Brief Summary

Constitutional Law — Right to access to courts — Procedural fairness — Attorneys held liable for funds held in trust despite not being parties to the appeal — Supreme Court of Appeal's order infringing attorneys' rights to a fair hearing under section 34 of the Constitution. The applicant, Stopforth Swanepoel & Brewis Incorporated, sought leave to appeal against an order of the Supreme Court of Appeal that held them liable to repay funds plus interest to the respondents, Yeun Fan Lau and Shun Cheng Liang, despite the attorneys not being parties to the appeal. The Supreme Court of Appeal had amended a High Court order against Royal Anthem Investments 129 (Pty) Ltd, imposing liability on the attorneys for the funds held in trust. The legal issue was whether the Supreme Court of Appeal's order constituted a violation of the attorneys' right to a fair public hearing and whether it was permissible to hold them liable in proceedings where they were not parties. The Constitutional Court upheld the appeal, finding that the attorneys were denied procedural fairness and that the Supreme Court of Appeal's order was invalid as it imposed liability without the attorneys being given an opportunity to be heard.

Comprehensive Summary

Summary of Judgment

1. Introduction

This matter concerned an unopposed application for leave to appeal to the Constitutional Court against an order of the Supreme Court of Appeal. The application was brought by Stopforth Swanepoel & Brewis Incorporated (the applicant), a firm of attorneys that had acted as conveyancers and had held funds in a trust account pursuant to a sale of immovable property. The respondents were Royal Anthem Investments 129 (Pty) Ltd (first respondent, the seller) and Yeun Fan Lau together with Shun Cheng Liang (second and third respondents, the purchasers).

The procedural history began with High Court litigation arising from a failed agreement of sale. The purchasers instituted action in the North Gauteng High Court, Pretoria against both Royal and the attorneys for repayment of amounts paid (a deposit and transfer-duty related funds) that were being held by the attorneys in trust. The claim against the attorneys was withdrawn, and the High Court proceeded against Royal alone, ordering Royal to repay the amounts with interest and costs.

Royal appealed to the Supreme Court of Appeal. Although the attorneys were not parties to that appeal, the Supreme Court of Appeal varied the High Court’s order and, addressing what it termed “ancillary issues”, made an order directing the attorneys to repay the capital sums and certain interest. The attorneys then approached the Supreme Court of Appeal informally by letter, contending that the order was erroneous because they were not parties and the claim against them had been withdrawn, but the order was not altered. The attorneys thereafter sought leave to appeal to the Constitutional Court, primarily challenging the Supreme Court of Appeal’s imposition of liability upon them in proceedings in which they were not joined and were not heard.

The general subject-matter of the dispute concerned the restitution of monies paid under a lapsed sale agreement, the proper allocation of liability for repayment and interest, and the constitutional requirement of procedural and substantive fairness under section 34 of the Constitution where a court makes an adverse order against a non-party.

2. Material Facts

The Constitutional Court treated the core background as largely undisputed and recapitulated only the facts necessary to determine the constitutional complaint about fairness. The second and third respondents agreed to purchase immovable property from Royal for R3.6 million, with the applicant attorneys acting as conveyancers. The agreement required that the purchasers pay a deposit into the attorneys’ account, that the attorneys invest the monies for the purchasers’ benefit in an interest-bearing trust account under section 78(2A) of the Attorneys Act 53 of 1979, and that the monies be paid to Royal upon registration of transfer. The agreement further contemplated that if conditions were not fulfilled and the agreement fell through, the deposit together with interest would be refunded to the purchasers.

Pursuant to the agreement, the purchasers paid R720 000 (deposit) and R264 723 (in respect of transfer duty) to the attorneys, who held and invested the funds in an interest-bearing trust account pending transfer. The attorneys at some stage paid an amount to SARS to facilitate transfer. The sale subsequently failed, in circumstances connected to a dispute about interest allegedly arising from delayed transfer, and the purchasers demanded repayment on the basis that the agreement had lapsed due to non-fulfilment of a condition. Royal disputed that entitlement, and the monies were not repaid.

The purchasers instituted action against Royal and the attorneys, but the attorneys abided the outcome and the purchasers withdrew the claim against them. The High Court rejected Royal’s contention that it was entitled to keep the monies and ordered Royal to repay both the deposit and the transfer duty related amount, together with interest and attorney-and-client costs.

On appeal by Royal, the Supreme Court of Appeal held the appeal should fail. In relation to the transfer duty component, it found that documentation showed that only R233 000 of the R264 723 had been paid to SARS as transfer duty; SARS repaid that amount on 21 June 2011, and the attorneys deposited it into an interest-bearing trust account pending a court decision as to whom it should be repaid. The Supreme Court of Appeal accepted that the attorneys’ failure to refund the amounts was pursuant to Royal’s instructions, and that Royal accepted it should bear the costs if the appeal failed.

Despite the attorneys not being parties to the appeal, the Supreme Court of Appeal nevertheless varied the High Court’s order and directed the attorneys to make repayment of the capital sums and interest, including legal-rate interest from specified dates. The attorneys contended that this exposed them to liability for interest exceeding the interest earned in the trust account. It was common cause before the Constitutional Court that, following the Supreme Court of Appeal’s order, the attorneys had paid the capital amounts and certain accrued interest to the purchasers’ attorneys, and that what remained contentious was the imposition of legal-rate interest (in excess of the trust account’s accrued interest) as a liability placed upon the attorneys by an order made without them being heard.

3. Legal Issues

The central legal questions were whether the Supreme Court of Appeal, in ordering the attorneys (a non-party to the appeal) to make repayment and to pay interest at the legal rate, infringed the attorneys’ constitutional right under section 34 of the Constitution to have disputes resolved in a fair public hearing. This required consideration of whether fair procedure—particularly notice and an opportunity to be heard—had been afforded before an adverse order affecting the attorneys’ rights and interests was made.

The dispute was primarily concerned with the application of constitutional procedural fairness principles to the procedural posture and facts of the case. It also contained evaluative aspects regarding whether the Supreme Court of Appeal’s approach met the “twin notions” of procedural and substantive fairness, given that the attorneys were not parties, were not joined, and were not heard, yet were subjected to a monetary order.

Additional issues were identified in directions issued in the Constitutional Court, namely whether the Supreme Court of Appeal had power to correct its order (in light of functus officio) and whether the attorneys’ approach to the Supreme Court of Appeal by letter (rather than a substantive application) was procedurally appropriate. The Constitutional Court ultimately considered it unnecessary to decide these additional points in light of its conclusion on the section 34 infringement and the appropriate relief.

4. Court’s Reasoning

The Constitutional Court located its jurisdiction in the fact that constitutional issues were raised, specifically the implication of the right of access to courts and to a fair public hearing under section 34, and noted that the matter also had potential broader implications for conveyancing attorneys holding and investing monies in trust. It considered that the interests of justice supported granting leave to appeal, particularly because an adverse order had been made by default against a non-party, and because there were prospects of success.

On the merits, the Court emphasised that section 34 requires that disputes be resolved through fair procedures, and that fair procedure is directed at preventing arbitrariness. It relied on the principle (supported by its prior jurisprudence) that a person must have the opportunity to state their case, not because their version must prevail, but because the decision-maker must be informed by the competing viewpoints to reach an objectively justifiable conclusion. The Court treated the audi alteram partem principle—notice and a proper opportunity to be heard—as central to what fairness demands in adjudicative processes.

Applying these principles to the facts, the Court reasoned that the dispute before the Supreme Court of Appeal did not extend to the attorneys’ liability. The attorneys had been sued in the High Court but the claim against them was withdrawn, and they were not parties to the appeal. It was also undisputed that the attorneys held the funds on Royal’s instructions and had invested them in accordance with statutory obligations under section 78(2A) of the Attorneys Act. Against that background, the Court considered that the Supreme Court of Appeal’s determination that Royal’s appeal should fail ought to have concluded the matter, at least insofar as the operative restitutionary liability was concerned.

The Court then addressed the Supreme Court of Appeal’s decision to go further and resolve “ancillary issues” by making an adverse order against the attorneys. It found that this step was taken despite the Supreme Court of Appeal’s own acknowledgment that the attorneys were not a party and despite its findings that their failure to refund was pursuant to Royal’s instructions. The Constitutional Court concluded that, at a minimum, the attorneys should have been afforded an opportunity to make submissions before being burdened with a monetary liability order, particularly one extending to interest at the legal rate potentially exceeding the interest actually earned on the invested trust monies.

The Court characterised the fairness breach as encompassing both procedural unfairness (the attorneys were not heard in proceedings directly affecting them) and substantive unfairness (the reasons advanced did not justify imposing liability on the attorneys, especially where their conduct was aligned with their fiduciary role and statutory framework). In consequence, the Court held that the attorneys were entitled to approach the Constitutional Court for relief.

On remedy, the Court noted that the purchasers’ substantive aim had been restitution of the funds paid under the failed sale agreement, and that the relevant amounts had already been paid to the purchasers’ attorneys, with an undertaking regarding accrued interest up to a specified date. The remaining practical concern was the Supreme Court of Appeal’s order exposing the attorneys to liability for interest in excess of what was held in trust. The Court considered that the fact that the attorneys physically held the funds did not, without more, justify the imposition of personal monetary liability upon them, and it regarded Royal as the party that ought to have been ordered to repay the monies together with the interest components stipulated.

Having found that the attorneys’ section 34 rights were violated, the Court held that the appeal should succeed and that the order of the Supreme Court of Appeal should be corrected by setting aside the impugned portions and substituting an order directing Royal, rather than the attorneys, to pay the amounts and interest.

5. Outcome and Relief

The Constitutional Court granted leave to appeal and upheld the appeal. It set aside paragraphs 1 and 2 of the Supreme Court of Appeal’s order and replaced them with an order directing Royal Anthem Investments 129 (Pty) Ltd to pay the purchasers the deposit amount of R720 000, the interest that accrued on that amount in the interest-bearing account up to and including 9 December 2009, and further interest on R720 000 at the legal rate of 15.5% per annum from 10 December 2009 to date of payment.

The substituted order further directed Royal to pay the purchasers R264 723 together with interest at the legal rate of 15.5% per annum from 29 June 2011 to date of payment.

The Constitutional Court’s order, as reproduced in the judgment, did not include a separate or additional costs order.

Cases Cited

Royal Anthem Investments 129 (Pty) Ltd v Lau and Another [2014] ZASCA 19; 2014 (3) SA 626 (SCA).

Van Huyssteen and Others NNO v Minister of Environmental Affairs and Tourism and Others 1996 (1) SA 283 (CPD).

De Lange v Smuts NO and Others [1998] ZACC 6; 1998 (3) SA 785 (CC); 1998 (7) BCLR 779 (CC).

Legislation Cited

Constitution of the Republic of South Africa, 1996, section 34; section 168(3).

Attorneys Act 53 of 1979, section 78(2A).

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The Constitutional Court held that the Supreme Court of Appeal’s order, insofar as it imposed repayment and legal-rate interest liability on the applicant attorneys in proceedings in which they were not parties and were not afforded an opportunity to be heard, infringed the attorneys’ right under section 34 of the Constitution to a dispute being determined in a fair public hearing.

It held that both procedural fairness (absence of notice and a hearing) and substantive fairness (the unjustified imposition of a monetary liability exceeding the interest earned under the statutory trust investment arrangement) were not satisfied. The appropriate remedy was to set aside the impugned order and substitute it with an order placing the repayment obligation, together with the specified interest components, on Royal, the contracting party against whom restitution had been ordered in the High Court.

LEGAL PRINCIPLES

Section 34 of the Constitution requires that disputes capable of being resolved by the application of law be decided in a fair public hearing, which includes procedures that are “right and just and fair” in the circumstances. A central purpose of fair procedure is to prevent arbitrariness in the outcome of adjudication.

The principle of audi alteram partem, requiring that an affected person be given notice and an opportunity to be heard, is a foundational component of fairness and the rule of law in adjudicative decision-making. A court order that imposes adverse consequences on a person who was not joined and was not heard is inconsistent with these requirements.

Where an adverse monetary order is made against a person who was not a party to the proceedings and where there was no issue properly before the court regarding that person’s liability, the resulting procedure may violate both procedural and substantive fairness. In such circumstances, constitutional relief may be warranted to correct the order so that liability is borne by the appropriate party identified by the litigation as properly constituted.

Stopforth Swanepoel and Brewis Incorporated v Royal Anthem Investments 129 (Pty) Ltd (CCT 63/14) [2014] ZACC 26; 2015 (2) SA 539 (CC); 2014 (12) BCLR 1465 (CC) (2 October 2014)