Trust Bank of Africa Ltd v Barnes, NO

• Jurisdiction: South Africa
• Judge: Holmes JA, Jansen JA, Muller JA and Hofmeyr JA and Van Zijl AJA
• Judgment Date: 24 June 1975
• Hearing Date: 22 May 1975
• Citation: 1975 (3) SA 1002 (A)
• Court: Appellate Division

Muller, JA.:

The respondent, in his capacity as trustee in the insolvent partnership es ate of Gilbert, Smith and Yule, who formerly carried on business as stockbrokers on the Johannesburg Stock Exchange, instituted an action for damages A agains the appellant in the Witwatersrand Local Division. The appellant took exception to the respondent's particulars of claim on the ground that they did not disclose a cause of action and, in the alternative, applied for the striking out of certain paragraphs of the particulars of claim Both the exception and application to strike ou were dismissed with costs, hence this appeal, direct to this Court by consent of B the parties; leave to appeal having been granted by the Court a quo. (For convenience I shall hereinafter sometimes refer to the appellant as "Trust Bank' and to the partnership Gilbert, Smith and Yule as the "brokers").

The circumstances which gave rise to the action in question can briefly be stated as follows. For some time prior, and up to, November 1972 (the precise period as not stated in the C pleadings) one Chweidan, since deceased, instructed the brokers from time to time to purchase and to sell shares on the Stock Exchange These transactions were conducted in the name of a fictitious entity invented by Chweidan, SCP Investmen's (Pty.) Ltd. or SCP Investments (hereinafter referred to simply as "SCP").

The brokers duly carried out Chweidan's instructions, and the method of settlement of accounts between Chweidan and the D brokers is described as follows in para. 8, sub-paras. (c), (d) and (e) of he particulars of claim:

"(c)

In respect of shares purchased on the account of SCP -

(i)

Chweidan from time to time issued to the brokers cheques drawn by him in their favour upon the account of Chweidan Investments (an account which Chweidan had with Trust Bank).

(ii)

Against such cheques Chweidan on behalf of E SCP received delivery of the shares purchased and/or utilised the right to delivery of such shares in settlement of SCP's obligation to de iver equivalent shares which had been sold on its behalf.

(d)

In respect of shares sold on behalf of SCP -

(i)

The brokers paid SCP by cheque which cheques would be handed to Chweidan.

(ii)

The said cheques were drawn upon Stockchange (the Stock Exchange branch of the Standard Bank) in favour of SCP or its order, were duly crossed with crossing containing he words "not negotiable" and "account payee only".

(iii)

Delivery of shares by SCP was effected as set forth in sub-para. (c) (ii) of this paragraph and/or by physical delivery of equivalent scrip.

(e)

In effect and in consequence of what is set forth in F the two preceding sub-paras. (c) and (d), settlement of a counts between SCP and the brokers was effected by means of an exchange or cheques each week."

Although the cheques drawn by the brokers on their bank, the Standard Bank, in favour of SCP or order, were crossed and marked "not negotiable" and "account payee only", there was in G fact no bank account in the name of SCP. Chweidan was a customer of Trust Bank and had an account with the bank in the name of Chweidan Investments. What happened in practice was that the cheques drawn by the brokers in favour of SCP, were deposited by Chweidan with Trust Bank to the credit of his account Chweidan Investments. Trust Bank collected on the cheques from the Standard Bank and, despite the fact that the cheques were not endorsed by SCP and, despite the fact that the cheques were crossed and marked as aforestated, credited the proceeds to the account of Chweidan Investments. As stated in the passage in the particulars of claim quoted above, the cheques which Chweidan handed

Muller JA

to the brokers in the method of settlement between them as described above, were drawn on the account of Chweidan Investments.

According to par. 7 of the particulars of claim, the account in the name of Chweidan Investments was at all material times overdrawn ("in debit") and Trust Bank held no security in A respect of the said indebtedness. The said Bank wa the efore entitled to dishonour cheques drawn by Chweidan on that account. And that is precisely what happened, as will be mentioned presently

The broke s were unaware of the fact that SCP ('SCP Investments (Pty.) Ltd." or 'SCP Investments") was a fictitious entity. They were also unaware hat the proceeds of the cheques handed B by them to Chweidan were being cred ted by Trust Bank to the account Chweidan Investments, and that so, without any endorsement of such cheques by or on behalf of SCP and, indeed, despite the fact that the cheques were crossed and marked as aforestated. Nor did the brokers know that the account in the name of Chweidan Investments was overdrawn, entitling Trust C Bank to dishonour cheques drawn on that account.

What happened eventually was that, over a short period in November 1972, certain cheques, eight in number, for a total sum of R771 812,72 (copies whereof are annexed to the particulars of claim, annexures B to I), which were drawn by D Chweidan on the account Chweidan Investments in favour of the brokers were dishonoured by Trust Bank, whereas certain cheques, 11 in number, for a total sum of R861 350 (the cheques listed in annexure A to the particulars of claim) drawn by the brokers in favour of SCP, and which were handed to Chweidan in exchange for the first-mentioned cheques, were duly collected by Trust Bank and credited by the said Bank to the account E Chweidan Investments, thereby reducing the overdraft on that account. The broker never received the shares in respect of which the sum of R861 350 was paid by them to Chwe dan in the name of SCP

The brokers suffered a loss of R852 671 ("after credits") and that is the amount which the trustee in their insolvent partnership estate claims from Trust Bank.

F The grounds on which this claim is based are dealt with in several paragraphs in the particulars of claim running into a number of pages This document is not a model of conciseness or clarity in pleading, and some paragraphs thereof appear, at least in part, to be merely repetit ous of others. In the circumstances I do not propose to recite all the paragraphs in G the particulars of claim bearing on the question of Trust Bank s li bility to the brokers For present purposes the following paragraphs, and those to which reference will be made later, will suffice. The material portions of paras. 9, 10, 11 and 12 of the particulars of claim (amplified by me in certain minor respects so as to afford easy reference back to the aforegoing narrative of events) read as follows:

'9.

H At all material times up to and including 23 November 1972 certain servants, employees or agents of Trust Bank (being those referred to in para. 11 hereof) were aware that:

(i)

Chweidan was instructing the brokers to buy and sell shares on behalf of SCP

(ii)

Chweidan was receiving cheques from the brokers drawn in favour of SCP Investments (Pty.) Ltd., or SCP Investments.

(iii)

Such cheques were given in payment for shares sold on behalf of SCP by the brokers.

Muller JA

(iv)

Chweidan was utilising and proposed to utilise cheques drawn by him upon the account of Chweidan Investments for the purpose of inducing the brokers to hand to him in exchange their own cheques, which would be honoured upon presentation.

(v)

The brokers were unaware of the facts set A forth in para. 7 hereof (the contents of this paragraph...