Case Notes: The use of stolen funds to discharge a debt and enrichment: Absa Bank Ltd v Lombard Insurance Co Ltd

• Jurisdiction: South Africa
• Author: Chris Pretorius
• Published date: 25 May 2019
• Pages: 589-605
• Date: 25 May 2019

Case Notes

THE USE OF STOLEN FUNDS TO

DISCHARGE A DEBT AND ENRICHMENT:

ABSA BANK LTD v LOMBARD INSURANCE

CO LTD

CHRIS PRETORIUS

Department of Private Law, University of South Africa

I INTRODUCTION

The decision in Absa Bank Ltd v Lombard Insurance Co Ltd 2012 (6) SA

569 (SCA) (Lombard) deals with the contentious situation of whether a

bank may appropriate stolen funds received from its client to discharge

the debts of the client towards the bank. Generally, the true owner of

property that has been stolen or misappropriated by way of fraud may

recover it from a recipient other than the fraudster with the rei

vindicatio or an enrichment action where ownership has passed. But in

Lombard the Supreme Court of Appeal found that a bank is not

unjustif‌iably enriched when in good faith it retains money to discharge

the debts of its client towards it, even though the client obtained the

funds through fraud or theft. This note analyses some of the implica-

tions of this decision for the law of unjustif‌ied enrichment and the

extinguishing of obligations.

II THE FACTS

Simplif‌ied for present purposes, the relevant facts are that the respon-

dent, Lombard Insurance (Lombard), employed Ms Manickum (the

fraudster) as a f‌inancial accountant. She held cheque accounts with

the appellant banks, ABSA Bank Ltd (ABSA) and FirstRand Bank Ltd

(FNB), as well as home loan and credit card accounts with FNB, and a

credit card account with ABSA. Most, if not all, of these accounts were in

debit at the relevant time. Lombard’s principal business was the

provision of guarantees to customers for the purpose of guaranteeing

the latter’s performance of contractual obligations to third parties. To

this end it held cash deposits from its clients as security for the issuing of

589

(2013) 25 SA Merc LJ 589

© Juta and Company (Pty) Ltd

guarantees, repayable once a guarantee had served its purpose and there

were no amounts due by the customer to Lombard.

Manickum forged a letter purporting to be a request by a customer for

repayment of a deposit and prepared the required forms for signature by

the authorised off‌icials of Lombard. These were duly signed and the

funds were electronically transferred from Lombard’s bank account, not

to the customer’s account, but to the current account of Manickum at

FNB, extinguishing a debit balance of R57 013.42 and converting it into

a credit balance of R2 057 934.02. After that, she made further transfers

from her FNB and later her ABSA current accounts, the net effect of

which was a substantial reduction of the debit balance on her FNB home

loan account and the conversion of her indebtedness to FNB and ABSA

on her other accounts to credit balances. Later, however, after the theft

had been detected and her accounts frozen, the remaining credit

balances on her accounts were transferred to an ABSA account held in

the name of the trustees of Manickum’s and her husband’s insolvent

estate.

Lombard sought payment with the condictio ob turpem vel iniustam

causam from FNB of the money used to extinguish Manickum’s

indebtedness on her FNB current and credit card accounts, and the

reduction on her home loan account. Lombard did not seek payment of

the credit balance on Manickum’s FNB current account that was

transferred to ABSA and held by it on behalf of the trustees in the

insolvent estate. From ABSA Lombard sought to recover the total

amounts credited to Manickum’s current and credit card accounts.

III DECISIONS

(a) South Gauteng High Court

In upholding the application in the court of f‌irst instance, Meyer J held

that neither FNB nor ABSA had succeeded in showing that they had not

been enriched. If either had sued Manickum, she could not have

countered that her overdraft accounts had been extinguished or that her

home loan account had been reduced as a result of the payments. She

had obtained the money by way of fraud or theft and was not entitled to

the amounts credited to her various accounts. Consequently, a right

to the funds did not accrue to the insolvent estate of Manickum and that

of her husband. Furthermore, the credits were capable of being reversed

by FNB and ABSA, irrespective of whether they reduced or extinguished

(2013) 25 SA MERC LJ590

© Juta and Company (Pty) Ltd