Indac Electronics (Pty) Ltd v Volkskas Bank Ltd

• Jurisdiction: South Africa
• Judge: Joubert JA, Hefer JA, Vivier JA, Goldstone JA and Van den Heever JA
• Judgment Date: 29 November 1991
• Hearing Date: 20 September 1991
• Court: Appellate Division

Vivier JA:

The appellant ('the plaintiff') instituted a delictual action for damages against the respondent ('the defendant') in the Transvaal G Provincial Division. The defendant excepted to the alternative cause of action set out in the plaintiff's particulars of claim and, in the alternative, applied for the striking out of certain words in the particulars of claim. The exception was upheld with costs by Eloff DJP, who set aside the particulars of claim despite the fact that the exception only related to the plaintiff's alternative cause of action, H namely that based on negligence. With the leave of the Court a quo the plaintiff now appeals to this Court.

In its particulars of claim the plaintiff alleged that it was the true owner of a cheque, dated 2 May 1989, drawn by the defendant's Silverton branch in the sum of R58 218 in favour of the plaintiff or order (the payee being specified as 'Indac Electronics'). The cheque was crossed I and marked 'not negotiable'. The plaintiff further alleged that it did not indorse the cheque either in blank or specially in favour of a certain M J le Roux. That notwithstanding, the defendant's Wonderboom South branch received the cheque for collection on 2 May 1989, not on behalf of the plaintiff but on behalf of Le Roux, who was a customer of the defendant at the latter branch. It paid the proceeds of the cheque J to him despite the fact that he

Vivier JA

A had no right to receive such payment. The plaintiff alleged that the defendant was aware, alternatively should have been aware, of the fact that Le Roux was not entitled to payment of the proceeds of the cheque, and that, in the circumstances, as the collecting banker, it owed a duty of care to the plaintiff as the payee and true owner of the cheque to avoid causing loss to it by dealing negligently with the cheque. The B plaintiff alleged that the defendant acted in breach of this duty and caused the plaintiff to sustain loss in the amount of the cheque. The basis of the exception was that, in the absence of actual knowledge of its customer's defective title, there existed no legal duty on the part of the defendant, as the collecting banker, to avoid dealing negligently with the cheque. In upholding the exception Eloff DJP regarded himself C bound by the decisions to that effect in the Witwatersrand Local Division in Yorkshire Insurance Co Ltd v Standard Bank of SA Ltd 1928 WLD 223 and Atkinson Oates Motors Ltd v Trust Bank of Africa Ltd 1977 (3) SA 188 (W).

The question which accordingly arises for decision at the exception D stage of this case is whether a collecting banker, who negligently collects payment of a cheque on behalf of a customer who has no title thereto, can be held liable under the lex Aquilia for pure economic loss sustained by the true owner of the cheque who is not its customer.

This issue was long regarded as settled in favour of the collecting banker by the decision in the Yorkshire Insurance case supra. In recent E years, however, it has become a controversial one in South Africa, provoking a great deal of academic discussion. This was the result of the recognition by this Court in Administrateur, Natal v Trust Bank van Afrika Bpk 1979 (3) SA 824 (A) of Aquilian liability for pure economic loss caused negligently, and the decisions of the Courts in Zimbabwe recognising such liability to the true owner of a stolen cheque on the F part of a negligent collecting banker in the following cases: Rhostar (Pvt) Ltd v Netherlands Bank of Rhodesia Ltd 1972 (2) SA 703 (R); Philsam Investments (Pvt) Ltd v Beverley Building Society and Another 1977 (2) SA 546 (R); Zimbabwe Banking Corporation Ltd v Pyramid Motor Corporation (Pvt) Ltd 1985 (4) SA 553 (ZS) and UDC Ltd v Bank of Credit G and Commerce Zimbabwe Ltd 1990 (3) SA 529 (ZH). The question of the collecting banker's liability for negligence was left open by this Court in Trust Bank of Africa Ltd v Barnes NO 1975 (3) SA 1002 (A) at 1011B on the ground that the plaintiff's case was based not on negligence but on fraud.

H Before dealing with the decision in the Yorkshire Insurance case supra, I should refer to two earlier decisions of our Courts which were referred to in that case. In Leal and Co v Williams 1906 TS 554 (a case which did not concern a collecting banker's duties) a bank draft, drawn by a bank in England on the Standard Bank at Johannesburg in favour of Williams, was posted to Williams, but was intercepted and stolen and I Williams' indorsement forged thereon. The draft was tendered to Leal and Co in payment for goods purchased by the thief. Leal and Co received payment of the draft from the Bank of Africa. It handed the proceeds to the thief less the amount owed for the price of the goods. Williams, as the true owner of the draft, sued Leal and Co to recover the amount thereof. In giving judgment against Williams, Innes CJ pointed out, at J 557, that had

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A the action been brought in England, Williams might have succeeded by an application of the doctrine of conversion. At 558 he quoted the following definition of that doctrine appearing in an English case:

'Any person who, however innocently, obtains possession of the goods of a person who has been fraudulently deprived of them and disposes of them, whether for his own benefit or that of any other person, is guilty of conversion.'

B Innes CJ went on to say, at 558-9, that in our law the remedy available to the true owner of stolen property was the rei vindicatio, provided the property was still in esse. He might also bring the actio ad exhibendum to recover the property or its value (should it have been sold or consumed) against the thief or his heirs or against any person C who received it with knowledge of the tainted title. The fact that these were the only remedies allowed by our law is inconsistent with the doctrine of conversion, which allowed the true owner to sue a bona fide intermediary. Innes CJ concluded with the passing remark that 'something might possibly be made of the case on the ground of negligence', but said that counsel for Williams had not seriously pressed that point.

D The case of Standard Bank v Estate Van Rhyn 1925 AD 266, which was specifically relied upon by Tindall J in the Yorkshire Insurance case supra, dealt with the liability of the drawee or paying banker. One Schultz, the agent of the executor in a deceased estate, drew a cheque on the estate account intending to misapply the proceeds. The drawee E banker paid the cheque, which did not comply in form with the statutory direction to executors. It was held that since the bank was not privy to the intended misapplication, it incurred no liability to its customer by paying the cheque.

This brings me to the Yorkshire Insurance case supra. The facts of F that case, briefly stated, were the following. One Harris was the trustee in various insolvent estates and the liquidator of certain insolvent companies. He opened bank accounts in the name of the estates with Barclays Bank while he had his own personal account with Standard Bank. He proceeded to steal 19 cheques representing payments due to the estates, which he presented for payment into his personal account. He G furthermore drew 45 cheques in favour of himself on the estate accounts at Barclays Bank which he presented for payment into his personal account with the Standard Bank. The Yorkshire Insurance Co, having guaranteed Harris's fidelity, made good the losses suffered by the estates and took cession of their rights. It thereafter sued Barclays Bank as the drawee banker in delict under the lex Aquilia for the H losses, alleging actual knowledge by Barclays Bank of the breach of trust. (Yorkshire Insurance Co Ltd v Barclays Bank (Dominion, Colonial and Overseas) 1928 WLD 199.) That case was decided on exception, Greenberg J upholding an objection to the plaintiff's main cause of action (on a point not relevant for present purposes) and dismissing the I exception against the alternative cause of action. In the course of his judgment Greenberg J said at 206-7 that if it could be established that Barclays Bank acted with full knowledge of Harris's breach of trust, it

would be liable in delict under the lex Aquilia on the basis of the decision in Matthews and Others v Young 1922 AD 492, ie for loss caused by an intentional infringement of the legal rights of another. Yorkshire J Insurance Co thereafter brought a second action under the lex

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Aquilia, this time against the Standard Bank as the collecting banker in respect of all the cheques. It alleged that the Standard Bank knew that Harris was misapplying trust funds, alternatively that the Bank acted negligently and in breach of a duty of care to enquire whether Harris was entitled to the proceeds of the cheques received by him for the estates and whether he had authority to draw the cheques which he drew B on the estates in his own favour. At the conclusion of the trial Tindall J held, with regard to the main cause of action, that it had not been established that the Standard Bank had knowledge that Harris was misapplying trust funds. A

With regard to the alternative cause of action based on negligence, Tindall J held that in our law a bank collecting payment of a cheque, C whether crossed or not, on behalf of a customer who has no title thereto is not liable to the true owner for any loss sustained by him on the ground of negligence either at common law or under s 80 of the Bills of Exchange Proclamation 11 of 1902 (T). Section 80 of both the Cape and Transvaal statutes provided that where a banker in good faith and without negligence receives payment for a customer of a cheque crossed D generally or specially to himself and the customer has no title or a defective title thereto, the banker shall not incur any liability to the true owner of the cheque by reason only of having...