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[2016] ZACC 34
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Absa Bank Limited v Moore and Another (CCT03/16) [2016] ZACC 34; 2017 (1) SA 255 (CC); 2017 (2) BCLR 131 (CC) (21 October 2016)
Heads of arguments
CONSTITUTIONAL
COURT OF SOUTH AFRICA
Case CCT 03/16
In the
matter between:
ABSA
BANK
LIMITED
Applicant
and
CHRISTINA
MARTHA
MOORE
First Respondent
JACQUES
MOORE
Second Respondent
Neutral
citation:
Absa
Bank Limited v Moore and Another
[2016]
ZACC 34
Coram:
Nkabinde ADCJ, Cameron J, Froneman J, Jafta J,
Khampepe J, Madlanga J, Mbha AJ, Mhlantla J and Musi AJ
Judgment:
Cameron J (unanimous)
Heard
on:
2 August 2016
Decided on:
21 October 2016
Summary:
reinstatement of mortgage bonds
cancelled as a result of a fraudulent scheme — validity of
cancellation — unjustified
enrichment claim against the
mortgagor whose debt was extinguished in the course of the fraud —
proprietary remedy for unjustified
enrichment claim bond debt validly
discharged — mortgage bonds accessory to debt — lack of
evidence to support enrichment
claim
ORDER
On
appeal from the Supreme Court of Appeal (dismissing an appeal from
the High Court of South Africa, Gauteng Local Division,
Johannesburg):
1.
Leave to appeal is refused, with costs,
including the costs of two counsel.
JUDGMENT
CAMERON J (Nkabinde
ADCJ, Froneman J, Jafta J, Khampepe J, Madlanga J, Mbha AJ,
Mhlantla J and Musi AJ
concurring):
[1]
At issue are five mortgage bonds
that the applicant, Absa Bank Limited (Bank) formerly held over a
residential property in Vereeniging
(property). The property is
the home of the respondents, Mrs Christina Martha Moore and Mr
Jacques Moore (Moores).
The Bank seeks leave to appeal against
a decision of the Supreme Court of Appeal (SCA) which declared the
discharge of the five
bonds, in the course of a scam, valid.
[1]
The Court dismissed the Bank’s appeal against the decision of
the South Gauteng High Court, Johannesburg (High Court)
that granted
the Moores an order restoring their home to them.
[2]
[2]
But the High Court imposed a
condition on the restitution. This was that the Moores’
original mortgage bonds in favour
of the Bank, which existed at the
time of the fraud, be reinstated. The SCA undid that
condition. It held this part
of the High Court order
incompetent and unjustified. In the High Court, the Bank
opposed all the relief the Moores sought.
It no longer does.
Its sole grievance, and the only issue in its application for leave
to appeal, is its quest to restore
the High Court order
re imposing over the Moores’ property its five original
bonds.
Background and
litigation history
[3]
The SCA judgment sets out the facts
lucidly.
[3]
It is not necessary to repeat them. At their centre is the
Brusson scam, the brainchild of Mr Mike Brusson.
Many
homeowners and banks were taken in by it. The scam took this
form: a fraudster preyed on property owners in distress
by
offering them a chance, as the scam’s brochure put it, to “make
money without capital outlay or risk”.
A loan, on
favourable terms, would be advanced to the home-owner. The
home owner’s property would serve as security.
Repayment would be through Brusson.
[4]
The brochure sets out the mechanism
through which this is achieved. A “Brusson partnership
investor” purchases
the home-owner’s property, in an
Offer to Purchase, but immediately sells it back to the home-owner,
in a Deed of Sale.
The “investor” and the
home-owner complete and sign both documents, and in addition a
Memorandum of Agreement.
This records the respective
obligations of Brusson, the “investor”, and the
homeowner.
[5]
Crucially, the brochure explains,
“the client retains ownership of his/her home”. But
that was the scam.
It was a lie. The client did not
retain ownership. She lost it. The instantaneous “resale”
was bogus.
Unsuspectingly, she had signed her ownership away.
The “Deed of Sale” was a worthless piece of paper that
would
never take effect. Crucial to the scam was that the
fraudsters had to obtain title. And its lucrative part was that
the “investor” promptly took ownership of the property,
and acquired a significant bank loan, presumably in cash, against
the
security it afforded.
[6]
Hundreds of home-owners suffered
losses, as did banks countrywide. The amounts run into many
tens of millions of rands.
Sometimes the bank advancing money
on the strength of the home-owner’s property was the same as
that of the home-owner.
Sometimes it was a different bank.
In each case, the cash proceeds of the newly registered bond seem to
have been shared
between Brusson and its confederate in the fraud,
the “investor”.
[7]
Importantly, Brusson also provided
funds to the home-owner. That, after all, was why she had
approached Brusson and why she
signed the documents placed before her
– for a loan. If the loan wasn’t forthcoming, the
home-owner would cry
foul and the scam would quickly unravel.
The loan helped keep the home-owner sweet – at least for long
enough to allow
the swindlers to make off with the cash advance
obtained from the bank on the security of the property.
[8]
The “investor” (or
Brusson) of course made no, or very few, payments on the new bond to
the lending bank. The
fraudsters had no interest in sustaining
the bond repayments. In due course, the lending bank’s
debt recovery processes
moved into action, and retook the home.
At the point where the home was sold in execution, or where the duped
homeowners
were evicted, the swindle was made bare to home owner
and bank.
[9]
That is what happened here.
The Moores, financially distressed, saw a Brusson advertisement.
Attracted by the offer
of a low-exposure loan, they followed up.
At the Brusson offices in Pretoria, they signed an “Offer to
Purchase”,
a “Deed of Sale” and a “Memorandum
of Agreement”. The Moores say they did not read the
brochure,
but their evidence on what Brusson told them, which the
Bank did not seek to contradict, is consonant with it. Their
“investor”
was Mr Sunnyboy Kabini. They never met
him. Soon after, an amount of R157 651 was paid into their
bank account.
Cash. Their affidavits don’t reveal
who paid. Nor do the Moores attach their bank statements to
reveal the source.
The Moores, like the Bank, are sparse on
details. But they believed the payment was from Brusson, and
that it was veritably
the loan they had sought. They were told
their repayments to Brusson were R6 907.03 per month, over
three years.
[10]
The deal seemed to have worked for
them: they kept their house, had cash in hand, and had reduced debt
instalments. But this
didn’t last. Their financial
situation only got worse. Within six months of signing
away their home, Mrs
Moore applied under the National Credit Act
[4]
for debt review. Her newly incurred debt to Brusson was
restructured. The Moores made some repayments under the debt
review, though they seem to have paid very little to Brusson –
barely more than R15 000.
[11]
Brusson had little reason to care.
By this stage of the fraud it had already raked in a good sum from
the lending bank on
the strength of the home-owner’s property.
Whatever Brusson received in “repayments” from the duped
home-owner
was extra profit on the scam. Mr Kabini, Brusson’s
confederate, had presumably benefitted, too. What exactly
happened to the proceeds of the loan the Bank advanced to Mr Kabini
is not clear, because the Bank has not provided the Court
with the
bond account statements that would reveal the cash flow. I
return later to why this matters.
[12]
A year after the agreements were
signed, Brusson sent a lawyer’s letter to the Moores,
complaining that they hadn’t
paid their instalments on the
bogus agreements. Cheeky. But it seems otherwise to have
been content to let the scam
run its course. Which it did.
Inevitably, Mr Kabini, the “investor” in whose name the
Moores’ home
was now registered, defaulted on his payments to
the Bank. The Bank obtained a default judgment against
him. When
the Bank was about to sell the property in execution,
the Moores, in alarm, sprang into action. They sought help from
the
Legal Resources Centre, which since then has
represented them. The sale was interdicted. Proceedings
were
then instituted to recover their home, on the basis that they
never intended to sell it.
[13]
Despite strenuous opposition from
the Bank, the High Court granted the Moores an order declaring the
Brusson agreements invalid,
setting them aside and undoing their
effects. More fully, the order was that (a) the fraudulent
agreements the Moores had
signed were invalid, unlawful and of no
force and effect; (b) the Moores were entitled to restitution of
their property, purportedly
transferred to the fraudster; and (c) the
mortgage bond registered by Mr Kabini in favour of the Bank, on the
strength of the invalid
transfer to him, was also invalid and set
aside.
[14]
The Bank appealed, unavailingly, to
the SCA. That Court held that, since the Moores and other
victims of the Brusson scam
were hoodwinked as to what they were
being led into, the agreements they signed were void. The
transactions were invalid
not for simulation, but for fraud.
[5]
And because the Moores had no genuine intention to transfer ownership
of their home to Mr Kabini – having been assured
they would
retain ownership – the purported transfer under the agreements
was ineffectual to convey valid title to him.
[6]
He, in turn, had no valid title on which to offer the Bank security.
Hence the mortgage bond registered at his instance
was also invalid.
[15]
All this the Bank now accepts.
It fights only the SCA’s reversal of the condition the High
Court imposed on the restitution
of the property to the Moores –
that their home become subject, once more, to the bonds previously
registered with the Bank.
The Bank’s
arguments
[16]
The Bank raises two distinct
arguments as to why the bonds should be reinstated. First, as a
matter of law, the Bank submits
that the cancellation of the bonds
was part of a greater fraudulent scheme, and therefore must be
unwound. If, however, the
cancellation was valid, then the Bank
contends that the Moores have been enriched at its expense, and the
appropriate remedy is
to reinstate the security the Bank previously
held over the Moores’ home.
[17]
The Bank contends that the
cancellation of the Moores’ existing mortgage bonds was an
integral part of the fraud. The
entire scheme – the
Moores’ sale to Mr Kabini, the registration of their
property in his name, the cancellation
of the Moores’ old bonds
and the registration of his new bond – was a fraud. Each
part of the scheme was equally
bad. And each part of it was
integral to the rest of the scheme. The Moores’ bonds had
to be cancelled to induce
the Bank to accept Mr Kabini’s
title to the property as security and for it to accept him as bond
debtor in the place
of the Moores.
[18]
The Bank says the discharge of the
Moores’ debt to the Bank was invalid because it was part of the
scheme and was tainted
with fraud (
contra
bonos mores
). Since the discharge
of the existing bonds was invalid, the Moores’ debt to the Bank
remains intact. It follows
that the High Court was right to
order that their bonds should be reinstated.
[19]
One cannot, the Bank urges, pick out
any pure pieces from the tangle and preserve them intact. If
the Moores are to have their
house back, with the result that the
Bank loses its security against Mr Kabini’s void title, then
the Bank must have back
the debt the Moores owed it, secured as it
previously was against their title. Fraud, the Bank says,
unravels all.
[7]
Alternatively, if this argument fails, the Bank
contends that this Court should develop the law of unjustified
enrichment to afford
the Bank a proprietary remedy. This
argument depends, importantly, as we will see, on the premise that
the Bank’s money
was used to discharge the Moores’ debt.
[20]
At the centre of the Bank’s
argument lies the complaint that the Moores have benefitted, at its
expense, from an unmerited
windfall. At the time the fraud was
perpetrated, the Moores owed the Bank some R145 000. Now,
after the fraud,
they owe it nothing. Their bond debt was
extinguished in the course of the fraud. In addition, soon
after signing the
dud documents, they received some R157 651 in
cash. So, the Bank says, the Moores have done very well out of
the fraud
– but the Bank is left to suffer. It contends
that it should at least get back the security it enjoyed over the
Moores’
property before the fraud.
[21]
The Bank seeks restitutionary
subrogation, which it says the English law affords a creditor in its
position.
[8]
This remedy would recognise that, in releasing the
Moores’ bonds and accepting Mr Kabini as its secured creditor,
the Bank
did not take the risk that Mr Kabini’s security would
prove worthless. It advanced Mr Kabini the money to discharge
the Moores’ bond debt on the supposition that he had good title
to offer instead. That not being so, it must be restored
to the
benefit of the security it had against the Moores’ property.
The Moores’
argument
[22]
The Moores contend that the
discharge of their bond debt to the Bank was valid and effectual.
This was because their loan
agreement with Brusson entailed that
their bond debt would be discharged. And their loan agreement
was itself effectual.
The fact that the whole scheme was a
fraud does not mean that the loan agreement, under which their bond
debt was discharged, was
automatically invalid. At worst, they
say, Brusson’s fraud gave them, as its victims, a choice:
cancel the agreement
or keep it going. They have never
cancelled the agreement. So the discharge performed under it
remains valid.
[23]
The Moores meet the Bank’s
alternative argument with the contention that they have not been
enriched. This is because
they still run the risk that the
trustees of the insolvent estates of the fraudsters, Brusson or Mr
Kabini, could sue them for
the benefit they received when their bond
debt to the Bank was eliminated, as well as for the cash advance they
received.
Hence, the Moores say, the Bank has no enrichment
claim against them.
Assessment
[24]
The Bank’s contention that the
discharge of the debt the Moores owed it and that the cancellation of
their bonds must be undone,
so as to restore the Bank to its
pre-fraud position, depends on the proposition that the agreements
under which the discharge and
cancellation occurred were vitiated by
the Brusson fraud – and hence that payment of the Moores’
debt was ineffective.
Likewise, the Bank’s alternative
complaint that the Moores gained a windfall at its expense is
predicated on the notion that
the Moores’ debt was discharged
with the proceeds of the loan it extended to Mr Kabini.
[25]
We can assess the Bank’s
submissions only on the information before us – and that
information emerges rather patchily
from the papers. Mr
Kabini’s mortgage bond was attached to the summons on which the
Bank obtained default judgment
against him for the amount outstanding
on the bond he registered against the Moores’ home. The
Moores included it in
their founding affidavits when they interdicted
the sale of their home. The bond records that Mr Kabini “has
become
indebted” to the Bank, and that the capital amount of
his debt is R480 000.
[26]
In its answering affidavit to the
Moores’ interdict application, the Bank tells us little more.
It says only that the
Moores’ mortgage bonds “were
cancelled simultaneously with registration of transfer” to Mr
Kabini. Further,
“simultaneously with the transfer of the
property into [Mr Kabini’s] name, a mortgage bond was
registered over the
property in favour of” the Bank.
Finally, the Bank says, “the proceeds of the loan were paid”
to Mr Kabini.
[27]
This is conspicuously meagre.
This from a large continent-wide institution, in whose electronic
records these transactions
must have been recorded, and whose
attorneys must have handled both the registration of Mr Kabini’s
bond and the cancellation
of the Moores’. The exact
mechanisms and monetary pathways remain mysterious. How did Mr
Kabini accomplish the
fraud? And were the Bank’s
conveyancers party to it? We are left at a loss. The
result is that we do not
know precisely how the Moores’ bond
debt was discharged.
[28]
For the Bank to say only that Mr
Kabini was paid “the proceeds of the loan” leaves us in
the dark. How much was
Mr Kabini paid, and how? In cash?
Into an account he held with the Bank? Into an account someone
else held with
the Bank? Or into an account he held with a
different bank? Into an account someone else held with a
different bank?
Nor does it say how the Moores’ bond debt
was discharged. Did the Bank deduct it from the proceeds of the
loan it advanced
to Mr Kabini? If so, was this by a book
write-off of the Moores’ debt within the Bank’s accounts
systems once
Mr Kabini was substituted as mortgagor? Or by
some other means? Or was there an independent payment into the
Moores’
bond account (by Brusson, as the Moores contend)?
And if so, who was the depositor? Mr Kabini or someone else?
[29]
To one conversant with banking
practice, these questions may seem ingenuous, and the answers
obvious. But from an evidentiary
point of view, we know, and
can infer or assume, none of it. We can only go on what the
Bank tells us in the evidence before
us. And that is gapingly
absent.
[30]
The Bank at all events was taken
in. It was duped into believing that Mr Kabini held good
title to the Moores’
property. Thinking he had purchased
the property, when he had not, its loan to him was advanced on the
supposition that he
was able to give it security for the advance,
when he could not.
[31]
If, despite the holes in its
evidence, we assume in favour of the Bank that it was Mr Kabini who
paid the Moores’ bond debt,
he certainly acted, as the Bank
contends, fraudulently in doing so. Does this mean that his
payment of the Moores’
bond debt was ineffectual?
[32]
Generally, payment is a bilateral
act – one that, in the absence of agreement to the contrary,
requires the cooperation of
payer (usually the debtor) and payee (the
creditor). Equally generally, discharge of a debt requires an
agreement
[9]
between the debtor (or party acting in the name of the true debtor)
and creditor to that effect.
[10]
But even assuming that the debt-discharge
agreement was between the Bank, as the Moores’ creditor, and Mr
Kabini, who, acting
on their behalf, paid off their bond debt, it
does not follow that the discharge was ineffectual because Mr Kabini
was a crook.
[33]
This is because, in contrast to some
other systems,
[11]
our law is extraordinarily generous in how a debt may be paid.
It allows payment of a debt without the consent – and
even
without the knowledge – of the debtor. This contrasts
with the position of the creditor, whose knowledge of and
assent to
payment are required.
[12]
It is well established in both our common law
jurisprudence and case law that a debt owing by A to B “may be
extinguished
by a payment made by a stranger to B in discharge of
that debt even if A is unaware of such payment”.
[13]
This proposition is supported by long-standing
common law authority in the Roman-Dutch sources. These hold
that a debt paid
by a third party in the name of the debtor
extinguishes the debt, even when payment is unauthorised, or even if
the debtor opposes
it.
[14]
The debtor is discharged, willy-nilly. This does not apply to
the discharge of an obligation which by its nature can
be properly
performed only by the debtor in person.
[15]
[34]
In our law, even a deposit into an
account of a fraudster is effectual to transfer ownership in the
money. The victim is left
with only a personal claim against
the fraudster – and a concurrent claim against the fraudster’s
curators in the case
of a sequestration.
[16]
Consistent with this position is also that a debt is paid when the
creditor / payee receives the money from the bank, whether
payment
was authorised or not.
[17]
[35]
Indeed, a thief who pays her own
debts with stolen funds extinguishes those debts, provided the
creditor who receives and accepts
payment is innocent.
[18]
Thus, an employee who steals money and deposits it
for her own benefit in various accounts that are in debit,
effectually extinguishes
those debts, although the amounts that
remain in credit can be recovered by the victim.
[19]
Our law goes further. Provided the payee / creditor is
innocent, payment of another’s debt, even by a thief,
with
stolen funds, operates to extinguish the debt.
[20]
[36]
In short, payment is a bilateral act
requiring the cooperation of the payer and the payee – but not
the debtor.
[21]
The payer is usually the debtor, but doesn’t have to be.
If A owes money to B, and C decides to pay off the debt,
then C
(payer) must intend to pay, and B (payee / creditor) must intend to
accept the payment. But A (debtor) does not have
to know of or
consent to the payment.
[22]
[37]
The debtors here were the Moores.
The practical effect of this doctrine is that if, despite the lack of
evidence, we assume
in favour of the Bank that Mr Kabini paid
the Moores’ bond debt, his payment was effective to discharge
their debt,
even if he did so in fraud of the Bank with funds the
Bank provided.
[23]
Whether Mr Kabini paid the debt on the Moores’ behalf, by a
book deduction from his own freshly advanced bond loan,
or by some
other means, the Bank accepted it and the payment was valid.
The Moores no longer owed the Bank anything.
[38]
So does “fraud unravel all”
here? Can the maxim help the Bank by undoing the debt discharge
and the bond cancellation?
The Moores insist that the fraud
related to the documents they signed, and that their true agreement
with Brusson was to receive
a loan – not the transactions in
the pieces of paper they signed. The Moores contend that in
fact there was genuine
consensus between them and Brusson that
Brusson would advance them moneys by way of a loan – and that
it was this agreement
that was given effect to when the credit
appeared in their account a few months later. The fact that the
three written agreements
did not actually specify a loan agreement
did not detract from the parties’ consensus about a loan.
Counsel for the
Moores called the three documents the parties signed
“pieces of paper”.
[24]
In contracting for that loan, the Moores were themselves the victims
of a fraud. This meant that they had a choice.
A person
induced to contract by the fraudulent representations of another may
either stand by the contract or claim its rescission.
[25]
This means that the Moores’ loan agreement with Brusson was
voidable at their option. But it was not inherently
without
legal effect. Unless the Moores chose to rescind the agreement
because of the fraud, Brusson remains bound by it.
[39]
And Brusson cannot avoid being bound
by relying on its own fraud to invalidate the loan agreement.
Still less can a third
party – the Bank – disregard the
loan agreement because of Brusson’s fraud. The maxim is
not a flame-thrower,
withering all within reach. Fraud unravels
all directly within its compass, but only between victim and
perpetrator, at the
instance of the victim. Whether fraud
unravels a contract depends on its victim, not the fraudster or third
parties.
[40]
Does the Brusson fraud unravel the
cancellation of the Moores’ bonds? The answer, equally,
must be No. The bonds
were accessory to the main debt they owed
to the Bank.
[26]
The main obligation was validly cancelled. It follows with
logical inevitability that the accessory obligation was
discharged
too.
[27]
[41]
Given this conclusion, the Bank
pressed an alternative argument. This laid emphasis on the fact
that it was operating as a
creditor in dual aspect – first, in
the loan it had already advanced to the Moores and, second, in the
new loan it was advancing
to Mr Kabini. Its argument was that,
if the Moores’ bonds were effectually cancelled, they must
nevertheless be reinstated
in its favour, since the use of its money
to discharge the debt those bonds secured was on condition that it
retained security
over the property.
[42]
In other words, the Bank should be
restored to its security under its agreement with the Moores because
it provided the funds from
which the Moores are now benefiting, and
because it never intended to expose itself to debt, whether to the
Moores or Mr Kabini,
minus the security of the Moores’
property. At no stage in any of these transactions did it
assume the risk of an insolvency
that would leave it without cover.
It had security – the Moores’ property. It lent Mr
Kabini the money
to pay the Moores’ bond debt only on condition
that it would continue to have a mortgage bond over that same
property.
It should therefore be granted a remedy. This
should put it “in the shoes of the party who held the secured
debt that
its loan was used to discharge”.
[28]
[43]
For three main reasons this
argument, too, cannot be sustained. First, the argument depends
on disaggregating the capacities
in which the Bank acted in the
transactions – first as lender to the Moores, and then as
lender to Mr Kabini. But,
if its premise is logically
sustained, it creates an insuperable problem for the Bank, since, if
the first lender were in fact
a different bank, on what terms and
conditions would the Court be able to impose a new bond in its favour
as second bank?
[29]
The problem is elided in the Moores’ case, because the Bank is
both first and second lender and, presumably, it seeks
the
reinstatement of the Moores’ bonds on the terms in force when
they were cancelled. But if that were not so, what
would be the
terms of the Moores’ new repayment obligations? And, if
there is no answer to that question, should the
Court determine
them? For the Bank’s argument to succeed, the Court would
have to create an entirely new contract between
it, as “bank
2”, and the Moores. But how? What would be the
payments and the repayment period? At
what interest rate?
What forfeiture and cancellation and other provisions? Must the
Court exercise a general equitable
jurisdiction to determine these
contractual terms itself? The whole matter is impossible.
[30]
[44]
All this shows vividly why the
conclusion the SCA reached was right. It said that the Court
“cannot make a contract
between the Bank and the Moores”.
[31]
[45]
Second, the argument supposes that
the Moores were enriched at the Bank’s expense. This is
by no means clear.
Were they enriched? And if so was it
at the expense of the Bank? The answers to both questions seem
to be No.
The release of the Moores’ property from the
bonds over them was not gratuitous. It came at a cost: their
new debt
to Brusson.
[46]
But, the Bank interposes, the Moores
owe Brusson and Mr Kabini nothing. They were victims of their
fraud. Brusson, Mr
Kabini and their respective trustees in
insolvency have no claim against them. They have come away with
no liabilities to
anyone at all.
[47]
The accuracy of this analysis
depends on whether the Moores are vulnerable to a claim by the
trustees of either Brusson’s
or Mr Kabini’s insolvency
(depending on who discharged their bond debt). The Bank’s
argument has some force.
For, according to general principle,
neither Brusson nor Mr Kabini can sue the Moores to reclaim what they
were paid under the
fraudulent contracts. The Moores, if they
choose not to uphold the contract, could successfully raise the par
delictum defence
that a plaintiff who has rendered performance under
a contract tainted with wrongdoing (turpitude) may not claim under
it:
in pari delicto potior est conditio
defendentis
.
[48]
If Brusson is in liquidation and if
Mr Kabini’s estate has been sequestrated, their trustees may
still be defeated by the
Moores’ par delictum defence. It
would not be open to the trustees or liquidators of the estate of Mr
Kabini or Brusson
to argue that Brusson’s or Mr Kabini’s
fraud should not be imputed to them. In principle, a thief’s
trustee
in insolvency, whether curator or liquidator, cannot be in a
better position than the thief.
[32]
Permitting the Kabini / Brusson trustees or
liquidators to deny turpitude on their own part in response to a par
delictum defence
would place the trustees in a better position than
the fraudster. But this is not the end of the enquiry.
Overriding
considerations of public policy
[33]
may conceivably entitle the trustees or liquidators to claim back
from the Moores the benefit they gained in the fraud despite
the par
delictum defence. The SCA has recently permitted this.
[34]
[49]
But even if the Moores were
enriched, the Bank faced a further, perhaps more insuperable,
hurdle. This was that it was not
impoverished. The fraud
cost it the Moores as its debtors. But in their stead it took
Mr Kabini. Mr Kabini owes
it the money it advanced to him –
all R480 000 of it, plus interest as agreed. That was why the
Bank obtained a default
judgment against him for R500 067, plus
further interest and costs. The Bank leaves us to assume that
Mr Kabini is worth
nothing. That seems reasonable. But
the extant claim and the judgment enforcing it insuperably impede the
Bank’s
assertion that the fraud impoverished it to the benefit
of the Moores. What the Bank lost when the Moores ceased being
its
debtors it has gained in the claims it has against Mr Kabini.
[50]
Alert to this dilemma, counsel for
the Bank was driven during oral argument to abandon the Kabini
default judgment, as well as any
claims the Bank might have against
Mr Kabini. Counsel for the Moores interjected that this was too
late. And indeed
so. Way too late. One induced to
contract by fraud must choose between upholding the contract and
rescinding it –
and must do so within a reasonable time after
knowledge of the deception.
[35]
[51]
Here the Bank knew from mid-2013, at
the latest, that Mr Kabini had ensnared it and the Moores in the
Brusson fraud. Despite
knowing this, it held onto its default
judgment against him – right through the High Court and
appellate proceedings, until
the morning of argument. That was
understandable. The entire banking system was still assessing
the repercussions of
the fraud, and High Court judgments were
gradually clarifying its impact.
[36]
But three years had passed. The Bank’s omission to
abandon the default judgment it obtained against Mr Kabini,
for
whatever reasons, leads inexorably to the inference that it made an
election to uphold its contract with him. That means
it cannot
say it was impoverished and hence claim enrichment against the
Moores.
[52]
Third, the evidence. The
evidence! Even if the Moores are immune from any claim by the
fraudsters or their trustees,
the Bank’s threadbare patchwork
of evidence disables its case. We simply don’t know how
the Moores’ bond
debt was discharged. The Moores say
Brusson paid it from the loan it advanced to them. That is
speculative. They
attach no bond statements to show who paid
their debt and how. The Bank for its part maintains that Mr
Kabini paid the debt,
and did so with its money. But its claim
is equally speculative. If Mr Kabini paid the Moores’
debt, why didn’t
the Bank show us the transactions? It
could have done so. It could have attached Mr Kabini’s
bond account statements,
as well as the Moores’. That
would have saved us the mystery and the muddle.
[53]
The Bank did not do so. We
don’t know why. It can’t have been the press of
litigation. The Moores
lodged their urgent application to
interdict the sale of their home in May 2013. They later
supplemented this with a fuller
founding affidavit in June 2013.
The Bank’s answering deposition was lodged much later, on 29
July 2013. That
gave it five weeks to prepare its evidence.
It offered almost none. The result is that its argument that it
was Mr
Kabini who paid the Moores’ outstanding debt, through
the loan he obtained from it, and not Brusson (from an undetermined
source), is entirely speculative.
[54]
Of course the Moores’ claim
that Brusson paid is equally speculative. But they are not
trying to establish an enrichment
claim. The Bank is. Its
attempt must fail for want of any basis in the evidence to support
it.
[37]
[55]
It follows that the Bank’s
contention that an enrichment claim should be developed to restore it
to the security it previously
enjoyed over the Moores’ property
cannot, on these facts, be sustained. There may be
circumstances in which it can.
We need say nothing more now.
[56]
Beneath these contentions lies the
Bank’s complaint that the Moores received an unmerited windfall
at its expense. It
is true that the Moores are better off now
than before the fraud, and that the Bank, having lost its secured
loan to the Moores,
now has only an unsecured claim against Mr
Kabini, who is probably good for nothing. But the Moores justly
defend that this
was not their fault. Their bond debt to the
Bank was discharged because the Bank decided to take Mr Kabini, whom
it thought
now owned the property, as its debtor in their stead.
It was the Bank that decided to grant a loan to Mr Kabini. We
don’t know what background checks it did, or could have done,
on him. We know nothing about the conveyancing attorney
whom it
employed, and who accepted all the documents at face value. The
discharge of the Moores’ debt was not subject
to a condition
that Mr Kabini would prove a worthy debtor. And, on the facts
before us, there is no basis to develop our
law so as to impose one.
[57]
In the way things have turned out,
on what we have before us, the outcome is not unjust. The Bank,
which enjoyed the institutional
resources and power to protect itself
against the fraudulent scheme, but didn’t do so, has to suffer
the loss its loan to
Mr Kabini caused to it.
Leave to appeal
[58]
In seeking leave to appeal to this
Court, the Bank made great play of its property rights under section
25 of the Constitution.
Those, it claimed, the SCA violated in
setting aside the High Court’s condition on restitution to the
Moores. But when
the written argument came in, there was nary a
whisper about property rights. In fact, the Bank’s
contentions before
this Court turned out to be largely
fact dependent: it accepted, rightly so, that each case would
turn on its own facts.
[59]
The Bank also contended in seeking
leave that this case implicated the right to housing under section 26
of the Constitution, since
if banks can’t recover security lost
through fraud, they will be reluctant to give bond loans to
low-income applicants.
This seems true, but as a basis for
granting leave on its own it is entirely speculative. And, even
if it weren’t,
the Bank’s postulation regarding the
future business practices of the banking industry does not by itself
implicate a constitutional
issue under section 26.
[60]
Finally, the Bank’s argument
involved no new principle regarding payment or discharge of debts.
And its evidence was
lacking for this Court to develop the law to
afford it a restitutionary remedy. In these circumstances, the
jurisdiction
of this Court is barely engaged. Leave to appeal
must be refused.
Conclusion
[61]
There is an order as follows:
1.
Leave to appeal is refused, with costs,
including the costs of two counsel.
For the Applicant:
G Marcus SC, K Hofmeyr and P Ramano
instructed by
Lowndes Dlamini
For the First and
Second Respondents:
W
Trengove SC,
P M P Ngcongo, N Ferreira and H Cassim
instructed by Legal Resources Centre
[1]
Absa v Moore
[2015] ZASCA 171
;
2016 (3) SA 97
(SCA) (Lewis JA; Ponnan, Pillay and
Saldulker JJA and Van der Merwe AJA concurring) (SCA judgment).
[2]
Moore v Sheriff for the District of
Vereeniging
[2014] ZAGPJHC 230
(26 September 2014). The High Court name was
subsequently changed to Gauteng Local Division,
Johannesburg.
[3]
SCA judgment above n 1 at paras 1-14.
[4]
34 of 2005, sections 86-7.
[5]
SCA judgment above n 1 at paras 26-7, affirming
the analysis by Nicholls J in
Radebe
v Sheriff for the District of Vereeniging
[2014] ZAGPJHC 228 (25 September 2014).
[6]
Applying
Legator
McKenna Inc v Shea
[2008] ZASCA 144
;
2010 (1) SA 35
(SCA); and
Nedbank Ltd v
Mendelow NNO
[2013] ZASCA 98
;
2013 (6)
SA 130
(SCA) at para 12:
“
It
is trite that where registration of a transfer of immovable property
is effected pursuant to fraud or a forged document, ownership
of the
property does not pass to the person in whose name the property is
registered after the purported transfer. Our
system of deeds
registration is negative: it does not guarantee the title that
appears in the deeds register. Registration is
‘intended to
protect the real rights of those persons in whose names such rights
are registered in the Deeds Office’.
And it
is a source of information about those rights.
But
registration does not guarantee title, and if it is effected as a
result of a forged power of attorney or of fraud, then the
right
apparently created is no right at all.
”
[7]
Afrisure CC v Watson NO
[2008]
ZASCA 89
;
2009 (2) SA 127
(SCA) at para 38, quoting Lord Diplock in
United City Merchants (Investments) Ltd
v Royal Bank of Canada
[1982] 2 All ER
720
(HL) at 725H.
[8]
See
Brocklesby v
Temperance Permanent Building Society
[1895] AC 173
(HL);
Butler v Rice
[1910] 2 Ch 277
; and
Ghana Commercial
Bank v Chandiram
[1960] AC 732 (PC).
[9]
Vereins-Und Westbank AG v Veren Investments
[2002] ZASCA 36
;
2002 (4) SA 421
(SCA) (
Vereins
)
at para 11; and
Burg Trailers SA
(Pty) Ltd v Absa Bank Ltd
[2003] ZASCA
55
;
2004 (1) SA 284
(SCA) at para 7. In
Vereins
,
the payer was the debtor, and the question was whether the creditor
/ payee intended to receive payment. The SCA held
it did.
[10]
Absa Bank Ltd v Lombard Insurance Company Ltd
,
Firstrand Bank Ltd v Lombard Insurance
Company Ltd
[2012] ZASCA 139
;
2012 (6)
SA 569
(SCA) (
Lombard
)
at para 18:
“
To
discharge a debt it must be paid in the name of the true debtor.
Generally, the discharge of a debt requires an agreement between
the
parties to that effect. . . . It requires the parties to be in
agreement as to the debt, whether that of the payer
or that of a
third party, to be paid.”
[11]
According to the United States
Restatement
(Second) of Contracts
(1981), a debt
can be discharged by a stranger, but not against the will of the
debtor. The debtor – in the
Restatement’s
terminology, the obligor of the original duty – can disclaim
the benefit of either a promise or performance and deprive
it of its
effect as discharge.
Restatement
§
278(2) provides that “[i]f an obligee
accepts in satisfaction of the obligor’s duty a performance
offered by a third
person, the duty is discharged, but an obligor
who has not previously assented to the performance for his benefit
may in a reasonable
time after learning of it render the discharge
inoperative from the beginning by disclaimer.” The
comments explain
that the obligor, “like any intended
beneficiary, has the power to disclaim the benefit of the third
person’s performance
and deprive it of its effect as a
discharge”. That is consistent with
§
306 (a beneficiary may disclaim a promise for his benefit within a
reasonable time and render any duty to himself inoperative)
.
[12]
Volkskas Bank Bpk v Bankorp Bpk (t/a Trust
Bank)
[1991] ZASCA 57
;
1991 (3) SA 605
(A) at 612C-D explicitly rejected the proposition that “payment
may be made without knowledge thereof by the creditor”.
It asserted instead that payment is a bilateral juristic act that,
unless agreed otherwise, requires the cooperation of debtor
(or
payer) and creditor.
[13]
Info Plus v Scheelke
[1998]
ZASCA 21
;
1998 (3) SA 184
(SCA) at 192D.
[14]
See
Commissioner for
Inland Revenue v Visser
1959 (1) SA
452
(A) (
Visser
)
at 458A-B (“It is not essential to the validity of the
payment, that it be made by the debtor, or any person authorised
by
him; it may be made by any person without such authority, or even in
opposition to his orders, provided it is made in his
name, and in
his discharge, and the property is effectually transferred; it is a
valid payment, it induces the extinction of
the obligation, and the
debtor is discharged even against his will.”), citing Grotius
3.39.10 and Voet 46.3.1; and
Lombard
above n 11 at para 17 (“his power of vindicating stolen
property from a third party possessing in good faith fails
nevertheless
when stolen money has been paid by a thief to a
creditor of his who receives it in good faith, or has been counted
out by way
of price for a thing sold, and has been either used up or
mixed with other money; for cash is regarded as used up by the
latter
process; moreover cash of another which has been used up in
good faith by a creditor can neither be vindicated nor claimed in a
personal action”), citing Voet 6.1.8.
[15]
Bousfield v The Divisional Council of
Stutterheim
(1902) 19 SC 64
at 70-1,
citing Voet 46.3.1.
[16]
Whitehead v Dumas
[2013] ZASCA 19
;
2013 (3) SA 331
(SCA) at paras 13-5 and 23-4.
[17]
B&H Engineering v First National Bank
[1994] ZASCA 152
;
1995 (2) SA 279
(A)
(cheque payment from one bank to another effectual to extinguish
debt, even though drawer did not authorise payment).
Standard
Bank of SA Limited v Oneanate Investments (Pty) Ltd
[1997] ZASCA 94
;
1998 (1) SA 811
(SCA) (
Oneanate
)
seems to be contrary but is not. The question was whether the
payer intended to make payment. The Court concluded
that it
did not. The case concerned book entries in two accounts held
at the same bank. A bank reversed both a credit
in one
account, which was in overdraft, and a simultaneous debit in a
second account held by it, because neither the debit from
the one
account nor the payment into the other had been authorised.
The credited account holder argued that the credit
could not be
reversed because it discharged the account’s then outstanding
balance. The Court rejected this
argument on the factual basis
that the particular discharge was conditional on recognition of the
corresponding debt. It
was “obvious from the conduct of
the parties that the credit to the account . . . was conditional
upon a recognition of
the corresponding debit” by the debited
account holder. Since the debited account holder denied
authorising the debit,
the bank was entitled to reverse the credit.
“Once such payment was not made by [the debited account
holder] because
it did not recognise the debit to its account it
could not be said that [the debited account holder] had paid
anything to [the
credited account holder] and accordingly that [the
latter] had paid the bank”. The bank was accordingly
entitled
to reverse the credit on the basis that it was merely a
book entry, dependent on authorisation. The Court
distinguished
B&H Engineering
on the basis that in that case “there had been an actual
payment by a bank to a third party” at a different bank,
and
not a mere book entry between two accounts at the same bank.
Oneanate
is accordingly authority regarding book entries made between two or
more accounts held at the same bank. Our case law appears
to
regard credits and debits within one bank differently from payments
between banks (see
Volkskas Bank
Bpk
above n 12 at 610H-611G).
See also FR Malan & JT
Pretorius “Credit Transfers in South African law (1)”
(2007) 69
THRHR
379
at 602 where the authors state that
“credit transfers in South African law are effected by means
of payment orders by a
customer to his bank pursuant to the general
bank and customer agreement, or general mandate, in terms of which
the bank is obliged
to give effect to payment orders of the
customer”. This extract supports the position in
Oneanate
, namely that the bank was entitled to reverse the
credit entry on the basis that there had been no authorisation (i.e.
payment
order) or recognition of the corresponding debit on the part
of the debited account holder. Not permitting a reversal of the
credit in these circumstances would seem to be contrary to the
nature of payment instructions, which the authors describe as one
of
mandate. On transfers in general, the authors state:
“
The
term ‘credit transfer’ is something of a misnomer.
It involves neither ‘funds’ in the sense
of notes and
coins nor a physical transfer of funds. The transaction is
executed by virtue of a series of mandates resulting
in the
crediting of the beneficiary’s account. . . . In an
economic sense a ‘transfer’ of value has been
achieved
but no transfer of any kind in the sense of the term used in the law
of property or obligations.
A
debit transfer, on the other hand, is initiated by the creditor who
instructs his bank to collect payment of a certain, and
mostly
recurring, debt from the debtor. A debit transfer is also
referred to as a ‘direct debiting’ or a ‘debit
order’ and it can be said that, in distinction to the credit
transfer where the debtor ‘pushes’ the funds to
the
account of the creditor, the creditor in the case of a debit
transfer ‘pulls’ the funds to his account.
The
authority of the debtor’s bank to debit the account of the
debtor rests on either his express, tacit or subsequent
agreement.
A debtor may also authorise his bank in advance to effect payment of
debts by means of a debit transfer in which
event the transaction
between the debtor and his bank can be characterised a mandate.
It would appear that any credit to
the creditor’s account has
provisional effect only, subject to the debit transfer order being
paid.”
This analysis of transfers
supports the proposition that a “credit to [an] account . . .
[is] conditional upon a recognition
of the corresponding debit”
(
Oneanate
at 822G–H). Since this feature was
lacking in
Oneanate
there was no payment.
Oneanate
seems to be authority for the proposition that, in order for a
credit entry not to be reversed, there must have been a fulfilment
of the condition attached to such credit, namely authorisation or
recognition of the corresponding debit. Put differently,
Oneanate
does not permit cancellation or reversal of a credit
entry once payment has been effected in cases where the debtor
expressly
requested the bank to facilitate the debit payment.
[18]
Lombard
above n
10 at para 18.
[19]
Id at para 19.
[20]
Visser
above n
14.
[21]
Vereins
above n
9 and
Volkskas Bank Bpk
above
n 12 must be understood in this light.
[22]
Visser
above n
14.
[23]
Even if we imagine – what no one suggests –
that the Moores colluded with Mr Kabini, and that he as part of a
joint
fraudulent scheme paid their bond debt, the discharge would
still be valid under
Visser
id and
Lombard
above n 10 – the Bank would have received payment by means of
an intentional payment from Mr Kabini. In this imaginary
scenario, presumably, the Bank in its role as lender / creditor
would of course have a direct claim against the Moores for fraud
–
but this does not touch the discharge of their debt.
[24]
Even if there had been no “meeting of the
minds” between Brusson and the Moores, it does not follow that
no valid
loan came into existence. Our law of contract has
long recognised quasi-mutual assent as a source of contractual
obligation:
since it would be unrealistic for contractual liability
to be based solely on the parties’ subjective, and possibly
hidden,
intentions. So where dissensus is not readily
apparent, the party who acts contrary to the apparent consensus may
well
be held bound. This protects a contracting party unable
to dispute the other’s denial of their “true”
intention. See
Sonap Petroleum
(SA) (Pty) Ltd v Pappadogianis
[1992]
ZASCA 56
;
1992 (3) SA 234
(A) per Harms AJA at 239I-J: “the
decisive question in a case like the present is this: did the party
whose actual intention
did not conform to the common intention
expressed, lead the other party, as a reasonable man, to believe
that his declared intention
represented his actual intention?”
[25]
Bowditch v Peel and Magill
1921
AD 561
per Innes CJ at 572-3, citing Voet 4.3.3-4 and 4.3.7.
[26]
For the accessorial principle see
Kilburn
v Estate Kilburn
1931 AD 501
at 506;
Thienhaus NO v Metje
&
Ziegler Ltd
1965
(3) SA 25
(A) at 32F-G; and
Grobler v
Oosthuizen
[2009] ZASCA 51
;
2009 (5)
SA 500
(SCA) at para 21.
[27]
In
Nulliah v
Harper
1930 AD 141
at 151-2 and
155, the Appellate Division (the predecessor of the SCA) held that
where immovable property is mortgaged, payment
of the mortgage
obliges the mortgagee
pari passu
to
cancel the bond or cause it to be cancelled in the Deeds Registry.
[28]
In addition to the cases the Bank invoked, the
American
Restatement (Third) of
Restitution and Unjust Enrichment
(2011) § 57 provides for subrogation as a remedy:
“
(1)
If the defendant is unjustly enriched by a transaction in which
property of
the claimant is used to discharge an obligation of the
defendant or a lien on the defendant's property, the claimant may
obtain
restitution
(a)
by succeeding to the rights of the obligee or lienor against the
defendant or the defendant’s property, as though such
discharge had not occurred, and
(b)
by succeeding to the collateral rights of the defendant in the
transaction concerned.
(2)
Recovery via subrogation may not exceed reimbursement to the
claimant.
(3)
The remedy of subrogation may be qualified or withheld when
necessary
to avoid an inequitable result in the circumstances of a
particular case.”
[29]
This can be understood in this way:
The
Bank in its capacity as lender / creditor 1 contends that the
discharge of the Moores’ debt was invalid. But,
in this
capacity, what title does it have to complain about fraud between
Kabini and the source from which he obtained the funds
to discharge
its debt (which happened to be the Bank, as lender / creditor 2)?
By corollary, the Bank as lender/creditor
to Mr Kabini asserts that
the R480 000 loan it advanced to Mr Kabini was tainted by
fraud. But how does this entitle
it to claim that lender /
creditor 1’s discharge of debt was invalid?
[30]
Gaius
Institutes
Book III. Law of Things at 193a (De Zulueta edition, Oxford
University Press, London 1946).
[31]
SCA judgment above n 1 at para 42.
[32]
Peterson NO v Claassen
[2005]
ZAWCHC 44
; 2006 (5) 191 (C) at para 37, approved in
Afrisure
CC
above n 7 at para 41.
[33]
According to the judgment of Stratford CJ in
Jajbhay v Cassim
1939
AD 537
at 544-5.
[34]
Afrisure CC
above
n 7 at para 47.
Afrisure CC
established that an amount transferred
pursuant to an illegal contract can, in principle, be reclaimed.
If a claimant seeking
restitution has behaved dishonourably, the
defendant can raise the par delictum rule as a defence. And
this is so even
against the liquidators of a company. They
cannot claim that the defence finds no application on the basis that
they themselves
(as opposed to the company’s directors or
officers) did not act with turpitude. But the rule is not
inflexible; it
can be relaxed when public policy requires. In
Afrisure CC
,
the SCA relaxed the par delictum rule and permitted the liquidators
to recover, in the light of public policy considerations,
notwithstanding the turpitude on the part of the claimant company.
[35]
In
Bowditch
above n 25 at 572-3, Innes CJ related
that one induced to contract by fraud “may either stand by the
contract or claim a
rescission”. It follows, he said,
that—
“
he
must make his election between those two inconsistent remedies
within a reasonable time after knowledge of the deception.
And
the choice of one necessarily involves the abandonment of the
other. He cannot both approbate and reprobate”.
[36]
Radebe
above n 5;
Barnard v Nedbank Limited
[2014]
ZAGPPHC 723 (11 September 2014);
Leshoro v Nedbank Limited
[2014]
ZAFSHC 69
(20 March 2014);
Mabuza v Nedbank Limited
[2014] ZAGPPHC 513 (26 June 2014);
Absa Bank v Boshoff
[2012] ZAECPEHC 58 (28 August 2012);
Cloete NO v Basson
[2010] ZAGPJHC 87 (4 October 2010); and
Ditshego v Brusson
Finance (Pty) Limited
[2010] ZAFSHC 68
(22 July 2010)
.
[37]
It doesn’t seem unlikely that Mr Kabini
used the R480 000 his fraud extracted from the Bank to pay
R157 651 to
the Moores, R145 000 to the Bank to settle the
Moores’ mortgage debt, and R168 000 to Brusson –
but the
Moores are correct to maintain that “there is no
evidence to support this postulate”. Mrs Moore, in the
same
affidavit, rightly stated that “we have no idea”
what happened between Mr Kabini and Brusson – or where the
“cash came from that flowed from Brusson to the Moores and to
[the Bank] in settlement of their mortgage debt” (at
para 13
of the Moores’ answering affidavit to Nedbank Limited’s
amicus curiae application, which this Court dismissed
on
25 July 2016). Equally speculative is the Moores’
assertion that Brusson, and not Mr Kabini, paid
their mortgage
debt to the Bank. This assumes, equally without evidence, that
the Moores’ bond was paid off by Brusson.