Du Preez and Others v Zwiegers (61/07) [2008] ZASCA 42; 2008 (4) SA 627 (SCA); [2008] 3 All SA 425 (SCA) (28 March 2008)

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[2008] ZASCA 42
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Du Preez and Others v Zwiegers (61/07) [2008] ZASCA 42; 2008 (4) SA 627 (SCA); [2008] 3 All SA 425 (SCA) (28 March 2008)

IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
REPORTABLE
CASE NO 61/07
In the
matter between
GERHARDUS JOHANNES DU PREEZ
...
First Appellant
JOHANNES PETRUS JOHST
...
Second Appellant
VERSATILE CONTRUCTION CC
...
Third Appellant
and
WILLEM BAREND JOHANNES ZWIEGERS
...
Respondent
________________________________________________________________________
CORAM: HOWIE P, NUGENT, CLOETE, HEHER et MAYA JJA
________________________________________________________________________
Date Heard: 11 March 2008
Delivered: 28 March 2008
Summary: Attorney negligent in paying out money in trust account
without establishing from depositor what latter wanted done with
it.
Neutral Citation: This judgment may be referred to as
Du
Preez v Zwiegers
(61/2007)
[2008] ZASCA 42
(28 March
2008).
________________________________________________________________________
J U D G M E N T
________________________________________________________________________
HOWIE P
HOWIE P
[1] The respondent, a practising Johannesburg attorney,
received the sum of R385 000 into his trust account. The depositor
was Versatile
Construction CC, a close corporation conducting a
construction business. I shall refer to it as ‘the corporation’.
[2] The corporation’s sole member, Mr GJ du Preez, in
partnership with Mr TP Johst, had sought to obtain a foreign loan for
a project
which the corporation would undertake. The loan was to be
procured through an entity called DLA International Financial
Services
(DLA). Under a loan procurement agreement with DLA the
borrowers (to whom I refer by their surnames) were liable to pay the
sum in
question as a refundable deposit. It had to be paid into the
respondent’s trust account where it would be held pending onward
payment
to DLA on implementation of the loan.
[3] However, pursuant to instructions from a client, Mr
Michael Louw (Louw), who himself claimed to be entitled to the amount
concerned,
the respondent paid the money, less a fee of R5 000 agreed
with Louw, to a company designated by Louw. Before doing so the
respondent
did not contact the corporation or anyone representing it.
[4] When, subsequently, DLA failed to pay out the loan
monies, Du Preez tried to recover the deposit. All his efforts,
including an
approach to the respondent, were in vain.
[5] As co-plaintiffs, Du Preez, Johst and the
corporation then sued the respondent for damages in the sum of R385
000. The claim was
based on contract, alternatively in delict. It was
alleged that the respondent’s disposal, without the corporation’s
consent,
of the monies deposited constituted (I paraphrase) the
breach either of a mandate to deal with the funds only on the
corporation’s
instructions, or of a legal duty to deal with the
funds without negligently causing the plaintiffs harm.
[6] The action was instituted in the High Court at
Johannesburg and came before Marais J. The learned Judge dismissed
the action but
granted leave to appeal on the delictual claim.
[7] The relevant evidential material at the trial
comprised the testimony of Du Preez and the respondent, and various
items of documentary
evidence. The salient facts, some of which have
been referred to above, are not in dispute.
[8] The sole communications received by the respondent
from, or on behalf of, the plaintiffs consisted in a letter faxed on
11 May
2001 by attorneys acting for Du Preez and Johst, to which was
added a later handwritten subscript which Du Preez signed, for the
corporation, on 16 May. The body of the letter reads:
‘
D.L.A. \ GJ DU PREEZ & TP JOHST
The above refers. We wish to advise that we act on behalf of Messrs
du Preez & Johst. We have been advised that your client granted
our clients a loan in the sum of R3 850 000.00. Your
clients however require that our clients must deposit the sum of R385
000.00 into your company’s trust account.
1. Our client wants your written confirmation that the monies will
not be paid over to your clients without our client’s written
consent.
2. The only stage in fact when the money can be paid over to your
client is when our client has received payment of the full R3 850
000.00. Clause 3.3 of the letter of grant must be amended.
3. Our clients want an acceptable
BANK
guarantee for the
R3 850 000.00. When can our client expect to receive the
guarantee.
4. Our clients want your written confirmation that your client is not
acting as a deposit-taking institution, or in the event that
your
client is a deposit taking institution we want confirmation that your
client is registered as such.
We await your reply at your most earliest [sic] convenience.’
[9] Alongside the writer’s signature appears the
subscript. It was written by one Coetzee, an agent for DLA in the
transaction of
the loan procurement. It reads:
‘
I, Mr GJ Du Preez confirm that the broker can
proceed with the procurement of the funding and this letter is hereby
cancelled.’
[10] Du Preez testified (and he impressed the Judge
generally as being an honest witness) that subsequent to 11 May
Coetzee told him
that the bank guarantee requirement in clause 3 of
the letter would occasion delay in the paying out of the loan monies,
which payment
was imminent. He therefore proposed that Du Preez sign
the handwritten subscript. Du Preez did so intending, he said, to
cancel no
more than the guarantee provision. His evidence on this
point is perfectly credible but the matter can be dealt with on the
basis
of the respondent’s evidence that he understood the letter to
be cancelled in its entirety.
[11] The respondent received the letter on or about 11
May. Despite its concluding request for a very early reply he did not
answer
it. This was despite the fact that he had heard from Louw both
before and after its receipt. Before the letter’s arrival, so the
respondent testified, Louw telephoned him and said he was due some
commission which would soon be paid into the respondent’s trust
account. The amount, Louw said, would be ‘in the vicinity of R380
000’. Louw said he would instruct the respondent ‘where to
pay
the money to’ (the respondent’s words). Because the letter
conflicted with this intimation from Louw, the respondent telephoned
Louw and told him what the letter said. Louw said it was nonsense and
undertook to ‘sort it out’ (again the respondent’s words).
That
was some time before 16 May.
[12] A number of significant events occurred on 16 May.
First, as mentioned already, there was the handwritten cancellation
of the
letter of 11 May. The respondent said he inferred that the
cancellation was the result of Louw’s intervention. Second, the
corporation’s
loan deposit was paid into the respondent’s trust
account. Third, Louw telephoned the respondent and instructed him to
pay the
money (less fee) to Asset Allocation Consultants (Pty) Ltd, a
Pretoria company. Fourth, the respondent prepared the necessary
documentation
but told Louw, so he testified, that he required
written instructions from Louw before he would pay what he regarded
as Louw’s
money to anyone else.
[13] On 17 May Louw faxed the requested instructions to
the respondent. Also on that date DLA, per a director named RC
Koekemoer,
faxed the respondent as follows:
‘
With reference to our phone conversation at
16h30 on 16 May 01, DLA hereby appoints Mr Michael Louw as our
agent/representative and
authorises Zwiegers Attorneys to release all
funds held on our behalf to Mr Louw who will invest the funds as per
agreement between
ourselves and Mr Louw.’
Questioned by the trial court about this letter, and
particularly the reference to the funds allegedly held on DLA’s
behalf, the
respondent, who had earlier testified that he all along
regarded the money as being Louw’s the moment it was paid into the
trust
account, said he did not apply his mind to this point. He said
(unconvincingly) he hoped there was some commission sharing agreement
and because the letter did not direct him not to pay Louw, he paid
out the funds when he got Louw’s letter of the same day. It
may be
observed, in any event, that DLA was not the respondent’s client.
The respondent’s case is based squarely on the fact
that Louw was
the client and it was on his instructions that the respondent placed
total reliance.
[14] The trial Judge considered that the plaintiffs had
been the victims of a fraudulent conspiracy. It may be that DLA and
Louw were
parties to it, hence the DLA letter to the respondent of 17
May. However that may be, there is no suggestion that the respondent
was a party to it and the fundamental question is whether the
reasonable person in the respondent’s position would have relied
exclusively on Louw’s statements and instructions or taken the
simple step of contacting the depositor to ascertain what the latter
wanted done with the money.
[15] I should mention for the sake of completeness that
the respondent testified that, at some stage which he said was before
17 May,
he received a number of telephone calls from somebody who
said he was Du Preez, the consistent tenor of which was that the
money
should be got to Louw as quickly as possible. The trial Judge
accepted without hesitation that Du Preez did not make these calls.
Although he considered that there was nothing to contradict the core
factual allegations in the respondent’s evidence, the Judge’s
summary of those allegations does not include the bogus telephone
instructions. The latter were not part of the respondent’s reasons
for paying out the money, they played no part in the Judge’s
conclusions and counsel for the respondent did not rely on them. It
is therefore unnecessary to elaborate on why this feature of the
defence case impresses as bizarre and inherently improbable.
[16] Reverting to the fundamental question posed
earlier, the long and short of the respondent’s case is that he saw
no need to
make contact with the plaintiffs or their attorney in view
of the cancellation of the letter of 11 May and the fact that his
client,
Louw, had given him unambiguous instructions as to the
disposal of the money.
[17] The trial Judge’s conclusions on the delictual
claim may be summarised as follows. The respondent was acting for
Louw throughout.
Louw told the respondent that the contents of the 11
May letter were nonsense and the letter was later cancelled. Although
it was
‘strange’ that the respondent failed to respond to the 11
May letter and although it might have been expected that he would
query
the handwritten cancellation of an attorney’s letter, and
although confronting the plaintiffs with Louw’s version would
immediately
have exposed the fraud, the respondent was entitled to
assume that the plaintiffs had no further instructions for him and
did not
wish to impose any duties on him in his dealing with the
money. They had, in effect, in disregard for their own interests,
parted
with their money ‘without strings’ and by inference had no
further concern as to how the respondent disposed of it. Having no
mandate from them, he was not obliged to look after their interests.
In all the circumstances the legal duty necessary for delictual
liability had not been established in this case.
[18] The respondent’s argument on appeal conformed
very much to the trial Judge’s conclusions. In essence the
submission was that
on the unique facts of the matter unlawfulness
had not been established and any negligence on the respondent’s
part that there
might have been before cancellation of the 11 May
letter ceased to have any effect after that.
[19] I find it difficult to see what possible scope
there is for the contention that there was no legal duty in this
situation. An
attorney is under a legal duty to deal with trust
account money in such a way that loss is not negligently caused,
inter alia
, to the
depositor. That was decided in
Hirschowitz
Flionis v Bartlett and Another.
1
No acceptable reasons have been advanced which take this
case outside the scope of what was there found in regard to
unlawfulness.
[20] The court below did not make any express finding
that the respondent had been negligent but there are indications in
the judgment
that the court considered his failure to make certain
enquiries to have been remiss. What the court went on to say,
however, would
mean the same even if the respondent had been found
negligent. What the court in effect held was that as long as a
depositor is silent
as to what is to be done with the money deposited
in an attorney’s trust account the latter can, as long as there are
specific
instructions from the attorney’s client as to that money,
negligently, but still lawfully, ignore what the depositor might want
done with the money. The proposition’s mere articulation warrants
its rejection.
[21] It was also wrong, in my view, to hold, as a
corollary, that it was up to the depositor to look after its own
interests.
Vis-à-vis
the
depositor the attorney is not just another member of the public who
is entitled to expect fellow citizens to take reasonable care
to
protect their own interests. An attorney into whose trust account
money is paid owes a duty to the depositor even if the depositor
is
not an existing client of the practice. That duty, at the risk of
repetition, is to deal with the money in such a way that harm
is not
negligently caused, to the depositor among others.
[22] Moving on to the element of fault, the test is that
laid down in
Kruger v Coetzee.
2
Upon receipt of the letter from the plaintiffs’
attorneys of 11 May the respondent knew that at that juncture the
impending deposit
was to be held for the benefit of DLA, his supposed
client. He did not respond that DLA was not his client. Had he made
contact with
the letter-writer the true picture would have emerged.
Then he heard from Louw that the deposit he was expecting was owed on
a completely
different basis. The respondent made no effort to
ascertain the plaintiffs’ attitude to Louw’s version. Later still
the plaintiffs’
letter was cancelled but the money was nevertheless
deposited. The respondent chose to ignore – he could not simply
have been inadvertent
about this – what the depositor wanted done
with the money. He closed his mind to the depositor’s intention and
confined his
attention to what Louw instructed. Significantly, the
respondent dealt with the money in relation to Louw as he should have
dealt
with it in relation to the plaintiffs. Louw said clearly enough
that he wanted the money paid to Asset Allocation Consultants but
the
respondent refused to pay out, even though Louw was the beneficiary –
or perhaps one should say because Louw was the beneficiary
–
without Louw putting that instruction in writing so that no later
dispute would arise. Had this expedient been followed in relation
to
the plaintiffs no loss would have resulted. Indeed, the required care
was more simply taken. It needed only a telephone call to
the
plaintiffs’ attorney to establish exactly the purpose of the
deposit and that in no circumstances was the money to go to Louw
or
his designated payee.
[23] Correct though the finding of the court below may
have been that the respondent was given no mandate by the depositor,
the respondent’s
essential error lay in failing to find out whether
it intended to give him a mandate and, if so, what it was. A
reasonable attorney
would have done so and in having omitted to do so
the respondent was negligent.
[24] It is clear that the damages sustained were
suffered by the corporation. It follows that its delictual claim
ought to have been
upheld. As to costs, the plaintiffs’ heads of
argument on appeal were prepared by two counsel but only junior
counsel appeared
at the hearing. The employment of two counsel in
that regard was a precaution reasonable in the circumstances.
[25] The order of this court is as follows:
A. The appeal is allowed with costs, such costs to
include the costs of two counsel in so far as two were employed.
B. The order of the court below is set aside.
Substituted for it is the following:
‘
Judgment is granted in the third
plaintiff’s favour and the defendant is ordered to pay it -
(1) Damages in the sum of R385 000.
(2) Interest on that sum at 15,5% per year
a
tempore morae.
(3) Costs of suit.’
__________________________
CT HOWIE
PRESIDENT
SUPREME COURT OF APPEAL
CONCUR
:
NUGENT JA
CLOETE JA
HEHER JA
MAYA JA
1
2006
(3) SA 575 (SCA).
2
1966
(2) SA 428
(A) at 430 E-F.