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You and Your Rights

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You and Your Rights

Please note that since this book was last published in 1997 some of the laws that have been referenced may have changed. We are doing our best to update the articles, however, it is advisable that you to consult an attorney before relying on any information contained herein.

Fraud

Criminal misrepresentation

Fraud is the deliberate misrepresentation or perversion of the truth, resulting in either actual or potential prejudice being suffered by another person.

For example, a man who pays for a motorcar with a cheque he knows will not be honoured commits fraud. However, if he takes the car from a garage without permission, with the intention of depriving the owner of possession, he is guilty of theft. Fraud can lead to both criminal and civil action.

It is not necessary for misrepresentation to be verbal: for instance, dressing up as a college student in order to obtain credit or tendering a cheque (knowing that it will not be honoured) for payment before booking into a hotel have been held to be misrepresentations.

In some circumstances, failure to say something may constitute misrepresentation: thus, a director must disclose any dealings with his or her company, and if the truth makes a false impression, it is his or her duty to correct that opinion. For example, a man who claims that his borehole has given water for three years would be guilty of fraud if he did not add that the three years had ended 14 years before. Likewise, a woman who sold goods would be guilty of fraud if she concealed hidden defects she knew of.

Misrepresentation must relate to an existing state of affairs. A mere promise to do something in the future is not a perversion of the truth - unless you imply that it is your present intention to carry out that promise. It is one thing to make a promise and then to break it; it is quite another to make a promise without any intention of keeping it. The law punishes only the latter, although the former could, in some circumstances, amount to breach of contract.

If you pay an account by cheque, you are implying that your cheque is good and will be met when presented. This is a representation relating to an existing fact. Even if there are no funds in your account your representation will not be false if you honestly believe that funds will be available by the time the cheque is presented. Indeed, even if you have no account at the bank on which the cheque is drawn, your representation is not false if it is your intention to open an account in time. However, if you have no intention of meeting the cheque, you are guilty of fraud.

Although misrepresentation may be false, it is a crime only when prejudice or potential prejudice is caused (and note, the prejudice need not only be monetary). 'The false statement must ... involve some risk of harm, which need not be financial or proprietary, though it must not be too remote or fanciful, to some person, not necessarily the person to whom it is addressed.' (Rex v Heyne Appellate Division, 1956.)

Potential prejudice exists wherever there is a reasonable risk that prejudice may result. For example, even if a cheque to a bank is so clumsily forged that no teller would be misled by it, potential pre-judice can still be deemed to exist.

However, the potential prejudice must not be too remote: for example, in a case in which a woman asked a friend to write out a cheque so that she could pay her rent and the cheque turned out to be worthless, it was held that the prejudice she could have suffered to her reputation was too remote. (Rex v Lipschitz, 1938.)

The crime of attempted fraud can be committed even if, for example, the misrepresentation is contained in a letter that is lost in the post.

Fraud is closely related to theft by false pretences, forgery and uttering, and may overlap with them. For example, where property obtained as a result of fraud is handed over to an accused, it is usually charged as theft by false pretences (which always involves fraud, though fraud does not necessarily involve theft by false pretences). In the same way, writing out a false cheque and cashing it is both fraud and forgery.

Fraud can also be an element in buying and selling. For example, an estate agent who claims that a roof does not leak while fully aware that it does, is guilty of deliberate misrepresentation, despite any voetstoots clause in the deed of sale. Similarly, a motorcar sales representative who says that a car has done only 40000km, while well aware that it has done 140000km, is guilty of deliberate misrepresentation. Should these statements, known as warranties, be false, the buyer will be able to sue the seller for breach of contract

Case History - The wife who wasn't dead

An accused borrowed money, saying that he needed it to buy a coffin for his dead wife. It was later discovered that his wife was alive. He appealed against a conviction of fraud.

  • The court's decision was that the misrepresentation did not prejudice the person from whom the money was borrowed, as the misrepresentation related only to the use to which the money was to be put and not to the borrower's ability to repay it. If he had obtained the credit by misrepresenting his financial position to the lender, it would have been fraud.

The court upheld the appeal.

The onus of guilt 

Whenever the prosecution proves that a statement by an accused constitutes misrepresentation, the courts will make a presumption of guilty knowledge and shift the onus of proving lack of guilty knowledge to the accused.

In other words, a man charged with fraud must show that he did not intend misrepresentation rather than the state showing that he did intend it. This might change, however, in the light of the presumption of innocence included in the South African bill of rights.

Fraud is a serious crime and where it involves financial loss prison sentences are often imposed, but generally the severity of the punishment will depend on the circumstances and the amounts involved.

Recouping money lost through fraud 

You have two legal remedies available to you if you have been the victim of fraud: 

  • A criminal prosecution, in which you can take steps against those you believe to be responsible; 
  • A civil action in which you can try to recover lost money by suing for damages.

PROSECUTION Many types of deception constitute either theft or fraud. If you believe that you have been defrauded, report the matter to the police immediately. If you buy something on the basis of false statements made by the seller, you can institute a prosecution under the Harmful Business Practices Act, 1988. Report suspected offences to the Department of Trade and Industry.

SUING FOR DAMAGES A successful prosecution does not always mean you will be able to recover money lost through fraud. However, if the offence and the amount lost are clear and ascertainable, you may ask the court that tried the offender to help you gain compensation.

The criminal case 

A criminal court can help you gain compensation in two ways: 

  • It may impose a suspended sentence on the offender. This means the offender will not be imprisoned or have to pay a fine or suffer some other penalty for a specified period, provided he or she pays you compensation. (See damages) The amount lost would have to be easily ascertainable for the court to make such an order. 
  • The court can make an order in terms of the Criminal Procedure Act, 1977, whereby the defendant must compensate you. However, the amount lost must be easily ascertainable because a criminal court will not investigate the nature and extent of the loss which is the function of a civil case. You will have to ask the court directly, or through the prosecutor, to make an order for compensation.

The magistrates' and regional courts will not make an order if the compensation applied for exceeds R100000. No limits are set on the Supreme Court.

The court will never make an order unasked. If you ask for the order, the court will require evidence from both sides before reaching a decision.

The court may make such an order where the offender can pay, or has assets that may be attached. It may also order that money in the possession of the offender at the time of the arrest be forfeited to you.

However, a word of warning: the amount you get in terms of an order made by a criminal court may be much less than you could expect to recover through a civil case. For this reason, you have 60 days in which to give notice in writing to the clerk of the court that you do not intend to take advantage of the order. Obviously, if you have already received the money in terms of the court order, you will have to refund it. If you do not give notice within the specified time, the case will be regarded as closed and you will not be able to bring a civil case against the offender.

Warning - Fraud in marriage

If a husband tries to defraud his wife of her share of their joint estate, he can be ordered by the courts to make good any loss out of his half share. If necessary, the wife can also apply for an interdict to stop him from having any dealings with the joint estate. A court order to divide the joint estate and to compel the husband to give permission to his wife to enter into a contract in a particular case can also be obtained. (See contracts.)

The civil case 

Recovering money through a civil case is more complex - and more expensive as you will have to pay the legal costs in the hope that you will be able to recover them later from the defendant. To succeed in a civil case, you must be able to show that: 

  • The defendant made a false statement or 'representation'; 
  • The defendant knew the representation was false. A defendant who did not know that the representation was false, but did not exercise the duty of necessary care, may still be liable to pay compensation on the grounds of negligence; 
  • The defendant intended the statement to be acted upon; 
  • You did, in fact, act upon the representation, and suffered harm as a result.

If the action arises out of a contract between you and the defendant - for example, if the defendant pretended to sell you something, you would generally succeed in your claim if you proved these four points, and that the representation in question induced you to enter into the contract.

Warning - Claiming damages for bad advice

When you ask someone in a profession or business, for example, a banker, stockbroker or lawyer for advice, you are entitled to
expect that person to exercise the proper standard of skill and care when giving an opinion, even if the advice is given free and there is no contract involved.

If the person fails in this duty, and you suffer damage as a result, you may be able to sue for damages.

However, not all incorrect advice or statements can be considered negligent or actionable. This will depend upon whether the person, when giving the advice, complied with the proper standards of skill and care expected from him or her. For instance, an accountant giving an off-the-cuff view on a question of tax law at a cocktail party or on a train, would not be liable if this view proved to be negligently wrong.

People whose profession or business it is to give advice or opinions, such as valuers, bankers, doctors, accountants, architects or estate agents, are particularly likely to find themselves in a position where they can be sued for making negligent statements.

However, this risk is not confined to these classes of people only. It appears to cover all persons in a business or profession that involves giving advice on matters in which they have some financial interest. The crucial question is whether a person making a negligent statement was under a legal duty not to make it.

To be actionable, a careless statement need not be in writing, although if it is, it may be easier to persuade a court that the maker of the statement ought to have been more careful.

If, however, the person making the statement also makes it clear that it is made without legal liability, he or she cannot be sued, even though the statement may have been negligent and someone else suffered as a result.

Do you have a case? 

The elements that give rise to a successful action are: 

FALSE STATEMENT A wide variety of statements, or even gestures and conduct, can amount to misrepresentation, which must be proved for an action. Normally, the representation is written or oral. But, for example, if in prospecting for a gold mine a core sample was 'salted' by adding extra gold to it, this would amount to a misrepresentation. The story of the man who wanted to sell a seaside villa and hired fishermen to pretend to net fish is another good example. It must, however, be misrepresentation of a fact. 

SILENCE This can also amount to a misrepresentation, if there is an implicit obligation to clarify the situation by speaking up. The most important factor in deciding whether silence is an actionable misrepresentation is whether the relationship of the parties is one that is ordinarily regarded as imposing a duty to disclose. A company might be guilty, for example, if it sold plots without telling investors that new buildings had been banned in the area. 

KNOWINGLY MADE The misrepresentation must be made with the knowledge of its falsity or without an honest belief in its truth. If, say, a man says in a reference that an applicant for a job can be trusted with large sums of money, he lays himself open to an action if he knows that the applicant has been in prison for dishonesty. 

NEGLIGENTLY MADE In a contract, such as buying and selling, if a misrepresentation is made negligently or even innocently with an honest belief in its truth, without negligence you may still have an action if you can show that the misrepresentation was material and would have induced any reasonable person to contract.

In non-contractual matters, there is no legal remedy for innocent misrepresentation. But a person who owes a duty to speak carefully will be liable for damages if he or she does not. 

DEFENDANT'S INTENTION A false statement does not give grounds for an action, unless it is made with the intention that the person concerned should act on it. For example, you can sue a motor vehicle dealer who tells you that a car is mechanically sound while fully aware that it has defective steering. In this case, the dealer intends you to act on the statement to buy the car.

The same statement about the vehicle made at an exhibition where the car is not for sale, would not be actionable because it would not be possible for a potential buyer to act on the statement. 

PLAINTIFF'S ACTION You must also show that you relied on the statement and acted on it. If you know that a statement is false - for example, if you can clearly see that the car's steering is defective but still accept the vehicle - you have no grounds for an action.

Similarly, a coin collector who is offered what is claimed to be a rare coin for R100 has no ground for action if he or she recognises it as counterfeit and agrees to pay only R1. 

INDUCEMENT This is an element required only when dealing with a contract. The misrepresentation at least must have been an important element in inducing you to enter into the contract. If a misrepresentation was made, but had no effect on you, this element will not be satisfied.

Warning - Checking the fine print

Check the fine print of a written contract carefully - for the defendant may well have excluded any liability for misrepresentation. Note, however, that while exclusion of liability may be valid for negligent and innocent misrepresentation, it can never be valid for fraudulent, deliberate misrepresentation. You will always have an action for that, whatever the wording of the contract. For example, if a home is sold subject to a 'voetstoots' or 'as is' clause in the agreement of sale and you subsequently prove that the seller knew that the roof leaked, and failed to tell you, the seller would still be liable for fraud, despite the 'voetstoots' or 'as is' clause.

Civil remedies for misrepresentation

Where the fraudulent misrepresentation was related to a contractual matter (such as buying and selling) - that is, it was a deliberate falsification and was at least a major cause of your entering the contract - you will generally be able to withdraw from the contract and claim damages if you have suffered loss as a result of the misrepresentation. The property or goods acquired will have to be tendered back.

If the misrepresentation did not cause you to enter a contract (which you would have contracted anyway), but caused you to enter it on different terms, you will not be able to withdraw from the contract, but will be able to claim damages. These damages are calculated according to the extra amount you were induced to pay by the misrepresentation.

You may decide to continue with the contract even though the misrepresentation caused you to contract, and in this case you may sue for the difference in value of what you gave and what you received. However, the measure of damages is a matter that has not yet been cleared up by the courts. The following appears to be the present state of the law: 

  • Where the fraud was 'incidental', that is, you would still have contracted had you known the truth, but on better terms, for instance as to the price to be paid, you will be awarded the loss caused by the fraud; 
  • With 'causal' fraud, you can claim your actual financial loss as damages. Normally this would be the difference in value between what you gave and received, but there could also be consequential damages; for instance, a farmer's cows could be infected by new cows bought from a dealer who fraudulently stated that the animals were disease-free.
Disclaimer :: You and Your Rights
Although we have gone to great lengths to ensure the accuracy of the information contained in this database, it is important to remember that laws, government departments, interest and taxation rates are constantly changing. If you have a particularly difficult problem you are advised to consult a qualified legal authority. The publishers, editors and their representatives cannot accept responsibility for any act or omission arising from consulting the information contained herein.
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General Disclaimer: The content of Legal City does not constitute legal, tax or financial advice, nor does it necessarily reflect the views of our management, staff, shareholders, associates, contributors, authors or suppliers. Even though every endeavour has been made to ensure the accuracy of this information we cannot be held responsible for any errors and/or omissions. By using this web site you agree to accept and abide by our terms and conditions.
This web site and all its content is copyright © 2000-2014, Legal City CC • Web site managed with qPortal Content Management v 4.0.0 • This page loaded on December 22, 2014 at 3:58:05 am, SA Standard Time.