Attorneys Fidelity Fund v Injo Investments CC

• Jurisdiction: South Africa
• Judge: Hlophe JP, Saldanha J and Cloete J
• Judgment Date: 21 August 2015
• Docket Number: A 80/2014
• Hearing Date: 27 July 2015
• Counsel: M Salie SC for the appellant. S Myburgh for the respondent.
• Court: Western Cape High Court, Cape Town

Cloete J (Hlophe JP and Saldanha J concurring):

Introduction

[1] This is an appeal with the leave of the court a quo, which found in C favour of the respondent on certain limited issues separated in terms of rule 33(4).

[2] The respondent had sued the appellant as first defendant in its capacity as professional indemnity insurer for payment of the total sum D of R1 040 000, together with interest and costs, arising from eight substantially identical claims in respect of which the respondent had already obtained default judgment against the second defendant, Phokombe & Viljoen Incorporated ('PV'), a company which traded as a firm of attorneys in Alberton, Gauteng. The respondent was unable to recover any part of the judgment debt from the second defendant and/or E its directors and thus lodged a claim with the appellant, which in turn repudiated liability, resulting in the respondent instituting action against it.

[3] When the matter served before the court a quo the parties submitted an agreed statement of facts, to be supplemented by oral evidence, F together with the issues which they had formulated for determination in terms of rule 33(4).

[4] The salient agreed facts were that:

[4.1]

At all relevant times PV traded as a firm of attorneys and its three directors were duly admitted and practising attorneys, and G holders of Fidelity Fund certificates.

[4.2]

PV operated a trust account in terms of s 78 of the Attorneys Act 53 of 1979 ('the Attorneys Act') and through its directors conducted conveyancing.

[4.3]

During the period October to November 2006 PV represented to H the respondent that certain of its clients, as sellers of immovable property, wished to conclude discounting agreements with it; that they had already signed these agreements and that attendant warranties provided by PV had been duly authorised by the clients concerned.

[4.4]

The aforementioned representations were made by PV with the I intention of inducing the respondent to act on the correctness thereof, which it did, by signing the agreements and making payment of the sums comprising its claim into PV's trust account.

[4.5]

PV's representations were false and it misappropriated the funds J so paid.

Cloete J (Hlophe JP and Saldanha J concurring)

[5] The issues to be determined were: A

[5.1]

Whether the payments were made to PV in the course of its practice as a firm of attorneys;

[5.2]

whether the funds so paid were entrusted by the respondent to PV as envisaged in s 26(a) of the Attorneys Act; and

[5.3]

in the event of it being found that the funds were so entrusted, B whether the transactions constituted loan agreements in terms of s 47(1)(g) read together with s 47(5)(b) and (c) of the Attorneys Act.

[6] It was further agreed that in the event of the respondent not succeeding on either of the first two issues, the action fell to be dismissed. C

[7] For reasons which will become apparent later in this judgment it is only necessary to deal with the second issue, namely that of entrustment.

Evidence relating to entrustment in the court a quo D

[8] The only witness who testified was Mr John Swanepoel (Swanepoel), the respondent's duly authorised representative to whom the abovementioned representations had been made. I will refer only to those aspects of his evidence which are relevant to the entrustment issue.

[9] Swanepoel initially testified that the respondent conducted the E business of providing bridging finance for attorneys who handled conveyancing transactions. However, it emerged that in the instant matter bridging finance was not provided to PV per se but rather to 'clients' of these attorneys who, it was represented to Swanepoel, had sold their immovable properties and required bridging finance, pending F payment to them of the proceeds of such sales upon registration of transfer to the purchasers concerned. This much is evident from Swanepoel's testimony that:

[9.1]

The parties to each discounting agreement were the respondent on the one hand and PV's client on the other. G

[9.2]

Before concluding each discounting agreement the respondent required proof of what Swanepoel referred to as the 'underlying sale transaction'. [1]

[9.3]

The purpose of including PV's trust-account details in each discounting agreement was so that — H

'once a transaction has been finalised and I approved the transaction, then I would pay over the money into Phokompe & Viljoen's trust account . . . thereafter they should actually pay the client then . . .'. [2]

[9.4]

The sole reason why PV's trust account was utilised was so that — I

I've got security with the attorneys . . . . If I pay the money directly over to the client, I've got no security. Once I've paid

Cloete J (Hlophe JP and Saldanha J concurring)

A the money over into the attorney's trust account, then I've got security from the attorney that he will look after the money and make sure that the client gets paid.' [3]

[9.5]

Apart from the recordal in each discounting agreement that payment was to be made by the respondent into PV's trust account, there was no specific term obliging the respondent to B effect payment in this manner in order to fulfil its obligation to the 'client' concerned. [4]

[9.6]

There was nothing to prevent the client from instead repaying the respondent at his or her election either before or upon receipt C of the sale proceeds. [5]

[10] Swanepoel was referred to one of the discounting agreements and its attendant warranty (given that all eight claims were substantially identical, it was unnecessary to separately refer to each one).

D [11] The relevant terms of the discounting agreement [6] are as follows:

[11.1]

The 'client' sold to the respondent the surplus of the sale proceeds of the immovable property concerned. The 'surplus' was calculated as the selling price less the client's disposal costs (inclusive of any amount owing under a mortgage bond). [7]

[11.2]

The purchase price payable for the surplus would be paid by E the respondent into PV's trust account and then in turn by PV to the client (in one instance the respondent purchased the surplus of R275 540 for R100 000). [8]

[11.3]

Payment of the surplus purchased was to be made by PV to the respondent within 24 hours of registration of transfer if the client had not already paid it directly to the respondent; F payment nonetheless remained the client's liability. [9]

[11.4]

The client was also liable for the fees stipulated in clause 3.

[11.5]

Failure by the client to make payment 'of any amount due' would constitute a breach of the discounting agreement and the respondent would have the right to claim immediate payment G 'of all outstanding amounts due by the client'. [10]

[12] The warranty provided by PV in each instance was a separate document and did not form part of the discounting agreement. Although clause 1 of the discounting agreement contains certain warranties on the part of the client, these do not include an irrevocable instruction to PV to H make payment of the surplus to the respondent upon registration of

Cloete J (Hlophe JP and Saldanha J concurring)

transfer, and clause 1.5 of the discounting agreement provides only that A 'this agreement is entered into by Injo Investments on the warranties expressed in this agreement'. [11]

[13] Although Swanepoel repeatedly confirmed that PV was obliged to pay over the purchase price to the client concerned, he also expressly B denied that PV's trust account was thus merely a conduit for purposes of payment. [12] This contradiction in his testimony is perhaps best explained by his evidence relating to how he viewed PV's role in the transactions: [13]

'(T)he agreement was actually between me and Phokombe & Viljoen, not the client, although the client was a person that should have received the money.' C

And further:

'What agreement are you referring to? — The agreement that I would pay the money over to them, they would pay the client and as soon as the...