THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Case No: 323/12
Reportable

In the matter between:

THE TRUSTEES OF THE INSOLVENT ESTATE OF                             APPELLANT
GRAHAME ERNEST JOHN WHITEHEAD

and

LEON JEAN ALEXANDRE DUMAS
FIRST RESPONDENT
ABSA BANK LIMITED                                                        SECOND RESPONDENT

Neutral citation:
The Trustees of the Insolvent Estate of Grahame Ernest John
Whitehead v Dumas (323/12) [2013] ZASCA 19 (20 March
2013)
Coram:
Lewis, Ponnan, Cachalia, Theron, Petse JJA

Heard:
1 March 2013

Delivered:
20 March 2013

Summary:
Where A transfers money from his bank account to B’s bank
account
pursuant
to
an
agreement
induced
by
B’s
fraudulent
misrepresentation, B’s personal right to the credit falls to his insolvent estate
on sequestration.

___________________________________________________________________

ORDER
___________________________________________________________________

On appeal from: North Gauteng High Court, Pretoria (Makgoba J sitting as court of
first instance):

The following order is made:

‘1
The appeal is upheld with costs, including the costs of two counsel.
The order of the high court is set aside and replaced with the following:

‘The application is dismissed with costs.’

JUDGMENT
___________________________________________________________________

CACHALIA JA (LEWIS, PONNAN, THERON AND PETSE JJA CONCURRING):

[1] This appeal concerns a dispute over an amount of R3 million between the
trustees of a fraudster’s insolvent estate and a disgruntled investor. The investor,
Dr Leon Dumas, the first respondent, had been induced to pay the money into the
bank account of the fraudster, Mr Graham Whitehead, in contemplation of
participating in the latter’s illegal financial scheme. Whitehead’s estate was
subsequently sequestrated and its administration placed in the hands of the trustees,
the appellant.

[2] Dumas lays claim to the money on the ground that it was obtained from him
fraudulently, and therefore cannot form part of the insolvent estate. The trustees, on
the other hand, contend that the funds became part of the estate on sequestration,
and thus subject to the concursus creditorum. The parties’ competing claims may
best be understood against the background circumstances that led to the dispute.

[3] Whitehead operated an unlawful and fraudulent ‘Ponzi’ or Pyramid scheme,
which involved investors putting up bridging finance for fictitious transactions
purportedly undertaken by the Salvation Army in the United Kingdom. In return for
their short term investments, investors were promised, and in some instances
apparently received, huge profits. The scheme, as with other similar schemes,
depends on an ever-increasing flow of funds from new investors. It initially pays out
high returns to lure more investors. The ‘return’ to the initial investors is paid out from
the new investments and not out of any profits because there are no real profits.
When the scheme is unable to attract sufficient numbers of new investors its
hierarchical payment structure becomes unsustainable. So the scheme collapses –
as it inevitably must – with most of the participants losing the money they put in.

[4] Dumas, a specialist medical practitioner, was duped through representations
made by an agent acting on Whitehead’s behalf into believing that Whitehead’s
scheme was legitimate, and that his investment would yield a lucrative return of a
third of his investment within a year. On the strength of this belief he instructed his
Bank, First National Bank, to transfer the R3 million into Whitehead’s Absa Bank
account on 23 April 2009. He understood from the agent that the money would
remain his property until he concluded a contract with Whitehead a few days later.
But unbeknown to both the agent and Dumas, Whitehead had been under arrest for
fraud in the United Kingdom at the time; so the planned meeting between the parties
to finalise the detail of the investment agreement did not take place. Whitehead has
since been convicted and sentenced to a ten year term of imprisonment for this
crime. In addition his assets were frozen and his estates in South Africa and the
United Kingdom sequestrated.

[5] On 28 April 2009, after learning of Whitehead’s arrest, Dumas instructed his
bank, FNB, to reverse the transfer to Whitehead’s account. Acting on his instructions
FNB wrote to Absa requesting that the account into which the money had been paid
be put on ‘hold’. No transactions were made from this account thereafter.

[6] On 5 May 2009, the Absa account had a credit balance of R 3 293 677.42,
and a second account, also held by Whitehead with Absa, had a credit balance of
R 4 943 078.22.

[7] On 7 May 2009, an urgent order was granted for the provisional sequestration
of Whitehead’s estate. The court also ordered that the funds in both Whitehead’s
accounts be transferred to the trust account of Attorneys Coetzee Inc. In terms of the
transfer order an amount of R 8 236 605.54 was drawn from the two Whitehead
accounts and paid into the Coetzee Inc trust account. The order stated that the funds
were to be held in the account pending the appointment of provisional trustees or
further directions of the court.

[8] On 20 May 2009, the Master appointed the provisional trustees of
Whitehead’s insolvent estate. On 25 May 2009, Coetzee Inc paid the total amount of
R 8 236 605. 54 over to the trust account operated by the trustees. Coincidentally,
this account too is held by Absa. Absa therefore held the money, and continues to
hold the money, as banker in the name of Whitehead’s insolvent estate.

[9] The following day, on 26 May 2009, Dumas instituted a vindicatory application
for the return of the moneys in the North Gauteng High Court.

[10] In his founding and replying affidavits Dumas premised his claim on his
alleged ownership of the funds deposited into Whitehead’s account. But formulated
in these terms, the claim was bad because when money is paid into a bank account
that money becomes the property of the bank. The rei vindicatio, which is the
common law remedy for an owner seeking to recover his property, was therefore not
available to Dumas. When he realized the problem, no doubt on the advice of his
lawyers, he filed a supplementary replying affidavit in which he altered the legal
basis of his claim. His claim was no longer vindicatory but premised on enrichment –
the condictio ob turpem vel iniustam causam – a remedy available to a plaintiff who
innocently transfers money to a defendant under an agreement which, to the
knowledge of the defendant, is illegal. In this case the enrichment claim was sought
to be enforced against Absa even though it was not party to the agreement between
Dumas and Whitehead.

[11] Although Dumas sought relief against seven respondents, including Absa
Bank, only the appellant opposed the application. As is usual in matters of this
nature involving contested claims to the money standing to the credit of an account-

holder, Absa properly adopted a neutral stance of a stakeholder awaiting a court
decision on the dispute.

[12] The high court (Makgoba J) upheld Dumas’ claim, holding that as he had
caused the transfer of the money into Whitehead’s bank account to the credit of
Whitehead through a fraud and theft perpetrated on him by Whitehead, Whitehead
had no entitlement, and thus no claim against Absa, to the money. The court
concluded that the money therefore fell outside Whitehead’s estate, was not subject
to the concursus creditorum and the bank, which would be enriched if it kept the
money, had to repay the amount to Dumas. The high court refused the appellant
leave to appeal, but this court granted the necessary leave. It is convenient at this
stage to restate the legal principles governing a dispute of this nature.

[13] Generally, where money is deposited into a bank account of an account-
holder it mixes with other money and, by virtue of commixtio, becomes the property
of the bank1 regardless of the circumstances in which the deposit was made or by
whom it was made. The account-holder has no real right of ownership of the money
standing to his credit2 but acquires a personal right to payment of that amount3 from
the bank, arising from their bank-customer relationship. This is also so where, as in
this case, no money in its physical form is in issue, and the payment by one bank to
another, on a client’s instruction, is no more than an entry in the receiving bank’s
account.4 The bank’s obligation, as owner of the funds credited to the customer’s
account, is to honour the customer’s payment instructions.5 Where the depositor is
not the account-holder he relinquishes any right to the money and cannot reverse
the transfer without the account-holder’s concurrence.6

[14] Once ownership passes to the bank it immediately incurs the obligation to
account to its customer. But a customer does not always acquire an enforceable
personal right to the credit in his account merely by virtue of the deposit. A bank is

1 Louw NO & others v Coetzee & others 2003 (3) SA 329 (SCA) at 334H-I; Commissioner of Customs
and Excise v Bank of Lisbon International & another 1994 (1) SA 205 (N) at 208I.
2 S v Kearney 1964 (2) SA 465 (A) at 503. See also S v Graham 1975 (3) SA 569 (A) at 577.
3 See Louw NO v Coetzee 2003 (3) SA 329 (SCA) para 12.
4 Muller NO v Community Medical Aid Scheme 2012 (2) SA 286 (SCA) para 13.
5 Muller para 13.
6 Take and Saving Trading CC v Standard Bank of SA Ltd 2004 (4) SA 1 (SCA) para 17.

entitled to reverse a credit in the account-holder’s bank account if it transpires that
the account had been credited in error, that the customer had acquired the money by
fraud or theft,7 that the drawer’s signature on a cheque had been forged, or that the
bank notes deposited in the account were forgeries.8 It is contended on behalf of
Dumas that because he was the victim of fraud or theft by Whitehead the bank must
reverse the credit in the trustees’ account.

[15] Where, as in this case, A causes the transfer of money from his bank account
to the account of B, no personal rights are transferred from A to B; what occurs is
that A’s personal claim to the funds that he held against his bank is extinguished
upon the transfer and a new personal right is created between B and his bank.
Ownership of the money – insofar as money in specie is involved – is transferred
from the transferring bank to the collecting bank, which must account to B in
accordance with their bank-customer contractual relationship.9 This is so even where
A was induced to enter into an agreement through B’s fraudulent misrepresentation.
In that case A will have a claim for delictual damages against B to compensate him
for his loss10 but will not be able to claim a retransfer of the credit from the bank.  And
if B is subsequently sequestrated the claim will lie against B’s estate because an
insolvent’s personal right to credit falls into his estate upon sequestration.11

[16] The enquiry in this case therefore turns on whether or not Whitehead acquired
a personal right to the credit when Dumas caused the money to be transferred to
Whitehead’s account. If he did the funds accrued to Whitehead’s estate upon
sequestration. However, if Whitehead himself did not acquire a personal right to the
funds, neither would his estate have upon sequestration; the funds then remain the
property of the bank with Whitehead’s estate having no claim to its payment. And the
bank would be unjustly enriched, at Dumas’ expense, if it retained the funds without
incurring an obligation to release it to the trustees.

7 Nedbank v Pestana 2009 (2) SA 189 (SCA) para 9.
8 Standard Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (in Liquidation) 1998 (1) SA
811 (SCA) at 823B-D.
9 W Schulze ‘Countermanding an electronic funds transfer: the Supreme Court takes a second bite at
the cherry’ (2004) SA Merc LJ 667, 671; J du Plessis ‘The cause of action in Nissan South Africa (Pty)
Ltd v Marnitz NO’ in H Mostert and M J de Waal (eds) Essays in Honour of C G van der Merwe (2012)
6; Muller above para 13.
10 R H Christie and G B Bradfield Christie’s Law of Contract in South Africa 6 ed (2011) 307-308.
11 R Sharrock K, Van der Linde and A Smith Hockly’s Insolvency Law 7 ed (2002) at 58.

[17] The foundation for the learned judge’s decision to uphold Dumas’ claim was
this court’s judgment in Nissan South Africa (Pty) Ltd v Marnitz & others (Stand 186
Aeroport (Pty) Ltd Intervening).12 The facts were these: Nissan was a customer of
Firstrand Bank Ltd (FNB). It instructed the bank to pay an amount of just under
R13 million to one of its creditors, TSW, but mistakenly gave the bank the incorrect
account details. As a result of this mistake, FNB paid the amount in question to an
incorrect payee. The payee was aware of the error, but nonetheless withdrew the
funds and was liquidated shortly thereafter. Nissan applied for an order declaring
that what was left in the payee’s account did not form part of the insolvent’s estate.

[18] The high court refused to grant the order, holding that the payee, and not
FNB, had been enriched by the transfer but that Nissan had a concurrent claim
against the insolvent estate. Nissan appealed against the order to this court. On
appeal Streicher JA dismissed the liquidator’s submission that once a bank
unconditionally credits a customer’s account with an amount received, the bank must
pay the money to the customer on demand, even where the money was received
through fraud or theft.13 And, he continued:
‘If stolen money is paid into a bank account to the credit of a thief, the thief has as little
entitlement to the credit representing the money so paid into the bank account as he would
have had in respect of the actual notes and coins paid into the bank account.’14

[19] Consequently, so he held, because the payee had no claim to the money that
was mistakenly paid to it, the liquidators of the payee’s insolvent estate had no claim
to the money either. And he therefore concluded that because the bank, and not the
payee, was enriched, it had to release what was left in the payee’s account.

[20] Mr Harpur, who appears for Dumas in this appeal, seeks to defend the high
court’s invocation of Nissan in support of his case. Mr Wasserman, who
coincidentally appeared for the successful appellant in Nissan, contends that the
high court applied the ratio decidendi of that case incorrectly.

12 Nissan South Africa (Pty) Ltd v Marnitz 2005 (1) SA 441 (SCA).
13 Ibid para 23.
14 Ibid para 23.

[21] It is apparent that the circumstances in Nissan were very different to those
that we are considering. There the court was dealing with funds that were paid into
an incorrect bank account. The payee then withdrew the money from that account
knowing that he had no claim to it; in effect he stole the money. Thus, in commenting
on this case, Malan JA recently observed in Absa Bank v Lombard Insurance
Company Ltd:15
‘The bank had no duty to account to its customer. Nor did the customer have a contractual or
other right to the stolen funds. The bank, by remaining in possession of the funds without
any corresponding liability to account to its customer, was enriched and liable to make
restitution to the owner.’

[22] The reference to ‘fraud or theft’ in Nissan must be understood in context:16
and one must have regard to the approach of Thirion J in Commissioner of Customs
and Excise v Bank of Lisbon International Ltd,17 which Streicher JA approved.18
Here, R defrauded the Commissioner and paid an amount of money into his bank
account with the Bank of Lisbon. The circumstances under which R obtained the
money – the taking of the moneys having been nothing short of theft – Thirion J held
were such as to deprive its delivery of any legal effect.19 In other words the bank
acquired ownership of the money without a corresponding obligation to account to its
customer and the customer had no contractual or other right to the funds. And,
although he considered it unnecessary to decide whether the Commissioner could
invoke an enrichment action against the bank because the matter was referred to the
trial judge for oral evidence to be heard, he accepted that such a claim (the condictio
sine causa) was competent.20

[23] So both Nissan and Bank of Lisbon were concerned with theft or fraud outside
a contractual context. By contrast the investment transaction between Dumas and
Whitehead, though tainted by fraud, nevertheless constituted the causa for the
payment. Dumas intended to pay Whitehead and voluntarily made the payment into

15 Absa Bank v Lombard Insurance Company Ltd 2012 (6) SA 569 (SCA) para 14.
16 Nissan para 23.
17 Commissioner of Customs and Excise v Bank of Lisbon International Ltd & others 1994 (1) SA 205
(N).
18 Nissan paras 13-16.
19 Commissioner at 208G.
20 Ibid at 220A-B.

Whitehead’s account; it is immaterial that the payment was solicited through
Whitehead’s misrepresentation and fraud.

[24] As I have said, as between the account-holders no personal rights are
transferred; the personal right to the credit of the one account-holder is extinguished
upon the transfer and a new personal right created immediately for the other.
Whitehead, as a customer of Absa, immediately acquired the new right to the money
in his account, which was enforceable against the bank when ownership passed to it,
despite the absence of valid causa – ie a valid underlying agreement. Absa then had
both a duty to account and a corresponding liability to its customer, Whitehead, and
on his sequestration two weeks later, to the trustees of the insolvent estate. Absa is
therefore not enriched and no enrichment action lies against it. Dumas had only a
delictual claim against Whitehead arising from the fraudulent misrepresentation,
which induced the transfer of the money, and on the latter’s sequestration a claim
against the trustees.

[25] I am aware that in Nissan Streicher JA was concerned that the usual
remedies open to a creditor – interdicts and attachments to prevent the debtor from
disposing of his assets pending an institution of an action by the creditor – may not
be adequate remedies in the event of a debtor’s insolvency. And he thus held that
the law would be deficient if it did not provide a remedy for recovery of stolen money
direct from the bank in those circumstances.21 There were accordingly different
considerations for affording a remedy to the creditor against the bank in that case, as
there was in Bank of Lisbon.

[26] The appeal is accordingly upheld. The matter is obviously important, not only
to the parties but more broadly as it deals with a complex area of the law. The
trustees were therefore justified in engaging the services of two counsel. There is no
reason why they should not be granted these costs.

21 Nissan para 16.

[27] The following order is made:

‘1
The appeal is upheld with costs, including the costs of two counsel.
The order of the high court is set aside and replaced with the following:

‘The application is dismissed with costs.’

_________________
A CACHALIA
JUDGE OF APPEAL

APPEARANCES

For Appellant:
J Wasserman SC (with him G Amm)

Instructed by:

Lowndes Dlamini, Pretoria

Matsepes Inc, Bloemfontein

For Respondent:
G D Harpur SC

Instructed by:

Rajespree Naidoo & Associates, Pretoria

Lovius Block, Bloemfontein

THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal
Date:
20 March 2013
Status:
Immediate

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 TRUSTEES OF THE INSOLVENT ESTATE OF GRAHAME ERNEST
JOHN WHITEHEAD
v
LEON JEAN ALEXANDRE DUMAS & ANOTHER

The Supreme Court of Appeal (SCA) today held that where a person transfers
money from his bank account to the bank account of another after being induced to
enter into an agreement by the latter’s fraudulent misrepresentation the money
cannot be reclaimed from the receiving bank, but instead falls into the estate of the
fraudster upon sequestration. The SCA thus upheld an appeal against a contrary
finding of the South Gauteng High Court.

In 2009, Dr Leon Dumas instructed his bank, First National Bank, to transfer
R3 million into the Absa bank account of Mr Graham Whitehead. He did so after an
agent acting on behalf of Whitehead persuaded him to invest the money in an

investment scheme operated by Whitehead. But unbeknown to Dumas this was a
fraudulent Ponzi scheme. And, at the time that Dumas paid over money,
Whitehead was under arrest in the United Kingdom for fraud. Whitehead was
subsequently convicted and sentenced to ten years’ imprisonment in the UK where
he is currently serving his sentence. In addition his assets were frozen and his
estates in the UK and South Africa sequestrated. It transpired that Whitehead had
duped many other investors from afar a field as Zimbabwe, the UK, Australia and
New Zealand to invest in his scheme, which promised huge returns. Many lost their
money.

The SCA held that as soon as the money was credited to Whitehead’s Absa bank
account, Absa had the obligation to account to him in accordance with their bank-
client relationship. And, once Whitehead was placed under sequestration, the bank
became obliged to account to the trustees of the insolvent estate, who stepped into
Whitehead’s shoes. Whitehead therefore has a delictual claim against the trustees
of the insolvent estate arising from the fraudulent misrepresentation, along with
Whitehead’s other creditors, but had no claim against the bank for the return of his
moneys.

Dumas was ordered to pay the trustees’ costs of the appeal as well as their costs
in the high court.