Firstrand Bank v Fourie and Another (5944/07) [2011] ZAGPPHC 94 (6 May 2011)

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[2011] ZAGPPHC 94
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Firstrand Bank v Fourie and Another (5944/07) [2011] ZAGPPHC 94 (6 May 2011)

NOT
REPORTABLE
IN THE
HIGH COURT OF SOUTH AFRICA
(NORTH
GAUTENG HIGH COURT, PRETORIA)
Date: 2011-05-06
Case Number: 5944/07
In the matter between:
FIRSTRAND
BANK
.................................................................................
Plaintiff
and
CONRAD
FOURIE
....................................................................
First Defendant
JACOBUS SPANGENBERG
N.O.
.....................................
Second
Defendant
JUDGMENT
SOUTHWOOD J
[1] The plaintiff seeks
an order directing the first and second defendants, jointly and
severally, the one paying, the other to
be absolved, to pay to the
plaintiff:
(a) the capital amount of
R7 340 229,73;
(b) interest up to and
including 31 October 2010 in the amount of R4 167 605,72;
(c) interest on the
capital amount of R7 340 229,73 calculated at the rate of 2 percent
above the prime rate charged by the plaintiff
from time to time
(presently 9.5 percent per annum) from 1 November 2010 to date of
payment (‘the debt’).
The plaintiff
seeks this relief against the first defendant in terms of section
424(1) and (2) of the Companies Act 61 of 1973
(‘the Act’)
alternatively, on the basis of the
actio
lex acquilia
.
The plaintiff seeks this relief against the second defendant on the
basis of the
actio
lex acquilia
only.
In order to succeed against the first defendant in terms of section
424 of the Act the plaintiff must establish the requirements
for
liability in terms of that section and the court must declare that
the first defendant is personally responsible to the plaintiff
for
the company’s debt. In order to succeed against the defendants
on the grounds of the
actio
lex acquilia
the
plaintiff must establish all the requirements for such liability
which obviously includes damage and causality. For the sake
of
convenience (for reasons which will appear later) I shall refer to
the first defendant as Fourie and the second defendant as
Du Preez.
[2] Th
is
case was heard initially for 9 days during May 2009 and, when it
could not be completed, was postponed
sine
die
.
It was set down again for hearing during a further period of 15 days
from 11 October to 29 October 2010. On 22 July 2010 Du
Preez took
his own life and on 5 August 2010 two executors, Jacobus Spangenberg
and Cornelius Johannes Nel (who had been acting
as the defendants’
attorney), were appointed to wind up his estate. After Nel resigned
as executor the Master appointed
the present executor, Jacobus
Spangenberg, as the sole executor in Du Preez’s estate. In
accordance with Rule 15 Mr. Spangenberg
has been substituted as a
party to this dispute. As already pointed out the executor will
conveniently be referred to as Du Preez.
[3] A
fter
Mr. Nel and Mr. Spangenberg were appointed executors in Du Preez’s
estate they decided that the estate should be represented
by its own
legal representatives (until then Fourie and Du Preez had been
represented by Mr. Nel as attorney and Adv. Klopper)
and that they
required time to consider the estate’s position and obtain
legal advice. After their request for a postponement
was refused by
the plaintiff, Mr. Nel and Mr. Spangenberg brought a substantive
application for a postponement of the trial. On
29 September 2010 the
court dismissed that application with costs, including the costs of
two counsel, and gave reasons for the
dismissal of the application.
Either in chambers or during argument the court expressed concern
about the alleged necessity for
appointing a second legal team to
represent Du Preez’s estate, particularly because there was no
suggestion that the defendants’
counsel was not acting in
accordance with instructions or that the defendants’ legal team
was not able to render the service
required. As already mentioned,
shortly after the judgment on 29 September 2010 Mr. Nel resigned as
executor in Du Preez’s
estate and resumed his role as attorney.
Section
424 of the Act
[
4] The
relevant parts of section 424 of the Act read as follows:
‘
(1) When it appears, whether it
be in a winding-up, judicial management or otherwise, that any
business of the company was or is
being carried on recklessly or with
intent to defraud creditors of the company or creditors of any other
person or for any fraudulent
purpose, the court may, on the
application of the Master, the liquidator, the judicial manager, any
creditor or member or contributory
of the company, declare that any
person who was knowingly a party to the carrying on of the business
in the manner aforesaid, shall
be personally responsible, without any
limitation of liability, for all or any of the debts or other
liabilities of the company
as the court may direct.
(2)(a) Where the Court makes any such
declaration, it may give such further directions as it thinks proper
for the purpose of giving
effect to the declaration, and in
particular may make provision …’
[5
] The
Supreme Court of Appeal has considered the provisions of section 424
of the Act on a number of occasions and explained its
broad purpose
and interpreted key words and expressions:
(1)
Intention
of the Section
A
lthough
the legislative intention was to broaden the scope of the precursor
to section 424 (i.e. section 185 of the Companies Act
46 of 1946) and
to extend the remedy by means of which a restraining influence can be
exercised on persons (particularly ‘over-sanguine
directors’)
who knowingly are parties to the carrying on of the business
recklessly or with intent to defraud creditors of
the company (or any
other person) or for any fraudulent purpose, that does not mean that
recklessness is lightly to be found –
Philotex
(Pty) Ltd and Others v Snyman and Others
[1997] ZASCA 92
;
1998
(2) SA 138
(SCA)
at
142G-H.
(2)
Liability
created
The object of
section 424 is not to create a joint and several liability between
the person and the company in the interest of
creditors. If the
company cannot pay, the creditor is entitled to claim from the person
without having to place the company in
liquidation or under judicial
management. This does not mean that the creditor has to excuss the
company before proceeding against
the person but only that there must
be evidence of the company’s inability to pay –
Saincic
and Others v Industro-Clean (Pty) Ltd and Another
2009
(1) SA 538
(SCA)
para
27.
(3)
‘Knowingly’
The person seeking
to enforce section 424 must prove that the person sought to be held
liable had knowledge of the facts from which
the conclusion is
properly to be drawn that the business of the company was or is being
carried on recklessly or with intent to
defraud creditors of the
company or creditors of any other person or for any fraudulent
purpose. It is not necessary to prove
that the person had actual
knowledge of the legal consequences of these facts –
Howard
v Herrigel and Another NNO
[1991] ZASCA 7
;
1991
(2) SA 660
(A)
at
673I-674A;
Philotex
at
143A-B.
(4) ‘
A
party to the carrying on of the business aforesaid’
Being a party to
the conduct of the company’s business does not have to involve
the taking of positive steps in the carrying
on of the business: it
may be enough to support or concur in the conduct of the business –
Philotex
at
143B-C;
Howard
v Herrigel
at
674G-H.
(5) The party
alleging recklessness must prove it on a balance of probabilities –
Philotex
at
142I-J.
(6) ‘R
ecklessly’
contains the involvement of a risk whether or not the doer realises
it or not and the ordinary meaning of the word
includes gross
negligence, with or without consciousness of risk-taking and gross
negligence includes an attitude or state of mind
characterised by ‘an
entire failure to give consideration to the consequences of one’s
actions, in other words, an
attitude of reckless disregard of such
consequences’ –
Philotex
at
143C-F.
(7) T
he
test for recklessness is objective insofar as the person’s
actions are measured against the standard of conduct of the
notional
reasonable person and it is subjective insofar as one has to
postulate that notional being as belonging to the same group
or class
as that person, moving in the same spheres and having the same
knowledge or means to knowledge –
Philotex
at
143G-H.
(8) ‘R
eckless
disregard of the consequences’ refers to unforeseen
consequences – culpably unforeseen – whatever they
might
be –
Philotex
at
143I-J.
(9) ‘R
ecklessly’
connotes at the very least gross negligence –
Philotex
at
144A-B.
(10) I
n
the application of the recklessness test to the evidence before it a
court should have regard,
inter
alia
,
to the scope of the operations of the company, the role, functions
and powers of the directors (i.e. the persons), the amount
of the
debts, the extent of the company’s financial difficulties and
the prospects, if any, of recovery –
Philotex
at
144B-C.
(11)
Causality
In terms of
section 424(1) a court may a declare a director (who is knowingly a
party to fraud on the part of his company) liable
‘for all of
the debts or other liabilities of the company’ without proof of
a causal connection between the fraudulent
conduct of the business of
the company and the debts or liabilities for which he may be declared
liable –
Philotex
at
142I-J;
Howard
v Herrigel
at
672C-D. However, it has recently been held that, as far as creditors
are concerned ,the section must be interpreted to mean
that there
must be a causal link between the reckless conduct and the inability
to pay the debt. In other words it must be due
to the reckless
conduct that a particular creditor’s debt cannot be paid –
L
& P Plant Hire BK en Andere v Bosch en Andere
2002
(2) SA 662
(SCA)
paras
39 and 40. Whether this is also true where the business is
fraudulently conducted is not so clear. It may just be a
consideration
to be taken into account when the court exercises its
discretion-
Sainsic
para
20 and 29.
Background
[6
] The
plaintiff’s claims arise out of the conduct of the business of
XHRS Investments 71 (Pty) Ltd t/a Supreme Car (‘Supreme
Car’)
during the period 16 August 2001 to 20 April 2004. During that
period Ms. Ray Naude was the sole shareholder and managing
director
of the company; Ray Naude’s son, Danie Naude (‘Naude’)
was the
de
facto
managing
director of the company; Du Preez was the auditor; Fourie was an
accountant employed by Du Preez and was required by
Du Preez to
monitor and control Supreme Car’s cash flow and at all times
acted within the course and scope of his employment
with Du Preez;
Johan Schoeman was employed by Supreme Car as its internal accountant
and Adele Ferreira was employed by the company
as its debtor/creditor
clerk. From 16 August 2001 until 20 April 2004 Supreme Car conducted
business in Polokwane and Tzaneen
as a dealer in used motor vehicles.
To enable Supreme Car to conduct its business the company entered
into a written Used Car
Floorplan Agreement (‘the floorplan
agreement’) with the plaintiff on 15 November 2001. In terms
of the floorplan
agreement the plaintiff would provide Supreme Car
with finance to purchase used cars for resale. At first the facility
was limited
to R3 million but as the business expanded Supreme Car
applied for and was granted increases in the facility to R4 million,
then
R6 million, then R8 million, then R9.3 million and finally R13
million. From time to time the plaintiff also granted temporary

extensions of the facility, the last of which was R3 million (thus
increasing the facility to R16 million). The plaintiff cancelled

this temporary extension prematurely on 23 February 2004 because of
‘Supreme Car’s persistent inability to service
or
liquidate the facility’. Eventually, on 20 April 2004, the
plaintiff cancelled the floorplan agreement because it considered

Supreme Car to be a credit risk with regard to its obligations in
terms of the agreement - which was a material breach of the
agreement. On that date there were 136 vehicles subject to the
floorplan agreement which the plaintiff had financed and Supreme
Car
had not repaid (‘settled’). When the plaintiff went to
Supreme Car’s premises to repossess the vehicles
it found only
84 of the vehicles. The remaining 52 were missing and could not be
accounted for. At that stage Du Preez and Fourie
calculated that
Supreme Car owed the plaintiff R13 777 882,55 in terms of the
floorplan agreement. To recover the debt the plaintiff
sold the
vehicles. One vehicle (a Toyota Corolla) was sold to its local
manager, Hentie Pienaar, on 20 May 2004 for R40 900 and
the remaining
vehicles by public auction, 63 on 24 July 2004 and the remaining 20
on dates thereafter, for a net amount of R7 109
353,38 (total sale
price inclusive of VAT of R7 309 110 less auctioneer’s
commission of R199 776,62). The cancellation of
the floorplan
agreement and the repossession of the motor vehicles effectively put
an end to Supreme Car’s business.
[7
] On
about 13 May 2004 Supreme Car represented by Ray Naude launched an
urgent application against Fourie in which Supreme Car sought
an
order for Fourie’s sequestration. Supreme Car alleged that it
was a creditor of Fourie because he had stolen large amounts
of money
from Supreme Car. Fourie opposed the application and on 20 May 2004
filed a comprehensive answering affidavit in which
he set out his
version. He denied having stolen or misappropriated Supreme Car’s
funds and alleged that Supreme Car had experienced
financial
difficulties because of the uncontrolled spending by Ray Naude and
Naude, in particular their purchase of seaside properties
at
Yzerfontein on the Cape West Coast. The application did not proceed
because Supreme Car was placed under provisional liquidation
on 17
May 2004 and under final liquidation on 15 June 2004.
[8
] During
September 2004 an enquiry was held in terms of section 417 of the Act
at which the Naudes, Du Preez and Fourie testified
about the roles
which they played in the Supreme Car business. It is clear that
Supreme Car was hopelessly insolvent when it was
placed under
liquidation and that it would not be able to repay the plaintiff the
money owing in terms of the floorplan agreement.
Wrongful
conduct relied upon
[9] In its
particulars of claim
the plaintiff relies on three categories of conduct which it contends
are wrongful (I paraphrase):
(1)
Misappropriation
of monies
The
plaintiff alleges that Supreme Car purchased motor vehicles in terms
of the floorplan agreement, sold these vehicles in terms
of
instalment sale agreements, ceded its rights in respect of these
instalment sale agreements to financial institutions other
than the
plaintiff, received payment from such financial institutions and then
failed to pay the plaintiff what it owed in terms
of the floorplan
agreement. According to the plaintiff such action by Supreme Car:
(a) amounted to theft of monies due
to the plaintiff;
(b) amounted to fraud on the financial
institution ‘in that it was represented to the financial
institution, which therefore
believed, that it would acquire
ownership of the vehicle in question, when in truth and in fact such
ownership remained vested
in the plaintiff’.
The plaintiff
alleges that Fourie committed these acts.
Alternatively, the
plaintiff alleges that Fourie was aware that the plaintiff was
unaware that Supreme Car was selling the motor
vehicles purchased
under the floorplan agreement and not settling its indebtedness to
the plaintiff in respect of these motor vehicles
and fraudulently
failed to disclose these facts to the plaintiff and this failure
induced the plaintiff to advance further monies
to Supreme Car.
(2)
Fraudulent
conduct in respect of bank accounts
The
plaintiff alleges that Supreme Car had a Standard Bank account in the
name of XHRS Investments 71 (Pty) Ltd t/a Supreme Car;
an Absa
Corporate Saver account in the name of XHRS Investments 71 (Pty) Ltd;
an Absa Corporate Saver account in the name of
Supreme Car and that
Fourie deposited cheques payable to Supreme Car (either in its proper
name or in the name of Supreme Car)
in the two corporate saver
accounts and immediately obtained cheques (for the same amounts)
drawn on these accounts and deposited
these cheques into the Supreme
Car Standard Bank account or transferred the funds electronically
into the Standard Bank account
and thereby created the false
impression that Supreme Car had cash available in the Standard Bank
account and that as a result
of this fraudulent conduct the plaintiff
was induced to extend credit to Supreme Car.
(3)
Fraud
in respect of Supreme Car’s financial statements
The
plaintiff alleges that Fourie prepared four financial statements (for
the periods ending 28 February 2002, 31 January 2003,
28 February
2003 and 30 June 2003) which to the knowledge of Fourie falsely
misrepresented to the plaintiff that Supreme Car’s
business was
growing, was profitable and was financially sound whereas Fourie knew
that Supreme Car was not profitable and was
not financially sound and
in fact was trading under insolvent circumstances; that these
misrepresentations were material and were
made with the intention of
inducing the plaintiff to extend credit to Supreme Car.
[10] The parties
prepared a number of bundles to be used during the hearing and
documents in these bundles were referred to by the
witnesses.
Documents incorporated in the bundles were subject to the agreement
that they are what they are purport to be save
that the truth of the
contents is not admitted; that in the absence of contrary evidence,
correspondence was deemed to be have
been sent and received by the
addressor and addressee thereof or on or about the date appearing
thereon and all other documents
were deemed to have come into
existence and/or signed on the dates appearing thereon and to have
been written by the ostensible
author thereof. The parties also
agreed that these trial bundles may be supplemented at any time
before completion of the trial.
The following bundles were prepared
and referred to (where necessary they will be referred to in this
judgment):
Bundle A Pleadings
Bundle B Pre Trial Bundle –
minutes and related documents
Bundle C Notices
Bundle D Expert Reports
Bundle E Exhibits for experts
reports
Bundle
E1 Exhibits for the plaintiff’s Expert’s Report
Bundle F Facility Letters
Bundle G Supreme Car’s
application to sequestrate Fourie
Bundle H Plaintiff’s bundle
Bundle J Defendants’ bundle
Bundle K Schedule of e-mail
correspondence
Bundle L Compilation of alleged
admissions made by Fourie in the application for his sequestration
and the section 417 Enquiry
[11] During the
trial it became clear
that the important
dramatis
personae
in
the conduct of Supreme Car’s business were Ray Naude, Naude,
Johan Schoeman, Adele Ferreira, Fourie and Du Preez. Ray
Naude
passed away before the plaintiff instituted the action, Naude passed
away after the matter was postponed in May 2009 and
Du Preez took his
own life on 22 July 2010. To further complicate matters Mr. Freeman,
the liquidator most closely involved in
the winding up of the
company, passed away and his co-liquidator Mrs. Stroh had to testify
on the progress made in winding up the
estate and the likelihood of a
dividend to be paid to the plaintiff.
[12] The plaintiff
tendered the evidence of a number of witnesses and Fourie testified
for the defendants. The plaintiff tendered
the evidence of Mr.
Hentie Pienaar (Wesbank’s branch manager in Polokwane from May
2003 until April 2004), Mr. Steven James
Harcourt-Cooke (a chartered
accountant, certified fraud examiner and specialist in forensic
accountancy, who testified as an expert),
Mrs. Adele Ferreira
(Supreme Car’s creditor clerk from about March 2002 until April
2004), Mrs. Jakoba Johanna Maria Coetzee
(Wesbank’s manager of
bad debts and collections who was Wesbank’s legal department
manager for the Northern Region
during 2004), Mr. Johannes Strydom (a
Wesbank employee involved in auctions of repossessed motor vehicles),
Mr. Edward Charles
Symes (a credit manager in Wesbank’s Head
Office Credit Control department during the period that the plaintiff
did business
with Supreme Car) and Ms. Rina Elaine Ströh (an
insolvency practitioner and one of the co-liquidators of XHRS
Investments
71 (Pty) Ltd). As the trial progressed more and more
issues were resolved by agreement and at the end of the trial it
appears
that a great deal of their evidence is no longer relevant to
decide the main issues. In that regard the evidence of Mr Hentie
Pienaar, Mrs Adele Fereira and Mr Edward Symes remains relevant.
Fourie is obviously a crucial witness as he is a defendant and
was
involved in the day to day running of the company although there is a
dispute about how closely he was involved and what his

responsibilities were. Pienaar, Ferreira and Symes gave important
background and/or circumstantial evidence but the evidence of
the
other witnesses need not be considered. In rebuttal the plaintiff
called Ms. Raylene Meyer (the manager of Wesbank specialised

collections) to testify about the securities held by the plaintiff
for Supreme Car’s debts.
[13] Pienaar was a
satisfactory witness although he tended to give long rambling answers
and to make assumptions about the facts.
Ferreira was a very good
witness and I have no hesitation in accepting her evidence. Symes
was dependent upon the plaintiff’s
records and clearly (and
understandably) had no independent recollection of events.
Nevertheless he was able to piece together
what information was given
to the plaintiff for a decision to be taken regarding credit limits
for Supreme Car’s floor plan
scheme. There is no reason not to
accept the reliability of these records. Fourie was a most
unsatisfactory witness. He gave
evidence for 7 days and was
extensively cross-examined. There is no doubt that he will say
anything to avoid being held liable
for Supreme Car’s
indebtedness to the plaintiff. This became clear when he testified
about how he had had to work through
the night with his attorney to
prepare an answering affidavit in the urgent application for his
sequestration. He obviously wanted
to provide an explanation in
advance for whatever prejudicial evidence would emerge from his
answering affidavit. He testified
in detail about the fact that he
had received the application on 13 May 2004 and had had to prepare
his answering affidavit before
10h00 on 14 May 2004 and he was
dumbfounded when it was pointed out that he had signed his affidavit
on 20 May 2004 which obviously
means he had far more time to consider
his evidence than he would have the court believe. He also attempted
to create the impression
that he had spent little time at Supreme
Car’s premises, that he had not played an important role in the
management of Supreme
Car’s finances and that he had not
prepared more than one set of financial statements. His evidence is
not credible in many
respects: for example the role he played in
Supreme Car’s business; his role as advisor to the Naude’s
about property
investment/development at Yzerfontein; the
preparation of financial statements for Supreme Car and whether they
were in fact financial
statements or merely working papers and what
happened to these documents after he prepared them. Fourie has
testified on three
occasions about the events dealt with in this
trial and his allegations and evidence have not been consistent.
These matters will
be dealt with when the main issues are considered.
[14] The first two
categories of alleged wrongful conduct may be disposed of quickly.
In my view neither the case pleaded nor the
evidence given supports a
finding that the business of Supreme Car was conducted fraudulently
or for a fraudulent purpose or recklessly
in the manner alleged.
[15
] The
evidence regarding the first category of conduct was simply that
Supreme Car sold vehicles and failed to settle the amounts
due in
respect of these vehicles as and when they fell due. Sometimes the
purchase of the vehicles was financed by another bank.
When amounts
were not paid in respect of vehicles the vehicles were said to be in
‘conversion’. The failure of a
debtor to pay his debt
does not constitute theft. There is no evidence of what
representation was made to any financial institution
when it paid the
purchase price of a particular vehicle. There is also no evidence
that any failure by Fourie to disclose to the
plaintiff the facts
alleged induced the plaintiff to advance further monies to Supreme
Car.
[16
] The
evidence regarding the second category of conduct can be summarised
as follows: In about March 2002 Supreme Car opened a
bank account
with the Standard Bank. Because of Supreme Car’s mismanagement
of its previous account at Nedbank, Nedbank
closed the account.
According to Fourie who negotiated with Standard Bank the manager at
Standard Bank imposed strict conditions
for the conduct of the
account. There would be no overdraft facility. She insisted that
Supreme Car draw no cheques on the account
unless it had funds in the
bank. She also insisted that a hold of 7 days be placed on all
cheques received by Supreme Car and
deposited in the account. This
obviously applied to cheques issued by banks and other financial
institutions which Standard Bank
(unusually) refused to treat as
cash. The bank also refused to accept cheques payable to ‘Supreme
Car’ and not the
name of the company. To deal with the problem
which these measures created for Supreme Car’s cash flow Du
Preez and Fourie
arranged for two Absa corporate saver sub-accounts
to be opened for the company in Du Preez’s office: one in the
name, XHRS
Investments 71 (Pty) Ltd, and one in the name, ‘Supreme
Car’. These two accounts were used to collect the funds
reflected
in the cheques received by the company and ensure that
there was no delay in making the funds available. Sometimes Supreme
Car
used the funds in the account before the cheque was paid and the
amounts reflected in the cheque were available and in this way

Supreme Car was able to conduct its business without an overdraft
facility. This evidence does not constitute a representation
of any
kind. Fourie used the corporate saver accounts simply to avoid the
delays which the Standard Bank caused by insisting that
a hold be
placed on all cheques and not receiving cheques payable to Supreme
Car. There is on the evidence no reason to reject
Fourie’s
evidence about the need for and the purpose of the two accounts. In
this regard his evidence has been consistent
and it accords with the
probabilities.
[
17] The
evidence regarding the third category of conduct can be summarised as
follows: When Supreme Car wished to increase the
facility available
to it under the floorplan agreement it was required to formally apply
to the plaintiff’s Polokwane manager
and provide sufficient
information to satisfy the plaintiff that it would be justified in
increasing the facility: i.e. increase
the amount of money it was
prepared to provide to enable Supreme Car to conduct its business.
In order to satisfy the plaintiff
Supreme Car provided it with its
most recent financial statement or statements. The evidence shows
that Fourie prepared 9 sets
of financial statements during a period
of about 2
1
/
2
years: for the periods ending 30 September 2001, 31 January 2002,
28 February 2002, 31 October 2002, 31 January 2003, 28 February
2003,
31 May 2003, 30 June 2003 and 31 December 2003. The plaintiff relied
on the information contained in 5 of these documents
and increased
the facility available to Supreme Car. It is common cause that these
financial statements show that Supreme Car’s
business was
growing, was making substantial profits and was financially sound.
The plaintiff has not tendered any evidence to
prove that Supreme Car
was trading in insolvent circumstances (as alleged in the particulars
of claim) and relies on Fourie’s
own evidence and the relevant
documents to show that the relevant financial statements
misrepresented Supreme Car’s financial
position. In his
evidence Fourie contended that save for the financial statements of
28 February 2002 the documents were not financial
statements but
‘working documents’ drawn up to help him monitor Supreme
Car’s cash flow, that he did not prepare
these documents for
the use of third parties and that he did not make them available to
third parties.
[18] Against that background it must
be considered whether –
(1) The business of Supreme Car was
carried on fraudulently or for a fraudulent purpose; and
(2) Fourie was knowingly a party to
the carrying on of the business in this manner.
[19] The two
questions are inter-related as Fourie’s role in preparing the
financial statements is closely related to his
role in the management
of the company.
[20]
(1) Symes testified about floor plan facilities and applications
for extension of the credit limits in such facilities. The
client
would apply to the branch manager who would refer the application to
the plaintiff’s head office where it would be
assessed by one
or more credit managers in the credit department. The application
would be made on the plaintiff’s application
form and would be
accompanied by the branch manager’s recommendation which would
deal with the background of the client’s
business, the client’s
expertise and the manner in which the client dealt with his floor
plan. The application would also
be accompanied by the client’s
financial statements or management accounts and details of securities
held by the plaintiff
for the client’s indebtedness in terms of
the floor plan. Symes emphasised that the client’s business
must be profitable:
it must generate sufficient turnover to justify
the credit limit requested: i.e. it must be able to repay the debt.
This was
of paramount importance and was determined by the plaintiff
with reference to the financial statements furnished.
(2) It is common
cause (on the pleadings) that on 15 November 2001 the plaintiff and
Supreme Car entered into the floor plan agreement
and that on 14
November 2001 the plaintiff issued the first floor plan facility
letter which was duly accepted by Supreme Car on
15 November 2001 and
which set the credit limit at R3 million.
(3) It is common
cause (on the pleadings) that on 27 June 2002 the plaintiff issued
the second floor plan facility letter which
was accepted by Supreme
Car and that this letter increased the credit limit to R4 million.
Symes testified that on 11 June 2002
(i.e. before this facility
letter was issued) Supreme Car applied for an increase in the credit
limit from R3 million to R4 million
(F11) but it was not granted
because of the plaintiff’s queries and that when Supreme Car
applied again on 26 June 2002 (F12)
the plaintiff approved the
increase. It appears from the proposal form that the plaintiff had
been placed in possession of Supreme
Car’s financial statements
for the period ending 28 February 2002 as the figures for gross
turnover and net profit before
tax tally. This was done by Fourie on
26 June 2002 when he sent the financial statements for the period 28
February 2002 (E28-40)
to the plaintiff under cover of a letter dated
26 June 2002 in which he highlighted some of the figures in the
financial statements
(J467-468). In this letter Fourie referred to
the long term liabilities of R6 026 408 which included an unsecured
interest-free
loan from Danie Naudé of R2,5 million. The
financial statements were signed by Ray Naudé and by Du Preez.
In the
auditors report Du Preez confirmed that he had audited the
figures, confirmed what an audit consists of and confirmed that he
had
carried out an audit to ensure that there were no material
misrepresentations in the financial statements (E31).
(4) It is common
cause (on the pleadings) that on 10 December 2002 the plaintiff
issued the third floor plan facility letter which
was accepted by
Supreme Car and that this letter increased the credit limit to R6
million. Symes testified that he received the
floor plan proposal
form dated 9 December 2002 (F24) and he identified the credit
manager’s handwritten note that the increase
was required for
the additional outlet and that the current turnover already justified
the requested limit.
(5) Symes testified
that on 14 February 2003 Supreme Car applied for an increase of R2
million (to R8 million) for the floor plan
facility (F41) and
proposed a change in the securities to be held by the plaintiff.
According to Symes the application was granted
on the strength of the
information contained in Supreme Car’s financial statements for
the period ending 31 October 2002
(E41-49). The notes on the
proposal form relating to net worth, director’s loans and net
profit before tax tally with the
figures in the financial statements.
(6) It is common
cause (on the pleadings) that on 3 September 2003 the plaintiff
issued the fourth floor plan facility letter which
was accepted by
Supreme Car and which increased the floor plan credit limit to R9,3
million. The notes on the floor plan proposal
form dated 22 July
2003 (F58) indicate that the increase was recommended because of the
information contained in the financial
statements for the period
ending 31 January 2003 (E50-62): i.e. profits of R2,8 million and
capital and reserves of R3 million
(E57 and 58).
(7) It is common
cause (on the pleadings) that on 23 September 2003 the plaintiff
issued the fifth floor plan facility letter which
was accepted by
Supreme Car and which increased the floor plan credit limit to R13
million. Symes testified that Supreme Car applied
for the increase
on 9 September 2003 (F81) and it was noted that the large turnover
justified the increase; more than 75 percent
of the stock was paid
for; there were good profits and there was suitable security in the
form of mortgage bonds. The floor
plan proposal form appears to have
been accompanied by a lengthy memorandum (F71-78) by Hentie Pienaar
(the plaintiff’s branch
manager) which referred to the figures
in Supreme Car’s financial statements for the periods ending 28
February 2003 (E63-75)
and 30 June 2003 (E89-99). The financial
statements for 28 February 2003 appear to have been signed by Ray
Naudé and Du
Preez signed the standard report of the auditor.
The gross and net profit are reflected as R75 477 089 and R2 888 900
respectively.
The financial statements for 30 June 2003 are not
signed and reflect the gross and net profit as R31 615 135 and R2 919
579 respectively.
This was for a period of four months. In his
report Hentie Pienaar says –
‘What makes me even feel better
about Supreme is the fact that Danie outsourced a qualified CA to
handle his finances on
a daily basis. This person spends more than
75 percent of his day at the dealership, which is good to know that
this dealership
is in safe hands.
Under
‘
Recommendation
’
Pienaar includes amongst his reasons (all appearing from the
financial statements) huge growth in turnover; good profits;

reserves of R5 921 714 and no overdraft.’
(8) In addition to
the credit limit increases on the floor plan facility Supreme Car
applied for increases for specific vehicles.
For example, according
to Symes, Supreme Car applied for such an increase on 18 June 2003
(F55) and on 20 June 2003 the credit
manager wrote a note on the
application that the audited financial statements or management
accounts for the year ended February
2003 were required. When the
request was approved the form (F54) reflects that the credit manager
noted that the management account
for 11 months to 31 January 2003
showed a turnover of R75,5 million, net profit before tax of R2 888
900 and net worth of R3 002
135. All this information appears in the
financial statements dated 31 January 2003 (E50-62).
(9) To summarise:
the plaintiff relied on the following financial statements when
deciding whether to grant or increase credit
facilities under the
floor plan agreement: 28 February 2002; 31 October 2002; 31
January 2003; 28 February 2003 and 30 June
2003.
[21] Nine documents
referred to as financial statements are referred to in the evidence.
Although it is disputed that these were
all financial statements they
will be referred to as such. All of the documents are in the proper
format for annual financial
statements. Some are on Du Preez’s
letterhead. Du Preez admitted that he signed the financial
statements dated 30 September
2001 and 28 February 2002. Although
his signature appears to have been placed on the financial statements
dated 28 February 2003
and 30 June 2003 Du Preez did not admit this.
Fourie admits that he signed the financial statements dated 31
January 2002 and
31 October 2002. Some of the statements were signed
by Ray Naudé or Naudé (28 February 2002; 31 October
2002 and
28 February 2003). Four of these documents are annexed to
the plaintiff’s particulars of claim and five were annexures to

the applicant’s founding affidavit in the sequestration
application. These details can be summarised as follows:
No
For the period
ending
Signed by
Du
Preez
Signed by
Fourie
Signed by
R
or D Naudé
Annexure
in particulars
of claim
(Bundle A)
Annexure in
s
equestration
application
(Bundle
G)
Page
No in Bundle E
1
30/9/01
(Admitted)
“
B”
1-14
2
31/1/02
(Admitted)
15-27
3
28/2/02
(Admitted)
“
I”
“
C”
28-40
4
31/10/02
(Admitted)
41-49
5
31/1/03
“
J”
“
D”
50-62
6
28/2/03
(Alleged)
“
K”
“
E”
63-75
7
31/5/03
“
F”
76-88
8
30/6/03
(Alleged)
“
L”
89-101
9
31/12/03
102-114
[22] Fourie is the
only
witness who gave direct evidence on the role he played in Supreme Car
and whether he prepared financial statements to enable
Supreme Car to
misrepresent its financial position to the plaintiff in order to
obtain financial assistance in terms of the floor
plan scheme. It is
trite that evidence does not have to be accepted as the truth simply
because it is uncontradicted. See
Siffman
v Kriel
1909
TS 538
at
543-4;
Shenker
Bros v Bester
1952
(3) SA 664
(A)
at
670E-F. Its acceptability will depend upon its inherent merit, the
probabilities, the documentary evidence and any other relevant

evidence. Accordingly Fourie’s evidence must be assessed in
the light of the various versions he has alleged about his role
in
Supreme Car and the financial statements which were used by Supreme
Car to obtain loans from the plaintiff, the documentary
evidence, the
probabilities and any other relevant evidence.
[23] At the outset
it should be noted that according to the evidence of Mr. Hentie
Pienaar en Mrs Adele Ferreira Fourie played an
important role in
managing Supreme Car’s finances.
(1) Hentie Pienaar
testified that when he became Wesbank’s Polokwane branch
manager on 1 May 2003, he found that Fourie was
in charge of all
financial questions pertaining to Supreme Car. He was told that
Fourie of Du Preez’s accounting firm had
been placed at Supreme
Car to look after ifs financial affairs and that is what he found.
Fourie handled Supreme Car’s finances
each day and Pienaar
estimated that he spent more than 75 percent of his day at Supreme
Car. (That is also what he reported to
the plaintiff’s head
office – see para [20](7)). He also understood that Fourie
prepared Supreme Car’s financial
statements. Pienaar’s
estimate was not seriously challenged in cross-examination and it was
not put to him that Fourie would
disagree with him. According to
Pienaar Fourie contacted Hentie Pienaar when Wesbank owed money to
Supreme Car and he was also
involved when Pienaar needed financial
information.
(2) Adele Ferreira testified that
Fourie interviewed her for a position at Supreme Car. After this
interview she was appointed
creditor clerk and reported directly to
Fourie. According to Adele Ferreira Fourie was in charge of payments
and settlements in
respect of motor vehicles. She understood his
role to be that of financial manager or chief financial officer.
She estimated
that he spent about 65 percent of his time at Supreme
Car. In cross-examination she did not deviate substantially from
this estimate.
She agreed that on some days he was not at Supreme
Car at all but she was adamant that he spent more than 60 percent of
his time
at Supreme Car. Ferreira testified that Fourie told her
which cheques could be issued and that he gave instructions for
cheques
to be made out in settlement of vehicles. According to
Ferreira only Fourie had access to Supreme Car’s bank
statements
which were either taken to his office or given to him at
Supreme Car’s premises. She also testified that only Fourie
did
bank reconciliations.
[24
] In
his plea, while denying that he assumed control of the business of
Supreme Car and its daily management, Fourie admitted that
he:
(1) attempted to monitor the cash flow
of the business of Supreme Car on information supplied by Mr. Johan
Schoeman;
(2) assisted with arrangements for
bank accounts to be opened for the business;
(3) assisted with paying creditors
that were due according to the system of age analysis drawn up by
Mrs. Adele Ferreira on information
supplied by Mr. Johan Schoeman;
(4) introduced a petty cash control
system;
(5) attempted to
implement a system requiring authorisation for payments of petty
cash, only where supported by the necessary vouchers;
(6) made attempts to limit payments by
Supreme Car to Mr. Danie Naudé;
(7) made attempts to ensure that
amounts due to Supreme Car were recovered and banked;
(8) attempted to introduce a control
system for purposes of keeping a proper record of sales, commissions,
the receipt of amounts
due to the business and the banking thereof.
(A119-120/17.2 and 17.3).
Fourie alleged that he preformed
these functions as a consultant to Supreme Car on a part-time basis,
subject to an hourly rate
(A120/17.4).
With regard to the preparation of
financial statements Fourie alleged in his plea that –
(1)
he
from time to time drew up financial statements, in template form, in
respect of the business of Supreme Car on the strength of
information
supplied by Mr. Johan Schoeman and/or Mrs. Adele Ferreira;
(2)
the
financial statements were drawn up by him by way of interim
management accounts to monitor the cash flow of the business of

Supreme Car;
(3) the financial
statements were not drawn up or intended for use by third parties, in
particular the plaintiff, for purposes of
credit being extended in
terms of the floor plan agreement (A130/24.2).
And finally, when
pleading apportionment of damages, Fourie alleged
inter
alia
–
(1) the plaintiff from time to time
advanced monies to Supreme Car on the strength of audits done of
vehicles under the floor plan
agreement;
(2) the aforesaid audits of the
vehicles under the floor plan agreement were conducted by employees
of the plaintiff, acting in
the course and scope of their employment
with the plaintiff;
(3) pursuant to the aforesaid audits,
the plaintiff ought to have realised that Supreme Car’s
business was not profitable
and was not financially sound.
(A132/24.5.1-24.5.3).
[25
] In
the sequestration application which Supreme Car brought against
Fourie Supreme Car’s deponent, Ray Naudé, made
the
following allegations (the translation is mine and all references are
to the page and paragraph numbers in Bundle G) –
(1) Du Preez loaned
Supreme Car a sum of money when the company commenced business (6
para 5.1); Du Preez appointed Fourie as his
representative to manage
the administration of Supreme Car (6 para 5.2); this appointment
included control of all Supreme Car’s
finances and the signing
of Supreme Car’s cheques (6-7 para 5.2) and Fourie helped
himself (i.e. misappropriated or stole)
many thousands of rands of
Supreme Car’s funds, as a result of which Supreme Car cannot
pay its creditors, and that she presumes
that the forensic audit that
was already underway would show that Fourie had stolen a few million
rand (7 para 5.2);
(2) Supreme Car had
entered into an agreement with Du Preez in terms of which Du Preez
would make available to Supreme Car the sum
of R3 500 000 to be used
as working capital to pay Supreme Car’s overheads and
establishment costs and to purchase trading
stock. In addition to
this funding it was necessary for Supreme Car to arrange for finance
from various commercial banks (9 para
6.6). Supreme Car then entered
into the floor plan agreement with Wesbank (9 para 6.7);
(3) Because it was
not possible to provide security for Du Preez’s loan they
agreed that for a fee of R20 000 per month Du
Preez would place one
of his staff at Supreme Car’s premises to supervise the
management of all the finances and administration
and that pursuant
to this agreement Du Preez appointed Fourie to take charge of the
administration of Supreme Car’s business.
For all practical
purposes Fourie was placed in charge of the administration of Supreme
Car’s business (9-10 para 6.8);
(4) Fourie had
signing powers on Supreme Car’s bank account; with a few
exceptions he signed all the cheques; he managed
all the
administration; he saw to payment of all vehicles purchased and
sold; he entered into contracts with financial institutions;
he
prepared the accounting records; he paid the VAT, income tax,
regional service levies and he paid salaries and the normal
trade
expenses. He also prepared the financial statements and figures
which were presented to Supreme Car from time to time (10
para 6.10);
(5) Fourie
distinguished himself as an able administrator; over time she and
her son became friendly with him and went to him for
financial advice
in preference to Du Preez; Fourie played a leading role in decisions
they took concerning property development
in the Yzerfontein area
where Ray Naudé lived; Fourie repeatedly assisted Supreme Car
in negotiations with various financial
institutions and he was
responsible for the preparation of financial statements, maintaining
control over floor plan items and
he presented Supreme Car each month
with management figures which indicated that Supreme Car was a
healthy, profitable business
which was properly administered and
earned considerable profits (11 para 6.14). Supreme Car referred for
example to financial
statements prepared by Fourie for the periods
ending 30 September 2001, 28 February 2002, 28 January 2003, 28
February 2003, 31
May 2003 which showed gross profits of R912 970, R3
829 852, R9 311 419, R9 311 419 and R3 659 629 respectively (11-12
para 6.15-6.20);
(6) Ray Naudé
and her son were very excited by the situation shown by the
statements and until about the end of 2003 they
were under the
impression that they had a very healthy business which generated
considerable profits which enabled them to acquire
other interests.
Accordingly they entered into a number of agreements for the purchase
of immovably properties in the Yzerfontein
area, which was
experiencing a boom, with a view to developing them and disposing of
them for a big profit (13 para 7.2);
(7) At about the
end of 2003 she and her son were rudely awakened when Supreme Car
received strange queries from
inter
alia
Wesbank
in connection with Supreme Car’s ability to pay Wesbank and the
subsequent investigation showed that Supreme Car was
for all
practical purposes insolvent and that there was a shortfall of about
R6 million on the floor plan items (13 para 7.3).
With a view to
making further funds available Supreme Car requested Du Preez to do a
provisional audit which showed that Supreme
Car’s liabilities
exceeded its assets by R6 774 034 (13 para 7.4);
(8) Ray Naudé
and her son who had acted as sales managers were shocked when the
allegations were made about shortfalls, particularly
with regard to
the Wesbank obligations. This was because of the financial
statements which had been presented to them which they
in turn had
presented to various financial institutions with a view to
developments at Yzerfontein (14 para 7.5);
(9) Ray Naudé
and her son started to investigate Supreme Car’s finances and
were told by Du Preez that Supreme Car’s
accounting records
were not limited to Supreme Car’s bank account. Although
Supreme Car had a current account with Standard
Bank there were two
corporate savings accounts in Du Preez’s books. One of these
accounts was in the name of XHRS Investments
71 (Pty) Ltd and the
other was in the name of Supreme Car. The explanation for these two
corporate savings accounts was that they
facilitated Supreme Car’s
cash flow: cheques received from the sale of vehicles were deposited
into the two corporate savings
accounts and a cheque for the amount
or amounts deposited was then immediately issued and deposited into
Supreme Car’s Standard
Bank account (16 para 8.3).
[26
] In
his comprehensive and detailed answering affidavit (deposed to on 20
May 2004) Fourie said the following:
(1) He was employed by Du Preez and
remunerated by way of a commission on fees which he earned (160 para
11);
(2) During the
period September 2001-February 2002, on Du Preez’s
instructions, he did
ad
hoc
accounting
work for Supreme Car. By then Du Preez had already advanced R500 000
to Naudé for the capitalisation of the (Supreme
Car) business.
Du Preez recognised the enormous profit potential of Supreme Car but
was concerned about Naudé’s exorbitant
spending (160
para 11);
(3) When Naudé approached Du
Preez again during March 2002 for assistance for Supreme Car (which
was in trouble) Du Preez
agreed to advance another R1 million to
Naudé on condition that:
(i) Naudé was only allowed an
agreed salary and no uncontrolled withdrawals from Supreme Car’s
funds; and
(ii) Fourie monitor Supreme Car’s
cash flow every day as Du Preez’s representative.
Pursuant to this arrangement and as
from March 2002 Fourie started spending 2 hours per day at Supreme
Car (160 para 12);
(4) Fourie’s
involvement was part time. According to the fees he billed during
the period March 2002 to February 2004 he
worked at Supreme Car on
average for about 2.8 hours per working day (161 para 13);
(5) Fourie discovered that Supreme
Car’s finances and management were in a shambles (161 para 14);
(6) Fourie found
that Absa had closed Supreme Car’s bank account and that
Supreme Car’s new bank, Nedbank, also wished
to close the
account because of its gross mismanagement (161 para 152). Fourie
then arranged for Supreme Car to open an account
with Standard Bank,
with whom he enjoyed a good relationship, on condition that –
(i) Supreme Car would not have an
overdraft facility;
(ii) Fourie would monitor the cash
flow to ensure that no cheques were issued without the necessary
funds.
Fourie, Ray Naudé, Naudé
and Barry Vorster, Naudé’s cousin, had signing powers on
the account (162 para
15.4);
(7) Fourie
established a system for the payment of Supreme Car’s
creditors. Supreme Car paid creditors in the normal course
of
business using an age analysis prepared by Adele Ferreira with
information she obtained from the in-house accountant, Johan

Schoeman, and Mrs. Leana Naudé, Naudé’s ex-wife,
the creditor clerk. Fourie resisted payment of creditors
of Naudé
and Leana Naudé. He instructed that their withdrawals from
the business be limited to the amount agreed
to by Du Preez (163 para
16.4-16.5);
(8) Fourie
instituted a petty cash control system. Amounts of R60 000 to R80
000 had been paid without any control or vouchers.
Only payments for
petty cash purposes that were requested in terms of the system
supported by vouchers would be made (164 para
18). For this purpose
cash was withdrawn once a week. Despite the institution of this
system Naudé persisted in withdrawing
cash for his own
expenses (165 para 19);
(9) Naudé did not receive a
fixed remuneration. Fourie discovered that Naudé and his
ex-wife withdrew large amounts
whenever they required funds and
despite his efforts to curb this Naudé continued to spend
excessively and Fourie lost control
of amounts spent by Naudé
(165-166 para 20);
(10) Fourie introduced a system to
control the collection of payments for vehicles sold by Supreme Car
and for the banking of deposits.
In terms of the system a proper
record was kept of the receipt of payments, the banking thereof and
sales commissions (166 para
21);
(11) The management of cash flow took
up most of Fourie’s time at Supreme Car. He also spent a lot
of time sorting out other
problems (167 para 22);
(12) Immediately
after he started working at Supreme Car Naudé requested Fourie
to negotiate with the plaintiff who wanted
to cancel the floor plan
agreement because a Supreme Car cheque for R370 000, drawn on
Nedbank, had been dishonoured. Fourie persuaded
the plaintiff’s
local manager, Ms. Carlin Morkel, not to cancel the floor plan
agreement. He told her Supreme Car had opened
a new bank account
with Standard Bank and he would assist to ensure that funds were
always available to pay cheques issued (167-8
para 24);
(13) From then on Naudé asked
Fourie to negotiate on behalf of Supreme Car with financial
institutions or to attend meetings
with such institutions with Naudé.
Naudé impressed upon the institutions that a CA was now
assisting him with his
finances (168 para 24);
(14) Fourie
instituted a ‘settlement book’ to ensure that payments
for vehicles were effected as soon as cash was available
(169 para
25);
(15) Standard Bank placed a hold on
all cheques deposited into Supreme Car’s bank account and
refused to accept cheques made
out to Supreme Car. The plaintiff
made out all its cheques payable to Supreme Car and this caused a
cash flow problem. To enable
Supreme Car to receive payment of all
bank and financial institution cheques without delay and the
plaintiff’s cheques payable
to Supreme Car, Fourie arranged for
two corporate saver accounts to be opened in Du Preez’s books.
One was in the name of
XHRS Investments 71 (Pty) Ltd and one was in
the name of Supreme Car. All cheques received by Supreme Car were
deposited in the
appropriate account and the relevant amount or
amounts was or were transferred to Supreme Car’s Standard Bank
account or
a cheque or cheques for the equivalent amount was issued
in favour of Supreme Car and deposited into its Standard Bank
account.
When a cheque was issued this was done on Du Preez’s
joint corporate saver account called Francois du Preez Kontrole Trust

Rekening. The funds were first transferred into that account from
the other corporate saver accounts (172-174 para 26-27);
(16) Fourie attempted to control
Supreme Car’s cash flow by signing all Supreme Car cheques.
However this proved to be impractical
because Fourie was not always
available. He attempted to resolve this by leaving blank cheques but
stopped when the cheques were
misused. Naudé then signed
cheques in Fourie’s absence and this disrupted Fourie’s
management of Supreme Car’s
cash flow (175 para 29);
(17) In about March 2003 Fourie
discovered that the gross profit lists prepared by Schoeman were
inaccurate. They did not take
into account the expense incurred in
reconditioning vehicles (177 para 30.5);
(18) Fourie
discovered that in a 11 month period from April 2003 to February 2004
a total amount of R2 835 788,79 was paid to or
on behalf of Naudé
in respect of his personal expenses: i.e. approximately R257 798,98
per month (179 para 33.1);
(19) Fourie
discovered that in the same 11 month period the Naudés spent
approximately R2 934 035 on the development of the
Yzerfontein
property which was registered in the name of Rantseli (Pty) Ltd and
that the total amount paid to or on behalf of the
Naudé family
amounted to approximately R7 886 935. He ascribes the financial
shortfall of Supreme Car to this spending
(180 para 33.5);
(20) According to Fourie the shortfall
in Supreme Car’s finances was erased by August 2003 but a new
and much greater shortfall
was created thereafter which led to the
closure of the business (181 para 35);
(21) Fourie
received a remuneration from Du Preez for working at Supreme Car of
40 percent of fees billed for Supreme Car. Because
of the loss he
would experience if this was all that he received Fourie agreed with
Naudé that Supreme Car would pay him
R10 000 per month
commencing March 2002 but that payment would be effected only when
cash flow permitted. In June 2002 this remuneration
was increased by
the sum of R1 800 per month as a housing allowance. When Fourie
informed Naudé in August 2003 that the
cash shortfall had been
made up Naudé decided to increase Fourie’s remuneration
and Ray Naudé’s salary.
Her salary was increased from
R15 000 to R20 000 per month and Fourie’s remuneration from R11
800 to R25 000 per month (the
same as Barry Vorster). Later Naudé
allowed Fourie to purchase about 11 motor vehicles with his own funds
and resell them
for a profit through Supreme Car’s sales
personnel (182-184 para 36);
(22) Fourie
emphatically denied that he was appointed at Supreme Car to manage
the administration, control the finances and sign
cheques (6-7 para
5.2 and 186 para 42);
(23) The R3.5 million borrowed from Du
Preez was advanced over a period of time and not in one amount. It
was not borrowed to establish
the business as the business was
already established and operating. By the time the money was
advanced from Du Preez Supreme Car
had already arranged for finance
from various financial institutions (187-8 para 47);
(24) Fourie was not in control of the
administration of Supreme Car’s business. That was done by
Johan Schoeman (189 para
49.3 and 50.2);
(25) Fourie denies
that he prepared financial statements for the purpose of submitting
them to the Naudé’s (190 para
51.4). He admits that he
was responsible for preparing Supreme Car’s financial
statements but denies that they were ever
submitted directly to the
Naudé’s. He states that he prepared some financial
statements for his own purposes to enable
him to gauge Supreme Car’s
progress. He did this with information and figures he received from
Supreme Car’s personnel,
particularly Johan Schoeman and Adele
Ferreira. According to Fourie, examples of such statements are those
for the period ending
31 January 2003, 28 February 2003 and 31 May
2003. Fourie says he also prepared preparatory statements for audit
purposes, examples
being for the period ending 30 September 2001 and
28 February 2002. Fourie alleges that in preparing these statements
he discovered
that the gross profit of the business as calculated
from the figures given to him was misstated. Fourie denies that he
could have
brought the Naudé’s under the impression that
Supreme Car had a healthy, profitable business which was properly
administered
and was earning substantial profits. He says Naudé
was ‘painfully aware of the financial predicament’ of
Supreme
Car and repeatedly assured him that he would see to it that
Supreme Car traded its way out of its financial difficulties (194-196

para 54);
(26) Fourie pertinently denies that
the financial statements for the periods ending 30 September 2001, 28
February 2002, 31 January
2003, 28 February 2003 and 31 May 2003
reflected the true financial position of Supreme Car and that he ever
presented them as
such to the Naudé’s (196 para 55);
(27) Fourie admits
that he had signing power on Supreme Car’s bank account, that
he signed Supreme Car’s cheques, and
that he saw to the payment
of salary cheques of Supreme Cars personnel. He does not dispute
that he saw to the payment of all
vehicles purchased and sold,
entered into agreements with financial institutions, prepared
accounting records and paid the usual
trading expenses (10 para 6.10
and 190 para 51);
(28) Fourie denies
that he played a leading role in the decisions taken by the Naudé’s
regarding the Yzerfontein property
developments. Nevertheless he
admits that he took part in discussions regarding these developments.
He points out that the Naudé
family, through the Rooskwarts
Beleggings Trust, owned a house and undeveloped stands at
Yzerfontein. They received attractive
offers for the purchase of
these properties from which substantial cash proceeds would have
become available. Fourie says he supported
the sale of the
properties as he considered that the proceeds could be invested in
Supreme Car’s business to improve its
cash flow situation. The
Naudés sold the properties and Naudé told Fourie that
the Naudés had an opportunity
to purchase a partially
completed property in Yzerfontein for R1.25 million. Naudé
assured Fourie that the proceeds from
the sale of the other
properties would be more than sufficient to cover the purchase price
and costs. Barry Vorster who is also
a Quantity Surveyor estimated
that it would cost between R800 000 and R1.2 million to complete the
new property. This amount would
be spent over a period of about 6
months. Naudé told Fourie that, when completed, the new
property would be worth between
R5 and R7 million. Fourie supported
the purchase and development of this new property. He advised that
this new valuable property
be offered to the plaintiff as security
for the floor plan scheme. The plaintiff was then looking for
further security. The Naudés
purchased the property and the
plaintiff registered a mortgage bond of R3 million over the property.
The Naudés then proceeded
with the completion of the
property. Instead of the estimated R800 000 to R1.2 million to
complete it it cost R2 934 035 which
the Naudés withdrew from
Supreme Car’s business during the period October 2003 to
January 2004. The proceeds from
the sale of the other Yzerfontein
properties were insufficient to pay the purchase price of the new
property and that shortfall
also had to be paid by Supreme Car.
These property transactions caused a substantial shortfall in Supreme
Car’s business
and Fourie informed the Naudés of this in
December 2003. Despite this warning, without taking Supreme Car’s
financial
position into account, the Naudés purchased further
properties in Yzerfontein in 2004. These property transactions
amounted
to nearly R4 million. In view of Supreme Car’s
financial position Fourie characterised this expenditure as reckless.
He
points out that a substantial number of these transactions had to
be terminated or altered as a result of insufficient funds (191-194

para 53);
(29) Fourie denies
that the Naudés could have laboured under the misapprehension
that Supreme Car had a healthy business
which generated considerable
profits. He says that he informed Naudé during August 2003
that Supreme Car had just made
up the shortfall. He says they misled
him about the implications of the Yzerfontein transactions (197 para
56);
(30) Fourie agrees that at about the
end of 2003 the plaintiff started to question Supreme Car’s
ability to pay its floor
plan obligations and it then appeared that
Supreme Car was insolvent and that there was a shortfall of about R6
million on the
floor plan scheme (197 para 57);
(31) Fourie states
that Du Preez did a calculation of Supreme Car’s assets and
liabilities and calculated that Supreme Car
had assets of R15 million
and liabilities of R18 million, without taking into account the R3.5
million owing to Du Preez. There
was accordingly a shortfall of R6
774 034 (197 para 58).
[27
] Fourie’s
role at Supreme Car was not formally recorded by Du Preez or Supreme
Car and was somewhat ambiguous. The question
is whether his role was
simply that of a part-time consultant who was paid according to an
hourly rate (as alleged in the defendant’s
plea at 120 para
17.4). Fourie was an accountant employed by Du Preez who paid him a
remuneration (or commission) of 40 percent
of all fees which he
generated, including the fees he generated for his work at Supreme
Car. Du Preez required Fourie to monitor
Supreme Car’s cash
flow on an ongoing basis to protect Du Preez’s investment in
Supreme Car. On the face of it this
was a very limited mandate –
provided all the financial controls and systems were in place. It is
clear however that Fourie
performed a number of functions which fell
outside Du Preez’s mandate and it is obvious that all
concerned, including Du
Preez, knew that Fourie would be intimately
involved in controlling Supreme Car’s finances. Almost
immediately after he
started working at Supreme Car, with Du Preez’s
consent, Fourie negotiated a remuneration of R10 000 per month from
Supreme
Car. In June 2002 Naudé inexplicably increased
Fourie’s remuneration by giving him a housing allowance of R1
800
per month and in August 2002 his remuneration was increased
again, this time to R25 000 per month. (It is significant that this

was the same as the remuneration paid to Barry Vorster who was a
director of the company.) Fourie’s inability to explain
why
Supreme Car would agree to pay him this remuneration reinforces the
inference that Supreme Car regarded him as a very important
member of
its management team.
[28] At the section 417 enquiry (held
in September 2004, long before the plaintiff sought to hold him
liable – the plaintiff’s
summons was issued in February
2007) Fourie testified that:
(1) the idea was that he have complete
control over Supreme Car’s finances (L717-8);
(2) he could not
dispute that he was primarily responsible for appointing Adele
Ferreira (L603-4) (without whose assistance he would
not be able to
exercise proper control over Supreme Car’s finances);
(3) he received Supreme Car’s
bank statements from the Standard Bank every day and he worked on
these statements every day
(L717 and 707);
(4) he stopped payment of Supreme
Car’s cheques even when Naudé signed them (L733);
(5) he undertook
personal liability for the repayment of a loan of R3.25 million from
a moneylender, Mr. Chamani, to Supreme Car
(L861-862). (This evidence
is of particular significance as it indicates that with the passing
of time Fourie’s involvement
in Supreme Car’s affairs
became more and not less intimate.)
[29] On Fourie’s
evidence at the trial:
(1) he immediately negotiated the
remuneration he was to be paid by Supreme Car as from March 2002. It
was to be R10 000 per month
payable when cash flow allowed;
(2) he was asked to make arrangements
to open a new bank account as Nedbank intended to close Supreme Car’s
account: he knew
the relationship manager at Standard Bank, Petra
Hutchinson, and he went to see her and persuaded her to open an
account for Supreme
Car;
(3) he was one of
four people (two of the others were directors and the third was the
de facto managing director) who was given
the power to sign cheques
drawn on the Standard Bank account;
(4) he personally
undertook (in the presence of the other three) to ensure that Supreme
Car’s Standard Bank account was conducted
properly;
(5) he signed
Supreme Car’s cheques issued to pay trade creditors according
to a system of age analysis drawn up by Mrs.
Adele Ferreira on his
instructions;
(6) he signed Supreme Car’s
cheques issued to pay Supreme Car’s staff members;
(7) he stopped payment of Supreme
Car’s cheques (including those signed by Naudé) which
were issued without his authority;
(8) he arranged for the two Absa
corporate saver accounts to be opened in Du Preez’s office to
overcome the cash flow problem
created by Standard Bank’s
conditions for the operation of Supreme Car’s account;
(9) he personally advanced funds to
Supreme Car to ensure that cheques which had been issued would not be
dishonoured because of
a lack of funds;
(10) he negotiated with the plaintiff
when its local manager, Ms. Carlin Morkel, was considering cancelling
the floor plan agreement
because of a dishonoured cheque of R370 000;
(11) he negotiated with other
financial institutions and banks whenever the need arose. Whenever
Naudé went to a meeting
with the financial institution or bank
Fourie accompanied him. In February and March 2004 he attended two
meetings with the plaintiff
when the plaintiff’s concerns about
Supreme Car’s management of the floor plan and its obligations
in terms of the
agreement were discussed;
(12) he introduced financial controls
so that Supreme Car’s cash flow could be properly controlled
and monitored: he introduced
a petty cash control system which
required authorisation for payments of petty cash supported by
vouchers; he insisted that all
amounts due to Supreme Car were
received and banked; he introduced a system for keeping a proper
record of sales, sales commissions,
receipts of amounts due to
Supreme Car and the banking thereof;
(13) he insisted that the creditor
clerk be laid off and selected and interviewed a successor, Ms. Adele
Ferreira, who was then
appointed;
(14) he attended meetings of Supreme
Car’s managers and sales staff and discussed with them the
progress of the business;
(15) at the request of Naudé he
attended monthly meetings with Supreme Car’s staff to discuss
matters relating to Supreme
Car’s business;
(16) he prepared statements in the
form of financial statements which he used in discussions with Naudé
and Supreme Car’s
staff;
(17) he allowed his personal motor
vehicles to be used by Supreme Car’s staff for the purposes of
the business;
(18) he allowed members of Supreme
Car’s staff to use his personal credit card to pay Supreme
Car’s business expenses;
(19) he used the Supreme Car floor
plan to purchase and sell motor vehicles for his personal benefit;
(20) he was
involved in the Naudés property speculation at Yzerfontein:
he gave advice and he travelled to Yzerfontein to
view the
properties: at Naudé’s request he purchased a property
at Yzerfontein using a company of which he was the
sole director to
purchase and hold the property. In order to do this he applied on
behalf of the company for a loan from a bank
and bound himself as
surety for the repayment of the loan. He regarded this property as
an asset of Supreme Car;
(21) he accompanied
Naudé on occasion to negotiate a loan for Supreme Car from a
moneylender, Mr. Chamani. When Mr. Chamani
required security for the
repayment of the loan he signed a personal acknowledgement of debt in
favour of Mr. Chamani.
[30]
In
the light of all these facts it cannot be found that Fourie’s
version that he was a part-time consultant who performed
certain
limited functions at Supreme Car at an hourly rate and that he spent
an average of 2.8 hours per day at Supreme Car is
truthful or
reliable. It is clear that he was much more than a part-time
consultant to Supreme Car subject to an hourly rate.
This allegation
in the plea (120 para 17.4) is disingenuous if not a blatant untruth.
The most plausible inference from the facts
(see
Bates
& Lloyd Aviation (Pty) Ltd and Another v Aviation Insurance Co
1985
(3) SA 916
(A)
at
939F-940B;
Skilya
Property Investments (Pty) Ltd v Lloyds of London
2002
(3) SA 765
(T)
at
780H-781D) is that from the outset Fourie was intimately involved in
the management of Supreme Car’s finances and that
his
involvement became more intimate as time went on. He would therefore
know when Supreme Car required additional financing and
would be
involved in the steps taken to obtain such financing, in particular
in the procedure to extend the facility in terms of
the floor plan
agreement.
[31] It will be
remembered that Fourie pleaded that he from time to time drew up
financial statements in template form by way of
interim management
accounts to monitor the cash flow of Supreme Car’s business and
that he had not drawn up these financial
statements for use by third
parties, in particular the plaintiff, for purposes of credit being
extended in terms of the floor plan
agreement. In the sequestration
application Fourie said he prepared some financial statements for his
own purposes to enable him
to gauge Supreme Car’s progress. He
made not mention of using the financial statements to monitor cash
flow. When he testified
Fourie confirmed that he prepared financial
statements at intervals but it was clear that he had prepared the
financial statement
dated 28 February 2002 for the purpose of
obtaining extended credit from the plaintiff in terms of the floor
plan agreement. It
was also clear that Fourie knew this to be so as
he had furnished the financial statement to the plaintiff under cover
of a letter
to the plaintiff dated 26 June 2002 (J467-8).
(This
evidence contradicts the allegations in the plea and the
sequestration application. In his answering affidavit he said he

prepared the financial statement of 28 February 2002 as a preparatory
statement for audit purposes.) With regard to the other
financial
statements dated 31 January 2002, 31 October 2002, 31 January 2003,
28 February 2003, 31 May 2003, 30 June 2003 and 31
December 2003
Fourie testified that they were working documents. They were a
method of controlling cash flow, to see how the business
was doing
and see that cash flow was positive. Fourie testified that save for
the financial statements of 28 February 2002 he
did not give one of
the statements to the bank, he did not give the documents to anyone
to give to the bank and he did not know
that any of the documents was
given to the bank. According to Fourie he would take the documents
to meetings at Supreme Car and
when the meeting was completed he
would simply leave the documents lying on the table.
[32] Fourie’s
evidence about these documents not being prepared for use by third
parties and in particular to obtain extended
credit from the
plaintiff cannot be accepted.
[33] Fourie has
been inconsistent and contradictory about why he prepared the
financial statements and what they were:
(1) In his
answering affidavit in the sequestration application he said he
prepared the financial statements for 30 September 2001
and 28
February 2002 as preparatory statements for audit purposes (G194-5
para 54) and those for 31 January 2003, 28 February 2003
and 31 May
2003 for his own purposes to enable him to gauge the progress of
Supreme Car from time to time (G195 para 52).
(2) In his plea
(i.e. the joint plea) Fourie averred that he prepared the financial
statements for 28 February 2002, 31 January
2003, 28 February 2003
and 30 June 2003 as interim management accounts to monitor Supreme
Car’s cash flow and that they were
not drawn up or intended for
use by third parties (A130 para 24.2).
(3) At the second
pre-trial conference held on 28 April 2009 Fourie stated that
financial statements for 31 January 2002, 31 October
2002, 31 January
2003, 28 February 2003, 31 May 2003, 30 June 2003 and 31 December
2003 appeared to be working documents (B41 paras
4.11 and 4.12).
(4) At the third
pre-trial conference held on 10 September 2010 the defendants
indicated that some limited parts of the financial
statements for 31
January 2003, 28 February 2003, 31 May 2003, 30 June 2003 and 31
December 2003 were prepared by Fourie with information
furnished to
him by Naudé and other employees of Supreme Car for purposes
of private discussions with Naudé and other
employees of
Supreme Car (B65-66 para 3.6.1).
(5) When Mr.
Harcourt-Cooke was cross-examined the following propositions were put
to him with regard to the financial statements:
(a) Regarding the financial statement
dated 30 September 2001:
‘Sir, I put it to you that this
document is a working document prepared for discussion purposes
between Fourie and Naudé
and the other employees of Supreme’
(b) With regard to the financial
statement dated 31 October 2002:
‘I put it to
you that it is an unsigned working document, this document I am
referring to you also prepared for purposes
of discussions between
Fourie and Naudé regarding the business of Supreme and it was
simply a work document prepared. We
discussed the figures. It never
purported or never intended to give out to be financial statements,
do you agree?’
(c) With regard to the financial
statements dated 31 January 2003:
‘… pages 50-60 is also
just working papers prepared for discussion. It was never the
intention to be financial statements.’
(d) With regard to the financial
statements dated 31 May 2003, 30 June 2003 and 31 December 2003:
‘…
the proposition to you is that those three documents are also working
papers which were prepared purely for discussion
purposes between
Fourie and the Naudés and it was never purported to be
financial statements?’
(e) With regard to the financial
statements generally:
‘I
put it to you that the fact that there is no reference to
depreciation in the working papers reflect clearly and indicate

clearly that they are working papers and only with the intention of
determining cash flow’
(6) During the 417 enquiry Fourie said
that the financial statements were prepared merely to look at the
gross profit situation
where the stock becomes relevant (L914-5).
[34] It is clear
that
the
plaintiff’s credit department received more than the financial
statements of 28 February 2002. Symes’ evidence
makes it clear
that the plaintiff granted extensions of the credit facility on the
strength of the financial statements of 28 February
2002, 31 October
2002, 31 January 2003, 28 February 2003 and 30 June 2003. It is
significant that either Ray Naudé or Naudé
signed the
financial statements of 31 October 2002 and 28 February 2003 and that
Fourie signed the financial statements of 31 January
2002 and 31
October 2002. There is a signature on the financial statements of 28
February 2003 and 30 June 2003 which seems to
be that of Du Preez but
Fourie disputes that it is. Fourie’s denial is not convincing
and in the absence of a clear indication
of forgery from a reliable
source it must be found that Du Preez also signed the financial
statements of 28 February 2003 and 30
June 2003. Signature of
financial statements by the auditor and/or the director of the
company and/or the accountant who prepared
the financial statements
is a clear indication that they are not just working documents and it
must be accepted that the financial
statements which were received by
the plaintiff’s credit department were intended to be used by
the plaintiff to decide whether
to grant extended credit or not.
[35] In its particulars of claim the
plaintiff alleges, with regard to fraudulent misrepresentations made
in the financial statements,
that –
(1) the financial statements amounted
to representations that Supreme Car’s business was growing, was
profitable and was financially
sound; and
(2) these
representations were false to the knowledge of the Fourie in that he
knew that Supreme Car’s business was not profitable
and was not
financially sound and that in fact Supreme Car was trading in
insolvent circumstances. (A24 para 5.3.2 and 5.3.3).
The plaintiff
did not tender any evidence to establish that when the relevant
financial statements were received by the plaintiff
Supreme Car’s
business was not profitable, was not financially sound and that
Supreme Car was trading in insolvent circumstances.
The evidence of
Fourie suggests that the business was profitable and that Supreme Car
was able to pay all its debts when they
became due from about March
2002 until December 2003 but that it lacked working capital and that
when the finances were not carefully
managed there were cash flow
problems. The question is therefore whether the business was not
financially sound even though it
was not trading in insolvent
circumstances.
[36] Despite the propositions put to
the plaintiff’s expert, Mr. Harcourt-Cooke, that the figures in
the financial statements
were correct, and despite Fourie’s
evidence at the trial that the figures were correct, he clearly
admitted in his answering
affidavit in the sequestration application
that they were not. In relation to the financial statements of 30
September 2001, 28
February 2002, 31 January 2003, 28 February 2003
and 31 May 2003 he said that the gross profit of the business was
misstated (because
the reconditioning expenses had not been taken
into account) (G195 para 54.6 and 177 paras 30.5 and 30.7). In
relation to the
same financial statements he denied that they
reflected the true financial position of Supreme Car and that he ever
presented them
as such to the Naudés (G196 para 5.5). He also
said the following:
‘I emphatically deny that I
could ever bring Naudé or the deponent under the impression
that the applicant had a healthy,
profitable business which was
properly administered and earning substantial profits. On the
contrary, Naudé was painfully
aware of the financial
predicament of the applicant and assured me repeatedly that he would
see to it that the applicant trades
out of its financial
difficulties.’ (G196 para 54.9)
[37] In addition
Fourie admitted at the section 417 inquiry that neither he nor Du
Preez ever audited Supreme Car’s books
and his attempts in his
evidence to retract or qualify this admission were singularly
unconvincing and cannot be believed. He
purported not to understand
the meaning of the word ‘audit’ and after questioning
conceded that he did know what it
meant. This evidence means that in
both the financial statements of 28 February 2002 and his letter
Fourie misrepresented to the
plaintiff that the financial statements
had been audited. The other financial statements given to the
plaintiff and used to extend
the floor plan facility make the same
misrepresentation.
[38] The evidence
shows that Du Preez lent Supreme Car the sum of R3,5 million in
return for interest calculated at the rate of
36 percent per annum:
i.e. R105 000 per month or R1 260 000 per annum. Neither this loan
nor the interest payable and in fact
paid were reflected in any
financial statements prepared by Fourie or given to the plaintiff.
If they had been disclosed they
would have reduced the profit
substantially, shown that Supreme Car was under-capitalised and that
Supreme Car had been funded
by a party other than a shareholder at an
exorbitant interest rate. Clearly this would have justified a
conclusion that the business
was not financially sound. According to
Fourie (when he clarified his previous evidence) on three occasions
Du Preez lent Naudé
funds to use in Supreme Car: R1 million
in about the middle of 2001, R1 million in September 2001 and finally
R1,5 million in
May 2002. Fourie also testified that although Naudé
was obliged to pay interest to Du Preez he, Naude, lent the money
interest-free
to Supreme Car. Fourie claimed to have seen a document
of one page (never discovered) which recorded this loan from Du Preez
to
Naudé. Fourie also claimed not to have seen the agreement
reflecting the loan by Du Preez to Supreme Car until shortly before

the trial. Fourie’s explanation is simply not credible and is
rejected. Firstly, the improbability of Du Preez making the
money
available to Supreme Car in this way is self-evident. Secondly, the
financial statements do not reflect the loan by Naudé
to
Supreme Car. The financial statements of 30 September 2001 do not
refer to the loan of R1 million by Naudé: the financial

statements of 31 January 2002 do not refer to the loan of R2 million
by Naudé and the financial statement of 28 February
2002
refers only to an unsecured loan of R2,5 million by Naudé
(E37). Subsequent financial statements do not refer to loans
by
Naudé. Thirdly, and most importantly, in his answering
affidavit dated 20 May 2004 in the sequestration application
Fourie
did not dispute that Du Preez lent R3.5 million to Supreme Car (G9
para 6.6 and 187-188 para 47). This puts the lie to
Fourie’s
evidence that he only discovered just before the trial that Du Preez
had lent Supreme Car the money.
[39] Accordingly it
is found that the financial statements furnished to the plaintiff
consistently misrepresented the financial
position of Supreme Car in
material respects and for purposes of section 424 of the Act the
business was carried on with the intention
of defrauding the
plaintiff. It is also found that Fourie was knowingly a party to the
carrying on of the business in this way.
His conduct therefore falls
within the ambit of section 424 of the Act and the question arises
whether the court should exercise
its discretion in terms of section
424 of the Act and order that Fourie is liable for the debt of
Supreme Car to the plaintiff.
Fourie’s counsel argued
strenuously that the court should not make such an order because it
had not been shown that there
was a causal link between the
fraudulent conduct and Supreme Car’s inability to pay. Where
the fraudulent conduct causes
the debt to arise – as in this
case, where the plaintiff lent funds on the strength of the
misleading financial statements
– it is not clear how the
plaintiff could ever establish that the same conduct made it
impossible to pay the debt. For that
reason I have some doubt as to
whether the gloss placed on the section in the case of reckless
conduct applies in the case of
fraudulent conduct. In my view the
court should make the order even in the absence of evidence that the
inability to pay was due
to the fraudulent conduct. However, even if
that is not justified there is other evidence which must be
considered: that relating
to the reckless conduct of the business.
Reckless
conduct of Supreme Car’s business
[40] Fourie’s
evidence shows that during the period June 2003 to April 2004 Ray
Naudé, Naudé and Barry Vorster
utilised Supreme Car’s
funds to speculate in seaside properties at Yzerfontein
which was experiencing a boom. They first purchased a seafront
property on which there was a half completed house. Naudé

told Fourie that Vorster had calculated that it would cost R800 000
to complete the house and that when the house was completed
it would
be worth between R5 million and R7 million. It was estimated that it
would take about six months to complete the house.
In the event it
cost R2.9 million to complete the house and Supreme Car paid this
additional expenditure during the period of
six months. When the
house was complete it was not sold and the money was not repaid to
Supreme Car. According to Fourie this
caused a cash flow crisis at
the end of December 2003. Apart from this Ray Naudé, Naudé
and Vorster purchased six
undeveloped seaside properties at
Yzerfontein through the vehicle of Rantseli (Pty) Ltd and Supreme
Car paid the deposits totalling
R200 000 on behalf of Rantseli. This
was also not repaid. During the same period Naude used about R2.7
miillion of Supreme Car’s
funds to pay for personal expenses.
Because of the role he played in managing Supreme Car’s
finances Fourie must have been
aware or this. There is no evidence
that he even attempted to prevent or restrict this expenditure.
[41]
Up
to this time Supreme Car had never defaulted on its obligations in
terms of the floor plan agreement. But in February 2004
the
plaintiff prematurely terminated the temporary extension of the floor
plan facility to R16 million and shortly afterwards alleged
that
Supreme Car owed more than R6 million in terms of the floor plan
agreement. According to Fourie an audit done by Du Preez
showed that
only about R4 million was owing but this did not assist Supreme Car.
On 20 April 2004 the plaintiff cancelled the
floor plan agreement and
took possession of all the motor vehicles which were subject to the
floor plan agreement. This brought
an end to Supreme Car’s
ability to conduct the business and its viability as a company.
[42] In my view the
expenditure of Supreme Car’s funds on property speculation was
reckless in view of the company’s
history of being
under-capitalised and its history of cash flow difficulties. In his
affidavit in the sequestration application
Fourie correctly describes
some of this expenditure in respect of the Yzerfontein properties as
reckless (G194 para 53.11). The
same is true of the use of the
company’s funds to pay Naude’s personal debts.
[43] Fourie
obviously knew what the Naudés and Vorster were doing. There
is no suggestion in his evidence that he took any
firm action to stop
them from using Supreme Car’s funds or that he ever threatened
to resign if they did not desist. On
the contrary he appears to have
advised them about the investments and at the insistence of Naudé
purchased another property
through a company of which he was the sole
director.
[44] On this evidence the business of
Supreme Car was conducted recklessly and Fourie was knowingly a party
to the conduct of the
business in this way. This is an additional
reason for him to be held liable in terms of section 424 of the Act.
[45] It must be
recorded, insofar as it is not already apparent from this judgment,
that Fourie did not make a good impression as
a witness. Neither his
demeanour nor the substance of his evidence was such that I am
satisfied that he was an honest or a reliable
witness. With regard
to his demeanour he initially presented as a confident, self-assured
professional who had the facts of the
case at his fingertips. He was
however palpably dumbfounded when his detailed evidence about the
limited time he had had to prepare
his answering affidavit in the
sequestration application and when and where he signed the affidavit
was shown to be untrue. When
other contradictions and
improbabilities in his evidence were pointed out in cross-examination
he proceeded as if this was of no
moment and gave explanations which
were either irrational or improbable. He frequently did not answer
the point of questions and
had to be requested to do so. He also
frequently gave long rambling answers. With regard to the substance
of his evidence the
contradictions, improbabilities and
inconsistencies show that he was not a reliable and credible witness.
Merely by way of example
the following may be noted:
(1) his obvious lie about the
circumstances under which he prepared his answering affidavit and
when and where he signed it;
(2) his evidence about the purpose and
content of the financial statements he prepared;
(3) his evidence about what he did
with the financial statements after he had used them at Supreme Car’s
premises;
(4) his evidence about having
performed an audit on Supreme Car and his purported ignorance of the
meaning of the word ‘audit’;
(5) his evidence about his knowledge
of Du Preez’s loans to assist Supreme Car and when he
discovered that Du Preez had in
fact lent the money to Supreme Car
and not to Naudé;
(6) his evidence about the alleged
loan by Du Preez to Naudé for the purpose of lending money to
Supreme Car;
(7) his evidence about why Du Preez
was not reflected in the financial statements as a creditor of
Supreme Car;
(8) his evidence about when the loans
were made and the agreements which reflected these loans;
(9) his evidence about the role he
played at Supreme Car;
(10) his evidence about the admissions
made in the answering affidavit in the sequestration application and
the section 417 inquiry;
(11) his evidence about the signature
of the financial statements by Du Preez, the Naudés and
himself;
(12) his evidence about the role he
played in the property transactions in Yzerfontein;
(13) his evidence
about why he undertook financial liability to Mr. Chamani for the
loan of R3.25 million to Supreme Car.
Defendants’ special defences
[46]
Apart
from denying the plaintiff’s allegations Fourie raised the
issues of contributory negligence and compromise. There
is no merit
in either defence. Contributory negligence cannot be raised in
respect of a claim in terms of section 424 of the Act
and the defence
of
transactio
cannot
be based on an agreement to which Fourie was not a party.
[47] The plaintiff
is therefore entitled to relief against Fourie based on the
provisions of section 424 of the Act and an appropriate
order will be
made. The question of Du Preez’s liability will now be
considered.
Plaintiff’s
Aquilian claim for damages for pure economic loss
[48] The
plaintiff’s claim against Fourie and Du Preez is a delictual
claim for damages for pure economic loss. There is
no question of
any physical damage to property. The plaintiff’s alleged loss
is the accrued indebtedness of Supreme Cars
to the plaintiff as at
the date of the termination of the floor plan agreement. The
wrongful act relied upon by the plaintiff
is the (repeated)
misrepresentation by Fourie and Du Preez of Supreme Cars’
financial position in the financial statements
provided to the
plaintiff when Supreme Cars applied for increases, both permanent and
temporary, of the floor plan facility.
Even if it is accepted that
Fourie and Du Preez prepared financial statements knowing that they
were misleading and knowing that
Supreme Cars would present them to
the plaintiff in support of the applications to increase the floor
plan facility there are a
number of problems with this cause of
action.
[49
] At
the outset, the claim must be considered on the basis that the two
defendants misrepresented the financial condition of Supreme
Cars on
at least 5 separate occasions. The plaintiff’s counsel contend
that these misrepresentations must be dealt with
globally, i.e. as if
one misrepresentation was made which caused all the loss which the
plaintiff claims, but readily concede that
there is no decided case
or textbook which supports such an approach. In my view this
approach is wrong and each misrepresentation
which allegedly caused
loss is a separate cause of action which must be considered on its
own.
[50
] As
pointed out by the court in
Steenkamp
NO v Provincial Tender Board, Eastern Cape
2006
(3) SA 151
(SCA)
para
27 the general approach of our law towards the extension of the
boundaries of delictual liability remains conservative and
this is
especially the case when dealing with liability for pure economic
loss – see
Lillicrap,
Wassenaar and Partners v Pilkington Brothers (SA) (Pty) Ltd
1985
(1) SA 475
(A)
at
500D;
Telematrix
(Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards
Authority SA
2006
(1) SA 461
(SCA);
Premier
Western Cape v Faircape Property Developers (Pty) Ltd
2003
(6) SA 13
(SCA).
[51
] In
Administrateur,
Natal v Trust Bank van Afrika Bpk
1979
(3) SA 824
(A)
it
was recognised that the Aquilian action could be utilised to recover
damages for pure economic loss suffered as a result of negligent

misrepresentation. (830F-831B). The court emphasised that all the
requirements for Aquilian liability would have to be established,

including unlawfulness and a guilty mind, and that in every case the
court would have to decide whether in the particular circumstances

there was a legal duty resting on the defendant not to make a
misstatement and whether in those circumstances the defendant
exercised
reasonable care
inter
alia
in
determining the correctness of the representation. The Court would
also have to keep the ground of action within reasonable
limits by
giving proper attention to the nature of the representation and its
interpretation and by giving proper attention to
the question of
causality (831B-833C).
[52
] In
International
Shipping Co (Pty) Ltd v Bentley
1990
(1) SA 680
(A)
at
700E-701C the court summarised the principles of causation:
‘… in
the law of delict causation involves two distinct enquiries. The
first is a factual one and relates to the
question as to whether the
defendant’s wrongful act was a cause of the plaintiff’s
loss. This has been referred to
as “factual causation”.
The enquiry as to factual causation is generally conducted by
applying the so-called “but-for”
test, which is designed
to determine whether a postulated cause can be identified as a
causa
sine qua non
of
the loss in question. In order to apply this test one must make a
hypothetical enquiry as to what probably would have happened
but for
the wrongful conduct of the defendant. This enquiry may involve the
mental elimination of the wrongful conduct and the
substitution of a
hypothetical course of lawful conduct and the posing of the question
as to whether upon such an hypothesis plaintiff’s
loss would
have ensued or not. If it would in any event have ensued, then the
wrongful conduct was not a cause of the plaintiff’s
loss;
aliter,
if
it would not so have ensued. If the wrongful act is shown in this
way not to be a
causa
sine qua non
of
the loss suffered, then no legal liability can arise. On the other
hand, demonstration that the wrongful act was a
causa
sine qua non
of
the loss does not necessarily result in legal liability. The second
enquiry then arises, viz whether the wrongful act is linked

sufficiently closely or directly to the loss for legal liability to
ensue or whether, as it is said, the loss is too remote. This
is
basically a juridical problem in the solution of which considerations
of policy may play a part. This is sometimes called “legal

causation”. (See generally
Minister
of Police v Skosana
1977
(1) SA 31
(A)
at
34E-35A, 43E-44B;
Standard
Bank of South Africa Ltd v Coetsee
1981
(1) SA 1131
(A)
at
1138H-1139C;
S
v Daniëls en ‘n Ander
1983
(3) SA 275
(A)
at
331B-332A;
Siman
& Co (Pty) Ltd v Barclays National Bank Ltd
1984
(2) SA 888
(A)
at
914F-915H;
S
v Mokgethi en Andere
1989
(1) SA 32
(A)
at
p18-24 Fleming
The
Law of Torts
7
th
ed at 173 sums up the second enquiry as follows:
“The second
problem involves the question whether, or to what extent, the
defendant should have to answer for the consequences
which his
conduct has actually helped to produce. As a matter of practical
politics, some limitation must be placed upon legal
responsibility,
because the consequences of an act theoretically stretch into
infinity. There must be a reasonable connection
between the harm
threatened and the harm done. This inquiry, unlike the first,
presents a much larger area of choice in which
legal policy and
accepted value judgments must be the final arbiter of what balance to
strike between the claim to full reparation
for the loss suffered by
an innocent victim of another’s culpable conduct and the
excessive burden that would be imposed
on human activity if a
wrongdoer were held to answer for all the consequences of his
default.”
In
Mokgethi’s
case supra,
Van
Heerden JA referred to the various criteria stated in judicial
decisions and legal literature for the determination of legal

causation, such as the absence of a
novus
actus interveniens,
proximate
cause, direct cause, foreseeability and sufficient causation
(‘adekwate veroorsaking’). He concluded, however,
as
follows:
‘
Wat die
onderskeie
kriteria
betref, kom dit my ook nie voor dat hulle veel meer eksak is as ‘n
maatstaf (die soepele maatstaf) waarvolgens aan
die hand van
beleidsoorwegings beoordeel word of ‘n genoegsame noue verband
tussen handeling en gevolg bestaan nie. Daarmee
gee ek nie te kenne
nie dat een of selfs meer van die kriteria nie by die toepassing van
die soepele maatstaf op ‘n bepaalde
soort feitekompleks
subsidiêr nuttig aangewend kan word nie; maar slegs dat geen
van die kriteria by alle soorte feitekomplekse,
en vir die doeleindes
van die koppeling van enige vorm van regsaanspreeklikheid, as ‘n
meer konkrete afgrensingsmaatstaf
gebruik kan word nie.’
It must further be
borne in mind that the delictual wrong of negligent misstatement is
relatively novel in our law and that in the
case which in effect
brought it into the world,
Administrateur,
Natal v Trust Bank van Afrika Bpk
1979
(3) SA 824
(A),
Rumpff
CJ emphasised, with reference to the fear of so-called ‘limitless
liability’ that this new cause of action could
be kept within
reasonable bounds by giving proper attention to,
inter
alia,
the
problem of causation (see at 833B).’
See also
Standard
Chartered Bank of Canada v Nedperm Bank Ltd
[1994] ZASCA 146
;
1994
(4) SA 747
(A)
at
764I-J.
[53
] In
the present case if the misrepresentations factually caused the loss
there can be no doubt that the defendants should have
to answer for
this. The problem lies with the issue of factual causation. There
were multiple misrepresentations but none has
been shown to have
caused any part of the indebtedness as at the termination of the
floor plan agreement. The evidence shows
rather that this
indebtedness and Supreme Cars’ inability to meet its
obligations in terms of the floor plan agreement was
caused by the
Naudés’ uncontrolled (it may be characterised as
reckless) expenditure of Supreme Cars’ funds
in respect of the
property speculation at Yzerfontein which did not produce the
anticipated profits and to pay personal expenses.
It will be
remembered that instead of spending approximately R600 000 during a
period of six months in completing the half built
house owned by
Rantselli (Pty) Ltd the Naudés spend approximately R2.9
million in that period. Even when Fourie counselled
against such
expenditure the Naudés continued to spend Supreme Cars’
funds and eventually Fourie also became involved
in the property
speculation.
[54
] Finally
it must be determined whether the act complained of (in this case the
misrepresentations/misstatements) had a harmful
consequence. As
pointed out in
Jowell
v Bramwell-Jones
2000
(3) SA 274
(SCA)
para
22 the element of damages or loss is fundamental to the Aquilian
action and the right of action is incomplete unless damage
is caused
to the plaintiff by reason of the defendant’s wrongful conduct.
This applies no less to claims arising from pure
economic loss than
it does to claims arising from bodily injury or damage to property.
Whether a plaintiff has suffered damage
or not is a fact which like
any other element of the plaintiff’s cause of action must be
established on a balance of probabilities.
Once the damage or loss
is established a court will do its best to quantify that loss even if
this involves a degree of guesswork.
[55
] The
question of whether damage or loss has been suffered and, if so, the
extent thereof, is answered by the application of a comparative
test
–
‘damage consists in the
negative difference between the relevant person’s current
patrimonial position (after the event
complained of) and his
hypothetical patrimonial position that would have been the current
position if the event had not taken place’.
See
Law
of Delict
4
ed Neethling Potgieter Visser
222
para 4.5 and 4.5.1.
In
Santam
Versekeringsmaatskappy Bpk v Byleveldt
1973
(2) SA 146
(A)
at
150A-B the court said simply:
‘..
skade beteken die verskil tussen die vermoënsposisie van die
benadeelde voor die onregmatige daad en daarna’
and
‘Skade
is die ongunstige verskil wat deur die onregmatige daad ontstaan het.
Die vermoënsvermindering moet wees ten
opsigte van iets wat op
geld waardeerbaar is…’
See also
Union
Government v Warnecke
1911
AD 657
at
665;
De
Jager v Grunder
1964
(1) SA 446
(A)
at
449E-G and 456G-H.
The date of
commission of the delict is generally the decisive moment for
assessing damage –
Law
of Delict
223
para 4.5.3.
[56
] In
this case there is simply no evidence to show what loss, if any, was
suffered on or immediately after the date of the
misrepresentations/misstatements.
[57
] The
plaintiff has therefore failed to prove a case against the defendants
based on any negligent or deliberate misrepresentation
made in the
financial statements. Accordingly the claim against the second
defendant must be dismissed.
Costs
[58] With regard to the claim against
Fourie in terms of section 424 of the Act costs must follow the
result. In view of the size
of the claim, the complexity of the
facts and the documentary evidence involved the costs of two counsel
are justified.
[59] With regard to
the claim against Du Preez costs will not follow the result. There
is no justification for a costs order against
the plaintiff in favour
of Du Preez. The circumstances in which Mr. Nel ceased to act as
attorney for the two defendants, was
appointed as executor in Du
Preez’s estate and then resigned as executor so that he could
continue to act as attorney in
this case have already been referred
to. After the executor’s application for a postponement was
dismissed there was no
justification for appointing another attorney
and advocate to represent Du Preez’s estate. During the first
part of the
trial one attorney (i.e. Nel) and one advocate
represented both Fourie and Du Preez. There was clearly no conflict
of interest
and it was not suggested that the defendants’ legal
representatives were inadequate. In the second part of the trial Du
Preez’s legal representatives had very little to do and they
could make little or no contribution to the resolution of the
issues.
This is not a reflection on the competence of the attorney and
advocate it is merely confirmation of the view I had and
expressed at
the time of the application for postponement. The appointment of
another attorney and advocate was unnecessary and
there is no reason
why the plaintiff should be burdened with their costs.
[60] The
plaintiff’s counsel have calculated Supreme Car’s
indebtedness to the plaintiff as at 31 October 2010 and have
taken
into account the further amounts of R435 000 (received by the
plaintiff on 26 July 2004) and R200 000 (received by the plaintiff
on
13 April 2005); the proper appropriation of amounts received, first
to interest and then capital, and errors made in the calculation
of
interest. The calculation is set out in annexure ‘A’ to
the plaintiff’s counsel’s heads of argument.
The capital
amounts to R7 340 229,73 and the interest amounts to R5 361 200,93.
Interest will continue to accrue from 1 November
2010 at 2 percent
above Wesbank’s prime rate. At present that rate is 9,5
percent per annum. A further dividend of R1
193 595,25 will be
received by the plaintiff and the plaintiff’s counsel requests
that this be deducted from the accumulated
interest at the date of
judgment.
Order
[61] The following order is made:
I In terms of section 424 of the
Companies Act 61 of 1973 the first defendant is declared to be
personally responsible for the indebtedness
of XHRS Investments 71
(Pty) Ltd t/a Supreme Car to the plaintiff, being –
(i) the capital amount of R7 340
229,73;
(ii) interest up to and including 31
October 2010 in the sum of R5 361 200,93 less the sum of R1 193
595,21;
(iii) interest on the capital amount
of R7 340 229,73 at the rate of 11,5 percent per annum from 1
November 2010 to date of payment.
II The first defendant is ordered to
pay to the plaintiff:
(iii) interest on the
capital amount of R7 340 229,73 at the rate of 11,5 percent per
annum from 1 November 2010 to date
of payment.
III The plaintiff's claim
against the second defendant is dismissed;
IV The first defendant is
ordered to pay the plaintiff's costs of suit, such costs to include
the costs consequent upon the employment
of two counsel and the
qualifying fees of Messrs. S. Harcourt-Cooke and J. Rhoda.
B.R. SOUTHWOOD
JUDGE OF THE HIGH COURT
CASE NO: 5944/07
HEARD
ON: 4 May 2009 to 14 May 2009 and 11 October 2010 to 28 October 2010
FOR
THE PLAINTIFF: ADV. A. GAUTSCHI SC
ADV. S.
GOUWS
INSTRUCTED
BY: Ms. N. Stetka of Lanham-Love Attorneys
FOR
THE FIRST DEFENDANT: ADV. H. KLOPPER
INSTRUCTED
BY: Mr. M.I. Cronje of Thys Cronje Inc.
FOR
THE SECOND DEFENDANT: ADV. G.B. BOTHA
INSTRUCTED
BY: Mr. R.W. Smith of Jacques Roets Attorneys
DATE
OF JUDGMENT: 6 May 2011