THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Case no: 380/06
Not reportable
In the matter between
HERMANUS DEMPERS PRETORIUS NO                         1ST APPELLANT
SUSAN ANN PRETORIUS NO

2ND APPELLANT
EDUARD BRAND NO

3RD APPELLANT

and

STANLIB WEALTH MANAGEMENT LIMITED
RESPONDENT

Coram: SCOTT, BRAND, LEWIS, COMBRINCK JJA, and THERON AJA
Heard: 18 May 2007
Delivered: 31 May 2007
Summary: Oral contract to invest in respondent’s investment fund established
by evidence: representative of respondent had authority to bind it.
Neutral citation:  This case may be cited as Pretorius NO v Stanlib
Wealth Management Ltd [2007] SCA 77 (RSA)
LEWIS JA

[1] The appellants are the trustees of two trusts, the Seca Trust (Seca)
and the Tableau Trust (Tableau). They instituted action in the Cape High
Court against the respondent, Stanlib Wealth Management Ltd (Stanlib), for
the payment of R5m, which they alleged had been invested on behalf of the
trusts (R2.5m each) with Stanlib, and which was repayable on demand.  Only
the first appellant, Mr Hermanus Pretorius, played a role in the litigation.
Stanlib, at the time the investments were made, was called Liberty
Specialised Investments (Pty) Ltd and was a wholly owned subsidiary of
Liberty Life Group Ltd (Liberty). I shall refer to Stanlib rather than to Liberty
Specialised Investments for the sake of convenience.

[2] Griessel J in the high court granted judgment in favour of the
appellants, interest a tempore morae and the costs of two counsel. The basis
of his decision was that agents of the parties had concluded an oral
agreement in terms of which moneys would be invested on behalf of each
trust, which would be entitled to interest on the investments, the capital sum
being repayable on demand. A number of other bases for the claim were set
out in the particulars of claim, and were argued before the court below. They
are no longer in issue.

[3] Stanlib sought leave to appeal against the decision of the trial court.
The grounds on which the application was based were, inter alia, that the
court had erred in finding that the onus of proving an oral contract had been
discharged; that the agent who had purportedly represented Stanlib had been
incorrectly found to have authority to do so; and that the agent of the trusts
had intended to pay the sum of R5m not on behalf of the trusts but on behalf
of another entity.

[4] Griessel J granted leave to appeal to the full court only on the first
ground, whether an oral contract between the trusts and Stanlib had been
proved. The full court (Davis J, with whom Bozalek J and Ndita J concurred)
upheld the appeal. It also considered an application to amend the particulars
of claim to reflect an alternative claim that a contract between the trusts and
Stanlib had been concluded by conduct. The full court found that the oral

contract pleaded had not been established and that there was also insufficient
evidence of a contract concluded by conduct.  It granted absolution from the
instance.

[5] During the course of the hearing in this court it transpired that leave
had been given by this court to appeal to the full court against the decision of
the trial court on the other grounds raised by Stanlib. The full court did not
deal with them, and in view of the conclusion to which I come on the existence
of the oral contract, it is not necessary to traverse them save for dealing with
the authority of Stanlib’s agent. The appeal against the decision of the full
court is with this court’s special leave.

[6] The appellants pleaded that on or about 4 April 2002 the trusts, acting
through Pretorius, but represented by Mr Wessel du Toit, and Stanlib,
represented by Mr Jaco Cloete, agreed that the trusts would invest the sum of
R2.5m each with Stanlib.  Stanlib denied that there was a contract and denied
that Cloete was authorized to represent it. It admitted, however, that two
cheques in the sum of R2.5m each, drawn by MAT Securities (Edms) Bpk
(Mat Securities), had been deposited in the account of Multivest Corporate
Investments Trust (Multivest), one of its investment vehicles. It alleged that
the payments had been allocated to a different entity, Henco Trust (Henco),
and thus denied that it was obliged to repay the moneys when demand by
Tableau and Seca was made.

[7] The background to the litigation is this. Mrs Amanda Martinson
conducted a business, aptly referred to as a pyramid scheme, from 2001 to
2002. Since Martinson and her scheme are but the background to the dispute
it is not necessary to deal with them in any detail. Suffice it to say that she
accepted large sums of money from investors, promising extraordinary returns
– up to 10 per cent per month – and with the capital ran a micro-lending
business. Her venture failed when the inflow of funds was less than the
amounts she had to pay to fulfil the promise of the large returns. She was
sequestrated, and her company liquidated. Pretorius and Stanlib each

maintains that the agent of the other was part of Martinson’s dishonest
scheme.

[8] Du Toit is an investment broker, employed by C-Max Investments (Pty)
Ltd (C-Max). His wife is the sole director of the company. Du Toit himself was
an unrehabilitated insolvent. When testifying Du Toit said that he had heard in
2001 of Martinson’s scheme and of the wonderful returns that investors had
been paid. He invested his own money in the scheme. In due course he met
Martinson who was looking for bigger investments. She told him that she had
developed an investment product with Liberty, and the returns made could
finance not only her own business but also some of Du Toit’s anticipated
schemes. Du Toit did not know how this would actually work, but nonetheless
approached clients to invest in the Multivest cash account held by Liberty.  He
advised them that because the money would be invested with Liberty,
investments of the capital would be safe, but that the returns were not
guaranteed.

[9] In the course of looking for new clients Du Toit heard of Pretorius,
whom he approached to invest with Liberty.  A meeting was arranged
between them, which was attended also by an associate of Pretorius, Mr de
Goede. Pretorius, in the investment business himself, was sceptical of the
large returns that might be gained. But he was interested in the prospect and
thought that at least any capital he invested would be safe as it would be held
in a cash account with Liberty, a major corporation.

[10] At the meeting Pretorius told Du Toit that he had set up four family
trusts for the purpose of making investments. He brought with him documents
(including letters of authority from the Master) showing the existence of the
trusts, including Seca and Tableau. He gave the impression to Du Toit that he
wanted to invest about R10m because he thought that the more he said he
had available the more information he would elicit from Du Toit and the more
he would impress him. But he could not get sufficient information from Du Toit
as to the workings of the scheme.

[11] Du Toit, in order to provide the information that Pretorius wanted,
asked Martinson to set up a meeting with a representative from Liberty. Jaco
Cloete, then a salaried broker consultant employed by Liberty in Bloemfontein,
was asked to meet Du Toit in Cape Town. At their meeting in March 2002
Cloete explained the nature of various Liberty investment products and gave
Du Toit application forms to be filled in by his clients.

[12] Du Toit in turn advised Pretorius of what he had ascertained from
Cloete, and assisted Pretorius in filling out application forms for Seca and
Tableau. Pretorius also gave him two post-dated cheques, dated 4 April 2002,
each in the sum of R2.5m, in favour of Multivest (the account number of which
is written next to the payee’s name), drawn by Mat Securities and marked ‘not
transferable’. Mat Securities is controlled by Pretorius, and entered into
agreements of loan with each of the trusts. Du Toit then sent the originals of
the application forms and copies of the post-dated cheques by courier to
Cloete.

[13] The two cheques were deposited by Du Toit’s wife on 4 April 2002, and
were paid into the Multivest account at the Standard Bank on 5 April. Stanlib
does not deny that the funds were credited to the Multivest account. Prior to
the deposit Cloete had sent a deposit form (M65) with an investment number
on it. The Stanlib computer system was such that when an application was
made on its computer system a number was generated and was reflected on
a deposit form. The form sent to Du Toit, and which his wife used when
depositing the cheques, was in fact for Henco, an entity unknown to Pretorius.
I shall revert to the reason for the incorrect allocation.

[14] The trial court found that it was ‘abundantly clear’ that ‘the plaintiffs at
all relevant times intended investing the amounts in question with the
defendant’ on the terms pleaded. Their intention was conveyed ‘in
unambiguous terms to Cloete on behalf of the defendant’. Their intention was
made clear also in the application forms supplied to Du Toit by Cloete. ‘The
cheques were subsequently deposited on behalf of the plaintiffs into the
account specifically designated by the defendant (in its own application forms)

by means of a deposit slip generated by and supplied on behalf of the
defendant. The funds were duly received by the defendant.’

[15] While the oral agreement between the trusts and Stanlib had not been
concluded on 4 April, as originally pleaded, the court found that the
discussions between Du Toit and Cloete had ‘culminated’ in the deposit on 4
April of the two cheques into Stanlib’s account. The trusts had amended their
particulars of claim to read that the agreement was concluded ‘op ongeveer 4
April 2002’: this had expanded the ambit of the claim to include oral
arrangements made prior to the deposit of the cheques. The contract pleaded
had thus been established.

[16] The full court, on the other hand, concluded that there was no oral
contract as pleaded. I shall turn to this finding shortly, but shall deal first with
what happened to the funds deposited on behalf of the trusts since it is
germane to whether a contract was indeed concluded and to whether Cloete
was Stanlib’s agent and had the authority to accept the investment.

[17] Multivest is a trust which owns matured second-hand endowment
policies issued by the Liberty Group. When the policies mature Liberty buys
them from the policy holders, sells them to Multivest and lends money against
the policy. A nominal amount of R1 remains in the policy. When an investor
wishes to invest in Multivest the money invested is paid into the policies thus
repaying the loan. Each policy has an investment account that determines the
value of the policy: the investment is placed in underlying portfolios of unit
trusts or other equities.

[18] The application forms completed by Pretorius and Du Toit reflect the
nature of this investment, although the words ‘Liberty Cash Account 100%’
were written on the forms. Parts of the forms were deleted by Pretorius as
being inapplicable: these parts set out the terms of various investment
options.

[19] The manner in which investment applications were processed was
described by Mr Martin Rabe, a director of Stanlib, who was at the relevant
time a divisional director of Stanlib responsible for legal compliance
management and product development. Once an application to invest was
received Stanlib used an on-line computer system to create a new policy for
the investor. Certain insurance brokers were issued personal computer codes
enabling them to load applications for new investments online. Cloete had no
code since he was not a broker. But he used the codes of other brokers to
load applications. In particular he worked with a brokerage known sometimes
as ‘Wesvaal Brokers’ but also as ‘Optimum’. He purported to give them
technical support in the use of the computer programme for loading
applications.

[20] When an investment application was placed on the system online the
system generated all the policy documents and allocated a sequential number
to each policy. The documents had to be signed by the investor before the
policy was actually issued. In this case, as I have said, Du Toit had taken
application forms with the relevant policy numbers to Pretorius for signature.
The original documents could not be found when the litigation ensued, but
their existence was not placed in doubt. Part of the set of documents
generated when the application was loaded was the M65 deposit form to
which I have referred.

[21] The problem with the system is that it allowed brokers and people in
the position of Cloete to abuse their access to Stanlib’s investments. In this
case policies with serial numbers MV1007248 and MV1007251 were issued to
Seca and Tableau on 1 March 2002, long before the application forms for
them were completed and submitted. It also transpired that funds belonging to
a different investor were allocated to each of the policies in Stanlib’s books, at
Cloete’s request.

[22] On 4 April 2002 Cloete, acting on the instruction of Martinson, among
others, submitted an online application on behalf of Henco, part of Martinson’s
business, for a total investment of R5m. The policy number was MV1007455.

The deposit form that was generated, and which reflected that number, was
faxed to Mrs du Toit by Cloete, and the cheques deposited by her on behalf of
the trusts were thus credited to the Henco policy. No deposits were ever made
into the accounts created for Seca and Tableau. Yet Cloete instructed a
finance clerk employed by Stanlib to allocate a sum of R11m, belonging
unbeknown to her to a different investor, to the Seca and Tableau policies and
to an account opened in the name of C-Max (du Toit’s wife’s company):
R2.5m each to Seca and Tableau and R5m to C-Max. Those allocations were
reversed when it was discovered that the funds had already been allocated to
the correct investor. This reflects chaos in Stanlib’s systems and
demonstrates that Cloete did have access to the systems of Stanlib and was
able to give instructions to its employee.

[23] On 4 April 2002, the same date as the cheques drawn by Mat
Securities for Seca and Tableau were deposited and credited to the Henco
policy, Martinson ceded the policy to Saambou Bank (Saambou) trading as
Planet Finance, as security for a loan advanced to one of her companies.
Cloete also requested Du Toit to sign a document ceding the C-Max policy
(which did not exist since no deposit had ever been made) to Saambou to
secure Martinson’s obligations.

[24] Saambou brought an application in the Pretoria High Court claiming the
proceeds of the Henco policy ceded to it by Martinson. Stanlib opposed the
application on the basis that no payment had been made for the Henco policy.
Pending the decision of that court Stanlib applied, during the course of the
proceedings in this matter, for a stay of action, asserting that the same policy
was being claimed in both this action and the application in the Pretoria High
Court. The action in the Cape High Court was not stayed. We were advised
that the Saambou litigation was settled. Rabe’s evidence in the Saambou
application is significant and I shall revert to it.

[25] Du Toit testified that he had been in Johannesburg on 4 April when he
was requested to sign certain documents by Cloete, the import of which he
had not appreciated. He was told by Cloete that the cheques deposited had

been incorrectly allocated to C-Max (he had never asked for an investment on
C-Max’s behalf), and the documents would rectify the allocation. He thus
agreed to sign a deed of cession of a C-Max policy to Henco. Prior to this he
also signed a deed of suretyship on behalf of C-Max in favour of Planet
Finance, securing Martinson Financial Services (Pty) Ltd’s obligations to it.
The document is not dated. Du Toit said, however, that he had been
telephoned by Cloete on 28 March 2002 and asked to sign certain documents,
which Cloete faxed to Du Toit’s parents’ home in Groot Brak Rivier. He signed
the documents and faxed them back to Cloete, he said (in a letter to Stanlib,
to which I shall revert), ‘as a gesture of goodwill’ to Cloete.

[26] Stanlib argues now that Du Toit’s conduct evinces an intention to
deposit the cheques drawn by Mat Securities on behalf of Seca and Tableau
in the account of Henco. The inference to be drawn is that Du Toit was
involved in the activities of Martinson: he had secured the funding from
Pretorius in order to invest on behalf of Henco, and had been party to ceding
the Henco policy to Planet Finance on the same day as the cheques were
deposited by his wife. The trial court rejected the argument, finding that it was
not consonant with the evidence.

[27] That evidence, apart from Du Toit’s oral testimony, is in letters written
by Du Toit to Stanlib demanding rectification of the allocation of the two
amounts of R2.5m that should have been paid towards the Seca and Tableau
policies. Having received no response from Cloete when he asked him to
correct the allocations, Du Toit wrote to a senior official at Stanlib on 21 and
22 May 2002, and to Rabe, on 4 June 2002, explaining the errors that he had
discovered and demanding that the correct amounts be allocated to Seca and
Tableau. He explained the circumstances under which the deposits were
made, and asked for the allocations to be corrected. He explained Cloete’s
role and the request to sign a cession as moneys had incorrectly been
allocated to C-Max. He demanded rectification.

[28] Pretorius too wrote to Stanlib demanding rectification of the allocations.
He had received investment statements from Stanlib that were inconsistent

with the investment applications he had made for the trusts. First, they were
dated 26 March 2002, before the cheques had been deposited; secondly, they
reflected much greater investments than he had made. (They reflected the
investments of another entity incorrectly allocated by Stanlib.) He was angry
and on discussing the matter with Du Toit was told that Du Toit had already
sent the letters referred to to Stanlib.

[29] Du Toit’s letters to senior officials of Stanlib are not consistent with the
conduct of a person who is attempting to cover up a conspiracy with
Martinson. On the contrary, his reference to Cloete, who could have been
asked at any time to explain his conduct and the incorrect allocations, in my
view shows his honesty in this respect.  If he had been party to any
conspiracy with Martinson or Cloete he would hardly have alerted Stanlib to
their conduct. This was the view of the trial judge in dealing with the credibility
of Du Toit. He said:
‘Shortly after 4 April, he started making enquiries on behalf of the plaintiffs as to
when proof of investment could be expected. He repeatedly followed this up, not only
telephonically, but also by letter. Whatever criticism may be levelled at Du Toit’s
astuteness as an investment adviser, I have not been persuaded that he has been
dishonest in his dealings . . . .’
The full court did not comment on this credibility finding, and in my view it is
fully justified by the evidence referred to.

[30] Before turning to the finding of the full court on the existence of a
contract on certain terms between the parties I shall deal with the question of
Cloete’s authority to represent Stanlib in the conclusion of such a transaction,
a question not considered by the full court in view of its finding that there was
no contract. Stanlib denies that Cloete was its agent: he did not have the
authority to represent it generally nor in entering into a contract with the trusts.
He was a broker consultant, employed by Liberty, not Stanlib, who was
permitted only to provide information and marketing materials on Liberty
products, including Stanlib investments. His role was to provide clarity on
investments and procedures and to assist with administrative activities such
as collecting investment application forms and sending them to Stanlib.

[31] Stanlib denies also that Cloete had implied authority to represent it. But
the facts suggest otherwise. Cloete had access to the computer systems that
allowed for the making of online investment applications: although he did not
have his own access code he was able to use the codes of other brokers as
he did frequently when loading applications for Wesvaal (Optimum), the
brokers for Martinson. And as a result of each application a policy would be
created by Stanlib. Although denying Cloete’s authority to do this, Stanlib
relies on his authority and his conduct in loading the Henco application and
creating its policy. Griessel J put the dilemma that Stanlib found itself in as
follows:
‘In the final analysis, however, the defendant hoists itself with its own petard. In this
case, the defendant resists the plaintiff’s claims, essentially on the basis that the
funds in question do not belong to Seca and Tableau, but to Henco. But who on
behalf of the defendant created the Henco policy documents . . .; who generated the
necessary deposit slip so that the Henco policy could be funded; who faxed the
deposit slip to Du Toit; who followed up the matter and made repeated enquiries from
Mrs du Toit as to when cheques would be deposited? The answer in each instance is
Cloete. By the defendant’s own tacit admission, therefore, Cloete had the necessary
authority to represent the defendant in the transaction vis-à-vis Henco. Against this
background, it is opportunistic (to put it no higher) on the part of the defendant to
deny that Cloete had the requisite authority to represent it in concluding a similar
contract with the plaintiffs.’

[32] The trial court thus found, correctly in my view, that Cloete had the
necessary authority to represent Stanlib in its dealings with the trusts. The
question remains whether Du Toit on behalf of the trusts, and Cloete
representing Stanlib, entered into an enforceable contract.

[33] The full court considered that Pretorius’s intention to invest in a cash
account was inconsistent with the nature of the investment offered by Stanlib,
which was in matured policies. Davis J pointed to the application forms as
indicative of the nature of the investment, which contrasted with the
handwritten words ‘Liberty Cash Account’ on the form. What Pretorius had in
mind was an interest-bearing deposit, repayable on demand. There was thus,

in the view of the learned judge, no oral agreement as pleaded: ‘The features
of the alleged contract as pleaded are inconsistent with the nature and
structure of the investment product in which it is alleged the payment of R5m
was placed’.

[34] It seems to me that the approach of the learned judge confuses the
agreement to invest with the object of the investment. A simple example
illustrates this. If A purchases a model X car from B, they are agreed on the
object of the sale: the model X. The fact that A or B does not fully appreciate
how the car operates does not mean that there is no consensus on what is
being purchased. Thus Pretorius’s imperfect understanding of how the
investment worked does not mean that he did not intend to invest on behalf of
the trusts in Stanlib’s matured policies.

[35] What was intended by the parties? Pretorius’s evidence was clear: he
wanted to place R2.5m on behalf of Seca and Tableau each in a secure
investment (hence the importance of the Liberty reputation); to gain large
returns, and at the minimum to be able to recover the capital on demand. The
nature of the investment product provided by Stanlib is not at odds with this:
as Rabe testified, had Henco not been involved, and had Pretorius asked for
return of the capital, Stanlib would have paid it to him. Rabe conceded that if
Henco was not the owner of the investment then Seca and Tableau would
have been.  He could not have done otherwise. In the application by Saambou
for the proceeds of the Henco policy, Rabe had denied that Henco owned
policy MV1007455, and referred to the cheques from Mat Securities that had
been incorrectly allocated to the Henco policy. ‘No deposit was accordingly
received by [Stanlib] on behalf of Henco Trust and no such investment could
accordingly have been ceded as security to anyone.’

[36] Ironically, a trustee of Henco, Mr P H Ferreira, in deposing to the
answering affidavit on behalf of Henco in the Saambou application for the
proceeds of the policy, also denied that the funds held by Stanlib under
MV1007455 belonged to Henco. And Cloete testified that had he received Du

Toit’s letter of 21 May he would have rectified the allocations in accordance
with Du Toit’s request.

[37] If there were no agreement on or before 4 April 2002 why did Pretorius
draw two cheques on the account of Mat Securities in favour of Multivest and
give them to Du Toit to be deposited?  The cheques were in favour of an
investment vehicle admittedly owned by Stanlib. The probabilities are,
overwhelmingly, that he intended to invest in the product of Stanlib that would
yield a return and where the capital would be repayable on demand.   And as I
have shown, Rabe’s stance was that had the policies been in the names of
Seca and Tableau they would have been the owners and entitled to
repayment.

[38] The terms of the oral agreement were pleaded as follows:
‘Die trusts verskaf elkeen ‘n bedrag van R2 500 000 aan Verweerder om deur
Verweerder in hul onderskeie name te belê in Multivest Corporate Investment Trust,
die Liberty Groep se Geldmarkfonds.
Die trusts is geregtig op die rente wat deur gemelde beleggings verdien word.
Die beleggings sal opgeroep en aan die trusts terugbetaal word op aanvraag.’

[39] In my view the contract pleaded by the appellants was established by
the evidence. Du Toit and Cloete, on about 4 April, agreed on behalf of their
respective principals that the trusts would together invest R5m in a Stanlib
investment account. The capital would be repayable on demand. The trusts
performed their obligations when the cheques drawn by Mat Securities were
deposited into the Multivest account on 4 April. The trusts are thus entitled to
return of their investments. The appeal against the decision of the full court
must accordingly succeed.

[40] It is ordered that:
1 The appeal is upheld with costs including those occasioned by the
employment of two counsel.
2 The order of the court below is set aside and is replaced with:

‘The appeal is dismissed with costs including the costs occasioned by the
employment of two counsel.’

C H Lewis
Judge of Appeal

Concur:
Scott JA
Brand JA
Combrinck JA
Theron AJA

THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

31 May 2007

STATUS: Immediate

Pretorius NO v Stanlib Wealth Management Ltd

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 today found that the trustees of two trusts that
had invested R5m in Stanlib were entitled to claim return of the investments.
When the trustees instituted action in the Cape High Court it held that they
had made deposits of R2.5m for each trust into an investment account, which
were repayable on demand, and that the trustees were entitled to repayment
of the capital invested. That court found that the deposits were made pursuant
to an oral agreement between the parties’ respective representatives.

The full court of the Cape High Court reversed this decision on appeal. It
found that the evidence had not established the terms of the oral contract
relied on by the trustees.

The Supreme Court of Appeal in turn reversed the decision of the full court. It
considered that the decision of the trial court, that the oral agreement on

which the trustees relied had been established by the evidence, and that the
trustees were entitled to recover the investments made, was correct.