Devland Cash and Carry (Pty) Limited v Attorneys Fidelity Fund

• Jurisdiction: South Africa
• Judge: JI Cloete J
• Judgment Date: 22 March 2017
• Citation: 2017 JDR 0754 (WCC)
• Docket Number: 7307/2016
• Court: Western Cape Division, Cape Town

Cloete J:

Introduction

[1]

The applicant seeks two orders. The first is to declare that an irrevocable undertaking issued to it by LBG Attorneys ('LBG') on 15 June 2009

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'constituted trust funds' held for and/or on its behalf as contemplated in s 26(a) of the Attorneys Act 53 of 1979 ('the Act'). The second is for payment by the respondent of R814 962.35 together with interest thereon as a consequence of the failure by LBG to adhere to that undertaking.

[2]

The respondent raised various defences in its answering affidavit but persisted only with three, all of which centre around entrustment. First, the applicant has not established that monies were in fact paid into LBG's trust account. Second, there was no other "entrustment" as envisaged in s 26(a) of the Act. Third, in any event, payment was not made to the attorney concerned in the course of his practice.

Background facts

[3]

On 15 June 2009, ostensibly on the instructions of his client, Mr Naven Naidoo of Coifax Investments (Pty) Ltd (a company registered and trading in Harare, Zimbabwe), attorney Leslie Brian Ganas of LBG furnished the applicant (represented by Mr Shiraz Gathoo) with the following irrevocable undertaking:

'Sirs

RE: NAVEN NAIDOO

We act for Mr Naven Naidoo and have been instructed as follows:

(a)

Our client has placed an amount of R1 000 000,00 (one million rand) in our trust account.

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(b)

Acting on the instructions of Naven Naidoo, we hereby provide this irrevocable undertaking:

For the Credit : Devland Cash & Carry, for the amount of R1 000 000,00 (one million rand only).

Conditions of payment:

(a)

Payment to be effected 45 days after the issue of an invoice.

(b)

Invoice/s shall in total not exceed an amount of R1 000 000,00 (one million rand)

We trust the above to be in order,

Yours faithfully

LBG ATTORNEYS

Per LB Ganas

BANK ACCOUNT DETAILS: LBG Attorneys Trust Account, ABSA Bank Randburg, Account no. 40 5988 2053, ACB Code. 632005'

[4]

On 1 July 2009 Ganas provided the applicant with a further irrevocable undertaking in the following terms:

'Dear Sir

RE : NAVEN NAIDOO

We act for Mr Naven Naidoo and have been instructed as follows :-

(a)

our client has placed an amount of R1,000,000.00 (ONE MILLION RAND) in our Trust Account;

(b)

acting on the instructions of Mr Naven Naidoo, we hereby provide this irrevocable undertaking:

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For the Credit of:

COIFAX INVESTMENTS (PROPRIETARY) LIMITED

REGISTRATION NO. 6558 2004.

NO. 1 ELSWORTH ROAD, BELGRAVIA, HARARE, ZIMBABWE

Conditions of payment :

a) payment to be effected 45 (FORTY FIVE) days after the issue of an invoice;

b) Invoice/s shall in total not exceed an amount of R1,000,000.00 (ONE MILLION RAND).'

[The same trust account details are reflected thereunder].

[5]

In the founding affidavit Gathoo alleged that, acting on the strength of these undertakings, the applicant sold and delivered goods on a running account facility to Coifax at Naidoo's special instance and request during the period 2 July 2009 to 12 November 2009. The applicant was aware at the time that trading with Coifax posed a substantial credit risk, given its operation in Zimbabwe during a period of adverse economic conditions and a prevailing climate of political instability. Gathoo alleged that this was the very reason why the applicant insisted on the irrevocable undertaking of 15 June 2009 as security to discharge the debt.

[6]

The applicant's statements annexed to the founding affidavit reflect that Coifax itself made regular payments directly to the applicant until about 24 August 2010 whereafter they appear to have ceased. This resulted in the applicant reconciling the Coifax account on 4 February 2011, at which date the amount owed to it was R814 962.35.

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[7]

On 28 February 2011 the applicant called upon LBG to effect payment of the sum owed 'as per the conditions of the irrevocable undertakings' but received no response. During the period 28 February 2011 to 1 August 2011 Gathoo also continued communicating directly with Naidoo regarding settlement of the amount owed. He did not divulge details of these discussions, or indeed, if Naidoo ever directed him to Ganas for payment in terms of the irrevocable undertakings. According to Gathoo the applicant first became aware of LBG's 'potential theft and or misappropriation' on 1 August 2011 when he was notified by Naidoo that LBG had been 'liquidated'. It was thereafter established that Ganas (and LBG) had been interdicted or suspended from practicing on 7 June 2011 due to 'an ongoing investigation against the conduct of affairs of [Ganas] for impropriety' by the Law Society.

[8]

The applicant thereafter submitted a claim to the respondent in accordance with s 26 of the Act. Having set out the history, Gathoo alleged that:

'15.15

The firm LBG Attorneys is therefore no longer trading and this provides cogent reasons as to the difficulty by the Claimant's Attorneys of record in contacting the firm or its principal member.

15.16

The Claimant now therefore has no reasonable prospect of calling upon the security of trust funds as per the letters of irrevocable undertaking.

15.17

It is axiomatic from the undertaking, marked as "Annexure DCC1" [i.e. the undertaking of 15 June 2009], that the trust funds placed with LBG Attorneys was placed as unconditional security and the trust funds thereto indeed belong to the Claimant. It is on this cause of action that

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the Attorneys Fidelity Fund claim is made in terms of the provisions of section 26 of the Act.'

[my emphasis]

[9]

Although in its founding affidavit and the heads of argument the applicant relied on both undertakings, the relief sought in its notice of motion was based squarely on the undertaking of 15 June 2009 and it was confirmed by Mr Patel, who appeared on behalf of the applicant, that reliance was placed only on that undertaking, although he stated that the later one of 1 July 2009 must also be considered when having regard to the context in which the first was furnished. Given that no details were provided by Gathoo as to how the second undertaking came about (other than to baldly allege that its purpose was 'that funds were also held in trust for the credit of Coifax…'), I am constrained to have regard to its wording only.

[10]

From the outset the respondent took the position that the applicant was required to provide proof 'to show how, when and where the R1 million was entrusted to Mr Ganas for the issue of the irrevocable undertakings' before proceeding to consider the claim. In a letter dated 25 October 2012 it informed the applicant's attorney, Mr Patel, that:

'Please note that it is not clear from the annexures mentioned in your aforementioned fax whether there were any underlying funds to back up the undertakings issued by the alleged defaulter. The alleged defaulter had a pattern of dishonest and fraudulent behaviour and one cannot exclude the possibility of him putting up a fraudulent irrevocable guarantee, where there is no underlying funds to back up such undertakings.'

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[11]

The applicant disputed that it was required to provide such proof on two grounds. The first was that it was the 'primary onus and responsibility' of the respondent to 'investigate the modus operandi of LBG Attorneys, its assigned representatives/employees and/or intermediaries involved herein'. The second was that 'the issued irrevocable undertakings in favour of the Claimant provide prima facie and/or sufficient proof to the Claimant that it was backed by underlying trust funds, when the Claimant supplied goods on the strength of the irrevocable undertakings'.

[12]

In a letter addressed by Mr Patel to the respondent on 7 July 2014 the applicant maintained that it accepted in good faith that there were underlying trust funds at the time when the irrevocable undertakings were issued. Mr Patel stated that: 'To expect our client as a member of the public to investigate the existence of underlying trust funds lacks any legal basis and sends a message to the public of the Fund's lack of trust and credibility in the attorneys profession'. The respondent was also advised that: 'There is no present contact by our client with Mr Ganas nor with Coifax Investments (Pty) Ltd and/or intermediaries that were involved…'.

[13]

In its reply dated 22 September 2014 the respondent's Mr Losper wrote:

'As previously advised, the onus is on your client to prove that the money claimed herein was entrusted by or on behalf of your client in order to succeed with its claim. Without such proof the fund will not be in a position to consider this claim favourably. The irrevocable undertakings do not, in our view, constitute sufficient proof of entrustment of the money that your client claims herein. I find it hard to believe that your client is not in a position to

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make contact with Coifax Investments (Pty) Ltd and/or any intermediaries in order to establish whether there were underlying trust funds at the time when the irrevocable undertakings were issued by LB Ganas Attorneys.

Lastly, if your client is not in a position to provide us with such proof, I will refer the matter to the Fund's Board of Control for final consideration.'

[14]

The requested proof was not provided. On 6 March 2015 the applicant was notified that the respondent's Board of Control had resolved that the irrevocable undertakings did not constitute sufficient proof of entrustment. The applicant was again asked to contact Coifax Investments (Pty) Ltd for 'confirmation to show how, when and where the R1 million was entrusted to Mr Ganas for the issue of the irrevocable undertakings'. Still it was not provided. By letter dated 20 May 2015...