IN THE HIGH COURT OF SOUTH AFRICA /ES (TRANSVAAL PROVINCIAL DIVISION) CASE NO: 29314/2002 DATE: 19/7/2007 NOT REPORTABLE

Transcription

1 IN THE HIGH COURT OF SOUTH AFRICA /ES (TRANSVAAL PROVINCIAL DIVISION) CASE NO: 29314/2002 DATE: 19/7/2007 NOT REPORTABLE IN THE MATTER BETWEEN SECUREFIN LIMITED 1 st PLAINTIFF ING BHF BANK AKTIENGESELLSCHAFT (formerly BHF Bank Aktiengesellschaft) AND KPMG CHARTERED ACCOUNTANTS (SA) AND NATHAN KIRSH MYRA SALKINDER 2 nd PLAINTIFF DEFENDANT FIRST THIRD PARTY SECOND THIRD PARTY JUDGMENT VAN DER MERWE, J The first plaintiff is a company registered and incorporated with limited liability in accordance with the company laws of Jersey, with its principal place of business at Salisbury House, 1 Union Street, St Helier, Jersey, Channel Islands. The second plaintiff is Ing BHF Bank Aktiengesellschaft (formerly BHF Bank Aktiengesellschaft) a company registered and incorporated with limited liability in accordance with the company laws of Germany, with its principal place of business at Bockenheimer Landstrasse 10, Frankfurt An Main, Germany. The defendant is KPMG Chartered Accountants (SA) formerly a partnership

2 2 practicing as chartered accountants and registered accountants and auditors at Cnr Empire Road and Jan Smuts Avenue, Parktown, Johannesburg. The first third party is Nathan Kirsh ("Kirsh"), a business man of Kirsh Industries, 54 Summit Road, Hydepark, Johannesburg. The second third party is Myra Salkinder ("Salkinder"), a business woman of Kirsh Industries, 54 Summit Road, Hydepark, Johannesburg. The first plaintiff claims an amount of US$ ,54, alternatively R ,02 from the defendant. The first plaintiff's claim is founded upon contract. The second plaintiff, in the alternative, claims amounts of US$ ,40 and R ,93 from the defendant. The second plaintiff's claim is founded in delict. The first plaintiff's claim is dependant on it proving the conclusion of a valid contract between it and the defendant, the terms thereof, the breach of the contract and the consequent damages. The second plaintiff's action is dependant upon it proving a duty of care owed by the defendant to it, the negligent breach of the duty of care and the consequent damages. The defendant filed a plea to the plaintiff's particulars of claim on 28 January 2003, disputing liability and simultaneously with the plea, issued a third party notice joining the first and second third parties. The joinder assumes that the second plaintiff succeeds in its action against the defendant and is founded upon the contention that, in so far as the defendant negligently breached the alleged duty of care causing the second plaintiff to suffer damages, the third parties also owed the second plaintiff a duty of care which they in turn breached. The defendant alleges that the third parties are joint wrongdoers in relation to any damages sustained by the second plaintiff and therefore seeks a declaration that the third parties are liable to the defendant for payment of the amount which the defendant may be ordered to pay to the second plaintiff alternatively, for payment of such amount which the court deems just and equitable having regard to

3 3 the degree in which each of the defendant and the third parties were at fault in relation to the damages suffered by the second plaintiff. The third parties delivered their plea during August 2005 in a joint document. 0n 6 July 2006 the defendant delivered a notice of intention to amend its plea. 0n 20 July 2006 the plaintiffs objected to the proposed amendment. The defendant elected not to proceed with the proposed amendment. The original plea filed on 28 January 2003 as well as the notice of intention to amend dated 6 July 2006 and the objection thereto dated 20 July 2006 do not form part of the pleadings. The three documents were, however, provided as part of the plaintiffs' heads of argument. It is not necessary to deal with the contents thereof. 0n or about 8 August 2006 the defendant filed a further notice of intention to amend its plea by replacing it with a new one. This notice also does not form part of the pleadings but was also annexed to the plaintiffs' heads of argument. It is common cause that at a pre trial conference held on 15 August 2006 the defendant's legal representatives were notified that there would be no objection to the proposed amendment. The amended plea was thereafter delivered on 22 August It is also common cause that at the pre trial conference the plaintiffs and third parties advised the defendant that it considered it convenient for there to be a separation and prior determination of certain issues on the pleadings. No agreement could be reached on the separation issue and a formal application therefore followed. From the papers before me it appears that the parties discussed the trial date and the allocation of a specific judge with the then acting deputy judge president as early as the beginning of August The parties were then notified that the matter would be

4 4 heard during the fourth term of 2006 and that a judge would be allocated by the judgepresident early in It appears that the necessary steps were taken to have the matter enrolled but unfortunately I was only appointed as the trial judge during August 2006 when a number of interlocutory matters, including the application for the separation of issues in terms of rule 33(4) of the Uniform Rules of Court had already been set down for hearing on 17 August The unfortunate situation had therefore arisen that I had to, in between other responsibilities, try to analyse the pleadings in this matter and arrange a date for the hearing of the separation application. Fortunately the other interlocutory applications had by then been sorted out. I heard the application in terms of rule 33(4) and gave a short judgment as soon as I was able to come to a decision. I was not able at the time to analyse the particulars of claim in any detail. I will do so now in this judgment. I was also not able to deal in detail with counsel's arguments. I dealt with it very briefly and granted an order in terms of prayers 1 and 2 of the application and ordered that costs of the application be costs in the action. In terms of prayer 1 of the separation application I was asked to grant an order directing that the issues arising in terms of and from paragraphs 3, 4, 5, 6, 7 and 15.1 of the particulars of claim be separated from the remaining issues arising in the action and be decided separately from and prior to the remaining issues. In terms of prayer 2 of that application I was asked to direct that the further proceedings in respect of the remaining issues be stayed until the separated issues have been disposed of. 0n the first day of the trial on 10 0ctober 2006 the plaintiffs filed a replication to the defendant's amended plea. During the opening address the plaintiffs indicated that they would seek an amendment to its particulars of claim and their and the third parties' reply to the defendant's request for particulars for trial. That was effected on 8 November

5 The defendants filed a rejoinder to the first and second plaintiff's replication on 15 November For what is to follow it is necessary to consider the plaintiffs' claims and the defendant's defences thereto in respect of the separated issues in some detail. In doing so I will refer to the pleadings after the amendments. The plaintiffs allege in paragraph 3 of the particulars of claim that on or about 26 June 1998 and at Johannesburg the first plaintiff, represented by Salkinder, and defendant, represented by K P Delaney ("Delaney"), entered into a written verification agreement. The verification agreement is annexed to the particulars of claim marked "PC1". The verification agreement consists of an engagement letter with annexures, being annexure "A", a copy of a procurement contract, annexure "B", a copy of a draw down and certain other audit procedures, and annexure "C", a draft report. The procurement contract makes reference to the following appendices of its own: 1. appendix "A", being a resolution of the board of directors of KNA Insurance and Investment Brokers (Pty) Ltd ("KNA") authorising D G Alexander ("Alexander") to represent KNA in concluding the procurement contract; 2. appendix "B", being a resolution of the board of directors of the first plaintiff authorising a director to represent the first plaintiff in concluding the procurement contract; 3. appendix "C", being the form of the notice to be given by the defendant to the first and second plaintiffs; and 4. appendix "D", being a custodial agreement to be concluded between Nedbank and the first plaintiff. Earlier herein I referred to an amendment that was effected on 8 November This amendment relates to the draft report, annexure "C" to the engagement letter. The question that was asked by the defendant reads as follows:

6 6 "Annexure 'A' to annexure 'PC1' refers in paragraph to appendix 'C', yet no such appendix forms part of annexure 'PC1'. Arising from this: 1. For what reason was the appendix not attached to annexure 'PC1'? 2. If the appendix ever existed: 2.1 Who compiled it? 2.2 When was it compiled? 2.3 What became of it? 3. Does the defendant correctly infer that no reliance will be placed upon it?" The plaintiffs initially answered as follows: "The document serving as appendix 'C' was compiled by the defendant on or before 11 June It is similarly the document annexure 'C' to the engagement letter annexure 'PC1' and formed part of the documentation signed and/or agreed to by the parties. The terms of such document appendix 'C' were agreed upon between the plaintiffs (represented by Kirsh and/or Salkinder) and the defendant (represented by Delaney and/or one or more representatives of the defendant) on or before 11 June 1998." The amendment substituted the following for the initial answer: "The document serving as annexure 'C' was transmitted by facsimilee by the defendant to the first plaintiff on 19 June 1998 and formed part of the verification agreement (annexure 'PC1') signed by the defendant and the first plaintiff on 26 June 1998 and 27 June 1998 respectively. Such annexure 'C' was compiled by the defendant on or before 19 June The plaintiffs are not aware of the identity of the person/s who compiled such document on behalf of the defendant. Annexure 'C' further served as the document appendix 'C' to the procurement contract." Paragraph 4 of the particulars of claim deals extensively with express and/or tacit and/or implied material terms of the verification agreement. In this respect it is alleged

7 7 that: 1. the first plaintiff appointed the defendant, which accepted such appointment, as verification agents for the acquisition by KNA on behalf of the first plaintiff of 0ld Mutual Life Assurance Policies in the Republic of South Africa; 2. it was recorded that: 2.1 the first plaintiff had entered into a bipartite agreement (procurement contract) with KNA in terms of which KNA would procure, on behalf of the first plaintiff, life assurance policies; 2.2 in terms of the procurement contract, KNA, acting as procurement agent, was obliged to acquire and process the policies under the terms and conditions as specified in clause 4 of the procurement contract; 2.3 the procurement contract required defendant to perform certain procedures and report on certain aspects of the policy acquisitions; 3. the defendant recorded its understanding that, apart from the specific procedures to be performed by the defendant in accordance with clauses 5.1, 5.2 and 5.3 of the procurement contract, the defendant would be required to carry out certain other procedures in order to provide the first plaintiff with confirmation of the following: 3.1 the assignment, in writing, of the policy from the insured who has sold the policy to the first plaintiff in such manner as complies with the insurance company's standard terms for assignment of policies; 3.2 confirmation by the insurance company of the assignment of the policy to the first plaintiff in the form of the insurance company's standard confirmation;

8 8 3.3 confirmation by the insurance company of a security cession in favour of such third party as the plaintiff may nominate in writing over each policy which has been assigned to the first plaintiff; 3.4 written confirmation from the insurance company that each of the policies is not encumbered in any way; 3.5 the defendant has obtained a print out on each policy from the insurance company reflecting the guaranteed maturity value of each policy; 3.6 the insurance company is provided with an irrevocable instruction to remit the funds due to the first plaintiff on maturity of the policies to such bank account as may be stipulated by the first plaintiff and in accordance with the security cession; 3.7 where applicable, the future value of outstanding policy premiums, as calculated by KNA, are correct and have been deposited in a bank account carrying an irrevocable debit order in favour of the insurance company for the payment of such future premiums; 3.8 the policies making up a tranche have been deposited with the custodian in terms of the security cessionary's request. (The defendant recorded having obtained acknowledgement of receipt by the custodian.) 3.9 Foreign exchange approval exists for the first plaintiff to invest in the policies and repatriate any proceeds arising on maturity. 4. The detailed audit procedures undertaken to be carried out by the defendant in order to satisfy the aspects set out in 3 above were included as annexure "B" to the verification agreement.

9 9 5. The defendant recorded its understanding that it would be required to report direct to the first plaintiff on the aspects as verified in terms of the verification agreement and would issue such report together with each tranche draw down in the format as set out in annexure "C" to the verification agreement. 6. The defendant agreed, on the first plaintiff's instructions, to issue a similar report to the second plaintiff or any other banking institution which may, from time to time, provide funding to the first plaintiff for the acquisition of policies. 7. The defendant provided the assurance that it would be providing the first plaintiff with a quality service in an efficient and timely manner. The procurement contract is dealt with in detail in paragraph 5 of the particulars of claim. It is not necessary to repeat the assertions as they will be dealt with later herein in more detail. In paragraph 6 of the particulars of claim the first plaintiff alleges that it in writing nominated the second plaintiff as the third party in respect of which a security cession operated, as contemplated in the verification agreement. 0f importance are the allegations in paragraph 7 of the particulars of claim as it contains, according to the plaintiffs, the terms of the verification agreement upon a proper construction, alternatively implied or tacit terms, thereof. These terms are according to the plaintiffs: 1. The defendant undertook to perform its functions with due professional care and skill and in accordance with professional standards to be reasonably expected of chartered accountants and registered accountants and auditors. 2. The defendant would, in performing its functions, comply with statements of

10 10 South African auditing standards and generally accepted auditing standards and more particularly: 2.1 properly plan for the work to be performed by it; 2.2 design and conduct appropriate audit procedures in executing the functions undertaken; 2.3 report in an appropriate and clear manner. 3. The defendant was required to take such steps as were reasonably required so as to be able to and in fact to 3.1 verify and positively confirm the matters set out in the required report (ie the "verification certificate" as defined in clause of the procurement contract); 3.2 verify the cost of the tranche consideration (ie as defined in clause read with clause of the procurement contract), to the first plaintiff in each instance; 3.3 prior to issuing any certificate as contemplated in the procurement contract and verification agreement, to satisfy itself inter alia that: the first plaintiff was making payment of the correct tranche consideration for each policy tranche; none of the policies in a policy tranche were such as were required to be rejected by the defendant as not complying with the criteria to have been verified in the verification procedure, as contemplated in clause 4.4 of the procurement contract, including inter alia verifying that each policy complied with the requirements of clauses 4.1, 4.2 and 4.3 of the procurement contract, and more particularly: had a maturity date of not later than 1 January 2001 or as the first plaintiff may stipulate to KNA in

11 11 writing; where the policy was not fully paid up as set out in clause , ensuring that the moneys received as part of the tranche consideration, being the discounted value of future premiums determined in terms of of the procurement contract was paid into the bank account referred to in such clause and utilised to pay such future premiums as and when due; that the correct premiums were payable in respect of the policies; the tranche consideration in respect of a batch of policies was not less than US$ ,00 (five hundred thousand United States dollars); it had obtained a print out on each policy from the insurance company reflecting the guaranteed maturity value of each policy at maturity date, which was to be not later than 1 January 2001; the first plaintiff could accept the assurance contemplated by the verification certificates referred to in the procurement contract in respect of the matters contained therein. 4. The defendant would inform the first plaintiff of any material facts or circumstances which was suspicious and/or irregular and which might reasonably be adverse to the first plaintiff in respect of the acquisition of any policy/policies contemplated in the procurement contract and of which the defendant was aware alternatively ought reasonably to have been aware in the course of performing its functions. (This allegation in paragraph 7.4 of the particulars of claim was also amended to its present form in terms of the amendment effected on 8 November 2006.)

12 12 In its amended plea to paragraph 3 of the particulars of claim the defendant challenges the validity of the verification agreement. In summary the defendant alleges that: 1. it purported to conclude a written verification agreement which comprised the engagement letter to which was attached a copy of the procurement contract in amended form and two other annexes; 2. prior to signing the engagement letter a draft procurement contract was submitted to it by the first plaintiff; 3. the draft procurement contract was furnished to the defendant during the process of the negotiation of the terms of an engagement letter to enable the defendant to finalise the formulation of the engagement letter; 4. on or about 19 June 1998 the defendant furnished to the first plaintiff its final draft of the engagement letter, together with the final draft of the verification report format, for the first plaintiff's approval; 5. the final draft of the engagement letter envisaged that the draft procurement contract to be concluded between the parties thereto would be attached to the engagement letter, and specific reference was made to the procedures to be performed in accordance with clauses 5.1, 5.2 and 5.3 of the draft procurement contract; 6. clauses 5.1 and 5.3 of the draft procurement contract envisaged the provision by the verification agent of a verification certificate in accordance with appendix "C"; 7. in terms of clause of the draft procurement contract "verification certificate" was defined as meaning "the notice to be given by the verification agent to Securefin (the first plaintiff) in accordance with appendix "C";

13 13 8. appendix "C" to the draft procurement contract bore the title "verification certificate" but was otherwise blank; 9. the aforementioned final drafts were approved by the first plaintiff and on or about 26 June 1998 a signed copy of the procurement contract was submitted by the first plaintiff to the defendant to enable the defendant to attach it to the final draft of the engagement letter before signing the engagement letter; 10. the first plaintiff owed the defendant a duty to inform the defendant of any material changes to the draft procurement contract; 11. in submitting the copy of the procurement contract the first plaintiff omitted to inform the defendant that it had been materially altered, and differed from the draft procurement contract in material respects, namely: 11.1 clauses 5.1 and 5.3 made reference to the provision of "verification certificates"; 11.2 "verification certificate" was defined as meaning two certificates, firstly a notice to be given by the verification agent in accordance with appendix "C" and secondly a certificate verifying the cost to the first plaintiff of the tranche considertion; 12. the omission induced in the defendant the belief that the procurement contract was not materially different to the draft procurement contract; 13. at all material times during the negotiation of the terms of the engagement letter it was made clear by the defendant, represented by Delaney and/or Hermanus Fourie ("Fourie"), to the first plaintiff, represented by Kirsh and/or Salkinder and/or Alexander, that the defendant could not and would not verify the acquisition price or the purchase price of the policies;

14 when signing the engagement letter, incorporating a reference to clauses 5.1 to 5.3 of the procurement contract, the defendant, to the knowledge of the first plaintiff: 14.1 did not intend to contract on the basis that it would provide a certificate verifying the "tranche consideration", which term was defined as to include "the total acquisition price of all policies comprising such policy tranche"; 14.2 intended that each report it would be required to furnish, would be in the form of annexure "C" to the engagement letter; 14.3 intended that it would verify neither the acquisition price of the policies, nor the tranche consideration, as defined; 14.4 would not have signed the engagement letter had it known that the procurement contract had been altered and differed from the draft procurement contract as aforesaid. 15. The first plaintiff on the other hand intended to contract on the basis that the defendant would provide a certificate verifying the tranche consideration as defined. 16. The written verification agreement was, accordingly, concluded in error, which error was both material to the conclusion thereof, and reasonable on the part of the defendant. 17. In the result, the written verification agreement purportedly concluded was void and unenforceable. In the alternative, and in the event that it is found that the verification agreement as defined by the plaintiffs was valid and enforceable, it is alleged that: 1. the first plaintiff and the defendant purported to enter into a written

15 15 verification agreement by signing the engagement letter, annexed as "PC1" to the particulars of claim; 2. the copy of the procurement contract attached to the verification agreement (annexure "PC1") annexed to the particulars of claim, as annexure "A", was not annexed to the verification agreement at the time of signature of the verification agreement by De Villiers; 3. the copy of the procurement contract which was attached to the verification agreement at the time of signature by De Villiers had been amended in manuscript by changing the reference to "an endowment policy with the maturity date of not later than 1 January 2001" to read "an endowment policy with a maturity date of not earlier than 1 January 2001" (annexure "KPMG1" to the plea); 4. in executing the engagement letter ("verification agreement"), the defendant intended the reference to the procurement contract as a reference to the procurement contract as amended; 5. in purporting to conclude the verification agreement the first plaintiff intended the reference to the procurement contract to be a reference to the procurement contract without the amendment; 6. the reference to the maturity date was a material term and, having regard to the differing intentions of the parties regarding the maturity date, there was no consensus between the parties. The defendant pleads in the alternative and in the event of the court finding that there was consensus between the first plaintiff and the defendant or that the lack of consensus was not material to the validity of the agreement, that: 1. at the time of the conclusion of the verification agreement, appendix "C"

16 16 as contemplated by clause of the procurement contract, was not attached; 2. the verification certificate referred to in clause of the procurement contract was material to the procedures which the defendant was required to perform in terms of the verification agreement; 3. in the absence of appendix "C" it was not possible for the defendant to fulfil that material function under the verification agreement and that the verification agreement was accordingly void and unenforceable. The defendant further pleads that, in the event that it is found that the verification agreement is not void and unenforceable that the verification agreement incorporated the procurement contract as amended by the defendant. In its plea to paragraph 4 of the particulars of claim the defendant denies that the verification agreement was valid and binding. In the alternative the conclusion of the procurement contract is put in dispute. Further in its plea to paragraph 4 of the particulars of claim the defendant alleges that the parties to the verification agreement agreed on two occasions to amend it. The first amendment agreed to during July 1998 need not be referred to at this stage. Reference will be made thereto later herein. In respect of the second amendment the defendant pleads that the verification agreement was amended on 4 August 1998 in terms of a written instruction issued by Salkinder, representing the first plaintiff, to the effect that: 1. the format of the reports to be issued, to be in the form of the example attached, ie two reports, one addressing the guaranteed maturity value and the other addressing the total purchase value;

17 17 2. all reports be handed to KNA for onward transmission to the plaintiffs. I referred earlier herein to the replication filed by the plaintiffs on the first day of trial. In the replication it was denied that the verification agreement was amended as alleged and in the alternative it is denied that Salkinder was authorised to represent the first plaintiff in agreeing to any alleged amendment. The rejoinder filed by the defendant raises an estoppel which I need not discuss in any further detail at this stage. In its plea to paragraph 5 of the particulars of claim the defendant denies that the verification agreement was valid and binding and again places the conclusion of the procurement contract in dispute. It is not necessary to deal in any detail with the defendant's plea to paragraphs 6 and 7 of the particulars of claim. It will be dealt with later herein. In respect of paragraph 15.1 of the particulars of claim the defendant was content with a plea that it has no knowledge of the allegations and accordingly denied it. I will also later herein deal with paragraph 15.1 of the particulars of claim. In the defendant's affidavit opposing an application in terms of rule 33(4) of the Uniform Rules of Court the defendant's attorney submitted that arising from what is stated above and from the denial by the defendant of the "proper interpretation" to be placed upon the verification agreement, the material disputes relate to the following issues: 1. The validity of the verification agreement. The question is whether the lack of consensus is destructive of the agreement or not.

18 18 2. The proper interpretation to be placed upon the provisions of the agreement. Assuming there to be sufficient consensus, the questions of interpretation relate to the different versions advanced on the pleadings. 3. The amendment of the verification agreement on 4 August The authority of Salkinder to have issued the instruction appears to be disputed. I have dealt with the contractual issues on the pleadings in some detail in this judgment as they were of relevance in the rule 33(4) application. As can be seen from the aforegoing the disputes relating to the contractual issues are complex and wide ranging. In the defendant's heads of argument a general remark is made concerning the issues as they appear from the pleadings. The remark is as follows: "The allegations made in paragraph 6 of the particulars of claim are no longer in dispute and those made in paragraphs 4 and 5 are not contentious, save for an issue concerning the reference to appendix 'C'." In the plaintiff's heads of argument a very helpful summary of the issues is made. It is said that the following issues arise for determination: 1. The terms of the agreement, ie the verification agreement, concluded between the first plaintiff and the defendant. This, according to the heads, raises the following further issues: 1.1 what documents constituted and formed part of the verification agreement, more particularly whether it comprised annexure "PC1" and annexures "A", "B" and "C" or whether, as the defendant contends, annexure "A" was the document annexure "KPMG1" and annexures "B" and "C" and whether appendix "C" was annexed to annexure "KPMG1" and, if not, whether this rendered

19 19 the agreement materially inchoate and unenforceable; and 1.2 the terms of the verification agreement, involving an interpretation thereof. The terms the plaintiffs rely on appear in paragraphs 4, 5 and 7 of the particulars of claim. 2. Whether, if an agreement is established as contended for by the plaintiffs, the defendant entered into the agreement induced by a iustus error rendering the agreement void/unenforceable at its instance, more particularly whether the defendant erred in relation to the definition of "verification certificate" in clause of the procurement contract. 3. Whether the verification agreement was amended as pleaded in paragraphs 4.3 and 4.4 of the defendant's plea. This in turn raises the question of the authority of Salkinder to agree to an amendment as alleged by the defendant. 4. The loan agreement and security cession as pleaded in paragraph 15 of the particulars of claim. Save for the quotation from the defendant's heads of argument concerning paragraphs 4, 5 and 6 of the particulars of claim, the issues as summarised by the plaintiffs are dealt with in the defendant's heads of argument. I do not find it necessary at this stage to deal with the defendant's formulation of the issues in more detail. It will be done later in this judgment. Much time was spent on the question whether the engagement between the first plaintiff and the defendant was an audit engagement or a so called agreed upon procedures agreement. This concerns the terms of the verification agreement and the interpretation thereof and will be addressed later herein. During the course of the trial certain admissions were made which effected some

20 20 of the issues. Reference will be made thereto in this judgment. The matter was set down for a period of ten weeks. The partied led evidence over the entire period. The record of the evidence consists of more than four thousand pages. A few thousand pages of exhibits were handed in. The heads of argument consist of a few hundred pages. It is impossible to summarise the evidence in detail. It is also impossible to refer to all exhibits. I will give a brief summary of the evidence and in the course thereof refer to some exhibits. When I consider the issues for determination as well as the submissions advanced by counsel, I will, in so far as may be necessary, refer to further evidence and exhibits not mentioned in the brief summary. In Mondorp Eiendomsagentskap (Edms) Bpk v Kemp en De Beer SA 74 (A) the court a quo found that an agreement came into existence between the parties and then placed an interpretation on the terms thereof. 0n appeal HOEXTER AJA (as he then was) stated as follows at p90c: "In die onderhawige geval, egter, gaan die geskilpunte nie slegs om die betekenis van 'n geskrewe stuk nie, maar is die ondersoek in die eerste plek gemik op die vraag of daar hoegenaamd 'n kontrak tot stand gekom het; en moet allereers die ondersoek duidelik as sodanig uitgeken word. Dat dit die ware toedrag van sake is, staan soos 'n paal bo water." The court of appeal, in a majority judgment, then found that no agreement came into existence as alleged. In discussing the evidence and the submissions I will no doubt keep in mind that in casu the question is in the first instance also whether a contract came into existence as alleged or not. 0nce I have found that an agreement in fact came into existence, the question of interpretation will arise. I do not intend dealing with the evidence of the various witnesses in the sequence

21 21 that they testified. I will try and give an overall picture of the factual background against which the decision must be made. Salkinder, the managing director of Kirsh Industries Ltd, met Alexander the managing director of KNA during late 1997 through Charles Stride ("Stride"), a trusted and longstanding friend of Kirsh. As appears from the aforegoing Kirsh and Salkinder are the first and second third parties respectively. Stride was the chairman of KNA Holdings Ltd of which KNA was a subsidiary. As a result of this contact between Salkinder and Stride, Constantia Insurance Co ("Constantia"), a subsidiary of Kirsh Industries Ltd, lent money to KNA at a handsome interest rate. KNA used this money to buy second hand insurance policies, "re engineered" them and made a good profit itself. The insurance policies were ceded to Constantia as security for the loan. At a later stage Kirsh Industries Ltd sold the shares in Constantia and because the loan to KNA yielded a good return the loan was ceded by Constantia to Kirsh Management Service (Pty) Ltd. That loan was repaid by KNA. Before the loan was finally repaid Stride approached Salkinder and informed her of even a better business deal in terms of which Genbel Ltd would finance the purchase of second hand insurance policies by a company Synergy Investment Services (Pty) Ltd. Alexander was the driving force behind the Synergy group of companies of which KNA was one. Stride suggested that Kirsh Industries Ltd or one of the companies in its group become involved in the deal. That never materialised though these discussions again led to a discussion between Salkinder, Kirsh and Stride on 20 January By that time Stride had occupied an office in the Kirsh Industries Ltd offices. At this meeting on 20 January 1998 it was discussed that Kirsch through one of his companies would invest in the purchase of insurance policies. That led to Salkinder visiting the offices of KNA in Hatfield, Pretoria. A lady, Suzan Geere, explained to Salkinder how policies were to be purchased, how they get re engineered to reduce the term within which they mature and how bonuses vest, etc. It appeared that Suzan Geere

22 22 had particular knowledge of this type of business and that KNA had the necessary software to do these transactions. Kirsh was interested in this business venture but wanted to do it on a large scale. He also had in mind bringing a bank as financier on board. Although the bank was not known at that stage it was to be an off shore bank. Although the initial discussions were of an explanatory nature, it was clear that a special purpose vehicle would be registered to do business in policies only and that the loan which would be obtained for the purchase of the policies would be repaid from the maturity proceeds of such policies. Being a special purpose vehicle there were no other funds or security available to repay any loan. At the time it was known that 0ld Mutual was to demutualise. It was thought that it would happen within approximately two years time. As time went by and the effects of demutualisation became clearer Kirsh and Salkinder realised that on demutualisation the owners of insurance policies would be issued with 0ld Mutual shares which would mean a financial gain for the owners of such policies. That was described by Kirsh as the "cherry on the top". Certain steps necessary for the purchase of second hand insurance policies, the involvement with an off shore financier and compliance with exchange control regulations were taken even before the first plaintiff came into existence. Kirsh personally provided some working capital before the first plaintiff was registered. In his evidence Kirsh referred to a document in trial bundle A1 page 19 where reference is made to a document headed "policy trading" in which reference is made to verification by the defendant in the following terms: "KPMG are required to audit the entire process and issue an audit certificate stating that all steps had been followed and all procedures have been carried out. A detailed audit procedure has been compiled by KPMG and will be available by Friday."

23 23 Kirsh was anxious that an outside independent group of people, such as the defendant, would be involved to neutralise any risk for the investor and the lender bank. According to Salkiner the defendant would have been involved in the deal with Genbel Ltd as a verification agent. The defendant was acceptable to Kirsh in the business venture he was to undertake particularly because the defendant was one of the big five auditing firms at the time. It had an international reputation and it would have been acceptable to an off shore bank. In broad terms Salkinder said in her evidence that the verification agents had to verify ownership of the insurance policies to the purchaser thereof and security cession to the lender. Furthermore the purchaser had to know the purchase price of the insurance policy as well as the maturity value thereof so that it could serve as proper security to the off shore bank. The purchaser would then also know whether there would be a proper margin of profit after repayment of the loan. Approximately 18 March 1998 Salkinder and Kirsh approached the second plaintiff and started negotiating with it for lending money to the special purpose vehicle which was to come into being. 0n 25 March 1998 Delaney of the defendant had a meeting with Alexander which resulted in Delaney writing to Alexander stating inter alia the following: "Your company is currently engaged in the acquisition of aged 0ld Mutual policies on behalf of an overseas investor. You have Reserve Bank approval for this process and the investor has lodged funds with yourselves in order for the process to commence. 0ne of the contractual obligations imposed on yourselves in terms of the agreement with the overseas party is that the individual acquisition transactions (for each policy acquired) must be certified by a registered auditor and accountant in order to confirm certain aspects relative to the transaction. These aspects are more fully referred to in the attached document provided to us by yourselves (annexure 'A')."

24 24 found. It is common cause that the annexure "A" referred to in this letter is not to be It is also common cause that at this stage (ie March 1998) instructions were given by Alexander through KNA to an attorney Gerber ("Gerber") to prepare draft agreements for the acquisition of 0ld Mutual policies. I do not intend dealing with the various drafts in any detail. Suffice to say that various parties were referred to as contracting parties and various terms changed from time to time in the different drafts. I will later refer to some important aspects in these draft agreements. Salkinder referred in her evidence to an occasion when Kirsh was in South Africa from 30 March to 8 April In that period Alexander introduced people from the defendant to Kirsh. According to her it was either one or two persons. From the evidence of Fourie, to which reference will be made later, it is clear that two people from the defendant visited Kirsh namely Fourie himself and a certain Le Roux. This evidence is of some importance on the question whether certain audit procedures were discussed with Kirsh or not. Salkinder was not present during the entire meeting. She joined them at a stage for about fifteen minutes. She denied that the audit procedures were considered by Kirsh and discussed with the defendant's representatives "line by line". She said that Kirsh is a "big picture guy". He has ideas of how things have to happen and then he delegates 100% authority and responsibility to the people in his organisations to make things happen. In her presence at least there was no detailed discussion of the audit procedures. As will be seen from the evidence of Fourie he could not and would not have discussed the procedures in detail as he was waiting for a final signed procurement contract before he would have finalised the verification agreement with the audit procedures thereto. There is a dispute as to the date on which this meeting took place. In the context of what may or may not have been discussed at that meeting I do not regard the date of any major importance and will therefore not deal with it save for referring to the evidence

25 25 of Le Roux. Salkinder was taken to nine draft agreements prepared by Gerber. She stated that she had practically no input in any of those drafts. By the end of March 1998 the second plaintiff wanted answers on certain questions concerning re engineering of policies, demutualisation, bank funding and exchange risk. As a result of these queries Kirsh and Salkinder had a meeting with a local representative of the second plaintiff on 3 April In the meantime Salkinder asked Alexander to provide the answers to certain of the questions. Certain of the answers were provided by Salkinder herself. What is clear from the answers supplied by Alexander is that the demutualisation shares from 0ld Mutual were described as the cherry on the top. Salkinder replied in writing to the second plaintiff's questions. As far as bank funding is concerned Salkinder informed the second plaintiff that the repayment of the loan would come from the payment when the insurance policies matured. It was stated that the re engineered value of the insurance policies would be well in excess of the bank debt. It was at that time foreshadowed that the loans were to be repaid by June The so called "policy trading" document was annexed to Salkinder's reply and also sent to the second plaintiff. Salkinder's evidence was that the first repayment date of the loan was March 2000 which was later extended to June 2000 and, as per answers to the second plaintiff, as will be seen later herein, it was even further extended. In her evidence Salkinder referred to the audit procedures prepared by the defendant. Just as Salkinder had no input in the draft agreements she said that she had no input in the audit procedures. She stated that the defendant had a free hand to do whatever they had

26 26 to do to do the job Kirsh and Salkinder were asking them to do. In this respect reference must also be made to a phone call Salkinder said was made to Delaney. Salkinder was present in Kirsh's office when he was in South Africa from the end of March to the beginning of April She assisted him in making the call on the speaker phone and she can recall that Kirsh told Delaney that what he wanted from the defendant was a "cash count". That conveyed to the defendant that Kirsh and Salkinder wanted a 100% check on the security and the figures such as purchase price and guaranteed maturity value. As will be seen later herein Delaney denies that he had any such discussion with Kirsh. Round about mid April 1998 the negotiations between the first plaintiff and the second plaintiff was on the basis that the loan would be available until March 2000 and that it would be repayable by bullet on 31 March Much stress was laid upon this last aspect by Salkinder in that, had the insurance policies not matured by then there would have been no funds to repay the loan. It also appears that a loan of US$ 100 million was required from the second plaintiff, that it could only give a limited amount and would therefore have to syndicate the balance of the amount. It is clear that an enormous amount of money was to be borrowed from the second plaintiff which had to be paid in one lump sum. It is also clear from the evidence of Salkinder that the reason why the repayment date of the loan was extended from time to time was because there was an attempt to ascertain the date of demutualisation of 0ld Mutual. Because the demutualisation shares would have been the cherry on the top or, as Salkinder called it, the "icing on the cake", the maturity date of insurance policies was to be after the date of demutualisation. Because of the uncertainty from time to time of this date, the loan facility's term and the date of payment was extended. As will be seen later herein that changed because the date of demutualisation became certain. Concerning the maturity date of the insurance policies Salkinder stated that the idea behind the scheme was to purchase second hand insurance policies and then to

27 27 re engineer it so that the maturity date is brought forward. The idea was to have that maturity date after the date of demutualisation. Re engineering could only take place on the anniversary date of an insurance policy. If it is re engineered on that date the re engineered benefits will only be payable after another year. It was therefore foreseen that it could take up to two years to re engineer an insurance policy and to obtain payment of the guaranteed maturity value. Therefore there was constant talk between all concerned that a period of two years would be needed to bring the business venture to fruition. It was of course logically also possible to re engineer an insurance policy so that it would become payable just over a year from date of re engineering. If an insurance policy is surrendered before the maturity date, the insurance company places a large penalty on the payment. In such a case the owner of the insurance policy was paid a small amount more than the surrender value of the policy at the time. Salkinder said that if the insurance policies they intended buying did not all mature before the date of repayment of the loan to the second plaintiff, there would have been no money to effect payment. 0nly if the insurance policies were surrendered in such an event, could payment possibly be made with, in all probability, no profit for the first plaintiff. 0f some importance is the fact that forward cover for foreign exchange had to be taken out. I will later refer to the evidence of Prof Wainer. From his evidence it is clear that once future cover on foreign exchange was taken out payment of foreign exchange at the agreed rate will be effected and that there is no possibility of rolling over such an arrangement. It appears therefore to be correct when Salkinder said that the transaction would not have made any economic sense if there was no cut off date before which the insurance policies had to mature. In respect of the engagement letter Salkinder referred to an e mail sent by Alexander on 6 May In that e mail Alexander stated that he had sent her the final draft of the contract (ie the engagement letter) after discussion with the defendant.

28 28 Alexander also reported that the defendant is happy with the "contract" (ie the engagement letter) and is happy to proceed with it in its current format. As will be seen later there was no final engagement letter at that stage. In dealing with the responsibilities of the defendant Alexander stated in the e mail that "KPMG have prepared their final audit and verification procedure based on the BHF Bank requirements and the contractual requirements. The procedure has been sent for final verification of their insurance experts in Cape Town before being given to us. Please note that KPMG are also the auditors of 0ld Mutual so they have considerable expertise in this matter. I will let you have the letter for BHF Bank today and the final audit procedure tomorrow." According to Salkinder, and that seems to be correct, it appears from this e mail that the defendant has taken note of the requirements of the second plaintiff as well as the terms of the procurement contract itself. They have therefore based their audit and verification procedures on the requirements of the second plaintiff and the provisions of the procurement contract. The first draft of the engagement letter received by Kirsh and Salkinder is dated 7 May Salkinder said that she and Kirsh read through this document very carefully to see what its contents was and to give an input as to their understanding. The draft engagement letter inter alia states that "We confirm that, in carrying out the procedures detailed, we will rely on the documentation provided to us, and in particular the 0ld Mutual print outs (referred to in clause of the procurement contract), and will not obtain external confirmation as to the validity of this documentation. We will also specifically not attempt to verify the purchase value of each policy acquired in terms of the contract." Salkinder said, and that was confirmed by Kirsh, that Kirsh wrote on the document in respect of this provision: "We require unqualified acknowledgement from

29 29 the 0ld Mutual that we have good title. We must have 0ld Mutual written guaranteed maturity value. The rest is arithmetic. Verification that the policies are deposited with bank." Salkinder said that Alexander was a go between Kirsh and herself on behalf of the first plaintiff and the second plaintiff, and the defendant. All issues, including the one just referred to, would be communicated to Alexander who would in turn communicate them to the defendant who would then respond to Alexander who would in turn then respond back to Kirsh and Salkinder. 0n a few occasions mentioned by Salkinder there was, at a later stage, direct communication with the defendant. 0n 28 May 1998 Salkinder notified the second plaintiff in writing that she had had discussions with Alexander regarding the extended maturity date of the insurance policies. Alexander had apparently made enquiries at top level at 0ld Mutual thereabout and Salkinder reported that as a result thereof there was now agreement between KNA and the first plaintiff that "it would be prudent to change the latest date of maturity to January 2001". The reason given was "to absolutely ensure that Securefin (ie the first plaintiff) is the legal owner of the policies when demutualisation shares are issued". In response the second plaintiff on 2 June 1998 in writing confirmed that formal credit approval was obtained to extend the maturity date on the loan facility to 31 January The second plaintiff furthermore stated that that approval remained subject to satisfactory documentation with regard to the loan agreement and related documents. These two documents (ie the letter of 28 May and 2 June 1998) were preceded by a letter from the second plaintiff dated 27 May 1998 indicating that they would obtain an extension to the facility term to the end of January A copy of that letter was faxed to Alexander by Salkinder. It is therefore clear that KNA and both plaintiffs were aware of the fact that there was now finality as to the date by which all the insurance policies had to mature. It follows that all concerned were now satisfied that by that time demutualisation would have taken place.