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[2012] ZAKZPHC 1
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Jaffit v Garlicke & Bousfield Inc and Others (10142/2010, 10146/2010, 10144/2010, 10145/2010, 10186/2010, 858/2011) [2012] ZAKZPHC 1; 2012 (2) SA 562 (KZP); [2012] 2 All SA 95 (KZP) (27 January 2012)
REPORTABLE
KWAZULU-NATAL
HIGH COURT, PIETERMARITZBURG
REPUBLIC
OF SOUTH AFRICA
Case No: 10142/2010
In the matter between:
DAVID JAFFIT
….............................................................................................................
PLAINTIFF
And
GARLICKE & BOUSFIELD INC.
…............................................................
DEFENDANT/RESPONDENT
And
PKF (DURBAN) INCORPORTATED
…....................................................
1
ST
THIRD PARTY/EXCIPIENT
PATRICK ROBERT
…............................................................................................
2
ND
THIRD PARTY
NERAK FINANCIAL SERVICES (PTY) LTD
…............................................................
3
RD
THIRD PARTY
Case No: 10146/2010
In the matter between:
MERLIN STUART STOLS
…..............................................................................................
PLAINTIFF
And
GARLICKE & BOUSFIELD INC.
…............................................................
DEFENDANT/RESPONDENT
And
PKF (DURBAN) INCORPORTATED
…....................................................
1
ST
THIRD PARTY/EXCIPIENT
PATRICK ROBERT
…............................................................................................
2
ND
THIRD PARTY
NERAK FINANCIAL SERVICES (PTY) LTD
…............................................................
3
RD
THIRD PARTY
Case No: 10144/2010
In the matter between:
ERROLL JAMES WATT
….................................................................................................
PLAINTIFF
And
GARLICKE & BOUSFIELD INC.
…............................................................
DEFENDANT/RESPONDENT
And
PKF (DURBAN) INCORPORTATED
…....................................................
1
ST
THIRD PARTY/EXCIPIENT
PATRICK ROBERT
…............................................................................................
2
ND
THIRD PARTY
NERAK FINANCIAL SERVICES (PTY) LTD
…............................................................
3
RD
THIRD PARTY
Case No: 10145/2010
In the matter between:
NEIL DOUGLAS RODSETH
…............................................................................................
PLAINTIFF
And
GARLICKE & BOUSFIELD INC.
…............................................................
DEFENDANT/RESPONDENT
And
PKF (DURBAN) INCORPORTATED
…....................................................
1
ST
THIRD PARTY/EXCIPIENT
PATRICK ROBERT
…............................................................................................
2
ND
THIRD PARTY
NERAK FINANCIAL SERVICES (PTY) LTD
…............................................................
3
RD
THIRD PARTY
Case No: 10186/2010
In the matter between:
TOWER BRIDGE SOUTH AFRICA (PTY) LTD
…..................................................................
PLAINTIFF
And
GARLICKE & BOUSFIELD INC.
…............................................................
DEFENDANT/RESPONDENT
And
PKF (DURBAN) INCORPORTATED
…....................................................
1
ST
THIRD PARTY/EXCIPIENT
PATRICK ROBERT
…............................................................................................
2
ND
THIRD PARTY
NERAK FINANCIAL SERVICES (PTY) LTD
….......................................................
3
RD
THIRD PARTY
Case No: 858/2011
In the matter between:
DYCOMBER (PTY) LTD
…................................................................................................
PLAINTIFF
And
GARLICKE & BOUSFIELD INC.
…............................................................
DEFENDANT/RESPONDENT
And
PKF (DURBAN) INCORPORTATED
…....................................................
1
ST
THIRD PARTY/EXCIPIENT
PATRICK ROBERT
…............................................................................................
2
ND
THIRD PARTY
NERAK FINANCIAL SERVICES (PTY) LTD
…............................................................
3
RD
THIRD PARTY
Case No: 1340/2011
In the matter between:
COTTON KING MANUFACTURING (PTY) LTD
…...............................................................
PLAINTIFF
And
GARLICKE & BOUSFIELD INC.
…............................................................
DEFENDANT/RESPONDENT
And
PKF (DURBAN) INCORPORTATED
…...................................................
1
ST
THIRD PARTY/EXCIPIENT
PATRICK ROBERT
…............................................................................................
2
ND
THIRD PARTY
NERAK FINANCIAL SERVICES (PTY) LTD
…............................................................
3
RD
THIRD PARTY
JUDGMENT
MADONDO J
Introduction
[1] In each individual action the plaintiffs seek to
recover from the defendant certain specified amounts of money
allegedly advanced
or deposited by them in terms of various loan
agreements purportedly entered into between them and the defendant
though Collin
Bernard Cowan (Cowan) who it is averred was the
defendant’s executive consultant and a practising attorney. In
the alternative,
plaintiffs`claims are based on written
acknowledgements of debts and the bills of exchange.
[2] In each case the defendant denies that it concluded
any agreements with any of the plaintiffs and that it executed any of
the
acknowledgments of debt and issued any of the bills of exchange
sued upon. Further, the defendant denies representative authority
of
Cowan and pleads that Cowan concluded the aforesaid agreements for
his own dishonest purposes and not for the purposes or in
the
interest of the defendant.
[3] In each case the plaintiffs have replicated an
estoppel to the defendant’s denial of authority of Cowan on the
factual
basis set out in each respective replication.
[4] The defendant has issued third party notices and
joined the third parties to the action as the first third party,
second third
party and third third party respectively. Rule 13(1)(b)
is relied upon to ground the third party proceedings, The issues are
the
authority of Cowan and any representations made by him together
with the representations by the defendant which support the estoppel
. It is submitted that these issues should be properly dealt together
with actions.
[5] The defendant alleges that the third parties had a
legal duty to have informed the defendant of the manner in which
Cowan was
conducting the money lending transactions which gave rise
to the aforesaid various actions against the defendant.
[6] The third parties have filed exceptions to the third
party notices. The exception raised by the first third party was
dealt
with separately under case no.10146/201.
[7] This application concerns the exception taken by the
second third party and the third third party respectively. However,
all
the parties have agreed that the judgment on this exception must
also be determinative of the similar issues raised in all other
cases.
Parties
[8] The plaintiff is David Jaffit, a major male business
man of 39 Park Street, Oaklands, Johannesburg Gauteng.
[9] The defendant is Garlicke & Bousfield
Incorporated, a company duly incorporated according to the company
laws of the Republic
of South Africa, read with section 23 of the
Attorneys Act no. 53 of 1979 with unlimited liability and with joint
and several liability
of the directors for the debts and liabilities
thereof, carrying on the practice of a firm of attorneys at 7
Torsvale Crescent,
La Lucia Ridge, Office Estate, Umhlanga Rocks,
KwaZulu-Natal.
[11] The second third party is Patrick Robert, a
financial adviser of 9 Milkwood drive, Umhlanga Rocks, Kwazulu-Natal
[12] The third third party is Nerack Financial Services
(Pty) Ltd a company with limited liability duly registered in terms
of the
company laws of the Republic of South Africa, having its
registered office at 9 Milkwood Drive. However, for the sake of
convenience
and clarity, I would refer to the second third party as
Robert and the third third party as Nerack.
Background
[13] The nature of the exception of the second and third
third parties and the resultant issues can best be understood against
the
background of the facts pleaded in the plaintiff’s
particulars of claim, the defendant’s plea and annexure to the
second
third party notice.
[14] The Plaintiff seeks to recover from the defendant
the sum of R3500 000-00 together with interest thereon at 30% per
annum,
calculated from 5 October 2010 to date of payment. The pleaded
facts in the plaintiff’s particulars establish that the claim
arises from the oral agreement allegedly entered into between the
parties on 4 October 2010, and in terms of which the plaintiff
would
on 5 October 2010 deposit the sum of R3500 000-00 with the defendant
by paying the aforesaid sum into DS&T Nominees Bank
Account, an
account operated by or for the defendant.
[15] The defendant would return the aforesaid amount
(R3500 000-00) to the plaintiff by not later than the 30 November
2010 together
with interest thereon at 30% per annum, calculated from
5 October to date of payment. During the conclusion of the aforesaid
agreement
the plaintiff acted personally and the defendant was
allegedly represented by its duly authorised representative Cowan,
its executive
consultant and a practising attorney.
[
16] On the same day, .i.e. 4 October 2010, the defendant
executed an acknowledgment of debt and an undertaking to pay in
writing
through Cowan. The plaintiff personally accepted the
aforesaid acknowledgment and undertaking on the same day in
Johannesburg,
Gauteng.
[17] In pursuance to the said agreement on 5 October
2010 the plaintiff deposited the sum of R3500 000-00 into the
aforesaid bank
account. However, on 30 November 2010 the defendant
failed in terms of the agreement to make repayment of the said amount
or to
return the aforesaid amount to the plaintiff.
[18] The defendant is defending the plaintiff’s
claim on the basis that Cowan was not authorised to act on behalf of
or to
make representation that he was acting on behalf of the
defendant in respect of the transactions on which the plaintiff
relies
for its claim.
[19] While in its plea the defendant admits that Cowan
was its executive consultant and a practising attorney it denies that
he
entered into any such agreements as alleged for the purposes or in
the interests of the defendant or for any purpose other than
his own
dishonest purpose.
[20] The plaintiff has replicated to the defendant’s
plea and estoppel the defendant from denying the authorisation of
Cowan
as its representative on the grounds of its conduct relating to
the finance bridging scheme operated by Cowan. In amplification
of
its replication in this regard, the plaintiff pleads that the
defendant is estoppel from denying the authority of Cowan on the
grounds that the defendant through its directors held out Cowan as
its executive consultant and allowed him to practise publicly
and
openly from its offices as an attorney. Secondly, that the defendant
knew that Cowan was conducting a bridging finance business
as part of
his practice housed in defendant’s offices and advised the
public accordingly. Thirdly, that it allowed the use
of the
defendant’s account for the payment in and out of funds
connected with bridging finance business. Lastly, that the
defendant
allowed Cowan to earn remuneration for and in the name of the
defendant on each of the bridging finance transactions.
In the
premises, the plaintiff avers that the defendant represented
expressly or impliedly, by words or conduct that Cowan was
authorised
to conduct a bridging finance business on its behalf in its interests
or for its benefit.
[21] In the circumstances, the plaintiff submits that
the defendant should reasonably have expected that bridging finance
clients
who dealt with Cowan would act on the strength of these
representations. In conclusion, the plaintiff avers that he acted
reasonably
in accepting the correctness of the facts represented,
relying thereon and in dealing with Cowan on the basis thereof.
[22] Acting in terms of Rule 13(1)(b) of the Uniform
Rules of Court the defendant has caused a third party notice to be
issued and
served on Robert and Nerak and thereby joined them to the
action between the plaintiff and the defendant as the second and
third
third parties respectively.
[23] The Rule 13(1)(b) provides:
“
(1) Where a party in any
action claims –
…
any question or issue in the action is substantially
the same as a question or issue which has arisen or will arise
between such
party and the third party, and should be properly be
determined not only as between any parties to the action but also as
between
such parties and the third party or between any of them,
such party may issue a notice, hereinafter referred to as a third
party
notice …, which notice shall be served by the sheriff.”
The basis of such joinder is that the questions or
issues in the main action (between the plaintiff and defendant) are
substantially
the same as a questions or issues as between the
defendant and the third parties ,the propriety of joinder is not in
issue.
[24] The defendant’s action will arise in the
event of the court in the main action notwithstanding Cowan’s
absence
of authority finds that the defendant is nevertheless bound
in respect of the aforesaid transactions on the ground that Cowan was
held out as being authorised and that by reason of such holding out
the defendant is obliged to make payment to the plaintiff and
other
claimants. According to the defendant it will thereby suffer a loss
and in respect of which it must be compensated.
[25] As a result, the defendant seeks an order declaring
that if the Court finds that it is liable to the plaintiff or any
other
claimant in respect of any claim arising after the year 2002 or
such later date as maybe determined Robert and Nerak are jointly
and
severally liable either solely or jointly and severally with the
first third party to pay the defendant any such amount together
with
interest and any costs awarded against the defendant.
[26] In the annexure to the second party notice the
defendant pleads that Cowan caused potential investors to be informed
that that
he (Cowan) would receive money from them and invest it so
to obtain interest on the said monies for the investors and on the
maturity
of the investment would either pay the proceeds of the
investment and the interest thereon to the investor or to the order
of the
investor or would reinvest the said proceeds on the same basis
as the original investment. As an assurance of his undertaking Cowan
gave each investor a written undertaking purportedly signed by him on
behalf of the defendant that the money referred therein would
be paid
to the investor or to the order of the investor on the happening of
the events referred therein from funds allegedly held
at the disposal
of the investor.
[27] In paragraph 21 to 25 (inclusive) the defendant
alleges that Robert procured investors to invest with Cowan and he
obtained
from Cowan the aforesaid written undertakings and
distributed them to investors. Secondly, that he facilitated the
receipt and
payment of funds so invested and the monies so received
were paid into the bank account of his family trust, known as Nerak
Trust,
or to other unidentified accounts directly or indirectly
controlled by him. Thirdly, that Robert caused the monies paid into
such
accounts to be paid to persons other than those indicated in the
letters of undertaking though he knew or ought reasonably to have
known that the persons to whom funds were paid were not the persons
to whom such funds should have been paid in accordance with
the
letters of undertaking.
[28] Further, it is alleged that Robert was informed by
Cowan that he was acting on behalf of the defendant and that Robert
believed
that Cowan was so acting. By reason of the facts set forth,
it is alleged that Robert knew that the operations conducted by Cowan
were conducted irregularly and not in the manner in which any
bona
fide
investment scheme would have been conducted.
[29] In the premises, the defendant avers that by reason
of the fact that Robert knew that the undertakings were given
purportedly
on behalf of the defendant and that he believed that
Cowan was acting on behalf of the defendant, Robert had a legal duty
to inform
the defendant of the manner in which Cowan was conducting
the said operations. In breach of the said duty Robert negligently
failed
to inform the defendant of the manner in which Cowan was
conducting the aforesaid operations which he could without difficulty
have done.
[30] The defendant submit, that had Robert informed the
defendant of the manner the operations were conducted, the defendant
would
immediately have taken steps to prevent Cowan from continuing
the said operations or from operating them in a manner which could
have caused the defendant to be bound. Further, that if the defendant
had taken any such steps, the defendant would have prevented
the loss
from occurring to it.
[31] The defendant alleges that when Robert committed a
breach of duty he was acting in the course and within the scope of
his employment
with Nerak and as a consequence Robert’s
knowledge was the knowledge of Nerak. In the premises, the defendant
alleges that
any loss suffered by it was caused by the negligence and
breach of duty by both Robert and Nerak.
[32] Robert and Nerak have excepted to the defendant’s
annexure to the third party notice on the basis that the facts
alleged
therein in paragraph 17 to 25, in particular, do not
establish the grounds which gave rise to any legal duty of care on
them (Robert
and Nerak) to inform the defendant of the manner in
which Cowan was conducting the said finance bridging scheme.
Issue
[33] The question to be answered in this matter is
whether Robert and Nerak owed the defendant a legal duty to inform it
of the
manner in which Cowan was conducting the transactions which
gave rise to various actions.
Legal Duty
[34] The existence or otherwise of the legal duty is a
conclusion of law which must be reached upon objective consideration
of all
relevant circumstances. It has been argued on behalf of the
defendant that such a consideration entails policy decisions and
value
judgments and that is an exercise which must be carried out in
accordance with the spirit, purpose and objects of the Bill of
Rights.
In support thereof, reference has been made to the case of
Carmichelle v Minister of Safety and Security and Another 2001(4) SA
938(CC) at para 42-43.
[35] However, Mr Shaw QC for the defendant has submitted
that the scope of the legal duty of the persons in the position of
Robert
and Nerak must be assessed against the background of the
recognition by our courts of the unacceptability high rate of crime
in
South Africa, in particular, fraudulent activities. In support of
this submission I have been referred to the case of Investigating
Directorate: Serious Economic Offences and others v Hyundai Motor
Distributors (Pty) Ltd and others 2001(1) SA545 (CC) at para
53.
[36] Factors which may be relevant in determining
whether or not a legal duty exists are in Coronation Brick v Strachan
Construction
1982(4) SA 371(D) at 384F-G articulated as follows:
“
In coming to its conclusion
the court should, inter alia, have regard to the probable or possible
extent of the foreseeable or foreseen
loss. The degree of risk that
the loss would be suffered as a result of conduct complained of; the
value to defendant and/or society
of the object which the defendant
was seeking to achieve when he conducted himself in the manner
complained of; whether they were
reasonably practicable measures
available to the defendant to avert the loss; what the chances had
been that those measures would
have been reasonably proportionate to
the loss which plaintiff could have suffered”
The Coronation Brick case, was cited with approval in
Bowley Steel (Pty) Ltd v Dalian Engineering (Pty) Ltd 1996(2) SA 393
at 399H-I.
[37] In the present case it has been submitted that the
relevant factors for consideration are , inter alia : the value to
society
of combating white – collar crime; the foreseeable of
harm resulting to the defendant; the unusual characteristics of the
manner in which Cowan conducted the operations in question; Nerak’s
status as an ‘authorised financial services provider’
in
terms of the Financial Advisory and Intermediary Services act no 37
of 2002 (FAIS) and Roberts status as a ‘key individual’
and a duly authorised representative of Nerak; the fact that
reasonably practicable measure were available to Robert and Nerak
to
avert the loss; the fact that, had Robert and Nerak taken such
measures, the loss would have been averted and the fact that
no harm
could have resulted to Robert or Nerak had either of them informed
the defendant that Cowan was conducting the “operations”
in question.
[38] Negligent conduct giving rise to damages is not
actionable per se. It is only actionable if the law recognises it as
wrongful.
However negligent conduct manifesting itself in the form of
a positive act causing physical damage to the property or person of
another is
prima facie
wrongful. See
Minister of Safety and
Security v Van Duivenboden 2002(6) SA 431 (SCA);
[2002] 3 All SA 741
para 121; Gouda Boerdery Bpk v Transnet
2005 (5) SA 490
(SCA);
[2004]
4 All SA 500
para 12.
[39] Wrongfulness depends on the existence of a legal
duty not to act negligently. The criterion for the determination of
wrongfulness
is a ‘general criterion of reasonableness; i.e.
whether it would be reasonable to impose a legal duty on the
defendant. See
Government of the Republic of South Africa v Basdeo
and another 1996(1) SA 355(A) at 367 E-G; Gouda Boerdery Bpk, supra,
at para 12.
[40] The reasonableness referred to in decided cases
does not pertain to the reasonableness of the conduct itself which is
an element
of negligence, but it concerns reasonableness of imposing
liability on the defendant. See Anton Fagan: ` Rethinking
wrongfulness
in the law of delict`
(2005) 122 SALJ 90
at 109. In
Trustees Two Oceans Aquarium Trust v Kantey & Templer
2006 (3) SA
138
(SCA) at 144E para 11, it was stated that likewise, the legal
duty referred to in this context must not be confused with the duty
of care in English law which straddles both elements of wrongfulness
and negligence. See also
Knop v Johannesburg City Council
1995 (2)
SA 1
(A) at 27B-G; Local Transitional Council of Delmas v Boshoff
2005(5) SA 514 (SCA) at para 20.
[41] A particular omission or conduct causing pure
economic loss is wrongful only if the public or legal policy
considerations require
that such conduct, if negligent, is actionable
and that legal liability for the resulting damages should follow.
Where the negligent
conduct causing pure economic loss or consisting
of an omission is not wrongful, the public policy or legal policy
considerations
determine that there should be not liability, that the
potential defendant should not be subjected to a claim for damages
his or
her negligence notwithstanding. In such event, the question of
fault does not even arise. The defendant enjoys immunity against
liability for such conduct whether negligent or not. See
Telematrx
(Pty) Ltd v Advertising Standards Authority SA 2006(1) SA 461 (SCA)
at 469 para 14; Trustees, Two Oceans Aquarium Trust
v Kantey and
Templer 2006(3) SA 138 (SCA) at 144C para 10.
[42]
Where a legal duty has its origin in the
common law, breach of that duty gives rise to an action for damages
only where it is justified
by policy considerations. See
Steenkamp
NO v Provincial Tenderboard Eastern Cape 2006(3) SA 151 (SCA) at 161
para 22
[43] In
Trustees, Two Oceans Aquarium Trust v Kantey
and Templer 2006(3) SA 138 (SCA,).t
he appellants being trustees
of a trust which leased and operated an aquarium, claimed the
respondent for damages in delict for
pure economic loss resulting
from the negligent design by the respondent structural engine of the
exhibit tanks at the aquarium.
They alleged that the respondent’s
negligence arose prior to the conclusion of a contract between them,
but that, even at
that stage the respondent was under a legal duty to
act without negligence in deciding upon an appropriate design for the
tanks.
The respondent excepted to the appellant’s particulars
of claim on the basis that the facts pleaded failed to establish the
existence of the legal duty alleged.
[44] At p147 G-I – 149A para 20, the court held
that negligent omissions and negligently caused pure economic loss
were wrongful,
and therefore actionable only were the defendant had
been under a legal duty not to act negligently. The existence or
otherwise
of such a legal duty was determined upon consideration of
relevant public or legal policy that was consistent with
constitutional
norms. It was, further, stated that the approach of
our courts is not to extend the scope of Acquilian action to new
situations
unless there are positive policy considerations that
favour the extension. In this case the court was of the view that
there was
no need for the extension sought because it was intended
from the outset that if the project proceeded at all, it would be
governed
by a contractual relationship that would be created once the
trust was formed, and secondly, it was foreseen from the outset that
the trust could not possibly suffer any damages through the negligent
conduct of the respondent prior to the conclusion of the
contract.
[45] The court, further, held that the trust could have
protected itself against the risk of harm caused to it by the
respondent’s
negligent conduct by inserting, either in the
agreement between the joint venture and the respondent in the context
of formal appointment
of the respondent appropriate contractual
stipulations covering even conduct that occurred prior to the
formation of a trust. The
court concluded by holding that there was
in general no reason to extend Aquilian action to rescue a plaintiff
who was in the position
to avoid the risk of harm by contractual
means, but who failed to do so.
[46] A plaintiff must allege and prove the existence of
a legal duty without having recourse to the terms of the contract.
Once
it becomes necessary for a plaintiff to rely on the terms of a
contract to prove the legal duty, his claim does not arise
ex
delicto
. See
Lillicrap, Wassenaar and Partners v Pilkington
Brothers (Pty) Ltd
1985 (1) SA 475(A).
[47] In the present case the defendant’s loss
complained of can only arise in the event of the finding that the
defendant
was contractually liable to the plaintiff or is estoppels
from denying the representative authority of Cowan. Our law does not
under those circumstances recognise a delictual duty towards a party
such as in the position of the defendant. See
AB Ventures v
Siemens
2011 (4) SA 614
(SCA) 623.
[48] If the defendant is held liable to the plaintiff,
it seeks to recover from Robert and Nerak only in the event that the
defendant
is estoppel from denying the authority of Cowan to
represent it. In the circumstances, the defendants’ liability
arises not
from contract but from estoppel. Where there is estoppel
there could have been no consensus between the parties and therefore
no
contract. See Rabie (1992), The Law of Estoppel in South Africa at
11to12
[49] The plaintiff and Robert and Nerak have sought
reliance on the dicta in AB Ventures Ltd v Siemens Ltd case on the
ground that
the defendant would be stopped on the ground that it by
its conduct held out Cowan as its duly representative. The dicta in
AB
Ventures Ltd v Siemens Ltd case, is to the effect that there is no
cause for the law to be extended to provide a remedy for a party
who,
by its own contractual act, took upon itself the risk of liability.
[50] It has been argued on behalf of the defendant that
such a contention by the plaintiff and the second and third parties
is untenable
since the defendant, if it is liable to the plaintiffs
it would be the victim of Cowan’s operations. It cannot
therefore
be legitimately argued that the defendant could and should
have taken steps to protect itself from becoming a victim of fraud.
Nor can be a question of the defendant having brought liability upon
itself contractually, as it was the case in AB Ventures case.
Likewise the defendant was not in a position to protect itself
against liability to the plaintiff by contractual means.
[51] However, in my opinion the position would be
different if the defendant is found to have been aware of Cowan’s
operations
and that possessed such knowledge it allowed its bank
account to be used for such operations. In that event, the defendant
cannot
be heard to claim to be a victim of fraud. It would by such
conduct have expressly represented to the plaintiffs or whoever was
dealing with Cowan that he was its duly representative.
[52] In
Cape Town Municipality v Bakkerud 2000(12) SA
1047 (SCA) at 1054 – 1055, paras 8, 9 and 10,
it was stated
that special circumstances must be established for liability to flow
from an omission. However, a more flexible and
all – embracing
approach to the question whether a person’s omission to act
should be held unlawful or not must be
preferred. See
Corbett JA
Aspects of the Role of Policy in the Evaluation of our Common Law
(1987) 104 SALJ 52
at 56; Cape Town Municipality case, supra, at
1057E.
[53] It has been argued that Robert was no more than an
insurance intermediary with no relationship with the defendant. The
fact
that Robert was aware that Cowan was acting on behalf of the
defendant did not create a relationship between him and the
defendant.
The pleaded facts in the defendant’s annexure to
second third party notice clearly establish that Robert acted in
concert
with Cowan in that he procured investors for him and he also
allowed his family trust account and other unidentified accounts,
which were directly or in directly controlled by him , to be utilised
for the scheme. Further, funds were paid out of such accounts
to
people who were in terms of the written undertaking not investors.
Assumedly, such withdrawals required his authority and he
did give
it. In the circumstances, it cannot be correct to say that he had a
mere knowledge of the operations in question.
[54] Section 7 (1) of the FAIS provides that a person
may not act or offer to act as a financial services provider unless
such person
has been issued with a licence under section 8.
Subsection (3) of the section prohibits a financial services provider
or representative
from conducting financial services relating to
business with a person rendering financial services who is not in
possession of
the required licence. Robert being a key individual in
the employ of Nerak, a financial services provider, both with vast
knowledge
of the requirements and responsibilities imposed by FAIS,
should and they ought to have satisfied themselves, before procuring
investors for Cowan and Robert allowing his accounts to be used for
the scheme, that Cowan was a licencesed and authorised financial
services provider by demanding him to produce the necessary licence.
If he could not produce any, to approach the defendant in
this regard
since Cowan had purported to act on behalf of the defendant.
[55] Section 13(2)(a)(b) of FAIS requires an authorised
financial services provider to at all times satisfy himself or
herself that
the provider’s representative and key individuals
of such representative are, when rendering a financial services on
behalf
of the provider, competent to act, and comply with the
requirements contemplated in paragraphs (a) and (b) of section 8(1)
and
subsection (1) (b)(ii) of the section ( s13) , and to take
reasonable steps to ensure that representatives comply with any
applicable
code of conduct as well as with other applicable laws on
conduct of business.
[56] Robert is alleged to have had knowledge that the
operations conducted by Cowan were conducted irregularly and not in a
manner
in which any bona fide investment scheme would have been
conducted. Also, that the undertakings given by Cowan to the
investors
were purportedly to have been given on behalf of the
defendant. Robert procured investors to invest with Cowan and obtain
from
Cowan undertakings which he, in turn, handed over to investors.
A person who is a financial services provider must have personal
character qualities of honesty and integrity, competence and
operational ability to fulfil the responsibilities imposed by the
Act
and must be financially sound.
See section 8(1) (a) (b) and(c) (i)
(ii) of FAIS.
Regard being had to the fact that funds were paid
out of the accounts controlled by Robert to people who were not
listed in the
undertakings of the policies, Robert was fully aware
that Cowan was dishonest in his operations of the scheme in question,
but
he did not disassociate himself from him.
[57] Section 13(1)(b)(i) and subparagraphs 1(aa)(bb)
prohibits a person from acting as a representative of an authorised
financial
services provider unless such person is able to provide
confirmation, certified by the provider to clients that a service
contract
or other mandate to represent the provider exists, and that
the provider accepts responsibility for those activities of the
representative
that have been performed within the scope of, or in
the course of implementing such contract or mandate. Though in the
present
case it has been stated that Robert obtained undertakings
from Cowan and handed them over to the investors Robert knew that
such
undertakings had not been issued by the defendant. This is
evidenced, firstly by the fact that the defendant’s bank
account
was not used to deposit the funds collected from the
investors but Robert’s family trust account and other
unidentified accounts
controlled by him instead, and, secondly, that
the monies which had been so deposited were paid out of such accounts
to people
who were not listed in the undertakings. This, in my view,
was sufficient to inform Robert that the scheme was not only
conducted
irregularly, but also unlawfully and that such activities
constituted fraud and /or theft.
[58] In the circumstances, Robert knew very well that
the undertakings were not intended to protect investors but only to
deceive
them into believing that they had some kind of assurance in
the event of anything went wrong in the operation of the finance
bridging
scheme. Therefore, it follows that Robert foresaw the
possibility of Cowan’s conduct causing the defendant economic
loss
in the event of claims by investors against the defendant
arising out of such operations.
[59] I now, turn to decide whether Robert and Nerak can
be had liable under Acquilian action for pure economic loss sustained
by
defendant as a result of the irregular and unlawful operations of
Cowan. See Indac Electronics (Pty) Ltd vs Volkskas Bank Ltd
[1991] ZASCA 190
;
1992 (1)
SA 783.
I am not satisfied that a reasonable person in the position
of Robert possessed the knowledge of irregularity and unlawfulness
inherent in the operation of Cowan would have kept silent and
continued participating in the operation of the scheme in question.
Obviously, a reasonable person in the position of Robert will have
taken steps to avert the loss occurring to the defendant. This
would
have been a simple matter had Robert complied with the statutory
responsibilities imposed on him and Nerak by the provisions
of FAIS.
See also McCann vs Goodall Groups Operations (Pty) Ltd
1995 (2) SA
718
(C) 727 E – F.
[60] Needless to state, that the manner in which the
investment scheme was conducted with Robert actively participating
therein
created a duty on Robert or Nerak to inform the defendant of
Cowan’s operations. Had Robert notified the defendant of the
said operations the possibility was too great that the defendant
would have taken urgent steps to prevent the loss from occurring.
Also, had Robert demanded a licence to operate and the undertaking
duly signed by the defendant from Cowan at the first instance,
he
would have nipped the operations in the bud or the loss might have
been too minimal.
[61] The next question to decide is whether Robert’s
negligent and wrongful conduct is actionable. In Woodcock Street
Investments
(Pty) Ltd vs CAG (Pty) Ltd (formally Cardno Davies
Australian (Pty) Ltd) [2004] HCA16, vulnerability to risk was held to
be a critical
issue in deciding whether Acquilian liability should be
extended in a particular situation. In Trustees, Two Oceans Aquarium
Trust
case, it was held that the concept of vulnerability developed
in Australian jurisprudence will only be satisfied where the
plaintiff
could not reasonably have avoided the risk by other means,
for example, by obtaining a contractual warranty or cession of
rights.
In this case it was held that the Acquilian remedy should not
be extended to rescue a plaintiff who was in the position to avoid
the risk of harm by contractual means but who failed to do so. The
facts of the present case show that there was no contractual
nexus
between the plaintiff and the defendant and that the defendant can
only be held liable on the basis of estoppel. It therefore
stands to
reason that the defendant in the circumstances could not have avoided
the harm by contractual means. The defendant did
not know and was not
aware of the irregularity and unlawfulness of the operations
conducted by Cowan and it was in the circumstances,
more vulnerable
to risk. Accordingly, this case is distinguishable from Trustee, Two
Oceans Aquarium Trust case.
[62] In Cape Town Municipality case supra, at 157 para
17, it was held that the court in considering whether or not a legal
duty
should be imposed in a given situation, the balance ultimately
struck must be harmonious with the public’s notion of what
justice demands. The decision whether an Acquilian remedy can be
extended in the circumstances to cover the situation in which
the
defendant finds itself involves the weighing and the striking of a
balance between the interests of the parties and that of
the
community. See Minister of Law and Order vs Kadir
1995 (4) SA 303
(A)
at 318 E – H.
[63] In this regard, the Constitutional Court in
Carmichelle case, supra, at 957 para 43 stated the following:
“…
.This is a
proportionality exercise with liability depending upon the interplay
of various factors. Proportionality is consistent
with the Bill of
Rights, but that exercise must now be carried out in accordance with
the ‘spirit, purport and objects of
the Bill of Rights and the
relevant factors must be weighed in the context of a constitutional
State founded on dignity, equality
and freedom and in which
government has positive duties to promote and uphold such values.”
[64] Where necessary this Court has jurisdiction to
develop the common law so to cover the present situation and to
extend the Acquilian
liability in order to afford the defendant a
remedy. Section 39 (2) of the Constitution provides how the common
law should be developed;
not only must the common law be developed in
a way which meets the section 39 (2) objectives, but it must be done
in a way most
appropriate for the development of the common law
within its paradigm. See Commercial case, at 962B.
[65] The public consideration is to stem the tide of
economic offences; fraudulent activities and corruption, in
particular, which
do not only involve patrimonial prejudice to the
State, institution, person or individuals but are also of a serious
and complicated
nature and exacerbate social ills. See Investigating
Directorate case, at supra. I, therefore, agree with Mr Shaw for the
defendant
that the legal duty of Robert and Nerak must be assessed
against this background.
[66] I now turn to determine whether the conduct of
Robert and Nerak was wrongful and actionable at the hands of the
defendant.
In A B Ventures, supra, at 616 E, it was held that such
question is quintessentially decided on exception. The conduct of
Cowan
acting in concert with Robert exposed the defendant to the risk
of pure economic loss. Since the defendant was not aware of the
operations of Cowan it could not have protected itself from such
risk. The social and legal policy as well as the legal convictions
of
the community in the circumstances of this case calls for the
extension of Acquilian remedy for the protection of persons in
the
position of the defendant. See also A B Ventures at 617 paras 7 and
8. This would, I feel, accord with the spirit and purport
of the
Constitution.
Conclusion
[67] In the premises, I find that the pleaded facts in
the annexure to the second third party notice are sufficient to
justify the
conclusion that Robert and Nerak owed the defendant a
legal duty to inform the defendant of the operations of Cowan and
that their
failure to do so is actionable.
Order
[71] In the result, the following order is made:
(1) The second and third parties’ exception to the
annexure to the second third party notice is dismissed with costs.
(2) The second and the third parties are ordered to pay
the costs jointly and severally the one paying, the other to be
absolved.
(3) Such costs to include costs consequent upon the
employment of two counsel.
Date judgment reserved: 5 December 2011
Date judgment delivered: 27 January 2012.
For plaintiff: Troskie SC
Instructed by: David Randles c/o Austen Smith Shepstone
& Wylie
REF: CC Smythe
For defendant: Shaw QC with
Salmon SC
Instructed by: Garlicke & Bousfield c/o/Venn Nemeth
& Hart
REF: Mr R Stuart -Hill