Conveyancing attorney liable for R1.4m after fraudster intercepts email

The High Court in Johannesburg has handed down another judgment dealing with a law firm’s liability to its clients because of cybercrime.

In January, the High Court ordered leading law firm ENSafrica to pay R5.5 million, plus costs at a punitive scale, to a property purchaser who was a victim of “business email compromise” (BEC).

Read: Cybercrime judgment has implications for FSPs that email bank details to clients

In that case, the claim against ENS was founded on delict; in the most recent case, the sellers’ claim was based on an alleged breach of the mandate given to the conveyancing attorney.

The attorney, Gavin Hartog, brought an appeal against a decision by a judge of the High Court (the court a quo) in June 2021 that he was liable for the sellers’ loss of more than R1.4m. The appeal was heard by the Full Court in November 2022.

Summary of the background

In 2017, Karin Foukes-Jones (now deceased) and Brigitte Daly, the joint owners of a property in Johannesburg, gave Hartog an oral mandate to act as the conveyancer should the property be sold. The new owner took transfer in June 2018.

Hartog was instructed to pay R100 000 of the proceeds of the sale into Foukes-Jones’s bank account. The balance of R1 421 228 had to be paid to Brigitte Daly and her husband, Patrick Daly, into an account nominated by Patrick Daly.

The R100 000 was paid to Foukes-Jones, but Daly did not receive the balance of R1.4m.

According to the judgment, a fraudster intercepted the email communication between the parties and sent an email to Hartog that purported to be from Patrick Daly. As a result, the money was paid into a Standard Bank account opened by the fraudster, who almost immediately withdrew the money. It was not recovered.

Before the court a quo, counsel for Hertog asked for the matter to be referred to trial because of alleged material disputes of fact on the papers, both between Hertog and the respondents and between Hertog and Standard Bank. This request was refused.

Hartog also sought an order holding Standard Bank liable if the court a quo found that he was liable to pay the R1.4m to the respondents.

The court a quo found Hertog liable to pay the respondents the amount claimed, plus interest and costs. The delictual claim for holding Standard Bank liable for the loss was also dismissed with costs.

Did the mandate include a tacit term?

One of the issues addressed by the Full Court was Hartog’s contention that the respondents should be held liable for the loss, because the mandate included a tacit term to the effect that the respondents would exercise the utmost caution when instructing him to make payment, and they would do all that was reasonably possible to ensure the integrity of the emails addressed to him and keep and maintain their data security.

The respondents denied the existence of this tacit or implied term.

Judge Réan Strydom, who wrote the judgment, said “the mere allegation” of the existence of a tacit term on the papers of the appellant and the denial thereof by the respondents did not in itself create a factual dispute.

A tacit term is to be inferred or imputed with regard to the express terms of the mandate, the surrounding circumstances, and the conduct of the parties in the implementation of the mandate. If there is a factual dispute at this level, then the probabilities cannot be considered, and the matter should be referred to oral evidence, the judge said.

Judge Strydom said in this matter the facts upon which it could be decided whether a tacit term could be inferred or imputed were common cause. The surrounding circumstances and the conduct of the parties in the implementation of the mandate were also before the court and were not in dispute.

“What is in dispute is whether the tacit term can be inferred or imputed. A court can decide this issue on the papers as they stood at the time when the matter was heard. In my view, the court a quo, albeit for different reasons, was correct in its finding that the matter should not have been referred to trial on the basis of a dispute of fact.”

However, the question remained whether the court a quo was correct to have granted the relief sought by the respondents. He said this depended on whether the tacit term should have been imputed into the mandate.

Judge Strydom said he was of the opinion that if the express terms of the mandate were considered together with the surrounding circumstances, the probabilities did not support the existence of the tacit term.

“Even if the probabilities would support a tacit term that emails would be used, there is no indication that either party would have included a term relating to the security and integrity of the emails. This ‘guarantee’ or acceptance of risk is not to be imputed as a tacit term.”

The court dismissed Hertog’s appeal against the sellers with costs, including the costs of senior and junior counsel.

The court also rejected Hertog’s submission that a relevant factual dispute existed between him and Standard Bank that could not have been decided on the papers and consequently should have been referred to trial.

Click here to download the full judgment.

Use a secure platform

The judgment in this case and the case involving ENS should make it obvious to businesses that they should communicate with clients using a secure platform such as Videosign.

Videosign not only enables businesses and professionals to engage with clients remotely, but also to identify and verify clients, and to sign, record and audit their transactions in a secure, legally admissible way.

For a free demo, contact Neil Summers on 072 908 8994 or NSummers@moonstoneinfo.com

Read: Is business email compromise also a threat to advisers?