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[2012] ZAKZDHC 72
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Goodman NO v First National Bank Ltd and Others (7587/2008) [2012] ZAKZDHC 72 (7 November 2012)
1
IN
THE KWAZULU NATAL HIGH COURT, DURBAN
REPUBLIC
OF SOUTH AFRICA
CASE NO. 7587/2008
In the matter between:
CC GOODMAN N.O
..................................................................................
PLAINTIFF
and
FIRST NATIONAL BANK LIMITED
...........................................
FIRST
DEFENDANT
THE MASTER OF THE HIGH COURT
..............................
SECOND
RESPONDENT
JUDGMENT
MURUGASEN,
J.
[1] The plaintiff, Carmen Cindy
Goodman in her capacity as
Curator Bonis
for the estate of her
husband, Lance Wayne Goodman (‘the patient’), has sued
the first defendant, First National Bank
Limited (‘FNB’)
for payment in the sum of R2,5 million, interest and costs, on the
grounds that FNB is vicariously
liable to repay to the patient the
financial loss he suffered as a result of the fraudulent conduct of
and theft by a financial
consultant, Clynton Cotton (‘Cotton’),
acting in the course and scope of his employment with FNB.
[2] No relief is sought against the
second defendant, the Master of the High Court, Pietermaritzburg
(‘the Master’),
who is cited in his official capacity as
an interested party.
[3] The plaintiff alleges that Cotton
made a false and fraudulent representation to her, in her capacity as
curator bonis
to the patient, that :
it was in the best interest of the
patient to obtain an alternative investment;
Cotton would procure the alternative
investment; and
the alternative investment would be
genuine, reasonable and lawful and was, or would be, approved by the
Master.
[4] The plaintiff alleges further that
Cotton made the aforesaid representation knowing that it was false
and fraudulent, with the
intention of inducing the plaintiff to
consent to the alternative investment. The plaintiff was induced by
Cotton’s representation,
and allowed the sum of R2,5 million of
the patient’s monies to be paid to and/or placed in the custody
and control of Cotton
for the purposes of the alternative investment,
which was not repaid to the patient. Alternatively Cotton stole the
aforesaid R2,5
million from the patient.
[5] Consequently, the patient suffered
a loss in the sum of R2,5 million. The plaintiff alleges that as
Cotton had acted in the
course and scope of his employment with FNB
in causing the aforesaid loss, FNB is vicariously liable for the
delict of Cotton and
is consequently obliged to repay the money.
[6] FNB alleges that in terms of the
written agreement entered into by and between the plaintiff acting on
behalf of the patient
and FNB represented by Cotton, on the 25
October 2005, it rendered financial planning services to the
plaintiff in accordance with
the products it was accredited to
propose.
[7] FNB contends that the investment
or loan to Macro Steel from the patient’s funds did not fall
within the products accredited
as aforesaid. The loss suffered by the
patient as a result of the loan to Macro Steel therefore fell outside
its obligations which
arise from the contract, which regulated its
relationship with the plaintiff.
[8] FNB also denies that Cotton was
acting in the course and scope of his employment with FNB as a
financial planner, as the investment
with Macro Steel was outside his
mandate from FNB and contrary to the terms and conditions of his
employment with FNB.
[9] It therefore contends that it is
not vicariously liable for the loss suffered consequent to the
conduct of Cotton.
Summary of Facts
[10] The patient, who had sustained
serious injuries in a motor vehicle accident, received a substantial
payment from the Road Accident
Fund. The funds were to be invested
for the benefit of the patient.
[11] The plaintiff, Carmen Goodman,
the patient’s wife, was appointed
curator bonis
to the
patient by virtue of an order of court dated 26 January 2000. The
Master of the High Court subsequently issued the Letters
of
Curatorship on 14 April 2000. At all material times the plaintiff
acted in her capacity as
curator bonis
of the patient’s
estate, and with full knowledge that the powers conferred upon her
were to be exercised subject to the approval
of the Master.
[12] The plaintiff and patient were
represented by attorney Alexander Crockart (Crockart) of the firm
Calitz Crockart & Associates
(Calitz Crockart) in the action
against the Road Accident Fund. The claim and taxed costs were paid
to Calitz Crockart by the Road
Accident Fund. Crockart also
represented the parties in the application for the appointment of the
curator bonis
.
[13] The Master requested a bond of
security to cover the full value of the patient’s assets and
the payment from the Road
Accident Fund and compliance with other
specific requirements before he would authorise the investment of the
patient’s funds.
[14] In an attempt to comply with the
Master’s requirements, Crockart and the plaintiff consulted
with Cotton who was employed
at the Overport branch of FNB as a
financial consultant.
[15] The plaintiff, Crockart and
Cotton held several meetings with the Master, during which Cotton,
acting in the course and scope
of his employment with the bank as a
financial consultant, made certain proposals about the security
required by the Master, which
were accepted by the Master.
[16] Consequent to these discussions,
R4 666 740 was invested in a Liberty Excelsior 300 Capital Bond
for a period of 5 years
(‘the Liberty Investment’) on 23
September 2004. Only one loan and one part surrender was permitted
during the first
5 years of the investment but not in the first
contract year.
[17] This investment was made on the
recommendation and advice of Cotton. An initial fee of R16 800,
25 was paid to FNB on
this investment. The Liberty Life policy number
0027124282 reflects that the following additional charges were
deducted from the
contribution of R4 666 740 :
Contribution Charge R23 333.70
Guarantee charge R46 667.40
Agreed initial advisory fee R93 334.80
and the net proceeds of R4 649 939.74
invested.
[18] The undisputed evidence of
Duncan, who was called by the Plaintiff as an expert witness, was
that when advisory fees or commission
were paid to First National
Bank, the payment would have been shared by FNB and Cotton as FNB
would pay the financial consultant.
[19] The Liberty investment was to be
‘ceded’ to the Master, who required security for an
amount of R4.6 million and
an undertaking from Liberty Life that in
the event any funds were paid or released without the written
approval of the Master,
it would pay such amount to the Master.
[20] The plaintiff was aware that the
investment with Liberty and any subsequent investments made with
funds from the Liberty investment
required the Master’s
approval.
[21] On the advice of Cotton, in
October 2005 the plaintiff withdrew R2,5 million from the Liberty
investment without the authority
or approval of the Master. The funds
were invested on 26 October 2005 in a Stanlib Multivest product in
the name of the patient
(‘the Stanlib investment’),
Account MV 1013876. The net investment, after deduction of the fee of
R71 250, was
R2 428 750. The investment summary
reflects FNB Financial Consultants as the ‘consultancy’
and Clynton Cotton
as ‘financial advisor’.
[22] On 25 October 2005 the plaintiff
acting on behalf of the patient signed a ‘Statutory Disclosure
Notice’ (Exhibit
C 134 – 136) in terms of which FNB and
/or its employee, the financial planner, would propose financial
products to the plaintiff,
in accordance with the bank’s
business and listed product providers who had accredited FNB to
distribute their products.
(This notice was referred to during the
trial and in pleadings as ‘the contract’ or ‘the
agreement’ between
the plaintiff and FNB which regulated the
relationship between the parties.)
[23] The plaintiff also signed a
number of other documents at the same time in respect of the Stanlib
investment ( Exhibit C 137
– 143).
[24] There were 3 withdrawals from the
Stanlib investment, after which the investment was closed on 12
December 2006. The plaintiff
was aware of and authorised or effected
these withdrawals.
[25] The first withdrawal took place
on 30 March 2006, when the amount of R2.6 million was withdrawn and
paid into a First National
Bank Money Market account in the name of
the patient. The withdrawal was made by the plaintiff in order to
make another investment
proposed to her by Cotton in ‘Tata
Steel’.
[26] On 31 March 2006 an amount of
R2.5 million was withdrawn from the aforesaid Money Market account in
accordance with an ‘authorisation
to FNB to issue Bank Cheque
and debit clients account’ signed by the plaintiff and paid by
way of a bank cheque issued by
FNB Overport in favour of Macro Steel
(Pty) Ltd which was deposited into Macro Steel’s bank account
on the same day.
[27] The ‘investment’ was
made with Macro Steel after a meeting between representatives of
Macro Steel and Cotton, during
which Cotton negotiated the terms of
the agreement in terms of which the R2.5 million was loaned to Macro
Steel,
inter alia
the interest or fee on the loan, and the
repayment of capital and the fee.
[28] Cotton represented to the
Friedman and Vos, the representatives of Macro Steel, that he was
investing on his own behalf and
for his own benefit, and they did not
enquire about the source of the funds which were to be loaned. Cotton
participated in further
discussions with Friedman when new terms were
negotiated in respect of extension required for repayment and
additional fees.
[29] Macro Steel subsequently repaid
the amount of R2.5 million together with a 10% fee or interest in the
amount of R250 000.
On the instructions of Cotton, the repayment
was effected by way of payments made into accounts of entities other
than the patient.
Payments totalling R2 250 000 were made
to Securitised Endowment Traders CC (‘SET’), which was
controlled
by Cotton, although his wife held the member’s
interest, and the balance of R500 000 to Calitz Crockart.
[30] The total sum of R2 750 000
was paid as follows:
25 May 2006, R100 000 paid to SET.
9 June 2006, R150 000 paid to
SET
11 July 2006, R1 million paid to SET
17 July 2006, R1 million paid to SET
4 August 2006, R165 000 paid to
Calitz Crockart Trust Account
6 25 September 2006, R335 000
paid to Calitz Crockart Trust Account
[31] The funds received by Calitz
Crokart were on the instructions of Cotton paid to a foreign company
Hanimex MFG Group, as payment
from Cotmoor Traders CC, another close
corporation in which Cotton had an interest, and the aforesaid SET.
[32] The R500 000 paid to Calitz
Crokart, was dealt with as follows :
11 August 2006, R146 828.14 paid
to Hanimex MFG Corp
28 November 2006, R334 620 paid
to SET
28 November 2006, R380 debited as
bank charges
30 September 2006 – 31 January
2007, R16 856. 95 appropriated as fees
January 2007, R1314.91 retained in
trust
[33] The patient therefore did not
receive payment from Macro Steel of the capital and the interest or
return on the capital sum,
and consequently suffered a loss of R2,5
million.
[34] FNB received no fee or other
benefit from this ‘investment’ with Macro Steel. Further
Macro Steel was not one of
the accredited financial products or
companies included in the Statutory Disclosure Notice signed by the
plaintiff.
[35] The second withdrawal of R105 000
from the Stanlib investment was paid into the patient’s account
with Nedbank.
[36] The balance of the funds from the
Stanlib investment in the sum of R107 847. 93 were paid into the
patient’s Money Market
account with FNB on 12 December 2006.
The proceeds of another Stanlib investment, MV 1013544 in the sum of
R426 725.80 were
also paid into this account on 12 December
2006, leaving a balance as at that date of R640 513. 61.
[37] Cotton misappropriated the bulk
of these funds in the patient’s Money Market account by
transferring R586 320 to
Securitised Endowment Traders CC and
R13 680 as a fee was paid to FNB Financial Consultants on 19
March 2007.
[38] The sum of R600 000,
constituted by the R586 320 paid into the account of Securitised
Endowment Traders CC and the
R13 680 paid to FNB Financial
Consultants was repaid by the Bank to the plaintiff on 1 February
2008 as FNB admitted that
it was vicariously liable for the
fraudulent conduct of Cotton in respect of this sum.
[39] However FNB denied that Cotton
acted in the course and scope of his employment in respect of the
R2,5 million investment with
Macro Steel.
[40] Cotton was charged with the theft
of R2,5 million rand and as well as various other sums of money that
he had stolen from other
clients of the first defendant. He pleaded
guilty to the charges and was convicted and a custodial sentence
imposed on him. He
admitted in his plea in the criminal proceedings
that the plaintiff was among the clients he had defrauded and stolen
money from.
Issues for Determination
[41] 1 Did Cotton induce the plaintiff
to invest R2,5 million rand in an
alternative investment as a result of
a false and fraudulent
misrepresentation?
Did Cotton commit a fraud or theft
during March 2006 when the R2,5 million was withdrawn from the
Stanlib investment?
If he did act as aforesaid, did
Cotton act in the course and scope of his employment with FNB,
thereby rendering the First Defendant,
FNB, vicariously liable to
repay the R2,5 million to the plaintiff?
The Plaintiff’s Case
[42] At the commencement of the trial
the court ordered the following amendments to the particulars of
claim:
the plaintiff’s claim was
amended to R2,5 million;
interest on the claim to be
calculated from the 31 March 2006, being the date of the theft.
[43] The plaintiff called four
witnesses.
[44]
Witness 1
: Peter Duncan,
a chartered accountant, was called as an expert witness. He testified
about the passage of funds received by the
patient from the Road
Accident Fund, with reference to two flow charts, (Exhibit B pages
11(a) and 11(b).
[45] He confirmed that the endowment
product, the Liberty Life investment, made on 23 September 2004,
permitted one withdrawal during
the duration of the policy. On 27
October 2005, R2,5 million was drawn from the Liberty Life investment
and invested in a Stanlib
Multivest investment.
[46] On 30 March 2006 the sum of R2,6
million was drawn from the Stanlib investment and paid into the
patient’s First National
Bank money market account. According
to Duncan, no fraud was perpetuated against the patient up to this
point.
[47] The fees paid to FNB in respect
of the patient’s investments were the sums of R16 800.26 in
respect of the investment
of R4 666 740 and R71 250 in
respect of the investment of R2.5 million. In respect of the R400 000
received
as taxed costs from the Road Accident Fund, FNB received a
commission or fee of R13 680.
[48] On the 31 March 2006 a withdrawal
of R2,5 million from the patient’s Money Market account
occurred when a cheque made
out to Macro Steel bearing the signatures
of two authorised signatories was issued by FNB against that account.
[49] The flow of the loan and fee
repaid by Macro Steel to entities controlled by Cotton was not
disputed.
[50] The evidence of Duncan was
undisputed except for when the loss occurred. In his opinion the loss
occurred when the money was
received by Macro Steel.
[51] Under crossexamination, having
had sight of the authorisation signed by the plaintiff, Duncan
admitted that the payment of
R2,5 million to MacroSteel was
authorised by her and effected on her instructions.
[52] He confirmed that no fee was
debited by FNB for the payment of R2,5 million with Macro Steel
(unlike with previous investments)
and no benefit had been derived by
the Bank from this transaction.
[53]
Witness 2
: Crockart
testified that it had become necessary to appoint a
curator bonis
because of the large sums of money in the patient’s estate.
Although he had made the plaintiff aware of the responsibilities
of a
curator bonis,
she chose to be appointed as curator because of
the substantial fee payable to the curator. He had explained the
import of the order
of court appointing her curator to the plaintiff
and advised her to seek expert advice in respect of the monies
invested and to
revert to the Master for assistance and approval.
[54] Although Crockart’s
involvement in the curatorship was to end with the appointment of the
curator, he had continued to
assist because of the difficulties in
obtaining the necessary bond of security and letter of undertaking
for the Master, which
was required to ensure when monies were drawn
from the estate without his approval, there would be cover for the
recovery of those
funds. Crockart unsuccessfully approached various
financial institutions to furnish the guarantee or suretyship
required by the
Master.
[55] Although Crockart initially
testified that he knew that Cotton was the branch manager of FNB,
Overport branch, he eventually
conceded that he did not see any
letters or documents describing Cotton as a branch manager. However
he had at least two meetings
with Cotton at FNB, Overport branch and
he had observed Cotton’s authority at the bank. He had also
received letters sent
by Cotton on First National Bank letterheads.
Cotton had also informed him that he was a branch manager. Crockart
was therefore
confident that Cotton had acted in his capacity as
employee of FNB when he dealt with the patient’s investments.
[56] Crockart approached Cotton, who
suggested that Crockart send a letter with the Master’s
requirements so that FNB could
issue the necessary documents in
compliance with the aforesaid requirements. On 8 July 2004, Crockart
sent to Cotton a proforma
copy of the security requested by the
Master so that either FNB or Liberty Life could work with the
proposal.
[57] On 16 September 2004 Cotton
attended a meeting with the Master represented by an Assistant
Master, Potgieter, and presented
a five year fixed investment with a
guaranteed return. The presentation was made by Cotton on behalf of
FNB. At this meeting Cotton
assured the Master that a suretyship
would not be a problem. The initial arrangement was that a suretyship
would be obtained from
FNB, but was changed on Cotton’s advices
that a suretyship would be forthcoming from either FNB or Liberty
Life.
[58] After various meetings between
Cotton and Crockart and Potgieter, the Master approved the investment
with Liberty Life subject
to Liberty Life furnishing a Bond of
Security to the Master. However when it subsequently transpired that
Liberty Life would not
issue a Bond of Security, the Master consented
to accepting a Deed of Cession from Liberty Life for the monies held
in the Liberty
investment. Potgieter requested further that the Deed
of Cession specifically record that any payments made without the
authority
of the Master would result in liability for Liberty Life.
In addition to the deed of cession the Master also requested a letter
of undertaking from Liberty Life.
[59] Although there was no written
communication to that effect, Crockart testified that the Master was
not satisfied that Liberty
Life would issue the bond of security but
also wanted to create an obligation for FNB as it had an vested
interest. The Master
therefore wanted a letter of undertaking from
FNB so that no withdrawal could be made without the consent of FNB
and the Master.
Cotton had assured the Master that there would be no
problem for First National Bank to issue the letter of undertaking.
[60] However there is no
correspondence or other documentation to corroborate Crockart’s
evidence in this respect. From the
correspondence between the Master,
Crockart and Cotton, it is apparent that the letter of undertaking
was required from Liberty
Life when Liberty Life refused to issue a
bond of security. Crockart referred to the proforma surety he had
sent to FNB; but the
related correspondence indicates that the
proforma document was intended to assist with the suretyship from
Liberty, not a letter
of undertaking from FNB.
[61] Crockart testified that the
Master had given verbal approval to the investment with Liberty Life
but would not issue a written
approval until he was in possession of
the Bond of Security and the Letter of Undertaking. This testimony
did not accord with the
request dated 29 October 2004 from Mrs
Rafferty of the Master’s office for a bond of security for R4,6
million. Crockart
explained that it would have been impossible to
obtain the bond of security and any letter of undertaking without the
funds first
being invested and in the possession of the institution
which was to issue the security. It was for this reason that the
investment
was done without the bond of security being issued and
written approval of the Master being obtained. Potgieter had advised
that
he did not require a bond of security for the full amount as he
intended to issue or endorse a
caveat
against the immovable
property in the patient’s estate.
[62] As Potgieter was insistent in
conducting meetings in the presence of the curator, the meeting
between Cotton, Crockart and
Goodman and Potgieter took place on 14
December 2004. At that meeting the Master was aware that the
investment with Liberty Life
had already been made, but did not
complain. The plaintiff too was aware that the investment had already
been made, although the
compliance with the Master’s
requirements was outstanding.
[63] Athough Crockart had been
communication with the Master’s office when the curator’s
accounts were lodged, he did
not receive confirmation by the Master
that the requisite cession was in place. However, because of the
assurances by Cotton that
the Master’s requirements had been
complied with, Crockart was satisfied that the necessary security had
been provided. It
was only when he perused the Master’s file
subsequent to the discovery that Cotton had stolen clients’
monies, that
Crockart discovered that the cession was incomplete and
that the further security required by the Master had not in fact not
been
furnished. (The assistant Master, Potgieter was at the time of
the trial, deceased.)
[64] Sometime between the end of
November 2004 and the beginning of 2005, Cotton instructed Crockart
to represent him in personal
and business matters. Cotton had an
interest in three juristic entities which were involved in the
importing and the selling of
golf equipment or products.
[65] The payment of R165 000 from
Macro Steel into the trust account of Calitz Crockart was related to
the purchase of golf
related products from a foreign company. When
the further sum of R335 000 was paid into the trust account of
Calitz Crockart,
Cotton advised Crockart that the money was paid in
error by Cotton’s client. The monies were then paid into SET’s
account.
Crockart subsequently discovered that the members of SET
were Cotton’s wife and her father. Crockart however had only
received
instructions from Cotton.
[66]
Witness 3
Doron Neal
Friedman (‘Friedman’), a director of and shareholder in
Macro Steel, testified that Macro Steel, a private
company trading in
steel, raised funds it required for its transactions and projects
from various sources. About February 2006
Macro Steel intended
purchasing a parcel of steel for R5 million and required a loan of
R2,5 million to furnish the supplier with
a letter of credit. It
intended repaying the loan of R2,5 million out of the proceeds of the
sale of the steel.
[67] A shareholder in Macro Steel at
the time, Daniel Vos (‘Vos’), informed Friedman that the
funds required by Macro
Steel could be accessed through a wealthy
friend, Cotton. Friedman and Vos met with Cotton in February 2006 and
negotiated a loan
of R2,5 million to Macro Steel from Cotton,
repayable with compound interest at the rate 20%.
[68] Cotton paid R2,5 million into the
account of Macro Steel on 31 March 2006. The deposit bore the
reference LW Goodman, but Friedman
had no idea at that stage who
Goodman was.
[69] Friedman’s understanding of
the transaction with Cotton was that Cotton was a wealthy investment
banker who wanted to
invest in Macro Steel provided that he received
a return from the company. Cotton did not say that he was acting in a
representative
capacity for a client and the source of the funds was
not discussed or disclosed.
[70] The loan was repaid in full to
Cotton by July 2006, with an additional sum of R250 000 which,
according to Friedman, was
not interest but a sharing of profits as
it was a fixed fee negotiated with Cotton.
[71] Friedman had during the criminal
investigation, furnished the police with detailed accounts and proof
that the monies had been
paid. The investment with Macro Steel had
been a genuine lawful investment with a better than average return.
Friedman was also
satisfied that the funds had been traceable to
Cotton.
[72] At the time when the loan was
negotiated with Cotton, Macro Steel was in negotiation with the Tata
group of companies, its
main supplier of steel, which was considering
acquiring a share in Macro Steel. Although no acquisition was
effected, as a result
of the negotiations Macro Steel had to raise
funds in order to increase their facilities.
[73] Friedman could not remember
whether Tata or the Tata group was mentioned in the negotiations with
Cotton. He believed however,
that Cotton would have known of the Tata
connection as Vos’s wife and Cotton’s wife were related
and Vos would have
mentioned the negotiations with Tata in his
business discussions with Cotton.
[74]
Witness 4 :
Carmen Cindy
Goodman (the plaintiff) testified that she was present at the meeting
when Cotton presented his portfolio to the Master.
She had advised
the Master that she understood the terms of the investment. She
confirmed that she was aware of the Master’s
requirements, but
as Cotton had assured the Master that he would ensure that the
requirements were furnished, she accepted that
he would ensure that
the necessary security was furnished to the Master’s
satisfaction. Cotton also assured her that he was
attending to same.
[75] She had further understood that
the Master’s approval was required not only in respect of the
investment presented by
Cotton, but that the Master would have to
also approve all investments that may be made from the initial
investment.
[76] The plaintiff trusted Cotton
‘absolutely’ as there was no reason not to. She was aware
that he was employed by
FNB and had been to his office at FNB,
Overport. She knew that he had a dedicated secretary. Although she
had not noticed any sign
on the door of his office, she had always
believed that he was the branch manager, because either Cotton
himself or Crockart had
told her that. She had received
correspondence from Cotton on official FNB stationery and other
official documents from FNB.
[77] The plaintiff confirmed her
signature on the Liberty Cession (Exhibit C 126B), but did not know
who had completed the details
on the cession as she had signed a
blank document.
[78] She had agreed to the change to
the Liberty investment because Cotton had advised her that the
Liberty policy was doing very
well but she ought to take half the
funds in that policy and diversify into other financial
institutions.. In particular he had
suggested the R2,5 million
investment with Stanlib. She had relied on Cotton’s advice as
he assured her that it was a good
investment. She signed the
documents Cotton presented to her, even those in blank. Although she
was perturbed by the size of the
fee that was deducted when it came
to her attention in the statement she received after the investment
was made, she did not say
anything to Cotton.
[79] She also did not concern herself
about the Master’s approval as she assumed that as Cotton had
met with the Master and
the Master had approved the initial
investment there was no need to go through the process again. The
Stanlib investment had been
reflected in the curator’s account
lodged with the Master for the year in which the investment was made.
[80] As she knew that the return on
the existing investment with Stanlib was good, when Cotton suggested
the investment with ‘Tata’,
she requested assurance from
him that the proposed investment would also yield a good return.
Although she knew that ‘Tata’
was a motor vehicle company
she did not find it necessary to ask him whether the investment was a
product associated with FNB,
because Cotton was a consultant with the
bank and he was aware of the Master’s requirements.
[81] The plaintiff was aware that the
Master did not want high risk investments, which was in accordance
with her own risk limitation
as a moderate investor, but again she
did not question Cotton about whether he had obtained the Master’s
consent for thls
investment.
[82] When she agreed to the ‘Tata’
investment, Cotton asked her to sign blank documents which he said he
would complete.
The name of Macro Steel did not appear on any of the
documents, which may have alerted her to the fact that the investment
was
not with ‘Tata’. Nor did Cotton inform her that this
was not an investment in an FNB linked product. She presumed that
as
he was an FNB consultant, his proposed investment would be a product
FNB was accredited to recommend.
[83] Under crossexamination, the
plaintiff admitted that she was aware of the Master’s
requirements and conceded that the
responsibility for signing blank
documents lay with her, but persisted that she had relied on Cotton
as financial advisor and trusted
him as she had no experience or
knowledge in respect of investments. Her trust in Cotton was enhanced
because the Master was ‘happy’
with Cotton, despite the
delay with the furnishing of the security.
[84] She agreed that she had signed
many documents in connection with the Liberty investment. Cotton
presented them to her for signing
and explained the contents but she
had also read the documents. She knew she would be charged a fee
although she was not aware
of the amount. Cotton had told her that
the fee would be recouped in the interest.
[85] When the Stanlib investment was
made, Cotton again did not discuss the fee with her. She did not ask
Cotton for details other
than the return on the investment. She
admitted that she had signed the documents presented to her in
connection with this investment,
including the ‘Statutory
Disclosure Notice’ (‘the notice’) which she read
and understood and realised that
she was bound by the terms.
[86] But when the ‘Tata’
investment was proposed by Cotton, she did not correlate the
investment with the terms of the
notice. Although she knew that Tata
was associated with motor vehicles, she had assumed that it was also
an investment company
linked to FNB. She conceded that it was not
mentioned in the list of products in the agreement, and not within
the mandate given
to Cotton by FNB, but was insistent that she had
trusted Cotton as he ‘was approved by the Master’ and did
not realise
that neither ‘Tata’ nor Macro Steel was on
the list of accredited products.
[87] She had asked Cotton for the
investment or policy document for the ‘Tata’ investment
but he told her not to worry;
he would make the investment, monitor
it and redeem it at a good time. But she admitted that even if he had
told her it was an
investment with Macro Steel, she would have relied
on his advice that it was secure and profitable, and made the
investment.
[88] She had frequently signed
documents and forms in blank which Cotton would fill in later. But as
there were only two documents
she signed for the ‘Tata’
investment, she knew they were blank because she would have noticed
the name ‘Macro
Steel’. Further she did not consider the
transaction a loan and would have been alarmed that it was not an
investment, but
a loan.
[90] The plaintiff insisted that she
always interacted with Cotton as an employee of FNB; the description
or title of his job whether
branch manager or financial planner did
not matter to her. While she accepted that it was not within Cotton’s
mandate from
FNB to report to the Master or interact with him, she
did not know what his duties with FNB were nor did she know that he
had no
mandate to propose an investment with ‘Tata’ or
Macro Steel. She only realised there was a problem when Cotton called
her and told her that if anyone from the bank called her she should
not tell them about the ‘Tata’ investment. She
asked him
repeatedly for the investment documents but Cotton fobbed her off.
The First Defendant’s case
[91] One witness, James Ward, employed
by the Bank as area manager for the financial planning division for
the period May 2004 –
end of 2005, testified for the defendant.
He had been the area manager while Cotton was employed by the Bank.
[92] The contract of employment and
the Articles of Agreement (pleadings 72 – 86) signed by Cotton
on 12 October 1999 were
standard employment contracts utilised by the
Bank, which stipulated the terms and conditions of his employment
with the Bank.
Similarly Cotton was bound by the Mandate he signed as
financial consultant (pleadings 88 -93), and thereby limited to
proposing
to clients only the specific products listed in the
mandates, which are also reflected in the Statutory Disclosure
Notices signed
by clients.
[93] The objective of the disclosure
notice was to inform clients like the plaintiff who required
investments, of the available
products. The investment with Macro
Steel fell outside the list of such products and would not have been
authorised by the Bank.
[94] There was a list of investment
products and certificates displayed in the office of the Financial
Planner at the Overport Branch
of the Bank.
[95] Under crossexamination Ward
admitted that Cotton’s employment contract was not made
available or published to the public.
He also admitted that the
products listed on the Statutory Disclosure Notices were not always
accessed as investments in the listed
name, although they fell under
the listed umbrella body. Further the mandates and the disclosure
notices were subject to change
as the products that a financial
planner could sell were subject to change; the disclosure notices
were therefore not always up
to date.
[96] Ward was unaware of any specific
measure taken by the Bank to safeguard against the commission of
fraud and theft by a financial
consultant. He admitted he was
surprised by Cotton’s fraud as he had trusted him.
[97] I turn now to the issues for
determination :
The first issue is whether Cotton
intentionally induced the plaintiff to invest R2,5 million rand in an
alternative investment as
a result of a false and fraudulent
misrepresentation.
[98] The patient’s funds,
specifically the R2,5 million, were in an investment with Stanlib
which was showing good returns.
The plaintiff would have not
interfered with or drawn on the investment except for the offer by
Cotton of an investment which would
yield a better return than the
existing Stanlib investment. She was clearly aware of her obligation
not only to preserve the patient’s
estate but to make it grow
albeit at moderate rate, which informed her risk limit.
[99] However, despite being a tertiary
level graduate, she also lacked the knowledge and experience to make
decisions relating to
financial investments. She initially relied on
Crockart who was referred to her through a financial institution, BOE
Bank. When
BOE was unable to assist her further with the Master’s
requirements, she was assisted by Crockart who in turn approached
Cotton because of his social acquaintance with him. The basis of the
approach was, however, Crockart’s knowledge that Cotton
was
employed by FNB, and Crockart had been unable to obtain assistance
for the plaintiff from various other banks.
[100] Therefore the plaintiff’s
meeting with Cotton was initiated because of his employment with FNB
and in his capacity as
a person who would offer her financial advice
and assistance. Whether he was merely a financial consultant or a
branch manager,
is in my view, ultimately irrelevant. It is his
conduct and the manner in which he engaged with the plaintiff through
his employment
with the Bank that is significant.
[101] The pertinent, undisputed
evidence is that the plaintiff consulted with Cotton in his office at
the Overport Branch of the
Bank, as an employee of the Bank, who
could offer her advice on financial products, specifically
investments. Cotton did just that
and offered her advice on
investment products, which she accepted and acted on without any
adverse result or effect on the patient’s
estate, until the
‘Tata’ investment.
[102] Moreover Cotton was not only
prepared to assist with the Master’s requirements but he
attended meetings with the Master
and made a proposal which was
accepted by the Master, and resulted in the investment with Liberty
Life.
[103] Although it subsequently emerged
that the Deed of Cession requested by the Master was never properly
effected, the plaintiff
had signed the document, which, together with
Cotton’s assurances that he was attending to the Master’s
requirements,
allayed her concerns.
[104] Even Crockart, despite his
attempts to ‘create a paper trail’, was not aware of the
incomplete cession. It would
appear from Crockart’s evidence
that he found nothing in Cotton’s conduct which alerted him to
the possibility that
Cotton could prove untrustworthy. According to
Crockart, he had no knowledge of the further investments, after the
Liberty Life
investment, an indication that, by this stage, the
plaintiff was relying solely on Cotton insofar as investments were
concerned.
[105] It was undisputed that the
plaintiff had submitted a curator’s account which reflected the
Stanlib investment made without
the Master’s approval, which
raised no queries.
[106] It is evident therefore, that by
the time Cotton proposed the investment with ‘Tata’, the
plaintiff had developed
a strong trust in Cotton and his advice on
investments and relied on him because of his involvement in the
meetings with the Master
and his assurances that he would ensure
compliance with the Master’s requirements. She was fortified in
this trust by the
Master accepting Cotton’s proposal on the
Liberty Life investment. As she testified, Cotton ‘was approved
by the Master’.
She was undoubtedly also influenced by the
positive returns on the prior investments which were made on Cotton’s
advice.
[107] She was consequently susceptible
to inducement by Cotton. Not only did she trust and rely on him, the
inducement was clearly
more attractive because he advised her that
the ‘alternative’ investment which would offer her better
returns. Thus
although she was risk averse, she was attracted by the
opportunity to grow the value of the patient’s estate.
[108] The plaintiff admitted that she
accepted Cotton’s proposal because of the return the investment
would bring, but she
had also asked Cotton for the investment or
policy document for the ‘Tata’ investment. However he
told her not to worry;
he would make the investment and monitor it
and redeem it at a good time. She candidly admitted that even if he
had told her it
was an investment with Macro Steel, she would have
relied on his advice and made the investment.
[109] Although Cotton did not tell her
that he had the Master’s approval for the proposed investment,
she assumed he did,
as he knew the Master’s requirements. As
already mentioned the withdrawal of funds from the Liberty Life
investment and investment
with Stanlib had proceeded without query or
being problematic.
[110] She also assumed that the ‘Tata’
investment was a legitimate product falling within the Bank’s
accredited
products. More about this later.
[111] I am satisfied that the evidence
supports, on a balance of probabilities, the plaintiff’s
contention that Cotton induced
her to invest R2,5 million rand in an
alternative investment as a result of a false and fraudulent
misrepresentation. The plaintiff
was induced by Cotton’s
advices that there was a secure alternative investment to the Stanlib
investment, which would be
to the benefit of the patient. This
fraudulent nature of the inducement emanates from Cotton’s
advices to her that the investment
was secure, and it would be made
for the patient and for the patient’s benefit. It is apparent
that this was not the case,
as Cotton intended not to invest the
money for the patient in an accredited product, but to lend the
patient’s money in his
ie Cotton’s name to a private
company without proper security and to benefit from the loan himself.
Friedman’s undisputed
evidence is clear on this score.
[112] Although the plaintiff agreed
with the proposition put to her in crossexamination, that, when the
investment with Macro Steel
was made, no fraud was perpetrated on
her, she did not realise that, as the R2.5 million had not been
invested in a secure investment
for the benefit of or in the name of
the patient, the fraud had in fact been perpetrated on her as
curator. Cotton had utilised
the R2.5 million in a loan Macro Steel,
setting himself as the creditor and negotiating the terms of the loan
agreement for his
own benefit.
[113] This leads on to the second
issue for determination, whether Cotton committed a fraud or theft of
R2,5 million on 31 March
2006.
[114] On 31 March 2006 an amount of
R2.5 million was withdrawn from the aforesaid Money Market account in
accordance with an ‘authorisation
to FNB to issue Bank Cheque
and debit clients account’ signed by the plaintiff and paid by
way of a bank cheque issued by
the Overport branch of the Bank in
favour of Macro Steel (Pty) Ltd which was deposited into Macro
Steel’s bank account on
the same day.
[115] Although the plaintiff signed
the authorisation in blank, she intended the authorisation to be for
funds which were to be
paid into the alternative investment
recommended by Cotton for the benefit of the patient. Her consent
cannot therefore negate
the theft by Cotton, as her consent was
induced by Cotton’s fraudulent representation about the
alternative investment.
(Dalrymple Frank & Feinstein v
Friedman & Another (2)
1954 (4) SA 649
(W) at 664A-C)
‘
A person
commits theft if he unlawfully and intentionally appropriates
movable, corporeal property which
belongs to, and is in the possession
of, another;
belongs to another but is in the
perpetrator’s own possession; …….’
See Criminal Law C R Snyman 5
th
edition at page 483
[116] I am satisfied that the facts
herein prove that the R2,5 million from the patient’s account
was unlawfully and intentionally
appropriated by Cotton. The cheque
drawn and payment to Macro Steel was for his benefit and under his
control. In so doing Cotton
intentionally deprived the patient of the
control of the funds under a misrepresentation that it would be
placed in an investment
for the patient’s benefit, and
continued to lie to her when she requested the documentation for the
investment.
[117] Friedman testified that his
understanding of the transaction with Cotton was that Cotton was a
wealthy investment banker who
wanted to invest in Macro Steel
provided that he received a return from the company. When he met with
Cotton, Cotton did not say
that he was representing a client and
there had been no discussion or disclosure about where the funds
advanced to Macro Steel
were obtained from.
[118] It is apparent from the
undisputed evidence of Friedman that even prior to the money being
paid to Macro Steel, Cotton had
negotiated the loan of R2,5 million
on his own behalf and for his benefit. From the time the funds were
paid over to Macrosteel,
only Cotton controlled the terms of the loan
and its repayment. Cotton had formed the intention to appropriate the
money for his
own benefit even before the money was drawn out of the
patient’s account.
[119] In effect the plaintiff had no
control over the money once it was drawn from the patient’s
account. It is common cause
that the R2,5 million was not repaid to
the patient, but diverted by Cotton on instructions to Macro Steel to
entities which were
controlled by him or from which he derived a
benefit.
[120] In the premises, I am satisfied
that the plaintiff has discharged the onus on her to prove that
Cotton committed theft of
R2,5 million from the patient on 31 March
2006, the date on which the withdrawal was made from the patient’s
Money Market
account.
[121] I am also in agreement with Mr
Harpur that the theft had occurred by the time the loan was made to
Macro Steel as Cotton had
formed the intention to steal and had
possession and control of the patient’s funds.
(Cape v Koch
1985 (4) SA 379
(C); S
v Dlamini
1984 (3) SA 196
(N) )
[122] I find it necessary to record
that it is apparent that the plaintiff clearly lost track of the
responsibilities concomitant
with the office of
curator bonis
and the procedures which must necessarily be followed in dealing with
the patient’s estate in accordance with the order of
court in
terms of which she was appointed, because of the trust she developed
in Cotton and the reliance she placed on him and
his advice. She was
undoubtedly vulnerable because of the circumstances surrounding the
patient’s injuries and incapacity,
and her lack of experience
with investments. But she chose to be appointed curator with full
knowledge of the responsibilities
the appointment entailed. She
attended meetings with the Master and no doubt fully appreciated that
the intention of the Master
in demanding security was to ensure that
the assets in the patient’s estate were not at risk of
dissipation or loss. She
was aware that she required the Master’s
approval not only for the initial investment but also for subsequent
investments.
Further she is an educated woman who ought to have been
alive to the risk of relying on others to complete documents which
she
signed in blank, particularly when the documents related to
significant sums of money, the preservation, utilisation and growth
of which she was responsible. However, her failure to comply with her
obligations and her quest for better returns on the investments
do
not excuse or negate the unlawful conduct of Cotton and the theft
perpetrated by him, who once he obtained her confidence and
trust,
took full control of funds she released, in the belief that he was
going to invest it for the benefit of the patient.
[123] In any event the negligence or
contributory negligence of the plaintiff was not pleaded or relied on
by FNB.
[124] I turn now to the determination
of the issue of whether, in committing the aforesaid theft, Cotton
acted within the course
and scope of his employment with the Bank,
thereby rendering the Bank vicariously liable to repay the R2,5
million stolen by Cotton.
[125] In resisting liability, the Bank
relies on the contract or ‘agreement with the patient and the
terms and conditions
of Cotton’s employment with and mandate
from the Bank.
[126] The following comments of Zulman
JA in
ABSA Bank Ltd v Bond Equipment (Pretoria) (Pty) Ltd
[2000] ZASCA 136
;
2001 (1)
SA 372
(SCA),
at 378 -379 are useful and apposite to the issue
for determination herein :
‘
[5]
The
standard test for vicarious liability of a master for the delict of a
servant is whether the delict was committed by the employee
while
acting in the course and scope of his employment. The inquiry is
frequently said to be whether at the relevant time the employee
was
about the affairs, or business, or doing the work of, the employer
(see, for example,
Minister
of Police v Rabie
1986 (1) SA 117
(A) at 132G:
Minister
of Law and Order v Ngobo
[1992] ZASCA 172
;
1992 (4) SA 822
(A) at 827B). It should not be overlooked, however,
that the affairs of the employer must relate to what the employee was
generally
employed or specifically instructed to do. Provided that
the employee was engaged in activity reasonably necessary to achieve
either
objective, the employer will be liable, even when the employee
acts contrary to express instructions (see, for example,
Estate
Van der Byl v Swanepoel
1927
AD 141
at 145 – 6, 151 – 2). It is also clear that it is
not every act committed by an employee during the time of his
employment
which is for his own benefit or the achievement of his own
goals which falls outside the course and scope of his employment.
(
Viljoen
v Smith
[1996] ZASCA 105
;
1997 (1) SA 309
(A) at 315F-G.) A master is not responsible for the
private and personal acts of his servant, unconnected with the
latter’s
employment, even if done during the time of his
employment and with the permission of the employer. The act causing
damage must
have been done by the servant in his capacity
qua
servant and not as an independent individual. (See, for example,
Feldman
(Pty) Ltd v Mall
1945 AD 733
at 742 and
HK
Manufacturing Co (Pty) Ltd v Sadowitz
1965 (3) SA 328
(C) at 336A.) The test in this latter regard was
formulated by Jansen JA in
Minister
of Police v Rabie (supra
at 134D – E) as follows:
‘
It seems
clear that an act done by a servant solely for his own interests and
purposes, although occasioned by his employment, may
fall outside the
course or scope of his employment, and that in deciding whether an
act by the servant does so fall, some reference
is to be made to the
servant’s intention (cf
Estate
Van der Byl v Swanepoel
1927 AD 141
at 150). The test is in this regard subjective. On the
other hand, if there is nevertheless a sufficiently close link
between the
servant’s act for his own interests and purposes
and the business of his master, the master may yet be liable. This is
an
objective test. And it may be useful to add that according to the
Salmond
test (cited by GREENBERG JA in
Feldman
(Pty) Ltd v Mall
1945 AD 733
at 774)
“
a master …
is liable even for acts which he had not authorized provided that
they are so connected with acts which he had
authorized that they may
rightly be regarded as modes – although improper modes –
of doing them…”.’
Tindall JA put the matter as follows
in the
locus classicus
on the vicarious liability of an
employer for the deeds of an employee in
Feldman (Pty) Ltd v Mall
(supra
at 756 – 7):
‘
In my view
the test to be applied is whether the circumstances of the particular
case show that the servant’s digression is
so great in respect
of space and time that it cannot reasonably be held that he is still
exercising the functions to which he was
appointed; if this is the
case the master is not liable. It seems to me not practicable to
formulate the test in more precise terms;
I can see no escape from
the conclusion that ultimately the question resolves itself into one
of degree and in each particular
case the matter of degree will
determine whether the servant can be said to have ceased to exercise
the functions to which he was
appointed.’
(See also the remarks of Watermeyer CJ
at 742 and Davis AJA at 784.) The effect of the ‘two tier
test’, as postulated
by Jansen JA, is that an employer will
only escape liability if his employee had the subjective intention of
promoting solely his
own interests and that the employee, objectively
speaking, completely disassociated himself from the affairs of his
employer when
committing the act. The nature and extent of the
deviation is a critical factor.
Once the deviation
is such that it cannot reasonably be held that the employee is still
exercising the functions to which he was
appointed, or still carrying
out some instruction of his employer, the latter will cease to be
liable. Whether that stage has been
reached is essentially a question
of fact ( see, for example
Feldman (Pty)
Ltd v Mall (supra
at 756 -757 );
Union
Government v Hawkins
1944AD 556 at 563;
Viljoen v Smith (supra
at
316E – 317A). The answer in each case will depend upon a close
examination of the facts.’
[127] Cotton was employed as a
financial consultant by FNB. Although the terms of his employment
with FNB and his mandate were specific
about his obligation only to
propose or recommend to clients only products that FNB was accredited
to sell, his employment contract
and mandate were not public
documents. Despite the plaintiff’s admission in the course of
her testimony that investments
with ‘Tata’ and Macro
Steel were not products within the mandate given to Cotton by FNB,
she did not have sight of
his mandate or his employment contract,
which was confirmed by Ward.
[128] However she did have sight of
the Standard Disclosure Notice, which accorded in the main with the
terms of employment of Cotton
and his mandate from FNB. This was
confirmed by Ward and is apparent from the mandates and employment
contract (Pleadings pages
61 – 94) .
[129] According to the agreement, the
business of FNB Financial Planning and Advisory Services consists of
:
‘
providing
estate planning, retirement planning and life assurance services,
business assurance services and investment advisory
services. Usually
this entails analysis of the client’s assets, liabilities and
financial objectives, an identification on
the client’s life
assurance needs and investment needs, the submission of
recommendations including quotations from various
product providers,
and the arranging of new life assurance and of new investments with
product suppliers as named herein.’
[130] But the notice and the contents
of the notice were not consistently disclosed to the plaintiff. She
was asked to sign the
notice only when the Stanlib investment was
made. There is no evidence that she was given a similar notice to
read or that she
signed a similar document when the Liberty Life
investment was made earlier, although she was at that time already a
client of
FNB’s Financial Planning and Advisory Services and
received financial planning services from FNB through Cotton in the
course
and scope of his employment with FNB.
[131] When the subsequent investment
with Stanlib was made, she signed the documents presented for her
signature by Cotton, without
questioning what they were as she
accepted that they were related to the new Stanlib investment. It was
at this stage that she
was presented with the notice which Cotton
explained to her and she read. However as a layperson, she merely
read the document
as a ‘notice’ and not ‘an
agreement’ or ‘contract’, understandably, given the
title of the
document. Further Cotton did not advise her that she was
signing an agreement with FNB when she signed the Statutory
Disclosure
Notice. Nor did Cotton bring to her attention that the
notice applied not only to the Stanlib investment but any product
recommended
or advice subsequently given to the plaintiff by Cotton,
albeit in the course and scope of employment with and within his
mandate
from FNB.
There was, in the circumstances, no
reason for her to be aware that she was signing a document which
constituted an agreement between
herself and FNB in relation to the
financial services rendered to her by FNB through its employee, which
was related not only to
the Stanlib investment but also all
subsequent investments.
[132] Therefore although the plaintiff
admitted that she understood the terms of the notice and that she was
bound by it, she associated
the notice with the Stanlib investment
only. It is not improbable that she, according to her evidence, ‘did
not think about
it’ when the documents relating to the ‘Tata’
investment were presented to her for signature. It is common cause
that no further disclosure notice was handed to her with the ‘Tata’
documents, as FNB relies on the notice signed on
25 October 2005, and
the plaintiff’s evidence that she signed only two documents in
respect of the ‘Tata’ investment
was not disputed; she
was in fact crossexamined about why she did not regard the paucity of
documents she signed as suspicious.
[133] In relying on the ‘agreement’
with the plaintiff, FNB has contended that it was accredited to
distribute specifically
defined products of various financial product
providers, listed in its agreement with the plaintiff. But it was
also pertinently
admitted by Ward, that the names of the insurance
companies or financial institutions whose products FNB was accredited
to sell
as recorded on the notice, did not always correlate with the
names of the products sold, although the product was sold under the
umbrella company. Therefore the client would not necessarily have
known that the product sold by the consultant was a ‘legitimate’
product. A perusal of the notice indicates that among the more
familiar names and names associated with financial products,
particularly
investments, is a name ‘Ashburton’ which to
those outside the industry may be unfamiliar. More significantly, the
name
Stanlib does not appear on this list of accredited products or
providers in the notice. Therefore, even if the plaintiff did focus
on the list of providers, the probabilities that she would have
realised Macro Steel was not a product the bank was accredited
to
propose were remote.
[134] Further, Ward testified that the
products and the product providers also changed and while clients
would be reliant on the
advice of the financial consultant, the
consultants would have to check with the area manger or relevant
department as to whether
the product or provider was current. The
disclosures were not always up to date, although Ward testified that
at the time of the
investment with Macro Steel, the products listed
on the notice were current.
[135] Consequently in his interaction
with the plaintiff, Cotton was conducting himself as a financial
consultant in the employ
of FNB and recommending or proposing the
products which ostensibly lay within his mandate. There was no need
for the plaintiff
to question or be suspicious about the ‘Tata’
investment. The previous investments had also not been in the name of
FNB but two other entities : Liberty and Stanlib, but had been secure
accredited and profitable products. As far as the plaintiff
was
concerned Cotton was representing his employer, although Cotton had
through the scope of his employment, intended to unlawfully
benefit
from the patient’s assets. In making the funds for the
investment available, the plaintiff was acting in good faith.
See
head
note in
Chappell v Goal
1928
CPD 47
:
“
Every act by
the agent professedly on his principal’s behalf, and within the
scope of his actual authority, is binding upon
the principal with
respect to persons dealing with the agent in good faith, even if the
act is done fraudulently in furtherance
of the agent’s own
interests and not in the interests of the principal.”
See also:
Sandbank BP v Santa
Versekeringsmaatskappy Bpk
1965 (2) SA 456
(W).
[136] The next question to consider
was whether Cotton doing the work of the employer at the time. He was
rendering financial service
in accordance with his employment with
FNB as a financial consultant. Even if he did not act in accordance
with the mandate in
that he did not restrict himself to the products
FNB was accredited to supply, his unlawful conduct was closely allied
with his
employment with FNB, and his critical ‘deviation’
not so great as to help the employer escape liability.
[137] I accordingly find merit in Mr
Harpur’s argument that there is sufficient close connection
between the conduct of Cotton
and what he was employed to do activity
( see the applicable
Salmond
test in
Feldman (Pty) Limited
v Mall
1945 AD 733
at 774
quoted
supra
in
Absa Bank v
Bond Equipment)
See also
Neethling et al
Law
of Delict
(4
th
Edition) at 377 :
‘
The
employer may accordingly only escape vicarious liability if the
employee, viewed subjectively, has not only exclusively promoted
his
own interests, but viewed objectively, has also completely disengaged
himself from the duties of his contract of employment’.
Similarly in
Minister of Finance &
Others v Gore NO
2007 (1) SA 111
(SCA)
the headnote at page 113
reads :
‘……
that
a two-pronged test was traditionally applied to determine whether or
not to visit the employer with liability for the deliberately
dishonest conduct of his employees: (i) Was the conduct committed
solely for the employee’s own interests and purposes? And,
if
not, (ii) was there, objectively, a sufficiently close link between
the employee’s conduct and the employer’s business?
(Paragraph [28] at 123F – 124A.)’
[138] The plaintiff testified that
although fees and commission were debited against the capital
invested, of which she was aware,
she did not know what these fees
were until she received the policy document because Cotton did not
discuss the amount that would
be deducted as fees or commission with
her. She would therefore have not known that no fees or commission
were charged on the Macro
Steel investment as Cotton did not give her
the ‘investment documents’ although she requested them.
[139] Mr Combrink submitted that FNB
received fees and commissions from the first two investments made by
the plaintiff on the advice
of Cotton. But no fees or commission was
earned by the bank in respect of the investment with Macro Steel. In
terms of the statutory
disclosure notice, the product suppliers would
pay commission to the Bank for the business which the financial
planner would place
with them. FNB therefore also suffered loss as a
result of the fraudulent conduct of Cotton. However this assertion
does not assist
FNB, as the fact that FNB did not benefit from the
investment with Macro Steel cannot relieve the bank of vicarious
liability.
[140] In the unreported case
BOE
Bank Limited v Standard Bank Financial Services (Pty) Limited t/a
Stanfin (WLD) Case No 315/2000 Mailula J
held:
‘
62. A
principal will be held responsible even where his agent, in
concealing or not disclosing material facts, was also committing
a
fraud on him. The general principle is that where an agent
contracting in the course of his employment and within the scope of
his authority, fraudulently conceals or otherwise fails to disclose a
fact known to him which, having regard to the nature of the
contract,
he ought to have disclosed to the other contracting party, his
principal is liable for and must suffer the consequences
of his
concealment or non-disclosure. (
Broodryk
v Smuts, NO
1942 TPD 47
at p53;
Ravene
Plantations Ltd v Estate Abrey and Others
1928 AD 143
;
Black
v le Voy
1924 EDL 176
at p181;
Mac-Gillivray
5th
Ed, Vol 1 para 978). It is the principal, who selects his agent and
represents him as a trustworthy person, and not the other
party to a
contract who has no say in the selection, who bears the risk of his
possible dishonest representations and concealments,
as also where
the dishonesty assumes such proportions that the agent, in the nature
of things, will undoubtedly conceal it from
the other party and the
principal will have no knowledge thereof.’
[141] Finally, although it was argued
on behalf of FNB, that in terms of the notice, the proposed product
is only a proposal for
consideration by the client, in the practical
situation, clients are and will be guided by the advice they receive
from the consultant
and the confidence they have in the bank which
employs him, not in the consultant alone. The advice will be received
from the consultant
as an employee and representative of the Bank –
not as a private person who is acting in his own interests. Therefore
it
was the responsibility of the bank to ensure that clients like the
plaintiff, are protected from risk of harm from its employees.
See
Ess Kay Electronics PTE Ltd &
Another v First National Bank of Southern Africa Ltd
2001 (1) SA 1214
(SCA) at pages 1218 – 1219 :
‘
[7]
Vicarious liability is imposed on innocent employers by a rule of
delictual law. The rule in its most simple form is that the
liability
arises when an employee commits a delict within the course of such
employee’s employment. ……….
[8] The reason for the rule is often
stated to be public policy. See, for example,
Salmond and Heuston
on the Law of Torts
19
th
ed at 507. And an underlying
reason for that policy has been held in
Feldman (Pty) Ltd v Mall
1945 AD 733
, in a passage at 741, to be the consideration that
because an employer’s work is done ‘by the hand’ of
an employee,
the employer creates a risk of harm to others should the
employee prove to be negligent, inefficient or untrustworthy. The
employer
is therefore under a duty to ensure that no injury befalls
others as a result of the employee’s improper or negligent
conduct
‘in carrying on his work………….’
[142] Ward was unable to point to any
specific safeguards FNB had in place to alert the bank to fraud or
theft committed by Cotton
and for the protection of his clients.
[143] Arising from the aforegoing
considerations, I am unable to find that the plaintiff is precluded
by a contract between herself
and FNB from recovering the loss
suffered by the patient as a result of the investment of R2.5 million
in Macro Steel.
[144] In the premises, I am satisfied
that the plaintiff has discharged the onus on her to prove that the
FNB should be held vicariously
liable for the loss suffered
consequent to the fraud and theft perpetrated by Cotton.
[145]
Quantum
is not in dispute and there is no reason why costs
should not follow the result.
The following order do issue ;
Judgment is granted in favour of the
Plaintiff against the First Defendant, First National Bank Limited,
for :
Payment of the sum of R2,5 million
Interest thereon at the rate of 15,5%
per annum from 31 March 2006 to date of payment
Costs of Suit
______________________
MURUGASEN J
Counsel
for the Plaintiff: Adv GD HARPUR SC
Instructed
by: CALITZ CROCKART & ASSOCIATES 3
RD
FLOOR SILVER
OAKES
13/14
SILVERTON ROAD
MUSGRAVE
DURBAN
Counsel
for the defendant: Adv D COMBRINK
Instructed
by: SG ATTORNEYS
C/O
JOHAN JOOSTE & COMPANY
MASONIC
GROVE CHAMBERS
32
MASONIC GROVE
DURBAN
Delivered
on: 7 November 2012