Gore NO and Another v Ward and Another
| Jurisdiction | South Africa |
Gore NO and Another v Ward and Another
2022 (4) SA 213 (WCC)
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Citation |
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Case No |
2977/2021 |
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Court |
Western Cape Division, Cape Town |
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Judge |
Binns-Ward J |
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Heard |
January 31, 2022 |
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Judgment |
January 31, 2022 |
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Counsel |
Nel for the applicants (supplementary written submissions by CM Eloff SC and E Nel). |
Flynote : Sleutelwoorde
Banker — Fraudulent misrepresentation inducing deposit — P, acting as agent of company, fraudulently inducing L to make deposit into company's bank account — Company obtaining effective right against banker to funds — Becoming company's 'property' in wide sense of word, even though stolen — If company, acting through P, makes contractual payment to third party, such payment effective and bank not entitled to reverse credit — Bank not liable to L but payment constituting voidable disposition as intended in Insolvency Act 24 of 1936, s 26.
Company — Contracts — Authority — Actual authority — Actual authority, such as that possessed by sole director, existing independently of perceptions of third party — To be distinguished from apparent or ostensible authority, when representation by company crucial.
Company — Directors and officers — Directing mind doctrine — Ambit — Not shielding company in contractual setting where normal rules of agency applicable — Sole director of company, having fraudulently procured payment into company's bank account, causing money to be paid out to third party, who received it in context of contract between it and company — Payment constituting disposition by company — Can be clawed back by liquidators if not for value — Insolvency Act 24 of 1936, s 26.
Company — Winding-up — Unlawful alienations and preferences — Voidable disposition — Disposition without value — Payment out of stolen funds in company's bank account — Exercise, whether lawful or not, of company's power of disposal over funds in its account constituting 'disposition' for purposes of Insolvency Act — Conferring no benefits on company but adversely affecting its ability to reimburse victim or pay other creditors — Constituting voidable disposition — Insolvency Act 24 of 1936, s 2 sv 'disposition', s 26; Companies Act 61 of 1973, s 340.
Headnote : Kopnota
This case involved a claw-back under s 26 of the Insolvency Act 24 of 1936. The applicants, the joint liquidators of a company called Brandstock Exchange (Pty) Ltd (Brandstock), applied for the setting-aside, under s 26 (read with s 340 of the Companies Act 61 of 1973), of payments of R250 000 made to each of the respondents, alternatively for a declaration that the payments were made sine causa. The payments were made by means of transfers from funds held to the credit of Brandstock's bank account into the respondents' bank accounts. The applicants also sought orders directing the respondents to repay the amounts to the applicants, either pursuant to the relief granted in terms of s 26 or, alternatively, on the grounds of their alleged unjust enrichment at Brandstock's expense.
The respondents opposed the application on the ground that the payments were made not by Brandstock but by Mr Philp, its sole shareholder and director, using funds he stole by false pretences from one Mr Louw, a business acquaintance. The respondents argue that the funds used to make the payments did not become 'the property' of Brandstock but that Philp had merely used Brandstock's banking account as a conduit for the purpose of
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fraudulently receiving and disposing of the money that he, not Brandstock, had stolen from Louw. In other words, the respondents denied that Brandstock made 'dispositions' to them within the meaning of the word in s 26. They also denied that they were enriched by the payments.
For their part, the applicants argued that Louw had dealt with Brandstock, a separate juristic entity, and not Philp in his personal capacity. Since Philp's conduct was attributable to Brandstock, a binding contract arose between it and Louw.
To counter this argument, the respondents relied on the 'directing mind' doctrine for their contention that Philp had been on a frolic of his own. Under the directing mind doctrine, the conduct of the directing mind of a company can only be attributed to the company if the conduct was within the field of operation the company had assigned to him or her, was not totally a fraud on the company and was partly for the benefit of the company (see [31]). The respondents argued that since Philp's conduct was as much a fraud on Brandstock as it was on Louw and was not for the benefit of Brandstock, his actions in obtaining and disposing of the money could not be attributed to Brandstock. They also argued that the funds stolen from Louw could not have become Brandstock's property by virtue of their nature as stolen property.
In deciding whether to sanction the claw-back, the court dealt with the following matter: (i) whether Philp's conduct had bound Brandstock to a contract with Louw so that Brandstock was accountable to Louw for the money stolen by Philp; (ii) the applicability, in the circumstances, of the directing mind doctrine; (iii) whether funds became Brandstock's property in the light of their nature as stolen property; and (iv) whether the payments made by Brandstock were 'dispositions' by Brandstock within the meaning of the term in the Insolvency Act.
Held
As to (i): Since a company had no mind of its own, it could be bound only by a person representing it. That person's authority could be actual or ostensible, in which case a representation by the company was essential. (See [25].) If a transaction was one of a nature that the fraudster was authorised to enter into on the company's behalf, the company was bound by it, notwithstanding that the fraud may have redounded to its prejudice as much as to that of the deceived third party. Philp, as Brandstock's sole director, was its authorised agent with virtually plenipotentiary powers. This authority was actual, not apparent or ostensible. Therefore, Brandstock was accountable to Louw for the money stolen by Philp. (See [28] – [30].)
As to (ii): The applicability of the directing mind doctrine was context-specific and had to be applied flexibly and pragmatically, when appropriate, depending on the facts of the case and the nature of the issue in question. There was no reason to resort to it to displace the normal rules of the law of agency in a situation where they were applicable and available to determine a company's liability in a contractual context. Here, there was a contractual nexus between the victim of the fraud, Louw, and Brandstock, and the law of agency applied. (See [33].)
As to (iii): The respondents' argument that Philp's theft of the funds had prevented them from becoming Brandstock's property erroneously equated electronically transferred funds with corporeal goods. There was a contractual context to Louw's payment to Brandstock. This differed materially from the facts in the cases relied on by the respondents, where the recipients did not receive the stolen funds in a contractual context. Because Louw intended to pay Brandstock in terms of his contract with Brandstock, Brandstock had obtained an effective right, as against the bank, to the
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money. The funds thus became Brandstock's 'property' in the wide sense contemplated by s 2 of the Insolvency Act. The subsequent payments to the respondents were effective, having been made not by Philp in his personal capacity but by the bank on behalf of Brandstock. In summary, the dealings between Louw and Philp resulted in a contract between Louw and Brandstock; Louw's payments were made in terms of that contract; Brandstock received the funds when Louw performed under the contract; and Brandstock (via its agent Philp) stole them from Louw when it made the payments to the third parties. (See [35], [40] – [43], [48] – [50].)
As to (iv): Brandstock had the power of disposal of the funds standing to the credit of its bank account. Once it was exercised, whether lawfully or not, a 'disposition', as (widely) defined in s 2 of the Insolvency Act, was made by Brandstock. While Brandstock did not derive any benefit from the payments, they adversely affected its ability to reimburse Louw or pay its other creditors. It was therefore a disposition without value for the purposes of s 26 of the Insolvency Act. (See [53] – [55].) Application upheld. (In view of its finding on s 26, the court found it unnecessary to deal with the enrichment claim.)
The court accordingly set aside the disputed payments under s 26 and ordered the respondents to pay the sums in question to the applicants, together with interest a tempore morae (see [58]).
Cases cited
Southern Africa
Absa Bank Ltd v Lombard Insurance Co Ltd 2012 (6) SA 569 (SCA) ([2021 ZASCA 139): applied
Absa Bank Ltd v Moore and Another 2017 (1) SA 255 (CC) (2017 (2) BCLR 131; [2016] ZACC 34): applied
Bester NO and Others v Quintado 120 (Pty) Ltd [2020] ZAWCHC 80: distinguished
Bester NO and Others v Quintado 120 (Pty) Ltd [2021] ZACC 49: referred to
Commissioner of Customs and Excise v Bank of Lisbon International Ltd and Another 1994 (1) SA 205 (N): referred to
Communicare and Others v Khan and Another 2013 (4) SA 482 (SCA) ([2012] ZASCA 180): referred to
Consolidated News Agencies (Pty) Ltd (in Liquidation) v Mobile Telephone Networks and Another 2010 (3) SA 382 (SCA) ([2010] 2 All SA 9; [2009] ZASCA 130): referred to
De Villiers NO v Kaplan 1960 (4) SA 476 (C): applied
Duet and Magnum Financial Services CC (in Liquidation) v Koster 2010 (4) SA 499 (SCA) ([2010] 4 All SA 154; [2010] ZASCA 34): dictum in para [10] applied
Feldman (Pty) Ltd v Mall 1945 AD 733: referred to
First National Bank of Southern Africa Ltd v Perry NO and Others 2001 (3) SA 960 (SCA)...
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