The ingenuity of fraudsters

The ingenuity of fraudsters

By Charl Theron and Daniel Botha

Lochner v Schaefer Inc., a decision of the High Court, Port Elizabeth on 17 January 2017, concerned email fraud souring the relationship between an attorney and client.

Schaefer Inc. provided run of the mill conveyancing services to Dr Lochner in respect of the transfer of a residential home.  By agreement, they communicated by cell phone and email (to the email address of Dr Lochner’s spouse –

Save for one aspect, nothing was out of the ordinary.  The day before the actual transfer in the Deeds Office was to occur, Schaefer Inc. received an email (ostensibly) from Dr Lochner’s spouse requesting that the proceeds of the sale be paid into a different bank account with a different bank.  In response, Schaefer Inc. emailed a change of banking details form to be signed by Dr Lochner.  The form, (ostensibly) signed by Dr Lochner, was promptly returned.  The transfer occurred and Schaefer Inc. paid the proceeds into the (substituted) bank account.

The next day, Dr Lochner’s spouse queried why he had not received the proceeds, and only then did Schaefer Inc. discover the fraud.  The last few email correspondences had been to the email address – note the extra “n“.

Dr Lochner sued Schaefer Inc. based on breach of mandate, and the latter defended.  Dr Lochner then applied for “summary judgment” (see below for details).  Schaefer Inc.’s defence was that it had not been negligent, and Dr Lochner countered that a law firm has strict liability, and will be liable even if not negligent.  The Court did not agree with Dr Lochner:

My conclusion is that fault on the part of [Schaefer Inc.] is a necessary element of liability in terms of the contract of mandate that had been entered into …  [Dr Lochner’s] argument to the effect that [Schaefer Inc is] liable simply on the basis that they did not execute the mandate is therefore not correct.”

So, the matter will proceed to trial to determine whether, or not, Schaefer Inc. was negligent.  The firm may be well advised to settle.

This form of fraud has been around for a while.  Either, the client’s computer or smart phone has been hacked, or an ‘insider’ (eg at the Deeds Office or at the law firm) is involved.  At Walkers, we regard any change of banking details with suspicion, and suggest that clients rather attend at our office in person to change banking details.  If that is not feasible, forgive us for being suspicious.

Summary judgment is a special procedure only available in certain types of matters.  The plaintiff can compel the defendant either to put up security for the claim or to explain its defence under oath.  If the Court regards the defence as bona fide (in good faith) or if the defendant puts up security, the matter proceeds to trial.  Otherwise, the Court gives (summary) judgment in favour of the plaintiff (and the defendant loses).

Also in this issue:

Chairman’s Introduction

More quotes from Nietzsche

The right to die and human dignity

When your travel agent makes you ill

Why a company’s registered address matters

The Companies Act shows its teeth

POPI and debt collection

Burning the American flag