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[1996] ZASCA 84
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Industrial & Commercial Factors (Pty) Limited v Attorneys Fidelity Fund Board of Control (690/94) [1996] ZASCA 84; 1997 (1) SA 136 (SCA); [1996] 4 All SA 295 (A); (30 August 1996)
Case
no: 690/94
IN
THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)
In
the matter between:
INDUSTRIAL
& COMMERCIAL FACTORS
Appellant
(PTY)
LIMITED
and
THE
ATTORNEYS FIDELITY FUND BOARD
OF
CONTROL
Respondent
Coram:
CORBETT
CJ, HEFER, VIVIER,F H GROSSKOPF et MARAIS JJA
Heard:
17 May
1996
Delivered:
30
August 1996
JUDGMENT
F
H
GROSSKOPF JA:
The
appellant was the plaintiff in an action brought in the Witwatersrand
Local
Division. The appellant claimed reimbursement from the respondent as
defendant
for the pecuniary loss it had suffered as a result of theft of money
committed
by a practising attorney. The appellant's case was that the money
had
been duly entrusted by it to the attorney in the course of his
practice, as is
required
by s 26(a) of the Attorneys Act 53 of 1979 ("the Act"). S
26(a) reads
as
follows:
"Subject
to the provisions of this Act, the fund shall be applied for the
purpose of reimbursing persons who may suffer pecuniary
loss as a
result of-
(a)
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 or while acting as
executor or
administrator in the estate of a deceased person or as a trustee in
an insolvent estate or in any other similar capacity;"
What
the appellant was required to show was that
(1)
he
suffered pecuniary loss;
(2)
by
reason of theft committed by a practising attorney;
(3)
of
money entrusted by or on behalf of the appellant to the attorney;
(4)
in
the course of his practice as such.
(Cf
Provident Fund for the Clothing Industry v Attorneys. Notaries
and Conveyancers Fidelity Guarantee Fund
1981(3) SA 539(W)
per Nicholas J
at
542F-G.) It was common cause in the Court a quo that the requirements
set out in (1) and (2) above had been established, but
the respondent
contended that
the
appellant had failed to satisfy the requirements set forth in (3) and
(4) above.
The
conclusion of the Court a quo (
Burger
AJ
)
was that the appellant failed to establish that the stolen money had
been "entrusted by or on behalf of" the appellant
to the
attorney. The Court a quo ordered absolution from the instance with
costs, but granted the appellant leave to appeal to
this Court. The
respondent still maintains that the requirements mentioned in (3) and
(4) above have not been proved.
Josephus
Theodorus Johannes Mare ("Mare") used to practise as an
attorney
at Boksburg under the name Massel, Massel and Mare. He was the only
member of that firm. It is common cause that during
April 1992 Mare
by fraudulent means procured a cheque ("the cheque") for
R450 000 drawn by the appellant in favour of
a certain Mrs Branken
("Branken"); that Mare deposited the cheque into his trust
account; and that he then stole the
proceeds thereof. These events
led to Mare's conviction on a charge of fraud and to his name being
struck off the roll of attorneys.
In
order to determine whether the money was "entrusted by or on
behalf of the appellant to Mare it is necessary first to consider
the
evidence as to how it came about that the appellant drew the cheque
in favour of Branken, and what the appellant's intention
was when it
handed the cheque to Mare for deposit into his trust account.
During
the latter part of 1991 Branken sold an immovable property ("the
property") to a purchaser who in turn sold it
to Fedlife
Assurance Limited ("Fedlife"). Branken was a client of Maré
and she
instructed him to attend to the transfer of the property. Mare saw in
a newspaper that the appellan
conducted
business as factors and financiers in Johannesburg, and that it was
part of its business to discount guarantees and so
provide bridging
finance to sellers of immovable property who needed money prior to
the registration of transfer of such property
into the name of the
purchaser. Mare* thereupon devised a fraudulent scheme to raise
bridging finance on Branken's behalf by pretending
that she needed
the money. He approached the appellant during April 1992 and enquired
whether it would be prepared to provide Branken
with bridging finance
of R450 000 pending registration of transfer of the property into the
name of Fedlife. The appellant agreed
to do so, subject to the
following documents being furnished to it: a letter of undertaking
("guarantee") from Fedlife
for R500 000; a written
agreement ("the agreement") providing for the sale of the
guarantee by Branken to the appellant
for R450 000; a deed of
suretyship ("the suretyship") whereby Branken's father, Mr
Carter ("Carter"), bound
himself to the appellant as surety
for Branken.
Carter
was also a client of Maré
and Mare
knew that Carter held Branken's general power of attorney in terms
whereof he was authorized to sign
agreements
on her behalf. Maré
managed
to fabricate the required documents by forging Carter's signature to
the agreement and the suretyship. As the attorney attending
to the
transfer Mare was in a position to obtain the guarantee from Fedlife,
which he did. It is common cause that Maré
had no
authority to arrange bridging finance on behalf of Branken, and that
neither Branken nor Carter knew anything about the transaction.
The
appellant was represented by Mr Colin Flax ("Flax") who was
the legal director of the appellant. He was also a practising
attorney. He accordingly knew that an attorney was obliged in terms
of s 78 of the Act to keep a separate trust banking account
in which
money held or received by him on account of any person had to be
deposited. When Maré
handed
the required documents to Flax on 8 May 1992 the latter was unaware
of the fact that Mare held no mandate from either Branken
or Carter;
that Maré
had
forged Carter's signature to the agreement and the suretyship; and
that the whole transaction was simulated. As the appellant
was
obliged in terms of the agreement to pay Branken R450 000, Flax
handed the cheque for that amount to Mare on 8 May
1992.
The cheque was crossed and drawn by the appellant in favour of
Branken "or order" and marked "not transferable".
The effect thereof was that it could be paid only to Branken.
Flax
testified that he understood the agreement to mean that the appellant
had to pay Branken and nobody else. He therefore made
out the cheque
so that only Branken could receive payment thereof. When Flax handed
the cheque in that form to Mare his intention
was to discharge what
he considered to be the appellant's obligation under the agreement.
The role of Maré
would
have been simply that of a messenger who had to deliver the cheque to
Branken or pay it into her banking account.
Mare
realised that he would not be able to secure the money for himself
while the cheque remained in that form and he accordingly
requested
Flax to furnish him with a replacement cheque drawn in favour of his
firm, but Flax was not willing to do so. Mare then
asked Flax to
delete the words "not transferable" so as to enable him to
deposit the cheque into his trust account. He
explained to Flax that
he had to make certain payments for the benefit of
Branken
on her instructions, and that it would therefore be convenient if he
could deposit the cheque into his trust account so
that he could
"deal with it". Mare did not pretend that the proposed
payment into his trust account was at the request
of Branken. Flax
eventually agreed to change the marking on the cheque to "not
negotiable." That enabled Mare to deposit
the cheque into his
trust account.
Flax
was concerned that this payment would not be regarded as a payment to
Branken and that he would therefore not be discharged
from his
obligation in terms of the agreement. He also realised that by paying
the cheque into Mare's trust account the proceeds
of the cheque would
no longer be paid direct to Branken, but to Mare who would exercise
complete control over the money. Flax therefore
insisted as a
safeguard that the cheque be paid into Maré's trust account on
the understanding that Mare would hold the
money for and on behalf of
Branken. Flax's attitude is further borne out by his insistence on a
trust receipt. When the receipt
was later furnished to the appellant
there was nothing on it to show that it was indeed a trust receipt.
At the request of Flax
Mare
then
wrote the words "trust a/c" twice on the receipt. By
insisting on payment into Mare's trust account and the furnishing
of
a trust receipt Flax in my view manifested his intention that Maré
should
keep the money for and on behalf of Branken, and that he should deal
with it as instructed by her. That was also the professed
intention
of Mare. Mark's real intention was of course to steal the money, but
he falsely represented to the appellant that he
was receiving the
money in trust on behalf of Branken. Maré
conceded
during cross-examination that he "agreed" to "keep the
money in trust for the benefit of Branken";
and that "it
was intended to be trust monies" held for his client Branken. If
this had been a genuine transaction that
would no doubt have shown an
intention on the part of Mare to receive the money in trust. I do,
however, consider that the issue
of entrustment in the present case
should be judged in the light of the appellant's intention, and not
Maré's professed
intention. But Mare's concession does show
that he did not pretend to receive the money as agent on behalf of
Branken.
In
the course of his evidence Flax at one stage suggested that the
appellant
had paid the R450 000 into Maré's trust account for and on
behalf of the appellant itself. I agree with the finding
of the Court
a quo that such a conclusion is not borne out by the proved facts,
and that it is contrary to previous statements
made by Flax. It seems
clear that the payment was indeed made by the appellant for the
benefit of Branken. Despite criticism which
may, with justification,
be levelled at certain aspects of Flax's testimony, it was accepted
by the Court a quo that he was the
one who actually insisted that the
cheque be paid into Maré's trust account and that Maré
should
furnish a trust receipt to prove it.
I
do however respectfully disagree with the finding of the Court a quo
that Mare "represented to Flax that he had been instructed
by
Branken to accept payment on her behalf". The evidence shows
that Mare told the appellant that he "had to make certain
payments on the instructions of Branken". He did not pretend
that Branken had given him a mandate to accept payment on her
behalf,
and that any payment to him would therefore discharge the appellant's
obligation to Branken.
Flax
obviously intended to discharge what he believed to be the
appellant's
obligation under the agreement, but that is not decisive of the
matter.
When
he was asked to change the crossing on the cheque he became concerned
that payment to Mare would not result in payment to Branken.
Flax
consequently insisted that Mare should pay the cheque into his trust
account, clearly with the intention that payment to Branken
would
only take place when the money was paid out on behalf of Branken. The
appellant's intention on the one hand to pay Branken
and its
intention on the other to entrust the money should therefore not be
regarded as mutually exclusive.
In
coming to the conclusion that the appellant did not "entrust"
the money
to
Mare the Court a quo found that the facts in the present case were
comparable
to the facts in the
Provident Fund
case,
supra
, which
were outlined
as
follows at 544B-C:
"It
may be accepted that by directing that the cheque for R32 238,36 be
made out [in] favour of his trust account, Kavin [the
attorney]
represented that he would be receiving the money on behalf of Gafin
[the ostensible client]. But it has not been shown
that in complying
with that request, the Provident Fund impressed
the
payment with a trust; its intention was, presumably, to discharge
what it and its then attorneys considered were the Fund's
obligations
under the contract of loan. They believed that it was a payment made
to Kavin as the duly authorised agent of Gafin"
In
view of that factual finding Nicholas J held that the Provident Fund
had failed to show that it had "entrusted" any
money to the
attorney Kavin.
In
my judgment the facts of the present case differ in certain material
respects
from those found in the
Provident Fund
case,
supra
. The
evidence
shows
that unlike the Provident Fund in that case, the appellant in the
present
case
was the one who insisted on the money being paid into the attorney's
trust
account.
Had Flax believed that payment to Maré
would
indeed be payment to
the
duly authorized agent of Branken whereby the appellant would be
discharged
from
its obligation under the agreement, there would have been no need for
Flax
to
insist on paying the cheque into Mare's trust account. The Provident
Fund
case
can therefore be distinguished on the facts.
Where
money is paid into the trust account of an attorney it does not
follow that such money is in fact trust money
(Paramount
Suppliers
(Merchandise)
(Pty) Ltd v Attorneys, Notaries and Conveyancers Fidelity
Guarantee
Fund Board of Control
1957(4)
SA 618(W) at 625F-G). If money
is
simply handed over to an attorney by a debtor who thereby wishes to
discharge
a debt, and the attorney has a mandate to receive it on behalf of the
creditor,
it may be difficult to establish an entrustment.
After
considering certain definitions of the word "entrust" - in
addition
to
those referred to in the judgment in
British Kaffrarian Savings
Bank
Society
v Attorneys. Notaries and Conveyancers Fidelity Guarantee Fund
Board
of Control
1978(3)
SA 242(E) at 248B-D - Nicholas J concluded as
follows
at 543E-F in the
Provident Fund
case,
supra
:
"From
these definitions it is plain that 'to entrust' comprises two
elements: (a) to place in the possession of something,
(b) subject to
a trust. As to the latter element, this connotes that the person
entrusted is bound to deal with the property or
money concerned for
the benefit of others (cfEstate Kemp and Others v McDonald's Trustee
1915 AD 491
at 499).
'(The
trustee) is bound to hold and apply the property for the benefit of
some person or persons or for the accomplishment of some
special
purpose' (ibid at 508)."
I
do not understand these passages, and similar remarks in the case of
SVV
Construction (Pty) Ltd v Attorneys. Notaries and Conveyancers
Fidelity Guarantee Fund
1993(2)
SA 577 (C) at 589 G, to convey that the liability of the Fidelity
Fund is limited to those cases where the money or
property
concerned was impressed with a trust in the technical legal sense of
the
word.
The Afrikaans text of the Act, which is also the signed one, provides
as follows in s 26(a):
"Behoudens
die bepalings van hierdie Wet, word die fonds
aangewend
ten einde persone te vergoed wat geldelike verlies ly
weens
-
(a)
diefstal gepleeg deur 'n praktiserende praktisyn .... van geld of
ander goedere
deur
of namens sodanige persone toevertrou aan horn
.... in
die loop van sy praktyk ...." (Emphasis added.)
Die
Verklarende Handwoordeboek van die Afrikaanse Taal
(HAT),
2nd ed (1992), defines "toevertrou" as "met vertroue
opdra aan, oorgee aan die sorg van ...."
Die
Verklarende Afrikaanse Woordeboek
.
Labuschagne, Eksteen, 8th ed (1992),
gives
the following definition of "toevertrou" :
"1.
In vertroue gee. 2 In iemand se sorg laat; ter veilige bewaring gee
...."
The
word "toevertrou" does therefore not imply that the handing
over of the
money
or property concerned has to be subject to a trust in the technical
legal
sense
of the word. Moreover, the legislature appreciated that the word
"trust"
has
a technical meaning, and where it intended to convey that meaning it
used
the
word "trust" in the Afrikaans text. This appears from s
27(2) of the Act
which
reads as follows:
"(2)
Die fonds word deur die beheerraad
in
trust gehou
vir die doeleindes in hierdie Hoofstuk vermeld." (Emphasis
added.)
Had
it been the intention of the legislature to give "entrust"
the technical legal meaning of placing money or other property
with
an attorney subject to a trust, it would have used an expression such
as "in trust aan horn gegee" in the Afrikaans
text of s
26(a).
In
view of the aforegoing I am satisfied that the appellant has shown
sufficient
element of entrustment to bring it within the ambit of s 26(a).
The
respondent supported the following further finding of the Court a quo
to
the effect that the money was not entrusted "by or on behalf of"
the appellant:
"The
phrase 'by or on behalf of ' as used in s 26(a) of the Act envisages
(a)
a
person who entrusts money with a practitioner for himself; or
(b)
a
person who entrusts money with a practitioner on behalf of another.
SW
Construction (Pty) Ltd v Attorneys. Notaries & Conveyancers
Fidelity Guarantee Fund
1993 2 SA 557
(C), 590B-D.
In
the example postulated in (a) above it is the person who entrusts the
money for himself who will in appropriate circumstances
be entitled
to reimbursement; in example (b) it will be the person on whose
behalf the money was entrusted who might be entitled
to
reimbursement."
According
to this construction of s 26(a) it is only the person
on
whose behalf
the
money was entrusted who would be entitled to reimbursement, provided
the other requirements of the section have been met. This
view seems
to stem from the conception that in order to entrust money it has to
be
impressed
with a trust
for
the benefit of
a particular person, and that only that person could possibly suffer
pecuniary loss and be entitled to claim reimbursement. Such
a
construction seems to lose sight of the fact that in circumstances
such as the present it is only the person
by
whom
the money is entrusted, who will suffer pecuniary loss. Although the
money in the present case was intended by the appellant to
be
entrusted on behalf of Branken the facts show that she has suffered
no loss at all and that she accordingly has no right to
claim
reimbursement.
In
my judgment s 26(a) makes provision for reimbursement to either
(1)
the
person
by
whom
the money has been entrusted:
or
(2)
the
person
on
whose behalf
the money has been entrusted;
provided such person has suffered
pecuniary loss. I therefore do not, with
respect, agree with the
conclusion of the Court a quo that the appellant could
only
succeed if the money was entrusted by him for himself, i e on his
own
behalf. For the same reason I respectfully disagree with a
similar construction
of
the phrase "by or on behalf of" in the
SW
Construction
case,
supra
,
at 590B-D.
In
view of the rinding of the Court a quo on the issue of entrustment
the learned judge found it unnecessary to consider whether
the money
was entrusted to Mare" "in the course of his practice"
as a practising practitioner. The respondent contended
that the
appellant did not establish that Maré
in the
particular circumstances acted in the course of his practice.
There
are a number of considerations which in my view support the
appellant's submission that the money was indeed entrusted to
Maré
in the
course of his practice. Mare* was in fact attending to the transfer
of the property in his capacity as an attorney, and he
was able to
defraud the appellant because he could produce his conveyancing file
and the Fedlife guarantee as evidence of the genuine
transaction
underlying the fraudulent scheme. The raising of bridging finance was
a service which Mare offered as attorney to his
clients and for which
he could have charged a fee. Flax insisted that the money be paid
into Mare's trust account, which he was
required to keep as an
attorney. Mare
admitted
that as far as the appellant was concerned the money was handed to
him and deposited into his trust account in the course
of his
practice as an attorney. As the appellant saw it Mare arranged the
bridging finance, received the money and paid it into
his trust
account in the course of his practice as an attorney. In view of all
these considerations I am of the opinion that it
has been established
that the money was entrusted by the appellant to Mare in the course
of his practice, as is required by s 26(a).
The
parties have agreed that if the appeal should succeed the order set
forth in paragraphs 1 and 2 below should be made.
The
appeal is allowed with costs, including the costs of two counsel. The
order of the Court a quo is set aside and there is substituted
for it
the following order:
"1.
Judgment is granted in favour of the plaintiff in the sum of R401
068,48, together with interest thereon at the rate of
18,5% per annum
from 31 July 1992 to date of payment, and costs of suit.
2.
The plaintiffs claims against Mr Maré
and Mrs
Mare are to
be
ceded to the defendant."
F H
Grosskopf Judge of Appeal
Corbett
CJ ) HeferJA )CONCUR Vivier JA )
CASE
NO. 690/94
IN
THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)
In
the matter between:
INDUSTRIAL
& COMMERCIAL FACTORS
(PTY)
LIMITED
Appellant
and
THE
ATTORNEYS FIDELITY FUND BOARD
OF
CONTROL
Respondent
CORAM
:
Corbett
CJ, Hefer, Vivier, F H Grosskopf
et
Marais JJA
HEARD
:
17 May
1996
DELIVERED
:
30 August 1996
JUDGMENT
MARAIS
JA/
MARAIS
JA:
I
have had the benefit of reading the judgment of my learned brother
Grosskopf but, with respect, I am unable to concur in it. Unless
it
can be found on a balance of probability that there was an entmstment
within the meaning of section 26 (a) by or on behalf of
appellant to
Mare of the money which was stolen by Mare, appellant's claim against
respondent must fail. For the reasons which
follow I consider that
the Court a quo was correct in concluding that such a finding could
not be made.
Some
preliminary observations seem appropriate. The indemnity against loss
for which the Act provides is not unlimited in its scope.
It does not
provide indemnification against any kind of loss suffered as a
consequence of any conceivable kind of knavery in which
an attorney
might indulge in the course of his or her practice.
That
much is plain. The persons who may suffer pecuniary loss at the hands
of attorneys will not necessarily be clients, they may
be third
parties. That too is reasonably plain. Attorneys in South Africa
(particularly those who practise in rural areas) conduct
multi-faceted practices which may include activities which are not
peculiar to the attorneys' profession and which may be engaged
in by
persons who are not attorneys. Attorneys conduct auctions; they value
property and stock; they act as agents for building
societies and
insurance companies; they prepare income tax returns and arrange
loans and finance. Their professional status as
attorneys is no doubt
calculated to inspire confidence in them in the minds of members of
the public who deal with them in relation
to these associated
activities but the indemnity against loss for which the Act provides,
does not extend to compensate the public
for loss sustained merely
because the party
responsible
for it happened to be an attorney.
Section
26 (a) is exhaustive of the circumstances in which a person is
entitled to be indemnified by the fidelity fund for loss.
The
particular limitation upon the liability of the fidelity fund upon
which it is necessary to focus is that arising from the
use of the
words
"theft
.
of any money or other property entrusted by or on behalf of
such
persons to him in the course of his practice" and, more
specifically, the word "entrusted" (Afrikaans -
"toevertrou").
Whatever the precise ambit or connotation of
the word "entrusted", when related to the word "money",
may be,
I think it is obvious that it must be taken to mean something
more than the colourless word "paid". The word "paid"
is a decidedly more neutral word than the word "entrusted"
and the legislature's choice of the latter word, rather than
the
former, shows plainly enough that some significance was intended
to
be attached to the word "entrusted", and that the mere fact
that money paid to an attorney in that capacity might be
stolen by
him or her was not intended to be sufficient in itself to render the
fidelity fund liable. As I read my learned brother
Grosskopfs
judgment, that is accepted implicitly by him.
However
deeply I may sympathise with appellant as the victim of a deliberate
act of fraud by a practising attorney who cannot make
good the loss,
I cannot allow my sympathy to obscure what I consider to be facts
fatal to appellant's claim. In "facts",
I include of course
the facts as they were represented by Mare to Flax to be for it is
Flax's perception of those particular facts
which is relevant to the
characterization of the payment which appellant made to Mare, and not
the true facts. The relevant facts
(both those that were true and
those which were thought by Flax to be true) are these. Appellant
considered
itself to be Branken's debtor on 8 May 1992. It was obliged to pay to
her, or to her duly authorised agent to receive
payment, the sum of
R450 000,00 which it had agreed to pay. What is more, the agreement
was so structured that once Fedlife had
paid appellant R500 000,00
appellant had to refund to Branken the balance remaining after
deduction from that amount of the following
sums: R450 000,00
originally advanced by appellant; a discounting fee of R22 500,00; a
further sum to be calculated at the rate
of 24% per annum on the sum
of R450 000,00 originally advanced, as from the date of the agreement
until the date of payment by
Fedlife of the sum of R500 000,00 due
under its guarantee. This entitlement of appellant to 24% per annum
on the sum of R450 000,00
originally advanced was predicated
explicitly upon the premise that appellant would pay that sum to
Branken on the same day that
the agreement
was
concluded. The interest so payable amounted to the not inconsiderable
daily sum of R295,89 and appellant obviously had a powerful
financial
incentive to pay Branken the sum of R450 000,00, as soon as possible
so as to maximise the interest recoverable from
Branken. That after
all was the very essence of appellant's business.
When
Mare came to collect the cheque from Flax, Flax had already caused
the cheque to be drawn in favour of Branken, crossed, marked
"not
transferable", and signed. Flax conceded that he did so with the
intention of fulfilling appellant's obligation
to Branken by handing
the cheque to Mare. I pause to observe that, had he done so, no
question of entrustment by or on behalf of
appellant could have
arisen. Mare had told Flax that Branken had instructed him to utilize
the proceeds of the cheque to make payments
on her behalf to certain
third
parties. As counsel for appellant readily and, in my view,
correctly
conceded, that could have been understood by Flax to mean
only
that Mare was authorised by Branken to receive payment and to
disburse
the proceeds. Indeed, Flax repeatedly made much of the fact
that
he had been given that assurance and that he accepted it. In an
affirmation
made before a commissioner of oaths on 26 June 1992
Flax
said, inter alia:
"Mare
told me that the cheque should have been made payable in favour of
his firm and on the instructions of Branken, the money
had to be paid
into his firm's trust account for the credit of Branken as he, Mare,
had to make certain payments out of those moneys
on the instructions
of Branken
....
I was satisfied that payment to the trust account of
Massel,
Massel & Mare, the attorneys who acted on behalf of Branken in
regard to the transfer of the property and the sale agreement,
constituted payment to Branken for the purchase by the claimant of
the guarantee, the original of which had been delivered by Mare
to
me."
In
a further affirmation dated 4 February 1993 Flax sought to resile
from the assertion that payment to Mare's trust account constituted
payment to Branken but reiterated that he acted on Mare's assurance
that he had instructions from Branken "to deal with the
money
and to make payments out of this money". I repeat, if Flax had
done as he had originally intended to do, and had simply
handed the
cheque over to Mare in discharge of appellant's obligation to pay
Branken R450 000,00, it could not have been claimed
by appellant that
there had been any entrustment of money by or on behalf of appellant
to Mare within the meaning of sections 26
(a). The question is
whether what was ultimately done by Flax can be regarded as such an
entrustment.
I
return to the facts. It was obviously as much in appellant's interest
to make payment to Branken of the sum of R450
000,00
on the day in question as it was in Mare's nefarious interest to
receive payment. Flax was plainly intent upon making the
payment;
appellant's right to interest at 24% per annum as from that date
depended upon it. Entrustment of the money to Mare was
not originally
contemplated by Flax. Payment of appellant's debt to Branken was what
he had in mind. Did any of the ensuing events
bring about so
fundamental a change in Flax's attitude that he no longer wished to
discharge appellant's obligation to Branken
by handing the cheque to
Mare but wished instead to constitute Mare as appellant's agent to
make payment to Branken at some undetermined
time thereafter and to
entrust him with the means to do so?
Even
if it be assumed that an agent who has come to receive payment of a
debt then due to his principal may, in accepting it, simultaneously
become in law the agent of the creditor to make the
payment
to the principal (a matter to which I shall return), the facts
appear
to me to exclude that having happened. Flax refused
adamantly
to alter the cheque so as to make it payable to Mare's firm.
He
was insistent that it remain payable to Branken. His assertion
(belatedly
made many months after the event) that the cheque had
been
entrusted to MarG by appellant, not in immediate discharge of
appellant's
obligation to Branken, but for payment to Branken, or for
disbursement
in accordance with her instructions, only after it had
been
deposited in Maré's trust account
for
the credit of appellant
,
is
belied
by his balking at making the cheque payable to Mare's firm. As
an
attorney, he must have known that, if he did indeed desire to
entrust
Mare with such a mandate, he would protect appellant's
interests
best by insisting upon drawing a cheque in favour of Mare's
firm's
trust account. The inference seems to me to be inescapable that
Flax
was at all times intent solely upon discharging appellant's
obligation
to Branken that very day and that it was for that reason that
he
refused to make the cheque payable to anyone other than her. The
inference
is, I think, fully borne out by Flax's own statements made
soon
after the loss was discovered. I have already quoted his
statement
in his affirmation of 26 June 1992 that the payment to
Mare's
trust account constituted payment to Branken. On 2 June 1992
Flax
had said in an affirmation in support of an application to
sequestrate
Mare:
"11.1
Once I was satisfied that the agreement and suretyship had been duly
signed, I drew a cheque in favour of Branken for
R450 000,00.
11.2
On
the instructions of Respondent (Mare), the money has to be paid into
his firm's trust account for the credit of Branken, as Respondent
was
required to make certain payments out of those monies on behalf of
Branken.
11.3
By
agreement between Respondent and myself the
endorsement
"not transferable" which appeared on the cheque was altered
to read "not negotiable" to enable the
Respondent to
deposit the cheque into his trust account for the purposes aforesaid.
11.4
The aforesaid cheque was duly paid.
12
Respondent undertook to furnish me with a trust receipt in the sum of
R450 000,00. I duly received the trust receipt numbered
366 dated 8
May 1992, a copy of which is annexed hereto marked "F". At
the time, I did not notice that the trust receipt
read for the credit
of the account of Y. Salajee and not for the credit of Branken. I was
however satisfied that PAYMENT (sic)
was made into the trust account
of Massel, Massel and Mare."
In
both the evidence before the fidelity fund's enquiry and
the
Court a quo, and in his supplementary affirmation of 4 February
1993,
Flax stressed that appellant's agreement with Branken obliged
appellant
to pay only Branken, and no one else, that it was for that
reason
that he refused to alter the cheque to make it payable to Mare's
firm,
and that he expressly communicated those sentiments to Mare. The
eventual alteration of the cheque from one which was "not
transferable" to one which was "not negotiable" to
enable the cheque to be paid into Mare's trust account
for
the credit of Branken
did not represent a volte face in Flax's attitude. It was consistent
with what he had sought all along to achieve, namely, a discharge
of
appellant's obligation to pay Branken R450 000,00 on that Very day
when he handed the cheque to Mare. Had Maré
in fact
been authorised by Branken to conclude a transaction of this nature
with appellant and to receive payment of the sum of
R450 000,00 from
appellant, there can be no doubt that appellant could not have been
required to pay Branken again because she
had not actually received
the money which had been stolen by Mare. As between herself and
appellant, she would be regarded in law
as having received the money
because it had
been
paid to her duly authorised agent to receive it.
Further
consideration of this hypothetical situation seems to me to throw
some light upon the issue which arises in this case. When
one
reflects upon Branken's remedies in such a hypothetical situation
they appear to be these. Plainly, she would have an action
against
Maré. If Maré
could
not pay, one senses instinctively that she would have a valid claim
against the fidelity fund. It would be a loss which seems
to fall so
squarely within the mischief against which the Act was enacted to
provide a remedy. It would be a pecuniary loss suffered
by the
attorney's own client as a consequence of the attorney having stolen
money which he was authorised to collect for her in
the course of his
practice as an attorney. Indeed, it is no doubt one of the most
frequently encountered forms of theft committed
by an attorney in the
course of practice. When an attorney misappropriates money in
his
trust account more often than not he is stealing money which he
had
received to hold for or on behalf of clients. It would be startling
indeed
if no liability on the part of the fidelity fund arose in such
circumstances.
Yet such liability can arise only if it can be found that
the
money stolen was entrusted by or on behalf of the client. At first
blush
there may appear to have been no entrustment in such
circumstances
inasmuch as a debtor who simply pays an attorney in
response
to a letter of demand for payment written by the attorney on
behalf
of his client and with his client's authority, is manifestly merely
paying
his debt and cannot be said to be entrusting, either for himself
or
on the client's behalf, money to the attorney within the meaning of
section
26 (a). What the proposition overlooks, so it seems to me, is
that
money or property which may come into the hands of an attorney
in
the course of his practice may acquire the character of entruste
money
or property by reason of the understanding which exists between the
attorney and his client and quite irrespective of the
subjective
intention of the person who pays the money, or delivers the property,
in question to the attorney. It seems self-evident
that when a client
mandates an attorney to collect a debt owed to the client and to
receive payment on the client's behalf, it
is implicit in the mandate
that between the time that the money is received by the attorney and
the time it is actually paid to
the client it will have been
entrusted ex necessitate
by
the client
,
and not by the debtor, to the attorney. From the moment that the
attorney receives the money from the debtor it is no longer the
debtor's money and the debt is discharged. It is equally plainly not
the attorney's money and the only reason why he has it in
his
possession is because his client engaged him to collect and receive
the money on his behalf. It is inherent in that that the
client is
entrusting
him with the money in the sense that he looks to the attorney to
receive it on his behalf and then to deal with it, not
as the
attorney pleases, but as he, the client, has instructed him to deal
with it. That explains, I think, why the fidelity fund
is indeed
liable in the hypothetical circumstances I have postulated.
What
emerges from this, is that it is not an accurate reflection of the
facts to say that in such circumstances the debtor entrusts,
either
for himself or for the creditor, the money which he pays to the
attorney in settlement of his debt, but that it is none
the less true
that the money is entrusted money by virtue of the arrangement
existing between the attorney and his client. The
same holds good
where other property, and not money, is involved.
If
that be so, what is the position where the attorney has no client and
has devised a fraudulent scheme designed to induce a
member
of the public to part with his money so that the attorney can
use
it for his own benefit? Consider this example: Attorney A is a
confidante
of attorney B, a sole practitioner. B confides in A that he
has
stolen trust money and that he has given out that he is proceeding
to
Europe on holiday but that in truth he is leaving for another country
intending
never to return. B departs. A is aware that one of B's
clients
is a jeweller to whom a large sum of money is owed by a
prominent
personality for jewellery bought for a person other than his
wife.
A is also aware that the jeweller is on safari elsewhere in Africa
and
incommunicado. A has also stolen trust money and plans to leave
the
country as B did. Purporting to act as the jeweller's attorney, A
sends
the prominent personality a letter of demand for payment,
threatening
him with immediate legal action if the debt is not paid at
his
office within 48 hours. The prominent personality responds
immediately
by paying the sum in cash at A's office and declines the offer of a
receipt. A pockets the money and flees the country.
I
am unable to discern any entrustment of money in such a situation.
The prominent personality has simply paid his debt (or, more
accurately, purported to do so). There was thus no entrustment of
money by him. The jeweller (the creditor) was oblivious of what
was
being done in his name. There was therefore no entrustment by him of
money to A. In such circumstances, as I see the position,
no
liability attaches to the fidelity fund.
A
word of caution here would not be out of place. There is no doubt an
element of trust, in the broad sense of that word, in virtually
every
bilateral transaction. A buyer who pays a large sum of money to a
seller of gemstones because he trusts the seller when the
seller
tells him he is buying a sapphire, is not entrusting the money
which
he pays for it to the seller. The fact that the stone may in fact be
a zircon cannot alter that. Equally, a debtor who believes
a
collection agent who represents that he is authorised by the creditor
to collect and receive payment of the debt, and makes payment
of the
debt to him, does not entrust the agent with the money. Again the
position would be no different should it emerge that the
collection
agent was not in fact authorised to collect and receive payment of
the debt and was simply a thief.
What
we have in the case before us is a situation which was bogus from
very nearly its beginning to its end. Certainly the operative
parts
of Mare's scheme which directly involved appellant were bogus. True,
Mare did have a client, Branken. True too, that Branken
had sold a
property and was due to receive the purchase price. All else was
bogus: the need for bridging finance; the
willingness
of Branken to sell a guarantee to appellant; the
willingness
of Carter to stand as surety for her obligations to appellant;
the
authority of Mare to collect and receive payment of the R450 000,00
from appellant. Branken had not given any mandate of this
kind to
Mare so that she cannot be regarded as having entrusted Mare with the
money he received from appellant. For the reasons
I have already
given and for yet further reasons to follow, I am unable to conclude
that Flax entrusted anything to Maré.
It
is quite apparent from a study of Flax's behaviour and evidence that
when he realised he had been duped by Mare, he thought that
an
intention on his part to pay Branken by handing the cheque to Mare in
a state which would enable him to deposit it in his trust
account, or
to hand it to Branken, was not inimical to the claim which appellant
made against the fidelity fund. That is why he
did not
hesitate
to say, as he did when first asserting appellant's claim, that he
intended his handing of the cheque to Mare in a state
which would
enable Mare to deposit it in his trust account to constitute payment
to Branken. It explains too why, when he received
subsequently the
receipt which Mare gave him, he did not bother to look to see to
whose account the payment had been credited.
I may add that the
furnishing by Mare of a trust receipt would of course not necessarily
have shown that the cheque had in fact
been paid into his trust
account. What it undoubtedly would have shown, was that appellant had
in fact paid R450 000,00 to Mare.
And if Mare had in fact been
Branken's agent to receive payment, as Flax believed him to be, that
would have been sufficient to
set Flax's mind at rest.
It
was only after appellant's claim had been rejected by the fidelity
fund that Flax bethought himself and sought to place a
different
complexion upon certain objective facts in an attempt to alter
the
essential character of what had happened. The first and essential
step
in the process was to retract his own earlier assertion that he had
intended
the act of handing over the cheque to Mare in its altered state
to
constitute payment to Branken, He sought to attribute the earlier
assertion
to a mistake made by the attorney who drafted the
affirmation
of 26 June 1992, but he was not telling the truth. Not only
did
the attorney concerned testify and deny that he had made any such
mistake,
he also produced contemporaneous notes of his consultation
with
Flax which bear him out. Moreover, it is just not conceivable
that
Flax, a qualified attorney who was personally involved in the
debacle,
would have read the draft affirmation in so slipshod a manner
that
he failed to notice so fundamental a distortion in it of his own
intention
when handing the cheque to Mare.
The
next step was to attempt to eke an entrustment out of the facts. By
February 1993 when Flax filed his second affirmation dated
4 February
1993, appellant's case had undergone a profound metamorphosis. An
attempt was made now to portray Flax, not as the discharger
of
appellant's debt but as an entruster of appellant's money to Maré
The role
now sought to be assigned by Flax to Mare was that of agent for
appellant to pay Branken. Gone was Flax's originally expressed
desire
to ensure that payment to Mare would be payment to Branken. Upon what
factual foundation was this new edifice constructed?
Precisely the
same as that upon which the previous edifice of payment to Branken
had been erected. That in itself arouses suspicion
as to its
soundness. On examining the new edifice more minutely it resembles a
creation in the trompe-l'oeil style: a creation
which
gives the illusion of reality but is not in truth real.
Thus,
it is said repeatedly that it was "agreed" that the cheque
would be dealt with by Mare "only according to the
instructions
he had received from his client (Branken)". That is hardly
surprising for that is precisely what Maré
had
represented to Flax he was already obliged to do by reason of the
instructions given to him by Branken. It took the matter no
further
and, as I see it, could not and did not serve to constitute Mare"
as appellant's agent to make payment to Branken.
Then
it is said that by altering the cheque from one marked "not
transferable" to one marked "not negotiable",
Flax
"recognised that (he) was acting outside the ambit of the
agreement and that it was at the risk of (appellant) that payment
was
being made in a manner other than that provided for in the
agreement", and that "Mare acted as (appellant's) agent
in
receiving the money from
(appellant)
and he owed (appellant) a duty to use and dispose of the money for
the benefit of Branken and strictly in terms of his
instructions he
told (Flax) he had". First, he would not have been acting
outside the ambit of the agreement and at appellant's
risk by merely
changing the cheque in that manner. The cheque remained payable to
Branken; it could not be negotiated without Branken's
indorsement
unless it was paid into Mare trust account, and once paid into his
trust account, whatever dishonest use Mare might
make of the money
thereafter, appellant could not be required to pay Branken again. Nor
would Branken's obligations to appellant
come to an end. Conceivably,
Mare could of course have forged Branken's indorsement and paid the
cheque into his own private bank
account but as long as he was
authorized to receive payment by Branken, the loss would have been
Branken's and not appellant's.
At no stage did
Flax
or any other representative of appellant suspect that the
transaction
was bogus or that Mare was not authorised to receive
payment.
That risk was not present to Flax's or to anybody else's
mind.
Indeed, Flax emphatically repudiated any suggestion that he
doubted
Mare's authority to collect and receive payment. The risk that
was
present to Flax's mind was that writing a cheque in favour of
Mare's
firm would not constitute payment to Branken at all. That is
why
he persisted to the last in reflecting Branken as the payee and in
refusing
to substitute Mare's firm as the payee.
Typical
of the flimsy foundations upon which Flax sought
to
erect an entrustment is the following passage in his evidence:
"The
idea of me changing the crossing was that Mr Mare - you can take this
cheque and you can put it in your trust account
and you can use it.
That is all that was said, that you can use it for the benefit of Mrs
Branken, use it for the purpose for which
you told me you are going
to use it. So until he had
used
it for her benefit it was in trust, as far as I was concerned,
for
myself. In other words he had to hold it in trust until he had used
it for Mrs Branken. Then he could pay it out of trust."
In
similar vein, when during cross-examination he was challenged on
his
assertion that the proceeds of the cheque were to be held in trust
for
appellant until they were paid to Branken or disbursed according
to
her instruction, he said:
"I
said to him take this cheque and see that you use it as you
are
going to, as you say you will use it.. And I did
make
it clear to him in one way or the other that he was holding it for
our benefit, for, on our behalf. I did."
Later
still:
"I
have said in a number of times that I give a cheque to Mare for a
specific purpose. He cannot go and spend this money to
buy a new car
for himself or do anything else.
He
has to use the money for a specific purpose. The purpose he tells me
he is going to use it for and I tell Mr Mare he had better
be sure
that he does exactly that
(my
emphasis) because I am paying him outside the ambit of my agreement
and he must be sure he takes my cheque, puts it in trust
and uses it,
to implement my
obligations
that I had under that agreement to Mrs Branken." The duty which
it was being asserted Mare owed in law to appellant
was to carry out
Branken's mandate faithfully. But that was a duty already owed by
Mare to Branken by virtue of his acceptance
of her mandate to collect
and receive payment of appellant's debt to her. A promise (even if
made) by Maré
to
Flax that he would fulfil the duty which he already owed to Branken
cannot reverse the role which Mare was ostensibly playing
and turn
him from Branken's agent to receive payment from appellant into
appellant's agent to make payment to Branken. It was not
a mandate
which Mare could accept without abrogating his duty to Branken to
collect and receive payment. Superficially appealing
analogies such
as those of a stakeholder, or an attorney or estate agent who
receives and holds in trust a deposit paid by the
purchaser of
property pending fulfilment of
suspensive
conditions or transfer, will be found, on analysis, to be unsound.
The insoluble dilemmas which would arise if one accepted
the notion,
show, to my mind, its untenability. If the payer of the debt were to
be sequestrated before the creditor had actually
received the money
and while it was still in the hands of an agent for both of them, to
whom must the agent hand over the money?
The debtor's trustee or the
creditor? The trustee would say that as the money was still in the
hands of the insolvent debtor's
agent and had not actually been
paid
to the creditor, it was still an asset in the debtor's insolvent
estate.
The
creditor would say that the debtor had paid him prior to
sequestration by handing the money to his (the creditor's) agent to
receive payment, and that from that moment the money ceased to be an
asset in the debtor's estate. One cannot resolve this dilemma
by
attempting to thrust the status of a stakeholder upon the agent for
neither
party intended him to be such. Each intended him to be his agent to
receive and to make payment respectively. It was integral
to the
agent's earlier acceptance of a mandate to receive payment for the
creditor that he would not nullify the ordinary legal
consequences of
receipt by him of payment from the debtor by accepting a subsequent
mandate from the debtor to make payment on
his behalf to the
creditor. And even if, at the debtor's insistence, he purported to
accept such a mandate, I cannot see how, in
law, effect could be
given to it. It would entail allowing the debtor to contract with the
creditor's agent to disregard the agent's
pre-existing obligation to
the creditor and to frustrate the consequences in law which receipt
by the agent of the money from the
debtor would have, and which the
creditor must be taken to have intended it to have. It would amount
to giving the imparimatur
of the law to the inducing of a breach of
contract by the
debtor.
To accord to a payment of money so made by the debtor the status of
money entrusted by or on behalf of the debtor within
the meaning of
section 26 (a) of the Act appears to me to be equally unjustifiable.
It
is of course so that in the present case there was no genuine
pre-existing mandate from Branken to receive payment but that cannot,
as I see it, affect the issue. Flax believed that there was and
appellant cannot be in a better position than that in which it
would
have been if there had in truth been such a pre-existing mandate. A
payment made in the belief that Mare had a pre-existing
mandate from
Branken to receive payment and which would not have been an
entrustment of money by or on behalf of appellant if Mare
had in fact
had such a mandate, cannot be converted into an entrustment of money
by or on behalf of appellant simply because Maré
did not
have such
a
mandate.
As
I see it, there are insuperable obstacles in the way of accepting the
factual foundation upon which my learned brother Grosskopf
rests his
finding that an entrustment by or on behalf of appellant occurred. It
entails discounting the significance of Flax's
own repeated and
inherently probable assertion when first staking appellant's claim,
that he intended the handing of the cheque
in its altered state to
Mare to constitute payment to Branken then and there. It also entails
discounting the impact of Flax's
later unsuccessful attempt to
distort the facts by claiming that when Mare received the R450 000,00
he received it for appellant,
and not for Branken. It entails
discounting too Mare's repeated and inherently probable denials that,
in accepting the cheque,
he did anything more than reaffirm that he
would do with it what he had told Flax he was already obligated to
his
client, Branken, to do with it. They were denials which there is no
reason to doubt because Mare stood to gain nothing by them
and
because it is so manifestly consistent with the successful execution
of Mare's own fraudulent scheme that he would have sought
to convince
Flax that he had such instructions from Branken.
It
results, to my mind, in an artificial construct which is in flat
contradiction of Flax's own far more probably true earlier statements
of intent and gives no effect to Mare's highly probably true denial
that he did anything or said anything to Flax which would or
could
have led Flax to believe that he was no longer acting as Branken's
agent in receiving the cheque, but was instead agreeing
to act as
appellant's agent to pay Branken at some unspecified future time by
doing with the money what Branken had allegedly instructed
him to do.
Nor, as I read the evidence, was any such result (assuming for
the
moment that it was achievable in law) intended by either Flax or
Mare. Flax was at pains to ensure that his handing of the cheque
to
Mare would constitute payment to Branken and Mare was equally intent
upon assuring Flax that he would faithfully execute Branken's
instructions to him. Flax's insistence that the cheque be paid into
Mare's trust account was not inconsistent with Flax intending
the
handing over of the cheque to Maré
to be
payment to Branken. Indeed, as Flax as a qualified attorney must have
known, unless Mare handed the cheque over to Branken
to deal with it
herself, Mare would have been obliged by section 33 (1) of the Act to
deposit the cheque in his trust account before
distributing the
proceeds in accordance with Branken's instructions. That would have
been Mare's obligation quite irrespective
of whether or not Flax
required him to do so. The cheque was in fact paid into Mare's trust
account, and the proceeds thereafter
misappropriated
by Mare . I am unable to accept as truthful Flax's profession of
belief that, if the underlying transaction had
been genuine and not
bogus, the loss would have been appellant's and not Branken's. It is
overwhelmingly probable that, if those
had indeed been the facts,
Flax would have said (and said correctly) that he had discharged
appellant's obligation to Branken by
paying Branken's duly authorised
agent to solicit and receive payment and that the loss was therefore
Branken's.
I
think, with respect, that my learned brother Grosskopf s finding that
Flax "insisted that Mare should pay the cheque into
his trust
account, clearly
with
the intention that payment to Branken would only take place when the
money was paid out on behalf of Branken
(my
emphasis)", is contradicted by Flax's own earlier statements as
to what he intended and is also contrary to the
probabilities
inherent in the situation.
I
am also unable, with respect, to subscribe to the proposition that
"appellant's intention on the one hand to pay Branken
and its
intention on the other to entrust the money should therefore not be
regarded as mutually exclusive". Flax could not
have it both
ways. If he wanted the handing over of the cheque to Mare to
constitute payment to Branken then and there so that
appellant could
immediately commence debiting Branken with interest and avert any
allegation of non-payment by Branken, he would
have been frustrating
the achievement of his own objective if he were to postpone payment
to Branken by dissuading Mare from accepting
payment then and there
on Branken's behalf, and by persuading him instead to act as
appellant's agent to pay Branken at some unspecified
date "when
the money was paid out on behalf of Branken". I repeat that the
entire
tenour
of Flax's original assertions as to what he sought to achieve by
handing the cheque to Mare was that he intended thereby
to make
payment then and there to Branken. His subsequent attempts to resile
from that when the unfavourable implications of his
earlier
assertions dawned on him were plainly self-serving and inconsistent
with his earlier assertions. They were rightly rejected
by the Court
a quo and no attempt was made to argue the contrary before us. I do
not think that appellant is entitled to ask this
Court to come to its
rescue by finding, despite Flax's original assertions and his later
contradictory assertions as to what was
intended, that it is more
probable than not that he did not actually intend to discharge
appellant's obligation to Branken then
and there when he handed the
cheque to Mare, but intended instead to constitute Mare as
appellant's agent to pay Branken at some
unspecified future time and
to thereby entrust Mare in the
interim
with the money.
I would dismiss
the appeal with costs, including the costs
of
two counsel.
R M
MARIAS