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[2013] ZASCA 19
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Trustees of the Insolvent Estate of Whitehead v Dumas and Another (323/12) [2013] ZASCA 19; 2013 (3) SA 331 (SCA) (20 March 2013)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 323/12
Reportable
In the matter between:
THE TRUSTEES OF THE INSOLVENT
ESTATE OF
GRAHAME ERNEST JOHN WHITEHEAD
................................................
APPELLANT
and
LEON JEAN ALEXANDRE DUMAS
...........................................
FIRST
RESPONDENT
ABSA BANK LIMITED
...........................................................
SECOND
RESPONDENT
Neutral citation:
The
Trustees of the Insolvent Estate of Grahame Ernest John Whitehead v
Dumas
(323/12)
[2013] ZASCA 19
(20 March 2013)
Coram
: Lewis, Ponnan, Cachalia,
Theron, Petse JJA
Heard: 1 March 2013
Delivered: 20 March 2013
Summary: Where A transfers money
from his bank account to B’s bank account pursuant to an
agreement induced by B’s fraudulent
misrepresentation, B’s
personal right to the credit falls to his insolvent estate on
sequestration.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from:
North Gauteng
High Court, Pretoria (Makgoba J sitting as court of first instance):
The following order is made:
‘
1 The appeal
is upheld with costs, including the costs of two counsel.
2 The order of the high court is set
aside and replaced with the following:
‘
The
application is dismissed with costs.’
JUDGMENT
___________________________________________________________________
CACHALIA JA (LEWIS, PONNAN, THERON
AND PETSE JJA CONCURRING):
[1] This appeal concerns a dispute
over an amount of R3 million between the trustees of a fraudster’s
insolvent estate and
a disgruntled investor. The investor, Dr Leon
Dumas, the first respondent, had been induced to pay the money into
the bank
account of the fraudster, Mr Graham Whitehead, in
contemplation of participating in the latter’s illegal
financial scheme.
Whitehead’s estate was subsequently
sequestrated and its administration placed in the hands of the
trustees, the appellant.
[2] Dumas lays claim to the money on
the ground that it was obtained from him fraudulently, and therefore
cannot form part of the
insolvent estate. The trustees, on the other
hand, contend that the funds became part of the estate on
sequestration, and thus
subject to the concursus creditorum. The
parties’ competing claims may best be understood against the
background circumstances
that led to the dispute.
[3] Whitehead operated an unlawful and
fraudulent ‘Ponzi’ or Pyramid scheme, which involved
investors putting up bridging
finance for fictitious transactions
purportedly undertaken by the Salvation Army in the United Kingdom.
In return for their short
term investments, investors were promised,
and in some instances apparently received, huge profits. The scheme,
as with other similar
schemes, depends on an ever-increasing flow of
funds from new investors. It initially pays out high returns to lure
more investors.
The ‘return’ to the initial investors is
paid out from the new investments and not out of any profits because
there
are no real profits. When the scheme is unable to attract
sufficient numbers of new investors its hierarchical payment
structure
becomes unsustainable. So the scheme collapses – as
it inevitably must – with most of the participants losing the
money
they put in.
[4] Dumas, a specialist medical
practitioner, was duped through representations made by an agent
acting on Whitehead’s behalf
into believing that Whitehead’s
scheme was legitimate, and that his investment would yield a
lucrative return of a third
of his investment within a year. On the
strength of this belief he instructed his Bank, First National Bank,
to transfer the R3
million into Whitehead’s Absa Bank account
on 23 April 2009. He understood from the agent that the money would
remain his
property until he concluded a contract with Whitehead a
few days later. But unbeknown to both the agent and Dumas, Whitehead
had
been under arrest for fraud in the United Kingdom at the time; so
the planned meeting between the parties to finalise the detail
of the
investment agreement did not take place. Whitehead has since been
convicted and sentenced to a ten year term of imprisonment
for this
crime. In addition his assets were frozen and his estates in South
Africa and the United Kingdom sequestrated.
[5] On 28 April 2009, after learning
of Whitehead’s arrest, Dumas instructed his bank, FNB, to
reverse the transfer to Whitehead’s
account. Acting on his
instructions FNB wrote to Absa requesting that the account into which
the money had been paid be put on
‘hold’. No transactions
were made from this account thereafter.
[6] On 5 May 2009, the Absa account
had a credit balance of R 3 293 677.42, and a second account, also
held by Whitehead with Absa,
had a credit balance of R 4 943 078.22.
[7] On 7 May 2009, an urgent order was
granted for the provisional sequestration of Whitehead’s
estate. The court also ordered
that the funds in both Whitehead’s
accounts be transferred to the trust account of Attorneys Coetzee
Inc. In terms of the
transfer order an amount of R 8 236 605.54 was
drawn from the two Whitehead accounts and paid into the Coetzee Inc
trust account.
The order stated that the funds were to be held in the
account pending the appointment of provisional trustees or further
directions
of the court.
[8] On 20 May 2009, the Master
appointed the provisional trustees of Whitehead’s insolvent
estate. On 25 May 2009, Coetzee
Inc paid the total amount of R 8 236
605. 54 over to the trust account operated by the trustees.
Coincidentally, this account too
is held by Absa. Absa therefore held
the money, and continues to hold the money, as banker in the name of
Whitehead’s insolvent
estate.
[9] The following day, on 26 May 2009,
Dumas instituted a vindicatory application for the return of the
moneys in the North Gauteng
High Court.
[10] In his founding and replying
affidavits Dumas premised his claim on his alleged ownership of the
funds deposited into Whitehead’s
account. But formulated in
these terms, the claim was bad because when money is paid into a bank
account that money becomes the
property of the bank. The rei
vindicatio, which is the common law remedy for an owner seeking to
recover his property, was therefore
not available to Dumas. When he
realized the problem, no doubt on the advice of his lawyers, he filed
a supplementary replying
affidavit in which he altered the legal
basis of his claim. His claim was no longer vindicatory but premised
on enrichment –
the
condictio ob turpem vel iniustam causam
– a remedy available to a plaintiff who innocently transfers
money to a defendant under an agreement which, to the knowledge
of
the defendant, is illegal. In this case the enrichment claim was
sought to be enforced against Absa even though it was not party
to
the agreement between Dumas and Whitehead.
[11] Although Dumas sought relief
against seven respondents, including Absa Bank, only the appellant
opposed the application. As
is usual in matters of this nature
involving contested claims to the money standing to the credit of an
account-holder, Absa properly
adopted a neutral stance of a
stakeholder awaiting a court decision on the dispute.
[12] The high court (Makgoba J) upheld
Dumas’ claim, holding that as he had caused the transfer of the
money into Whitehead’s
bank account to the credit of Whitehead
through a fraud and theft perpetrated on him by Whitehead, Whitehead
had no entitlement,
and thus no claim against Absa, to the money. The
court concluded that the money therefore fell outside Whitehead’s
estate,
was not subject to the concursus creditorum and the bank,
which would be enriched if it kept the money, had to repay the amount
to Dumas. The high court refused the appellant leave to appeal, but
this court granted the necessary leave. It is convenient at
this
stage to restate the legal principles governing a dispute of this
nature.
[13] Generally, where money is
deposited into a bank account of an account-holder it mixes with
other money and, by virtue of
commixtio
,
becomes the property of the bank
1
regardless of the circumstances in
which the deposit was made or by whom it was made. The account-holder
has no real right of ownership
of the money standing to his credit
2
but acquires a personal right to
payment of that amount
3
from the bank, arising from their
bank-customer relationship. This is also so where, as in this case,
no money in its physical form
is in issue, and the payment by one
bank to another, on a client’s instruction, is no more than an
entry in the receiving
bank’s account.
4
The bank’s obligation, as owner
of the funds credited to the customer’s account, is to honour
the customer’s payment
instructions.
5
Where the depositor is not the
account-holder he relinquishes any right to the money and cannot
reverse the transfer without the
account-holder’s concurrence.
6
[14] Once ownership passes to the bank
it immediately incurs the obligation to account to its customer. But
a customer does not
always acquire an enforceable personal right to
the credit in his account merely by virtue of the deposit. A bank is
entitled to
reverse a credit in the account-holder’s bank
account if it transpires that the account had been credited in error,
that
the customer had acquired the money by fraud or theft,
7
that the drawer’s signature on a
cheque had been forged, or that the bank notes deposited in the
account were forgeries.
8
It is contended on behalf of Dumas
that because he was the victim of fraud or theft by Whitehead the
bank must reverse the credit
in the trustees’ account.
[15] Where, as in this case, A causes
the transfer of money from his bank account to the account of B, no
personal rights are transferred
from A to B; what occurs is that A’s
personal claim to the funds that he held against his bank is
extinguished upon the transfer
and a new personal right is created
between B and his bank. Ownership of the money – insofar as
money in specie is involved
– is transferred from the
transferring bank to the collecting bank, which must account to B in
accordance with their bank-customer
contractual relationship.
9
This is so even where A was induced to
enter into an agreement through B’s fraudulent
misrepresentation. In that case A will
have a claim for delictual
damages against B to compensate him for his loss
10
but will not be able to claim a
retransfer of the credit from the bank.
And
if B is subsequently sequestrated the claim will lie against B’s
estate because an insolvent’s personal right to
credit falls
into his estate upon sequestration.
11
[16] The enquiry in this case
therefore turns on whether or not Whitehead acquired a personal right
to the credit when Dumas caused
the money to be transferred to
Whitehead’s account. If he did the funds accrued to Whitehead’s
estate upon sequestration.
However, if Whitehead himself did not
acquire a personal right to the funds, neither would his estate have
upon sequestration;
the funds then remain the property of the bank
with Whitehead’s estate having no claim to its payment. And the
bank would
be unjustly enriched, at Dumas’ expense, if it
retained the funds without incurring an obligation to release it to
the trustees.
[17] The foundation for the learned
judge’s decision to uphold Dumas’ claim was this court’s
judgment in
Nissan South
Africa (Pty) Ltd v Marnitz & others
(
Stand
186 Aeroport (Pty) Ltd Intervening
).
12
The facts were these: Nissan was a
customer of Firstrand Bank Ltd (FNB). It instructed the bank to pay
an amount of just under R13 million
to one of its creditors,
TSW, but mistakenly gave the bank the incorrect account details. As a
result of this mistake, FNB paid
the amount in question to an
incorrect payee. The payee was aware of the error, but nonetheless
withdrew the funds and was liquidated
shortly thereafter. Nissan
applied for an order declaring that what was left in the payee’s
account did not form part of
the insolvent’s estate.
[18] The high court refused to grant
the order, holding that the payee, and not FNB, had been enriched by
the transfer but that
Nissan had a concurrent claim against the
insolvent estate. Nissan appealed against the order to this court. On
appeal Streicher
JA dismissed the liquidator’s submission that
once a bank unconditionally credits a customer’s account with
an amount
received, the bank must pay the money to the customer on
demand, even where the money was received through fraud or theft.
13
And, he continued:
‘
If
stolen money is paid into a bank account to the credit of a thief,
the thief has as little entitlement to the credit representing
the
money so paid into the bank account as he would have had in respect
of the actual notes and coins paid into the bank account.’
14
[19] Consequently, so he held, because
the payee had no claim to the money that was mistakenly paid to it,
the liquidators of the
payee’s insolvent estate had no claim to
the money either. And he therefore concluded that because the bank,
and not the
payee, was enriched, it had to release what was left in
the payee’s account.
[20] Mr Harpur, who appears for Dumas
in this appeal, seeks to defend the high court’s invocation of
Nissan
in
support of his case. Mr Wasserman, who coincidentally appeared for
the successful appellant in
Nissan
,
contends that the high court applied the ratio decidendi
of
that case incorrectly.
[21] It is apparent that the
circumstances in
Nissan
were very different to those that we
are considering. There
the
court was dealing with funds that were paid into an incorrect bank
account. The payee then withdrew the money from that account
knowing
that he had no claim to it; in effect he stole the money. Thus, in
commenting on this case, Malan JA recently observed
in
Absa
Bank v Lombard Insurance Company Ltd
:
15
‘
The
bank had no duty to account to its customer. Nor did the customer
have a contractual or other right to the stolen funds. The
bank, by
remaining in possession of the funds without any corresponding
liability to account to its customer, was enriched and
liable to make
restitution to the owner.’
[22] The reference to ‘fraud or
theft’ in
Nissan
must be understood in context:
16
and one must have regard to the
approach of Thirion J in
Commissioner
of Customs and Excise v Bank of Lisbon International Ltd
,
17
which Streicher JA approved.
18
Here, R defrauded the Commissioner and
paid an amount of money into his bank account with the Bank of
Lisbon. The circumstances
under which R obtained the money –
the taking of the moneys having been nothing short of theft –
Thirion J held were
such as to deprive its delivery of any legal
effect.
19
In other words the bank acquired
ownership of the money without a corresponding obligation to account
to its customer and the customer
had no contractual or other right to
the funds. And, although he considered it unnecessary to decide
whether the Commissioner could
invoke an enrichment action against
the bank because the matter was referred to the trial judge for oral
evidence to be heard,
he accepted that such a claim (the condictio
sine causa) was competent.
20
[23] So both
Nissan
and
Bank
of Lisbon
were concerned
with theft or fraud outside a contractual context. By contrast the
investment transaction between Dumas and Whitehead,
though tainted by
fraud, nevertheless constituted the causa
for
the payment. Dumas intended to pay Whitehead and voluntarily made the
payment into Whitehead’s account; it is immaterial
that the
payment was solicited through Whitehead’s misrepresentation and
fraud.
[24] As I have said, as between the
account-holders no personal rights are transferred; the personal
right to the credit of the
one account-holder is extinguished upon
the transfer and a new personal right created immediately for the
other. Whitehead, as
a customer of Absa, immediately acquired the new
right to the money in his account, which was enforceable against the
bank when
ownership passed to it, despite the absence of valid causa
– ie a valid underlying agreement. Absa then had both a duty to
account and a corresponding liability to its customer, Whitehead, and
on his sequestration two weeks later, to the trustees of
the
insolvent estate. Absa is therefore not enriched and no enrichment
action lies against it. Dumas had only a delictual claim
against
Whitehead arising from the fraudulent misrepresentation, which
induced the transfer of the money, and on the latter’s
sequestration a claim against the trustees.
[25] I am aware that in
Nissan
Streicher JA was concerned
that the usual remedies open to a creditor – interdicts and
attachments to prevent the debtor from
disposing of his assets
pending an institution of an action by the creditor – may not
be adequate remedies in the event of
a debtor’s insolvency. And
he thus held that the law would be deficient if it did not provide a
remedy for recovery of stolen
money direct from the bank in those
circumstances.
21
There were accordingly different
considerations for affording a remedy to the creditor against the
bank in that case, as there was
in
Bank
of Lisbon.
[26] The appeal is accordingly upheld.
The matter is obviously important, not only to the parties but more
broadly as it deals with
a complex area of the law. The trustees were
therefore justified in engaging the services of two counsel. There is
no reason why
they should not be granted these costs.
[27] The following order is made:
‘
1 The appeal
is upheld with costs, including the costs of two counsel.
2 The order of the high court is set
aside and replaced with the following:
‘
The
application is dismissed with costs.’
_________________
A CACHALIA
JUDGE OF APPEAL
APPEARANCES
For Appellant: J Wasserman SC (with
him G Amm)
Instructed by:
Lowndes Dlamini, Pretoria
Matsepes Inc, Bloemfontein
For Respondent: G D Harpur SC
Instructed by:
Rajespree Naidoo & Associates,
Pretoria
Lovius Block, Bloemfontein
1
Louw
NO & others v Coetzee & others
2003 (3) SA 329
(SCA) at
334H-I;
Commissioner of Customs and Excise v Bank of Lisbon
International & another
1994 (1) SA 205
(N) at 208I.
2
S
v Kearney
1964 (2) SA 465
(A) at 503. See also
S v Graham
1975 (3) SA 569
(A) at 577.
3
See
Louw NO v Coetzee
2003 (3) SA 329
(SCA) para 12.
4
Muller
NO v Community Medical Aid Scheme
2012 (2) SA 286
(SCA) para 13.
5
Muller
para 13.
6
Take
and Saving Trading CC v Standard Bank of SA Ltd
2004 (4) SA 1
(SCA) para 17.
7
Nedbank
v Pestana
[2008] ZASCA 140
;
2009 (2) SA 189
(SCA) para 9.
8
Standard
Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (in
Liquidation)
[1997] ZASCA 94
;
1998 (1) SA 811
(SCA) at 823B-D.
9
W
Schulze ‘Countermanding an electronic funds transfer: the
Supreme Court takes a second bite at the cherry’ (2004)
SA
Merc LJ
667, 671; J du Plessis ‘The cause of action in
Nissan South Africa (Pty) Ltd v Marnitz NO
’ in H
Mostert and M J de Waal (eds)
Essays in Honour of C G van der
Merwe
(2012) 6;
Muller
above para 13.
10
R
H Christie and G B Bradfield
Christie’s Law of Contract in
South Africa
6 ed (2011) 307-308.
11
R
Sharrock K, Van der Linde and A Smith
Hockly’s Insolvency
Law
7 ed (2002) at 58.
12
Nissan
South Africa (Pty) Ltd v Marnitz
2005 (1) SA 441
(SCA).
13
Ibid
para 23.
14
Ibid
para 23.
15
Absa
Bank v Lombard Insurance Company Ltd
2012 (6) SA 569
(SCA) para
14.
16
Nissan
para 23.
17
Commissioner
of Customs and Excise v Bank of Lisbon International Ltd &
others
1994 (1) SA 205
(N).
18
Nissan
paras 13-16.
19
Commissioner
at 208G.
20
Ibid
at 220A-B.
21
Nissan
para 16.