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[2007] ZASCA 77
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Pretorius NO v Stanlib Wealth Management Ltd. (380/06) [2007] ZASCA 77; [2007] SCA 77 (RSA) (31 May 2007)
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THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case no: 380/06
Not reportable
In the matter between
HERMANUS DEMPERS PRETORIUS NO
...............................
1
ST
APPELLANT
SUSAN ANN PRETORIUS NO
...............................
2
ND
APPELLANT
EDUARD BRAND NO
...............................
3
RD
APPELLANT
and
STANLIB WEALTH MANAGEMENT LIMITED
...............................
RESPONDENT
Coram: SCOTT, BRAND, LEWIS, COMBRINCK JJA, and THERON AJA
Heard: 18 May 2007
Delivered: 31 May 2007
Summary: Oral contract to
invest in respondent’s investment fund established by evidence:
representative of respondent had authority
to bind it.
Neutral citation: This case may be cited as
Pretorius NO
v Stanlib Wealth Management Ltd [2007] SCA 77 (RSA)
JUDGMENT
LEWIS JA
[1] The appellants are the trustees of two trusts, the Seca Trust
(Seca) and the Tableau Trust (Tableau). They instituted action
in the
Cape High Court against the respondent, Stanlib Wealth Management Ltd
(Stanlib), for the payment of R5m, which they alleged
had been
invested on behalf of the trusts (R2.5m each) with Stanlib, and which
was repayable on demand. Only the first appellant,
Mr Hermanus
Pretorius, played a role in the litigation. Stanlib, at the time the
investments were made, was called Liberty Specialised
Investments
(Pty) Ltd and was a wholly owned subsidiary of Liberty Life Group Ltd
(Liberty). I shall refer to Stanlib rather than
to Liberty
Specialised Investments for the sake of convenience.
[2] Griessel J in the high court granted judgment in favour of the
appellants, interest
a tempore morae
and the costs of two
counsel. The basis of his decision was that agents of the parties had
concluded an oral agreement in terms of
which moneys would be
invested on behalf of each trust, which would be entitled to interest
on the investments, the capital sum being
repayable on demand. A
number of other bases for the claim were set out in the particulars
of claim, and were argued before the court
below. They are no longer
in issue.
[3] Stanlib sought leave to appeal against the decision of the trial
court. The grounds on which the application was based were,
inter
alia, that the court had erred in finding that the onus of proving an
oral contract had been discharged; that the agent who
had purportedly
represented Stanlib had been incorrectly found to have authority to
do so; and that the agent of the trusts had intended
to pay the sum
of R5m not on behalf of the trusts but on behalf of another entity.
[4] Griessel J granted leave to appeal to the full court only on the
first ground, whether an oral contract between the trusts and
Stanlib
had been proved. The full court (Davis J, with whom Bozalek J and
Ndita J concurred) upheld the appeal. It also considered
an
application to amend the particulars of claim to reflect an
alternative claim that a contract between the trusts and Stanlib had
been concluded by conduct. The full court found that the oral
contract pleaded had not been established and that there was also
insufficient
evidence of a contract concluded by conduct. It granted
absolution from the instance.
[5] During the course of the hearing in this court it transpired that
leave had been given by this court to appeal to the full court
against the decision of the trial court on the other grounds raised
by Stanlib. The full court did not deal with them, and in view
of the
conclusion to which I come on the existence of the oral contract, it
is not necessary to traverse them save for dealing with
the authority
of Stanlib’s agent. The appeal against the decision of the full
court is with this court’s special leave.
[6] The appellants pleaded that on or about 4 April 2002 the trusts,
acting through Pretorius, but represented by Mr Wessel du Toit,
and
Stanlib, represented by Mr Jaco Cloete, agreed that the trusts would
invest the sum of R2.5m each with Stanlib. Stanlib denied
that there
was a contract and denied that Cloete was authorized to represent it.
It admitted, however, that two cheques in the sum
of R2.5m each,
drawn by MAT Securities (Edms) Bpk (Mat Securities), had been
deposited in the account of Multivest Corporate Investments
Trust
(Multivest), one of its investment vehicles. It alleged that the
payments had been allocated to a different entity, Henco Trust
(Henco), and thus denied that it was obliged to repay the moneys when
demand by Tableau and Seca was made.
[7] The background to the litigation is this. Mrs Amanda Martinson
conducted a business, aptly referred to as a pyramid scheme, from
2001 to 2002. Since Martinson and her scheme are but the background
to the dispute it is not necessary to deal with them in any detail.
Suffice it to say that she accepted large sums of money from
investors, promising extraordinary returns – up to 10 per cent
per month – and with the capital ran a micro-lending business.
Her venture failed when the inflow of funds was less than the
amounts
she had to pay to fulfil the promise of the large returns. She was
sequestrated, and her company liquidated. Pretorius and
Stanlib each
maintains that the agent of the other was part of Martinson’s
dishonest scheme.
[8] Du Toit is an investment broker, employed by C-Max Investments
(Pty) Ltd (C-Max). His wife is the sole director of the company.
Du
Toit himself was an unrehabilitated insolvent. When testifying Du
Toit said that he had heard in 2001 of Martinson’s scheme
and
of the wonderful returns that investors had been paid. He invested
his own money in the scheme. In due course he met Martinson
who was
looking for bigger investments. She told him that she had developed
an investment product with Liberty, and the returns made
could
finance not only her own business but also some of Du Toit’s
anticipated schemes. Du Toit did not know how this would
actually
work, but nonetheless approached clients to invest in the Multivest
cash account held by Liberty. He advised them that because
the money
would be invested with Liberty, investments of the capital would be
safe, but that the returns were not guaranteed.
[9] In the course of looking for new clients Du Toit heard of
Pretorius, whom he approached to invest with Liberty. A meeting was
arranged between them, which was attended also by an associate of
Pretorius, Mr de Goede. Pretorius, in the investment business
himself,
was sceptical of the large returns that might be gained. But
he was interested in the prospect and thought that at least any
capital
he invested would be safe as it would be held in a cash
account with Liberty, a major corporation.
[10] At the meeting Pretorius told Du Toit that he had set up four
family trusts for the purpose of making investments. He brought
with
him documents (including letters of authority from the Master)
showing the existence of the trusts, including Seca and Tableau.
He
gave the impression to Du Toit that he wanted to invest about R10m
because he thought that the more he said he had available the
more
information he would elicit from Du Toit and the more he would
impress him. But he could not get sufficient information from
Du Toit
as to the workings of the scheme.
[11] Du Toit, in order to provide the information that Pretorius
wanted, asked Martinson to set up a meeting with a representative
from Liberty. Jaco Cloete, then a salaried broker consultant employed
by Liberty in Bloemfontein, was asked to meet Du Toit in Cape
Town.
At their meeting in March 2002 Cloete explained the nature of various
Liberty investment products and gave Du Toit application
forms to be
filled in by his clients.
[12] Du Toit in turn advised Pretorius of what he had ascertained
from Cloete, and assisted Pretorius in filling out application
forms
for Seca and Tableau. Pretorius also gave him two post-dated cheques,
dated 4 April 2002, each in the sum of R2.5m, in favour
of Multivest
(the account number of which is written next to the payee’s
name), drawn by Mat Securities and marked ‘not
transferable’.
Mat Securities is controlled by Pretorius, and entered into
agreements of loan with each of the trusts. Du Toit
then sent the
originals of the application forms and copies of the post-dated
cheques by courier to Cloete.
[13] The two cheques were deposited by Du Toit’s wife on 4
April 2002, and were paid into the Multivest account at the Standard
Bank on 5 April. Stanlib does not deny that the funds were credited
to the Multivest account. Prior to the deposit Cloete had sent
a
deposit form (M65) with an investment number on it. The Stanlib
computer system was such that when an application was made on its
computer system a number was generated and was reflected on a deposit
form. The form sent to Du Toit, and which his wife used when
depositing the cheques, was in fact for Henco, an entity unknown to
Pretorius. I shall revert to the reason for the incorrect allocation.
[14] The trial court found that it was ‘abundantly clear’
that ‘the plaintiffs at all relevant times intended investing
the amounts in question with the defendant’ on the terms
pleaded. Their intention was conveyed ‘in unambiguous terms
to
Cloete on behalf of the defendant’. Their intention was made
clear also in the application forms supplied to Du Toit by
Cloete.
‘The cheques were subsequently deposited on behalf of the
plaintiffs into the account specifically designated by the
defendant
(in its own application forms) by means of a deposit slip generated
by and supplied on behalf of the defendant. The funds
were duly
received by the defendant.’
[15] While the oral agreement between the trusts and Stanlib had not
been concluded on 4 April, as originally pleaded, the court
found
that the discussions between Du Toit and Cloete had ‘culminated’
in the deposit on 4 April of the two cheques into
Stanlib’s
account. The trusts had amended their particulars of claim to read
that the agreement was concluded ‘op ongeveer
4 April 2002’:
this had expanded the ambit of the claim to include oral arrangements
made prior to the deposit of the cheques.
The contract pleaded had
thus been established.
[16] The full court, on the other hand, concluded that there was no
oral contract as pleaded. I shall turn to this finding shortly,
but
shall deal first with what happened to the funds deposited on behalf
of the trusts since it is germane to whether a contract
was indeed
concluded and to whether Cloete was Stanlib’s agent and had the
authority to accept the investment.
[17] Multivest is a trust which owns matured second-hand endowment
policies issued by the Liberty Group. When the policies mature
Liberty buys them from the policy holders, sells them to Multivest
and lends money against the policy. A nominal amount of R1 remains
in
the policy. When an investor wishes to invest in Multivest the money
invested is paid into the policies thus repaying the loan.
Each
policy has an investment account that determines the value of the
policy: the investment is placed in underlying portfolios
of unit
trusts or other equities.
[18] The application forms completed by Pretorius and Du Toit reflect
the nature of this investment, although the words ‘Liberty
Cash
Account 100%’ were written on the forms. Parts of the forms
were deleted by Pretorius as being inapplicable: these parts
set out
the terms of various investment options.
[19] The manner in which investment applications were processed was
described by Mr Martin Rabe, a director of Stanlib, who was at
the
relevant time a divisional director of Stanlib responsible for legal
compliance management and product development. Once an application
to
invest was received Stanlib used an on-line computer system to create
a new policy for the investor. Certain insurance brokers
were issued
personal computer codes enabling them to load applications for new
investments online. Cloete had no code since he was
not a broker. But
he used the codes of other brokers to load applications. In
particular he worked with a brokerage known sometimes
as ‘Wesvaal
Brokers’ but also as ‘Optimum’. He purported to
give them technical support in the use of the
computer programme for
loading applications.
[20] When an investment application was placed on the system online
the system generated all the policy documents and allocated a
sequential number to each policy. The documents had to be signed by
the investor before the policy was actually issued. In this case,
as
I have said, Du Toit had taken application forms with the relevant
policy numbers to Pretorius for signature. The original documents
could not be found when the litigation ensued, but their existence
was not placed in doubt. Part of the set of documents generated
when
the application was loaded was the M65 deposit form to which I have
referred.
[21] The problem with the system is that it allowed brokers and
people in the position of Cloete to abuse their access to Stanlib’s
investments. In this case policies with serial numbers MV1007248 and
MV1007251 were issued to Seca and Tableau on 1 March 2002, long
before the application forms for them were completed and submitted.
It also transpired that funds belonging to a different investor
were
allocated to each of the policies in Stanlib’s books, at
Cloete’s request.
[22] On 4 April 2002 Cloete, acting on the instruction of Martinson,
among others, submitted an online application on behalf of Henco,
part of Martinson’s business, for a total investment of R5m.
The policy number was MV1007455. The deposit form that was generated,
and which reflected that number, was faxed to Mrs du Toit by Cloete,
and the cheques deposited by her on behalf of the trusts were
thus
credited to the Henco policy. No deposits were ever made into the
accounts created for Seca and Tableau. Yet Cloete instructed
a
finance clerk employed by Stanlib to allocate a sum of R11m,
belonging unbeknown to her to a different investor, to the Seca and
Tableau policies and to an account opened in the name of C-Max (du
Toit’s wife’s company): R2.5m each to Seca and Tableau
and R5m to C-Max. Those allocations were reversed when it was
discovered that the funds had already been allocated to the correct
investor. This reflects chaos in Stanlib’s systems and
demonstrates that Cloete did have access to the systems of Stanlib
and
was able to give instructions to its employee.
[23] On 4 April 2002, the same date as the cheques drawn by Mat
Securities for Seca and Tableau were deposited and credited to the
Henco policy, Martinson ceded the policy to Saambou Bank (Saambou)
trading as Planet Finance, as security for a loan advanced to
one of
her companies. Cloete also requested Du Toit to sign a document
ceding the C-Max policy (which did not exist since no deposit
had
ever been made) to Saambou to secure Martinson’s obligations.
[24] Saambou brought an application in the Pretoria High Court
claiming the proceeds of the Henco policy ceded to it by Martinson.
Stanlib opposed the application on the basis that no payment had been
made for the Henco policy. Pending the decision of that court
Stanlib
applied, during the course of the proceedings in this matter, for a
stay of action, asserting that the same policy was being
claimed in
both this action and the application in the Pretoria High Court. The
action in the Cape High Court was not stayed. We
were advised that
the Saambou litigation was settled. Rabe’s evidence in the
Saambou application is significant and I shall
revert to it.
[25] Du Toit testified that he had been in Johannesburg on 4 April
when he was requested to sign certain documents by Cloete, the
import
of which he had not appreciated. He was told by Cloete that the
cheques deposited had been incorrectly allocated to C-Max
(he had
never asked for an investment on C-Max’s behalf), and the
documents would rectify the allocation. He thus agreed to
sign a deed
of cession of a C-Max policy to Henco. Prior to this he also signed a
deed of suretyship on behalf of C-Max in favour
of Planet Finance,
securing Martinson Financial Services (Pty) Ltd’s obligations
to it. The document is not dated. Du Toit
said, however, that he had
been telephoned by Cloete on 28 March 2002 and asked to sign certain
documents, which Cloete faxed to
Du Toit’s parents’ home
in Groot Brak Rivier. He signed the documents and faxed them back to
Cloete, he said (in a letter
to Stanlib, to which I shall revert),
‘as a gesture of goodwill’ to Cloete.
[26] Stanlib argues now that Du Toit’s conduct evinces an
intention to deposit the cheques drawn by Mat Securities on behalf
of
Seca and Tableau in the account of Henco. The inference to be drawn
is that Du Toit was involved in the activities of Martinson:
he had
secured the funding from Pretorius in order to invest on behalf of
Henco, and had been party to ceding the Henco policy to
Planet
Finance on the same day as the cheques were deposited by his wife.
The trial court rejected the argument, finding that it
was not
consonant with the evidence.
[27] That evidence, apart from Du Toit’s oral testimony, is in
letters written by Du Toit to Stanlib demanding rectification
of the
allocation of the two amounts of R2.5m that should have been paid
towards the Seca and Tableau policies. Having received no
response
from Cloete when he asked him to correct the allocations, Du Toit
wrote to a senior official at Stanlib on 21 and 22 May
2002, and to
Rabe, on 4 June 2002, explaining the errors that he had discovered
and demanding that the correct amounts be allocated
to Seca and
Tableau. He explained the circumstances under which the deposits were
made, and asked for the allocations to be corrected.
He explained
Cloete’s role and the request to sign a cession as moneys had
incorrectly been allocated to C-Max. He demanded
rectification.
[28] Pretorius too wrote to Stanlib demanding rectification of the
allocations. He had received investment statements from Stanlib
that
were inconsistent with the investment applications he had made for
the trusts. First, they were dated 26 March 2002, before
the cheques
had been deposited; secondly, they reflected much greater investments
than he had made. (They reflected the investments
of another entity
incorrectly allocated by Stanlib.) He was angry and on discussing the
matter with Du Toit was told that Du Toit
had already sent the
letters referred to to Stanlib.
[29] Du Toit’s letters to senior officials of Stanlib are not
consistent with the conduct of a person who is attempting to
cover up
a conspiracy with Martinson. On the contrary, his reference to
Cloete, who could have been asked at any time to explain
his conduct
and the incorrect allocations, in my view shows his honesty in this
respect. If he had been party to any conspiracy with
Martinson or
Cloete he would hardly have alerted Stanlib to their conduct. This
was the view of the trial judge in dealing with the
credibility of Du
Toit. He said:
‘
Shortly
after 4 April, he started making enquiries on behalf of the
plaintiffs as to when proof of investment could be expected. He
repeatedly followed this up, not only telephonically, but also by
letter. Whatever criticism may be levelled at Du Toit’s
astuteness
as an investment adviser, I have not been persuaded that
he has been dishonest in his dealings . . . .’
The full court did not comment on this credibility finding, and in my
view it is fully justified by the evidence referred to.
[30] Before turning to the finding of the full court on the existence
of a contract on certain terms between the parties I shall
deal with
the question of Cloete’s authority to represent Stanlib in the
conclusion of such a transaction, a question not considered
by the
full court in view of its finding that there was no contract. Stanlib
denies that Cloete was its agent: he did not have the
authority to
represent it generally nor in entering into a contract with the
trusts. He was a broker consultant, employed by Liberty,
not Stanlib,
who was permitted only to provide information and marketing materials
on Liberty products, including Stanlib investments.
His role was to
provide clarity on investments and procedures and to assist with
administrative activities such as collecting investment
application
forms and sending them to Stanlib.
[31] Stanlib denies also that Cloete had implied authority to
represent it. But the facts suggest otherwise. Cloete had access to
the computer systems that allowed for the making of online investment
applications: although he did not have his own access code
he was
able to use the codes of other brokers as he did frequently when
loading applications for Wesvaal (Optimum), the brokers for
Martinson. And as a result of each application a policy would be
created by Stanlib. Although denying Cloete’s authority to
do
this, Stanlib relies on his authority and his conduct in loading the
Henco application and creating its policy. Griessel J put
the dilemma
that Stanlib found itself in as follows:
‘
In
the final analysis, however, the defendant hoists itself with its own
petard. In this case, the defendant resists the plaintiff’s
claims, essentially on the basis that the funds in question do not
belong to Seca and Tableau, but to Henco. But who on behalf of
the
defendant created the Henco policy documents . . .; who generated the
necessary deposit slip so that the Henco policy could be
funded; who
faxed the deposit slip to Du Toit; who followed up the matter and
made repeated enquiries from Mrs du Toit as to when
cheques would be
deposited? The answer in each instance is Cloete. By the defendant’s
own tacit admission, therefore, Cloete
had the necessary authority to
represent the defendant in the transaction vis-à-vis Henco.
Against this background, it is
opportunistic (to put it no higher) on
the part of the defendant to deny that Cloete had the requisite
authority to represent it
in concluding a similar contract with the
plaintiffs.’
[32] The trial court thus found, correctly in my view, that Cloete
had the necessary authority to represent Stanlib in its dealings
with
the trusts. The question remains whether Du Toit on behalf of the
trusts, and Cloete representing Stanlib, entered into an enforceable
contract.
[33] The full court considered that Pretorius’s intention to
invest in a cash account was inconsistent with the nature of the
investment offered by Stanlib, which was in matured policies. Davis J
pointed to the application forms as indicative of the nature
of the
investment, which contrasted with the handwritten words ‘Liberty
Cash Account’ on the form. What Pretorius had
in mind was an
interest-bearing deposit, repayable on demand. There was thus, in the
view of the learned judge, no oral agreement
as pleaded: ‘The
features of the alleged contract as pleaded are inconsistent with the
nature and structure of the investment
product in which it is alleged
the payment of R5m was placed’.
[34] It seems to me that the approach of the learned judge confuses
the agreement to invest with the object of the investment. A
simple
example illustrates this. If A purchases a model X car from B, they
are agreed on the object of the sale: the model X. The
fact that A or
B does not fully appreciate how the car operates does not mean that
there is no consensus on what is being purchased.
Thus Pretorius’s
imperfect understanding of how the investment worked does not mean
that he did not intend to invest on behalf
of the trusts in Stanlib’s
matured policies.
[35] What was intended by the parties? Pretorius’s evidence was
clear: he wanted to place R2.5m on behalf of Seca and Tableau
each in
a secure investment (hence the importance of the Liberty reputation);
to gain large returns, and at the minimum to be able
to recover the
capital on demand. The nature of the investment product provided by
Stanlib is not at odds with this: as Rabe testified,
had Henco not
been involved, and had Pretorius asked for return of the capital,
Stanlib would have paid it to him. Rabe conceded
that if Henco was
not the owner of the investment then Seca and Tableau would have
been. He could not have done otherwise. In the
application by Saambou
for the proceeds of the Henco policy, Rabe had denied that Henco
owned policy MV1007455, and referred to the
cheques from Mat
Securities that had been incorrectly allocated to the Henco policy.
‘No deposit was accordingly received by
[Stanlib] on behalf of
Henco Trust and no such investment could accordingly have been ceded
as security to anyone.’
[36] Ironically, a trustee of Henco, Mr P H Ferreira, in deposing to
the answering affidavit on behalf of Henco in the Saambou application
for the proceeds of the policy, also denied that the funds held by
Stanlib under MV1007455 belonged to Henco. And Cloete testified
that
had he received Du Toit’s letter of 21 May he would have
rectified the allocations in accordance with Du Toit’s
request.
[37] If there were no agreement on or before 4 April 2002 why did
Pretorius draw two cheques on the account of Mat Securities in
favour
of Multivest and give them to Du Toit to be deposited? The cheques
were in favour of an investment vehicle admittedly owned
by Stanlib.
The probabilities are, overwhelmingly, that he intended to invest in
the product of Stanlib that would yield a return
and where the
capital would be repayable on demand. And as I have shown, Rabe’s
stance was that had the policies been in the
names of Seca and
Tableau they would have been the owners and entitled to repayment.
[38] The terms of the oral agreement were pleaded as follows:
‘
Die
trusts verskaf elkeen ‘n bedrag van R2 500 000 aan Verweerder
om deur Verweerder in hul onderskeie name te belê in
Multivest
Corporate Investment Trust, die Liberty Groep se Geldmarkfonds.
Die trusts is geregtig op die
rente wat deur gemelde beleggings verdien word.
Die beleggings sal opgeroep en
aan die trusts terugbetaal word op aanvraag.’
[39] In my view the contract pleaded by the appellants was
established by the evidence. Du Toit and Cloete, on about 4 April,
agreed
on behalf of their respective principals that the trusts would
together invest R5m in a Stanlib investment account. The capital
would
be repayable on demand. The trusts performed their obligations
when the cheques drawn by Mat Securities were deposited into the
Multivest
account on 4 April. The trusts are thus entitled to return
of their investments. The appeal against the decision of the full
court
must accordingly succeed.
[40] It is ordered that:
1 The appeal is upheld with costs including those occasioned by the
employment of two counsel.
2 The order of the court below is set aside and is replaced with:
‘
The appeal is dismissed with costs
including the costs occasioned by the employment of two counsel.’
C H Lewis
Judge of Appeal
Concur:
Scott JA
Brand JA
Combrinck JA
Theron AJA