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[2012] ZASCA 195
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Glenrand MIB Financial Services (Pty) Ltd and Others v van den Heever NO and Others (199/2012) [2012] ZASCA 195; [2013] 1 All SA 511 (SCA) (30 November 2012)
Links to summary
THE SUPREME COURT
OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no
:
199/2012
Reportable
In the matter
between:
GLENRAND MIB
FINANCIAL SERVICES (PTY) LTD
...................
First Appellant
DAVID JAMES
HARPUR
...................................................................
Second
Appellant
ALLAN WALTER
MANSFIELD
.........................................................
Third
Appellant
AON SOUTH AFRICA
(PTY) LTD
...................................................
Fourth
Appellant
and
THEODOR WILHELM
VAN DEN HEEVER NO
...........................
First
Respondent
CHRISTIAAN
FREDERIK DE WET NO
.....................................
Second
Respondent
DEIDRE BASSON NO
........................................................................
Third
Respondent
PROTECTOR GROUP
HOLDINGS (Pty) Ltd
.............................
Fourth
Respondent
Neutral citation:
Glenrand MIB Financial Services (Pty) Ltd &
others v Theodor Wilhelm van den Heever NO & others
(199/2012)
[2012] ZASCA 195
(30 November 2012)
Coram:
MTHIYANE DP, MHLANTLA and THERON JJA and SWAIN and SALDULKER AJJA
Heard:
12
November 2012
Delivered
30
November 2012
Summary:
Company
Directors – misappropriation of company funds –
dishonesty and subjective intention to steal not proved Breach
of
fiduciary duty – insufficient evidence to prove dishonesty and
collusive dealings Company - Insolvency - Disposition without
value
in terms of
s 26
of the
Insolvency Act 24 of 1936
– after
disposition the assets of the company exceeded its liabilities
Contract – written sale of shares agreement
– purchaser
signed as agent for non-existent principal – agreement not
valid Enrichment – General enrichment
action – claimant’s
funds transferred without legal ground to B – B transferred the
funds to C without legal
ground – claimant has a claim against
C – chain of causation linking C’s enrichment with
claimant’s impoverishment
not broken.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from:
South Gauteng High Court, Johannesburg, (Monama J sitting as
court of first instance):
1 The appeal of the
first appellant is dismissed.
2 The appeal of the
second and third appellants is upheld.
3 As against the
first, second and third appellant, the judgment of the high court is
set aside and replaced with the following:
‘
(a)
The claim against the fourth and fifth defendants is dismissed with
costs.
(b) The first
defendant is ordered to make payment of the sum of R50 million
together with interest at the rate of 15, per cent
per annum from 15
March 2004, to date of payment to the plaintiffs.
(c) The first
defendant is ordered to pay the plaintiffs’ costs.’
4 The respondents
are ordered to pay the costs of appeal of the second and third
appellants.
5 The first
appellant is ordered to pay the costs of appeal of the respondents.
6 The respondents
are ordered to pay the costs of appeal of the fourth appellant.
___________________________________________________________________
JUDGMENT
___________________________________________________________________
THERON
JA and SWAIN AJA (
MTHIYANE DP, MHLANTLA
JJA
and SALDULKER AJA concurring):
[1] This is an
appeal from the South Gauteng High Court (Monama J) dealing with
misappropriation of money, unjust enrichment, setting
aside of a
disposition under s 26 of the Insolvency Act 24 of 1936 (the
Insolvency Act) and
a breach by directors of their fiduciary duties.
The appellants appeal to this court with the leave of the high court.
[2] The fourth
respondent, Protector Group Holdings (Pty) Ltd (In Liquidation),
(Protector), was wound up by the high court on 1
December 2004. The
application for its winding-up was presented to the high court on 9
July 2004 and this is the date when the
winding-up is deemed to have
commenced, in terms of s 348 of the Companies Act 61 of 1973 (the
Companies Act). Protector was placed
in liquidation because it was
unable to pay its debts, as contemplated in s 345 of the Companies
Act. The Master of the High Court
appointed the first, second and
third respondents as joint liquidators of Protector, and they act in
their official capacity as
liquidators in these proceedings.
[3] The first
appellant, Glenrand MIB Financial Services (Pty) Ltd, (Financial
Services), was a wholly owned subsidiary of Glenrand
MIB Ltd
(Glenrand MIB). At all relevant times, Financial Services, held 65
per cent of the issued share capital in Protector, while
the
remaining 35 per cent was held by Protector Group Management Company
(Pty) Ltd (PGMC). David Harpur, the second appellant,
was a director
of Protector, Financial Services and a director, shareholder and
chief executive officer of Glenrand MIB Ltd. Allan
Mansfield, the
third appellant, was a director of Protector and the chairperson of
its board of directors, a director of Financial
Services and a
director, shareholder and chairperson of the board of Glenrand MIB.
[4] During 2003, the
board of Glenrand MIB decided to dispose of its interests in
Protector. Marc Seelenbinder and Leon Janse van
Rensburg, sixth and
seventh defendants in the court a quo respectively, both directors of
Protector and PGMC, made offers to purchase
Financial Services’
65 per cent shareholding in Protector. On 10 November 2003, the board
of directors of Financial Services
adopted a resolution to dispose of
its 65 per cent shareholding in Protector by entering into an
agreement with ‘Newco or
its nominee’. Pursuant to this
resolution, an agreement with ‘Newco or its nominee’ was
signed on 15 December
2003. Financial Services was represented by
Harpur and Mansfield while Van Rensburg represented the purchaser. It
was later suggested
that Freefall Trading 65 (Pty) Ltd (Freefall) was
the purchaser. Van Rensburg and Seelenbinder, were, through their
family trusts,
the sole shareholders of Freefall. PGMC disposed of
its 35 per cent shareholding in Protector to Freefall. Protector sold
its entire
business as a going concern to a new established company
New Protector Group Holdings (Pty) Limited, (New Protector),
comprising
an empowerment partner, Tradeworx, holding 51 per cent of
New Protector and Freefall holding 49 per cent. The funding for the
transaction
was provided by the Industrial Development Corporation
(the IDC).
[5] New Protector
and the IDC concluded a loan agreement on 4 March 2004 to enable New
Protector to acquire the business of Protector
as a going concern.
The sale of the business by Protector to New Protector was considered
and approved at a board meeting of Protector
on 2 March 2004. The
Financial Services representatives on the board of Protector,
including Harpur and Mansfield, resigned as
directors after the
approval of the sale of the business. The sale of business agreement
was implemented and the business and assets
of Protector were
transferred to New Protector.
[6] The IDC released
the funds to New Protector on 5 March 2004, pursuant to a written
request from Seelenbinder dated 3 March 2004.
An amount of
R69 188 647 was transferred from the IDC into New
Protector’s bank account held with Nedbank. On 8
March 2004, an
amount of R63 382 254 was transferred out of the Nedbank
account to an account in the name of Protector
held with Standard
Bank. The latter account was opened by Seelenbinder and Van Rensburg,
who were the only directors of Protector
at that stage. On 10 March
2004, and on the instructions of these two directors, an amount of
R63 382 254 was transferred
out of the Standard Bank
account to an account in the name of Fehrsen, Harms & Associates
(FHA) in Namibia. On 15 March 2004,
from the funds held in the
Namibian account, an amount of R50 million was paid into the trust
account of Edward Nathan & Friedland
(ENF). On 22 June 2004, the
amount of R50 997 468.57 was transferred from the said
attorneys’ trust account to
Glenrand MIB’s bank account.
It was common cause that the R50 million paid by ENF to Glenrand MIB
was to settle Freefall’s
debts to Financial Services in respect
of the sale of the latter’s shareholding in Protector to
Freefall.
[7] The respondents
instituted action in the court a quo against Financial Services
(first defendant), Glenrand MIB Ltd (second
defendant), Freefall
(third defendant), Harpur (fourth defendant), Mansfield (fifth
defendant), Seelenbinder (sixth defendant)
and Janse Van Rensburg
(seventh defendant). In the action the respondents claimed, inter
alia, payment of various sums of money
from the respondents. There
were six causes of action pleaded by the respondents, namely: (1)
collusive dealings contemplated by
s 31
of the
Insolvency Act (claim
A); (2) unlawful and intentional misappropriation of funds (claim B);
(3) unjust enrichment (claim C); (4) an alleged disposition
without
value liable to be set aside under
s 26
of the
Insolvency Act (claim
D); (5) a fraud perpetrated on the body of creditors of Protector
(claim E); (6) breach by certain directors of Protector, namely
Harpur, Mansfield, Seelenbinder and Van Rensburg, of their fiduciary
duties owed to the company (claim F).
[8] By the time of
the commencement of the trial on 16 February 2011, Freefall had been
deregistered, the estate of Seelenbinder
sequestrated, resulting in
the trial proceeding only against Financial Services, Glenrand MIB,
Harpur, Mansfield and Van Rensburg.
By arrangement between the
respondents and Van Rensburg, the latter did not oppose the matter
and testified for the respondents.
Judgement was however sought and
granted against Van Rensburg. At the conclusion of the trial, claims
A and E were abandoned by
the respondents and the court was also
advised that no relief was sought against Glenrand MIB.
[9] The court a quo
upheld claims B (misappropriation of money), C (unjust enrichment), D
(setting aside of a disposition without
value in terms of
s 26
of the
Insolvency Act) and
F (breach of fiduciary duty). It also found
against the appellants on the basis of a contravention of s 38 of the
Companies Act.
The judge granted judgment against Glenrand MIB,
Financial Services, Harpur, Mansfield and Van Rensburg. The
appellants appeal
against the judgment of the court a quo, with the
leave of that court.
[10] Subsequent to
the trial and prior to judgment being handed down, Glenrand MIB
merged with the fourth appellant, AON South Africa
(Pty) Ltd (AON).
In terms of this merger AON assumed all property and obligations of
Glenrand MIB. Following the merger, Glenrand
MIB was deregistered.
AON applied for and was granted leave to intervene in the application
for leave to appeal and in the appeal
itself, by the high court.
Thereafter the respondents abandoned the judgment against Glenrand
MIB, leaving only the question of
the wasted costs of the application
for determination. At the hearing of this appeal, counsel for the
respondent could advance
no reason why the respondent should not be
ordered to pay these costs.
Contravention of
s 38
[11] As mentioned
above, the high court found against the appellants on the basis of a
contravention of s 38 of the Companies Act.
1
This was not a cause
of action pleaded or relied upon by the respondents in the action in
the high court. It was not an issue that
was specifically traversed
by the parties during the trial. This was in fact conceded by the
respondents on appeal. The finding
by the high court, that ‘the
assistance given to the fourth plaintiff [payment of R50 million]
violates the provisions of
section 38(1) of Act 61 of 1973’ was
ill-conceived and cannot stand.
Claim B –
misappropriation of money (theft)
[12] The IDC knew
that Glenrand MIB was selling its 65 per cent shareholding in
Protector and the IDC intended, when its board approved
the financing
on 25 November 2003, that the proceeds of that loan would be applied
towards settling the purchase price of the sale
of shares of Glenrand
MIB and PGMC. The IDC’s recognition that the proceeds of the
loan would immediately be applied towards
paying for Glenrand MIB’s
shares in Protector, was in full knowledge of the IDC’s
decision that ultimately the business
of Protector would be located
within a new vehicle, which would represent a consortium led by a BEE
shareholder.
[13] There is no
evidence to suggest that the IDC, and all the other relevant parties,
in agreeing or arranging that the proceeds
of the loan should be paid
to the shareholders of Protector, intended to defraud the creditors
of Protector. The common intention
of Glenrand MIB, the IDC, and of
Seelenbinder and Van Rensburg, was that the money should be applied
to discharge Freefall’s
indebtedness arising from the sale of
shares by Glenrand MIB and PGMC. In the circumstances, the
respondents have not made out
a case for dishonesty on the part of
Harpur and Mansfield. It was not established that, in arranging that
part of the proceeds
of the IDC loan be paid to Financial Services,
they had the subjective intention to steal the money. It follows that
the claim
of theft cannot be sustained.
Claim F - Breach
of Fiduciary Duty
[15] Counsel for the
respondents was constrained to concede, and rightfully so, that in
the event of the respondents failing to
prove the theft claim, then
the claim for breach of fiduciary duty must also fail.
Claim C –
Unjust Enrichment
[16] The respondents
also claim payment of the sum of R50 million from Financial Services
on the basis of unjust enrichment. Although
there is no general
action based on enrichment in our law, it is generally accepted that
for enrichment liability to arise there
are a minimum of four
requirements, namely: (1) the defendant must be enriched; (2) the
plaintiff must be impoverished; (3) the
defendant’s enrichment
must be at the expense of the plaintiff and (4) the enrichment of the
defendant must be unjustified
or sine causa.
2
This was the basis
on which the case was argued by both counsel.
[16] The third and
fourth requirements for enrichment liability can give rise to
difficulties where three or more parties are involved.
The
difficulties arise from the fact that the general requirement for
liability is that the defendant’s enrichment must be
at the
expense of the plaintiff
; and it must be
unjustified
.
Where there is the intercession of a third party between the
plaintiff and the defendant, and the value is transferred not
directly
from the plaintiff to the defendant, but from the plaintiff
to the third party, and then in turn from the third party to the
defendant,
the question arises of whether the defendant’s
enrichment has occurred at the expense of the plaintiff.
[17] In
Buzzard
Electrical (Pty) Ltd v 158 Jan Smuts Avenue Investments (Pty) Ltd &
another
1996 (4) SA 19
(A) at 25H-26A the court discussed two
types of multi-party enrichment claims. The first type of claim arose
where A, in terms
of an agreement with B, improves the property of a
third party, C, and A then seeks to hold the owner C liable on the
grounds of
unjust enrichment because B has not paid A. The second
type of claim applied in a situation where the owner C contracted
with B
to improve his property and B in turn subcontracted A to do
the work. A did the work and later relied on the liability of the
owner
C on the grounds of unjust enrichment. The second type of
enrichment claim was considered by the court in
Buzzard
. The
court held that the main difference between the two types of claims
was that in the second type of claim, the performance
of the work by
A could be traced to an agreement between the owner C and B in terms
of whereof that specific work had to be performed
by B. The court
further held that neither a direct nor an indirect enrichment
liability could arise in the second type of case.
In all cases of the
second type of liability the owner C contracted with B on a specific
basis, and it would be unfair that his
counter-performance, if any,
were to increase in effect or that he should incur an obligation
which did not arise out of the contract
with B, simply because B had
engaged A to comply with his contractual obligations. The reasoning
of the court was that there was
no contractual relationship between A
and the owner C and, when A performed the work, he complied with his
obligations towards
B. At the same time, however, A also gave effect
to B's obligation to the owner C and thus also performed indirectly
with respect
to the owner. The agreement between the owner C and B
was the primary source of the performance of the work and any
possible enrichment
of the owner; the owner C received no more as a
result of A's performance than that which he had contracted for with
B. For that
reason, the court concluded, the enrichment was not sine
causa. On the contrary, his agreement with B was the cause of his
enrichment.
In
McCarthy Retail Ltd v Shortdistance Carriers CC
2001 (3) SA 482
(SCA) Schutz JA, with reference to the reasoning
adopted by the court in
Buzzard
, said it may be a question of
semantics whether the owner’s enrichment had been at the
expense of A or B. The learned judge
put the matter thus:
‘
For
myself, I think there is much to be said for the justice of the lien
cases, an unsophisticated justice though it may be, but
with which we
have lived for a long time. A improves a car at the instance of B,
wrongly believing him to be owner. C claims the
car by virtue of his
ownership. Is he to get it scot-free? Or is he to first pay A his
necessary and reasonable expenses; A's claim
being moderated by the
increase in market value cap, by the limitation to expenses to the
exclusion of the market price and by
the operation in the last resort
of the
jus
tollendi
(the
right to compel removal of materials)? The question whether C is
enriched at the expense of A or of B in the example given
is in any
event a matter of semantics (I do not dispute that the manner in
which the question is answered can have practical consequences).
When
A improves C's vehicle the ownership in the improvements passes at
once to C's estate by accession and it seems to me to pass
there
directly from A's estate. Is it not a fiction that it passes through
the estate of B, even though A owes a contractual obligation
to him
to effect the repairs?’
3
[18] It was argued,
on behalf of Financial Services that in this matter there had been no
transfer of property from the impoverished
party, Protector, to the
enriched party (Financial Services). The enrichment, if there was
any, was not at the expense of the claimant
(Protector) and for this
reason the claim must fail. It has been suggested by the author
Jacques Du Plessis
The
South African Law of Unjustified Enrichment
(2012)
at 300 that the
purpose of the ‘at the expense of’ requirement is to
indicate that a sufficiently strong causal link
exists between the
plaintiff and the defendant’s enrichment. The ultimate issue
for a court to determine when considering
the question of causation
or the ‘at the expense of ‘requirement in a multi-party
situation is whether the defendant
has been unjustifiably enriched
vis-a-vis the claimant.
4
[19] On the facts of
this case, it is clear that not only has Financial Services been
unjustifiably enriched, but that such enrichment
has been at the
expense of the impoverishment of Protector. The funds in the Standard
Bank account that had been opened by Van
Rensburg and Seelenbinder,
was the property of Protector, representing the purchase price paid
by New Protector for the sale of
Protector’s business. The
funds remained the property of Protector. There was no legal
relationship between Protector and
FHA justifying the transfer of the
funds to the latter.
[20] It was further
contended by the appellants that the fourth requirement had also not
been met in that the enrichment of Financial
Services was not
unjustified (sine causa). The argument advanced was that the proceeds
of the IDC loan received by New Protector
were applied by
Seelenbinder and Van Rensburg for the benefit of Freefall to
discharge the liabilities of Freefall. There was a
deliberate
intention on the part of Freefall to pay a debt that it owed to
Financial Services and an acceptance by ENF, on behalf
of Financial
Services. In these circumstances it cannot be said that Financial
Services’ enrichment would have been sine
causa.
[21] In support of
this argument, reliance was placed on
Commissioner for Inland
Revenue v Visser
1959 (1) SA 452
(A) and
John Bell & Co
Ltd v Esselen
1954 (1) SA 147
(A) where it was held by this court
that where a third party (even unlawfully) used money which initially
belonged to the plaintiff
in order to discharge a true liability owed
to the defendant (no matter by whom), and the defendant received that
money, bona fide,
intending for it to be applied to discharge the
liability concerned (whether the liability was that of the third
party or another
party), then the plaintiff could not recover the
funds from the defendant; the defendant’s enrichment would not
have been
sine causa; and it would have not been at the expense of
the plaintiff.
[22] Essential to
the question of whether the payment by Freefall to Financial Services
had been unjustified (sine causa) is a determination
of whether the
sale of shares agreement between Financial Services and Freefall, in
terms of which Financial Services sold its
shareholding in Protector
to the former with effect from 1 December 2003, for the purchase
price of R50 million is valid. If the
agreement is valid then the
payment made by Freefall was one in discharge of a true liability, it
would not be sine causa, and
would serve to interrupt the enrichment
claim.
[23] We turn now to
consider the validity of the sale of shares agreement. Seelenbinder
signed the document on behalf of the purchaser
and qualified his
signature as being ‘duly authorised thereto’. He clearly
purported to act as an agent. The purchaser
was described as ‘Newco
or its nominee’. According to Van Rensburg, Seelenbinder did
not, at the time, act on behalf
of Freefall or any company in
particular. Van Rensburg was pointedly asked, during his evidence in
chief, as to who Seelenbinder
had represented when he signed the
document and his response was:
‘
As
a minimum he would have represented himself and me at that stage.
’
He was later asked
to explain the reference to Newco in the document and this is what he
said:
‘
Your
Lordship, at that stage we thought that a good name for Newco would
have been L&M (Pty) Limited. We tried our best to register
a
company with that name but we were unsuccessful, but that was part of
the process. When we were not successful with that we went
to a shelf
company which was called Freefall 65 or something in that line.
Eventually it became the nominee.’
Harpur agreed that
Freefall was not nominated and nothing was done to make Freefall the
purchaser.
[24] In
Heathfield
v Maqelepo
2004
(2) SA 636
(SCA) the court recognised that an agreement signed on
behalf of a non-existent principal is invalid.
5
It was also noted,
with reference to
Burroughs
Machines Ltd v Chenille Corporation of SA (Pty) Ltd
1964 (1) SA 669
(W)
that a court should not lightly hold that an agreement is invalid.
6
Southwood AJA,
writing for the court, quoted the following passage from
Burroughs
with approval:
‘
In
so doing I must, I think, have regard to the fact that exh ''A'' is a
commercial document executed by the parties with a clear
intention
that it should have commercial operation. I must therefore not
lightly hold the document to be ineffective. I need not
require of it
such precision of language as one might expect in a more formal
instrument, such as a pleading drafted by counsel.
Inelegance, clumsy
draftmanship or the loose use of language in a commercial document
purporting to be a contract, will not impair
its validity as long as
one can find therein, with reasonable certainty, the terms necessary
to constitute a valid contract.’
7
[25] In
McCullogh
v Fernwood Estate Ltd
1920
AD 204
this court held that a company can by adoption or ratification
obtain the benefit of a contract made on its behalf before it came
into existence where such contract has been made by a person acting
individually and not as agent of the company. Innes CJ stated
that
‘the rule that there can be no ratification by a principal not
in existence at the date of the transaction is recognised
by our law
as well as by the law of England’.
8
However the
situation would be different where the contract is for the benefit of
a third party and such benefit is obtained by
a party who is acting
individually and not as agent for the beneficiary.
9
The court further
held that the distinction between a promise made to an agent for his
principal and a promise made to a principal
for the benefit of a
third party, was a real one and ought to be maintained. In
Natal
Land & Colonisation Co Ltd v Pauline Colliery and Development
Syndicate Ltd
[1904]
AC 120
the promisee purported to act as agent for a company to be
formed (and was therefore at the time of the contract non-existent)
whereas in
McCullogh
although the company
was non-existent, the promisee acted as trustee for it and therefore
acted as dominus of the relative subject
matter. Thus a promisee who
purports to contract as principal not as agent, may validly contract
for the benefit of a non-existent
third party such as a company to be
formed.
10
[26] This
distinction was done away with by s 35 of the Companies Act. Section
35 removed the anomaly that a contract made by a
trustee for an
undisclosed principal was valid (
McCullogh
)
while one made by an agent was not (
Natal
Land
).
11
In any event, the
factual situation in the matter under consideration does not fall
within s 35 of the Companies Act in regard to
pre-incorporation
contracts and the formalities required by that section have not been
satisfied.
[27] The appellants’
argument is that the company which was renamed Freefall was in
existence at the time because it was registered
on 6 May 2002 and
consequently the agreement was one where the principal existed but
was simply unnamed at the time. The submission
is made that the
agreement is enforceable on the authority of
Springfield Omnibus
Service Durban CC v Peter Maskell Auction CC
2006 (4) SA 186
(N)
at 193A-E which deals with the principal of the undisclosed principal
which applies where the one party believes that the other
is acting
personally, whereas he is acting on behalf of a principal. It also
provides that once the party is aware that the other
party is acting
on behalf of a principal, his intention can only be that he wishes to
contract with the principal through the agent.
[28] In this matter,
Seelenbinder had qualified his signature and indicated that he had
signed the agreement as agent. Seelenbinder
acted as agent and not as
principal and therefore the doctrine of a contract for the benefit of
a third party does not apply. At
the time of signature, both
Seelenbinder and Van Rensburg were unsure as to the identity of the
principal. Seelenbinder purported
to act as agent for Newco, which
was in existence at the time. Van Rensburg said that Seelenbinder, at
a minimum would have been
representing the two of them, namely Van
Rensburg and Seelenbinder. It is therefore clear that Seelenbinder
had no authority to
act on behalf of Newco and the principle of the
undisclosed principal cannot apply.
[29] It was argued,
on behalf of the appellants, that Freefall had, by its conduct
adopted or ratified the authority of Seelenbinder.
There is no
evidence that Seelenbinder and Van Rensburg acting as the sole
directors of Freefall ratified Seelenbinder’s
conduct and
retrospectively conferred authority upon Seelenbinder to conclude the
agreement. On 4 March 2004, the directors of
Freefall adopted a
resolution nominating Freefall as purchaser in respect of the 15
December 2003 agreement. In this regard the
crucial issue is that the
resolution says that Freefall is nominated as the purchaser and
contracting party which is the appropriate
resolution for the
nomination of Freefall by Newco as the purchaser. The terms of the
resolution refute any suggestion that up
to that stage Freefall had
ratified the authority of Seelenbinder. It had nothing to do with the
lack of authority of Seelenbinder
or the ratification of his conduct,
as the first paragraph of the resolution is simply a recital of the
provisions of the agreement.
In the view we take of the matter, the
document signed on 15 December 2003, relating to the sale of
Financial Services’ shares
in Protector, does not constitute a
valid agreement and is therefore unenforceable.
[30] We return to
the question of unjust enrichment. As has been mentioned in paragraph
19 above, it is clear from the evidence
that the funds in the
Standard Bank account belonged to Protector. These funds were paid by
New Protector to Protector for the
sale of the latter’s
business. The account was opened in the name of Protector by Van
Rensburg and Seelenbinder, the only
two directors of Protector at
that stage. When the funds were moved to FHA it was still the funds
of Protector and they were paid
over without true liability. Counsel
for the appellants conceded, that at that stage, the money still
belonged to Protector and
that it could, successfully have applied
for a rei vindicatio for a return of the money.
[31] It was argued
by the respondents that this was not a case of ‘indirect
enrichment’ with Freefall interceding between
Protector and
Financial Services because there was no valid sale of shares to
Freefall and the funds in question did not belong
to Freefall, it
throughout remained Protector’s money. In light of the finding
that the sale of shares agreement was invalid,
Visser
and
Esselen
are distinguishable and not applicable to this matter
as there was no true liability which Freefall, by paying Financial
Services,
intended to settle.
[32] It is useful to
refer to the writings of the author, Niall R Whitty Indirect
Enrichment in Scots Law 1 (1994) 200
Juridical
Review
at 250 where he deals with a scenario
where no legal relationship exists between I and T (Protector and
Freefall) and T and E (Protector
and Financial Services). He writes:
‘
One
would expect that, a fortiori, where I pays T in error and E takes
the money from T wrongfully or without T’s authority,
I has an
enrichment claim against E. On one view, since the transactions
between I and T and between T and E are vitiated by error
and
wrongfulness respectively, there is no reason to construe them as
juridical acts transferring wealth from I to E.
’
There was no legal
ground for the money to have been transferred from Protector to
Freefall and neither was there a legal ground
for it to have been
transferred from Freefall to Financial Services. Put differently, in
these circumstances the enrichment did
not leave Protector’s
estate in terms of a valid legal ground, nor did it enter Financial
Services’ estate in terms
of a valid legal ground, as the
payment to Financial Services was without causa.
12
In the view we take
of the matter, the chain of causation linking Financial Services’
enrichment with Protector’s impoverishment,
is not broken.
[33] It was further
argued by Financial Services, in the alternative, and in the event of
the court finding that all the requirements
for enrichment liability
are satisfied, that Financial Services had, bona fide, disgorged any
enrichment before the action was
instituted on 1 March 2007. It was
the testimony of Sanet Uys, the group financial director of Glenrand
MIB, that Financial Services
had expended the proceeds it received,
first, by discharging its debt to Glenrand MIB on 22 June 2004 when
the money went into
Glenrand MIB’s bank account, in the amount
of R38,1 million; and second, by declaring a dividend on 13 June 2005
in favour
of Glenrand MIB for the balance of R11,7 million. For these
reasons, it was contended by Financial Services, that this claim
should
fail.
[34] Financial
Services’ liability is confined to the amount of its actual
enrichment at the time of the commencement of the
action. Enrichment
may be constituted by a decrease of liabilities which would otherwise
not have taken place.
13
As regards the
payment of the loan, the enrichment of Financial Services was still
in existence at the time of the action, because
of the decrease in
its liabilities which would otherwise not have taken place. In
respect of the payment of the dividend, on the
face of it, it would
appear that Financial Services was not enriched at the time of the
action, because the payment of the dividend
was purely a distribution
of profits to shareholders.
However,
from the moment that Financial Services became aware, or ought to
have been aware, that it had been enriched sine causa
at the expense
of Protector, its liability is reduced or extinguished, only if
Financial Services is able to prove that the diminution
or loss of
its enrichment, was not due to its fault.
14
[35] Harpur
testified that Dr Clarence Mini, a director of Tradeworx, met with
him on 23 August 2004 and accused him of stealing
the R50 million. As
a result Harpur met with Seelenbinder and the latter drew a chart,
explaining to Harpur how the money had been
transferred. It was then
that Harpur questioned Seelenbinder about why the money was
transferred via Namibia and
‘
his
response was there was some concern that in some of the structure
there might have been something that touched on s 38 of the
Companies
Act, and by structuring this deal through an offshore company outside
of South Africa that would have avoided any problems
with that
particular section.
’
[36] Harpur said he
did not think there was anything untoward about the flow of the funds
that he could remember. He conceded that
Protector was entitled to
and would own the money it received for the sale of its business. He
agreed that Protector was not obliged
to pay the R50 million to
Financial Services. Harpur disputed the assertion that after he had
met with Seelenbinder he should have
been alerted that something was
amiss and from that point must have realised that Financial Services
was not entitled to retain
the money. His answer was that he would
have acted if he thought action was required and by the fact that he
had not taken action,
he did not think it was necessary. Harpur
agreed,
in
the context of the admission made on the pleadings, that in terms of
s 38 of the Companies Act, Protector could not directly
or
indirectly, give financial assistance for the purpose of, or in
connection with the purchase of the shares and that Protector
could
not in any way give assistance to Freefall to pay the R50 million.
[37] Harpur had been
the CEO of Glenrand MIB since 1997, which became a listed company on
the JSE in June 1998. It is quite clear
that Harpur, as an
experienced CEO, should have been alerted to a possible contravention
of s 38 of the Companies Act. When Seelenbinder
pertinently drew
Harper’s attention to the possibility of a breach of s 38,
Harpur should have investigated the validity
of Seelenbinder’s
claim that this had been averted by directing the funds through
Namibia. At that stage, Financial Services
and Harpur should have
been aware that Financial Services had been enriched sine causa at
the expense of Protector. Financial Services
was accordingly obliged
to prove that the loss of the enrichment by payment of the dividend
to Glenrand MIB was not due to its
fault. It is quite clear however,
that Financial Services failed to do this and consequently it is
obliged to repay the dividend.
[38] It seems that
the appellants’ alternative argument is that Financial Services
was not enriched, because the assets it
owned before the sale of
shares agreement was concluded, namely the shares in Protector and
indirectly the business of Protector,
were without value by the time
of the action and the shares were the equivalent in value of the
payment made. In other words,
Financial
Services was not enriched, because it was not better off financially,
after the invalid sale of the shares. This argument
is without merit
because it seeks to consider whether Financial Services was enriched,
in isolation from a consideration of whether
Protector was
impoverished by the transaction. A plaintiff’s claim is the
amount by which it has been impoverished, or by
which the defendant
has been enriched, whichever is the lesser.
15
Every enrichment
action must therefore embrace an enquiry not only into the
defendant’s enrichment, but also into the plaintiff’s
impoverishment.
16
It is quite clear
that Protector was impoverished by the payment of the amount of R50
million and that Financial Services was enriched
by this amount. The
fact that the assets which Financial Services parted with, in terms
of the void agreement for the sale of shares,
were valueless at the
time of the action is irrelevant. In the circumstances, Protector
should be successful in its enrichment
claim against Financial
Services.
Claim D –
Disposition without value in terms of
s 26
of the
Insolvency Act
[39
] It was alleged
by the respondents that the payment of R50 million to Financial
Services, which payment can be traced back
to the banking account of
Protector, constitutes a disposition without value within the context
of
s 26
of the
Insolvency Act.
17
The
disposition took
place within two years before the commencement of Protector’s
winding-up, which was wound up due to its
inability to pay its debts.
In the circumstances, Financial Services bore the onus to show that,
immediately after the disposition
was made, the assets of Protector
exceeded its liabilities.
[40] The uncontested
evidence of the appellants’ expert witnesses, Neeraj Shah and
Riana Fourie, both chartered accountants,
was that at the time of
payment of the sum of R50 million into the trust account of ENF on 15
March 2004, the assets of Protector
exceeded its liabilities. The
guarantees or indemnities furnished by New Protector to Protector
against all claims and liabilities
did constitute assets of
Protector.
18
The court a quo
misconstrued Shah’s evidence and took into account factors
prevailing at a time not material to the enquiry.
For these reasons,
the finding of the high court in this regard cannot be supported.
Counsel conceded, and rightly so,
that
this claim had not been proved.
[41] The following
order is made:
1 The appeal of the
first appellant is dismissed.
2. The appeal of the
second and third appellants is upheld.
3 As against the
first, second and third appellant, the judgment of the high court is
set aside and replaced with the following:
‘
(a)
The claim against the fourth and fifth defendants is dismissed with
costs.
(b) The first
defendant is ordered to make payment of the sum of R50 million
together with interest at the rate of 15, 5 per cent
per annum from
15 March 2004, to date of payment to the plaintiffs.
(c) The first
defendant is ordered to pay the plaintiffs’ costs.’
4 The respondents
are ordered to pay the costs of appeal of the second and third
appellants.
5 The first
appellant is ordered to pay the costs of appeal of the respondents.
6 The respondents
are ordered to pay the costs of appeal of the fourth appellant.
__________________
L V THERON
JUDGE OF APPEAL
___________________
K SWAIN
ACTING JUDGE OF
APPEAL
Appearances
Appellants: WG Van
Der Linde (with AO Cook)
Instructed by:
Norton Rose South
Africa, Johannesburg
Webbers:
Bloemfontein
Respondents: PF
Rossouw SC
Instructed by:
De Vries
Incorporated, Johannesburg
Matsepes
Incorporated: Bloemfontein
1
Section
38
reads: A winding-up of a company by the Court shall be deemed to
commence at the time of the presentation to the Court of the
application for the winding-up.
2
9
Lawsa
2 ed para 209.
3
Para
23.
4
Daniel
Visser
Unjustified Enrichment
(2008) at 215.
5
Para
13.
6
See
also
Legator McKenna Inc v Shea
2010 (1) SA 35
(SCA).
7
Heathfield
v Maqelepo
2004 (2) SA 636
(SCA) para 14.
8
At
207.
9
At
209
10
See
generally R H Christie and G B Bradfield
The Law of Contract
6 ed (2011) at 272; 1 Lawsa 2 ed paras 185 and 189.
11
Christie
and Bradfield,
supra
, at 272.
12
J
du Plessis
The South African Law of Unjustified Enrichment
(2012) at 305.
13
9
Lawsa
2 ed para 209
14
ibid
.
15
9
Lawsa
2 ed para 209.
16
9
Lawsa
2 ed para 209.
17
Section
26(1)
reads:
(1) Every
disposition of property not made for value may be set aside by the
court if such disposition was made by an insolvent-
(a)
more
than two years before the sequestration of his estate, and it is
proved that, immediately after the disposition was made,
the
liabilities of the insolvent exceeded his assets;
(b)
within
two years of the sequestration of his estate, and the person
claiming under or benefited by the disposition is unable
to prove
that, immediately after the disposition was made, the assets of the
insolvent exceeded his liabilities:
Provided that if it
is proved that the liabilities of the insolvent at any time after
the making of the disposition exceeded his
assets by less than the
value of the property disposed of, it may be set aside only to the
extent of such excess.
18
Millman
& another NNO v Masterbond Participation Bond Trust Managers
(Pty) Ltd (Under Curatorship) & others
1997 (1) SA 113
(C)
at 123C-D.