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Momentum Wealth (Pty) Ltd v Elliot and Others (39389/2017) [2018] ZAGPPHC 527 (4 July 2018)

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IN THE HIGH COURT OF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

(1) NOT REPORTABLE

(2) NOT OF INTEREST TO OTHER JUDGES

(3) REVISED.

Case No: 39389/2017

4/7/2018

In the matter between:

MOMENTUM WEALTH (PTY) LTD Applicant

and

ELLIOT, DEON GRAHAM First Respondent

ELLIOT, AMBIGHIA Second Respondent

WILLEMSE, CORNADO Third Respondent

WILLEMSE, POOVENDEREE Fourth Respondent

TSHIFANGO, LAURENS Fifth Respondent

NDUKWANA, BOTHWELL Sixth Respondent

MOONSAMY, VEERAN Seventh Respondent

JUDGMENT

ELLIS, AJ:

(1) Applicant in this application alleges that first respondent, a former employee of applicant, operated a fraudulent scheme whereby he falsely misappropriated more than R18 million from applicant's nominee company's foreign accounts (which holds the funds of applicant's investors), to the unlawful benefit of all respondents. Applicant now claims repayment of those monies from first, third, fourth and seventh respondents.[1]

(2) The application is opposed by first, second, third, fourth and seventh respondents, who at the outset applied for condonation for the late filing of their answering affidavit. Applicant did not oppose the application for condonation but abided my decision, which was to grant respondents condonation as applied for. The bases of respondent's opposition are as follows:

(2.1) That applicant does not have the necessary locus standi to bring the application;

(2.2) That applicant has failed to establish a cause of action on the evidence provided; and

(2.3) That applicant has failed to provide admissible, reliable and credible evidence for purpose of this application.

(3) In addition, respondents also proffer a version, ostensibly to indicate that monies of their own were used to trade on the international platform, resulting in lawful profits of more than R18 million.

(4) In order to succeed with its relief, applicant has to satisfy the following requirements:

(4.1) A representation by first respondent;[2]

(4.2) Fraud, i.e. knowledge by first respondent that the representation is false;[3]

(4.3) The representation induced the representee to act;[4]

and

(4.4) The representee suffered damages as a result of the fraud.[5]

(5) I will discuss the issues raised by respondents and merits of applicant's cause of action, after referring to the facts of the matter.

(6) Applicant, a South African company and wholly-owned subsidiary of MMI Holdings Limited ("MM/"), offers the services of off-shore investments to South African investors through the medium of a sister company, Momentum Wealth International, which is registered in the Bailiwick of Guernsey, United Kingdom. To this end, applicant is registered with the Financial Services Board ("FSB") to provide Linked Investment Services and financial Products ("LISP'). Respondents specifically contend in this regard that a LISP is (in the same way as an attorney is obliged to have a trust account in order to keep a client's money separate from his own), obliged to ensure that its client's money and assets are kept separate from its own. To this end, a LISP makes use of a nominee company to hold its investors' investments separate from its own assets.

(7) The applicant's nominee company, Momentum Wealth Nominees (Pty) Ltd (" Nominees" ), operates four separate bank accounts, respectively denominated in Rands, US Dollars, Euros and British Pounds[6] and the investors funds are deposited into one of Nominees' accounts.

(8) A nominee company is defined in section 1 of the Financial Institutions (Protection of Funds) Act[7] (“Fl Act”) in the following terms:

" nominee company" means a company controlled by a financial institution which:

(a) is incorporated under the provisions of the Companies Act;

(b) has a special condition contemplated in section 15(2) of the Companies Act the requirement to act as nominee for, or a representative of, any person in the holding of any property in trust for such person or persons;

(c) is precluded as a special condition in its Memorandum of Incorporation from incurring any liabilities, other than to the persons on whose behalf it holds assets, to the extent of the respective rights to and interest in, such assets; and

(d) has entered into an irrevocable written agreement with a financial institution which controls the company, and in terms of which such financial institution has undertaken to pay all the expenses of, and incidental to, its formation, operations and liquidations."

(9) It is common cause that applicant is the institution which controls Nominees. Accordingly, applicant and Nominees have entered into an irrevocable written agreement as contemplated in subparagraph (d) of the definition of "nominee company" quoted above. Although applicant did not provide a copy of this particular agreement, mainly due to the fact that Nominees is not a party hereto, the respondents in their answering affidavit referred to and annexed a specimen copy of a nomination agreement,[8] the contents of which are apparently similar to the written agreement between applicant and Nominees.[9]

(10) It is clear from paragraph 6 of the specimen copy of the nomination agreement, that the holding company (applicant in this instance) irrevocably indemnifies not only the directors, employees, agents, servants or contractors of the Nominee Company (Nominees in this case) against any liability incurred in respect of any act or omission by them, but also indemnifies every client of the Nominee Company against any loss sustained in consequence of a breach by the Nominee Company of its agreement with a client. In addition, paragraph 9 of the specimen agreement provides for an express undertaking by the Nominee Company not to cede any of its rights under this agreement to anyone.

(11) The provisions of section 2 of Chapter 1 of the Fl Act place strict duties on persons dealing with the funds and trust property controlled by financial institutions and reads as follows:

"2. Duties of persons dealing with funds of, and with trust property controlled by, financial institutions

A financial institution or nominee company, or director, member, partner, official, employee or agent of the financial institution or nominee company, who invests, holds, keeps in safe custody, controls, administers or alienates any funds of the financial institution or any trust property:

(a) must, with regard to such funds, observe the utmost good faith and exercise proper care and diligence;

(b) must, with regard to the trust property and the terms of the instrument or agreement by which the trust or agency in question has been created, observe the utmost good faith and exercise the care and diligence required of a trustee in the exercise or discharge of his or her powers and duties; and

(c) may not alienate, invest, pledge, hypothecate or otherwise encumber or make use of the funds or trust property or furnish any guarantee in a manner calculated to gain directly or indirectly any improper advantage for any person to the prejudice of the financial institution or principal concerned."

(12) Trust property, as defined in section 1 of the Fl Act, means corporeal or incorporeal, movable or immovable assets invested, held, kept in safe custody, controlled, administered or alienated by any person, partnership, company or trust for, or on behalf of, another person, partnership, company or trust, and such other person, partnership, company or trust is hereinafter referred to as the principal. It is common cause that the terms "financial institution" (or institution) and "principal" used in the Fl Act, respectively equate to applicant and its investors in casu. My reference hereinafter to "institution" and "principal" should therefore be accorded the same meaning.

(13) The investment of trust property in terms of the Fl Act is dealt with in section 4 which, inter alia, provides that trust property may only be invested in a manner directed or required by an instrument or agreement, and in the absence thereof, only in the name of the principal concerned, the financial institution (in its capacity as administrator, trustee or curator), or any nominee. In addition, a financial institution must keep trust property separate from assets belonging to that institution, and must in its books of account clearly indicate the trust property as being property belonging to a specified principal.[10] Section 4(5) of the Fl Act provides that despite anything to the contrary in any law or the common law, trust property invested, held, kept in safe custody, controlled or administered by a financial institution or a nominee company under no circumstances forms part of the assets of the financial institution or such nominee company .[11]

(14) Accordingly, section 10 of the Fl Act deals specifically with offences and reads as follows:

" 10. Offences

(1) A person who contravenes or fails to comply with any provision of Chapter 1 is guilty of an offence and on conviction liable to a fine not exceeding R10 million or to imprisonment for a period not exceeding 10 years, or to both such fine and such imprisonment.

(2) A court may, in addition to any penalty it may impose in terms of subsection (1), order that such person:

(a) pay the institution or principal concerned any profit he or she made; and

(b) compensate the institution or principal concerned for any damage suffered, as a result of the contravention or failure.

(3) A court may, in addition to any penalty imposed in terms of subsection (1) and an order made in terms of subsection (2), order that such person may not serve as a director, member, partner or manager of any financial institution for such period as the court may deem fit."[12]

(15) I will return to the provisions of the Fl Act and their applicability when I discuss the merits of the parties' issues hereunder.

(16) In the event that applicant's investors require repatriation of funds from their off-shore investments , the investor (usually through a financial representative or broker) will submit a request to applicant to have the Rand equivalent of their foreign funds deposited into the investor's local bank account. In order to facilitate this process, applicant has established a relationship with Rand Merchant Bank ("RMB"), a subsidiary of First Rand Limited and a registered bank, who has set up four bank accounts (through applicant's Nominees) into which applicant deposits funds or receives funds from investors.

(17) RMB accordingly acts as applicant's payment agent by accessing the foreign funds held in the Nominees bank accounts and transferring the Rand equivalent into an investor's local bank account. In this regard, respondents pertinently admit that applicant is statutorily obliged to insure its clients (investors) against any loss suffered as a result of theft and fraud and to indemnify RMB against any liability caused by theft and/or fraud.[13]

(18) The process of effecting transfers from an off-shore investment into a local bank account requires the completion by applicant of a prescribed Global Outward Payments Request Form ("BOP'), which contains certain details prescribed by the SA Reserve Bank. Once a BOP has been completed, it is forwarded to RMB to enable the latter to activate the release of foreign funds and transfer the Rand equivalent into the relevant investor's local bank account.

(19) The first respondent was previously employed by applicant as a Client Liaison Consultant and inter alia, responsible to facilitate the repatriation of foreign funds by completing BOP forms for on-submission to RMB. The applicant's internal processes required that each BOP be signed by two authorised signatures. In this regard, first respondent was an authorised BOP signatory.

(20) Accordingly, a lawful repatriation of funds from the preparation and submission of a BOP contemplates all of the following:

(20.1) A legitimate off-shore investment;

(20.2) A legitimate investor;

(20.3) A lawful request from the legitimate investor for the release of foreign funds; and

(20.4) An entitlement of the part of the instructing investor to lawfully receive payment effected by RMB.

(21) Once a BOP is forwarded to RMB and a payment is made by RMB on the strength of that BOP, RMB e-mails proof of the transaction to applicant to be forwarded to the relevant investor by applicant's Client Services Department, as proof of the instruction. As applicant's payment agent, RMB is neither required to nor in a position to verify the contents of a BOP submitted by applicant but must assume that applicant's internal processes had all been properly followed and that payment was legitimate and authorised.

(22) Applicant contends that first respondent discovered a flaw in the aforesaid system when he realised that he could complete a fraudulent BOP requesting a payment to be made to one of his co-respondents, even though there was no legitimate investment which justified such payment. By intercepting and deleting RMB's confirmation of payment emails, first respondent avoided any enquiry by applicant and/or the discovery of the fraud.

(23) First respondent's alleged fraudulent scheme was discovered purely by chance whilst he was on leave from 15 February 2017 to 1 March 2017. During first respondent's absence, a fellow employee Victor Rakgase (" Rakgase" ) discovered a BOP transaction notification which was purportedly co-signed by himself and the first respondent.[14] However, upon closer inspection Rakgase noticed that the signature on the bottom right-hand side of the second page of the document - which is supposed to be his - is a forgery, whilst the second signature is that of the first respondent.[15] The said BOP instructs RMB to process payment of the Rand equivalent of €9 800.00[16] into a Capitec Bank account number 12391210441, which account is held in the name of and operated by fourth respondent. It is common cause that fourth respondent is not one of applicant's investors, nor does he hold any investments with applicant from which he could legitimately access any foreign funds through RMB.

(24) The relevant BOP was drawn to the attention of Ms Tracey Sasson, Rakgase's manager, who in turn, reported the matter to MMl's Group Forensic Services, who embarked on an extensive investigation of the first respondent's on-submissions of BOP's to RMB.

(25) The investigation was conducted by Douw Lotter (" Lotter' )[17] Head of MMl's. Group Forensic Services and Anti-money Laundering Operations, assisted by Charlotte Archer ("Archer').

(26) Archer undertook the process of comparing each of the beneficiaries listed on the BOP's completed by first respondent to establish whether they were legitimate investors. She uncovered a vast amount of illegitimate payments made to third to seventh respondents and first respondent's children during the period 2008 to 2017,[18] by identifying the bank account details held in the names of the third to seventh respondents and first respondent's children. Not one of these payments satisfied the requirements for a legitimate repatriation of funds, referred to in paragraph (20) above. Archer also managed to retrieve most of RMB 's confirmation of payment emails, relating to the aforesaid transactions performed by first respondent, from the "deleted items" file on applicant's computer system.

(27) In addition to the aforesaid, the investigation also uncovered so called variations of the fraudulent scheme, specifically involving the first and seventh respondent. It was discovered that seventh respondent on 23 May 2016, legitimately subscribed to a Momentum Wealth contract into which he was to invest R1 000.00 a month, deducted as a monthly premium from his ASSA Bank account. Over the period 26 May 2016 to 27 February 2017, the seventh respondent paid 10 monthly premiums of R1 000.00 each on his contract. However, on 26 May 2016 and 27 July 2016, the first respondent unlawfully caused the amounts of R725 983.22 and R206 362.83, respectively, to be paid into the seventh respondent's contract. In both instances the amounts originated from Nominees (US$) account, on the fraudulent instructions given by first respondent, whilst seventh respondent had no entitlement to the credits. Seventh respondent on three occasions requested withdrawals of funds from his investment, totalling R562 000.00 which funds he appropriated. On 2 March 2017, seventh respondent requested the withdrawal of the full remaining balance of his investment, which Archer placed on hold, as it had been identified as a suspicious transaction.[19]

(28) In the alleged variation involving first respondent, he completed a fraudulent BOP instructing RMB to pay the Rand equivalent of €4 351.15 into his Satrix Investment Savings Plan with investment number: 10512392. This amount originated from Nominees (€) account, on the fraudulent instructions given by first respondent, whilst he had no entitlement to the credit.[20] First respondent also holds an Allan Gray Investment account. On 6 August 2016, first respondent submitted a fraudulent BOP to RMB containing an instruction to pay R87 526.73 into that account on his behalf. This amount originated from Nominees (UD$) account, on the fraudulent instructions given by first respondent, whilst he had no entitlement to the credit.[21]

(29) Accordingly, the sum of the alleged fraudulent transactions performed by first respondent during the period 2008 to 2017, to the benefit of all respondents (including first respondent's children), as presently established by applicant is R18 875 995.71. Applicant specifically contends that it has been impoverished by this latter amount.

(30) Upon his return to the office on 1 March 2017, first respondent had a meeting with three employees of MMl's Group Forensic Services Department,[22] regarding the aforesaid transactions whereupon first respondent initially denied the fraud and protested his innocence. However, after being confronted with some of the fraudulent BOP's send to RMB, first respondent confessed to orchestrating fraudulent payments, depositing the proceeds thereof into the bank accounts of third to seventh respondents in order to avoid a direct link to his own accounts, and confirming that the proceeds of the fraud were then shared between the respondents.

(31) During a subsequent formal internal disciplinary inquiry, first respondent denied the charges of fraud levelled against him but admitted that he reproduced Rakgase's signature on various BOP's, misrepresented information to RMB and facilitated payments to be made into bank accounts of persons who were not investors with applicant (including first respondent's own daughter).[23] Importantly though is the fact that first respondent specifically indicated his decision not to raise any defence to the charges raised against him.[24] First respondent was found guilty of gross misconduct and immediately dismissed from applicant's employ. First respondent neither appealed his dismissal, nor did he refer the matter to the CCMA. Applicant has also lodged a criminal complaint of fraud against all respondents.

(32) In addition to the aforesaid and in order to protect its interest, applicant also brought two urgent applications against respondents, inter a/ia, claiming access to information held by respondents and interdictory relief to preclude the alienation of assets pending the outcome of this application.

(33) On 22 March 2017 and in the first urgent application under case number 16536/17 , Tlhapi J, gave an order by consent in terms whereof first, third, fourth and seventh respondents agreed to provide applicant with access to their bank accounts. Inspection of respondents' bank statements revealed all of the payments uncovered by Archer, referred to in applicant's founding affidavit.[25]

(34) In the second urgent application, Tuchten J on 22 August 2017, granted applicant interim relief pending final determination of this application, essentially precluding first and second respondents from alienating their assets.

(35) In their answering affidavit, respondents decided that this application presented the first opportune moment to disclose a defence to the alleged fraudulent scheme operated by first respondent. In this regard, applicant specifically submits that despite having had four previous opportunities (i.e. when first confronted with the fraud on 1 March 2017; at the disciplinary enquiry on 17 March 2017; during the first urgent application before Tlhapi J; and during the second urgent application before Tuchten J), to explain that the BOPs he constructed were not fraudulent misrepresentations, first respondent elected not to do so.

(36) The version now put' forward by respondents is as follows:

(36.1) During April or May 2008, first, third, fourth, sixth and seventh respondents collectively pooled together an amount of R610 000.00, which third respondent caused to be converted into US$80 000.00 through a broker firm in Durban and deposited into the Nominees US$ account.

(36.2) First respondent submitted that he has no proof of the aforesaid deposit into the Nominees US$ account due to a housebreaking incident which took place in August 2008 at the residence of the third and fourth respondent. The deposit slip and the details of the broker were all kept with the third respondent in a safe at his residence. However, during the housebreaking incident, the safe with all the details and personal valuables were stolen.

(36.3) The reason for having the monies deposited into the Nominees account by the broker and not via an application for a policy with applicant, was apparently done so that the monies could be transferred onto the offshore platform, where first respondent could do the buy and sell of the currency. According to first respondent, applicant at that stage was utilising the RMBIS system and first respondent's team leader, Francois van Niekerk, had a very strict policy that any money which could not be reconciled to a specific investor/principal had to be transferred to the offshore Momentum Wealth International money market. Respondents do not attach any confirmatory affidavit from Francois van Niekerk in this regard.

(36.4) Once the respondents US$80 000.00 was in Nominees US$ account and not linked to a specific investor/principal, first respondent proceeded by "switching" between the various currencies. To this end, first respondent avers that he would send emails to Momentum Wealth International client services team instructing them to, for example, "... debit the USO money market amount with $10000 and credit the ZAR money market account." However , first respondent did not attach any of these emails to respondents answering affidavit, which is apparently on his personal computer, but invited applicant to produce same for purposes of this application.

(36.5) The arrangement that first respondent had with third, fifth, sixth and seventh respondents was that whenever they needed funds he would withdraw the funds by completing a BOP and submit it to RMB. According to first respondent, this was the only way the money could be paid into a South African bank account.

(36.6) In the result, first respondent submits that he did not commit any fraud which caused the loss of R18 875 995.71 to applicant, because applicant at no stage owned any of the monies held in the Nominees account and " there was the $80 000 which deposited into the system, and allowed me to buy and sell foreign currency."

(36.7) In conclusion, first respondent states that he is aware that he is not allowed to have done what he has done due to the fact that he was employed by applicant and his actions constitutes a serious conflict of interest. First respondent continues by admitting that he has misused his position as a bulk trader to use applicant's infrastructure, but that he at no stage utilised any of the investors funds and there is therefore no loss to either the principals, RMB or Nominees.

(37) I will now deal with the legal issues raised by respondents and the merits of applicant's cause of action.

APPLICANT'S LOCUS STANDI:

(38) It is trite that the issue of locus standi is a preliminary procedural question that has to be considered by the court in order to determine whether the parties to the litigation have the necessary standing or legal capacity to litigate.[26] However, the question is not only procedural but also one of substance; it concerns the sufficiency and directness of a litigant's interest in proceedings which warrants his or her title to prosecute the claim asserted. To this end, an applicant has to show that it is the rights-bearing entity, or is acting on the authority of the entity, or has acquired its rights.[27]

(39) Accordingly, ·1ocus standi is determined in light of the factual and legal context,[28] divorced from the substance of a case[29] and must be decided before the merits are considered.[30]

(40) Respondents raises various arguments in respect of applicant's apparent lack of locus standi in this application. I will only deal with the main contentions.

(41) Firstly, respondents contend that neither applicant nor Nominees could ever be the owners of the funds deposited in the off-shore investments, wherefore ownership thereof will always vest with the investors (principals). In the event that any loss of applicant's investors' funds is alleged, respondents aver that it would be a loss suffered by the investors (principals) and not the applicant, wherefore only the investors have locus standi in this matter. Respondents, in addition allege that applicant only has the necessary legal standing in this application in the event that the investors, who have suffered losses, have ceded their rights to institute legal proceedings, to applicant.

(42) I do not agree with respondents. The aforesaid contention loses sight of the fact that applicant's liability to make good any loss suffered by an investor is not subject to the ownership of the funds, but the fiduciary obligation imposed on applicant in section 2 of the Fl Act to prevent any loss (prejudice) to its investors. This obligation, inter alia, entails observing the utmost good faith and exercise the care and diligence required of a trustee in the exercise or discharge of his or her powers and duties. It is trite that a trustee never acquires ownership of the trust property, but most certainly has the necessary legal standing to institute legal proceedings to recover any losses of the trust property. This is part and parcel of a trustee's fiduciary obligations.

(43) In this regard, respondents refer to the matter of Louw NO and Others v Coetzee and Others[31], seemingly in support of their first contention. I do not agree. The facts in the Louw-matter differ totally from the facts in casu and is in my view not applicable to the issues at hand.

(44) In the Louw-matter, the SCA was tasked to consider the question whether moneys held in trust by an attorney and deposited into a bank account in terms of section 78(2A) of the Attorneys Act,[32] should be considered as "trust property", to be dealt with in terms of section 4(5) of the Fl Act. The SCA held that there is no indication in the Fl Act to impose on a financial institution the role of trustee to an attorney's client, nor does the Fl Act expressly provide for changes to the laws regulating attorneys' or other trust moneys, and such provision cannot be inferred from anything other than the definition of trust property.[33] In view of the fact that it is common cause between the parties herein that the principals' investments constitutes "trust property" as defined in the Fl Act, I fail to see how the decision in the Louw matter assists respondents in this regard.

(45) Accordingly, it is common cause that the provisions of the Fl Act apply in this instance. In the event that loss of the trust property indeed occurs at the hand of applicant's employee, as is the allegation in this instance, the applicant as the employee of the fraudulent party is vicariously liable[34] for the consequences (i.e. to recompense the deficit in the trust property) and is obliged to indemnify Nominees and the investors/principals whose funds were unlawfully withdrawn from the Nominees' accounts. This is fortified by applicant's indemnification of Nominees for any liability and a criminal court's prerogative in section 10 of the Fl Act to order repayment or compensation of such loss to either the institution (applicant) or the principal (applicant's investors).

(46) The mere fact that a court in criminal proceedings may make an order contemplated in section 10(2) of the Fl Act in favour of either applicant or its investors, in my view clothes both applicant and/or its investors with the necessary legal standing to claim repayment or compensation of such loss in civil proceedings. This further tallies up with applicant's duty to mitigate its damages. Respondents' contention that the investors who have suffered losses should have ceded their rights to sue in order to clothe applicant with locus standi in this application, is therefore without merit and not supported by the provisions of the Fl Act.

(47) The second contention made by respondents on applicant's apparent lack of locus standi appears to flow from the aforesaid. In this regard, respondents submit that at all relevant times the monies held in Nominees' accounts had to be reconciled to a specific investor. In the event that monies were paid out Nominees' accounts (which monies according to respondents belonged to the investors), this would have created a deficit in the funds held by Nominees. Upon reconciliation of its accounts, Nominees would have been able to immediately identify which of the principals' monies were taken and if a specific investor directly suffered a loss, then it is for Nominees to establish and prove that the funds paid out from the relevant Nominee account belong to that specific investor who suffered the actual loss and that investor should have launched this application.

(48) I do not agree with respondents for all the reasons already stated above. Respondents ignore the fact that applicant contends that first respondent deliberately prevented a reconciliation of Nominees accounts, by deleting all the payment emails received from RMB. In any event, respondents' suggestion that only an investor who has suffered a "proven" loss (through reconciliation) has locus standi in this application, completely ignores the fact that applicant, in its fiduciary capacity is liable to immediately and proactively remedy any deficit in the trust property and such vested liability arose the moment that the deficit is discovered. As already indicated above, this is akin to any trustee's obligation relating to trust property.

(49) Respondents third contention in respect of applicant's apparent lack of locus standi is that applicant will only attract liability in the event that either an affected principal and/or RMB institutes an action against applicant to recover any loss. This contention is without merit. The applicant specifically states that it has accepted responsibility to reimburse Nominees/the principals for the funds fraudulently withdrawn from the various Nominees' accounts. The respondents are not entitled to dispute an undertaking between two remote parties.[35] In any event, as I already indicated above, respondents accepted that applicant is statutorily obliged to indemnify RMB against any liability caused by theft and/or fraud.

(50) In view of the aforesaid, I am satisfied that applicant has locus standi to have instituted this application against respondents. In reaching this conclusion, I am also guided by the fact that both Thlapi J and Tuchten J, must have been satisfied that the applicant indeed has the necessary legal standing to have instituted and been granted the urgent interim relief in the applications referred to above.

REQUIREMENTS OF FRAUD:

(51) In view of the fact that the further issues raised by respondents relate to the merits of applicant's cause of action, I deem it appropriate to discuss same hereunder.

(52) Applicant must adduce evidence indicating that first respondent made fraudulent representations, which induced RMB (applicant's payment agent) to effect payments, resulting in applicant suffering damages as a result of the fraud.

(53) It is quite apparent from the investigation conducted by Lotter and Archer, that the fraudulent BOPs created by first respondent were the direct cause of the payments made by RMB into the bank accounts of third to seventh respondents and first respondent's son and daughter, totalling an amount of R18 875 995.71. This undoubtedly constitutes misrepresentations being made to RMB by first respondent, which clearly induced RMB to effect payments thereupon. In other words, without the fraudulent BOPs and their submission to RMB by first respondent, no payments would have been forthcoming.

(54) To this end, respondents cannot dispute or challenge first respondent's evidence tendered in the disciplinary proceedings . As already indicated above, the record of the disciplinary proceedings, inter alia, reflects that first respondent admitted to "reproducing" Rakgase's signature on various BOPs, conceded that he made misrepresentations to RMB which led to various illegitimate payments being made into the bank accounts of his daughter and sixth respondent and most importantly, declined to raise a defence to the charges.

(55) However, in their answering affidavit respondents dispute not only the veracity of the evidence garnered in the investigation done by Lotter and Archer, but also first respondent's direct evidence given in the disciplinary proceedings. For example, respondents now contend that applicant has not provided any real evidence that the BOPs were forged, as there is a normal business practice of having the signatures "reproduced". This normal practice of "reproducing" a signature appears to be that first respondent would sign a BOP and leave it on the desk of one of his co-signatories to sign. Respondents attempts to validate the reproduces signatures on the BOPs, completely negates the fact that the misrepresentation is not confined to the signatures thereon, but more importantly the information contained therein, which to the knowledge of the first respondent were false because payments were requested without any of the requisites being present for a lawful repatriation of funds, as indicated in paragraph (20) above. In addition, the fact that first respondent knew full well that RMB, as applicant's payment agent, will not verify the information in the BOPs before making payments, in my view effectively constitutes misrepresentations to applicant through its payment agent, i.e. RMB. In this regard, Nominees, which is controlled by applicant is similarly not tasked to verify any information contained in a BOP before RMB repatriates fund from one of its accounts, wherefore any misrepresentation made to applicant must be accosted as a misrepresentation to Nominees as well.

(56) The imputed fraudulent knowledge of first respondent was in my view completed by the fact that first respondent deliberately and intentionally deleted all of RMB's payment confirmations on the fraudulent BOPs,[36] which resulted in applicant's Client Services Department not receiving any RMB payment emails to be forwarded to the relevant investors as required (because there were no legitimate investors involved), thereby preventing any reconciliation of the off-shore investments funds and hence the concealment of the entire fraudulent scheme for an extended period. In short, the submissions made by respondents in order to dispute same, not only defies logic but are also so improbable that they must be rejected out of hand.

(57) Moreover, most of the contentions made by respondents to dispute applicant's cause of action, culminates in repeating their submissions on applicant's apparent lack of locus standi, which I have already found to be without any merit. However, none of these contentions are supported by any documentary evidence or confirmatory affidavits, other than confirmatory affidavits of the second, third, fourth and seventh respondents. This most definitely do not constitute substantive evidence to refute the proven findings of Lotter and Archer's investigation; to waylay Rakgase's confirmation that his signature was forged; and to dispute first respondent's evidence in the disciplinary proceedings .

(58) This brings me to respondents' version discussed above, which is averred in order to indicate that the aforesaid fraudulent scheme operated by first respondent was totally legitimate. During the hearing hereof, I specifically requested counsel for respondents to address me on the reasons why respondents decided to raise this version only now, for the first time, and not during first respondent's disciplinary proceedings or during the urgent court proceedings heard by Thlapi J and Tuchten J.

(59) The only response from respondents' counsel was to submit that respondents apparently did not want to jeopardise the criminal case against them. This excuse is non-sensical. In the event that respondents, more particularly first respondent had raised this version during his disciplinary proceedings, it could have constituted a defence to the charges levelled against him and if proven to be correct (by adducing evidence from the other respondents, the broker and Francois Van Niekerk), would have greatly assisted respondents in defending any criminal charges levelled against them. Moreover, applicant could have been compelled to assist first respondent in preparing for his disciplinary hearing by producing all the relevant emails, documents and information that respondents apparently now require to prove their version, which clearly did not happen. The same can be said of respondents' failure to disclose their version/defence during the urgent court proceedings referred to above.

(60) In view of the aforesaid, I must weigh respondents' version against applicant's case against them, in order to determine whether respondents have succeeded in rebutting or refuting the prima facie evidence against them. This is so because applicant's evidence in this matter cannot be termed as "so vaag en ontoereikend t.o.v. die basiese feite ... dat die enigste feitebepalings of afleidings wat gemaak kan word as blote bespiegeling bestempel moet word."[37] Accordingly, when a matter is within a respondent's peculiar knowledge, which is the case in this instance, the applicant who bears the onus " met min getuienis kon klaarkom om 'n weerleggingslas op die [respondente] te plaas...".[38]

(61) Respondents version of a so-called legitimate investment of UD$80 000.00 made during 2008, which yielded unbelievable profits, to such an extent that it allowed respondents to withdraw more than R18 million from this investment over the course of 2008 to 2017, is in my view hugely improbable. The fundamental problems that I have with respondents' version, are not only the lack of any corroborating evidence, but most importantly the fact that first respondent proffers no reference number, i.e. a policy number or any other distinguishing factor, to indicate how he, as it were, kept tabs on the specific growth in profits of respondents' alleged investment, separate and distinct from applicant's legitimate investors funds in the same off-shore platform. Moreover, one would also have expected first respondent to, at the very least, indicate the status quo of respondents' so-called investment, i.e. whether it is still extant and the amount remaining, and if still existing, the manner in which he managed the alleged investment after his dismissal from applicant's employ, i.e. without the benefit of misusing applicant's infrastructure. The respondents tendered no evidence in this regard.

(62) The mere fact that respondents could not produce any documentary evidence to support their alleged legitimate investment, does not detract from the fact that they failed to adduce any evidence from the Broker who supposedly made the investment, nor evidence from Francois Van Niekerk, or any other person that could corroborate their version. Respondents also offers no explanation why these persons' evidence could not be obtained. This rings true the words of Miller JA in Titus v Shield Insurance Co Ltd,[39] namely that:

" ... it is clearly not an invariable rule that an adverse inference be drawn; in the final result the decision must depend in large measure upon 'the particular circumstances of the litigation' in which the question arises. And one of the circumstances that must be taken into account and given due weight, is the strength or weakness of the case which faces the party who refrains from calling the witness."[40]

(63) In view of the aforesaid, I must draw an adverse inference on respondents' complete lack of adducing any corroborating evidence to support their version. I am also compelled to find, that due to the various improbabilities discussed above, the inordinate delay in disclosing their version as well as the strong evidence of applicant's case, that respondents' version of events cannot be accepted on a preponderance of probabilities as reasonably possibly true. I accordingly reject respondents' version out of hand.

(64) The final issue to be discussed is whether applicant suffered damages as a result of respondents' fraud. Respondents aver that applicant has neither suffered any loss or damages, nor did applicant prove that it has suffered any loss or damages. In this regard, respondents again rely on their contentions made in respect of applicant's apparent lack of locus standi, in their attempt to indicate that either the investors and/or RMB suffered the losses, but not the applicant. I have already dealt with the veracity of these averments above and suffice with my conclusions that they are without any merit.

(65) Respondents also contend that the monies that were paid from Nominees' accounts did not belong to any of the investors/principals as there would have been a deficit[41] in Nominees' accounts when the annual reconciliations are done. It is further alleged that applicant has not provided any evidence of Nominees' reconciliations which would have established the loss or damage claimed, and the reason why this evidence was not provided is because there was no loss and as such no loss was ever declared over the years.

(66) I do not agree. As already indicated above, first respondent's deliberate action of deleting the RMB proof of payment emails, directly prevented any proper reconciliation of Nominees' accounts for the years 2008 to 2017. However, respondents lose sight of the fact that the MMI investigation in effect performed reconciliations for the years 2008 to 2017 on the Nominees' accounts and discovered a deficit of R18 875 995.71 in the investment funds of applicant's clients, i.e. the investors/principals, at the hand of applicant's own employee. Applicant's loss/damages in the aforesaid amount vested upon the conclusion of the investigation. In turn, the deficit of R18 875 995.71 uncovered during the said investigation, correlates with illegitimate payments made to all respondents, arising from a substantial fraud perpetrated upon applicant by first respondent, which fraud benefited all respondents.

(67) In view of the aforesaid, together with the provisions of the Fl Act discussed above, I am satisfied that applicant has proved that it has suffered a loss/damages in the amount of R18 875 995.71 at the hands of respondents.

(68) Accordingly, applicant has in my view satisfied all the requirements of its cause of action and is entitled to the requested relief sought in this regard.

ORDER:

In the result I make the following order:

A. AGAINST FIRST RESPONDENT:

1. The first respondent is directed to pay applicant the sum of R317 114.90;

2. Interest on the amount of R317114.90 at the prescribed rate of 10.25% per annum calculated from 9 June 2017 to payment in full;

3. Directing that the first respondent is liable to applicant, jointly and severally with the third, fourth and seventh respondents , the one paying the others to be absolved, for payment of the amounts set out in paragraphs 5, 6, 7, 8, 9, 10, 11 and 12 below;

4. The first respondent is directed to make payment to applicant of the amounts of R1 012 656.66 and R7 007 449.22 together with interest on those amounts at the prescribed rate of 10.25% per annum calculated from 9 June 2017 to date of payment in full, which payment is to be joint and several with any judgment which may in future be obtained by applicant against the fifth and/or six respondents, the one paying the others to be absolved;

B. AGAINST THIRD RESPONDENT:

5. The third respondent is directed to pay to applicant the sum of R415 993.25;

6. Interest on the amount of R415 993.25 at the prescribed rate of 10.25% per annum calculated from 9 June 2017 to payment in full;

C. AGAINST FOURTH RESPONDENT:

7. The fourth respondent is directed to pay to applicant the sum of R1 655 732.79;

8. Interest on the amount of R1 655 732.79 at the prescribed rate of 10.25% per annum calculated from 9 June 2017 to payment in full;

D. AGAINST THIRD AND FOURTH RESPONDENTS:

9. The third and fourth respondents are directed to pay to applicant, jointly and severally, the one paying the other to be absolved, the sum of R144 109.73;

10. Interest on the amount of R144 109.73 at the prescribed rate of 10.25% per annum calculated from 9 June 2017 to payment in full;

E. AGAINST SEVENTH RESPONDENT:

11. The seventh respondent is directed to pay to applicant the sum of R5 323 479.10;

12. Interest on the amount of R8 323 479.10 at the prescribed rate of 10.25% per annum calculated from 9 June 2017 to payment in full;

F. AGAINST FIRST, THIRD, FOURTH AND SEVENTH RESPONDENTS:

13. The first, third, fourth and seventh respondents are ordered to pay applicant's costs of this application including the costs of senior counsel, jointly and severally, the one paying the others to be absolved.