Ese Financial Services (Pty) Ltd v Cramer

• Jurisdiction: South Africa
• Judge: Van Winsen J and Corbett J
• Judgment Date: 26 March 1973
• Citation: 1973 (2) SA 805 (C)
• Hearing Date: 12 March 1973
• Court: Cape Provincial Division

Corbett, J.:

H This matter comes before the Court by way of an exception taken by plaintiff to portion of defendant's plea and an alternative motion to strike out. Initially plaintiff instituted action against defendant, claiming payment of the sum of R6 042, interest and costs. It is alleged in the particulars of claim, as amended and read together with further particulars furnished, that, on 1st May, 1968, defendant instructed plaintiff to manage her portfolio of share investments on the terms and conditions set forth in certain written instructions (dated 1st May, 1968), which were accepted in writing by the plaintiff on 8th May,

Corbett J

1968. These instructions (annexure 'A' to the particulars of claim) are contained in a printed form completed by defendant and read as follows:

'Please accept the following instructions regarding the operation of my/our securities account under 'The Ese Investment Management Plan'.

(1)

I/we will operate a special banking account with Standard Bank A Ltd., Sea Point, Cape.

to whom I/we have sent your limited power of attorney form appointing you as my/our agent.

(2)

Unless otherwise notified by me/us in writing, your authority to act on my/our behalf is limited, at any given time, to the total market value of the securities and cash deposited in my/our account in terms of the agreement.

(3)

B You have been authorised to buy, sell or exchange securities on my/our behalf through any medium you choose but, where possible I/we would prefer you to deal with the following member firm of the Johannesburg Stock Exchange-Matheson & Hollidge.

(4)

I/we have arranged for dividends to be paid to me/us on a quarterly/half-yearly/annual basis and I/we understand that these collections and other moneys or securities may be added to C my/our securities account on the first day of any month. I/we will notify you whenever this is done.

(5)

I/we understand that in no way will I/we give up ownership of the cash or securities in my/our account. Neither you, nor any broker, nor the bank may remove cash or securities from my/our account except for transactions in my/our name, including the depositing of uninvested funds in an interest-bearing account D with the above bank. Your function is to provide analysis, research and judgment as to security selections and to make investment decisions on my/our behalf. I/we will in no way interfere or obstruct you in the carrying out of your decisions, nor will I/we issue any instructions in regard to the operation of my/our securities account without your prior written consent.

(6)

I/we understand that the objective of 'The Ese Investment Management Plan' will be to attempt to provide capital appreciation (excluding dividends) on my/our securities account E at the rate of 10 per cent p.a. (scheme No. 1). In consideration of your achieving the planned objective I/we am/are agreeable to your participation to the extent of 1/6 per cent (one-sixth) of any amount by which 10 per cent p.a. capital appreciation is exceeded. The amount so calculated shall become due and payable by me/us on the last day of the month following the annual accounting date.

(7)

I/we have listed on the back of this page the securities and cash which I/we have deposited in my/our account with Standard F Bank, Ltd., Sea Point. I/we understand that you will value the securities at the last sale price (unless overtaken by a higher buyers' or lower sellers' price) registered up to the date on which you receive this document; that you will furnish me/us with a summary of the total valuation of my/our account; that the annual accounting date will be deemed to be the last day of the month in which the valuation is made, or such other date as it mutually determined in writing; and that I/we would expect to receive a valuation of my/our account at quarterly intervals G dating from the initial accounting date.

(8)

I/we understand that this authority may be cancelled at any time simply by notifying you and the above bank in writing. In the event of my/our cancellation being effective from any time other than the annual accounting date, I/we understand that any amount in which you are entitled to participate in terms of clause 6 hereof, shall be calculated up to the date on which my/our notice is received and apportioned on a pro-rata basis.

(9)

I/we will not hold you liable for losses sustained on my/our H account unless attributable to fraud, bad faith, gross or wilful negligence.

(10)

I/we understand that your management fee of R240 is payable in advance and my/our cheque for this amount is enclosed. Please send me/us your receipted account.'

The management fee of R240, provided for in clause 10 of the instructions, was duly paid by defendant. The shares deposited by defendant with her bank for management by plaintiff were listed on the reverse side of the instructions in accordance with clause 7 and these, with the exception of certain John Roderick shares which were not accepted

Corbett J

by plaintiff as they were not listed on the Johannesburg Stock Exchange, were valued by plaintiff, in terms of clause 7, at R29 586. During the course of the ensuing year, in September and December, 1968, further assets in the form of shares and cash, to the total value of R1 620, were added to the investment portfolio.

A It is further alleged that the annual accounting date, as provided in clauses 6 and 7 of the instructions, was determined by the parties in writing as 30th April and that upon 30th April, 1969, the capital value of the investment portfolio had appreciated to the sum of R70 495. Accordingly, in terms of clause 6 of the instructions, defendant became B indebted to plaintiff in the sum of R6 042 which amount became due and payable on the last day of May, 1969, and was computed as follows (see annexure 'B' to the particulars of claim):

"Original Capital
7th April, 1968			R29 586
September, 1968			820
December, 1968.			800
			R31 206	R31 206
Add 10 per cent Growth
R29 586	12 months		2 958
R 820	8 months		55
R 800	3 months		27	3 040
		Goal		R34 246
Actual capital April, 1969				R70 495
Amount on which plaintiff is entitled to ⅙				R36 249
⅙ of that				R6 042.'

E The plaintiff proceeds to aver that in or about November, 1969, plaintiff and defendant orally agreed to postpone payment of the sum of R6 042 until such date as the capital value of the investment portfolio should again rise to an amount not less than R40 368. It appears - from the letter of demand, annexure 'B' to plaintiff's further particulars - that this figure was arrived at by adding to the F original portfolio value of R31 206 an amount representing ten per cent growth and the management fee of R6 042. (In computing the figure the parties appear to have calculated the ten per cent growth incorrectly; but nothing turns upon this). It is further alleged that the portfolio G again achieved a value in excess of this amount of R40 368 as at the end of November, 1969, and that the amount of R6 042 thereupon became due and payable by defendant to plaintiff.

In her plea defendant, apart from putting plaintiff to the proof of the various amounts alleged, admits the conclusion of the agreement, the payment of the management fee, the deposit of the shares and the addition of further assets. She raises two main defences. The first H defence is based upon a different version of the oral agreement relating to the postponement of payment and does not fall for consideration in the present proceedings. The second defence is the one which has given rise to the plaintiff's exception and motion to strike out and it is pleaded by defendant in the following terms:

'8.(a)

Alternatively, defendant avers that it was an implied term of the agreement between the parties that plaintiff would at all times exercise skill and judgment in the management of defendant's portfolio.

Corbett J

(b)

Defendant avers that plaintiff failed to exercise such skill and judgment in the management of defendant's portfolio more particularly in that

(i)

it employed an inefficient investment management staff

(ii)

it used an inefficient and outmoded system of portfolio selection and administration

(iii)

A it failed to detect and react to a 'bull' market

(iv)

it endeavoured to manage more portfolios than it could competently manage

(v)

it failed to anticipate and react to a falling market

(vi)

its computerised system was unable efficiently to direct the switching operation from securities to cash

(vii)

it used an unsatisfactory information retrieval B system which caused serious delays in investment decision-making.

(c)

In the premises defendant avers that plaintiff failed to perform its obligations in terms of the agreement and is not in law entitled to claim performance by...