Fraudulent transfers of immovable property and professional ethics
7/02/2012
‘At a time when we’re having to take such difficult decisions about how to cut back without damaging the things that matter the most, we should strain every sinew to cut error, waste and fraud.’
David Cameron - Prime Minister of Britain
Fraudulent transfers of property have lately been widely publicized in the media. A high ranking official at the Pretoria Deeds Office recently facilitated the irregular and fraudulent transfer of more than 30 properties owned by the Johannesburg Property Company to third parties. The City of Johannesburg admitted that these properties were fraudulently sold, without its knowledge, at prices below their market value. Two law firms are being investigated for these transactions. The transfer documents revealed a number of discrepancies, such as transfer duty receipts were issued after the transfer had been registered, and powers of attorney to pass transfer were not dated and should have resulted in the documents being rejected. Most of the transfers were registered within a day of being lodged, whereas the normal registration process takes between eight to ten working days.
In another instance, the Public Protector has found officials at the Midvaal Municipality guilty of maladministration and improper conduct, while fraud and corruption issues are still being investigated. The municipality’s attorney sold a property to himself at a fraction of its worth and subsequently sold the property for a considerable profit. It was found that the sale of the property was unlawful. It should have been sold via a public auction as it belonged to a rate payer who was a mere R5 000.00 in arrears.
There are two schools of thought on the systems of transfer in South Africa, namely the causal and the abstract system. The causal system states that if the cause is invalid, for example, non compliance with the formal requirements, the transfer of ownership is also void. According to the abstract system which previously applied movable property only, there is no need for a formally valid underlying transaction if the parties are ad idem regarding the passing of ownership.
Transfer of property without the knowledge of the owner is contrary to the provisions set out in the Alienation of Land Act 68 of 1981 (the Act). S 2(1) of the Act provides that no alienation of land shall, subject to the provisions of s 28 thereof, be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority.
In recent court cases s 2(1) of the Act was interpreted by the Supreme Court of Appeal. In Legator Mckenna v Shea and Others [2008] ZASCA 144; 2010 (1) SA 35 (SCA) Brand JA said the following:
‘The essential elements of the real agreement are an intention on the part of the transferor to transfer ownership and the intention of the transferee to become the owner of the property… Although the abstract theory does not require a valid underlying contract, ownership will not pass-despite registration of the transfer – if there is a defect in the real agreement…’
In the subsequent case of Meintjies v Coetzer & Others (089/09) [2010] the plaintiff, the first and second defendants are the children of the deceased, Mrs Meintjies.
Mrs. Meintjies subdivided her farm and bequeathed specific portions to her children. Before her death the defendants falsified documents and secretly transferred 2 portions into their names, without the deceased’s knowledge. Mrs. Meintjies soon became aware of the fraudulent transfers.
The questions on appeal were whether Mrs. Meintjies had waived or abandoned her right to the ownership of the transferred portions. Secondly, whether immovable property is capable of being transferred by way of waiver, without a deed of alienation duly signed by the owner and the transferee as required by S 2(1) of the Act? The plaintiff’s claim was based on the rei vindicatio.
The court found it is common cause that no deed of alienation in terms of s 2(1) of the Act was signed by the owner and the defendants to effect a sale or transfer to the defendants. Even the obligation creating the agreement was falsified. The court applied the abstract theory as there was no intention to transfer the properties.
In Oriental Products (Pty) Ltd v Pegma 178 Investments Trading CC & Others (126/2010) SCA [2010] the property in question was transferred without the owner’s knowledge, by a person purporting to be duly authorized and it was confirmed that it is trite that our law has adopted the abstract system of transfer as opposed to the causal system.
In Oosthuizen NO v Du Preez and Others (29116/2006) [2009] ZAGPPHC 138, Mrs Uijs, instituted an action against the first defendant and six others for recovery of the farm which was surreptitiously transferred into the names of the first and second defendants. Mrs. Uijs passed away after litis contestatio and her executor, Mr Oosthuizen was substituted as plaintiff. The plaintiff sought an order for the restoration of the late Mrs Uijs’ ownership in the immovable property.
The essence of the plaintiff’s case was that the purported deed of sale was null and void and of no force or effect. No valid or enforceable deed of alienation as prescribed in terms of s 2(1) of the Act came into being and the transfer and registration of the property into the names of the defendants was unlawful and should be set aside.
Further, the attorney handling this transaction was not on the roll of practicing attorneys and conveyancers and thus not allowed to handle the transfer and charge a fee for the work done. She nevertheless prepared documents and changed the information on the deed of sale by using correction fluid to insert the incorrect information.
It was found on the documentation, the objective facts and the evidence that the transfer of the property in question took place unlawfully, as it was not supported by a valid deed of sale. Consequently, the plaintiff was entitled in law to the relief sought.
The above case of Oosthuizen is a reflection of the fact that some attorneys and conveyancers who have taken an oath to abide by the law, are acting contrary of the ethical standard required in the legal profession.
Professional ethics are important as it upholds the standards of right and honourable conduct and should be observed by members of the profession in their dealings with each other and in protecting the interest and handling the affairs of their clients. Among the main principles of ethical conduct expected of an attorney is the attorney-client confidentiality. This relationship does not in any way detract from the fact that an attorney may not knowingly be a party to any fraud, dishonesty or underhanded dealings.
It is vital that the Deeds Office receives correct and trustworthy information. For this reason the law, the Deeds Registries Act 47 of 1937 (DRA), assigns onerous responsibilities to conveyancers. It is imperative that conveyancers are meticulous and methodical in the collecting and studying of information and supporting documentation.
There is a duty on conveyancers to obtain accurate facts and to correctly process a conveyancing transaction. This duty is assigned to the conveyancer by the DRA and Regulations thereto(especially s 15 and 15A and reg 43, 44 and 44A); the contractual relationship between the client and the conveyancer; statutory provisions such as Financial Intelligence Centre Act 38 of 2005 (FICA), Alienation of Land Act, as well as common-law principles. The legislator imposes obligations on the attorney firms, as accountable institutions in terms of FICA. Although the verification process is onerous, it contributes positively towards South Africa’s land registration process which is amongst the best in the world.
The legislation relating to transfer of immovable property is sufficient to protect all parties involved, however it is imperative that conveyancers implement this law and live up to the professions ethical standards.
This article has been written by Tertia Tsholofelo Tshwagong – Candidate Attorney, Commercial Property and Litigation, Adams & Adams. Verified by – Roelof Grové, Partner, Commercial Property and Litigation, Adams & Adams.
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