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[1988] ZASCA 38
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Adderley Acceptances (Pty) Ltd. v Rom and Another (38/88) [1988] ZASCA 38 (30 March 1988)
In THE SUPREME COURT OF SOUTH AFRICA
(
APPELLATE DIVISION
) In
the matter between:
ADDERLEY ACCEPTANCES (PTY) LTD
Appellant
and
FLORENCE ROCHELLE ROM
First Respondent
KAREN CELIA LEVIN
Second Respondent
Coram
: RABIE, ACJ, JANSEN, HOEXTER, VIVIER,
JJA
et
NICHOLAS, AJA
Heard
: 15 March 1988
Delivered
: 30
March 1988
JUDGMENT NICHOLAS
, AJA :
2
Mr. Brian Richman lived in Bantry Bay,
Cape
Town. From his house he carried on
business as a financial
broker and consultant through a one-man company,
Adderley
Acceptances (Pty.) Ltd. ("Adderley Acceptances"). He was
also a
director of a private company, Servix (South Africa)
(Proprietary) Limited ("Servix"), of Johannesburg, which
carried on the business of electrical engineers and con-
tractors.
One of his clients was Mrs. Florence Rom, a
divorcee of Sea Point. Mrs. Karen Levin became a friend
of his in about August 1983. At the end of November 1983,
Richman placed on loan with Servix R90 000 provided by Mrs.
Rom and R110 000 provided by Mrs. Levin. Four and a half
months later (in the middle of April 1984), Servix was in .
liquidation. It was hopelessly insolvent, with no prospect
3
of any dividend to creditors. Mrs. Rom and Mrs. Levin had lost
everything.
The two women, who were at that time unacquaint-ed, instituted
separate actions for damages against Adderley Acceptances in the Cape
Provincial
Division of the Supreme Court. In March 1986 the two actions were consolidated
and heard by BERMAN J, who gave judgment
in favour of Mrs. Rom for R90 000, and
in favour of Mrs. Levin for R110 000, with interest on the respective capital
sums at the
rate of 18½% per annum from the date of judgment to date of
payment.
An application by Adderley Acceptances for leave to appeal was dismissed with
costs. On a petition to the Chief Justice, however,
leave was granted to appeal
to this court. It was ordered that the costs of the petition
for .... / 4
4
for leave to appeal be costs in the appeal; and that the order for costs made
by the court a
quo
on the application for leave to appeal be altered to
an order that the costs of the application be costs in the appeal.
The appeal
record does not include copies of the pleadings in Mrs. Levin's case, and Mrs.
Rom's pleadings were not in all respects
a model of clarity. Nevertheless, the
issues as they had crystallized by the end of the trial are reasonably clear in
both cases.
In each there were two causes of action -
(a)
Alleged fraudulent
misrepresentation; and
(b) Failure by Richman (more strictly by Adderley Acceptances, which was his
alter ego
) to dis-close matters which it was his duty to disclose to the
plaintiffs.
Richman was the agent of
each of the plaintiffs.
Each..... / 5
5
Each relied on his financial expertise and his integrity.
He
held a position of trust and confidence in relation to
their affairs. In the
performance of his duties he was
required to act
bona fide
. Cf.
S v
Young
, 1977 (1) SA
602 (A) at 609 B-C. He was under a duty to make disclo-
sures to his principal of everything known to him respect-
ing the transaction on which he was employed, which would
be likely to influence her conduct. More particularly,
where he had an interest that was adverse to his principal's
interest, he was subject to a duty to reveal to the princi-
pal all the material facts which he knew or which he should
have known, and to deal fairly with his principal:
Mallin
-
son v Tanner,
1947 (4) SA 681
(T).
It will be convenient to deal first with the
case. .... / 6
6
case of Mrs. Rom, and then, more briefly because most of the
ground will already have been covered in connection with Mrs. Rom, with
the case
of Mrs. Levin. 1.
MRS. ROM'S CASE
.
Mrs. Rom's main cause of action
against Adderley Acceptances was originally this:
1. During November 1983 Richman, acting on behalf of
Adderley Acceptances,
orally represented to Mrs.
Rom that
-
(a)
He had investigated the financial affairs of
Servix;
(b)
Servix was in a strong and sound
financial position; and
(c)
Loans made to
Servix would constitute a safe investment and would be equivalent to in-vesting
with a bank or similar financial
in-stitution.
2. The said representations were material, and Rich-
man made them with the
intention of inducing Mrs.
Rom to authorize him to invest her money in
Servix.
3. .../ 7
7
3. The representations were false to the knowledge
of Richman in that
-
(i) he had not properly investigated the affairs
of Servix; (ii) the company was not in a sound financial po-sition; and (iii)
loans
made to Servix would not constitute a safe investment and would not be
equivalent to investing with a bank or similar financial institution.
4. Mrs. Rom, relying on the truth of the representa-tions, authorized Adderley
Acceptances to invest R90 000 with Servix, and it
did so in 1983.
5. Servix has been liquidated and no dividend to its creditors will be paid. As
a result, Mrs. Rom
has suffered the loss of the whole of her
invest-ment.
This was her case in relation to
alleged fraudulent mis-
representation
.
At a later stage Mrs. Rom's particulars of
claim were amended. by the inclusion of the following para-
graph:
"12......./8
8
"12. At all material times hereto, and unbeknown to
Plaintiff, First Defendant was a director of the said Company and was, in the
premises, in duty bound to disclose to Plaintiff his
interest in the said
Company, but First Defendant fraudu-lently, and with the intention of inducing
Plain-tiff to authorise the said
investment, concealed from her the fact that he
was a director of the said Company and was accordingly not in a posi-tion to
give
her impartial advice in regard to the financial stability of the
Company."
And during the trial it emerged that
Rich-
man himself lent R100 000 to
Servix on 14 November 1983
and withdrew the whole amount on 21 November.
Adderley
Acceptances did not disclose these facts to Mrs. Rom.
This
concealment was fully canvassed at the trial, and
BERMAN U treated it as if it had been duly pleaded.
Counsel for the appellant did not suggest that the learned
judge was wrong in so doing.
This ..../ 9
9
This and the concealment referred to in para. 12 of the particulars of claim
formed the basis of Mrs. Rom's claim in regard to
failure
to
disclose.
At the date of the trial, Mrs. Rom was
62
years old and in poor health.
(BERMAN J described her as
"a sickly elderly lady".) She had received her school
education at the
Good Hope Seminary. When she left school,
she began a course for the BA degree at the University of
South Africa, but,at the age of 21, she married Dr. David
Rom. The marriage was dissolved in 1963. She was obliged
to work in order to provide for herself and the children
of the marriage. She got employment with an estate agent.
Because of her personal circumstances, she was always very
careful with money. Over the years she slowly accumulated
a.../10
10
a competence, which in November 1983 totalled R90 000. In 1981 she had
suffered a massive coronary thrombosis and she had been in
indifferent health
since then. Because she was uncertain about her future earning capacity, she
could not afford to go into a risky
investment. She invested always with banks,
building societies and similar institutions.
She first met Richman in about
1981, when he was looking for a house, and through him she acquired a building
society fixed deposit
certificate for R25 000 which had some two years to run to
maturity.
Thereafter and until the middle of April 1984 she was his client, and he made
a number of investments on her behalf.
Richman told the court a
quo
during his
evidence .... / 11
11
evidence that he was born in 1940. After matriculating, he was articled to a
firm of chartered accountants, and at the same time attended
the University of
Cape Town, where he obtained an accountancy qualification. After qualifying, he
began operating on his own account
as a finance broker and financial consultant.
He formed Adderley Acceptances, of which he was the only beneficial shareholder
and
the only effective director, and whose business he described in the "Report
of Directors" for 1983 as "financial and econo-mic consultants,
advisers,
economists, brokers and traders in the money market".
He specialized "in the larger type of in-stitution". His business was
"basically funding of public and semi- public sector loans".
He had very few
small
clients.../ 12
12
clients such as Mrs.Rom and Mrs. Levin.
He became a director of Servix in April 1981.
If one is to believe his own evidence he was no more than
a dummy
director, who took little part in the company's
affairs. He owned no shares.
Mr. Costa Zackos, the mana-
ging director, had approached him, saying ,
"Listen, I've heard about you. I need some one in Cape Town just in case a
cheque needs to be signed, and I need a director."
Richman told the trial judge that he could think of only
one reason for his agreeing to become a director:
" ... Servix clients and mine are similar and it would be, it's one sort of
other vehicle to sort of say hullo to my clients on social
occasions and things
like that."
As a director he was paid R500 or R1 000 per annum, and he
charged .... / 13
13
charged the company a moninal fee when, about once a
year,
he flew up to Johannesburg for directors' meetings. On
his evidence,
he appeared to have little or no knowledge of
the internal workings of
Servix, and he said later that he
had no inkling during the period December
1983 to April 1984
of the gathering crisis in the company's affairs. He
was
not, he explained, an executive director.
(BERMAN J regarded Richman's evidence in this
regard with scepticism, saying in his judgment that he was not
" .. so credulous as to accept the self-portrait painted by Mr. Richman as
showing a true picture of his asso-ciation with Servix.")
Richman said that he flew to Johannesburg
to attend the official opening on 17 November 1983 of the
electrification of Tembisa Township on the East Rand,in
in..../ 14
14
in which Servix had been concerned. After this there was
luncheon for all
the participants, which was followed by a
meeting of Servix's board of
directors.
At the meeting the annual accounts were
pre-
sented by the auditors. Richman's
understanding was that
the company was doing exceptionally well. He said:
"That was my understanding and it showed in the balance sheet."
There was little dispute between Mrs. Rom
and Richman in regard to the Adderley Acceptances' mana-gement of her
investments before November 1983. Until March of that year,
her money had always
been placed with banks and building societies. In that month Mrs. Rom authorized
Richman to place her money
with National Acceptances Ltd.,
a ... / 15
15
a company which operated in the money market, in order to get a better rate
of interest. Thereafter National Accept-ances placed short
term loans on her
behalf with a variety of public companies of standing. It would seem clear that
Richman told Mrs. Rom that these
investments were similar to those made with a
bank, because on 5 September 1983 Adderley Acceptances issued to Mrs. Rom a
"receipt"
in Richman's own hand, recording that R25 000 has been "placed today",
and confirming that "you have a total of R75 000 placed at
call with Banks or
similar institutions." (a).
Alleged fraudulent misrepresentation
.
Mrs. Rom said that she had money falling due in November 1983, and that
Richman, who also knew this because he had control of her
investments,
advised
her .... / 16
16
her to place all her money with Servix.
Richman, on the other hand, said
that the initiative came from Mrs. Rom, who
" ... on more than one occasion said to me that she
wasn't happy with the interest rate she was getting ... She wanted me to find
her an investment where she'd get more than she was
getting at that stage."
He accordingly mentioned Servix, and said that he was going
to Johannesburg and was to make a further investigation
into the company. When he returned,
" ... her basic question was 'what do you think of Servix: ... I said, it
looks all right .... "
Whatever the true position as to the initiative, Mrs. Rom's
evidence is clear (and it was not really disputed by Rich-
man on this point) that she was a reluctant lender to
Servix.
She .... / 17
17
She said that she was "wary" of an investment in Servix. She told Richman
that she was not interested in an investment in that company.
She could not
afford a risky investment. She was "put off" from the beginning and asked a
great many questions. She wanted to buy
an annuity from the Old Mutual. He
advised her against it -that would involve tying her money up. She said she was
not interested
in investing in a private company. He told her that Servix dealt
only in "government contracts" such as Escom and Koeberg: it was
a very good
investment -"they were as safe as houses." She looked up Servix in the Cape Town
telephone directory, and was disturbed
to see that its entry was in small print.
Richman explained that "Servix was big in Johannesburg. This is just a
branch .... / 18
18
branch here." She said that Richman seemed to have tre-
mendous confidence
in Servix. He said he had gone through
the balance sheets, and that "he could
lay his head on a
block for theml" He persuaded her, and she believed
him.
That Mrs. Rom was a reluctant lender and
that it was only after weeks of argument, persuasion and
reassurance that she was brought to the point of authori-
zing the loan, is clear from the evidence of Richman himself.
She temporized. She repeatedly asked questions. She raised
the matter of the annuity with the Old Mutual more than once.
She agreed to make the loan. Then she changed her mind:
she wanted "to have another think." So then they went
over the whole thing once more; and he gave her further
assurances.
Eventually .... / 19
19
Eventually she agreed. On 25 November Adderley Acceptances wrote to Mrs. Rom
stating that it had that day received her "cheque for
R15 000 (ex Allied) for
investment on her behalf. The total funds under control are now R90 000". On 30
November 1983 Adderley Acceptances
confirmed that Mrs. Rom's funds had been
placed "with our clients, Servix South Africa Proprietary Limited."
Under cross-examination, Richman made an im-portant admission regarding his
representations to Mrs. Rom.
He admitted that he had told Mrs. Rom that he had investigated the financial
affairs of Servix; that the company was in a strong financial
position; and that
any loans made to the company would be a safe investment. He did, it is true,
deny that he told her that a loan
to the
company .... / 20
20
company would be equivalent to investing with a bank or similar financial
institution. But further consideration of this aspect is
unnecessary, because
Mrs. Rom herself said under cross-examination that she knew that the invest-ment
with Servix was not an investment
which was being made in a bank or similar
financial institution.
The alleged representations having been for the most part admitted, the next
inquiry is whether they were true or false.
Richman said in his evidence that his under-
standing at the Servix directors' meeting was that
"the company was doing .... exceptionally well as was shown in the balance
sheet."
That had also been his view based on a study of the 1982
balance .... / 21
21
balance sheet. And, he said, "There was other information
which I had
received as well." He said that when in Johannes-
burg he actually
investigated the financial affairs of the
company and spoke to other people
and looked beyond the balance sheet.
It is a striking feature of Richman's evidence
in this regard that he did not say that he consulted the
obvious sources: he did not inquire from his friend Mr. Zackos,
the managing director, or from the company's management; he
did not seek to exercise his right as a director to inspect
books and documents in accordance with the provisions of s.
284(3) of the Companies Act, No. 61 of 1973 (Cf.
Wes-Transvaalse
Boeresake (Edms.) Bpk and Another v Pieterse and Another
,
1955 (2) SA 464
(T)); and he did not say that he had
studied .... / 22
22
studied progress reports or any other relevant documents.
It appears that
he sought information only from sources
outside the company. This is an
extract from the record
of his evidence in chief:
"Now, tell me, from whom essentially, apart from balance sheets, did you get
information regarding the prospects and progress and
fortunes or misfortunes of
the company Servix? — Yes.
No, from whom? — Various bank managers dealing with the accounts.
No, well when, when did you, I'm talking about generally. — Yes,
generally, I'd met, I'd meet them on, on the odd occasion.
I'd met them, I'd
meet a bank manager of Servix at a, at a bank lunch or something like that and
we'd discuss Servix. They were all
extremely happy with it, with the company.
We, we had a trip to the site once where they took their bank managers and all
the people
they dealt with, so I spent a day with their main commercial manager
who was extremely happy with the company. The day, the day at
Tembisa, at the
cock-tail party luncheon, I bumped into officials of the Bantu Admin. Board,
Hubert Davies, I think there were Easy
Electric. The engineers involved,
the ..../ 23
23
the architects and there was a joyous feeling that Servix would be getting
the bulk of all the other electrifica-tion of Soweto, and
there'd be a lot of
common work to-gether over the next few years and there was a very ebullient and
buoyant feeling there."
Asked by the trial judge what further
invest-
gation, what other enquiries,
he had to make in Johannesburg,
Richman replied:
"What, what's the quality of their work, what the future contracts look like
and this I was able to pick up at the dinner at the lunch
party. I've been to
the odd client of theirs."
As an investigation of Servix, this was a travesty, and Richman, as a
self-styled "financial and economic consultant", must have known
it.
Nor did the 1983 balance sheet show that Servix was in a strong financial
position or that sub-stantial loans could safely be made
to Servix.
The..../24
24
The balance sheet revealed that as at June 1983, the company's only source or
working capital was its overdraft facilities with the
bank, and Richman
apparently did not think it necessary to make an enquiry into the overdraft
limit. The overdraft then stood at
R435 884. Accounts payable amounted to R2 478
642, and money to pay them, if it could be got at all, was to be got only from
the
bank. "Cash resources" were reflected as Rll 772. Servix had ceded its book
debts to Barclays National Bank Limited as security for
its overdraft and it had
executed a second cession of its book debts to an insurance company. Although
the company's assets exceeded
its liabilities, it was in a highly vulnerable
position, since it needed only one importunate creditor and a bank which had
become
un-
co-operative .... / 25
25
co-operative, for Servix to be plunged into commercial
in-solvency.
Furthermore, a comparison of the 1983 with the 1982 balance
sheet (which Richman says he made) strongly suggests that the company
was in
decline. It reveals that there had been a drop in net income before taxation of
3.38%; turnover had increased by only 2.68%;
and administration expenses had
increased by 56% from R640 088 to R853 451.
Richman, as an accountant, could not have de-rived from the balance sheet any
confidence that Servix was in a sound financial position.
It is not being wise after the event to take into account the disaster which
occurred in April 1984. In business,approaching catastrophe
casts its shadow
before
it ....26
26
it, unless those concerned are wilfully or stupidly blind. If Richman had
investigated Servix, he must have seen the signs; and if
he did not investigate
Servix he could not honestly have expressed an opinion as to its financial
po-sition.
Moreover, it is a significant fact (which Richman did not disclose
to Mrs. Rom) that the company agreed to pay interest at the rate
of 22½%,
when the prime rate was 19%. This it would not have done unless, as Mrs. Rom's
counsel put it, it was "strapped for
cash".
That Richman's eyes were open to the danger
which was threatening is to be inferred from his precipitate
withdrawal of his R100 000 loan on 21 November 1983, shortly
after the director's meeting. Under cross-examination,
he.../ 27
27
he was unable to give a reason for the withdrawal, and,
in
his attempt to do so, he was reduced to babbling incoherence.
As BERMAN
J said in his judgment,
"It is to my mind a fair inference to draw that it was as a result of what he
learnt on receipt of the 1983 balance sheet of Servix
that Mr. Richman withdrew
his very recently made personal investment in that company."
My conclusion is that Richman made the
re-
presentations which he admitted
making, knowing that they were false, or, taking the most charitable view in his
favour, without belief
in their truth, or recklessly, care-less whether they
were true or false.
Mrs. Rom's case based on alleged fraudulent . misrepresentation was in my
opinion clearly proved. There is in Colman J's judgment
in
Novick and Another
v Comair
Holdinqs..../
28
28
Holdings Ltd. and Others
,
1979 (2) SA 116
(W) at 149-150, a useful
check-list of what has to be proved by a party seeking to avoid a contract on
the ground of misrepresentation,
and it can be employed in this case:
(a) The representations on which Mrs Rom relied were
made.
(b)
They were representations as to facts.
(c)
The representations were
false.
(d) They were material, in the sense that they were such as would have
influenced a reasonable man to authorize the loan.
(e) They were intended to induce Mrs. Rom to authorize the
loan.
(f)
They did induce her to do so.
In
addition, Adderley Acceptances had knowledge of the falsity of the
representations, and, as a result of the investment, she suffered
a loss of R90
000. (b)
Failure to disclose
.
Here......./ 29
29
Here the plaintiff's case was that
(i)
Richman failed to disclose that he was a director of Servix; and (ii) He failed
to disclose his withdrawal of his loan to Servix
a few days before he lent her
money to Servix.
(i)
Director
.
In her evidence Mrs. Rom said that she
did
not know that Richman was a
director of Servix, and that,
if she had known, it would have made a
difference to her
decision to invest in Servix. She said:
"I would've thought that he couldn't be impartial if he was involved in it,
and I would have investigated it more carefully."
Richman testified that Mrs. Rom did know
that he was a director of Servix. He said that there had
been an occasion when she was sitting on the patio of his
house .... / 30
30
house looking towards Koeberg nuclear power station, and
"I would have mentioned as I do mention in passing con-versation that I had
been there .... That I was a director of one of the contracting
companies. This
was possibly a good few months before this."
A further piece of evidence by Richman was that during dis-
cussions in November 1983 about a possible investment for
Mrs. Rom's
money,
"I mentioned to her that I was a director of a company up in Johannesburg
.... I showed her the balance sheet for the previous year
which is the one for
'82, I think it is. And I said I was going up to Johannesburg in a week's time
or later that month and I'm going
to have a further investigation into the
company and if I like, if, in my opinion it looks sufficiently good, I could
suggest she
puts some funds in it if we can get a decent rate for her."
The talk about Koeberg power station, if it
ever took place, did not amount to a disclosure that Richman
was .... / 31
31
was a director of Servix, and the story about the
1982
balance sheet was not put to Mrs. Rom in cross-examination.
Richman's
evidence to what he was going to do in Johannes-
burg is lame and unconvincing, particularly in the light
of the "investigation" which he says he made.
BERMAN J said in his judgment that he
was
satisfied on a review of the
evidence that Richman did
not
disclose to Mrs. Rom that he was' a director of Servix.
Although her evidence was untrue in one respect, the learned
judge thought her to be a credible witness generally. He
said:
"That her evidence, in this regard is untrue cannot be gainsaid, (but) it
does not follow that her evidence on other aspects of the
matter must, as Mr.
Horn con-tended, be rejected. Indeed Mrs. Rom did not make upon me the poor
impression Mr. Horn was at pains
to
portray .... / 32
32
portray. She is a sickly, elderly lady who I observed stood up stoutly in the
face of a searching and vigor-ous cross-examination.
If in the course of that
ordeal she faltered, it was neither often nor to any extent; she certainly never
came across as a deliberate
liar, and, taking it all in all, and without seeking
to damn her with faint praise, she was, in my view by no means a bad witness,
unworthy of belief."
On the other hand, BERMAN J said that
" ... there certainly exist good grounds for declining to accept Mr. Richman
as a wholly credible witness."
After referring to a number of criticisms of Richman as.a
witness, the learned judge said this:
"What however I hold to be the most damning circumstance for not preferring
Mr. Richman as a witness to either Mrs. Rom or Mrs. Levin
is that he himself put
a consi-derable amount of his own money into Servix, viz. R100 000; he received
the 1983 balance sheet two
days later; he no doubt studied and digested it; he
with-drew his full loan five days' later, yet within a matter of days he
persuaded,
permitted or allowed Mrs. Rom
and .... / 33
33
and Mrs. Levin to invest their funds in the company
without
saying a word to either of them ....
That is not, in my considered view, the
conduct called
for from a person such as Mr. Richman vis-a-vis
persons
like Mrs. Rom or Mrs. Levin, for he was no mere
acquaintance
suggesting an investment to them, - he
was a financial counsellor giving not
only advice on
a professional basis, i.e. in return for remuneration
to
his company, but in fact handling the investments
of and for these two ladies
"
In the light of these credibility findings (with which there is no reason to
disagree), and the pro-babilities, BERMAN J's conclusion
that Richman did not
dis-close to Mrs. Rom that he was a director of Servix cannot be assailed.
It was submitted on behalf of Adderley Acceptances that even if it be
accepted that Richman did not disclose that he was a director,
"it was not
established
that .... / 34
34
that he omitted to do so with the intention to defraud,
i.e.
to induce the Respondents, to their prejudice, to invest in
Servix:
and that in any case it was not proved that the
failure to disclose induced the respondents to invest."
Although it was alleged in para. 12 of
Mrs.
Rom's particulars of claim that
the concealment was fraudu-
lent and made with the intention of inducing the plain-
tiffs to authorize the investment, these were not necessary
allegations. The gist of this cause of action was not
fraud, but breach of a duty of good faith by the agent.
As pointed out above, where án agent has an interest ad-
verse to his principal (as in this case where Richman as
a director of Servix had an interest adverse to the interest
of Mrs. Rom), he is under a duty to make disclosure to his
principal .... / 35
35
principal of all material facts which he knows or should know.
It was argued on behalf of Adderley Accept-ances that "the fact that Richman
was a director would have encouraged rather than discouraged
(the plaintiffs)
from investing in Servix." I do not agree. Disclosure would at least have
provoked questions regarding Richman's
interest, particularly if it had also
been disclosed that Servix was prepared to pay interest well above the prime
rate, and that
Richman was going to put the difference be-tween 18% and
22½% into his own pocket.
(ii)
Concealment of facts relating to Richman's loan to Servix
.
In this regard, I can not do better than
quote .... / 36
36
quote a passage from BERMAN J's judgment, with which I
entirely agree,
" What highlights Mr. Richman's (Adderley Acceptances') culpability is the
dramatic sequence of events which took place over the last
16 days in November
1983, viz. on 14 November he lent Servix R100 000 of his own money; at a meeting
on 16 November he received the
balance-sheet of that company; on 21 November he
withdrew his entire investment; on 25 and 26 November he commenced investing
plaintiffs'
funds and by 30 November he had put in R200 000 of their money. The
withdrawal of his own substantial investment, in the circumstances
and the haste
in which this was done, is, I am satis-fied, a matter which also should have
been made known to the two ladies before
their funds were lent to Servix. To
have withdrawn his own investment but seven days after making it and then to
have permitted the
two ladies, regard being had to his relationship with them,
to put their money where he had so quickly withdrawn his own, is an essay
in
cynicism worthy of the severest strictures."
In my opinion, therefore, it was proved that
Richman failed to disclose these two matters to Mrs. Rom,
that .... / 37
37
that it was his duty to disclose them, and that his failure was a
contributing cause (with the fraudulent misrepresenta-tions)of the
loss which
she suffered.
Conclusion in Mrs. Rom's case
.
In all the circumstances
I am satisfied that BERMAN J's decision in the case of Mrs. Rom was clearly
right.
MRS. LEVIN'S CASE
.-
Mrs. Levin lived at Beach Road, Sea Point, Cape Town. She matriculated at
Rustenburg Girls' High School, took a teacher's diploma
at the University of
Cape Town in 1969 and then became "a daywear buyer for Foschini's" in 1970. She
was married in 1974, and had
a daughter. There-after she did "little odd jobs",
but mostly she was involved
in......./ 38
38
in charity work.
In 1983 Mrs. Levin was engaged in divorce
proceedings against her former husband. In August of that year she met Richman
at a party.
They became friends and then formed a sexual relationship. They
dined together about twice a week; she accompanied him on an overseas
trip; and
in November 1983 she went with him to Johannes-burg where, he told her, he was
going to the opening of a power station
which had been completed by Costa
Zackos, whom she had met at the Cape Sun Hotel at a dinner to which she was
taken by Richman. They
stayed together at the hotel in Johannesburg.
From September 1983 she assisted Richman in his business on one or two
mornings a week at a remuneration
of..../ 39
39
of R50 a morning. She knew that he was a financial con-
sultant and
operated on the money market. She had confi-
dence in him, because she had
seen him in action,
" ... heard people phoning for advice, delivered certi-ficates to different
building societies, knew he was involved in this, and
considered him, as he
presented
himself, very knowledgeable and expert in his job."
Alleged
Fraudulent Misrepresentation
.
Mrs. Levin said in her evidence that a de-
posit of R70 000 which she had with the Bank of the Orange
Free State was to become due at the end of November 1983.
She did not want another fixed deposit for a year because
she was hoping that her divorce would be finalized in Feb-
ruary, when, she thought, she might be needing money.
She asked Richman what was the best thing to do on a short
term .... / 40
40
term basis. He said, "Give me the money and I will find
the
right place to put it." He asked if she had any other
money, and she told him
that she had R40 000 with Herthco
Nominees, a fund run by a firm of
accountants. He advised
her to take her money out of Herthco, saying he was
not
háppy with her having money there. Asked why, he replied:
"I know what goes on in the market place. It's not a good place."
Cheques which she received from the Bank of the Orange Free
State she endorsed and handed over to Richman. A few days
later she delivered a cheque from Herthco to Richman's
office.
She and Richman discussed
what she should do with the money. She had previously
emphasized .... / 41
41
emphasized that her main concern was safety; that she
only
invested with banks and financial institutions; and that
that was the
way she wished to continue. Richman said "I
think we will give this money to
Costa" (i.e. Costa Zackos).
She replied that this was not the sort of investment she
liked to be in: the safety of her money was of primary im-
portance. He
said that
" ... it was the equivalent of putting it in a bank or financial institution
... He was fully au
fait
with the workings of the company ... The company
was going from strength to strength. It was involved in Government contracts and
there was positively no danger involved at all. There was no risk factor
in-volved at all .... The company was doing so well that
in the near future it
was going to go public."
He said again,
" ... that it was the equivalent of investing in a ... financial institution or
a bank. That it was
buoyant .... / 42
42
buoyant, that it had everything going for it, that there was not one iota of
risk, ... that it was more than safe, that he personally
guaranteed it, that he
would never do anything that would put anything of mine in jeopardy."
And, she said, because she trusted him, she accepted his
assurances.
Richman's account how he came to
lend
Mrs. Levin's money to Servix was
very different.
He said that on the aircraft while
returning
from Johannesburg, he was
looking at the Servix balance
sheet which he had received at the directors' meeting on
the previous day. Seeing this, Mrs. Levin mentioned that
she had some money which would be due towards the end of
November, and asked what Richman thought about finding a
home for it with Servix. Richman, (whose evidence was that
"he..../ 43
43
"he did not like talking business on an aeroplane", and that
he preferred discussing business in front of his desk), said that he
suggested
to Mrs. Levin that she talk to him at his desk in Cape Town. She did so. She
told him that she had about R100 00 becoming
due towards the end of the month
and she wanted a better rate of interest. She asked, could Richman find her one.
She said that she
liked what she's seen of Zackos and what she'd heard of
Servix, and wanted to know whether "they were strong enough to borrow and
if so
would they take her money." Richman went on to say that he and Mrs. Levin spent
two or three days negotiating, with the upshot
that she told him that she was
prepared to invest with Servix on a short term basis pro-vided the rate was
correct. He told her he
had another
client .... / 44
44
client who was also prepared to invest with Servix. He
contacted Zackos
and arranged to place the funds with Ser-
vix.
On 1 December 1983 Richman confirmed
in
writing to Mrs. Levin that he had
received funds from her
as follows:
(i) 26.11.1983 R50 000,00
(ii) 30.11.1983 R20 000,00
(iii) 30.11.1983 R40 000,00
and that "these funds are at present placed with clients
at a yield to you of 18.50% per annum .... "
It is not possible to reconcile the accounts
by Mrs. Levin and Richman as to how the question of a loan
by Mrs. Levin to Servix arose, but Mrs. Levin's version is
clearly to be preferred.
BERMAN .... / 45
45
BERMAN J said that Mrs. Levin
" ... left upon me the impression of a somewhat weak and colourless
personality who Mr. Richman would have had little difficulty in
impressing with
his apparent expertise in financial counselling and as a person who would have
readily sought and followed his advice;
she did not, for all that however,
strike me as a per-son given to lying, nor one who could have stood firm under a
gruelling cross-examination,
with a contrived, concocted story."
As against this, the learned trial judge considered (for
reasons referred
to above) that there were good grounds
for declining to accept Richman as a wholly credible wit-
ness, and that both Mrs. Rom and Mrs. Levin were to be pre-
ferred to him as witnesses. There is no reason to disagree
with BERMAN J's assessment.
Richman's account of how Mrs. Levin came to
make the loan is unconvincing. His story about the
discussion .... / 46
46
discussion in the aircraft rings false. Mrs. Levin was his travelling
companion and his intimate friend. He had spent the previous
day with Servix. It
is not credible that, if she asked him whether a home for her money could be
found with Servix, he would have
refused to answer at that time. Nor is it
credible on Richman's version, that he and Mrs. Levin spent two or three days
negotiating.
On his story, there was nothing to negotiate about except the rate
of interest.
I did not understand counsel for Adderley Acceptances to argue that Richman
did not make the re-presentations to Mrs. Levin which
she says he made. And I do
not think that it was arguable, having regard to the fact that Mrs Levin's
evidence in this regard was
not
challenged .... / 47
47
challenged in cross-examination; to the fact that Richman
himself did not deny making them; and to the probabilities. It is highly
improbable that Mrs. Levin, who had previously invested only in banks and
financial institutions, and to whom safety was paramount,
would suddenly have
decided to invest in Servix, of which she knew nothing, unless there had been
representations and assurances
from Richman; and it is extremely unlikely that
he would not have given to Mrs. Levin assurances such as those which he was
admittedly
giving to Mrs. Rom at the same time.
In Mrs. Levin's case, too, all the ingre-dients of a claim based on
fraudulent misrepresentation wére fully established. The
representations
were made. They were false to the knowledge of Richman. They were
material .... / 48
48
material. They were intended to induce and did induce Mrs.
Levin to invest R110 000 in Servix. And as a result she suffered a total
loss of
that amount. (b)
Failure to disclose
. (i)
Director
.
Mrs. Levin said that Richman did not tell her that he was a director of
Servix, and she did not know he was a director until long
after the loan was
made.
Richman said that she did know, because he told her on three occasions.
He mentioned to Mrs. Levin, as he had mentioned to most other people, that he
was a director of a company that had one of the main
contracts at Koeberg, which
"one sees .... directly from my house."
In.../ 49
49
In mid-October 1983, he accompanied
Mrs.
Levin to dinner with Zackos at the
Cape Sun Hotel. On the
way he explained to her who Zackos was, and he
introduced
her to him as "my fellow director and of Servix." At
dinner
Zackos discussed
"various contracts, the future growth of the company, he was planning to go
public, he was doing specially well, he was very proud
of it, he was a very
very, charismatic gentleman."
Mrs. Levin knew that Richman was going to Johannesburg to attend "the
electrification opening", in which Servix participated.
Even if these communications did take place, they have little bearing. It was
Richman's duty to tell Mrs. Levin pertinently in relation
to the proposed
loan,
that .... / 50
50
that he was interested as a director of the borrower. That
duty was not
absolved by a communication in the course of
social small talk which was
unconnected with the loan.
As BERMAN J observed,
"(Richman) never .... specifically and in terms and when discussing with the
investment of their funds in Servix, told them that he
was a director of that
company, as one would ordinarily have, with every justification, expected him to
do at such time and in such
circumstances."
(ii)
Concealment of facts relating to Richman's loan
to Servix
.
BERMAN J's observations, quoted above with
reference to the case of Mrs. Rom, apply equally to Mrs.
Levin's case.
Conclusion
.
As in the case of Mrs. Rom I am satisfied
that .... / 51
51
that in the case of Mrs. Levin BERMAN J's decision was clearly right.
ORDER OF THE COURT
.
The appeal is dismissed with
costs.
H C NICHOLAS,
AJA
RABIE, ACJ )
JANSEN, JA )
concur
HOEXTER, JA ) VIVIER, JA )