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[2009] ZASCA 44
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King and Others v The Attorneys Fidelity Fund Board of Control (137/2008) [2009] ZASCA 44; 2010 (4) SA 185 (SCA) (12 May 2009)
THE SUPREME COURT OF
APPEAL
OF SOUTH AFRICA
Case number: 137/2008
In the matters between:
MARY PATRICIA KING & OTHERS
COLLEEN JUDITH VAN STRAATEN & OTHERS
NAMCOAST (PTY) LTD
C M TAPSON & OTHERS THE APPELLANTS
and
THE ATTORNEYS FIDELITY FUND
BOARD OF CONTROL RESPONDENT
Neutral citation:
King v The
Attorneys Fidelity Fund Board of Control
(137/2008)
[2009] ZASCA 44
(12 May 2009)
CORAM: MPATI P, BRAND, CACHALIA, MHLANTLA JJA
et
BOSIELO AJA
HEARD: 23 FEBRUARY 2009
DELIVERED: 12 MAY 2009
SUMMARY
: Attorneys Fidelity
Fund – claims against Fund under s 26(a) of Attorneys Act
53 of 1979 – money paid into firm
of attorneys' trust account
and subsequently stolen – assumed money had been entrusted to
practitioner in course of practice
as such – money destined to
be invested in factoring scheme operated by third party –
claims excluded by s 47(1)(g)
of Attorneys Act since, when money
deposited in practitioner's trust account, instruction was to invest
in factoring scheme on
claimants' behalf.
ORDER
On appeal from: Plaskett J (sitting as court of first
instance)
The appeal is dismissed with costs which shall include
the costs of three counsel, to be paid by the appellants jointly and
severally,
the one paying, the other to be absolved.
JUDGMENT
MPATI P
(Brand, Cachalia,
Mhlantla JJA
et
Bosielo AJA concurring.)
[1] One of the functions of the Attorneys Fidelity Fund,
as administered by the Attorneys Fidelity Fund Board of Control
(respondent),
is to reimburse persons who may have suffered pecuniary
loss as a result of theft, by a practising attorney, his candidate
attorney
or employee, of money entrusted by or on behalf of such
person to him or her in the course of his or her practice.
1
In the court below (Grahamstown High Court) a total of 103 plaintiffs
instituted four separate claims against the respondent for
payment of
moneys allegedly entrusted to, and subsequently stolen by the
partners of Van Schalkwyk's Attorneys of Port Elizabeth
('Van
Schalkwyks'). The four matters were consolidated and after hearing
evidence the court a quo (Plasket J) dismissed the claims,
with
costs. It subsequently refused leave to appeal. This appeal is with
leave of this court.
[2] Not all the plaintiffs who were before the court
below have appealed. I shall nevertheless, for convenience, refer to
the parties
in this appeal as in the court below without specifically
excluding those plaintiffs who have not appealed. At the commencement
of argument in this court, condonation was sought, and granted, for
the late filing of an application for leave to appeal, to 24
plaintiffs who had not previously applied for leave to appeal. The
leave sought was also granted.
[3] The plaintiffs' causes of action are pretty much the
same. It was alleged, in essence, that on various dates between 1997
and
May 2000 the plaintiffs, acting personally in their individual
capacities, or through a duly authorised agent, deposited moneys
into
the trust account of Van Schalkwyks. The funds were to be held in
trust on the plaintiffs' behalf until utilised, or disbursed,
in what
was referred to as a 'factoring scheme'.
[4] The evidence revealed that this scheme, as it was
explained to some of the plaintiffs, entailed the discounting of
estate agents'
commission. The commission of an estate agent who did
not wish to wait for the ultimate transfer of fixed property after a
concluded
sale would be paid out of these funds, less a certain
percentage, a part of which would then be paid to the participants in
the
scheme as interest or profit. According to the evidence, the
scheme later included also the discounting of nett proceeds on sales
of fixed properties.
[5] The role allegedly played by Van Schalkwyks in the
scheme is set out as follows in the particulars of claim of the first
plaintiff
and 92 others (the King claim) in the court below:
'98. The monies aforesaid were
to be utilised solely in the factoring scheme, and were only to be
disbursed by VAN SCHALKWYK ATTORNEYS
against production to them of
specifically relevant documents and bank guarantees in respect of
each and every transaction sufficient
to satisfy VAN SCHALKWYK
ATTORNEYS (acting as an expert attorney in conveyancing) that the
monies were properly to be disbursed
into the factoring scheme such
as to be utilised solely in that scheme in a bona fide manner . . .
to be recovered thereafter
by VAN SCHALKWYK ATTORNEYS and returned to
the plaintiffs with a stipulated amount of interest.'
It was alleged further that the plaintiffs remained
owners of their individual moneys deposited into Van Schalkwyks'
trust account.
[6] Van Schalkwyks, however, allegedly misappropriated
the funds concerned by disbursing them to one David Halgryn, or to
other
entities linked to him, for purposes other than utilization in
the factoring scheme. The misappropriation of the trust moneys, so
it
was alleged, constituted theft by conversion, alternatively theft by
misappropriation, by Van Schalkwyks. It appears that the
practitioners who were involved in the alleged misappropriation of
the plaintiffs' moneys were Aron Joubert van Schalkwyk, who
subsequently emigrated to the United States of America and, later,
attorney Charl du Mont. The scheme collapsed and the estate
of the
latter was subsequently sequestrated in an attempt by some plaintiffs
to recover their moneys. It seems common cause that
Van Schalkwyk and
Du Mont were partners in Van Schalkwyks.
[7] Although the defendant admitted, in its plea, that
the plaintiffs, or persons purporting to represent them, paid moneys
into
the trust account of Van Schalkwyks, it denied that the payments
were 'entrusted' to Van Schalkwyks. It also denied that the payments
were effected in the course of practice of Van Schalkwyks. It pleaded
further that the plaintiffs' instructions were that Van Schalkwyks
receive the money in trust for the purpose of investing it on their
behalf 'by the factoring of claims in general which included
amongst
others the discounting of bank guarantees pertaining to commissions
earned by estate agents and nett proceeds of sales
by sellers of
immovable properties'. The defendant accordingly pleaded that the
plaintiffs in effect instructed Van Schalkwyks
to invest the moneys
on their behalf as envisaged in s 47(1)(g), read with s 47(4)
and s 47A, of the Act. Finally,
the defendant raised the defence
that the transactions in any event contravened s 11 of the Banks
Act
2
since they constituted the conduct of the business of a bank as
defined in s 1 of that Act, whilst, to the knowledge of the
plaintiffs, Van Schalkwyks were not registered as a bank, thus
rendering the transactions unlawful and void
ab
initio.
In consequence, the defendant pleaded
that these
transactions did not constitute lawful
entrustments in the course of the lawful practice of Van Schalkwyks
as contemplated by s 26(a)
of the Act.
[8] Section 47(1)(g) provides –
'The fund shall not be liable in
respect of any loss suffered –
. . .
(g) by any person as a result of
theft of money which a practitioner has been instructed to invest on
behalf of such person after
the date of commencement of this
paragraph.'
Section 47(4) states that a practitioner 'must be
regarded as having been instructed to invest money for the purposes
of subsection
(1)(g)', where a person who entrusts money to the
practitioner or for whom the practitioner holds money, 'instructs the
practitioner
to invest all or some of that money in a specified
investment or in an investment of the practitioner's choice'.
Section 47(5),
to which the provisions of subsection (4) are
subject, lists instances where, for purposes of subsection 1(g), a
practitioner 'must
be regarded as not having been instructed to
invest money' entrusted to him or her. Section 47A is a transitional
provision. It
reads:
'The fund is not liable for loss
of money caused by theft committed by a practitioner, candidate
attorney, employee or agent of
a practitioner where the money is
invested or should have been invested on instructions given before
the date contemplated in section
47(1)(g) and where-
(a) the money is to be repaid at
any time after that date, to the beneficiary specified in any
agreement whether with the borrower
or practitioner;
(b) the theft is committed at
any time after the expiration of 90 days after the investment matures
or after the expiration of 90
days after the date contemplated in
section 47(1)(g);
. . .'
[9] As was correctly stated by the court a quo, for them
to succeed in their claims the plaintiffs were required to prove that
(a)
they had suffered pecuniary loss, (b) by reason of theft
committed by a practitioner or practitioners at Van Schalkwyks, (c)
of
money entrusted by them or on their behalf to Van Schalkwyks and
(d) in the course of practice of such practitioner(s).
3
The court found in favour of the plaintiffs on (a) and (b),
4
but against them on (c) and (d). The plaintiffs thus failed to prove
all the elements of s 26(a) of the Act. In dismissing
the
plaintiffs' actions the court also reasoned that the placement of
money in the factoring scheme constituted the investing of
such money
as contemplated by s 47(1)(g) of the Act and that consequently
the defendant was not liable to reimburse them.
[10] In this court counsel for the defendant did not
challenge the finding of the court a quo that the plaintiffs suffered
pecuniary
loss, and accepted, for purposes of the appeal, that the
theft of the moneys was not in issue. The issues for consideration by
this court are, therefore, (a) entrustment, ie whether the stolen
moneys were entrusted to Van Schalkwyks by, or on behalf of, the
plaintiffs; (b) whether the entrustment occurred in the course of
practice of Van Schalkwyk or Du Mont, or both, and (c) whether
the
plaintiffs' claims are excluded by s 47(1)(g) of the Act.
[11] Before the court a quo and by agreement between the
parties the plaintiffs, due to their large number and the
impracticality
of hearing the testimony of each one of them, were
divided into seven categories. It was further agreed that only
selected plaintiffs
would testify and that their testimony would be
determinative of their claims as well as those of the remaining
plaintiffs. Categories
one, two and three consist of those plaintiffs
who were introduced to the scheme by a Mr Andre Naude, an insurance
broker from
Queenstown. Categories four, five and six are plaintiffs
who paid moneys to Van Schalkwyks through a trust known as Paragon
Asset
Management Trust ('Paragon'), which had been set up by one of
the witnesses, Mr Thomas Reginald Chowles Hosking ('Hosking').
Category
7 is made up of plaintiffs who were introduced to the scheme
by another witness, Mr Alexander John Neaves of Port Alfred. The
dates
on which the plaintiffs in the various categories paid moneys
to Van Schalkwyks would be of relevance, so it was considered, to
the
question whether their claims are excluded by s 47(1)(g) of the
Act. The subsection came into operation on 15 January
1999.
[12] As to categories four, five and six, ie the
plaintiffs who paid moneys to Van Schalkwyks through Paragon (the
Paragon plaintiffs)
the defendant contended that they had no standing
to claim from it. The argument was that in paying the moneys into the
trust account
of Van Schalkwyks, Paragon did so not as agent for the
Paragon plaintiffs, but as principal. As will be seen from the
evidence
of Hosking, each one of the Paragon plaintiffs paid their
moneys to Paragon which, in turn, issued an acknowledgment of debt to
them, evidencing a debtor and creditor relationship as between each
plaintiff and Paragon. It was submitted on behalf of the Paragon
plaintiffs, however, that the issuing of acknowledgments of debt to
them by Paragon did not detract from the fact that they were
the
owners of the moneys paid to Paragon and which Paragon paid over to
Van Schalkwyks. It was accordingly argued that their moneys
were paid
by Paragon to Van Schalkwyks on their behalf.
5
[13] Relying on
S v Moloi
6
and
Premier Milling Co (Pty) Ltd v Van der
Merwe and others NNO and another
,
7
counsel argued that the phrase 'on behalf of'
in s 26(a) of the Act should be given a wide meaning, such as 'for
the benefit of',
'to the advantage of' and 'in the interest of'.
There may be merit in these submissions, but I consider it
unnecessary to express
a firm view on them. I shall accept, without
deciding, that all the plaintiffs have standing to claim
reimbursement of their stolen
moneys.
[14] The three issues for consideration in this appeal
are mentioned in paragraph 8 above. I propose to deal with the last
of those
issues first, which is whether the plaintiffs' claims are
excluded by s 47(1)(g) of the Act. For purposes of this
approach,
however, I have to assume that the issues of entrustment,
ie whether the plaintiffs' moneys were entrusted to Van Schalkwyks
(Van
Schalkwyk or Du Mont), and whether such entrustment occurred in
the course of practice of Van Schalkwyk or Du Mont or both, have
been
proved by the plaintiffs.
[15] A consideration of the question whether the
plaintiffs' claims are excluded by s 47(1)(g) of the Act
requires me to deal
with the evidence (or at least some of it)
tendered before the court a quo. Before I do so, however, it may be
convenient to set
out certain facts which appear not to be in
dispute. The factoring scheme collapsed in or about May 2000. By that
time Du Mont
was the sole director of Van Schalkwyks, his erstwhile
senior partner, Van Schalkwyk, having left the country for the United
States
of America. On 13 June 2000 Mr Desmond Thurgood
8
deposed to the founding affidavit in an application, by 44
plaintiffs, for Du Mont's sequestration in which the following
appears:
'The Respondent is a qualified
and admitted attorney, practising in PORT ELIZABETH, and acting as
such and as VAN SCHALKWYK ATTORNEYS
he collected funds from the
various Applicants through various brokers, trusts, and companies
throughout the Republic of South
Africa and NAMIBIA, for investment
purposes, and these funds were paid directly into the trust account
of VAN SCHALKWYK ATTORNEYS
. . . The funds were subsequently contrary
to Respondent's mandate paid out at the Respondent's instance and
upon his instruction
from VAN SCHALKWYK ATTORNEYS trust account
directly to the HALGRYN FAMILY TRUST, with registration number
TM5404/1, duly managed
and controlled by FLORIS DANIEL DE KOCK
HALGRYN, an adult male businessman, and sole director and shareholder
of numerous companies
and trustee of various trusts in PORT
ELIZABETH.
. . .
During the last year or two, and
at PORT ELIZABETH, the Applicants therefore invested the sum of
R33 910 011.00 with VAN
SCHALKWYK ATTORNEYS, and the
Respondent for the purposes of investing in the discounting of estate
agents' commission and for no
other purpose whatsoever. The
investments would attract interest of 22% under R100 000.00 and
28% over R100 000.00. All
the Applicants were advised that the
attorney attending to the transfer of the property would ensure that
guarantees were in place,
and only then would estate agents receive
their commission. We were informed that the investment was extremely
sound and fool proof
by the various brokerage firms.'
Four of the plaintiffs who testified in the trial court
deposed to confirmatory affidavits confirming the correctness of the
contents
of Thurgood's founding affidavit in so far as they relate to
them. They are Messrs Angus Barnard, Bernard de Bruin, Stanley
Wilhelm
Pohlman and Pierre Johannes Scheepers.
[16] Subsequent to the collapse of the factoring scheme
Van Schalkwyk, Du Mont and Halgryn were charged with fraud. At a rule
37
conference held on 13 July 2006 the defendant accepted admissions
made by Van Schalkwyk in his plea to the criminal charges in so
far
as such admissions related to him and for purposes of the
consolidated actions. The admissions may be summarised thus: Van
Schalkwyk, Halgryn and the latter's father were trustees of the
Halgryn Family Trust, created under a Deed of Trust dated 17 January
1994. On 1 January 1998 Van Schalkwyk set up office as Van
Schalkwyk's Attorneys in Port Elizabeth, having moved there from
George,
where he had originally practised. Du Mont joined Van
Schalkwyks as a professional assistant from 13 February 1998 and was
admitted
as a partner on 1 January 1999. On 1 March 1999 the
partnership was terminated and Van Schalkwyk became a consultant. He
emigrated
to America in January 1999. During the period January 1998
to January 1999 he, through one William Voysey ('Voysey') and the
entities
Commercial Investments, Paragon and Paragon Western Cape,
induced investors (beleggers) to place money in a factoring scheme,
which
he had made out to be a profitable business involving the
discounting of estate agents' commission operated by Halgryn. He made
investors believe that their funds would be applied only in the
'factoring scheme'; that in so far as funds paid into Van Schalkwyks'
trust account were concerned, these would be controlled by him with
the necessary care and diligence and paid out only for the
purpose
for which they had been received; that such funds were in fact not
applied for such purpose but rather in what has become
known as a
pyramid scheme, and for speculation in the Johannesburg Stock
Exchange.
[17] I turn to the evidence, which will not necessarily
be dealt with in the sequence in which the witnesses testified at the
trial.
Ten witnesses testified on behalf of the plaintiff. Counsel
for the defendant submitted that the evidence of one witness, Mr Burt
Botha, a forensic investigator, who was called as an expert witness,
is hearsay and thus inadmissible. Without getting involved
in the
issue, I shall, for present purposes, ignore Botha's testimony.
[18] Hosking is a retired insurance broker. He became
aware of the scheme during 1996 when one of his clients telephoned
him to
advise that she wanted to discuss a letter she had received
from a company called Commercial Investments, informing her about an
investment opportunity. Having discussed the matter with the client,
he contacted Voysey, who was the author of the letter. A meeting
was
arranged at which Voysey explained how the scheme operated; that he
would pay an estate agent his or her commission before
it was due, at
a discount and take cession of the agent's right to the full amount
of the commission. An investor who participated
in the scheme would
be entitled, at the end of a ten week investment period, to receive
his or her capital back, plus a margin
of the profit derived from the
discounting process. Voysey assured him that the scheme was a safe
investment in that the funds
were paid into an attorney's trust
account which afforded protection to investors. He was satisfied with
Voysey's explanation and
on 5 November 1996 'invested' an amount of
R605 000, which he handed to Voysey. His understanding was that
Voysey could not
do with the money as he wished, he had to pay it to
an attorney, from where it would presumably be disbursed in the
scheme. Voysey
provided him with an acknowledgment of debt issued in
the name of Commercial Investments and another from the attorney
where the
money had been placed.
[19] Later, Voysey introduced him to Van Schalkwyk who,
he believed, was one of the conveyancing attorneys involved in
Voysey's
discounting scheme. From the discussions he had with Van
Schalkwyk it became quite clear to him 'that it was actually pivotal
that
we have an attorney to oversee and police these transactions'.
(It appears that following the discussions with Van Schalkwyk,
Hosking
decided to pay the money he had placed with Voysey's company
to Van Schalkwyks.) After obtaining further advice from various
sources
on the soundness of the scheme and on his 'concern about the
Banking Act area' (he was presumably concerned about the possible
contravention of the provisions of the Bank's Act) he and members of
his family set up Paragon. (It appears that his idea was to
invite
members of the public to get involved in the scheme through him, ie
he would collect money which he would then pass on to
Van
Schalkwyks.) When his investment with Voysey matured, he paid the
money, as Paragon, directly to Van Schalkwyks, who issued
an
acknowledgment of debt to him reflecting Van Schalkwyks as debtor and
Paragon the creditor. As to the obligations of Van Schalkwyks
in
respect of the payments into their trust account, Hosking testified
that Van Schalkwyk and Du Mont undertook to 'ensure that
all
transactions where they received the funds and issued an
acknowledgement of debt would be properly transacted as . . .
discussed'.
[20] Hosking testified that in the meantime, Voysey had
also introduced him to Halgryn, who, according to Voysey, had
identified
the discounting business as something he would like to
pursue and in fact did pursue. He met Halgryn, who explained to him
that
there were a number of transactions which required funding.
Thereafter, substantial amounts were paid to Van Schalkwyks, through
Paragon, on a regular basis. Halgryn would indicate what amount was
required, after which payment would be made into Van Schalkwyks'
trust account for further transmission to Halgryn. Substantial
amounts of money were sourced from individuals who paid moneys to
Paragon for investment purposes. One such individual was a Mr Hart
who was based in Namibia and who had been invited by Hosking
to
participate in the scheme. For the funds received from individual
investors Paragon issued an acknowledgement of debt to which
was
attached an investment certificate which showed the return to be
received by the investor at the end of a ten week cycle. And
for
those investors who did not wish to withdraw their investments at the
end of the investment period, Paragon would issue a fresh
acknowledgement of debt for the capital and earnings received. So too
did Van Schalkwyks, in respect of entities that paid funds
into their
trust account. The administration of Paragon was done by Paragon
Administration Services (Pty) Ltd, which kept creditors
(Paragon's)
informed of developments pertaining to their investments.
[21] Hosking testified further that in or about
April/May 1999 Halgryn told him that the main thrust of the business
was no longer
only the discounting of estate agents' commission, but
also actual proceeds of sales of fixed property. Under
cross-examination
he said that he understood that moneys advanced to
Halgryn by Van Schalkwyks were for purposes of discounting; that the
conveyance's
(Van Schalkwyks') duty was to ensure that the
transactions in respect of which moneys were paid to Halgryn were in
order and that
Van Schalkwyk was to make sure that funds made
available to Halgryn were properly managed. He said that on the
strength of the
acknowledgements of debt Paragon looked to Van
Schalkwyks for repayment and not to Halgryn, and that Paragon was
liable to its
investors as it had issued an acknowledgement of debt
to each of them.
[22] Although Hosking vehemently denied that Paragon's
instructions to Van Schalkwyks were to invest the funds paid into the
latter's
trust account – he said 'we would not allow an
attorney to invest funds for us' – he testified that 'we had an
arrangement
with Halgryn that we would provide the funds for his
discount practice, his discounting business' and further that '[t]he
money
was going to be
invested
with Halgryn'. (My emphasis). When asked whether Van Schalkwyks' role
in the scheme was limited to conveyancing, Hosking answered:
'Yes his role was limited to
ensuring that the funds were made available to Halgryn, were properly
managed.'
[23] George Wayne Hart is the sole shareholder and
director of Namcoast, a Namibian based company. He was introduced to
the scheme
by Hosking in 1997. Hosking explained to him how the
scheme worked, ie that it entailed discounting of estate agents'
commission
against bank guarantees and that a controlling
conveyancing attorney (whose name was not revealed to him until after
the collapse
of the scheme) would release funds after making sure
that documents had been properly prepared. Hart's understanding of
the scheme
was that the money for it would first go from Namcoast to
Paragon and from there to a conveyancing attorney's trust account. On
the assurance of protection for potential investors he said:
'I was told and had in my
possession a copy of an insurance policy which was in favour of
Paragon Asset Management Trust which protected
people like myself
against negligence of the directors or the trustees of Paragon, I was
told that the conveyancing head attorney
or the controlling
conveyancing attorney had a similar insurance policy in place and I
was then also told that if all else fails
then we would have the
Fidelity Fund which would cover any theft or loss of funds on behalf
of the attorneys, the controlling attorneys.'
After studying documentation given to him by Hosking to
satisfy himself of the workings of the scheme, Hart decided to
participate.
In a letter addressed to him from Hosking dated 18
February 1997 it was made clear to him 'that Paragon is a "Business
Trust"
only in so far as it serves as a conduit to the
Discounting Bank Guarantees (DBG's) function between the Creditor or
Investor and
the Trust as the Debtor'. For moneys paid to Paragon,
Hart received an acknowledgement of debt, which he signed on behalf
of Namcoast,
and which recorded that 'the debtor acknowledges to be
truly and lawfully indebted unto and in favour of the creditor in (a
specified
amount) . . . being monies lent and advanced by the
creditor to the debtor'. The creditor is reflected as Namcoast and
the debtor
as Paragon.
[24] Hart denied, however, that the moneys were loaned
to Paragon. In view of the contents of the letter of 18 February 1997
the
denial seems justified. He testified that when the scheme
collapsed his company lost about R22.5m. Until the collapse of the
scheme
he had never heard of Halgryn, or of Van Schalkwyk or Du Mont.
[25] Lynette Thomen, an ex-teacher, testified that she
was persuaded by Hosking to participate in the scheme after a Mr
Norman Hardy
had told her of an excellent scheme to which Hosking was
connected. She had wanted to invest part (R250 000) of the money
she had received as a package when she stopped teaching. Although she
gave Hosking two cheques totalling R250 000, only R150 000
was placed in the factoring scheme. The rest was to be used for
another purpose. Thomen testified that she knew what a factoring
scheme was as she had studied it. Hosking assured her that the scheme
was perfectly safe because 'they had a very well-known attorney
involved'. However, she said that no mention was made of an
attorney's trust account. She testified that every third month after
July 1997
9
she received interest of R6 000 which was paid into a trust
account.
[26] Alexander John Neaves is an investment broker and
general manager of Port Alfred Marine. He lives in Port Alfred. He
was introduced
to the scheme by Voysey in 1997/1998 and subsequently
met with Van Schalkwyk and Du Mont on three occasions. He testified
that
the purpose of his meeting with the two – Voysey was
present at the first meeting – was for him 'to investigate the
circumstances of how this investment would be made up'. He understood
from what he was told by Van Schalkwyk and/or Du Mont, that
their
role (Van Schalkwyks) would be 'to take the money in and put it into
the factoring vehicle and be responsible for the looking
after that
particular, the legal aspect of it'. He was informed that from the
attorneys' trust account the money would go into
a separate entity,
where the actual factoring would take place, namely Sea Factoring
Services, which was run by Halgryn. Upon his
asking more questions
Halgryn was called in to form part of the meeting. (The meeting took
place at Van Schalkwyks.) From further
enquiries he discovered that
Absa Bank would be involved – he was told, he said, 'that they
monitored all the transactions
carefully'. He subsequently invested
his own money in the scheme and alerted other people 'to the fact
that I was
investing
in this investment'. (My underlining.) He lost all the money he had
invested.
[27] Angus Barnard, a retired school principal,
testified that he was advised around the year 2000, by Neaves, who
had previously
advised him to place R200 000 in a savings
account, to '[en]trust the money to Van Schalkwyk Attorneys'. Neaves
explained
to him how the scheme (factoring or discounting of estate
agents' commission) worked, and that the entrustment of the money was
over a ten week cycle, at the end of which he could draw the capital
and interest or leave the entire sum over for another cycle
of ten
weeks. His concern for the safety of his money was allayed by Neaves
who assured him that placing the money in an attorney's
trust account
was the safest way of investing money; it could not be taken out for
any other purpose unless 'it had my signature
on it, so it was there
just for factoring purposes, in which case there was no danger
whatsoever of it disappearing'. If the money
was stolen 'there was an
insurance which would cover the full amount of the money in the
attorney's trust'.
[28] Barnard testified that Neaves, after several calls
in which the latter enquired from him about whether he had made up
his mind,
arranged for him to meet Voysey, who also assured him that
the money would be safe. Ultimately, on 4 February 2000, he deposited
R200 000 into Van Schalkwyks' trust account through First
National Bank. He subsequently received an acknowledgement of debt,
signed by Du Mont, dated 14 April 2000, which recorded that Van
Schalkwyks received from him, as creditor, the sum of R218 405.
This meant that in approximately ten weeks his capital had earned him
a substantial profit of R18 405. Barnard testified that
when he
wanted to draw the money so as to purchase a house, he discovered
that the scheme had collapsed.
[29] The evidence of Jakob Myburgh, Bernard de Bruin,
Stanley Wilhelm Pohlman and Pierre Johannes Scheepers was to the
effect that
they were all introduced to the scheme by one André
Naudé, an assurance broker from Queenstown. They testified
that
Naudé explained the scheme to them after which they
10
placed money in it through either direct deposits into Van
Schalkwyks' trust account or by handing cheques to Naudé.
Except
for De Bruin, who testified that he did not know where the
money was going to, they all received acknowledgements of debt from
Van Schalkwyks. Like Hart, Pohlman and Barnard, they had all either
never heard of, or met, or spoke to, Van Schalkwyk, Du Mont
or
Halgryn. André Naudé was not called as a witness
although it appears, from the heads of argument of counsel for
the
respondent, that he was available.
[30] In dismissing the plaintiffs' claims also on the
s 47(1)(g) defence, the trial court said:
'There can, in my view, be no
doubt that the sole reason for placing money in the scheme was to
earn a return on the initial stake.
The conclusion is inescapable
that the plaintiffs, when they placed money in the trust account of
Van Schalkwyks, intended their
money to be invested in the scheme. In
this sense, they can be said to have instructed Van Schalkwyks to
invest the money on their
behalf. Those plaintiffs who placed their
money into the trust account after the commencement date of 15
January 1999, are therefore
struck by s 47(1)(g).'
I have not concerned myself much with the dates on which
moneys were paid into Van Schalkwyks' trust account. It is clear from
the
evidence of all the witnesses that no one sought to withdraw
money from the scheme immediately before the section came into
operation.
Indeed, it appears that all entrustments would have been
renewed after the date of commencement of s 47(1)(g) of the Act.
Clearly then, if the finding of the trial court regarding the
intention of the plaintiffs that their money be invested in the
scheme
is correct, then all the plaintiffs are hit by the section.
[31] It was submitted, on behalf of the plaintiffs,
however, that s 47(1)(g) finds no application in this matter,
because Van
Schalkwyks were not instructed to use the entrusted money
to make any investments 'on behalf of' the plaintiffs. Moreover, the
claims that were to be bought in the discounting scheme were not
bought for the plaintiffs, so the argument proceeded. In those
circumstances, counsel contended, it cannot be said that the
authority which the plaintiffs gave Van Schalkwyks to release the
money from trust for use in discounting transactions constituted an
instruction by them to Van Schalkwyks to use the money in order
to
make investments 'on behalf of' the plaintiffs.
[32] At the risk of repeating myself, s 47(1)(g)
exonerates the Fund from liability in respect of any loss suffered
'by any
person as a result of theft of money which a practitioner has
been instructed to invest on behalf of such person' after the date
of
commencement of the subsection. As was correctly held in
Michael
Yeats NO an others v The Attorneys' Fidelity Fund Board of Control
,
11
the subsection being a statutory exception to the Fund's general
liability under s 26, the defendant in this matter bore the
onus
of proving that its liability is excluded by the exception.
[33] The term 'invest' is not defined in the Act. It
must accordingly be given its ordinary grammatical meaning. I agree
with the
court a quo that the legislature, when using the word in
s 47(1)(g), intended it to have the ordinary meaning as defined
in
the Concise Oxford English Dictionary, viz to 'put money into
financial schemes, shares or property with the expectation of
achieving
a profit'. (See also the Shorter Oxford English Dictionary
which defines 'invest' as 'To employ (money), in the purchase of
anything
from which interest or profit is expected'.)
[34] All the plaintiffs who testified made their moneys
available, either through Paragon, or through an agent such as Naudé,
or through direct payment into the trust account of Van Schalkwyks,
did so in the expectation, indeed assurance, that they will
receive a
handsome return (profit). And in his affidavit in support of the
application for the sequestration of Du Mont, Thurgood
stated that
'the Applicants . . .
invested
the sum of R33 910 011 with VAN SCHALKWYK ATTORNEYS . . .
for the purposes of
investing
in the discounting of estate agents' commission . . . '. (My
underlining.) As previously stated Barnard, De Bruin, Pohlman and
Scheepers were co-applicants with Thurgood and deposed to
confirmatory affidavits confirming the correctness of Thurgood's
statement.
Hart was also a co-applicant. Moreover, Thoman testified
that she wanted to
invest
part of her 'package' and knew what a factoring scheme was. It is
therefore manifest that the plaintiffs knew when they deposited
funds, or handed over their moneys for payment, into Van Schalkwyks'
trust account, that those moneys were for the purposes of
being
invested in the factoring scheme, and indeed intended their moneys to
be so applied.
[35] It is true, as counsel for the plaintiffs
submitted, that the profits and losses made in the discounting
transactions did not
affect the amounts which Van Schalkwyks had to
pay to the plaintiffs at the end of the transaction periods. This
submission is
obviously grounded in the acknowledgements of debt
issued by Van Schalkwyks in terms of which an undertaking was given
to investors
that the capital and profit (or interest) will be paid.
There was no condition, for example, that if there was no factoring
during
the investment period, then no interest will be paid. In my
view, this is of no consequence. What matters is the purpose for
which
the moneys were paid into Van Schalkwyks' trust account, which
was for investing in the factoring scheme. The fact that the claims
(for commissions) which were to be bought in the scheme might not
have been purchased for the plaintiffs, as counsel for the plaintiffs
argued, is also of no consequence. The claims were not going to be
purchased by Van Schalkwyks on behalf of the plaintiffs, but
by
Halgryn in the course of his operating his discounting scheme. The
plaintiffs' moneys were to be invested on their behalf in
Halgryn's
discounting business. And Halgryn, if all had gone well, would have
paid the capital and profit back to Van Schalkwyks,
who would then
honour its obligation towards the plaintiffs. I agree with the
submission by counsel for the defendant that this
was a scheme
conducted by a third party or parties, in which the plaintiffs wished
to put their money with the expectation of making
a profit in the
form of 'a stipulated amount of interest'. The plaintiffs were thus
investing in the factoring scheme, through
Van Schalkwyks.
[36] As to the submissions that Van Schalkwyks were not
instructed to use the moneys to make any investment on behalf of the
plaintiffs,
the short answer is in the acknowledgements of debt
issued by Van Schalkwyks after August 1998. They acknowledged
receipt, in trust,
of the amount paid and then went on, in the second
paragraph, to say:
'The capital is received for
investment purposes and the said Aren Joubert van Schalkwyk is
authorised to invest the capital on
behalf of the creditor by
Factoring of claims in general which includes among other the
discounting of bank guarantees pertaining
to commissions earned by
estate agents and nett proceeds by sales by Sellers of properties.'
All
the witnesses, bar De Bruin and the Paragon plaintiffs, who include
Thoman and Hart, (the latter in his personal capacity and/or
representing Namcoast), received the acknowledgements of debt and
never queried their wording. Hosking, whether in his personal
capacity or as representative of Paragon and/or the Paragon
plaintiffs, as their agent, also received the acknowledgements of
debt. His denial, in his evidence, that Paragon's instructions to Van
Schalkwyks were to invest the funds cannot be accepted and
must be
rejected. After all, on his own version, he was in direct contact
with Halgryn. He testified that when Halgryn required
more money he
(Hosking) paid that money into Van Schalkwyks' trust account. For
what purpose was the money so paid into Van Schalkwyks'
trust account
other than for it to be invested in the discounting scheme? There can
be none. In my view, on each occasion that
money was paid into Van
Schalkwyks' trust account, that act amounted to an instruction to
invest such money in the factoring scheme.
This emerges clearly from
the plaintiffs' own version.
[37] Counsel for the plaintiffs also contended that the
moneys paid into Van Schalkwyks' trust account were stolen virtually
immediately
after they were deposited therein. There could thus be no
renewal of entrustments as there were no funds left to be further
entrusted
to Van Schalkwyks. The plaintiffs' claims, therefore, are
not for payment of the moneys in terms of the acknowledgements of
debt,
but for moneys paid in before 15 January 1998.
12
(I assume this submission has no bearing on those plaintiffs who paid
moneys into Van Schalkwyks' trust account after the relevant
date.)
[38] There is no merit in this contention. The moneys
paid to Van Schalkwyks by the plaintiffs became mixed with other
funds kept
in Van Schalkwyks' trust account. An amount equivalent to
the moneys paid in by the plaintiffs would have been invested in the
discounting scheme. It can never be argued that the exact same,
identifiable, bank notes paid in, in the case of cash payments,
were
passed on to Halgryn. Thus, until such time that there was no money
in Van Schalkwyks' trust account to reimburse the plaintiffs,
it
cannot be argued that the moneys were stolen immediately or soon
after they had been placed into the trust account of Van Schalkwyks.
Indeed, Myburgh testified that 'when the previous acknowledgement
(previous to the one issued on 11 May 2000) was due, I had asked
for
repayment of R500 000 which was paid to me, and that was
deposited and therefore their debt to me reduced to 1 million'.
[39] In my view, the defendant succeeded in proving that
the plaintiffs' claims are excluded by s 47(1)(g) of the Act.
This
conclusion renders it unnecessary for me to consider the very
interesting questions of the alleged contravention of the provisions
of the Banks Act, and whether the plaintiffs' moneys were 'entrusted'
to Van Schalkwyks 'in the course of an attorneys practice'.
[40] The appeal is dismissed with costs which shall
include the costs of three counsel, to be paid by the appellants
jointly and
severally, the one paying the other to be absolved.
.................................
L MPATI
JUDGE OF APPEAL
COUNSEL
FOR APPELLANT : O ROGERS SC
J
P DE BRUIN SC
M
J LOWE SC
INSTRUCTED
BY : WHEELDON RUSHEMERE & COLE
GRAHAMSTOWN
CORRESPONDENT : DU
TOIT LOUW BOTHA
BLOEMFONTEIN
COUNSEL
FOR RESPONDENT : J J GAUNTLETT SC
R
G BUCHANAN SC
O
H RONAASEN
N
GQAMANA
INSTRUCTED
BY : NEVILLE BORMAN & BOTHA
GRAHAMSTOWN
CORRESPONDENT : CLAUDE
REID INC
BLOEMFONTEIN
1
Section 26(a) of the Attorneys Act 53 of 1979,
which reads: '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, his candidate attorney or his employee,
of any money or other property entrusted
by or on behalf of such
persons to him or to his candidate attorney or employee in the
course of his practice or while acting
as executor or administrator
in the estate of a deceased person or as a trustee in an insolvent
estate or in any other similar
capacity; and
(b) . . . '
2
94 of 1990.
3
Section 26(a) of the Act, footnote 1. See
Industrial and
Commercial Factors (Pty) Ltd v Attorneys Fidelity Fund Board of
Control
[1996] ZASCA 84
;
1997 (1) SA 136
(A) at 140E.
4
The court found, on the evidence before it, that the funds were
stolen by Van Schalkwyk or Du Mont, or both, they having at all
material times been practising attorneys in the firm Van Schalkwyks.
5
Section 26(a) entitles a person to claim reimbursement for stolen
money that was entrusted to a practitioner 'by or on behalf
of' such
person.
6
1987 (1) SA 196
(A) at 214C-216B.
7
1989 (2) SA 1
(A) at 8C-E and 11F-H.
8
He is the 77
th
plaintiff in the King claim.
9
The date of her initial deposit was 25 July 1997.
10
Myburgh placed his own money as well as money from his two daughters
and his wife in the scheme.
11
Unreported decision of the Cape of Good Hope Provincial Division
(per Van Heerden J), delivered 6 May 2003.
12
The date on which s 47(1)(g) came into operation.