The supreme court of south africa



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In THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION) In the matter between:

ADDERLEY ACCEPTANCES (PTY) LTD Appellant

and

FLORENCE ROCHELLE ROM First Respondent

KAREN CELIA LEVIN Second Respondent

Coram: RABIE, ACJ, JANSEN, HOEXTER, VIVIER, JJA

et NICHOLAS, AJA Heard: 15 March 1988 Delivered: 30 March 1988

JUDGMENT NICHOLAS, AJA :

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Mr. Brian Richman lived in Bantry Bay, Cape

Town. From his house he carried on business as a financial

broker and consultant through a one-man company, Adderley

Acceptances (Pty.) Ltd. ("Adderley Acceptances"). He was

also a director of a private company, Servix (South Africa)

(Proprietary) Limited ("Servix"), of Johannesburg, which

carried on the business of electrical engineers and con-

tractors.

One of his clients was Mrs. Florence Rom, a

divorcee of Sea Point. Mrs. Karen Levin became a friend

of his in about August 1983. At the end of November 1983,

Richman placed on loan with Servix R90 000 provided by Mrs.

Rom and R110 000 provided by Mrs. Levin. Four and a half

months later (in the middle of April 1984), Servix was in .

liquidation. It was hopelessly insolvent, with no prospect

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of any dividend to creditors. Mrs. Rom and Mrs. Levin had lost everything.

The two women, who were at that time unacquaint-ed, instituted separate actions for damages against Adderley Acceptances in the Cape Provincial Division of the Supreme Court. In March 1986 the two actions were consolidated and heard by BERMAN J, who gave judgment in favour of Mrs. Rom for R90 000, and in favour of Mrs. Levin for R110 000, with interest on the respective capital sums at the rate of 18½% per annum from the date of judgment to date of payment.

An application by Adderley Acceptances for leave to appeal was dismissed with costs. On a petition to the Chief Justice, however, leave was granted to appeal to this court. It was ordered that the costs of the petition

for .... / 4

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for leave to appeal be costs in the appeal; and that the order for costs made by the court a quo on the application for leave to appeal be altered to an order that the costs of the application be costs in the appeal.

The appeal record does not include copies of the pleadings in Mrs. Levin's case, and Mrs. Rom's pleadings were not in all respects a model of clarity. Nevertheless, the issues as they had crystallized by the end of the trial are reasonably clear in both cases.

In each there were two causes of action -

  1. Alleged fraudulent misrepresentation; and

  2. Failure by Richman (more strictly by Adderley Acceptances, which was his alter ego) to dis-close matters which it was his duty to disclose to the plaintiffs.

Richman was the agent of each of the plaintiffs.

Each..... / 5

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Each relied on his financial expertise and his integrity.

He held a position of trust and confidence in relation to

their affairs. In the performance of his duties he was

required to act bona fide. Cf. S v Young, 1977 (1) SA

602 (A) at 609 B-C. He was under a duty to make disclo-

sures to his principal of everything known to him respect-

ing the transaction on which he was employed, which would

be likely to influence her conduct. More particularly,

where he had an interest that was adverse to his principal's

interest, he was subject to a duty to reveal to the princi-

pal all the material facts which he knew or which he should

have known, and to deal fairly with his principal: Mallin-

son v Tanner, 1947 (4) SA 681 (T).

It will be convenient to deal first with the

case. .... / 6

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case of Mrs. Rom, and then, more briefly because most of the ground will already have been covered in connection with Mrs. Rom, with the case of Mrs. Levin. 1. MRS. ROM'S CASE.

Mrs. Rom's main cause of action against Adderley Acceptances was originally this:

1. During November 1983 Richman, acting on behalf of
Adderley Acceptances, orally represented to Mrs.
Rom that -

  1. He had investigated the financial affairs of Servix;

  2. Servix was in a strong and sound financial position; and

  3. Loans made to Servix would constitute a safe investment and would be equivalent to in-vesting with a bank or similar financial in-stitution.

2. The said representations were material, and Rich-
man made them with the intention of inducing Mrs.
Rom to authorize him to invest her money in Servix.

3. .../ 7

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3. The representations were false to the knowledge
of Richman in that -

(i) he had not properly investigated the affairs of Servix; (ii) the company was not in a sound financial po-sition; and (iii) loans made to Servix would not constitute a safe investment and would not be equivalent to investing with a bank or similar financial institution.

  1. Mrs. Rom, relying on the truth of the representa-tions, authorized Adderley Acceptances to invest R90 000 with Servix, and it did so in 1983.

  2. Servix has been liquidated and no dividend to its creditors will be paid. As a result, Mrs. Rom

has suffered the loss of the whole of her invest-ment.

This was her case in relation to alleged fraudulent mis-

representation.

At a later stage Mrs. Rom's particulars of

claim were amended. by the inclusion of the following para-

graph:

"12......./8

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"12. At all material times hereto, and unbeknown to

Plaintiff, First Defendant was a director of the said Company and was, in the premises, in duty bound to disclose to Plaintiff his interest in the said Company, but First Defendant fraudu-lently, and with the intention of inducing Plain-tiff to authorise the said investment, concealed from her the fact that he was a director of the said Company and was accordingly not in a posi-tion to give her impartial advice in regard to the financial stability of the Company."

And during the trial it emerged that Rich-

man himself lent R100 000 to Servix on 14 November 1983

and withdrew the whole amount on 21 November. Adderley

Acceptances did not disclose these facts to Mrs. Rom.

This concealment was fully canvassed at the trial, and

BERMAN U treated it as if it had been duly pleaded.

Counsel for the appellant did not suggest that the learned

judge was wrong in so doing.

This ..../ 9

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This and the concealment referred to in para. 12 of the particulars of claim formed the basis of Mrs. Rom's claim in regard to failure to disclose.

At the date of the trial, Mrs. Rom was 62

years old and in poor health. (BERMAN J described her as

"a sickly elderly lady".) She had received her school

education at the Good Hope Seminary. When she left school,

she began a course for the BA degree at the University of

South Africa, but,at the age of 21, she married Dr. David

Rom. The marriage was dissolved in 1963. She was obliged

to work in order to provide for herself and the children

of the marriage. She got employment with an estate agent.

Because of her personal circumstances, she was always very

careful with money. Over the years she slowly accumulated

a.../10

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a competence, which in November 1983 totalled R90 000. In 1981 she had suffered a massive coronary thrombosis and she had been in indifferent health since then. Because she was uncertain about her future earning capacity, she could not afford to go into a risky investment. She invested always with banks, building societies and similar institutions.

She first met Richman in about 1981, when he was looking for a house, and through him she acquired a building society fixed deposit certificate for R25 000 which had some two years to run to maturity.

Thereafter and until the middle of April 1984 she was his client, and he made a number of investments on her behalf.

Richman told the court a quo during his

evidence .... / 11

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evidence that he was born in 1940. After matriculating, he was articled to a firm of chartered accountants, and at the same time attended the University of Cape Town, where he obtained an accountancy qualification. After qualifying, he began operating on his own account as a finance broker and financial consultant. He formed Adderley Acceptances, of which he was the only beneficial shareholder and the only effective director, and whose business he described in the "Report of Directors" for 1983 as "financial and econo-mic consultants, advisers, economists, brokers and traders in the money market".

He specialized "in the larger type of in-stitution". His business was "basically funding of public and semi- public sector loans". He had very few small

clients.../ 12

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clients such as Mrs.Rom and Mrs. Levin.

He became a director of Servix in April 1981.

If one is to believe his own evidence he was no more than

a dummy director, who took little part in the company's

affairs. He owned no shares. Mr. Costa Zackos, the mana-

ging director, had approached him, saying ,

"Listen, I've heard about you. I need some one in Cape Town just in case a cheque needs to be signed, and I need a director."

Richman told the trial judge that he could think of only

one reason for his agreeing to become a director:

" ... Servix clients and mine are similar and it would be, it's one sort of other vehicle to sort of say hullo to my clients on social occasions and things like that."

As a director he was paid R500 or R1 000 per annum, and he

charged .... / 13

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charged the company a moninal fee when, about once a year,

he flew up to Johannesburg for directors' meetings. On

his evidence, he appeared to have little or no knowledge of

the internal workings of Servix, and he said later that he

had no inkling during the period December 1983 to April 1984

of the gathering crisis in the company's affairs. He was

not, he explained, an executive director.

(BERMAN J regarded Richman's evidence in this

regard with scepticism, saying in his judgment that he was not

" .. so credulous as to accept the self-portrait painted by Mr. Richman as showing a true picture of his asso-ciation with Servix.")

Richman said that he flew to Johannesburg

to attend the official opening on 17 November 1983 of the

electrification of Tembisa Township on the East Rand,in

in..../ 14

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in which Servix had been concerned. After this there was

luncheon for all the participants, which was followed by a

meeting of Servix's board of directors.

At the meeting the annual accounts were pre-

sented by the auditors. Richman's understanding was that

the company was doing exceptionally well. He said:

"That was my understanding and it showed in the balance sheet."

There was little dispute between Mrs. Rom

and Richman in regard to the Adderley Acceptances' mana-gement of her investments before November 1983. Until March of that year, her money had always been placed with banks and building societies. In that month Mrs. Rom authorized Richman to place her money with National Acceptances Ltd.,

a ... / 15

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a company which operated in the money market, in order to get a better rate of interest. Thereafter National Accept-ances placed short term loans on her behalf with a variety of public companies of standing. It would seem clear that Richman told Mrs. Rom that these investments were similar to those made with a bank, because on 5 September 1983 Adderley Acceptances issued to Mrs. Rom a "receipt" in Richman's own hand, recording that R25 000 has been "placed today", and confirming that "you have a total of R75 000 placed at call with Banks or similar institutions." (a).
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