Columbus Joint Venture v Absa Bank Ltd

• Jurisdiction: South Africa
• Citation: 2000 (2) SA 491 (W)

Columbus Joint Venture v Absa Bank Ltd
2000 (2) SA 491 (W)

2000 (2) SA p491

Citation	2000 (2) SA 491 (W)
Case No	98/24221
Court	Witwatersrand Local Division
Judge	Malan J
Heard	October 18, 1999
Judgment	December 17, 1999
Counsel	J H Engelbrecht for the plaintiff.; H van Eeden for the defendant.

Flynote : Sleutelwoorde B

Banker — Collecting banker — Liability of to true owner of lost or stolen cheque — Collecting banker alleged to have acted unlawfully and negligently when opening bank account to which proceeds of cheques credited — Issue whether bank displaying reasonable care in opening account — Clear need apparent where stranger requesting that bank C account be opened for objective evidence of stranger's trustworthiness and creditworthiness — Bank should either follow up reference or obtain information concerning potential customer's identity, residence, employment and the like — Situation different where existing customer requesting further facilities — Such customer known to bank and personal particulars ascertainable — Bank need not thus repeat enquiry process D unless circumstances call for such enquiry — Bank under duty to enquire where put on enquiry or transaction out of ordinary but not called upon to cross-examine customer to determine whether customer lying — Bank need not enquire about source of such customer's funds unless circumstances calling therefor — Bank opening further account for E existing customer, employed as group legal adviser, in name of firm of solicitors — Customer's personal particulars given in application form matching those already on record — Customer presenting to bank franchise agreement purporting to be between customer and firm of solicitors — Such franchise agreement regular on face of it — Over period of some 18 months thereafter bank crediting to account proceeds of 39 F cheques made in favour of firm — In absence of special circumstances, bank entitled to rely upon franchise agreement — Bank not negligent.

Headnote : Kopnota

When a stranger requests that a bank account be opened for her or him, the need for objective evidence of her or his trustworthiness and creditworthiness is apparent. Her or his own ipse dixit is G not sufficient - either a reference should be followed up or information concerning her or his identity, residence, employment and the like should be obtained. The situation when an existing client requests further facilities or another account is quite different: the client is known to the bank and her or his personal particulars, if not known to the official dealing with the request, are ascertainable. The bank need not therefore repeat the enquiry process unless the circumstances call for an enquiry to be made. The bank should also be careful not to H enquire where enquiries might offend the customer or invade her or his privacy. A balance should be struck: the bank should enquire where it is put on enquiry or the transaction is out of the ordinary, but it is not called upon to cross-examine the customer to determine whether she or he is lying. Nor does the bank have to enquire about the customer's previous employment or the source of her or his funds unless the I circumstances call for such enquiry. (At 510G - 511A.)

The plaintiff had employed one B since March 1992 as its group legal adviser. He was a salaried employee. The plaintiff had not discovered until 1996 that B had been struck from the roll of attorneys in 1985. In October 1993 B opened a current account with the defendant bank in the name of J

2000 (2) SA p492

'Stanbrooke & Hooper' (S & H). A document purporting to be a franchise agreement between S & H, as franchisor, and B, as franchisee, was handed to the bank. S & H was reflected therein as a firm of solicitors in Brussels, Belgium (a firm of solicitors by that name did in fact exist in Brussels). When the account was opened B already had a personal cheque account and a bond account with the bank, albeit at a different branch. The bank obtained a copy of B's identity document and noted the number of his pre-existing cheque account on the application form. It appeared that the personal details given by B concerning his full names, address, place of employment, telephone numbers and the like corresponded with those he had previously given when opening his other accounts. S & H (Brussels) had, in fact, never authorised B to conduct and control a bank account in the name of S & H; had never entered into a franchise or any other agreement with B; and the account was operated by B for his exclusive benefit. During the period November 1993 to April 1996 B caused the plaintiff to draw 39 cheques on and to effect a telegraphic money transfer from the plaintiff's bank account in favour of S & H for amounts totalling R820 964,40 in payment for fictitious invoices sent to the plaintiff by S & H for legal services purportedly rendered by S & H to the plaintiff. B, as the group legal adviser, authorised the payments. The defendant bank credited the proceeds to the S & B account while the plaintiff's account was debited.

The plaintiff sued the defendant, in its capacity as collecting bank, for recovery of the amounts of the cheques, being R777 302,40. In a stated case one of the issues was whether the bank had acted unlawfully and negligently when it had opened the S & H account and when it had E collected the cheques by (a) failing to make enquiries in Brussels (by telephone) whether a firm of solicitors by the name of S & H existed and whether its particulars matched those appearing on the franchise agreement; (b) failing to enquire from S & H (Brussels) whether it had in fact entered into a franchise agreement with B; (c) failing to enquire from its own attorneys whether it was competent for anyone to practise law in South Africa in F terms of a franchise agreement such as that in issue; and (d) failing to enquire whether a business or practice was in fact being carried on in South Africa under the name S & H.

Held, that, in the absence of evidence of what the banking practice was or of what a prudent bank would or should have done under the circumstances (the stated case being silent in these respects), the issue was whether the bank had displayed reasonable care in opening the S & H account for B. (At 510C - D.)

Held, further, that, although the precautions taken by a bank in the performance of its duty of care towards the owner of a lost or stolen cheque might to some degree overlap with the enquiries undertaken in determining the trustworthiness and creditworthiness of a customer, there was nevertheless a separate duty intended to protect H the interests, not of the bank or its customers, but of the owner of a lost or stolen cheque which might be presented to the bank for collection. (At 503C/D - E.)

Held, further, that to succeed with an action against a collecting bank under the extended lex Aquilia the 'true' owner of a cheque would have to show (a) that the bank had I received payment of the cheque on behalf of someone not entitled to it; (b) that, in receiving payment, the bank had acted both negligently and wrongfully; (c) that the bank's conduct had caused the true owner to sustain loss; and (d) that the damages claimed represented the proper compensation for the loss. It followed that there was no uncertainty about whether the collecting bank's negligence should causally be connected with the loss. (At 504E - G.) J

2000 (2) SA p493

Held, further, as to the first ground of negligence relied upon by the plaintiff, that a telephone call would have revealed very A little and would merely have confirmed the existence of S & H (Brussels). (At 511C.)

Held, further, as to the second ground of negligence, that an enquiry whether S & H (Brussels) had in fact entered into a franchise agreement with B would only have been necessary if there had been facts calling for such an enquiry. The franchise agreement B presented by B appeared to be quite regular in the sense that it had been typed and signed; there was nothing untoward in its terms; and, while it was true that the use of a name other than the customer's own lent itself to misuse and called for an explanation, where the customer C was a franchisee or presented her- or himself as one, the use of the business name was, on the face of it, explained. Little more, if anything, than a copy of the franchise agreement could be expected, particularly where the customer was an existing one and his particulars were known to the bank. To have required the bank to telephone Brussels to verify the existence of the franchise was simply asking too much. (At 511D - G.) D

Held, further, as to the third ground, that there was no evidence that it would have been illegal to practise in South Africa in the manner alleged. (At 511H/I.)

Held, further, as to the fourth ground, that, in the absence of special circumstances, the bank had been entitled to rely upon the franchise agreement presented to it and that to have required more would have been to impose upon it unreasonable duties. (At 511I/J - 512A/B.) E

Held, accordingly, that the plaintiff had failed to prove that the defendant had been negligent. (At 512A/B.)

Cases Considered

Annotations

Reported cases

Baker v Barclays Bank Ltd [1955] 1 WLR 822 ([1955] 2 All ER 571): compared

Big Dutchman (South Africa) (Pty) Ltd v Barclays National Bank Ltd 1979 (3) SA 267 (W): applied F

Bond Equipment (Pretoria) (Pty) Ltd v ABSA Bank Ltd 1999 (2) SA 63 (W): applied

Commissioner of Customs and Excise v Bank of Lisbon International Ltd and Another 1994 (1) SA 205 (A): dictum at 208F applied

Commissioners of Taxation v English, Scottish and Australian Bank Ltd [1920] AC 683: discussed G

Commissioners of the State Savings Bank of Victoria v Permewan Wright & Co Ltd 19 CLR 457: referred...