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[2011] ZAKZPHC 54
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Stols v Garlicke & Bousfield Inc and Others (10146/2010, 10142/10, 10144/2010, 10145/2010, 10186/2010, 858/2011, 1340/2011) [2011] ZAKZPHC 54; 2012 (4) SA 415 (KZP) (22 December 2011)
1
REPORTABLE
IN THE KWAZULU-NATAL HIGH COURT, PIETERMARITZBURG
REPUBLIC OF SOUTH AFRICA
CASE NO: 10146/2010
In the matter between:
MERLIN STUART STOLS
…...............................................................
Plaintiff
and
GARLICKE & BOUSFIELD INC.
…...........................
Defendant
/ Respondent
and
PKF (DURBAN) INCORPORATED
…...................
1st
Third Party / Excipient
PATRICK ROBERT
…...............................................................
2
nd
Third Party
NERAK FINANCIAL SERVICES (PTY) LTD
…......................
3
rd
Third Party
CASE NO: 10142/10
In the matter between:
DAVID JAFFIT
…..................................................................................
Plaintiff
and
GARLICKE & BOUSFIELD INC.
…...........................
Defendant
/ Respondent
and
PKF (DURBAN) INCORPORATED
…...................
1st
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) INCORPORATED
.......................
1st
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) INCORPORATED
…...................
1st
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) LIMITED
…....................
Plaintiff
and
GARLICKE & BOUSFIELD INC.
…...........................
Defendant
/ Respondent
and
PKF (DURBAN) INCORPORATED
…...................
1st 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) INCORPORATED
…...................
1st 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) INCORPORATED
…....................
1st
Third Party / Excipient
PATRICK ROBERT
…...............................................................
2
nd
Third Party
NERAK FINANCIAL SERVICES (PTY) LTD
…......................
3
rd
Third Party
___________________________________________________________
JUDGMENT
___________________________________________________________
GORVEN J
In these matters, the excipient is the first third
party which I will refer to as the third party. The defendant is the
respondent
and will be referred to as the defendant. These matters
were argued together and it was agreed that they should be dealt
with
on the same argument without any distinctions. I shall use the
pleadings in the Stols matter in order to deal with the issues.
The
averments in the pleadings are identical except for the amount
invested by each plaintiff and whether all or only part of
it was at
some stage deposited into the defendant’s trust banking
account.
The background to the exception is as follows. The
plaintiff sues the defendant on the basis that a contract of deposit
was concluded
with the defendant. In terms of this contract, the
plaintiff deposited money with the defendant. This was to be repaid
with interest
at a specified date. It is alleged that one Cowan, who
was admittedly at the time an executive consultant of the defendant,
was
authorised to represent the defendant and did represent the
defendant in this contract. A failure to repay is alleged and
repayment
claimed. The defendant pleads to the particulars of claim,
in that part which bears on the exception, as follows:
‘
2. The Defendant denies each allegation in
paragraph 3 of the Particulars of Claim save that the Defendant
admits that Colin Bernard
Cowan was an executive consultant of the
Defendant and a practising attorney and that the Plaintiff caused an
amount of R2 million
to be paid into the Defendant’s trust
account on 13 October 2010 but
The Defendant specifically denies that the said Cowan was
authorised to enter into any such agreement as alleged:
Further, the Defendant denies that the said Cowan entered into any
such agreement as alleged for the purposes or in the interests
of
the Defendant or for any purpose other than his own dishonest
purpose.
The Defendant denies that the amount of R2 million was properly
paid into the Defendant’s trust bank account in that
the said
amount was not entrusted to the Defendant or received by the
Defendant on account of the Plaintiff.’
The plaintiff replicated to the effect that, if it is
found that Cowan was not authorised to represent the defendant, the
defendant
is estopped from denying such authority. Two weeks after
delivering the plea, the defendant issued the third party notice to
which
exception has been taken.
The annexure to the third party notice refers to the
plea. It indicates that one of the grounds of the defence is that
Cowan was
not authorised to act, or to make representations that he
was acting, on behalf of the defendant so as to bind the defendant
in respect of the transactions sued upon. The claim against the
third party is predicated on it being found that Cowan did not
have
authority to represent the defendant and further on the defendant
nevertheless being estopped from denying the authority
of Cowan.
This is clear from the third party notice and, after the defendant
had confirmed this in argument, the third party
accepted that this
was the position.
It will be necessary to set out in full the relevant
paragraphs of the annexure to the third party notice:
‘
9. From the year 2002 Cowan was an
executive consultant of the Defendant and conducted operations as
hereinafter set forth which
he frequently represented to parties
thereto were conducted on behalf of and so as to bind the Defendant.
The defendant denies that the transactions were so authorised or
conducted and further denies that the defendant is bound in
respect
of any of the said transactions.
If contrary to the said denials it be held that the defendant is so
bound the defendant will suffer loss in the amount for which
it is
held so liable in that the defendant will not be able to recover in
respect of any such amount any amount from the said
Cowan or his
estate.
While he was an executive consultant of the defendant and until his
death in November 2010 Cowan conducted operations which involved
the
receipt of and disbursement of money received from persons on the
basis that Cowan would invest or otherwise deal with the
money so
paid by those persons and in due course pay to or to the order of
those persons the proceeds of any such investment
or dealing.
The said transactions formed no part of Cowan's practice with the
defendant as executive consultant and were not authorised by
or
known to the defendant.
The transactions relied on by the plaintiff are among the said
transactions.
From the year 2006 the third party enabled Cowan to cause to be
received into and paid out of various bank accounts operated
by or
on behalf of the third party funds obtained by Cowan from his
operations as hereinbefore referred to.
The said bank accounts were as follows:
DS&T Services account from October 2006 to March 2007.
PKF Agency account from July 2007 to November 2007.
Royal Fern Investments 9 account from October 2007 to September
2008.
DS&T Nominees account from February 2009 to October 2010.
Rodlane Trading & Investment account a dedicated corporate
saver account in October and November 2010.
If the defendant had been aware of the operation of the said
accounts in the manner in which they were operated the defendant
would immediately have taken steps to ensure that the defendant
would not be bound by any of the transactions entered into by
Cowan.
The said accounts were all operated on behalf of the third party by
one McHardy a director of PKF Durban Incorporated.
Any loss suffered by the defendant as hereinbefore referred to were
suffered because the defendant had no knowledge of Cowan's
said
dealings and operations. If the defendant had been informed of
Cowan's operation with regard to the said accounts the defendant
would not have suffered any loss or damage in respect of
transactions after the time the defendant should reasonably have
been
informed of the fact that Cowan was causing the said accounts
to be so operated.
By reason of the facts set forth in the particulars hereto the third
party was under a legal duty to inform the defendant of
the fact
that Cowan was causing the said accounts to be so operated.
The third party, and in particular the said McHardy, at all times
knew that Cowan was an executive consultant of the defendant.
The third party, and in particular the said McHardy, further knew
that Cowan was causing the said accounts to be so operated
allegedly on behalf of the defendant.
The said McHardy was informed by Cowan and believed that Cowan was
acting on behalf of the defendant in the course of the provision
by
the defendant of bridging finance for clients of the defendant.
The third party well knew or ought to have known that the manner of
conducting in the said accounts was not one consistent
with there
being conducted for the purpose for which Cowan had stated they
were being conducted.
Amounts provided for the said purpose would normally have been
paid into and out of the defendant's trust account.
Cowan specifically stated that he did not wish the amounts to go
through the defendant's trust account.
If the amounts had been dealt with through the defendant's trust
account in a proper manner the defendant would have become
aware
of Cowan's operations and the details of them.
No information which should have been required by the third party
as an accountable institution under the
Financial Intelligence
Centre Act No. 38 of 2001
was ever obtained by the third party in
accordance with
section 21
of that Act as it should have been.
Requests to McHardy that amounts be withdrawn from the said
accounts were conveyed either orally or by E-mail or by SMS and
never by written signed authority.
All transactions were required to be performed with extreme
urgency.
On occasions the said accounts were overdrawn.
The third parties especially with the knowledge that they would
have as accountants and financial advisers were or should have
been
aware that if the accounts were conducted irregularly ostensibly on
behalf of the defendant it might reasonably be the
position that
the defendant would become liable for any loss occasioned by the
accounts being irregularly conducted.
In the premises the third party was under a duty to take reasonable
steps to inform the defendant of the fact that Cowan was
causing the
said accounts to be conducted in the manner aforesaid.
Although there was no difficulty in the third party so informing the
defendant the third party negligently failed to take any
steps so to
inform the defendant.
In the premises if the defendant is liable to the plaintiff or any
claimant aforesaid the third party is liable to pay to the
defendant
any loss suffered by the defendant, including any amount payable,
whether as damages, interest costs or otherwise whatsoever
by reason
of the said negligence of the third party.’
The exception is based on what are called four
complaints concerning the annexure to the third party notice. I will
deal with
them in a different order to that in which they appear in
the exception. The first is to the effect that the defendant avers
that, notwithstanding the absence of authority on the part of Cowan,
the defendant may be held liable but that the plaintiff has
not
replicated an estoppel. The second is that the question of Cowan’s
authority does not arise in the defendant’s
claim against the
third party. The third is that it is vague and embarrassing because
the third party notice is based on a lack
of knowledge on the part
of the defendant that Cowan was conducting himself in such a fashion
whereas the defendant admits in
its plea that moneys were deposited
into its trust banking account. The fourth is that the facts alleged
by the defendant are
not sufficient to sustain the legal duty relied
upon.
The first of these was correctly abandoned in both the
heads of argument and at the hearing because the plaintiff has filed
a
replication raising the estoppel issue. It is not clear whether
this was done before or after the third party delivered the notice
of exception but, since no-one has asked for the costs arising
specifically from this complaint, it is not necessary to deal
with
it any further.
The second can likewise be disposed of fairly briefly.
Counsel for the third party conceded in argument that at least
certain
questions relating to the authority of Cowan arise as
between the plaintiff and the defendant and also as between the
defendant
and the third party. This places the matter squarely
within the ambit of Uniform
Rule 13(1)(b).
It is clear that the
concession was correctly made. If Cowan is held by the trial court
to have been authorised by the defendant,
the liability of the third
party does not arise. If, however, it is found that Cowan was not
authorised by the defendant but
that the defendant is estopped
vis-à-vis the plaintiff from denying such authorisation,
liability on the part of the third
party may be triggered. This
means that the third party has an interest in making common cause
with the plaintiff in his claim
that the defendant had authorised
Cowan. If authorisation is proved, this would relieve the third
party of potential liability.
The third party also has an interest
in making common cause with the defendant that the defendant should
not be estopped from
denying Cowan’s authority since if this
is held to be the case, no liability can attach to the third party.
A third party
is entitled to plead to a plaintiff’s claim as
well as to the third party notice and may lead evidence in support
of that
plea.
1
The present situation is precisely that envisaged by
Rule 13
because, if the defendant is not entitled to join the third
party in the present proceedings and thereafter sues the third party
on the basis of an estoppel, if it is found in the first action that
there was no actual authority and that the defendant is
estopped,
that judgment would not be
res judicata
against the third party in the second action.
Rule 13
is designed to avoid just such a multiplicity of actions relating to
the same subject matter and the concomitant disadvantages
which
could flow from these.
2
If
Rule 13
were not to operate in the present matter,
conflicting findings might be made on the same issues by different
courts. It goes
without saying that this is undesirable. The second
complaint must therefore fail.
As for the third complaint, the third party avers in
the exception that, ‘given the defendant’s actual
knowledge of
the plaintiff’s deposit’ into the
defendant’s trust banking account, the averment in the third
party notice
that the defendant was unaware of such deposit makes
the notice vague and embarrassing. What is relied on by the third
party
is the admission in the plea that ‘the Plaintiff caused
an amount of R2 million to be paid into the Defendant’s trust
bank account’. It was submitted that the plea therefore
conflicts with the third party notice. The short answer to this
is
that, as is clear from this part of the plea, the defendant does not
admit that it was aware that such a deposit was made;
it only admits
that it was made. Where the exception avers that the defendant had
‘actual knowledge’ it is therefore
not based on the
defendant’s pleadings. There is accordingly no conflict
between the plea and the annexure to the third
party notice and the
third complaint is without merit.
The fourth complaint is to the effect that the annexure
to the third party notice does not contain sufficient averments to
sustain
a cause of action against the third party. In essence this
is a complaint that unlawfulness is not shown because the averments
do not go so far as to found the legal duty on the part of the third
party contended for by the defendant. In this regard, there
are two
main issues for determination. The first is whether the issue of
unlawfulness can be dealt with on exception. If it can,
the second
issue is whether it can be said that the allegations in the annexure
to the third party notice are not sufficient.
The approach to exceptions which claim that the
impugned pleading does not sustain a cause of action is well
established. The
court is to take as true the allegations pleaded by
the respondent and to assess whether they disclose a cause of
action.
3
A cause of action, in the case of a plaintiff,
comprises:
‘…
every fact which it would be
necessary for the plaintiff to prove, if traversed, in order to
support his right to the judgment of
the Court. It does not comprise
every piece of evidence which is necessary to prove each fact, but
every fact which is necessary
to be proved.’
4
The same applies to a defendant who issues a third party
notice. The third party is therefore required to persuade the court
that,
upon every interpretation which the annexure to the third party
notice can reasonably bear, no cause of action is disclosed.
5
In their heads of argument, counsel for the defendant
submitted that this was not a matter capable of being decided on
exception
because the existence or otherwise of a legal duty is a
conclusion of law. Such a conclusion can only be reached upon an
objective
consideration of all of the relevant circumstances.
6
I can find no clearer statement of the approach to take
in such matters than in the dictum of Hefer JA in
Minister
of Law & Order v Kadir
7
to the following effect:
‘
As the judgments in the cases referred to
earlier demonstrate, conclusions as to the existence of a legal duty
in cases for which
there is no precedent entail policy decisions and
value judgments which “shape and, at times, refashion the
common law [and]
must reflect the wishes, often unspoken, and the
perceptions, often dimly discerned, of the people” (
per
M M Corbett in a lecture reported
sub
nom
'Aspects of the Role of Policy in
the Evolution of the Common Law' in
(1987)
SALJ
104
at 67). What is in effect required is that, not merely the
interests of the parties
inter se
,
but also the conflicting interests of the community, be carefully
weighed and that a balance be struck in accordance with what
the
Court conceives to be society's notions of what justice demands.
(
Corbett (op cit
at 68); J C van der Walt 'Duty of care: Tendense in die
Suid-Afrikaanse en Engelse regspraak' 1993 (56)
THRHR
at 563-4.) Decisions like these can seldom be taken on a mere handful
of allegations in a pleading which only reflects the facts
on which
one of the contending parties relies. In the passage cited earlier
Fleming
rightly stressed the interplay of many factors which have to be
considered. It is impossible to arrive at a conclusion except upon
a
consideration of
all
the circumstances of the case and of every other relevant factor.
This would seem to indicate that the present matter should rather
go
to trial and not be disposed of on exception. On the other hand, it
must be assumed - since the plaintiff will be debarred from
presenting a stronger case to the trial Court than the one pleaded -
that the facts alleged in support of the alleged legal duty
represent
the high-water mark of the factual basis on which the Court will be
required to decide the question. Therefore, if those
facts do not
prima facie
support the legal duty contended for, there is no reason why the
exception should not succeed.’
8
In argument counsel for the defendant readily conceded
that there was no absolute bar to deciding on the existence or
otherwise
of a legal duty on exception.
The first aspect of the complaint must therefore be
answered as follows. Depending on the facts of a case, there are
four potential
findings concerning an exception to a pleading which
claims that a party was subject to a legal duty. First, it may be
possible
to find that the pleaded facts do not even prima facie
support such a legal duty.
9
Secondly, it may be possible to find that the pleaded
facts clearly support the existence of the legal duty contended
for.
10
Thirdly, it may be possible to find that the pleaded
facts at least prima facie support the existence of a legal duty
even though
it cannot be said that they clearly establish this.
11
Fourthly, it may not be possible to decide one way or
the other on exception.
12
In the first case the exception must be upheld. In the
second, third and fourth cases, it must be dismissed. It remains to
assess
which of these findings is appropriate in the present matter.
The argument for the third party on the substance of
the fourth complaint can be summarised as follows. The claim is a
delictual
one. It is one for pure economic loss. Even positive
conduct causing pure economic loss is prima facie lawful. No legal
relationship
between the defendant and the third party is relied on,
whether by virtue of contract or otherwise. The conduct complained
of
is that of an omission. The legal duty contended for does not fit
into one of the categories hitherto recognised by our law. Due
to
policy considerations, the courts have been cautious in extending
liability to new situations. The defendant raised no argument
with
these submissions. Indeed they are clearly correct. However, the
third party also submitted that no prior conduct is alleged
and
there are no public policy considerations or special circumstances
in favour of any such extension in the present matter.
These are
contested submissions.
As regards the existence or otherwise of a legal duty,
I must assume that, if such a legal duty existed, the failure of the
third
party to speak was a culpable failure, triggering liability.
This is a separate issue and should not be conflated with that of
the existence of a legal duty.
13
It was not part of the exception that the culpability
of the third party was not adequately pleaded. I need therefore say
no more
on this aspect of the matter.
The underlying dilemma in assessing liability for
omissions was elegantly framed by Marais JA in the following way:
‘
Society is hesitant to impose liability in
law for, as it is sometimes put, “minding one's own business”.
The reticence
is reflected in legal and judicial writing by
propositions such as no liability in delict for pure (or mere)
omissions. The problem
with such beguilingly simple propositions is
that, however convenient they may be, they are apt, at worst, to
mislead the unwary
and, at best, to be unhelpful. The proposition
that there is no liability in law for minding one's own business is
sound only if,
in the eyes of the law, the situation which has arisen
is someone else's business and not one's own. But whether that is
indeed
so is, of course, the very question which has proved so
difficult to answer in every age. It is implicit in the second
proposition,
qualified as it usually is by the use of accompanying
epithets such as “pure” or “mere”, that there
are
omissions which are not of that character. But what kind of
omissions those might be is left unanswered by such formulations.’
14
The crisp issue is whether, in the circumstances of the
pleaded case, the convictions of the community as to what the law
should
be prima facie support a legal duty on the part of the third
party to speak.
15
More recently, in relation to wrongfulness and the
existence or otherwise of a legal duty, the Supreme Court of Appeal
has preferred
to ask whether ‘if the defendant was negligent,
it would be reasonable to impose liability on him for such
negligence’.
16
The courts have approached the question of liability in
various ways, all of which boil down to a principled approach
involving
‘a balancing against one another of identifiable
norms’
17
rather than ‘an intuitive reaction to a
collection of arbitrary factors’.
18
This was articulated by Cameron JA in the following
terms:
‘
This process involves the court applying a
general criterion of reasonableness, based on considerations of
morality and policy,
and taking into account its assessment of the
legal convictions of the community and now also taking into account
the norms, values
and principles contained in the Constitution.
Overall, the existence of the legal duty to prevent loss “is a
conclusion of
law depending on a consideration of all the
circumstances of the case”.’
19
The policy considerations involve weighing and striking
a balance between the interests of the parties and the conflicting
interests
of the community.
20
As was said by Brand JA in
Two
Oceans Aquarium
:
21
‘
The imposition of such a legal duty is a
matter for judicial determination involving criteria of public or
legal policy consistent
with constitutional norms…’
The workable general principle
22
which has evolved is to the effect that a legal duty
arises only ‘when the circumstances are such, not only that
the omission
evokes moral indignation, but also that the legal
convictions of the community demand that it be regarded as wrongful
and that
the loss should be compensated by the person who failed to
act positively’.
23
An assessment of the legal convictions of the community
is an objective one.
24
Even in the light of the need to include in this
assessment the norms, values and principles contained in the
Constitution, ‘the
general approach of our law towards the
extension of the boundaries of delictual liability remains
conservative. This is especially
the case when dealing with
liability for pure economic losses.’
25
Various expressions have been used interchangeably for
the approach but ‘the enquiry underlying those expressions is
whether
contemporary social and legal policy calls for the law to be
extended to the exigencies of the particular case.’
26
This was crisply formulated by Brand JA in
Two
Oceans Aquarium
as follows:
27
‘
When we say that a particular omission or
conduct causing pure economic loss is “wrongful”, we mean
that public or legal
policy considerations require that such conduct,
if negligent, is actionable; that legal liability for the resulting
damages should
follow. Conversely, when we say that negligent conduct
causing pure economic loss or consisting of an omission is not
wrongful,
we intend to convey that public or legal policy
considerations determine that there should be no liability….’
The relevant policy considerations must be identified.
28
The pleaded facts in the third party notice must be
analysed in the light of this principled approach. As already
mentioned, it
is clear that the claim is for pure economic loss
arising from an omission. It is also clear that, on the averments in
the third
party notice, no actual legal relationship came into being
between the defendant and the third party. What is alleged, however,
amounts to a belief on the part of the third party that a legal
relationship had come into being. The defendant pleads that McHardy,
who was the natural person who represented the third party in its
dealings with Cowan, ‘was informed by Cowan and believed
that
Cowan was acting on behalf of the Defendant in the course of the
provision by the Defendant of bridging finance for clients
of the
Defendant’. This means, therefore, that the third party
believed that it was dealing with the defendant. It further
believed
that what Cowan was doing related to clients of the defendant and
that what was being done for these clients was being
done on behalf
of the defendant. This must mean that the third party believed
itself to be providing facilities for the defendant
in the dealings
of the defendant with its clients. The third party therefore
believed that it was an integral part of the provision
by the
defendant of bridging finance for its clients.
As indicated above the third party submitted in
argument that no prior conduct on its part is pleaded. This is at
the very least
debatable. It is averred that ‘the Third Party
enabled
Cowan to
cause to be received into and
paid out of
various bank accounts
operated
by or on behalf of the Third Party funds obtained by
Cowan from his operations…’
29
It is not made clear what precisely was done to enable
this conduct. It is conceivable that no action was required by the
third
party when money was deposited into its bank accounts. Someone
other than the third party might have given particulars of a bank
account to the person making the deposit or transferring moneys into
the account. Such deposit or transfer might have also have
been done
in error. Neither of these activities necessarily requires action on
the part of an account holder. It is, however,
difficult to conceive
how it is possible for the third party not to have been active in
some way when money which had been deposited
into any of the
accounts operated by it or on its behalf was paid out. It must have
authorised Cowan to do so or have done so
on his behalf. Money does
not simply get paid out of a bank account. Any payment requires some
form of authorisation and action.
It is pleaded that the various
accounts were under the control of the third party. The third party
must therefore have been involved
in the authorisation of payments
from those accounts in some or other way. The averment of prior
conduct to at least this extent
is therefore made. It is the third
party who is alleged to have operated the various bank accounts.
Since it is the manner in
which the accounts in question were
operated that is averred to be irregular, it is not strictly
accurate to say that no prior
conduct is alleged. It would certainly
be open to the defendant to lead evidence of this form of prior
conduct on the pleadings
as they stand.
It is further pleaded that the third party knew or
ought to have known that the way the accounts were conducted was not
consistent
with Cowan’s stated purpose. Facts are pleaded in
support of this averment. Some examples follow. The third party was
aware
that amounts should be paid into the defendant’s trust
banking account but Cowan stated to the third party that he did not
want them to go through the defendant’s trust account. It is
difficult to conceive how this could not have been understood
by the
third party to mean that Cowan did not want the transactions in the
accounts used to be traced or traceable by the defendant
or subject
to the scrutiny of the defendant’s auditors. If amounts go
through an attorney’s trust account, there
are stringent rules
as to how they must be dealt with including the following. A trust
ledger account must be opened in the name
of the client to whose
credit the funds are deposited. The funds in the trust banking
account must be regularly reconciled with
the balance in the trust
ledger account opened in the name of the client. The funds may only
be transferred or paid out from
the trust banking account if
properly authorised and, when this happens, an entry must be made in
the trust ledger account for
that client concerning that transfer or
payment. The trust account is subject to annual audit which reviews
whether the correct
procedures have been implemented. Amongst other
things the auditor is also required to review and report on whether
the balances
in the trust ledger accounts add up to the total
balance in the trust account, whether this reconciles with the total
funds in
the trust banking account, whether any of the trust ledger
accounts have been in deficit during the year and whether any
deficit
occurred in the trust account as a whole. If the trust
banking account has been overdrawn, this must also be reported on.
It is reasonable to hold that, at a prima facie level,
the known refusal of Cowan to use the trust banking account of the
defendant
and his use of accounts held by others would probably have
led the third party to conclude that Cowan wanted to avoid these
standards
and the scrutiny which accompanies the exclusive use of
the defendant’s trust account. Banks are under a legal duty to
take steps to ensure that persons who open accounts for other
persons or entities are authorised to do.
30
In
Energy Measurements (Pty) Ltd
v First National Bank of SA Ltd
31
it was held that ‘[t]he very least that is
required of a bank is to properly consider all the documentation
that is placed
before it and to apply their minds thereto’.
The fact that a bank would not be opening an account and
scrutinising documentation
for that purpose in the present matter is
likely to have alerted the third party to the probable reason for
the irregular manner
in which Cowan operated. The averment of the
defendant that the third party did not obtain from Cowan any of the
information
which it was required to obtain as an accountable
institution under the Financial Intelligence Centre Act 38 of 2001
(FICA),
points in a similar direction. This does not, of course, go
so far as to make the
Indac Electronics
decision apply to the third party.
In the present matter, even if the third party did not
draw these inferences, it is pleaded that it knew that the trust
account
should have been used and that Cowan deliberately avoided
doing so. In a situation where the third party believed that this
was
a bridging finance service of the defendant to its clients,
evidence may be led that the third party knew that the defendant’s
procedures were being circumvented and also knew or suspected that
the defendant did not know that this was the case. In addition,
on
occasion the accounts operated by the third party were overdrawn.
Evidence may be led as to the significance this would have
for
accountants and financial advisers in the position of the third
party. Such evidence may lead to a finding that the third
party knew
that no account opened with moneys of an attorney’s client is
allowed to be overdrawn.
It is also pleaded that withdrawals were authorised
orally, by email or SMS. Evidence may establish that the third party
knew
that firms of attorneys, or even the defendant specifically,
would not function in that way. It is not pleaded that the relevant
paperwork was completed after the initial authorisation. No
paperwork is mentioned. Finally, it is conceivable that some
transactions
on accounts run by attorneys would be urgent but here
it is pleaded that all transactions were required to be performed
with
extreme urgency. Evidence may be led that this raised a flag in
the mind of the third party that Cowan was on a frolic of his own
and that the defendant was unaware of the way he was functioning.
In the light of this analysis, I turn to consider
issues of public policy. This involves weighing and striking a
balance between
the interests of the parties and the conflicting
interests of the community. One of the primary policy considerations
arising
in the extension of delictual liability is whether such an
extension will open the door to limitless liability.
32
This is unlikely to result if liability is extended in
the present matter. There are surely a limited number of people who
allow
bank accounts under their control or operated by them to be
used by a non-account holder in an irregular fashion. It is likely
that there are even fewer who allow a person to do so who claims to
represent someone else without obtaining from that person
proof of
their authority to do so. There will be still fewer people who do so
by someone claiming to be performing services on
behalf of a firm of
attorneys.
A further consideration of public policy is whether an
extension of liability will operate unduly onerously on the third
party.
Here, there is a readily identifiable party, the defendant,
to whom harm was foreseeable.
33
The position is therefore distinguishable from that
referred to by Cloete JA in the minority judgment in
Axiam
Holdings
. In this and other matters the
particular person who might be placed at risk could not be readily
identified by the party it
was sought to hold liable.
Another policy consideration is whether the recognition
of a legal duty is likely to place people in a position where they
are
uncertain in any one situation whether they are acting
wrongfully when ‘minding their own business’. Once
again,
the third party is said to have believed itself to be in some
kind of relationship with the defendant. The third party, as the
operator of these accounts or the person under whose control they
were operated, was in a unique position to observe the
irregularities.
Uncertainty as to a legal duty to speak when the
account is being used irregularly, ostensibly on behalf of the party
with whom
it is believed there is a relationship, is therefore
unlikely to arise and I can conceive of no policy reason not to
impose liability
on this basis.
A policy factor in favour of the recognition of
liability arises from the case law and FICA concerning banks and the
need for
them to ensure that persons who open or operate accounts
with them are properly authorised to do so. If a person whose
account
is being used knows that the account is being used in order
to avoid the rigorous provisions to which he would otherwise be
subject
in opening an account, it is not unreasonable to expect the
third party to notify the entity that the account is being used
irregularly.
There is clearly a need for vigilance on the part of
people like the third party who allow others to use accounts under
their
control. This is because those persons would ordinarily be
required to prove their authorisation and would, in addition, act in
the interests of the entity in whose name they purport to operate.
As regards the values of the Constitution, no specific
submissions were made by the parties in argument. The promotion of a
culture
of transparency certainly underlies the Constitution. I
agree with the submission of the defendant in its heads of argument
that
the value to society of combating white collar crime is a
relevant factor which also finds support in the Constitution. I can
certainly find nothing in the spirit, purport and objects of the
Bill of Rights in the Constitution or in its norms, values and
principles which militates against, or is inconsistent with, an
extension of liability in the present matter.
In the light of these factors, can it then be said that
public or legal policy considerations require that the failure to
speak
on the part of the third party should be actionable? Put
another way, do the legal convictions of the community demand that a
legal duty be imposed on the third party to speak? It should be
borne in mind that no one factor is decisive. However, there are
cumulative aspects averred which weigh on the overall outcome. Prior
conduct in terms of which the danger to the defendant was
caused.
The belief of contractual proximity with the defendant on the part
of the third party. The knowledge that the accounts
were being
operated in a way which circumvented the checks and balances
normative for attorneys’ trust accounts. Society’s
recognition of the need for increased vigilance to ensure that
people who purport to open and operate accounts on behalf of another
are authorised to do so. In the light of these and the other factors
dealt with above, both questions must be answered in the
affirmative. I conceive that it would be contrary to public policy
to exonerate the third party from speaking when it allowed
its
facilities to be used in what it believed to be an operation run by
the defendant which was clearly being conducted in a
manner inimical
to the strictures of the legal profession of which the defendant is
a part where the defendant was placed at
risk. Viewed objectively,
society will take account of these factors and require such a legal
duty to be imposed.
In my view the annexure to the third party notice
therefore falls into the third category mentioned in paragraph 12 of
this judgment.
It prima facie supports the legal duty contended for.
If I am wrong in this, however, at the very least one cannot decide
that
such a duty does not exist on the pleadings alone and the
matter therefore falls into the fourth category. The third party has
therefore not succeeded in showing that no cause of action is
founded after regard is had to every reasonable construction of
the
annexure to the third party notice. In the circumstances, the fourth
complaint must fail.
Counsel for the various plaintiffs sought to support
the exception, both by submitting heads of argument to that effect
and by
appearing at the hearing. The support was said to be limited
to an indication of the attitude of the plaintiff and, at the
hearing,
no substantive argument on the exception was embarked upon.
When asked why the plaintiffs had any interest in the exception and
why they should be heard, counsel was unable to cite any authority
and merely submitted that the outcome of the exception would
affect
the further conduct of the action. The prayer for the defendant to
pay the plaintiff’s costs relating to the exception
was
withdrawn in argument and it was submitted that the appropriate
costs order should be that the plaintiffs should bear their
own
costs and that no further order should be made. Counsel for the
defendant submitted that the exception gave rise to no
lis
involving the plaintiffs and that the plaintiffs should pay the
costs arising from their involvement. I agree that this is the
appropriate order.
Both the third party and the defendant were represented
at the hearing by two counsel. The matter was sufficiently complex
to
warrant this and is of great importance to both of these parties.
It is clear that any costs order should include the costs of
two
counsel, where utilised. No-one argued differently.
In the result the following orders issue in respect of
each matter under consideration:
The first third party’s exception to the
annexure to the third party notice is dismissed with costs, save
for the costs
dealt with in paragraph 2 hereof.
The plaintiff is directed to pay the costs of the
defendant and the first third party arising from the participation
of the
plaintiff in the exception.
All costs shall include the costs occasioned by the
employment of two counsel wherever this was done.
DATE OF HEARING: 14 November 2011
DATE OF JUDGMENT: 22 December 2011
FOR THE EXCIPIENT: M du P VAN DER NEST SC AND I P GREEN,
instructed by VON KLEMPERERS.
FOR THE RESPONDENT: D J SHAW QC AND R J SALMON SC,
instructed by GARLICKE & BOUSFIELD, locally represented by VENN,
NEMETH &
HART.
FOR THE PLAINTIFF: A J DICKSON SC, instructed by
SHEPSTONE & WYLIE.
Also instructed by DAVID RANDLES, locally represented by
AUSTEN SMITH.
1
Rule
13(7)(b).
2
Gross
v Commercial Union Assurance & another
1974 (1) SA 630
(A)
at 634E-F;
Nel v Silicon Melters (Edms) Bpk en ‘n ander
1981 (4) SA 792
(A) at 802B-C.
3
Oceana
Consolidated Co Ltd v The Government
1907 TS 786
at 788.
4
Per
Maasdorp JA in
McKenzie v Farmers’Co-Operative Meat
Industries Ltd
1922 AD 16
at 23.
5
Lewis
v Oneanate (Pty) Ltd
[1992] ZASCA 174
;
1992 (4) SA 811
(A) at 817F-G.
6
Carmichele
v Minister of Safety and Security & Another
[2000] ZASCA 149
;
2001 (1) SA 489
(SCA) para 7.
7
[1994] ZASCA 138
;
1995
(1) SA 303
(A) at 318D-J.
8
His
emphasis. See also
Telematrix (Pty) Ltd t/a Matrix Vehicle
Tracking v Advertising Standards Authority SA
2006 (1) SA 461
(SCA) para 2 where Harms JA said the following in a matter involving
particulars of claim and annexures which ran to 158 pages:
‘The
case does not, therefore, have to be decided on bare allegations
only, but on allegations that were fleshed out by
means of annexures
that tell a story. This assists in assessing whether or not there
may be other relevant evidence that can
throw light on the issue of
wrongfulness. I mention this because, relying on the majority
decision in
Axiam Holdings Ltd v Deloitte & Touche,
the
plaintiff argued that it is inappropriate to decide the issue of
wrongfulness on exception because the issue is fact-bound.
That is
not true of all cases. This Court, for one, has on many occasions
decided matters of this sort on exception. Three important
judgments
that spring to mind are
Lillicrap, Indac
and
Kadir
.
Some public policy considerations can be decided without a detailed
factual matrix, which by contrast is essential for deciding
negligence and causation.’ (footnotes omitted).
9
This
was the outcome in
Telematrix
,
Kadir
and
Lillicrap
Wassenaar & Partners v Pilkington Brothers (SA) (Pty)
1985
(1) SA 475
(A) and in the minority judgment in
Axiam Holdings Ltd
v Deloitte & Touche
2006 (1) SA 237
(SCA) para 32 where
Cloete JA held that the exception was properly upheld in the court
a
quo
because the allegations made by the plaintiff did not even
prima facie establish a duty to speak on the part of the defendant.
10
I
have not found any cases where such a finding was made, nor was I
referred to any. Such a finding is, however, notionally possible.
11
This
was found to be the case in
Indac Electronics (Pty) Ltd v
Volkskas Bank Ltd
[1991] ZASCA 190
;
1992 (1) SA 783
(A) at 801A – D.
12
This
appears to have been the basis of the majority decision in
Axiam
Holdings
– see para 25.
13
Minister
of Safety & Security v Van Duivenboden
2002 (6) SA 431
(SCA)
para 12. Here it was said that it ‘might often be helpful to
assume that the omission was negligent when asking whether,
as a
matter of legal policy, the omission ought to be actionable.’
14
Cape
Town Municipality v Bakkerud
2000 (3) SA 1049
(SCA) para 8.
15
The
phase ‘legal convictions of the community is normally used and
I will use it hereafter. It originates in the Afrikaans
phrase
‘regsoortuiging van die gemeenskap’ in
Minister van
Polisie v Ewels
1975 (3) SA 590
(A) at 597B. As was said of the
English phrase by Marais JA in footnote 3 of
Bakkerud
at
1053, however, ‘It is not a particularly happy rendering. What
after all is a
legal
conviction? “Sense of what the law
ought to be” would, I think, convey the meaning more
accurately.’ In
Olitzki Property Holdings v State Tender
Board and another
2001 (3) SA 1247
(SCA) para 30, Cameron JA
spoke of ‘the community’s sense of justice’ in
this regard.
16
In
MV MSC Spain; Mediterranean Shipping Co (Pty) Ltd v Tebe Trading
(Pty) Ltd
2008 (6) SA 595
(SCA) para 14, reference was made to
Trustees, Two Oceans Aquarium Trust v Kantey & Templer (Pty)
Ltd
2006 (3) SA 138
(SCA) para 11, where the formulation of
Anton Fagan `Rethinking wrongfulness in the law of delict’
(2005) 122
SALJ 90
at 109 was approved.. See also
Hirschowitz
Flionis v Bartlett and another
[2006] ZASCA 23
;
2006 (3) SA 575
(SCA) para 27.
17
Van
Duivenboden
note 13, para 21
18
Ibid.
19
Olitzky
note 13, para 11 (footnotes omitted).
20
Minister
of Law and Order v Kadir
[1994] ZASCA 138
;
1995 (1) SA 303
(A) at 318E-H
21
Para
10.
22
Bakkerud
para 16.
23
Per
Hefer JA in
Minister of Law & Order v Kadir
[1994] ZASCA 138
;
1995 (1) SA
303
(A) at 320B-C;
Bakkerud
para 14.
24
In
S M Goldstein & Co (Pty) Ltd v Cathkin Park Hotel (Pty) Ltd &
another
2000 (4) SA 1019
(SCA) para 7, Harms JA said, ‘The
criterion is based upon considerations of morality and policy and
the court’s perception
of the legal convictions of the
community.’ See also
Bakkerud
para 15 and see generally
Neethling et al:
Law of Delict
4 ed p 38 and the cases cited
there.
25
Per
Harms JA in
Steenkamp NO v Provincial Tender Board, Eastern Cape
2006 (3) SA 151
(SCA) para 27.
26
AB
Ventures Ltd v Siemens Ltd
2011 (4) SA 614
(SCA) para 8.
27
Note
15, para 12.
28
Van
Duivenboden
para 21;
Steenkamp
note 21, para 25.
29
My
emphases.
30
Indac
Electronics
note 11. Cameron JA held in
Columbus Joint
Venture v ABSA Bank Ltd
2002 (1) SA 90
(SCA) para 21 ‘that
accounts operated under names other than those of the client may be
used for fraud is an evident danger’
and approved the
observation of the trial court that ‘the use of a name other
than a customer’s own in opening an
account “lends
itself to misuse and calls for some explanation”’. In
Kwamashu Bakery Ltd v Standard Bank of South Africa Ltd
1995
(1) SA 377
(D), persons completely unknown to the bank opened a new
account.
31
2001
(3) 132 (W) para 134.4. This dictum was endorsed by the SCA on
appeal.
32
This
has always been a concern of the courts when considering an
extension of aquilian liability. See eg.
Administrateur, Natal v
Trust Bank van Afrika Bpk
1979 (3) SA 824
(A) at 833A.
33
S
M Goldstein
note 24, para 7.