Absa Bank Ltd v Moore and Another

• Jurisdiction: South Africa
• Judge: Nkabinde ADCJ, Cameron J, Froneman J, Jafta J, Khampepe J, Madlanga J, Mbha AJ, Mhlantla J and Musi AJ
• Judgment Date: 21 October 2016
• Citation: 2017 (1) SA 255 (CC)
• Docket Number: CCT 3/16 [2016] ZACC 34
• Hearing Date: 02 August 2016
• Counsel: G Marcus SC (with K Hofmeyr and P Ramano) for the appellant. W Trengove SC (with PMP Ngcongo, N Ferreira and H Cassim) for the respondents.
• Court: Constitutional Court

Cameron J (Nkabinde ADCJ, Froneman J, Jafta J, Khampepe J, Madlanga J, Mbha AJ, Mhlantla J and Musi AJ concurring): I

[1] At issue are five mortgage bonds that the applicant, Absa Bank Ltd (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 J

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A 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 (the 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 B 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 C 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 D 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 homeowner. The homeowner's property E 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 homeowner's property, in an offer to purchase, but immediately sells it back to the homeowner, in a deed of sale. The 'investor' and the homeowner complete and sign both documents, and in addition a memorandum of agreement. This F 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 G 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 H it afforded.

[6] Hundreds of homeowners suffered losses, as did banks countrywide. The amounts run into many tens of millions of rands. Sometimes the

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bank advancing money on the strength of the homeowner's property was A the same as that of the homeowner. 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 homeowner. That, B 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 homeowner would cry foul and the scam would quickly unravel. The loan helped keep the homeowner 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. C

[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 D where the home was sold in execution, or where the duped homeowners were evicted, the swindle was made bare to homeowner 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 E 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 F 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 R6907,03 per month over three years. G

[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 H 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 homeowner's property. Whatever Brusson received in 'repayments' from I the duped homeowner 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

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A 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 B 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 C 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 D 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 E 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 F 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 H his instance was also invalid.

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[15] All this the Bank now accepts. It fights only the SCA's reversal of the A 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 B 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 C 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 D 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. E

[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'...