Page v First National Bank and Another

• Jurisdiction: South Africa
• Judge: Dambuza J
• Judgment Date: 16 October 2008
• Citation: 2009 (4) SA 484 (E)
• Counsel: SC Rorke for the plaintiff. DJ Combrink for the defendants.
• Docket Number: 454/2005
• Court: Eastern Cape Division

Dambuza J:

[1] The plaintiff seeks damages against the defendants in the amount of R272 232,89. His claim arises from advice given to him by the second defendant in 2002. H

[2] When the events leading to this action occurred, the plaintiff was a farmer, farming with livestock near East London. He held several banking accounts with the first defendant. The second defendant was, at the time, employed by the first respondent as a financial consultant and investment adviser. In this capacity the second defendant had access to I details relating to bank accounts of clients of the first defendant, including the plaintiff. During 2002 the plaintiff had funds invested in a moneymarket account that he held with the first defendant. The second defendant advised the plaintiff to invest R750 000 of this money offshore in order to get a better return than on the moneymarket investment. The investment was to be facilitated by the first defendant (through the J

Dambuza J

A second defendant). On 11 November 2002 the plaintiff invested the sum of R750 000 in three separate offshore portfolios, being Investec Euromoney (40%); Sterling Money (20%); and US Dollar Money (40%).

[3] When the plaintiff redeemed the investment on 31 October 2003, the B capital had depleted to R580 000 due to a combination of currency fluctuations and charges that were levied when the investment was made.

[4] The plaintiff's case is that the defendants had held the second defendant out to the public as a competent financial consultant and investment adviser and placed his services at the disposal of the public C for reward. The second defendant therefore owed the plaintiff a duty of care when giving him advice on the investment. Having been alerted to the fact that the plaintiff would require the funds within a short period, he (the second defendant) failed in his duty of care by giving the advice that the plaintiff invest the funds offshore. The second defendant, so D contends the plaintiff, was aware or ought to have been aware that it was not advisable to invest funds offshore on a short-term basis.

[5] The defendants' case, as set out in the plea, is that the second defendant presented various investment portfolios to the plaintiff whereupon the plaintiff, acting on the advice of his accountant, Patrick Vice, E and bookkeeper, Glen Page, chose the investment portfolios set out in para [2] above. Further, so contend the defendants, the plaintiff declared that he was aware of the risks associated with the chosen portfolios and that the initial and exit fees, including penalties payable in case of early surrender, were set out in the application form for the investment. The defendants further contend that neither of them acted as investment F portfolio managers and they did not assume liability for the performance of the investment. [1]

[6] It was common cause at the trial that, generally, offshore investments are made on a long-term basis in order for the investment to absorb and wear off the negative effects of currency fluctuations, and that funds can G be redeemed when it is to the best advantage of the investor. It was further not in dispute that offshore investments are costly because of bank charges, commissions and management fees payable in respect thereof. In this case, the bank charges, commission and management fees paid by the plaintiff to the first defendant were R23 000. Of this H amount 0,25% (R1875) went to Momentum Wealth, through which the overseas investment was made, 2,5% (R18 750) was the financial adviser fee and the balance was VAT payable on the fees. Consequently the capital invested was R726 487,50.

[7] Thane Andre Niemand, a financial consultant practising in East I London, gave evidence, as an expert witness, on behalf of the plaintiff.

Dambuza J

He testified that the plaintiff consulted with him subsequent to the A suggestion that he invest offshore. He advised the plaintiff that it was not prudent to invest funds abroad for a short period as the plaintiff might have to redeem the funds when the exchange rate was not favourable. Niemand's uncontested opinion was that a period of a year and even two years was too short for an offshore investment. He opined that the B second defendant should have undertaken a complete profile of the plaintiff and conducted a needs analysis to carefully consider the plaintiff's financial needs and cost implications prior to advising the plaintiff to invest the funds abroad. Even if a case could be made for an offshore investment, it would have been more prudent to invest directly with financial institutions abroad to avoid secondary costs, rather than C invest through Momentum Wealth (Pty) Ltd, as was...