African Life Assurance Co Ltd v NBS Bank Ltd

• Jurisdiction: South Africa
• Judge: Boruchowitz J
• Judgment Date: 28 January 2000
• Citation: 2001 (1) SA 432 (W)
• Docket Number: 97/4564
• Hearing Date: 12 August 1999
• Counsel: C M Eloff SC (with him A E Bham) for the plaintiff. B E Doctor SC (with him G D Harpur and A M Stewart) for the defendant.
• Court: Witwatersrand Local Division

Boruchowitz J:

The plaintiff, which H carries on business as an insurance company, has sued the defendant for payment of R3 million together with interest thereon at the legal rate. The defendant was previously a building society, but now operates as a bank through various branches in South Africa.

The relevant facts are largely common cause and can be briefly I stated. In about September 1996 a Mr Steve Swanepoel contacted Mr Hugh Roberts, an executive director of the plaintiff in connection with an investment proposal. Swanepoel was a broker who in the past had placed insurance business with the plaintiff. He informed Roberts that the defendant offered an investment which was able to produce an effective annual rate of return of about 18%. This was an attractive yield as at that J

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time the plaintiff could only obtain a return of about 16,5% if A it invested in the money market. Swanepoel explained that the defendant was able to offer an enhanced rate of interest as the moneys invested with it were to be advanced to certain property developers who had a pressing need for bridging finance. The developers were to pay interest in advance into a fixed deposit account for the benefit of the investor. Thus, in addition to interest on the capital sum, an investor B would receive the interest which accrued on the fixed deposit. The defendant, would, according to Swanepoel, issue a letter of undertaking guaranteeing repayment of the investment.

Roberts referred Swanepoel to Jeremy Roberts, the senior manager: investments of the plaintiff. On 9 October 1996 a draft of the C undertaking which was to be given by the defendant was faxed to Jeremy Roberts, who sent same to plaintiff's attorneys for consideration.

Following several discussions between Swanepoel and the plaintiff's representatives, agreement was reached as to the terms upon which the plaintiff was prepared to invest with the defendant. The plaintiff D committed itself to invest a sum of R3 million on a fixed deposit for 12 months, with an effective annual rate of interest of 18,20%. Swanepoel informed Jeremy Roberts that a Mr Peter Stephenson, the fourth third party in these proceedings, would attend at the plaintiff's premises on 12 November 1996 to collect the plaintiff's cheque and deliver the defendant's written undertaking. E It was understood that the cheque would be handed over in return for the signed undertaking.

On 12 November 1996 the plaintiff drew a cheque in favour of the defendant for the sum of R3 million. The cheque was crossed and marked 'not transferable'. Stephenson attended at the plaintiff's premises and took delivery thereof and later that day returned with a letter which was signed by Mr Vito Assante, the branch manager of the Kempton F Park branch of the defendant. It read:

'Dear Sir,

Deposit - R3 million.

On behalf of NBS Bank Ltd, I acknowledge receipt of a G deposit from African Life Assurance Co Ltd in the sum of R3 million which had been credited to the bank account of NBS Bank Ltd.

NBS Bank Ltd does hereby irrevocably undertake and guarantee to African Life Assurance Co Ltd that the sum of R3 million will be paid to African Life Assurance Co Ltd on 12 November 1997 upon presentation of this letter at NBS Bank Ltd Kempton Park branch.

In addition an amount of R469 500 representing the interest paid in H advance on the capital sum has been invested today on a fixed deposit for 12 months at a rate of 16,36% pa with interest payable on maturity.

This interest together with the sum of R3 million will be repaid to African Life Assurance Co Ltd on 12 November 1997 upon presentation of this fixed deposit receipt to NBS Bank Ltd, Kempton Park.

Yours faithfully I

V Assante

Branch Manager '

It is beyond dispute that the furnishing of the letter of undertaking was part of a massive fraud and that the plaintiff's representatives had been J

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duped into parting with the cheque. Unbeknown A to them Assante, in collaboration with an attorney, Nicolaas Jacobus Nel, was engaged in a fraudulent scheme to misappropriate cheques which were destined for the defendant. The proceeds of these cheques were used to finance property developments in which Assante and his accomplices had an interest. Stephenson did not deliver the plaintiff's cheque to the defendant but instead handed same to B Sonjé Malan, a clerk in the employ of Nel. Nel's firm, which was then known as Nel, Oosthuizen and Kruger (NOK), conducted what is known as a 'corporate saver' account at the Kempton Park branch of the defendant. Malan, who was responsible for administering the account, deposited the plaintiff's cheque into the defendant's bank account which was then at the Standard Bank of South Africa Ltd, Kempton Park, C for the credit of NOK. The amount of R3 million was credited to the defendant and a simultaneous debit in favour of NOK was raised in the records of the defendant. Shortly thereafter, the proceeds of the plaintiff's cheque were paid by NOK to a firm known as Wietsche Jacobs Ontwikkelaars. I shall later in this judgment describe how the corporate saver account operated. D

On 15 November 1996 Wietsche Jacobs Ontwikkelaars paid the interest on the R3 million, amounting to R469 500, into a fixed deposit account with the defendant. A certificate confirming the investment was issued to the plaintiff. The plaintiff redeemed the investment in May 1998 by producing the certificate in the normal way. E

The defendant has refused to honour the letter of undertaking purportedly issued on its behalf by Assante and all attempts by the plaintiff to recover payment from the defendant have been strenuously resisted. The defendant has joined four third parties in the action, claiming damages from each in the event of it being held liable to the F plaintiff. The case against the first third party has been separated from the main claim and postponed. The defendant has settled its claim with the fourth third party. The second and third third parties are in default of appearance and the defendant seeks judgment against them in the event that the Court holds it to be liable to the plaintiff. G

Several alternative causes of action have been pleaded. In my view only two are relevant - the fifth alternative claim, which is a delictual claim for pecuniary loss, and the main claim, which is for the enforcement of the defendant's purported undertaking. Because of the view that I take of the matter it is unnecessary to discuss the remaining causes of action. H

I shall first deal with the fifth alternative claim. The cause of action, which is inelegantly pleaded, reads:

'27. At all material times hereto the defendant, as payee of the cheque, owed the plaintiff, as the true owner, a duty of care not to allow any other person or entity to collect or receive the proceeds of I the cheque for its credit or for the credit of anyone other than the defendant.

28. The defendant and its employee and/or agents, acting within the jurisdiction of this honourable Court and acting within the course and scope of their employment with the defendant, in breach of the aforesaid duty of care negligently allowed Nel, Oosthuizen and Kruger J

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to receive the proceeds of the cheque which was crossed and marked A ''not transferable'' and made payable to the defendant, not for the credit of the defendant's account, alternatively allowed the corporate saver trust account of Attorneys Nel, Oosthuizen and Kruger to be credited with the proceeds of the cheque.

29. David John Barber, and executive director of the defendant, in this affidavit opposing summary judgment in the present matter, made B the following admissions which bear on the defendant's negligence:

29.1

''From my experience in the banking industry, I now (sic) that it is common banking practice that a cheque made out to a particular banker's payee will be accepted by that bank and credited to the account of whatsoever (sic) it is instructed C to credit by the depositor, and not credited to the drawer (unless it is instructed to do so).''

29.2

''In this instance, the respondent received no instructions to credit the cheque deposit to the applicant as an investment by the applicant or otherwise.''

29.3

''To the contrary, the respondent was instructed by Nel, D Oosthuizen and Kruger to credit the cheque deposit to their corporate saver trust account.''

30. As a result of the defendant's negligent breach of duty of care owed to the plaintiff, the plaintiff has suffered damages in the sum of R3 million. E

31. In the premises, the defendant is liable to pay to the plaintiff the said sum of R3 million together with interest thereon at the legal rate from 12 November 1996, alternatively 23 January 1997, alternatively from the date of judgment to the date of payment, but despite due demand the defendant has failed to pay the said sum and interest or any part thereof.' F

The claim under consideration is for pure economic loss founded on the principles of the extended Aquilian action. The requirements for the establishment of liability are encapsulated in the judgment of Vivier JA in Indac Electronics (Pty) Ltd v Volkskas Bank Ltd 1992 (1) SA 783 (A) at 797C - D. To succeed, the plaintiff must show that the G defendant's conduct (as alleged in para 28 of the particulars of claims) was both unlawful and negligent; that it caused the plaintiff as the true owner of the cheque to sustain loss, and that the damages claimed represent proper compensation for such loss.

It is first necessary to dispose of the question whether the H plaintiff was the true owner of the cheque. A cheque is viewed as corporeal movable property. Ownership can only be transferred in accordance with the general requirements of the law regarding the transfer of...