ABSA Bank Limited v Attorneys Fidelity Fund Board of Control and Others (43599.2012) [2013] ZAGPPHC 339 (27 November 2013)

IN THE HIGH COURT OF SOUTH AFRICA

(NORTH GAUTENG HIGH COURT, PRETORIA)

Case number: 43599/2012

Date: 27 November 2013

REPORTABLE

Not of interest to other judges

Revised

In the matter between:

ABSA BANK LIMITED Applicant

and

THE ATTORNEYS FIDELITY FUND BOARD OF CONTROL 1st Respondent

JOACHIM HENDRIK BOTHA N.O. 2nd Respondent

ANA PAULA DE OLIVEIRA N.O.

JUDGMENT

PRETORIUS J,

[1] The facts of this application is common cause. The applicant is ABSA Bank and the first respondent is The Attorneys Fidelity Fund Board of Control. The second respondent is the trustees of Dr SH Gregan’s insolvent estate. He was finally sequestrated on 18 November 2011. No relief is sought against the second respondent. The second respondent did not file opposing papers.

[2] Dr Gregan was at all times a practicing attorney as well as a conveyancer, residing at 98 Kerk Street, Modimolle.

[3] In his practice as a conveyancer, Dr Gregan obtained guarantees in an amount of R7 million, payable by the applicant in respect of a property transaction of the Willem Wagner Family Trust. A guarantee was issued by the applicant for payment to the trust account of Dr Gregan on date of registration of the transaction.

[4] The transaction was registered on 2 March 2010 and an amount of R7 million was paid electronically into the trust account of Dr Gregan. On 3 March 2010 a further amount of R7 million was paid into Dr Gregan's trust account by the applicant. This payment was not due to Dr Gregan and was done due to a bona fide error by the applicant. It is common cause that it is the same amount relating to the transaction of the Willem Wagner Family Trust, which was incorrectly paid a second time.

[5] It is common cause that this amount was paid to Dr Gregan, due to a mistake by an employee of the applicant. Dr Gregan had admitted that it was a mistake and confirmed it in an e-mail addressed to Ms Lynn Ferguson, legal counsel of Absa Group Litigation. He tried to resolve the issue by making various promises of repaying the amount, without doing so. Although Dr Gregan had admitted liability he was not able to repay the money. Absa obtained judgment against Dr Gregan on 29 July 2011 for repayment of the amount of R7 million together with interest at the rate of 15.5% calculated from 1 July 2010 to date of final payment together with costs on an attorney and client scale. Dr Gregan was finally sequestrated on 18 November 2011, inter alia, due to the aforesaid judgment remaining unsatisfied.

[6] The respondent’s defence to the claim is two fold; whether section 26 of the Attorneys Act, Act 53 of 1979 (the Act) applies and the court has to determine whether the second payment made to Gregan in error was “entrusted” to Dr Gregan as provided for in terms of section 26(a). The second defense is whether notice of the theft was given within the period of 3 months as provided for in section 48(a) of the Act.

[7] On 3 August 2010 the second respondent informed the bank:

‘‘Lynn

Thank you for the information sent to me by email. I trust that I can correspond with you in confidentially.

As stated to you I didn’t know that the money came from ABSA.

I initially thought that it was money from another transaction of me (sic) nephew (for a farm) and only later realized that it was not. More than three months later I was contacted by the bank and it was stated to me that it was a duplicate payment from ABSA. I immediately asked for documentation in

this regard and also thereafter, but did not receive any feedback of info. I have a message book to proof (sic) it. You were the next person to contact me in this regard which I appreciate. I went through the documents that you have sent to me. Although some of it don’t make any sense to me (being bank documentation), I accept that the money came from ABSA.

I want to ask you if it is possible that you can arrange for a postponement to repay the money. I appreciate your help and assistance and will be grateful if you can assist me.

Regards

Sydney” (Court’s emphasis)

Section 48(1 )(a) Attorneys Act, 53 of 1979:

[8] Section 48(1 )(a) of the Act provides:

“(1) No person shall have a claim against the Fund in respect of any theft contemplated in section 26 unless -

(a) written notice of such claim is given to the council of the society concerned and to the board of control within (3) months of the claimant became aware of the theft or by the exercise of reasonable care should have become aware of the theft;’’ (Court’s emphasis)

[9] It is common cause that the Fund and the Law Society of the Northern Provinces were notified in writing of the loss of R7 million on 19 October 2010, seven months after the payment had been effected.

[10] The payment in question was effected on 3 March 2010. Standard Bank confirmed on 11 June 2010 that the amount had been credited to Dr SH Gregan attorneys’ trust account.

[11] The bank only realized that Dr Gregan had stolen the money when Ms Ferguson, on behalf of Absa, received his e-mail dated 3 August 2010, in which he was requesting to refund the bank in instalments, thus admitting his liability. The only inference that can be drawn from this admission is that he had stolen Absa's money.

[12] Although Absa Bank realized on 3 March 2010 that a duplicate payment had been made, the employees of the bank had to assess the status of the second payment. Absa assumed that the erroneous payment was being kept safely in the trust account of Dr Gregan, not realizing that he had misappropiated the money.

[13] The first time a problem was identified regarding the repayment of the R7 million was on 3 August 2010, when it became clear that Dr Gregan had stolen the money and admitted that he had to repay Absa. He made arrangements to refund Absa, but failed to do so, which, inter alia, lead to his sequestration.

[14] Although the respondent argues that the three month period in which Absa had to inform the first respondent had to be calculated from 3 March 2010, counsel for Absa argued that this is incorrect, as the theft was only confirmed on 3 August 2010 by Dr Gregan. Therefore Absa had informed the first respondent timeously of the theft and the claim, within the prescribed three month period as provided for in section 48(1) of the Act. The court finds that Absa had complied with the provisions of section 48(1), as Absa only became aware of the theft on 3 August 2010 and informed the defendant on 19 October 2010 - two months after realizing the money had been stolen and within the required three month period.

Section 26 Attorneys Act. 53 of 1979:

[15] On 4 February 2012 the first respondent informed Absa:

“/ regret to advise that the Fund’s Board of Control has resolved that this claim be rejected, on the grounds that it does not

comply with section 26 of the Attorneys Act, 53 of 1979.

The above reason for rejection may not be exhaustive and all of the Fund’s rights are fully reserved in the event of it at a later stage appearing that additional grounds for rejection, or other defences, may exist. ”

[16] Section 26(a) of the Attorneys Act 53 of 1979 provides:

“26 Purpose of fund

Subject to the provisions of this Act, the fund shall be applied for the purpose of reimbursing persons who may suffer pecuniary loss as a result of-

(a) theft committed by a practising practitioner, his candidate attorney or his employee, of any money or other property entrusted by or on behalf of such persons to him or to his candidate attorney or employee in the course of his practice or while acting as executor or administrator in the estate of a deceased person or as a trustee in an insolvent estate or in any other similar capacity;” (Court’s emphasis)

[17] In King and Another vs Attorney Fidelity Fund Board of Control 2010(4) SA 185 (SCA) Mpati P in paragraph 9 confirmed:

“[9] As was correctly stated by the court a quo, for them to succeed in their claims the plaintiff were required to prove that (a) they had suffered pecuniary loss, (b) by reason of theft committed by a practitioner or practitioners at Van Schalwyks, (c) of money entrusted by them or on their behalf to Van Schalkwyks and (d) in the course of practice of such practitioner(s). ”

[18] In this instance it is clear that the plaintiff had suffered a pecuniary loss by reason of theft committed by the attorney in the course of practice as attorney. The only issue remaining is whether the money was “entrusted” by Absa to the first respondent.

[19] In Industrial and Commercial Factors (Pty) Ltd and Attorneys Fidelity Board of Control 1997(1) SA 136 (A) at 144 B -144 J Groskoppf JA held:

“I do not understand these passages, and similar remarks in the case of SVV Construction (Pty) Ltd i/ Attorneys, Notaries and Conveyancers Fidelity Guarantee Fund 1993 (2) SA 577 (C) at 589G, to convey that the liability of the Fidelity Fund is limited to those cases where the money or property concerned was impressed with a trust in the technical legal sense of the word. The Afrikaans text of the Act, which is also the signed one, provides as follows in s 26(a):

'Behoudens die bepalings van hierdie Wet, word die fonds aangewend ten einde persone te vergoed wat geldelike verlies ly weens -

(a) diefstal gepleeg deur 'n praktiserende praktisyn . . . van geld of ander goedere deur of namens sodanige persone toevertrou aan horn ... in die loop van sy praktyk.

(Emphasis added.)

Die Verklarende Handwoordeboek van die Afrikaanse Taal (HAT) 2nd ed (1992) defines 'toevertrou' as 'met vertroue opdra aan, oorgee aan die sorg van….’

Die Verklarende Afrikaanse Woordeboek 8th ed (1992) gives the following definition of 'toevertrou':

'1. In vertroue gee. 2. In iemand se sorg laat; ter veilige bewaring gee…..’

The word 'toevertrou' does therefore not imply that the handing over of the money or property concerned has to be subject to a trust in the technical legal sense of the word.”

(Court’s emphasis)

[20] It is clear from this dictum that two elements are required in order for the court to find that money had been “entrusted” to Dr Gregan in terms of section 26 of the Act:

i) to place in possession of something;

ii) subject to a trust.

[21] In Industrial and Commercial Factors (Pty) Ltd and Attorneys Fidelity Board of Control (supra) case it was held that the liability of the Fund was not limited to those cases where money was entrusted to an attorney in the legal sense of the word, but “entrust

encompasses the technical meaning of placing money with an attorney”. This interpretation was gleaned from the decision where the court indicated that entrust has a different meaning from “in trust aan hom gee” as set out in Afrikaans text of section 26(1). This court has to decide whether the principles annunciated in the Industrial and Commercial factor case (supra) applies in the present situation.

[22] The case of Attorneys Fidelity Fund Board of Control v Mettle Property Finance (Pty) Ltd 2012(3) SA 611 (SCA), differs in the respect that in the Mettle case it was found that the payment into the attorney’s trust account was to discharge a debt and the attorney acted only as a conduit for the transfer of the money. It is thus wholly distinguishable from the facts of the present matter.

[23] In BIC South Africa (Pty) Ltd v Attorneys Fidelity Fund Board of Control 2003(6) SA 757 (W) the attorney stole the money deposited in his trust account and did not disburse it to creditors of BIC as he should have done. These facts are thus also distinguishable from the facts present in this application.

[24] In Hirschowitz v Flionis v Barlett and Another 2006(3) SA 575 (SCA) at 589 paragraph 30 Howie P held:

“Third, even where an attorney discovers an anonymous and unexplained deposit, it requires minimal management to transfer the money to a trust suspense account. It Is then a task of no difficulty to trace the depositor with the aid of the firm's own bank. After that, one need merely leave the money where it is until receipt of instructions by or on behalf of the depositor or the person for whose benefit the deposit was made. Fourth, unreasonable conduct that might put the money at risk would, as a reasonable foreseeability, cause loss to the depositor or beneficiary. The legal convictions of the community would undoubtedly clamour for liability to exist in these circumstances.” (Court’s emphasis)

[25] There is no question that the money had been placed in the trust account of Dr Gregan. In regards to the first payment Dr Gregan acted as an agent for Absa in a sale of property by providing Dr Gregan with the R 7million according to the guarantee to effect payment when called upon to do so.

[26] The second payment was made sine causa. Counsel for the applicant argued that the intention of Absa in relation to the first payment should also be applied to the second payment, although the payment had been made sine causa.

[27] The alternative argument was that if Dr Gregan had received the second payment in his trust account and had no knowledge of the identity of the depositor and had no instructions as to how to deal with the money, he had to transfer the money to a trust suspense account until such time as the depositor could be traced. See Hirschowitz Flionis (supra). The facts in this application fall foursquare in the Hischowitz Flionis judgment, as set out above.

[28] The court has to agree that at no stage could Absa contemplate or know that Dr Gregan would steal the R 7million. It was reasonable that where an unexplained deposit was made, to have expected Dr Gregan to keep the money in trust. Furthermore, if he had any doubt as to the origin of the money, it was incumbent on him to trace the origin. This is not a small amount which had been paid into

his trust account inadvertently - it was an amount of R 7million. The principles enunciated in Industrial and Commercial Factors (supra) thus applies and the court finds that “entrusted” should not be given the narrow interpretation advocated by the respondent, but that the money was “entrusted” to the attorney and that the technical legal sense of the word does not apply.

[29] I find that the duplicate payment was entrusted to Dr Gregan in terms of originated, he was obliged to keep the money in a trust account, until such time as he could trace the origin of the money, as a diligent attorney would have done. In these circumstances the first respondent should be held liable for the

actions of Dr Gregan.

[30] There is no doubt, that the first respondent was timeously informed of the claim and that the applicant had complied with the provisions of section 48(1 )(a) of the Act.

[1] Consequently the following order is made:

1. The first respondent is liable to the applicant in the amount of R7 000 000.00 (seven million rand) together with interest in terms of section 26 and section 45(2) of the Attorneys Act,

Act 53 of 1979;

2. Payment of the amount of R7 000 000.00 (seven million rand) together with interest at the rate of 15,5% a tempora morae from 3 August 2010 until the date of final payment;

3. Costs of suit including the costs occasioned by the use of two counsel.

Judge C Pretorius

Case number :43599/2012

Heard on :12 November 2013

For the Applicant :Adv Terblanche SC

Instructed by :Tim Du Toit & Co Inc

For theRespondent : Adv Erasmus

Instructed by :Mashazi & Mathibela INC

Date of Judgment :27 November 2013