THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

REPORTABLE
Case No:  578/2011

In the matter between:

CONRAD FOURIE
APPELLANT

v

FIRSTRAND BANK LIMITED
FIRST RESPONDENT
JACOBUS SPANGENBERG NO
SECOND RESPONDENT

Neutral citation:
C Fourie v FirstRand Bank Ltd (578/2012) [2012] ZASCA
119 (18 September 2012).
Coram:

Brand, Lewis, Bosielo, Shongwe and Theron JJA
Heard:

27 August 2012
Delivered:

18 September 2012
Summary:
Claim against appellant in terms of s 424 of the
Companies Act 61 of 1973 based on fraudulent conduct
–
causal
link
between
fraudulent
conduct
and
company’s inability to pay not required – second
respondent held vicariously liable in delict, jointly and
severally with appellant for the same damages suffered
by the first respondent.

________________________________________________________________

ORDER
________________________________________________________________

On appeal from:   North Gauteng High Court, Pretoria (Southwood J sitting as
court of first instance):
The appeal is dismissed with costs, including the costs of two counsel.
The cross-appeal is upheld with costs, including the costs of two counsel.
Paragraph III of the order of the court a quo is set aside and replaced with
the following:
“III
The second defendant is ordered to pay to the plaintiff, jointly and
severally with the first defendant, the one paying the other to be
absolved:
(i)
the capital amount of R7 340 229.73;
(ii)
Interest up to and including 31 October 2010 in the sum of
R5 361 200.93, less the sum of R1 193 595.21;
(iii)
on the capital amount of R7 340 229.73 at the rate of 11,5
per cent per annum from 1 November 2010 to date of
payment.’
Paragraph IV of the order of the court a quo is amended to read as
follows:
‘IV
The first and second defendants, jointly and severally, the one
paying the other to be absolved, are ordered to pay the plaintiff’s
costs of suit, such costs to include the costs consequent upon the
employment of two counsel and the qualifying fees of Messrs S
Harcourt-Cooke and J Rhoda.'

________________________________________________________________

JUDGMENT
________________________________________________________________

BRAND JA (LEWIS, BOSIELO, SHONGWE AND THERON CONCURRING):

[1] The appellant, Mr Conrad Fourie, is an accountant by profession.
Throughout the events that gave rise to these proceedings, he was employed by
an auditor, Mr Francois du Preez, in Polokwane. The first respondent is
FirstRand Bank Limited that trades under various names, in this instance as
Wesbank. Proceedings commenced when FirstRand instituted action against
Fourie and Du Preez in the North Gauteng High Court for payment of about
R10 million, together with interest and costs. The action against Fourie was
brought in terms of s 424 of the Companies Act 61 of 1973, alternatively, on the
basis of the actio legis Aquiliae. As against Du Preez, FirstRand claimed that he
was liable in delict for the same amount, jointly and severally with Fourie, on the
basis that he was vicariously responsible for the wrongdoings of the latter.

[2] During the course of the trial in the court a quo, Du Preez took his own life.
In consequence, the second respondent, Mr Jacobus Spangenberg, was
appointed as the executor in his deceased estate and then substituted as a party
to the action in his stead. At the end of the proceedings in the court a quo,
Southwood J gave judgment in favour of FirstRand against Fourie on the basis of
the main claim in terms of s 424. The delictual claim against Spangenberg, as Du
Preez’s executor, on the other hand, was dismissed with costs. This led to the
present appeal by Fourie against FirstRand and the cross-appeal by FirstRand
against Spangenberg, now cited as the second respondent. Both the appeal and
the cross-appeal are with the leave of the court a quo. I shall refer to the first
respondent as FirstRand or, depending on the context, as Wesbank; to the
appellant as Fourie; and to the second respondent as Du Preez.

The claim against Fourie in terms of s 424 of the Companies Act
[3] In relevant part s 424 provides:
‘(1) When it appears, whether it be in a winding-up, judicial management or otherwise,
that any business of the company was or is being carried on recklessly or with intent to
defraud creditors of the company or creditors of any other person or for any fraudulent
purpose, the Court may, on the application of the Master, the liquidator, the judicial
manager, any creditor or member or contributory of the company, declare that any
person who was knowingly a party to the carrying on of the business in the manner
aforesaid, shall be personally responsible, without any limitation of liability, for all or any
of the debts or other liabilities of the company as the Court may direct.
(2) (a) Where the Court makes any such declaration, it may give such further directions
as it thinks proper for the purpose of giving effect to the declaration, and in particular
may make provision . . .’

[4] FirstRand’s claim under the section arose out of the conduct of the
business of XHRS Investments 71 (Pty) Ltd, t/a Supreme Car (Supreme Car)
during the period 16 August 2001 to 20 April 2004. Supreme Car was a trader in
second-hand motor vehicles, first in Polokwane and later also in Tzaneen. On 16
November 2001 it entered into an agreement described as a Used Car Floor
Plan Agreement with FirstRand t/a Wesbank. Pursuant to this agreement
FirstRand advanced substantial sums of money to Supreme Car for the purchase
of second-hand motor vehicles, which then became the property of FirstRand
and thus constituted its security for the loan. In consequence an essential term of
the floor plan agreement was that upon resale of the vehicle by Supreme Car, it
was obliged to repay the sum advanced by FirstRand for the purchase of that
vehicle, within the following week.

[5] During the first part of 2004 Wesbank discovered, however, that Supreme
Car was in breach of this essential term in that vehicles financed pursuant to the
floor plan agreement were resold without repayment of the purchase price. On 20
April 2004, FirstRand therefore cancelled the floor plan agreement. As at that
date there were 136 vehicles subject to the floor plan agreement which FirstRand

had financed and for which Supreme Car had not paid. When FirstRand went to
Supreme Car’s premises to repossess the vehicles, it found only 84 of them. The
remaining 52 were missing and could not be accounted for. In the event
Supreme Car was provisionally wound-up on 17 May 2004 and placed under
final liquidation on 15 June 2004. It became clear that at the date of its winding-
up Supreme Car was hopelessly insolvent. The amount for which judgment was
obtained against Fourie in the court a quo represented the agreed quantum of
Supreme Car’s outstanding liability to FirstRand under the floor plan agreement
which could not be recovered from the company in the liquidation process.

[6] In holding Fourie personally liable for the debts of Supreme Car pursuant
to s 424, the court a quo found that the requirement of the section had been
established by FirstRand. In arriving at this conclusion the court essentially held:
(a) that Fourie knowingly made false representations on behalf of Supreme Car
to FirstRand by preparing false financial statements, and thus committed fraud;
(b) that the business of Supreme Car was conducted in a manner that amounted
to recklessness and that Fourie was knowingly a party to this conduct. With
regard to the claim in delict against Du Preez, on the other hand, the court held,
in broad outline, that although the false financial statements were prepared by
Fourie in the course and scope of his employment as an employee of Du Preez,
FirstRand had failed to establish a causal link between the false statements and
the damages that it claimed. Eventually all these findings were challenged on
appeal. The nature of the challenges will be better understood against the factual
background that follows.

Background
[7] XHRS Investments 71 (Pty) Ltd started out life as a shelf company. On 16
August 2001 it became the corporate vehicle for the business of Supreme Car.
On that date Mrs Rey Naude became its sole director and shareholder, while Du
Preez was appointed as its auditor. As it turned out, however, Mrs Rey Naude
lived in Yzerfontein in the Western Cape. She had nothing to do with the conduct

of Supreme Car’s business. Its de facto manager was her son, Danie Naude
(Naude). By all accounts Naude was a very successful salesman of second-hand
motor vehicles, but he proved to be a disastrous financial administrator. In
consequence, Du Preez instructed his employee, Fourie, to assist Naude in the
financial administration of Supreme Car. It will be remembered that Du Preez
took his own life during the course of the trial. As it happened, however, both Mrs
Rey Naude and her son Danie, also passed away either before or shortly after
the commencement of the proceedings in the court a quo.

[8] The exact ambit of Fourie’s role in the conduct of Supreme Car’s business
is in dispute. According to FirstRand, Fourie was in effect its financial manager.
Fourie’s version, on the other hand, is that his authority extended to no more
than cash flow management. Eventually, Southwood J decided this issue against
Fourie. But, in the end, very little, if anything, turned on the outcome of this
dispute. Of greater significance was the undisputed fact that Fourie prepared
certain documents, nine in all, on behalf of Supreme Car that were destined to
take centre stage in these proceedings. According to Fourie, these documents
were no more than working papers, prepared with the sole purpose of facilitating
his discussions with management. On the face of it, however, the documents had
all the trappings of audited financial statements. Without any intent to prejudge
the issue and only for lack of a better description, I propose to refer to them as
financial statements.

[9] As I have said by way of introduction, the floor plan agreement between
Supreme Car and Wesbank was entered into on 15 November 2001. At that
stage the credit facility afforded in terms of the agreement was limited to
R3 million. But as the business expanded, Supreme Car applied for and was
granted increases in the facility to R4 million, then R8 million, then R9.3 million
and finally R13 million. With regard to these increases FirstRand tendered the
evidence of, amongst others, Mr Hentie Pienaar who was the manager of the
Wesbank branch in Polokwane from May 2003 until September 2004 and Mr

Edward Symes, a credit manager in Wesbank’s head-office credit control
department.

[10] From their evidence and the documents they relied on, it emerged that, in
broad strokes, Wesbank observed the following internal procedure every time an
increase in the credit facility was sought. Supreme Car was required formally to
apply to the branch manager in Polokwane and provide sufficient information to
justify the increase. In order to meet this requirement, Supreme Car included its
most recent financial statement, prepared by Fourie, to every one of its
applications. Though Fourie prepared nine of these, FirstRand relied on the
information contained in five of them when it increased the facility available to
Supreme Car.

[11] Upon receipt of the application, the branch manager referred it to
Wesbank’s head-office together with his or her recommendation that the
application be approved. At head-office it was assessed by one or more
managers in the credit department. What was emphasised by Symes was that
the application would only succeed if it appeared that the client’s business was
profitable and that it generated sufficient turnover to justify the credit limit
requested. This was primarily determined, so Symes testified, with reference to
the financial statements furnished. It was common cause that according to the
financial statements prepared by Fourie, Supreme Car’s business was growing, it
was making substantial profits and was financially sound. Pienaar accordingly
testified that if he knew that the financial statements provided by Supreme Car
misrepresented its financial position in that its business was in fact not profitable
nor financially sound, he would not have recommended an increase in the floor-
plan credit facility as and when he did. In the same vein, Symes testified that,
had the credit department in Wesbank’s head-office been aware that the financial
statements relied upon constituted a misrepresentation of Supreme Car’s
financial situation, the recurring increases in the credit facilities would not have
been approved.

[12] Fourie also gave evidence. His answer to FirstRand’s allegations of
fraudulent misrepresentation, contained in the financial statements, typified a
classic illustration of a cover-all defence. The financial statements, he said, were
not, or were at least not intended, to communicate any representations to third
parties about Supreme Car’s financial position. In so far as they did in fact
constitute representations, he denied that his representations were untrue.
Moreover, and in any event, Fourie denied that Wesbank’s officials relied on the
representations contained in the financial statements when they approved the
increases of Supreme Car’s credit facilities. Finally he contended that, even if
these increases were induced by fraudulent misrepresentations in the financial
statements, FirstRand had failed to establish any causal link between these
fraudulent misrepresentations, on the one hand, and Supreme Car’s eventual
inability to pay, on the other.

[13] This all-embracing defence unfortunately resulted in a trial of many days
with oral and documentary evidence covering over 3 000 pages. Its further
negative result, from Fourie’s perspective, was that it often compelled him, under
cross-examination, to defend positions that proved to be indefensible. This, in
turn, led to a credibility finding by the court a quo, which was clearly well-
founded, that Fourie was ‘a most unsatisfactory witness’ about whom ‘[t]here is
no doubt that he will say anything to avoid being held liable for Supreme Car’s
indebtedness to the plaintiff.’ Ultimately, the court a quo decided all the issues
raised by Fourie’s cover-all defence in favour of FirstRand.

[14] Every one of his factual findings was fully motivated by Southwood J in a
most comprehensive judgment. Despite the argument by counsel for Fourie on
appeal that some of these motivations reflected misdirections in the reasoning of
the court a quo, I do not believe that is so. The time honoured approach by this
court is, in sum, that absent any misdirections on the part of the trial court, a
court of appeal is not permitted to interfere with findings of fact (see eg R v
Dhlumayo 1948 (2) SA 677 (A) 705-706). In the event I find it unnecessary to

restate the detailed reasons given by the court a quo for its factual findings
against Fourie which should, in my view, be endorsed by this court. It is sufficient
to refer to the findings in broad outline only.

Did the financial statements constitute fraudulent misrepresentations?
[15] I first deal with Fourie’s proposition that, save for the first of the five
documents relied upon by FirstRand, these documents were prepared as
working papers only and not as financial statements. As to the first document,
Fourie conceded that he had presented it to FirstRand as the audited financial
statement of Supreme Car for the financial period which ended on 28 February
2008. His predicament was, however, that the other four documents were for all
intents and purposes in the same format as the first. They also pronounced
themselves as financial statements of Supreme Car for the period mentioned;
they also purported to include, first, an unqualified opinion by an independent
auditor that the statement fairly represented the financial position of Supreme
Car; and, second, a director’s report to the same effect. Lastly, as in the case of
the financial statement of 28 February 2008, most of these statements were also
signed by either Du Preez or Fourie. Fourie’s explanation for the format in which
the documents were couched, was essentially that they were the products of a
standard computer programme. But he could suggest no reason why these
‘working papers’ were formally signed by Du Preez or himself. Nor could he
account for the fact that they were relied upon by Supreme Car in the same way
as the first document, in support of their recurring applications for increased
credit facilities.

[16] On appeal, counsel for Fourie argued that, since the documents did not
comply with the provisions of the Companies Act with reference to financial
statements, they should not be regarded as such. But as I see it, this argument
misses the whole point. Seen in context, the documents were held out as a true
and fair reflection of the financial position of Supreme Car which was vouched for
by an independent financial expert; they were prepared by Fourie for that very

purpose; they were relied upon by Supreme Car in its recurring applications to
FirstRand for an increase in its credit facility under the floor plan agreement; and
Fourie knew that they would be used by Supreme Car for that purpose.

[17] In denying that the representations contained in the financial statements
were untrue, Fourie maintained that during the period covered by the statements,
Supreme Car’s business was in fact growing; that it was in fact making a profit
and that the business was indeed financially sound. In response to these
allegations, FirstRand relied on the expert testimony of a chartered accountant,
Mr Steven Harcourt-Cooke, that the contents of these documents were indeed
misleading. Mr Harcourt-Cooke, however, experienced the fundamental difficulty
that most of the source documents, which could notionally form the underlying
basis of the financial statements, were no longer available. They disappeared
under somewhat mysterious circumstances. But FirstRand also relied on
admissions that the contents of the financial statements were misleading which
were made by Fourie under oath on two occasions preceding the trial. The first of
these occasions was in an affidavit deposed to by Fourie in answer to an
application for the sequestration of his estate which was launched on behalf of
Supreme Car, represented by Rey Naude, on 13 May 2004. The application did
not proceed because Supreme Car was placed under provisional liquidation
shortly thereafter. The second occasion was when Fourie testified during the
inquiry in terms of s 417 of the Companies Act into the affairs of Supreme Car.

[18] In support of the sequestration application, Rey Naude alleged that
Supreme Car was a creditor of Fourie because he had stolen large amounts of
money from it. In the course of motivating these allegations, she also contended
that Fourie misled her and her son, Danie Naude, about the financial situation of
Supreme Car by the financial statements that he prepared for the company.
These statements represented, she said, that the company had a healthy,
profitable business which was properly administered and earning substantial
profits, which representations all turned out to be untrue. The financial

statements she referred to included those relied upon by FirstRand in these
proceedings. In his detailed answering affidavit Fourie denied that he had stolen
or misappropriated money from Supreme Car. He also denied that he misled the
Naudés in any way. In this regard he inter alia stated:
‘In fact, by drawing up these statements, I realised that the gross profit of the business,
as calculated from the figures given to me, was misstated, which led me to discover that
some of the expenses relating to stock was not correctly accounted for . . . ‘
And:
‘I emphatically deny that I could ever bring [the Naudés] under the impression that
[Supreme Car] had a healthy, profitable business which was properly administered and
earning substantial profits. On the contrary, [Danie Naude] was painfully aware of the
financial predicament of the applicant and assured me repeatedly that he would see to it
that [Supreme Car] trades out of its financial difficulties.’

[19] During the s 417 inquiry, Fourie admitted, for instance, that neither he nor
Du Preez ever audited Supreme Car’s books. His attempts in his evidence at the
trial to retract or qualify this admission were described by Southwood J, rightly in
my view, as singularly unconvincing. This means that Fourie’s covering letter to
FirstRand, in which he described the financial statement of 28 February 2002 as
having been audited, as well as the contents of the statement itself, were
blatantly untrue. Moreover, Southwood J held that, to the knowledge of Fourie,
the same misrepresentation, namely that they were audited financial statements,
was also made, at least by implication, in respect of the other financial
statements relied upon by FirstRand. I do not believe this finding can be faulted.

[20] In addition, the evidence showed that the financial statements were
demonstrably misleading in other material respects. In this regard one rather
blatant example will, in my view, suffice. It transpired that Du Preez himself had
lent Supreme Car the sum of R3.5 million at an interest rate of 36 per cent per
annum, ie R105 000 per month. Neither this loan nor the exorbitant interest rate
payable – and in fact paid – by Supreme Car, were reflected in any of the
financial statements given to FirstRand. What these statements reflected instead

was an interest free loan by Rey Naude. Fourie’s explanation, that he thought
this made no difference, was patently untrue. To Fourie, as an accountant, the
reason for the disguise must have been obvious: it is of importance to a bank that
the shareholder of a company has committed his or her own funds and is not
purely reliant on outside loans. Moreover, had the true state of affairs been
disclosed, it would obviously reduce the profitability of the business. It would also
have shown that Supreme Car was under capitalised in that it had to rely on
funding by an outside party at an exorbitant interest rate.

Was the granting of credit induced by the fraudulent representations?
[21] This brings me to Fourie’s challenge to the court a quo’s finding that the
recurring increases in Supreme Car’s credit facilities under the floor plan
agreement had been induced by the misleading financial statements. From the
court a quo’s judgment it is apparent that this finding was squarely based on the
direct evidence of Pienaar and Symes that the increases were indeed so
induced. As I understand Fourie’s criticism of this finding, it amounts to this.
Despite the rosy picture painted of Supreme Car’s financial position in the
misleading financial statements, so Fourie contended, the officials of Wesbank
knew that Supreme Car at times experienced cash flow problems. Yet the
applications for increased credit were consistently approved. I do not believe this
argument warrants a detailed analysis. I say this because, as I understand the
evidence in this regard, it supports the contrary position, namely that because the
misleading financial statements painted such a rosy picture of Supreme Car’s
overall financial position, the Wesbank officials were prepared to overlook the
cash flow problems that it experienced from time to time. This means, of course,
that but for the misleading financial statements, the cash flow problems would
have made Wesbank reconsider increasing Supreme Car‘s credit.

[22] Moreover, as I see it, it hardly lies in the mouth of Fourie – who knowingly
set out to enable and assist Supreme Car to mislead FirstRand – to argue that if
the bank’s officials had been more careful he would not have succeeded in

misleading them. It is therefore not surprising that this kind of argument, albeit in
slightly different context, received short shrift in the following statement which
was endorsed by this court in Oranje Benefit Society v Central Merchant Bank
Ltd 1976 (4) SA 659 (A) at 673H:
‘But it appears to me that when once it is established that there has been any fraudulent
misrepresentation or wilful concealment by which a person has been induced to enter
into a contract it is no answer to his claim to be relieved from it to tell him that he might
have known the truth by proper enquiry.’
(See also Central Merchant Bank Ltd v Oranje Benefit Society 1975 (4) SA 588
(C) 594E-H; J C de Wet and A H van Wyk Die Suid-Afrikaanse Kontraktereg &
Handelsreg 5 ed vol 1 at 47.)

The requirement of a causal link between the fraudulent conduct and Supreme
Car’s inability to pay
[23] The final leg of Fourie’s argument relied on the proposition that s 424 of
the Companies Act requires a causal link between the fraudulent or reckless
conduct of the company’s business and its inability to pay. Since FirstRand had
failed to establish this causal link between his fraudulent conduct relied upon and
Supreme Car’s inability to pay, so Fourie’s argument went, the court a quo had
erred in holding him liable under the section. For the proposition of law
underlying the argument, Fourie sought to find authority in the decisions of this
court in L & P Plant Hire BK v Bosch 2002 (2) SA 662 (SCA) and Saincic v
Industro-Clean (Pty) Ltd 2009 (1) SA 538 (SCA).

[24] As its factual basis this argument relied on Fourie’s own evidence, which
in this respect stood uncontroverted, that during the period June 2003 to April
2004, Rey Naude and her son Danie used Supreme Car’s funds to speculate in
seaside properties in Yzerfontein which was experiencing a boom. So, for
example, they spent R2.9 million of Supreme Car’s money on completing a
house which they expected to sell for between R5 million and R7 million, but
which prospect never materialised. During the same period Danie Naude also

used about R2.7 million of Supreme Car’s funds to pay for personal expenses.
According to Fourie, this gave rise to a cash flow crisis which ultimately led to
Supreme Car’s financial demise.

[25] Southwood J accepted, for the sake of argument, that the decisions of this
court relied upon constituted authority for the proposition on which Fourie’s
argument was founded. He also accepted that, as a matter of fact, Supreme
Car’s inability to pay had in the final instance been brought about by the reckless
spending of the Naudés. His further conclusion was, however, that all this was of
no avail to Fourie. The reason, so Southwood J held, was that Fourie was in any
event involved in the Naudés’ property speculation at Yzerfontein. In support of
this finding he referred to Fourie’s own evidence that he had travelled to
Yzerfontein to view the properties and to advise the Naudés on the financial
viability of some of these transactions. The same held true, so Southwood J
found, of the use of Supreme Car’s fund for the Naudés’ personal debts. Though
Fourie obviously knew what Naude was doing, there is no suggestion in his
evidence that he took any further steps to stop him from using Supreme Car‘s
funds or that he ever threatened to resign if Naude did not desist. What
Southwood J therefore held, in sum, was that, apart from Fourie’s fraudulent
misrepresentation in the financial statements, the business of Supreme Car was
in any event conducted recklessly and that Fourie was knowingly a party to the
conduct of the business in this way. This finding in itself, so he concluded,
constituted sufficient reason for Fourie to be held liable in terms of s 424.

[26] On appeal Fourie supported the finding that the business of Supreme Car
was conducted in a manner that came down to recklessness. What he took issue
with was the finding that he was a party to the conduct of the business in that
way. But there is an enquiry that logically precedes the consideration of that
issue. It concerns the correctness of the interpretation of this court’s judgment in
L & P Plant Hire BK v Bosch 2002 (2) SA 662 (SCA) contended for by Fourie.
According to that interpretation, paras 39 and 40 of the L & P Plant Hire

judgment, in particular, constitute authority for the proposition that in order to
sustain a claim by a creditor in terms of s 424, there must be a causal link
between the reckless or fraudulent conduct relied upon and the company’s
inability to pay.

[27] L & P Plant Hire concerned s 64 of the Close Corporations Act 69 of 1984.
But the slight difference between that section and s 424 of the Companies Act is
of no consequence for present purposes. Fourie was therefore correct in arguing
that the interpretation afforded to s 64 must also hold true for s 424. My difficulty
lies with the meaning that Fourie ascribed to that judgment, namely that it
imported a requirement of causation into s 64 and, by the same token, into s 424.
My further difficulty is that it is clear from the judgments of both Harms JA and
Farlam JA in Saincic v Indo-Clean (Pty) Ltd 2009 (1) SA 538 (SCA) that they
both understood paras 39 and 40 of L & P Plant Hire in the same way as did
Fourie. That much appears, for instance, from the following statement by Harms
JA (para 29):
‘These statements [in paras 39 and 40 of L & P Plant Hire] imply at least that as far as
creditors are concerned there must be some or other causal link between the fraudulent
conduct and the inability to pay the debt. In other words, it must be due to the fraudulent
conduct that a particular creditor's debt cannot be repaid. In this regard the statements
appear to be in conflict with some generalised earlier dicta that the section applies
irrespective of causation. These conflicting approaches should be seen in context. Take
the example of company A that incurs a liability towards creditor B for debt C while the
business of A was conducted in a fraudulent manner. The fraud did not affect the
solvency of the company and debt C was paid. Thereafter A incurs debt D at a time
when the business was properly conducted. Due to other circumstances A cannot pay
this amount to B. There can be little doubt that B would not be entitled to rely on s 424(1)
in these circumstances. This example illustrates that the provision could not have
intended that causation does not play any role at least as far as creditors are concerned.
Whether the matter should rather be considered as part of the general discretion (as
Farlam JA has done) or as a prerequisite (as L & P Plant Hire has done), makes no
difference to the outcome of this case.’

[28] Why I have difficulty with this understanding of paras 39 and 40 of L & P
Plant Hire, is that they were never intended to bear that meaning at all. As the
scribe of those paragraphs I must confess that I find the need to explain them a
somewhat humbling experience. But perhaps I should be grateful for the
opportunity to avoid further confusion. The context of L & P Plant Hire was that
there was no evidence that the close corporation concerned was unable to pay
its debts. Read in that context, the judgment is rightly understood by Meskin (P M
Meskin, B Galgut, J A Kunst, P Delport and Q Vorster Henochsberg on the
Companies Act 5 ed vol 1 at 913) as saying no more than this: if, despite the
reckless conduct of the company’s business, it is nevertheless able to pay its
debt to a particular creditor, that creditor has no cause of action under s 64 – or
s 424 – against those responsible for the reckless conduct. This is so, the
judgment in L & P Plant Hire explained, because s 424 was not intended to
create a joint and several liability between the company and those responsible
for the reckless conduct of its business, but rather to protect creditors against the
prejudice they may suffer as a result of the business of the company being
carried on in that way. Logic dictates that unless the company is unable to pay,
no such prejudice would follow. That does not mean that the plaintiff-creditor has
to liquidate or excuss the company, but only that there must be evidence of the
company’s inability to pay (see also Saincic para 27).

[29] What the L & P Plant Hire judgment did dissent from was the notion thus
expressed in Harri & others NNO v On-Line Management 2001 (4) SA 1097 (T)
1099F:
‘Like s 424 of the Companies Act [s 64 of the Close Corporations Act] is aimed at
discouraging fraudulent, dishonest and reckless persons from abusing the protection
which is provided by a corporate entity. The impact thereof should not be limited to
instances where the corporate entity has been mismanaged to the extent that it is unable
to meet the resultant financial obligations.’

[30] Thus understood, L & P Plant Hire finds no application in a case such as
the present where the company proved to be hopelessly insolvent and was

clearly unable to pay the debt which the plaintiff-creditor seeks to recover from
the miscreant conductor of the company’s business in a fraudulent or reckless
way, under s 424. Hence it is no authority for the proposition that in these
circumstances the plaintiff-creditor is required to establish a causal link between
the fraudulent or reckless conduct relied upon and the company’s inability to pay
its debt. On the contrary, L & P Plant Hire was never intended to deviate from
those decisions of this court (such as Howard v Herrigel 1991 (2) SA 660 (A)
672C-E and Philotex (Pty) Ltd v Snyman 1998 (2) SA 138 (SCA) 142G-I) which
expressly laid down the general principle that s 424 does not require proof of a
causal link between the relevant conduct and the company’s inability to pay the
debt.

[31] Saincic recognised an exception to this general principle where the
converse had been positively established, namely, that there was plainly no
causal connection between the relevant conduct and the debt, as in the example
given by Harms JA (para 29). But on the facts of this case, it is clear to me that it
falls way outside the ambit of the envisaged exception. Even on the basis that
Supreme Car’s eventual financial downfall resulted from the extravagant reckless
spending by the Naudés, it is apparent that the reckless spending was facilitated
by funds obtained on credit from FirstRand. But for the ever increasing credit
facilities extended to Supreme Car, its cash flow would simply not have allowed
the Naudés’ extravagant spending. These credit facilities, as we know, were in
turn afforded on the basis of Fourie’s fraudulent statements. In the circumstances
the link between the fraudulent statements and the debt for which FirstRand
seeks to hold Fourie liable cannot be denied. In this light it is strictly speaking
unnecessary to consider whether or not the court a quo was right in finding that
Fourie was party to the reckless spending by the Naudés. But, in any event, I am
yet again unpersuaded that this factual finding resulted from any misdirection on
the part of the court a quo. It follows that, in my view, that finding must also be
confirmed.

[32] Finally and rather belatedly Fourie contended that, in the exercise of its
discretion under s 424, the court a quo should have reduced the amount for
which he was held liable by R3 million, on the basis that credit for that amount
had already been extended to Supreme Car before his misrepresentations. I do
not agree with this contention. Firstly, there is no indication that the court a quo
had been asked to exercise its discretion in this way. On the contrary, the
quantum of FirstRand’s claim was agreed upon. Secondly, it must be
remembered that the amount for which Fourie was held liable represented the
balance that FirstRand was unable to recover from Supreme Car. In this light,
there is no reason to think that if the credit facilities under the floor plan
agreement were never raised beyond R3 million, FirstRand would not be able to
recover its claim in full from the company in liquidation. Thirdly, I can think of no
reason why, in the circumstances of this case, Fourie should be better off than if
he were to be held liable in delict. Fourthly, this contention was never raised in
Fourie’s grounds of appeal.

[33] For these reasons I believe that Fourie’s appeal should be dismissed with
costs, including the costs of two counsel. This brings met to FirstRand’s cross-
appeal against the second respondent as the executor in the estate of Du Preez.

FirstRand’s cross-appeal
[34] It was not disputed that Fourie acted in the course and scope of his
employment as Du Preez’s employee when he prepared the financial statements
that were found to be fraudulent. If Fourie were to be held liable in delict for the
loss resulting from the statements, Du Preez’s vicarious responsibility would
therefore follow. The court a quo found, however, that Fourie was not delictually
liable, because FirstRand had failed to establish a causal link between the
fraudulent statements and the damages claimed.

[35] In this regard Southwood J referred to the distinction between the
concepts of factual causation, which is ordinarily determined by the so-called

‘but-for’ test, and legal causation, which is generally dependent on considerations
of policy (see eg International Shipping Co (Pty) Ltd v Bentley 1990 (1) SA 680
(A) 700E-701C). His factual findings following upon this distinction are
encapsulated in the following statement:
‘In the present case if the misrepresentations factually caused the loss there can be no
doubt that the defendants should have to answer for this. The problem lies with the issue
of factual causation. There were multiple misrepresentations but none has been shown
to have caused any part of the indebtedness as at the termination of the floor plan
agreement. The evidence shows rather that this indebtedness and Supreme Car’s
inability to meet its obligations in terms of the floor plan agreement was caused by the
Naudés’ uncontrolled . . . expenditure of Supreme Car’s funds in respect of the property
speculation at Yzerfontein which did not produce the anticipated profits and to pay
personal expenses.’

[36] The statement appears to embrace two separate considerations. First,
that FirstRand had to establish a causal link between each of the five individual
misrepresentations relied upon and the damages it eventually suffered.
Secondly, that, in any event, FirstRand had failed to establish that the damages it
had suffered were caused by Fourie’s misrepresentations, because on the
evidence it resulted from the reckless spending of the Naudés. I shall deal with
these two considerations in turn.

[37] The ‘but-for’ or ‘causa sine qua non’ test, which is the accepted yardstick
for determining factual causation, requires a hypothetical enquiry as to what
probably would have happened, but-for the wrongful conduct of the defendant. If
one applies this test to every one of the five misrepresentations relied upon by
FirstRand individually, one may well arrive at the conclusion that its elimination
would make no difference, because the consequences of the remaining
misrepresentations would remain the same. But that, in my view, would be a
wrong application of the test. It would mean that A, who committed a series of
frauds, is in a better position than B, who committed only one.

[38] Properly analysed, FirstRand’s case relied on a course of fraudulent
conduct consisting of five misrepresentations, which gave rise to a globular loss.
The factual finding of the court a quo – which should, in my view, be endorsed –
showed that, but for the misrepresentations of the financial position of Supreme
Car, the incremental credit facility, climbing from R3 million to R13 million, would
not have been granted to Supreme Car. It follows, in my view, that but for this
series of misrepresentations, the total facility of R13 million would not have been
granted. Thus understood, Supreme Car’s indebtedness at the time of the
termination of the floor plan agreement, was directly caused by Fourie’s
misrepresentations.

[39] I do not believe that the fact of the Naudés’ uncontrolled spending detracts
from this conclusion in any way. In a sense, it is true to say that Supreme Car’s
inability to meet its obligations to FirstRand was caused by this uncontrolled
spending. But on the evidence the various elements cannot be divorced from
each other. Fourie’s misrepresentations served two purposes; to cover up the
uncontrolled spending; and, at the same time, to induce the increased credit
facilities by FirstRand. The increased facilities in turn served to facilitate the
uncontrolled spending. But for Fourie’s misrepresentations, FirstRand would
therefore not have been exposed to the risk of a claim that proved to be
irrecoverable upon the liquidation of Supreme Car. Or, put differently, it would not
have suffered the agreed amount of damages claimed.

[40] In this light I do not agree with the court a quo’s finding that the delictual
element of factual causation had not been established by FirstRand. This leads
me to three further conclusions. First, Fourie is liable not only in terms of s 424,
but also in delict for the agreed amount of damages claimed by FirstRand.
Second, the second respondent, as executor in the deceased estate of Du
Preez, is also liable, jointly and severally with Fourie, for these damages. Third,
that the cross-appeal should be upheld with costs, including the costs of two
counsel.

[41] In the result it is ordered:
The appeal is dismissed with costs, including the costs of two counsel.
The cross-appeal is upheld with costs, including the costs of two counsel.
Paragraph III of the order of the court a quo is set aside and replaced with
the following:
‘III
The second defendant is ordered to pay to the plaintiff, jointly and
severally with the first defendant, the one paying the other to be
absolved:
(iii)
the capital amount of R7 340 229.73;
(iv)
Interest up to and including 31 October 2010 in the sum of
R5 361 200.93, less the sum of R1 193 595.21;
(v)
Interest on the capital amount of R7 340 229.73 at the rate
of 11,5 per cent per annum from 1 November 2010 to date of
payment.’
Paragraph IV of the order of the court a quo is amended to read as
follows:
‘IV
The first and second defendants, jointly and severally, the one
paying the other to be absolved, are ordered to pay the plaintiff’s
costs of suit, such costs to include the costs consequent upon the
employment of two counsel and the qualifying fees of Messrs S
Harcourt-Cooke and J Rhoda.'

_________________________
F D J BRAND
JUDGE OF APPEAL

APPEARANCES:

For Appellant:

C A DA SILVA SC

J C KLOPPER

Instructed by:

CORRIE NEL INC

POLOKWANE

Correspondents:

CHRISTO DIPPENAAR ATTORNEYS
BLOEMFONTEIN

For First Respondent:

A R GAUTSCHI SC

S G GOUWS

Instructed by:

LANHAM-LOVE ATTORNEYS

JOHANNESBURG

Correspondents:

McINTYRE & VAN DER POST

BLOEMFONTEIN
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

MEDIA SUMMARY
MEDIA SUMMARY – JUDGMENT DELIVERED IN COURT OF
18 September 2012

STATUS: Immediate

Fourie v FirstRand Bank Ltd (578/11) [2012] ZASCA 119 (18 September
2012)

Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal

The Supreme Court of Appeal (SCA) handed down judgment today in an appeal
from the North Gauteng High Court, Pretoria (High Court). The matter concerned the
liability of those responsible for the conduct of the affairs of a company for wrongfully
contributing to the loss of a creditor.

FirstRand Bank Limited (FirstRand) entered into a financing agreement with a
company trading as Supreme Car. Supreme Car breached the agreement, was
liquidated and was found to be hopelessly insolvent. FirstRand thus instituted action
against the company’s de facto financial manager (Fourie) and its erstwhile auditor’s
deceased estate (Du Preez’s Estate). The auditor (Du Preez) committed suicide
during the course of the trial.

The action was based in section 424 of the Companies Act 61 of 1973, which allows
for the personal liability to company creditors of those responsible for the reckless or
fraudulent conduct of the company’s affairs. The High Court found Fourie liable on
the basis of the statutory claim, but dismissed the claim seeking to hold Du Preez’s
Estate vicariously liable in delict. In coming to its conclusions, it found that Fourie
had knowingly made false representations on behalf of Supreme Car to FirstRand by
preparing false financial statements and that he had knowingly been party to the
conduct of Supreme Car’s business in a reckless way. Du Preez’s Estate was
however not found to be liable as, even though the financial statements were
prepared by Fourie in the course and scope of his employment by Du Preez,
because, so the High Court held, FirstRand had failed to establish the requisite
causal link between the false statements and the damages that it claimed. Fourie
appealed against the judgment against him while FirstRand lodged a counter-appeal
against the dismissal of its claim against Du Preez’s estate.

The SCA upheld FirstRand’s counter appeal and dismissed the appeal of Fourie. It
agreed with the High Court’s findings that FirstRand relied on financial statements
prepared by Fourie; that Fourie had misrepresented Supreme Car’s financial
situation; and that the financial statements were held out as a true reflection of the
company’s financial position. Expert testimony was led showing the documents’
misleading nature and Fourie had on two previous occasions admitted under oath
that the contents of the documents were indeed misleading. The court rejected
Fourie’s argument that he could not be held liable as FirstRand’s officials were to
blame for not having been more careful. In doing so it once again affirmed the
principle that where a person fraudulently misrepresents or wilfully conceals, he
cannot avert a claim by arguing that the claimant might have known the truth had he
been more careful.

The SCA held that section 424 does not require a causal link between the reckless
or fraudulent conduct relied upon and a company’s inability to pay its creditors. At
most, held the court, there was an exemption for liability in cases where there was
plainly no causal connection between the impugned conduct and the debt. This
case, it found, clearly falls outside of that exemption and Fourie was liable.

And, as opposed to the High Court’s finding, Du Preez’s Estate was also held liable.
The court agreed with the High Court’s findings that, but for the misrepresentations
of its financial position the incremental credit facility would not have been granted to
Supreme Car. The SCA however also found that FirstRand would not have been
exposed to the risk of a claim that proved to be irrecoverable had it not been for
these misrepresentations. The causal link had thus been proved. Fourie was not
only statutorily liable for Supreme Car’s debt, but also in delict. As the
misrepresentations had been made by Fourie in the employ of Du Preez, Du Preez’s
Estate was vicariously liable, jointly and severally with Fourie, for the loss suffered
by FirstRand.