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[2011] ZASCA 133
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Attorneys Fidelity Fund Board of Control v Mettle Property Finance (Pty) Ltd (499/2010) [2011] ZASCA 133; 2012 (3) SA 611 (SCA) (16 September 2011)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 499/2010
In the matter between:
THE ATTORNEYS FIDELITY FUND BOARD OF
control
…...............................................................................................
A
ppellant
and
METTLE PROPERTY FINANCE (PTY) LTD
............................
Respondent
Neutral Citation:
Attorneys
Fidelity Fund v Mettle Property Finance
(499/2010)
[2011] ZASCA 133
(16
September 2011)
Coram
: HARMS DP, Van heerden, MAYA, theron &
wallis jja
Heard
: 25 August 2011
Delivered
: 16 September 2011
Summary
:
Claim against
Fidelity Fund in terms of s 26(a) of the Attorneys Act 53 of 1979 –
pecuniary loss suffered allegedly as a result
of attorney’s
theft of money entrusted to him – entrustment not proved.
Order
On appeal from:
North Gauteng High Court, Pretoria (Tolmay J
sitting as a court of first instance):
(a) The appeal is upheld with costs.
(b) The order of the court below is set aside and replaced with the
following:
‘
The action is dismissed with costs.’
judgment
VAN HEERDEN
JA (HARMS AP, MAYA, THERON AND WALLIS JJA concurring):
[1]
Mettle Property Finance (Pty) Ltd, a factoring company, paid certain
sums of money into an attorney’s trust account pursuant
to
three bridging finance transactions. In terms of an agreement between
Mettle and the attorney, the latter undertook to make
payments to
Mettle from the proceeds of the registration of a bond and two
property transfers, once such proceeds were received.
When the funds
did not materialise and the attorney was sequestrated, Mettle sued
the Attorneys Fidelity Fund Board of Control
in terms of s 26(a) of
the Attorneys Act 53 of 1979, claiming the pecuniary loss that it had
suffered, allegedly as a result of
the attorney’s theft of
money entrusted to him by Mettle. These claims succeeded before
Tolmay J in the North Gauteng High
Court, hence the appeal by the
Fidelity Fund which comes to us with the leave of the court below.
[2] The applicable provisions of s 26(a) of the Act read as follows:
‘
Subject
to the provisions of this Act, the fund shall be applied for the
purpose of reimbursing persons who may suffer pecuniary
loss as a
result of – (a) theft committed by a practising practitioner .
. . of any money or other property entrusted by
or on behalf of such
persons to him . . . in the course of his practice . . . .’
[3] The issues on appeal are whether Mettle succeeded in proving that
the money in question had been ‘entrusted’ to
the
attorney by or on behalf of Mettle and, if so, whether the attorney
had stolen such money, both being requirements for a claim
in terms
of s 26(a).
[4] To the extent here relevant, Mettle’s particulars of claim
allege:
‘
THE PLAINTIFF’S
BUSINESS
5. The Plaintiff’s business is and was at all
times relevant hereto
inter alia
the factoring of immovable
property transactions where-
5.1 a mortgage bond or mortgage bonds is/are to be
registered over the immovable property of an owner of such immovable
property;
or
5.2 an owner of immovable property sells his immovable
property to a purchaser of such immovable property,
and such owner requires the loan equity of the bond(s)
to be registered or the equity of the sale before registration of the
mortgage
bond or registration of transfer to the purchaser, in which
case the conveyancing attorney attending to such bond registration or
registration of transfer undertakes to counter-perform on date of
registration from the proceeds of the bond or from the proceeds
of
the sale, as the case may be; or
. . .
MASTER AGREEMENT
6. On 23 January 2007 the Plaintiff and the Attorney
concluded a written agreement titled: MASTER AGREEMENT (ATTORNEY)
(PURCHASE
OF SELLER’S EQUITY AND MORTGAGOR’S LOAN EQUITY)
(hereinafter referred to as “the master agreement”).
. . .
9. In the master agreement the Plaintiff is referred to
as “Mettle” and the Attorney is referred to as “the
Conveyancer”.
10. Express terms of the master agreement are
inter
alia
the following:
10.1 the purchase price payable by the Plaintiff in
respect of each sold claim (as defined in clause 2 of the master
agreement)
shall be an amount equal to the sum of the initial
purchase price and the additional purchase price (as defined in
clause 2 of
the master agreement).
(Clause 6.1)
10.2 the purchase price shall be discharged as follows-
10.2.1 the initial purchase price shall be paid into the
Attorney’s trust account in cash on the second business day
following
the date of acceptance of the offer in accordance with the
provisions of Clause 5.2 of the master agreement; and
10.2.2 the additional purchase price, on the date of
registration of transfer of the property in the relevant deeds
office, against
payment of the sale proceeds to the Plaintiff, which
amount the Plaintiff authorises the Attorney to deduct from the sale
proceeds,
and to pay same directly to the client;
(Clause 6.2)
10.3 accordingly, on the date of registration of
transfer of the property, the Attorney irrevocably undertakes to
distribute the
sale proceeds as follows:
10.3.1 by deducting an amount equal to the additional
purchase price, and paying same to the client (or its creditors); and
10.3.2
by paying the balance to the Plaintiff in cash, without any deduction
or set-off.’
[5]
In this case, the attorney, Mr Langerak, approached Mettle to arrange
for bridging finance on his own behalf as well as on behalf
of two
clients. As was Mettle’s practice, it verified Langerak’s
standing in the legal profession and his possession
of a fidelity
fund certificate.
[6]
Pursuant to the conclusion of the master agreement, Langerak
requested Mettle to enter into three bridging finance transactions,
which transactions form the basis of Mettle’s three claims
against the Fidelity Fund. One was a Purchase of Bond Proceeds
Agreement in which the mortgagor was Langerak in his personal
capacity, the second was a Purchase of Seller’s Claims
Agreement
in which the seller was Whirlaway Trading 120 CC and the
third was also a Purchase of Seller’s Claims Agreement, in
which
the seller was Angelfish Investments 709 CC.
[7]
The thrust of Mettle’s case was that it had in terms of the
aforesaid three agreements and pursuant to various warranties
and
undertakings issued by Langerak, effected payment of ‘initial
purchase prices’ of R400 000, R560 000 and R600 000,
respectively, into Langerak’s trust account on behalf of the
mortgagor or seller concerned. It relied on the fact that, in
terms
of the Master Agreement, Langerak undertook to repay Mettle these
amounts on the date of registration, from the bond proceeds
or the
sale proceeds, as the case may be, and that he had failed to do so.
[8]
Needless to say, Langerak did not procure registration of transfer of
the relevant properties in the second and third transactions
and did
not make any payment to Mettle in respect of any of the three
transactions. While the bond was registered in the first
transaction,
there is no evidence that the proceeds were received in Langerak’s
trust account.
[9]
Mettle alleged that Langerak had committed theft of the money
entrusted to him and reported this to the Law Society of the Northern
Provinces. Langerak was subsequently struck off the roll of attorneys
following a financial investigation by the Law Society.
[10]
Both Whirlaway and Angelfish have been liquidated. Mettle sued
Langerak and obtained judgement against him for all three claims.
However, the estate of the attorney was sequestrated on 2 October
2008. It was agreed between the parties that Mettle would receive
no
dividend from any of the three estates.
[11] The meaning of the word ‘entrust’ for the purposes
of a claim in terms of s 26(a) of the Act has been dealt with
in a
number of cases. In
Industrial & Commercial Factors (Pty) Ltd
v Attorneys Fidelity Fund
[1996] ZASCA 84
;
1997 (1) SA 136
(A) at 144B-D, this
court (per F H Grosskopf JA) quoted with approval the following
passages of the judgment of Nicholas J in
Provident Fund for the
Clothing Industry v Attorneys, Notaries and Conveyancers Fidelity
Guarantee Fund
1981 (3) SA 539
(W) at 543E-F:
‘
From these definitions it is
plain that “to entrust” comprises two elements: (a) to
place in the possession of somebody,
(b) subject to a trust. As to
the latter element, this connotes that the person entrusted is bound
to deal with the property or
money concerned for the benefit of
others (cf
Estate
Kemp and Others v McDonald’s Trustee
1915
AD at 499).
“
(The trustee) is bound to hold
and apply the property for the benefit of some
person or persons or for the accomplishment of some
special purpose” (
ibid
at 508).’
[12]
The first element is not contentious – the moneys, representing
the initial purchase price in each case, were indeed
placed in
Langerak’s possession. The second element is more problematic.
There is no doubt that Mettle trusted the various
warranties and the
undertakings given by Langerak and relied upon Langerak for repayment
of, inter alia, the initial purchase price
on the date of
registration. That does not, however, mean that Mettle ‘entrusted’
the money to Langerak as required
by s 26(a) of the Act.
[13] As indicated above, Langerak is referred to throughout the
Master Agreement as the ‘Conveyancer’. The agreement
provides that:
‘
3.1 The Conveyancer has been
and will from time to time hereafter be duly authorised by a Client
to conclude a transaction with
Mettle for and on their behalf.
3.2 Any reference in this Agreement to a Client shall
(unless the context indicates to the contrary) be a reference to that
Seller,
Purchaser or Mortgagor duly represented by the Conveyancer.’
[14]
Importantly, ‘Client’ – who could be a seller, a
purchaser or a mortgagor – is defined as ‘the
Conveyancer’s Client’. ‘Client’s claim’
is defined as a ‘loan claim’ or a ‘seller’s
claim’.
[15]
It follows that Mettle – in paying the initial purchase price
in each transaction to Langerak as the representative of
the
mortgagor or seller from whom Mettle had purchased a loan claim or a
seller’s claim – was simply discharging its
debt to such
mortgagor or seller. The payment was unconditional and, the moment
the initial purchase price was paid into Langerak’s
trust
account in terms of the Master Agreement, Mettle’s debt was
discharged. Langerak was no more than a conduit for the
money. All
this was largely borne out by the evidence of both Ms Nichols, a
trader employed by Mettle, and Mr Prinsloo, a director
of Mettle. It
also accords with the express terms of the Master Agreement and the
Purchase of Bond Proceeds and of Seller’s
Claims Agreements in
regard to the payment of the initial purchase price.
[16] This being so, there was no ‘entrustment’ of money
by Mettle to Langerak. In the words of F H Grosskopf JA in
the
Industrial & Commercial Factors
case:
1
‘
Where
money is paid into the trust account of an attorney it does not
follow that such money is in fact trust money . . . If money
is
simply handed over to an attorney by a debtor who thereby wishes to
discharge a debt, and the attorney has a mandate to receive
it on
behalf of the creditor, it may be difficult to establish an
entrustment.’
2
[17]
It must be remembered that ‘the indemnity against loss for
which the Act provides is not unlimited in its scope. It does
not
provide indemnification against any kind of loss suffered as a
consequence of any conceivable kind of knavery in which an attorney
might indulge in the course of his or her practice.’
3
It is not an insurance policy against all ills that may befall money
paid to an attorney. In this case, Mettle may well have claims
in
contract or delict against Langerak based on the warranties and
undertakings given – and, in some instances, breached
–
by Langerak. But Mettle does not have a claim against the Fidelity
Fund in terms of s 26(a) of the Act.
[18]
In view of my finding that there was no ‘entrustment’ of
the money paid by Mettle to Langerak, it is not necessary
to decide
whether Langerak was guilty of the theft of such money. Suffice it to
say that, in the case where Langerak in his personal
capacity was the
mortgagor, the initial purchase price paid by Mettle into Langerak’s
trust account belonged to Langerak
as the client. He could hardly be
said to steal his own money. As regards Whirlaway and Angelfish,
there was simply no evidence
whatsoever as to what happened to the
initial purchase price paid by Mettle in respect of each of these
entities.
[19] It
follows that the appeal should succeed.
[20] The following order is made:
(a) The appeal is upheld with costs.
(b) The order of the court below is set aside and replaced with the
following:
‘
The action is dismissed with costs.’
______________________
B J VAN HEERDEN
JUDGE OF APPEAL
APPEARANCES:
APPELLANT: Q PELSER SC
Instructed by Petzer, Du Toit & Ramulifho, Pretoria
McIntyre & Van Der Post, Bloemfontein
RESPONDENT: H M DE KOCK
Instructed by Smit & Marais Attorneys, Pretoria
Goodrick & Franklin, Bloemfontein
1
At
143I-144A.
2
See
also
Provident Fund for the Clothing Industry
at 544B-G.
3
Industrial
& Commercial Factors
at 146F-G (per Marais JA).