Louw NO and Others v Coetzee and Others (342/02) [2002] ZASCA 156; [2003] 1 All SA 34 (SCA) (29 November 2002)

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[2002] ZASCA 156
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Louw NO and Others v Coetzee and Others (342/02) [2002] ZASCA 156; [2003] 1 All SA 34 (SCA); 2003 (3) SA 329 (SCA) (29 November 2002)

THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
Reportable
CASE NO: 342/02
In
the matter between :
T J
LOUW NO First Appellant
THE
REGISTRAR OF BANKS Second Appellant
THE
SOUTH AFRICAN RESERVE BANK Third Appellant
and
S J
COETZEE First Respondent
MICROZONE
TRADING 709 LIMITED Second Respondent
E
J KOEN INC Third Respondent
ELIZABETH
BENDER Fourth Respondent
____________________________________________________________________
Coram:
HOWIE, STREICHER, MPATI JJA, JONES
et
LEWIS AJJA
Heard:
18 NOVEMBER 2002
Delivered: 29 NOVEMBER 2002
Summary: Moneys in attorneys trust
accounts; Meaning of Trust Property: Financial Institutions Act
(Protection of Funds) Act 28 of
2001; s 78(2A) of Attorneys’ Act
53 of 1979.
____________________________________________________________________
J U D G M E N T
____________________________________________________________________
LEWIS AJA/
[1] During
the past few years a number of banks have run into financial
difficulties, and the question has arisen as to the fate of
money
deposited by attorneys, who have accepted from their clients money in
trust, in specially designated bank accounts in terms
of s 78 of the
Attorneys Act 53 of 1979. This appeal arises from the placing of
Saambou Bank Limited (‘the bank’) under curatorship
in February
2002.
1
The first appellant (to whom I shall refer as ‘the curator’) is
the curator of the bank. The second and third appellants played
no
part in this appeal. The first and third respondents are attorneys’
firms that deposited clients’ trust funds with the bank.
The second
and fourth respondents are clients who had paid moneys in trust to
the respective firms.
[2] The
curator refused to pay to the respondents on demand any deposits made
with the bank in terms of s 78(2A) of the Attorneys
Act
2
except in so far as the deposits were linked to guarantees furnished
by the bank. The respondents successfully applied to the Pretoria
High Court for various forms of relief. Shongwe J ordered
inter
alia
that:
1
The curator’s decision to refuse to pay out deposits made after 23
November 2001 be set aside by virtue of s 5(8)(a) of the Financial
Institutions (Protection of Funds Act) 28 of 2001 (to which I shall
refer as the ‘2001 FI Act’).
3
2 All moneys deposited by the attorneys after that date did not form
part of the assets of the bank.
3 All deposits made by the respondent attorneys on behalf of their
clients in terms of s 78(2A) of the Attorneys Act were repayable,
with interest, on demand.
[3] It is against these orders that the curator
now appeals with the leave of the court below. It is noteworthy,
however, that the
respondents did not appear at the appeal hearing,
and that the court did not have the benefit of heads of argument
submitted on their
behalf.
[4] The
basis of the decision of the court below is an interpretation of
certain provisions of the 2001 FI Act, coupled with a comparative
assessment of provisions in the predecessor to that Act, the
Financial Institutions (Investment of Funds) Act 39 of 1984 (the
‘1984
FI Act’).
4
It is accordingly necessary to examine the relevant provisions in
order to determine whether they do apply to moneys placed in an
attorney’s trust account in terms of s 78(2A) of the Attorneys Act.
It was not contended, however, that the 1984 FI Act applied
to such
trust funds. The change, the respondents successfully argued in the
court below, was wrought when the 2001 FI Act came into
operation,
precluding funds deposited by an attorney in terms of s 78(2A) of the
Attorneys Act from becoming part of the bank’s
assets in the event
of its insolvency. The redefinition of ‘trust property’ and the
more detailed provision (s4(5) in both Acts)
in the 2001 FI Act
dealing with the exclusion of trust property from the assets of a
financial institution, the court below held,
were such as to render
the 2001 FI Act applicable to moneys deposited by an attorney who in
turn holds it in trust for a client.
[5] Under the 1984 FI Act, the purpose of which
was ‘to consolidate the laws relating to the investment, safe
custody and administration
by financial institutions of funds and
trust property’, trust property was defined as
‘any corporeal or incorporeal, movable or
immovable asset kept in trust’.
Section 4 of the 1984 FI Act dealt generally with
the investment of trust property and the obligations of a financial
institution
in this regard. The definition of a financial institution
under both FI Acts is to be found in s 1 of the Financial Services
Board
Act 97 of 1990, and includes a bank ‘which deals with trust
property as a regular feature of its business’. (The curator
argued,
in the alternative to the argument that the funds in issue
were not trust property, that if the funds were found to constitute
trust
property, then the bank was not one that dealt with trust
property as a regular feature of its business. There is no need to
decide
this issue in view of the conclusion to which I come. In any
event, the argument seems to be circular since if attorneys’ trust
moneys were regarded as trust property in the hands of the bank, the
bank would indeed, on its own averments, have been a financial
institution as defined.)
[6] Section 4(5) of the 1984 FI Act provided:
‘Notwithstanding
anything to the contrary in any law or the common law contained,
trust property which is expressly registered in
the name of a
financial institution in its capacity as administrator, trustee,
curator or agent, as the case may be, shall not under
any
circumstances form part of the assets of the financial institution.’
[7] It was apparently common cause in the court
below that money deposited in an attorney’s trust account in terms
of s 78(2A) of
the Attorneys Act did not constitute trust property
under the 1984 FI Act, and was accordingly not protected under the
then s 4(5).
However, the court concluded that the changes in wording
in the corresponding provisions of the 2001 FI Act warranted the
conclusion
that moneys deposited in terms of s 78(2A) of the
Attorneys Act did become trust property under the 2001 FI Act, and as
such did
not constitute part of the bank’s assets.
[8] The definition of trust property in the 2001
FI Act is:
‘
any
corporeal or incorporeal, movable or immovable asset invested, held,
kept in safe custody, controlled, administered or alienated
by
any
person, partnership, company or trust for, or on behalf of, another
person, partnership, company or trust,
and such other person,
partnership, company or trust is hereinafter referred to as the
principal’ (my emphasis).
[9] This wording was found to be sufficiently wide
to embrace funds held in trust by an attorney (as trustee for a
client) and deposited
in a financial institution, even though the
institution is not itself the trustee of the funds.
[10] Section 4 of the 2001 FI Act, like its
predecessor, deals with the investment of trust property by financial
institutions, and
with their obligations to the principal. Section
4(5) provides:
‘Despite
anything to the contrary in any law or the common law, trust property
invested, held, kept in safe custody, controlled
or administered by a
financial institution or a nominee company under no circumstances
forms part of the assets or funds of the financial
institution or
such nominee company.’
[11] It followed from Shongwe J’s finding that
trust moneys deposited by an attorney in the bank constituted trust
property that
this subsection protected such moneys by keeping them
notionally separate from the assets of the bank. The common law, and
the position
under the 1984 FI Act, had been altered, the court
found, by the broadening of the definition of trust property and by
the more
detailed wording of s 4(5). Support for this view was found
in the different name of the 2001 FI Act: whereas the title of the
1984
FI Act referred to the investment of funds, the 2001 FI Act
title refers to the protection of funds. This was regarded as an
indication
that there has been a change in the emphasis of the
legislation – more protection being afforded to investors than
previously.
[12] The
curator’s argument before us is that one cannot infer from some
minor changes in wording an intention radically to change
the common
law and a previous statutory regime in so far as trust moneys
deposited by attorneys are concerned. It is trite that when
a
customer of a bank deposits money in an account the money becomes the
property of the bank, which in turn, as debtor of the customer,
has
an obligation to pay the customer as creditor the amount deposited.
The bank does not hold the money for the customer as agent
or
trustee: it becomes the owner and has only a personal obligation to
repay the amount together with interest if agreed.
5
Accordingly, where a bank is liquidated the customer has only a
concurrent claim against the estate. These principles, the curator
argues, have not been changed by the enactment of the 2001 FI Act. He
contends further that it would be impossible to keep moneys
deposited
in terms of s 78(2A) of the Attorneys Act separate from other moneys
of the bank because of the principle that money becomes
the property
of the borrower as soon as it takes possession by virtue of
commixtio
(commingling of fungibles that cannot be separately identified).
The borrower’s obligation is to return not the exact money
deposited,
but an equivalent amount.
6
In my view, the inability of a bank to keep particular moneys of a
customer held in trust separately identified from other funds
is not
of any consequence. As long as the records of a bank show that a
particular amount is designated as being due to a particular
customer, there would appear to be be no difficulty in finding that a
bank holds money that is deposited or invested in trust for
that
customer.
[13] The
more fundamental difficulty with the decision of the court
a quo
is the finding that the 2001 FI Act changes well-established
principles of the law relating to deposits made by a trustee in a
bank,
and precludes money that would at common law be an asset of the
bank from being treated as such. The ramifications of such a change
would be extensive, the curator argued. One of the consequences would
be that the bank as trustee would not be able to invest the
customer’s money in the ordinary course of business, in the process
making some profit for itself. On this basis no bank, it was
submitted, would be willing to open a trust account for an attorney.
Accordingly, if the legislature had intended to place the bank
in the
position of a trustee to the attorney’s client (in effect thus
superimposing another trustee over the attorney as trustee)
it would
have said so expressly.
[14] In
my view, there is no indication in the 2001 FI Act of an intention to
change the position as it was under the 1984 FI Act,
or under the
common law, such as to impose on a financial institution the role of
trustee to an attorney’s client. The definition
of trust property
is certainly more detailed, as is s 4(5) dealing with the separation
of trust property from the assets of the institution.
If one looks at
the definition of trust property in isolation it could,
linguistically, be read to include property held in trust
by a person
other than the financial institution itself. But the definition must
be read in the context of the Act as a whole. The
2001 FI Act, like
its predecessor, provides for and
consolidates
‘the laws
relating to the investment, safe custody and administration of funds
and trust property by financial institutions’
7
and in addition gives greater powers of enforcement to the registrar.
It does not expressly provide for changes to the laws regulating
attorneys’ or other trust moneys, and such provision cannot be
inferred from anything other than the definition of trust property.
[15] Furthermore, s4 (5) must be looked at in the
context of s 4 as a whole. Subsection 1 requires that trust property
(that is, property
in relation to which the financial institution
itself stands in a fiduciary relationship) be invested in accordance
with an instruction
from the principal, or in terms of an agreement.
In the absence of an instruction or agreement, trust property must be
invested in
the name of the principal; or of the financial
institution in its capacity as a trustee, curator or agent; or in the
name of a nominee
company (subsec 2). When the articles of
association of a company prohibit registration of shares or
debentures in the name of a
trust or financial institution then the
shares or debentures must be registered in the name of an officer of
the institution who
must furnish security to the satisfaction of the
Master of the High Court (subsec 3). Trust property must be kept
separate from assets
belonging to the institution itself, and the
books of account must reflect the name of the principal (subsec 4).
Section 4 applies
also where a financial institution is a joint
trustee (subsec 6). None of these provisions is apposite to the
deposit by an attorney,
acting as trustee, of a client’s money in a
bank in an account that will be conducted in the ordinary course of
the bank’s business.
The instruction to the bank given by the
attorney in terms of s 78(2A) of the Attorneys Act cannot possibly be
construed as an instruction
by the client to the bank, nor as an
agreement between the attorney’s client and the bank, as to the
manner of investing trust
money. There is no trust relationship
between the bank and the attorney’s client. The instruction is
given in order to comply with
the provisions of s 78(2A) of the
Attorney’s Act.
[16] The examination of s 4 as a whole, together
with a consideration of the general ambit of the 2001 FI Act and of s
78(2A) of the
Attorneys Act, thus lead to the conclusion that the
meaning of ‘trust property’ is not changed by the more detailed
wording of
the definition and of s 4(5). There is no suggestion in
any of these enactments that the dispensation governing moneys held
in trust
by attorneys is changed expressly, implicitly, by design or
through inadvertence. The purpose and effect of the 2001 FI Act are,
as indicated earlier, to provide for and consolidate the investment
and administration of trust property by financial institutions
–
not to introduce a substantial change to the principles dealing with
funds held by an attorney in trust, and deposited by him
or her in a
bank account pending the transfer of property or the performance of
work.
[17] Accordingly, the curator was entitled to
refuse to pay the amounts claimed by the respondents and his decision
should not have
been set aside. No costs order in respect of this
appeal was sought by the curator.
[18] The appeal is upheld.
C
H Lewis
Acting
Judge of Appeal
Howie
JA )
Streicher
JA )
Mpati
JA )
Jones
AJA ) concur
1
See the discussion by Dirk Vercuil in
De Rebus
May 2002 (411)
31.
2
The subsection reads: ‘Any separate trust savings or other
interest-bearing account –
which
is opened by a practitioner for the purpose of investing therein,
on the instructions of any person, any money deposited
in his trust
banking account; and
over
which the practitioner exercises exclusive control as trustee,
agent or stakeholder or in any other fiduciary capacity,
shall
contain a reference to this subsection.’
3
This Act came into operation on 23 November 2001.
4
The judgment is reported in
2002 (5)
SA 602
(T).
5
For recent restatements of the principle see
Standard Bank of SA
Ltd v Oneanate Investments (Pty) Ltd
1995 (4) SA 510
(C) at
530G--532D, and
ABSA Bank Bpk v Janse van Rensburg
2002 (3)
SA 701
(SCA) at 709A—B. See also Edwin Cameron et al
Honore’s
South African Law of Trusts
5
th
ed 293.
6
See generally on the banker/customer relationship F R Malan and J T
Pretorius
Malan on Bills of Exchange, Cheques and Promissory
Notes
4
th
ed 335ff.
7
Citation from the long title to the Act.