Tollemache v Attorneys Fidelity Fund (7778/2001) [2002] ZAWCHC 70; [2003] 1 All SA 364 (C) (10 December 2002)

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[2002] ZAWCHC 70
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Tollemache v Attorneys Fidelity Fund (7778/2001) [2002] ZAWCHC 70; [2003] 1 All SA 364 (C); 2003 (6) SA 664 (C) (10 December 2002)

IN THE HIGH COURT OF
SOUTH AFRICA REPORTABLE
(CAPE OF GOOD HOPE PROVINCIAL DIVISION)
Case no.: 7778/2001
In the
matter between:
LAURENCE RONALD
TOLLEMACHE
Plaintiff
and
ATTORNEYS FIDELITY FUND
Defendant
JUDGMENT GIVEN THIS
TUESDAY, 10 DECEMBER 2002
­­­­­­­­­­
CLEAVER
J:
[1] In this matter, the plaintiff seeks an order
directing the Attorneys Fidelity Fund (‘the Fund’) to compensate
him for money
paid by him to a practising attorney, which was stolen
by the attorney. The plaintiff’s case is that payment of the money
to the
attorney was a payment into an account contemplated in section
78(2A) of the Attorneys Act No 53 of 1979 (‘the Act’). Theft
by
an attorney from funds deposited to such an account will render the
Fund liable. The defendant denies that the money was entrusted
to
the attorney within the meaning of section 26(a) of the Act which
makes provision for such a claim. The
defendant avers furthermore that even if the plaintiff has proved
that there has been an entrustment
within the meaning of the section,
the claim should still fail for --
The money was not entrusted to the attorney in the course of his
practice;
alternatively, if it was so entrusted, the attorney was instructed
to invest the money and the Fund is accordingly not liable.
[2] Only the plaintiff testified as to the circumstances under which
the money was paid to the attorney. The plaintiff is a 59-year-old
businessman and director of companies. After qualifying as a
chartered accountant in 1966, he was employed for some time as a
financial
manager of a number of companies carrying on business in
the industrial field. He is now a successful businessman and for the
last
ten to twelve years has been running a number of family
investment companies and two manufacturing companies. These
manufacture
electrical goods and chemical type products. His
interest in these companies was at the relevant times held by an
investment holding
company known as Global Trading and Investment
Company (Pty) Ltd (‘Global’). (This company is in the process of
being deregistered
and replaced by another company, Dysart Investment
Company (Pty) Ltd (‘Dysart’) in which just under 75% of the
shares are held
offshore.)
In the 1970’s, two of the plaintiff’s
brothers, his sister and mother emigrated from South Africa and four
or five years ago,
two of his children (both sons) also left the
country. In March or April 2000 one of his daughters, Sharon, left
South Africa with
her husband and children to join her siblings and
other family in Australia. She, like her brothers and sister, each
held 16,5%
of the shares in Global
.
Although the children held shares in Global, it is clear that the
plaintiff controlled the finances of his family. He testified
that
over the years he would pay out to the family members such amounts as
they might need from time to time according to the company’s
resources. In particular, he would arrange for all the family
members to travel overseas regularly each year. He and his wife
would
travel to Australia once every three months. At the end of
each financial year dividends would be declared in favour of the
family
members to fund the expenses and appropriate book entries
would be passed. None of his family members used his or her
permitted
off-shore investment allowance.
[3] The plaintiff says
that when he visited his daughter in
Australia in May 2000, she told him that she wanted to purchase a
house and asked him if he could
assist her in doing so. His brother
in Australia told him that he had been informed by a South African
friend in Australia that
an attorney in Johannesburg by name of
Akritidis had helped him to get funds out of the country and the
plaintiff resolved to meet
Akritidis when he got back to South
Africa.
[4] When he returned to South Africa, the
plaintiff made an appointment to see the attorney, one Spyridon
Akritidis (‘Akritidis’).
Akritidis was a sole practitioner who
operated from luxuriously appointed
offices in Sandton, Johannesburg. Save
for the recommendation which came via his brother, he knew nothing at
all about Akritidis
and met him for the first time on 19 May 2000.
He says that he uplifted a business card in Akritidis’ waiting
room, which indicated
that he was an attorney, and says that when he
met Akritidis he found him to be a perfectly pleasant person. A
number of certificates
were to be seen on the wall or walls of his
office and a witness (Bayliss) who had been employed as a
professional assistant by Akritidis
testified that these were
certificates recording Akritidis’ admission as an attorney, notary
and conveyancer. Apparently his current
Fidelity Fund certificate
was also on display, something which is somewhat unusual, but in the
light of subsequent developments,
perhaps not surprising.
[5] The plaintiff spent very little time with
Akritidis, perhaps 15 or 20 minutes. He testified that he explained
to Akritidis that
he wished to lend R2.2 million to his daughter and
wished to do so legally. This figure equates approximately to A$550
000, which
he had understood from his daughter to be the selling
price of a house of the type and in the area which she wished to
acquire.
It is clear that very little, if any, discussion ensued
between him and Akritidis. He says that Akritidis took down certain
basic
details concerning his daughter – it is by no means clear
what details were supplied – and told him that he would do
everything
to obtain the necessary exchange control authority for
remission of the funds overseas. Akritidis then asked him to pay the
sum
of R2.2 million into his trust account that day. He says that he
was somewhat surprised at this request and, on enquiring why this
was
necessary, was told that it was a requirement of the authorities that
the funds which were to be exported were to be immediately
available
in his account. Akritidis seemed somewhat irritated with being
questioned, so he left it at that and arranged for a cheque
for the
required amount to be sent to Akritidis’ office later during the
day. The cheque which was drawn by Global was made payable
in favour
of
“S. Akritidis attorney trust
account”
and his loan account at
Global was debited with the payment.
[6] The plaintiff says that he was concerned that if the application
turned out to be unsuccessful, he would have lost interest on
the
R2.2 million. He therefore told Akritidis that in such event he would
require interest to be paid to him for the period that
his funds were
with Akritidis. He understood that at the time the going rate for
funds invested on call was 9% and informed Akritidis
that he would
require interest at that rate to be paid to him, to which Akritidis
agreed. Akritidis told the plaintiff that it
would take about six
to eight weeks to handle the matter and that he could contact him
after a few weeks to find out how the matter
was progressing. He
says that he telephoned Akritidis once or twice only to be told that
there was nothing to report. During July
he telephoned Akritidis
once more on the latter’s cellphone and was informed by Akritidis
that he was in London at the time and
would be back shortly. When he
phoned Akritidis’ office again a few days later, a message on the
answering machine informed him
that he should contact the Law
Society. This he did and ascertained that Akritidis had fled the
country and that his practice had
been closed down. It is common
cause that Akritidis had stolen the funds which the plaintiff had
paid into his trust account. Thereafter
the plaintiff lodged a claim
with the Fund for payment of the amount paid by him to Akritidis,
plus interest. His claim was considered
at an enquiry conducted by
members of the Board of Control of the Fund, but rejected, hence the
claim now brought against the Fund.
[7] The estate of Akritidis has in the meantime
been finally sequestrated. There is little prospect of the plaintiff
receiving any
payment in respect of his claim against the insolvent
estate
and the defendant has not taken the
point that the plaintiff has not exhausted its remedies against
Akritidis before proceeding against
it. (Section 49 of the Act
requires a claimant to exhaust its remedies against an attorney
before claiming from the Fund.)
[8] The following emerged from the cross-examination of the
plaintiff. His is clearly an experienced and successful businessman.
His own view of himself is that he is meticulous and the manner in
which he kept books of account for his companies confirms this.
He
has a sophisticated knowledge of accounting and legal principles
applicable to company tax and contracts. For example, in order
to
enable greater dividends to be paid to himself, he arranged for
Global to issue redeemable preference shares and then for these
to be
redeemed at a premium. He regarded himself as something of a sea
lawyer and did not often use the offices of attorneys. He
is aware
of the fact that he could not in terms of exchange control
regulations remit money standing to the credit of his daughter
on her
loan account with Global to her in Australia. In the earlier stages
of his career, his experience included some knowledge
of foreign
exchange transactions. His credit worthiness was such as to qualify
him as a customer of a leading private bank. He
considered that
there was a mystique attached to requests to banks to remit funds
overseas, but conceded that this was merely a perception
which he had
and was not based on any direct experience. He says that he did not
know that only banks were authorised to deal in
foreign exchange, but
accepts that this is so. He says that he did not approach his own
bank for advice as to how to get money to
his daughter in Australia,
for he regarded his request as something out of the ordinary. He
also did not approach his own attorneys.
He says that he approached
Akritidis because he was under the impression that he was an expert
in dealing with foreign exchange
transactions.
[9] Both in his evidence before me and in his evidence at the
Fidelity Fund enquiry, he testified that while he was aware of the
fact that exchange control restrictions were operative, he had learnt
from newspaper reports that a certain Mr Dave King had succeeded
in
getting money out of the country which enabled him to purchase a
soccer team for some R200 million and therefore formed the view
that
there must have been a legal way for funds to be remitted to his
daughter.
[10] He conceded that he had had no discussion with his daughter as
to the details of the loan – indeed it would seem that the
issue of
a loan was never raised with his daughter, but was something which he
conceived to be the method which ought to be used
in order to remit
the funds to her. He gave no details of the loan to Akritidis and
the loan was not discussed in any manner. He
also did not seek any
advice in regard to the loan. If he gave Akritidis any details about
his daughter, these would have been minimal,
but it is clear from his
evidence that he did not consider it necessary to give Akritidis
fuller details at the time. His attitude
was that once he had
established what the Reserve Bank’s requirements were, all the
necessary details would be furnished. Although
he says that he was
troubled at the time by the lack of information sought by Akritidis,
he regarded Akritidis as the expert, that
he was in charge and
assumed that he would sort the matter out for him. He was not
concerned that Akritidis did not raise with him
the question of his
fees and he did not discuss this aspect with him.
[11]
ENTRUSTMENT
Section 26(a) of the Act provides that the Fund shall be applied for
the purpose of reimbursing persons who may suffer pecuniary
loss as a
result of
“
Theft committed by a practising practitioner, his candidate
attorney or his employee, of any money or other property entrusted by
or on behalf of such persons to him or to his candidate attorney or
employee in the course of his practice...”
Mr
Rogers
,
who together with Mr
de Villiers-Jansen
appeared for the defendant, submitted that there were various
unsatisfactory aspects of the plaintiff’s evidence which so clouded
his evidence that I could not be satisfied that the plaintiff had, on
a balance of probabilities, established that the money had
been paid
to Akritidis for a lawful purpose. These were shortly the following:
The plaintiff was a qualified chartered accountant, an extremely
astute and successful businessman, who was intelligent and
meticulous
in the conduct of his financial affairs.
Most of the plaintiff’s family had emigrated from South Africa.
At the time that he saw Akritidis he had acquired or was in the
process of acquiring a five-year multiple entry visa into Australia
and at some stage he certainly contemplated taking up permanent
residence there. An obvious course for the plaintiff to have

followed was to have gone to the forex division of his bank to
enquire whether it would be possible to remit funds to his daughter,
but he did not do so, nor did he consult his own attorneys.
The plaintiff sought to portray the proposed transaction as an
extraordinary and complex one whereas in fact it was a basic and
straightforward issue.
The fact that he did not approach his bank but a supposed expert in
foreign exchange, points to the fact that he was aware that
what he
wanted to do could not be done lawfully.
He took no steps to establish what his own attorneys knew of
Akritidis.
The lack of detail sought from him by Akritidis, in particular in
respect of the motivation for the loan, is suspicious. His

acquiesence in Akritidis’ unusual requirement that the sum of R2.2
million should forthwith be paid into his account is suspicious.
The absence of any discussion between the plaintiff and Akritidis
about fees is suspicious.
Reference was also made to certain discrepancies between his
evidence before me and before the Board of Control of the Fund, but
these were, to my view, not material.
Mr
Rogers
submitted that the cumulative effect of these factors was such as to
cast grave suspicion on the plaintiff’s evidence that he went
to
Akritidis with the view to establishing whether the funds could
legally be transmitted to his daughter in Australia and therefore,
at
best for the plaintiff, I should find that he had not established the
entrustment on a balance of probabilities. However, there
is one
important aspect of the plaintiff’s evidence which is not to be
gainsaid. He testified before me, and also at the enquiry
by
the Fund, that he had read in the
newspapers that a successful South African businessman had managed to
purchase control of a soccer
team in England by remitting a large
amount of money overseas and he therefore went to the attorney with
the view to establishing
whether he could transfer the relatively
large sum of R2.2 million out of the country legally. His
unchallenged evidence was to
the effect that he himself had had no
dealings with banks over the years, that he and his family members
had not availed themselves
of the right to export funds for
investment overseas subject to the limit set by the Reserve Bank from
time to time, and accordingly
that he had no experience whatever in
the remission of funds overseas in the present climate. In the
circumstances, however suspicious
his actions may appear to be, I can
find no reason to reject his evidence as to his reason for going to
see Akritidis and for entrusting
the funds to him.
[12]
IN THE COURSE
OF PRACTICE
Mr
Rogers
submitted that the plaintiff had failed to establish that the
entrustment had been in the course of
Akritidis’
practice for the following reasons:
There was no evidence before me that attorneys customarily rendered
a service which Akritidis rendered.
Th
e legal framework
governing exchange control makes such work the responsibility of
banks.
These two submissions overlap to a certain extent.
As to the latter, evidence was given by Mr Grassman, a section head
of the Reserve
Bank, who testified that only authorised dealers
(these include all leading banks) may
apply to the Reserve Bank for exchange
control approval. Paragraph 9(a) of the Rules (being orders and
rules promulgated by the Treasury)
read as follows:
“
Persons
who desire information or advice or exchange or currency matters
governed by the regulations or who require approval or permission
in
respect of exchange, currency or gold transactions so governed,
should apply to the Exchange Control
through
their bankers
in the Republic or, if
they have no such bankers, through one of the banks referred to in
paragraph 3 hereof.”
Attorneys may therefore
not lodge applications with the
Reserve Bank for
permission to transfer money offshore.
Mr Grassman also testified that it was not a requirement of the
Reserve Bank that funds earmarked
for remission overseas be held in
an attorney’s trust account or be immediately available.
[13] Since attorneys are not authorised by the
Rules to submit exchange control applications, Mr
Rogers
submitted that it cannot generally be
regarded as part of an attorneys’ work to prepare and submit such
applications. Basing his
argument mainly on the judgment in
Paramount Suppliers (Merchandise) (Pty)
Ltd v Attorneys, Notaries and Conveyancers Fidelity Guarantee Fund
Board of Control
1957 (4) SA 618
(W),
Mr
Rogers
submitted that a decision on the question as to whether in any given
case money has been paid to an attorney in the course of his
practice
requires
inter alia
an enquiry into the sort of work which attorneys can and do, as an
objective fact, perform in the course of their practice as an
attorney. In the
Paramount
case,
Kuper
J observed at 624H-625A
“
In certain cases such work might include the making of
representations to a Government department or committee the result of
which
might depend upon the construction of a regulation or the
tabulation of facts which an attorney would be better equipped to
present
than the layman.”,
but concluded that the work under discussion was “not a normal
piece of work” because the payment for the work depended on the
results obtained.
[14] As to the situation where money is paid to an attorney for
or in connection with work which is not by its very nature legal
work,
Mr
Rogers
submitted that it would be necessary to
establish to what extent attorneys do in fact perform such work and
thus whether such work
could be regarded as part of an attorneys’
practice. In this regard, Mr Julian Scher, the plaintiff’s
attorney in the present
matter, testified. He said that if he was
approached by a client who wanted advice on banking or foreign
exchange requirement, he
would not deal with the matter himself, but
would suggest that he would consult an expert. He mentioned the name
of a firm in Johannesburg
who issue a so-called publicity manual and
said that he would refer the client to a commercial attorney
conversant with foreign exchange
matters. He would also not
necessarily send the client to a bank.
[15] At the conclusion of his evidence, a “Directory of Client
Services” issued by a prominent Johannesburg firm of attorneys
was
handed in as an exhibit. This lists the directors of the firm and
also lists the various areas of law in which the firm offers
services. Included amongst these areas are ‘exchange
control’,under which the names of fourteen attorneys are listed and
‘offshore
structures and financing’, under which the names of six
attorneys are listed.
[16] I think it fair to say that there has been great change in
attorneys’ practices since the time when the judgment in the
Paramount
Suppliers case was handed down in 1957. Whereas the work
done by attorneys at that time was fairly narrowly delineated, the
type
and range of services offered by attorneys today is vastly
different. The evidence of the witness Bayliss was to the effect
that
Akritidis was known as an expert in banking law and foreign
exchange transactions and that the firm offered services in exchange
control advice, including the arranging to transfer funds to foreign
countries. This, supported by Mr Scher’s evidence as to the
manner
in which attorneys advertise their services in connection with the
exchange control matters, is a clear indication that attorneys
deal
with exchange control matters and the fact that one aspect thereof is
restricted to authorised dealers is not, in my view, sufficient
to
justify a finding that the entrustment of the funds to Akritidis was
not in the course of his practice.
The fact that Akritidis
would not personally have been able to tend to the transfer of the
money, as he gave out that he would do,
does not in my view alter or
affect the position in regard to the initial entrustment.
To sum up thus far, I find that the money in question had been
entrusted to Akritidis in the course of his practice, as required
by
section 26(a) of the Act.
[17]
THE INSTRUCTION TO INVEST IN TERMS OF SECTION 78(2A)
In order to succeed, the plaintiff has to show that payment of the
money in question to Akritidis was a payment into an account
contemplated
in section 78(2A) of the Act.
For a proper understanding of the plaintiff’s case, regard should
be had to various sections of the Act.
Section 47(1) creates certain exceptions where the Fund is not
liable in respect of loss suffered, inter alia where such loss is
suffered“by any person as a result of theft of the money which a
practitioner has been instructed to invest on behalf of such
person
after the date of commencement of this paragraph.” (Section
47(1)(g))
Section 47(4) provides that, subject to section 47(5), a
practitioner must be regarded as having been instructed to invest
money
for the purposes of section 47(1)(g) where the person who
entrusts the money to the practitioner, or for whom the practitioner

holds the money, “instructs the practitioner to invest all or some
of that money in a specified investment or an investment of
the
practitioner’s choice.”
In terms of section 78(1), any practising practitioner is obliged to
open and keep a separate trust banking account at a banking
institution in the Republic and to deposit therein the money held or
received by him on account of any person. This is an attorney’s
normal trust account and the interest earned on this account is paid
to the Fund (section 78(3)).
In terms of section 78(2)(a) a practitioner may invest in a separate
trust, savings or other interest-bearing account opened by
him with
any banking institution or building society any money deposited in
his trust banking account which is not immediately
required for any
particular purpose. Interest earned on any such account is paid to
the Fund (section 78(3)) and since the attorney
is dealing with
trust funds which have been pooled in his trust account, no
authority is required from any client to open such
an account. The
section permits interest to be earned for the benefit of the Fund at
a higher rate than would be earned on the
normal trust account and
attorneys have been over the years been encouraged to make use of
this section so as to build up the resources
of the Fund.
Section 78(2A) makes provision for specifically identified funds to
be invested for the benefit of a client. The section reads:
“
(2A) Any separate trust savings or other interest-bearing
account –
which
is opened by a practitioner for the purpose of investing therein, on
the instructions of any person, any money deposited in
his trust
banking account; and
over
which the practitioner exercises exclusive control as trustee, agent
or stakeholder or in any other fiduciary capacity,
shall contain a reference to this subsection.”
If a client instructs his attorney to deposit monies to a section
78(2A) account, this would in ordinary parlance be an instruction
to
invest the money for the client’s benefit. It follows that if the
stolen money is money which the client instructed the attorney
to
invest in a section 78(2A) account, the Fund’s liability would
normally be excluded. However, liability will not be excluded
if the
provisions of section 47(5) apply.
Section 47(5) reads as follows
For
the purposes of subsection (1) ( g), a practitioner must be regarded
as not having been instructed to invest money if he or
she is
instructed by a person –
to
pay the money into an account contemplated in section 78(2A) if
such payment is for the purpose of investing such money in
such
account on a temporary or interim basis only pending the conclusion
or implementation of any particular matter or transaction
which is
already in existence or about to come into existence at the time
that the investment is made and over which investment
the
practitioner exercises exclusive control as trustee, agent or
stakeholder or in any fiduciary capacity;
to
lend money on behalf of that person to give effect to a loan
agreement where that person, being the lender –
specifies
the borrower to whom the money is to be lent;
has
not been introduced to the borrower by the practitioner for the
purpose of making that loan; and
is
advised by the practitioner in respect of the terms and conditions
of the loan agreement; or
to
utilise the money to give effect to any term of a transaction to
which that person is a party, other than a transaction which
is a
loan or which give effect to a loan agreement that does not fall
within the scope of paragraph ( b).”
[18] It is clear that the plaintiff relies on the exemption in
section 47(5)(a) of the Act.
The plaintiff’s case as
pleaded is:
“
4.1 Plaintiff consulted with AKRITIDIS to seek professional
advice on the transfer of a sum of R2,2m, which Plaintiff had agreed
to
loan to his daughter who was resident in Australia;
AKRITIDIS
accepted the Plaintiff’s instructions and advised Plaintiff to
pay the sum of R2,2m to AKRITIDIS in trust, pending
the taking of
such steps as may be required, to transfer the amount to Australia;
Plaintiff
accepted the advice and instructed AKRITIDIS to pay the said money
into an account contemplated in section 78(2A) of
the Act.
Plaintiff
duly caused a cheque in the aforesaid sum to be issued on behalf of
the Plaintiff, for payment into AKRITIDIS’ trust
account, being
an account within the meaning of section 78(2A) of the Act, which
money was to be held in such account as a temporary
or interim
measure until the money could be transferred to Plaintiff’s
daughter in Australia.”
It is implicit in the pleading that plaintiff’s case is that the
funds in question were to be invested for his benefit. The plaintiff
gave no evidence as to how his funds were to be invested. His
discussion with Akritidis was extremely brief. Only after Akritidis
had told him that he required the funds to be paid into his account
did the plaintiff raise the question of the loss of interest
that he
would suffer if the Reserve Bank’s approval was not obtained. He
did not concern himself with the manner in which Akritidis
was to
deal with his money and his arrangement was simply that Akritidis
would pay him 9% interest on the sum deposited.
[19] It is clear that the Fund’s liability for theft of funds
entrusted to an attorney for investment is limited to the
circumstances
described in section 47(5)(a). For this section to
apply, the authority from the client to invest the money in a
separate trust,
saving or other interest-bearing account is required.
Furthermore, on the plain meaning of the words in section 47(5)(a),
the plaintiff
must prove that he instructed Akritidis to pay the
funds into a separate trust savings account or other interest-bearing
account.
[20] Although the allegation is made in the particulars of claim
that the plaintiff instructed Akritidis to pay the money into a
section
78(2A) account, his evidence was not to this effect. The
allegation in the particulars that “plaintiff caused a cheque in
the
aforesaid sum to be issued on behalf of the plaintiff for payment
into Akritidis’ trust account, being an account within the meaning
of section 78(2A) of the Act”, is also not supported by the
evidence. Payment was not made into an account specified in section
78(2A), nor was any such account discussed. The payment was made
into Akritidis’ normal trust account as described in section
78(1).
It was not argued that because the funds were paid into the trust
account and because Akritidis had promised to pay the plaintiff
interest in the event of the transaction not going through, it
follows that an instruction was given to Akritidis to invest the
funds
in accordance with the
provisions of section 78(2A).
That is the only basis on which it can be said that the evidence
supports or establishes the case as
pleaded.
[21] Apart from the fact that the plaintiff’s case was not
argued on this basis, I can find no justification for drawing
any
such
inference. The plaintiff clearly based his case on the
provisions of section 47(5)(a) and in my view there simply was not
sufficient
evidence put before me to establish the case as pleaded.
In the circumstances, it is also unnecessary to consider whether
the provisions of section 47(5)(b) and (c) are applicable.
I therefore make the following order:
1. Absolution from the instance is granted in respect of plaintiff’s
claim;
2. The plaintiff is ordered to pay the defendant’s costs, which
costs include the costs attendant
upon the employment of two
counsel.
________________
R B CLEAVER