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[2018] ZAKZPHC 71
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Symons N.O and Another v Rob Roy Investments CC t/a Assetsure (4827/2013) [2018] ZAKZPHC 71; 2019 (4) SA 112 (KZP) (10 December 2018)
IN THE HIGH COURT OF
SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
REPORTABLE
CASE
NO:
4827/2013
In
the matter between:
SHANE
ALAN SYMONS
N.O
First Plaintiff
JOHANNA
ALETTA SYMONS
N.O Second
Plaintiff
and
THE
ROB ROY INVESTMENTS CC
t/a
Defendant
ASSETSURE
ORDER
The
claim is dismissed with costs.
JUDGMENT
Delivered on: 10 December
2018
PLOOS
VAN AMSTEL J
Introduction
[1]
The plaintiffs in this matter are the trustees of the Symons Family
Trust. They seek damages against the defendant, who is their
former
financial adviser and investment broker. The basis of the claim, as
pleaded, is that on the defendant’s advice the
trust invested a
total amount of R5 million in a concern known as Sharemax Investments
(Pty) Ltd (‘Sharemax’), and
lost the whole of its
investment when the scheme collapsed.
[2]
The defendant is The Rob Roy Investments CC, trading as Assetsure,
and was represented in its dealings with the trust by its
sole
member, Mr Peter Griffin. He was at the time registered with the
Financial Services Board as a financial services provider.
[3]
Mr Symons and his wife are the two trustees of the trust. He had a
successful career, starting as a shelf packer in Pick and
Pay in
1990, then a sales representative, later a sales manager and later a
50 % shareholder and director of a sales and merchandising
company.
He and his partner sold the business in 2009. This left Mr Symons
well off financially, so much so that he planned to
retire early.
[4]
Mr Griffin became Mr Symons’ financial adviser in 2006. For the
sake of brevity I shall refer to them by their surnames.
Griffin got
to know Symons well, and their relationship developed into something
more than the ordinary client relationship. He
said Symons was an
astute businessman. He managed his own share portfolio and
occasionally boasted about its performance. Griffin
regarded him as a
wealthy man.
[5]
During the period 2006 to 2008 Symons, either personally or on behalf
of the trust, made a number of investments through Griffin.
These
included an investment of R750 000 in a company that owned fully let
buildings in the United Kingdom; life insurance on two
occasions; an
investment of R1 million with Investec; and a further R1,25 million
in an international property investment.
[6]
During May or June 2009 Symons received an amount of about R7
million, which represented one half of his share of the selling
price
of their business. He was
to
receive the balance in two later instalments. He mentioned to Griffin
that he intended to retire early and that he was interested
in an
investment which would produce a monthly income.
[7]
Griffin mentioned the Sharemax investment to Symons on the phone, and
they agreed to meet to discuss this further. When they
met he
explained to Symons that the Sharemax product was an investment in a
shopping mall which was being constructed in Pretoria,
that he would
receive 12, 5% interest from the date of the investment, and after
the occupation date a monthly payment from the
rental income, which
would escalate every year. He left some documents regarding the
scheme with Symons.
[8]
A week or two later Symons phoned him and said he had made up his
mind and wanted to invest an amount of R2 million in Sharemax.
They
met again on 24 June 2009. Symons signed a number of documents
relating to the investment and gave Griffin a cheque for R2
million,
made out to a firm of attorneys who represented Sharemax.
[9]
Symons made a further investment of R1 million on 12 November 2009.
He received regular interest payments on the two investments,
and on
14 July 2010 invested a further amount of R2 million. He received no
interest payments in respect of the third investment,
and the monthly
payments in respect of the first two investments also stopped.
[10]
When Griffin made enquiries with Sharemax as to what was going on he
was told that the Reserve Bank had raised a problem but
that they
were dealing with it. Griffin was in the same boat as he had invested
an amount of R600 000 with Sharemax. Part of this
was his money and
the rest belonged to family members.
[11]
It later transpired that the Reserve Bank had intervened as it
regarded the funding model as the unlawful taking of deposits
from
the public, and directed Sharemax to change its funding model. It was
not able to do so. As a result it was unable to raise
further money,
the scheme collapsed and construction on the shopping mall came to a
halt. It remains unfinished, and it was not
disputed before me that
it is not likely to be finished.
The
Claim.
[12]
The case pleaded by the plaintiffs was as follows. In terms of the
contract between the parties the defendant undertook to
advise the
trust with regard to a range of low risk investments; the defendant
would execute its mandate with the level of skill
and diligence
expected of advisers such as the defendant, and which the defendant
represented that it possessed; and the defendant
would not recommend
any investment to the trust until it had satisfied itself that it was
a low risk investment.
[13]
The plaintiffs further pleaded that during 2009 and 2010 the
defendant advised and persuaded them to invest in a concern known
as
Sharemax Investments (Pty) Ltd and represented to them that this was
a low risk investment. He also advised them that in accordance
with
the prospectus issued by Sharemax they would receive an initial
income yield of 11% per annum and a guaranteed return of the
capital
invested by them, after five years. Then followed an averment that,
independent of the prospectus, the defendant advised
them that the
returns were guaranteed and that there was no risk involved in making
the investment.
[14]
The plaintiffs pleaded that the defendant breached its contractual
obligations by advising them to invest in Sharemax in circumstances
where the investment carried a substantial risk as the funds were
intended for investment in a syndicated property development;
by
advising them that the returns were guaranteed when this was not the
case; by failing to properly investigate Sharemax and its
business
dealings or to properly understand Sharemax’s prospectus and
proposed business model; by failing to exercise an
independent
judgment regarding the propriety of the Sharemax business and the
contents of its prospectus; and by failing to exercise
the requisite
level of skill and diligence that it had represented to the
plaintiffs that it possessed.
The
Issues
[15]
In considering whether the defendant has been shown to be liable for
the loss suffered by the plaintiffs, I need to consider
the nature of
the investment and the risks that attached to it; whether the
defendant breached its contractual obligations in any
way; and if so,
whether such breach can be said to be the cause of the plaintiffs’
loss. The issue of causation seems to
me to include a consideration
of why the scheme failed.
The
nature of the investment.
[16]
The scheme concerned a shopping mall which was being constructed in
Pretoria, known as The Villa Retail Centre. It consisted
of a
property syndication promoted by Sharemax, with investors purchasing
units in a company known as The Villa Retail Park Holdings
Limited
(‘Holdings’).
[1]
According to the documents given to Symons the project value was
approximately R3 billion and was financed with investments from
the
public by means of a series of prospectuses.
[17]
The first prospectus given to Symons related to a public offer by
Holdings for subscription for 75,000 linked units in the
company,
each linked unit consisting of one ordinary par value share and one
unsecured floating rate claim, linked together in
a unit of R1000.
The amount sought to be raised pursuant to this prospectus was the
sum of R75 million. The prospectus was the
eighth one, and the
evidence was that all the previous prospectuses were fully
subscribed.
[18]
The land on which the shopping mall was being constructed was owned
by a company known as Capicol 1 (Pty) Ltd. In terms of
the scheme
Capicol would sell the shopping mall to a company known as The Villa
Retail Park Investments (Pty) Ltd (‘Investments’),
the
shares in which were owned by Sharemax. Holdings, in turn, would
acquire the shares in Investments from Sharemax. The investors
would
own shares in Holdings, together with the claims linked to those
shares. Once the shopping mall was occupied by tenants,
the rental
income would provide a monthly income to the investors.
[19]
To this end Investments concluded a Sale of Business Agreement with
Capicol on 15 January 2009, in terms of which it bought
the shopping
mall as a going concern (Capicol was the owner of the land and the
developer) for a ‘projected amount’
of R2, 9 billion, on
the basis that the actual purchase price would only be calculated and
adjusted 30 days after the occupation
date, once the income stream
had been determined.
[20]
In terms of the prospectus it was envisaged that investors (in option
A) would receive a rate of return of 12, 5% from the
date of the
investment until the occupation date, and 11% for the first year
after the occupation date. There were projected escalations
for the
years that followed.
[21]
The second investment by the plaintiffs was substantially the same as
the first one. The third investment differed in the sense
that the
shares purchased by the investors were in a company registered as The
Villa Retail Park Holdings 2 Ltd, had an issue price
of R1000 per
share, and the shares were not linked to loans as in the case of the
first two investments. The difference is not
material for present
purposes.
The
Risks.
[22]
It was not disputed before me that the investment was a high-risk
one. This in itself does not mean that investing in it was
reckless
or irresponsible, as this depended on the particular circumstances of
the investor, its objectives and the context and
background of the
investment itself. A risk which is acceptable to some may not be
acceptable to others. I should add that there
was disagreement
amongst the expert witnesses with regard to the extent and
materiality of the risks inherent in the scheme.
[23]
Mr Prakke, a chartered accountant with substantial forensic
experience, testified as an expert witness for the plaintiffs.
He is
very familiar with Sharemax as he had made a study of it as an expert
witness for the late Mr Deon Basson, a financial journalist
who was
sued by Sharemax for defamation. Basson passed away before that
matter was heard. I should add that Prakke is not a financial
services provider.
[24]
He expressed several criticisms of the investment, which he described
in the summary of his evidence as an ‘above average’
investment risk, and in his evidence as ‘higher than high’.
He criticised the obligation to pay interest to the investors
before
there was a rental income stream, and said this could only mean that
the interest was paid out of invested capital. He contended
that the
vacancy factor budgeted for was too low; that the projected rental
per square meter was too high; that the syndication
structure was
illegal in that it contravened the Banks Act 94 of 1990; that the
upfront commissions and other expenses were too
high; that the public
companies involved were insolvent; that the projected returns were
not feasible; that the prospectus omitted
material information; that
the defendant should have performed a due diligence investigation and
explained the cost of the units
to the plaintiffs; and that the
defendant failed to act in accordance with its professional
obligations and the requirements of
FAIS
[2]
.
[25]
Mr Throssel, an investment manager, also testified for the plaintiffs
as an expert witness. He regarded the upfront commissions
and fees as
exorbitant; he thought they would affect the independence of the
defendant as a financial services provider and would
motivate it to
sell the investment in preference to other investments; he regarded
the returns promised to investors as exceptional;
and he expressed
the view that Griffin failed to investigate the investment properly
and thus did not exercise the required level
of skill and diligence.
[26]
Mr Cohen, who testified for the defendant as an expert witness, said
the fact that the company was not listed was neither here
nor there.
He said many property syndications and developments are done by
unlisted companies, and this on its own was not a matter
of concern.
With regard to the source of the money which was required to make
monthly payments to the investors, he said according
to the
prospectus the invested funds were deposited by the attorneys in an
interest-bearing trust account, and in addition, in
terms of the sale
of business agreement, Capicol was obliged to pay interest to
Investments on the amounts advanced to it as part
of the purchase
price. He said this was a common practice, and was designed to assist
the developer with its cash flow. The fact
that the successful
completion of the shopping mall was dependent on further investments
did not concern Cohen. He said at the
time investments in retail
property were very popular and all the earlier prospectuses issued by
Sharemax in respect of The Villa
were fully subscribed. He thought
that but for the intervention by the Reserve Bank the shopping mall
would have been completed
as envisaged, and produced a rental income.
He did not regard the projections in the prospectus as unrealistic
and said economic
conditions would have determined how well the
shopping mall did and what returns it produced. He did not agree that
the public
companies promoted by Sharemax were insolvent and pointed
out that the claims by the investors were subordinated. He disagreed
that it is expected of a financial services provider to perform a due
diligence exercise, within the meaning of that expression
in mergers
and acquisitions. He expressed the view that a financial services
provider should do a reasonable investigation, and
is entitled to
have regard to the track record of the company, the people involved
and the information in the prospectus.
[27]
Neither Cohen nor Mr Swanepoel (who also testified as an expert
witness for the defendant) regarded the information in the
prospectus
as inadequate, and neither of them regarded the commission structure
as exorbitant or a negative influence on the financial
adviser’s
independence.
[28]
Swanepoel expressed the view that a reasonable financial services
provider would have taken into account the reputation of
the Sharemax
group of companies; the sound property investments which Sharemax had
offered since its inception; would have regarded
the probability of
Sharemax failing to be negligible; that there was no indication in
the prospectus or any other document that
the investment scheme was
illegal in any way; would have had regard to the involvement of
reputable professional people; that a
financial services provider is
wholly dependent on information in the public domain, and is not
required to act as an amateur detective
and investigate the truth of
public statements by reputable professional people and the
representatives of the investment schemes.
Griffin
[29]
Griffin testified that he mentioned the Sharemax investment to Symons
because he knew that he liked investments in property,
and it would
produce an attractive monthly income. He had attended a number of
lectures and presentations about Sharemax, and had
to write an
examination on it. He was impressed with its track record and the
prospectus, and also by the involvement of professional
firms of
attorneys, auditors and valuers.
[30]
He testified that after the first meeting with Symons about Sharemax,
he left with him a brochure concerning the investment
and a copy of
the prospectus. Symons testified that he only received a copy of the
prospectus on 24 June 2009, when he signed the
documents. I prefer
Griffin’s evidence in this regard. It is not disputed that he
already had copies of the prospectus before
this meeting, and it
seems probable to me that he would have left a copy with Symons. On
the front page of the prospectus appears,
in Symons’s
handwriting, the words ‘Invested 2.0 m’ and the date
‘23/6/2009’. This was the date on
which Symons wrote out
the cheque for R2 million, and the day before the meeting on which he
signed the documents. If he made that
entry on 23 June 2009 then it
is obvious that Griffin must have left the prospectus with him after
the first meeting. In any event,
I see no reason to prefer Symons’
evidence to that of Griffin. Further, in a request for further
particulars for trial the
plaintiffs were asked whether they admitted
or denied that copies of the prospectuses were furnished to them
prior to the conclusion
of the agreements. The answer was that this
was admitted. A similar admission was made by the plaintiffs in terms
of the pre-trial
procedures.
[31]
The brochure contained an overview of the project and the investment
opportunity. It stated that there was a big demand for
lettable area
and that 50% of the centre was signed up within three months of its
introduction. A large amount of these tenants
were said to be
national tenants, with Shoprite Checkers the anchor tenant. The
brochure listed a large number of other tenants,
which included many
well-known national businesses, including the four big banks.
[32]
A caution was expressed in the brochure in the following terms: ‘It
is important that a potential investor reads the
relevant registered
prospectus carefully and makes himself/herself acquainted with the
opportunity and the risks of such an investment’.
[33]
In the ‘Investment Summary’ contained in the prospectus
it was stated that the Public Property Syndication Association
(PPSA), supported by the South African Property Owners Association
(SAPOA), had laid down a strict code of conduct to protect the
rights
of individual investors. It was recorded that Sharemax was a member
of the PPSA and registered with the Financial Services
Board as an
Authorised Financial Services Provider.
[34]
In the opening paragraph of the prospectus appeared the following:
‘The Registrar of Companies has scrutinised the information
disclosed in this Prospectus. The information disclosed complies with
the statutory requirements. The Registrar of Companies does
not
express a view on the risk for investors or the price of the share.
However, the attention of the public is drawn to the fact
that the
shares on offer are unlisted and should be considered as a risk
capital investment. Investors themselves are therefore
on risk as
unlisted shares and the Claims are not readily marketable and should
the Company fail this may result in the loss of
the investment to the
investor’.
[35]
In the document on the letterhead of Unlisted Securities South Africa
(USSA), which was signed by Symons at the second meeting,
appears the
following under the heading ‘General Investment Risk and Tax
Considerations’: ‘The properties are
syndicated in a
company structure. The investor purchases a unit which consists of
ordinary shares and debentures (a debt obligation).
The units are
purchased and sold as a whole and its parts cannot be purchased or
sold separately. With property syndication investments
there is a
risk that both the capital and the income could not materialise. A
property syndication investment is not liquid as
the ability to
transfer the units (shares and debentures/claims/loan account) is
restricted by the absence of a market for those
units/shares’.
[36]
The document also contains the following under the same heading: ‘The
product supplier (entity whose shares/units/debentures
are sold via
the prospectus) is subject to general risks, including changes in
interest rates, inflation rates, level of tax, taxation
law and
accounting practices etc. It is also a newly formed company without
any trading history which can be used to evaluate the
likely
performance of the product supplier and its ability to achieve its
objectives. In cases where loan finance has been advanced
to a
developer, there is the risk that the developer may default on its
obligations or produce insufficient profits to make any
payments of
returns of capital or other amounts due to the product supplier’.
[37]
It is recorded in the document that the investor acknowledged,
understood and confirmed that the repayment of the capital and
or the
income was not guaranteed, unless it was explicitly stated in the
prospectus that it was guaranteed; that the performance
of the
property syndication investment was not guaranteed; and that the
units/shares of the property syndication investment were
unlisted and
should be considered as a risk capital investment. The words ‘NOT
GUARANTEED’ appear on the signature
page in capital letters,
and the words ‘
UNLESS
IT IS EXPLICITLY STATED IN THE PROSPECTUS THAT IT IS GUARANTEED’
in bold
capital letters. Mr Symons signed an identical document on 14 July
2010, when he made the third investment.
[38]
In one of the documents signed by Symons at the second meeting,
headed ‘Confirmation of Advice’, appeared the word
‘Guarantees’ underneath the detail of the investment,
with the words ‘Yes/No’ next to it. The word ‘Yes’
was deleted, leaving ‘No’ as the answer. The same applies
to the documents which he signed on 12 November 2009 and
14 July
2010, when he made the second and third investments.
The
Alleged Breach.
[39]
The breach pleaded was that the defendant had advised the plaintiffs
to invest in Sharemax in circumstances where such an investment
carried a substantial risk as the funds invested were intended for
investment in a syndicated property development; advised the
plaintiffs that the income and capital returns were guaranteed;
failed to properly investigate Sharemax and its business dealings
or
to properly understand Sharemax’s prospectus and proposed
business model; failed to exercise an independent judgment regarding
the propriety of the Sharemax business; and failed to exercise the
requisite level of skill and diligence.
[40]
The plaintiffs also pleaded that it was a material term of the
agreement that the defendant would not recommend any investment
until
it had satisfied itself that it was a low risk investment. In the
letter of demand from the plaintiffs’ attorneys,
dated 2
November 2012, the attorney said the following: ‘Our client
informed you that he wished to invest in low risk investments,
and
initially those instructions were adhered to. However, and commencing
in 2009, you convinced our client to invest contrary
to his risk
tolerance by persuading him to invest in Sharemax Investments (Pty)
Ltd.’
[41]
This was not Symons’ evidence. He said the international
property investments which he made in 2006 and 2008 were classified
as of moderate risk. It was not his evidence that he at any time told
Griffin that he only wanted low risk investments. Nor did
he say that
Griffin represented to him that Sharemax was a low risk investment,
as is alleged in the particulars of claim.
[42]
The averment that the defendant breached its contractual obligations
by advising the plaintiffs to invest in Sharemax in circumstances
where such an investment carried a substantial risk ‘as the
funds invested were intended for investment in a syndicated property
development’ makes little sense as Symons understood that he
was investing in a syndicated property development.
[43]
Griffin denied that he told Symons that the income and capital
returns were guaranteed. In the application form which Symons
signed
he had to make an election between Options A and B. Option A was
stated to be an Income Plan, while Option B was stated
to be a
Guaranteed Plan. In the prospectus Option A referred to a projected
rate of return of 12, 5% from the date of the investment
until the
occupation date, and thereafter a projected rate of return of 11%,
which was guaranteed for a period of one year after
the occupation
date. Option B referred to a guaranteed return of 6% from the
occupation date, which rate would escalate each year
thereafter by 3%
per annum during the first five years. The guarantee in respect of
returns was for a period of five years. The
projected rate of return
from the date of investment until the occupation date was 9%. In the
case of an original investor who
elected Option B and who sold his
units after sixty months, using the services of the Promoter, and to
a purchaser introduced by
the Promoter, would be guaranteed the
return of his capital plus his proportionate share of any growth.
There was no guarantee
in respect of Option A.
[44]
Symons selected Option A, presumably because of the higher initial
rate of interest. The documents to which I have referred
made it
clear that the repayment of the capital and the income was not
guaranteed, and I see no basis for finding that Griffin
told Symons
otherwise.
[45]
I deal now with the allegation that Griffin failed to properly
investigate Sharemax and its business dealings or to properly
understand Sharemax’s prospectus and proposed business model;
that he failed to exercise an independent judgment regarding
the
propriety of the Sharemax business; and that he failed to exercise
the requisite level of skill and diligence.
[46]
The allegation that Griffin failed to exercise an independent
judgment can be easily disposed of. It was based on the fact
that he
received an upfront commission of 6%. The suggestion was that because
this was higher than the norm at the time he would
have recommended
this investment in preference to others. Griffin accepted that the
commission may have been somewhat higher than
in the case of other
lump-sum investments, but said he could have earned more commission
by selling investments in unit trusts
or annuities. Neither Cohen nor
Swanepoel regarded the commission as excessive. I do not consider
that the evidence justifies a
finding that the commission of 6%
compromised Griffin’s independence.
[47]
With regard to Sharemax itself, Griffin said he was aware that
Sharemax Investments (Pty) Ltd was an authorised financial services
provider. When he was approached by Sharemax to market the investment
he gave the prospectus to his accountant and his compliance
officer.
He said that as he was neither an accountant nor an attorney, he
thought it prudent to seek their advice. Neither of them
expressed
any concern about the investment. Griffin also attended a number of
lectures and presentations about Sharemax, and was
impressed with its
track record. It had done property syndications for about ten years
and they had all been successful. He knew
that each prospectus in
respect of The Villa which preceded the one in question had been
fully subscribed.
[48]
Griffin discussed the investment with Symons, who understood that it
was a property syndication involving the construction
of a shopping
mall, which would provide a monthly income. He left a brochure
concerning the investment and a prospectus with him,
and a week or
two later Symons informed him that he had decided to invest in it. He
knew Symons as an astute businessman who managed
his own share
portfolio and who had previously invested in property syndications.
Griffin himself had invested an amount of R600
000 of his and his
family’s money. As far as he was concerned Symons knew what he
was letting himself in for, and in a sense
they were in it together.
[49]
Much was made in the evidence of the fact that Symons’ risk
profile was moderate. Griffin said in the early days he did
regard
Symons as a moderate investor, but later as an aggressive one.
Swanepoel explained that these classifications are mere guidelines,
and that a recommendation is made by a financial adviser with due
regard to the particular circumstances of the investor and his
objectives. He said if on the available information the investor is
capable of making an informed decision, a financial services
provider
will not be at fault when he assists the investor to invest in a
product that may carry a higher risk than the investor’s
risk
profile would indicate.
[50]
Cohen testified that there was enough in the prospectus to enable the
reasonable investor to make an informed decision. He
said there was
nothing unsound, unusual or extraordinary in the business model.
Nothing in the prospectus would have caused him
concern. The model
conformed to similar structures used in developments in the property
industry. The only difference was that
the development was funded by
investors instead of a bank. He expressed the view that the
investment would probably have been successful
if the Reserve Bank
had not intervened.
[51]
It seems to me that on the information which had been given to Symons
he was able to make an informed decision. He took a week
or two to
make up his mind, and it is probable in my view that he substantially
understood the nature of the investment, and went
into it with his
eyes open. He knew about the upfront commission; he knew the mall was
in the process of being constructed; he
knew further prospectuses
would be issued in order to finance the completion of the mall; and
he knew there would only be a rental
income once the mall was
occupied by tenants.
[52]
To say that a financial services provider does not guarantee either
the safety or the success of an investment is to state
the obvious.
When the scheme collapsed Symons did not blame Griffin for having
recommended a high risk investment, and by July
2012 he was still
using him as his broker. The plaintiffs appear to me to have
instituted the action in the hope that the defendant’s
professional indemnity insurer would compensate them without the
matter having to go to court.
[53]
I do not consider that in those circumstances it can be said that
Griffin breached his contractual obligations to the plaintiffs.
In
case I am wrong about this, I proceed to consider whether any breach
on the defendant’s part can be said to have been
the cause of
the plaintiffs’ loss.
What
went wrong?
[54]
I think it is important to consider what caused the scheme to
collapse and the plaintiffs to lose their money, as there has
to be a
causal link between a breach by the defendant of its contractual
obligations and the plaintiffs’ loss. Where, for
example,
someone invests in a property development, and the partly constructed
building disappears as a result of an earthquake,
the investor can
hardly claim damages from his advisor on the basis that he would not
have invested had he been made aware of the
financial risks involved.
[55]
The Sharemax scheme did not fail because of high commissions paid to
those who sold the investments; or because the companies
concerned
were unlisted; or because of the interest paid to investors from the
outset; or because the scheme ran out of investors;
or because the
rental income turned out to be inadequate; or because of a lack of
transparency. Those were the risks identified
by the critics of the
scheme, but these risks did either not materialise or were not the
cause of the failure.
[56]
Cohen, who was the most impressive of the witnesses, and I think the
most knowledgeable and experienced in this field, was
not concerned
by those risks. He expressed the view that if the Reserve Bank had
not intervened the scheme would probably have
succeeded. His view in
this regard was not challenged in cross-examination, nor was it
contradicted by anyone. He was impressed
with the track record of
Sharemax, and mentioned a similar scheme that it promoted (the
Zambezi Retail Park), where the development
was completed with funds
raised from investors in the same fashion as the Villa.
[57]
It is not contended by the plaintiffs that the intervention by the
Reserve Bank should have been foreseen by the defendant.
Cohen said
there was nothing in the prospectus which should have alerted a
reasonable financial services adviser that the funding
model may run
foul of the Reserve Bank or the applicable legislation.
Causation
[58]
The probabilities in my view indicate that had Griffin explained to
Symons the risks referred to by the expert witnesses, he
would
nevertheless have made the investment. He was impressed with the
Sharemax track record, he found the monthly interest attractive,
he
liked investments in property developments and I think his approach
to the risks would have been the same as that of Cohen.
In any event,
none of the risks mentioned by the expert witnesses can be said to be
the cause of the loss. The cause of the loss
was the intervention by
the Reserve Bank and not any breach on the part of the defendant. The
question of legal causation does
therefore not arise.
[59]
If it can be said that on a factual level Griffin’s failure to
explain the risks adequately was a
conditio
sine qua non
of
the plaintiffs’ loss (which I do not consider to be the case)
then the question of legal causation arises, as factual causation
on
its own is not enough. In
Standard
Chartered Bank of Canada
[3]
Corbett CJ said in order to determine legal causation one has to
consider whether the act was linked sufficiently closely or directly
to the loss for legal liability to ensue, or whether the loss is too
remote. He said the test to be applied is a flexible one in
which
factors such as reasonable foreseeability, directness, the absence or
presence of a
novus
actus interveniens
,
legal policy, reasonability, fairness and justice all play their
part. Also see
International
Shipping Co (Pty) Ltd
[4]
,
and in particular the quotation
[5]
at 701 A-C, and
Sandlundu
(Pty) Ltd
.
[6]
[60]
The loss suffered by the plaintiffs does not seem to me to be linked
sufficiently closely or directly to any failure on Griffin’s
part to explain the risks of the investment to Symons. Those risks
had nothing to do with the intervention by the Reserve Bank,
which
the plaintiffs do not contend should have been foreseen by Griffin.
[61]
It follows that even if it can be said that Griffin failed in his
duty to understand the scheme better and to explain the potential
risks to Symons, any such breach was not causally connected to the
plaintiffs’ loss.
Oosthuizen
v Castro
[62]
Counsel for the plaintiffs referred me to the decision in
Oosthuizen
[7]
,
which
also concerned Sharemax
.
In that case a financial
services provider was held liable for damages after he had
recommended an investment in the Sharemax scheme.
Daffue J referred
to the investment as ‘lamentably bad’.
[8]
The facts differed in material respects from the present matter.
[63]
The plaintiff was a widow who had lost her husband in a shooting
incident. She was left to raise their young son. She received
a
substantial sum from a life insurance policy, and wanted to invest R2
million to provide for her son’s upbringing. She
told the
defendant that she could not afford to lose even ‘two cents’
and wanted a safe investment. He assured her
that the investment was
low risk, told her the negative press about it was motivated by
jealousy, and that the product was so safe
that he did not even want
to discuss other possible investments. The plaintiff had no
experience of financial matters, was
still in an emotional state
after the death of her husband, and relied on the defendant as he had
been her late husband’s
broker.
[64]
It seems plain that the Sharemax investment was not the right
investment for Mrs Oosthuizen. It was not a sufficiently safe
investment for her and if the risks had been explained to her she may
well have found them unacceptable.
[65]
This is not the same as saying that the investment was ‘lamentably
bad’ or ‘worthless from beginning to end’
[9]
.
Obviously
Oosthuizen
was decided on the
evidence in that case. The court there found that the interest to
investors must have been paid out of the money
invested by them and
other investors. In the matter I am dealing with the evidence was
that the interest paid to investors was
generated by the funds in the
attorney’s trust account, together with the funds advanced to
Capicol in terms of the sale
of business agreement, on which it paid
interest.
[66]
It would appear that there was no expert evidence in
Oosthuizen
that the scheme would
probably have been successful if the Reserve Bank had not intervened.
The reason why the scheme collapsed
and the existence of a causal
link (both factual and legal) between the breach and the loss does
not appear to have received much
attention. The reason for this may
well be that on the evidence in that case the defendant had been
aware that the Reserve Bank
had expressed concern about the legality
of the funding model, which was not the case before me.
[67]
Oosthuizen
does not assist the
plaintiffs in the present matter. The evidence in that case differed
materially from the evidence before me
– not only in relation
to the circumstances of the investor, but also with regard to the
prospects of the scheme, the reason
why it collapsed, and the real
cause of the plaintiffs’ loss.
[68]
To summarise: Symons was an astute, wealthy person, who took nearly
two weeks to make a decision after he had met with Griffin
and was
given a prospectus and other documents about the investment; he
understood the risks which were highlighted in the evidence
and made
the investment with his eyes open; Griffin consulted his accountant
and compliance officer about the investment, attended
presentations
about it, and even wrote a test about it; he made the documentary
information about the investment available to Symons,
discussed the
investment with him, and allowed him adequate time to consider the
matter; he did not foresee the intervention by
the Reserve Bank, and
the plaintiffs do not suggest that he should have; if there was a
failure by Griffin to provide more information
to Symons, then in my
view such failure was not the cause of the plaintiff’s loss.
[69]
In those circumstances I conclude that the plaintiffs have not
established liability on the part of the defendant. The claim
is
dismissed with costs.
Ploos
van Amstel J
Appearances:
For
the Plaintiffs
: W N Shapiro (together
with) T Palmer
Instructed
by
: Atkinson, Turner &
De Wet
Durban
For
the Defendant
:
H F Geyer
Instructed
by
: Bieldermans Inc.
C/O Thorpe & Hands
Inc.
Durban
Date
Judgment Reserved
:
30 October 2018
Date
of Judgment
:
10
December 2018
[1]
The averment in the particulars of
claim that the plaintiffs invested in a concern known as Sharemax
Investments (Pty) Ltd was
incorrect. Nothing turns on this as it was
common cause before me that the investment was as I describe it in
the judgment, and
the trial proceeded on that basis.
[2]
The
Financial Advisory and
Intermediary Services Act 37 of 2002
.
[3]
Standard Chartered Bank of Canada
v Nedperm Bank Ltd
[1994] ZASCA 146
;
1994
(4) SA 747
(A) 764I -765B
[4]
International Shipping Co (Pty)
Ltd v Bentley
1990 (1) SA
680 (A)
[5]
From Fleming
The
Law of Torts
7
th
ed at 173
[6]
Sandlundlu (Pty) Ltd v Shepstone &
Wylie Inc
[2011] 3 All SA
183
(SCA) at para 14 -21
[7]
Oosthuizen v Castro
2018 (2) SA 529 (FS)
[8]
An expression apparently borrowed
from the judgment in
Durr v
Absa Bank Ltd
1997 (3) SA
448
(SCA), which concerned an investment in the Supreme Group.
[9]
Oosthuizen (
supra)
553C-D.