Reliance on apparent authority as the basis of the Liggett doctrine : a critical analysis of the decision of the Court of Appeal in Hata-Butle (Pty) Limited V Kpmg and Harley & Morris Joint Venture No Lac (2000-2004) 399.
| Published date | 01 December 2018 |
| Pages | 105-142 |
| Author | L. Ramokanate |
| DOI | 10.10520/EJC-159245a3a9 |
| Record Number | lesotho_v26_n2_a4 |
| Date | 01 December 2018 |
RELIANC E ON APPARE NT AUTHORITY AS THE BASIS OF
THE LIGGETT DOCT RINE: A CRITICA L ANALYSIS OF THE
DECISION OF THE COURT OF APP EAL IN HATA-BUTLE (P TY)
LIMITED V K PMG A ND HARLE Y & MO RRIS JOINT VENTURE
NO LAC (20 00-2004) 399.
Ramokanat e, L.
Abstract
The Liggett d octrine holds, in general terms, that a bank is not
liable to refund the custo mer where it has made an unauthorised
payment from his or her bank account to a tr ade creditor of the
customer. Although the Liggett doctrine has earned somewhat
of an international recognition, it is nevertheless proble matic
for the fact that it contrad icts some of the settled principles of
banking law. At common law, a bank th at makes an
unauthorised payment to a third party from t he account of a
customer is liable to refund the customer. This is s o because, in
making the un authorised p ayment, the bank would have acted
beyond the s cope of its mandate. In order to re concile the
Liggett doctrine with co mmon law, it has been suggested that
an unaut horised payment must be g iven le gal effect only where
the signatory of a cheque, and the ban k that honoured it, had
apparent authority to dis charge the de bt on behalf of the account
holder. The ob jective of this pa per is to consider in light of that
suggestion, and the full facts of the case, whe ther the Liggett
doctrine w as proper ly applied by the Court of Appeal of Lesotho
in the matter of Hata -Butle (Pty) Limited v KPMG and Harley
& Morris jo int Venture NO LAC (2000-200 4) 399.
LL.B Hons (NU L) LL.M, LL.D (NWU). Lecturer in the Department of Privat e
Law at the Nat ional University o f Lesotho, Member o f th e Golden K ey
International Honour Societ y, NWU Chapt er. ramokanatel@ gmail.com.
106 LL J Vol. 26 NO.2
INTRODUCTION
The underlying relations hip between a bank and its customer is
that of m andate.
1
In terms of that arrangement, th e bank is obliged
to ren der cert ain services, commo nly ref erred t o as services de
caisse, to the custo mer o n his or her instructions.
2
One of t he
obligations of the bank qua mandatary is to honour the customer’s
cheques if his or her account is in the credit.
3
This is so because, as
explained by Boshoff J in the case of Wester n Bank Ltd v Registrar of
Financial Institutions and An other,
4
“… a cheque drawn by a
customer is in point of law a ma ndate to the banker to pay t he
amount according to the tenor of the chequ e.”
5
If the customer
furnishes the bank with a list of persons who are authorised to
sign cheques drawn on his or her account, that list forms part of
the customer’s mandate.
6
A bank that honours a cheque that does
not bear an aut horised signature or signatures, therefo re, acts in
breach of the terms of the customer’s mandate.
7
This unfortunate
event can spell a number of legal consequences for the bank. O ne
of those consequ ences, which is particularly relevant to this paper,
1
Volkskas B pk v Johnson 19 79 (4) SA 775 ( C) at pgs. 777 H-778A.
2
F R Mal an and JT Pr etorius, Malan on Bi lls of E xchange, Cheques and
Promisso ry Notes in Sout h African Law (3rd ed, Butterworths 19 97) at para 203.
3
London Joint Stock Ba nk Ltd v Mac Millan and Arth ur [19 18] AC 777 ( HL) at
pg.789.
4
1975 (4) S A 37 (T).
5
Western B ank Ltd at p g. 5 93. See also Estate Ism ail v Barclays Bank (D C&O)
Distri ct Benefit Buildi ng Society (1884) 9 AC 857 at pgs. 864 and 868; Cuthbert
v Robarts E Lubbeck & Co [1909] 2 Ch. 2 26 at pgs. 233and 235.
6
Di Giulio v First National Ba nk of SA Ltd 2002 (6) SA 28 1 (C) pa ra 22, stat ing
that “[w]ho and under what circumstance s a per son may be aut horised to sign a
cheque on b ehalf of the cl ient mu st necessa rily be contained in the contract of
mandate un derlying the rel ationship between the B client an d the bank.”
7
Di Giulio (n 6) para 22, stat ing that “[ s]hould a cheque … no t bear an au thorised
signature or signatu res, as th e require ment may be, the b ank would be acting in
breach o f the terms o f the mandate if it should hono ur such chequ e and debit t he
client's ac count with the amo unt thereof.”
107
is that the bank may be ordered to refund to the custom er the
amount which was debited from his or her account.
8
At times it
does happen that a bank makes an unauth orised payment – by
honouring a cheque t hat does not bear the aut horised signatur e or
signatures – to a tra de creditor of t he custom er. Where t hat
happens, it may be asked whether the customer is enti tled to
recover the amount of the unaut horised p ayment fr om the bank.
The challenge of that questi on is that, at common law, it is not
essential t o the validity of the payment of a debt that it is made by
the debtor pe rsonally or by someone a uthorised b y the debtor to
dos s o. As explained by Hoexter JA i n the matter of Co mmissioner
for Inl and Revenue v Visser ,
9
a vali d pay ment of another’s debt c an
equally “ … be mad e by any person without … [the debtor’s]
authority, or even in opposition to … [the debtor’s] orders ….”
This r ule has b een interpret ed, for present purposes, to mean that
an u nauthorised payment made by the bank t o a trade creditor of
the customer will ordi narily discharge the customer’s debt to the
payee.
10
The pressing issue is whether the bank can s uccessfully
raise the debt-extinguishing effect of an unauthorised payment as
a defence when sued by the cust omer?
A l eading authority on t he aforesai d issue is B Liggett
(Liverpool) Ltd v Barclays Bank Ltd,
11
in which th e court
answered the qu estion in the affir mative. Per Wright J, the
court in that case held that a ba nk which has made an
unauthorise d payment to a trade creditor of the customer is
8
See Standard Bank Lesotho Ltd v Tropical In fo Tech So lutions (Pty) Ltd [20 05]
LSHC 2 13; Tedco Management S ervices v Grain Market ing Board 1997 (2) SA
196 (ZSC) at pg. 22.
9
1959 (1) S A 452 (A) at p g. 458A.
10
See E P Ellinger, E Lomnic ka and C Hare, E llinger's Modern Banki ng Law (5th
ed, Oxford University Pres s 2011) at pgs. 500-501.
11
[1927] A LL ER 451.
To continue reading
Request your trial