Columbus Joint Venture v Absa Bank Ltd

• Jurisdiction: South Africa
• Citation: 2002 (1) SA 90 (SCA)

Columbus Joint Venture v Absa Bank Ltd
2002 (1) SA 90 (SCA)

2002 (1) SA p90

Citation	2002 (1) SA 90 (SCA)
Case No	65/2000
Court	Supreme Court of Appeal
Judge	Vivier Adcj, Olivier JA, Cameron JA, Cloete AJA and Brand AJA
Heard	September 7, 2001
Judgment	September 28, 2001
Counsel	C W Jordaan SC for the appellant (the heads of argument were drawn by J H Engelbrecht).; H van Eeden for the respondent.

Flynote : Sleutelwoorde D

Banker — Collecting banker — Liability of to true owner of lost or stolen E cheque — Duty of banker when opening new account for customer — Banker owing duty of care to owner of cheque not to collect proceeds of cheque on behalf of one not entitled to payment — Such duty encompassing obligation to take reasonable care when receiving and F processing application to open new banking account — Where new account opened for existing customer, verified record of customer's personal details serving as significant disincentive to fraud — Such disincentive absent in case of new customer — Banker then under duty to take reasonable measures to ascertain and verify new customer's identity and trustworthiness. G

Banker — Duty of when opening account for customer — New account in name other than customer's own — Use of such other name calling for explanation — Banker under obligation to take reasonable steps to verify customer's identity and to scrutinise with reasonable caution documentation submitted in substantiation of use to which customer proposing to put account — Where explanation adequate and circumstances H such as not to cause reasonable and prudent banker, properly considering available information, to have suspicions about customer's bona fides, further investigation not required — Bank not required to undertake duty of being amateur detective — However, where circumstances putting bank on enquiry, necessary enquiries must be I made — Fear of offending customer or of invading customer's privacy not to inhibit performance of that duty.

Headnote : Kopnota

A collecting banker owes the owner of a cheque a duty of care not to collect its proceeds negligently on behalf of one not entitled to payment. This duty of care encompasses an obligation to take reasonable care when receiving and J

2002 (1) SA p91

processing an application to open a new banking account through which cheques belonging to another are subsequently A collected for payment. (Paragraph [5] at 96B/C - D.)

There are important differences between the circumstances when a stranger requests that a new bank account be opened and those when an existing customer of the bank makes a similar request. In the latter case the existing customer generally has a verified identity and confirmed work and residential contact details. Should the new account B be used for fraud, the customer can be traced and brought to book. In addition, the location of the customer's assets may be known or traceable through the details already furnished. The pre-eminent consequence is heightened accountability, which substantially diminishes the possibility of the account being used for fraud with impunity. There is thus a significant disincentive to fraudulent use of C the account. (Paragraph [9] at 97H - 98B.)

In contrast, the disincentive to fraud is absent in the case of a new customer, whose identity, location and other details have not been verified. In such circumstances a banker is under a duty to take reasonable measures to ascertain and verify the new customer's identity and trustworthiness, for without the disincentive that verification of the relevant details provides, the risk that the D account could be used for fraudulent purposes is heightened. (Paragraphs [10] and [11] at 98C/D - D and D/E - E/F.)

An employee of the appellant, one B, had opened an account with the respondent bank, not in his own name, but in the name of '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 E solicitors specialising in European Community law in Brussels, Belgium. The 'franchise agreement' required that the franchisee operate a bank account in the name of S & H. When the S & H account was opened B was an existing client of the bank. This fact was reflected on the application form. The personal details which B furnished on the form were all authentic. Although a firm of European Community solicitors in F Brussels named S & H existed, the franchise agreement was a fraud. Before the fraud was discovered B had between November 1993 and April 1996 deposited 39 cheques, all drawn by the appellant on its bank account, into the S & H account and had caused a telegraphic transfer from the appellant's bank account to the S & H account. The appellant suffered substantial loss, which it sought to recover from the bank. It G alleged that the bank had been negligent in that (a) it had failed to establish whether the franchise agreement had been authentic and the information it contained correct; and (b) it had failed to satisfy itself that S & H existed and had authorised B to open and control an account in its name. The appellant contended that the bank could easily have obtained S & H's Brussels telephone number by calling the local telephone operator's international H enquiries service and that a further call to the number so obtained would in all likelihood have established that B was unknown to them and that the 'franchise agreement' was part of a fraudulent scheme.

Held, that when he had opened the S & H account B had furnished the bank with an identity number and other personal details, all of them authentic. His disclosure that he was an existing customer had also been authentic. That had served as an assurance of the I authenticity of the other details, since a comparison was available which would have brought any discrepancy to light. Most important of all, the details meant that, in the event of fraudulent use of the new account, the customer could be traced and held accountable. (Paragraph [12] at 98F - G/H.)

Held, further, that the fact that disincentives to fraud might from time to time be J

2002 (1) SA p92

ineffective could not render them irrelevant in determining the standard of care required of bankers in extending A further facilities to customers with already authenticated identity, work and residential details. (Paragraph [13] at 98I - 99A/B.)

Held, further, that the issue was whether it had been shown that the circumstances had been such as to have caused a reasonable and prudent banker, properly considering the available information, to have suspicions about its customer's bona fides. Only if the B circumstances were such would the need for further enquiries arise. (Paragraph [15] at 99C/D - D/E.)

Held, further, that the fact that the bank could easily have called S & H in Brussels did not in itself translate into a breach of a duty to have done so: an omission to act did not constitute a breach of duty merely because the omitted action would have been easy to take. (Paragraph [16] at 99E.) C

Held, further, that the 'franchise agreement' appeared quite regular on the face of it. There was nothing untoward about the joint venture proposed therein and nothing in its terms to suggest the necessity for further enquiry. (Paragraph [18] at 100B/C - C.)

Held, further, that bankers were under an obligation to take reasonable steps to ensure that their clients were who they said they D were and to scrutinise with reasonable caution documentation submitted to them in substantiation of the uses to which their clients propose to put the accounts they opened. The duty which the appellant sought to impose on the bank in this instance, being 'the duty of being an amateur detective', was too high: nothing in this instance justified its imposition on the bank. (Paragraph [18] at 100D - F.) E

Held, further that there was an evident danger that an account operated under a name other than that of the bank's customer might be used for fraud. The use of a name other than the customer's own thus called for an explanation. (Paragraph [21] at 101C/D - D/E.)

Held, further, as to the nature and extent of such explanation, that, if circumstances put a bank on enquiry in extending F new facilities to an existing customer or in creating facilities for a new customer, the necessary enquiries had to be made. Fear of offending the customer or of invading the customer's privacy could not inhibit the performance of that duty. (Paragraph [25] at 102E - E/F, read with paras [22] and [23] at 101F/G - H.)

Held, further, given that B was an existing customer, with verified details, and given the plausibility of his explanation that the 'franchise agreement' required him to conduct the account in the G name of S & H, that there had been no circumstances putting the bank on further enquiry and requiring it to undertake further investigations, despite the ease with which that could have been done. There was, accordingly, no basis for concluding that the bank had failed in the duty it owed to the appellant. (Paragraph [26] at 102G - H.)

The decision in the Witwatersrand Local Division in Columbus Joint Venture v ABSA Bank Ltd 2000 (2) SA 491 (W) confirmed. H

Cases Considered

Annotations

Reported cases

A L Underwood Ltd v Bank of Liverpool [1924] 1 KB 775 (CA): dictum at 793 approved I

ABSA Bank Ltd v Bond Equipment (Pretoria) (Pty) Ltd 2001 (1) SA 372 (SCA): referred to

Columbus Joint Venture v ABSA Bank Ltd 2000 (2) SA 491 (W): confirmed on appeal

Energy Measurements (Pty) Ltd v First National Bank of SA Ltd 2001 (3) SA 132 (W): approved J

2002 (1) SA p93

First National Bank of SA Ltd v Quality Tyres (1970) (Pty) Ltd 1995 (3) SA 556 (A): referred to A

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