Itanex CC v Legal Practitioners' Fidelity Fund (15043/2020) [2025] ZAWCHC 93 (13 January 2025)

SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in compliance with the law and SAFLII Policy

IN THE HIGH COURT OF SOUTH AFRICA

(WESTERN CAPE DIVISION, CAPE TOWN)

Case No.15043/2020

In the matter between:

ITANEX CC Plaintiff

and

LEGAL PRACTITIONERS’ FIDELITY FUND

Defendant

Coram: NUKU J

Heard on:

25-6 November 2024

Delivered on: 13 January 2025

JUDGMENT

NUKU, J

[1] The plaintiff instituted this action against the defendant claiming payment of the sum of R8 170 305,10 alleged to have been misappropriated by Mr Naushad Gattoo (Mr Gattoo) who was an admitted attorney enrolled as such in term of the Attorneys Act 53 of 1979 (Attorneys Act) prior to 1 November 2018 and from which date he was enrolled in terms of the Legal Practice Act 28 of 2014 (Legal Practice Act>).

[2] The plaintiff alleges that during December 2015, Mr Gattoo, who was a managing member of the firm Naushad Gattoo Incorporated (Gattoo Inc) and who conducted a trust account practice concluded a verbal agreement the plaintiff which was represented by Mr Fayyaz Moosa (Mr Moosa), the plaintiff’s sole member and directing mind, in terms of which the funds that were anticipated to be received by the plaintiff from the sale of a business and an immovable property would be deposited into the trust account held by Gattoo Inc to be held in trust pending the plaintiff’s instructions as to the disbursement thereof.

[3] The plaintiff alleges further that following the agreement referred to above a total amount of R15 000 000,00 was paid into the trust account held by Gattoo Inc, which amount was made up as follows:

3.1 R500 000,00 paid on 1 April 2016;

3.2 R2 000 000,00 paid on 1 April 2016;

3.3 R2 500 000,00 paid on 3 April 2016;

3.4 R8 000 000,00 paid on 17 November 2016; and

3.5 R2 000 000,00 paid on 17 November 2016;

[4] Of the sum of R15 000 000,00 received into the trust account of Gattoo Inc, the plaintiff alleges that Gattoo was authorised to disburse a sum of R10 209 694,90 in the period between 26 April 2016 and 20 March 2018 leaving the balance of R4 790 305,10 standing to the credit of the plaintiff. To this amount the plaintiff alleges that further deposits were made into the trust account held by Gattoo Inc which brought the amount standing to the credit of the plaintiff to R8 170 305,10, this being amount that is alleged to have been malapportioned by Gattoo.

[5] The defendant denies that it is liable to reimburse the plaintiff the sum of R8 170 305,10 claiming that the monies were not placed by plaintiff with Gattoo Inc subject to trust, as contemplated in section 55 of the Legal Practice Act. This, according to the defendant is because:

5.1 Mr Moosa, in an affidavit that had been filed on behalf of the plaintiff when the plaintiff’s claim was submitted to the defendant, had stated that the sum of R15 000 000,00 was paid into the trust account of Gattoo Inc for purposes of holding “these funds in trust in respect of a transaction I was still negotiating” and in respect of a “transaction which I was still in the process of concluding” on behalf of plaintiff;

5.2 The R15 000 000,00 paid into the trust account of Gattoo Inc comprised of R5 000 000,00 in respect of the sale of an immovable property paid on 1 April 2016 (in two payments of R500 000,00 and R2 500 000,00) and 3 April 2016 (R2 500 000,00); and R10 000 000,00 in respect of the sale of a business paid on 17 November 2016 (in two payments of R8 000 000,00 and R2 000 000,00);

5.3 From the date that the amount of R15 000 000,00 was transferred to the trust account of Gattoo Inc, various amounts totalling R10 209 694,90 were disbursed, on plaintiff’s instructions and on plaintiff’s behalf, by Gattoo Inc to various parties.

5.4 Plaintiff also deposited further funds into the trust account of Gattoo Inc in the total sum of R3 380 000,00 to “ensure that there were sufficient funds available which would be required for the transaction which I was still in the process of concluding”;

5.5 During 2018, approximately two years after the first funds were paid into the trust account of Gattoo Inc, plaintiff requested the funds remaining in the trust account be paid over to it, in the amount of R8 170 305,10.

[6] The plaintiff has since abandoned part of its claim in the sum of R3 380 000,00 leaving only the balance of R4 756 105.10.

[7] Only Mr Moosa gave evidence during the trial as the defendant closed its case without leading any evidence. Mr Moosa’s evidence was relatively straight forward and can be summarised as follows. He is a businessman with interests in various businesses. He is the sole member of the plaintiff as well as Le Mini Project Management and Consulting CC (Le Mini). The plaintiff was the registered owner of erf 4[…] Reservoir Hills, Durban (the property) at which Le Mini conducted a petrol service station and a convenience store (the business). In what he understood to be a composite transaction, the plaintiff sold the property to Green Spice Investments (Pty) Ltd for the sum of R5 000 000,00 and Le Mini sold the business to Rebel Star Trading (Pty) Ltd for the sum of R10 000 000,00 all of which was to be paid into the trust account of Gattoo Inc, being the firm of attorneys that was advising both the plaintiff and Le Mini with the process of concluding the transaction for the sale of the property and the business. He instructed Mr Gattoo that the R15 000 000,00 should be held in the name of the plaintiff.

[8] Mr Moosa’s business interests included shares in ESwift Investments (RF) (Pty) Ltd, a company that had a preference share subscription agreement with RMB in terms of which it was required, from time to time, to make some substantial payments to RMB. For this reason, he thought that he should keep some of the proceeds from the sale of the property and the business so that he could use same to make the aforementioned payment when it became due.

[9] Mr Moosa confirmed having authorised Mr Gattoo to disburse the sum of R10 209 694,90 from the proceeds of the sale of the property and the business. Mr Gattoo, however, never paid the balance as he started making excuses whenever he requested the money to be paid to the plaintiff. At some point in time Mr Gattoo even provided him with a fraudulent bank statement in an attempt to convince him that the money was still being held in trust. At some point he heard that Mr Gattoo had been struck off as an attorney. Thereafter he decided to approach attorneys who had been representing some of the claimants against Mr Gattoo and/ Gattoo Inc. Attempts to

trace Mr Gattoo did not yield any positive results and he even reported the matter to the police.

[10] Mr Moosa, during cross-examination, was asked about his appreciation of the fact that some of the money belonged to Le Mini in that these were proceeds from the sale of the business and not monies belonging to the plaintiff. His response was that he regarded the transaction as an indivisible transaction and that he, in any event, had instructed Mr Gattoo that the entire sum of R15 000 000,00 should be kept under the plaintiff’s file. When referred to paragraph 9 of an affidavit he had signed in support of the plaintiff claim, he readily conceded that its contents are not factually correct. This is the paragraph in which he had stated that ‘The Claimant concluded an agreement of sale of business and immovable property with a company known as Green Spice Investments (Pty) Ltd for the sum of R15 000 000,00 (Fifteen Million Rand) which was to be paid as follows:…’ He further confirmed that paragraph 13 of the same affidavit wherein he stated ‘Gattoo therefore held R15 000 000,00 in trust on behalf of the claimant’ was a correct reflection of the instructions he had given to Gattoo regarding the proceeds from the sale of the property and the

business.

[11] The evidence having established that the misappropriation of the funds occurred prior to the coming into effect of the Legal Practice Act counsel for both parties were in agreement that the matter should be determined in terms of the provisions of the Attorneys Act, and in particular section 26 which reads:

‘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 or her candidate attorney or his or her employee, of any money or other property entrusted by or on behalf of such persons to him or her or his or her candidate attorney or employee in the course of his or her practice or while acting as an executor or administrator in the estate of a deceased person or as a trustee in an insolvent estate or in any other similar capacity.’

[12] Regarding the interpretation of section 26 of the Attorneys Act, plaintiff’s counsel referred this court to the judgment of the then Witwatersrand Local Division in BIC Southern Africa (Pty) Ltd v Attorneys Fidelity Fund Board of Control[1] where the requirements to establish liability of the defendant were stated in the following terms:

‘… the essential elements of the action brought in terms of the section are:

1. There must have been a pecuniary loss.

2. The loss must stem from theft.

3. The theft must occur by a practising attorney.

4. It must be in a sum of money.

5. The money must have been entrusted to the attorney.

6. It must have been in the course of his practice.’

[13] Plaintiff’s counsel further referred this court to the decision of the Supreme Court of Appeal (SCA) in Legal Practice Fidelity Fund v Marshall (Marshall)[2] in support of his argument that (a) the concept of “deposit” and “entrustment” were not necessarily distinct and separate, (b) entrustment is a broader concept than “impressing with a trust in the legal technical sense” and (c) the plaintiff is entitled to be the sole beneficiary.

[14] It was submitted on behalf of the plaintiff that all the requirements for liability of the part of the defendant had been established in that:

14.1 It is not disputed that there has been a pecuniary loss of R4 756 105.10, and the only issue is whether it is the plaintiff which suffered loss or some other third party.

14.2 It was admitted that the loss stemmed from theft.

14.3 the theft was committed by Mr Gattoo who was a practising attorney at the time when the theft was committed.

14.4 what was stolen is the sum of R4 756 105.10.

14.5 the money was entrusted to Mr Gattoo, a practising attorney, and

14.6 Mr Gattoo had been advising the plaintiff and Le Mini regarding the transaction for the sale of the property and the business.

[15] It was submitted on behalf of the defendant that the plaintiff is not entitled to include the sum of R10 000 000 in the computation of its claim as this amount belonged to Le Mini as the proceeds from the sale of business. The argument went further that the plaintiff could not have suffered any pecuniary loss because Mr Gattoo had disbursed more than the R5 000 000 that he had received in respect of the sale of the property.

[16] It was further submitted on behalf of the defendant that the funds stolen by Mr Gattoo were not placed by the plaintiff with Gattoo Inc, subject to trust as contemplated in section 26 of the Attorneys Act because the elements of entrustment had not been established. In this regard, counsel for the defendant placed great reliance on the decision of the SCA in International & Commercial Factors v Attorneys Fidelity Fund (ICF)[3] for the proposition that the test to prove entrustment comprises two elements, namely (a) to place in the possession of something, (b) subject to trust, and that the latter connotes that the person entrusted is bound to deal with the property or money

concerned for the benefit of others. In short, the argument was that the import of the ICF judgment is that section 26 of the Attorneys

Act makes provision for reimbursement to either (1) the person by whom the has been entrusted or (ii) the person on whose behalf the money has been entrusted, provided that such a person has suffered pecuniary loss.

[17] In dealing with the facts of this matter, it was submitted that the first element of entrustment had been proved only in relation to the R5 000 000 which was in respect of the proceeds of the property by the plaintiff. Regarding the second element of entrustment, it was submitted that the plaintiff had failed to prove this because there was no obligation on the part of Gattoo Inc to hold and apply the money for the benefit of some person or persons or for the benefit of accomplishment of some special purpose because the money was kept in the trust account of Gattoo Inc because Mr Moosa ‘required attorneys Gattoo to hold these funds in trust in respect of a transaction I was still negotiating on behalf of the claimant’. Thus, so goes the argument, the plaintiff used the trust account of Gattoo Inc as a general transactional account and not for the purposes contemplated in the Attorneys Act, that is to hold monies on behalf of clients for specific legal purposes such as property transfers, the settlement of legal claims or the safeguarding of funds during disputes.

[18] The defendant’s argument that the plaintiff is not entitled to claim any monies beyond the R5 000 000 which was paid as the proceeds from the sale of the property ignores the undisputed evidence of Mr Moosa that he had given instructions to Mr Gattoo that the entire amount of R15 000 000 must be held in trust in the name of the plaintiff. Consistent with this instruction, Mr Moosa, acting on behalf of the plaintiff, instructed Mr Gattoo to disburse the sum of R10 209 694,90.

[19] It is also significant that Mr Moosa is the sole member of both the plaintiff as well as Le Mini and as the directing mind of both entities, the defendant had not suggested that there was any prohibition that would have prevented him from directing the funds paid in respect of the sale of the business to be held in trust on behalf of the plaintiff. After Mr Moosa gave the instruction that the money be held in trust on behalf of the plaintiff, which instruction appears to have been actioned by Mr Gattoo in light of the fact that he disbursed more than R5 000 000 which was the proceeds from the sale of the property, Le Mini could no longer lay any claim to any of the proceeds of sale. In a much as Le Mini is a separate corporate entity from the plaintiff, it is the instruction that was given by Mr Moosa, as the sole member of Le Mini that is determinative. The defendant’s argument that that the plaintiff’s claim has been extinguished has no merit. That leaves the argument relating to the requirements of entrustment to which I turn next.

[20] The gist of the defendant’s argument revolves around what Mr Moosa stated in his affidavit in support of the plaintiff’s claim that he intended the moneys to be held in trust in respect of a transaction that he was still negotiating on behalf of the plaintiff. Reference was also made to the fact that Mr Moosa had instructed Gattoo Inc to pay various disbursements which had nothing to do with the plaintiff and that this is indicative of the fact that Mr Moosa or the plaintiff intended to use the trust account of Gattoo Inc as a general transactional account.

[21] My reading of the SCA judgment in Marshall is that it is no longer a requirement of section 26 (a) of the Attorneys Act that the person entrusted with the property or money is bound to deal with such property or money for the benefit of others, a point which the defendant seems to rely heavily on. As pointed out on behalf of the plaintiff, the SCA in Marshall endorsed the majority decision of the full court when it stated ‘In light of the decision in ICF it must follow that the concept of entrustment for the purposes of section 26 (a) does not connote that the person entrusted is bound to deal with the property or money concerned for the benefit of others, in the sense that it does not include moneys deposited by a depositor such as the respondent who will provide instructions as to the application of such funds in trust in due course.’

[22] Thus, it was open to the plaintiff or Mr Moosa to give instructions as to the application of the funds that had been paid into Gattoo Inc’s trust account from time to time and that would not take such funds outside of the ambit of the protection of section 26 (a) of the Attorneys Act. In my view, the plaintiff has satisfied the requirements of section 26 (a) of the Attorneys Act and

as such is entitled to be reimbursed the sum of R4 756 105.10 that was stolen by Mr Gattoo.

[23] The plaintiff has been successful, and, in my view, costs should follow the result.

ORDER

[24] In the result I make the following order:

24.1 Defendant is liable to pay plaintiff the sum of R4 756 105.10 with interest at the prescribed rate from the date of judgment to date of payment;

24.2 Defendant shall pay the costs of suit on scale B and such costs shall include the costs of one counsel.

L.G. Nuku

Judge of the High Court

APPEARANCES

For plaintiff:

N Cassim SC and M Karolia

Instructed by: Shaheed Dollie Inc, Johannesburg

For defendant: H Cassim

Instructed by: Abrahams Kiewitz Inc, Cape Town

[1] 2003 (6) SA 757 (W) at para [2]

[2] 2023 (5) SA 409 (SCA)

[3] [1996] ZASCA 84; 1997 (1) SA 136 (SCA) at 150B-C