MAFUSIRE
J: This was an exception. The facts are taken “as is” from the
plaintiff's declaration.
There
were two sets of employees. It was their nefarious activities that
caused the plaintiff to clash with the fifth defendant, two parties
that otherwise had no relationship between them. The one pair of
employees was employed by the plaintiff (hereafter referred to as the
“pension
fund”).
The other pair was employed by the fifth defendant (hereafter
referred to as “the
bank”).
For
more than three years the pair employed by the pension fund was
stealing from their employer, the pension fund. For more than three
years the pair employed by the bank was conniving with the pair from
the pension fund to store the stolen funds in fictitious bank
accounts opened by them with the bank. The modus
operandi
was this. The pension fund pair would identify pensioners to whom
lump sum benefit payments were due. They would forward the details to
the bank pair. The bank pair would “… during
the scope and course of their employment
…” with the bank, open “… fraudulent
bank accounts
…” in the names of the pensioners, at one of the banks'
branches. The bank pair would then illicitly facilitate the storage
of the stolen monies in those “… fraudulent
… accounts
…” Afterwards the pension fund pair, with the assistance of the
bank pair, would then withdraw the loot and share it amongst the four
of them. The amount involved was US$926 392-72.
The
pension fund's summons was against its own pair, as first and
second defendants; the bank pair, as third and fourth defendants; and
the bank, as fifth defendant. From the declaration the cause of
action against the bank, as I understood it, was twofold. The first
was based on vicarious liability. It was pleaded this way:
“2.6 Fifth
Defendant is liable vicariously for the mismanagement of its business
by First and Second [Defendants] which resulted in Plaintiff being
defrauded as particularised in Paragraphs 2.4 and 2.5 above.”
The
second cause of action, pleaded in the alternative, was based on
negligence. It was put this way:
“2.7 Alternatively,
and in any event Fifth Defendant was negligent in that it failed to
take requisite measures which include:
-
verifying
and/or ensuring the verification of the identity of its customers
and the capacity in which its customers will (sic) be acting when
they transact.
-
establishing
internal reporting structures to deal with suspicious acts of money
laundering.
-
having
in place adequate policies and procedures and internal controls that
promote high ethical and professional standards and prevent its
institutions from being used, intentionally or unintentionally, by
criminal elements.
-
having
in place a sound Know Your Customer (“KYC”) policy and
procedure.”
The
rest of the averments in the plaintiff's declaration seemed an
amplification of the alternative cause of action, the one based on
negligence. They were these:
“2.8
Fifth Defendant is under a statutory duty and obligation to take
measures to prevent its institutions or the services its institutions
offer from being used to commit or facilitate financial crime.
2.9 Fifth
Defendant at the time of the fraudulent activities, had poor internal
standards, inadequate policies and procedures and internal controls
that promote high ethical and professional standards and poor to
non-existent KYC procedures all of which amount to negligence on the
part of Fifth Defendant and a breach of statutory duty for which it
is criminally and civilly liable.
2.10 First,
Second, Third and Fourth Defendants jointly and severally, took
advantage of the opportunity created by Fifth Defendant's
negligence and breach of statutory duty, to open and use fictitious
accounts to defraud Plaintiff.
2.11 There
exists a causal link between Fifth Defendant's negligence and
First, Second, Third and Fourth Defendants' success in defrauding
Plaintiff such that were it not for Fifth Defendant's negligence,
the defrauding of Plaintiff would not have occurred.
2.12 Accordingly,
the joint and concurrent wrongful, negligent and intentional actions
of Defendants caused substantial patrimonial loss to Plaintiff.”
The
bank's exception was that the pension fund's claim against it
disclosed no cause of action cognizable at law. The exception was
pleaded as follows:
“a. No
special duty of care is at law or on the pleaded facts owed by the
fifth defendant to plaintiff.
b. No
basis exists at law or on the alleged facts for concluding that the
creation of irregular accounts by first and second defendants amounts
to a delict on fifth defendant's part.
c. The
criminal allegation raised against first and second defendants do not
relate to the theft of goods stored with them as part of their
employment duties and there is consequently no basis at law upon
which vicarious liability for their thefts could be imputed upon
fifth defendant.
d.
There is no basis at law or on the alleged facts for the view that
the storage of stolen funds renders the storing banking institution
liable for such thefts.”
I
now consider the claim against the exception.
-
Is
the bank vicariously liable to the pension fund for the theftuous
actions of the employees concerned?
An
employer is liable for the wrongs done by his employee to another
person in the course and scope of that employee's employment: Mkize
v Martens;
Feldman
(Pty) Ltd v Mall;
South
British Insurance Company v Du Toit;
Nott
v Zimbabwe African National Union (Patriotic Front);
Fawcett
Security Operations (Pvt) Ltd v Omar Enterprises (Pvt) Ltd;
Minister
van Veiligheid en Sekuriteit v Japmoco BK h/a Status Motors;
Commissioner
for the South African Revenue Service & Anor v TFN Diamond
Cutting Works (Pty) Ltdand
Minister
of Finance & Ors v Gore NO.
That
an innocent employer should be liable for the wrongs committed by his
employee during the course and scope of that employee's employment
is a matter of public policy: Commissioner
for the South African Revenue Service & Anor v TFN Diamond
Cutting Works (Pty) Ltd, supra.
The rationale is that the employer's work is done “by the hand of
the employee”. The employer creates a risk of harm to others should
the employee prove to be negligent, inefficient or untrustworthy. The
employer is therefore under a duty to ensure that no injury befalls
others as a result of the employee's improper or negligent conduct
in carrying on his work: Feldman's
case, supra,
at p 741.
The
employee's wrongful act can either be culpa
(negligence), or dolus
(intention), or both. In TFN
Diamond's case
PONNAN JA said:
“Counsel
for the defendant conceded that had Matshiva been negligent in
safeguarding the contents of the safe there would have been no doubt
that his employer would have been vicariously liable for any loss
occasioned in consequence thereof. Negligence is but a form of fault.
So, too, is intention. If liability were to attach to the defendant
in consequence of Matshiva's negligent failure to safeguard the
diamonds, why, it must be asked, would it escape liability if he
acted intentionally?”
Thus
the theftuous conduct of an employee can render the employer liable
for the loss suffered by the victim of the theft. In Fawcett
GUBBAY
CJ said:
“It
was formerly thought that an employer could not be held vicariously
liable for a theft committed by his employee on the ground that the
act of stealing necessarily took the employee out of the course of
his employment. Dishonesty or fraud by the employee for his own
benefit did not render the employer liable.
This
view of the law no longer prevails. It is now recognised and accepted
that theft by an employee to whom the goods concerned have been
entrusted is, in fact, an improper and dishonest mode of performing
what he is employed to do, namely, to take care of the goods. In such
circumstances, the employee is acting nonetheless in the course of
his employment, and so the employer is vicariously liable for the
loss of the goods.”
There
are several limitations to the scope of vicarious liability. The one
relevant to this case is that stated by the learned Chief Justice in
Fawcett.
At p 295E – F he said:
“Where
an employee has committed a theft, the test to be applied is to
enquire whether the goods stolen had been entrusted
to his care by his employer. If they had not, the theft is outside
the scope of his employment and the employer is not vicariously
liable. The theft is the act of the employee pursuing his own selfish
ends – something he has done entirely on his own account.”
In
my view, it will be ridiculous to stretch vicarious liability to the
kind of theftuous actions disclosed in this case. It was not the
bank's employees that were stealing from the pension fund. It was
the pension fund's own employees. Understandably, the bank retorted
that for more than three years the pension fund had failed to detect
the theft in its own backyard by its own people and that instead of
suing it, the pension fund was better advised suing its own auditors
who had let it down. The pension fund retorted back saying it was
none of the bank's business to advise it who to sue. But I guess if
the pension fund is suing it then the bank may be justified in
deflecting the blow elsewhere.
The
basis of the pension fund wanting vicarious liability extended to the
bank in the circumstances of this case was that but for the
facilitation provided by the bank employees, the pension fund
employees would not have been successful in their theftuous
enterprise. I do not agree. The theft by the pension fund employees
was perfecta
by the time the loot was transferred and stored in the bank. Theft
may be a continuing offence. And as already pointed out, an employer
may be liable for the theft of goods by its own employees. But there
is a world of difference between the circumstances under which an
employer may be liable for the theft of someone's goods by his
employees and the circumstances of this case. In Fawcett,
it was stressed that the liability of the employer attaches where the
goods had been entrusted
(emphasis by the Chief Justice) to the thieving employee. This was
not the case in this case. The bank pair neither stole monies
entrusted to them nor stole from the pension fund at all. All they
did was to provide storage facilities for the funds stolen by the
pension fund's own employees. There can be no vicarious liability
in such a situation.
In
Fawcett's
case, the victim of the theft was a supermarket. The culprit was a
security guard employed by the security company that the supermarket
had contracted to provide security services. The security guard not
only stole from the supermarket himself, but he also allowed other
people to steal from it. On vicarious liability, the Supreme Court
held that it could not be said that the goods in the supermarket had
been entrusted
to the thieving guard. In order for an employer to be liable under
such circumstances the goods must in some way or other have been
entrusted
into the possession or charge of the employee.
As
was stated by SALMON LJ in Morris
v C W Martin & Sons Ltd
(quoted by GUBBAY CJ in Fawcett);
“The
mere fact that the master, by employing a rogue, gives him the
opportunity to steal or defraud does not make the master liable for
his depredations.”
In
the circumstances, I find that there is no principle of law that
extends the concept of vicarious liability to the bank in this
matter.
-
Was
the bank negligent in relation to the pension fund?
Negligence
is the failure, judged objectively, to exercise that degree of care
expected in any given circumstances.
It involves a duty of care and a breach of that duty. To found a
cause of action there must have been a duty of care owed to the
plaintiff that the defendant ought reasonable to have guarded
against. Negligence in the air does not suffice. This is illustrated
by the remarkable facts of the well-known American case of Palsgraf
v Long Island RY, Co..
The English case of Bourhill
v Young
and the South African case of Workmen's
Compensation Commissioner v De Villiers
also
do help illustrate the point.
In
this case, it was common cause that the pension fund was not a
customer of the bank. The plaintiff's declaration does not specify
what kind of duty of care that was owed by the bank to the pension
fund that the bank breached. If the bank was negligent in the manner
that it ran its operations, then such negligence was classically
negligence in the air. In the American case aforesaid, a railway
employee tried to assist a passenger board a train. The employee
negligently knocked down a package in the passenger's arms. The
package contained fireworks. This was unknown to the employee. There
was a violent explosion. A chain reaction followed. A weighing scale
some considerable distance away was knocked over by the force of the
explosion. As it fell, the scale injured the plaintiff, a woman
passenger who intended to board another train. The New York Court of
Appeal exonerated the railway company. It held that the conduct of
the railway employee might have been a wrong in relation to that
passenger from whom the package had been knocked, but not in relation
to the plaintiff standing far away.
In
the South African case of Workmen's
Compensation Commissioner
the defendant was the driver of a lorry. He drove his lorry into a
municipal market. At the entrance he bumped the door of the market
slightly. Unbeknown to him, there was a carpenter who was standing on
a ladder that was propped up against the inside of that door. The
carpenter was dislodged and injured. It was held that the defendant,
the lorry driver, was not liable to the carpenter. The presence of
that carpenter behind the door could not have been reasonably
foreseeable. The lorry driver might have owed a duty of care to the
municipality, but not to the carpenter.
In
casu,
even if the bank was somehow negligent in the manner it ran its
operations in the branches, there is simply no nexus between such
negligence and the misfortunes of the pension fund under the hands of
its own employees. Such negligence would not be negligence in
relation to the pension fund. In my view, the bank owed no duty of
care to the pension fund.
In
addition to the American and South African cases above, the English
case of Bourhill,
supra,
also helps bring out the concept of duty of care. Admittedly, the
facts in all these cases are far different from those of the present
case. But the principle is the same. In the English case, the
appellant, a fishwife, was unloading her fish basket from the
off-side of a tram. She was pregnant. A motorcyclist who was
travelling at an excessive speed sped past the tram and crashed into
a motor-car several meters away. The cyclist was thrown onto the
street. He sustained severe injuries from which he died. The fishwife
did not see the accident. However, the sound of the collision gave
her such a shock that a month later she suffered a miscarriage. But
the House of Lords exonerated the estate of the cyclist. The cyclist
might have been negligent in relation to the owner of the car, but
not in relation to her.
I
am mindful that in the passage in Fawcett,
at p 295, part of which I have quoted above, the learned GUBBAY CJ
went on to say this:
“The
employer may, of course, be liable on the ground of his negligence in
selecting the employee, or because the theft was induced by his own
negligence, or because of the negligence of some other employee to
whom the charge of the stolen property had been committed.”
Certainly,
the Supreme Court did find the supermarket's claim based on the
negligence of the security company not
excipiable, even though it had been pleaded inelegantly. However,
there is still a world of difference with the present case. In the
Fawcett
case there was a contractual relationship between the parties. The
negligence sought to be pleaded was contractual, not delictual as in
the present case. It was the same situation in the English
authorities considered by the Supreme Court in that case. A duty of
care could arise in contract. In this case there was no contractual
relationship or a relationship of any sort between the pension fund
and the bank.
Evidently,
appreciating the thin ice on which it was skating by relying on
negligence, the pension fund tried to bolster its case by invoking
the provisions of some unnamed statute. But the plaintiff's
declaration in this regard would still be deficient. If reliance is
placed on implied provisions of a statute, that fact as well as the
contents of the implied provisions must be pleaded to clearly bring
that issue to the notice of the court and the other parties so as to
avoid vagueness and embarrassment: see Fundstrust
(Pty) Ltd (in Liquidation) v Van Deventer
and Arun
Property Development (Edms) Bpk v Stad Kaapstad.
It
seems the failure by the pension fund to specify the statute on which
it relied in paragraphs 2.8, 2.9 and 2.10 of its declaration,
manifestly led counsel of both parties to shoot in the dark. The
language used in those paragraphs and paragraph 2.7 as well, strongly
resembled that of the Bank Use Promotion Act [Chapter
24:24],
and the Money Laundering and Proceeds of Crime Act [Chapter
9:13].
In
his heads of argument, filed in June 2014, Mr Mpofu,
for the bank, evidently assumed that the reference to “…
financial
crime …”
in the plaintiff's declaration was a reference to one of these
Acts. He referred to what he termed “Bank
Use Promotion and Suppression of Money Laundering Act”,
the old name by which the Bank Use Promotion Act was known before
amendment in 2013. Mr Mpofu
went on to quote in
extenso,
section 32 as one which created some criminal offences and penalties
for a failure by a designated institution to inter
alia
comply with certain disclosure orders. But with all due respect to
counsel, the whole of Part IV of the Bank Use Promotion Act,
comprising sections 23 to 32 that dealt with the suppression of money
laundering, was repealed in 2013 by the Money Laundering and Proceeds
of Crime Act.
On
his part, Mr Matinenga,
for the pension fund, referred in his heads of argument, filed in
July 2014, to the “Bank
Use and Suppression of Money Laundering Act [Chapter 24:24]”,
again the same mistake. He referred to sections 24 to 28 of that Act
and said they placed certain obligations on financial institutions
and their employees, inter
alia,
to verify the identity of their customers; to keep a record of the
transactions; to report any suspicious conduct regarding any
transaction, et
cetera.
Evidently, counsel must have meant the Money Laundering and Proceeds
of Crime Act. It came into operation on 28 June 2013. It is the one
with those provisions counsel alluded to.
The
above confusion serves to emphasise the importance of elegance and
precision in pleadings. The statutory provisions being relied upon
for any cause of action have to be identified. But be that as it may,
even if it was the pension fund's intention to rely on the Bank Use
Promotion Act, or the Money Laundering and Proceeds of Crime Act, in
my view, it still comes short. Even if it was meant to plead that the
bank breached some of the provisions of those Acts and would
therefore be liable to suffer criminal sanction, that breach would
still not transform into civil liability to the pension fund. In my
view, as with negligence in the air, this would be “criminality in
the air” in relation to the pension fund. The causal link would be
absent.
The
question of causation, even though formulated by law, is one of fact:
Minister
of Finance & Ors v Gore NO,
supra.
CAMERON JA said in that case
the time-honoured way of formulating the question is in the form of
the 'but
for'
test. Can it be said that, but
for
the wrongful act complained of, the loss concerned would not have
ensued? In the next paragraph, the learned judge of appeal,
criticising some mathematical and the all-or-nothing approach that
seemed to have crept into the test, said:
“Application
of the 'but
for'
test is not based on the mathematics, pure science or philosophy. It
is a matter of common sense, based on the practical way in which the
ordinary person's mind works against the background of
everyday-life experiences.”
Quoting
from Minister
of Safety and Security v Duivenboden
(NUGENT JA), he said:
“A
plaintiff is not required to establish the causal link with
certainty, but only to establish that the wrongful conduct was
probably a cause of the loss, which calls for a sensible
retrospective analysis of what would probably have occurred, based
upon the evidence and what can be expected to occur in the ordinary
course of human affairs rather than metaphysics.”
In
Gore
NO
both the central government and the provincial government were held
vicariously liable for the corrupt conduct of certain of their
employees that had manipulated certain tenders in favour of one of
the bidders who had bribed them and with whom they had eventually got
employed.
In
TFN
Diamond,
the collector of revenue and the government were held vicariously
liable for the theft of diamonds by an employee of the collector of
revenue to whom the plaintiff had been obliged to entrust those
diamonds as he travelled abroad.
In
Japmoco
BK
the government was found liable for the criminal conduct of a
policeman who connived with a car thieving syndicate to which he
provided false vehicle clearance certificates for a fee which would
then be used to register stolen vehicles and sell them.
Although
these cases were on vicarious liability, which I have already dealt
with, they are also relevant on the question of causation. In my
view, the cases are distinguishable. In them the loss that befell the
victims was the direct and proximate cause of the wrongful actions of
the employees. Not in this case. The pension fund's loss was caused
by the acts of its own employees. That the bank's employees
participated in the storage and distribution of the spoils was not
the direct cause of such loss. Therefore, even accepting that the
bank breached the provisions of the aforesaid anti-money laundering
statutes in the manner alleged, that would not render it liable to
the pension fund. On the facts as pleaded, it was the pension fund
pair that supplied the details of the pensioners in whose names the
accounts with the bank would be opened. It was the pension fund pair
that hived off the money from the pension fund pool and transmitted
it to the bank. It was the pension fund pair that withdrew the
proceeds, albeit with the facilitation of the bank pair. I do not see
how any breach of the provisions of the statutes in the manner
alleged would be a wrong in relation to the pension fund. In other
words, it cannot be said that but
for
the actions of the bank pair the pension fund pair would not have
stolen from their employer.
Mr
Matinenga
argued that it would be premature at this stage to shut out the
pension fund's claim against the bank when evidence at the trial
might well establish the complaint and the bank's culpability.
Among other things, he said that whether or not the obligations
imposed in terms of the Acts were met was a matter of evidence.
Upholding the exception would be tantamount to deciding the matter on
speculation.
What
then is an exception, and what is its purpose?
-
Exception
and its purpose
An
exception is a legal objection to a pleading. It complains of a
defect inherent in the pleading.
For the purposes of an exception the facts pleaded must be accepted
as correct.
The main purpose of an exception is to obtain a speedy decision upon
a point of law apparent on the face of the pleading attacked so
as to settle the dispute in the most economical manner by having the
faulty pleading set aside
(my emphasis).
In
Barclay's
National Bank Ltd v Thompson
and Dharumpal
Transport (Pty) Ltd v Dharumpal
it was accepted that the main purpose of an exception that a
declaration does not disclose a cause of action is to avoid the
leading of unnecessary evidence at the trial. In McKelvey
v Cowan NO
it was held that in dealing with matters of exception, if evidence
can be led which can disclose a cause of action alleged in the
pleadings, that particular pleading is not excipiable. A pleading is
only excipiable on the basis that no possible evidence led on the
pleading can disclose a cause of action.
Cause
of action, as per SMITH J in Dube
v Banana,
means the combination of facts that are material for the plaintiff to
prove in order to succeed in his action. The facts must enable the
court to reach a conclusion regarding unlawfulness, fault and
damages: see also Controller
of Customs v Guiffre
and Patel
v Controller of Customs & Excise.
As
I have already demonstrated, evidence that the bank might have
breached the statutory provisions alluded to would still not
establish the pension fund's claim as against the bank. It will be
irrelevant.
In
my conclusion, the pension fund's declaration, in its entirety,
does not disclose a cause of action against the bank. There is simply
nothing that the evidence on any aspect of the claim as pleaded, if
led, will establish the claim. There was no vicarious liability on
the part of the bank on the facts pleaded. There was also no wrongful
action on the part of the bank in relation to the pension fund.
DISPOSITION
In
the circumstances, the exception is upheld. The plaintiff's claim
against the fifth defendant is hereby dismissed with costs.
28
January 2015
Atherstone
& Cook,
legal practitioners for the excipient (or fifth defendant)
Dube,
Manikai & Hwacha,
legal practitioners for the plaintiff (or respondent)
James
Makiya Legal Practitioners,
legal practitioners for first and second defendants
1914 AD 382
