Weissensee v Stone-Bird Investments (PTY) Ltd and Others (2020/19821) [2022] ZAGPJHC 817; [2022] 4 All SA 905 (GJ) (17 October 2022)

The case involves an asset management agreement between Kim Weissensee (the applicant) and Stone-Bird Investments (Pty) Ltd (the first respondent), represented by its asset manager, Richard Lawton Kennedy (the third respondent). Both the second respondent, Rodney Bruce Goslett, and the third respondent are directors of the first respondent. The agreement was signed on December 19, 2017, and pursuant to this agreement, the applicant paid €600,000 into an account nominated by the first respondent.

Key background facts include:

1. Agreement Details:
The first respondent was identified as the "Asset Manager" and the applicant as the "Client." The third respondent was also identified as the "Asset Manager" and signed the agreement on behalf of the first respondent. The first respondent claimed to have the financial skills for managing international assets, access to credit facilities, and structured investments. It was involved in project funding and investments, with financial sources like banks and providers.The applicant provided an initial capital amount of €600,000 to start the transaction. The first respondent, along with its financial associates, was entitled to manage the applicant’s resources and acquire bank instruments. The proceeds and profits from these transactions were to be disbursed to the applicant. The agreement was to last for 15 months unless terminated or extended by mutual agreement.
The agreement included an arbitration clause stating that any controversy regarding the interpretation of the clauses would be submitted to ICC conciliation and arbitration in Paris.

2. Payment and Licensing Issues:
The applicant transferred €600,000 in two tranches from her bank account in the Isle of Man to a nominated Barclays London PLC account in the name of Umberto Lomolino, as directed by the first respondent. The first respondent did not hold a Financial Services Board (FSB) license as required under section 7(1) of the Financial Advisory and Intermediary Services Act (FAIS Act), which mandates that financial services providers must be licensed. The applicant was informed by Ms. Botha, a consultant she had appointed, that the first respondent did not need a license because Lomolino, who would be the asset manager overseas, held an "international equivalent license." The third respondent also assured her that no FSB license was required as it was a "private placement."

3. Respondents' Defenses and Counter-Application:
The respondents argued that the first respondent acted as an agent of AS Private Equity Limited (AS), a UK company, and therefore did not need a license. They sought rectification of the agreement to reflect the first respondent's status as an agent of AS and to remove the third respondent's designation as "Asset Manager." The respondents claimed that the first respondent did not receive the €600,000 as it was paid to AS.

4. Court's Findings:
The court found that the agreement was void ab initio due to the first respondent's non-compliance with the FAIS Act. The respondents' counterclaim for rectification was dismissed because the rectified agreement would still not comply with the FAIS Act and would remain a nullity. The first respondent was ordered to repay the €600,000 to the applicant, with interest. The second and third respondents were declared personally liable under section 218(2) of the Companies Act, jointly and severally with the first respondent, for the repayment of the €600,000, with interest. The arbitration clause in the agreement was also declared void because the agreement itself was void, and there was no dispute to be referred to arbitration.

The court concluded that the first respondent's failure to comply with the FAIS Act rendered the agreement void, and the applicant was entitled to restitution. The second and third respondents were held personally liable for the applicant's loss due to their roles as directors of the first respondent.

The ratio decidendi, or the core legal principle underlying the decision in this case, is that an agreement entered into by a financial services provider that is not licensed under the Financial Advisory and Intermediary Services Act (FAIS Act) is void ab initio (from the beginning) due to non-compliance with statutory licensing requirements. Consequently, any such agreement is unenforceable, and any arbitration clause within it is also void. Additionally, directors of a company that contravenes statutory requirements can be held personally liable for losses incurred by third parties as a result of such contraventions under section 218(2) of the Companies Act.

Key points of the decision include:

1. Non-Compliance with FAIS Act:
Section 7(1) of the FAIS Act mandates that any person acting as a financial services provider must be licensed. The first respondent was not licensed, rendering the asset management agreement void ab initio. The agreement's void status means it is unenforceable, and any clauses within it, including arbitration clauses, are also void.

2. Restitution:
Because the agreement is void, the applicant is entitled to restitution, meaning the return of the €600,000 paid under the void agreement.

3. Personal Liability of Directors:
Under section 218(2) of the Companies Act, directors can be held personally liable for any loss or damage suffered by any person as a result of the company's contravention of statutory provisions. The second and third respondents, as directors of the first respondent, were found to have acted recklessly and in contravention of their duties, making them personally liable for the applicant's loss.

4. Invalidity of Arbitration Clause:
Since the agreement itself is void, the arbitration clause within it is also void. There is no valid dispute to refer to arbitration.



The court relied on several key cases in its reasoning process. Here are the cases along with their citations:

1. Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] 2 All SA 262 (SCA), 2012 (4) SA 593 (SCA). This case was referenced for principles of contract interpretation, emphasising that the language of the contract must be read in context and with regard to the purpose of the provision.

2. North East Finance (Pty) Ltd v Standard Bank of South Africa Ltd [2013] JOL 30617 (SCA), 2013 JDR 0472 (SCA). This case was cited to support the principle that if a contract is void from the outset, all its clauses, including exemption and arbitration clauses, fall with it.

3. Telcordia Technologies Inc v Telkom SA Ltd 2007 (3) SA 266 (SCA)
This case was referenced to affirm that the court's jurisdiction is not excluded by an arbitration clause in an agreement.

4. Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews and Another 2009 (4) SA 529 (CC). This case was used to support the principle that the court retains jurisdiction to rule on referral to arbitration.

5. Grancy Property Ltd and Another v Gihwala and Others [2014] ZAWCHC 97. This case was cited to explain that under section 218(2) of the Companies Act, a director who does not comply with the standards of directors’ conduct is liable to any person suffering a loss as a consequence.

6. Chemical Industries National Provident Fund v Tristar Investments (Pty) Ltd [2010] JOL 25354 (GSJ). This case was referenced to support the conclusion that an agreement is void ab initio for non-compliance with statutory requirements.

7. Minister van Justisie v Jaffer 1995 (1) SA 273 (A). This case was cited in the context of restitution, indicating that the applicant is entitled to reclaim her performance under the void contract.

8. Baker v Probert 1985 (3) SA 429 (A). This case was also referenced in the context of restitution and unjust enrichment.