The provisions of the Prescription Act have resulted in the dismissal of a R2 million claim against Sanlam Private Wealth (SPW). This was despite the High Court finding that even if the money was the proceeds of illegal transactions, SPW did not have the authority to transfer the amount to Goodall & Bourne Assurance, now known as Constantia Life.
Willow Investments sought a declaratory order that SPW’s transfer of R2 043 865 from an investment account held by Shaneil Financial Management CC to an investment account held by Goodall & Bourne Assurance was unauthorised and be reversed.
Shaun Gungudoo, the sole shareholder of Willow, was also the sole member of Shaneil, which had a broker account with Sanlam Private Investment, now SPW.
Gungudoo’s joint estate was finally sequestrated in April 2011 following an application brought by Hannover Reinsurance Group Africa and Hannover Reinsurance Africa. Gungudoo was the investment manager of both entities.
In granting the sequestration order, the Gauteng High Court found that Gungudoo traded on behalf of Shaneil. Shares held by Hannover were transferred to Shaneil on Gungudoo’s instructions, which the court found, amounted to a misappropriation of the shares.
Gungudoo, through Shaneil, engaged in short trades to the prejudice of Hannover. When losses occurred, they were passed to Hannover’s accounts, and when a profit was made, it was passed to Shaneil’s account.
The Hannover companies divested themselves of Goodall & Bourne in 2005. Gungudoo, however, continued to trade on behalf of the company, the court found.
In May 2012, the Supreme Court of Appeal upheld the sequestration order.
SPW transfers R2m to Goodall’s account
In September 2011, Gungudoo discovered that SPW had moved R2 043 865 from Shaneil’s account to a suspense account because he was sequestrated.
The High Court said it was now common cause that SPW had credited Goodall’s account.
Shaneil was wound up in November 2017. Hannover, Goodall and SPW did not submit any claims in the insolvent estates of Gungudoo or Shaneil.
Shaneil’s liquidators refused to pursue a claim against SPW for the reversal of the R2 043 865 from Shaneil’s account to Goodall’s account.
Gungudoo was rehabilitated in January 2018. The claim against SPW was ceded to Willow, which was incorporated in May 2018 with Gungudoo as its sole shareholder.
In the case that was heard in October last year, Willow claimed that SPW was not entitled to make unauthorised transfers from Shaneil’s account. Shaneil had a non-discretionary mandate with SPW.
SPW held it was entitled to transfer funds from the Shaneil account without any instructions based solely on the fact that the High Court found that Shaneil’s account was used for unauthorised transactions and the misappropriation of other entities’ assets.
No authority to reverse the transaction
In her judgment delivered in January, Judge Elmarie van der Schyff ruled that SPW’s transfer of R2 043 865 from Shaniel’s investment account to Goodall’s account was unauthorised. Among the reasons for this were:
- Although the High Court, when it granted the sequestration order, found that Gungudoo, through Shaneil, at some time conducted unauthorised transactions and that shares were misappropriated, this did not prove, on a balance of probabilities, that the funds in the Shaneil account at the time that SPW reversed them were the proceeds of illegal transactions.
- Even if it was accepted that the court could find, based solely based the High Court’s April 2011 judgment, that the funds in Shaneil’s account were the proceeds of illegal and unauthorised transactions, SPW was unable to show that it was authorised not only to freeze or suspend Shaneil’s account, but also to reverse Shaneil’s account and to credit Goodall’s account.
“The difference between freezing or suspending an account and reversing a transaction is that while the former preserves the status quo, the latter is an action in relation to investment transactions,” Judge Van der Schyff said.
“In terms of the non-discretionary mandate, transactions could only be conducted on Shaneil’s instructions. In the absence of an instruction, an agreement, or a court order authorising the transfer, SPW took matters into its own hands and seemingly regarded itself as adjudicator in the dispute that arose between Mr. Gungudoo and Hannover and Goodall.”
Judge Van der Schyff said the reversal coincided with the settlement reached between Constantia Life, SPW and Hannover in litigation instigated by Constantia wherein SPW and Hannover each accepted liability for losses suffered in the Goodall account. Neither Gungudoo nor Shaneil were parties to the litigation.
However, this was not the end of the matter.
Shaneil knew of the transfer in December 2011
SPW argued that the claim had prescribed. It said Shaneil had knowledge of the facts from which the debt was alleged to arise and the identity of the debtor on or about 31 October 2011, or 1 December 2011, or 3 July 2015.
However, SPW said summons had been served on 4 July 2018, more than three years after the date upon which the alleged claim became due.
Judge Van der Schyff said the evidence indicated that Shaneil knew by December 2011 that SPW had transferred funds from its account without authorisation.
The evidence did not support a finding that SPW wilfully prevented Gungudoo or the trustees of his insolvent estate, and thus Shaneil, from coming to know of the existence of the debt.
“SPW cannot be blamed for the trustees’ inaction to make further enquiries between December 2011 and June 2014, or the apparent lack of information flow between the trustees of Mr Gungudoo’s insolvent estate and their legal representative,” she found.
Judge Van der Schyff said Willow’s claim had prescribed and dismissed it with costs.