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[2020] ZASCA 97
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Breetzke and Others NNO v Alexander NO and Others (232/2019) [2020] ZASCA 97; [2020] 4 All SA 374 (GP); 2020 (6) SA 360 (SCA) (2 September 2020)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no:232/2019
In
the matter between:
GAVIN
ANTHONY BREETZKE NO
FIRST
APPELLANT
MICHAEL
JOHN BREETZKE NO
SECOND
APPELLANT
MARGARET
ANN BREETZKE NO
THIRD
APPELLANT
and
ROBERT
EDWARD ALEXANDER
FIRST
RESPONDENT
ZININGI
PROPERTIES (PTY) LTD
SECOND
RESPONDENT
RODNEY
JOHN TROTTER NO
THIRD
RESPONDENT
BRETT
DENNIS BERRIMAN
NO FOURTH
RESPONDENT
ANGELA
CLAIRE ALEXANDER NO
FIFTH
RESPONDENT
Neutral
citation:
Breetzke and Others NNO v
Alexander NO and Others
(232/2019)
[2020] ZASCA 97
(2 September 2020)
Coram:
WALLIS, MBHA, MOCUMIE, MOLEMELA and DLODLO JJA
Heard
:
19 August 2020
Delivered
:
This judgment was handed down electronically by circulation to the
parties’ representatives by email, publication on the
Supreme
Court of Appeal website and release to SAFLII. The date and time for
hand-down is deemed to be 09h45 on 2 September 2020.
Summary:
Breach of fiduciary duty by trustee –
trustee acquiring property from trust – concealing from other
trustees existence
of an opportunity to sell property to third party
at a profit – trustee nominating company owned or controlled by
him to
acquire property – company reselling property at a
profit – allegation that company knowingly participated in
trustee's
breach of trust is an allegation that company acted
wrongfully – pleading not excipiable
ORDER
On
appeal from:
KwaZulu-Natal Division of
the High Court, Pietermaritzburg (Vahed J, sitting as court of first
instance):
1 The appeal is upheld
with costs, such costs to include the costs consequent upon the
employment of two counsel.
2 The order of the high
court is altered to read as follows:
'The exception is
dismissed with costs, such costs to include the costs consequent upon
the employment of two counsel.'
JUDGMENT
Wallis
JA (Mbha, Mocumie, Molemela and Dlodlo JJA concurring)
[1]
The Sleepy Hollow Trust (the Trust) owned a
number of commercially lettable properties in Pietermaritzburg,
including one known
as the SARS property, presumably because of the
identity of its tenant. In September 2012 the Trust decided to
dispose of this
property portfolio. In February 2013 the first
respondent, Mr Alexander, one of the trustees of the Trust, offered
to purchase
the properties. On 17 May 2013 the Trust concluded a sale
agreement for the sale of the properties to the second respondent,
Ziningi
Properties (Pty) Ltd (Ziningi), a company nominated by Mr
Alexander and owned and controlled by him. The total purchase price
was
slightly more than R179.5 million. In determining that price it
was alleged that some R90 million related to the SARS property.
[2]
The purchase price was duly paid in terms
of the sale agreement and the properties were transferred to Ziningi.
Thereafter, on 6 November 2013,
Ziningi sold the SARS
property to Delta Property Fund Limited (Delta) for R110 million.
Based on the figure included in the gross
sales price of all the
properties by the Trust to Ziningi, that represented a gross profit
of over R19 million in the space of
six months. This profit gives
rise to the present claim, brought by one of the beneficiaries of the
Trust, the St Francis Trust
(the SF Trust), represented by its
trustees, the four appellants, two of whom, the first and second
appellants were also trustees
of the Trust. The other beneficiary of
the Trust was the June Alexander Family Trust (the JA Trust),
which is represented
by its trustees, the first, third, fourth and
fifth respondents. The first and third respondents were its nominated
trustees on
the Trust.
Only Mr Alexander has played an active
role in this litigation.
[3]
The particulars of claim originally filed
on behalf of the SF Trust were successfully attacked by way of
exception and have since
undergone substantial amendment. In their
current form a further exception was taken by both Mr Alexander and
Ziningi and upheld
by Vahed J in the KwaZulu-Natal Division of the
High Court, Pietermaritzburg. He struck out the claim against Ziningi
and granted
leave to amend. The appeal is with his leave. During the
pendency of the appeal the appellants amended the particulars of
claim,
but retained the disputed paragraph that occasioned the
exception. This caused an argument on peremption to be raised, but it
transpired
in the course of the hearing that the parties have agreed
that this paragraph will be removed or retained depending on the
outcome
of the appeal. That disposed of the argument on peremption.
THE
CLAIM AGAINST ZININGI
[4]
The following facts are pleaded as the
background to the claims against Mr Alexander and Ziningi. When
the Trust first sought
purchasers for the property portfolio, Delta
expressed interest in acquiring the properties. Its offer to do so
was rejected by
the Trust on the grounds that the price offered was
too low. In February 2013 another entity,
SA Corporate Real
Estate Fund, made an offer to purchase the properties at a price
acceptable to the Trust. Negotiations for it
to do so were already
far advanced, when Mr Alexander opposed the sale and offered to
purchase the property portfolio himself through
a company to be
nominated by him.
[5]
The plaintiffs plead that when Mr Alexander offered to
purchase the properties on 18 February 2013, alternatively when the
agreement
between the Trust and Ziningi was signed, alternatively
when the suspensive conditions to which it was subject were
fulfilled,
Mr Alexander knew that Delta remained eager to
purchase the SARS property. Paragraph 27(
b
) of the particulars
of claim alleges that:
‘
An opportunity
had, accordingly presented itself for the first defendant, either
personally or through the second defendant, to
sell the SARS property
to Delta, at a profit, and, at the same time, to dispose of certain
other properties (in which he had a
controlling financial interest)
which the first defendant was keen to offload.’
[6]
The plaintiffs allege that Mr Alexander was under a fiduciary
duty to disclose these facts to his fellow trustees (the first and
second appellants and the third respondent) and to obtain their
informed consent to his proceeding with the sale agreement to Ziningi
at the prices offered for the properties. In failing to make that
disclosure it is alleged that Mr Alexander breached his
fiduciary duty to the Trust and its beneficiaries, more particularly
the SF Trust, by not acting with the utmost good faith towards
them;
putting his own interests first; alternatively, allowing his
interests or those of the second defendant to conflict with
the
interests of the beneficiaries. It is alleged that he ought not to
have purchased the property portfolio for himself; alternatively,
ought not to have done so without disclosure of the opportunity
presented to dispose of the SARS property at a profit. On that
basis
the appellants contend that he is obliged to account to the St
Francis Trust for its interest in the benefit received from
the sale,
being half of the profit accruing to Ziningi from the sale of the
SARS property to Delta.
[7]
The claim against Mr Alexander is not
the subject of the exception. Its target is the claim against
Ziningi. That being so
it is curious that Mr Alexander has
joined Ziningi in raising the exception, but nothing seems to turn on
this, save that
it reflects an identity of interest between him and
Ziningi. The claim against Ziningi is founded upon the allegations
made in
relation to the claim against Mr Alexander. Its starting
point is the allegation that Ziningi is a company owned and
controlled
by Mr Alexander and in which he has a financial
interest. The only additional allegation is contained in para 32 of
the amended
particulars of claim, which provides that in the
alternative to the claim against Mr Alexander:
‘
The second
defendant (the latter having knowingly participated in the first
defendant’s aforesaid breach of trust in the circumstances
pleaded above) … is obliged to pay to the St Francis Trust one
half of the benefit accruing to it from the sale of the SARS
building
to Delta.’
[8]
As can be seen, the key allegation is that
enclosed in parentheses, namely that Ziningi knowingly participated
in the alleged breach
of trust by Mr Alexander in circumstances where
it, a company owned and controlled by Mr Alexander, was nominated as
the purchaser
of the property portfolio, and benefited from that
breach of trust through the profit it earned on the sale of the SARS
property
to Delta.
[9]
Vahed J held that this was a conventional
delictual claim to recover pure economic loss and that it was for the
appellants to plead,
and at a trial prove, wrongfulness. The heart of
the judge's reasoning in upholding the exception is to be found in
the following
paragraphs from his judgment:
‘
[22] The second
defendant’s knowing participation in the sale of the SARS
property does not, in and of itself, suggest that
its act was
wrongful. The second defendant must be judged to be a separate, at
arm’s length, corporate entity and its commercial
activity,
prima facie
, is not wrongful in the ordinary course.
[23] Mr Acker has
pertinently said that this case is not about piercing the corporate
veil and that the knowledge imputed to the
first defendant is not to
be imputed to the second defendant. The second defendant could just
as well have been a remote third
party sitting at a coffee shop and
overhearing a conversation unfolding at a table nearby.
[24] That being the case
the plaintiffs must make out a separate and independent case,
properly grounded in delict, in order for
it so succeed against the
second defendant. There are no allegations to sustain this and in my
view the exception is well taken.’
The
essential question before us is whether this is correct.
DISCUSSION
[10]
A
helpful starting point is to consider the basis of the claim against
Mr Alexander. It is founded on the following passage
from the
judgment of Innes CJ in
Robinson
v Randfontein Estates
:
[1]
‘
Where one man
stands to another in a position of confidence involving a duty to
protect the interests of that other, he is not allowed
to make a
secret profit at the other’s expense or place himself in a
position where his interests conflict with his duty …
There is only one way by which such transactions can be validated,
and that is by the free consent of the principal following upon
a
full disclosure by the agent … Whether a fiduciary
relationship is established will depend upon the circumstances
of
each case.’
While
the existence of a fiduciary duty in any given situation can only be
determined after a close examination of the facts
[2]
there are certain situations, such as, a trustee dealing with the
trust of which they are trustee, where the existence of a fiduciary
duty will ordinarily arise.
[11]
A
breach of fiduciary duty in relation to a trust may give rise to two
different actions, one on behalf of the trust to which the
duty is
owed, such as the Trust in the present case, the other by a
beneficiary of the trust claiming in their own right. Corbett
CJ
explained the difference between the two in
Gross
v Pentz
,
[3]
where he said the following:
'… I should stress
that a distinction must be drawn between actions brought
on behalf
of a trust
to, for instance, recover trust assets or to nullify
transactions entered into by the trust or to recover damages from a
third
party, on the one hand, and, on the other hand, actions brought
by trust beneficiaries
in their own right
against the trustee
for maladministration of the trust estate, or for failing to pay or
transfer to beneficiaries what is due to
them under the trust, or
transferring to one beneficiary what is not due to him … for
convenience of reference, I shall
call the former type of action the
"representative action" and the latter "the direct
action".'
[12]
T
he action by the SF Trust against
Mr Alexander is a direct action. It presupposes that any profit that
would have accrued to the
Trust if it had sold the SARS property to
Delta would have been distributed to the beneficiaries of the Trust
in equal shares once
it had been received and seeks recovery of the
portion that would have accrued to the SF Trust.
[13]
Accepting
that the SF Trust had a direct claim as a beneficiary against Mr
Alexander, either to disgorge a secret profit that he
had received,
or to compensate the Trust for the loss occasioned by the diversion
of the opportunity to sell the SARS property
to Delta, on what basis
can a separate claim for the same amount be advanced against Ziningi?
The appellants contend that, in view
of the relationship between Mr
Alexander and Ziningi, the allegation that Ziningi knowingly
participated in Mr Alexander's breach
of trust, by first acquiring
and then disposing of the SARS property, while short of corroborating
detail that might in due course
prompt a request for particulars for
trial, suffices to constitute an actionable claim.
This
wording, of knowing participation in Mr Alexander's breach of trust,
was taken from the description in the particulars of claim
in
Gross
v Pentz
[4]
of the claims against the parties to the impugned transaction. That
was also a case where the breach of trust by the trustee (Gross)
in
causing a property to be disposed of at an undervalue had redounded
to the benefit of third parties and they were claimed to
be liable to
the trust because of their knowing participation in Gross' breach of
trust.
[14]
The exception by the first and second
respondents is framed in the following terms:
'1 Ex facie the claim:
1.1 It is against the
[First Respondent] upon the basis of his breach of fiduciary duty to
the Sleepy Hollow Trust and its beneficiaries;
1.2 The claim is against
him in his personal capacity and in his representative capacity …;
1.3 It is averred that
the [First Respondent] is the sole director and a shareholder of
[Second Respondent];
1.4 The [Second
Respondent] is a duly incorporated company which carries on business
in real estate activities;
1.5 [Second Respondent]
is not alleged to be anything but a company;
1.6 [Second Respondent]
was nominated as the purchaser of the 50% of the shares from the
Sleepy Hollow Trust and in respect of which
it was averred:-
"a Company nominated
by the [First Respondent] which was owned and/or controlled by him
and/or in which he had a financial
interest";
1.7 [Second respondent]
benefited by the increased price [paid by Delta];
1.8 [Second Respondent]
is required to disgorge the benefit to the Sleepy Hollow Trust;
1.9 The prayer indicated
a claim against [Second Respondent];
1.10 [Second Respondent]
knowingly participated in First Defendant's breach of trust.
2
Consequently there are no averments of wrongdoing by or in respect of
[Second Respondent]. The averment is of knowledge of First
Defendant's breach of trust.
3 [Second Respondent] is
a separate legal entity from [First Respondent].
4 …
5 It is not averred that
[Second Respondent] has any duties to Plaintiffs.
6 In
the premises the averments in the claim are insufficient to sustain a
claim against [Second Respondent].' (I have substituted
references to
the first and second defendants in the high court with references to
the first and second respondents in this appeal.)
[15]
The crisp issue posed by the exception was whether Ziningi's
knowing participation in the alleged breach of trust by Mr Alexander
gave rise to a cause of action against it at the instance of the SF
Trust as a beneficiary of the Trust. In more general terms,
if an
independent third party knows of a trustee's breach of the fiduciary
duty owed to a trust and acts in a manner that aids
the trustee's
wrongful conduct, or enables or facilitates the breach of trust to
occur, is it liable to either the trust or the
beneficiaries of a
trust for the losses they have suffered arising from the breach of
trust?
[16]
The respondents' argument that found favour
with the high court was that the particulars in this form lacked an
essential allegation
that Ziningi's actions were wrongful in the
sense that this expression is used in our law of delict. The argument
commenced with
the truism that a company is a separate legal entity
from its shareholders and directors. It was not a trustee of the
Trust and
accordingly owed no fiduciary duty to the Trust, its
trustees or its beneficiaries. Mere knowledge on its part that
Mr Alexander
was engaged in breaching the fiduciary duties that
he owed to the Trust, his fellow trustees and the beneficiaries of
the Trust,
did not impose upon Ziningi the same or similar fiduciary
duties. Nor did its participation in Mr Alexander's breach of
trust,
by acquiring the properties, in conjunction with its knowledge
that Mr Alexander was acting in breach of his fiduciary
obligations,
suffice to constitute wrongfulness on the part of
Ziningi. Its position, so counsel submitted, was no different from
the hypothetical
passer-by who ignores the drowning child's cries for
help.
[17]
The
first obstacle facing this argument was that it was contrary to
authority that held, in the pithy summary in
Lawsa
[5]
that:
'A person assisting a trustee in the perpetration of a breach of
trust is jointly liable with him or her.’ A brief review
of the
authorities is called for.
[18]
The
starting point is the decision of the Appellate Division in
Standard
Bank v Van Rhyn
.
[6]
The executor of a deceased estate drew a cheque on his personal
account that would, if met, have exceeded his overdraft limit.
When
told this by his bank manager, he proceeded to draw a cheque in a
matching amount on the estate bank account, explaining that
the
estate owed him more than this amount for advances made to the
estate. The bank manager accepted this explanation and deposited
the
cheque to the trustee's account. The trial judge found that he could
not say that the bank manager knew that the executor was
committing a
breach of trust, but he was put on enquiry and should have refused to
honour the cheque drawn on the estate account.
Had he done so the
estate would not have suffered the loss in question. Accordingly, the
bank was held liable for the loss.
[19]
On
appeal it was necessary to identify when a bank would be obliged to
refuse to honour a cheque drawn by the executor on the estate
account
and, as a necessary corollary, when a bank that honoured such a
cheque would be liable for any loss suffered as a result.
In giving
the judgment of the court, Solomon JA cited
[7]
with approval the following passage from Lord Cairns LC:
[8]
'…
in order to hold a banker justified in refusing to pay a demand of
his customer, the customer being an executor, and drawing
a cheque as
an executor, there must, in the first place, be some misapplication,
some breach of trust intended by the executor,
and there must, in the
second place, … be proof that the bankers are privy to the
intent to make this misapplication of
the trust funds. And to that I
think I may safely add, that if it be shown that any personal benefit
to the bankers themselves
is designed or stipulated for, that
circumstance, above all others, will most readily establish the fact
that the bankers are in
privity with the breach of trust which is
about to be committed.'
[20]
The bank's obligation to refuse to honour
the cheque, and the correlative liability to compensate for any loss
flowing from it being
honoured, depended upon two things. The first
was that the cheque was drawn in breach of a fiduciary duty. The
second was that
the bank was privy to the intent to misapply the
estate's funds. The trial court's finding that the bank manager did
not know that
the executor was committing a breach of trust resulted
in the appeal succeeding.
[21]
A
similar issue arose
in
Yorkshire
Insurance v Barclays Bank
.
[9]
A professional trustee and liquidator, one Harris, paid a number of
cheques in respect of estates under his administration into
his
personal banking account with Barclays Bank and stole the money.
Yorkshire Insurance had furnished him with bonds of security
which
were called up to meet his defalcations. It took cession from the
replacement executors, trustees and liquidators of the
affected
estates of their claims against the bank. It then sued the bank in a
delictual action based on the
Lex
Aquilia
.
[10]
The particulars of claim alleged that in paying the cheques
unlawfully drawn by Harris the bank ‘well knew that Harris had
drawn the cheques wrongfully, unlawfully and in breach of his trust,
but nevertheless honoured them; thereby the … bank
had caused
loss and damage to the estates and companies in liquidation
concerned’. Exception was taken to that claim.
[22]
Greenberg
J dismissed the exception. He said:
[11]
'
.
. . Harris’ actions in drawing cheques for purposes not
authorised was the first stage in the process of misappropriation,
which misappropriation could not be effected unless the bank honoured
the cheques. And if the bank honoured these cheques, knowing
that
Harris had no right to draw them, then . . . it was a party to
Harris’ unlawful conduct. Harris and the bank in such
a case
would be joint tort feasors. As soon as Harris withdrew the money and
before he had used it for any other purpose, the
cestui que
trust
could compel him to replace it or pay damages, and the
same rights would lie against any other person who with full
knowledge assisted
him in withdrawing the money. The alternative
declaration therefore alleges facts which constitute an intentional
infringement
by Harris of the legal rights of the estates and
companies concerned, and which make the . . . bank a joint tort
feasor with Harris,
and states that the bank’s conduct caused
the plaintiff monetary loss.
Prima facie
, therefore, the case
is covered by the
Lex Aquilia
.'
[23]
The
judgment went on to discuss
[12]
whether a personal benefit was required in order to render the bank
liable as privy to the breach of trust and concluded that it
was not.
It said that being privy to the breach of trust 'means no more than
assisting in carrying out the intent, with knowledge
of such intent'.
Although the existence of a personal benefit might justify an
inference of knowledge of the intent to breach the
trustee's
fiduciary duty, where actual knowledge of the breach of trust is
proven the absence of proof of personal benefit is irrelevant.
On the
facts of this case, of course, personal benefit to Ziningi is
alleged.
[24]
Yorkshire
Insurance had also issued a summons against the Standard Bank of SA
Limited on a similar basis in relation to accounts
kept at that bank
by Harris.
[13]
The action was
tried by Tindall J and the claims were advanced on two bases, of
which only the first is relevant for present purposes.
It was alleged
in regard to certain of the cheques that the bank knew that Harris
had received them in his representative capacity
and was not entitled
to the proceeds thereof, or in the case of certain other cheques that
Harris had no authority to draw them
and had no right to the
proceeds. Tindall J said
[14]
that:
' To succeed on this
cause of action in the case of either claim it seems clear that the
plaintiffs must establish that the defendants
were privy to an intent
on the part of Harris to misapply trust funds, that is, that the
defendants knew that Harris intended misapplying
the proceeds of the
cheques and therefore were parties to the misapplication of trust
funds; for this part of the plaintiff’s
case must be based on
the contention that the defendants knowledge made them parties to the
tortious acts of Harris.'
[25]
So far as I could establish, neither of
these judgments, by two highly regarded judges both of whom served in
this court, has ever
been questioned. In the passage from
Gross
v Pentz
quoted in para 11, Corbett CJ
cited
Yorkshire Insurance v Barclays
Bank
as an example of a direct action
by a beneficiary arising from a breach of fiduciary duty by a
trustee. While the issue was the
narrow one of whether the
beneficiary of a trust could sue on behalf of the trust in a
representative action, Corbett CJ said that
in order to answer that
question it was necessary to determine the nature of the cause of
action. The facts were very similar to
those alleged in this case. It
was said that in breach of his fiduciary duty the trustee, Gross, had
caused the trust to sell property
at an undervalue to the second and
third defendants and that they had 'knowingly participated in this
breach of trust'.
[26]
The
conclusion reached in
Gross
v Pentz
was
that the case against Gross was one of maladministration of the
trust, while the case against the second and third defendants
was
'knowing participation in this breach of trust'. In respect of these
two causes of action Corbett CJ said:
[15]
'
The legal foundations for the
liability of a trustee for maladministration of the trust are
established and expounded in
Sackville
West v Nourse and Another
1925
AD 516
…; and for the liability of others as joint wrongdoers
in
Yorkshire Insurance Co Ltd v
Barclays Bank (Dominion, Colonial & Overseas (supra
)).'
It
is clear that the Chief Justice regarded the judgment of Greenberg J
as being a correct exposition of our law in this area.
[27]
Counsel submitted that
Gross
v Pentz
did not address the merits of a
claim formulated in the manner of the claim against the second and
third defendants in that case
(respectively a shareholder in the
purchasing company and the purchasing company). This proposition was
accepted by the high court
in distinguishing the authorities
discussed above. Counsel relied on a statement by Corbett JA that:
'The merits of the plaintiff's
cause of action are not, however,
relevant for present purposes.' That appeared in the same paragraph
as the passage quoted in
para 26, which was followed by a comment
that the claim was unusual because it was not based on actions taken
or omitted to be
taken in the administration of the trust, but on
actions taken in regard to a company in which the trust held a 35%
interest. Read
in context the remark about the merits arose from the
unusual factual basis for the claim, not the legal merits of the
pleaded
cause of action. It was not a basis for distinguishing the
law as stated in these judgments.
[28]
No direct attack was directed at the
correctness of these decisions.
Gross v
Pentz
was distinguished on incorrect
grounds and the heads of argument dismissed
Yorkshire
Insurance v Barclays Bank
rather airily
in the following terms:
'There
is no need to revert to 1929 law (where an identification with
English Law is made) or foreign law. The law is now clear
from the
decisions of our courts.'
[29]
I
do not accept that these authorities can be disregarded so easily. It
is true that Greenberg J used some expressions, such as
tort feasor
instead of wrongdoer and
cestui
que trust
instead
of beneficiary, but such usage was common at the time because of the
perceived resemblance between the principles of our
law and those of
English law on questions of this type. However, Greenberg J commenced
his discussion of this claim with a reference
to the judgment in
Mathews
v Young
.
[16]
That is an important case because the oral argument printed in the
report shows that the plaintiff based his claim on English principles
of tort, while the respondent contended that the claim could only be
brought under either the
actio
injuriarum
or
the
Lex
Aquilia
of the Roman-Dutch law in regard to liability for civil wrongs.
Greenberg J concluded that a claim as described by him fell within
the principles of the Aquilian action. There is no reason to believe
that he was applying English law and disregarding the principles
of
our own.
[30]
Counsel
submitted that the need to allege wrongfulness on the part of the
alleged wrongdoer has been reinforced by a series of decisions
in
this court and the Constitutional Court. He emphasised the decision
of the Constitutional Court in
Country
Cloud
[17]
and that of this court in
Za
v Smith
[18]
as the culmination of this trend in our jurisprudence and submitted
that this requirement meant that a plaintiff pleading a claim
for
economic loss in delict was obliged to plead (and prove at trial)
that the conduct of the defendant was wrongful in the sense
described
in these cases.
[31]
In
Country
Cloud
[19]
Khampepe J, giving the judgment of the court, summarised the approach
our law takes to wrongfulness in saying:
'…
the wrongfulness enquiry focuses on—
"
the
[harm-causing] conduct and goes to whether the policy and legal
convictions of the community, constitutionally understood, regard
it
as acceptable. It is based on the duty not to cause harm –
indeed to respect rights – and questions the reasonableness
of
imposing liability."
The
statement that harm-causing conduct is wrongful expresses the
conclusion that public or legal policy considerations require
that
the conduct, if paired with fault, is actionable. And if
conduct is not wrongful, the intention is to convey the converse:
"that public or legal policy considerations determine that there
should be no liability; that the potential defendant should
not be
subjected to a claim for damages", notwithstanding his or her
fault.'
Wrongfulness
must be established (and the grounds therefor pleaded) in all cases,
although there are some instances where the facts
alone illustrate
why the conduct is wrongful, of which physical injury to a person or
property are the most obvious. In any doubtful
case the court must
balance identifiable norms to determine whether it is right to hold
that liability should follow upon the defendant's
fault, whether
intentional or negligent.
[32]
Za
v Smith
stresses
that wrongfulness should not be conflated with negligence, because to
do so results in the separate enquiries as to wrongfulness
and
negligence receiving the same answer. The primary purpose of
wrongfulness is to act as a safety valve against over-extensive
liability in that it results in a defendant not being held liable
even where they have acted negligently.
[20]
In many cases a negative answer to the wrongfulness enquiry
forestalls the need for any investigation into negligence.
[21]
[33]
Counsel
presented this judicial learning as if it were novel and dispositive
of the jurisprudence of earlier years. It is not. Our
courts have
long since recognised that wrongfulness is an essential element of
our law of delict. As Professor Lee put it in his
An
Introduction to Roman-Dutch Law
:
[22]
'It is common to both
heads of liability that there must have been an antecedent duty owed
by the defendant to the plaintiff, for
where there is no duty there
is not right, and there can be no invasion of a right.'
In
Whitaker
v Roos and Bateman
[23]
De Villiers CJ said:
'The broad principle is
that a delict is committed where a person is illegally harmed
contrary to his rights …'
Innes
J described the defendant's actions as a 'wrongful and unlawful'
interference with the plaintiffs' rights.
[24]
Solomon J cited Melius de Villiers'
Roman
and Roman-Dutch Law of Injuries
for
the proposition that an
injuria
required
'an aggression on the right of another'.
[25]
Wrongfulness is concerned with whether conduct by the alleged
wrongdoer infringed the rights of another and the determination of
that question always has involved the question of the duties owed by
the alleged wrongdoer to the injured party. The basis for
determining
wrongfulness has been refined in the recent jurisprudence of this
court and the Constitutional Court, especially in
the light of the
Bill of Rights, but the requirement of wrongfulness has always been
present.
[34]
In
Matthews
v Young
[26]
De Villiers JA said that there is no onus upon a defendant 'until the
plaintiff has proved that a legal right of his has been infringed'.
The case concerned the expulsion of the plaintiff from his trade
union and, as a result, his employment. The court said:
'In the absence of
special legal restrictions a person is without doubt entitled to the
free exercise of his trade, profession or
calling, unless he has
bound himself to the contrary. But he cannot claim an absolute right
to do so without interference from
another. Competition often brings
about interference in one way or another about which rivals cannot
legitimately complain. But
the competition and indeed all activity
must itself remain within lawful bounds. All a person can, therefore,
claim is the right
to exercise his calling without unlawful
interference from others. Such an interference would constitute an
injuria for which an
action under the
lex Aquilia
lies if it
has directly resulted in loss.'
Botha
JA in
Knop
[27]
said that it was plain from these passages that De Villiers JA was
emphasising wrongfulness as an element of delictual liability.
In
Phumelela
Gaming and Leisure Ltd v Grundlingh
[28]
the Constitutional Court cited this passage from
Matthews
v Young
as authority for the proposition that any form of competition is
potentially harmful to a rival business, but not all competition
is
unlawful. It is only 'where competition is wrongful that it becomes
actionable'. And competition becomes wrongful when, according
to the
legal convictions of the community it is not viewed as reasonable and
fair when viewed through the prism of the spirit,
purport and objects
of the Bill of Rights.
[29]
[35]
Applying that approach in this case, there
can be no quarrel with the finding of Greenberg J that a person who
knows that a person
owing fiduciary duties to others is acting in
breach of those duties nonetheless aids or facilitates the execution
of the breach
of trust, acts wrongfully and attracts liability under
the Aquilian action.
[36]
Our
law has always imposed fiduciary duties on certain persons requiring
them to act in good faith when dealing with the affairs
of other
people that have been entrusted to them. Examples are a trustee,
executor, guardian or director of a company. The principle
is
discussed earlier in para 10 of this judgment. The fiduciary must
place the interests of the other party to whom the duty is
owed
before their own. While many breaches of fiduciary duty involve
dishonesty, that is not always the case. Nonetheless, any
departure
from the path of rectitude that such a duty imposes will be visited
with personal liability. The importance of such duties
is emphasised
by the fact that several statutes concerned with financial issues
impose duties of good faith.
[30]
[37]
Where the execution of a breach of
fiduciary duty involves or requires the involvement or participation
of a third party, and that
third party has knowledge that the
transaction in question involves a breach of a fiduciary duty, it
seems to me clear that the
legal convictions of the community demand
that the third party share the liability of the person breaching the
fiduciary duty.
That is not because they owe a similar duty to the
injured party, but because by aiding, enabling or facilitating the
breach they
are themselves equally responsible for the injury caused
to, or the loss suffered by, the injured party. I can think of no
good
reason why the principal perpetrator would be liable, but the
enabler should escape liability, any more than I can see any reason
why a criminal should be subject to the rigours of the criminal law,
but their accomplice, or an accessory after the fact, should
not. As
we know that is not the case in the criminal law because the legal
convictions of the community would regard it as intolerable.
No
reason was advanced and none occurs to me why a breach of fiduciary
duty would be viewed any differently.
[38]
The reason for the law imposing fiduciary
duties in certain circumstances is to protect those who might
otherwise be vulnerable
to exploitation by the person on whom the
duty is imposed. The community requires that the vulnerable should
not be deprived of
such protection and it can make no difference that
the deprivation involves not only the person owing the primary
obligation, but
those who knowingly aid, enable or facilitate the
deprivation. Knowledge of the breach of fiduciary duty is central to
the liability
of the third party. It is their guilty knowledge that
attracts liability and, as the two
Yorkshire
Insurance
cases demonstrate, that may
not be easy to establish. However, where it is established, the
requirement of honesty and fairness
in dealing with the property and
property interests of others demands that liability should follow.
[39]
It follows that knowledge that one is
engaged in aiding, enabling or facilitating a breach of fiduciary
duty suffices to attract
legal liability for loss or damage
occasioned by that breach of duty. As such, a pleading that alleges
knowledge of and participation
in a breach of fiduciary duty
discloses a cause of action to recover loss or damage flowing from
that breach. The adequacy of the
pleading can be tested by a question
posed to respondents' counsel. He was asked by several members of the
bench what more would
need to be pleaded to disclose a cause of
action. Insofar as there was an answer, it was that there must be an
allegation or averment
of the legal duty obliging the defendant not
to assist the breach of fiduciary duty. But no reason was advanced
why knowledge that
a breach of fiduciary duty was being perpetrated
did not suffice to establish that duty.
[40]
Counsel raised the spectre of limitless
liability, but it was a chimera. Only those with knowledge that a
breach of fiduciary duty
was involved in the transaction in question
would be liable. Innocent participants – the bank that honoured
a cheque; the
conveyancer who attended to the transfer – would
not be liable. The threshold for liability is high. Mere negligence
does
not suffice. A failure to make enquiries that would, if pressed,
lead to the conclusion that a breach of fiduciary duty was involved
would not attract liability. Nothing but actual knowledge is
required.
[41]
One final point is relevant and it is well
illustrated by the present case. If a person who aids, enables or
facilitates the execution
of a breach of trust with knowledge that
the transaction involves a breach of fiduciary duty can escape
liability for their involvement
it will render it relatively easy for
those who owe fiduciary duties to escape the consequences of their
wrongdoing. The use of
corporate vehicles to execute business
transactions is commonplace. Here Mr Alexander is alleged to have
offered to purchase the
properties through a nominee. Ziningi, a
company owned or controlled by him and in which he is alleged to have
a financial interest,
was the nominee. In the passage from the high
court's judgment quoted in para 9 it was said that Ziningi was in
effect an innocent
bystander – a person overhearing something
in a coffee shop. That was incorrect. It was Mr Alexander's chosen
corporate vehicle
to purchase the properties. If the allegations
regarding his connection to Ziningi are established, I fail to see on
what basis
it can be said that Ziningi was in the position of an
innocent bystander. His knowledge would clearly be attributed to
Ziningi.
It is against the legal convictions of the community for
people to assist others to breach their fiduciary duty. The law
should
not make it easier for them to do so.
[42]
The necessary conclusion is that the
allegation of knowing participation in Mr Alexander's alleged breach
of fiduciary duty was
a sufficient allegation of wrongfulness to
constitute a cause of action against Ziningi, in the same way as it
was sufficient to
constitute a cause of action against the banks in
the
Yorkshire Insurance
cases,
and against the second and third defendants in
Gross
v Pentz
. There was no reason for
Greenberg J to have expanded upon this in his judgment, because, in
my opinion, the conclusion that such
allegations suffice to attract
legal liability in accordance with the legal convictions of the
community is obvious. Accordingly,
the exception should not have been
upheld.
[43]
I grant the following order:
1 The appeal is upheld
with costs, such costs to include the costs consequent upon the
employment of two counsel.
2 The order of the high
court is altered to read as follows:
'The exception is
dismissed with costs, such costs to include the costs consequent upon
the employment of two counsel.'
_________________________
M J D WALLIS
JUDGE
OF APPEAL
Appearances
For
appellant: B A Acker SC (with him A J Boulle)
Instructed
by: Barkers Attorneys, Durban;
Matsepes,
Bloemfontein
For
respondent: A J Dickson SC
Instructed
by: J Leslie Smith & Company Inc, Pietermaritzburg;
McIntyre
& Van der Post, Bloemfontein.
[1]
Robinson
v Randfontein Estates Gold Mining Company Limited
1921
AD 168
at 177-178.
[2]
Bellairs
v Hodnett and another
1978
(1) SA 1109
(AD) at 1128. See also
Phillips
v Fieldstone Africa (Pty) Ltd and Another
2004 (3) SA 465
(SCA) para 31.
[3]
Gross
and Others v Pentz
[1996] ZASCA 78
;
1996
(4) SA 617
(A) at 625E-H.
[4]
Gross
v Pentz
at
622H-I.
[5]
LAWSA,
Vol 31 (2 ed) para 585.
[6]
Standard
Bank v Estate Van Rhyn
1925
AD 266.
[7]
At
278.
[8]
Gray
v Johnston
3
LRHL 1.
[9]
Yorkshire
Insurance Co Limited v Barclays Bank (Dominion, Colonial &
Overseas)
1928
WLD 199.
[10]
Matthews
and Others v Young
1922
AD 492.
[11]
At
207.
[12]
At
208-209.
[13]
Yorkshire
Insurance Co Limited v Standard Bank of SA Limited
1928
WLD 251.
[14]
At
271.
[15]
At
626D-E.
[16]
Fn
9 supra.
[17]
Country
Cloud Trading CC v MEC, Department of Infrastructure Development
[2014]
ZACC 28
;
2015 (1) SA 1
(CC) paras 20-26.
[18]
Za
v Smith
[2014]
ZASCA 75
;
2015 (4) SA 574
(SCA) paras 14-21.
[19]
Para
21.
[20]
Za
v Smith
para
19. Illustrations of this are provided by cases such as
Telematrix
(Pty) Ltd v Advertising Standards Authority
[2005]
ZASCA 73; 2006 (1) SA 461 (SCA).
[21]
Knop
v Johannesburg City Council
1995
(2) SA 1
(A) at 27F-G;
Premier
Western Cape v Faircape Property Developers (Pty) Ltd
2003
(6) SA 13
(SCA) para 33;
Olitzki
Property Holdings v State Tender Board and Another
2001
(3) SA 1247
(SCA);
Steenkamp
NO v Provincial Tender Board of the Eastern Cape
[2006] ZACC 16
;
2007 (3) SA 121
(CC);
Government
of the Western Cape: Department of Social Development v Barley and
Others
[2018] ZASCA 166; 2019 (3) SA 235 (SCA).
[22]
R
W
Lee
An
Introduction to Roman-Dutch Law
5
ed (1953) at 323. Wille
Principles
of South African Law
5 ed
(1961) at 483 said: 'A delict,
injuria
in
the wide sense, is an act committed or omitted by one person
unlawfully, which infringes the legal rights of another …'
[23]
Whitaker
v Roos and Bateman; Morant v Roos and Bateman
1912
AD 92
at 113.
[24]
At
122.
[25]
At
131.
[26]
Fn
9 supra a
t
507.
[27]
Knop
v Johannesburg City Council
1995
(2) SA 1
(A) at 24D-F.
[28]
Phumelela
Gaming and Leisure Ltd v Grundlingh and Others
2006
ZACC 6
;
2007 (6) SA 350
(CC) para 32.
[29]
Cases
such as
Dun
& Bradstreet (Pty) Ltd v SA Merchants Combined Credit Bureau
(Cape) (Pty) Ltd
1968
(1) SA 209
(C) at 216F-H;
Atlas
Organic Fertilisers (Pty) Ltd v Pikkewyn Ghwano (Pty) Ltd and
Another
1981
(2) SA 173
(T) at 188-189 and
Schultz
v Butt
1986
(3) SA 667
(A) provide examples of how courts addressed the issue of
wrongfulness in this context in accordance with the legal
convictions
of the community.
[30]
Companies
Act 71 of 2008
,
ss 75
-
77
;
Financial Institutions (Protection of
Funds) Act 28 of 2001
,
s 2.