Not reportable In the High Court of South Africa (South Eastern Cape Local Division) (Port Elizabeth High Court) Case No 2356/2006 Delivered: In the matter between PETER FRANCE N.O. HILLARY BARRIS N.O. First Plaintiff Second Plaintiff and MUNICIPALITY OF NKONKOBE Defendant SUMMARY: Condictio indebiti defence of non enrichment whether the recipient of goods incorrectly delivered knew that they were received indebite if so, whether the goods were lost or deteriorated in value as a result of his negligence. JUDGMENT JONES J: [1] The plaintiffs are trustees in the Rental Company Trust, a trust which carries on the business of financing the supply of office equipment by means of rental agreements. The business operations of the Trust are straightforward. When a dealer arranges to supply office equipment to a client who requires finance for the deal, it introduces the Rental Company Trust to the client. The Rental Company Trust provides the necessary finance by purchasing the equipment from the supplier and renting it to the client, who now becomes its client, on certain terms and conditions which are embodied in a document called a master rental agreement.
[2] This litigation involves a master rental agreement for the supply of certain office equipment by the Rental Company Trust (through a dealer called Tswella Trading) to the defendant. The plaintiffs claimed payment of R1 672 882 61 being the alleged amount of its loss following cancellation of the agreement. It also made alternative claims based on the condictio indebiti, the condictio ob turpem vel injustam causam, and fraudulent misrepresentation. The defendant denied liability, alleged that the agreement was invalid and unenforceable, and counterclaimed for the refund of certain rental payments. [3] I shall refer to the two plaintiffs and the Rental Company Trust collectively as the plaintiff. When the case was called the parties presented me with a document which limited the issues and set out a statement of agreed facts. In terms thereof the plaintiff no longer proceeds with the claim in contract or with the alternative claim based on the condictio ob turpem vel injustam causam, and the defendant no longer proceeds with its counterclaim for repayment of rental. The relief based on the condictio indebiti remains in issue, as does the claim based on misrepresentation, but the statement of agreed facts has made a lengthy trial into the merits unnecessary. Most of the facts have become common cause, and the parties are at one in respect of most of the legal issues. The only issue on the condictio portion of the case is the defence of non enrichment. The defendant
began and called a single witness, one Britz who described himself as the defendant s business and administrative manager. The plaintiff led no evidence. The question of liability must therefore be resolved in the light of the Britz s evidence and the statement of agreed facts and the documents incorporated therein. [4] It is convenient at this point to set out briefly the events which gave rise to the dispute. In June or July 2005 a supplier of office equipment, Tswella Trading, advised the plaintiff that it had successfully tendered for the supply of certain office equipment to the defendant, and that finance was required for the transaction. The plaintiff had provided similar finance for the defendant in the past, and agreed to finance this transaction as well. Before doing so it was necessary to settle some of the pre existing agreements. This was done and a master rental agreement for the new transaction was prepared. The defendant was represented throughout by its municipal manager and chief executive officer, one Mdila, who had signed the previous agreements on behalf of the defendant. The new agreement was signed by Mdila on behalf of the defendant on 15 August 2005 and by the plaintiff on 6 September 2005 (after it had in fact been implemented). In addition, Mdila signed a document confirming that the defendant had complied with the provisions of the Local Government: Municipal Finance Management Act, No 56 of 2003. The office equipment was delivered to the defendant on the late afternoon of Friday 26 August 2005. It was received by
one of the defendant s finance officers, one Williams, one of whose functions it was to accept receipt of such equipment. During the next few months the defendant made rental payments amounting to R139 023 00 in terms of the new master rental agreement. Everything appeared to be in order. [5] Because of the previous dealings between the plaintiff and the defendant, represented by Mdila, the plaintiff accepted all along that Mdila had been duly authorized to sign the new master rental agreement, and that there had in fact been compliance with the Act. This confidence was misplaced. There had not been compliance with the Act, and Mdila had not been authorized to negotiate or to accept tenders of this equipment, or to sign the new master rental agreement. Indeed, Mdila had known from the outset that he lacked the necessary authority and that the agreement was of no force and effect. Furthermore, Williams had known when he accepted delivery that no tender for the acquisition of the equipment had been approved by the defendant s council, that the council had not approved the acquisition or the rental agreement, that the authority of council was necessary, that Mdila had not been authorized to sign the agreement, and that he, Williams, should not therefore have accepted delivery of this consignment of equipment. To add to the complication, some of the equipment, a relatively large number of laptop computers, which had been part of the consignment delivered to the defendant on 26 August 2005 and locked in one of the defendant s strong rooms, had been stolen from the defendant s premises
that very night. They have not been recovered. The theft was reported to Britz on the Monday following the theft. He began an inquiry into whether the missing laptops were insured, and this led to an inquiry into the whereabouts of the documentation necessary to show that they had been acquired properly. This inquiry eventually revealed the true facts and led to legal advice being taken by the municipal council, whose members were unaware of the transaction and had not authorized the new master rental agreement. The upshot was to be expected. The defendant took the view that it was not bound by the new master rental agreement. The plaintiff was advised accordingly on 6 October 2005. It regarded the defendant s conduct as an unlawful repudiation, which it accepted subject to its right to recover concomitant loss. Arrangements were made for the return of the equipment which was still in the plaintiff s possession. This was in due course done. [6] It is common cause that rentals in the sum of R139 023 00 had been paid by the defendant in the bona fide but mistaken belief that it was indeed owing in terms of an enforceable rental agreement. The parties were agreed that the defendant has returned all the equipment which was still in the defendant s possession. The parties have agreed, further, that the total value of the equipment delivered by the plaintiff to the defendant on 26 August 2005 was R1 779 332 61. The equipment returned to the plaintiff had deteriorated while in the defendant s possession. It was worth R106 450 00. This gives a balance of R1
672 882 61, which is the amount of the plaintiff s claim. It includes the value of the laptops which had been stolen and not recovered, and hence which could not be returned, which amounted to R162 000 00. The quantum of the plaintiff s alleged loss is accordingly fixed or readily capable of determination. [7] It was common cause that Mdila had no delegated authority to enter into the new master rental agreement on behalf of the defendant, that the defendant had not accepted any tenders in relation to the equipment in question, that it had not authorized the agreement, and that the provisions of section 33 of the Local Government: Municipal Finance Management Act 56 of 2003, which were applicable and peremptory, had not been satisfied. For these reasons, the plaintiff had no alternative but to abandon its claim in contract. It was also common cause that the defendant s counterclaim for repayment of rental was offset by the benefit it received from the use of most of the equipment during the rental period. [8] It was, further, also common cause that on the agreed facts and undisputed evidence the defendant had received the equipment from the plaintiff sine causa. It had therefore been prima facie enriched at the plaintiff s expense. The requirements for relief under the condictio indebiti were accordingly established (The Law of South Africa Joubert et al 2 nd ed vol 9 paras 209 and
211). The defendant is prima facie liable to the plaintiff to the extent that the defendant has actually been enriched by what was received indebite, and the onus was on the defendant to prove its defence of non enrichment (African Diamond Exporters (Pty) Ltd v Barclays Bank International Ltd 1978 (3) SA 699 (A) 713 in fine). In discharging this onus, a crucial consideration was the defendant s knowledge that it had received the equipment indebite. This point was discussed at length in the African Diamond Exporters judgment from 708E 713 in fine. For present purposes the following propositions may be extracted from the judgment: (a) a defendant who has received another s goods well knowing that he received them indebite and who parts with them in bad faith is liable and cannot successfully plead non enrichment to a claim under the condictio indebiti; (b) a defendant who has received another s goods well knowing that he received them indebite cannot deal with the goods quasi rem suam and will be liable in damages for any loss or deterioration caused by his fault. (This second proposition was obiter but seems to me nevertheless to have by now become accepted as good law. See for example Van Zyl v Serfontein 1992 (2) SA 450 (C) 455G.) On these facts there is no suggestion that the defendant acted in bad faith. It was probably the victim of the bad faith of certain of its employees. But nobody suggests that that bad faith must be imputed to the defendant for the purposes of
the plaintiff s claim against it. For the defendant to escape liability it must prove on a balance of probability either (i) that it was not aware that it had received the equipment indebite until the true facts were revealed; or, and if it was, (ii) that the subsequent loss or deterioration of the equipment was not caused by the defendant s negligence. [9] The defendant argued that it did not initially know that it had received the equipment indebite. This argument is in my opinion unsound. It is founded on the premise that the defendant only became aware of the delivery of the equipment when this was brought to the attention of its directing mind that of the defendant s municipal council. That was done, counsel argued, only after the council had received the results of the Britz enquiry and the legal advice which followed; it then first became aware that the equipment had been delivered to it in implementation of an agreement which was unenforceable for lack of authorization and non compliance with statutory requirements. But this was not a case of knowledge becoming attributable to a body corporate only once it is drawn to the attention of its council or board of directors. A municipality cannot function if its council members are required to participate personally and directly in all conscious acts which must be undertaken on its behalf by its administrative managers and officials. For this reason, sections 77, 78 and 79 of the Municipal Finance Management Act 56 of 2003 establish the top management of a
municipality, which is given the statutory power and authority to conduct its financial management, and which is made up of the municipal manager in his capacity as the accounting officer, and his financial management team which comprises his chief financial officer, all senior managers who are responsible for managing the respective votes of the municipality and to whom powers and duties for this purpose have been delegated by the accounting officer in terms of section 79, and any other senior officials designated by the accounting officer. These are the officials who must act on behalf of the municipality. The Act contains a variety of sections which set out their general and specific duties. Section 63(1) is important in the present context. It provides that the accounting officer of a municipality is responsible for the management of the assets of the municipality, including the safeguarding and the maintenance of those assets. This would include taking delivery of assets and arranging for their safekeeping. On the evidence, the senior administrative official to whom this duty had been delegated was Williams. He physically took possession of the equipment and arranged for it to be stored in a locked strong room. He knew when he received it that it had been received indebite. The defendant is a body corporate. It can only function in the ordinary day to day conduct of its affairs by acting through its administrative officials, and through them it is taken to know what it does and what the consequences are. Williams s action in consciously taking receipt of the equipment sine causa was therefore the action of the defendant. Here, the fact that Williams was aware that the defendant had no valid contractual entitlement
to the equipment when he received it was part of the factual complex for which the defendant must take responsibility. The argument relating to the defendant s directing mind is irrelevant to this kind of situation. This is different from the case where it is necessary to get into the directing mind of the municipal council because the functioning of its directing mind is legally necessary for a particular purpose. An example would be where its authority is specifically required by statute before it may enter into a contract for the purchase of valuable goods which requires compliance with laid down formalities. It is necessary to distinguish between entering into the contract on the one hand, and taking delivery of the equipment on the other. Here, the latter was simply done as part of the administration of the defendant s daily business. It did not require the intervention of council members to make it effective. [10] A finding that the defendant must be taken to have been aware from the outset that the equipment was received indebite is not however the end of the matter. There can be no suggestion that attributed knowledge of this nature automatically carries with it an imputation or inference that the defendant acted in bad faith thereafter. This was the question posed in the African Diamond Exporters case at 711E: Where counsel did disagree was as to the legal position in a case where a person receives another's goods or money when he knows the said goods or money to be indebite and then parts therewith without any mala fides on his part but in circumstances which show some fault or neglect on his part. Is he then
liable to the true owner or, to phrase the question with due regard to the specific contentions advanced in the instant case, is the recipiens who is a defendant to a claim under the condictio indebiti entitled to plead non enrichment which is attributable to some fault or neglect on his part? This is an interesting question of law. The interesting question is answered in the obiter dictum at the bottom of the page where Muller JA cites with approval passages from Wessels Law of Conract in South Africa and De Vos Verrykingsaanspreeklikheid in the Suid Afrikaanse Reg to the effect that a person who receives money or goods, well knowing that what he receives is held indebite, cannot deal with such goods quasi rem suam and will be liable in damages for any loss or deterioration caused by his negligence. [11] It was still open to the defendant to show on a balance of probability that the loss of some of the equipment, and the deterioration in the value of the rest of the equipment, was not due to its negligence. In my opinion the evidence shows that the defendant was probably not negligent in respect of the theft of the laptops on the night of 26 August 2005. This was committed by persons unknown to the defendant, who broke into a strong room which had been properly secured under lock and key. The photographs add weight to the conclusion that the precautions taken by the defendant to secure the laptops were reasonable. On all the evidence, the theft cannot be ascribed to wrongful and negligent conduct by the defendant. The same cannot be said of the deterioration of the rest of the
equipment, i.e. the equipment excluding the stolen laptops. There is no evidence to explain how the rest of the equipment, which had a value of R1 617 332.61 when it was delivered on 26 August 2005, should have deteriorated to the extent that it had a value only R106 450 00 in October 2005. The onus was on the defendant to explain that this deterioration was not caused by its negligence. If it failed to discharge that onus the prima facie inference must stand that the plaintiff has been impoverished by the extent of the deterioration while the equipment was held indebite in the defendant s hands. The onus has not been discharged, and the inference stands. The claim for damages under the condictio indebiti in the sum of R1 672 882 61, less the value of the stolen laptops, is therefore proved. The amount is R1 510 882 61. [11] In view of this conclusion it is not necessary to go into any detail in respect of the alternative claim in delict for damages for fraudulent non disclosure. It is sufficient for me to state my conclusion that the evidence fell short of proof on a balance of probabilities that, in the circumstances when the defendant took possession of the equipment and by reason of the fact that it had been deceived by its senior employees, it was under a legal duty to disclose to the plaintiff that the new master rental agreement was unenforceable and that it behaved wrongfully in failing to make the disclosure. Furthermore, on these pleadings the plaintiff cannot base liability on the defendant s vicarious liability for the wrongful conduct of Williams in deliberately failing to make the disclosure. Its case was
that the defendant was directly, not vicariously, liable for wrongful and fraudulent non disclosure. That case is not proved. [12] In the result there will be the following order: 1. There will be judgment for the plaintiff for payment of the sum of R1 510 882 61, with interest thereon at the prescribed rate from a date 14 days from the date of judgment to the date of payment. 2. The counterclaim is dismissed. 3. The defendant is ordered to pay the plaintiff s taxed party and party costs of the claims in convention and reconvention, with interest thereon at the prescribed rate from a date 14 days from the taxing master s allocatur to the date of payment. RJW JONES Judge of the High Court 19 January 2008