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[2010] ZAGPJHC 60
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Company Unique Finance (Pty) Ltd and Another v Northern Metropolitan Local Council of Johannesburg and Another (14581/99) [2010] ZAGPJHC 60; 2011 (1) SA 440 (GSJ) (13 August 2010)
IN THE SOUTH GAUTENG HIGH COURT
(JOHANNESBURG)
Not
Reportable
CASE NO:
14581/99
DATE: 13/08/2010
In the matter between:
COMPANY UNIQUE FINANCE (PTY) LTD
First
Plaintiff
FIRST NATIONAL BANK OF SOUTHERN ARFRICA LTD
Second
Plaintiff
and
THE
NORTHERN
METROPOLITAN LOCAL COUNCIL
OF JOHANNESBURG
First
Defendant
DU PLESSIS, JOHANNES JACOBUS
Second
Defendant
J U D G M E N T
BLIEDEN, J
:
[1] Between October 1998 and
January 1999 three sets of documents each bearing the heading “Master
rental agreement”
were concluded by the first plaintiff
(Compufin) then trading as Compufin Finance and the first defendant
(“the Council”).
[2] Each of these sets of documents
constituted a contract for the rental of certain equipment by the
Council from Compufin over
a period of sixty months. The three
agreements are annexed to the plaintiffs’ particulars of claim
and marked “A”,
“B” and “C”
respectively.
[3] Annexure “A” which
is dated 2 December 1998 is for the lease of a copier for a total
rental of R971 703.96.
[4] Annexure “B” which
is dated 21 January 1999 is for the lease of certain radiophones for
a total rental of R6 272
032.80.
[5] Annexure “C” which
is dated 21 January 1999 is for the lease of certain radiophones for
a total rental of R6 272
032.80.
[6] On behalf of the Council the
three agreements were signed by Johannes Jacobus du Plessis (du
Plessis), who is the second defendant
in these proceedings. At all
relevant times he was employed by the Council as an acting senior
superintendent: Support Services,
within the Council’s Security
sub-cluster. He was described as “executive officer (acting)
security” in each
of these three agreements and signed each
under that title.
[7] The second plaintiff “FNB”
is the cessionary of Compufin’s rights in terms of Annexure C,
and it makes common
cause with Compufin in its claim against the
Council. The plaintiffs will be referred to collectively as such.
[8] It is the plaintiffs’
case that the Council unlawfully repudiated its obligations as
contained in the agreements by way
of a letter dated 19 March 1999,
a copy which is annexed to the plaintiffs’ particulars of
claim.
This letter reads:
“
PURPORTED RENTAL
AGREEMENTS: NORTHERN METROPOLITAN LOCAL COUNCIL
I
refer to the 4(four) rental agreements which were purportedly entered
into between yourselves and a certain Mr J. du Plessis,
who allegedly
acted on behalf of my Council. The agreements were signed by Mr du
Plessis on 30 October 1998, 18 January 1999 (two
agreements) and on
29 January 1999.
I
wish to record, however, that my Council was unaware of the existence
of these agreements. Neither did my Council at any stage
authorize
the relevant transactions nor was Mr du Plessis authorized to sign
the said agreements on behalf of my Council. From
this it follows
that the 4(four) purported agreements are null and void.
From
my records it further appears that three payments of R77 520-00 each
have been paid into yourselves via bank debit orders
on 15 February
1999, 22 February 1999 and 15 March 1999 respectively, which payments
were irregular for the reasons set out above.
As a result, I shall
appreciate it to receive payment of the amount of R232 560-00 within
seven days from date thereof, as well
as payment of all other amounts
which may have been made to you in respect of the abovementioned
purported agreements and which
may have not yet come to my attention.
Your
urgent attention is appreciated.
Yours faithfully
R. G. Bosman
Strategic Executive
Corporate Services”
It is not in dispute that only three agreements were involved, and
the writer of the letter was incorrect in referring to four
agreements.
[9] This repudiation has been
accepted by the plaintiffs and they have cancelled each of the
contracts as a result thereof and their
claims arise out of this
cancellation. The Council disputes the validity of this cancellation
as it is the Council’s case
that it was not at any stage bound
by any of these contracts as du Plessis was not authorised to act on
its behalf as claimed by
the plaintiffs.
[10] As an alternative claim
against the Council, Compufin (and not FNB) has sued du Plessis and
the Council in delict. This claim
is confined to the goods reflected
in annexures “A” and “B”. It is claimed that
in the event of the plaintiffs
not proving their claim in contract,
du Plessis in signing the agreement warranted that he was authorised
by the Council to do
so. That warranty constitutes a representation
which was false to the knowledge of du Plessis and was made in the
course and scope
of his employment with the Council, therefore making
it vicariously liable for any claim for damages based on his wrongful
conduct
in acting as he did. This claim is for delictual damages.
[11] Du Plessis in his plea has
denied that he lacked authority as claimed by the Council and
consequently has denied any liability
to the plaintiffs on their
claims.
[12] The plaintiffs have replicated
to the Council’s plea and in the alternative pleaded that the
Council represented that
du Plessis had authority and that the
Council is therefore estopped from denying his authority as pleaded
by it.
[13] The facts relied upon by the plaintiffs for establishing these
representations are pleaded as follows:
1. Willem van Wyk (van Wyk) in his
capacity as head of security of the Council, signed an extract of a
meeting recording that a
resolution was taken by the Council
authorising du Plessis to enter into contracts and to sign contracts
and give effect to the
resolution;
2. The Council caused or allowed
the contents of the above extract to be published to the plaintiffs;
3. Van Wyk was appointed by the
Council as head of security and the Council allowed him to act as
such in circumstances where a
person in such position usually has the
authority to -
3.1 sign extracts of minutes of the
Council and to furnish or communicate them to third parties;
3.2 instruct du Plessis in relation
to the operations of the Council;
3.3 arrange for the use of
equipment and supplies for the Council’s operations; and
3.4 conclude contracts for the use
of equipment and supplies for the Council’s operations.
4. The Council appointed du
Plessis to a position of Manager in circumstances where a manager
usually has authority to –
4.1 act in accordance with
instructions from a person with authority such as that of van Wyk;
4.2 arrange for the use of
equipment and supplies for the Council’s operations;
4.3 conclude contracts for the use
of equipment and supplies for the Council’s operations.
5. The members of the Council and
its authorised representatives–
5.1 knew that du Plessis,
alternatively van Wyk, alternatively other unknown officials were
involved in negotiations in relation
to the use of equipment by the
Council and allowed it to so continue;
5.2 accepted delivery of the equipment;
5.3 used the equipment;
5.4 failed to return the equipment
or raise any objection to its delivery until a stage after the
plaintiffs had already suffered
prejudice;
5.5 failed to warn the plaintiffs
of internal formalities necessary for the exercise of the authority
of the Council or the authority
of du Plessis or the authority of van
Wyk in relation to the conclusion of the contract or the
communication of resolutions of
the Council;
5.6 caused or allowed payments to
be made through the Council’s bank account;
5.7 failed to request a reversal of payments or to raise an objection
until after the plaintiffs had already suffered prejudice;
5.8 made insurance arrangements for the equipment;
5.9 made arrangements for the provisions of supplies or services
relating to the equipment;
5.10 failed to safeguard against
the unauthorised use of the Council’s official stamp, thereby
making it available for use
in documents used to induce the
plaintiffs to act to their detriment;
5.11 failed to take steps to
safeguard the details of the Council’s finances and budgetary
allocation and to prevent their
unauthorised use thereby making them
available for the purpose of inducing the plaintiffs to act to their
detriment as they did.
6. The plaintiffs allege that they
acted on the correctness of the above representations to their
detriment with the result that
the Council is estopped from denying
the authority of du Plessis and van Wyk to act on its behalf and, in
particular, the authority
of du Plessis to sign contracts on its
behalf.
7. By the time each of the parties
had closed their case, the plaintiffs’ case based on contract
was confined to one based
on van Wyk’s and du Plessis’
ostensible authority, as it was conceded that the plaintiffs had no
case based on actual
authority as it was accepted that the
representation made in the resolution was untrue.
The evidence before the court:
[14] The status of the documents in
the bundles being exhibits A1, A2 and A3, which were handed up to
court was agreed as follows:
14.1 Copies of the documents could
be used instead of the originals save where any party elected to use
an original;
14.2 The documents were what they
purported to be;
14.3 There was no admission that
what was contained in the documents was true;
14.4 Correspondence was admitted as
having been sent by the addressor and received by the addressee on or
about the date reflected
in such correspondence;
14.5 What was said by witnesses as
appears from the records of the disciplinary enquiries of du Plessis
and Colin Lehmkuhl contained
in the Council’s discovery
documents had been accurately transcribed and those records could be
received into evidence without
any admission as to the truth of what
was said, upon their mere production.
[15] As the evidence relating to
the events which are the subject matter of this case occurred some
eleven years ago, it is hardly
surprising that the witnesses who gave
evidence were constrained to rely on reconstructions, often based on
inferences drawn from
the record of what must have happened at the
relevant time. Even where witnesses claimed to have independent
recollections of
what had occurred, it must be accepted that because
of the passing of time memories of the facts are less than perfect
and witnesses
can be forgiven for having forgotten certain things or
for incorrectly remembering others. The testimony of the witnesses
who
gave evidence must therefore be dealt with, with some
circumspection.
The plaintiffs’ evidence:
[16] Compufin was at all material
times a finance house which had as its main business the discounting
of credit agreements with
certain approved sellers of goods reflected
in such agreements. It in turn discounted these agreements to
registered banks after
having ceded such agreements to them and after
such banks were satisfied as to the integrity of the transactions
concerned.
[17] The agreements being annexure
A and B were ceded to African Bank Ltd, while the agreement relating
to annexure C was ceded
to FNB. The first two agreements were ceded
back to Compufin, once African Bank became aware of the difficulties
in the present
case and before the issue of summons.
[18] The three contracts on which
the plaintiff’s case is based all emanated from Jeff Rahme
Enterprises as supplier of the
equipment concerned. It was either Mr
Rahme (Rahme) or the two people who assisted him, being Karen
Willemse or Ilsé Krause
(the latter two trading as Africon),
who provided nearly all the documents relied upon by the plaintiffs
in this case. It was
also Rahme enterprises who had been paid the
discounted value of the three agreements.
[19] Rahme had been an approved
broker with Compufin for some time and his relationship with Compufin
was described by Deon Renier
Blignaut (Blignaut), Compufin’s
then Advances Manager, as being one in which Rahme would discount
various agreements to Compufin
for finance in the normal course of
business.
[20] It is in his capacity as
Advances Manager that Blignaut had signed one of the three agreements
on behalf of Compufin and he
was instrumental in approving all three
agreements for payment to Rahme. In his view, the documentation
furnished by Rahme satisfied
him, on behalf of Compufin, that the
three transactions were in order.
[21] All three contracts were
dependent on a resolution from the Council signed by van Wyk,
describing himself as head of security.
This resolution was on a
Coucil letterhead. Because of the importance of this document in the
present case it is reproduced below.
The original of this document
was presented to court as “O1”. The printed portion of
the document is in black ink.
The manuscript writing is in blue ink
as is the Council stamp at the foot of the document. This document
is item 59 in the plaintiff’s
bundle and is reproduced below.
[22] Various witnesses from
Compufin as well as Alexander Hector McClain (McClain) of FNB, at
that time the head of that bank’s
relevant credit committee,
regarded the above resolution as being sufficient and satisfactory
evidence of Du Plessis having authority
to bind the Council in
respect of all three transactions reflected in Annexures A, B &
C. These witnesses were also adamant
that were this resolution not
so regarded, Compufin and FNB would not have entered into any of the
transactions. As far as the
plaintiff’s witnesses were
concerned, this resolution was the normal type of resolution in use
in the financing industry
and there was nothing untoward about it.
[23] The documents required by
Compufin in order for it to decide to enter into the transactions
concerned were all received from
Rahme or from the Africon ladies
assisting him, and appeared to Compufin to be satisfactory. In
addition the same documentation
was submitted to the banks which
discounted the contracts for Compufin, namely African bank and FNB,
and were also found by the
credit committees of these banks to be
acceptable.
[24] Two witnesses who gave
evidence on behalf of the plaintiffs interviewed du Plessis or du
Plessis together with van Wyk, or
du Plessis, van Wyk and two African
gentleman who appeared to be officials of the Council, before the
transactions reflected in
the contracts were finally concluded.
Their evidence was to the following effect:
1. Anthony Raymond Patrick McLintok
(McLintok) had been chairman and sole shareholder of Compufin during
the relevant period of
1998 and 1999. He was only involved in the
two transactions reflected in annexures B and C. On a date which he
could not remember,
but before the contracts had been accepted by the
plaintiffs, he had attended a meeting at an office in a building
occupied by
the Council in which the radiophones referred in the two
contracts had been discussed.
2. The office was an ordinary
Council office containing a desk and some chairs. Present at the
meeting was du Plessis and van
Wyk as well as two “
African
”
gentleman, whose names he could not remember. The purpose of the
meeting was for McLintok to satisfy himself that the proposed
transactions were genuine.
3. At the end of the meeting he
came to the conclusion that it was “
a
pretty good idea in terms of what they were trying to achieve
”.
4. His impression of the people
to whom he spoke at the Council’s premises is that they
appeared to be senior officials
in the security department who acted
as if they were duly authorised by the Council. When it was put to
him in cross-examination
that there would be evidence to show that no
resolution as described in O1, had been taken at the Council meeting
of 26 November
1998, he said he could not comment but “
I
can tell you as far as I am concerned this was 100 percent
”.
5. McLintok had had previous
experience in dealing with government departments and he felt that
there was nothing untoward in
the present transactions. At a stage
he had received the Council’s balance sheet in manuscript. He
could not remember how
he got it, but his handwriting appears on the
document, which to his mind proved that he had received it from
someone at the Council.
6. Eric Brian Landberg (Landberg) had initially been employed as a
senior member of the Compufin credit committee. However in
September
1998 he moved to African Bank who later took over Compufin.
7. It was in his capacity as head
of the credit committee of African Bank and as a senior employee of
Compufin that he became
involved in the three affected transactions.
He had met with either du Plessis or van Wyk at the Council offices
in Randburg.
His reason for holding such a meeting was to obtain
financial information about the Council’s credit-worthiness and
not
to discuss the intricacies of the transactions concerned. He had
had no experience in dealing with municipalities or public bodies
at
that time. As far as he was concerned the persons he saw seemed to
have authority to be representing the security department
of the
Council.
8. He had come into possession of
the manuscript balance sheet to which McLintok had alluded. On a
reading of the document it
appeared that the Council was in a good
financial position and certainly was able to afford to be involved in
the three transactions
concerned. If he had not been satisfied of
the Council’s ability to comply with the terms of the
contracts, he would not
have agreed that either African Bank or
Compufin pay Rahme on the contracts.
9. In addition to these witnesses a number of Compufin’s then
employees gave evidence as to the adequacy and regularity of
the
documentation presented to it in order for the contracts to be
discounted. In their view everything was correct and above
board.
[25] At no stage were any steps
taken by Compufin or any of the banks to investigate du Plessis’
authority to act on behalf
of the Council, or for that matter van
Wyk’s authority to make the representation that du Plessis had
such authority as is
stated in the resolution, O1.
[26] It was only after the three
agreements, A, B & C, had already been discounted that Maclean
acting as the head of the relevant
branch of the FNB credit
department, made enquiries from the Council which ultimately resulted
in the Council denying its liability
in respect of all three
contracts. The reason for these enquiries was that Compufin had
presented FNB with certain further credit
agreements by the Council
for discounting. The amount now involved was over ten million rand.
The FNB credit committee required
further assurance as to the
validity of these agreements. As a response to such enquiries the
Council denied that such agreements
were valid and further denied the
validity of the three agreements which had already been discounted by
Compufin.
The Council’s evidence:
[27] A number of witnesses gave
evidence as to how the Council, being a local authority, conducted
its activities at the relevant
time and the part they played in the
present case. The most important witness in this regard is Rudolph
Gerhard Bosman (Bosman).
His evidence on how the Council was
supposed to operate was not put in issue in any meaningful manner.
[28] Bosman explained that the
Council was governed by various legislative enactments which
determined the manner in which it conducted
its affairs. Its highest
decision making body was the full Council, comprising Councillors
duly elected in terms of the Municipal
Electoral Act. Beneath the
full Council sat the Executive Committee who, in turn appointed a
number of portfolio committees, or
as they were colloquially known at
the time, section 60 committees. These committees were duly
constituted in terms of the provisions
of section 60 of the Local
Government Administration and Election Ordinance of 1960.
[29] There were seven clusters
within the Council. The clusters were each headed by a strategic
executive. Each cluster was divided
into a sub-cluster and each
sub-cluster was headed by an executive officer. There were seven
sub-clusters within corporate services,
namely fleet and plant,
administration, property, legal services, communications and
security, IT information services, information
technology and
finance. The executive officers reported directly to the strategic
executive of the cluster concerned and the strategic
executives in
turn reported to the Chief Executive Officer (CEO) of the counsel.
[30] The Executive Committee
comprised a chairperson (who was a political representative) and nine
other political representatives,
the CEO and finally the various
strategic executives. An organagram was submitted in evidence
setting out the relevant positions
held by the officials and the line
of authority under which they operated. This was exhibit E in the
trial. It is reproduced
below.
[31] He explained the organagram as
follows: The person at the head of administration was the CEO. At
the relevant time this was
Mr. Lephunya (Lephunya). Beneath him were
the strategic executives who headed up each of the individual
clusters. The security
services sub-cluster fell under the
governance of the corporate services cluster. Bosman was the
strategic executive in charge
of corporate services and the security
department therefore fell within his domain. Beneath the executive
officer of the security
sub-cluster were two manager positions, one
for the operations and the other for strategic services. Below the
managers were senior
superintendents and beneath them were a number
of superintendents. At the final rung of the ladder were the
security guards and
the law enforcement officers.
[32] At the relevant time Mr Willie
Mosiane (Mosiane) was the Executive Officer of the security
sub-cluster. The acting Manager
was van Wyk and du Plessis was in
the position of Acting Senior Superintendent.
[33] The Council at that time
employed well over a thousand officials. Both van Wyk and du Plessis
could be classified as senior
officials, in the security sub-cluster
of the Council. It had as its function the provision of security
services for the Council
in regard to its property and personnel.
[34] At no stage was van Wyk the
head of the security sub-cluster. At the relevant time this position
was occupied by Mosiane
who was the executive officer of this
sub-cluster.
[35] The Council was at all times a
Local Government Body, constituted and administered as such by
statute and none of its officials
had the power, in their individual
capacities, to act on its behalf without specific authorisation.
Bosman said that as far as
the incurring of debt and the spending of
the money was concerned, this was strictly controlled in that save
for certain expenditure,
which is not relevant in the present matter,
the only body who could authorise expenditure was members of the
Council, meeting
as such, or in certain cases of lesser expenditure,
the Executive Committee appointed by the full Council. He stated
that as far
as the public was concerned, a telephone call to the
legal department of the Council would be sufficient to enable any
person dealing
with the Council to ascertain whether people
professing to act on its behalf had authority to do so or not.
Notwithstanding this
he could not question the evidence given by the
other witnesses who testified for the Council, that a reasonable
businessman would
be entitled to rely on the say so of senior members
of the Council’s staff insofar as their authority to act on its
behalf
was concerned.
[36] The then executive officer of
the security subcluster, Mosiane, testified on behalf of the Council.
He denied that there was
any talk that Councillors were being
threatened or subjected to high jacking threats as claimed by Jacobs,
Lephunya and du Plessis
when they gave evidence. He also denied that
it was any part of the job of the security sub-cluster to ensure the
safety of Councillors.
He further denied that he was present in du
Plessis’ office when the photocopier was delivered as testified
by du Plessis.
He stated that he had told du Plessis to take it back
but never checked the next day to see that it was gone, and merely
instructed
van Wyk to remove it but never followed up on this
instruction. This is notwithstanding the fact that his office was in
close
proximity to du Plessis’ office (20 meters) and
immediately adjacent to van Wyk’s office.
[37] Mosiane did not ask du Plessis
to give him the name of the supplier so that he could contact it
directly and deny authority
with regard to the supply of the
photocopier. He also did not lay any disciplinary charge against du
Plessis for obtaining the
photocopier on a trial basis.
[38] Mosiane denied the truth of
the admission made by van Wyk at the disciplinary enquiry that he
agreed that du Plessis would
be acting manager during the few days
that he and van Wyk would be away at the International Crime
Conference i.e. from 26 until
30 October 1998.
[39] He was unable to dispute Mr
Lottering’s evidence at the du Plessis disciplinary enquiry
that it was around about the
middle of January 1999 that he came to
know du Plessis was involved in negotiations regarding radiophones.
He was unable to explain
why, instead of attempting to find fault
with the report appearing in the bundle, Exhibit A1 pages 190 to 191,
he had not simply
adopted the expedient of speaking to Lephunya, if
he thought that this was a fraudulent document.
[40] He confirmed that he knew
Jacobs, the Councillor, personally but denied ever having attended a
meeting with him in relation
to his security concerns and
radiophones.
[41] Mosiane’s evidence in
chief denying that it was his signature at page 23 of exhibit A1
(giving van Wyk certain signing
powers), contradicts the evidence he
gave under oath at the disciplinary hearing, and also contradicts
what is stated in his affidavit
to the South African police which had
been discovered by the Council. Mosiane was unable to explain this
contradiction under cross-examination.
[42] Mosiane’s evidence that
he told du Plessis to return the Photostat machine is contradicted by
his statement to the police
where he said “
I
said it would be fine as long as there is no contract signed to this.
Mr van Wyk assured me that there was no contract”.
Mosiane
was unable to explain this contradiction. His further statement that
he did not draw up a job description for du Plessis,
and his denial
that it was signed by van Wyk, contradicts what he told the police
stating “
I drew up
a job description for du Plessis which van Wyk signed on my behalf
”.
At a latter stage he contradicted himself by conceding that he did
in fact draw up the job description for du Plessis
which van Wyk
signed on his behalf and that this job description included a point 6
which reads “
Contracts
and Tenders
” as
part of du Plessis’s duties. He however refused to concede
that an outsider would consider upon reading this document,
that du
Plessis had authority in respect of contracts and tenders.
[43] In addition to the above
witnesses the Council called Ms MH Renny who had been its Committee
Officer during 1998 and who testified
that no resolution was passed
by the Council as reflected in the extract signed by van Wyk in O1.
[44] Mr A Nortjé (Nortjé)
who had been appointed a Legal Advisor at the end of 1995 and was
still in the employ of
the Council also gave evidence. He said that
O1 is not the sort of document he would have expected to authenticate
this type of
resolution. He was asked to provide copies of the
resolutions that had been utilised in respect of previous
transactions regarding
photocopiers of which he said there were a
number. He undertook to find such resolutions and to bring them to
court the following
day. He however did not do so. To date no such
resolutions have been produced by the Council.
[45] Nortjé conceded that an
outsider, not party to the Council’s internal requirements, on
looking at O1 as a whole,
would be entitled to accept that this
document was in fact a genuine document which confirmed the passing
of the resolution recorded
in it. He also confirmed that the stamp
on the document was an official Council stamp, although emanating
form its records department.
[46] He said that one would assume
that the Council’s bank account would be checked carefully by
the Finance Department who
would pick up immediately if any
unauthorised debit order went through.
[47] He conceded that the Council
would rely on its own senior officials to warn the public as regards
the limitation of their authority,
although he would expect members
of the public to know that the Council operates under a delegation of
powers. He finally conceded
that the ordinary businessman would rely
heavily on the senior official he was dealing with and that official
had a duty to explain
the inner workings of the Council and not to
sign documents well knowing that he has no authority to do so.
Du Plessis’ case:
[48] Du Plessis appeared on his own
behalf. He called two witnesses. They were Mr Nathan Jacobs
(Jacobs) who at the relevant time
was a City Councillor and Mr
Lephunya (Lephunya) the then Chief Executive Officer of the Council.
Du Plessis also testified on
his own behalf.
[49] Du Plessis had been employed
as a Senior Superintendent in the security cluster of the Council.
He shared an office in the
building occupied by the cluster. In the
past the only “
large
”
purchase he had made on behalf of the Council was to buy a dog kennel
for the dog squad. He could not remember how much
it cost.
[50] He explained his designation
as “
manager
”
of the Security Cluster came about as a result of his two superiors,
Mosiane and van Wyk attending an international security
conference in
Braamfontein for four days during the latter part of 1998. He was
left in charge and it was for this reason that
he was described as
“
manager
”
of that department for those four days. On their return to office he
resumed his position as Senior Superintendent.
[51] He was under the impression
that he was entitled to represent the Council in regard to contracts
and purchases by the security
subcluster. This was part of his job
description. He thought that this was in order as long as people
senior to him gave him
instructions to perform these tasks. He was
acting in this capacity when he signed the documents concerned.
[52] He had been told of the need
for the photocopier which is referred to in “A” and to
the radiophones referred to
in “B” and “C”
respectively. This had been done by both van Wyk and Mosiane. He
was also independently
aware of the Council’s need for such
equipment. He had been shown the copier by the Africon ladies, Karen
Willemse and Ilsé
Krause, and the radiophones by Rahme. He
signed the contracts A, B and C on behalf of the Council in good
faith. He saw nothing
wrong in signing the documents concerned and
felt that he was acting in terms of his mandate and in the interests
of the Council,
as this was confirmed to him by both van Wyk and
Mosiane.
[53] He confirmed having had
discussions with both McLintok and Landberg. These took place in his
office at the Council’s
premises.
[54] Because of his actions in
signing A, B and C du Plessis had been criminally charged with fraud
and he was also suspended by
the Council and requested to attend an
internal disciplinary enquiry held by it. Although ten years have
now passed nothing has
happened in the criminal proceedings. He did
not attend the disciplinary enquiry as he had been advised by his
then attorney not
to do so because of the impending criminal case
against him. In his absence he had been found guilty of dishonest
conduct and
was as a result dismissed from his employment with the
Council.
[55] Jacobs gave evidence which
corroborated du Plessis’ evidence as to the Council’s
need for radiophones. This was
in order to ensure the personal
safety of the fifty Councillors who made up the City Council at the
time. He confirmed that he
had discussed this with both du Plessis
and Mosiane who agreed with him.
[56] Lephunya also corroborated du
Plessis’ evidence as to the need to the radiophones concerned.
He said that a draft resolution
had been prepared for presentation to
the Council in order to authorise the purchase of the radiophones,
but this had not been
proceeded with on the advice of Bosman, as the
latter had stated that the statutory requirements for the
presentation of such a
resolution had not been complied with. This
document was at pages 190 and 191 of exhibit A, to which reference
has already been
made.
[57] Other than signing the three
contracts du Plessis had made no representations to anyone. The
representations relating to
his authority were by van Wyk, who was
not called as a witness by any of the litigants in this case and had
not been prosecuted
by the Council, but continued in his employment
with it as before.
[58] Du Plessis gained no personal
benefit as a consequence of signing the contracts and according to
him he was solely motivated
by furthering the interests of the
security sub cluster of the Council in obtaining the goods concerned,
as they were needed by
the Council at that time.
Agreed facts and admissions binding on the Council:
[59] In the week before the trial,
the Council admitted that du Plessis (alleged to be senior
superintendent security services),
van Wyk (alleged to be Acting
Manager Security) and Mr Lehmkuhl (Lehmkuhl) (alleged to be Buyer:
Contracts and Purchasing) were
its employees.
[60] During the trial further
agreement on facts was reached and these agreed facts were handed in
as Exhibit C.
[61] The underlying information
necessary to calculate the plaintiffs’ quantum of damages was
admitted as part of the admitted
facts.
[62] It was admitted that nearly
all the items which had been delivered in terms of the contracts, A,
B and C, including the photocopier
and the radiophones, had been
returned by the Council.
[63] In addition the contents of
expert reports were admitted as regards:
1. The veracity of the signatures
of van Wyk, Lehmkuhl and du Plessis;
2. The usage of the photocopier and
the radiophones, by the Council.
[64] It was not seriously put in
dispute that those documents in the bundle which constitute
documents, statements and affidavits
made in the course of the
disciplinary proceedings conducted by the Council in respect of the
du Plessis and Lehmkuhl cases, now
relied upon by the plaintiffs,
were all made by employees of the Council at the time and constitute
admissions which are admissible
in evidence as against the Council.
(See LAWSA Vol 9 First reissue par 531 “
Informal
admissions generally. Provided that the various requirements had
been met, admissions are admissible against a party irrespective
of
whether he elects to give evidence. The Hearsay Rule does not
exclude evidence of an admission. The reason for its admissibility
is that whatever a person says to his detriment is likely to be the
truth
.”
[65] The above principle has been
recognised to be part of our law in a number of cases such as
Randfontein Transitional Local Council
v ABSA Bank Ltd
2000 (2) SA
1040
(W), Zungu v Minister of Safety and Security
2003 (4) SA 87
(D)
and Maize Board v Hart
2005 (5) SA 480
(O).
[66] The following constitute
admissions as against the Council:
1. Van Wyk admitted that he signed
the resolution which is O1 and referred to in paragraph 21 of this
judgment. This document was
on original Council letterhead paper.
2. Van Wyk stated that he was asked
to sign that resolution as both he and Mosiane would be going to the
International Crime Conference
during October 1998 from the 26 to the
30
th
.
He under oath explained how he came to sign O1 (A(4) at the enquiry)
at the du Plessis disciplinary enquiry which was presided
over by
Bosman as follows:
“
CHAIRPERSON:
But
Mr van Wyk, explain how could you have signed A(4), what, I need some
detail on this because this is important. Just let me
read A (4),
because I actually want to read it into the record. It reads:
“RESOLVED”, and then it quotes:
“ That the HIRA (should be “Hirer”) enters into
a rental agreement with Compu Finn Finance for the renting of
the
device as specified in the transaction schedule and any further
transaction schedules on such terms and conditions as are usually
applicable to rental agreements as may be agreed upon.”
And then it closes the quote
and then it has a second paragraph which reads:
“That Mr J du Plessis in
his capacity as Manager of the HIRA (should be “Hirer”)
be and is hereby authorised
to sign, endorse and execute all
documents for and on behalf of the HIRA (should be “Hirer”)
to give effect to this
resolution”.
Now what I need to know is firstly this gives authority to or
purports to give authority for the council to enter into a rental
agreement. Did you check to establish whether this in fact was a
council resolution?
MR
VAN WYK:
No, this
wasn’t a council resolution. I was not aware of the fact that
they referred to a council resolution, resolution
ja. The fact of
the matter is these ladies told me the reason for me completing this
is to give Du Plessis permission to go on
with the administration
process for the hiring of the photostat machine, to sign for the
delivery and for the monthly instalments.
CHAIRPERSON:
But,
Mr Van Wyk, surely the hiring of a photocopy machine, just like the
hiring of any other equipment has a certain procedure
that has to be
followed and this was not in line with council’s procedure.
MR
VAN WYK:
But
how must I have known?
”
(my underlining)
CHAIRPERSON:
The
hiring of photocopy machines, I put it to you, is dealt with by the
Admin and Support Services Subcluster of Corporate Services
and had
to be dealt with by that specific Subcluster, not by any other
Subcluster who wishes to hire a machine. Is that not your
understanding of the council’s procedure?
MR
VAN WYK:
..(inaudible)
CHAIRPERSON:
Well,
what was your understanding if you see this document says resolution:
Northern Metropolitan Local Council. What did you
take this to mean
when you signed this?
MR
VAN WYK:
That I
give Du Plessis permission to sign for the delivery and the
administration process, you know that will follow the photostat
machine. I have said it here in my statement. She gave me a
document to sign.”
3. Mosiane had agreed that du
Plessis would be acting manager during those few days (in place of
Mosiane).
4. The radiophones in question were
delivered and Mosiane received one of these radiophoness for his
personal use.
5. Mr Strauss, an employee of the
Council admitted in exhibit A1, page 417, that he signed a volume
confirmation together with du
Plessis in relation to the volumes used
by the Photostat machine.
6. Minnie Regina Etsebeth, a
records clerk then in the Council’s employ, at exhibit A 1,
page 421 admitted that her official
stamp was taken from her and used
by the Council’s security department and returned to her by van
Wyk. This was the same
stamp as appears in O1.
7. Mr Michael Coetzee, exhibit A2,
pages 327 to 333, admitted authorship of the manuscript financial
statements that were furnished
to McLintok and were referred to in
paragraphs 24(5) and 24(8) of this judgment. These documents were
prepared by him in the normal
course of his employment with the
Council.
8. Lehmkuhl admitted that he was
Acting Manager of Contracts for the Council at the time and signed a
rental agreement for a number
of photostat machines, which rental
agreement appears in exhibit A1 at pages 82 to 86.
9. Lehmkuhl admitted that he
personally received a radiophone.
10. The document authored by
Lehmkuhl appearing in exhibit A1 at page 391 to all clusters in
relation to the proposed photocopier
transaction is admitted to have
been sent and received.
11. Mr Boucher, an employee of the
Council, stated that late in March 1999 he was in a meeting with
Christo Olivier with reference
to the case of du Plessis purchasing
radiophones for the Council. That meeting was held in his office.
Lehmkuhl entered his office
with one of the radiophones involved in
the case and handed it back to Olivier
12. Van Wyk admitted that the vote
number contained in the document bearing Lephunya’s name which
appears in exhibit A1 page
190 to 191, bears a genuine vote number.
Although the Council has challenged this document bearing Lephunya’s
name, it has
not challenged the sending and receipt of a fax
attaching that document to Compufin.
13. The Council’s employee,
Sally Tshoeadi at A1 page 316, admitted giving information regarding
the photocopiers to the Africon
ladies in relation to all
photocopiers in the service of the Council. She admitted that she
supplied them with all payment vouchers
regarding all photocopiers in
the Council for the month of August 1998 and that Karen and Ilsé
worked on all payment vouchers
in the Strategic and Executive Finance
boardroom over a period of approximately two weeks. Karen, Ilsé
and René
also from Africon, contacted her telephonically to
request information regarding the photocopiers. She supplied that
information
to them because they wanted to give a proposal to the
Council that all photocopiers be supplied by one supplier. She also
faxed
a list with serial numbers of all Sharp copiers and the name of
the internal contact person to René at Africon. Her
supervisor
also signed the document “Volume Confirmation”
on a Council letterhead.
14. There are documents in the
bundle, exhibit A, that demonstrate a prior history of dealing
between the Council and Africon in
relation to supplies for
photocopiers going back to 1997.
15. The document in exhibit A1 at
page 23 is not challenged by the Council and reveals that a
memorandum dated 11 June 1998 was
sent by Mosiane of Security
services, to the Acting Strategic Executive Finance, advising that
from 10 June 1998 the Acting Manager
Security Services, van Wyk, will
have the following signing authority pertaining to security services
– Northern Metropolitan
Local Council : (a) To certify
invoices, (b) Approval of requisitions, (c) Direct purchases and (d)
Petty cash.
16. The memorandum concludes
stating that the following two signatures from the Acting Manager is
for the information of the acting
strategic executive finance. Then
follow two signatures of van Wyk which are admitted to be genuine.
17. Prior to contracts “B” and “C” being
concluded payments had been made by the Council in terms of contract
“A”.
18. Compufin was given a letter
from the Council’s insurers confirming that the goods listed in
contracts A, B and C had been
insured on its behalf and confirming
its interests in such goods.
The legal principles applicable:
Ostensible authority
[67] In order to act on behalf of
another so as to affect that other’s relationships, the
necessary authority to do so must
be present. Authority to act can
either be actual or ostensible. The distinction between actual and
ostensible authority was
explained by Denning MR in
Hely-Hutchinson
v Brayhead Limited and Another
[1968] 1 QB 549
CA at 583 A – G). The Supreme Court of Appeal in
South
African Broadcasting Co-operation v Coop and Others
2006 (2) SA 217
(SCA)
at 234 D – F has
adopted this reasoning. It is to the following effect:
“
Ostensible
or apparent authority is the authority of an agent as it
appears
to
others. It often coincides with actual authority. Thus, when the
board appoint one of their number to be managing director, they
invest him not only with implied authority, but also with ostensible
authority to do all such things as fall within the scope of
that
office. Other people who see him acting as managing director are
entitled to assume that he has the usual authority of a managing
director. But sometimes ostensible authority exceeds actual
authority. For instance, when the board appoint the managing
director,
they may expressly limit his authority by saying he is not
to order goods worth more than £500 without the sanction of the
board. In that case his
actual
authority
is subject to the £500 limitation, but his
ostensible
authority
includes all the usual authority of a managing director. The company
is bound by his ostensible authority in his dealings
with those who
do not know of the limitation. He may himself do the ''holding-out''.
Thus, if he orders goods worth £1 000
and signs himself
''Managing Director for and on behalf of the company'', the company
is bound to the other party who does not
know of the £500
limitation. . . .”
[68] As has already been stated in
the present case it is only ostensible authority which is in issue in
the plaintiffs’ case
based on contract. This issue had been
further explained by the Supreme Court of Appeal in
NBS Bank
Ltd v Cape Produce company (Pty) Ltd and Others
2002 (1) SA 396
(SCA)
where the dictum in the Hely-Hutchinson case was applied by Schutz JA
as follows:
“
As
Denning MR points out, ostensible authority flows from the
appearances of authority created by the principal. Actual authority
may be important, as it is in this case, in sketching the framework
of the image presented, but the overall impression received
by the
viewer from the principal may be much more detailed. Our law has
borrowed an expression, estoppel, to describe a situation
where a
representor may be held accountable when he has created an impression
in another's mind, even though he may not have intended
to do so and
even though the impression is in fact wrong. . . . But the law
stresses that the appearance, the representation,
must have been
created by the principal himself. The fact that another holds himself
out as his agent cannot, of itself, impose
liability on him. Thus, to
take this case, the fact that Assante held himself out as authorised
to act as he did is by the way.
What Cape Produce must establish is
that the NBS created the impression that he was entitled to do so on
its behalf. This was much
stressed in argument, and rightly so. And
it is not enough that an impression was in fact created as a result
of the representation.
It is also necessary that the representee
should have acted reasonably in forming that impression:
Connock's
(SA) Motor Co Ltd v Sentraal
A
Westelike
Ko-operatiewe Maatskappy Bpk
1964
(2) SA 47 (T)
at
50A - D. Although an intention to mislead is not a requirement of
estoppel, where such an intention is lacking and a course of
conduct
is relied on as constituting the representation, the conduct must be
of such a kind as could reasonably have been expected
by the person
responsible for it, to mislead. Regard is had to the position in
which he is placed and the knowledge he possesses.”
[69] Finally for an estoppel to
operate certain essentials are necessary. These are stated in NBS
Bank Ltd (supra) case as well
as
Glofinco v ABSA Bank Ltd
(trading as United Bank)
2002 (6) SA 470
(SCA)
at paragraph 12 as follows:
(a) There must be a representation
by words or conduct. (b) It must be made by the “
principa
l
“
and not merely by the
“
agent
”
that he had the authority to act as he did. (c) The representation
must be in a form such that the principal would have
reasonably have
expected that outsiders would act on the strength of it. (d) There
must be reliance by “
the
third party
” on
the representation. (e) The reliance on the representation must be
reasonable. (f) There must be consequent prejudice
to “
the
third party
”.
[70] Therefore a claimant who
relies on an estoppel will have to show that he or she was misled by
the principal into believing
that the party who purportedly acted on
the principal’s behalf had authority to conclude the act, that
the belief was reasonable,
and that the claimant acted on that belief
to his or her prejudice. Assurances by the agent of the existence or
extent of his
own authority are of no consequence. It is further
settled law that the onus to establish an estoppel rests on the party
who pleads
it.
Fraud and misrepresentation:
[71] In order to establish that
there has been an actionable fraudulent misrepresentation or fraud
the following must be shown:
a. A representation;
b. which the representor knows (or foresees or reconciles to the
possibility) is false and which he intends the representee to
act
upon (or foresees and is reconciled to the possibility that the
representee will act upon it);
c. the representation must induce
the representee to act, causing patrimonial loss.
Ex parte
Leboa Development Corporation Ltd
1989 (3) SA 71
(T)
.
LAWSA Vol 17 (2) 2
nd
edition at paragraphs 308 – 312. As was stated by de Villiers
CJ in Dickson and Company v Levy
11 SC 36
“
if
the defendant honestly believed his representations to be true, it
cannot be relied upon as a fraudulent representation giving
rise to
action for damages…..if made recklessly without regard to its
truth or falsehood it would be fraudulent, but the
defendant’s
honest belief in the truth of his statement is sufficient to negative
fraud on his part.
”
[72] In so far as the plaintiffs
may rely on a negligent misrepresentation on the part of du Plessis,
it is for them to establish
the following as a basis for any claim
for damages:
a. A misrepresentation by du
Plessis that was wrongful (breaching a legal duty owed not to make a
misrepresentation in the circumstances);
b. it must be made negligently;
c. the misstatement must have
caused (factually and legally) these damages claimed.
Standard
Chartered Bank of Canada v Nedperm Bank Ltd
[1994] ZASCA 146
;
1994 (4) SA 747
A.
Neethling et al Law of Delict (4
th
edition) at 304 – 310. LAWSA Vol 17(2) at head 316.
Vicarious liability:
[73] An employer is liable for
damage occasioned by delicts committed by an employee in the course
and scope of that employee’s
employment.
[74] As was stated by the Appellate
Division in
Feldman (Pty) Ltd v Mall
1945 AD 73
per Greenberg JA “
A
master… is liable even for acts which he has not authorised
provided that they are so connected with the acts which he
has
authorised that they may rightly be regarded as modes – though
improper modes – of doing them…
”
[75] In order to establish
vicarious liability the plaintiff must prove, in addition to the
usual allegations to establish delictual
liability, that the party
concerned was acting in the course and scope of his employment.
Applying the law on the case
based on contract:
[76] On behalf of the Council it is
submitted that an analysis of all the evidence led on behalf of the
plaintiff shows that despite
various senior representatives of
Compufin visiting van Wyk and du Plessis and other unnamed officials
at the Council’s offices,
not one of them made an enquiry as to
the authority of van Wyk to authorise du Plessis to act on behalf of
the Council as he did
in the resolution O1.
[77] All the information required
by those persons acting on behalf of Compufin was to satisfy
themselves of the need of the Council
to purchase the goods concerned
and its ability to pay for such goods in terms of the contracts
concerned.
[78] One must separate the
contracts as such from the goods acquired in terms thereof. Because
the Council needed the goods concerned,
does not indicate that du
Plessis had the power to enter into the actual contracts as he did.
This is a
non sequitor
,
so it was submitted.
[79] In addition counsel for the
Council drew attention to the fact that large portion of the present
case for the plaintiffs was
taken up with evidence which was acquired
by them from Rahme and the two Africon ladies. As none of these
persons gave evidence
it is impossible to say how they obtained the
documents concerned, or whether those documents can be classified as
representations
made by the Council.
[80] In my view these arguments
lose sight of the fact that what is plain is that from a conspectus
of all the evidence led in this
case, the documents could only have
been obtained from the Council. This is particularly so with
reference to the resolution O1.
It is also plain from the evidence
of the witnesses called by the Council that anyone dealing with the
Council would be entitled
to accept information given to him by
senior Council officials as in fact occurred. As was said in
SABC
v Coop
2006 (2) SA 217
(SCA)
:
“
[74]
As in the
NBS
Bank
case
(supra)
the
plaintiffs' case was not limited to the appointment of the various
relevant officers who acted on the SABC's behalf. It included
their
senior status, the trappings of their appointment, the manner in
which they went about their dealings with the plaintiffs,
the use of
official documents and processes, the apparent approval of
subordinate and related organisations, such as the pension
fund and
medical scheme, the length
of
time during which the Ludick option was applied, the Board's own
financial accounts and the conduct of CEOs who were Board members.
Paragraphs
[28] - [32].
[75]
As in the
NBS
Bank
case,
the SABC created a façade of regularity and approval and it is
in the totality of the appearances that the representations
relied on
are to be found.”
[81] The “façade”
of regularity relied upon by the plaintiffs as submitted by their
counsel can be summarised
as follows:
81.1 The
Council appointed Mosiane, van Wyk and Du Plessis to the top three
positions in ranking in the Security sub-cluster hierarchy.
As such,
they were allowed to interact with the public and were expected to do
so.
81.2 The
Council provided these officials with offices in which to work, and
they required equipment in order to fulfill their functions
properly,
in particular photostat machines and radios.
81.3 The
Council allowed outsiders such as Rahme’s and Compufin’s
representatives, access to its employees within the
official premises
of the Council, reinforcing the facade of regularity. In this
regard, the evidence is clear that McLintok of
Compufin and Landberg
of African Bank seperately met with either du Plessis or van Wyk at
the Council's premises prior to the conclusion
of the photostat
agreement, Agreement A. Also present were two other persons whom
McLintok identified as African gentlemen, but
whose names he could
not recall, one of whom could have been Mosiane.
81.4 Prior to
all of this the Council had, since during June 1997, dealings with
the Africon ladies and had purchased consumables
from them for its
photocopy machines. The Council had also allowed the Africon ladies
free access to their premises for the purposes
of supplies, and for
the purposes of ascertaining their volume needs for photocopiers. The
Council allowed them to work on its
payment vouchers in the Strategic
and Executive Finance Boardroom over a period of about two weeks. It
allowed them to obtain details
as to the existing photocopiers. This
in turn enabled the Africon ladies to pass on information regarding
volumes to the banks,
which aided the facade of regularity.
81.5 The
Council provided its employees with original letterheads which
allowed van
Wyk to use an original letterhead when certifying the
existence of
the non-existent Resolution. It also provided its employees with
official stamps and allowed these to be used for
its official
documents, including the original Resolution, Exhibit O1.
81.6 The
Plaintiffs' representatives in turn relied upon this appearance of
regularity contained in the letterheads and the original
official
stamp in being persuaded that the Resolution O1 was genuine and
granting the required finance for the Agreements A, B
and C.
81.7 The
Council appointed another official in the Finance Department,
Lehmkuhl as the Acting Contracts Manager, which indicates
to the
outsider, that he had authority in relation to contracts. Lehmkuhl
signed a contract for the purchase of a number of photocopiers
prior
to the conclusion of Agreement A, and this was sent by the Africon
ladies to Compufin thereby lending an appearance of regularity
to the
Agreements A, B and C subsequently concluded.
81.8 Mosiane
and van Wyk went away to an International Crime
Conference
from 26 to 30 October 1998, effectively leaving the du Plessis in
charge.
81.9 The
Council produced financial statements and allowed these to
be furnished
to McLintock, prior to the conclusion of Agreements B and C.
81.10 The
Council allowed Lehmkuhl to send out a memorandum to
all clusters in relation to the proposed photocopier transaction,
without
taking any steps to investigate or warn its own officials or anyone
who
might become
involved as to any limitations on the authority of Lehmkuhl and other
officials to conclude contracts.
81.11 Mosiane
drew up and allowed Van Wyk to sign on his behalf a job description
of du Plessis prior to the conclusion of Agreements
A, B and C,
listing as part of his job description
"Contracts
and
Tenders".
Although
Mosiane tried to deny this when giving his evidence it is clear that
he had earlier admitted that he had also signed the
original of the
document in A1 page 23 which ostensibly afforded Van Wyk signing
powers.
81.12 The
photocopier was delivered to the Council premises and used, on the
probabilities, to make some 7000 copies for a period
of some seven
weeks, without any objection from any official from the Council to
Compufin, which would have alerted it to any lack
of authority.
81.13 Mosiane
was a party to the decision to acquire the photocopier, and was
present when it was delivered and approved its purchase.
Mosiane's
protestations to the contrary, given the contradictions in his
evidence and his changing of his version during the course
of
evidence, are not believable.
81.14 Subsequent
to the conclusion of the Photocopier transaction Agreement A, a
payment was made via a debit order signed by the
du Plessis, prior to
the conclusion of the radiophone contracts agreements B and C. Even
the Council’s bankers accepted
the signing power and authority
of du Plessis on behalf of the Council.
81.15 This
bank account was checked regularly by the Finance Department, at
least on a monthly basis, yet this debit was not picked
up giving a
further appearance of regularity. Had this debit been picked up
timeously it could have prevented the conclusion of
the Agreements B
and C.
81.16 On Mr
Lottering’s admission, Mosiane knew of the negotiations
regarding radiophones, as early as the middle of January
1999.
Mosiane admitted that he had become aware of these negotiations and
was unable to dispute this date supplied by Mr Lottering.
This means
that Mosiane was aware of the negotiations prior to the conclusion of
Agreements B and C and yet did nothing effective
to stop them or to
question the
authority of the du Plessis.
81.17 In the
light of Mosiane's admitted knowledge of the photocopier deal, and
his protestations that he had told du Plessis to
return the
photocopier, it is inconceivable that Mosiane would have acted as he
claimed. Instead he would at least as at the middle
of January 1999
have taken immediate disciplinary steps against the du Plessis, and
immediately notified the suppliers to stop
the proposed transactions,
yet he did nothing. This indicates his apparent assent, which further
buttresses du Plessis's version
that all of the photocopier and
radiophone agreements were with the express approval and apparent
authority of his superiors being
both van Wyk and Mosiane.
81.18 There
was no secret made of the proposed acquisitions of the
radiophones
and all of those who heard of it, including Councillors, were in
favour of their acquisition. Even the Chief Executive
Officer,
Lephunya, became aware of the desire to conclude the radiophone
transactions when the p 190-191 document was placed on
the agenda for
approval by EXCO. He himself would have been in favour of the
transactions and he confirmed that the Councillors
were in favour of
the radiophones. On his evidence and the probabilities, the p 190-191
document reached the EXCO agenda prior
to the conclusion of
Agreements B and C, but were stopped by Bosman who, notwithstanding
his denials, knew about the radiophones
and had a discussion with
Lephunya about it, yet himself failed to stop the conclusion of these
transactions, and only took action
once it was too late.
81.19 Although
the Council had in place existing written delegations of
authority, it took no steps to train its employees as regards the
precise
limits of
their authority. This led at best to ignorance and at worst to
wholesale confusion and assumption of authority which
created a
dangerous situation to innocent outsiders who would perforce be
obliged to rely upon what they were told by the officials
themselves
(untrained as they were) as to the limits of their own authority.
This is well illustrated by van Wyk’s evidence
at du Plessis’
disciplinary enquiry which is quoted in par 66(2) above.
81.20 The
Council had an existing insurance policy, on the evidence. It allowed
its insurance information to be accessed and to
be used as part of
the agreement documentation, thereby aiding the appearance of
regularity and creating a false sense of security
in the financiers
that the equipment was not only authorised but that it was insured.
81.21 As
submitted by the Plaintiff’s counsel the evidence of what
occurred after the conclusion of Agreements A, B and C
which, whilst
not constituting direct evidence of events that can be relied upon to
ground estoppel, since they occurred after
the conclusion of the
agreements, are nonetheless valuable as a source of inferential
reasoning as regards the apparent approval
prevailing before the
conclusion of Agreements A, B and C and in this regard:
[a] the radiophones were delivered in large quantities (some 200-odd
in
total) to the
Council’s official premises, without any person responding
immediately to say that the radiophones had not been
ordered;
[b] a number
of the Council’s senior employees were issued with the
radiophones including Mosiane and van Wyk;
[c] a number
of Councillors, including Jacobs were issued with
radiophones, liked them, and used them;
[d] there was
substantial use of the radiophones as demonstrated by the expert
testimony and on the probabilities this could only
have been by the
Council employees and Councillors who were issued with these
radiophones.
(Exhibit “C” par 12 – 14)
[f] this
situation prevailed from about 21 January 1999 until 19 March 1999,
nearly two months before Bosman rejected the agreements,
by way of
his letter of 19 March 1999 which is quoted above.
81.22 Had the
transactions been without the approval of a large number of the
Council’s employees, and had du Plessis acted
alone as the
Council suggested, it is inconceivable that it would have taken
approximately 2 months from the delivery of such a
large number of
radiophones, for the transactions to be rejected.
Conclusion on the claim based on contract:
[82] I
therefore hold that there was a representation by both words and
conduct made by the Council, that du Plessis had the authority
to
sign the Agreements A, B and C, and that Van Wyk had the authority to
record that an authorizing resolution had been passed,
and this was
in such a form that the Council should reasonably have expected that
outsiders such as the plaintiffs would act on
the strength of it.
[83] There
can be no doubt that each of the Plaintiffs' witnesses who testified
that they relied upon the appearance of the Resolution,
and the fact
of the prior visits, were honest and truthful and steadfast in their
belief.
[84] There
was some suggestion in the evidence, although somewhat faint, that if
enquiries such as those ultimately pursued by FNB
in relation to the
two uncompleted radio transactions had been pursued at the outset in
respect of Agreements A, B and C, the lack
of actual authority would
have been uncovered at an earlier stage.
[85] In
considering this suggestion, first it should be borne in mind that it
is only the fact that funds had already been advanced
by FNB in
relation to Agreement C, and the substantial further amount required
to be financed, and the possibility of even more
finance in the
future, that the matter was pushed into a category involving the
further active participation of FNB’s Credit
Department. In
this regard, the original credit limit approved by FNB was R4 332
000.00 on 22 December 1998, without making any
of the further
enquires that were ultimately made.
[86] The new
credit requirement would be in the order of R25-30 million and it was
recommended by Maclean that the limit be increased
to R10.5 million
to cater for the rental of further radiophones.
[87] What
prompted the additional enquiries was that subsequent to doing the
first transaction and in considering the proposed further
transactions, it became apparent that the budget approved, amounted
at best to R6 600 000.00 and FNB was now being asked to finance
R10.5
million. Then one of the members of the Credit Committee, Robin Du
Plessis, decided to speak to people who would have been
on joint
committees with him in FNB, and it came to its attention that the
people who normally approved transactions of this kind
come out of
the Finance Department and not out of the Security Department. That
is why Mr Maclean then wrote to Lehmkuhl of the
Finance Department.
[88] These
are different circumstances from those prevailing at the time of the
approval of the lesser amounts required for Agreements
A, B and C and
it does not follow that because further questions were asked in
relation to the proposed further transactions, that
the same
questions ought to have been asked at the outset.
[89] I agree
with the Plaintiffs’ counsel that it does not follow that a
reasonable
man, in the face of the visits to the Council’s business
premises by no less than two officials, to speak to high-ranking
officials in the Council, and after receipt of the Resolution on an
original letterhead bearing an original stamp with original
handwriting, completed in the typed form, would necessarily have made
enquiries with any additional or other officials. See also
SABC
v Coop
2006 (2) SA
217
(SCA) at paragraph 72 and NBS v Cape Produce at par 23
(supra).
[90] As was
held in
NBS
v Cape Produce
,
an ultra cautious person may have done that, but it was the seniority
of the officials that were dealt with, and the trappings
of authority
already referred to that would cause a reasonable man not even to
consider such a step.
[91] Insofar
as it was suggested by counsel for the Council that the wording of
the resolutions should have put the Plaintiffs on
their guard, all of
the Plaintiffs' witnesses testified that the wording of the
Resolution was a standard form wording used in
the finance industry,
and that there was nothing unusual in that wording that would have
alerted any suspicion on their part.
Bosman on behalf of the First
Defendant was of the view that the wording did not accord with the
normal Council wording but he
did not pretend to be an expert on what
applied to other Councils, and he could only comment on his personal
experience with the
present Council.
[92] I agree
with plaintiffs’ counsel that there was accordingly nothing
wrong with the wording such that it should have elicited
suspicion in
the mind of the reasonable financier in the position of the
Plaintiffs.
[93] I
therefore find that the Plaintiffs acted reasonably in relying upon
the representations made by the Council as to the authority
of du
Plessis to sign the agreement.
[94] It
therefore cannot be disputed that on the strength of the
representations, Compufin to its actual or potential prejudice
paid
out the price of the photocopier and the radiophones as invoiced to
it by Jeff Rahme.
[95] The
position regarding the Cessions and the consequent liability to repay
has been agreed in terms of the admitted facts, from
which prejudice
and potential prejudice are apparent.
[96] As in
the NBS v Cape Produce case, I find that prejudice has clearly been
established.
[97] The
Council is therefore estopped from denying the authority of du
Plessis to act on its behalf in concluding the Agreement
A, B and C,
and from denying the authority of Van Wyk in making the
representation he made. The Plaintiffs are therefore entitled
to
judgment with interest and costs accordingly. It was not in dispute
that the present case was one which justified the employment
of two
counsel by each party. Costs are therefore awarded on this basis.
It was also a term of each of the contracts, A, B and
C, that these
costs would be attorney and client costs.
Du Plessis’ fraud and misrepresentation:
[98] The unchallenged evidence of
du Plessis is that he believed that he had the authority to enter
into the agreements concerned
by virtue of his job description. In
addition he made it plain that he did not do anything without the
specific authority of those
in authority above him such as van Wyk
and Mosiane.
[99] His uncontradicted evidence is
that he was not shown the resolution O1 which was signed by van Wyk.
He was told by those acting
on behalf of Rahme that such a resolution
was necessary, but it was never presented to him. The witnesses for
the plaintiff made
it clear that as far as they were concerned they
were not relying on any representation made by du Plessis, but on a
proper and
acceptable resolution confirming du Plessis’
authority to sign the three contracts on behalf of the Council. They
were unanimous
in their evidence that had such a resolution not been
furnished Compufin would not have proceeded with the transactions
concerned.
[100] In circumstances, the
plaintiffs cannot succeed in a claim for damages against du Plessis,
when the evidence of their own
witnesses is that they did not rely on
any representation made by him, but on the representation of van Wyk
who signed the resolution.
In addition there is no evidence that du
Plessis was aware that the statement in O1 was false. In the
circumstances it cannot
be said that the plaintiffs at any stage
relied upon either a fraudulent or negligent misrepresentation from
du Plessis in concluding
the transactions described in the three
contracts, annexures A, B and C.
[101] For these reasons the
plaintiff’s claim against du Plessis cannot succeed and falls
to be dismissed. Therefore it becomes
unnecessary to deal with the
issue of vicarious liability on the part of the Council, such a claim
also falls to be dismissed.
Quantum of the Claim
[102] The plaintiffs have prepared
a schedule in which their claim for contractual damages is set out.
[103] In terms of this schedule the
Plaintiffs have chosen to reduce their contractual claim by the value
of the equipment returned.
This has been done in order to limit any
dispute by any parties as to the proper quantification of the
contractual claim, which
has been raised by the Council in its
reliance on the Conventional Penalties Act 15 of 1962. This latter
reliance is as a consequence
of the Council’s amended plea.
[104] The value of the equipment
has been calculated by an expert and it is no longer in dispute. The
only issue in dispute is
the rate of interest to be charged.
[105] Clause
8.2 of each contract provides that in the event that the Council
defaulted in the punctual payment of any payment as
it fell due in
terms of the contract, or failed to comply with any of the terms and
conditions of or its obligations under the
contract, then Compufin
would be entitled immediately to terminate the contract, take
possession of the equipment, retain all amounts
already paid by
Compufin and claim all outstanding rentals (which in context means
arrear rentals), all legal costs, including
legal expenses on the
attorney and client scale, and as agreed pre-estimated liquidated
damages the aggregate of the rentals which
would have been payable
had the contract continued until expiry by effluxion of time.
[106] In
terms of clause 3.3 of each contract the overdue amounts bear
interest at a rate of 6% per annum above the publicly quoted
base
rate of interest per annum of any South African Registered Commercial
Bank nominated by the Compufin after the conclusion
of the
agreements.
[107] The
Plaintiffs have elected the prime overdraft rate of FNB.
[108] On
behalf of the plaintiffs it was therefore submitted that they are
contractually entitled to claim the interest rate as
per clause 3.3
of the contracts, which is 6% above the FNB’s prime interest
rate which interest is to run from the 19
th
of March 1999 until date of final payment.
[109] The
Council has in its amended plea raised a defence based upon the
Conventional Penalties Act 15 of 1962 (“the Act”)
in
relation to clauses 3.3 and 8.2 of the agreements.
[110] The
position of the Plaintiffs in this case who are claiming the penalty
has been authoritatively stated by the Supreme Court
of Appeal, per
Jafta JA in
Steinberg v Lazard
2006 (5) SA 42
(SCA) 42
at 45 C – G:
“[
6]
Since it is common cause that the appellant has breached the
undertaking, the respondent is entitled to the full penalty amount
unless it is reduced in terms of s 3 of the Conventional Penalties
Act 15 of 1962. This section provides:
'If upon the hearing of a claim for a penalty, it appears to the
court that such penalty is out of proportion to the prejudice
suffered by the creditor by reason of the act or omission in respect
of which the penalty was stipulated, the court may reduce
the penalty
to such extent as it may consider equitable in the circumstances:
Provided that in determining the extent of such prejudice
the court
shall take into consideration not only the creditor's proprietary
interest, but every other rightful interest which may
be affected by
the act or omission in question.'
[7] The Legislature provided
protection to a debtor against an excessive penalty. In terms of the
section, as construed by this
Court, the debtor bears the
onus
of proving that the
penalty is disproportionate to the prejudice suffered and to what
extent (see
Smit v
Bester
1977
(4) SA 937
(A) at
942D - G).
[8] It was submitted on
behalf of the appellant that, although the
onus
lies upon a debtor to
establish the absence of prejudice, some prejudice is nonetheless an
essential allegation to be made by a
creditor who seeks enforcement
of a penalty. That submission has no merit. There is absolutely no
need for the creditor to allege
prejudice in claiming a penalty. The
onus
being
on the debtor, it is for the debtor to allege and prove its absence,
albeit that that might call for only
prima
facie
evidence
initially.”
[111] In the present case the
Council led no evidence of any nature to justify a reduction of the
penalty in terms of section 3
of the Act.
[112] Counsel for the Council
sought to rely on the judgment in
Plumbago Financial Services
(Pty) Ltd t/a Toshiba Rentals v Janap Joseph t/a Project Finance
2008
(3) SA 47
(C)
where the Court
adopted
a
comparison between what the Plaintiffs’ position would
have
been had the Defendant not defaulted and what the Plaintiffs’
position would be if it obtained judgment in the amount
claimed.
This
approach is unobjectionable as a starting point, but questionable in
that
if
followed rigorously it would deny the application of any penalty
whatsoever,
which would be contrary to section 1 of the Act and Steinberg
(supra). It is significant that in Plumbago no mention
was made of
the Supreme court of Appeal judgment in Steinberg. That judgment
seems to have been overlooked.
[113]
In
Plumbago
the
Court found that because photocopying machines that had been
repossessed had been utilised to make additional income (one was
sold, the other rented out) that should be deducted from the
accelerated rentals that were claimed by the Plaintiff. It also found
that interest at a rate of 6% above prime on the accelerated rentals
was disproportionate to the amount of prejudice and instead
ordered
that interest should be at the prescribed rate
a
tempora morae
.
This latter finding is questionable in the light of what was said in
Steinberg, quoted above.
[114] In any event the facts in the
Plumbago case are distinguishable from the present one, as no such
evidence was led in this
case as was led in that case.
[115] In
relation to interest, the principles stated in Steinberg (supra) are
applicable. It is the Council who has chosen to
repudiate the
agreements and return the equipment. It should have paid the
liquidated damages on that date. It has chosen not to,
with full
knowledge of the interest that would be paid by it if its actions
were held to amount to a wrongful repudiation. Had
it paid on
repudiation, no interest at the higher rate would have been incurred.
In the meantime the Council has not paid anything
further and has had
the use of the money that it would otherwise have had to pay. The
Plaintiffs have in their turn been deprived
of the benefit of the
receipt of that money and the benefit of investing it or earning a
return in some other manner.
[116] It
would not be equitable in these circumstances for the Council to
escape the consequences of what it had agreed to pay by
way of
interest as a result of its own unilateral act contrary to the will
of the Plaintiffs, particularly where in the meantime
the 5 year
periods of the agreements have long since elapsed, and it has enjoyed
the benefit of the money and any returns thereon
(not to mention the
benefits of paying in now depreciated Rands).
[117] Moreover,
the Plaintiffs have already agreed that the value (and where
sold - the
sale value) of the equipment can be deducted from their claim, in
circumstance where this is not strictly necessary.
In this respect it
should also be remembered as has already been said given the nature
of the contracts, the equipment would in
any event have been returned
to the Plaintiffs at the end of the 60 month rental period (as per
clause 11.2).
[118] In the
circumstances it I find that the agreed interest rate should
not be reduced.
[119] In the circumstances the
following order is made:
There will be a judgement against the First Defendant as follows:
a. Payment
of the sum of
R
7,070,607.34
to the First Plaintiff in respect of Contracts "A" and "B",
together with interest thereon at the rate of 6%
per annum above the
prime overdraft rate charged by the Second Plaintiff from time to
time, from 19 March 1999 until date of final
payment;
b. Payment of
the sum of
R
6,208,952.80
to the Second Plaintiff in
respect of
Contract "C", together with interest thereon at the rate of
6% per annum above the prime overdraft rate charged
by the Second
Plaintiff from time to time, from 19 March 1999 until date of final
payment;
Costs of
suit on the scale of attorney and client, such costs to include the
costs consequent upon the employment of two counsel.
As against the Second Defendant: The First Plaintiff’s claim
is dismissed with costs.
_________________________
P BLIEDEN
JUDGE OF THE HIGH COURT
COUNSEL FOR THE 1
ST
& 2
ND
PLAINTIFF: Adv. Harpur(SC)
Adv. Coutsoudis
INSTRUCTED BY Lynn & Main
Incorporated
COUNSEL FOR THE 1
ST
DEFENDANT: Adv. Franklin (SC)
Adv. Wood
INSTRUCTED BY Moodie and
Robertson
THE SECOND DEFENDANT APPEARED IN PERSON.
DATE OF HEARING 10 May 2010