Burden N.O. v Matsepes (Bloemfontein) Inc and Others (3123/2022) [2023] ZAFSHC 117 (20 June 2023)

Editorial note: Certain information has been redacted from this judgment in compliance with the law.

IN THE HIGH COURT OF SOUTH AFRICA

FREE STATE DIVISION, BLOEMFONTEIN

Reportable: YES/NO Of Interest to other Judges: YES/NO Circulate to Magistrates: YES/NO

Case No. 3123/2022

In the matter between:

RONELLE BURDEN N.O. APPLICANT

(In her capacity as the duly appointed trustee in the

insolvent estate of PP PROPERTY TRUST – IT9760/06,

Master’s Ref: T653/17)

and

MATSEPES (BLOEMFONTEIN), INC 1^ST RESPONDENT

Registration Number: 1998/020850/21)

TSIU VINCENT MATSEPE 2^ND RESPONDENT

(ID: […])

ROUX BARRY CLOETE 3^RD RESPONDENT

(ID: […])

MASTER OF THE HIGH COURT, PRETORIA 4^TH RESPONDENT

CORAM: GUSHA, AJ

HEARD ON: 16 MARCH 2023

DELIVERED ON: This judgment was delivered electronically by circulation to the parties’ representatives by way of email and by release to SAFLII. The date and time for delivery is deemed to be at 12h00 on 20 JUNE 2023.

JUDGMENT

INTRODUCTION

[1] This is an application wherein the applicant seeks two declaratory orders together with a claim for payment in the sum of R2,355,111,49 (the claimed amount), jointly and severally from the 1^st, 2^nd and 3^rd respondents, the one paying the other to be absolved.

[2] The application is opposed by the 1^st and 3^rd respondents. They have also instituted a provisional third party procedure against the applicant and the 2^nd respondent in their personal capacities. I shall later on in this judgment revert to same.

THE PARTIES

[3] The applicant is the duly appointed sole trustee¹ in the insolvent estate of PP Property Trust IT 9760/06 – Master’s Ref T653/17 (the Trust).

[4] The 1^st respondent is a duly registered and incorporated company in terms of the Companies Act, Act 71 of 2008. It practices as a firm of attorneys and is subject to the provisions of the Legal Practice Act, Act 28 of 2014.

[5] The 2^nd respondent is a practicing attorney and was or still is a director of the 1^st respondent. He currently practices at and is also a director of Matsepe’s Goldfields². He was, until his removal as such by the Master of the High Court, a joint trustee³ in the insolvent estate. The 2^nd respondent entered no appearance in these proceedings either in his capacity as the 2^nd respondent or as the 2^nd third party.

[6] The 3rd respondent is a director of the 1^st respondent and a practicing attorney.

[7] The 4^th respondent is the Master of the High Court, Pretoria and no relief is sought against it.

RELIEF SOUGHT

[8] The relief sought relates to;

(1) an order that the 1^st respondent is declared liable to the applicant for the payment in the sum of R2, 355,111,49 and;

(2) an order to declare that the 2^nd and 3^rd respondents in their capacities as directors of the 1^st respondent are jointly and severally liable to the applicant for such payment the one paying the other to be absolved and;

(3) that the 1^st to 3^rd respondents, jointly and severally, the one paying the other to be absolved, be ordered to make payment to the applicant in the sum of R2,355,111,49, together with interest at the rate of 7% per annum calculated from 25 August 2021 to date of payment thereof (both days inclusive).

(4) Cost of suit (to include cost of two counsel).

FACTUAL BACKGROUND

[9] Truncated, the germane facts are the following; the Trust was sequestrated by an order court on the 8^th June 2017⁴. Subsequent to the sequestration, the 2^nd respondent was appointed as the sole trustee in the insolvent estate of the Trust⁵. During his tenure as sole trustee, the 2^nd respondent appointed the 1^st respondent to manage the administration of the insolvent estate. In terms of a written mandate⁶ the 1^st respondent then invested the funds of the insolvent estate⁷.

[10] The following are the terms of the written mandate;

(a) the 1^st respondent is appointed as the agent of the insolvent estate.

(b) the insolvent estate is the investment principal.

(c) the funds will be invested on the basis that:

(i) the amount will be invested in a trust savings account or other interest –bearing account;

(ii) the account contains a reference to section 78(2A) of the Attorneys Act, 1979 ; and

(iii) the interest which accrues on such investment is to be for the investment principal’s account.

(d) the agent could only transact on the investment account on the written instruction of the insolvent estate to be given by way letter, e-mail or fax:

(e) all transactions must be addressed to and actioned by the agent; and

(f) the investment principal will receive confirmation of transactions on the investment account on a monthly basis.

[11] Whilst under the employ of the 1^st respondent and under the supervision of the 2^nd and 3^rd respondents as directors of the 1^st respondent, Mr Badenhorst⁸ an erstwhile employee of the 1^st respondent, stole the claimed amount from the insolvent estate. Subsequent to this theft being uncovered, the 2^nd respondent then still in his nominal capacity, successfully applied for the sequestration of the estate of Mr Badenhorst based on the aforesaid theft. In the 2^nd respondent’s founding affidavit in the provisional sequestration of the estate of Mr Badenhorst stated the following material facts;

(a) That he is an attorney and insolvency practitioner practicing at the 1^st respondent.

(b) He acted as trustee in the insolvent estate.

(c) During the liquidation / sequestration process, funds of insolvent and proceeds of inter alia auctions of the insolvent’s property are in terms of the provisions of section 70 of the Insolvency Act, Act 24 of 1936 (Insolvency Act), deposited into a bank account which is opened by the trustee(s).

(d) The funds received in the liquidation process are kept in such a bank account, controlled by the trustees during the liquidation process and eventually any surplus left will be paid to creditors of the relevant estate.

(e) The 2^nd respondent opened such an account to achieve the aforesaid purpose and to facilitate the payments required in order to meet the goals of the Insolvency Act.

(f) Badenhorst unlawfully authorized payments to be made from various accounts into his own personal nominated bank account totaling R2, 475,510.30.

[12] The 3^rd respondent supported the application and deposed to a confirmatory affidavit⁹ in that regard.

THIRD PARTY PROCEDURE

[13] Subsequent to the applicant issuing out the present applicant against the 1^st to 3^rd respondents for the relief sought in the notice of motion, the 1^st and 3^rd respondents delivered a provisional third party notice claiming from Ms Burden (the 1^st third party and the applicant in the main proceedings) and the 2^nd respondent (the 2^nd third party) relief in the form of a contribution and or exoneration premised upon the provisions of the sections 2(8)(a)(ii)¹⁰ and 2(6)(a)¹¹ of the Apportionment of Damages Act, Act 34 of 1956.

[14] The 1^st third party, Ms Burden, opposes the relief sought in the third party procedure. The nub of the opposition is that the relief sought in the main application is based on the 1^st respondent’s breach of a contract and mandate given to it by the insolvent estate, thus a contractual claim and not a claim based delict.

[15] During arguments, counsel for the 1^st and 3^rd respondents conceded the aforesaid aspect, this concession therefore rendered the third party procedure of no moment. I shall therefore not take this aspect any further than I have, save to referring thereto later on in this judgment in relation to costs.

APPLICATION TO STRIKE OUT

[16] Prior to arguing the merits of the application, the 1^st and 3^rd respondents moved an application to strike out certain portions of the applicant’s replying affidavit¹² as being irrelevant, new matter and inadmissible.

[17] They aver that the impugned portions of the applicant’s replying affidavit constitute new matter, in that contrary to the applicant’s founding affidavit¹³, she now in the replying affidavit, seeks to introduce a spreadsheet with supporting documents in support of the quantum of her claim. The 1^st and 3^rd respondents object to this and contend that the new matter sought to be introduced constitutes hearsay evidence, is inadmissible and therefore prejudicial to them.

[18] This application to strike out is opposed by the applicant as well as the 1^st third party.

[19] In my view nothing turns on the application to strike out. What the applicant seeks to introduce in the replying affidavit is not new matter, it has been canvassed in the founding affidavit albeit in different terms and or format. Nothing contained in the replying affidavit relating to this aspect is hearsay or prejudicial to the 1^st and 3^rd respondents. In her replying affidavit she states;

9.11 “In so far as (my own emphasis) the Respondents still take issue with the quantum of the aforesaid amount, I annex hereto marked Annexure “RA2”…confirming the exact sum that was stolen/ transferred from such account…”

The applicant says the aforesaid in reply to what the 1^st and 3^rd and respondent’s stated in their answering affidavit, she is not stating new matter, she is merely demonstrating, in amplification perhaps, how the quantum stated in founding was arrived at. In any event even if it were to be successfully argued that I misdirected myself on this aspect, the fact is, supporting documents or not, the case mounted by the applicant is still the same.

[20] Furthermore, on the pleadings, it is common cause between the parties that the mandate was concluded, Badenhorst was employed by the 1^st respondent and that he stole the funds of the insolvent estate deposited into the trust account of the 1^st respondent and that the 2^nd and 3^rd respondents were directors of the 1^st respondent. I also did not understand the 1^st and 3^rd respondents to disavow the theft and or the amount stolen. I further did not understand them to disavow that amongst the funds stolen by Badenhorst, were those belonging to the insolvent estate of the Trust. There can be no dispute of fact on these aspects even if there were the legal principle in Plascon Evans¹⁴ would obtain.

[21] The application to strike out is therefore dismissed.

THE ISSUE(S) IN DISPUTE

[22] It is against the aforesaid factual background that I am called upon to decide whether the terms of the mandate were breached, and if so, by whom and whether the insolvent estate suffered any damages as a result of such breach.

THE LEGAL FRAMEWORK

[23] Section 34 of the Legal Practice Council Act provides that;

(7) A commercial juristic entity may be established to conduct a legal practice provided that, in terms of its founding documents—

(c) all present and past shareholders, partners or members, as the case may be, are liable jointly and severally together with the commercial juristic entity for—

(i) the debts and liabilities of the commercial juristic entity as are or were contracted during their period of office; and

(ii) in respect of any theft committed during their period of office.

[24] The Companies Act, Act provides as follows;

(3) If a company is a personal liability company the directors and past directors are jointly and severally liable, together with the company, for any debts and liabilities of the company as are or were contracted during their respective periods of office.

APPLICATION

Was the mandate breached?

[25] The 1^st respondent is, as evident from the pleadings, a personal liability company duly incorporated in terms of section 8(2) (c) of the Companies Act¹⁵ it is furthermore subject to the provisions of the Legal Practice Act. It is furthermore common cause that the relationship between the 1^st and 3^rd respondents is regulated by the written mandate and the authority to invest alluded to above. It is common cause that the 1^st respondent as agent, will only be indemnified against losses suffered, if it acted in accordance with the instructions of the Trust as investment principal. This instruction was not given. Furthermore, the written mandate created strict liability in that the agent, thus the 1^st respondent, could only transact on the investment account on the written instructions of the Trust.

[26] It is further common cause that the funds received on behalf of the insolvent estate were entrusted to the 1^st respondent and whilst said funds were under the control and supervision of the 1^st respondent, the latter invested same for the benefit of the Trust. It is common cause that the funds invested on behalf of the Trust were stolen by Badenhorst and that same, to date, remain unpaid to the Trust.

[27] It is particularly illuminating that the 2^nd respondent, in his capacity as co-trustee and co-director in the 1^st respondent, being the applicant in the provisional sequestration proceedings against the estate of Badenhorst and bearing full knowledge of the theft¹⁶ for reasons only known to him, elected not to join issue in these proceedings and or challenge the evidence relied upon. In this regard, in the absence of any other evidence gainsaying the applicant’s version, what is the most plausible inference to draw other than that the written mandate was indeed breached.

Liability of the 1^st respondent

[28] It is patent from the pleadings as well as the capitulation of the 1^st and 3^rd respondents during the third party procedure, that the dispute between the parties is based on a contractual claim. Thus contractual obligations between the parties to the written mandate are to be determined by their intention¹⁷. In the absence of a contrary stipulation, the law of contract does not require fault (even in the form of negligence) for breach. In the present case, the intention was clear; strict liability applied in the event the agent contrary to the written instructions of the investment principle. It needs no restating that when a mandate is given to firm of attorneys to invest funds in trust that such funds can only be lawfully transacted with. This is steeped in the principle that the firm of attorneys are in a position of trust and thus owe a fiduciary duty to their client in how they deal with the entrusted funds.

[29] In the present case, it is an inescapable fact that payments from the investment account were without any written instructions made, as a consequence, the Trust suffered a loss in the form of the stolen funds. The 1^st respondent resultantly breached the terms of the mandate, fault or negligence on its part is immaterial as the terms of the mandate are clear; in the event of breach strict liability applies¹⁸.

Liability of the 2^nd and 3^rd respondents

[30] Having found that the 1^st respondent breached the terms of the written mandate and is thus liable, it follows that the 2^nd and 3^rd respondents as its past and present directors are together with the 1^st respondent jointly and severally liable for the breach.

[31] Finding otherwise would fly in the face of established law as well as the 2^nd respondent’s own evidence under oath in the application for the sequestration of Badenhorst. It is an undeniable fact that the funds of the insolvent estate were stolen, it is an inescapable fact that the directors of the 1^st respondent were well aware of this theft and have, that notwithstanding, not made any effort to refund same.

[32] Here too I am satisfied that the applicant has successfully made out a case for the liability of the 2^nd and 3^rd respondents.

COSTS

[33] With regards to costs, the general rule is trite and there is no reason for me to depart therefrom.

ORDER

[34] In the result I make the following order;

(1) The third party procedure is dismissed with costs, which costs shall include costs of preparation and costs 1 counsel.

(2) The 1^st respondent is declared liable to the applicant for the payment in the sum of R2, 355, 111, 49.

(3) The 2^nd and 3^rd respondents in their capacities as directors of the 1^st respondent are jointly and severally liable to the applicant for such payment, the one paying the other to be absolved and;

(4) The 1^st to 3^rd respondents, jointly and severally, the one paying the other to be absolved, are ordered to make payment to the applicant in the sum of R2,355,111,49, together with interest at the rate of 7% per annum calculated from 25 August 2021 to date of payment thereof (both days inclusive).

(5) Costs of suit, which costs shall include the costs of 2 counsel.

_______________

NG GUSHA, AJ

On behalf of the applicant Adv. L.W. De Beer

Instructed by: Vezi & De Beer Inc.

BLOEMFONTEIN

On behalf of the 1^st Third Party Adv. S.J Scheepers SC

Instructed by: Vezi & De Beer Inc.

BLOEMFONTEIN

On behalf of the 1^st and 3^rd respondents: Adv. PJJ Zietsman SC

Instructed by: Eugene Attorneys

BLOEMFONTEIN