THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Case No:   237/2010

In the matter between:
EDS SOUTH AFRICA (PTY) LTD

Appellant

and

NATIONWIDE AIRLINES (PTY) LTD

First Respondent
(IN PROVISIONAL LIQUIDATION)

DUNCAN OKES INC

Second  Respondent

THE MASTER OF THE HIGH COURT

Third Respondent
(WITWATERSRAND LOCAL DIVISION)

Neutral citation:
EDS v Nationwide (237/2010) [2011] ZASCA 16 (14 March 2011)
Coram:
HARMS DP, CLOETE and MALAN JJA
Heard:
4 March 2011
Delivered:
14 March 2011

Summary:  Funds held in attorney’s trust account – whether attorney stakeholder –
control of funds.

_____________________________________________________________________

ORDER
On appeal from: South Gauteng High Court (Johannesburg) (Spilg J sitting as court of
first instance):
The appeal is dismissed with costs.
_____________________________________________________________________
JUDGMENT
MALAN JA (HARMS DP, CLOETE JA concurring)
[1] This is an appeal with leave of the court a quo against the judgment and order of
Spilg J dismissing a claim of EDS South Africa (Pty) Ltd for the payment of funds held in
an investment account by the attorneys for Nationwide Airlines (Pty) Ltd, Duncan Okes
Inc, and in the name of Nationwide.
[2] Nationwide was provisionally liquidated on 29 April 2008 and is represented in
these proceedings by its provisional liquidators. EDS supplied information technology
services to Nationwide and the funds held by Duncan Okes form part of fees allegedly
owing by Nationwide to EDS.
[3] Prior to Nationwide’s liquidation there existed an information technology
agreement in terms of which EDS undertook to render such services to Nationwide. A
dispute arose between them as to the extent of Nationwide’s indebtedness. On 1
February 2008 the attorneys for EDS wrote to Nationwide demanding payment of the
fees alleged to be owing. It concluded with  reference to s 345(1) of the Companies Act
61 of 1973 by stating that should Nationwide fail to pay the amount claimed or secure or
compound it to the satisfaction of EDS within a period of 21 days Nationwide would be
deemed to be unable to pay its debts.
[4] Further correspondence followed and on 22 February 2008 Duncan Okes
responded on behalf of Nationwide disputing the amount of the indebtedness in respect
of various categories of charges. It recorded Nationwide’s denial of indebtedness and

stated that the latter refused to make payment albeit that it was able to do so. The letter
continued that certain amounts, in respect of which Nationwide denied liabIility, had
been paid by  the latter to Duncan Okes and that Nationwide had ‘instructed us to
deposit it into an interest bearing account under our control and instructed us as follows’
-
‘(a) If your client institutes dispute resolution proceedings against our client for payment of [certain
charges] within two months from date hereof, we must keep this amount in the said account and pay it out
in terms of the final outcome of such proceedings.
(b) Those instructions will not be revoked otherwise than on written notice to yourselves of not less than a
month.
(c) If dispute resolution proceedings are not instituted within the aforesaid period of two months, our client
reserves the right to require us to withdraw this amount for repayment to it.’
[5] The attorneys for EDS replied to this letter on the same day. They did not accept
the proposal but enquired whether, in the event of an agreement being reached to
proceed in terms of the dispute resolution clause in the information technology
agreement, certain provisions could be dispensed with and whether Nationwide would
be agreeable to pay into trust further amounts that EDS contended would be owing so
as to demonstrate its ability to pay on an ongoing basis.
[6] On 10 March 2008 EDS’s attorneys wrote to Duncan Okes discussing the
proposed arbitration and suggesting the following terms to be incorporated in the
arbitration agreement –
‘2.1
the procedure and time limits for the arbitration shall be substantially those set forth in the
annexed draft arbitration agreement;
2.2
the existing funds in trust shall continue to be held and your client shall agree to pay into trust
such further amounts as our client contends would be owing as and for [certain charges], all such
amounts being held until the final outcome of the arbitration or the termination of the agreement
(whichever shall occur first);
2.3
all funds paid into trust shall be held in escrow/trust by a third party such as an unrelated law firm
which will be mandated to hold the funds and release them, together with all accrued interest to the
relevant party, upon production of a settlement agreement or alternatively a final award by the arbitrator

(which has not been appealed) or the appeal tribunal. The funds shall be invested [in an] interest bearing
account with a financial institution of your client’s choice.’
The final sentence of the letter reads that ‘[i] goes without saying that should we not
reach agreement regarding the referral to arbitration our client’s rights remain otherwise
reserved’.
[7] In reply Duncan Okes on 19 March 2008 wrote -
‘2.1
That the dispute between our clients should be resolved by way of a speedy arbitration as
proposed by you;
2.2
The funds being held in our trust account shall continue to be held in trust and our client will make
payment of all further amounts in respect of [certain charges] into trust until the final outcome and
determination of the dispute;
2.3
The funds currently held in our trust account together with such further amounts that are to be
held will be transferred to a third party law firm, of our client’s choice, who will hold the funds in trust in an
interest bearing account and who shall be mandated to release such funds and the interest accrued
thereon to the relevant party, upon production of a settlement agreement or a final award by the arbitrator
(which have not been appealed) or appeal tribunal.’
[8] The arbitration agreement was signed by EDS and Nationwide on 3 and 4 April
2008 respectively in terms of which the dispute was submitted to arbitration. It recorded
in clause 1.2 that the parties agree -
‘that the amounts contended by [EDS] to be owing shall forthwith be paid into the trust account of an
independent firm of attorneys nominated by [Nationwide] who shall hold the funds and release them,
together with all accrued interest to the relevant party, upon production of a settlement agreement or a
final award by the Arbitrator (which has not been appealed) or the Appeal Tribunal. The funds shall be
invested in an interest–bearing account with a financial institution of [Nationwide’s] choice.’
[9] On 4 April 2008 the attorneys for EDS acknowledged receipt of the signed
arbitration agreement, enclosed their client’s statement of claim and added -
‘We confirm finally that you will let us have your client’s final proposals regarding the holding of the funds
in trust pending the outcome of the arbitration and also the list of arbitrators.’

[10] On 30 April 2008 the attorneys for EDS wrote to Duncan Okes informing them of
their understanding that a winding-up application had been brought against Nationwide
and requesting confirmation that ‘you are still holding the funds referred to in your letter
of 22 February 2008’. They also stated that they relied ‘upon your undertaking and the
provisions of the arbitration agreement in regard to the funds held by you in trust’. To
this letter Duncan Okes replied on 7 May 2008 confirming ‘that we are holding an
amount of R 3, 678, 896.15 in an interest bearing account in accordance with our
instructions as recorded in our letter of 22 February 2008’.
[11] It is common cause that Nationwide did not nominate ‘the independent firm of
attorneys’ as agreed to in the arbitration agreement. On 29 April 2008 Nationwide was
provisionally wound up without the funds having been transferred to the ‘independent
firm of attorneys’.
[12] In the court a quo Spilg J held that Duncan Okes’ letter of 22 February 2008 was
written not only to demonstrate an ability to pay but also contained an offer. He found
that the arbitration agreement did not amount to an acceptance of the offer because it
specifically provided for the paying over of the funds to an independent firm of attorneys
nominated by Nationwide who would hold it as a stakeholder. Moreover, he could not
infer from the exchange of the letters of 10 March 2008 and 19 March 2008 that an
agreement that Duncan Okes was to be the stakeholder had been concluded. Nor could
Spilg J find that a tacit agreement to that effect had been reached. He concluded that
because there was no compliance with clause 1.2 of the arbitration agreement the funds
remained in the estate of Nationwide. He accordingly upheld the claim of the provisional
liquidators. I agree with his judgment.
[13] The argument on behalf of EDS proceeded along the following lines: it was
submitted that EDS timously complied with the conditions referred to in Duncan Okes’
letter of 22 February 2008 (cited in paragraph 4 above) by instituting dispute resolution

proceedings. It was at that time that Nationwide lost control of the funds.1 Since this
occurred before the winding up the funds fell outside the assets of Nationwide and it
mattered not that clause 1.2 calling for the transfer of the funds to an independent firm
of attorneys of the Arbitration agreement was not ‘literally’ complied with. EDS further
relied on Duncan Okes’ letter of 7 May 2008 in which it confirmed that it was holding the
funds in accordance with the instructions as recorded in their letter of 22 February 2008.
This, it was submitted, provided further evidence of a tacit understanding between the
attorneys that if no independent firm of attorneys were nominated the funds would
remain in Duncan Okes’ trust account on the same terms.
[14] A stakeholder agreement is based on contract to which Duncan Okes must be a
party in addition to EDS and Nationwide.2 Absent an agreement of stakeholding the
funds remained those of Nationwide. Its unilateral action of paying the funds into the
investment account of Duncan Okes could not have given the funds a different
character creating rights in rem to them.3 The offer contained in Duncan Okes’ letter of
22 February 2008 was never accepted. The reply on behalf of EDS on the same day
does not contain an unequivocal acceptance of the offer, and suggests that a counter-
proposal may be made. Moreover, their letter of 10 March 2008 contains a counter-
proposal ending with the words that it went without saying that should agreement not be
reached EDS’s rights remain reserved. EDS cannot rely on certain terms of the offer
contained in the letter of 22 February 2008. That offer was never accepted, and there is,
accordingly no basis for the submission that Nationwide had lost control of the funds at

1 Relying on Ngwalangwala v Auto Protection Insurance Co Ltd (in Liquidation) 1965 (3) SA 601 (A) at
611D-E and Silverleaf Pastry & Confectionery Co (Pty) Ltd v Joubert & another 1972 (1) SA 125 (C) at
127D-1287H.
2 See Sadie v Currie’s City (Pty) Ltd & others 1979 (1) SA 363 (T) at 366B-C: ‘[T]he stakeholder also
assumes a contractual obligation to hold the stake for and on behalf of the person who becomes entitled
to it.’ See Baker v Probert 1985 (3) SA 429 (A) at 441B-E; Ramdin v Pillay & others 2008 (3) SA 19 (D)
para 14.
3 Ex parte Kelly 1942 OPD 265 at 271-2.

that or, for that matter, any other stage. Moreover, the funds were held pending
resolution of a dispute relating to fees that were disputed. No admission that they were
due was ever made.
[15] Duncan Okes had never agreed to be a stakeholder. Although clause (a) of their
letter of 22 February 2008 may suggest such, clause (b) makes it clear that Nationwide
may revoke the instructions to Duncan Okes. A stakeholder is not the agent of any of
the other parties to the stakeholding:4 on the evidence Duncan Okes held the funds as
agent of Nationwide. Nor do clauses 2.1 and 2.3 proposed by the attorneys for EDS
(and agreed to by Duncan Okes in their letter of 19 March 2008 with some
amendments) convert them into a stakeholder. The stakeholder envisaged is the
‘unrelated law firm’ mentioned in clause 2.3 of these letters, not Duncan Okes, whose
obligation it was to transfer the funds to the stakeholder (clause 2.3 of their letter of 19
March 2008). The negotiations between the parties culminated in the conclusion of the
arbitration agreement which provided expressly for the stakeholder to be nominated by
Nationwide. No nomination was made. The suggested tacit term or agreement
contended for that Duncan Okes would be the stakeholder is in conflict with this term.

The appeal is dismissed with costs.

_________________
F R MALAN
JUDGE OF APPEAL

4 Baker v Probert 1985 (3) 429 (A) at 441B-E.

APPEARANCES:
For Appellant:

M J Fitzgerald SC

Instructed by:

Bowman Gilfillan Inc

c/o Keith Sutcliffe & Associates

Johannesburg

Matsepes Inc

Bloemfontein

For Respondent:

A Subel SC

Instructed by:

John Joseph Finlay Cameron

Johannesburg

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:
14 March 2011

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.

EDS v NATIONWIDE AIRLINES

The Supreme Court of Appeal dismissed an appeal today against
a decision of the Johannesburg high court granting an application
by the provisional liquidators of Nationwide Airlines (Pty) Ltd for
the payment of funds held in an investment account by the
attorneys of Nationwide pending resolution of a dispute concerning
fees payable between Nationwide and EDS South Africa (Pty) Ltd,
a provider of information technology services. The funds were
allegedly held by the attorneys as a stakeholder. Both the high
court and the Supreme Court of Appeal found that no agreement
of stakeholding had been established and also that Nationwide

never lost control of the funds held on its behalf by its attorneys.
The provisional liquidators were thus entitled to the funds.