Maria Ramos,
an Absa director, for collusion in Absa’s alleged
attempted
extortion and concealing Absa’s breach of FICA requirements.
However, both proceedings came to naught; the criminal
case was
aborted and the application proceedings were held vexatious and
dismissed with punitive costs.
2
In
para [4].The respondents’ individual application proceedings
were subsequently referred to trial and consolidated for
trial
purposes.
3
Mahomed’s
alternative cause of action of a breached duty of care, which Absa
pleaded was vague and embarrassing, was not
pursued at trial.
4
Mistry
operated a private accounting bureau on the floor above the
Marabastad agency.
5
This
entity had lodged its own claim which was subsequently found
legitimate and paid by Absa.
6
At
paras 78 to 80.
7
Hely-Hutchinson
v Brayhead Ltd and Another
[1968]
1 QB 549 (CA) at 583A ([1967] 3 All ER 98 at 102A;
NBS
Bank Ltd v Cape Produce Co (Pty) Ltd and Others
2002
(1) SA 396 (SCA) at para 24.
8
Hely-
Hutchinson
,
above, n 7.
9
In
Glofinco
v Absa Bank Ltd t/a United Bank
2002
(6) SA 470 (SCA) para 15.
10
NBS
Bank Ltd
above,
n 7.
11
Absa
Bank Ltd v IW
Blumberg
& Wilkinson
1997 (3) SA 669 (SCA) at 667G-H and 681G-H;
Blackie
Swart Argitekte v Van Heerden
1986
(1) SA 249 (A).
12
AllPay
Consolidated Investment Holdings (Pty) Ltd and Others v Chief
Executive Officer, South African Social Security Agency and
others
2013
(4) SA 557 (SCA) para 7.