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IN THE HIGH COURT OF SOUTH AFRICA

(GAUTENG LOCAL DIVISION, JOHANNESBURG)

CASE NO: 19/1250

In the matter between:

HOWDEN AFRICA (PROPRIETARY) LIMITED                                                      Applicant

and

THE LEGAL PRACTITIONERS FIDELITY FUND BOARD                                Respondent

 

J U D G M E N T

 

MILTZ AJ:

1. The applicant is HOWDEN AFRICA (PROPRIETARY) LIMITED. The respondent is THE LEGAL PRACTITIONERS FIDELITY FUND BOARD. The application commenced in January 2019.

2. The applicant seeks a money judgment against the respondent for payment of R7.5 million and ancillary relief.  The claim also includes the costs of the applicant incurred in respect of an action under case number 39278/2017. In that action the applicant claimed and obtained summary judgment for R7.5 million and ancillary relief against Hooyberg Attorneys. In the action the applicant claimed money that was stolen by Clement Jos Hooyberg (“Hooyberg”) who was a practitioner at the time of the alleged theft of the funds.

3. By way of regulatory background, in terms of the provisions of Section 53(1) and (2) and Section 111(a) of the Legal Practice Act 28 of 2014 (“the Legal Practice Act”), as from the date of commencement thereof on 1 November 2018 in respect of Chapter 1, Chapter 3 with the exclusion of Section 35(1), (2), (3), (7) up to and including (12), Chapter 4 with certain exclusions and Chapters 6 and 7, Chapter 8 with an exclusion, Chapter 9 with an exclusion and Parts 3 and 4 of Chapter 10:

3.1. the Attorneys Fidelity Fund Board of Control established in terms of the provisions of Section 8 of the Attorneys Admission Amendment and Legal Practitioners Fidelity Fund Act 19 of 1941 as read with the provisions of Section 25 of the Attorneys Act No. 53 of 1979 (“the Attorneys Act”), capable of suing and being sued in its own name in terms of Section 27(3) of the Attorneys Act (“the former Attorneys Fidelity Fund Board of Control”), continued in existence under the name of the Legal Practitioners Fidelity Fund, managed and administered by the respondent in terms of Section 61(1) of the Legal Practice Act;

3.2. the former Attorneys Fidelity Fund Board of Control ceased to exist and all assets, rights, liabilities and obligations which, on 1 November 2018 vested in the former Attorneys Fidelity Fund Board of Control, vested in the respondent.

4. The applicant seeks judgment in respect of the alleged liability of the respondent to the applicant in terms of Section 111(a) of the Legal Practice Act for the liability of the former Attorneys Fidelity Fund Board of Control to the applicant in terms of the provisions of Sections 26(a), 45(1)(a) and 47(2) of the Attorneys Act on the grounds that:

4.1. a theft of monies was committed;

4.2. by a practicing practitioner Hooyberg who has already been referred to above;

4.3. of money totalling R7.5 million allegedly entrusted by the applicant to Hooyberg.

5. It is common cause that the applicant complied with the statutory requirements that procedurally entitle the applicant to make such a claim including the obtaining of the judgment referred to above.

6. The relevant facts in the matter are set out below.  The crucial issue in the application is whether the facts of the matter are such as to distinguish the claim of the applicant in the present application from those in the case of Attorneys Fidelity Fund Board of Control v Metal Property Finance (Proprietary) Limited 2012 (3) SA 611 (SCA) (and several others) in which payments to attorneys were held not to constitute entrustment.

7. It is also necessary to consider whether if the payments constituted entrustment the applicant suffered a loss (see Industrial and Commercial Factors (Proprietary) Limited v Attorneys Fidelity Fund Board of Control [1996] ZASCA 84; 1997 (1) SA 136 (A)).  These and other judgments will be considered more fully below.

8. On approximately 30 October 2015 the applicant’ representative met with Hooyberg in Johannesburg where it was agreed between the applicant and Hooyberg that Hooyberg would draft two separate loan agreements. These were an enterprise development loan agreement and a supplier development loan agreement. 

9. The proposed loan agreements were to be entered into between:

9.1. the applicant, Hooyberg Attorneys and Buhle Bethu Waya Cages (Proprietary) Limited (“BBWC”) in relation to the enterprise development loan agreement; and

9.2. the applicant, Hooyberg Attorneys, Sindawonye Services (Proprietary) Limited (“SS”) and Themba Njalo Camden (Proprietary) Limited (“TNC”) in relation to the supplier development loan agreement.

10. On 30 October 2015 it was discussed and agreed between the applicant and Hooyberg that:

10.1. monies would be entrusted by the applicant to Hooyberg Attorneys for the benefit of BBWC, SS and TNC;

10.2. Hooyberg Attorneys would hold in their trust account monies deposited into the trust account, would administer the monies in the trust account, disburse the monies to BBWC, SS and TNC and would charge a monthly administration fee of R3 000 excluding VAT from the interest accruing on the monies in the trust; and

10.3. Hooyberg Attorneys would draft the supplier development loan agreement and the enterprise loan agreement.

11. On 17 December 2015 the applicant, Hooyberg Attorneys and TNC concluded a written supplier development loan agreement. 

12. On the same day the applicant, Hooyberg Attorneys and BBWC concluded a written enterprise development loan agreement.

13. The agreements reflect the same terms save that the capital amount loaned in terms of the supplier development loan agreement to TNC was the amount of R5 million whereas the amount loaned by the applicant to BBWC in terms of the enterprise development loan agreement was R2.5 million.

14. These amounts (“the capital amounts”) would be paid by the applicant to the respective borrowers by payment into an account described as “the Holding Account” which would be administered by Hooyberg Attorneys as the account administrator for the benefit of TNC and BBWC.

15. Hooyberg Attorneys as the account administrator would administer the Holding Account and would be entitled to a fee of R3 000 per month for administering the holding account which fee would be payable by the applicant in terms of clauses 5 and 1.1.2 of the respective agreements.

16. The latter term does not conform with the oral agreement of 30 October 2015 related above in that whereas the agreements recorded that the applicant as the lender would be liable for the administration fee, the parties had envisaged previously that the R3 000 would be charged to the interest that accrued on the monies in the trust. 

17. As will appear more fully below such interest would be for the benefit of the borrowers TNC and BBWC and not the applicant as lender so that the provisions of the agreement to the contrary suggest a departure from the initial intention of the parties in relation to who would be responsible for the fee.

18. In terms of clauses 1.1.12, 1.1.18, 6.3 and 7.1 of the respective agreements Hooyberg Attorneys on written request from TNC and BBWC respectively would withdraw from the capital amount held in the Holding Account and make payment to TNC or BBWC into their respective accounts (which were described as the Deposit Accounts) subject to either of them providing Hooyberg a valid tax invoice or implementation agreement containing details that were in conformance with the loan purpose (defined in clause 1.1.26 and appendix 1) and the withdrawal amount not exceeding the amounts set out in the loan purpose and its respective purposes (clauses 1.1.12, 1.1.18, 6.3 and 7.1).

19. For reasons that will appear more fully below the contents of these clauses relating to draw downs on the Holding Account are irrelevant as neither TNC nor BBWC ever drew down on the amounts in the Holding Account and so but for the theft of the monies same probably would have been intact in the Holding Account at all material times.

20. Nevertheless and rather strangely, the agreements provided that the portion of the capital amount in the Holding Account not yet advanced would bear interest at the prime rate less 3.62% calculated daily on the basis of a 365 day year and compounded in arrears at the end of each interest period of a month. 

21. The strange feature of this is that all interest accrued on the portion of the capital amount remaining in the Holding Account would be for the benefit of TNC / BBWC and would be paid by Hooyberg Attorneys from the Holding Account to TNC / BBWC on a monthly basis.  Yet the only amount liable to be repaid to the applicant as lender in terms of the respective agreements would be the capital amount and nothing else.

22. Equally strange is that the agreements were negotiated by Hooyberg and that representatives of TNC and BBWC only reckoned at the signature stage.

23. In terms of:

23.1. clause 6.1 of the agreements the capital amount would be advanced by the lender into the Holding Account within fourteen days of the conditions precedent being met whereafter the account administrator could advance amounts to the borrowers in accordance with the loan purpose and withdrawal requirements;

23.2. clause 6.2 of the agreements the borrowers:

23.2.1. acknowledged and agreed that payment of the capital amount by the lender into the holding account in accordance with clause 6.1 would fully discharge the lender’s obligation to advance the capital amount to the borrower; and

23.2.2. acknowledged that it had received the full benefit of the capital amount;

23.3. clause 7.1 of the agreements the borrowers undertook that on the final repayment date they would repay and / or replenish any portion of the capital amount into the holding account as advanced by the account administrator including all unpaid sums;

23.4. clause 7.3 of the agreements provided that the account administrator after the capital amount would be replenished in full would make payment of the capital amount into the repayment account;

23.5. clause 14 of the agreements the borrowers indemnified the lender from and against any properly evidenced expense, loss, damage or liability, which an indemnified party may incur as a consequence of entering into the agreements with the borrowers, performing any act  thereunder or the occurrence of any event of default;

23.6. clause 15 in which the events of default were listed but these are not applicable to the facts of the matter.

24. It would be remiss of me not to observe that the many strange features of the negotiation of the agreements and the terms of the agreements themselves suggest strongly that the applicant may have been set up by Hooyberg for the sole purpose of extracting the capital amounts from it.  It is conceivable that if that was the case and if the borrowers were not extant or genuinely intending to borrow the capital advances on the basis set out in the agreement that the applicant’s claim could not succeed for a variety of technical reasons.

25. Nevertheless such an inquiry is beyond the ambit of the matter because the claim is brought within the ambit of Section 26(a) of the Attorneys Act the requirements wherefore have been set out above. Indeed a claim based on fraud would be different from that advanced in the application with potentially different consequences for the applicant and the respondent. However I need say no more as the parties have agreed that the monies paid to Hooyberg attorneys by the applicant were stolen and the claim is not resisted on the basis that they were not.

26. On 21 December 2015 the applicant paid the amounts of R5 million and R2.5 million respectively into the trust account of Hooyberg Attorneys.  Thereafter from time to time Hooyberg Attorneys accounted to the applicant for interest accrued on the amount held in the trust account as aforesaid as well as for the agreed monthly administration fees due to Hooyberg Attorneys as the account administrators in respect of the agreements.

27. On 11 November 2016 the applicant learnt that Hooyberg had been struck of the roll of attorneys and that his trust account had been placed under the curatorship of the Law Society of the Northern Provinces.

28. On the advice of the curators of the Hooyberg Attorneys trust account the applicant submitted a claim against the former Attorneys Fidelity Fund Board of Control.  By 8 December 2016 the applicant had learnt that neither TNC nor BBWC had received any monies from Hooyberg Attorneys.  As there were insufficient funds in the trust account of Hooyberg Attorneys it emerged that the monies that the applicant had paid to Hooyberg Attorneys had been stolen by Hooyberg. 

29. On 14 December 2016 the applicant submitted a claim to the former Attorneys Fidelity Fund Board of Control in terms of Section 26 of the Attorneys Act for payment of the monies stolen by Hooyberg.  The claim was timeously made. 

30. On 18 January 2017 the former Attorneys Fidelity Fund Board of Control required the applicant to exhaust all available legal remedies against Hooyberg which, as recorded above, the applicant duly did.  In requiring the applicant to act as aforesaid the former Attorneys Fidelity Fund Board of Control informed the applicant that in the event of it proving that it had a valid claim against the former Attorneys Fidelity Fund Board of Control as envisaged by Section 26 of the Attorneys Act that it would reimburse the applicant for its costs of excussion being taxed party and party costs and attorneys’ fees on a scale between R701 000 per hour.

31. As already observed the applicant has exhausted all the available legal remedies against Hooyberg who cannot satisfy the judgment that was obtained against him.  A nulla bona return of service has been obtained in respect of the judgment.

32. On 28 June 2018 the former Attorneys Fidelity Fund Board of Control rejected the applicant’s claim.  It did so on the basis that it “does not comply with Section 26(a) of the Attorneys Act”.

33. The underlying basis for this contention was that with reference to the loan agreements the former Attorneys Fidelity Fund Board of Control contended that the monies paid to Hooyberg Attorneys were not to be held in trust on anyone’s behalf and were paid over in discharge of the obligation of the applicant to pay the sums loaned to the borrowers TNC and BBCW.  In summary the respondent’s contention was and remains that the monies paid over into the trust account of Hooyberg Attorneys were not entrusted to Hooyberg Attorneys on behalf of the applicant because the monies were paid in discharge of the obligations of the applicant as lender in accordance with the provisions of each of the agreements and that once the monies had been paid over to Hooyberg Attorneys the monies were held in trust for and on behalf of the borrowers TNC and BBWC respectively and not in trust for and on behalf of the applicant.

34. The respondent also contends that the applicant did not suffer a pecuniary loss because when the monies were stolen by Hooyberg they were held for and on behalf of TNC and BBWC respectively and not for and on behalf of the applicant. 

35. The applicant argues that its intention in making payment into the trust account of Hooyberg Attorneys was not merely to discharge the applicant’s obligations in terms of the agreements to advance the capital amount to TNC and BBWC respectively.  The applicant contends that the intention of the applicant was to entrust to Hooyberg the monies paid to Hooyberg by the applicant and to deal with same for the benefit of others on behalf of not only TNC and BBWC but also the applicant.  Therefore the applicant contends Hooyberg Attorneys trust account was not merely a conduit. 

36. In support of its argument the applicant relies on the circumstances leading up to the conclusion of the agreements and the terms of the agreements themselves especially including those that obliged Hooyberg Attorneys after the monies drawn down from the holding account would be repaid by the borrowers to pay the monies to the applicant on the repayment date and to administer the monies paid to Hooyberg Attorneys pursuant to the agreements.

37. A critical aspect of the applicant’s case is that because neither BBWC nor TNC ever received such monies and in fact never became entitled to same because they never complied with the draw down provisions of the agreements, that therefore they were never obliged to top up the holding account and the repayment date never arrived.

38. It is common cause that the payment by the applicant of monies into the trust account of Hooyberg Attorneys constituted an entrustment.  The difference between the parties is whether as contended by the respondent the entrustment was for the borrowers BBWC and TNC or as contended by the applicant was for the borrowers and the lender.

39. The further issue then arises if the entrustment was for the sake only of the borrowers whether that impacts in any manner on the applicant’s claim.  A further issue that arises is whether even if the entrustment was for the borrowers and the lender as contended for by the applicant the theft of the money resulted in a loss for the applicant.

40. These issues will be considered more fully below with reference to the applicable authorities.

41. As already observed above the respondent argues that the money was paid over in discharge of the applicant’s obligations as lender in accordance with each of the respective agreements.  The respondent argues that the monies were not entrusted to Hooyberg Attorneys to be held on the applicant’s behalf and that once the monies had been paid over to Hooyberg Attorneys the monies were held in trust for and on behalf of the borrower in each case, TNC and BBWC, respectively.

42. Therefore argues the respondent when the monies were stolen by Hooyberg they were being held for and on behalf of TNC and BBWC respectively and not on behalf of the applicant.

43. The respondent also argues that the loss suffered when the monies were stolen was the loss of TNC and BBWC respectively.

44. The respondent in arguing thus places considerable store on the provisions of the agreements already referred to above but particularly on the provisions of three clauses being:

44.1. clause 6.2 in which the borrower acknowledged and agreed in each agreement that payment of the capital amount by the lender into the Holding Account would fully discharge the lender’s obligation to advance the capital amount to the borrower;

44.2. clause 6.2.2. in terms of which that the borrower thereby acknowledged that it had received the full benefit of the capital amount; and

44.3. clause 14 in terms of which the borrower indemnified the lender from and against any properly evidenced expense, loss, damage or liability which an indemnified party may incur amongst other things as a consequence of entering into the agreement with the borrower or performing any act thereunder.

45. As I understand the argument of the respondent it is that these provisions of the respective agreements demonstrate the intention of the parties that after the payment of the capital amounts into the trust account of Hooyberg Attorneys the applicant as lender had no further obligations (save possibly in respect of the payment of the administration fee) and that in the ordinary course it would become entitled to repayment of the capital amounts after the borrowers had topped up same and the repayment date would arrive.

46. The parties obviously never considered that the position might arise in which the borrowers did not draw down on the capital amount in the holding account.  Although traversed in argument neither party presented its case on the basis of what the parties to the agreements possibly intended in the event that a situation arose in which there was no draw down and the applicant as lender sought repayment of the capital amount advanced.  Therefore there is no need to investigate that issue further.  But it remains necessary to consider with reference to the terms of the agreements that are relied on by the parties on whose behalf the monies were entrusted and in the circumstances of the matter who suffered the loss.

47. Attractive as the argument for the applicant is in my view the provisions of the agreement referred to above are consistent with the “conduit” approach adopted in respect of entrustment by the SCA in several judgments[1].  The fact that the applicant would pay the administration fee does not alter the position in this regard.  As observed above the agreements were strange in several respects but in the context of the apparent intention of the parties that capital would be made available to the borrowers at no cost and that they would enjoy the fruits thereof in the form of interest, it is not surprising that the applicant as lender was prepared to spare them the cost of the administration of the monies.

48. Therefore, although my prima facie view is that there was no entrustment at all and certainly not for the applicant lender, it nevertheless remains necessary to consider whether entrustment for the benefit of others such as the borrowers suffices for the purposes of Section 26(a) of the Attorneys Act and if so whether again with reference to the facts of this matter the loss suffered was that of the applicant or that of the borrowers.  That analysis follows.

49. I agree with the respondent’s contentions that if there was an entrustment of funds it was entrustment on behalf of the borrowers.  Having made the payment the applicant’s only interest in the money was repayment.  The repayment of the capital amount was a contractual obligation of the borrowers once the express terms of the agreement that related thereto would rise.  The fact that no monies were drawn down on the capital amount was to the detriment of the borrowers whose complaints that they did not receive money from the capital account are a matter of record.

50. Therefore in my view the terms of the agreement support the conclusion that if there was an entrustment it was an entrustment for the respondent.

51. I was referred in argument to the judgment in Industrial and Commercial Factors v Attorneys Fidelity Fund[2] in which the following dictum appears:

“In view of the aforegoing I am satisfied that the appellant has shown a sufficient element of entrustment to bring it within the ambit of S26(a). 

The respondent supported the following further finding of the Court a quo to the effect that the money was not entrusted “by or on behalf of” the appellant:

“The phrase “by or on behalf of” as used in S26(a) of the Act envisages

(a) a person who entrusts money with a practitioner for himself; or

(b) a person who entrusts money with a practitioner on behalf of another.  SVV Construction (Pty) Ltd v Attorneys, Notaries and Conveyancers Fidelity Guarantee Fund 1993 (2) SA 557 (C) at 590 B - D.

In the example postulated in (still a) above it is the person who entrusts the money for himself who will in appropriate circumstances be entitled to reimbursement;

In example (b) it will be the person on whose behalf the money was entrusted who might be entitled to reimbursement.”

According to this construction of S26(a) it is only the person “on whose behalf” the money was entrusted who would be entitled to reimbursement, provided the other requirements of the section have been met.  This view seems to stem from the conception that in order to entrust money it has to be impressed with a trust “for the benefit of” a particular person, and that only that person could possibly suffer pecuniary loss and be entitled to claim reimbursement.  Such a construction seems to lose sight of the fact that in circumstances such as the present it is only the person “by whom” the money is entrusted, who will suffer pecuniary loss.  Although the money in the present case was intended by the appellant to be entrusted on behalf of Branken, the facts show that she has suffered no loss at all and that she accordingly has no right to claim reimbursement.

In my judgment S26(a) makes provision for reimbursement to either

(1) the person “by whom” the money has been entrusted; or

(2) the person “on whose behalf” the money has been entrusted;

provided such person has suffered pecuniary loss.”[3]. 

52. There does not seem to be anything contentious in the portion of the judgment referred to above.  My understanding thereof is that it says no more than that a person on whose behalf money has been entrusted can claim the loss under Section 26(a) provided he suffered a loss.  Furthermore the person who pays money thereby entrusting it on his own behalf can also claim under Section 26(a) provided he has suffered a loss.  The common elements are that regardless of who paid or entrusted the money, the person on whose behalf the money was entrusted will have a claim provided he has suffered a loss. 

53. The principle might extend further to a situation in which although the monies were not entrusted for the payer through their entrustment and theft the payer suffers a loss. 

54. For reasons already set out above I do not consider that the monies were entrusted for the benefit of the applicant.  Furthermore at the time they were stolen they were administered for the borrowers who through the theft were deprived of the benefits of the loan.  This effectively prevented them from drawing down on the capital amount.  The sine qua non for the loss suffered by the borrowers and their inability to access the capital amount was the theft of the funds by Hooyberg and his inability to repay same.  In my view therefore the loss squarely was the loss of the borrowers.  Any consequential loss for the applicant would be due to the borrowers’ failure to repay the capital amount which they never accessed.

55. I expressed reservations as to the question of entrustment especially in light of the dictum in the judgment in the Attorneys Fidelity Fund Board of Control v Metal Property Finance (Proprietary) Limited[4] in which the court held with reference to the words of Graskop JA in Industrial and Commercial Factors (supra) that:

“Where money is paid into the trust account of an attorney it does not follow that such money is in fact trust money … if money is simply handed over to an attorney by a debtor who thereby wishes to discharge a debt, and the attorney has a mandate to receive it on behalf of the credit, it may be difficult to establish an entrustment.”.

56. In referring to the portion of the aforesaid judgment the court considered that the payment of bridging finance simply constituted the discharge of a debt to the conveyancer simply constituted the discharge of the debt to a mortgagor or seller.  Immediately upon its payment the debt was discharged.  The words of the clauses in the agreement, that is, 6.1 and 6.2 envisage a similar situation in casu.

57. In the circumstances:

57.1. I do not consider there was an entrustment of monies in the circumstances of the payment by the applicant of the capital amount to the holding account under the administration of Hooyberg Attorneys;

57.2. nevertheless if I am wrong the entrustment was for the benefit of the borrowers and not the lender; and

57.3. any loss suffered by the lender was not due to the theft of the capital amount as much as to the failure of the borrowers through the inability to do so to draw down on the capital amount and procure the repayment thereof to the applicant on the repayment date. 

58. Accordingly the application is dismissed with costs.

 

 

_____________________________

I. MILTZ

ACTING JUDGE OF THE HIGH COURT, JOHANNESBURG

 

COUNSEL FOR THE APPLICANT: L. HOLLANDER

INSTRUCTED BY ATTORNEYS: _____________________

COUNSEL FOR THE FIRST RESPONDENT: G. OLIVER

INSTRUCTED BY ____________________________________

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