Abstract

This decision of the supreme court of appeal to which two acting judges of appeal have made undisclosed contributions and with which the other members of the bench concurred, is not a model of precise formulation nor a clear application of the legal principles that should have been applied. Instead of a determinable careful breakdown of the various legal principles involved, the judgment dismissed the appeal of the bank. Consequently, the Spar claim for presumably more than R10 million was upheld provided that all the costs involved in the litigation through three levels of the high court were totalled. This was done without a clear indication of the remedy or remedies applied, because all the requirements for the potentially applicable remedies were not shown to have been met. In this civil matter, reference is made to claims founded on theft, unjustified enrichment, and breach of a duty to take care, apart from the apparent reliance on a presumed perfected general notarial bond and a perceived short-term business lease for the lessor’s own account. Spar entered into a franchise agreement with Umtshingo, a company represented by Paulo in Nelspruit, and as a consequence provided the three outlets doing business under the Spar banner with all the applicable stock under a credit agreement. Spar was not aware of the fact that the Kwik Spar was never part of the Umtshingo company but was a close corporation, and as such, a separate legal entity. Any agreements, including the purported general notarial bond entered into between the company and Spar, were res inter alios acta as far as the close corporation was concerned. The supreme court of appeal, notwithstanding the clear position stated in section 29(1) of Act 69 of 1984, held that the close corporation was “de facto, a division of the whole business” of the company. This is clearly wrong. Each outlet had its own separate bank account with the appellant. Spar was under the impression that it had safeguarded its risk as credit provider with a registered general notarial bond, which was enhanced with a perfection clause over Umtshingo’s movable property. When Umtshingo defaulted on its performance liability, Spar applied for and obtained an interim perfection order and presumed that it was consequently entitled to immediately manage the outlets for its own account and benefit. In reality, the interim perfection order was never confirmed; instead it was dismissed at a later stage. Even if it had been confirmed, the outcome of a perfection order is merely to put the mortgagee in the position of pledgee. The latter is never entitled to dispose of the objects of the pledge. This is the usual business of an outlet that sells groceries or liquor. Because the perfection order was never finalised, the mortgagee had no limited real right to the movables of its debtor and it could at most claim preference to the free residue on liquidation of the mortgagor as debtor. The judgment does not refer to these consequences of section 102 of the Insolvency Act nor to the requirements for a special notarial bond over movables as prescribed in Act 57 of 1993. The supreme court of appeal, however, did not distance itself from the premise which underlies the decision of the full bench that Spar was the mortgagee of a special notarial bond in this matter. Spar presumed that it had also entered into a short-term business lease agreement with Paulo, but the court of first instance had already found that, based on the facts, there never was a signed agreement. The supreme court of appeal ignored this finding of the factual position and premised its judgment on the perceived agreement. Spar was under the impression that, as a consequence of the perfection order and/or the business lease agreement, it was entitled to expect performance from Paulo and from the bank, notwithstanding the fact that Spar was not the account holder of the applicable accounts reflecting the sums credited to the accounts of Umtshingo via the available speed point card machines in the outlets. In reality, in the absence of any binding agreement with Paulo as effective director of Umtshingo as the debtor of Spar or a binding court order to this effect, Spar had no claim to performance in this regard to compel either Paulo or the bank where Umtshingo held its accounts, to ringfence the accounts of Umtshingo at any stage. Because Spar neglected to inform itself of the factual position after having taken control of the outlets regarding the legal position of the close corporation, Spar never applied for a court order against the close corporation before it was too late. But for exceptional legislation, all legal subjects can only have a single estate; the same competencies and entitlements of the legal subject apply to all assets forming part of this estate. Neither by means of a mere unilateral act nor by means of an agreement can an additional separate estate be created for any legal subject. The so-called perceived demand to ringfence some assets of Umtshingo had no legal effect unless it was confirmed by a valid court order as eg during preliminary liquidation proceedings or under business rescue proceedings as governed by the Insolvency Act or the Companies Act. On the premise that there was a perceived valid agreement and/or a valid perfection order, Spar expected to benefit from all sales conducted under its management of the three outlets. In reality, the credit channelled via the old speed point machines went straight into the dedicated accounts of the account holders. Paulo, in accordance with his entitlement as sole director of the company and sole member of the close corporation, made disbursements from these accounts. The bank set off the major portion of its customers’ indebtedness to the bank against the credit in the customers’ account that derived from the deposits. According to the judgment, in so doing, Paulo was guilty of theft and the bank was not entitled to the set-off. Although South African law adheres to the presumption of innocence until found guilty by a criminal court, no reference is made in the decision indicating that Paulo has already been found guilty of theft or that a criminal process has even been instigated against him. It is submitted that theft can only apply to the unlawful intentional appropriation of movable corporeal property of another from the latter’s possession. The credit, which was created via the speed point machines at the cashier’s check-out points in the shops, was at no stage movable corporeal property in possession of Spar. It was immediately reflected on deduction from the account of the buyer in the account of the relevant account holder – Umtshingo or Central Route. Spar could have prevented this by removing the old speed point machines and by providing alternative card readers linked to Spar’s own bank account. By neglecting to do so, Spar created its own prejudice. At no stage was the bank unjustifiably enriched by the set-off performed. There was no acknowledged source for a perceived legal duty of the bank to safeguard the interests of Spar as a third party. In the absence of an agreement with Umtshingo or Paulo, Spar had no contractual right to performance that the bank was not supposed to infringe on by permitting his client in the absence of an applicable court order to disburse funds standing to its credit or to set-off its client’s liabilities against the credit available. No bank is under legal obligation or duty to safeguard the interest of third parties; even a public authority needs to rely on applicable legislation if it wants to compel a bank to put a hold on credit in an account suspected to be the fruits of criminal activity. For this reason, eg Act 121 of 1998 makes provision in section 50 to apply for a forfeiture order because, without it, no bank is deemed to be the guardian angel of an unconnected third party’s interests regarding assets held in its client’s accounts. In view of this judgment, some old adages have regained significance – Roma locuta; causa finita est … ex Africa semper aliquid novi.