Claim against Durban law firm over Ponzi scheme fails

A businesswoman who says she was duped into investing money in what turned out to be a multimillion-rand Ponzi scheme run by disgraced lawyer Colin Cowan has failed in her bid to hold law firm Garlicke and Bousfield liable for her losses.

Cowan, who committed suicide in November 2010, admitting to his crime in a suicide note, worked at the respected law firm as a consultant. He ran the Ponzi scheme under the noses of its directors, but they denied any knowledge of it.

Several “investors” have laid claims against the firm. In the first to go to court, Pietermaritzburg high court judge Jerome Mnguni, in 2020, ruled in favour of businessman Merlin Stols, ordering the firm to pay him R7m.

But Lizelle Jacobs’ case collapsed this week, when Pietermaritzburg high court judge Rob Mossop refused her application to substitute herself, as opposed to her company Cotton King Manufacturing Pty Ltd, as the plaintiff in the matter.

He also ruled that the case had become prescribed.

Jacobs, like Stols, claimed she had invested money in Cowan’s bridging finance scheme, ostensibly propping up property transactions that were pending finance.

Summons was issued in 2011, the plaintiff being cited as Cotton King.

Jacobs was the CFO of Cotton King.

In the claim, it was alleged Cotton King had invested R2.5m which was to be repaid with interest at a rate of 30% per annum within three months. Cotton King sought to hold the law firm liable for this.

Later in 2011, Jacobs, in an amended plea, said Cotton King had been placed in voluntary liquidation. Jacobs then sought to be personally named as the plaintiff, saying the liquidators had ceded this claim to her.

Garlicke and Bousfield opposed this and Jacobs took nearly six and half years — until May 2021 — to file her final, replying affidavit. 

In affidavits before judge Mossop, Jacobs said she had put up security of R400,000 — as Cotton King had been directed to do by the registrar of the court — but this had been misappropriated by an employee of her attorneys at that time. She attributed this as being one of the reasons for the delay in the matter.

But, Mossop said, Jacobs was wrong in believing she had been “ordered” to put up security. This directive from the registrar was against Cotton King and not her.

The years slipped by until Jacobs, who was now living in the US, appointed new attorneys.

She then instituted an action against her (unnamed) erstwhile attorneys to recover the stolen money.

Judge Mossop said Jacobs had simply glossed over large chunks of time.

“Her attitude borders on an abandonment of the substitution application in preference to pursuing her erstwhile attorneys,” he said.

And Jacobs’ problems did not end there.

Mossop said documents showed that Jacobs, in her personal capacity, and not Cotton King, had always been the investor and therefore the liquidators had nothing to cede to her.

This meant Cotton King’s claim “has no future”, he said.

Further, he said, even if he ordered the substitution, Jacobs’ claim had become prescribed at midnight on January 30 2014.

“It appears to me that the applicant’s (Jacobs) attempt to litigate against the defendant (the law firm) has come to an end. To allow her to be substituted in the place of Cotton King would accordingly serve no purpose and would not advance her position, but would prejudice the defendant, who would have to endure the inconvenience and expense of this essentially hopeless action limping on,” Mossop said.

He said Jacobs was not without remedy and her true cause of action was against her erstwhile attorneys, who she was already suing.

Garlicke and Bousfield director Patrick Forbes said the judgment had put paid to any claim by Cotton King or Jacobs against the firm.

Regarding the Stols matter, he said the firm had applied for leave to appeal but that application had been removed from the roll this week.

“The parties are in discussions, which is all I can disclose at the moment.

“None of the other claims instituted have been pursued by those plaintiffs against G&B, and it has now been over 13 years since Cowan's suicide,” Forbes said.