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REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

CASE NO: 22901/2008

REPORTABLE

OF INTEREST TO OTHER JUDGES

REVISED.

In the matter between

AIR INNOVATIONS (PTY) LTD                                                                                   Plaintiff

and

BHAVE PILLAY                                                                                                      Defendant

 

Judgment

 

Summary:

Trial – plaintiff suing defendant for repayment of professional fees paid to defendant pursuant to misrepresentation by defendant that he was a chartered accountant and registered auditor.

Defendant counter-claiming for fees allegedly owed to him for services rendered as accountant, financial advisor, and manager.

Held, on the facts – defendant deliberately held himself out as chartered accountant and registered auditor, knowing that he was not such.

Held, as to the legal consequences of the misrepresentation, that s.41 of the Auditing Profession Act, 26 of 2005 provides that only a registered auditor may engage in “public practice” or hold him/herself out as such upon pain of criminal sanction.

Held, as to the meaning of the concept of “public practice”, given the history of the legislation and the admissible subsecuta observatio and contemporanea expositio, that the profession of a public accountant may not be practiced without registration with the Independent Regulatory Board for Auditors.

Held, defendant knowingly so practicing – applying principle that no person may benefit from own unlawful conduct, held not entitled to recover any fees – matter referred to national Prosecuting Authority.

 

Van der Linde, J:

Introduction

[1] In this matter the plaintiff sues the defendant for repayment of fees that it had paid to the defendant pursuant to an agreement for the rendering by the latter to the former of accounting and auditing services. The asserted entitlement to repayment derives from the plaintiff's alleged avoidance of the parties' agreement, said by the plaintiff to have been concluded by it, represented by Mr Colley, reliant on a deliberate misrepresentation by the defendant that he was a chartered accountant and registered auditor. The plaintiff contends that were it not for this misrepresentation, it would not have appointed the defendant as its accountant and auditor. The claim is for some R188 165, interest and costs.

[2] There is a counterclaim by the defendant against the plaintiff for fees for professional services rendered. The defendant relies on the same impugned contract, but according to him the terms were different. His appointment was not of a chartered accountant and registered auditor, he says, but of an accountant and financial advisor and manager.

[3] He accepted that although he had qualified in the eighties as a chartered accountant and registered auditor, at the time when in around March 2007 the agreement between the parties was concluded, he was no longer such. In the period since the eighties he had let his registration go, having stopped paying his fees both to IRBA, the Independent Regulatory Board for Auditors established under the Auditing Profession Act, 26 of 2005 (“the APA”), and to SAICA, the South African Institute for Chartered Accountants, a body duly accredited in terms of the APA.

[4] However, he denied representing to Mr Colley that he was a chartered accountant and registered auditor; he testified that in fact, to the contrary, he specifically told Mr Colley that he was not registered as an auditor, and for that reason he recommended to Mr Colley the appointment of DK Motiram & Co as registered auditors for the plaintiff.

[5] Mr Colley in turn agreed that this latter firm was to be appointed as registered auditor for the plaintiff, but said that this was only a temporary measure because the defendant had explained that he was in the process of relocating, and would for a period be off-line. The defendant recommended the appointment of DK Motiram & Co, a firm he, Mr Colley, did not know, as registered auditor for the plaintiff in the interim.

The approach in resolving factual conflicts

[6] In the helpful heads of argument that counsel for both sides provided at the end of the trial, they were agreed that where, as here, there is a factual conflict, and provided there are probabilities, the court decides the dispute on a balance of probabilities. It also weighs into its consideration the question of the credibility of the witnesses, as well as their reliability, two issues which cannot really be neatly separated from the probabilities.

[7] Counsel both referred to the well-known judgment of the Supreme Court of Appeal in Stellenbosch Farmers’ Winery Group Ltd and Another v Martell Et Cie and Others, 2003 (1) SA 11 (SCA), which authoritatively summarised the legal position as follows:

“[5] On the central issue, as to what the parties actually decided, there are two irreconcilable versions. So, too, on a number of peripheral areas of dispute which may have a bearing on the probabilities. The technique generally employed by courts in resolving factual disputes of this nature may conveniently be summarised as follows. To come to a conclusion on the disputed issues a court must make findings on (a) the credibility of the various factual witnesses; (b) their reliability; and (c) the probabilities. As to (a), the court's finding on the credibility of a particular witness will depend on its impression about the veracity of the witness. That in turn will depend on a variety of subsidiary factors, not necessarily in order of importance, such as (i) the witness' candour and demeanour in the witness-box, (ii) his bias, latent and blatant, (iii) internal contradictions in his evidence, (iv) external contradictions with what was pleaded or put on his behalf, or with established fact or with his own extracurial statements or actions, (v) the probability or improbability of particular aspects of his version, (vi) the calibre and cogency of his performance compared to that of other witnesses testifying about the same incident or events. As to (b), a witness' reliability will depend, apart from the factors mentioned under (a)(ii), (iv) and (v) above, on (i) the opportunities he had to experience or observe the event in question and (ii) the quality, integrity and independence of his recall thereof. As to (c), this necessitates an analysis and evaluation of the probability or improbability of each party's version on each of the disputed issues. In the light of its assessment of (a), (b) and (c) the court will then, as a final step, determine whether the party burdened with the onus of proof has succeeded in discharging it. The hard case, which will doubtless be the rare one, occurs when a court's credibility findings compel it in one direction and its evaluation of the general probabilities in another. The more convincing the former, the less convincing will be the latter. But when all factors are equipoised probabilities prevail.”^[1]

[8] Where however there are two mutually destructive versions, the question arises as to how to approach the matter. Here counsel also referred to National Employers' Mutual General Insurance Association v Gany 1931 AD 187 at 199 where the following was said:

“Where there are two stories mutually destructive, before the onus is discharged, the Court must be satisfied that the story of the litigant upon whom the onus rests is true and the other false.”

[9] This approach was adumbrated in African Eagle Life Assurance Co Ltd v Cainer 1980 (2) SA 234 (W) at 237 - 8, where Coetzee, J (as he then was) made it plain that where there are probabilities, one way or the other, they decide the case: “Where there are probabilities, inherent or otherwise, there is no room for this approach.”

[10]So, although credibility, reliability and probability are intertwined, when a factual dispute can be resolved on the basis of a balance of probabilities, the resolution endeavour is weighted in favour of the latter approach. These three constituent parts of the exercise are indicated here merely to underscore the breadth of the field to be covered, but they are interwoven. The focal point of the exercise remains ultimately to establish the truth of what had happened.

The evidence

Mr Colley

[11] Only one witness on each side was called; Mr Colley and the defendant. Mr Colley testified that the defendant had been the auditor of a close corporation in which he, Mr Colley, had an interest. At the end of 2006 he told the defendant that the plaintiff wished to change its auditors, and wished to appoint the defendant instead as its auditor. At that stage a firm by the name of Watermark Auditors Inc was the plaintiff’s auditor, but in fact attended to all the plaintiff’s company secretarial and accounting needs as well, through its secretarial business, Waterford Financial Management.

[12]Mr Colley said that the defendant conveyed to him that he was a chartered accountant and registered auditor, and would be able to render all of these services. They deferred the issue until the end of the 2007 financial year, in February. On 4 March 2007 the plaintiff wrote to the defendant, advising him that the plaintiff had decided to “appoint BE Pillay and Co. as the new auditors of the company with effect from 5^th March 2007… Please take the necessary steps to accept the appointment and effect the change.”

[13]Mr Colley said that the defendant explained to him then, however, that he was moving premises and would be off-line temporarily; and that in the interim the plaintiff should appoint DM Motiram & Co, a firm in which the defendant had a member’s interest, as its auditor.

[14]The plaintiff agreed, and on 8^th March 2007 wrote a like letter of appointment to DK Motiram & Co, a concern of which Mr Colley knew nothing, and whose owner(s) he had never met. No response was forthcoming, but as will appear later, the defendant and not DK Motiram & Co in fact invoiced the plaintiff for effecting the change of registered auditors in the records of the Registrar of Companies.

[15]At the request of the defendant, the plaintiff provided the defendant with a computer and associated software to perform his functions. The defendant in turn rendered invoices from time to time, and the plaintiff paid these. Mr Colley denied ever agreeing to the 25% commission, asking rhetorically why he would. He also said that he could not recall ever agreeing to a monthly retainer of R4500.

[16]Two issues began to cause friction between the parties: one was the delay on the part of the defendant in finalising the plaintiff’s annual financial statements for the year ended February 2007, and the audit of those; and the other was what appeared to be an obsession on the part of the defendant with a trading partner of the plaintiff, Moyair.

[17]In this latter regard Mr Colley explained that the plaintiff and Moyair had a business relationship whereby the plaintiff would render services to customers that Moyair would source. The plaintiff would invoice Moyair for those services, and Moyair would in turn invoice the customers. The customers would pay Moyair in time, and as and when Moyair received payment, Moyair would pay the plaintiff.

[18]The defendant was suspicious that Moyair was not paying over to the plaintiff that which it was obliged to pay, and this caused a rift in the business relationship between the plaintiff and Moyair.

[19]These issues led to the plaintiff deciding on 1 October 2007 to terminate the defendant’s appointment as company auditor, and on 2 October 2007 the plaintiff wrote to DK Motiram & Co, “Attention Mr BE Pillay”, with the subject: “Resignation as company auditor.” The letter is addressed “Dear Sir”, and requires the immediate resignation as company auditor and requests that a CM 31 be completed “so that we can appoint another company auditor.” The letter also requests the return of all documents, as well as a computer and associated software.

[20]Of some significance for a later issue, the letter requests the defendant to provide the plaintiff with “outstanding invoices from yourself”, and says too: “All outstanding monies paid to you for services not rendered are to be refunded to the company…”. In other words, the plaintiff’s attitude in this letter was that it would pay the defendant for services already rendered but not yet paid, and that the defendant should return to the plaintiff monies paid by the latter to the defendant on account of services yet to be rendered. It was, in a sentence, seeking to square the accounts between them as of 2 October 2007.

[21]This letter from the plaintiff elicited a long response from the defendant in which he accepted the termination of his services, but contended that monies were owed to him. In this response he refers to the 2 October 2007 letter of the plaintiff in these terms: “… by terminating my services as per your letter…”.

[22]Mr Colley said that when later in October 2007 the plaintiff appointed new company auditors, they told him that in fact the defendant was not a chartered accountant and registered auditor.

[23]Mr Colley was not a good witness from a reliability point of view. In cross-examination he was unsure of himself and unnerved by being asked about events that occurred some ten years before. In a number of instances I got the impression that he conceded propositions put to him, just so that the proposition would go away, and just to avoid having to confess yet again that he could not remember. I got the impression that he was completely honest but completely unsettled in the witness-box.

[24]There did occur an incident which does repair some of his unreliability. In cross-examination it was suggested to him that his evidence was a fabrication, and made up. That elicited the introduction in reply of a contemporaneous written statement made by him to his attorney, received as exhibit A 40 to 42. That exhibit, which would otherwise have been inadmissible as self-corroboration, sustained the main struts of Mr Colley’s evidence.

Mr Pillay

[25]The defendant testified in his own case. He said that in fact he was never appointed as auditor of the plaintiff, because he expressly told Mr Colley that he was not a registered auditor and thus could not be appointed. He recommended instead the appointment of DK Motiram & Co, a firm owned by a business associate of his, and the plaintiff accepted. He himself was appointed instead to undertake financial management of the plaintiff, to design internal control, and to perform internal audits.

[26]He agreed that he was given a computer but says it never functioned. He agreed that the 2007 annual financial statements and audit could not be done, but said this was because of the problems with the reconciliation of the accounts between the plaintiff and Moyair. He contended that Moyair had received payment from customers but was not paying over these monies; and that the plaintiff did not even know of these amounts.

[27]He said that the plaintiff had agreed to pay him 25% of all amounts collected by the defendant that the plaintiff did not know was owing to it; and had agreed to pay him R4500 per month as a retainer. His claim was made up of fees owing in respect of his hourly rate of R450, of the retainer for September R4500 which was still owing, and (the rump) of the 25% commission. In the course of his evidence in chief he abandoned two parts of this claim, leaving only one part.

[28]In cross-examination the defendant was taken to documents in which he represented variously that he was a chartered accountant, or a registered auditor, or both. In others he portrayed himself as auditor of the plaintiff, and in yet others he invoiced clients for “audits” performed. It was put to him that he had consistently held himself out as such, in conflict with the APA, when to his knowledge he was not so registered.  It was put to him that likewise he represented to Mr Colley that he was a chartered accountant and registered auditor.

[29]It is necessary to review some of these documents. First, in a letter on behalf of the plaintiff to SARS dated 23 May 2007, the defendant’s letterhead reads: “REGISTERED ACCOUNTANTS AND AUDITORS. CHARTERED ACCOUNTANTS S.A.” In the plaintiff’s draft financials for the year ended February 2007, the defendant listed as “AUDITORS” of the plaintiff: “BE PILLAY AND COMPANY”. In his affidavit resisting summary judgment he described himself as a “Chartered Accountant practising as such”; and said that he contracted with the plaintiff “in my professional capacity as a chartered accountant to render professional accounting and related services”.

[30]Second, in the draft annual financial statements for the year ended 28 February 2007, prepared by the defendant himself, he described the “auditors” of the company as “BE Pillay and Company, 4 Kei Street, Gallo Manor”. There could not be any doubt about what was intended here, because in the draft report of directors the following sentence, uncontentious in this context, appears: “The auditors are responsible to report on the fair presentation of the financial statements”. Disquietingly, page 3 of these draft annual financial statements is missing. That page contains the draft auditor’s report.

[31]Third, in the affidavit dated 23 August 2008 resisting summary judgment the defendant described himself as a “Chartered Accountant practising as such”; and says “…I was contracted by the Applicant in my professional capacity as a chartered accountant”.

[32]Fourth, on 28 July 2017 in a rule 37(4) response, the defendant described himself as “a qualified chartered accountant”. Fifth, when the plaintiff described the defendant in its summons as “an adult male auditor”, the defendant admitted this in his plea dated 7 October 2008.

[33]Sixth, when the plaintiff wrote to DK Motiram on 2 October 2007, “Attention: Mr BE Pillay” and “Subject: Resignation as company auditor”, the defendant personally replied, saying amongst other things: “… by terminating my services as per your letter, Air has effectively relieved me of my obligation to perform, and complete the work as agreed for the fees paid. As you are aware I have done most of the work …”.

[34]Seventh, in an email by the defendant dated 28 September 2007, he wrote to Mr Colley in response to complaints that the annual audit was not being completed: “…If as you say the records are available for me to conduct the audit at Moyair …” .

[35]Eighth, the defendant raised “Interim Audit Fees” against the plaintiff. And ninth, the defendant likewise raised “Audit Fees” and “Audit 2007/02/28” and “Audit Extended”, and “Additional Audit Procedure Conducted On Records” on other clients.

[36]The defendant admitted these documents but denied that they were misrepresentations. He said that in most of the examples of alleged misrepresentation in the contemporaneous documents, it was either an error or an oversight. The alleged misrepresentations in the later documents, generated in the context of the litigation, was explained by saying that he had disclosed the correct position to his lawyers, but they formulated the documents concerned.

[37]He explained that he agreed the R4500 per month retainer in around July or August 2007 when his work-load began to increase.

[38]As a witness, the defendant created the impression of an obviously intelligent person who understood well the distinction between a CA and a RA on the one hand, and a person who performs internal accounting work on the other. But I am afraid that he also created the impression of someone wishing to avoid answering questions directly, and in some instances, offering disingenuous answers. In this latter regard I have in mind the way in which he answered the questions pertaining to his misrepresentations. Consequently, where the evidence of Mr Colley and that of the defendant conflict, I prefer the evidence of Mr Colley.

The probabilities

[39]Where do the probabilities lie on the issue of misrepresentation? Two enquiries seem pertinent. The first is whether there had been a misrepresentation to Mr Colley at all; and if so, whether that misrepresentation was deliberate.

[40]On the first issue, it seems to me clear that the defendant had throughout followed an attitude that provided he ultimately procured the signature of a registered auditor on attest documents, he could to all other intents and purposes act as if he were a chartered accountant (CA) and registered auditor (RA).

[41]His 23 May 2007 letter to SARS is the strongest evidence in this regard. He made absolutely no bones there about what he was holding out: that he was a registered accountant and auditor, and that he was acting in that capacity on behalf of his client, Air Innovations (Pty) Ltd. And if the defendant was prepared to offer up that misrepresentation to SARS, why would he not do precisely the same for a lesser audience, such as the client itself?

[42]The defendant’s explanation offered in the witness-box was that this was an “oversight”. He said he had these letterheads on his computer and had erroneously printed out the incorrect letterhead. But why keep a letterhead on the computer if it is wrong, and in fact capable of misleading? And if the defendant was last a CA and RA in the eighties, he would have been keeping the unused letterhead on his computer for some twenty years.

[43]Yet the defendant knew exactly what the difference was between being a chartered accountant and simply an accountant; and being a registered auditor and an internal auditor. He knew too the significance of this difference. He kept saying that he had qualified as both; but had stopped keeping up his annual subscriptions, and so allowed his registration as either to lapse.

[44]This explanation was accordingly in my view dishonest. The probability is that the defendant was deliberately using his professional muscle as a “Registered Accountant and Auditor” to obtain the relief at SARS to which his letter was directed.

[45]The other documents to which I have referred above really make an overwhelming case of a course of conduct of holding out on the part of the defendant. The explanation he gave, for example, for raising a fee for an “Interim Audit”, namely that it referred merely to an interim internal audit, was devised in the witness-box. The witness knew full well that he did not actually perform an “Interim Audit”, and in fact said so when testifying. Yet that was the express invoice language generated at the time.

[46]There is too the probability inherent in Mr Colley’s evidence that the plaintiff had had an auditor before, and would thus, to replace that firm, want an auditor again; not just an accountant who could not also perform the required annual audit. And the defendant’s answer that DK Motiram would be the registered auditor, and that Mr Colley had so agreed, cannot be accepted, for this reason.

[47]Mr Colley would not have agreed to the appointment of an auditor for the plaintiff, on any basis other than as a temporary tiding over, without having even met him. After all, as appears from the written instruction to his attorney, one of the reasons for terminating the appointment of the previous auditors was the deteriorating relationship with them.

[48]Were these misrepresentations deliberate? In my view they were. The defendant gave the example of how he performed attorneys’ trust account audits and had these signed off by registered auditors; and that this was all above board and acceptable. He seemed to argue that this was an analogous case. But as will be seen below, the real concern here is the element of holding out to the public that which one is not. So he knew of the difference, as I have found above.

[49]I conclude then, on this part of the case, that the defendant deliberately held himself out to the plaintiff, represented by Mr Colley, as a registered accountant and auditor, knowing that he was not such; and that he did so knowingly to obtain the instruction to act as auditor for the plaintiff. I find too that the role of DK Motiram (whatever the defendant actually intended) was held out to be, as Mr Colley testified, that of a night-watchman to tide the position over till the defendant had completed his move. The deliberate misrepresentation and its causation has accordingly, as a fact, been proved. The issue of its consequences is dealt with below.

The special plea of prescription

[50]Before applying the law to these facts, there is the issue of the defendant's special plea of prescription. This arises in the following way. Mr Colley, when he testified, explained that after the plaintiff terminated the services of the defendant in early October 2007, it appointed a new auditor for the plaintiff company. That new firm told the plaintiff in October 2007 that the defendant was not a chartered accountant and registered auditor.

[51]The plaintiff sued the defendant in July 2008, but for restitution on the basis of having lawfully cancelled the agreement appointing the defendant as its auditor.  The cancellation was founded on a case of material breach, and not on the defendant having misrepresented himself as a registered accountant and auditor. The claim was for repayment of the monies paid as fees.

[52]When the trial started the plaintiff amended its case by abandoning its breach of contract cause, and substituting for it its avoidance for misrepresentation cause. That amendment came after an opposed argument, in which I gave a written judgment holding that the defendant was onus-bound to prove the date on which the plaintiff first got to know about the defendant’s non-registration; and had not raised that issue.

[53]I discussed but did not conclude in the written judgment that I gave on that occasion on the question whether the debt preferred by the plaintiff post-amendment was the same or at least substantially the same debt as that which the plaintiff had preferred before. The defendant now raises that issue again; but again, in view of the conclusion to which I come below on the question of election, it is not necessary to reach a firm view on the issue of prescription, and I refrain from doing so.

[54]I proceed now to deal with the lawfulness of the defendant’s misrepresentation.

The APA and relevant contraventions under it

[55]The question arises as to what is meant by the first phrase in s.41(1) of the APA. Since the whole s.41 is relevant for this case, it best be quoted (emphasis supplied):

“41  Practice

(1) Only a registered auditor may engage in public practice or hold out as an registered auditor in public practice or use the registered auditor description 'public accountant', 'certified public accountant', 'registered accountant and auditor', 'accountant and auditor in public practice' or any other designation or description likely to create the impression of being a registered auditor in public practice.

(2) (a) A person who is not registered in terms of this Act may not-

(i) perform any audit;

(ii) pretend to be, or in any manner hold or allow himself or herself to be held out as, a person registered in terms of this Act;

(iii) use the name of any registered auditor or any name or title referred to in subsection (1); or

(iv) perform any act indicating or calculated to lead persons to believe that he or she is registered in terms of this Act.

(b) Paragraph (a) (i) may not be construed as prohibiting any individual from performing an audit if such audit are performed in the service of or by order of and under the direction, control, supervision of or in association with a registered auditor entitled to perform the audit identified and who must assume responsibility for any audit so performed.

(3) Nothing in this section prohibits-

(a) any person from using description 'internal auditor' or 'accountant';

(b) any member of a not-for-profit club, institution or association from acting as auditor for that club, institution or association if he or she receives no fee or other consideration for such audit; or

(c) the Auditor-General from appointing any person who is not a registered auditor to carry out on his on her behalf any audit which he or she is in terms of the Public Audit Act, 2004 (Act 25 of 2004), required to undertake.

(4) Except with the consent of the Regulatory Board, a registered auditor may not knowingly employ-

(a) any person who is for the time being suspended from public practice under any provision of this Act; or

(b) any person who is no longer registered as a registered auditor as a result of the termination of his or her registration in terms of section 39 (1) (c) or the cancellation of his or her registration in terms of section 51 (3) (a) (iv); or

(c) any person who applied for registration under section 37 (3), but whose application the Regulatory Board declined.

(5) A registered auditor who is not in public practice as an individual practitioner may practise as a member of a firm only if, by virtue of section 40, the firm is itself a registered auditor.

(6) A registered auditor may not-

(a) practise under a firm name or title unless on every letterhead bearing the firm name or title there appears-

(i) the registered auditor's present first names, or initials, and surname; or

(ii) in the case of a partnership, at least the present first names, or initials, and surnames of the managing partners or, if there are no managing partners, of the active partners or, where such a letterhead is used only by a branch office of the partnership, at least the present first names, or initials, and surnames of the managing partners at that branch office or, if there are no such resident partners, of the partners assigned to that branch office; or

(iii) in the case of a company, the present first names, or initials, and surnames of the directors;

[Subpara. (iii) substituted by s. 9 (a) of Act 2 of 2015 (wef 17 June 2015).]

(b) sign any account, statement, report or other document which purports to represent an audit performed by that registered auditor, unless the audit were performed by that registered auditor, under the personal supervision or direction of that registered auditor or by or under the personal supervision or directions of that registered auditor and one or more of the partners, co-directors or co-members of the registered auditor, as the case may be, in accordance with prescribed auditing standards;

(c) perform audits unless adequate risk management practices and procedures are in place;

(d) engage in public practice during any period in respect of which the registered auditor has been suspended from public practice; or

(e) share any profit derived from performing an audit with a person that is not a registered auditor.

(7) The provisions of subsection (6) (b) do not apply in respect of an audit performed by another registered auditor in a partially completed assignment which the previous registered auditor was unable to complete as a result of death, disability or other unforeseen cause not under the control of the previous registered auditor, and which assignment the successor registered auditor is engaged to complete.

(8) Nothing in subsection (6) (b) prevents any registered auditor from signing the firm name or title under which the registered auditor practises.

(9) ......

[Sub-s. (9) deleted by s. 9 (b) of Act 2 of 2015 (wef 17 June 2015).]

(10) In order to engage in public practice, a registered auditor must have paid all applicable prescribed fees.”

[56]The concept of "public practice" is defined: "... means the practice of a registered auditor who places professional services at the disposal of the public for reward ...". The obviously circuitous manner of interpreting the s.41(1) phrase when this definition is applied to it, namely that only a registered auditor may engage in the practice of a registered auditor, does not answer the question of what “public practice” is. Here some background is necessary.

[57]Section 59 of the Act provides in relevant part as follows (emphasis supplied):

“59. Transitional provisions

(1) (a) From the date of commencement of this Act, the Regulatory Board must be regarded as the successor to the Public Accountants’ and Auditors’ Board.

(b) …

(2) …

(8) (a) …

(c) The Code of Professional Conduct as contained in the said Manual (including paragraphs 1 to 2.1.21, inclusive of the disciplinary regulations) must be deemed to have been prescribed by the Regulatory Board.”

[58]The reference here to the “Manual” is the “Manual of Information: Guidelines for Registered Accountants and Auditors” issued by the predecessor of IRBA as at the commencement date of the APA, which was 1 April 2006.  The Manual that applied on that date (published March 2006) contains  the Code of Professional Conduct at pp 4-1 to 4-28, which in terms of section 59(8)(c) of the APA was deemed to have been prescribed by IRBA.  But section 59(8)(c) of the APA also deems “paragraphs 1 to 2.1.21 inclusive of the disciplinary regulations” to have been prescribed by IRBA. This is a reference to the old disciplinary rules, which appear at pp 3-1 to 3-12 of that Manual.

[59]When on 7 June 2007 IRBA adopted the new disciplinary rules and repealed the old disciplinary rules, it left intact paragraphs 2.1 to 2.1.21 of the old disciplinary rules.  These paragraphs of the old disciplinary rules are published at pp 3-23 to 3-27 of the current Manual (Manual of Information: 2008).

[60]The point being made here is that both the Code of Professional Conduct and paragraphs 2.1 to 2.1.21 of the old disciplinary rules were deemed to have been prescribed by IRBA in terms of the APA.

[61]S.41 has been quoted above. That section envisages that a “registered auditor” in terms of the APA might wish to hold him/herself out as a “public accountant”, or a “certified public accountant”, despite being a “registered auditor”.  This ostensible dichotomy arises from the fact that a person registered under the APA is entitled, but not obliged, to perform the attest function. But that does not detract from the fact that the APA is concerned with one profession only, a profession which under the APA is known as that of a “registered auditor”. In this context I refer briefly to the following.

[62]A “public accountant”, i.e. the nomenclature which a “registered auditor” may legitimately adopt and hold out to the public in terms of section 41, is defined as “...means any person who is engaged in public practice”. The definition in turn of “public practice” was quoted above but may as well be repeated here: “... means the practice of a registered auditor who places professional services at the disposal of the public for reward …”. Accordingly, a person may describe him/herself as a “public accountant” only if that person is a registered “auditor” in terms of the Act. A public accountant may then engage in public practice, by placing “professional services” at the disposal of the public.

[63]But what exactly is meant by “professional services”?  The central aim of statutory interpretation is to determine the intention of the legislature by means of the words it used. The ordinary grammatical meaning of the words “professional services” does not assist, since obviously they convey a generic meaning and are not focussed on the auditing profession. But there are two aids of interpretation of statutes that do assist. The first is the context within which the words are used, and the second, subsecuta observatio and contemporanea expositio.

[64]Dealing first with context, the context in which the words appear in the APA is relevant.  As was said by Nugent, JA in Aktiebolaget Hassle and Another vs Triomed (Pty) Ltd, 2003(1) SA 155 (SCA), “[1] 'In law', remarked Lord Steyn in R v Secretary of State for the Home Department, ex parte Daly,  'context is everything'. And so it is when it comes to construing the language used in documents, whether the document be a statute, or a contract, or, as in this case, a patent specification.”

[65]Part of the context within which these word are used, was the then Code of Professional Conduct which, as indicated, expressly survived the repeal of the old Act by virtue of the deeming provision in section 59(8)(c) of the APA.  The Code set out standards of conduct to which members of the “accountancy profession” (a concept which is not defined) were expected to adhere.  A “practitioner” is defined as “… an accountant and auditor registered as such in terms of the Act, whether or not he/she is in public practice.” 

[66]But more importantly, the Code set out the following description concerning work performed in the profession (emphasis supplied):

“’Professional work, professional services and professional business’ are regarding as relating to the following:

2.12.1 The attest function (audit services)

(a)  The examination, in accordance with Generally Accepted Auditing Standards, of financial statements with the objective of expressing an opinion as to their fairness and as to their compliance with the requirements of applicable statutes.

(b)  The audit of other reports and representations of a financial nature.

2.12.2 The financial reporting function (accounting services)

(a)  External financial reports: the preparation of financial statements in accordance with Generally Accepted Accounting Practice and applicable statutes and the interpretation of those financial statements.

(b) Internal financial systems and reports: the design and operation of internal accounting systems to provide management with information which will enable it to plan, monitor and control its business.

2.12.3 The advising function (advisory and fiduciary services)

(a)  Taxation services: the interpretation and application of revenue laws and procedures and of tax planning.

(b)  Management consulting services: the provision of consulting services to management of enterprises.  These services include advisory services relating to planning, control, cost accounting, financial management and reporting, data processing and related systems. 

(c) Other services: these services include investigations, valuations, secretarial services, trusteeships, the planning and administration of estates, judicial management and liquidation and insolvency work.”

[67]It is evident then that the practice of a “registered auditor” entails wide-ranging professional services, of which the attest function is but a part.

[68]The Latin phrases subsecuta observatio and contemporanea expositio refer respectively to usage and contemporary exposition. GE Devenish, Interpretation of Statutes, explains (at p 137) the application of these phrases: “Where, however, a statute uses words of doubtful meaning, the manner of acting under it for a long course of years sometimes gives an interpretation to that obscure meaning, and in such cases a construction which has long and publicly been acted upon is not lightly disturbed....Where the legislature uses words that have been applied consistently in a particular way, thereby establishing a usage, it can be presumed that it intends them to be applied according to their ‘received meaning’”.

[69]I suggest that “professional services” (or “services”, in the context of “professional services”), has through the years acquired such a “received meaning”, and that had the legislature intended to deviate from it, express language would have been necessary. IRBA’s own long-standing practice, from long before the APA was assented to on 12 January 2006, and applied when the previous Act (and its predecessors) was in force, has recognised the fact that a “registered auditor” may render professional services that do not include the attest function. An auditor who does not perform the attest function is required to sign an annual affidavit which certifies that he/she is to be considered “non-attest”. But this does not entail any change to such a professional’s registration for the purposes of the APA.

[70]Under the (repealed) Public Accountants’ and Auditors’ Act 80 of 1991, “public practice” was defined as (emphasis supplied) “… means the practice of a person who performs the function of an accountant and auditor, and for that purpose holds himself out as an accountant and auditor and places his services at the disposal of the public for reward.”  Note therefore that in the previous Act “public practice” described the function of “an accountant and auditor”, whereas the APA simply refers to “the practice of a registered auditor”. 

[71]And yet there were not, for purposes of the previous Act(s), two professions - a profession of an “accountant” and one of “auditor”. That Act used the concepts of “accountant” and “auditor” in a conjoined fashion.  There was only one professional rendering professional services to the public for reward, and he/she was described as “an accountant and auditor”.  This is borne out by the definition of “public accountant” in that Act which simply read “… means a person who is engaged in public practice.”  And as pointed out, this meant the practice of a person who performed the function of “an accountant and auditor”.

[72]The APA followed the same pattern.  It contains the same definition of a “public accountant”, and so when it refers to a “registered auditor”, it refers to a professional who is registered with IRBA and who places professional services at the disposal of the public for reward.  Those professional services include audits, but they have never been limited to audits. The old Act, and the APA, was and is concerned with a public accountant, whether or not he/she also performs the attest function.

[73]Ultimately then the old PAAB Code is part of the context in which the APA is to be interpreted. And that means that the APA proscribes the holding out by a person that such person has the legally required registration to perform the services of a public accountant or an auditor for reward.

[74]So the key here is threefold: it is first that there is a profession which down the years has become known as a public accountant or an auditor. Second, in this country such a professional, i.e. a public accountant or an auditor must be registered. That means registered with IRBA. And third, no person may hold him/herself out as a public accountant or an auditor unless that person is in fact registered with IRBA.

[75] The next question is whether the defendant so held himself out. I have found that, on the evidence, he did so deliberately. He thus contravened s.41(1) of the APA. That constitutes an offence under s.54(1) of the APA, and such a person is liable on conviction to a fine or in default of payment to imprisonment not exceeding five years or to both fine and such imprisonment. I revert below to the impact of this on the present matter.

Election

[76]That means that the defendant misrepresented his professional qualification to Mr Colley. However, when Mr Colley discovered the truth, i.e. that the defendant was not so registered, he did not cancel the agreement. He could not, because by that date the agreement had already been cancelled. It had been cancelled back on 2 October 2007, and not because it had then transpired that the defendant had not been registered. It had been cancelled because the plaintiff was dissatisfied with the defendant's services.

[77]This does not mean that the plaintiff could not still elect to avoid the agreement for misrepresentation. The cancellation, as the plaintiff’s own cancellation letter with its notion of squaring of accounts affirmed, operated pro nunc. That means that acquired and accrued rights and entitlements remained extant. Avoiding an agreement for misrepresentation operates ex tunc, meaning it wipes out, with retrospective effect, the parties rights and obligations.

[78]It follows that when later in October 2007 Mr Colley established that the defendant was not registered, there were remnants of the agreement still intact.   The plaintiff could then still elect, effectively, to avoid the agreement. But it did not, when it first sued the defendant on 22 July 2008, do so. In fact, it sued the defendant for breach of contract. It was only when this trial commenced in 2017 that it purported to elect to cancel for misrepresentation. It was obliged to have done so within a reasonable time.[2] By 2017 a reasonable time had lapsed.

[79]It seems to me that the same result is reached even if an accommodating approach to the plaintiff’s late reliance on misrepresentation is taken. Assume that the relief claimed in the July 2008 summons, that is cancellation and restitution, is in substance the same relief that would have been claimed had the plaintiff then already relied on avoidance for misrepresentation; would that have changed the result?

[80]I do not believe so. Eight months would have lapsed from when the plaintiff learnt of the misrepresentation, and even then – in the July 2008 summons – no reliance at all is placed on the misrepresentation. No case at all is founded on the whole issue of the defendant’s non-registration. So, no matter how one looks at it, no election was made by July 2008.

[81]Since the plaintiff's only cause of action is restitution following misrepresentation, the plaintiff's case must accordingly fail.

The counterclaim

[82]That leaves the defendant's counterclaim. And here the question is whether the defendant is entitled to recover fees for the services which he had rendered. I have found that the contract that entitled the defendant to render those services was one concluded on the basis of an unlawful misrepresentation as to his legal entitlement to render those services.

[83]True, the contract was cancelled before the misrepresentation was discovered, and that cancellation operated pro nunc: accounts were sought to be squared as of 2 October 2007. But it does not follow that the defendant is entitled to rely on that contract to claim performance of fees that had accrued up to then. The defendant's conduct is proscribed in terms of the APA, and in fact rendered a criminal offence.

[84]The law does not permit a person in those circumstances to make money from the very conduct that is prohibited. Generally, as a principle of our law, a person is not permitted to take advantage from his/her own unlawful conduct. In Comwezi Security Services (Pty) Ltd and Another v Cape Empowerment Trust Ltd[3] Van Zyl, AJA said in this context:

“[12] The rationale for this rule is twofold: A party to a contract should not by its own unlawful conduct be allowed to obtain an advantage for himself to the disadvantage of his counterpart. ‘It is a fundamental principle of our law that no man can take advantage of his own wrong’ and ‘to permit the repudiating party to take advantage of the other side’s failure to do something, when that failure is attributable to his own repudiation, is to reward him for his repudiation’. The converse is that the innocent party is not expected to make the effort or incur the expense of performing some act when, by reason of the repudiation, ‘it has become nothing but an idle gesture’. This is consistent with the general principle that the law does not require the performance of a futile or useless act. These principles are of general application and may find application in a variety of circumstances. The doctrine of fictional fulfilment of contractual terms is, for example, similarly based on the principle that a contractant cannot take advantage of its own wrongful conduct to escape the consequences of the contract.”

[85]In my view, then, the defendant cannot succeed either on its counterclaim, and it is dismissed. The defendant’s conduct must however be referred to the National Prosecuting Authority for further investigation. In the result I make the following order.

(a) The plaintiff’s claims are dismissed with costs.

(b) The defendant’s claims are dismissed with costs.

(c) The defendant’s conduct as set out herein is referred to the National Prosecuting Authority for further investigation.

 

 

WHG van der Linde

Judge, High Court

Johannesburg

 

 

For the plaintiff: Adv. JC Pieterse

Instructed by: Cliffe Dekker Hofmeyr

1 Protea Place

Sandown, Sandton

Ref. WPS van Wyk

Tel. 011 5621057

 

 

For the defendant: Adv. M Desai

Instructed by: Govender Patel Dladla Inc

1 Chadwick Ave

Sandton, Johannesburg

Ref. A Patel

Tel. 011 0521835

Dates trial: 14, 15, 16, 7 & 18 August 2017

Date judgement: 29 August 2017

 

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