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[2017] ZASCA 191
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Merchant Commercial Finance (Pty) Ltd v Katana Foods CC (1238/2016) [2017] ZASCA 191 (20 December 2017)
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THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
JUDGMENT
Not
reportable
Case
No: 1238/2016
In
the matter between:
MERCHANT
COMMERCIAL FINANCE (PTY) LTD
APPELLANT
and
KATANA
FOODS
CC
RESPONDENT
Neutral
citation:
Merchant
Commercial Finance (Pty) Ltd v Katana Foods CC
(1238/2016)
[2017] ZASCA 191(20 December 2017)
Coram:
Leach,
Tshiqi and Swain JJA and Makgoka and Ploos van Amstel AJJA
Heard:
22
November 2017
Delivered:
20
December 2017
Summary:
Fraudulent
scheme causing a factoring business to make payments by factoring
fictitious sales – respondent’s director
falsely
verifying in a series of transactions that goods had been sold and
delivered to respondent – in last three transactions
such
verification not made before payments made – prior conduct
having lulled appellant into making such payments –
causation
proved in regard to loss suffered by reason of last payments.
ORDER
On
appeal from:
Gauteng
Division of the High Court, Johannesburg (Moshidi and Matojane JJ and
Hawyes AJ, sitting as a court of appeal):
1
The appeal succeeds, with costs.
2
The order of the court a quo is set aside and is replaced by the
following:
‘
(a)
The appeal succeeds with costs.
(b)
The order of absolution granted by the trial court is set aside and
is substituted with the following:
(i)
The defendant is to pay the plaintiff the amount of R404 557,26
together with interest thereon
a tempore morae
to date of
payment;
(ii)
The defendant is further to pay the plaintiff’s costs of suit.’
JUDGMENT
Leach
JA (Tshiqi and Swain JJA and Makgoka and Ploos van Amstel AJJA
concurring)
[1]
The appellant, a private company which described itself, probably
somewhat inaccurately, as carrying on a factoring business,
was the
victim of a fraudulent scheme concocted between one of its clients
and a person in the employ of the respondent, Katana
Foods CC
(Katana). As a result of this scheme, which in modern dictum would be
described as a ‘scam’, the appellant
paid various amounts
which it was unable to recover. When the truth was out, it sued the
respondent for its loss. Its claim related
to but three of a number
of invoices it had ‘factored’ as described more fully
below, it having been paid in full in
respect of the remaining
factored invoices, albeit not by the person who was obliged to do so.
[2]
When the matter came to trial in the Gauteng Division, Johannesburg
the trial court (Satchwell J) concluded that although the
payments
had been made, the appellant had failed to establish that this was
due to fraud on the part of the respondent, and granted
an order
absolving the respondent from the instance. An appeal to a Full Court
(Matojane J, Moshidi J and Hawyes AJ) was similarly
unsuccessful.
This further appeal is with special leave granted by this Court.
[3]
Factors are agents whose ordinary course of business is to sell or to
dispose of goods to which they have been entrusted with
the
possession and control by their principals. The distinctive
characteristic of this form of agency is that it is customary for
the
factor to have the authority to sell and alienate, or pledge in its
own name, the goods to which it has been entrusted, or
to give credit
to the purchaser.
[1]
The
appellant, however, carried on business in a somewhat different way.
Essentially its scheme of business was as follows. It
entered into
written agreements with clients, referred to as the ‘supplier’
in terms of which it purchased and
took cession of the claims
the supplier had against its customers in respect of goods sold and
delivered to them. The customer
thereafter had to pay those debts to
the appellant, and the appellant would pay the supplier the amount of
its invoice value, less
a factoring charge and any amount of interest
that may have become due on its account. The appellant’s
standard factoring
agreement included a provision
[2]
that the appellant would maintain a current account in its books
relating to all transactions relating to the supplier, and would
pay
interest at an agreed rate on the amount by which the current account
was in credit from time to time but would charge interest
should the
current account be in debit.
[4]
On 15 May 2006, the appellant entered into a factoring agreement with
Black Ginger 81 (Pty) Ltd (Black Ginger) a private company
which
traded under the name BKN Sales & Distribution. In terms of this
agreement, the appellant purchased and took cession
of claims that
Black Ginger had against its customers at the commencement date of
the factoring agreement or which came into existence
during the
subsistence of the agreement, relating to sales made by Black Ginger
to its customers on credit in the ordinary course
of its business.
[5]
Katana, a customer of Black Ginger, then applied in writing to open
an account with Black Ginger in order to purchase goods
on credit.
This form included details such as Katana’s VAT registration
number, contact details, physical trading address
and details of its
directors, one of whom was a Mr David Rahman. This application
was made available to the appellant to enable
it to perform its own
credit check on Katana. It did so and agreed to factor invoices for
goods to be sold by Black Ginger to Katana
on credit, up to a
value of R750 000.
[6]
Consequently, on 17 July 2006, the appellant notified Katana that
pursuant to its application it had entered into a factoring
agreement
with Black Ginger, and that the debts reflected in invoices rendered
by Black Ginger to Katana were ceded to the appellant
to whom
payments were to be made. The letter reads as follows:
‘
SUPPLIER:
Black Ginger 81 (Pty) Ltd T/A BKN Sales
We
wish to inform you that in order to effect certain economies and to
assist the future development and growth of their company,
the above
supplier has availed themselves of the factoring services rendered by
[the appellant] . . .
In
order to facilitate procedures, we advise as follows:
1.
ORDERS
All
enquiries and orders should be addressed to your supplier as before.
2.
INVOICES AND STATEMENTS
Although
invoicing will continue to be done by the supplier, invoices will
record that the debt has been ceded to [the appellant]
who will be
responsible for issuing monthly statements and to whom payments must
in future be made.
3.
PAYMENT
The
debt reflected in the statements which will be rendered to you will
be owing to [the appellant] to whom payments must be made
on due
date. Only payment to [the appellant]. . . will constitute a valid
discharge of your present and future indebtedness . .
..’
[7]
Pursuant
to these events and the factoring agreement, in June 2006 the
appellant factored the first invoice raised by Black Ginger
in
respect of goods ostensibly sold and delivered to Katana on credit.
On 19 June 2006, Mr Rahman, who as I have mentioned
was a
director of Katana but was also its buying officer, confirmed to a
verification clerk employed by the appellant that the
goods reflected
on the invoice had indeed been purchased and received by Katana and
that the latter would pay the appellant the
amount owing on the
invoice. This verification followed the standard verification process
adopted by the appellant. The information
provided was captured on
Katana’s debtor’s account by the verification clerk and
confirmed in the letter faxed to Katana
Food.
[8]
This was the first of a series of transactions involving the
appellant factoring sales purportedly made by Black Ginger to Katana.
On a further ten occasions thereafter until 18 April 2007, Mr Rahman
confirmed to the appellant’s verification clerks that
goods
reflected on Black Ginger invoices had been sold on credit to Katana
for factoring by the appellant and delivered to Katana.
In each and
every instance after Mr Rahman had confirmed that the goods had been
sold and received, the appellant send verification
letters to Katana.
[9]
All appeared to be going swimmingly, especially as the appellant was
paid in full in respect of all the invoices that it had
factored in
this way up to the last three invoices numbered 105156, 105551 and
105332. These, too, Mr Rahman confirmed related
to goods Katana
had bought on credit from Black Ginger and were to be factored by the
appellant as usual. This confirmation was
given by him in respect of
the first of these invoices on 3 May 2007 and the last two on 31 May
2007. However, in June 2007
a cheque deposited in the appellant’s
bank account as payment on an outstanding amount with reference to
Katana’s debtor’s
account with the appellant, was
returned unpaid by the bank. It was then discovered that the cheque
in question had been drawn
on Black Ginger’s account and not
paid by Katana as it should have been. This led to the appellants
first suspending and
then terminating Black Ginger’s factoring
facility.
[10]
After attempting unsuccessfully to recover payment of the last three
invoices from it, the appellant resorted to launching
an application
to wind-up Katana. In opposing this application, Katana let the cat
out of the bag. From its answering affidavit
deposed to by Mr C
Vassarotti, its managing member, it appeared that in each and every
one of the instances where the appellant
had factored invoices in
respect of sales made by Black Ginger to Katana, all such sales were
fictitious and had never taken place;
and that Mr Rahman had falsely
confirmed that Katana had purchased and received the goods in
question.
[11]
Mr Vassarotti explained that the manager of Black Ginger, Mr Preggy
Nurasiaha, had entered into what he termed an ‘arrangement’
with Mr Rahman to the effect that Black Ginger would raise fictitious
invoices reflecting goods ostensibly sold and delivered to
Katana,
but would later issue Katana with credit notes to the value of
the invoices. Mr Vassarotti stated that he had become
aware of this
scheme in August 2006 and had immediately instructed Mr Rahman to
cease this activity. However, unbeknown to him,
Mr Rahman had not
done so but had continued with his so-called ‘arrangement’
with Mr Nurasiaha until May 2007
when the last invoices (ie
those which are the subject of the present dispute) were factored.
[12]
It was on the strength of these fraudulent invoices that the
appellant had made payments to Black Ginger believing that such
amounts were due under the factoring agreement. In pursuance of this
fraud, a total of 13 fictitious invoices were factored by
the
appellant and payments exceeding R3 million were made to Black
Ginger. In all instances the repayments purportedly made to
the
appellant in respect of the amounts factored were in fact made not by
Katana but by Black Ginger. In this way, save for the
last three
invoices which remain unpaid, the appellant was paid all the amounts
that it was entitled to receive had the invoices
been valid.
[13]
The total loss suffered by the appellant flowing from the last three
invoices, including factoring charges and interest, amounts
to
R404 557,26. It was not disputed in this court that such amount
had in fact been lost by the appellant pursuant to the
scam of which
it had been a victim. And although it was initially pleaded by Katana
that Mr Rahman had not acted within the course
and scope of his
employment with Katana at the time of his so-called ‘arrangement’
with Mr Nurasiaha of Black
Ginger, it was ultimately accepted
that he had. The respondent, however, contended that both of
the courts below had been
correct in finding that the appellant had
not shown that fraud on the part of Mr Rahman had caused it to factor
the three unpaid
invoices.
[14]
In order to consider the respondent’s argument in this regard,
it is necessary to describe the circumstances under which
the
appellant came to factor and make payments in respect of those
invoices. Katana was but one of Black Ginger’s clients
in
respect of which the appellant had agreed to provide factoring
services. On 2 May 2007, the appellant received a schedule of
invoices having a total value of R888 652,37 offered to it by
Black Ginger for factoring. This contained a number of invoices
from
various clients. One of these was invoice 105156 dated 12 April 2007.
It related to goods to the value of R261 459 purportedly
sold
and delivered by Black Ginger to Katana. Immediately before this
schedule was received, an amount of R15 781,04 was then
available to Black Ginger in its current account with the appellant.
However, on the strength of the schedule, and after a calculation
done in longhand on Black Ginger’s account, a payment of
R650 000 was made to Black Ginger, the appellant’s
Managing
Director, Mr Philippou, having authorised such payment by
affixing his signature on the appellant’s daily payout
schedule.
This payment included the amount that the appellant
calculated was due to be paid to Black Ginger in respect of
invoice 105156.
It was only on the following day, after such payment
had been effected, that a verification clerk of the appellant
contacted Mr Rahman
and obtained his verification (which was of
course false) that the goods reflected in invoice 105156 had in fact
been purchased
and received by Katana.
[15]
Whilst the respondent argued, quite correctly, that payment in
respect of invoice 105156 was therefore made before Mr Rahman
fraudulently stated that the goods to which it referred had been sold
and delivered to Katana, its further contention that the
payment was
before the invoice had even been received by the appellant seems not
to be correct. Analysis of the documentation shows
that the invoice
had in fact been received and ‘captured’ – the
expression used at the trial – in the appellant’s
bookkeeping process on 2 May ie the day before the R650 000
payment was made. That payment was thus made on the strength of
a
number of Black Ginger’s invoices to various clients delivered
to the appellant, including invoice 105156 issued to Katana.
[16]
I turn to invoices 105331 and 105332, both of which are dated 24 May
2007. The former, relating to 7 200 gift sets at
a total
purchase price of R131 328 and the latter relating to 12 000
packets of Elastoplast Clear Strips having a purchase
price of
R150 753,60 were amongst a batch of invoices taken into account
to advance an amount of R186 000 to Black Ginger.
This was done
on the strength of an undertaking given by Black Ginger to supply the
appellant with invoices totalling R267 304,94.
When, on 30 May
2007, the invoices duly arrived at the appellant, supported by a
schedule marked 100, they totalled a slightly
higher amount than had
initially been indicated (R293 083,09). In any event, the
invoices so delivered included invoices 105331
and 105332. The
payment of R186 000 made on 25 May 2007 was authorised by Mr
Craig Naim, one of the appellant’s directors.
Then on 30 May
2007, a further payment of R165 000 was made to Black Ginger. In
doing so, the appellant paid out all available
funds against invoices
that were factored by Black Ginger with the appellant, including
invoices 105331 and 105332. It was, however,
only on 31 May
2007, that a verification clerk of the appellant contacted Mr Rahman
who verified, once again falsely, that
the goods reflected on
invoices 105331 and 105332 had indeed been purchased and received by
Katana.
[17]
As appears from the above, invoice 105156 to the value of R261 459
was factored and included in the payment of R650 000
made to
Black Ginger on 2 May 2007. Invoices 105331 and 105332, to the
value of R131 328 and R150 753,60, respectively,
were
factored in favour of the appellant as part of the payments of the
amounts of R186 000 and R165 000 paid on 25 May
and 30 May
2007. And importantly, all these invoices were factored and payments
made to Black Ginger in their regard before
Mr Rahman had been
contacted by the verification clerks of the appellant to confirm that
goods had been purchased and delivered.
Moreover, neither Mr
Philippou nor Mr Naim were called to explain in evidence why they had
authorised the payments before verification
had taken place.
[18]
These facts led to the appellant’s claim failing, both in the
trial court and in the court a quo. In her judgment
in the
trial court, Satchwell J stated that Mr Rahman had ‘made no
misrepresentations prior to payment’ of the three
unpaid
invoices, and only did so after payment had been made. She went on to
state that the payments that were made had not been
induced by any
‘specific misrepresentation’ made by Mr Rahman ‘on
these particular dates’. Her approach
was approved by the court
a quo, which went on further to state:
‘
It
would I think not be correct for the court to infer without more that
previous instances of misrepresentations in the ordinary
course of
business induced [the appellant] to accept that the last three
invoices were genuine invoices issued in the normal course
of
business as payment was a result of an exercise of a discretion by
the manager or a director who elected not to give evidence.’
[19]
I turn to consider whether these conclusions are sustainable. There
can of course be no liability if it is not proved, on a
balance of
probabilities, that the conduct of Katana, or more correctly Mr
Rahman, caused the appellant’s loss.
Essentially
the issue is one of causation, namely, can the fraudulent statements
made by Mr Rahman in respect of the previous invoices
be said to have
caused the loss suffered in respect of the last three unpaid
invoices? In this regard it is well established
that in
order to succeed the appellant had to establish both factual and
legal causation as set out in cases such as
International
Shipping Co (Pty) Ltd v Bentley
1990 (1) SA 680
(A) at 700F-G and
Minister
of Safety and Security v Van Duivenboden
2002
(6) SA 431
(SCA) para 12. If there is a lack of factual causation,
that is the end of the matter. But if there is, it becomes
necessary
to consider legal causation, namely whether the act
complained of is sufficiently closely linked to the loss suffered for
legal
liability to be imposed.
[3]
[20]
The test frequently employed in determining the issue of factual
causation is the so-called ‘but-for’ test, explained
in
International
Shipping
by
Corbett CJ as follows:
[4]
‘
In
order to apply this test one must make a hypothetical enquiry as to
what probably would have happened but for the wrongful conduct
of the
defendant. This enquiry may involve the mental elimination of the
wrongful conduct and the substitution of a hypothetical
course of
lawful conduct and the posing of the question as to whether upon such
a hypothesis plaintiff’s loss would have
ensued or not. If it
would in any event have ensued, then the wrongful conduct was not a
cause of the plaintiff’s loss; [otherwise]
it would not so have
ensued.’
[5]
[21]
In applying the ‘but-for’ test, it is important to apply
common sense to the facts.
[6]
In
addition, it is not a question of deciding upon formulaic
quantifications and percentages. As this Court said in
Van
Duivenboden
:
[7]
‘
A plaintiff
is not required to establish the causal link with certainty, but only
to establish that the wrongful conduct was
probably a cause of the
loss, which calls for a sensible retrospective analysis of what would
probably have occurred, based upon
the evidence and what can be
expected to occur in the ordinary course of human affairs rather
than an exercise in metaphysics.’
[22]
Turning to the question of legal causation (or remoteness of damage
as it is sometimes called), the issue is one to be determined
by
considerations of policy. It serves as a measure of control to ensure
that liability is not extended too far. It recognises
that liability
should not be imposed where, despite the other elements of delictual
liability being present, right-minded persons,
including judicial
officers, will regard it as untenable to do so.
[8]
In determining whether damage is too remote, tests involving
foreseeability, proximity, direct consequences, all of which are
relevant, ‘should not be applied dogmatically, but in a
flexible manner so as to avoid a result which is so unfair or unjust
that it is regarded as untenable.’
[9]
[23]
The conclusion of the courts below that the appellant had failed to
establish factual causation as the fraudulent misrepresentations
made
by Mr Rahman in respect of previous instances were irrelevant to the
enquiry in regard to three invoices at the heart of this
appeal, has
to be considered in the light of these principles. I find myself
unable to agree with those courts process of reasoning.
Had the three
unpaid invoices stood alone and been the sole false transactions
which Black Ginger had perpetrated upon the appellant
with the
assistance of Mr Rahman, it may have been different. But in my
view, it is artificial to approach the matter by quarantining
those
invoices from what had gone on before and viewing them in isolation.
They formed the last of a series of fraudulent activities
designed to
induce the appellant to make payments to Black Ginger which it would
otherwise not have made.
[24]
This course of on-going conduct succeeded. Not only did Mr Rahman’s
actions cause the appellant to factor the previous
invoices on behalf
of Black Ginger but it made him a party to Black Ginger establishing
a course of business which clearly lulled
the appellant into
accepting the bona fides of invoices it submitted for factoring. That
is the most obvious and probable conclusion
to be drawn from the
facts, as we know that as soon as the appellant had a whiff that all
was not well with Black Ginger’s
account, it immediately shut
it down.
[25]
In these circumstances, it seems to me to matter not that neither
Mr Philippou nor Mr Naim testified to explain why they
were
prepared to authorise the payments that were made in May 2007. The
inferences are obvious and by reason of the history of
Black Ginger’s
account (which ultimately all turned out to have been nothing but
fraud in which the respondent’s Mr
Rahman played a substantial
part) they had no reason to suspect that they were about to become
the victims of a scam in that the
invoices were irregular and
fictitious.
[26]
Similarly, it does not lie in the respondent’s mouth to attempt
to distance itself from whatever representations may
have been made
by Black Ginger in respect of these three invoices. As confirmed by
Mr Rahman’s subsequent conduct in verifying
the correctness of
the invoices, they, too, fell within the ambit of the scheme. Put
somewhat differently, the false representations
Mr Rahman had
made previously in regard to all the invoices Black Ginger had
factored by reason of his misrepresentations
as to the truth, led to
the three unpaid invoices being similarly factored.
[27]
Furthermore, had Mr Rahman not previously made the previous series of
false representations in regard to the goods reflected
in the earlier
invoices, the entire fraudulent scheme would have collapsed.
Consequently if at any stage prior to the three unpaid
invoices
having been issued, he had come clean and not made the false
representations which he did, they would not have been factored
and
the loss claimed by the appellant would not have been suffered. The
‘but-for’ test was clearly satisfied in respect
of
factual causation and the courts below erred in concluding otherwise.
[28]
In these circumstances the fact that Mr Rahman had only verified the
three unpaid invoices after they had been factored and
paid does not
mean that the appellant’s claim had to fail. His previous
fraudulent misrepresentations were in themselves
sufficient to cause
of the harm suffered by the appellant in factoring the last invoices,
which were responsible for the loss.
[29]
So, too, did the court a quo err in its specific finding that should
it have erred in respect of factual causation, legal causation
had
not been established. I find its judgment on this
issue to be somewhat confusing. It stressed that the enquiry
as to
factual causation was distinct from that as to legal causation or
remoteness. But then it accepted that if factual causation
was
proven, the loss that was suffered was too remote as factual
causation had not been shown! This conflated the two
distinct enquiries as to factual and legal causation. Accordingly, it
failed to give any cogent reason for holding that legal causation
had
not been established should there have been factual causation.
Essentially it held no more than that factual causation had
not been
proved, and for the reasons already given, in that it erred.
[30]
In any event, the damage which the appellant presently claims was
clearly foreseeable throughout the ongoing fraudulent scheme
to which
Mr Rahman was a party. In fact that scheme seems to have been clearly
designed to induce the appellant into believing
that all invoices
delivered to it by Black Ginger were genuine. It is, in my view,
untenable to suggest that in these circumstances
the damage which was
ultimately suffered was too remote from the earlier utterances made
by Mr Rahman in fraudulently deceiving
the appellant into making the
payments that it did. It was a direct and readily foreseeable
consequence of his fraud. The fact
that Black Ginger’s
representatives participated in the scheme, and were themselves
guilty of fraud, does not exculpate Mr
Rahman.
[31]
Accordingly, in my view, there can be no question but that the
appellant established both factual and legal causation on the
part of
the actions of Mr Rahman which led to the loss that is the
subject of the appellant’s claim. Both the trial
court and the
court a quo erred in reaching the contrary conclusion. They ought to
have held the respondent liable to the appellant
in respective of its
loss of R404 557,26 suffered in respect of the three unpaid
invoices the appellant had factored in May
2007. The appeal must
therefore succeed and there is no reason for costs not to follow the
event.
[32]
The following order will issue:
1
The appeal succeeds, with costs.
2
The order of the court a quo is set aside and is replaced by the
following:
‘
(a)
The appeal succeeds with costs.
(b)
The order of absolution granted by the trial court is set aside and
is substituted with the following:
(i)
The defendant is to pay the plaintiff the amount of R404 557,26
together with interest thereon
a tempore morae
to date of
payment;
(ii)
The defendant is further to pay the plaintiff’s costs of suit.’
_______________
L
E Leach
Judge
of Appeal
Appearances:
For
the Appellant:
F Van Zyl SC
Instructed by:
Werksmans Attorneys,
Cape Town
Lovius-Block,
Bloemfontein
For
the Respondent: H A Van der
Merwe
Instructed
by:
Jeff Donenberg and
Co, Parktown North
Webbers,
Bloemfontein
[1]
A J Kerr ‘Estoppel and the
Rei Vindicatio: Brokers, Factors and Agents for Sale’
(1977)
94
SALJ
260
at 265; E Kahn
Contract
and Mercantile Law
Vol II p 869 note
(b).
[2]
Clause 4.7.
[3]
Cf
mCubed
International (Pty) Ltd & another v Singer & others NNO
2009
(4) SA 471
(SCA) para 22.
[4]
At 700F-G.
[5]
International Shipping
at 700H.
[6]
See eg
Kakamas
Bestuursraad v Louw
1960 (2) SA 202
(A) at 220B-C,
Siman
& Co (Pty) Ltd v Barclays National Bank Ltd
1984 (2) SA 888
(A) at 917H-918A and
Minister
of Finance & others v Gore NO
2007 (1) SA 111
(SCA) para 33.
[7]
Para 25.
[8]
See eg
Fourway
Haulage SA (Pty) Ltd v SA National Road Agency Ltd
[2008] ZASCA 134
;
2009 (2) SA 150
(SCA) para 31 and
mCubed
International v Singer
2009
(4) SA 471
(SCA) para 27.
[9]
Per Brand JA in
Fourway
Haulage
para 34.