OK Bazaars (1929) Ltd v Standard Bank of South Africa Ltd

• Jurisdiction: South Africa
• Judge: Nienaber JA, Zulman JA, Cameron JA, Navsa JA and Nugent JA
• Judgment Date: 12 March 2002
• Citation: 2002 (3) SA 688 (SCA)
• Docket Number: 278/2000
• Hearing Date: 18 February 2002
• Counsel: L R G Serrurier SC (with him K J Trisk) for the appellant. J M Suttner SC (with him R Hutton) for the respondent.
• Court: Supreme Court of Appeal

Nugent JA:

[1] This appeal arises from a misstatement made by an employee of the appellant that is alleged to have caused economic loss to the respondent. The respondent's claim for recovery of damages in E respect of the loss succeeded in the Johannesburg High Court (before A Gautschi AJ) and the appellant appeals to this Court with the leave of the Court a quo.

[2] The respondent (Standard Bank) is a well-known commercial bank. At the time that is relevant to this appeal its F customers included the appellant (I will refer to it as Hyperama, which is the name of the relevant division of the appellant) and a company known as KTC Resources (Pty) Ltd (KTC). KTC was controlled by a certain Mr Khalid Malik. Malik also controlled a company known as Samarkand (Pty) Ltd (Samarkand). G

[3] KTC's account was held at the Sandton branch of Standard Bank. When KTC opened the account in October 1996 it ceded to Standard Bank its rights to 'all book debts and other debts, and claims of whatsoever nature, present and future, as a continuing covering security for all sums of money which (we) may now or at any time H hereafter owe or be indebted in to the Bank'. The deed of cession entitled Standard Bank to collect any debts that might become due to KTC, obliged KTC to hand to the bank all bills of exchange that it received in respect of such debts, and recorded that KTC would act as Standard Bank's agent in the collection of moneys that became due to KTC. I

[4] KTC was an importer of merchandise. The financing of its international transactions was dealt with at Standard Bank's international business division where Mr Vaughan McTaggart was employed as an international business consultant. J

Nugent JA

[5] Early in September 1997 Malik wrote to McTaggart requesting the bank to establish what he referred to as a 'back-to-back' letter A of credit for KTC to enable KTC to import a quantity of swimming pool chemicals from Spain. What he had in mind was a transaction that entailed Standard Bank establishing an irrevocable letter of credit in favour of KTC's overseas supplier against the security of an assurance by KTC's customer in this country that Standard Bank would be B reimbursed from the purchase price of the goods.

[6] Attached to Malik's letter was a completed application form for the establishment of the letter of credit, a pro forma invoice recording the purchase of the goods by KTC from a Swiss corporation known as Serenade Holdings Inc (Serenade), and an unsigned C document that was described by Malik as a copy of a 'guarantee format from the Hyperama'. The document, which was unsigned, purported to emanate from Hyperama, and recorded that Hyperama had placed an irrevocable order upon KTC for the supply of the goods in question. It also recorded that Hyperama undertook to pay Standard Bank a specified D sum (a portion of the purchase price) for the account of KTC 60 days after the goods had been delivered. (Provision was made for part payments to be made against part deliveries.)

[7] In anticipation of the undertaking being given by Hyperama McTaggart arranged for an irrevocable letter of credit to be prepared E in accordance with KTC's instructions. The effect of the letter of credit was that Standard Bank undertook irrevocably to pay Serenade the sum of US$ 210 800 (plus or minus 5% to allow for a variation of the price as a result of part shipments) against presentation to Standard Bank of specified documents. Those documents included commercial F invoices in triplicate for the amount of the particular drawing (quoting a specified indent number) and three sets of clean on board negotiable marine bills of lading to the order of the consignor and endorsed in blank. The moneys were to be paid by Standard Bank to the account of Serenade's bank (Banque Française de l'Orient) at G Bankers Trust New York 120 days from sight of the documents. The letter of credit recorded that the goods would be shipped in five equal deliveries between certain specified dates. H

[8] Mr John Overton was at that time the general manager of the home and wear section of Hyperama's business (the section of its business that dealt in merchandise other than foodstuff). He had overall responsibility for buying merchandise for that section of the business and about 30 buyers reported to him. I

[9] Soon after the letter of credit was prepared McTaggart received a telefax from Malik enclosing a copy of a letter that had been signed by Overton on behalf of Hyperama. That letter is the foundation for the respondent's claim and it is useful to set it out in full. The letter was addressed to the manager of Standard Bank and continued as follows: J

Nugent JA

'Dear Sir, A

Irrevocable undertaking to pay

We confirm that we have purchased from KTC Resources (Pty) Ltd (''the goods'') for the price of R1 881 268,20 excluding VAT as presented by our contract numbers JAB 003/3084; JAB 003/3085; JAB 003/3086; JAB 003/3087; JAB003/3088; JAB003/3089 (''the order''), and that KTC Resources (Pty) Ltd's rights but not its obligations in terms of the order have been ceded to you. B

We understand that you have agreed to finance the purchase of the goods from the supplier in Spain on the strength of our undertaking, which is given as follows:

1.

We hereby irrevocably undertake that 60 days after the end of the month of delivery of the goods to Hyperama stores, which goods are substantially in compliance with the order, we shall pay you an amount of R1 702 547,76 plus VAT. The cheque will be made payable in favour of KTC Resources (Pty) Ltd and will be available about one week before C due date at OK Shared Service Centre at Edenvale Hyperama, Brickfield Road, Germiston. KTC Resources (Pty) Ltd are to collect cheques from Edenvale.

2.

We acknowledge the fact that you are acting purely as financiers. We confirm that we will pay the amounts to you as per condition 1 of this letter and that any claims or disputes which might arise in respect of the goods will be instituted against KTC Resources D (Pty) Ltd.

3.

We further confirm that until payment has been received by you, ownership in the goods will remain vested in you, although risk in the goods shall pass to us upon delivery to our stores.'

(Sic.) E

[10] Who was responsible for the wording of the letter is not altogether clear. Overton said that it might have been based upon a draft submitted to him by Malik and that the wording was approved, if not drafted, by Hyperama's administration department. But whoever...