Absa Bank Ltd v Moore and Another

• Jurisdiction: South Africa

Absa Bank Ltd v Moore and Another
2017 (1) SA 255 (CC)

2017 (1) SA p255

Citation	2017 (1) SA 255 (CC)
Case No	CCT 3/16; [2016] ZACC 34
Court	Constitutional Court
Judge	Nkabinde ADCJ, Cameron J, Froneman J, Jafta J, Khampepe J, Madlanga J, Mbha AJ, Mhlantla J and Musi AJ
Heard	August 2, 2016
Judgment	October 21, 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.

Flynote: Sleutelwoorde B

Debtor and creditor — Discharge of debt — Payment by third party acting in furtherance of fraudulent scheme — Payment effective to discharge debt even if made in fraud of creditor and with funds provided by it. C

Land — Transfer — Fraud inducing transfer — Ambit of maxim 'fraud unravels all' — Effect on cancellation of mortgage bond — Whether bank entitled to reinstatement of bond — Court will not write new contract for parties.

Mortgage — Mortgage bond — Cancellation — Mortgagee bank cancelling bond after mortgage debt paid by third party in furtherance of fraudulent scheme — Whether bank entitled to reinstatement of bond. D

Payment — What constitutes — Payment by third party may discharge debt even if payment made in furtherance of fraudulent scheme.

Headnote: Kopnota

In 2009 the Moores fell prey to the Brusson property scam. Lured by an ad promising 'money without capital outlay or risk', the Moores signed three E agreements: an 'offer to purchase', a 'deed of sale' and a 'memorandum of agreement'. But the 'deed of sale', under which they thought they were buying back the house, was fake: they had unwittingly signed away their home to Brusson's accomplice, Kambini. Having discharged the Moores' bond debt, Kambini obtained, then defaulted on, a new home loan from Absa. Absa, who had cancelled the Moores' existing bonds when the F underlying debt was discharged, took judgment against Kambini and attached the house (which was still occupied by the Moores) in execution. In the meantime the Moores had received the promised loan. [*]

A High Court found that the agreements signed by the Moores were invalid by reason of simulation and granted the Moores' application for an interdict G prohibiting the proposed sale in execution. The court ordered the restitution of the property to the Moores subject to the reinstatement of their original mortgage bonds.

In an appeal by Absa the Supreme Court of Appeal held the agreements to be invalid for fraud, not simulation, and undid the condition imposed by the High Court, which it found to be unjustified and incompetent.

In an application for leave to appeal to the Constitutional Court, Absa sought H only the re-imposition of this condition. Absa argued that the cancellation of the Moores' bond debt was part of a grand fraudulent scheme which should be undone so as to restore Absa to its pre-fraud position. Absa argued that even if the cancellation of the Moores' bonds was valid, then the Moores had been enriched at its expense, and the appropriate remedy was for the court to develop the law of enrichment by implementing restitutionary I subrogation, an equitable remedy afforded under English law to a

2017 (1) SA p256

A creditor in its position. The proposed remedy would recognise that, in releasing the Moores' bonds and accepting Kabini as its secured creditor, Absa had acted on the supposition that Kambini had good title to offer. That not being the case, it had to be restored to the benefit of its original security.

Held

B While a debt may be paid without the consent of the debtor (in casu the Moores), provided the payer (Kambini) intended to pay and the payee/creditor (Absa) intended to accept payment, the question was whether the 'fraud unravels all' principle could aid Absa by undoing the debt discharge and the bond cancellation (see [33] – [36], [38]). The answer was that it could not: the payment was valid despite the fraud, and effective to discharge the C Moores' debt to Absa (see [37]). Unless the Moores chose to rescind their loan agreement with Brusson because of the fraud, it was binding (see [38]). Absa could not disregard it because of the fraud, nor did the fraud unravel the cancellation of the Moores' bonds: they were accessory to the main debt they owed Absa, which was validly cancelled (see [39] – [40]).

Even if Absa's argument for subrogation were accepted, it would require the D court to write a new contract for it and the Moores, which it could not do (see [43] – [44]). The argument also presupposed that the Moores were enriched at the expense of Absa, which was not the case, since the release of the Moores' property from the bonds came at the cost of their new debt to Brusson (see [45]). And even if the Moores had been enriched, Absa had not been impoverished, for it had a claim against Kambini and a judgment E enforcing it (see [49]).

Beneath the contention of enrichment was Absa's complaint that the Moores received an unmerited windfall at its expense. But the discharge of the Moores' debt was not subject to the condition that Kambini would prove a worthy debtor, and there was no basis to develop the law so as to impose one (see [56]). This outcome was fair: Absa, which enjoyed the institutional F resources and power to protect itself against the fraudulent scheme, but didn't do so, had to suffer the loss its loan to Mr Kabini caused to it (see [57]).

Lastly, Absa's failure to make a convincing argument on constitutional principles meant that the jurisdiction of the Constitutional Court was barely engaged (see [58] – [60]). Leave to appeal accordingly refused.

G Cases cited

Southern Africa

Absa Bank Ltd v Boshoff [2012] ZAECPEHC 58: referred to

Absa Bank Ltd v Lombard Insurance Co Ltd 2012 (6) SA 569 (SCA) ([2012] ZASCA 139): referred to

Absa Ltd v Moore and Another 2016 (3) SA 97 (SCA) ([2015] ZASCA 171): confirmed on appeal H

Afrisure CC and Another v Watson NO and Another 2009 (2) SA 127 (SCA) ([2008] ZASCA 89): discussed

B&H Engineering v First National Bank 1995 (2) SA 279 (A): referred to

Barnard v Nedbank Ltd [2014] ZAGPPHC 723: referred to

Bousfield v Divisional Council of Stutterheim (1902) 19 SC 64: referred to I

Bowditch v Peel and Magill 1921 AD 561: referred to

Burg Trailers SA (Pty) Ltd and Another v Absa Bank Ltd and Others 2004 (1) SA 284 (SCA) ([2003] ZASCA 55): referred to

Cloete NO v Basson [2010] ZAGPJHC 87: referred to

Commissioner for Inland Revenue v Visser 1959 (1) SA 452 (A): referred to

Ditshego v Brusson Finance (Pty) Ltd [2010] ZAFSHC 68: referred to J

2017 (1) SA p257

Grobler v Oosthuizen 2009 (5) SA 500 (SCA) ([2009] 3 All SA 508; A [2009] ZASCA 51): referred to

Info Plus v Scheelke and Another 1998 (3) SA 184 (SCA): referred to

Jajbhay v Cassim 1939 AD 537: referred to

Kilburn v Estate Kilburn 1931 AD 501: referred to

Legator McKenna Inc and Another v Shea and Others 2010 (1) SA 35 (SCA) B ([2008] ZASCA 144): referred to

Leshoro v Nedbank Ltd [2014] ZAFSHC 69: referred to

Mabuza v Nedbank Ltd and Another [2014] ZAGPPHC 513: referred to

Moore and Another v Sheriff, Vereeniging [2014] ZAGPJHC 230: referred to

Nedbank Ltd v Mendelow and Another NNO 2013 (6) SA 130 (SCA) ([2013] ZASCA 98): referred to

Nulliah v Harper 1930 AD 141: referred to C

Peterson and Another NNO v Claassen and Others 2006 (5) SA 191 (C) ([2005] ZAWCHC 44): referred to

Radebe v Sheriff, Vereeniging [2014] ZAGPJHC 228: referred to

Sonap Petroleum (SA) (Pty) Ltd (formerly known as Sonarep (SA) (Pty) Ltd) v Pappadogianis 1992 (3) SA 234 (A): referred to

Standard Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (in Liquidation) D 1998 (1) SA 811 (SCA) ([1998] 1 All SA 413; [1997] ZASCA 94): explained

Thienhaus NO v Metje & Ziegler Ltd and Another 1965 (3) SA 25 (A): dictum at 32F – G applied

Trustees, Estate Whitehead v Dumas and Another 2013 (3) SA 331 (SCA) ([2013] ZASCA 19): referred to E

Vereins- und Westbank AG v Veren Investments and Others 2002 (4) SA 421 (SCA) ([2002] ZASCA 36): referred to

Volkskas Bank Bpk v Bankorp Bpk (h/a Trust Bank) 1991 (3) SA 605 (A): explained.

England F

Brocklesby v Temperance Permanent Building Society [1895] AC 173 (HL): referred to

Butler v Rice [1910] 2 Ch 277: referred to

Ghana Commercial Bank v Chandiram [1960] AC 732 (PC): referred to

United City Merchants (Investments) Ltd and Others v Royal Bank of Canada and Others [1982] 2 All ER 720 (HL): referred to. G

Case Information

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.

An application for leave to appeal against a judgment of the H Supreme Court of Appeal (reported at 2016 (3) SA 97 (SCA)). The application was refused (see [61]).

Judgment

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

2017 (1) SA p258

Cameron J

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...