First National Bank of South Africa Ltd v Budree

• Jurisdiction: South Africa
• Judge: Page J
• Judgment Date: 24 September 1995
• Docket Number: 161/95
• Hearing Date: 22 September 1995
• Counsel: R J Seggie for the plaintiff (excipient). J A Booysens SC for the defendant (respondent).
• Court: Natal Provincial Division

D Page J:

The excipient instituted an action against the respondent in this Court in which it claimed payment of various sums of money allegedly lent by it to the respondent together with interest thereon and costs. In her plea, respondent raised various defences, including reliance upon a claim in reconvention for damages which she brought simultaneously therewith. The relevant allegations in the claim in reconvention are as follows:

'14.

E Defendant is a practising attorney in Pietermaritzburg. In terms of an oral agreement entered into between the defendant and the plaintiff, defendant has at all material times kept her current trust banking account in the name J Budree and Associates Trust Account at F the plaintiff's Pietermaritzburg branch. It was a term of the agreement between defendant and plaintiff that plaintiff would honour cheques properly drawn on the aforesaid account if there were sufficient available funds in it to meet the cheques being presented for payment.

15.

At all times material hereto the plaintiff was aware that defendant G as an attorney would conduct the aforesaid trust account in such a manner that it would not be overdrawn.

16.

Plaintiff was further aware that defendant depended on her good name and reputation as an attorney to conduct her business and that any shortages in her trust account would seriously impair her good name and reputation.

17.

H On or about 3 October 1994 defendant drew a cheque payable to Messrs Venn Nemeth & Hart, attorneys in Pietermaritzburg, in the amount of R470. The cheque was duly presented for payment but plaintiff dishonoured it by non-payment and marked it "refer to drawer".

18.

I At all material times there were sufficient funds in the aforesaid trust account to the credit of defendant's banking account to meet the aforesaid cheque and plaintiff has admitted that it should not have returned the cheque marked as aforesaid and should have paid the cheque.

19.

As a result of the aforesaid failure by the plaintiff to meet the J cheque when it should have done so the aforesaid Messrs Venn

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A Nemeth & Hart issued summons against the defendant out of the magistrate's court, Pietermaritzburg on the cheque and reported the matter to the Natal Law Society.

20.

The Natal Law Society inspected as a result of such report the books of the defendant on the belief that she was not conducting her trust B account in a proper and correct fashion as she should have done as a practising attorney.

21.

At all times material hereto:

21.1

Plaintiff was aware that it should treat an attorney's trust account with circumspection and assure that it did not create C the impression that the aforesaid trust account was not conducted in a proper fashion.

21.2

Defendant was greatly insulted, and humiliated and suffered damages in her good name, business and professional reputation as a direct result of plaintiff's behaviour as set out in para 18 above.

22.

D As a result of the breach of contract by the plaintiff the defendant has suffered damages in the amount of R50 000 which amount the plaintiff is obliged to pay to defendant.'

The excipient has brought an exception to the claim in reconvention on the grounds that the respondent claims sentimental damages for breach of contract without averring that: (a) she is a business woman or trader, or E (b) facts which establish an injuria, and that in the premises the respondent had not disclosed a cause of action in her claim in reconvention.

It is clear from the allegations in paras 14, 17, 18 and 22 that the respondent's claim is based solely upon breach of contract and not upon F delict. It was further common cause that she was seeking to recover the global amount claimed as general damages arising out of the consequences alleged in para 21.2, without allocating separate amounts to each consequence alleged, and without alleging or intending to prove special damage. Counsel for the respondent relied, as a justification for so G doing, upon the contention that there was a rule in South African law that if a plaintiff can establish 'that his occupation is such that credit is an essential element in the conduct of his business, a bank which injures his credit by refusing to honour cheques when funds are available would be liable in damages without proof of actual loss' (Barclays Bank v Giles 1931 TPD 31 at 35).

H The rule relied upon has its origin in English Law and was the subject of a detailed and useful analysis in Cowen on The Law of Negotiable Instruments in South Africa 4th ed (1966) by Cowen and Gering at 394-415. That part of the fifth edition dealing with the subject is still in the course of preparation. I was not, however, referred to any significant decisions on the point after the date of fourth edition. I

The rule in English law is summarised by the learned authors as follows (at 394-5):

'In accordance with the general rule of the English law of contract, the mere breach, without justification, by a banker of his obligation to honour cheques drawn by his customer entitles the latter to claim nominal damages. A customer, however, is not confined to claiming nominal damages J for

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A dishonour. Thus it is a well-established rule of English law that where the customer is a "trader", the fact of dishonour entitles him to substantial, though temperate and reasonable, damages without it being necessary to allege and prove special damage.'

The question of whether this rule has gained general recognition in South B African law and, if not, whether it should be accorded such recognition, is one of considerable difficulty. Although the exception was formulated upon an apparent acceptance that the rule formed part of our law, and appeared to be based upon the contention that the claim as formulated did not fall within its terms, counsel for the excipient went further in C argument and contended, without objection from the respondent, that I was not bound by the decisions in which it had been recognised and that I should respectfully decline to follow them.

The learned authors of Cowen (op cit) record at 403 that:

'In a fairly long line of South African cases the English rule has been followed that where a customer whose cheque has been dishonoured is able D to show that credit is an essential part of, or asset in, his business, he is entitled to substantial damages for wrongful dishonour even though the amount of the loss is not specifically proved.'

They preface this statement with the remark, however, that:

'Unfortunately there can be little doubt that the South African law on the E subject of damages for the unjustified dishonour of a cheque is in an unsatisfactory and obscure condition: and the sooner it is firmly established by the Appellate Division, the better.'

They then embark upon a detailed and critical analysis, in the ensuing pages, of the cases which follow, or purport to follow, the rule. The F great majority of these cases are decisions of the Transvaal Courts, although there were some early applications of the rule in the Eastern Districts, Griqualand West and Southern Rhodesia (see at 404 n 308 and cases there cited). The only Natal decision to which I was referred was that of Hodges v Standard Bank of SA Ltd 1916 NLR 91, to which I will revert in due course.

G The line of Transvaal decisions starts with Freeman v Standard Bank of South Africa Ltd 1905 TH 26, a decision of a single Judge (Bristowe J) who held that the defendant had breached its contract with the plaintiff by dishonouring his cheque and stated, at 134:

'Ordinarily the improper dishonour of a cheque, especially in the case of a businessman, would involve a serious liability, for it damages his H credit and may do him an injury which is nonetheless great because it cannot be certainly measured.'

He fixed damages at £150, having regard to the circumstances of the case but without proof of special damage. No authority was cited by the I learned Judge for so doing, although he was referred in argument to Grant's Law of Banking - an English textbook.

In Witbank District Coal Agency v Barclays Bank 1928 TPD 18, a Full Bench decision, it was held by De Waal JP at 23 that

'(u)ndoubtedly it is a serious matter for a businessman or a trader to have his credit impaired by the dishonour of his cheque; particularly so where that cheque has been drawn in favour of one upon whom, as in this case, the drawer of the cheque depends for his whole business or trade, ...