mCubed International (Pty) Ltd and and Another v Singer NO and Others (118/08) [2009] ZASCA 6; 2009 (4) SA 471 (SCA) ; [2009] 2 All SA 536 (SCA) (11 March 2009)

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mCubed International (Pty) Ltd and and Another v Singer NO and Others (118/08) [2009] ZASCA 6; 2009 (4) SA 471 (SCA) ; [2009] 2 All SA 536 (SCA) (11 March 2009)

THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
Case
number: 118/08
In the matter between:
mCUBED
INTERNATIONAL (PTY) LTD FIRST APPELLANT
mCUBED
LIFE LIMITED SECOND APPELLANT
and
LEON
JOHN SINGER NO
FIRST
RESPONDENT
ANDRIES OLIVIER NO SECOND
RESPONDENT
FRANK WILLIAM MUGGLESTON NO THIRD
RESPONDENT
Neutral
citation:
mCubed
International v Singer
(118/08)
[2009] ZASCA 6
(11
March 2009)
CORAM: STREICHER,
BRAND, MHLANTLA JJA, LEACH
et
BOSIELO AJJA
HEARD: 17
FEBRUARY 2009
DELIVERED: 11
MARCH 2009
SUMMARY
: Claim
for damages arising from misrepresentations made in context of an
offshore investment contract – held that on application
of
'but-for' test factual causation not established – and that, in any
event, loss too remote because occasioned by strengthening
of Rand
against the US Dollar rather than by misrepresentations.
______________________________
______________________________
ORDER
_____________________________________________
On
appeal from
: High Court
Cape Town
(Manca AJ sitting as court of first
instance)
1(a) The
appeal is upheld with costs.
(b) The order of the court a quo is
set aside and replaced by the following:
'The
plaintiffs' claims are dismissed with costs'.
2. The cross-appeal is dismissed with
costs.
____________________________________________________________
JUDGMENT
____________________________________________________________
BRAND
JA (concur Streicher, Mhlantla JJA, Leach
et
Bosielo AJJA)
[1] This
appeal arises from a claim in delict for pure economic loss resulting
from alleged misrepresentations made in a contractual
context. The
two appellants, mCubed International (Pty) Ltd and mCubed Life Ltd,
are companies in the same group. I propose to
refer to them both as
'mCubed', save where differentiation becomes necessary. The three
respondents are cited in their capacities
as the trustees of the Leon
John Singer Family Trust, ("the Trust'). The first respondent
('Singer') is the settler and driving
force behind the Trust while
the second respondent is his accountant and the third respondent his
attorney.
[2] As
will soon appear in more detail, the Trust entered into an investment
contract with mCubed Life on 19 March 2002, pursuant
to advice given
by an employee of mCubed International. Emanating from the investment
contract, the Trust instituted an action
for damages against both
companies in the Cape High Court. But, as I have said, its claim was
not founded in contract, but in delict.
As the factual basis for its
delictual claim, the Trust relied on two different misrepresentations
in the alternative: one before
and one after the conclusion of the
investment contract. Its main claim, which relied on a
misrepresentation prior to – and allegedly
giving rise to – the
contract, comprised of two parts, to wit, a loss of capital in an
amount of R3 884 958.53 and
damages resulting from interest
paid by it on money borrowed to make the investment, in the sum of
R3 881 017.47.
[3] The
alternative claim, based on a misrepresentation subsequent to the
conclusion of the contract was again comprised of the
same two
elements, but for lesser amounts. In this instance it claimed
R2 547 122.80 for loss of capital and R3 558 435.69

for interest as damages. At the trial two witnesses, namely Singer
and his financial adviser, Mr Carl Liebenberg, testified on
behalf of
the Trust. No witnesses were called on behalf of mCubed. The court a
quo (Manca AJ) dismissed the main claim and granted
the alternative
claim, but in respect of the capital loss only. This gave rise to an
appeal by mCubed against the judgment in favour
of the Trust and a
cross-appeal by the Trust against the dismissal of its main claim as
well as the dismissal of its claim for
interest as damages on the
alternative basis. Both the appeal and the cross-appeal are with the
leave of the court a quo.
[4] Singer
is, what is known in banking circles, so I gather, as a 'high
net-worth individual'. In August 2001 – which I find
a convenient
chronological starting point – his investments were mostly in
immovable property. All and all his property portfolio,
which he held
in his own name and in the names of various entities under his
control, had been conservatively valued by his bank,
FirstRand, at
about R76m. The advice from his accountant and his auditor was,
however, that he should divert some of his assets
offshore. This
advice was given at a time when the Rand was in sharp decline against
other currencies, including the United States
Dollar. According to
statistics presented to Singer at the time, the Rand had depreciated
against the US Dollar over the preceding
five years by 17 per
cent and experts in the field predicted that the same type of
devaluation could continue for at least
the next five years.
[5] Singer
raised the possibility of offshore investments with Liebenberg, who
was employed at the time by Origin Merchant Bank,
a private banking
division of FirstRand Bank, specialising in 'high net-worth clients'.
At Liebenberg's suggestion, contact was
made with mCubed. In the
event, Singer took an initial amount of R1m offshore by means of a
mCubed Life policy in the name of the
Trust. This happened towards
the end of August 2001. Singer thereafter discussed with Liebenberg
the possibility of investing considerably
greater funds. The amount
he mentioned in this regard was between R35m and R50m. Liebenberg
again contacted mCubed. In due course
he arranged a meeting for 20
September 2001 with Mr David Cosgrove, an employee of mCubed
International who specialised in offshore
investments. In
anticipation of the meeting, Liebenberg sent Cosgrove a letter
outlining Singer's intentions with regard to offshore
investments and
setting out the nature of the advice that was being sought from
mCubed.
[6] At
the meeting of 20 September 2001 Singer was accompanied, inter alia,
by Liebenberg, as well as his accountant and his auditor.
Cosgrove
then in essence advised those present that:
(a) mCubed
Life still had 'asset swop capacity', which is the colloquial term
for the foreign direct investment allowance granted
by the Reserve
Bank to life insurance companies.
(b) Singer
(or an entity nominated by him) could make an investment through a
Rand-denominated linked endowment policy issued by
mCubed Life.
(c) mCubed
Life would then convert the Rands received into US Dollars, utilising
its asset swop capacity.
(d) The
US Dollars would then be used by mCubed to purchase an offshore life
policy – referred to as a SelectLife policy – issued
by an
overseas company in the mCubed group, which would in turn invest the
money offshore.
[7] After
the meeting it was pointed out to Singer by his auditor that mCubed
Life was not one of the major life insurance companies
and that
Singer should therefore be wary of the risks inherent in mCubed
Life's insolvency. At a further meeting held on 11 October
2001, with
essentially the same individuals present, Singer raised this problem
with Cosgrove who immediately suggested a revised
version of the
structure that he previously proposed. Essential to his revised
proposal was the introduction of an offshore trust
as a so-called
special purpose vehicle ('the SPV'). Instead of mCubed Life acquiring
the SelectLife policy, as envisaged in the
original version, mCubed
Life would invest the US Dollars in the SPV. The SPV would then
acquire the SelectLife policy, which would
then be ceded to the
investor, ie Singer or the entity nominated by him,
in
securitatem debiti
, thus
giving the investor protection against the loss of the R10m
investment in the event of mCubed's insolvency.
[8] Cosgrove's
revised proposal found favour with Singer and his advisors. After a
somewhat lengthy delay, Singer, on 19 March 2002
invested R10m, which
was then described as the first tranche of a larger investment with
mCubed Life. As a quid pro quo, the Trust
was issued with ten linked
endowment policies of R1m each. The reason why ten policies were
issued instead of one for R10m, is
of no consequence in the present
context. The application for the policies accompanying the investment
pertinently stated that
the funds were 'to be invested in the SPV and
subsequent structure as per the agreed proposal'. The application
then recorded 'the
agreed proposal' essentially as follows:
(a) The
Trust was nominated by Singer as the entity that made the R10m
investment and mCubed Life would issue the ten endowment
policies of
R1m to the Trust.
(b) mCubed
Life would convert the R10m into US Dollars and invest the Dollars in
an offshore SPV, to be known as the Samson Shield
Trust.
(c) The
Samson Shield Trust would in turn apply for and be issued a
SelectLife policy, with Singer as the life insured, for the
Dollar
equivalent of R10m.
(d) The
Samson Shield Trust, acting through its trustees, would cede the
SelectLife policy to the Trust
in
securitatem debiti
to
provide the Trust with security against the loss of the R10m
investment, in the event of mCubed Life's insolvency.
[9] The
R10m so invested was borrowed by the Trust from Singer who in turn
borrowed it from a newly created trust, the Dalezbro
Trust, who in
its turn borrowed it from FirstRand Bank as part of a tax structure
devised by Singer's financial advisors. According
to Singer, he had
an agreement with the other trustees that the Trust would pay him
interest at the rate paid by the Dalezbro Trust
to FirstRand Bank.
The R10m so borrowed by the Trust was paid to mCubed Life. In return,
mCubed issued the Trust with the Rand
– denominated endowment
policies and then converted the Rands into US Dollars. Other than
that, the investment structure agreed
upon was not implemented.
mCubed did not invest the Dollars with the Samson Shield Trust.
Instead, it applied for and was issued
with a SelectLife policy in
its own name for the US Dollar equivalent of R10m, which at that time
was $865 800.67. Since the
Samson Shield Trust did not own the
life policy it could not – and in any event, never did – cede the
policy
in securitatem debiti
to the Trust. In the
result, the Trust enjoyed no security in the event of mCubed Life's
insolvency.
[10] The
correspondence handed in at the trial shows that Liebenberg
thereafter kept on asking for the trust deed of the Samson
Shield
Trust and the cession of the offshore life policy in favour of the
Trust. Cosgrove and his assistant, Ms Corinna Harvey,
kept on making
excuses. On 27 May 2002 Cosgrove and Harvey, in a letter signed by
both of them on behalf of mCubed International,
represented to the
Trust that 'a cession of the SelectLife policy is in place between
the Samson Shield Trust and the Leon John
Singer Family Trust, to
come into effect in the event of mCubed's insolvency'. This was
untrue. As I have said, at that time, as
at all times thereafter,
mCubed Life rather than the Samson Shield Trust was the owner of the
SelectLife policy and there was never
a cession of the policy by the
trustees of the Samson Shield Trust to the Trust.
[11] Both
Cosgrove and Harvey subsequently left the service of mCubed. Yet the
ongoing battle by Liebenberg and Singer to obtain
documents and
sensible responses from mCubed continued. It is clear that they
became increasingly frustrated by the ineptitude
on the part of
mCubed. Eventually the third respondent, as Singer's attorney, wrote
to Liebenberg on 12 September 2003. From the
contents of the letter
it is clear that at that stage everybody knew that the SelectLife
policy did not belong to the Samson Shield
Trust but to mCubed Life
and that the structure proposed by Cosgrove two years earlier –
including the cession – was not yet
in place. In consequence,
Singer demanded a meeting with the legal department of mCubed 'as
mCubed needs to understand very clearly',
so the letter stated, 'that
if the structure proposed by it is not fully implemented within 30
days of the date of the meeting',
Singer intended to institute legal
proceedings.
[12] The
meeting sought by Singer was held on 7 October 2003. Among those
present were Singer, Liebenberg and Mr Brett Landman who
had recently
been appointed by mCubed as an in-house legal advisor. Out of the
blue Landman then conveyed to the meeting the rather
disturbing news
that, according to an opinion expressed by mCubed's attorneys, the
implementation of the structure proposed by
Cosgrove, and
particularly the investment by mCubed Life in an offshore trust,
would constitute a contravention of the Exchange
Control Regulations.
This, of course, meant that the structure incorporating the
protective measure of a cession
in
securitatem debiti
by the
offshore trust, could not be implemented. mCubed therefore proposed
an alternative structure, which would not expose the
Trust to the
risk of mCubed Life's insolvency. Singer's response was that he would
only consider the alternative structure suggested
if mCubed undertook
liability for the professional fees he had incurred in assessment of
both the old and the new structures. On
that note the meeting ended.
[13] By
February 2004 matters still had not been sorted out to Singer's
satisfaction. On 24 February 2004 his attorney therefore
sent a
formal letter of demand to mCubed. The letter set out some background
to the transaction before alleging that mCubed had
recklessly,
alternatively negligently, made incorrect representations about the
legality of the protective mechanism – of a cession
by an offshore
trust – in the proposed investment structure which had induced the
Trust to enter into the investment contract.
In the light of these
misrepresentations, so the letter proceeded, the Trust had decided to
cancel the investment contract. In
the premises demand was made for
repayment of the R10m invested, together with payment of lost
interest and professional fees incurred.
[14] Despite
the proclaimed cancellation of the investment contract, the Trust did
not persist in its claim for repayment of the
R10m invested. Instead,
it sought and obtained the premature surrender of the ten endowment
policies issued by mCubed and paid
the penalties provided for that
eventuality in terms of the policy agreement. On 5 June 2005 the
Trust eventually received the
proceeds of its investment. In US
Dollar terms it amounted to 910 252.70, which, despite the
penalties incurred, showed a
slight profit when compared to the
original investment of $865 800.67. But in Rand terms the
proceeds of the investment amounted
to only R6 115 071.74.
When compared to the original R10m investment, the Trust thus
suffered a capital loss in Rand
terms of R3 884 958.26,
notwithstanding the Dollar profit. The reason for this phenomenon is
not hard to find. It was
attributable to the fact that, contrary to
all predictions by the experts, the Rand had strengthened against the
Dollar from about
R11.50 in March 2002 – when the investment was
made – to about R6.74 per Dollar when repayment was received in
June 2005.
[15] As
I have said at the outset, the principal claim by the Trust included
the capital loss of R3 884 958.26. In addition,
it also
included the interest for which the Trust allegedly became liable to
Singer, calculated in an amount of R3 881 017.74
at the
rate paid by the Dalezbro Trust to FirstRand, between 19 March 2002 –
when the investment was made – and the date of
summons. As the
basis for its principal claim the Trust relied on the alleged
negligent misrepresentation that the investment structure
agreed
upon, which incorporated the protective measure of a cession by an
SPV, could be implemented lawfully and in accordance
with the foreign
exchange requirements of the Reserve Bank.
[16] For
its alternative claim the Trust relied on an alleged fraudulent,
alternatively negligent misrepresentation by Cosgrove
and Harvey in
their letter of 27 May 2002, to the effect that the cession by the
Samson Shield Trust to the Trust of the Select
Life policy, had been
in place. But for this misrepresentation, so the Trust contended, it
would immediately have terminated the
investment. As at 27 May 2002
the converted Rand value of the US $865 800.65 invested was
R8 662 164.54. The difference
between that amount and the
R6 115 041.74 eventually received, is R2 547 122.80,
which represents the capital
loss claimed in the alternative. In
addition the alternative claim also included a claim for interest as
damages in an amount of
R3 558 435.69 which was again
calculated at the rate payable by the Dalezbro Trust to FirstRand
Bank, but from 27 May
2002 to date of summons.
[17] Apart
from issues that turned out to be of no consequence, the Trust had to
establish the following elements in order to succeed
in either of its
claims:
The
representations of the kind alleged;
that these representations were
wrong;
that
the misrepresentations were wrongful within the somewhat special
meaning that this term came to attract in the context of
negligent
causation of pure economic loss (see eg
Telematrix
(Pty) Ltd v Advertising Standards Authority
SA
2006
(1) SA 461
(SCA) paras 13 and 14;
Trustees
Two Oceans Aquarium Trust V Kantey & Templer (Pty) Ltd
2006
(3) SA 138
(SCA) para 14;
Steenkamp
NO v Provincial Tender Board, Eastern Cape
2007
(3) SA 121
(CC) paras 37-41;
Fourway
Haulage SA (Pty) Ltd v SA National Road Agency Ltd
(653/07)
[2008] ZASCA 134
(26 November 2008) para 12.)
that the misrepresentations were made
fraudulently or negligently;
that
the misrepresentations were the cause both, factually and legally,
of the loss suffered by the Trust.
[18] I
first turn to the main claim. With regard to this claim the court a
quo found that the Trust had failed to clear the first
hurdle, ie to
establish that the representation relied upon had in fact been made.
Even on Singer's own version, so the court held,
no one on behalf of
mCubed ever made the positive statement that the structure proposed
by Cosgrove was legal. I do not think that,
on the evidence, the
court a quo can be faulted in its finding that no express
representation of legality had been established.
At the same time, I
agree with the Trust's submission on appeal that the court a quo had
failed to consider the possibility of
an implied representation by
conduct. Insufficient consideration was therefore given to the
question: did Cosgrove not impliedly
represent through his conduct
that the investment structure proposed by him was legal and in
accordance with the Exchange Control
Regulations? That, so the
authorities say, depends on whether the representation contended for
is the most likely inference to
be drawn from Cosgrove's conduct (see
eg
The Government of the
Republic of South Africa v Thabiso Chemicals (Pty) Ltd
[2008] ZASCA 112
;
2009
(1) SA 163
(SCA) at paras 14-16).
[19] The
answer to this enquiry, as I see it, is that Cosgrove's conduct
indeed gave rise to the inference contended for by the
Trust.
Cosgrove held himself out as an expert in the field of offshore
investments. He proposed a specific offshore investment
structure.
Why should it not be inferred that he had verified the legality of
the structure he proposed? The court a quo found
that the Trust
simply assumed that the structure was legal, or that it never gave
the legality of the structure any thought. But
that, in my view, is
exactly the point. The Trust assumed that the structure was legal
because it never thought that Cosgrove would
propose a structure
without determining its legality.
[20] mCubed
denied in its plea that Cosgrove's proposed scheme could not be
implemented legally and that a representation to that
effect would
therefore be wrong. This gave rise to a rather lengthy and intricate
debate about the objective legality of the scheme,
turning mostly on
an interpretation of the Exchange Control Regulations. I find it
unnecessary to enter into this debate because
mCubed's position
simply strikes me as untenable. A party who had refused to give
effect to its contractual obligations on the
basis that performance
would be illegal, cannot be allowed to contend for the exact opposite
proposition when taken at its word
in subsequent litigation. Even
more so when it offers no evidence that its previous attitude had
been a mistake. Unlike the court
a quo, I therefore find that the
misrepresentation relied upon by the Trust in support of its main
claim was established.
[21] Adherence
to logic and doctrine dictates that I now proceed to deal with the
elements that the Trust had to establish in their
time honoured
order, namely, first wrongfulness, then negligence and so forth. But,
as Schutz JA said in
Mostert
v Cape Town City Council
2001
(1) SA 105
(SCA) para 43:
'Logic
is one thing, utility sometimes another.'
As
happened in
Mostert
,
courts not infrequently find it convenient, in the circumstances of a
particular case, to deal with the elements of delictual
liability out
of their logical and doctrinal sequence (see eg
First
National Bank of South African Ltd v Duvenhage
[2006] ZAGPHC 31
;
2006
(5) SA 306
(SCA) para 2). In such event the logically anterior
elements are usually assumed to have been established (see eg
Local
Transitional Council of Delmas v Boshoff
2005
(5) SA 514
(SCA) para 20).
[22] In
a way similar to
Duvenhage
I
find it convenient in this case to start with the element of
causation. For purposes of this enquiry, I assume that Cosgrove acted

both wrongfully and negligently in misrepresenting the legality of
the structure he proposed. With regard to the element of causation,

it has by now become well established in the law of delict, that it
involves two distinct enquiries. First there is the enquiry
into
factual causation which is generally conducted by applying what has
been described as the 'but-for' test. Lack of factual
causation is
the end of the matter. No legal liability can follow. But, if factual
causation has been established, the second enquiry
arises, namely,
whether the wrongful act is linked sufficiently closely or directly
to the loss concerned for legal liability to
ensue. This issue is
referred to by some as 'remoteness of damage' and by others as 'legal
causation'.
[23] As
to factual causation, Corbett CJ explained the 'but-for' test as
follows in
International
Shipping Co Ltd v Bentley
1990
(1) SA 680
(A) at 700E-G:
'[T]he
so-called 'but-for' test . . . is designed to determine whether a
postulated cause can be identified as the
causa
causans
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.'
(See
also eg
Simon & Co v
Barclays National Bank Ltd
1984
(2) SA 888
(A) at 915B-
in
fine.
)
[24] Application
of the 'but-for' test to the facts of this case, raises the anterior
question: what hypothetical lawful conduct
should mentally replace
the wrongful misrepresentation in the process of 'but-for' reasoning?
Otherwise stated: what is Cosgrove
supposed to have done? This
question gave rise to some controversy during argument. But, having
regard to the implied nature of
the representation, I think the
answer is that Cosgrove should have done one of two things. He should
not have proposed the structure
without prior determination of its
legality. Or, he should have told the representatives of the Trust
that the legality of the
proposed structure had not yet been
established. In both cases, the illegality of the structure would in
all probability have come
to light before the investment was made. In
the event it must, in my view, be accepted that but for the
misrepresentation the Trust
would not have invested the R10m with
mCubed. That was Singer's evidence. But for the protective measures
resulting from the introduction
of the SPV into the structure, so he
testified, the Trust would not have been prepared to take the risk of
mCubed's insolvency.
Absent any evidence to the contrary, there is,
in my view, no reason to hold otherwise.
[25] That
raises the next question – is this the end of the 'but-for'
enquiry? The Trust contended that it is. But for the investment
with
mCubed, so it argued, the R10m would have been retained in South
African currency with the result that the loss would not
have been
incurred. Any further 'but-for' enquiry, so the Trust contended,
would amount to mere speculation. I cannot agree. The
proposition
that, but for the investment with mCubed, the R10m would have been
retained in South African currency, begs the question.
It negates the
possibility that the Trust might have made a similar offshore
investment through the agency of some other institution.
If, of
course, this possibility had not been established on the evidence, it
would be mere speculation. But that is not the position.
On the
contrary, as I see it, the evidence shows that this is precisely what
the Trust would probably have done.
[26] Singer
had been advised to diversify his investments by going offshore. In
line with pessimistic predictions at the time about
the further
devaluation of the Rand against the Dollar, this advice appeared to
have been sound. Following this advice, Singer
first invested the
relatively modest amount of R1m offshore through mCubed. Thereafter
he created a rather complicated borrowing
structure which made it
possible for the Trust to take R40m overseas. The R10m under
consideration was supposed to be part of it.
When he became
dissatisfied with mCubed during the course of 2002, it did not deter
him from proceeding with his overall plan.
In November that year he
caused the Trust to invest a further R10m overseas through the agency
of Investec Bank. And there is no
apparent reason why, as a matter of
probability, he would not have followed the same route if his
dissatisfaction with mCubed had
preceded the investment of the first
R10m. In short, Singer took a position on the future Rand/Dollar
exchange rate in March 2002
and there is no reason to think that that
position would have been any different if he decided not to invest
with mCubed.
What
is more, I may add, I see no difference between the capital loss and
the claim for interest as damages. It stands to reason
that in making
a similar investment the Trust would probably have availed itself of
the same borrowing structure.
[27] But
even if the Trust had succeeded in establishing factual causation –
which in my view it had not – I believe the main
claim should in
any event have failed at the legal causation stage. The issue of
legal causation or remoteness is determined by
considerations of
policy. It is a measure of control. It serves as a 'longstop' where
right-minded people, including judges, will
regard the imposition of
liability in a particular case as untenable, despite the presence of
all other elements of delictual liability
(see eg
Fourway
Haulage SA (Pty) Ltd v SA National Roads Agency Ltd (supra)
at
para 31.)
[28] Why
the issue of remoteness looms large in this case is because it is
undoubtedly so that in reality, the losses sustained
by the Trust
were attributable to the unpredicted strengthening of the Rand
against the US Dollar between March 2002 and June 2005.
If the Rand
had continued to weaken against the US Dollar, as Liebenberg and
others so confidently predicted, or even if the exchange
rate
remained the same, the Trust would have made a profit from the
investment, despite the penalties incurred for the early withdrawal.

Common sense thus dictates that, in reality, the Trust's loss was not
caused by the event it says should not have occurred –
ie
Cosgrove's misrepresentation about the legality of the investment
structure. Nor was it caused by the early withdrawal of the

investment. It was instead attributable to something very different –
ie the unpredicted improvement of the value of the Rand
in comparison
with the US Dollar.
[29] I
therefore find the situation reminiscent of the following graphic
illustration by Lord Hoffmann in
South
Australia Asset Management Corporation v York Montague Ltd
1997 A. C. 191
(HL) at 213D-E as to when right minded people,
including judges, will regard it as untenable to impose legal
liability for a particular
loss:
'A
mountaineer about to undertake a difficult climb is concerned about
the fitness of his knee. He goes to a doctor who negligently
makes a
superficial examination and pronounces the knee fit. The climber goes
on the expedition, which he would not have undertaken
if the doctor
had told him the true state of his knee. He suffers an injury which
is an entirely foreseeable consequence of mountaineering
but has
nothing to do with his knee.'
At
214B-C Lord Hoffmann then concluded:
'Your
Lordships might, I would suggest, think that there was something
wrong with a principle which in the example which I have
given,
produced the result that the doctor was liable. . . . There seems to
be no reason of policy which requires that the negligence
of the
doctor should require the transfer to him of all the foreseeable
risks of the expedition.'
[30] The
Trust did not deny that the real cause of its loss was the
strengthening of the Rand. Its first argument as to why legal

causation had nonetheless been established was that, although the
improvement of the Rand against the Dollar was unpredicted, it
was
not an unforeseeable consequence of the investment. This argument
obviously refers to the so-called foreseeability test and
on a strict
application of that test it seems to be valid. Furthermore, so the
Trust contended, on the application of the so-called
direct
consequences test, the strengthening of the Rand was not some kind of
novus actus interveniens
that broke the causal chain
between the investment and the loss. Again, I agree that if a
novus
actus
is to be regarded as
an abnormal or unexpected event in the light of human experience (see
eg Jonathan Burchell
Principles
of Delict
119), the
currency fluctuation which led to the loss can hardly be described in
those terms. Strict application of the direct consequences
test, so
it seems, would therefore also lead to an answer of the remoteness
issue in favour of the Trust, despite the fact that
the result may be
regarded as untenable.
[31] But
our courts have decided against a strict approach to the remoteness
issue. Instead, it adopted what has been described
as a 'flexible' or
'supple' test (see eg
International
Shipping Co (Pty) Ltd v Bentley (supra)
701A-F;
Smit v Abrahams
1994
(4) SA 1
(A) 15E-G). This was elaborated upon as follows in
Fourway
Haulage (supra)
para 34:
'What
Van Heerden JA said in that case [ie
S
v Mokgethi
1990
(1) SA 32
(A) at 40I-41D] is not that the 'flexible' or 'supple' test
supersedes all other tests such as foreseeability, proximity or
direct
consequences, which were suggested and applied in the past,
but merely that none of these tests can be used exclusively and
dogmatically
as a measure of limitation in all types of factual
situations. Stated somewhat differently: the existing criteria of
foreseeability,
directness, et cetera, should not be applied
dogmatically, but in a flexible manner so as to avoid a result which
is so unfair
or unjust that it is regarded as untenable.'
[32] Strict
application of both the foreseeability test and the direct
consequences test for remoteness in this case would therefore,
in my
view, lead to a result which is so unfair and unjust that it will be
regarded as untenable. This is therefore a classic example
of a
situation where a flexible approach is indicated. And in adopting
that approach I find the loss too remote.
[33] This
brings me to the Trust's alternative claim. It will be remembered
that the claim under this rubric relies on the misrepresentation
by
Cosgrove and Harvey in their letter of 27 May 2002 that the cession
by the Samson Shield Trust was in place whereas it was not.
But for
that misrepresentation, the Trust contended, it would have cancelled
the investment there and then. As we know this claim
was upheld –
albeit only in part – by the court a quo, which led to the appeal
by mCubed.
[34] The
court a quo found the misrepresentation relied upon to have been
established. That finding was undoubtedly correct. It
also found that
the misrepresentation was negligently made and that it was therefore
not necessary to deal with the Trust's allegation
of fraud. Yet, as I
see it, the finding of fraud would indeed have been justified. The
statement was patently incorrect. In the
absence of any evidence that
Cosgrove and Harvey thought it was true, it must be accepted that
they knew it was not. What is more,
I believe a conclusion of fraud
in the circumstances of this case inevitably leads to a finding of
wrongfulness (see eg
Minister
of Finance v Gore NO
2007
(1) SA 111
(SCA) paras 87-88).
[35] However,
as was the case in the main claim, my problem again arises with
reference to the element of causation. The court a
quo found this
requirement to have been satisfied on the basis of the following
reasoning.
'In
my view, the evidence has clearly established that, as at 27 May
2002, the cession
in
securitatem debiti
was
not in place and, indeed the structure could never have been lawfully
implemented. . . .
.
. . I am satisfied that had the Singer Trust been aware of the true
position,
viz.
that the cession had not been signed and the structure could not be
implemented . . . it would have immediately cancelled the contract

and terminated the investment.'
[36] The
flaw in this reasoning, I think, is that the court a quo asked the
wrong question and hence arrived at the wrong conclusion.
The Trust's
alternative claim relied on the proposition that, on 27 May 2002, it
had been misled about the existence of the cession.
The
misrepresentation as to the legality of the proposed structure and
the possibility of its implementation was not advanced in
the context
of the alternative claim. It formed the basis of the main claim. What
the Trust set out to prove under the alternative
claim was that, had
it not been told on 27 May 2002 that the cession was already in
existence, it would there and then have cancelled
the investment. The
question is whether it had succeeded in doing so. mCubed's contention
was that it had not. I agree. The evidence
shows that when it came to
the knowledge of the Trust on 13 September 2002 that the cession had
in fact not been signed, it nonetheless
persisted in the investment.
In fact, even in September 2003 it did not cancel the investment, but
demanded that the structure
be implemented within 30 days. It was
only on 26 February 2004 that the Trust was triggered into cancelling
the investment contract.
[37] As
with regard to the main claim, I therefore conclude that the Trust
had failed to establish the requirement of factual causation.

Moreover, I find the same lack of legal causation in this instance.
Again, common sense shows that, but for the fact that the Rand
had
strengthened against the Dollar between 27 May 2002 and 5 June 2005,
the Trust would have suffered no loss even though the
investment had
not been terminated on the earlier date. It follows that in my view
the court a quo should have dismissed the alternative
claim with
costs.
[38] In
the result it is ordered that:
1(a) The appeal is upheld with costs.
1(b) The order of the court a quo is
set aside and replaced by the following:
'The
plaintiffs' claims are dismissed with costs'
2 The cross-appeal is dismissed with
costs.
…………………
..
F D J BRAND
JUDGE OF APPEAL
Appearances:
For
Appellant: P B J Farlam
Instructed
by:
Jan S De Villiers
Cape Town
Correspondence:
Lovius Block
Bloemfontein
For
Respondent: E Fagan
Instructed
By:
C & A Friedlander Inc
Cape Town
Correspondence
Honey
Attorneys Inc
Bloemfontein