The Supreme Court of Appeal (SCA) heard the matter between The Trustees of the Insolvent Estate of Grahame Whitehead and Dr Leon Dumas on 1 March 2013. The judgment was delivered on 20 March 2013 by Cachalia JA (with Lewis, Ponnan, Theron and Petse JJA concurring).
This matter is an appeal from the North Gauteng High Court and concerns a dispute of R3 million between the trustees of a fraudster’s insolvent estate and a disgruntled investor.
The investor, Dr Leon Dumas (“First Respondent”) had been induced to pay the money into the bank account of the fraudster, Mr Grahame Whitehead, in contemplation of participating in the latter’s illegal financial scheme (Ponzi scheme).
The First Respondent was duped through representations made by an agent acting on behalf of Mr Whitehead that the scheme was legitimate and instructed his bank to transfer R3 million into Whitehead’s ABSA Bank account on 23 April 2009.
Unbeknown to both the agent and Dumas, Whitehead had been under arrest for fraud in the United Kingdom at the time and was later convicted and given a ten year prison sentence.
The First Respondent (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 (“Appellant”), on the other hand, contend that the funds became part of the estate on sequestration, and thus subject to the concursus creditorum.
Issue/matter to consider
The enquiry in this case turns on whether or not Whitehead acquired a personal right to the credit when Dumas transferred money 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 (which would result in the bank being unjustly enriched at the expense of Dumas).
The SCA held that as soon as the money was credited to Whitehead’s bank account, the bank had the obligation to account to him in accordance with their bank-client relationship. The bank became obliged to account to the trustees of the insolvent estate, who stepped into Whitehead’s shoes upon his sequestration.
Accordingly, it was 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 appeal was upheld with costs, including the costs of two counsel.
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