Worcester Advice Office v First National Bank of Southern Africa Ltd

• Jurisdiction: South Africa
• Judge: Van Niekerk J and Comrie AJ
• Judgment Date: 10 September 1990
• Citation: 1990 (4) SA 811 (C)
• Hearing Date: 17 August 1990
• Court: Cape Provincial Division

Van Niekerk J et Comrie AJ:

Before Us are Exceptions Taken by the Defendant Bank to the Plaintiff's Amended Particulars of Claim on the Ground that the Particulars of Claim Lack Averments Necessary to Sustain a Cause of Action. for Convenience We Shall Refer to the Parties as c Plaintiff and Defendant.

Annexed to the pleadings is a copy of a cheque dated 27 July 1988 and drawn payable to the plaintiff for the sum of R30 000. The cheque is crossed and, within the crossing, marked 'not transferable'. It is not marked 'not negotiable'. The plaintiff alleges that it was the true owner of the original cheque which was lost or stolen between 29 July D and 8 August 1988. On about 8 August 1988, the plaintiff alleges, a person or persons unknown to it opened a savings account at the defendant's Worcester branch and deposited the cheque for collection. Several days later, on 17 August, a person or persons unknown withdrew the sum of R29 950 from the savings account. The person or persons who E opened and operated the account in the plaintiff's name had not been authorised by the plaintiff to do so. The plaintiff avers that in breach of an alleged duty owed by the defendant to the plaintiff, the defendant or its officers or employees were negligent:

(a)

in allowing the unknown person or persons to open the savings F account without plaintiff's authority;

(b)

in allowing the unknown person or persons to operate the savings account without plaintiff's authority;

(c)

in failing to take reasonable and practical steps to avoid loss to the plaintiff (the steps are not specified); and

(d)

G in allowing and facilitating the unknown person or persons to perpetrate a fraud on the plaintiff.

The plaintiff alleges that in consequence it suffered loss and damages in the sum of R29 950. It is not alleged that the plaintiff was a customer of the defendant. The first exception puts in issue the H existence of the duty of care allegedly owed by the defendant, as the collecting banker, to the plaintiff as the true owner of the cheque. The second exception attacks the sufficiency of the allegations regarding loss and damage.

Plaintiff's alternative cause of action is set out at para 4 of the amended particulars of claim. It is based on s 81 of the Bills of Exchange Act 34 of 1964. That section affords rights of recourse to the I true owner of a crossed cheque which is lost or stolen against subsequent possessors under certain circumstances. As against a collecting banker the recourse is somewhat limited (s 81(5)). One of the requirements for liability in terms of the section is that the cheque, when it was lost or stolen, bore upon it the words 'not negotiable'. OK Bazaars (1929) Ltd v Universal Stores Ltd 1972 (3) SA 175 (C) at 178G. J We have already said that the cheque in question

Van Niekerk J et Comrie AJ

A was not so marked. The third exception is that, in the absence of the required marking, s 81 is inapplicable. Further requirements for liability are that the cheque

'was paid by the banker upon whom it was drawn, under circumstances which do not render such banker liable in terms of this Act to the true B owner of the cheque...'.

(Section 81(1).) The particulars of claim do not allege that the drawee banker either paid the cheque, or did so under circumstances which did not render him statutorily liable to the true owner. The fourth exception is that, in the absence of such allegations, the alternative claim fails to disclose a cause of action.

C We intend to dispose of the third and fourth exceptions immediately because plaintiff's counsel (who was not the author of the particulars of claim or of plaintiff's heads of argument) conceded before us that the exceptions were good, and in our view correctly so. There is a clear distinction between the marking 'not negotiable' on a cheque and the D marking 'not transferable'. The former means that a crossed cheque is transferable by the drawee (and subsequent holders) but subject to equities. The latter means that the cheque is not transferable at all, and that a purported transferee does not become the holder of the cheque and cannot sue upon it. See s 80 of Act 34 of 1964; OK Bazaars (1929) Ltd v Universal Stores Ltd (supra); Standard Bank of SA Ltd v Sham Magazine Centre 1977 (1) SA 484 (A); Aboobaker v Gableite Distributors E (Pty) Ltd 1978 (4) SA 615 (D); Volkskas Bpk v Johnson 1979 (4) SA 775 (C); Gishen v Nedbank Ltd 1984 (2) SA 378 (W); Impala Plastics (Pty) Ltd v Coetzer 1984 (2) SA 392 (W).

If a cheque bears both markings, it is not transferable. Aboobaker's F case; Johnson's case, both supra. It is clear to us that the expression 'not negotiable' in s 81(1) of the Act is intended by the Legislature to bear the same meaning as in s 80, namely transferable subject to equities. In our view it cannot be extended so as to include 'not transferable' which is a different and more restrictive marking. As the cheque in question was not marked 'not negotiable', it follows that the plaintiff cannot bring itself within the ambit of s 81 and that it G enjoys no cause of action thereunder against the collecting banker (the defendant) or any other possessor.

The liability of a possessor under s 81 is alternative to the liability of the drawee banker. Section 81(1) spells this out. It is consequently necessary for the true owner of a lost or stolen cheque, H which was crossed and marked 'not negotiable', to allege and prove: (i) that the cheque was paid by the drawee banker, and (ii) that such banker is not statutorily liable to him by reason of the payment. Wanting these essential allegations, the plaintiff's alternative claim fails to disclose a cause of action under s 81. The omission to plead such obviously necessary allegations creates a doubt as to what actually I happened to the cheque. Was it presented to the drawee banker for payment and, if so, was it met? We will return to this when we consider the second exception.

The first exception

As we have indicated, the first exception raises the question whether J according to South African common law a collecting banker owes a duty

Van Niekerk J et Comrie AJ

A of care to the true owner of a cheque or crossed cheque. (We are aware that the expression 'duty of care' may attract criticism. We use it for convenience as did Prof Cowen in his L C Steyn Memorial Lecture: 'The liability of a bank in the computer age in respect of a stolen cheque' 1981 TSAR 193, in its policy-duty sense.) Until fairly recent times the law in this country was thought to have been settled by the judgment of B Mr Justice Tindall in Yorkshire Insurance Co Ltd v Standard Bank of SA Ltd 1928 WLD 223. The relevant part of the headnote reads:

'A collecting banker, who receives payment of cheques, whether crossed or not, on behalf of a customer, who has no title thereto, is not liable to the true owner of the cheques for any loss sustained by him in C consequence thereof on the ground of negligence only, either at common law, or under s 80 of Proc 11 of 1902. He is only liable if he had knowledge that the customer had no right to the cheques and was intending to misappropriate the proceeds.'

The judgment is cited, without query, as stating our law in the third edition (1955) of Cowen Law of Negotiable Instruments at 372. See too the fourth edition (1966) at 434. The matter was left open in Trust Bank D of Africa Ltd v Barnes NO 1975 (3) SA 1002 (A) at 1010 - 1, but was fully reconsidered by Mr Justice Franklin in Atkinson Oates Motors Ltd v Trust Bank of Africa Ltd 1977 (3) SA 188 (W) and especially in the light of a contrary Rhodesian decision (the Rhostar case infra). He reached the same conclusion as Tindall J, as appears from the headnote:

E 'No duty of care exists under our common law on the part of a collecting banker on behalf of the customer: in other words a collecting banker cannot be held liable for damages for negligence on its part at common law in respect of cheques stolen, accepted for collection and the amounts thereof collected.

In order for a collecting banker to have a positive duty of care to the true owner of a cheque who is not its customer, actual knowledge of F the defective title of its customer must exist. In the absence of any allegation of such knowledge on its part there is no duty upon a collecting banker to ensure that no loss is caused to the true owner of the cheque.'

When the judgment in the Yorkshire Insurance case supra was delivered, liability for negligence causing pure economic loss had not been recognised in our law and this seems to have played some part in the G reasoning of Tindall J (at 281). By the time the Atkinson Oates case came to be decided, however, the recognition of such a liability, within limits, was imminent, as Franklin J indicated (at 198). It was accepted by the Appellate Division two years later: Administrateur, Natal v Trust Bank van Afrika Bpk 1979 (3) SA 824 (A). In this connection Franklin J observed at 198H: H

'And bearing in mind the judicial caution that has been displayed upon this controversial topic, I do not think that it is necessary for me, for the purposes of this judgment, to add to the many judicial pronouncements upon it, because I consider that there is no sound reason for me to depart from the safe guide adopted by Tindall J in the Yorkshire Insurance case of the position of the bona fide purchaser of stolen property who has innocently disposed of it. I agree with the I approach of Tindall J that that is the law which should be applied to the position of a collecting banker.'

In broad summary, therefore, the law in South Africa for over 60 years has been as follows. The collecting banker is not liable to the true owner of a cheque for conversion, because the doctrine of...