Banking Law

Page v
Preface
Modern-day banks are multifunctional institutions. The law governing the activities
of banks and banking generally covers a huge and diverse field, impossible to cover
in any detail in a single volume. The purpose of this book is to provide an
explanation of some of the more important aspects of the law applicable to banks
and banking in South Africa, along with the principles that govern payment and
payment systems in this country.
Chapter 1 provides a general introduction and a framework for what is to follow.
It explains the role of banks in commerce, the different types of banks, the legal
nature of a bank and what the business of banking encapsulates. Chapter 2 goes on
to consider the diversity of our banking law, the phenomena that have attributed to
this diversity, and the present sources of our law. Chapter 3 is devoted to a
discussion of the role and function of the Reserve Bank and the various statutes that
regulate banks. Chapters 4 and 5 consider in some detail the legal nature and
consequences of the ‘bank-customer contract’ and a range of services provided by
banks. Chapter 6 focuses on the general principles that govern the payment of
monetary debts, and Chapter 7 focuses on the law applicable to various payment
systems. The topic of chapter 8 is the law governing unauthorised cheque payments
and unauthorised electronic funds transfers. Chapter 9 introduces an international
dimension, discussing payment in, and the financing of, international sale
transactions. The concluding chapter, chapter 10, is a comprehensive treatment of
different types of demand guarantees and the principles governing these
guarantees.
The writers have attempted to explain the law simply and succinctly, consigning
matters of detail, as far as possible, to footnotes. In some places, this has resulted
in fairly detailed and lengthy footnotes. The basic objective was to provide a text
that is both accessible for students and other persons seeking to gain a basic
understanding of the subject, and comprehensive enough to be of use to lawyers,
bankers and those who work in the field of banking and finance. It was decided not
to include any treatment of the law governing negotiation and liability on cheques
and other negotiable instruments since this is a field already adequately covered by
existing texts.
Thanks must be given to all who have assisted in the task of producing this book,
in particular Deidre du Preez, the production co-ordinator, and Brian Hopking, the
typesetter. I am particularly grateful to Linda van de Vijver for her professional
expertise and for her unwavering support and enthusiasm for this project. The
publication of this book is due, in no small measure, to her ongoing efforts.
Robert Sharrock (managing editor)

Pietermaritzburg
September 2016
Page vii
Table of contents
Preface
Chapter 1: Banks and banking law

(WG Schulze)
1.1
The role of banks in commerce
1.2
The South African banking sector
1.3
Different types of banks
1.3.1
Introduction
1.3.2
First-tier banks
(i)
Commercial banks
(ii)
Investment banks
(iii)
The Land and Agricultural Development Bank of South Africa
(iv)
The Development Bank of Southern Africa
1.3.3
Second-tier banks
(i)
Mutual banks
(ii)
The Postbank of South Africa
(iii)
Co-operative banks
1.3.4
Third-tier banks
(i)
Village banks
(ii)
Dedicated banks
(iii)
Stokvels
(iv)
Mobile banking services
1.4
The Banks Act
1.4.1
Introduction
1.4.2
The definition of ‘bank’
(i)
Introduction
(ii)
The definition of ‘the business of a bank’ and excluded activities
(a)
Definition
(b)
Exclusions
(iii)
The definition of ‘deposit’ and excluded payments
(a)
Introduction
(b)
Definition
(c)
Exclusions
1.4.3
Miscellaneous matters
List of works cited
Page viii
Chapter 2: The nature of banking law and its sources

(WG Schulze)
2.1
Introduction
2.2
The diversity of South African banking law
2.3
Fundamental phenomena in South African banking law
2.3.1
Banking law as part of the law of obligations
2.3.2
Bank–customer relationship a multi-faceted one
2.3.3
Government policy of legislating to replace the common law
2.3.4
Globalisation
2.3.5
Major practical changes in banking sector
2.4
The sources of South African banking law
2.4.1
The distinction between primary sources and secondary sources
2.4.2
Primary sources
(i)
Legislation
(ii)
Judicial precedent
(iii)
Custom or trade usage
(iv)
Roman law
(v)
Roman-Dutch law
(vi)
Indigenous law
(vii)
Islamic law
2.4.3
Secondary sources
(i)
International law
(ii)
Customary international law (international trade usage)
(a)
General
(b)
The Basel Committee on Banking Supervision
(c)
European Community law
(iii)
Foreign municipal law
(a)
General
(b)
English law
2.5
Conclusion
List of works cited
Chapter 3: The South African banking system

(Vivienne Lawack)
3.1
Introduction
3.2
The South African Reserve Bank
3.2.1
Historical background
3.2.2
Functions of the Reserve Bank
3.2.3
Applicable legislation
3.2.4
Departmental structure
Page ix
3.3
The statutory regulation of banks
3.3.1
The Banks Act
(i)
Main purpose
(ii)
The requirement of registration
(iii)
Enforcement of the requirement to register as a bank
(iv)
Role of the Registrar of Banks
(v)
Authorisation to establish banks, and registration and cancellation of
registration of banks
(vi)
Shareholding in and registration of controlling companies in respect of
banks
(vii)
Functioning of banks and controlling companies
(viii)
Prudential requirements
(ix)
Restrictions and prohibitions
(x)
General provisions and limitation of liability
3.3.2
The National Payment System Act
(i)
The settlement system
(ii)
Netting, curatorship and liquidation
(iii)
The clearing system
(iv)
The role of the payment system management body
(v)
Payments to third persons and other non-bank players
3.3.3
The National Credit Act
3.3.4
The Consumer Protection Act
3.3.5
The Financial Advisory and Intermediary Services Act
(i)
Overview and concepts
(ii)
Authorisation of a bank as a financial service provider
3.3.6
The Prevention of Organised Crime Act and the Financial Intelligence
Centre Act
(i)
Overview
(ii)
Customer identification and verification
(iii)
The provision and verification of a residential address
(iv)
Enhancing financial inclusion: Exemption 17
3.4
Conclusion
List of works cited
Appendix 1: Regulators and legislation
Chapter 4: The Bank-customer relationship

(Avishkaar Ramdhin)
4.1
The bank as a legal person
4.2
Who is the ‘customer’?
4.3
Classification of the bank–customer relationship
4.4
General elements of the bank–customer relationship
Page x
4.4.1
Loan
4.4.2
Mandate
4.5
Sources of terms
4.6
Formation of the bank–customer relationship
4.7
Specific duties of the bank
4.7.1
The duty to pay cheques
4.7.2
The duty to collect payment on cheques
4.7.3
The duty to furnish statements of account
4.8
General duties of the bank
4.8.1
The duty to exercise reasonable care and skill
4.8.2
The duty of secrecy
(i)
Disclosure compelled by law
(ii)
Public duty to make disclosure
(iii)
Interests of the bank require disclosure
(iv)
Disclosure with the express or tacit consent of the customer
4.8.3
The duty to act in good faith
4.9
Duties of the customer
4.9.1
The duty to pay overdrawings, interest and bank charges
(i)
Overdrawings and interest
(ii)
Bank charges
4.9.2
The duty to exercise reasonable care and skill in drawing payment
instructions
4.9.3
The duty to notify the bank of known or suspected forgeries
4.9.4
The duty to reimburse and indemnify the bank for expenses or losses
4.9.5
Statutory duty to exercise care in custody of cheque forms and
reconciliation of bank statements
4.10
Overdraft facilities
4.11
Reversal of credit entries
4.12
Payment from accounts
4.13
Set-off between bank accounts
4.14
Banker’s lien
4.15
Trust accounts
4.16
Termination of the bank–customer relationship
4.16.1
Circumstances in which the relationship terminates
(i)
Agreement
(ii)
Notice of termination
(iii)
Death or dissolution of the customer
(iv)
Sequestration of the customer
Page xi
(v)
Insanity of the customer
(vi)
Dissolution of the bank
(vii)
Effluxion of time (in the case of a fixed deposit)
4.16.2
Consequences of termination
List of works cited
Chapter 5: Miscellaneous banking services

(Avishkaar Ramdhin)
5.1
Safe custody
5.1.1
Deposit
5.1.2
Safety-deposit boxes
(i)
Customer has exclusive access to the contents of the box
(ii)
Shared access and control
5.1.3
Standard-form contracts
5.2
Bankers’ references
5.2.1
Position of a bank that is requested by its customer to provide a
reference on a third party
5.2.2
Position where a bank is requested by a third party to provide a reference
on the bank’s own customer
(i)
Is the customer’s consent necessary?
(ii)
Bank’s liability to its customer for furnishing an unfavourable banker’s
reference on him to a third party
(iii)
Bank’s liability to a third party for furnishing an incorrect or inaccurate
banker’s reference
5.3
Furnishing of financial advice
5.3.1
Mandate
5.3.2
Obligations in terms of the Financial Advisory and Intermediary Services
Act
5.3.3
Misrepresentation
5.4
Travel services
5.5
Estate and trust planning
List of works cited
Chapter 6: Payment
(Robert Sharrock)
6.1
The nature of payment
6.2
The legal concept of money
6.3
The medium of payment
6.4
The amount of payment
6.5
The time and place of payment
6.5.1
The time of payment
6.5.2
The place of payment
Page xii
6.6
Payment by post
6.7
Payment by and to a third person
6.7.1
Payment by a third person
6.7.2
Payment to a third person
6.8
Receipt for payment
6.9
The appropriation of payments
6.9.1
Appropriation by the parties
6.9.2
Residual appropriation rules
6.10
Guarantee of payment
6.11
Conditional payment
6.12
Payment ‘in full settlement’
6.13
Set-off
6.13.1
The requirements for set-off to operate
6.13.2
The effect of set-off
6.13.3
When set-off is excluded
6.14
Frustration of payment
6.15
Mistaken payment
6.16
Payment obtained by theft or fraud
6.17
Proof of payment
List of works cited
Chapter 7: Payment systems

(Melanie Roestoff)
7.1
Introduction
7.2
Paper-based transfers
7.2.1
Bills of exchange, cheques and promissory notes
(i)
Functions and definitions of bills of exchange and cheques
(ii)
Crossings and markings on cheques
(iii)
Consequences of payment by cheque
(iv)
Cheque collection process
(v)
Moment of payment of cheque
(vi)
Certified and bank-guaranteed cheques
(vii)
Drawee bank’s duty to pay cheques
(viii)
Collecting bank’s duty to collect cheques
(ix)
Definition and functions of a promissory note
(ix)
Liability of maker
(x)
Presentment for payment
7.2.2
Stop orders and debit orders
(i)
Stop orders
(ii)
Debit orders
Page xiii
7.3
Electronic funds transfers
7.3.1
General
7.3.2
Credit transfers and debit transfers
(i)
Credit transfers
(ii)
Debit transfers
7.3.3
Consumer-activated EFT systems
(i)
Automated teller machines
(ii)
Electronic funds transfer at point of sale
(iii)
Internet banking, mobile/cellular phone banking and telephone banking
(iv)
Electronic money
7.3.4
The legal effect of an EFT
(i)
Duties of the banks involved
(a)
The originator’s bank
(b)
The intermediary bank
(c)
The beneficiary bank
(ii)
Countermand of an electronic funds transfer
(iii)
Completion of payment
(iv)
Recovery of erroneous payments and reversibility of payment
7.3.5
(i)
General
(ii)
The Electronic Communications and Transactions Act
(iii)
(iv)
The Protection of Personal Information Act
7.3.6
International funds transfers
7.4
Payment cards
7.4.1
Types of payment cards
7.4.2
Credit cards
(i)
General
(ii)
Credit card schemes
(iii)
Application of the National Credit Act
(iv)
Legal relationships
(a)
Card issuer and cardholder
(b)
Card issuer and supplier
(c)
Cardholder and supplier
(v)
Unauthorised use of credit cards
List of works cited
Page xiv
Chapter 8: Unauthorised cheque payments and electronic funds transfers

(Corlia van Heerden)
8.1
Introduction
8.2
Unauthorised cheque payments
8.2.1
Payment without a mandate
(i)
Drawer’s signature forged or unauthorised
(ii)
Payment countermanded
8.2.2
Failure to observe the terms of the mandate
(i)
Payment to a non-holder
(a)
Forged or unauthorised endorsement
(b)
Marking excluding transferability
(c)
No indorsement or irregular indorsement
(ii)
Payment contrary to a crossing
(iii)
Premature payment of post-dated cheque
(iv)
Payment of more than the amount stipulated by the drawer
8.2.3
Recovery of unauthorised payments
(i)
The drawee bank’s right of recovery
(a)
Introduction
(b)
The rule in Price v Neal and subsequent developments
(ii)
The true owner’s rights of recovery
(a)
The meaning of ‘true owner’
(b)
The doctrine of conversion
(c)
The true owner’s rights of recovery against an intermediary
(d)
The true owner’s right of recovery against the drawer
(e)
The true owner’s right of recovery against the collecting bank
(iii)
Collecting bank’s right of recovery against its customer
8.3
Unauthorised electronic funds transfers
8.3.1
Introduction
8.3.2
Payment without mandate
(i)
Forged or unauthorised payment instruction
(ii)
Countermand of payment
8.3.3
Payment contrary to mandate
(i)
Payment of a larger amount than instructed
(ii)
Payment prior to the due date
8.3.4
Recovery of unauthorised electronic funds transfers
(i)
The bank’s right of recovery
Page xv
(a)
Reversal of a credit transfer
(b)
Enrichment
(ii)
The originator’s right of recovery
List of works cited
Chapter 9: Payment in and financing of international sale transactions

(Charl Hugo)
9.1
Introduction
9.2
Payment in advance
9.3
Open account
9.4
Documentary collections
9.5
Documentary credits
9.5.1
Introduction
9.5.2
The different parties involved
9.5.3
The realisation of the documentary-credit transaction
(i)
The operation of the documentary credit in general
(ii)
Sight payment credits, deferred payment credits, acceptance credits and
credits available by negotiation
(a)
Introduction
(b)
Sight payment credits
(c)
Acceptance credits
(d)
Deferred payment credits
(e)
Credits available by negotiation
9.5.4
The doctrine of strict compliance
(i)
The doctrine in general
(ii)
The impact of the UCP 600
(iii)
Waiver and payment under reserve
(iv)
Concluding remarks
9.5.5
The independence principle
(i)
Introduction
(ii)
Case law
(a)
Phillips v Standard Bank of South Africa Ltd
(b)
Ex parte Sapan Trading (Pty) Ltd
(c)
Loomcraft Fabrics CC v Nedbank Ltd
(d)
Comments on the Loomcraft case and (further) exceptions to independence
principle
(iii)
Conclusion
9.5.6
Transferable credits, assignment of proceeds and back-to-back credits
List of works cited
Page xvi
Chapter 10: Bank guarantees

(Charl Hugo)
10.1
Introduction
10.1.1
General remarks
10.1.2
The importance of differentiating between demand guarantees and
accessory guarantees
10.2
Different types of demand guarantees
10.2.1
Introduction
10.2.2
Performance guarantee
10.2.3
Payment guarantee
10.2.4
Advance payment guarantee
10.2.5
Retention guarantee
10.2.6
Maintenance guarantee
10.2.7
Tender guarantee
10.2.8
Counter-guarantee
10.3
10.3.1
Introductory remarks
10.3.2
The importance of the nature of the intervention sought from the court
10.3.3
The fraud exception
10.3.4
Other (potential) exceptions to the independence principle
10.4
The requirement of a complying demand
10.5
Conclusion
List of works cited
Table of cases
Index
Page 1
Chapter 1
Banks and banking law
WG Schulze
1.1
The role of banks in commerce
1.2
The South African banking sector
1.3
Different types of banks
1.3.1
Introduction
1.3.2
First-tier banks
1.3.3
Second-tier banks
1.3.4
Third-tier banks
1.4
The Banks Act
1.4.1
Introduction
1.4.2
The definition of ‘bank’
1.4.3
Miscellaneous matters
List of works cited
1.1 The role of banks in commerce

Banks play an important part in the functioning of the economy by performing
various roles, including that of payment and loan intermediary as well as provider of
payment settlement facilities.
The traditional role of banks has been that of loan intermediary: the bringing
together of borrowers and lenders. Persons and institutions having surplus funds at
their disposal deposit or invest such funds with banks. Banks, in turn, lend these
funds to entrepreneurs, who use them to launch new businesses or develop existing
ones, and to consumers who use the funds for personal spending. Money is thus
channelled from sectors where it would otherwise have accumulated without being
used, to sectors where it can be put to productive use. This, in turn, ensures a
healthy circulation of money. [1]
It goes without saying that banks can only perform their traditional role of loan
intermediary successfully and for a sustained period with the proper management of
credit, liquidity and interest rate risk. A failure to implement and sustain proper risk
management systems will inevitably result in losses for banks and other lending
institutions. When banks carelessly and inappropriately lend money to borrowers
who fail to repay their loans, this may result in banks suddenly stopping or reducing
lending activities. This may in turn result in what is known as a ‘credit
Page 2
crunch’ or a ‘credit squeeze’ where it becomes extremely difficult for potential

borrowers to borrow money from banks and for other lending activities to take
place. In 2008 economies worldwide suffered the worst credit crunch in history.
National legislation as well as international standards and best-practice guidelines
aim to ensure the continued effective functioning of the banking system. Public
banking law regulates banking institutions and ensures their solvency and private
banking law provides legal certainty regarding the rights and obligations arising from
individual transactions.
The private banking sector in South Africa is presently divided between
commercial banks (regulated by the Banks Act), [2] mutual banks (regulated by the
Mutual Banks Act) [3] and co-operative banks (regulated by the Co-operative Banks
Act). [4] Since the lending activities of commercial banks are more diversified than
those of mutual banks, and since mutual banks account for only a relatively small
portion of the market, in this book we concentrate on commercial banks. Of course,
many of the principles relevant to the activities of commercial banks also apply to
mutual and co-operative banks.
In the next paragraph, we provide a brief overview of the South African banking
sector.
1.2 The South African banking sector

South Africa’s national banking sector has undergone drastic changes and
developments in recent years, most significantly in the regulatory environment,
starting with the publication of the Banks Act in 1990, new product offerings, and
engaging the low-income and previously unbanked market.
It is generally accepted that South Africa has a sound and stable banking
environment. [5]
Central banks are generally conceived as autonomous institutions that have
exclusive jurisdiction over affairs within their competence and operate at the apex of
a country’s monetary and banking structure. The Reserve Bank is the central bank
of South Africa and it is governed by the South African Reserve Bank Act. [6] Broadly
speaking it can be said that the Reserve Bank acts as the regulator of banks and
banking business in South Africa. [7] More specifically, it is the duty of the Office of
the Registrar of Banks to regulate banks and banking business. [8] The Office of the
Registrar of Banks is instituted by s 3 of the Banks Act.
The regulatory and supervisory powers embodied in the Registrar of Banks will be
explained in more detail in chapter 3. [9]
Page 3
The aims of banking sector supervision and legislation are threefold. First, it
seeks to ensure prudent financial management by banks. Secondly, it seeks to
introduce a variety of measures to protect all consumers, but particularly less
sophisticated consumers. Finally, there have been a number of recent initiatives to
increase the provision of banking services to that segment of consumers who are
known as the ‘unbanked’. One of the ways in which the legislature aims to provide
access to the previously ‘unbanked’, is the introduction of so-called second- and
third-tier banks.
The various tiers of South African banks will be discussed next.
1.3 Different types of banks

1.3.1 Introduction
The Banks Act [10] defines ‘the business of a bank’ and from that definition, read with
the definition of ‘deposit’, as well as the exclusions from these two definitions, one
has to postulate what a bank is. But the Banks Act does not prescribe different types
of banks. [11]
There are various types of banks in South Africa. There are also various ways in
which they may be categorised. The first is to draw a distinction between those
banks regulated by the Banks Act, and those regulated by other Acts. Two examples
will suffice to explain this classification. Commercial banks are regulated by the
Banks Act, while mutual banks are regulated by the Mutual Banks Act. [12]
A second way of categorising banks is to distinguish between those that form part
of the national payment system, and those that fall outside the national payment
system. [13]
A third way is to distinguish between retail banking — dealing directly with
individuals and small businesses — and investment banking, relating to activities on
the financial markets. [14]
A fourth possible way, and the one which will be followed for purposes of the
present discussion, is to distinguish between first-, second- and third-tier banks.
First-tier banks include commercial or retail banks; investment banks; the
Development Bank of Southern Africa; and the Land and Agricultural Development
Bank of South Africa. Second-tier banks include mutual banks; the
Page 4
PostBank of South Africa; and co-operative banks. Third-tier banks include a wide
range of formal and informal institutions which provide ‘bank-like’ services, but
which neither require registration as a bank, nor are subject to the strict registration
and prudential requirements of first- and second-tier banks. Examples of third-tier
banks include community banks, village banks, mobile banking services, and banks
which will operate in terms of the proposed Dedicated Banks Bill.
The creation of second- and third-tier banks aims to increase both access to and
participation in the financial sector by the ‘unbanked’. Because the capital, reporting
and prudential requirements of second- and third-tier banks are less stringent than
those of first-tier banks, they (that is, second- and third-tier banks) can offer
banking products at a more affordable rate.
The most important examples from each of these three tiers of banks will be
briefly discussed below.
1.3.2 First-tier banks

(i) Commercial banks
In South Africa no distinction is drawn between commercial banks and retail banks.
South African commercial banks also conduct retail banking business. In some
overseas jurisdictions commercial banks are also referred to as equity or public
company banks.
A commercial or retail bank [15] is a financial institution that provides banking
services for their customers, including businesses, organisations and individuals.
Banking services include the offering of current, deposit and savings accounts, as
well as providing loans to their customers. Banks thus fulfil an important role as
depositories and/or lenders. [16]
Commercial banks usually also offer payment intermediary services to their
customers. Along with their role as depositories and/or lenders of funds, the most
important function of commercial banks is to provide their customers with access to
the banking systems as a means of making and receiving payments. There are four
principal methods of payment with which banks may become involved as a payment
intermediary:
•
money (ie physical money including cash);
•
payment cards (ie debit and credit cards and electronic wallets);
•
funds transfer’s (the customer’s instruction to the bank to transfer funds from
one account to another (including to the account of a creditor) is nowadays
invariably initiated by means of an electronic message originating from a
computer, mobile phone, automated teller machine or other electronic
device); and
•
negotiable instruments (in particular, cheques and letters of credit). [17]
Page 5
Generally a commercial bank may be defined as a bank whose main business is

deposit-taking, making loans and providing payment intermediary
services. [18] Although many commercial banks are also involved in investment
banking, the latter is not considered their main business area. [19]
Commercial banks make their profits by taking small, short-term, relatively liquid
deposits from their customers and converting these into larger and longer maturity
loans. The most obvious example of such a larger and longer maturity loan is
mortgage bonds in favour of banks on immovable property. [20]
This process of asset transformation (that is, converting a large number of small,
short-term deposits into larger and longer maturity loans) generates net income for
the bank in the form of interest and banking fees. [21]
Although it is generally accepted that the ‘Big Four’ commercial banks — Absa,
First National Bank, Nedbank and Standard Bank — control the lion’s share of the
retail banking industry in South Africa, they are by no means the only commercial
banks in South Africa. Some of these commercial banks are under foreign control,
while others are locally controlled. A large number of other foreign-controlled
commercial banks have representatives in South Africa. A further number have
branches in South Africa. [22]
The South African banking industry currently comprises 14 registered commercial
banks, 3 mutual banks, 6 local branches of foreign banks and 42 foreign banks with
approved local representative offices. [23]
In South Africa the operation and activities of commercial banks are regulated by
the Banks Act.
(ii) Investment banks

An investment bank is a financial institution that assists individuals, companies and
governments in raising capital by underwriting and/or acting as the client’s agent in
the issuance of securities. An investment bank may also assist companies involved
in mergers and acquisitions. It sometimes also provides ancillary services such as
trading of derivatives, fixed-income instruments, buying and selling of foreign
exchange, commodities and equity securities.
Unlike commercial banks, investment banks do not take deposits. Investment
banks offer two broad categories of banking services: first, they trade securities for
cash or other securities or promote or sell securities. Secondly, they advise on or
manage assets on behalf of pension funds or the investing public.
(iii) The Land and Agricultural Development Bank of South Africa

The Land and Agricultural Development Bank of South Africa (trading as the Land
Bank) is a government-owned development bank. It was established as a
development finance institution in 1912 by the South African Government.
Page 6
Its main objective is to promote and finance development in the agricultural sector
of the economy of the country. [24] It is governed by the Land and Agricultural
Development Bank Act. [25]
The Land Bank is exempt from the provisions of any other law specifically
governing banks, including the Banks Act, unless such other law expressly provides
for its application to the Land Bank. [26]
(iv) The Development Bank of Southern Africa

The Development Bank of Southern Africa is a Development Finance Institution
wholly owned by the South African Government. It was established in 1983. In 1997
it was reconstituted and incorporated as a juristic person and is now named the
Development Bank of Southern Africa Limited. [27] It is constituted and regulated by
the Development Bank of Southern Africa Act. Section 2 of the Banks Act provides
that it (the Banks Act) does not apply to the Development Bank. It is one of several
development finance institutions in Southern Africa.
The Development Bank focuses on large infrastructure projects within both the
public and private sectors. Its main objectives are the promotion of economic
development and growth, human resource development, institutional capacity
building, and the support of development projects in the region. [28] It plays the
multiple roles of financier, advisor, partner, implementer and integrator to mobilise
finance and expertise for development projects. The bank’s overarching aim is to
improve the quality of life of the people of the region. [29]
1.3.3 Second-tier banks

(i) Mutual banks
Ordinary commercial banks tend to focus on ‘high-value business’. As the products,
systems, and service outlets of these banks are generally geared to cater for an up-
market clientele, their cost structure is inappropriate and unaffordable for the lower-
income communities. To cater for the lower-income segment of the market, the
Mutual Banks Act [30] was promulgated. Section 2 of the Banks Act provides that it
(the Banks Act) does not apply to mutual banks.
A mutual bank is defined as a juristic person registered as a mutual bank, and
whose members qualify as such by virtue of being shareholders and being entitled to
participate in exercising control in a general meeting of the bank. [31]
From this definition it is clear that in the case of a mutual bank, the members
(that is, the clients) are simultaneously shareholders in the bank. This entails that
Page 7
the clients or members participate in the day-to-day management of the affairs of

the bank. The management of credit risks of a mutual bank is unique in that the
recoverability of loans made to members depends on community pressure applied
by members on those who have borrowed money from the mutual bank. [32]
The Mutual Banks Act attempts to involve communities in banking because it
contains a provision for local boards for branches of mutual banks. This means that
a mutual bank’s board of directors may place any branch office under the
management of a local board (of directors) and determine the powers and duties of
the local board. But the local board remains under the control of the board of
directors of the mutual bank. [33]
Section 10(2)(a) of the Mutual Banks Act provides that a mutual bank must have
at least seven members who have subscribed their names to the proposed articles of
association agreed to by them for the government of the mutual bank.
A mutual bank must comply with prescribed financial requirements. By and large
these conform to those applying to ordinary commercial banks. The prudential
requirements for mutual banks are less stringent than those applicable to banks
registered in terms of the Banks Act. For example, mutual banks are required to
meet capital adequacy requirements only by maintaining unimpaired reserve funds
of at least R10 million or up to 8 per cent of its risk exposure. The Registrar of
Banks may exempt a mutual bank from these requirements provided that it has
obtained an undertaking from a guardian bank. These requirements are imposed to
safeguard the depositors’ funds while the bank is under-capitalised.
In terms of s 54 of the Mutual Banks Act a mutual bank may accept deposits and
grant loans, advances or other credit on a national level. Section 59 sets out a
number of activities which would amount to undesirable activities.
There are currently three mutual banks registered with the South African Reserve
Bank. [34]
(ii) The Postbank of South Africa

The South African Postbank Limited Act [35] came into effect on 22 July 2011. [36] The
Act has corporatised the Postbank Division of the Post Office as a legal person (‘the
Postbank’) authorised to conduct the business of a bank. The company is also a
participant in the National Payment System. Section 2 of the Banks Act provides that
it (the Banks Act) does not apply to the Postbank.
The Postbank is a savings financial institution that operates as a division of the
South African Post Office. [37]
The object of the Act is to incorporate the Postbank Division of the Post Office as
a legal person with the aim of conducting the business of a bank that will
Page 8
encourage and attract savings from among the people of South Africa; rendering
transactional services and lending facilities through, among others, the existing
infrastructure of the Post Office; expanding the range of banking services and
developing into a bank of first choice, in particular to the rural and lower-income
markets, as well as communities that have little or no access to commercial banking
services or facilities; promoting universal and affordable access to banking services;
ensuring that the rates and charges of the company take into consideration the
needs of the people in the lower-income market; and ensuring lending to rural and
lower-income markets. [38]
The Postbank performs a number of the services traditionally offered by
commercial banks and acts as a deposit-taking institution. Cash and other forms of
deposits and withdrawals can be made over the counter at any post office branch
and at any automatic teller machine. [39]
(iii) Co-operative banks

The Co-operative Banks Act [40] (‘the Act’) is one of government’s initiatives to
promote access to financial services, particularly to those groups of people
characterised by low incomes and lack of access to conventional banking and other
financial products. It is part of government’s broader strategy for promoting access
to financial services in addition to the financial sector charter and the Mzansi
initiative. [41]
The Act has not introduced a new concept, but seeks to formalise an old
international tradition of institutionalised self-help practices. The primary objective
of the Act is, first, to promote and advance the social and economic welfare of all
South Africans by enhancing access to banking services under sustainable market
conditions. Secondly, it aims to promote the development of sustainable and
responsible co-operative banks. Finally, it seeks to establish an appropriate
regulatory framework and regulatory institutions to protect members of co-
operative banks. [42]
These aims are achieved through the registration of deposit-taking financial
service co-operatives (‘FSCs’) as co-operative banks; the establishment of co-
operative bank supervisors to ensure effective regulation and supervision of co-
operative banks; and the establishment of a Development Agency for Co-operative
Banks (‘the Development Agency’) to develop and enhance the sustainability of co-
operative banks. [43]
As it has become customary with legislation, s 1 of the Act provides for a
selection of definitions relevant to the scope and application of the Act. We will refer
to two of them here.
A ‘co-operative bank’ is described in s 1 of the Act as a bank in terms of the Act
whose members ‘(a) are of similar occupation or profession or who are employed
Page 9
by a common employer or who are employed within the same business district;
or (b) have common membership in an association or organisation, including a
business, religious, social, co-operative, labour or educational group; or (c) reside
within the same defined community or geographical area’.
A ‘deposit’ has the meaning ascribed to it in s 1(1) of the Banks Act.
The Act applies to any co-operative registered under the Co-operatives Banks Act
that takes deposits and has 200 or more members and holds deposits of members
to the value of R1 million or more. [44] Thus, all three requirements: deposit-taking;
more than 200 members; and deposit-holdings in excess of R1 million, must be
present before the Act applies to a co-operative.
Finally, the Act provides for the registration of certain types of co-operative
banks, including primary savings co-operative banks; primary savings and loans co-
operative banks; secondary co-operative banks; and tertiary co-operative banks. [45]
Co-operatives are regulated by a supervisor as described in s 1 of the Act. The
supervisor is appointed in terms of s 41 of the Act. At present both the Financial
Stability Department and the Financial Department of the South African Reserve
Bank act as supervisors of the different types of co-operative banks.
The Act presupposes that an applicant for registration as a co-operative bank is
already registered as a co-operative under the Co-operatives Act.
A co-operative must apply on a prescribed application form to be registered as
one of the types of co-operative banks listed in s 5 of the Act.
The Act lists certain requirements for registration: it must be of the type of co-
operative bank to which the application applies; it must have sufficient human and
financial capacity; and the directors and executive officers of the bank must be
experienced, knowledgeable and fit and proper persons. [46]
Section 15 of the Act provides that a co-operative bank may, in addition to the
functions referred to in s 19 of the Act, receive grants and donations; or act as
representative or intermediary between its members, on the one hand, and a formal
banking institution or other co-operative bank or co-operative, pension fund,
provident fund, medical scheme or insurance business, on the other.
A bank must meet and maintain certain minimum prudential requirements in
terms of capital, liquidity, asset quality and surplus reserves. Should a co-operative
bank be unable to meet or maintain any of the prudential requirements prescribed,
the relevant supervisor may either deregister or suspend the registration of the co-
operative bank, or permit it to continue operating subject to certain conditions that
the supervisor deems appropriate in the circumstances. [47]
A novelty in terms of the Act is the creation in s 54 of the Co-operative Banks
Development Agency. It is a juristic person and performs its functions subject to the
Act as well as the Public Finance Management Act. [48]
Page 10
1.3.4 Third-tier banks

(i) Village banks
One of the forms which a community bank may take is that of a village bank. A
village bank is organised and owned by its members. The objectives of village banks
are to provide appropriate financial services at a local (village) level and to provide a
link to a first-tier bank. The village bank will encourage its members to save and the
collective savings are then deposited with an ordinary commercial bank. [49]
The first village banks arose in the North-West Province around 1994. [50]
The usual model for a village bank is a ‘saving-first’ approach. This entails that a
member of a village bank will have access to credit services only once sufficient
funds have been saved to permit the village bank to grant credit to its members.
Members of village banks benefit in at least two ways: first, the return associated
with his or her shares in the village bank and, secondly, the usual benefits from
investing savings with a commercial bank. [51]
Village banks usually charge moderate ‘service fees’ on each transaction.
(ii) Dedicated banks

The Dedicated Banks Bill (‘the Bill’) has not been passed yet. It was drafted to
improve access to basic banking services for low-income and traditionally
disadvantaged persons (‘the unbanked’). This is sought to be achieved by lowering
the barriers for large companies such as large retail outlets and cellular or
telecommunication companies to provide banking services to the unbanked. Many of
these entities are already competing with banks in offering certain of these
services. [52]
Although the prudential requirements for these dedicated banks will be much
lower than those required for banks registered under the Banks Act or mutual
banks, they will nevertheless need to comply with certain minimum requirements.
For example, it is expected to maintain a minimum capital such that the sum of its
primary and secondary capital and its primary and secondary unimpaired reserve
funds does not at any time exceed an amount prescribed by regulation. [53]
A ‘dedicated bank’ is defined in the Bill as ‘a public company registered as a
dedicated bank in terms of [the Bill] and any reference in [the Bill] to a dedicated
bank shall be construed as a generic reference to both savings banks and savings
and loans banks’. [54]
It is thus clear that the Bill provides for two classes of dedicated banks, namely
‘savings banks’ and ‘savings and loan banks’. Both categories will be able to receive
deposits and to provide payment services. A saving and loans bank may also,
subject to conditions, invest money deposited with it.
Page 11
The Bill provides for a number of ‘undesirable practices’ which dedicated banks
are prohibited and/or restricted from performing. [55]
Dedicated banks too will be subject to the supervision of the registrar. They will
also have to be licensed by the registrar. [56]
(iii) Stokvels
‘Stokvel’ is a generic name for a wide range of credit and savings associations which
one encounters in disadvantaged communities. Suffice it to say that many types of
stokvels provide banking-type services, including savings and credit services.
Provided that they meet certain requirements, stokvels are excluded from the ambit
of the Banks Act. There is no specific Act dealing specifically with stokvels.
The exclusion of stokvels from the application of the provisions of the Banks Act,
as well as the legal nature of stokvels, are discussed in more detail in chapter 2. [57]
(iv) Mobile banking services

A number of cellular companies have developed software for their clients to use their
cellphones as paying devices. Payments which take place through cellphones are
generally referred to as mobile payments. [58]
Different models exist for mobile payments. An explanation of one of these will
suffice. The technology that underpins the transfer of mobile money entails an
electronic money transfer service that uses a mobile handset. Customers who make
use of this payment services do not require a conventional bank account. Funds are
kept in an offshore account. Customers can deposit, withdraw, send money to
anyone with a cellphone within the boundaries of a certain country or countries, buy
airtime or pay for certain goods and services.
This product is offered to clients at a fraction of the cost of a conventional
banking payment; for example, a credit card payment.
There is at present no specific statute which deals exclusively with mobile banking
services. It has been pointed out that the regulatory position in South Africa has
been based mostly on electronic money, which is a subset of e-banking. [59] As a
result, the legal and regulatory framework for e-banking would apply to mobile
banking. The South African legal framework comprises the following:
•
the South African Reserve Bank Act; [60]
•
the National Payment System Act; [61]
Page 12
•
the Banks Act; [62]
•
the Exchange Control Regulations (for cross-border transactions);
•
the Financial Intelligence Centre Act; [63] and
•
the South African Reserve Bank Position Paper on Electronic Money. [64]
There can be little doubt that although mobile banking services offered by cellular
companies fill an important gap in providing convenient and affordable access to
payment systems to the ‘unbanked’, these services are also used extensively by
those who have access to conventional banking services. [65]
1.4 The Banks Act

1.4.1 Introduction
The Banks Act is the most important statute regulating the South African banking
sector. Only those provisions of the Banks Act which are of direct relevance to the
present chapter will be discussed here. The most important of these are the
provisions which explain what a bank is, or rather, which activities qualify as the
business of a bank. In order to understand which activities qualify as the business of
a bank, and thus require registration as a bank in terms of the Banks Act, it is
necessary to explain the definitions of ‘the business of a bank’ and ‘deposit’ in detail.
1.4.2 The definition of ‘bank’

(i) Introduction
By way of an introduction it can be said that banks are public companies
incorporated under the Companies Act [66] and registered under the Banks Act, and
which take deposits from the public. [67] But this does not explain what the essential
elements of a bank are.
It has been pointed out that the definition of ‘bank’ depends on the context in
which the concept of ‘bank’ is used. Different statutes define the concept differently.
For example, in terms of the Banks Act, ‘bank’ means a public company registered
as a bank in terms of that Act; while in the Bills of Exchange Act 34 of 1964, ‘bank’
means any ‘body of persons, whether incorporated or not, that carries on the
business of banking,’ and the definition includes a bank, a mutual bank, the Reserve
Bank, and the Post Office Savings Bank. [68]
Page 13
The concept of a ‘bank’ has not been defined comprehensively in South African
banking legislation. It is indeed a vexed question what exactly constitutes a ‘bank’.
The Banks Act does not provide a definition of the concept of a ‘bank’. It focuses
instead on the definition of ‘the business of a bank’. [69] In this regard it has been
said the Banks Act does not so much define the concept of a bank as attempt to
define the activities of banks. [70]
By way of a broad generalisation it can be said that the business of a bank is to
take deposits from the general public on a regular basis. But the matter is not that
simple. Section 1(1) of the Banks Act provides detailed definitions of what
constitutes ‘the business of a bank’ as well as what constitutes a ‘deposit’. Moreover,
the Banks Act provides further for a long list of exclusions to each of these two
important definitions. These two definitions must be read in conjunction with the
exclusions to each of them, in order to ascertain whether a particular activity falls
inside or outside the scope of the Banks Act. [71]
In fear of stating the obvious, the reason for distinguishing between activities
that fall inside the scope of the Banks Act, on the one hand, and activities which fall
outside the scope of the Act, on the other hand, is that someone who engages in an
activity that falls under the business of a bank needs to register as a bank in terms
of the Act.
The definitions of ‘the business of bank’ and ‘deposit’, as well as the exclusions
from these two definitions, will be discussed in paragraphs (ii) and (iii) below.
(ii) The definition of ‘the business of a bank’ and excluded activities
(a) Definition
The definition of ‘the business of a bank’ is very wide and potentially includes a
number of activities which will not normally be regarded as ‘bank business’.
The phrase ‘the business of a bank’ is defined as any of five activities.
First, where someone accepts deposits from the general public as a regular
feature of the business in question. [72] The phrase ‘general public’ includes persons
in the employ of the person so accepting deposits. The person concerned must
therefore carry on a ‘business’ of deposit-taking. It is made clear that employees of
the person taking the deposits are also regarded as members of the general public.
The expression ‘general public’ thus has a wide meaning. According to s 1(1), the
word ‘public’ includes a juristic person, but the expression ‘general public’ does not
include a bank.
Secondly, the soliciting of, or advertising for, deposits. [73] Take note, however,
that one can carry on the ‘business’ of deposit-taking without soliciting or
Page 14
advertising for deposits. In terms of the Banks Act, someone who solicits or
advertises for deposits is irrebuttably presumed to be carrying on the business of a
bank, even though his or her soliciting or advertising may be completely
unsuccessful. It is therefore important to know what exactly should be regarded as
soliciting or advertising (which is not defined). Obviously a once-off application for a
loan with one or two persons cannot be regarded as soliciting or advertising. That
would practically place a ban on any loan activity of a ‘private’ nature where no
registered bank is involved. It is thus a question of degree whether or not one is
dealing with soliciting or advertising.
Thirdly, the utilisation of money, or of the interest or other income earned on
money accepted by way of ‘deposit’ as contemplated in the first activity above, and
for certain specified purposes, including where the money is used for the granting by
any person of loans to other persons, or for investment or financing by any
person. [74] This third activity is superfluous, given that someone who has accepted
deposits as contemplated in the first activity has already been included in the
definition of ‘the business of a bank’. In the absence of registration as a bank, the
prohibition in s 11(1) has already been contravened, regardless of what he or she
does with the money that was paid to him or her.
Fourthly, the obtaining of money, as a regular feature of the business in question,
through the sale of an asset to any person other than a bank, subject to an
agreement in terms of which the seller undertakes to purchase from the buyer at a
future date the asset so sold or any other asset. The effect of this is that someone
who concludes ‘repurchase agreements’, for example, floor plan agreements, as a
business is deemed to be conducting the business of a bank and must register as a
bank. [75]
Fifthly, any other activity which the registrar has, after consultation with the
Governor of the Reserve Bank, declared to be the business of a bank by notice in
the Gazette. [76]
This provision gives wide powers to the registrar, who can, without prior warning,
alter the field of application of the Act by means of a single notice in the Gazette.
(b) Exclusions
The following six activities are excluded.
First, the acceptance of a deposit by a person who does not purport to accept
deposits on a regular basis and who has not advertised for or solicited such deposits.
To qualify for this exclusion, the person concerned must not at any time hold
deposits from more than 20 persons or deposits amounting in the aggregate to more
than R500 000. [77] For the purposes of this exclusion, a person and any person
Page 15
controlled by him or her, as well as a subsidiary of that person, are deemed to be

one person. It follows that the exclusion cannot be made applicable by distributing
deposit-taking activities among a company and a number of subsidiaries. [78]
Secondly, the borrowing of money from its members by a co-operative, subject to
such conditions as may be prescribed. [79] The prescribed conditions are to be found
in reg 68 of the Regulations Relating to Banks of 2012. The most important of these
conditions is that no loan from an individual member may be less than R1 000 or
repayable within 12 months after it was received.
Thirdly, an activity of a public sector, governmental or other institution, or of a
person or category of persons designated by the registrar with the approval of the
Minister, by notice in the Gazette, provided such activity is performed in accordance
with such conditions as the registrar may determine in the relevant notice, with the
approval of the Minister. [80] A number of activities have been so excluded. [81] The
most important of these excluded activities involves the acceptance of money from
the general public against the issue of ‘commercial paper’. [82]
Fourthly, an activity contemplated in paragraphs (a), (b) or (c) of the definition of
‘the business of a bank’ above, [83] which is performed by any institution registered
or established in terms of any Act of Parliament and designated by the Minister by
notice in the Gazette, or performed in terms of any scheme authorised
Page 16
by, and conducted in accordance with the provisions of, any other Act of Parliament
and so designated by the Minister. [84] In both cases the activity concerned must be
conducted in accordance with the conditions set by the Minister in the relevant
notice.
Fifthly, the effecting or implementation, subject to any other Act and the
conditions prescribed by the registrar, if any, of a money-lending transaction
between a lender and a bank as borrower, through the intermediation of an agent,
in which the money to be lent is entrusted by the lender to the agent in terms of a
written contract of agency. [85] This contract of agency (representation) must contain
a provision that the agent acts as the agent of the lender; that the lender assumes,
except in so far as there may in law be a right of recovery against the agent, all
risks connected with the administration of the entrusted funds by the agent; and
that the lender assumes the responsibility of ensuring that the agent executes the
instructions as recorded in the written contract of agency.
It will be noted that this exclusion applies only to the case where the agent not
only concludes the contract with the bank on behalf of the lender, but also receives
the money from the lender for payment over to the bank. If the agent receives no
money from the lender, there can be no question of the acceptance of a deposit, and
the exclusion is redundant. However, it may be asked whether the exclusion is not
redundant even if the agent receives the money for payment over to the borrower.
Clearly the legislature’s assumption is that money so received by the agent is, in
fact, a ‘deposit’. If, however, the assumption that was made above in connection
with the first exclusion discussed in the definition of ‘deposit’ is correct, namely that
the legislature probably intended to exclude the payment of an amount that is
repayable as a result of non-performance of a contract from the definition of
‘deposit’, then the money thus received would not be a deposit. In the final analysis,
the amount is paid to the agent as cover for a service that he or she is going to
render to the prospective lender, and it is repayable by the agent (as opposed to the
eventual borrower) only if the service (that is, the concluding of the contract and the
payment over to the borrower) is not rendered. One may question the rationale for
this exclusion, since it excludes something that was never included.
Sixthly, the following activities of mandatories, which are natural or juristic
persons registered in terms of any other Act of Parliament and have been
designated by the registrar by notice in the Gazette: [86] (i) the acceptance of money
from the mandator in terms of a prescribed contract of mandate for purposes of
effecting a moneylending transaction with a bank; and (ii) the depositing of such
money into an account maintained by the mandatory with a bank, irrespective of
whether or not such money is deposited together with money so accepted by the
mandatory from other mandators. [87]
Page 17
This concludes the discussion on the requirement to register as a bank when one
is involved in ‘the business of a bank’.
(iii) The definition of ‘deposit’ and excluded payments
(a) Introduction
In terms of the repealed Banks Act of 1965, it was ‘the business of taking deposits’
that was prohibited without registration as a bank. The word ‘deposit’ was not
defined in that Act, and the courts decided that it referred to a contract of a loan of
money for consumption (ie mutuum). [88] Any other payment of money did not
qualify as a ‘deposit’. [89] The prohibition in the repealed Banks Act of 1965 was also
only applicable if a person conducted the taking of deposits as a business. [90]
It was pointed out in para (ii) above that the Banks Act of 1990 prohibits the
conducting of ‘the business of a bank’ without registration. In order to understand
and apply the definition of this phrase, it has to be read in conjunction with the
definition of ‘deposit’, since this word appears in the definition of ‘the business of a
bank’.
Page 18
(b) Definition
The main part of the definition of ‘deposit’ reads as follows:
. . . an amount of money paid by one person to another person subject to an agreement in
terms of which —
(a)
an equal amount or any part thereof will be conditionally or unconditionally repaid,
either by the person to whom the money has been so paid or by any other person,
with or without a premium, on demand or at specified or unspecified dates or in
circumstances agreed to by or on behalf of the person making the payment and the
person receiving it; and
(b)
no interest will be payable on the amount so paid or interest will be payable thereon
at specified intervals or otherwise. [91]
It is clear from these paragraphs that the term ‘deposit’ includes much more than
money lent, since money paid does not have to be unconditionally repayable to be
included in the definition. Furthermore, it is sufficient if only a portion of the amount
is repayable, whether conditionally or unconditionally. [92]
(c) Exclusions
The definition excludes nine payments from the concept of ‘deposit’. The nine
exclusions are the following.
First, an amount ‘paid as an advance, or as part payment, in terms of a contract
for the sale, letting and hiring or other provision of movable or immovable property
or of services, and which is repayable only in the event of
(aa)
that property or those services which are in fact not being sold, let and hired or
otherwise provided;
(bb)
the fulfilment of a resolutive condition forming part of that contract; or
(cc)
the non-fulfilment of a suspensive condition forming part of that contract. [93]
Apparently the purpose of this exclusion is to exclude any payment in consideration

for property, for the use of property, or for services, from the concept of ‘deposit’. If
this was indeed the purpose, then it is a poor and clumsy attempt to reach the
desired result. As far as (aa) above is concerned, an impossible assumption is made,
namely that a contract which is in fact concluded, is actually not concluded! One
surely cannot pay an amount in terms of a contract of sale when no contract of sale
did, in fact, come into existence. What the legislature probably had in mind is an
amount that is repayable as a result of the non-performance of the contract by the
other party.
A second exclusion from the definition of a deposit is an amount paid as security
for the performance of a contract or as security in respect of any loss that may
result from the non-performance of a contract. [94]
Thirdly, the second exclusion is further extended by providing that money which
is paid as security for the delivery up or return of any movable or
Page 19
immovable property, whether in a particular state of repair, will also not be regarded
as a ‘deposit’. [95]
Fourthly, an amount paid by a holding company to its subsidiary, or by a
subsidiary to its holding company, or by one subsidiary to another subsidiary of the
same holding company, is also excluded. [96]
Fifthly, an amount paid by a person who at the time of such payment is a close
relative, a director or executive officer, or a close relative of a director or executive
officer of the person to whom such money is paid. A ‘close relative’ is defined as
meaning a person’s spouse, his or her child, stepchild, parent or step-parent, or the
spouse of his or her child, stepchild, parent or step-parent. [97]
Sixthly, an amount paid by any person to a registered long-term insurer as a
premium in respect of any kind of policy defined in the Long-term Insurance
Act [98] and under which policy the insurer assumes, in return for such premium, an
obligation as described in the Long-term Insurance Act. This particular exclusion was
amended in 2007 and only refers now to premiums received under a long-term
insurance policy. [99]
Seventhly, an amount paid to a pension fund registered under the Pension Funds
Act [100] as a contribution by or on behalf of a member of that fund. [101]
Eighthly, an amount paid to a benefit fund, as defined in s 1 of the Income Tax
Act [102] as a contribution, contemplated in s 13A of that Act, by or on behalf of a
member of that fund. [103]
Ninthly, an amount paid by any person to a registered short-term insurer as a
premium in respect of any kind of policy defined in the Short-term Insurance
Act [104] and under which policy the insurer assumes, in return for such premium, an
obligation as described in the Short-term Insurance Act. [105]
Money received under any of these nine exclusions will not qualify as a deposit
and the recipient of such money will not need to register as a bank under the Banks
Act. However, in most of these inclusions the recipient will have to register as some
or other type of financial institution.
Finally, the most important provision of the Banks Act is contained in s 11(1),
which provides as follows:
Subject to the provisions of section 18A, no person shall conduct the business of a bank
unless such person is a public company and is registered as a bank in terms of this Act. [106]
Page 20
Contravention of s 11(1) is an offence and is punishable with a fine and/or

imprisonment. However, agreements concluded in contravention of s 11(1) are not
necessarily unlawful and void. The agreement will still be enforceable between the
parties inter se. [107]
The statutory regulation of banks will be discussed in more detail in chapter
3 below.
1.4.3 Miscellaneous matters

Apart from the provisions of the Banks Act, as well as various other legislative
instruments regulating the banking industry, first-tier banks have to comply with the
King Code on Corporate Governance and Basel II and III. In the aftermath of the
2008 global financial crisis, various international strategies were announced to
address fundamental weaknesses revealed by the crisis. These include amendments
to the regulatory framework (Basel III), which require banks to hold more capital of
higher quality and enough liquid assets to cover fund outflows.
South Africa will soon introduce a so-called Twin Peaks system of regulating the
Financial Sector when the Financial Sector Regulation Bill, 2015, comes into
operation.
There are also various ombudsmen tasked with achieving quick and effective
dispute resolution for banks and their customers with regard to the various services
and products which banks offer their clients. These include the Banking Adjudicator;
the Ombudsman for Financial Advisory and Intermediary Services; and the
Ombudsman for Long- and Short-term Insurance. [108]
Apart from the Banks Act and other specialised banking legislation referred to
above, there are also a large number of other sources which contain the law
relevant to banking and banking lawyers. These sources will be discussed in chapter
2 below.
Page 21
List of works cited

A
Anon Anon ‘Initial submission to the banking enquiry by Absa Bank Ltd
assisted by Webber Wentzel Bowens and CRA International
(OK) Ltd’, available at
http://www.compcom.co.za/assets/Banking
D
De Jager (2006 (I)) De Jager, Johann ‘The South African Reserve Bank: An
evaluation of the origin, evolution and status of a
central bank (Part I)’ (2006) 18 SA Merc LJ 159
De Jager (2006 (II)) De Jagger, Johann ‘The South African Reserve Bank: An
evaluation of the origin, evolution and status of a
central bank (Part II)’ (2006) 18 SA Merc LJ 274
De Jager (2013 (I)) De Jager, Johann ‘The South African Reserve Bank:
Blowing winds of change (Part I)’ (2013) 25 SA Merc
LJ 342
De Jager (2013 (II)) De Jager, Johann ‘The South African Reserve Bank:
Blowing winds of change (Part II)’ (2013) 25 SA Merc
LJ 429
De Wet & van Wyk De Wet, JC & AH van Wyk Die Suid-Afrikaanse
Kontraktereg & Handelsreg vol I 5 ed (1992)
Du Toit Du Toit, SF ‘Reflections on the South African Code of
Banking Practice’ (2014) TSAR 568
F
Falkena, Kok & van der Falkena, HB, WJ Kok & EJ van der Merwe Financial
Merwe Institutions (1992)
H
Howard, Masefield & Howard, Mark, Roger Masefield & Jason Chuah
Chuah (eds) Butterworths Banking Law Guide (2006)
I
Itzikowitz Itzikowitz, Angela ‘The Deposit-taking Institutions Act 94
of 1990: Its history and an overview of its main
provisions’ (1992) 4 SA Merc LJ 170
Itzikowitz & du Toit Itzikowitz, AJ & SF du Toit ‘Banking and currency’ in WA
Joubert (founding ed) The Law of South Africa vol 2
First Reissue (2003)
K
Kelly-Louw (2004 (I)) Kelly-Louw, Michelle ‘Investigating the statutory
preferential rights the Land Bank requires to fulfil its
development role (Part I)’ (2004) 16 SA Merc LJ 211
Kelly-Louw (2004 (II)) Kelly-Louw, Michelle ‘Investigating the statutory
preferential rights the Land Bank requires to fulfil its
development role (Part II)’ (2004) 16 SA Merc LJ 378
L
Lawack-Davids Lawack-Davids, Vivienne ‘The legal and regulatory
framework of mobile payments in South Africa: A
trade-off?’ (2012) 24 SA Merc LJ 77
M
Malan & Willemse Malan, FR & Rudolph Willemse ‘Banks, village banks and
deposit insurance’ 1996 Tydskrif vir die Suid-
Afrikaanse Reg 616
Malan Malan, FR ‘The business of a deposit-taking institution’
1991 TSAR 561
Moorcroft & Raath Moorcroft, J & LR Raath Banking Law and Practice (2009)
Page 22
P
Perlman Perlman, Leon Joseph Legal and Regulatory Aspects of
Mobile Financial Services unpublished LLD thesis,
University of South Africa (2013)
R
Rau Rau, Neren ‘Overview of the Co-operative Banks
Bill’ Financial Stability Review (2007) unpaginated
S
Schoeman Schoeman, Heidi An Introduction to South African
Banking and Credit Law 2 ed (2013)
Schulze Schulze, WG ‘Financial institutions’ 2011 Annual Survey
of South African Law 483
V
Van der Merwe et al Van der Merwe, SWJ, LF van Huyssteen, MFB Reinecke &
GF Lubbe Contract: General Principles 4 ed (2012)
W
Wille et al Wille, Carl & Solly Keetse, Joubert Mathee, Juanita Moolman
& Pheona Muwanula Principles of Financial Law (2007)
Willis Willis, Nigel Banking in South African Law (1981)
[1] On the history of banks in South Africa, see Willis 1 et seq; and Moorcroft & Raath para 1-1. For
a primer on South African banking law and credit management, Wille et al 85 et seq; and Schoeman.
As to the role of banks in general,
see http://www.compcom.co.za/assets/Banking/Submissions/FirstRand-Bank-Annex-9-Role-of-
Banks-SA-economy.pdf.
[2] Act 94 of 1990.
[3] Act 124 of 1993.
[4] Act 40 of 2007.
[5] According to the World Economic Forum Competitive Survey 2014/15, South African banks
came seventh out of 144 countries in terms of soundness.
[6] Act 90 of 1989.
[7] On the history and role of the South African Reserve Bank, see De Jager (2006 (I)) 159 et seq;
De Jager (2006 (II)) 274 et seq; De Jager (2013 (I)) 342 et seq; and De Jager (2013 (II)) 492 et
seq.
[8] For a more detailed discussion of the South African Reserve Bank Act 90 of 1989, see ch 3 para
3.2 below.
[9] See ch 3 para 3.3.1 (iv) below. On the Banks Act in general, see Wille et al 85.
[10] Act 94 of 1990.
[11] Reference must be made to the Banking Institutions Act 25 of 1946, which provides that
certain banking institution, to which special Acts apply, may apply to become corporate bodies under
the Companies Act 61 of 1973 (now the Companies Act 71 of 2008).
[12] Act 124 of 1993.
[13] The national payment system consists of a set of instruments, banking procedures and
interbank funds transfer systems to ensure a secure and efficient circulation of money and finalisation
of payments made by participants in the system. The National Payment System Act 78 of 1998 was
enacted to bring the South African financial settlement system into line with international practice in
relation to settlement systems and systematic risk management procedures: see Anon 28 et seq. For
an overview of the services, regulation and inner workings of the South African national payment
system, see also Volker passim. A detailed discussion of the National Payment System Act and the
operation of the national payment system falls outside the scope of the present chapter.
[14] Retail or commercial banks in South Africa include Absa, Standard Bank, Nedbank and First
National Bank. Investment banks include Rand Merchant Bank, Investec, Absa Capital, Standard
Chartered and Merchant Bank: see Wille et al 89.
[15] A retail bank conducts business directly with consumers, rather than corporations or other
banks. Typical services offered by retail banks include savings and current accounts, mortgages,
personal loans, debit and credit cards and internet banking. See also Falkena, Kok & Van der Merwe
24 et seq.
[16] See http://lexicon.ft.com/Term?term=commercial-bank.
[17] See Howard, Masefield & Chuah 245.
[18] This should be contrasted with investment banks, whose main business is securities
underwriting, merger and acquisition advisory, asset management and securities trading.
[19] Ibid.
[20] Ibid.
[21] Ibid.
[22] See http://www.resbank.co.za.
[23] Ibid.
[24] See http://www.landbank.co.za.
[25] Act 15 of 2002. On the developmental role of the Bank, see Kelly-Louw (2004 (I)) 211 et seq;
and Kelly-Louw (2004 (II)) 378 et seq.
[26] Section 2(4) of the Land and Agricultural Development Bank Act. See also Itzikowitz & Du Toit
para 339.
[27] Act 13 of 1997. See also Itzikowitz & Du Toit para 341.
[28] See s 3 of the Act.
[29] See http://www.dbsa.org/Pages/default.aspx.
[30] Act 124 of 1993.
[31] See s 1(1) of the Mutual Banks Act; and Itzikowitz & Du Toit para 297.
[32] For a discussion of the registration, compliance and operation of a mutual bank, see Itzikowitz
& Du Toit para 298 et seq.
[33] Section 42(2)-(3) of the Mutual Banks Act.
[34] See http://www.resbank.co.za.
[35] Act 9 of 2010.
[36] See GN 607 in GG 34476 of 22 July 2011. Its predecessor was the Postal Services Act 124 of
1998.
[37] See http://www.postbank.co.za.
[38] On the Postbank in general, see Schulze 483-4.
[39] See Anon 21.
[40] Act 40 of 2007.
[41] The Act came into force on 1 August 2008 (GN 818 in GG 31292 of 1 August 2008). For an
explanation of the aims and broad framework of the Act, see Rau (2007) unpaginated.
[42] See s 2 of the Act. For an explanation of the aims and broad framework of the Act, see Rau.
[43] Sections 3-5 of the Act.
[44] Section 3 of the Act.
[45] Section 5 of the Act.
[46] Sections 5 and 7 of the Act.
[47] Sections 20 and 21 of the Act.
[48] Act 1 of 1999.
[49] See Anon 17.
[50] Act 91 of 1981. See further Anon 17.
[51] Ibid. For a discussion of village banks see Malan & Willemse 616 et seq.
[52] See Anon 22.
[53] See Anon 23.
[54] See Anon 23.
[55] See Anon 23.
[56] Anon 23-4.
[57] On the exclusion of stokvels from the Banks Act, see para 1.4.2 n 80 below. On the legal
nature of stokvels, see ch 2 para 2.4.2 (vi) below.
[58] Mobile banking services are also referred to as ‘mobile financial services’. For an in-depth
discussion of the question whether mobile financial services providers are engaged in the ‘business of
a bank’ see Perlman 123 et seq.
[59] See Lawack-Davids 80-1.
[60] Act 89 of 1999.
[61] Act 78 of 1998.
[62] Act 90 of 1994.
[63] Act 38 of 2001.
[64] Position Paper 1 of 2009.
[65] For a more detailed discussion of electronic payments, see ch 7 para 7.3 below.
[66] Banks which were registered before 1 May 2011 are incorporated under the Companies Act 61
of 1973. Banks which were registered after 1 May 2011 are incorporated under the Companies Act 71
of 2008. See also Moorcroft & Raath para 2.1.
[67] See s 1(1) of the Banks Act, which defines a ‘bank’ as a ‘public company registered as a bank
in terms of this Act’. See also Nuwe Suid-Afrikaanse Prinsipale Beleggings (Edms) Bpk v Saambou
Holdings Ltd 1992 (4) SA 676 (W); Alpha Bank Bpk v Registrateur van Banke 1996 (1) SA 330 (SCA)
at 344I; and Itzikowitz & Du Toit para 240.
[68] See Moorcroft & Raath para 2.1.
[69] The phrase ‘the business of a bank’ and the importance of the concept of ‘deposit’ in
establishing what ‘the business of a bank’ is, have their origins in the previous name of the Banks
Act, namely the Deposit-taking Institutions Act 94 of 1990: see Itzikowitz 170 et seq.
[70] See Malan 561.
[71] For an interpretation of s 1 of the Banks Act, see NBS Bank Ltd v Cape Produce (Pty) Ltd 2002
(1) SA 396 (SCA); and S v Sassin [2003] 4 All SA 506 (NC).
[72] Section 1(1) sv ‘the business of a bank’ para (a).
[73] Section 1(1) sv ‘the business of a bank’ para (b).
[74] Section 1(1) sv ‘the business of a bank’ para (c).
[75] Section 1(1) sv ‘the business of a bank’ para (d). A floor plan agreement is a generic term for
master loan agreements providing for security in automobile stock via retention of ownership by the
lender of the money. Floor plan agreements are, as a rule, legitimate agreements (not simulated
agreements) and are given effect to. For a recent decision in which floor plan agreements as well as
earlier material on this topic are explained, see Roschcon (Pty) Ltd v Anchor Auto Body Builders
CC 2014 (4) SA 319 (SCA).
[76] Section 1(1) sv ‘the business of a bank’ para (e).
[77] Section 1(1) sv ‘the business of a bank’ para (e)(aa)(i).
[78] Section 1(1) sv ‘the business of a bank’ para (e)(aa)(ii).
[79] Section 1(1) sv ‘the business of a bank’ para (e)(bb).
[80] Section 1(1) sv ‘the business of a bank’ para (e)(cc).
[81] These exclusions include are certain activities of the Teba Savings Fund; certain deposit-taking
activities among the members of a mining group; certain repurchase agreements by stockbrokers,
financial instrument traders and financial instrument principals; certain activities in terms of a
‘securitisation scheme’; certain deposit-taking activities among persons with ‘a common bond’ (for a
definition of ‘common bond’, and the activities undertaken by an institution known as the
International Finance Corporation. The exclusion of activities among persons with a ‘common bond’ is
aimed, among others, at members of stokvels. For a more detailed discussion of stokvels, see ch
2 para 2.4.2 (vi) below. A number of other institutions’ activities have over the years also been
excluded from the meaning of ‘the business of a bank’, including the Kwazulu Natal Ithala
Development Finance Corporation, as well as a number of other related corporations.
[82] For purposes of the exclusion, ‘commercial paper’ is any written acknowledgment of debt. It
therefore includes promissory notes, debentures (which are issued by companies) and any other
document containing an acknowledgment of debt, except bankers’ acceptances. The exclusion is
subject to certain conditions. Commercial paper may be issued or transferred only in minimum
denominations of R1 million. Secondly, it may be issued by a listed company only, a company with
net assets of more than R100 million, or any other juristic person authorised in writing by the
registrar for the purposes of this exclusion. However, these conditions do not apply in any one of the
following four circumstances: if the commercial paper is listed on a recognised financial exchange; if
the commercial paper is endorsed by a bank; if the commercial paper is issued by the central
government or backed by a central government guarantee; or if the commercial paper is issued for a
period of longer than five years. At first sight it therefore appears as if a natural person or a juristic
person other than the juristic persons mentioned already can also qualify for the exclusion if the
commercial paper is issued for a period longer than five years. There are clear indications that the
exclusion is meant for central government and juristic persons only: see para 3(6). The borrowed
money may therefore not be used for the granting of money loans or credit (except customary credit
for the sale of goods or the provision of services by the issuer of the commercial paper) to the
general public: see para 3(4).
[83] See under para 1.4.2 (ii) (a).
[84] Section 1(1) ‘the business of a bank’ para (e)(dd). For example, the Minister has exempted
financial service co-operatives from the provisions of the Banks Act.
[85] Section 1(1) sv ‘the business of a bank’ para (e)(ff).
[86] Section 1(1) sv ‘the business of a bank’ para (e)(gg).
[87] Note that the mandatory has no contract with the bank. The scope of this last exclusion was
considered in David Trust v Aegis Insurance Co Ltd 2000 (3) SA 289 (SCA).
The case turned on the possible liability of the respondent (insurers) for losses suffered by the
appellants (the investors) as a result of the embezzlement of funds by a partner in the insured firm of
chartered accountants. The firm of accountants took out a professional indemnity policy. The court a
quo decided that, because the firm of accountants’ actions ‘amounted to banking’ in terms of the
definition of ‘the business of a bank’ in s 1(1) of the Banks Act (‘the acceptance of deposits from the
general public . . . as a regular feature of the business in question’), the actions of the firm prima
facie contravened s 11 of the Banks Act. The court a quo reasoned that, because it is against public
policy to allow anyone to insure himself or herself against his or her own criminal conduct (in casu,
doing business as a bank without being registered as such), the breach of contract (ie professional
liability) in question was not one contemplated or covered by the insurance policy.
On appeal the court rejected the reasoning by the court a quo. It reasoned that the appellants did
not invest their monies with or in the firm of accountants; they entrusted their funds to the firm to
invest in certain pre-approved institutions. The firm acted merely as the medium or ‘agency’ through
which the investments were effected elsewhere, admittedly in the firm’s own name.
When asking for repayment the appellants were accordingly not asking for repayment of a deposit
made with the firm, but for an accounting by the firm in terms of its mandate with each of the
appellants who had instructed the firm to invest certain monies. The court accordingly decided that
the contract between the appellants and the firm of accountants was one of mandate and that it could
be classified under the exclusion of mandatories: see 1(1) sv ‘the business of a bank’ para (e)(gg) of
the Banks Act.
[88] See eg Equitable Trust and Insurance Co v Registrar of Banks 1957 (2) SA 167 (T) at 168. See
also Willis 44-5.
[89] One is only dealing with a contract of moneylending if the amount borrowed is to be repaid
unconditionally (with or without interest or a premium). For this reason an amount that, for example,
was wagered on a horse race, or an amount that was paid for the subscription to shares in a
company, is not a deposit. The same is true of an amount that an attorney receives from his or her
client as security for anticipated expenses on behalf of the client.
[90] For a discussion of the registration of a bank under the Banks Act 23 of 1965, see Willis 46-8.
[91] Section 1(1) sv ‘deposit’ paras (a) and (b).
[92] Since a cancellation clause owing to breach of contract is not a true condition, one should
accept that a payment in terms of a contract containing such a clause is not automatically a deposit:
see De Wet & Van Wyk 164 n 43; and Van der Merwe et al 343.
[93] Section 1(1) sv ‘deposit’ para (b)(i).
[94] Section 1(1) sv ‘deposit’ para (b)(ii).
[95] Section 1(1) sv ‘deposit’ para (b)(iii).
[96] Section 1(1) sv ‘deposit’ para (b)(iv).
[97] Section 1(1) sv ‘deposit’ para (b)(v).
[98] Act 52 of 1998.
[99] Section 1(1) sv ‘deposit’ para (b)(vi). See further s 1(d) of the Banks Amendment Act 20 of
2007. A separate exclusion for short-term insurance policies is now provided for in s 1(1) ‘deposit’
para (b)(ix).
[100] Act 24 of 1956, as amended by the Pension Fund Amendment Act 56 of 2001.
[101] Section 1(1) sv ‘deposit’ para (b)(vii).
[102] Act 58 of 1962 as amended.
[103] Section 1(1) sv ‘deposit’ para (b)(viii).
[104] Act 53 of 1998.
[105] Section 1(1) sv ‘deposit’ para (b)(ix).
[106] For an interpretation of s 11(1), see David Trust v Aegis Insurance Co Ltd 2000 (3) SA 289
(SCA); and De Beer v Keyser 2002 (1) SA 827 (SCA).
[107] See Dulce Vita v Van Coller [2013] 2 All SA 646 (SCA) where the respondent conducted a
public property development syndication in contravention of s 11(1) of the Banks Act. The court held
that a contract underlying a scheme that contravenes s 11 of the Banks Act is not necessarily void
and therefore unenforceable. In Dulce Vita the court referred to the decision in Gazit Properties v
Botha and Others NNO 2012 (2) SA 306 (SCA), which, in turn, relied on the dicta in Standard Bank v
Estate van Rhyn 1925 AD 266; and Oilwell v Protect International 2011 (4) SA 394 (SCA) in para 19
citing the well-known text from Voet’s Commentarius ad Pandectas where it is said ‘things contrary to
the laws are not ipse jure null if the law is content with enacting a penalty against transgressors’.
[108] Act 1 of 1999. On the Code of Banking Practice, see Du Toit 568 et seq.
Page 23
Chapter 2
The nature of banking law and its sources
WG Schulze
2.1
Introduction
2.2
The diversity of South African banking law
2.3
Fundamental phenomena in South African banking law
2.3.1
Banking law as part of the law of obligations
2.3.2
Bank-customer relationship a multi-faceted one
2.3.3
Government policy of legislating to replace the common law
2.3.4
Globalisation
2.3.5
Major practical changes in banking sector
2.4
The sources of South African banking law
2.4.1
The distinction between primary sources and secondary sources
2.4.2
Primary sources
2.4.3
Secondary sources
2.5
Conclusion
List of works cited
2.1 Introduction
Banking law can be defined as that part of the law that regulates the legal relations
of banks in their capacity as financial institutions. [1]
This definition may be interpreted either very widely or very narrowly. In its
widest sense, the term ‘banking law’ may be used to denote all aspects of law that
may be relevant to bankers, in which case the term covers nearly all fields of law
including the law of persons, family law, the law of succession, the law of contract,
delicts, insolvency law, company law, criminal law, the law of evidence and
insurance law. In its narrowest sense, the term may be limited to those fields of law
that apply exclusively or mainly to banking institutions, such as the provisions of the
Banks Act [2] and the rules relating to specialised banking transactions (for example
the keeping of current accounts and the issuing of letters of credit).
In this textbook we steer a middle course by covering the law applicable to those
banking activities that are exclusively or mainly undertaken by banks and
Page 24
closely related to their particular nature as financial institutions. This approach is
determined by the purpose of this book: to provide lawyers with a general survey of
the more important financing, payment and other financial services offered by banks
and an explanation of the law relating to these services. [3]
There are two broad fields of banking law: private banking law and public banking
law. Private banking law regulates the legal relationships between banks and their
customers, and between banks and third parties who contract with banks or are
otherwise affected by banking activities. This section of banking law is principally an
application of the general law of obligations: contract, delict and enrichment. Public
banking law regulates the legal relationships between banks and those organs of the
state (such as the Registrar of Banks) having authority over banks. It makes
provision for state control of money and banking in general, and activities of banks
in particular. The main purposes of public banking law are to ensure that individual
banking institutions are always in a position to honour their repayment obligations
toward depositors; to control the supply and the productive application of money
and credit in the economy in furtherance of monetary policy; and to provide and
control methods of effecting payment in connection with foreign trade. One can
therefore say that public banking law regulates the tripartite relationship between a
bank, its clients and the state (mostly in its capacity as legislature and enforcer of
legislative provisions).
Some banking-law topics clearly relate to private law, while others obviously
relate to public law. In certain instances, the relevant rules of law contain elements
of both private and public law. For example, although finance charges are a matter
of individual negotiation and, as such, fall within the purview of private banking law,
the provisions relating to finance charges are better classified as public law
inasmuch as they contain prohibitions punishable under the criminal law and their
applicability is fixed, administratively, by an organ of state.
Broadly speaking, chapters 1 to 3 of this textbook deal with selected aspects of
public banking law, while the remaining chapters deal with selected aspects of
private banking law.
2.2 The diversity of South African banking law

In 1904 the eminent South African lawyer and judge, George Morice, [4] declared
that ‘[a] book on banking law in South Africa would probably be a reshuffle of the
contents of one of the English books written by a less skilful hand. The law of South
Africa is identical with English law in most matters that belong properly to
Page 25
banking.’ [5] Today, more than a century later, this assessment by Morice of the
importance of English law for purposes of explaining the principles of South African
banking law can no longer go unchallenged. One no longer has to rely solely or, for
that matter, to any great extent on English law in establishing and explaining the
principles of South African banking law. The modern South African banking law
consists of a rich and diverse pool of legal principles, some of which may have had
their origin in English law, but others of which are derived from a wide variety of
other sources, including our own common law.
2.3 Fundamental phenomena in South African banking law
The expansion of the pool of modern South African banking-law principles is the
result of the following five fundamental phenomena, which run like a golden thread
through modern banking law. To ignore these phenomena is to ignore the current
state as well as the future development of banking law. [6]
2.3.1 Banking law as part of the law of obligations

Banking law is not an autonomous branch of the law, but rather an application of
concepts and techniques of the general law of obligations as well as the law of
things. [7] This first phenomenon is not necessarily a modern one, but one which has
perhaps been overlooked in the past. As a result, South African courts have tended
to look first to English case law for a possible solution to a banking-law problem,
instead of applying, for example, the general common-law principles of obligations.
Moreover, customary law and established banking usage play a rather important role
as far as certain banking transactions are concerned.
Page 26
Recent times have seen a further broadening of the pool of general principles of
law that have relevance for the banking lawyer. An example of this is corporate
control and accountability or, simply, the accountability of the directors of banks
under the general principles of company law. Since the 1980s the topic of corporate
control — corporate governance in common parlance — has become the vogue for
corporate lawyers. [8] Corporate governance has been described as ‘the system by
which companies are directed and controlled’. [9] Put differently, corporate
governance is the technical jargon for employee participation in the running of a
public company. In recent times corporate governance has become of paramount
importance to banking lawyers and the directors of banks, and also for those
involved in South African banking. [10] Directors of banks can now be held liable for
negligent conduct that has caused loss to shareholders and creditors. [11]
2.3.2 Bank-customer relationship a multi-faceted one

Closely linked to the first phenomenon is the fact that the banker-client relationship
is a multi-faceted one. It invariably involves various types of contract; for example,
mandate, loan for use, depositum and deposit-taking. [12] The parties to the bank-
client relationship may, depending on the circumstances, be either the debtor or
creditor. For example, if a client deposits money in his or her savings account, the
client is the lender and the bank is the borrower. But if the same client applies for an
overdraft on a current account, the roles would be reversed. This second
phenomenon gives the relationship its multi-faceted nature, which involves various
potentially competing legal principles.
2.3.3 Government policy of legislating to replace the common law

Over the past two decades South African law has witnessed an explosion of new
legislation. There can be little doubt that this trend will continue as long as
government intends to minimise the effect of the common law by penetrating every
conceivable sphere of life by legislative force. It is inevitable that the courts will
have to interpret these legislative outpourings of Parliament. Banking law, too, has
not escaped the legislative frenzy.
Page 27
2.3.4 Globalisation
For a number of reasons, banking, like most other industries, has been
globalised. [13] This globalisation requires international co-operation between banking
regulators. In order for South African banks to participate on the world stage, they
have to comply with international standards. The development of a wide collection of
internationally accepted principles, trade practices and guidelines has even given
rise to the notion that a new law merchant has been constituted. [14] To facilitate
South Africa’s participation in the international banking sphere, it is inevitable that
our national banking law will have to be adapted and harmonised to be compatible
with this new law merchant. [15]
2.3.5 Major practical changes in banking sector

Banking, like many other sectors of commerce, has undergone substantial practical
changes. [16] These changes are, predominantly, the result of technological
developments. These developments have had a profound effect on banking practice
and have, in turn, resulted in a number of novel and nagging questions of banking
law. [17]
2.4 The sources of South African banking law [18]
2.4.1 The distinction between primary sources and secondary

sources
In categorising the sources of South African banking law one should distinguish
between primary sources and secondary sources (also known as authoritative source
and persuasive sources).
Page 28
The primary sources contain those principles that are binding on South African
courts as well as the parties who appear before them and to whom the South African
law applies. In short, the primary sources are the sum total of those sources that
are generally referred to as ‘South African banking law’. The clearest example of a
primary source is legislation enacted by Parliament. The secondary sources do not
contain any principles that are binding per se on South African courts or the parties
appearing before them. [19] However, these secondary sources are important in that
they may be consulted by a South African court to interpret, explain and augment
the primary sources if and when they are unclear, underdeveloped or not developed
at all on a certain point. The best example of a secondary source of our banking law
is foreign law, of which English law was for a long time regarded as the most
important. [20]
The primary sources of our law may be divided into formal sources and material
or historical sources. A formal source of law has been described as ‘that which has
the quality of being binding and, more important still, possesses a dynamic quality
as a law-generative medium’. [21] There are three main categories of formal law in
South Africa: legislation, judicial precedent, and custom or trade usage. [22] The
material or historical sources of our law refer to the origin of a legal rule. In the
historical sense, source therefore indicates concern for the material used in the
creation of the legal rule. [23] South African law has three main historical sources:
Roman law, Roman-Dutch law, and indigenous law. A further category, Islamic law,
will also be considered below. [24]
2.4.2 Primary sources

(i) Legislation
The Constitution of the Republic of South Africa, 1996 is the supreme law and
regulates all other legislative activities in South Africa. Chapter 2 of the Constitution
contains the Bill of Rights and the fundamental rights that bind the legislature, the
executive and all organs of state. [25] It binds natural and juristic persons. [26] Banks
and their customers are therefore both subject to the provisions of the Bill of Rights.
The Constitution further obliges the courts to develop the common law in accordance
with the Bill of Rights. [27]
It has correctly been argued that the Constitution introduced a new dimension
Page 29
into South African law. [28] It has influenced commercial law in general [29] and
banking law in particular. [30] Suffice it here to refer to two such cases only.
In Chief Lesapo v North West Agricultural Bank, [31] the court was asked to
consider the constitutionality of s 38(2) of the North West Agricultural Bank
Act. [32] This section gave the bank the right, without recourse to a court of law, to
require the messenger of the court to seize and sell by public auction a defaulting
debtor’s property. The court decided that because the bank was able to use other,
less restrictive and drastic powers to achieve its purpose, s 38(2) was not a
justifiable limitation of a debtor’s right to access to a court of law. Section 38(2) was
accordingly held to be unconstitutional. [33]
In Bredenkamp v Standard Bank of South Africa Ltd, [34] the court was asked to
decide whether a bank had the right to unilaterally cancel the agreement between it
and its customer. The court held that provided that the bank acts reasonably in its
decision to cancel the agreement, a term in the contract which provides for the
cancellation of the contract (ie a lex commissoria) is not automatically
unconstitutional. [35]
Apart from the influence of the Constitution on banking law, a number of new
Acts that have a direct influence on our banking law have been enacted since the
new constitutional dispensation of 1996. These include the National Prosecuting
Authority Act; [36] the National Payment System Act (NPSA); [37] the Inspection of
Financial Institutions Act; [38] the Debt Collector’s Act; [39] the Prevention of
Page 30
Organised Crime Act (POCA); [40] the Insider Trading Act; [41] the Public Finance
Management Act; [42] the Promotion of Access to Information Act; [43] the Home Loan
Mortgage Disclosure Act; [44] the Financial Institutions (Protection of Funds)
Act; [45] the Financial Intelligence Centre Act (FICA); [46] the Land and Agricultural
Development Bank Act; [47] the Electronic Communications and Transactions Act
(ECT Act); [48] the Financial Advisory and Intermediary Services Act; [49] the
Collective Investment Schemes Control Act; [50] the Co-operatives Act; [51] the
National Credit Act; [52] the Co-operative Banks Act; [53] the Consumer Protection
Act; [54] the Financial Markets Act; [55] and the Credit Rating Services Act. [56]
In addition to these Acts, a substantial number of laws that were enacted before
the new constitutional dispensation of 1996 remain in force. A large number of them
are either directly or indirectly applicable to our banking law. Those Acts that are
directly relevant to the banking sphere include the Currency and Exchanges
Act; [57] the Bills of Exchange Act; [58] the Financial Institutions Act (Investment of
Funds); [59] the Corporation for Public Deposits Act; [60] the South African Reserve
Bank Act; [61]
Page 31
the Banks Act; [62] the Financial Institutions Amendment Act; [63] the Financial
Services Board Act; [64] the Custody and Administration of Securities Act; [65] and the
Mutual Banks Act. [66] Many of these Acts have been amended by the Financial
Services Laws General Amentment Act. [67]
Regulations that were promulgated in terms of these Acts also constitute an
important source of South African banking law. The regulations dealing with
corporate governance in the banking sphere, promulgated under the Banks Act, are
an example. Regulation 39(1) provides that ‘[t]he board of directors of a bank is
ultimately responsible for ensuring that an adequate and effective process of
corporate governance . . . is established and maintained’. [68] This regulation has far-
reaching liability implications for directors of banks for losses caused to shareholders
and creditors of the bank.
Finally, it has to be pointed out that because banking law is not a coherent field
of law but depends on the application of various fields of law, a large number of
other pieces of legislation apply indirectly to banking law. A good example of this is
the Competition Act, [69] as was illustrated by the decision in Standard Bank
Investment Corporation v The Competition Commission. [70] The Supreme Court of
Appeal had to interpret and apply the provisions of the Competition Act and, more
specifically, whether the Competition Commission was one of the regulatory
authorities whose approval was needed for a bank merger (between Nedcor and
Standard Bank) and an insurance merger (between Old Mutual and Liberty
Life). [71] In the majority judgment, Schutz JA referred exclusively to materials
pertaining to competition law and the interpretation of statutes in laying down the
parameters of and the intention of the legislature as expressed in s 37(2)(a) of the
Banks Act.
Page 32
(ii) Judicial precedent [72]
By way of a broad generalisation, judicial precedent may be described as a judicial

decision that serves as example and authority for deciding a later case, either by the
same or by another court. [73] The traditional view is that the law of the land binds
judges and that they merely have to find the relevant legal rule to decide the case
before them, [74] but it has been argued that judges not only apply law but
also create it.
Notwithstanding the ever-increasing importance of legislation in creating a
‘modern body of South African banking law’, judicial precedent remains an important
source of banking law. It is especially the ‘private banking law’ [75] component of our
banking law where judicial precedent still plays an important role in explaining and
developing the relevant common-law principles. Judicial interpretation of contractual
terms in the bank-client agreement and acknowledging existing and new trade
usages also ensure that judicial precedent constitutes an important source of
banking law.
Judicial precedent also constitutes an important source of public banking law: the
spate of new banking-law legislation often requires judicial interpretation.
Two examples of judge-made law in the sphere of banking law, are the
acknowledgment and explanation by our courts of the exact time of payment of a
cheque, [76] and the duty that rests on a collecting bank to the owner of a lost or
stolen cheque. [77] In both instances the Supreme Court of Appeal decided not to
follow a long line of earlier decisions. In creating new law on these points the court
relied heavily on the academic research and writing of modern authors. [78]
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(iii) Custom or trade usage [79]
In the absence of legislation, the relationship between a bank and its client is
regulated by the consensual and/or implied terms of their agreement and the
relevant rules of the law of contract at common law. In the case of some areas of
banking law, such as the operation of cheque accounts and the issuing of
documentary letters of credit, custom or trade usage plays a particularly important
role. [80]
An example of a custom or trade usage in the operation of a cheque account is to
be found in the provisions of the so-called clearing house rules. From the wording of
the provisions of these rules, it is clear that they apply to the relationship between a
bank and its client as well as to the relationship between banks. If the bank-client
agreement does not expressly incorporate the clearing house rules (also known as
the ‘agency agreement’) it will usually be implied into the contract on the basis of it
being a trade usage in the banking sphere. Banks have agreed in writing to adhere
to the clearing house rules.
New naturalia of the bank-customer relationship may develop through custom or
trade usage. [81] A custom or trade usage will qualify as a naturale only when it
forms part of the contract irrespective of whether the parties knew of the custom or
trade usage. [82] We believe that the development of new customs and trade usages
is characteristic of the banking trade. For this reason customs and trade usages play
an important role in establishing the parameters of banking law.
For present purposes we accept that a banking practice in the strict sense of the
word qualifies as a particular type of trade usage, namely one that is prevalent in
the banking sphere.
The requirements for a contractual term to be implied by trade usage were first
formulated in Crook v Petersen Ltd [83] and later explained in more detail in Golden
Cape Fruits (Pty) Ltd v Fotoplate (Pty) Ltd. [84] One of these requirements is that the
usage must have been long established.
Christie and Bradfield justifiably query this requirement. They refer to the English
case of Crouch v Credit Foncier of England [85] where the court accepted the binding
nature of a trade usage, however recent. This approach was apparently
Page 34
followed in the South African decision in African Mining and Financial Association v
De Catelin & Muller. [86] They conclude that:
[i]f a trade usage in a new trade, or an old trade experiencing new circumstances, fulfils all
the other requirements it would be wrong not to imply it in a contract simply on account of
its recent origin, but of course recent origin may have an important bearing on whether the
usage is notorious.
Further, in Catering Equipment Centre v Friesland Hotel [87] it was decided, albeit by
way of an obiter dictum, that there is no Roman-Dutch authority supporting the
English distinction between custom and trade usage. In Tropic Plastic & Packaging
Industry v Standard Bank of SA Ltd, [88] the court reiterated this sentiment even
more emphatically, saying that ‘[i]n Roman-Dutch law there is no distinction
between custom and trade usage as recognised in English law’. [89] Even if one
accepts that this is correct and that, consequently, the requirements for custom and
trade usage are the same, the fact remains that the requirement of having been
long-established has nowhere been emphasised as an essential to the validity of a
custom in Roman-Dutch law. [90] It would therefore appear that a trade usage too
does not have to exist, for example, from ‘time immemorial’ before it will be
acknowledged as such.
It should be possible for our courts to imply a banking practice or trade usage in
a contract between a bank and its client, even if it is of recent origin, provided of
course it meets the other requirements for a trade usage. We further believe that
the pace at which technological and socio-economic developments take place, also in
the sphere of banking, has caused the law to lag behind in many aspects of banking.
One of these aspects is the notion that a custom or trade usage, especially in a fast-
moving trade such as banking, has to be long-established before it will be
acknowledged as such. The commercial world of the twenty-first century requires
clarity and certainty in law, but most of all, it requires the law to be flexible and
adaptable to new and changing circumstances. By clinging to the antiquated notion
that a trade usage must be long-established before it will be recognised as such, the
law is failing modern banking practice. [91]
Trade or bank usages came under the spotlight in two decisions of the Northern
Cape High Court.
In Absa Bank Bpk v Saunders, [92] and Absa Bank h/a Volkskas Bank v
Retief [93] the court listed, without any discussion, the requirements of a trade usage
in the banking sphere. In both these cases the court referred with approval to the
definition of a trade usage as formulated in Golden Cape Fruits v Fotoplate. [94]
Page 35
In Absa Bank v Saunders, [95] the court decided that it was a long-standing usage
of commercial banks to charge interest on an overdrawn facility and that it was not
necessary — at least not before the commencement of s 10(c) of the now repealed
Usury Act 73 of 1968 in 1989 — to inform clients about an increase or decrease in
interest rates, provided that the trade usage is shown to be ‘universally and
uniformly observed within the [banking trade], long established, notorious,
reasonable and certain’.
In Absa Bank v Retief, the court decided that the ‘trade usage’ of banks according
to which officials of banks at their discretion determine the rate at which interest is
charged on overdrawn accounts, was not so universal, uniform, notorious and
certain that the court could take judicial notice of it. [96] It is instructive to note that
the court did not refer to the requirement that the particular trade usage had to be
long-established before it qualified as such. Was this perhaps because the trade
usage in question was not long-established, and that the court could not (or did not
want to) rely on this requirement in dismissing the bank’s claim that the
requirements of a trade usage had been met? [97] The court noted also that the mere
fact that a court had found that a trade usage existed in terms of which banks could
charge interest on an overdrawn account did not necessarily entail that a bank was
entitled to charge interest in the absence of an agreement to that effect. It reasoned
that no client of a bank was bound, mero motu and in the absence of any form of
agreement, by the trade usages of the bank. The court further pointed out that a
client was bound by the trade usages of a bank on the basis of the agreement
between them. The court confirmed that the agreement, and more specifically its
terms, did not have to be express, but could be implied by law. [98] Thus, before the
bank could rely on a trade usage, it had to prove that usage. The bank then had to
prove that it was an implied term of the agreement that the client was bound by the
trade usage. [99] Similarly, one could argue, before a client can rely on a trade usage
he has to prove that usage. He has to prove that it was an implied term of the
agreement that the bank was bound by the trade usage. [100] The bottom line is that
the party who relies on a trade usage, particularly one that has not been long-
established, has to prove all the (other) traditional requirements of a trade usage.
In Standard Bank of SA Ltd v Sarwan, [101] the court held that a bank has the
right to reverse a credit on a current account where the client had withdrawn money
on uncleared effects, for example an uncleared cheque, and the cheque is later
dishonoured. This right is an implied term of every current account contract. The
court held that this term is implied by law and banking custom and usage. [102] It
further reasoned that it need not necessarily be a tacit consensual term of the
contract and that it is part of the contract, regardless of the intention or knowledge
of the parties.
Page 36
In England, the courts have shown themselves reluctant to imply into the bank-
client relationship naturale, (that is, terms implied by law) that are derived from
banking practices that are not sufficiently well-known to customers generally and/or
which deprive them of their substantive rights. [103]
A final and important point concerning trade usages in South African banking law
remains. The Ombudsman for Banking Services mediates on disputes between
banks and their customers. Central to the mediating functions of the Ombudsman is
the Code of Banking Practice (the code). It is a voluntary code assented to by all
banks which subscribe to the Office of the Ombudsman.
The code sets out the minimum standards for service and conduct a customer can
expect from his or her bank with regard to the services and products it offers, and
how the banks would like to relate to their customers. The code applies only to
personal and small business customers.
The current version of the code came into operation on 1 January 2012. Earlier
versions of the code provided guidelines as to its application and interpretation.
These versions of the code provided expressly that none of its provisions ‘will give
rise to a trade custom or tacit contract or otherwise between a customer and the
bank’. However, we believe that the attempts by the drafters of the earlier versions
of the code to exclude the provisions of the code from the realms of banking
practices and trade usages were futile.
Suffice it to mention for present purposes that the current version of the code no
longer attempts to prevent its terms from possibly acquiring the status of a banking
practice or trade usage. Subscribing banks expressly consent to the provisions of the
code, including those which create so-called ‘entitlements’ and ‘responsibilities’ for
banks and their customers, respectively. Apart from the fact that the provisions of
the code are expressly consented to by banks and their customers, it would also be
possible to argue that the provisions of the code may qualify as banking practices or
trade usages, provided, of course, that these provisions comply with all the
common-law requirements of a banking practice or trade usage to be acknowledged
as such. [104]
It has also been argued, and correctly so in our opinion, that because subscribing
banks advertise the fact that they adhere to the code and make it
Page 37
available to their customers, its provisions could be treated as implied terms in the
banking contract. [105]
Because the code is amended on a regular basis, banks or their customers may
argue that the practices, entitlements and responsibilities described in the code will
not be long-established and will therefore not qualify as trade usages. However, we
hope it is clear from our arguments earlier that the fact that a trade usage is not yet
long-established should not prevent it from being classified as such, especially in a
fast-developing trade such as banking. [106]
(iv) Roman law

Roman law has formed the basis of most western European legal systems. Some of
them have, in turn, greatly influenced the development of our common law and are
still influencing the further development of modern South African law. [107] But apart
from its indirect influence on South African common law through western European
legal systems, [108] Roman law also continues to have a direct influence on our law
as it is one of the authoritative historical sources of our law. [109]
Many of the South African Acts of Parliament that pertain to commercial law in
general, and banking law in particular, are based on their English counterparts. The
most obvious examples are the Bills of Exchange Act and the Banks Act. The same
applies to many of the trade usages in South African banking law. But this does not
mean that Roman law has fallen into disuse as far as South African banking law is
concerned. [110] On the contrary, it has been argued, and correctly so in our opinion,
that despite the fact that English law has had a major influence on South African
commercial law in general, and on our banking law in particular,
Page 38
the essential Roman-law character of our banking law has been retained. [111] This
may be ascribed partly to the fact that banking law is not so much a coherent field
of law in itself, but depends on the application of the general legal principles in the
particular banking context. [112] In the context of banking much of this general law
involves aspects of private law. Roman law continues to play an important role in
many aspects of modern South African private law. The most obvious examples are
the law of obligations and the law of things, including personal and real
security. [113] Both these fields of law are of critical importance to the bank-client
relationship. [114]
The relationship between a bank and its client arises from contract. [115] It is
generally accepted that the contractual relationship between a bank and its client
underlying the operation of a current account is that of creditor and debtor. [116]
The reciprocal rights and duties included in the contract are to a great extent
based upon custom and usage. Although historically the original objective of a
depositor was to ensure the safekeeping of his money, over time jurists have
considered characterising and explaining the basic relationship as one of depositum,
mutuum, or agency. [117] All of these approaches have on analysis proved to be
inadequate. It is now accepted that the basic, albeit not sole, relationship between
banker and customer in respect of a current account is one of debtor and
creditor. [118]
The contract between a bank and its client often involves a contract of mandate.
In terms of this contract of mandate, the client lends money to the bank on current
account, the bank undertakes to repay it on demand by honouring cheques drawn
on it and to perform certain other services for the customer, such as the collection
Page 39
of cheques, the payment of stop and debit orders, and the keeping and accounting
of the client’s accounts with the bank. [119]
Because of the complexity of the relationship between a bank and its client, it has
often been called a contract sui generis. [120] Perhaps it is safer to say, as mentioned
earlier, that the banker-client relationship is a multi-faceted one that may be
founded on various contracts. Each of these different contracts should be dealt with
on its own merits, rather than that one should try to label the relationship as a
single type of contract.
More important for present purposes is the fact that the contract between a bank
and its client is not a special type of contract that should be regulated by special
rules — rules which some would like us to believe are to be found only in English
textbooks and reported cases. The contract between a bank and its client is simply
another type of contract and should be governed by the ordinary principles of the
South African law of contract. All the contracts referred to earlier, which may
underlie the relationship between the bank and its client, have their roots in Roman
law, and through these contracts, Roman law continues to have a real influence on
modern South African banking law. [121]
A quick glance through the law reports confirms the notion that Roman law is still
of considerable relevance to modern South African banking law. [122] One example
will suffice. In the case of Randfontein Transitional Local Council v Absa Bank
Ltd [123] the court was asked to consider the interesting scenario where the same
sum of money was the object of both a money deposit (mutuum) and a contract of
deposit (depositum). [124] The facts were as follows: The plaintiff, a local authority,
conducted its banking affairs through the defendant, a commercial bank. The
authority and the bank had an arrangement in terms of which the bank would
Page 40
send an employee to the council’s premises to count and verify cheques and cash
received by it from ratepayers. On one occasion, after the cash had been counted by
the teller and locked away in a safe on the premises of the local authority from
where it was to be collected by a cash-in-transit security company for conveyance to
the bank, it was stolen from the safe. The question was simple. Which one of the
local authority or the bank had to bear the risk of theft of the money after the
bank’s teller had counted it, but while it was still in the possession of the local
authority? The court acknowledged that there were two contracts involved. The first
contract was that of money lending (mutuum), in terms of which the bank as
borrower, accepted the money (through its teller) from the lender (the local
authority). The second contract was that of depositum, in terms of which the
depositary (the local authority) held the money, after it had been counted, on behalf
of the depositor (the bank). Of importance was the fact that the court relied heavily
on Roman-Dutch authorities, who, in explaining the nature of and rights and duties
under the contract of depositum, based their writings on principles of Roman
law. [125]
(v) Roman-Dutch law

The prime example of a material or historical source of South African law is Roman-
Dutch law or, as some would argue, the European ius commune. [126] Although case
law (judicial precedent) is part of the South African common law, we are here
concerned only with the role and relevance of Roman-Dutch law. The modern
tendency is to view Roman-Dutch law in a broad sense and to also regard other old
European authorities which have been influenced by Roman law (the
Page 41
so-called European ius commune) as a source of the South African common
law. [127] The European ius commune is also the common law of South African
banking law. [128] We should make it clear right from the outset that the historical
European ius commune is not the modern South African banking law; it is merely
the subsidiary South African common law, also for purposes of interpreting,
explaining, and applying South African banking law.
The fact that the European ius commune is a vibrant and virile legal system, also
for purposes of the modern South African banking law, is immediately clear if one
pages through recent issues of the law reports. In a number of recent cases dealing
with aspects of banking law, the courts relied heavily on common-law principles and
sources in reaching a decision. A few examples will suffice.
One of the areas of banking law on which the common law still has a major
influence is the aspect of interest on loans. In terms of the in duplum rule of the
common law, interest stops running when the unpaid interest on the borrowed sum
equals the outstanding capital. When interest drops below the outstanding capital
due to payment, interest again begins to run until it once again equals that
amount. [129] The rule is founded on public policy. Its aim is to protect debtors from
exploitation by creditors. [130] For a long time the application of the in duplum rule in
South African law was clouded in controversy. There were a number of reasons for
this. In the first instance, it makes serious inroads into the autonomy of the parties
to a contract of loan. [131] Secondly, so it is argued, the rule is fundamentally
inequitable towards the lender. [132] Thirdly, the rule strikes at the heart of banking
and may cause much inconvenience not only to bankers but also to clients of banks
who lend money to them on fixed deposit. [133] Closely linked to the in duplum rule,
is the rule in Clayton’s case. [134] The gist of this rule is that on a current account the
first item on the debit side is discharged by the first item on the credit side. It has
been argued that the in duplum rule is difficult to reconcile with the rule
in Clayton’s case. [135] It has further been said that the Clayton rule is a classic
example of a legal rule imported from a foreign (secondary) system of law in a
particular field where it is not easily reconcilable with the rules of one’s own
Page 42
(primary) system; in the present case, with the in duplum rule which has its roots in
Roman-Dutch law. [136]
In Standard Bank of South Africa Limited v Oneanate Investments (Pty) Ltd (In
Liquidation), [137] the Supreme Court of Appeal had the opportunity to bring clarity to
this aspect of our commercial law. First, the court held that the mere fact that
interest is capitalised does not imply that it loses its character as
interest. [138] Secondly, it held that the operation of the in duplum rule is suspended
during litigation.
The decision in Oneanate Investments was overturned in part in the recent
decision in Paulsen v Slip Knot Investments 777 (Pty) Ltd. [139] In the Paulsen case
the Constitutional Court confirmed that the in duplum rule is a long-standing and
well-established part of South African law. It pointed out that prior to Oneanate
Investments the in duplum rule remained applicable during the litigation phase. But
in Oneanate Investments the court’s decision to overturn previous case law on this
point was wrong, based, first, on the proper interpretation of the relevant common-
law authorities and, secondly, on making a choice of personal preference where
public policy pointed in two different directions. It further held that Oneanate
Investments’ development of the common law was misplaced. The court
in Paulsen held that the in duplum rule remains applicable during litigation. Interest
starts to accumulate again only after judgment by the court of first instance on the
judgment debt and at the agreed contractual rate.
Before the National Credit Act came into full operation, the consumers of credit
agreements could rely only on the common-law in duplum rule to protect them from
the exploitation explained above. The protection of the common-law in duplum rule
has now been expanded and entrenched by the provisions contained in s 103(5) of
the National Credit Act. [140]
(vi) Indigenous law

Various terms and concepts are used to denote indigenous law. Some of these
include ‘customary law’, ‘traditional law’, ‘people’s law’, and ‘African law’. [141]
Page 43
For present purposes we will use the term ‘indigenous law’ to refer generally to pre-
colonial South African law as it has been adapted in accordance with its underlying
principles. [142]
Various concepts of South African indigenous law resemble concepts of ‘formal’
South African law in general, and formal commercial law in particular. Burial
societies and stokvels are notable examples of the latter. For purposes of this
chapter we will restrict ourselves to the indigenous concept of ‘stokvels’. [143] The
stokvel is important for the commercial and business world because it resembles
several concepts of the ‘formal’ South African law, notably that of insurance and
banking. A stokvel is basically a type of credit-rotating association in which a group
of people enter into an agreement to contribute a fixed amount of money to a
common pool on a periodic basis. [144]
For present purposes we will further restrict ourselves to those stokvels that
perform some of the activities usually associated with banks. [145]
The first type of stokvel we would like to refer to is the ‘gooi-gooi’. The term
‘gooi-gooi’ literally means to ‘throw’ or ‘lump’ money together. It is a small-savings
club that exists for a relatively short period. Members’ contributions are sometimes
quite small, for example R200 per month, but a recent field study has shown that
the contribution in some types of ‘gooi-goois’ may be as high as R1 000 per week.
The ‘gooi-gooi’ may be compared to savings accounts held by banks. [146]
The second type of stokvel is the investment club. The entire pool of money is
banked after each rotational sitting. The goal of these clubs is to buy an asset, such
as a business or a taxi, for investment purposes. The pool is often invested in formal
financial institutions — banks and life insurance companies. The activities of this
type of stokvel may be compared to investment accounts held by banks. [147]
Thirdly, there are high-budget associations or stokvels that consist of 100
members or more whose background and status constitute important factors in
gaining entrance to the association. Contributions vary from R200 to R2 000 per
month, and payouts from R7 000 to R15 000. In essence the high-budget
association is similar to the ‘gooi-gooi’, although financially it operates on a much
larger scale. [148]
Fourthly, one should take cognisance of the fact that the activities of some
informal organisations, such as stokvels, credit unions and community savings clubs,
may resemble the business of a mutual bank. It is for this very reason that the
activities of these informal organisations are expressly excluded from the
Page 44
scope of the Mutual Banks Act. But there is a rider to this exclusion. If the
subscription fees of the members of such an informal organisation exceed the
prescribed limit of R9,99 million, it must register as an ordinary commercial bank or
a mutual bank. [149]
It is clear that the activities of some types of stokvel resemble the services and
products offered by some formal financial institutions in general, [150] and banking
institutions in particular. [151] This resemblance is further indirectly enhanced by the
fact that the Minister of Finance has by regulation expressly exempted stokvels from
the operation of the Banks Act. [152] The exclusion of their activities from the scope
of the phrase ‘the business of a bank’ is in itself a strong indication of the possibility
of an overlap between the activities of stokvels and banks. The Minister is
empowered to designate certain activities as activities which do not fall within the
ambit of the phrase ‘the business of a bank’. From the wording of the regulation it is
clear that ‘the activities of a group of persons between the members of which exists
a common bond’ do not fall within the meaning of ‘the business of a bank’. From the
wording of the regulation it is further clear that the intention is to exclude the
activities of stokvels, among other groups, from the operation of the Banks Act. [153]
The Government Notice that contains the regulation under discussion is
accompanied by a schedule comprising five paragraphs. Paragraph 1 gives a number
of word definitions, including a detailed definition of ‘common bond’. It provides,
inter alia, that a ‘common bond’ exists between members of a financial co-operative,
financial services co-operative, credit union or savings and credit co-operative,
whose membership comprises persons who are employed by a common employer or
who are employed within the same business district; or members who have common
membership in an association including religious, social, co-operative, labour or
educational groups; or members who reside within the same defined community.
Paragraph 1(c) of the Notice specifically excludes stokvels from the definition of ‘the
business of a bank’ and hence, from registration as a bank in terms of the Banks
Act.
Suffice it to mention that paragraph 1(c) provides that a common bond should
exist between members of a group of people which may be described by the term
‘stokvel’. A stokvel, in turn, is described as a group which is a formal or informal
rotating credit scheme with entertainment, social, and economic functions; consists
fundamentally of members who have pledged mutual support to each other towards
the attainment of specific objectives; establishes a continuous pool
Page 45
of capital by raising funds by means of the subscriptions of members; grants credit
to and on behalf of members; provides for members to share in profits and to
nominate management; and relies on self-imposed regulation to protect the
interests of their members. [154]
Paragraph 1(b) provides for certain designated activities that co-operative
financial institutions and other savings groups (such as stokvels) may perform,
including the acceptance of money from its members for specific purposes. [155]
For a group to qualify as a stokvel, and thus for exemption from registration in
terms of the Banks Act, in terms of paragraph 1(c), it must be a member of a self-
regulatory body approved by the Registrar of Banks in writing, which names may be
listed on the official website of the South African Reserve Bank. Such bodies must
issue a certificate of registration to its members. Stokvels that do not at any time
hold contributions from members amounting in the aggregate to more than
R100 000 need not register with a self-regulatory body. [156]
Paragraph 3 of the Schedule also provides for administrative and financial
requirements which a ‘group’ (stokvel) must meet for it to be treated as such in
terms of the Government Notice. [157]
The National Credit Act also gives statutory acknowledgement to stokvels.
Stokvels enjoy the protection of the Act when they borrow money from third parties,
such as banks and micro-lenders. However, s 8(2)(c) (read with s 1) provides that
the transactions concluded by a stokvel and one or more of its members in line with
the stokvel’s rules are not deemed to constitute a credit agreement for purposes of
the Act and such transactions are exempt from the provisions of the Act. [158] Section
8(2)(c) further provides that a loan between a stokvel and its member will be
governed by the common-law in duplum rule. [159]
The contract between a bank and its customer is sometimes referred to as sui
generis. We have mentioned above that it combines the contracts of deposit,
deposit-taking, loan for consumption, and mandate. [160] Although a stokvel does not
necessarily always represent a mixture of all these contracts, it does resemble some
of the elements of one or more of these contracts.
Page 46
Stokvels have developed to accommodate those who could not gain access to
formal financial structures. But we believe that they should no longer be regarded as
mere substitutions for formal banking institutions. Instead they should be seen as
supplementary financial mechanisms and not as direct competitors with banking
institutions. The fact that most banks nowadays acknowledge the importance of the
stokvel market and are keen to accommodate stokvels serves as proof that the
indigenous legal principles underlying stokvels can no longer be ignored by the
‘formal’ or western part of our legal system.
Those indigenous legal principles pertaining to stokvel activities that resemble
banking ought to be explained, developed, and cross-applied to the ‘formal’ South
African banking law. [161] Such cross-application and exchange of principles between
indigenous banking law, on the one hand, and the ‘formal’ South African banking
law, on the other, may provide guidelines not only in problem areas of the ‘formal’
South African banking law, but also in indigenous South African banking
law. [162] Such cross-application of principles will result in the development and
enlargement of a South African banking law which takes cognisance of, and provides
for, all types of contract. [163]
(vii) Islamic law

In Albaraka Bank Ltd v Halaal Royal Snacks (Pty) Ltd, [164] the court acknowledged
by way of an obiter dictum that South African law should acknowledge and give
effect to contracts concluded under Islamic law.
The applicant bank (Albaraka) applied for summary judgment against the six
respondents (the debtors), jointly and severally, for several overdue debts. It also
applied for execution against a certain immovable property.
The debtors argued that the court should have regard to the underlying
transaction which resulted in the debt, and set aside the acknowledgement of debt.
The underlying transactions were banking transactions that were murabahah
according to Sharia law (generally known as Islamic law).
Suffice it to mention here that the application for summary judgment was allowed
with costs. Although the court’s judgment did not turn on the aspect of Sharia law,
its obiter comments regarding this branch of our banking law are nevertheless
noteworthy. It confirmed that banking transactions according to
Page 47
Sharia law is a rapidly growing field of banking law. What is generally known as
‘Islamic banking’ is being adopted by all the major banks in South Africa. It further
held that there is nothing intrinsically wrong, unlawful or contrary to public policy in
banking transactions being entered into according to the Sharia law.
We believe that Islamic law is a further source of South African banking law and
should be acknowledged and applied to transactions concluded under that law. [165]
2.4.3 Secondary sources

We have already explained the role of, and weight that should be attached to,
secondary sources in general above. [166] We will now briefly refer to three of the
more important types of secondary sources for purposes of South African banking
law.
(i) International law

International law forms an important source of South African law. Some aspects of
international law are binding on South Africa while others are only of persuasive
value. [167] Section 39(1)(b) of the Constitution provides that when a court, tribunal,
or forum interprets the Bill of Rights, it must consider international law.
One has to distinguish between public international law, on the one hand, and
private international law, on the other hand. Public international law is that body of
customary and conventional rules which govern the mutual relations between
sovereign states and which, in particular, delimits states’ jurisdiction inter
se. [168] Private international law, in turn, ‘regulates the legal relationships, usually of
a private law nature, between persons, natural or juristic, such as corporations or
states, in situations where the relationship cannot be confined wholly within the
boundaries of a particular territorial or legal unit’. [169] Whereas public international
law forms part of the broad body of international law, private international law, by
contrast, does not form part of international law, but of the municipal law of each
jurisdiction. South African private international law constitutes therefore a primary
source of law.
Because banking law has a private, rather than a public-law nature, public
international law does not constitute an important source of banking law. However,
the principles of private international law (law of conflicts) play an important role in
banking law. Important areas of private international law such as obligations, delict,
property, payment [170] and the recognition and enforcement of foreign judgments
are all of potential relevance to banks and their clients,
Page 48
especially in the case of cross-border banking. [171] A typical example where the
principles of private international law may come into play concerns commercial
financing. [172] It often happens that the borrower of money has assets in more than
one jurisdiction, or that the credit in terms of the loan is directed to an entity
abroad. The first issue in a private-international-law problem is usually to determine
which jurisdiction’s conflict of laws applies. Secondly, one has to establish the
approach of the applicable jurisdiction’s conflict of laws. This area of law, and for
present purposes also of banking law, is riddled with uncertainty and conflicting
rules. [173]
(ii) Customary international law (international trade usage)
(a) General
The Constitution provides that customary international law has the force of law in
South Africa unless it is inconsistent with the Constitution or another Act of
Parliament. [174]
There are a number of supra-national bodies in the banking sphere. Because
countries around the globe are moving closer in terms of the content of their
prudential banking regulation and the techniques used in regulating banks, a need
has arisen for these supra-national banking bodies. [175] Although the rules and
pronouncements of these bodies do not have legal force, we believe that the
principles formulated by them may have the status of international trade usage. We
will refer only briefly to one such body. [176]
Page 49
(b) The Basel Committee on Banking Supervision

The activities of the Basel Committee on Banking Supervision [177] have been
especially important in creating a body of international banking trade usage. This
Committee was established by the central-bank governors of the Group of Ten (G10)
countries in 1975. The G10 countries are the ten nations who met in 1961 in Paris to
arrange the special drawing rights of the International Monetary Fund. [178] The Basel
Committee meets four times a year at the Bank for International Settlements in
Basel, Switzerland, [179] where its permanent secretariat is located. [180] The
Committee reports to the G10 central-bank governors and seeks their endorsement
for its major initiatives.
The aim of the Basel Committee is to foster co-operation between banking
regulators and to establish agreed minimum standards for the supervision of
international banking groups. The focus of the Committee is on internationally active
banks and on containing risks, in particular the risks which banks authorised to act
in one state may pose to banks authorised elsewhere. [181] The standards formulated
by the Committee are not in the form of international instruments and therefore do
not enjoy the force of international law. These standards have been described as
‘“soft law” par excellence’. [182] However, the prestige and economic power of the
central banks and regulators represented by the Committee’s members have meant
that in practice many other countries adopt its standards. The Basel Committee has
also served as model for parallel committees in other parts of the world. [183]
The declarations issued by the Basel Committee involve wide-ranging guidelines
as to banking regulation and supervision. The areas of banking law covered by these
declarations include the following: supervision of international banks by home-
country regulators; prudential requirements in general; [184]
Page 50
international standardisation to ensure capital adequacy standards; [185] the legality
of netting; standardisation in the control of money laundering; and strengthening
the regulation, supervision and risk management of the banking sector. [186]
Over the years the Basel Committee formulated three sets of Accords (generally
referred to as ‘Basel I’, ‘Basel II’ and ‘Basel III’.
‘Basel III’ (also referred to as the Third Basel Accord) is a comprehensive set of
reform measures, developed by the Basel Committee on Banking Supervision, to
strengthen the regulation, supervision and risk management of the banking sector.
These measures aim to: improve the banking sector’s ability to absorb shocks
arising from financial and economic stress, whatever the source; improve risk
management and governance; and strengthen banks’ transparency and disclosures.
‘Basel III’ was developed in response to the deficiencies in financial regulation
which resulted in the late 2000s global financial crises (also referred to as the ‘credit
crunch’). Basel III was scheduled to be introduced from 2013 until 2015;
subsequent changes extended implementation until 31 March 2019. Basel III has
thus not yet been fully implemented. [187]
What is the relevance of the Basel Committee for South African banking law? Two
observations may be made in this regard. In the first instance, the South African
Reserve Bank is not represented on the Basel Committee. Secondly, the guidelines
and pronouncements of the Committee do not enjoy the status of public
international law in the strict sense of the word. These two observations
notwithstanding, the South African Reserve Bank, being the local banking
supervisor, rigidly follows the standards laid down by the Basel Committee. [188]
Logically, the next question should concern the status of the guidelines and
pronouncements laid down by the Basel Committee. Because the recommendations
of the Basel Committee are not in the nature of an international convention, they
cannot, on that basis, form part of the South African municipal law.
Although South Africa has not enacted specific legislation to incorporate the Basel
III guidelines en bloc as part of our municipal law, these guidelines have
nevertheless found formal recognition in our law. New amendments to the
Regulations Relating to Banks have been gazetted. It took effect on 1 January 2013.
Page 51
The amended regulations give effect to the provisions of the Basel III framework.
The objective is to provide for the establishment of basic principles relating to the
maintenance of effective risk management by banks and controlling companies. [189]
It has become standard banking procedure worldwide, also in South Africa, to
adhere to the Basel recommendations and guidelines. Where amendments to
national legislation are necessary they are usually done on the basis of the
guidelines and recommendations of the Basel Committee. In an indirect way, and in
the absence of formal legislative recognition, the guidelines of the Basel Committee
have become part of our municipal law.
It has been correctly observed that the South African Banks Act and the
regulations promulgated in terms of it are evidence of the profound influence of the
guidelines and recommendations of the Basel Committee. It is equally true that the
transmission or ‘reception’ of the Basel standards for prudential supervision in South
African banking legislation has been immediate and often direct. [190]
On the basis of this widespread use of these recommendations, we believe that
they have attained the status of an international banking usage or trade usage, at
least between banks themselves. We are of the opinion that even in the absence of
formal legislative recognition, the Basel recommendations comply with all the
requirements for a trade usage as explained above. [191]
(c) European Community law [192]
Finally, brief reference has to be made to the growing importance of European

Community (EC) law also for jurisdictions outside the EC, such as South
Africa. [193] The last two decades have increasingly witnessed closer co-operation
between banking regulators worldwide. This convergence of banking regulation is
nowhere better illustrated than in the EC. Banks authorised in one member state are
entitled to establish branches, and to provide services, in other member states,
without having to be authorised there. In short, EC countries mutually recognise
each other’s licensing processes. [194] Because of South Africa’s historical,
commercial, legal, and political ties with Europe, and in particular the United
Kingdom the effect of EC law on the national legal systems of European Union (EU)
countries and, for present purposes, particularly on English banking law, cannot be
ignored by South African banking regulators. [195]
EC law comes in different forms: regulations, directives, decisions,
recommendations, and opinions. [196] EC law is a separate legal system, but it
operates
Page 52
alongside the legal systems of member countries. In terms of s 2(1) of the English
European Communities Act 1972, directly effective EC law has to be recognised and
enforced in the United Kingdom. [197]
The banking law of member countries of the EC (including that of the United
Kingdom) has been significantly affected by the EC’s initiatives aimed at facilitating
a single market for financial services, including banking services. As a result,
member countries’ banks, including English banks, are subject to the various EC
directives concerning banks. [198] In 2000, most of these ‘banking directives’ were
consolidated into the Banking Consolidation Directive (BCD). [199] The gist of the BCD
is the harmonisation of regulatory standards and co-operation between the various
EC banking regulators. [200]
The development of English banking law continues to be influenced by the
implementation and application of EC directives dealing with banking law. It is
further trite that English banking law continues to serve as an important model for
legislative reform in South Africa. For this reason the provisions of EC directives on
banking have a direct relevance for South African banking lawyers.
Because the BCD is based on Basel standards, it serves as a conduit for those
standards. [201] The directives profoundly influence the reform of banking law in EC
member countries, as also that of English banking law and banking-law reform in
South Africa is often modelled on similar reforms in English law. As a result, the
Basel standards, through the EC banking directives and consequent recent reforms
in English banking law, have also indirectly influenced the development of recent
reforms in South African banking law. [202]
(iii) Foreign municipal law [203]
(a) General
The application of principles of a foreign legal system is, in appropriate
circumstances, an acknowledged and legitimate route to solving a problem of South
Page 53
African law. [204] In Standard Bank Investment Corporation Ltd v Competition
Commission, [205] Schutz JA acknowledged that s 1(3) of the Competition Act
provides that in interpreting the Act one ‘may consider foreign law’. He stated that:
Our Courts have, of course, considered foreign law, where appropriate, over the years.
Indeed the Roman-Dutch system of law is itself a product of just such a process, as is the
on-going South African system which succeeded it. Reference to foreign law is sometimes
helpful, particularly when one’s own system is silent or uncertain on a point, or may be
thought to be deficient, or simply for purposes of comparison and enlargement of view.
But there is also a positive danger in resorting to foreign law. Schutz JA warned that
‘the ransacking of the legal libraries of the world may, where appropriate, lead to no
more than more paper, more costs, more delay and even more confusion, without
any commensurate benefit’. [206]
One cannot apply the legal principles and judicial decisions of a particular
jurisdiction to a South African case merely because the foreign jurisdiction is
traditionally seen as belonging to the wider group of European ius commune
jurisdictions. Thus, under German law the contract of mandate is still regarded as
gratuitous. Under South African law, the mandatary is entitled to compensation. This
has serious implications for the degree of care owed by the mandatary to the
mandator. Under South African law, the mandatary is liable to the mandator for
dolus and culpa; under German law the mandatary is in principle liable only for
dolus, but German courts often prefer to ignore this rule and extend the liability of
the mandatary to include culpa. [207]
(b) English law

Earlier in this chapter we mentioned that we did not believe that George Morice’s
evaluation more than a century ago regarding the all-importance of English law, at
least for purposes of explaining the modern South African banking law, is still
valid. [208] Today English law is by no means as important to South African banking
law as it used to be. A number of factors have contributed to the demise of English
law as the prime source of South African banking law. One such factor is that
English influences in the sphere of private law seldom fitted the basic pattern of
Roman-Dutch law. [209] A second factor is that South African lawyers have realised
Page 54
that they should exercise great caution when they refer to and apply English
decisions to interpret South African Acts that are modelled on English
equivalents. [210] Many of the underlying principles and concepts of Roman and
Roman-Dutch law are simply incompatible with their English counterparts. A good
example in this regard concerns the possible overlap between the contract of
mandate and the phenomenon of agency. English law strongly influenced our law of
agency. [211] In Roman, Roman-Dutch, and modern South African law, a clear and
important distinction is drawn between the concepts ‘mandate’ and
‘agency’. [212] Under South African law the contract between a banker and its client is
based on (the contract of) mandate and not (the phenomenon of) agency. Therefore
the rights and obligations resulting from the common-law contract of mandate, and
not that of agency, apply to the contract between a bank and its client.
Although our courts should no longer rely solely or even primarily on English law
in explaining and developing South African banking law, they will surely and
justifiably continue to regard English banking law as a source of strong persuasive
value. There are a number of areas of banking law in which English law will continue
to play an important role in shaping modern South African banking law. These areas
include the interpretation of the Banks Act as well as the Bills of Exchange Act;
negotiable instruments; banking regulation in general; consumer protection, notably
the activities of the Banking Adjudicator; letters of credit; and matters of financing
and asset securitisation.
2.5 Conclusion
The passage of time has given rise to a growing sense of pride and, more
importantly, a sense of understanding that has created and developed a specifically
South African system of banking law, tempered, of course, by local needs and a
cognisance of developments in other jurisdictions, and of a wider informal system of
international banking law. [213] It is trite that the European ius commune is our
common law, also for purposes of our banking law. Our common law, together with
the other primary sources of our law — legislation (including the Constitution),
judicial precedent, custom or trade usage, and indigenous law — should form the
basis of the future development and explanation of a modern South African banking
law. We should, of course, have regard to global trends in
Page 55
banking. In this regard our courts will undoubtedly continue to be influenced by
developments in English banking law, which will therefore continue to influence our
law, but simply as one of several persuasive secondary sources. [214]
Page 56
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[1] For an overview of the services typically offered by banks to their clients, see Willis 115 et seq;
Wille et al 85 et seq; and Schoeman passim.
[2] Act 90 of 1994.
[3] An important part of banking law, namely the law of bills of exchange and cheques, is the
subject of a separate field of study, and is therefore not covered by this text. The law of bills of
exchange and cheques is explained in a number of specialised text books, eg, Malan et al, and Cowen
& Gering.
[4] George Thomas Morice, born in 1858 in Aberdeen, Scotland, was one of many Scottish lawyers
who made a significant contribution to South African law during the nineteenth century. He served as
judge of the Transvaal High Court before the outbreak of the Anglo-Boer War in October 1899 and
became professor of law in the Transvaal University College, today the University of Pretoria. In 1903
he published his English and Roman-Dutch Law and died in Johannesburg in 1930: see Donaldson
330 and Roberts 372.
[5] See Morice 355. See also Stassen 80.
[6] These five phenomena of the modern South African banking law all have an influence on the
legal nature of the bank-client relationship, as well as the potential sources of modern South African
banking law. Other important considerations when studying the modern banking law, but which fall
outside the scope of the present textbook, are the fundamental changes taking place in the banking
sphere which affect the economics of banking. Some of these economic changes, which may influence
the development of a future South African banking law, include the far greater competitiveness in the
bank market and its products; increased asymmetric competition; excess capacity in the market (of
which the Saambou saga in 2002 is a good example and which led to a re-evaluation by the
regulatory authorities of aspects such as prudential requirements and curatorship of banks); and the
far-reaching impact of technology and financial innovation. For a perspective on these and other
aspects touching on the economics of South African banking, see Falkena & Llewellyn 135 et seq. See
too the Banks Amendment Act 3 of 2015, which enhances the curatorship of banks in an attempt to
make the financial sector safer and protect depositors (GN 561 in GG 38942 of 29 June 2015).
[7] This phenomenon is, of course, not unique to banking law. A number of other branches of our
law share the same feature. For example, the different types of contract, such as sale, lease,
depositum, mutuum, and insurance, to mention but a few, are all just particular types of contract to
which all the general principles of the law of contract apply. A similar case in point is that of sports
law, which is also not so much a coherent field of law in itself, but depends on the application of the
general law in the particular context of sport: see H Schulze 56. See further Tebbutt 3-10 where it is
suggested that it is perhaps more correct to talk of a relationship of ‘sport and the law’, rather than a
separate subject of ‘sports law’. The wide-ranging parameters of what is generally regarded as
banking law are also clear from the wide range of topics discussed by Fourie in his question-and-
answer-style introductory guide to South African banking law, passim.
[8] On corporate governance in general, see Davies, Worthington & Micheler 383 et seq.
[9] See Ferran 207.
[10] For a discussion of the extension of the duties of directors of banking companies, see De Jager
(2005) 170 et seq. See also Schoeman 4.
[11] On the development of the subject of corporate governance in South Africa, as well as the
important role that English law has played and will in all likelihood continue to play in the formulation
of future South African legislative reform in this regard, see further para 2.4.3 (iii) (b) below. On the
role of transaction costs in determining the nature and behaviour of different forms of economic
organisation, see Kay 133 et seq.
[12] See Willis 190; Malan et al 295; and Ogilvie 435, where the author refers to the ‘many
relationships of banker and customer’. Ellinger et al at 124 correctly state that it would be misguided
to attempt to define the relationship of banker and customer in terms of status rather than contract.
These authors suggest, and correctly so, that the contract between a banker and its client constitutes
a sui generis contract incorporating elements from a range of specific, well-defined contracts. See
also Schoeman 4. For a discussion of the possible overlapping between the concepts of ‘depositum’,
‘deposit’ and ‘deposit-taking institutions’, see Schulze (2001) 78 et seq.
[13] This recent thrust of banking globalisation is reminiscent of the international law merchant of
Europe in the nineteenth century. For a discussion of the similarities between English and Dutch
mercantile law, which had both absorbed this European law merchant, see Beinart 14 et seq. The law
of Holland brought to the Cape by Jan van Riebeeck in 1652 already contained an element of this law
merchant: see Sanders 329.
[14] For a concise summary of the historical development of commercial law, including the
incorporation of the law merchant into the English common law and the recent drive to create a new
law merchant, see Sealy & Hooley 14 et seq.
[15] See para 2.4.3 (ii) (c) below for a discussion of the effect of this process of globalisation on
the development of South African banking law. For an interesting introductory note on the rise and
future importance of China’s financial services market, see Dudek & Liang 44.
[16] See Ellinger et al 3-4 for a similar assessment of the forces that influence the development of
the modern English banking law.
[17] This revolution in the sphere of banking technology cuts across a wide spectrum of topics,
including virtual banking. Many regard virtual banking as the most important single trend in the
banking industry today: see Essinger viii; and Engler & Essinger vii-viii. For a brief discussion of the
legislative reform in the UK to facilitate, for example, e-commerce and electronic signatures, see Allen
& Overy 1. For a small sample of the materials, including a discussion of South African case law on
the topic of electronic payments, smart cards and e-money, as well as the many legal uncertainties
which still surround this relatively new branch of our banking law, see Schulze (2004(I)) 667 et seq;
Schulze (2004(II)) 703 et seq; Schulze (2007) 379 et seq; Schulze (2008) 290 et seq; Van der Bijl
159 et seq; Schulze (2009) 369 et seq; Lawack-Davids 77 et seq; Schulze (2012) 827; and Perlman
passim.
[18] A number of South African legal texts contain a classification of the sources of South African
law generally: see Hahlo & Kahn 142-303; Van der Vyver & Van Zyl 85-131; Van Zyl 476-98; Venter
et al 118-36; De Vos 3-17; and Hosten et al 376-541. We have made generous use of the ideas
contained in these texts to formulate and expand our own classification, and also to classify, consider
and weigh, as part of the broader classification of the sources of South African law, the modern
sources of South African banking law.
[19] However, this does not mean that secondary sources such as English law have not in the past
contributed principles that are today accepted as part of South African law.
[20] See para 2.4.3 (iii) (b) below for the reasons why English law became so important for South
African law in general, and for banking law in particular.
[21] See Hosten et al 379.
[22] See further para 2.4.2 (v) below.
[23] Hosten et al 381.
[24] See para 2.4.2 (vii) below.
[25] Section 8(1).
[26] Section 8(2).
[27] Section 8(3). See in this regard the concurring judgment by Cameron AJ in Brisley v
Drotsky 2002 (4) SA 1 (SCA) at 33-6 regarding the application of s 8 of the Constitution on the law of
contract. See also the discussion of the Bredenkamp case below.
[28] See Malan & Pretorius 276.
[29] A number of legislative provisions dealing with matters pertaining to commercial law have
come under the scrutiny of the Constitutional Court. Section 44 of the Insurance Act 27 of 1943 was
held to be unconstitutional because it discriminated unfairly against female spouses under a life
insurance policy: see Brink v Kitshoff NO 1996 (6) BCLR 752 (CC). Sections 417 and 418 of the
Companies Act 61 of 1973, which provide for the interrogation of directors and individuals in the case
of an insolvent estate, were found not to be unconstitutional: Bernstein v Bester NO 1996 (2) SA 751
(CC): see Malan & Pretorius 278; Stander & Jansen van Rensburg 291 et seq.
[30] For a discussion of the influence of the Constitution on selected aspects of commercial law, see
Stander & Jansen van Rensburg 291 et seq.
[31] 2000 (1) SA 409 (CC); 1999 (10) BCLR 1195 (B).
[32] 14 of 1981 (NW).
[33] See at 419-20. For a more detailed discussion of the Chief Lesapo case, see Malan & Pretorius
279-80. In Arctocel (Pty) Ltd v Firstrand Bank Ltd, unreported case no 32633/2015 (21 October
2015) the court held that where the creditor bank has obtained a prior cession to hold or freeze funds
in a deposit account held by a client who is in default on its overdraft, the bank will be allowed to
attach the funds. The court in Arcotel distinguished it on the facts, from the decision in Chief Lesapo.
[34] 2010 (4) SA 468 (SCA).
[35] In paras 43-49. See further Rautenbach 638ff. On the Bredenkamp case in general, see
Schulze ‘Bredenkamp’ (2011) 211 et seq.
[36] Act 32 of 1998. For a discussion of the influence of s 28(8) of the National Prosecuting
Authority Act on banking confidentiality and secrecy, see Schulze ‘Confidentiality’ (2001) 606-7.
[37] Act 78 of 1998. For a survey of the provisions of the NPSA, see Malan & Pretorius ‘Reserve
Bank 2’ (2001) 163 et seq. On the South African national payment system in general, see Meiring
(1996) 164; and Volker passim.
[38] Act 80 of 1998.
[39] Act 114 of 1998.
[40] Act 121 of 1998. See also the Prevention of Organised Crime Amendment Act 44 of 1999. For
a discussion of the influence of s 7 of the Prevention of Organised Crime Act, see Schulze
‘Confidentiality’ (2001) 603-5.
[41] Act 135 of 1998.
[42] Act 1 of 1999.
[43] Act 2 of 2000.
[44] Act 63 of 2000.
[45] Act 28 of 2001.
[46] Act 38 of 2001. For a discussion of the possible influence of the provisions of the Financial
Intelligence Centre Bill 1 of 2001, see Van Jaarsveld 580 et seq; and Bester 22 et seq.
[47] Act 15 of 2002. For a brief discussion of the history of this Act, as well as the aims of the Land
Bank, see Kelly-Louw (2004(I)) 211.
[48] Act 25 of 2002. For a brief discussion of the consumer protection provisions in the ECT Act,
see Jacobs 556 et seq.
[49] Act 37 of 2002.
[50] Act 45 of 2002.
[51] Act 14 of 2005.
[52] Act 34 of 2005. On the National Credit Act, see Kelly-Louw & Stoop passim.
[53] Act 40 of 2007.
[54] Act 68 of 2008.
[55] Act 19 of 2012. The Financial Markets Act has repealed and replaced the Securities Services
Act 36 of 2004 in its entirety.
[56] Act 24 of 2012.
[57] Act 9 of 1933.
[58] Act 34 of 1964.
[59] Act 39 of 1984.
[60] Act 46 of 1984.
[61] Act 90 of 1989. On the relationship between the South African Reserve Bank and government,
as well as the relationship between the Reserve Bank and commercial banks, see Oelkers 484. In
terms of the Banks Act, the Reserve Bank acts as regulator of banks in South Africa. This practice is
based on the previous model under English law, where the Bank of England, being the central bank,
had until June 1998 exercised supervisory powers over banks in that jurisdiction. In 1997 the
incoming Labour government began a major overhaul of the whole financial services sector, including
banking. In terms of this overhaul, the Bank of England’s regulatory function was transferred to the
newly created Financial Services Authority (FSA). The Financial Services and Markets Act 2000
officially conferred extensive regulatory powers over the whole financial services sector on the FSA:
see Ellinger et al 30 et seq. For a brief discussion of the regulatory rules and the provisions contained
in the Financial Services and Markets Act 2000, see Allen & Overy 1. For a more detailed exposition of
banking regulation under English law, see Sealy & Hooley 566 et seq; and Howard, Masefield & Chuah
1 et seq.
[62] Act 94 of 1990. For a brief survey of some of the provisions of the Banks Act, see Malan &
Pretorius ‘Reserve Bank 1’ (2001) 46 et seq; and Malan & Pretorius ‘Reserve Bank 2’ (2001) 163. For
a brief historical survey of earlier South African banking legislation, see Itzikowitz 170-2; and Malan &
Faul 380-3. The South African Banks Act is to a large extent modelled on the English Banking Act
1987 (c 22).
[63] Act 64 of 1990.
[64] Act 97 of 1990.
[65] Act 85 of 1992. For a brief survey of the provisions of the Custody and Administration of
Securities Act, see Itzikowitz (1995) 111; Malan & Pretorius ‘Reserve Bank 2’ (2001) 171 et seq.
[66] Act 124 of 1993.
[67] Act 45 of 2013.
[68] For a list of types of risk associated with principles of corporate governance, see reg 39(3).
[69] Act 89 of 1998.
[70] 2000 (2) SA 797 (SCA); [2000] 2 All SA 245 (SCA).
[71] On the public-interest factor in merger proceedings in South Africa in general, see Legh &
Treisman 45.
[72] We will confine our discussion to the formal role and function of judicial precedent as an
acknowledged source of our law. The question to what extent judges could or should ‘create new law’
falls outside the scope of the present discussion. On the role of judges in exercising judicial control
over legislation and administrative action, see Corder 49 et seq; and Forsyth 58 et seq.
[73] In Latin the concept of judicial precedent is embodied in the maxim stare decisis et non quieta
movere, meaning to stand by precedents and not to disturb settled points.
[74] See Hosten et al 380 n 8.
[75] See again para 2.1 above for an explanation of the distinction between private banking law
and public banking law.
[76] In this regard, see Rosen v Barclays National Bank Ltd 1984 (3) SA 974 (W); Volkskas Bank
Bpk v Bankorp Bpk (h/a Trust Bank) 1991 (3) SA 605 (A); and Wavecrest Enterprises v Cema Africa
(Pty) Ltd (in liquidation (CPD) unreported case no A1163/88 (1 November 1990).
[77] See Indac Electronics (Pty) Ltd v Volkskas Bank Ltd 1992 (1) SA 783 (A); KwaMashu Bakery
Ltd v Standard Bank of South Africa Ltd 1995 (1) SA 377 (D). See Malan et al 396 et seq for a
discussion of the development and recognition of the delictual liability of a collecting banker to the
owner of a lost or stolen cheque. For a discussion of the development of the possible liability of a
bank in opening a new bank account, see Pretorius (2002) 98 et seq and the case law referred to
there.
[78] In passing we should mention the role of contemporary authors in guiding the development of
our law. Their works are often referred to as a possible source of our law. We do not believe that the
published research and opinions of modern commentators constitute a primary source of South
African law. Although they do constitute a ‘source’ that the legislature and courts may rely on to
create or develop new law, they are not a medium through which law is constituted: see again the
discussion of the concept of source in para 2.2 above. At best these authors formulate opinions and
guidelines that become valid law through the constitutive medium of legislation or judicial precedent.
For an evaluation of the role of contemporary writers in changing the face of the law, see Burchell 62
and 71 et seq. See also Schulze (2013) 61 et seq.
[79] For a more detailed treatment of the topic of customs and trade usages, see Ball passim.
[80] See Volkskas Bank Bpk v Bankorp (h/a Trust Bank) en ’n ander 1991 (3) SA 605 (A) at 609C.
The automated clearing of cheques is regulated by an agreement (the clearing house rules) between
the Automated Clearing Bureau (Pty) Ltd (the ACB) and participating financial institutions. Although
these clearing house rules are ‘confidential’ and are designed for the benefit of the banking industry
alone, they have been referred to and applied by our courts: see Pretorius (1998) 326; Pretorius
(2001) 260. On the computerised collection and payment of cheques, see further Malan (1978) 109-
10; Oelofse (1985) 8; Visser 4; Greeff & Nagel 57; Meiring (1993) 321; and Malan et al 287 et seq.
For a collection of case law where the operation and functioning of the ACB system are described, see
Pretorius (1998) 326 and Pretorius (2001) 260.
[81] See Van der Merwe et al 283-4.
[82] Van der Merwe et al 283-4.
[83] 1927 WLD 62 at 71.
[84] 1973 (2) SA 642 (C) at 645G.
[85] 1873 LR 8 QB 374 at 386.
[86] (1897) 4 OR 344 at 348.
[87] 1967 (4) SA 336 (O) at 339.
[88] 1969 (4) SA 108 (D). For a discussion of both the Catering Equipment and Tropic
Plastic cases, see Kerr 405 et seq.
[89] At 119H.
[90] See Schulze (2000) 51 and the authority referred to there.
[91] For a discussion of the influence of the internet on the development of new banking customs
or trade usage in South Africa, see Kleynhans 21 et seq.
[92] 1997 (2) SA 192 (NC).
[93] 1999 (3) SA 322 (NC).
[94] Golden Cape Fruits (Pty) Ltd v Fotoplate (Pty) Ltd 1973 (2) SA 642 (C) at 645G.
[95] Absa Bank v Saunders 1997 (2) SA 192 (NC) at 196J-197C.
[96] Absa Bank v Retief 1999 (3) SA 322 (NC) at 337D-H.
[97] For a discussion of Absa Bank v Saunders, see Otto (1998) 149.
[98] Absa Bank v Retief 1999 (3) SA 322 (NC) at 339A-D.
[99] Absa Bank v Retief 1999 (3) SA 322 (NC) at 340D-E.
[100] For a discussion of the decision in Absa Bank v Retief, see Kerr 662 et seq.
[101] [2002] 3 All SA 49 (W).
[102] Standard Bank of SA Ltd v Sarwan [2002] 3 All SA 49 (W) at 55b.
[103] In Turner v Royal Bank of Scotland plc [1999] 2 All ER (Comm) 664 (CA), the court rejected
the notion that customers were supposed to give an implied consent (ie tacit consent) to their banks
to disclose confidential information about the customer’s financial affairs to other banks. In Kitchen v
HSBC Bank plc [2000] 1 All ER (Comm) 787 at 791j-792a, the court confirmed the bank’s right to
charge its customer compound interest and, relying on previous case law on this point, referred to
this practice as ‘the ordinary practice’, ‘the usual practice’, and ‘the practice of bankers’. But in a
separate concurring judgment Sedley LJ made the following instructive remarks: ‘I do . . . associate
myself with [the remarks made in the majority judgment] about the lack of transparency in this form
of loan agreement . . . it seems to me an unnecessary misfortune that borrowers are not only
compelled in practice to accept whatever terms the bank stipulates but that, when the bank stipulates
an opaque term which depends for its meaning on how the bank chooses to compute interest, the law
fixes the borrower with whatever burden the bank’s practices impose. The law’s assumption that
people know what bankers know about the latter’s practices has, I would respectfully think, only
limited reality.’
[104] For a discussion of the Banking Code, see Du Toit 568 et seq.
[105] See Ellinger et al 65-6 where the authors list a number of further reasons why the British
Banking Code and the British Business Banking Code may have regulatory consequences for banks
there. Most of these reasons are not directly relevant to South African banking law.
[106] The British Banking Code that was first produced in January 1992 is amended on a regular
basis. The latest edition was issued in March 2005:
see http://www.bankingcode.org.uk/pdfdocs/BANKINGCODE.pdf, accessed on 20 February 2013.
[107] See Beinart 152 et seq; Zajtay & Hosten 181; and Erasmus 667 et seq.
[108] For a historical survey of the reception of Roman law in the Netherlands, see Turpin 19 et
seq. For a discussion of the modernisation of Roman law and the contribution of Roman-Dutch law to
European law, see Zimmermann 1711 et seq.
[109] See Bodenstein 344 et seq; and Hosten et al 273. For an explanation of how Roman law is
used in actual practice in rendering a judgment in a South African court, see Van Warmelo 570. Van
Warmelo, quoting Lee, tells us that ‘[i]n a matter plainly of Roman Law origin the Court will
investigate 1. the Roman Law; 2. the Roman-Dutch Law, noting its coincidence with, or divergence
from, the Roman Law; 3. South African practice, which is the ultimate and decisive factor’ (at 570 n
18); or the judge may rely directly on Roman law because a certain Roman rule has been completely
absorbed in Roman-Dutch law (at 571); or a rule or principle of Roman law can be applied in a way
that was never envisaged in Roman law (see at 572 for an example of this type of classification); or,
Roman law may even in modern times be employed as a subsidiary source when Roman-Dutch
materials or case law give no satisfactory assistance (at 573). For a survey of how Roman law has
survived in Roman-Dutch and modern Dutch law, see Schrage 121.
[110] As long ago as 1920, Sir John Wessels, then Judge-President of the Transvaal Provincial
Division, pointed out that one of the great merits of Roman law is that its whole structure is built up
of principles: see Wessels 267. This characteristic is in stark contrast with English law, a system
based on judicial precedent.
[111] See Malan & Pretorius 268.
[112] See Wadsley & Penn v.
[113] The relevance of Roman law in this regard is not restricted to those types of contract and
legal instruments that developed directly from Roman law. Also, modern-day banking-law concepts
such as asset securitisation may be explained on the basis of Roman-law principles of security. On
asset securitisation in general, see Itzikowitz & Malan 175 et seq.
[114] In most if not all developed economies the bulk of corporate wealth is locked up in debts. The
recycling of these valuable assets, as well as their utilisation in the provision of working capital, is
paramount for economic growth. Closely linked to the topic of the management of corporate finance,
is the securitisation of the debts underlying the financing of projects: see in this regard Oditah 1025
et seq.
[115] See Willis 24 n 1 and the authorities referred to there.
[116] See Absa Bank Bpk v Janse van Rensburg 2002 (3) SA 701 (SCA) at 709A where it was held
that ‘die kontraktuele verbintenis onderliggend aan die bedryf van ’n lopende rekening, dié van
skuldeiser en skuldenaar is’. On the nature of the relationship between banker and client, see Smith
25.
[117] See Schulze (2001) 78 et seq; Stassen 82 et seq. As to the different money-lending activities
of banks and other financial institutions, including the possible liabilities that may arise for them from
these activities, see O’Donovan passim; Blair passim; and Howard, Masefield & Chuah 311 et seq.
[118] See Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at
530F-H. See further Malan et al 295. This approach was endorsed in Liebenberg v Absa Bank Ltd t/a
Volkskas Bank [1998] 1 All SA 303 (C).
[119] See Malan et al 295.
[120] See Malan et al 296 n 7 and the authorities referred to there. See also Schoeman 4. The
truism that the relationship between a bank and its client is a multi-faceted one was acknowledged
in Absa Bank Bpk v Janse van Rensburg 709A where Brand JA remarked that ‘[h]oewel die
verhouding tussen ’n bank en sy kliënt meerdere fasette het, word algemeen aanvaar dat die
kontraktuele verbintenis onderliggend aan die bedryf van ’n lopende rekening, dié van skuldeiser en
skuldenaar is’ (emphasis added).
[121] This very point is succinctly made by Sir John Wessels when he explained that ‘Pothier’s Law
of Obligations, of Sale, Lease, Exchange, [etc] are only the Roman law of contract in a modern dress’:
see Wessels 270. For an explanation of the Roman-law roots of the following contracts that are
typical of the banker-client relationship, see Zimmermann (1990) 413 et seq (mandate); 153 et seq
(mutuum); 205 et seq (depositum).
[122] It has been argued that the historical study of the Roman sources of our law can still be of
value to the modern South African lawyer, but then he or she should not be obsessed with the detail
of the text. Rather, the focus should be on the principles underlying the peculiar rules of Roman law
and on investigating the tendencies they manifested: see Erasmus 766 where he refers in glowing
terms to the dissenting minority judgment of Jansen JA in Bank of Lisbon and South Africa v De
Ornelas 1988 (3) SA 580 (A).
[123] 2000 (2) SA 1040 (W).
[124] For two further cases that concerned the scenario where the clients of the bank left their
valuables with the bank for safe custody, but which were not decided on the principles of depositum,
but instead, on the principles of the contract of lease, see Mensky v Absa Bank Limited t/a Trust
Bank [1997] 4 All SA 280 (W); and First National Bank of South Africa Ltd v Rosenblum and
Another 2001 (4) SA 189 (SCA).
[125] See at 1059G-1063J where the court referred to the works of Voet, Grotius, Van Leeuwen,
Schorer, and Van der Keessel. The Randfontein case serves as a good example of what Van Warmelo
described as the second example of how the Roman law, through Roman-Dutch law that has
absorbed a rule of Roman law, is directly relied on in a judgment: see again Van Warmelo 571. For a
discussion of the Randfontein case, see Schulze (2001) 87 et seq.
[126] Traditionally Roman-Dutch law in the narrow sense is regarded as constituting the South
African common law. In terms of this approach, only those materials dating from the golden age of
Dutch jurisprudence (generally taken as the period 1600-1800), and originating from the province of
Holland in the Netherlands, are regarded as authoritative for the purpose of determining South
African common law. This approach has been criticised. It is an outdated approach for a South African
jurist to regard only Dutch writers as authoritative in explaining South African common law. The
existence of a European ius commune (in stark contrast with the narrowly defined Roman-Dutch ‘ius
commune’) is generally accepted in South African law. The countries of western and central Europe
have a common law and legal science dating back to the Middle Ages. It is this European ius
commune that is the true common law of South Africa: see Schulze ‘Thesis’ 57 and the authorities
referred to there. See further Price 495-6 where the author explains that the Dutch writers, in their
search for authorities to support their views, ranged far and wide over the whole field of Roman-law
studies in Europe and that someone like Johannes Voet often referred to Roman lawyers in France,
Germany, Italy, Spain and Portugal. For similar views, see Van Warmelo (1961) 56; Wessels 267-8;
Pauw 32; and Erasmus 675. For an example of a banking law case where the court referred with
approval to the writings of Huber and Sande (Frisians) and Carpzovius (a Saxon), see Standard Bank
of SA Ltd v Oneanate Investments (In liquidation) 1998 (1) SA 811 (SCA) at 833E-G. On the life and
works of Huber, see De Wet 144-5. On the life and works of Jan Sande, see De Wet 143. Benedictius
Carpzovius has been described as the most outstanding German jurist of the seventeenth century and
the Dutch writers held his works in high esteem: De Wet 95-6.
[127] For a brief survey of the role of Roman-Dutch common and statute law at the Cape during
the period of Dutch rule, see Botha 202.
[128] But see Thomas 790 where it is argued that Roman-Dutch law should be strictly limited to
the law of the province of Holland in the seventeenth and eighteenth centuries.
[129] See for a more detailed discussion of the common-law in duplum rule: Schulze (2006) 486 et
seq; Kelly-Louw (2011) 479; and Kelly-Louw & Stoop 251-4.
[130] See the Oneanate case at 828D; Vessio 35-6; Kelly-Louw & Stoop 253-4; Kelly-Louw (2007)
337 et seq; and Kelly-Louw (2011) 532.
[131] See Zimmermann (1990) 166.
[132] See Malan & Pretorius (1996) 405.
[133] See Morice 357.
[134] See Devaynes v Noble, Clayton’s case (1816) 1 Meriv 535 at 536 [35 ER 767 at 781].
[135] This anomaly turns on the fact that a debtor could, once interest has reached the amount of
the outstanding capital, receive a double benefit if the rule in Clayton’s case were to be applied —
payment would then have to be appropriated to the oldest debt, the capital. Such payment would
then reduce both the capital and the interest recoverable by the creditor: see Malan & Pretorius 272-
3. See further Otto (2000) 76; and Malan & Pretorius 272 for a more detailed discussion of this
anomaly.
[136] See Otto (2000) 89-90; and Malan & Pretorius 272 for a discussion of the tension between
the common-law rules governing the appropriation of payments as explained in Jefferson, Executors
of Stewardt v De Morgan (1882) 2 EDC 205 at 213.
[137] 1998 (1) SA 811 (SCA).
[138] In the Oneanate case the court, albeit by implication, acknowledged that our common law is
also to be found in sources other than the works of the old Dutch writers. It referred with approval to
the works of Huber, Sande, and Carpzovius, none of whom were Dutch: see again para
2.4.2 (v) above.
[139] 2015 (3) SA 574 (SCA).
[140] For a more detailed discussion of the protection contained in s 103(5), see Campbell 1 et
seq; and Kelly-Louw & Stoop 254-61.
[141] The origin of indigenous African law dates back to time immemorial. When the European
colonists first arrived in Africa, they found a system of law already in use by the indigenous peoples.
These rules of indigenous law were in the form of a set of norms for external conduct and were
accepted as binding by the members of a given community. Ideologically, indigenous African law is in
the nature of a communal or socialist system of law: see Sanders 333. Technically, indigenous law is
of a non-specialised nature and manifests itself in the form of custom, hence the term ‘African
customary law’: Sanders 334.
[142] See GJ van Niekerk 1-2 for a more detailed discussion of why the term ‘indigenous law’ is
preferable to the other terms listed above.
[143] On burial societies and stokvels in general, see Schulze ‘Thesis’ 381 et seq. Burial societies in
indigenous law bear a close resemblance to funeral insurance in the western or ‘formal’ part of our
law. On funeral insurance in general, see JP van Niekerk 683.
[144] On the origin and legal nature of the stokvel, see Henning et al 100; Van der Merwe et al
passim; Schulze ‘Stokvel 1’ 20 et seq; and Schulze ‘Stokvel 2’ 153.
[145] Apart from stokvels, there are also other non-traditional banking structures which provide for
the needs of those parts of the community that do not have access to traditional banking facilities.
See in this regard the discussion of village banks by Malan & Willemse 616 et seq.
[146] On the ‘gooi-gooi’, see Schulze ‘Stokvel 1’ 26.
[147] Schulze ‘Stokvel 1’ 26.
[148] Schulze ‘Stokvel 1’ 26.
[149] The fact the a monetary level (R40 million) and not some material characteristic (eg the
number of members or the type of activity performed by the stokvel) is employed to exclude informal
organisations from the need to register as a formal financial institution, is a fair indication of the
degree of possible overlap which exists between the activities of mutual banks and stokvels: see
Schulze ‘Stokvel 2’ 166.
[150] On the similarities and differences between stokvels and insurance, see Schulze ‘Stokvel 2’
153 et seq; Schulze ‘People’s Insurance’ 78.
[151] On the similarities and differences between stokvels and banks, see Schulze ‘Stokvel Part 2’
159 et seq; Schulze ‘People’s Banking’ 105. For a discussion of the possible overlapping between
stokvels and friendly societies, see Schulze ‘Stokvel 2’ 167 et seq. On the possible application of the
provisions of the Friendly Societies Act 25 of 1956 to stokvels, see Wille 74-5.
[152] See GN 620 in GG 37903 of 15 August 2014.
[153] See Schulze ‘People’s Banking’ 106.
[154] For a more detailed discussion of the provisions of para 1(c) of the Schedule, see Schulze
‘Stokvel 2’ 160-1.
[155] These activities include the utilisation of the pooled money as a contribution to maintenance
during minority, old age, widowhood, sickness or other infirmity; the granting of annuities; the
provision of a sum of money to be paid on the birth of a member’s child, or on the death of a
member, funeral expenses; for the acquisition of movable goods or land by a member; the erection of
a building by a member; to obtain insurance; to pay for expenses in connection with any recreational
or social event of a member; to support a member who is unemployed; money for educational
purposes of the member or his or her children, etc. However, none of the activities of a stokvel may
fall within the objectives of a ‘pension fund organisation’ as set out in s 1 of the Pension Funds Act 24
of 1956.
[156] See para 3(b) of the Schedule.
[157] A stokvel that holds contributions in excess of R3 million must present financial statements to
a registered accountant or auditor: see para 3(m) of the Schedule.
[158] See Kelly-Louw & Stoop 32 n 46.
[159] See Kelly-Louw & Stoop 255.
[160] See para 1.4.2 (ii) (a) above.
[161] Such cross-application of principles of indigenous law to the principles of the ‘formal’ South
African law will also be in accordance with the guidelines provided by the South African Law
Commission in their Project 90 ‘The Harmonisation of the Common Law and the Indigenous Law’
(Discussion Paper 74) 64.
[162] See Schulze ‘Stokvel 2’ 170 n 107 and the authorities referred to there.
[163] This argument was raised as far back as 1981, when Sanders contended that ‘a comparative
law course which introduces the [law] student not only to Civil law (Western and Eastern) and the
Common law (English and American), but also to indigenous African law (rural and urban), Islamic
law, and modern African socialist legal values, should form a compulsory part of the law degree
curriculum of every law school in Africa. In the absence of such a comparative course, law reform will
be severely impeded’: see Sanders 335. On the further development of indigenous law, see Mbodla
742.
[164] Unreported case no 08499/2010 of 8 February 2012 (GJ). For another recent decision in
which the court was asked to apply the principles of Islamic banking, see Lodhi 5 Properties
Investments CC v FirstRand Bank Ltd unreported case no 170/2014 of 22 May 2015 (SCA).
[165] For a brief introduction to the core issues under Islamic banking law, see Siddiqi passim. For
a decision in which the nature of the ‘unrestricted Mudhaarabah contract’ under Islamic law between
an Islamic bank and its client is explained, see Carrim v Omar 2001 (4) SA 691 (W) at 731-2. For a
critical discussion of the Carrim case, see Forsyth & Du Plessis 671 et seq.
[166] See para 2.4.1 above.
[167] Section 233 of the Constitution provides that when a court interprets any legislation, it must
prefer any reasonable interpretation of the legislation that is consistent with international law to any
alternative interpretation that is inconsistent with international law.
[170] For a discussion of the legal system that under South African private international law should
be applied to the different contractual relationships in respect of a documentary letter of credit, see
Fredericks & Neels (I) 63 et seq; Fredericks & Neels (II) 207 et seq; and Du Toit (2006) 53 et seq.
[171] For a discussion of these aspects as they pertain to the South African private international
law, see Forsyth 315 et seq (obligations, including contractual obligations); 349 et seq (delictual
obligations); 367 et seq (property); and 425 et seq (the recognition and enforcement of foreign
judgments); and C Schulze 125 et seq. For a discussion of the importance of private international law
for the South African law of bills of exchange, cheques, and promissory notes, see Malan et al 223 et
seq.
[172] For an overview of the wide range of commercial financing available, as well as the regulation
of securities on these products, see Wood (2007) passim.
[173] For a discussion of the governing law of financial contracts, including the effect of the Rome
Convention of 1980 and the factors governing the choice of law under financial contracts, see Wood
(1995) passim; Wood (2007) 329 et seq.
[174] See s 232 of the Constitution.
[175] The best example of this convergence of banking regulation is to be found in the European
Community: see further para 2.4.3 (ii) (c) below.
[176] Probably the best-known example of a supra-national body in the banking sphere is the
International Chamber of Commerce (ICC). The ICC has drafted many documents and rules that are
widely used in international trade and banking. One of them is the Uniform Customs and Practice for
Documentary Credits (UCP). The nature of the UCP appears to be that of an international trade
usage: see Van Niekerk & Schulze 250 et seq. But see Oelofse (1997) 16-18, where he argues that
because many of the provisions of the UCP are amended regularly, the most that one could say is
that some of them reflect customary law or commercial usage. This argument is based on the belief
that a trade usage must be long-established before it can be recognised as such. But see again our
arguments in para 2.4.3 (ii) as to why this requirement should not be a requirement for a trade
usage under South African law, at least not in a fast-moving trade such as banking.
[177] Formerly the Committee on Banking Regulations and Supervisory Practices.
[178] They were: Belgium, Canada, France, Italy, Japan, the Netherlands, Sweden, the United
Kingdom, the United States of America, and West Germany (today Germany). Switzerland and
Luxembourg have in the meantime joined the G10 countries. They are also known as the ‘Paris Club’.
[179] The Bank for International Settlements (BIS) is the world’s oldest international financial
institution. It remains the principal centre for international central-bank co-operation. The aim in
establishing the BIS was twofold. First, it was established in the context of the Young Plan (1930),
which dealt with the issue of reparation payments imposed on Germany by the Treaty of Versailles.
Secondly, it was to promote central-bank co-operation in general. Because the reparations issue
quickly faded into the background, the BIS’s activities have since focused entirely on co-operation
among central banks and, increasingly, among other agencies in pursuit of monetary and financial
stability: see http://www.bis.org/about/history.htm.
[180] See Wadsley & Penn para 1-019 n 19. See further at http://www.bis.org/bcbs/
dboutbcbc.htm.
[181] See Wadsley & Penn para 1-019; and Ellinger et al 59.
[182] See Cranston 2002; Wadsley & Penn para 1-019 remark that the formal status of the Basle
Committee’s pronouncements is ‘effectively that of recommendations’.
[183] See Cranston 69 n 4 and the materials referred to there.
[184] In 1975 the Committee drew up a set of principles — the 1975 Concordat — to guide the
division of responsibilities in regulating international banks. The 1983 Concordat replaced the 1975
Concordat. Particular attention was paid to the principle that the soundness of an international bank
cannot fully be determined unless its business worldwide can be scrutinised: see Cranston 110-12
and Wadsley & Penn para 1-020 et seq for a brief discussion of the provisions of the 1983 Concordat.
Following the collapse of the Bank for Credit and Commerce International SA (BCCI) in 1991, the
Basle Committee in 1992 issued a supplement to the 1983 Concordat. On the collapse of the BCCI,
see De Jager (2001) 534 et seq. On the reasons for the control of banking in the United Kingdom,
including the 2008 credit crisis and the collapse of Northern Rock bank, see Ellinger 26 et seq; and
Arora 123 et seq.
[185] This recommendation was prompted by concern over the deteriorating capital levels of
international banks from the early 1980s: see Cranston 92.
[186] For a list of publications produced by the Basel Committee over the last 30-plus years,
see http://www.bis.org/bcbs/publ.htm.
[187] For a list of publications produced by the Basel Committee over the last 30-plus years,
see http://www.bis.org/bcbs/publ.htm.
[188] The Basel Committee’s influence is wide-ranging. For example, in 1991 the EC in formulating
its directive on money laundering relied heavily on a declaration in 1988 by the Basel Committee on
Banking Supervision: see Cranston 76. But the influence of the Basel Committee was not always that
strong in South Africa. For example, in 1981, when Nigel Willis’ textbook on South African banking
law was published, he did not even bother to refer to the activities and possible future influence of
the Basel Committee on South African banking law: see Willis passim. For the role of central banks in
managing economic growth and ensuring financial stability, see Bekink & Botha 74 et seq; and De
Jager (2009) 145 et seq.
[189] See GN 1029 in GG 35950 of 12 December 2012.
[190] See Malan & Pretorius ‘Reserve Bank 1’ 35.
[191] See again para 2.4.3 (ii) (c) above.
[192] Also referred to in materials as ‘European Union law’. The European Union or European
Community was established by the European Economic Community (EEC) Treaty and came into force
on 1 January 1958. The EC is currently made up of 28 member states.
[193] For a small and recent sample of the spate of materials on European Union Law, see
Weatherill passim; Arnull et al passim.
[194] See Cranston 69 n 5 and Donnelly 19.
[195] For a discussion of the regulation of financial institutions and their activities in South Africa,
see ch 3 below.
[196] For a succinct explanation of the legislative activities of the political institutions of the EU, see
Weatherill 287 et seq; and Arnull et al 44 et seq. For a list of directives issued by the EU on matters
pertaining to banking within the EU, visit http://europa.eu.int/eur-
lex/en/lif/reg/en_register_06202020.html.
[197] The House of Lords has decided that where there is a conflict between directly effective EC
law and national law, including Acts of Parliament, EC law prevails: see Sealy & Hooley 32-3 and the
authorities referred to there.
[198] See eg the First Banking Directive: Directive 77/780/EEC [1977] OJ L322/30 (as amended);
and the Second Banking Co-ordination Directive: Directive 89/646/EEC [1989] OJ L386/1. For a brief
overview of the development of these ‘Banking Directives’ over the years, see Ellinger 69 et seq.
[199] See Directive 2000/12/EC, [2000] OJ L126/1 the Banking Consolidation Directive 77/780/
EEC.
[200] See Howard, Masefield & Chuah 49 et seq.
[201] See Malan & Pretorius ‘Reserve Bank 1’ 36.
[202] For a discussion of the relevance and impact of the internationalisation of capital markets and
a comparison between the German and South African stock exchanges, see Schmidt & Kloppers 172
et seq.
[203] ‘Foreign law’ should be distinguished from ‘comparative law’. Strictly speaking, comparative
law is a method of finding a solution in another jurisdiction’s legal system to solve a problem in one’s
own legal system. Foreign law is a potential source of law, rather than a method of research in itself.
For a detailed discussion of comparative law as a method of research in the sphere of banking law,
see Wood (2007) passim.
[204] Section 39(1)(c) of the Constitution provides that when a court, tribunal, or forum interprets
the Bill of Rights, it may consider foreign law.
[205] 2002 (2) SA 797 (SCA) at 814F-G.
[206] At 814E-G.
[207] See Zimmermann (1990) 426 and 429 n 129.
[208] There are, of course, a number of common-law and civil-law systems that can fruitfully be
consulted when applying the comparative method of research in finding a solution to a South African
banking-law problem. In this regard jurisdictions such as the Netherlands, Belgium, Italy, France and
Germany (civil law), and Canada, the United States of America, Australia and New Zealand (common
law) spring to mind. Because English banking law has in the recent past been the subject of intense
research and innovative legislation modelled on global trends in the banking sphere, there can be
little doubt that English banking law (in stark contrast with other areas of English law such as
insurance law), should remain influential in the future development of banking law in South Africa as
well as a large number of other jurisdictions. English banking law remains a primary source of
comparative material for a number of other Commonwealth jurisdictions, including that of Australia:
see Tyree passim.
[209] See Zajtay & Hosten 198 and 201; and Malan & Pretorius 268.
[210] See in this regard the instructive comments made by Caney J in Rosenbach & Co (Pty) Ltd v
Dalmonte 1964 (2) SA 195 (N) at 205B-D concerning the weight which should be attached to foreign
legislation in the interpretation of a South African statute.
[211] See Joubert 339 et seq.
[212] We must admit that it may perhaps be a trifle misleading to say that the Romans
distinguished clearly between mandate and agency. The Romans did not have a general notion of
agency, but they recognised individual representation. They further allowed for a range of exceptions
to the rule against agency. The ius commune further developed these Roman rules pertaining to
agency. It is accepted today that the Roman law of mandate (as well as other actions) provided some
basis for the development of the phenomenon of agency in the ius commune. The Romans therefore
did not really distinguish between mandate and agency, but they had also not equated these two
concepts: see Joubert 335.
[213] The fact that the South African legal system is a mixed one has been appreciated for a long
time: see Bodenstein 345. See further Zimmermann & Visser 1; and Girvin 95 et seq.
[214] See Price 498; Zajtay & Hosten 197; and Erasmus 669 for a similar sentiment with regard to
the South African law in general.
Page 63
Chapter 3
The South African banking system [*]
Vivienne Lawack
3.1
Introduction
3.2
The South African Reserve Bank
3.2.1
Historical background
3.2.2
Functions of the Reserve Bank
3.2.3
3.2.4
Departmental structure
3.3
The statutory regulation of banks
3.3.1
The Banks Act
3.3.2
The National Payment System Act
3.3.3
The National Credit Act
3.3.4
3.3.5
The Financial Advisory and Intermediary Services Act
3.3.6
The Prevention of Organised Crime Act and the Financial Intelligence
Centre Act
3.4
Conclusion
List of works cited
3.1 Introduction
South Africa’s national banking sector has undergone drastic changes and
developments in recent years, most significantly in the regulatory environment,
starting with the publication of the Banks Act 94 of 1990, new product offerings, and
engaging the low-income and previously unbanked market.
It is generally accepted that South Africa has a sound and stable banking
environment. [1] The country’s sophisticated and advanced banking system is well
regulated, in order to promote its integrity, safety, security, efficiency and stability.
There are different types of banks in South Africa and the manner in which they
are regulated is somewhat dependent on the type of bank. South African banks can
be divided into ‘Tier 1’ banks; that is, banks, mutual banks, and branches of foreign
banks, and ‘Tier 2’ banks, namely dedicated banks and co-operative banks. Only
Tier 1 banks are discussed in this chapter.
This chapter deals with the regulation of banking and credit services and only the
specific legislation dealing with banks will be examined. In other words, the
Page 64
legislation administered by the Reserve Bank will be dealt with in this chapter and
other legislation falling under the Financial Services Board, the Financial Intelligence
Centre, the National Credit Regulator, the National Consumer Commission and the
Registrar of Companies will be dealt with only briefly as needed. Where legislation is
dealt with in another chapter in this book, reference is only briefly made to the
regulatory aspects of such legislation.
An illustration of an overview of the regulators and the relevant legislation is
provided as Appendix 1 to this chapter.
3.2 The South African Reserve Bank

The South African Reserve Bank (SARB), [2] the central bank of South Africa, plays a
pivotal role in the regulation of banks in South Africa. The primary objective of the
Reserve Bank is to protect the value of the South African currency (‘the Rand’) in
the interests of balance and sustainable growth. This mandate of the Reserve Bank
is derived from the Constitution of the Republic of South Africa. [3]
3.2.1 Historical background

The founding of the SARB was necessitated by events before and immediately after
World War I (1914 to 1918). [4] Prior to the establishment of the SARB, all
commercial banks were more or less on a par with one another and undertook much
the same functions. [5] One of the functions was the issuing of banknotes to the
public. Unfortunately, no uniformity existed in legislation providing such issuance,
except that the issuing banks were obliged to convert notes held by the public into
gold when tendered at their branches. [6]
After the First World War the price of gold in the United Kingdom rose above its
price in South Africa. As a result, profit could be made by converting banknotes into
gold in South Africa and selling the gold in London. This caused a very unfortunate
situation for the South African commercial banks as they had to buy gold at a higher
price in London for re-import into South Africa (to back their banknotes in issue)
than the price at which they converted their banknotes for gold. To protect their
financial viability, an appeal was made to the government to release commercial
banks from the obligation to convert their banknotes into gold on demand. This led
to the so-called Gold Conference of October 1919. [7] The Conference recommended,
inter alia, that a uniform banking Act should replace the separate banking laws of
the four provinces in force at that time. [8] Following the recommendations of the
Conference, a Select Committee of Parliament
Page 65
recommended the establishment of a single and non-commercial institution to
assume responsibility for the issuing of banknotes and for taking over the gold held
by commercial banks. [9] Parliament accepted this recommendation and in December
1920 promulgated the Currency and Banking Act, [10] which provided for the
establishment of a central bank, the SARB. The first Governor of the SARB was
appointed with effect from 17 December 1920. Six months after the promulgation of
the Currency and Banking Act, [11] the Reserve Bank opened its doors for business
for the first time on 30 June 1921. [12] The Currency and Banking Act was amended
from time to time and re-enacted in the form of the South African Reserve Bank Act
1944. [13] This Act was repealed and substituted by the South African Reserve Bank
Act 1989. [14]
3.2.2 Functions of the Reserve Bank

The SARB plays multiple roles, which include the following:
(a)
As lead regulator of banks in South Africa, the SARB is responsible for bank
regulation and supervision. This function is performed by issuing banking
licences to banking institutions and monitoring their activities in terms of
either the Banks Act [15] or the Mutual Banks Act. [16]
(b)
Section 10(1)(c)(i) of the SARB Act states that the SARB may ‘perform such
functions, implement such rules and procedures and, in general, take such
steps as may be necessary to establish, conduct, monitor, regulate and
supervise payment, clearing or settlement systems’. The National Payment
System Act [17] enables the SARB to perform these functions as contemplated
and the authority to perform these functions vests in the National Payment
System Department of the SARB. [18] More detail on this function is provided
below in para 3.3.2.
(c)
According to s 10 of the SARB Act, the Reserve Bank may also exercise the
various powers relating to the financial market. [19]
3.2.3 Applicable legislation

Sections 223 to 225 of the Constitution, [20] the SARB Act and the SARB regulations
present the structure of the SARB’s business and describe the functions and the
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actions the SARB may take in fulfilling its purpose. [21] Section 223 of the
Constitution provides for the establishment of the SARB as the central bank of South
Africa. Section 224(1) of the Constitution and s 3 of the SARB Act provide that the
primary objective of the SARB is to protect the value of the currency of the Republic
in the interest of balanced and sustainable economic growth in the
Republic. [22] Section 224(2) states that ‘[t]he South African Reserve Bank, in pursuit
of its primary object, must perform its functions independently and without fear,
favour or prejudice, but there must be regular consultation between the Bank and
the Cabinet member responsible for national financial matters’. Section 225 states
that the powers and functions of the SARB are those customarily exercised and
performed by central banks, which powers and functions must be determined by an
Act of Parliament (the Act referred to is the SARB Act) and must be exercised or
performed subject to the conditions prescribed in terms of that Act.
3.2.4 Departmental structure

The SARB is divided into various departments, each with its own duties and
functions, to ensure effective supervision and regulation. For purposes of this
chapter, the Bank Supervision Department and the National Payment System
Department are of importance.
(a)
The Bank Supervision Department is responsible for bank regulation and
supervision in South Africa. This department strives to achieve a sound,
efficient banking system in the interest of the depositors of banks and the
economy as a whole. This is performed by issuing banking licences to banking
institutions, and monitoring their activities in terms of either the Banks
Act [23] or the Mutual Banks Act. [24]
(b)
The National Payment System Department of the SARB oversees the safety
and soundness of the National Payment System and implements risk-
reduction measures in the payment system to reduce systemic risk. [25] The
National Payment System (NPS) of the SARB provides an inter-bank
settlement service via the real-time electronic settlement system, the South
African Multiple Option Settlement (SAMOS) system. [26] The NPS does not
only entail payments made between banks, but encompasses the total
payment process. This includes all the systems, mechanisms, institutions,
agreements, procedures, rules and laws that come into play from the moment
an end-user, using a payment instrument, issues an instruction to pay
another person or a business, through to the final interbank settlement of the
transaction in the books of the central bank. The NPS therefore enables
transacting parties to exchange value to conduct business efficiently. [27]
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3.3 The statutory regulation of banks

3.3.1 The Banks Act
(i) Main purpose
The Banks Act is the most important statute regulating the South African banking
sector. The main purposes of the Act are twofold: to protect the public against any
losses they might suffer due to a lack of solvency or possible malpractices on the
part of banks; and to safeguard the public against unfair competition by institutions
that offer similar services to banks. According to its long title, the Act provides for
the ‘regulation and supervision of the business of public companies taking deposits
from the public’, but s 2 provides that the Act does not apply to the following six
institutions:
•
the Reserve Bank;
•
the Land Bank;
•
the Development Bank of Southern Africa;
•
the Corporation for Public Deposits;
•
the Public Investment Corporation Limited, and
•
any mutual bank.
The Banks Act is to a large extent based on the now-repealed English Banking Act
(chapter 22). [28] The South African Banks Act, at one point named the Deposit-
taking Institutions Act, [29] has been amended on several occasions. In 2007, a
number of important amendments were introduced [30] to update the Act and reflect
revisions to the Framework on International Convergence of Capital Measurement
and Capital Standards (or Basel II), published by the Basel Committee on Banking
Supervision in 2004. [31] This framework is intended to improve the risk-assessment
capabilities of banks generally. Internationally, strong emphasis is placed on the
ability of banks to successfully assess risk within the banking environment. [32]
The Banks Act consists of nine chapters and 96 sections. Apart from providing a
number of important word-definitions, [33] the Act deals with, inter alia, the
appointment and powers of the registrar; [34] the registration and cancellation of
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banks; [35] shareholding and registration of controlling companies in respect of
banks; [36] the functioning of banks and controlling companies [37] including the
winding-up of banks; [38] the financial and other prudential requirements with which
banks should comply; [39] the returns and other information about their business
which banks must supply from time to time; limitations on certain transactions and
banking activities; restrictions on the shareholding in and control of banks; and the
examination of the bank’s business. [40]
The Banks Act is supplemented by a detailed set of regulations promulgated in
terms of the Act. [41]
Only those provisions of the Banks Act of direct relevance to the present chapter
will be discussed here.
(ii) The requirement of registration

Chapter VIII of the Banks Act contains provisions aimed at restricting and
terminating the conduct of the business of a bank by any person who is not
provisionally or finally registered as a bank in terms of the Act. The Act seeks to
achieve this aim by:
•
providing that the registrar may apply to a division of the High Court for an
order prohibiting an anticipated or actual contravention of the provision that
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the business of a bank can be conducted only by a registered person, and to
prevent such person from disposing of any of his assets while the suspected
or actual contravention is being investigated; [42]
•
empowering the registrar to exact information from unregistered persons for
the purpose of ascertaining whether or not the business of a bank has been
conducted unlawfully; [43]
•
providing for the repayment, as directed by the registrar, of money unlawfully
obtained; [44] and
•
providing for the management and control of the repayment of money
unlawfully obtained. [45]
Although there is no legal obligation on the part of the registrar or the Reserve Bank
to protect the interests of any person entrusting his or her money to a person who
unlawfully conducts the business of a bank, it is in the interest of the general public
to uncover and terminate such anticipated or actual contraventions of the relevant
provisions of the Act and to effect the repayment of money so unlawfully obtained.
The most important provision of the Act is s 11(1), which provides that ‘[s]ubject
to the provisions of s 18A, no person shall conduct the business of a bank unless
such person is a public company and is registered as a bank in terms of this Act’. [46]
Contravention of this section is an offence and punishable with a fine not
exceeding R200 000, imprisonment for a period not exceeding five years, or both
such fine and such imprisonment. However, an agreement concluded in
contravention of the section is not void and will still be enforceable between the
parties inter se. [47] Section 18A makes provision for the written authorisation by the
registrar of an institution that carries on a business similar to the business of a bank
in another country, to carry on the business of a bank in the Republic by means of a
branch in South Africa. The registrar must grant the authorisation subject to
prescribed conditions and any other conditions that he or she may see fit to impose.
Only foreign banks with net assets of more than US$1 billion can obtain this
authorisation. In principle, the same financial requirements that apply to South
African banks also apply to a branch that has been approved in terms of s 18A.
However, the branch may not accept deposits from a natural person, unless the
initial deposit amounts to at least R1 million, and the person concerned maintains a
minimum balance of R1 million with the branch. Section 18B
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provides for the cancellation or suspension of an authority in terms of s 18A. [48] A
foreign institution which, without the necessary authorisation, carries on the
business of a bank by means of a branch in South Africa, may be penalised with the
same penalties as prescribed for a contravention of s 11(1). [49]
(iii) Enforcement of the requirement to register as a bank

Apart from the penalty sanction to enforce compliance with ss 11(1) and 18A, the
Banks Act places a number of weapons in the hands of the registrar to prevent or
ward off any contravention of the prohibition in s 11(1). In terms of s 82(1), if the
registrar has reason to suspect that any person who is neither registered as a bank
nor has authorisation in terms of s 18A is carrying on the business of a bank, the
registrar may by notice direct that person to submit such document or to furnish the
registrar with such information, relating to the affairs of that person, as is specified
in the notice. A person who does not comply with the direction within the specified
period is guilty of an offence and liable to a fine not exceeding R10 000, or
imprisonment for a period not exceeding six months, or both such fine and such
imprisonment. [50]
A further weapon in the hands of the registrar is to be found in the provisions of s
81. In terms of s 81 the registrar may, in certain circumstances, apply to the High
Court for an interdict against a person who is not registered as a bank. Such an
application may be made if the registrar has reason to suspect that such a person is
likely to conduct the business of a bank in contravention of ss 11(1) or 18A, has
contravened the provisions of ss 11(1), 18A(7), 22(4) or 22(5), or that such a
contravention is likely to be continued or repeated. The content of the order may be
threefold, namely to: prohibit the person concerned from contravening ss 11(1) or
18A(7); prohibit the continuation of a contravention of ss 11(1), 18A(7), 22(4) or
22(5); or prohibit that person from disposing of or otherwise dealing with any assets
while the suspected contravention is investigated.
If it is proved to the court that there is reasonable likelihood that the provisions
of s 11(1) or s 18A(7) will be contravened; or that there was a contravention of ss
11(1), 18A(7), 22(4) or 22(5); or that it will be continued or repeated, as the case
may be, the court may grant an interdict against the person concerned.
Further, in terms of s 83(1), if satisfied as a result of an inspection conducted
under s 12 of the South African Reserve Bank Act [51] that any person has obtained
money by carrying on the business of a bank without being registered or authorised
under s 18A, the registrar may direct that person to repay (subject to the provisions
of s 84 and in accordance with such requirements and within such period as may be
specified in the direction) any money that has not yet been repaid. The direction to
repay also applies to interest or any other amounts that may be due.
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Any person who, by virtue of the provisions of s 83(1), repays money before the
due date for the repayment agreed upon by that person and the person from whom
the money was obtained, is not obliged to pay interest or any other amounts that
would have been payable in respect of such money for the period from the date of
repayment up to the due date. [52] Simultaneously, with the issuing of a direction to
repay under s 83(1), the registrar must appoint a person (referred to as a manager)
to manage and control the repayment of money in compliance with the direction by
the person involved. [53] The particulars in respect of such a manager’s duties and
powers are contained in s 84.
Beside the fact that a person who refuses or fails to comply with a direction in
terms of s 83(1) is guilty of a further offence, [54] the very important provisions of s
83(3)(b) also come into operation in the case of such a refusal or failure. In terms of
this section, for the purposes of any law relating to the winding-up of juristic
persons or to the sequestration of insolvent estates, any such person shall be
deemed not to be able to pay his or her debts or to have committed an act of
insolvency, as the case may be. On those grounds the registrar is empowered to
apply to any court having jurisdiction for the winding-up of such juristic person or
for the sequestration of the estate of such natural person, as the case may be.
(iv) Role of the Registrar of Banks

Chapter II of the Banks Act contains those provisions necessary for the
administration of the Act (which will be undertaken by the South African Reserve
Bank), including the designation, as at present, of the Registrar and the Deputy
Registrars of Banks. There may not be more than four deputy registrars at a
time. [55] The appointment of the registrar and deputy registrars is made with the
approval of the Minister of Finance, in terms of s 4 of the Banks Act. The position is
a statutory appointment in terms of the Banks Act. [56]
The registrar’s primary responsibility is to ensure and promote the safety and
soundness of banks and banking groups registered in South Africa through the
effective application of international regulatory and supervisory standards. This
entails, among other things, ensuring the existence of sound risk management
practices, sound corporate governance structures, fit and proper management, and
financial stability. Furthermore, the registrar is responsible for the registration and
deregistration of banks and handling litigation by and against the Office of Banks. An
important feature is the establishment of a board of review with which appeals
against decisions of the registrar may be lodged. [57] The board of review will consist
of three members, appointed by the Minister, namely the chairman (who shall be a
jurist), one member who will be required to have wide banking experience and
thorough knowledge of the latest developments in the bank sector and a third
member who will be a registered accountant. The board of review will be required to
express an expert opinion on matters forming the subject of an
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appeal lodged with it. The board of review may after the review confirm, set aside or
vary the relevant decision of the registrar. [58]
The registrar has wide powers to enter into co-operation agreements with a host
supervisor, with a consolidating supervisor or any other persons, [59] to implement
such international regulatory or supervisory standards and practices as he or she
deems appropriate after consultation with banks, [60] to publicly disclose certain
information (despite the secrecy provisions in s 33 of the SARB Act) [61] and powers
of delegation of powers and assignment of its functions. [62]
In addition, the registrar must implement and maintain a supervisory review
process. This process may include on-site or off-site examination, inspection and
review of a bank or controlling company and its branches, a discussion with the
executive or chief executive officers, employees, board of directors or members of a
board-appointed committee, a review of work done by an external auditor or any
reports submitted by such bank, controlling company or banking group. [63]
In addition to the powers and duties conferred or imposed upon him or her by the
Banks Act, the registrar has, for the purposes of performing his or her functions
under the Banks Act, the same powers and duties as those conferred or imposed by
the Inspection of Financial Institutions Act. [64] These powers are wide to enable the
registrar to conduct an investigation or inspection of the bank, subsidiary,
controlling company or banking group. [65] The registrar may from time to time by
means of a circular furnish banks, controlling companies, eligible institutions or
auditors of such banks or controlling companies with guidelines regarding the
application and interpretation of the provisions of the Banks Act. [66] On an annual
basis, the registrar reviews the applicability of the circulars issued in previous years
and publishes a list of circulars that are still applicable during the particular
year. [67] The registrar may also from time to time by means of a guidance note
furnish banks, controlling companies, eligible institutions and auditors of banks and
controlling companies with information in respect of market practices or market or
industry developments within or outside the Republic. [68] Finally, the registrar may
issue a directive regarding the application of the Banks Act, after consultation with
the relevant bank, controlling company, eligible institution or auditor of such bank or
controlling company. This is either in the form of a non-financial sanction or the
directive may (i) require the bank, controlling company, eligible institution or auditor
of that bank or controlling company of the bank to cease or refrain from engaging in
any act, omission or course of conduct
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or perform such acts as are necessary to remedy the situation; or (ii) to perform
such acts necessary to comply with the directive or to effect the change required to
give effect to the directive; or (iii) to provide the registrar with the information and
documents relating to the matter specified in the directive. [69] Directives do not
have retroactive effect and the registrar may cancel, in writing, any previously
issued directive, after consultation with the relevant bank, controlling company,
eligible institution or auditor of the bank or controlling company. [70] If a bank,
controlling company, eligible institution or auditor of that bank or controlling
company neglects, refuses or fails to comply with a directive, such person shall be
guilty of an offence. [71]
The registrar may direct a bank or controlling company or subsidiary of a bank or
controlling company to furnish him or her, within a stipulated time, with information
specified in the notice, or to furnish him or her with a report by a public accountant
or any other person with the appropriate professional skill on any aspect of any
matter that the registrar stipulated in the notice. [72] The public accountant or the
other person appointed by the bank to make a report required under the notice
must be approved by the registrar, in the form required by the registrar, but at the
reasonable expense of the bank or controlling company or subsidiary thereof. The
registrar may grant an extension of the period during which such reports are due to
be furnished.
The registrar must submit an annual report to the Minister of Finance to report on
his or her activities during the year under review. The Minister must lay a copy of
the report before Parliament within 14 days after receipt of the report if Parliament
is in session or within 14 days after the commencement of the next parliamentary
session. [73]
(v) Authorisation to establish banks, and registration and cancellation of

registration of banks
The main objects of Chapter III are:
•
to ensure that the business of a bank is conducted only by persons who are
deemed to be fit and proper;
•
to introduce procedures for the authorisation of the establishment and
subsequent registration of banks as well as for the revocation of such
authorisation and the cancellation of such registration; and
•
to provide for the establishment of a representative office in the Republic by a
foreign institution that conducts business similar to that of a bank in the
country in which it was established.
The first objective is achieved by the requirements that the establishment of a new
bank must be authorised by the registrar and that the business of a bank may be
conducted only by registered institutions. The Act provides that, except for a
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branch of a foreign institution governed under s 18A of the Banks Act, no person
shall conduct the business of a bank unless such person is a public company and is
registered in terms of the Act. Any person who contravenes this provision shall be
guilty of an offence. [74]
The second objective sets out in detail the requirements relating to the
authorisation, registration, revocation and cancellation of registration as a bank. The
application to conduct the business of a bank must be done in the manner and on
the form prescribed by the regulations relating to banks and must contain a
statement containing the information required by the regulations, as well as any
additional information or report by a public accountant if the registrar so
requires. [75] The registrar may grant or refuse the application and, if granted, may
at any time revoke the authorisation. Once the applicant has been granted
authorisation, such applicant may at any time during the period of 12 months
commencing on the date of the granting of the authorisation apply to the registrar
for the registration of the institution as a bank, provided that the authorisation has
not been revoked in terms of s 14. The application for registration must be made in
the manner and form prescribed by the regulations relating to banks, accompanied
by two copies of the institution’s memorandum of association and articles of
association, a written statement containing certain information, as well as a list of
shareholders in the institution at the date of the application. The registrar may
require additional information. The application and every document lodged with the
registrar must be signed by the chairperson or the chief executive officer of the
institution. The registrar may grant or refuse the application for registration, or
place conditions of registration that the institution must comply with. The registrar
may, with the consent of the Minister and by notice in writing to a foreign institution,
cancel or suspend the registration of an institution if it failed to comply with a
condition or conditions of its registration. In the case of a branch of a foreign
institution, the registrar must, before cancelling or suspending the registration,
inform the foreign institution of his or her intention to cancel or suspend the
authorisation, furnish the foreign institution with reasons for the intended
cancellation or suspension and call upon the foreign institution to show cause within
the period specified in the notice (which must not be less than 30 days from the
date of the notice) why its authorisation should not be cancelled or suspended. After
considering the representations, the registrar may in his or her discretion proceed or
refrain from cancelling or suspending the authorisation and the registrar must in
writing inform the foreign institution of his or her decision. [76]
(vi) Shareholding in and registration of controlling companies in respect of

banks
The main objects of Chapter IV are:
•
to prevent the exercising of control, through a majority shareholding, over the
affairs of a bank by any one person that is not another bank or a registered
controlling company, or by such person and his associates;
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•
to prevent the exercising of control by any one person or by any one person
and his associates, through a majority shareholding, over a registered
controlling company;
•
to provide for the registration, and the cancellation of the registration, of a
controlling company; and
•
to provide for the approval of shareholdings in excess of 10 per cent in banks
or controlling companies, and of further increases in such shareholdings, by
any one person or by any one person and his associates.
The underlying purpose of this chapter is that a bank should not be influenced or
manipulated for the benefit of a controlling shareholder or his associates, but should
be able to fulfil an independent deposit-taking and financial intermediary function in
the interest of all shareholders and depositors and an efficiently functioning banking
and overall financial system. It has at its aim the fact that a bank should retain
independent status and not be controlled by any group, whether through
shareholding or otherwise, despite any powerful financial groups in the country.
To give effect to this approach, any individual shareholder, either alone or
together with his associates, is allowed only a minority shareholding in a bank or a
controlling company. In addition, several prescriptions to ensure compliance with
this provision are incorporated in the chapter. [77] The Minister of Finance is
empowered, if it is deemed to be in the public interest to do so, to allow the
prescribed shareholding limit of 49 per cent to be exceeded temporarily for such
period and subject to such conditions as he may determine. [78]
A principle in the Act is that of granting permission for the acquisition of a
shareholding in excess of 10 per cent of all the issued shares, and for further
increases in such a shareholding, in a bank or controlling company. The purpose of
this requirement is to ensure that only fit and proper persons become large
shareholders and to prevent the exercising of undue influence on the affairs of a
bank or controlling company. Permission may only be granted if it is not contrary to
the public interest or the interest of the bank concerned or of its depositors or of the
controlling company, as the case may be. [79]
(vii) Functioning of banks and controlling companies

Chapter V of the Banks Act contains provisions that are modifications of, or additions
to, provisions in the Companies Act and are designed to meet the special
requirements of regulating the conduct of the business of a bank. The reason for the
reference to the Companies Act is because of the requirement that only public
companies registered in terms of the Companies Act qualify for registration as banks
or controlling companies. The main objects of this chapter are:
•
to adapt applicable provisions of the Companies Act for the purpose of
regulating the business of a bank or controlling company;
•
to provide for prior approval of the establishment by a bank or controlling
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company of a domestic or foreign subsidiary, foreign undertakings and foreign
representative offices; [80]
•
to regulate the appointment of directors of a bank or controlling company and
to assign special responsibilities to such directors; [81]
•
to assign to auditors of banks the function of providing certain information to
the registrar; [82]
•
to provide for the appointment of audit committees; [83] and
•
to require the disclosure of large credit exposures to individual
shareholders. [84]
Provisions of the Companies Act which are adapted or supplemented relate to the
following:
•
amalgamations, takeovers or transfers of assets and liabilities; [85]
•
reconstructions within company groups; [86]
•
memoranda and articles of association; [87]
•
information relating to directors, officers and shareholders; [88]
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•
the appointment of an auditor; [89]
•
winding up and judicial management; [90] and
•
the appointment of a curator. [91]
(viii) Prudential requirements

Chapter VI contains provisions which form the principles on which minimum
prudential requirements for banks must be based. Prudential requirements do not
prescribe the business and its associated risks to be undertaken by these
institutions, but aim at ensuring the prudent management of such business and
risks. The prudential requirements addressed in this chapter relate to capital
adequacy, holding minimum liquid assets and concentration risk.
The capital requirements for banks are based on the risk composition of their
assets. The purpose of these requirements is to ensure that a bank maintains an
adequate amount of capital and reserves to safeguard its solvency. The definition
and the method of calculation are in line with the Basel Committee’s requirements,
which were accepted by a large number of countries. The minimum capital required
is R250 million or 9.5 per cent of risk-weighted assets.
The Act requires a bank to maintain a minimum holding of liquid assets [92] to
cover liquidity risks but the Act provides for the basis on which, as well as the level
at which, these requirements are fixed to be determined by regulation. This method
provides more flexibility to adjust these requirements to the liquidity management
undertaken by the banks themselves. The minimum liquid assets are calculated at
5 per cent of adjusted liabilities. [93]
The provisions relating to concentration risk require the board of directors of a
bank to give its permission for an investment or loan exposure to any one client if
such an exposure exceeds a prescribed percentage (10 per cent) of the institution’s
capital and reserves. At the same time a bank is required to report proposed
transactions to the registrar and obtain the prior written approval of the registrar if
these transactions will expose the institution to any one client to an amount
exceeding a prescribed percentage (25 per cent) of its capital and reserves.
(ix) Restrictions and prohibitions

In order to protect the bank itself and its depositors, Chapter VII sets out the
requirements for, or restrictions on, certain activities. The chapter also prevents a
bank from engaging in various undesirable practices in the conduct of its business.
The main objects of Chapter VII are:
•
investments in immovable property and shares; [94]
•
loans and advances to certain subsidiaries; [95]
•
investments with, and loans and advances to, associates; [96]
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•
the issuing of shares, debentures, shares warrants and negotiable certificates
of deposit; [97]
•
the conduct of business through agents;
•
investments in insurance companies; [98] and
•
undesirable practices. [99]
It has to be noted that a bank is allowed to acquire a minority shareholding of up to

49 per cent in a registered insurance company.
(x) General provisions and limitation of liability

Finally, Chapter IX deals with general provisions relating to the limitation of the
liability of the supervisory authority and the furnishing of information by the
registrar. [100] As far as the limitation of liability is concerned, the Act provides that
the Reserve Bank or any director of the bank, or any officer of the bank (including
the registrar and the deputy registrar), is indemnified from any liability arising from
the bona fide performance of any function or duty under the Act.
This Chapter also addresses the furnishing of information by the registrar to any
person charged with the performance of a function under any law as well as to an
authority in another country for the purpose of enabling such authority to perform a
function corresponding to that of the registrar under this Act. [101]
3.3.2 The National Payment System Act

Payment systems are critical to the effective functioning of financial systems in a
country and globally. [102] If a payment system is insufficiently protected against
risks such as credit, liquidity and settlement risks, disruption within the system
could trigger or transmit further disruptions among its participants, or generate
systemic disruptions in the financial markets or more widely across the economy.
This phenomenon is referred to as ‘systemic risk’. [103] Banks play a pivotal role in
the functioning of the National Payment System (NPS).
A fundamental requirement for a stable and secure payment system is that it
should operate in a well-defined legal environment, setting out the rights and
obligations of each party involved in effecting a payment through the system. [104] It
is for this very reason that the Core Principles for Systemically Important Payment
Systems published by the Committee on Payment and Settlement Systems of the
BIS provides that the legal basis for payments should be well defined. [105]
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The ambit of the South African NPS has been confirmed by the Reserve Bank in
its recently released National Payment System Framework and Strategy Vision
2015. [106]
The Reserve Bank, as a neutral agent, is best suited to oversee and supervise the
NPS. Section 10(1)(c) of the South African Reserve Bank Act enables the Reserve
Bank to establish, operate, oversee and regulate payment, clearing, and settlement
systems. This power is reaffirmed in s 2 of the National Payment System Act. [107]
Besides the general powers of oversight in terms of s 10(1)(c) of the Reserve
Bank Act as mentioned above, the Reserve Bank has the power to issue
directives, [108] in consultation with the payment system management body and
other stakeholders (s 12(1)). [109] The Reserve Bank has to date issued three
directives, namely in respect of banks involved in the collection of payment
instructions in the early debit order of Payment Clearing Houses (PCHs), [110] in
respect of system operators [111] and in respect of payments to third
persons. [112] Banks play an important role in the settlement system, clearing system
and in payments to third parties.
(i) The settlement system

Banks can either be settlement system participants or can be sponsored in the
clearing and/or settlement system. A settlement system refers to a system for the
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discharge of payment or settlement obligations or the discharge of payment or
settlement obligations between participants in that system (s 1 of the NPS Act). The
Reserve Bank settlement system, also referred to as SAMOS, is defined as the
settlement system established and operated by or under the control of the Bank (s 1
of the NPS Act). Settlement refers to the discharge of a settlement obligation, which
in turn is defined as ‘indebtedness owed by one settlement system participant to
another as a result of one or more settlement instructions’ (s 1 of the NPS Act).
No person may participate in the Reserve Bank settlement system unless:
•
such person is the Reserve Bank, a bank, mutual bank or branch of a foreign
institution and in the case where a payment system management body has
been recognised, such person is a member of the payment system
management body so recognised;
•
such person is a designated settlement system operator (see s 3(4) of the
NPS Act); or
•
such person meets the criteria for participation in the Reserve Bank
settlement system as established by the Reserve Bank in consultation with the
payment system management body.
The term ‘Reserve Bank settlement system’ was inserted in 2004 to distinguish
between SAMOS and a ‘designated settlement system’. The latter refers to
Continuous Linked Settlement System (CLS), which interfaces with SAMOS for the
purposes of settlement of the Rand leg in foreign exchange transactions. The term
‘designated settlement system operator’ refers to Continuous Linked Settlement
Bank International (CLS Bank), which has been designated as such.
CLS Bank was established in the United States of America in 1999 by the Group
of Twenty (G20) banks with the aim of reducing counterparty risk involved in the
settlement of foreign exchange (FX) transactions involving counter-payments. CLS
eliminates the foreign exchange settlement risk through the introduction of Payment
versus Payment (PvP); [113] that is, both legs of the FX transaction are
simultaneously settled in CLS. [114] CLS Bank, registered in the United States of
America, operates as a multi-currency bank and holds a settlement account with the
Reserve Bank; that is, a real-time gross settlement (RTGS) account in the SAMOS
system.
The Reserve Bank applied to CLS Bank to be admitted in the third wave of
currencies, which included the New Zealand dollar, Korean won and Hong Kong
dollar. The Board of Directors of CLS Bank endorsed the inclusion of the SA Rand as
a CLS eligible currency when all the CLS Bank requirements had been met and
designation of CLS as a designated settlement system and CLS Bank as a designated
settlement system operator took place on 29 October 2004 (see the
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designation notice published in GN 2459 in GG 26953 of 30 October 2004). CLS
went live in South Africa on 6 December 2004. Two South African banks (Standard
Bank and Absa) are Settlement Members in CLS. Settlement Members have direct
access to CLS Bank. They settle transactions across CLS on behalf of themselves
and their customers (third parties).
The attainment of finality and irrevocability of settlement is vital within the
payment system in order to avert a systemic crisis. Where one or more participants
within the payment system are unable to settle its or their obligations within a
bilateral or a multilateral net settlement system, or a real-time gross settlement
(RTGS) system, the consequences for the participants, their clients, as well as the
system as a whole could be devastating. An automated settlement system facilitates
the circulation of large amounts of money throughout the day and if finality and
irrevocability of such settlements cannot be assured, it may pose a major risk to the
NPS and consequent financial instability. Since the inability of a bank to settle its
inter-bank indebtedness is indicative of that bank’s insolvency, one has to consider
the provisions of the Companies Act, read together with the provisions of the
Insolvency Act. [115] The provisions of these Acts could cause uncertainty in the
payment system as they affect certain settlement instructions of a failed bank and
thus render such instructions revocable, thereby frustrating the principles of finality
and irrevocability of settlement as envisaged by the NPS. Prior to 1998 the position
was, therefore, that where an application had been lodged for the winding-up of a
system participant, all settlements made thereafter would upon the granting of the
winding-up order be rendered void. This, in turn, would mean that all such
settlements would have to be unwound and reversed within the automated
settlement system. This would not only be virtually impossible to attain
operationally, but if it were at all possible would also negatively affect other Reserve
Bank settlement system participants and would have a detrimental effect on the
system as a whole.
In order to overcome the above risk, the NPS Act provides that settlement is
effected in money or by means of entries passed through the Reserve Bank
settlement system or a designated settlement system (see s 5(1) of the NPS Act).
The section further provides that a settlement that has been effected in money or by
means of an entry to the credit of the account maintained by a settlement system
participant in the Reserve Bank settlement system or a designated settlement
system, is final and irrevocable and may not be reversed or set aside (see s 5(2) of
the NPS Act). An entry to or payment out of the account of a designated settlement
system participant, to settle a payment or settlement obligation in a designated
settlement system, is final and irrevocable and may not be reversed or set aside
(see s 5(1) of the NPS Act).
The above provisions ensure the finality and irrevocability of settlement in respect
of both settlements effected in the Reserve Bank settlement system and the
designated settlement system (CLS system).
(ii) Netting, curatorship and liquidation

Netting is a payment system practice and, until the promulgation of the NPS Act,
was not a legal term. (This practice also occurs in the settlement of securities.
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For this purpose, see s 35A of the Insolvency Act, read with the central securities
depository rules issued in terms of s 39(2) of the Securities Services Act 36 of
2004.) The legal term that most closely resembles netting is the term ‘set-off’. The
common law, however, only recognises set-off in a rigid set of circumstances. The
common-law requirements for set-off are, briefly, that the two debts being set off
should be those of the parties to the set-off. Secondly, the debts being set off should
be of the same nature. Thirdly, the debts should be claimable. Fourthly, the debts
should be liquidated; that is, capable of speedy and easy proof. [116] Although the
question of whether the netting of inter-bank obligations falls within the above-
mentioned requirements could be debated, it can be argued that netting as practised
by banks within the payment system is not set-off as envisaged or provided for by
the common law, but is rather an innovation brought about by payment system
practices and further developed as a result of technological advances. The NPS Act,
therefore, defines the practice of netting and provides the payment system with
legal certainty in the participation of these practices.
The potential legal obstacle in this regard was as a result of s 46 of the
Insolvency Act, which essentially affords the liquidator of an insolvent estate the
discretion to abide by or to disregard a set-off agreement entered into by an
insolvent. [117] Since netting was not a legal term and since it closely resembles set-
off, the uncertainty existed that a liquidator might regard netting as set-off and
might disregard such agreements, which may cause untold problems within the
payment system or which may result in lengthy and costly lawsuits.
In a net settlement system, therefore, which is based upon bilateral or
multilateral netting agreements between the participants, the insolvency of a
participant would result in simultaneous creditors’ claims. Set-off after a winding-up
order of a company would in effect enable parties to obtain a benefit to the
detriment of the other creditors, as their claims would be predetermined and settled
ahead of the other concurrent creditors’ claims. It follows that an agreement that
would enable post-liquidation set-off is void in our law as being contrary to the pari
passu or par creditorum principle. Therefore, a payment clearing house (PCH) rule
providing for the set-off after liquidation of claims between members would also be
void.
The position would, therefore, have been that where two persons had entered
into a set-off transaction, such set-off may be set aside under s 46 of the Insolvency
Act if it occurred within six months of sequestration or if the set-off was effected in
other than the normal course of the insolvent’s business. The test to determine
whether a transaction was performed in the ordinary course of business is an
objective one. It needed to be established whether, having regard to the terms
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of the transaction and the circumstances under which it was entered into, such
transaction would normally have been entered into by solvent businessmen. [118]
In view of the provisions of s 46 of the Insolvency Act, it would appear that set-
off effected under the rules of BANKSERV or under the NPS net settlement system
would be in the normal course of business. It should not, therefore, be possible for
such set-off to be set aside by a liquidator of the insolvent estate of one of the
participants. In order to attain absolute legal certainty in this regard, however,
netting had to be addressed in legislation.
A further issue in this regard was that s 46 of the Insolvency Act specifically
provides only for bilateral set-off arrangements between two persons, and it was
unclear what the position would be where three or more persons were to enter into
a multilateral set-off arrangement.
To complicate matters, s 69(6B) of the Banks Act provides that ‘Notwithstanding
any provision to the contrary contained in this Act, sections 35A, 35B and 46 of the
Insolvency Act . . . shall mutatis mutandis apply to the curator of any bank under
curatorship and to such a bank as if the curator were a trustee of an insolvent estate
and the bank were an insolvent or a sequestrated estate as contemplated in those
sections.’
The sections of the Insolvency Act that are referred to in s 69(6B) of the Banks
Act apply only to banks that have entered in specifically defined contracts within
specifically defined markets. They do not apply to a bank’s obligations or
agreements within the payment system. It was, therefore, imperative to address the
matter and to obtain legal certainty with regard to netting arrangements entered
into by banks within the payment system where such a bank has been placed under
curatorship. (The moment of appointment would probably be determined by the
date of the letter of appointment by the Minister of Finance in accordance with s
69(2) of the Banks Act and not the date of the Government Gazette in which the
registrar announces the appointment in terms of the provisions of s 69(7) of the
Banks Act.)
This position had been addressed by the insertion of a definition of ‘netting’ in the
NPS Act and by rendering netting agreements and netting rules within the payment
system as binding upon a liquidator or a curator, as the case may be, of a clearing
or settlement system participant.
The NPS Act defines ‘netting’ as, ‘the determination of the nett payment
obligations between two or more clearing system participants within a payment
clearing house or the determination of the nett settlement obligations between two
or more settlement system participants within a settlement system’.
Section 8 furthermore provides that the provisions of the section apply despite
anything to the contrary contained in the law relating to insolvency, or in the
Companies Act, the Banks Act, the Co-operative Banks Act, the Postal Services Act
or the Mutual Banks Act (see s 8(1) of the NPS Act). This overriding of
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‘normal’ principles is further strengthened by the exclusion of arrangements made in
terms of s 8 in terms of s 35B of the Insolvency Act. [119]
If a curator or similar official is appointed to a clearing system participant or a
settlement system participant, the curator or similar official is bound by:
•
any provision contained in the settlement system rules or in clearing, netting
and settlement agreements to which that clearing system participant or
settlement system participant is a party or any rules and practices applicable
to the settlement system participant in relation to such agreements; and
•
any payment or settlement that is final and irrevocable in terms of s 5(2) or
(3) (s 8(2) of the NPS Act).
Similarly, a liquidator or similar official is bound by s 8(6). The effect of both
subsections is to make any provision contained in certain agreements or rules and
final and irrevocable settlements binding on a curator, liquidator or similar official.
As mentioned above, finality and irrevocability of settlements of both the Reserve
Bank settlement system and entries to, payments out of, and settlement in the
designated settlement system are ensured, which settlements are binding on the
curator, liquidator or similar official in terms of s 8(2) and s 8(6).
A curator or similar official appointed to a settlement system participant may give
written notice to the Reserve Bank to withdraw such participant’s participation in the
Reserve Bank settlement system. [120] In this event, the settlement system
participant will no longer be entitled to clear or participate in the Reserve Bank
settlement system, other than for purposes of discharging payment or settlement
obligations in accordance with the settlement rules or clearing, netting and
settlement agreements to which such settlement system participant is a party or
any rules and practices applicable to the settlement system participant in relation to
such agreements.
Furthermore, s 8(4) provides that
‘When an application for the winding-up of a clearing system participant or Reserve Bank
settlement system participant is made, a copy of —
(a)
the application for winding-up, when it is presented to court; and
(b)
any subsequent winding-up order, when it is granted must be lodged with the Reserve
Bank as soon as practicable.’
When such copy is lodged and the Reserve Bank settlement system participant in
respect of whom a copy is lodged with the Reserve Bank is a designated settlement
system participant, the Reserve Bank must as soon as practicable after having
received the copy, notify the designated settlement system operator.
(iii) The clearing system

A clearing system participant or settlement system participant in respect of whom a
copy of the winding-up order has been lodged with the Reserve Bank must no longer
be entitled to clear or participate in the Reserve Bank settlement system, other than
for purposes of discharging payment or settlement obligations in accordance with
the settlement rules or clearing, netting and settlement agreements to which such
settlement system participant is a party or any rules and
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practices applicable to the settlement system participant in relation to such
agreements. [121] In practice, the curator, liquidator or similar official will be bound to
any settlements that are final and irrevocable and any transactions that are already
in the system before the time of the announcement of withdrawal of participation.
Section 8(8) provides that, notwithstanding any written law or rule of law, a court
shall not give effect to:
•
an order of a court exercising jurisdiction under the law of insolvency of a place outside of
the Republic of South Africa; or
•
an act of a person appointed in a place outside of the Republic of South Africa to perform a
function under the law of insolvency there,
in so far as the making of the order or doing of the act would be prohibited under this Act
for a court in the Republic of South Africa or a curator or similar official or liquidator or
similar official.
This provision extends the protection against South African curators or liquidators to
foreign curators, liquidators or judgments.
There are a few motivations for deviating from the normal principles of liquidation
as contained in the Insolvency Act read with the Companies Act. First, the NPS
requires that all payments made by a system participant via the settlement system,
after an application for the winding-up of such a system participant has been lodged,
should not only be regarded as being valid, but should also be regarded as being
final and irrevocable up to the issue of the winding-up order. This exception is vital
for purposes of ensuring the safety, efficiency, effectiveness and stability of the
payment system as a whole.
Secondly, the nature of the NPS is such that settlement system participants are
constantly paying out and receiving funds. The effect of this interchange is that the
exception will not of necessity have the effect of diminishing the estate of an
‘insolvent’ system participant, but could well allow the estate to increase. One of the
main purposes of the provisions of the Companies Act is to ensure that a company
does not deliberately diminish its estate by disposing of its assets during the period
as from the application for the winding-up to the issue of the winding-up order.
Thirdly, the rules of exception will be applicable only to settlement system
participants and only with regard to settlement instructions within the settlement
system. It is submitted that it is in practice, highly unlikely that a settlement system
participant will be able to dispose of its assets, with a view to effecting a disposition
in contravention of insolvency law, via the payment and settlement system.
Fourthly, settlement obligations emanate from payment obligations that are
generated by the clients of settlement system participants. The settlement of inter-
bank obligations can be viewed as a service performed by settlement system
participants on behalf of their clients, the general public. It can therefore be argued
that it is also in the public interest that settlements in the payment and settlement
system are in law regarded as final and irrevocable.
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‘Clearing’ constitutes the middle layer of the onion. In terms of the Vision 2010,
accessibility for participation in various levels of the payment system is balanced
with the reduction of risks in the payment system [122] Technological advances have
made it possible for large non-bank corporations that have more than one banker,
to acquire the technology necessary to clear inter-bank obligations and to transmit
only the netted result to the paying bank. Since this practice would conceal certain
risks within the system, it could pose a systemic risk. In order to ensure that this is
protected adequately, the term ‘clearing’ is clearly defined in the NPS Act, as well as
participation in the clearing system.
To this end, the NPS Act defines ‘clearing’ as, ‘the exchange of payment
instructions’. In turn, a ‘payment instruction’ refers to an instruction to transfer
funds or make a payment. [123] A new definition of ‘clearing system participant’ has
been introduced in the recent amendments to the NPS Act pursuant to the Financial
Services Laws General Amendment Act. [124] Such ‘clearing system participant’ is
now defined as a ‘bank, a mutual bank, a co-operative bank, a branch of a foreign
institution or designated clearing system participant that clears in the manner
contemplated in section 4(2)(d)(i)’. A ‘designated clearing system participant’, in
turn, is defined as a person ‘specified in the notice referred to in section 6(3)(a)’.
Furthermore, in terms of s 6 of the NPS Act, no person may clear payment
instructions unless that person is a bank, a mutual bank, a designated clearing
system participant, a co-operative bank, or a branch of a foreign institution that is
allowed to clear in terms of s 4(2)(d)(i). Section 4(2)(d)(i) provides for so-called
‘sponsorship arrangements’, in terms of which a bank either clears and settles on
behalf of another bank, or such other bank does its own clearing, but its obligations
are settled by the first-mentioned bank. Finally, such person may not clear in terms
of the sponsorship arrangement unless, in the case where a payment system
management body has been recognised, such person is a member of the payment
system management body (s 3(5) of the NPS Act). It would therefore appear that a
designated clearing system participant may clear if such a participant has been
designated by the Reserve Bank in terms of criteria set out in s 6(3), similarly to a
designated settlement system.
At present there are quite a number of payment streams, which are actually
individual payment systems, which allow for clearing of payment instructions
through the clearing system or as a result of ‘on-us’ payments. ‘On-us’ payments
refer to payment obligations that arise within the same bank and do not lead to
inter-bank settlement. [125] However, clearing of the majority of payment obligations
takes place pursuant to BANKSERV, the successor to the Automated Clearing Bureau
(ACB). BANKSERV is a ‘PCH System Operator’ (payment clearing house system
operator) as defined in the NPS Act, as it clears on behalf of two or more (bank)
settlement system participants. [126] It is licensed by the payment
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system management body, the Payments Association of South Africa, referred to as
‘PASA’. In this middle layer, the payment system management body plays an
important role. The role of this body is dealt with in the next paragraph.
(iv) The role of the payment system management body

The Blue Book required that a payment system management body should be
established which would be open to all banks wishing to participate within the
payment system. Increased access to the payment system is echoed in Vision
2010. [127] Membership should, furthermore, be subject to equitable risk-based entry
criteria. Such a body would then be able to control its members and thereby
effectively regulate the payment system. The Reserve Bank, as overseer of the
payment system, is closely involved in such a body. The NPS Act ensures that the
establishment and subsequent management of such a body conform to the
principles as set out in the Blue Book. In this regard, the PASA was established by
the banking industry during 1996 and has been recognised as a payment system
management body by the Reserve Bank.
The NPS Act provides that ‘the Reserve Bank may recognise a payment system
management body if the Reserve Bank it is satisfied that
•
the payment system management body, as constituted, fairly represents the
interests of its members;
•
the provisions of the deed of establishment or constitution, as the case may
be, as well as the rules, including rules relating to admission to membership,
of the payment system management body are fair, equitable and transparent;
and
•
the payment system management body will enable the Reserve Bank to
oversee adequately the affairs of the payment system management body and
its members and will assist the Reserve Bank in the discharge of the Reserve
Bank’s responsibilities, specified in s 10(1)(c)(i) of the South African Reserve
Bank Act, regarding the monitoring, regulation and supervision of payment,
clearing or settlement systems’ (see s 3(2) of the NPS Act).
The Reserve Bank may withdraw its recognition of the payment system
management body if it is no longer satisfied that the payment system management
body complies with the requirements mentioned above and after it has consulted
with the members of the payment system management body. The withdrawal of
recognition will not affect any arrangements made, including rules and agreements,
or authorisations given by the payment system management body prior to such
withdrawal (see in this regard s 3(2A) of the NPS Act).
Apart from the Reserve Bank, the following may also be members of the payment
system management body: namely a bank, mutual bank or branch of a foreign
institution and an institution or body referred to in s 2 of the Banks Act and in
paragraph (dd)(i) of the definition of ‘the business of a bank’ in s 1 of the
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Banks Act that complies with the entrance and other applicable requirements laid
down in the rules of the payment system management body. [128]
The latter refers to bodies ‘exempted’ or ‘excluded’ in terms of the Banks Act. In
terms of the 2004 amendments, these bodies or institutions could be granted limited
membership of the payment system management body if they comply with the
criteria for limited membership recommended by the payment system management
body for approval by the Reserve Bank. However, the concept of ‘limited
membership’ has been removed from the Act through the use of another concept,
namely that of designation of clearing system participant. [129] There has been
considerable political pressure to broaden access of this layer to non-banks and the
above amendments seem to give effect to such broadened access.
Section 4 provides for the objects and rules of such a payment system
management body. It is important to note that the scope of the payment system
management body has been broadened. The payment system management body
may organise, manage and regulate, in relation to its members, all matters affecting
payment instructions. This means that this extends from payer to beneficiary, in
relation to its members. It is submitted that the broadening of access to the
payment system has to be balanced by certain regulatory measures aimed at
reducing risk within the NPS. This may have implications for the Reserve Bank as a
regulator and PASA as the de facto co-regulator in this layer. The criteria for
participation in the SAMOS system as established by the Reserve Bank in
consultation with PASA would most probably have measures in place that will ensure
the continued safety, efficiency and effectiveness of the NPS. The continued good
working relationship between the Reserve Bank and PASA would be crucial.
(v) Payments to third persons and other non-bank players

Vision 2010 envisaged the broadening of access to the NPS to include both banks
and non-banks. [130] This layer comprises individual payment systems and includes
the payer, beneficiary and the payment networks which connect the clients
(corporate and individual) with their banks, settlement system participants and/or
‘system operators’. A ‘system operator’ refers to any person who provides services
to one or more settlement system participants in respect of payment
instructions. [131] These services usually refer to technological services (see the
definition in s 1 of the NPS Act).
The ‘non-bank’ system participants are most prevalent in the outer layer. The
NPS Act provides for non-bank participants by providing for payments to third
persons. Payment intermediation can be described as the practice in terms of which
funds are entrusted by a payer to an intermediary who is required to pay those
funds to a third person on behalf of such payer. Where the intermediary is a
settlement system participant, its activities will be regulated and supervised in terms
of the provisions of the Banks Act or Mutual Banks Act. However, where
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the intermediary is a non-bank, performing third party payment services on behalf
of members of the public as a regular feature of its business, the following situations
arise:
First, where the intermediary acts as the duly appointed agent of the third party
(payment beneficiary), the legal rules pertaining to the common-law rules of agency
will afford the payer legal protection. For instance, where a customer (member of
the public) effects payment of his municipality account at a retailer and the retailer
has been duly appointed as the agent of the municipality to accept payments on its
behalf, the common law stipulates that, where the payer can prove payment to the
agent (retailer), it will be regarded as being payment to the principal (municipality).
Where the intermediary (retailer) becomes insolvent, the payments made to it by
the public to settle third party (for example, municipality) accounts, will be deemed
to have been made to such third party. This will ensure that members of the public
are protected with regard to such payments and that the principal (municipality) will
have to recover all such payments from its duly appointed agent, the
retailer. [132] However, where the intermediary acts as the agent of the public to
collect their funds and to pay their accounts to third parties on their behalf,
members of the public are at risk. Prior to 2004, such practices were unregulated.
Since the Post Office and Postbank are unique institutions providing third party
payment services as described above, and since both institutions are established
and regulated by an Act of Parliament, which includes the financial support of
government, the risks to the public are greatly reduced. For this reason it was
recommended that the above-mentioned institutions be exempted from any
provision that might prohibit or formalise the above-mentioned practices.
The payment intermediation process as explained above could not be
implemented, hence the move to ‘payments to third persons’ brought about by the
2004 amendments. The section has been amended from a restrictive provision to an
enabling section. It provides that a person may, as a regular feature of that person’s
business, accept money or payment instructions from any other person for purposes
of making payment on behalf of that other person to a third person to whom that
payment is due, if
•
the first-mentioned person is the Reserve Bank, a bank, mutual bank, a co-
operative bank, a designated clearing system participant or branch of a
foreign institution or a designated settlement system operator; or
•
the first-mentioned person is the postal company defined in s 1 of the Post
Office Act or the Postbank as defined in s 51 of the Postal Services Act; or
•
the money is accepted or payment made in accordance with directives issued
by the Reserve Bank from time to time in terms of s 12. [133]
It is evident from the above that the inclusion of the ‘designated clearing system
participant’ would further widen access to this layer of the onion as such clearing
system participant would also be able to provide payments to third parties as
envisaged in s 7.
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3.3.3 The National Credit Act

This part of the chapter deals only with the regulatory aspects pertaining to banks in
accordance with the National Credit Act (NCA). To this end, the chapter deals with
the requirements only.
As far as registration of credit providers is concerned, the Act provides that a
person must apply to be registered as a credit provider if the person, alone or in
conjunction with any associated person, is the credit provider under at least 100
credit agreements, other than incidental credit agreements, or the total principal
debt owed to that credit provider under all outstanding credit agreements, other
than incidental credit agreements, exceed the threshold published in the Gazette by
the Minister under s 42. Banks, of course, had to apply to become registered
financial services providers in terms of the National Credit Act.
A registration issued in terms of the Act is valid throughout the Republic and
authorises the registrant to conduct, engage in or make available the registered
activities at any place within the Republic It is a condition that the registrant permit
the National Credit Register (NCR) or any person authorised by the NCR to enter any
premises and to comply with the provisions of the NCA as well as the Financial
Intelligence Centre Act and any applicable legislation within any province in which
the registrant conducts, engages in or makes available the registered activities.
Upon registration the NCR must issue a prescribed certificate of registration to the
applicant and in the case of associated persons, a duplicate copy. The NCR must
also enter the registration in the register and assign a unique registration number to
that registrant. A registration certificate must contain the identity of the registrant,
the activities that the registration permits the registrant to engage in and any other
prescribed information. A valid certificate or duplicate certificate of registration is
prima facie proof of registration. [134] Registration takes effect on the date on which
the certificate or duplicate certificate is issued and subject to timely payment of the
prescribed registration renewal fees. Such registration remains until the registrant is
deregistered or the registration is cancelled in terms of the Act.
3.3.4 The Consumer Protection Act

The Consumer Protection Act (CPA) was enacted to support and advance the
economic welfare of consumers in South Africa. [135] The Act does this by protecting
the rights of consumers, but also by encouraging a culture of consumer
responsibility. The CPA applies to:
•
every transaction within the RSA, except if exempted by the Act; [136]
•
the promotion of any goods or services or of the supplier of any goods and
services within the Republic, unless the goods or services could not
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reasonably be the subject of a transaction under the Act or unless the
promotion of those goods or services are exempted; [137]
•
goods or services that are supplied or performed in terms of a transaction to
which the Act applies (it does not matter whether the goods or services are
offered or supplied with other goods or services or separately); [138] and
•
goods that are supplied in terms of a transaction that is exempt, but the
goods and the importer, distributor and retailer of those goods are still subject
to certain sections of the Act. [139]
The Act applies only if goods and services are marketed to the consumer, if the
consumer entered into a transaction with a supplier (unless exempted), if the
consumer is a user or recipient or beneficiary of goods or services even if such
person is not a party to the transaction. Furthermore, the CPA applies to franchises
and franchise agreements. Goods are anything that is marketed for human
consumption, anything tangible including any medium on which it may be written or
encoded or any literature (books, etc), music, photograph, film, game, information,
data, software, code or intangible (cannot be touched or seen) or a licence to use
any intangible product (for example, a software licence). The definition also includes
a legal interest in land or any other immovable property and gas, water and
electricity.
A ‘service’ [140] includes, inter alia, the following:
(a)
The provision of education, information, advice or consultation, except advice
in terms of the Financial Advisory and Intermediary Services Act 37 of 2002
(hereinafter ‘the FAIS Act’).
(b)
Any banking services or related financial services or the undertaking,
underwriting or assumption of risk by one person on behalf of another except
if it is advice or intermediary services in terms of the FAIS Act or if the
banking service is regulated in terms of the Long-term (52 of 1998) or Short-
term (53 of 1998) Insurance Act.
(c)
The supply of any goods or services in the ordinary course of business to any
of its members by a club, trade union, association, society or other
collectivity, whether corporate or unincorporated, of persons voluntarily
associated and organised for a common purpose or purposes, whether for fair
value or consideration or otherwise, irrespective of whether there is a charge
or economic contribution demanded or expected in order to become or remain
a member.
The CPA provides for eight consumer rights, which are the
•
right to equality;
•
right to privacy;
•
right to choose;
•
right to disclosure of information;
•
right to fair and responsible marketing;
•
right to fair and honest dealing;
•
right to fair, just and reasonable terms and conditions; and
•
right to fair value, quality and safety.
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A detailed discussion of all these rights falls outside of the ambit of this discussion. If
one were to take just one of the eight rights, namely the right to fair and
responsible marketing, [141] it is evident that the implications for banks are the
following:
(a)
The CPA has a general standard for marketing of goods and services, namely
that a producer, distributor, retailer or service provider must not market any
goods in a manner that is reasonably likely to imply a false or misleading
representation or in a manner that is misleading, fraudulent or deceptive in
any way. [142]
(b)
A bank as supplier must not advertise any goods or services as being
available at a specified price in a manner that may mislead or deceive
consumers as to the actual availability of those goods of services at the
advertised price AND the supplier must make the goods or services available
at the advertised price to the extent of the expressed limits. [143]
(c)
No negative option marketing is allowed. This means that a bank supplier
must not promote, offer or induce a person to accept goods or services on the
basis that the goods or services are to be supplied or the agreement will
automatically come into existence unless the consumer declines the offer or
inducement; such agreement is void (s 31) (author’s own emphasis). [144]
(d)
If a bank uses direct marketing, the consumer must be informed of the right
to a cooling-off period. [145]
(e)
In the case of catalogue marketing, the CPA provides for certain information
to be included, for example the supplier’s name and licence or registration
number, address, currency, cancellation policy, etc. [146]
(f)
The CPA has very strict requirements for sponsors or suppliers of trade
coupons, customer loyalty programmes, promotional competitions and
alternative work schemes. [147]
(g)
With regard to referral selling, the CPA provides that a person must not
promote, offer, supply, agree to supply or induce a consumer to accept any
goods or services on the representation that the consumer will receive a
rebate, commission or other benefit if the consumer subsequently gives the
supplier the names of consumers or otherwise assists the supplier to supply
goods or services to other consumers (s 38) and that rebate, commission or
other benefit depends on an event occurring after the consumer agrees to the
transaction. [148]
(h)
An agreement with a person lacking legal capacity (for example, a mentally
unfit person) is void. [149]
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(i)
An agreement with a minor is voidable if the minor is an unemancipated
minor at the time of the agreement, [150] the agreement was made without the
consent of an adult responsible for the minor [151] and the agreement has not
been fully ratified by such an adult or the consumer (minor) after being
emancipated or becoming an adult. [152]
Some of the marketing practices sometimes used by the banking industry include
direct marketing, referral sales, negative option marketing, to name but a few. With
regard to direct marketing, [153] the CPA provides that a consumer may either refuse
to accept, pre-emptively block, or require another person to discontinue any
communication which may be seen as direct marketing. This may include telephone
calls, e-mails, brochures or letters in the mail. The National Consumer Commission
will facilitate the establishment of a registry where a consumer may register his/her
particular preference, for example, that a consumer wishes not to receive any direct
marketing. This is called a pre-emptive block. [154] Where the consumer agreed to
receive marketing material, he/she now wishes to changes his/her mind and
requires the marketer to stop marketing to him/her directly. This means that banks
would have to ensure that they have measures in place to receive and record
consumers’ specific preferences, at no cost to the consumer, and abide by the
wishes of the consumer so expressed. [155] In addition, the Minister (of Trade and
Industry) may prescribe certain times when consumers may not be contacted, for
example, during public holidays or after a certain time at night. [156]
3.3.5 The Financial Advisory and Intermediary Services Act [157]
(i) Overview and concepts

The object of the FAIS Act is to regulate the rendering of certain financial advisory
and intermediary services to clients. The term ‘advice’ is defined in the Act as,
subject to exclusions in s 1(3)(a), as ‘any recommendation, guidance or proposal of
a financial nature furnished, by any means or medium, to any client or group of
clients, in any of a number of ways’. This could be in respect of the purchase of any
financial product, or in respect of the investment in any financial product, or on the
conclusion of any transaction, including a loan or session aimed at incurring of any
liability or the acquisition of any right or benefit in respect of any financial product.
It can also be on the variation of any term or condition applying to a financial
product, on the replacement of such product, or on the termination of any purchase
of or investment in any such product. A ‘financial product’ means securities and
instruments (shares, debentures, money market instruments, warrants, negotiable
certificates of deposits, etc), a participatory
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interest in one or more collective investment schemes, a long-term or short-term
insurance contract or policy, a benefit in terms of a pension fund or friendly society,
a foreign currency denominated investment instrument, a deposit as defined in the
Banks Act, a health service benefit in relation to a medical scheme, any combination
of the aforementioned, any similar product declared to be included by the registrar
by notice in the Gazette, after consultation with the Advisory Committee; and any
financial product issued by a foreign product supplier and marketed within the
Republic.
A financial service provider means any person other than a representative who,
as a regular feature of the business of the person, furnishes advice or furnishes
advice and renders an intermediary service or renders an intermediary service. A
representative refers to any person who renders a financial service to a client for or
on behalf of a financial services provider, but excludes a person rendering clerical,
administrative, technical, legal, accounting or other service in a subsidiary or
subordinate capacity, if the service does not require judgement on the part of the
person and does not lead to the client entering into any financial transaction in
respect of a financial product. Another person of note is a ‘key individual’; that is, a
corporate or unincorporated body, trust or partnership or a corporate body or trust
consisting of only one member, director or shareholder or trustee, who is
responsible for managing or overseeing the activities of the body, trust or
partnership relating to the rendering of any financial service. It is evident that what
is meant here is an executive/director who manages or oversees the activities of
such a body.
Since banks do provide recommendations, guidance and proposals of a financial
nature in the manner contemplated by this definition, it is clear that banks do
provide ‘advice’ in terms of the FAIS Act.
The FAIS Act also defines ‘intermediary services’, subject to the exclusions in s
1(3)(b), as any act other than the furnishing of advice performed by a person for or
on behalf of a client or product supplier which has the following consequences;
It results in the client entering into or offering to enter into or that the client may
enter into any transaction in respect of a financial product with a product supplier;
or
The service is provided with a view to:
•
buying, selling or otherwise dealing in, managing, administering, keeping in
safe custody, maintaining or servicing a financial product purchased by a
client from the product supplier or in which the client has invested;
•
collecting or accounting for premiums or other moneys payable by the client
to a product supplier in respect of a financial product; or
•
receiving, submitting or processing the claims of a client against a product
supplier.
For the purposes of the Act, a financial product does not include any exempted
financial product. [158] An intermediary service does not include the following
categories:
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•
the rendering by a bank or mutual bank of an intermediary service (as
defined) where the bank or mutual bank acts merely as a conduit between a
client and another product supplier;
•
an intermediary service rendered by a product supplier who is authorised
under a particular law to conduct business as a financial institution and where
the law rendering such a service is regulated by or under such law; or
•
any other service exempted from the provisions of the Act by the registrar
after consultation with the Advisory Committee, by notice in the Gazette. [159]
It is important to further note that the Act applies only to the rendering of a financial
service in respect of a depositor with a term not exceeding 12 months by a provider
which is a bank or mutual bank, to the extent that such application is regulated in
the General code of conduct for authorised financial services providers and
representatives, 2003. [160]
(ii) Authorisation of a bank as a financial service provider

A person may not act or offer to act as a financial services provider unless such
person has been issued with a licence under s 8 of the Act. [161] However, a
transaction concluded between a client and a product supplier by virtue of any
financial service rendered by a person not authorised as a financial service provider
is, subject to the provisions of s 40, [162] not unenforceable as between the product
supplier and the client merely by reason of such lack of authorisation.
An application for authorisation as a financial service provider must be submitted
to the registrar in the form and manner determined by the registrar by notice in
the Gazette. This application must be accompanied by information to satisfy the
registrar that the applicant complies with the requirements for fit and proper
financial services providers or categories of providers, determined by the registrar
by notice in the Gazette, after consultation with the Advisory Committee. This is in
respect of the personal character qualities of honesty and integrity, the competence
and operational ability of the applicant to fulfil the responsibilities imposed by the
Act and the applicant’s financial soundness. In the case where the applicant is a
partnership, trust or a corporate or unincorporated body, the applicant must, in
addition, satisfy the registrar that such key individuals comply with the requirements
in respect of personal character, qualities of honesty and integrity and competence
and operational abilities to the extent required. This is done in order for the key
individual to fulfil the responsibilities imposed on the key individual by the Act. [163]
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The registrar may require additional information from the applicant or verification
of the information furnished as the registrar may deem necessary. The registrar may
also take into consideration any other information regarding the applicant, derived
from whatever source, including the Ombud and any other regulatory or supervisory
authority, if such information is disclosed to the applicant and such applicant is
afforded a reasonable opportunity to respond to the information. [164]
The registrar must, after consideration of an application, if satisfied that an
applicant complies with the requirements of the Act, grant the application or, if not
so satisfied, refuse the application. [165] The registrar may impose conditions and
restrictions on the granting of the application. [166] Where an application is granted,
the registrar must issue to the applicant a licence authorising the applicant to act as
a financial services provider in the form determined by the registrar by notice in
the Gazette and such number of certified copies of the licence as the licensee may
require. [167] The registrar may at any time after the issue of the licence, on
application by the licensee or on his or her own initiative, withdraw or amend any
condition or restriction in respect of the licence, after having afforded the licensee a
reasonable opportunity to make submissions on the proposed withdrawal or
amendment. The registrar may do so after having considered the submissions of the
licensee, if the registrar is satisfied that any such withdrawal or amendment is
justified and will not prejudice the interests of clients of the licensee. The registrar
may also, at any time after the issue of a licence, pursuant to an evaluation of a new
key individual, or change in personal circumstances of a key individual, impose new
conditions on the licensee after having given the licensee a reasonable opportunity
to be heard [168] and having furnished the licensee with reasons for the withdrawal of
the licence. [169]
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Where an application is refused the registrar must notify the applicant and furnish
reasons for the refusal. [170]
A licensee must display a certified copy of the licence in a prominent and durable
manner within every business of the licensee. The licensee must furthermore ensure
that a reference to the fact that such a licence is held is contained in all business
documentation, advertisements and other promotional material. Finally, the licensee
must ensure that the licence is at all times immediately or within a reasonable time
available for production to any person requesting proof of licensed status under
authority of a law or for the purpose of entering into a business relationship with the
licensee. [171] A person may not in any manner make use of any licence or copy
thereof for business purposes where the licence has lapsed or has been withdrawn,
or subject to s 9(2), during any time when the licensee is under provisional or final
suspension in terms of s 9. [172]
The registrar may at any time suspend any licence if the registrar is satisfied, on
the basis of available facts and information, that the licensee no longer meets the
requirements contemplated in s 8 as discussed above, and irrespective of whether
the registrar has taken or followed, or is taking or following any step or procedure
referred to in s 4. All that the registrar has to do [173] in the circumstances before
suspending any licence is to inform the licensee of the intention to suspend and the
grounds therefor; the intended period of the suspension; and any terms to be
attached to the suspension. These terms include a prohibition on concluding any
new business by the licensee as from the effective date of the suspension and, in
relation to unconcluded business, such measures as the registrar may determine for
the protection of the interests of clients of the licensee. The terms could also include
terms designed to facilitate the lifting of the suspension. The registrar must give the
licensee a reasonable opportunity to make a submission in response. The registrar
must consider any such response and may thereafter decide to suspend or not to
suspend and must notify the licensee of the decision.
Where the licence is suspended, the registrar must make known the terms of the
suspension or subsequent lifting of the suspension by notice in the Gazette and, if
necessary, make an appropriate public media announcement to that effect.
Despite the aforegoing, the registrar may under urgent circumstances where the
registrar is satisfied on reasonable grounds that substantial prejudice to clients or to
the general public may occur, provisionally suspend a licence and make known such
provisional suspension by notice in the Gazette and, if necessary, by appropriate
public media announcement. The registrar must inform the licensee of the grounds
for the suspension and the period and terms attached to the suspension; and give
the licensee a reasonable time to respond thereto and to provide reasons why the
provisional suspension should be lifted or why the period and terms should be
changed. [174] The registrar must within a reasonable period of receiving the
response consider the response. The registrar may thereafter decide
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to lift the provisional suspension or to render the suspension final and must inform
the licensee accordingly. Should the registrar decide to render the suspension final,
the registrar must make known the terms of any final suspension by notice in
the Gazette and, if necessary, in any other appropriate public media announcement.
The same procedure follows should the registrar decide to lift the suspension of the
licence. During any period of suspension, whether provisional or final, the licensee is
for the purposes of the Act regarded as a person who is not authorised to act as a
financial services provider. [175]
The registrar may at any time withdraw any licence if satisfied on the basis of
available facts and information that the licensee did not, when applying for the
licence, make a full disclosure of all relevant information to the registrar, or
furnished false or misleading information or has since issue of the licence
contravened or failed to comply with the provisions of the Act in a material
manner. [176] The same procedure as in the case of suspension of a licence applies
with the necessary changes to a withdrawal of a licence. A person whose licence has
been withdrawn is debarred for a period specified by the registrar from applying for
a new licence. This period may be varied by the registrar, if good cause is
shown. [177]
A licence lapses in the following instances:
•
where the licensee is a natural person when such licensee becomes
permanently incapable of carrying on any business due to physical or mental
disease or serious injury, is finally sequestrated or dies;
•
where the licensee, being any other person, is finally liquidated or dissolved;
•
where the business of the licensee has become dormant; and
•
in any other case, where the licensee voluntarily and finally surrenders the
licence to the registrar. [178]
The registrar must be advised by the licensee, any key individual of the licensee or
another person in control of the affairs of the licensee of the lapsing of a licence and
the reasons therefor. The registrar must make known any such lapsing of a licence
by notice in the Gazette and, if necessary, by means of any other appropriate public
media announcement. [179]
In view of the above, a compliance officer of a bank should take note of the
licensing requirements and conditions that may be attached thereto.
3.3.6 The Prevention of Organised Crime Act and the Financial

Intelligence Centre Act
(i) Overview
South Africa has criminalised money laundering in three separate provisions of the
1998 Prevention of Organised Crime Act (POCA), [180] which cover the conversion or
transfer, concealment or disguise, possession and acquisition of
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property in a manner that is largely consistent with the 1988 United Nations
Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances
(Vienna Convention) and the 2000 UN Convention against Transnational Organised
Crime (Palermo Convention). POCA provides for both criminal and civil forfeiture.
The former is based on conviction of the offender whereas the latter is not
dependent on conviction. [181]
Terrorist financing is criminalised in South Africa in s 4 of the Protection of
Constitutional Democracy against Terrorist and Related Activities Act
(POCDATARA). [182] The POCDATARA is comprehensive and criminalises the collection
or provision of property with the intention that it be used for the purpose of
committing a terrorist act, or by a terrorist organisation or individual terrorist for
any purpose.
Comprehensive AML/CFT [183] preventative measures have been implemented in
South Africa through the application of the 2001 Financial Intelligence Centre Act
(FICA) [184] and the Money Laundering and Terrorist Financing Control Regulations
(MLTFC Regulations), read with various exemptions in terms of the Financial
Intelligence Centre Act (Exemptions). The FICA has since been amended in 2008 by
the Financial Intelligence Centre Amendment Act, which addressed, inter alia, some
of the supervisory concerns raised in the FATF [185] mutual evaluation of South Africa
undertaken in 2008. [186] While the POCA is the primary piece of legislation in terms
of outlining activities that constitute money-laundering offences, it does not outline
the measures to be implemented to suppress and detect money laundering. Such is
provided for in the FICA, which is the principal piece of legislation in terms of
outlining AML measures.
South African AML and CFT laws primarily affect banking transactions via the
customer due diligence (CDD) requirements that they place upon financial
institutions. The CDD measures of the FICA and the POCDATARA are set out in the
FICA, read with the MLTFC Regulations. The nature of these CDD requisites and their
impact upon mobile money transactions are examined below.
(ii) Customer identification and verification

Section 21 of the FICA places an obligation upon ‘accountable institutions’ to
establish as well as verify the identity of their clients. The First Schedule to the Act
outlines which institutions are accountable institutions in terms of the Act and
amongst those listed are banks as well as money remitters. The FICA prohibits these
institutions from establishing a business relationship or concluding a single
transaction with a person unless they have taken steps to:
•
establish as well as verify the identity of the client; and
•
if the client is acting on behalf of another person, or alternatively, if the
person acts on behalf of the client, the institution must establish and verify
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the identity of the other person and their authority to act on behalf of the
client, or as the case may be, the client’s authority to act on behalf of another
person.
Should an accountable institution open an account or conclude a single (once-off)
transaction without duly identifying the client it commits an offence in terms of
FICA. [187] The penalty for such an offence is imprisonment for a maximum period of
15 years or a fine of R100 million (USD 12 million). [188]
The MLTFC Regulations, which have to be read in conjunction with the FICA, give
more intrinsic details in regard to how customer identification and verification of
such is to be carried out. [189] The regulations state that, when establishing and
verifying the identity of a client, the following information must be obtained. In the
case of citizens, their full name, date of birth, identification number, residential
address, and tax registration number. [190] In the case of foreigners, in addition to
the ordinary information that a citizen must provide, they are required to give
details of their nationality as well as passport number. [191]
The FICA, in contrast to the Exchange Control Act and its regulations, does not
put a duty on financial institutions to determine whether their clients are legally
present in South Africa. Hence non-citizens are not required to provide details of
their residence or work permit in order for financial institutions to comply with the
FICA provisions. [192]
A person’s identity has to be verified by means of an identification
document. [193] In the case of South African citizens and residents, an official
national identity document would need to be presented whereas foreigners would
have to present a passport. [194] Residential addresses are to be verified using
documents such as a utility bill. [195] Records of, among other information, a client’s
identity, as well as transaction amounts, must be kept for a period of five years from
the date that the business relationship is established or the transaction is
concluded. [196]
The regulator was mindful of the fact that the need to present an identity
document could prevent individuals without such a document from accessing formal
financial services and hence created room for exclusion. The MLTFC regulations
therefore allow financial institutions, in circumstances where it is deemed to be
reasonably acceptable for a person to be unable to provide an identity document, to
rely on another document issued to that person that bears the following:
(a)
a photograph of the person;
(b)
the person’s full name or initials and surname;
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(c)
the person’s date of birth; and
(d)
the person’s identity number. [197]
Examples of documents that can be accepted as an alternative form of verification in

exceptional circumstances are a valid South African driver’s licence or passport as
well as a valid temporary identity document issued by the Department of Home
Affairs. [198] The latter documents should be valid in the sense that they must be
current and unexpired.
This exemption is not, however, applicable to individuals who are not South
African citizens or residents, as no mention of such is made within the regulations. If
the regulations are strictly implemented, migrants who have neither a passport nor
valid travel document in their possession would be unable to access formal
remittance services. It is submitted, however, that even if the exception were
applicable to foreigners it would likely be of little effect taking into account that
studies show that financial institutions such as banks have been hesitant to exercise
the discretion bestowed upon them by Regulation 6. [199] The conservative approach
has been attributed to the significant fines that are associated with money-
laundering offences. [200]
Ideally the information gathered in identifying a client should enable a financial
institution to form a client profile. According to De Koker, many South African
institutions are unable to form an individual comprehensive client profile for general
financial services customers that would support effective AML/CFT monitoring for
unusual activity. [201] This is due to the fact that under ordinary circumstances
financial institutions are obliged only to obtain information that pertains to the
personal identity of the client. Such particulars play only a small role in building a
client profile and are insufficient to enable a financial institution to effectively detect
suspicious financial activity by a client.
For a client profile to effectively be established, information such as the source of
the client’s income would be needed. Financial institutions are obliged only to obtain
such information in the case of business relationships or transactions that present a
high risk of facilitating money-laundering activities. [202] In circumstances where a
business relationship or once-off transaction presents a high risk of facilitating
money laundering or where it is necessary for a financial institution to identify the
proceeds of unlawful activity or money laundering the following, inter alia, must be
ascertained:
•
the source of the client’s income; and
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•
the source of the funds which the client intends to use to conclude the
transaction or series of transactions in the course of a business relationship.
The procedure prescribed by the current reg 21 is essentially a ‘Know Your
Customer’ or CDD procedure, in contrast to the ordinary procedure of identifying
clients, which is merely a ‘Client Identification and Verification’ procedure. [203]
(iii) The provision and verification of a residential address

The obligation to provide an address and the need for such to be verified appears to
have been the chosen safeguard against identity fraud. The value of providing a
residential address for purposes of identifying a customer has been questioned. It is
argued that such a requirement may be more useful in developed countries without
a system of national identity numbers, but with rich sources of data on their
residents. [204] In such countries, addresses are helpful to distinguish between
different people with similar names, but are less functional in countries with
comprehensive national identification systems. Once an accountable institution
obtains a client’s name, date of birth and unique national identity number, there is
no need for it to obtain a residential address. Requiring address verification under
these conditions does not add significant identification value, but causes undue
hardship for customers who often lack formal addresses.
De Koker argues that the negative impact of residential address verification
increases as a result of the high level of internal migration in South Africa. [205] Such
arguments become relevant when one considers the practical difficulties that have
been experienced in South Africa in verifying the residential addresses of individuals.
In South Africa, the verification of a client’s address has presented certain
difficulties, particularly with low-income individuals. [206] The drafters of the FICA and
its regulations were aware of the fact that individuals who lived in informal
settlements and rural areas could face problems in verifying their residential address
in accordance with the regulatory requisites. [207] As a consequence, room for
exception from the need to provide a residential address was created by means of
‘Exemption 17’. The latter is contained within the schedule to the MLTFC
Regulations. [208]
(iv) Enhancing financial inclusion: Exemption 17

Exemption 17 relieves certain financial institutions from the general obligation
placed upon them by s 21 of the FICA, which requires them to attain as well as
verify their customer’s residential address. The exemption is applicable only if
certain requirements are fulfilled. Exemption 17 was included in the original set of
exemptions, but it proved of little value in practice as the requirements were too
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rigid and could not be met by many unbanked persons. Exemption 17 was therefore
revised in 2004. [209]
The amendments were informed by actual market research and take the needs of
the financially excluded into account. [210] According to Isern and De Koker, this
framework allows ‘financial institutions to verify a person’s identity using the
national ID document without having to verify the person’s residential address if the
financial product meets a certain balance limit (US$3 000) and transaction
restrictions (US$600 per day)’. [211] The amended Exemption 17 facilitated the
launch of the Mzansi account [212] that has reportedly brought more than 6 million
people into the formal financial sector. [213]
The Financial Intelligence Centre (FIC) has, in addition, issued guidance notes as
contemplated in s 4(c) of the FICA, which provide guidance to banks regarding
which documents qualify as acceptable verification documentation. In establishing
and verifying customer identity, banks are encouraged to undertake a ‘risk-based
approach’ as opposed to following a ‘one-size-fits-all approach’. [214]
Exemption 17 also enabled the creation of a simplified CDD framework for mobile
money. The Banks Act Guidance Note of 2008 issued by the Registrar of Banks
brought mobile banking products within the framework of Exemption 17. The
product is offered to clients via a non-face-to-face process, which must be followed
only on the basis of the minimum set of criteria being met. Importantly, however, a
lower daily transaction limit of R1 000 (US$120) per day is set. [215] If a client wishes
to exceed this limit, the normal verification procedures would have to be followed.
Finally, the Guidance Note states that the ‘expansion of banking services should not
happen to the detriment of control measures that are aimed at facilitating the
detection and investigation, or even the prevention, of money laundering and
terrorist financing through banks’. [216]
Asylum seekers have been dealt a major blow by the May 2010 FIC advisory
issued to banks that banks are not allowed to transact with asylum seekers based
on the official certificates and permits issued by the South African Government. This
means that an asylum seeker is barred from opening a bank account and conducting
transactions until the application for asylum has been processed, asylum granted,
and the refugee issued with a more formal maroon South African refugee document.
Before the issuing of the interpretation, they were allowed to rely on the permits
and licences to open accounts. Since the interpretation was
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issued, asylum seekers have reported that banks have also refused them permission
to withdraw their funds from the accounts that they have previously opened, causing
severe personal hardship. [217] Not only was the FIC advisory ineffective
communication, it was also confrontational and upset a practice which banks had
adopted as early as 2003.
A compromise has since been reached following litigation challenging the position
of the FIC, allowing banks to accept asylum documentation to verify identity only
after verifying the authenticity of the document with the South African Department
of Home Affairs. [218] Despite the compromise, the hardship for undocumented
migrants deepened when they lost their access to mobile communication in South
Africa. The Regulation of Interception of Communications and Provision of
Communication-Related Information Act (RICA) [219] of 2002 introduced customer
identification and verification measures that are very similar to the FICA CDD
requirements. Users have to verify their identity using official documentation to
access mobile communication services. Foreigners without passports are generally
not able to legally gain normal access to South African-issued mobile phones. They
are therefore faced with access barriers created by RICA as well as FICA.
In his article on the 2012 FATF Standards, De Koker notes that the risk-based
approach is now mandatory for countries and institutions and that the cornerstone
of the risk-based approach is risk assessment. It is interesting to note that South
Africa has to some extent followed a risk-based approach, but to date no formal risk
assessment has taken place. The current CDD requirements, for example, were
based on the previous FATF Recommendations. Regulation 21, for example, was
based on the predecessor of 2003 Recommendation 5, which has now, in turn, been
replaced by Recommendation 10. In effect this would mean that South Africa would
have to conduct a formal risk assessment and in a sense conduct a ‘gap analysis’ of
the current CDD requirements as contained in the FICA and regulations thereto and
match this against the new 2012 FATF Standards. Furthermore, lower-risk and
higher-risk scenarios would have to be determined. Should the risk assessment
show that mobile money is considered a ‘lower risk’ product, the effect would be
that the limits imposed would have to be commensurate with the risk identified, ie
the lower the risk, the more simplified the measures should be. It would be
interesting to see how this would be done in South Africa, where, as stated earlier,
even though a ‘risk-based approach’ was followed in the past, a formal risk
assessment would now have to take place.
The FIC has since reissued a Public Compliance Communication (PCC) providing
guidance and clarity of the scope and application of Exemption 17. The
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purpose of Exemption 17 clarifies that it reduces certain identification and
verification requirements pertaining to a client when the client opens an account.
The aim of the revision was to emphasise that the exemption does not exempt
accountable institutions from keeping a record of the remaining client particulars
that must be verified within the provisions of the Exemption. An accountable
institution’s records must still be sufficient so that transactions falling within the
scope of Exemption 17 can be reconstructed should the need arise. Furthermore, the
accountable institution should also be able to provide an audit trail of the
establishment and verification of the identity of the client for regulatory purposes,
which means that some form of record (electronic or hard copy) should be retained.
Exemption 17 is applicable only to clients of the accountable institution who are
natural persons and South African citizens or residents. The exemption may be
applied only in the case of single transactions and business relationships that:
•
enable the client to withdraw or transfer or make payments of an amount not
exceeding R5 000 per day and not exceeding R25 000; and
•
does not enable the client to effect a transfer of funds to any destination
outside the Republic, except for a transfer as a result of a point-of-sale
payment or a cash withdrawal in a country in the Rand Common Monetary
Area.
Two conditions apply, namely that the balance in the account may never exceed
R25 000 or a client must not simultaneously hold two or more accounts which meet
the above criteria. If any of the two conditions apply, Exemption 17 may not be
applied, which means that no debit from the account may be effected before the
client identification and verification requirements are met and records are kept.
If the conditions of the exemption are met, the following identification and
verification obligations are exempted pertaining to clients of the accountable
institution that are South African citizens or residents:
•
obtaining and verifying the income tax registration number of the client;
•
obtaining and verifying the residential address of the client;
•
if another person is acting on behalf of the client, obtaining the residential
address of that person; and
•
obtaining the contact particulars of the person acting on behalf of the client.
It has to be noted that the requirement to identify the client is still applicable as well
as the record-keeping of such identity documentation. Furthermore, it would seem
that since the Exemption is applicable only to South African citizens or residents, the
situation pertaining to migrant workers and asylum seekers would still be the same
as set out earlier. [220]
3.4 Conclusion
Apart from the Banks Act and various other legislative instruments regulating the
banking industry discussed above, banks (excluding mutual banks) have to comply
with the King Code on Corporate Governance and Basel II and III. In the aftermath
of the 2008 global financial crisis, various international strategies were
Page 106
announced to address fundamental weaknesses revealed by the crisis. These include
amendments to the regulatory framework (Basel III), which require banks to hold
more capital of higher quality and enough liquid assets to cover fund outflows.
Furthermore, the so-called ‘Twin Peaks’ regulatory model will in future be
implemented as part of the vision of the National Treasury called ‘A safer financial
sector to serve South Africa better’. Since this is still in the planning phase, a
discussion of it falls outside the ambit of this chapter. [221]
There are also various ombudsmen tasked with achieving quick and effective
dispute resolution for banks and their customers with regard to the various services
and products which banks offer their clients. These include the Banking Adjudicator;
the Ombudsman for Financial Advisory and Intermediary Services; and the
Ombudsman for Long- and Short-term Insurance.
South African banks are well regulated, which has stood the country in good
stead during the global financial crisis. The South African Reserve Bank and the
National Treasury continuously strive to ensure a safer banking and financial sector.
It is, therefore, important that whoever is interested in the regulation of banks in
South Africa understands the context within which banks operate, as well as the
most important pieces of legislation as briefly outlined in this chapter.
Page 107
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Bester et al Bester, Hennie et al Reviewing the Policy Framework for
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D
De Koker (2003) De Koker, L ‘Money laundering in South Africa’ in C
Goredema (ed) Profiling Money Laundering in Eastern
and Southern Africa (Institute for Security Studies
Monograph Series, 2003)
De Koker (2004) De Koker, L ‘Client identification and money laundering
control: Perspectives on the Financial Intelligence
Centre Act 38 of 2001’ 2004 SALJ 715
De Koker (2009) De Koker, L ‘The money laundering risk posed by low-risk
financial products in South Africa: Findings and
guidelines’ (2009) 12 Journal of Money Laundering
Control 323
De Koker & Symington De Koker, L & J Symington Conservative Compliance
Behaviour (FinMark Trust, 2011)
G
Gannon Gannon, S ‘Weaving nets to catch the wind: The legal and
regulatory issues concerning the development of robust
and efficient international electronic financial
infrastructure’ (2004) 33 Common Law World
Review 352
H
I
Isern & de Koker Isern, J & L de Koker AML/CFT: Strengthening
Financial Inclusion and Integrity (CGAP Focus Note No
56 of 2009)
Itzikowitz & du Toit Itzikowitz, AJ & SF du Toit ‘Banking and currency’ in WA
Joubert (founding ed) The Law of South Africa vol 2 first
reissue (2003)
J
Jones & Schoeman Jones, M & H Schoeman An Introduction to South African
Banking and Credit Law (2006)
L
Lawack-Davids Lawack-Davids, V ‘The legal and regulatory framework of
the National Payment System: Peeling the layers of the
onion’ (2008) 29(3) Obiter 453
M
Malan et al Malan, FR, AN Oelofse & JT Pretorius (eds) South African
Banking Legislation (Service 24, 2012)
S
Schulze Schulze, WG ‘The institution of curatorship of a bank in
terms of section 69 of the Banks Act of 1990 — A rare
decision’ (1999) 11 SA Merc LJ 428
V
Van der Merwe et al Van der Merwe, SW, LF van Huysteen, MFB Reinecke and
W
Wanda Wanda, B ‘Agency and Representation’ LAWSA vol 1 2 ed
(2003)
Wille et al Wille, Carl, Solly Keetse, Joubert Matthee, Juanita Moolman
Page 108
[*] I would like to acknowledge information provided by Dr Riaan Hattingh of the South African
Reserve Bank, on aspects of bank supervision. Any errors, however, remain my own.
[1] According to the World Economic Forum Competitive Survey 2012/13, South African banks
came second out of 144 countries in terms of soundness.
[2] In this chapter referred to as ‘the Reserve Bank’ or ‘SARB’.
[3] Act 108 of 1996.
[4] South African Development Community Bankers ‘South African Reserve
Bank’ http://www.sadcbankers.org/SADC/SADC.nsf/LADV/B3796F16F143B8364225726E00494933/$F
ile/South+Africa.pdf.
[5] South African Reserve Bank ‘Factors leading to the founding of the South African Reserve
Bank’ http://www.icbs.co.za/internet/Publication.nsf/LADV/7EE59A82CC1F1E3742257337004640FF/$
File/Fact+Sheet+6.pdf.
[6] South African Reserve Bank ‘Establishment of the South African Reserve
Bank’ http://www.reservebank.co.za/.
[8] South African Reserve Bank ‘Factors leading to the founding of the South African Reserve
Bank’ http://www.icbs.co.za/internet/Publication.nsf/LADV/7EE59A82CC1F1E3742257337004640FF/$
File/Fact+Sheet+6.pdf.
[10] Act 31 of 1920.
[11] Ibid.
[12] South African Development Community Bankers ‘South African Reserve
Bank’ http://www.sadcbankers.org/SADC/SADC.nsf/LADV/B3796F16F143B8364225726E00494933/$F
ile/South+Africa.pdf.
[13] Act 29 of 1994.
[14] Act 90 of 1989, hereinafter referred to as ‘SARB Act’.
[15] Act 94 of 1990.
[16] Act 124 of 1993 and South African Reserve Bank at http://www.reservebank.co.za/.
[17] Act 78 of 1998.
[18] South African Reserve Bank ‘South African National Payment System
Overview’ http://www.reservebank.co.za/.
[19] Section 10(g)—(m).
[20] The Constitution of the Republic of South Africa, 1996 (hereinafter referred to as ‘the
Constitution’).
[21] Wille et al 152.
[22] Section 3 of the SARB Act and s 224(1) of the Constitution.
[23] Act 94 of 1990.
[24] Act 124 of 1993.
[25] South African Reserve Bank ‘Payment and Settlement
System’ http://www.reservebank.co.za/.
[26] Ibid.
[27] South African Reserve Bank ‘South African National Payment System
Overview’ http://www.reservebank.co.za/.
[28] The English Act was replaced by the Financial Services and Markets Act 2000: see Howard,
Masefield & Chuah 2.
[29] Act 94 of 1990. The name change from the Deposit-taking Institutions Act to the Banks Act
was effected by the Deposit-taking Institutions Amendment Act 9 of 1993. Apart from the main
change effected by the Amendment Act of 1993, the only other amendments made in terms of the
latter Act were the substitution of the expressions ‘deposit-taking Institutions’, ‘deposit-taking
institution’ and ‘deposit-taking institution’s’, wherever they occurred in the Deposit-taking Institutions
Act, with the expressions ‘Banks’, ‘banks’, ‘bank’ and ‘bank’s’. See s 25(a).
[30] See the Banks Amendment Act 20 of 2007.
[31] More detail on Basel II and Basel III can be obtained from the Bank for International
Settlements website
at http://www.bis.org/publ/bcbs107.htm and http://www.bis.org/bcbs/basel3.htm?m="3"%7C14%7C
572.
[33] See Chap I.
[34] See Chap II.
[35] See Chap III.
[36] See Chap IV.
[37] See Chap V. For a reported decision which deals with the interpretation of the provisions
regulating the functioning of a bank, see Thorpe NO v BOE Bank Ltd 2006 (3) SA 427 (SCA). In
the Thorpe case the court was asked to interpret the provisions of s 54 (which forms part of Chap V
of the Banks Act). Section 54 deals with the transfer of assets and liabilities of a bank.
[38] See Registrar of Banks v Regal Treasury Private Bank Ltd (Under Curatorship) (Regal Treasury
Bank Holdings Ltd Intervening) 2004 (3) SA 560 (W) in which the court was asked to pronounce on
the question whether or not the mere fact that someone is the sole shareholder of a bank gives such
person the necessary locus standi to intervene in liquidation proceedings against the bank. The
application in the Regal Treasury case was brought in terms of s 68(1)(a) of the Banks Act. The court
held that a sole shareholder does indeed have such a right, but that the shareholder as applicant
should show a direct and substantial interest in the subject-matter of the litigation, and that the
application was made seriously and not frivolously. In order to do so, the applicant has to make out a
prima facie case that if he or she was permitted to intervene, such intervention may affect the course
of events in some material respect. The court held that the applicant (Regal Bank) had not made out
a prima facie case for its intervention (at 573B-F; 576A-B). For a decision in which the court
distinguished between curatorship of a bank, on the one hand, and judicial management in terms of
the Companies Act 61 of 1973, see Registrar of Banks v New Republic Bank Ltd [1999] 2 All SA 459
(D). For a discussion of the New Republic Bank case, see Schulze 429 et seq.
[39] See Chap VI.
[40] See Chaps VII, VIII and IX. A detailed discussion of the registration, regulation and liquidity
requirements of banks falls outside the scope of the present text. For a discussion of these aspects,
see Itzikowitz & Du Toit para 240 et seq; Jones & Schoeman 14-16; and Malan et al.
[41] New amendments to the regulations relating to banks have been gazetted and took effect on 1
January 2013. The amended regulations serve as a complete overhaul of the previous Banks Act
Regulations 2011 (published under GN R1033 in GG 34838 of 15 December 2011). The 2013
regulations give effect to the provisions of the Basel III framework. The objective is to provide for the
establishment of basic principles relating to the maintenance of effective risk management by banks
and controlling companies, with due allowance for the ancillary objective that the benefits derived by
banks and controlling companies from compliance with these regulations exceed the costs entailed by
such compliance (see GN 1029 in GG 35950 of 12 December 2012).
[42] See s 81(1).
[43] See s 82.
[44] See s 83.
[45] See s 84.
[46] As to the interpretation of s 11(1), see David Trust v Aegis Insurance Company Ltd 2000 (3)
SA 288 (SCA); De Beer v Keyser 2002 (1) SA 827 (SCA).
[47] See Dulce Vita v Van Coller (SCA) unreported case no 2012/192 (22 March 2013) where the
respondent conducted a public property development syndication in contravention of s 11(1) of the
Banks Act. The court referred to the decision in Gazit Properties v Botha 2012 (2) SA 306 (SCA)
which, in turn, relied on dicta in Standard Bank v Estate van Rhyn 1925 AD 266; and Oilwell v Protect
International 2011 (4) SA 394 (SCA) para 19, citing the well-known text from Voet’s Commentarius
ad Pandectas: ‘things contrary to the laws are not ipse jure null if the law is content with enacting a
penalty against transgressors’.
[48] See Alpha Bank Bpk v Registrateur van Banke 1996 (1) SA 330 (A); and Standard Bank
Investment Corporation Ltd v Competition Commission [2000] 1 All SA 494 (T).
[49] See ss 18A(7) and 91(4)(a). For a decision which deals with the interpretation of s 91(4)(a),
see S v Sassin [2003] 4 All SA 506 (NC).
[50] See s 82(3) read with s 91(4)(b).
[51] See para 3.2 above.
[52] Section 83(2).
[53] Section 84(1).
[54] Section 83(3)(a).
[55] Sections 3 and 4.
[56] The appointment is done by the Reserve Bank with the approval of the Minister.
[57] See s 9(2).
[58] See s 9 for more detail.
[59] See s 4(3).
[60] Section 4(6).
[61] Section 4(7).
[62] Section 5.
[63] Section 4(4).
[64] Section 6(1), Act 80 of 1998.
[65] See particularly the wide range of persons with whom the Registrar may hold discussions
listed in s 6(3).
[66] Section 6(4).
[67] See for example the list of circulars for 2013 published at http://www.resbank.co.za.
[68] See for example Guidance Note 1 of 2015 on the status of previous guidance at 1.
[69] Section 6(6).
[70] Section 6(6)(d) and (e).
[71] Section 6(6)(e).
[72] Section 7(1). The public accountant must be a public accountant as defined in s 1 of the
Auditing Professions Act 26 of 2005.
[73] See s 10.
[74] See s 11 read with s 18A. See also the definition of ‘the business of a bank’ in s 1.
[75] See s 12.
[76] See ss 13-21.
[77] See eg s 37.
[78] See s 37(2)(c).
[79] See s 37(4).
[80] Prior approval for the establishment of foreign undertakings by a bank or controlling company
covers foreign branch offices, subsidiaries, trusts and other financial or business undertakings under
the direct or indirect control of the bank or controlling company.
[81] The Banks Act places a limitation on the number of directors of a bank or controlling company
who may be directors also of an individual shareholder in that institution or company, or of certain
companies associated with such individual shareholder. The rationale behind this limitation is to
prevent control by an individual shareholder. In addition, directors of a bank are obliged to comply
with such guidelines and requirements as may be prescribed by regulation in terms of the Act. See,
for example, the limitation in s 63.
[82] The Banks Act acknowledges the role that external auditors may play in banking supervision.
It is for this reason that the Banks Act assigns to an external auditor of a bank the duty to report
irregularities and a discretion to provide certain information (on his own initiative or when requested)
to the registrar. In the fulfilment of this duty or the exercise of this discretion, an auditor is
indemnified against liability for a contravention of any provision of any law, or a breach of any
provision of a code of professional conduct, or against incurring any liability to any person. See ss 62
and 63.
[83] The supervision of a bank can be supported and facilitated by an efficiently functioning audit
committee within such an institution. The Act therefore, makes it a statutory requirement for a bank
to appoint, from its board of directors, an audit committee to perform the functions associated with
such a committee. See s 64.
[84] The requirement that a bank must disclose large credit exposures to individual shareholders is
aimed at preventing undue reliance on business conducted with such shareholders as well as any
form of manipulation by large shareholders. It is required that the name of a shareholder to which a
bank is exposed be disclosed in its annual financial statements if the amount of the exposure to such
shareholder exceeds the total nominal value of the vote-bearing shareholding of that shareholder in
the bank. See ss 65, 66 and 67.
[85] See s 54.
[86] See s 56.
[87] See ss 56 and 57.
[88] See ss 58 and 60. The board of directors of a bank and controlling company are required to
appoint at least three of its members, of which two are non-executive directors, to serve on a risk
and capital management committee. Furthermore, the board of directors of a bank or controlling
company are required to establish a directors’ affairs committee, consisting only of non-executive
directors. If, in the opinion of the registrar, a bank will be unable to repay, when legally obliged to do
so, deposits or any other commitments, the Minister of Finance may appoint a curator if it is deemed
to be in the public interest.
[89] Section 61 and s 64.
[90] Section 68.
[91] See s 69.
[92] Definition of liquid assets in s 1. See also s 72.
[93] See s 73.
[94] See s 76.
[95] See s 76.
[96] See s 77.
[97] See s 79.
[98] See s 80(3).
[99] See s 78.
[100] See s 88.
[101] See s 89.
[102] The payment system can also be described as the ‘essential oil that lubricates the economy’:
Gannon 353.
[103] The generally accepted terminology used to describe these risks is derived from BIS
CPSS Glossary (2003) 1ff.
[104] This is to guard against ‘legal risk’. ‘Legal risk’ is defined by the BIS as ‘the risk of loss
because of the unexpected application of a law or regulation or because a contract cannot be
enforced’. See BIS CPSS Glossary (2003) 29.
[105] It states that ‘the system should have a well-founded legal basis under all relevant
jurisdictions’. BIS CPSS Core Principles (2001) 3.
[106] Vision 2015 9. The ambit of the NPS or ‘payment system’ is described in Vision 2015:
The oversight domain of the NPS entails the entire process of making payment. In other words, it
entails the process (including but not limited to) that enables the payer to make a payment — the
payer to issue a payment instruction via a payment instrument or other infrastructure, the institution
to receive the payment instruction via clearing or otherwise, the process of clearing and settlement
(where applicable), the beneficiary to accept the payment instruction, the beneficiary to deliver the
payment instruction to an institution for collection, the institution to receive and deliver the payment
collection into clearing and settlement, and the beneficiary to receive the benefit of the payment.
Within the described process, banks, third-person payment providers, system operators, PCH system
operators [PCH refers to a ‘payment clearing house’] and agents of payers and/or beneficiaries are
included.
[107] Act 78 of 1998 (SA), available
at http://www.resbank.co.za/RegulationAndSupervision/NationalPaymentSystem(NPS)/Legal/Docume
nts/NPS%20Act.pdf (hereinafter ‘the NPS Act’). The National Payment System Department of the
Reserve Bank performs the oversight of payments in South Africa. In terms of s 3 of the Banks Act,
the Registrar of Banks supervises the banking industry. The registrar performs this function in
conjunction with the Bank Supervision Department of the Reserve Bank. For more detail on the South
African NPS, see Lawack-Davids 453.
[108] Directives issued in consultation with the payment system management body terms of sub-s
(1) are ‘general directives’, as opposed to the ‘remedial directives’ which the Reserve Bank may issue
in terms of sub-s (3). See NPS Act s 12(3), (5), (6) and (8).
[109] It is an offence to fail, refuse or neglect to comply with directives and a person who is found
guilty of such an offence is liable to a fine of R1 million or to imprisonment or to both a fine and
imprisonment. No directives issued will have retroactive effect. Provision is also made for a grace
period in respect of ‘general directives’, as opposed to ‘remedial directives’ which will become
effective immediately. See NPS Act s 12(9).
[110] See NPS Act Directive 2 of 2006.
[111] See NPS Act Directive 2 of 2007 (SA), available
nts/Directives/D2_2007(SysOp).pdf.
[112] See NPS Act Directive 1 of 2007 (SA), available
nts/Directives/D1_2007(ThirdParty).pdf.
[113] PvP is defined by the Bank for International Settlements (BIS) as a mechanism in a foreign
exchange settlement system which ensures that a final transfer of one currency occurs if, and only if,
a final transfer of the other currency or currencies takes place; and see BIS CPSS Glossary (2003) 40.
[114] CLS went live in September 2002. CLS currencies include the Australian dollar, Canadian
dollar, Danish krone, the Euro, Hong Kong dollar, Japanese yen, Great Britain pound, Singapore
dollar, South African rand, Swedish krona, Swiss franc and United States of America dollar. For more
detail on CLS, see their website at http://www.cls-services.com.
[115] Act 24 of 1936 (hereinafter ‘the Insolvency Act’).
[116] For more detail on the common-law requirements of set-off, see Van der Merwe et al 547.
[117] Section 46 of the Insolvency Act provides the following in this regard: If two persons have
entered into a set-off transaction; and one is sequestrated within six months after set-off has taken
place; then the trustee of the sequestrated estate may abide by the set-off; or if the set-off was not
effected in the ordinary course of business, with approval of the Master, disregard it and call upon the
person concerned to pay to the estate the debt that he would owe it but for the set-off.
[118] Thomas Construction (Pty) Ltd (in liquidation) v Grafton Furniture Manufactures (Pty)
Ltd 1988 (2) SA 546 (A) at 568; Paterson NO v Trust Bank of Africa Ltd 1979 (4) SA 992 (A) at
997; Joosab v Ensor NO 1966 (1) SA 319 (A) at 326; Hendriks NO v Swanepoel 1962 (4) SA 338 (A)
at 345; and Pretorius’s Trustee v Van Blommenstein 1949 (1) SA 264 (O) at 273.
[119] See s 35B(4) of the Insolvency Act.
[120] Section 8(3) of the NPS Act.
[121] See s 8(7) of the NPS Act.
[122] Vision 2010 para 2.4.2.9.
[123] See s 1.
[124] Act 22 of 2008.
[125] See Vision 2010 para 3.4.2.11.
[126] See s 1 of the NPS Act. BANKSERV, established in 1993, is an Automated Clearing House that
provides inter-bank switching and settlement services to the South African banking sector. It is
wholly owned by the commercial banks in the country. For more detail on BANKSERV,
see http://www.bankserv.co.za.
[127] Vision 2010 para 2.9.
[128] See s 3(3) of the NPS Act.
[129] See the amendments to ss 3, 4 and 6 of the NPS Act pursuant to the Financial Services Laws
General Amendment Act 22 of 2008.
[130] See Vision 2010 para 2.9 for more detail on access to the NPS.
[131] See s 1 of the NPS Act.
[132] For more detail on the laws of agency, see Wanda para 175ff.
[133] See s 7 of the NPS Act as amended by the Financial Services Laws General Amendment Act
22 of 2008.
[134] See s 42(1), (2) and (3).
[135] Act 68 of 2008. See the Preamble to the Act.
[136] Section 5(1)(a).
[137] Section 5(1)(b).
[138] Section 5(1)(c).
[139] Section 5(1)(d).
[140] See s 1.
[141] See s 29.
[142] See s 29(a).
[143] See s 30.
[144] See s 31.
[145] See s 32.
[146] See s 33.
[147] See s 34.
[148] See s 38.
[149] See s 39.
[150] See s 39(b)(i).
[151] See s 39(b)(ii).
[152] See s 39(b)(iii).
[153] See s 32.
[154] See s 11.
[155] See s 11(4).
[156] See s 12.
[157] Hereinafter ‘the FAIS Act’ or ‘FAIS’.
[158] See s 1(2). The exemptions are published by the registrar in the Gazette after consultation
with the Advisory Committee on Financial Services Providers, taking into consideration the extent to
which the rendering of financial services in respect of the product is regulated by any other law. See s
5 on the Advisory Committee’s roles and responsibilities.
[159] Section 1(3)(b).
[160] See also s 15. See the Specific Code of Conduct for Short-term Deposit Business.
[161] See s 7(1).
[162] Section 40 provides for the fact that no act performed under or in terms of the Act may be
construed as affecting any right of a client or other affected person to seek appropriate legal redress
in terms of the common law or any other statutory law, whether relating to civil or criminal matters,
in respect of the rendering of any financial service by an authorised financial services provider or
representative of such provider or any other person who is not an authorised financial services
provider or a representative of the provider.
[163] See s 8(1).
[164] Section 8(2)(a)—(b).
[165] Section 8(3). See the different process followed in respect of a person granted accreditation
under s 65(3) of the Medical Schemes Act 131 of 1998, who has to be granted authority to refer as a
financial services provider the specific financial service for which the person was accredited and must
be issued with a licence. However, the registrar must be satisfied that such a persons and any key
individual of such a person comply with the applicable fit and proper requirements in terms of s 8(5)
of FAIS. For more detail, see s 8(7).
[166] See s 8(4)(a) and (b). These limitations and conditions may be imposed after the registrar
has considered all facts and information available to the registrar pertaining to the applicant and any
key individual of the applicant. Conditions and restrictions may include a condition to replace a key
individual by a new key individual, or any new key individual is appointed or assumes office or any
change occurs in the personal circumstances of a key individual which affects the fit and proper
requirements and renders or may render such person to be no longer a fit and proper person. In such
a case, the condition may include that no such person may be permitted to take part in the conduct
or management or oversight of the licensee’s business, unless such person has on application been
approved by the registrar in the manner and in accordance with the procedure determined, after
consultation with the Advisory Committee, by the registrar by notice in the Gazette.
[167] See s 8(5).
[168] Section 8(5)(b)(ii).
[169] Section 8(6).
[170] See s 8(6).
[171] Section 8(8).
[172] Section 8(9).
[173] Section 9(1) and (2).
[174] See s 9(3).
[175] See s 9(4) and (5).
[176] Section 10(1).
[177] Section 10(2) and (3).
[178] Section 11(1).
[179] Section 11(2).
[180] Act 121 of 1998 (SA), available
at http://www.dac.gov.za/acts/Prevention%20of%20Organised%20Crime%20Act.pdf.
[181] For a comprehensive overview of the applicable legislation, see De Koker (2003) 83.
[182] Protection of Constitutional Democracy against Terrorist and Related Activities Act 33 of
2004.
[183] Anti-Money Laundering (AML); Countering Financing of Terrorism (CFT).
[184] Financial Intelligence Centre Act 38 of 2001, hereinafter FICA.
[185] Financial Action Task Force on Money Laundering.
[186] See Financial Action Task Force Mutual Evaluation Report (South Africa) (2009), available
at http://www.fatf-gafi.org/media/fatf/documents/reports/mer/MER%20South%20Africa%20full.pdf.
[187] Ibid at 46.
[188] Ibid at 68.
[189] Promulgated by GN R1595 in GG 24176 of 20 December 2002.
[190] Money Laundering and Terrorist Financing Regulations, reg 3 in GN R1595 in GG 24176 of 20
December 2002 4 (SA) (hereinafter MLTFC Regulations).
[191] Ibid at 5 (reg 5).
[192] Bester et al 18.
[193] MLTFC Regulations at 4-5 (reg 4), 6 (reg 6).
[194] An identity document is defined in reg 1.
[195] Bester et al 10-11.
[196] FICA ss 22-23.
[197] MLTFC Regulations 4-5 (reg 4(a)(ii)).
[198] FIC Guidance Note 3, GN R715 in GG 27803 of 18 July 2005, available
at http://www.info.gov.za/view/DownloadFileAction?id="61267" (hereinafter FIC Guidance Note);
Absa Bank, Establishing and Managing Business Relationships — Customer Identification and
Verification, Compliance Document: FICA (Dec 17, 2010), available
at http://www.absa.co.za/deployedfiles/Absa.co.za/PDF%27s/About%20Absa/Absa%20Group/Compli
ance%20Documents/Financial%20Intelligence%20Centre%20Act.pdf.
[199] For more detail on financial inclusion, see De Koker & Symington 1ff.
[201] De Koker (2004) 723.
[202] MLTFC Regulations, reg 21.
[203] De Koker (2004) 724.
[204] Ibid 742.
[205] Ibid.
[207] De Koker (2009) 325.
[208] Exemptions in Terms of the Financial Intelligence Centre Act, 2001, Exemption 17, GN R1596
in GG 24176 of 20 December 2002.
[209] Amended by Exemption 17 in Terms of the Financial Intelligence Centre Act, 2001, GN R1353
in 27011 of 9 November 2004, available
at https://www.fic.gov.za/DownloadContent/RESOURCES/GUIDELINES/10.Revised%20exemption.pdf
(hereinafter FICA Exemption 17).
[210] De Koker (2004) 729; Bester et al 65-6.
[211] Isern & De Koker 10-11.
[212] The Mzansi account is a savings account with basic transaction capability aimed at the low-
income market.
[213] See the data in Bankable Frontier Associates ‘The Mzansi Bank Account in South Africa. Final
Report’ (2009) 3.
[214] FIC Guidance Note (2005) 4-5. For more detail on the risk-based approach, see also De
Koker (2004).
[215] Banks Act Guidance Note 6/2008 from EM Kruger 2.
[216] Ibid.
[217] See FATF Guidance on Anti-Money Laundering and Terrorist Financing Measures and Financial
Inclusion (2011), available at http://www.fatf-
gafi.org/media/fatf/content/images/AML%20CFT%20measures%20and%20financial%20inclusion.pdf.
[218] For more information on the debacle, see Gumbo ‘South Africa Restores Access to Bank
Accounts by Refugees and Asylum Seekers’ Voice of America, Zimbabwe, 8 June 2012, available
at http://www.voazimbabwe.com/content/south-african-court-restores-bank-access-for-refugees-
107057558/1459047.html.
[219] Regulation of Interception of Communications and Provision of Communication-Related
Information Act 70 of 2002.
[220] Exemption 17 can be found on the FIC website at http://www.fic.gov.za.
[221] For more detail on Twin Peaks,
see http://www.treasury.gov.za/documents/national%20budget/2011/A.
Page 109
Chapter 4
The Bank-customer relationship
Avishkaar Ramdhin
4.1
The bank as a legal person
4.2
Who is the ‘customer’?
4.3
Classification of the bank-customer relationship
4.4
General elements of the bank-customer relationship
4.4.1
Loan
4.4.2
Mandate
4.5
Sources of terms
4.6
Formation of the bank-customer relationship
4.7
Specific duties of the bank
4.7.1
The duty to pay cheques
4.7.2
The duty to collect payment on cheques
4.7.3
The duty to furnish statements of account
4.8
General duties of the bank
4.8.1
The duty to exercise reasonable care and skill
4.8.2
The duty of secrecy
4.8.3
The duty to act in good faith
4.9
Duties of the customer
4.9.1
The duty to pay overdrawings, interest and bank charges
4.9.2
The duty to exercise reasonable care and skill in drawing payment
instructions
4.9.3
The duty to notify the bank of known or suspected forgeries
4.9.4
The duty to reimburse and indemnify the bank for expenses or losses
4.9.5
Statutory duty to exercise care in custody of cheque forms and
reconciliation of bank statements
4.10
Overdraft facilities
4.11
Reversal of credit entries
4.12
Payment from accounts
4.13
Set-off between bank accounts
4.14
Banker’s lien
4.15
Trust accounts
4.16
Termination of the bank-customer relationship
4.16.1
Circumstances in which the relationship terminates
4.16.2
Consequences of termination
List of works cited
Page 110
4.1 The bank as a legal person

A bank is a separate legal person. It can therefore in its own name, inter alia,
acquire rights and incur obligations; own property; and sue and be
sued. [1] However, as a bank has no physical existence it must be represented by
human beings, such as its bank managers or other officials, to conclude contracts
and perform other juristic acts. Banks operate through separate branches but the
branches themselves are not separate legal entities; [2] they are merely agencies of
one banking corporation. [3] Thus, even though a person may only have dealings
with a specific branch of a particular bank, any underlying contract that may exist is
between him and the bank as a whole rather than with the specific branch
concerned. [4]
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The bank’s liability in criminal law or delict is usually founded on the principle of
vicarious liability. [5] However, in certain circumstances, it may be directly liable for
unlawful acts which are committed by natural persons who are usually regarded as
being the controlling or directing mind of the bank, and whose acts, knowledge or
state of mind are attributed to it. [6]
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4.2 Who is the ‘customer’? [7]
On a wide interpretation, the term ‘customer’ includes any person who has dealings
with a bank in the ordinary course of business whether or not that person has a
bank account. [8] However, it is generally accepted that the term ‘bank-customer
relationship’ refers to ‘the specific legal relationship generated by the opening and
operating of a bank account’, [9] and the term ‘customer’, in this context, is normally
reserved for a person who has an account with the bank. [10] It is not required that
the person must have habitual dealings with the bank before he can be regarded as
a customer: the mere opening of the account suffices. [11] The duration for which the
account is opened is also irrelevant. [12] Once the bank account is opened, a person
remains a customer of the bank even if the account is subsequently overdrawn. [13]
Bank accounts may be opened for a variety of different persons including
companies; close corporations; partnerships; trusts; unincorporated associations;
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deceased and insolvent estates; municipalities; and central and provincial
government departments. [14] In determining who the customer of the bank is in any
particular case, the following should be borne in mind:
•
It is possible for one person to open an account on behalf of another. [15] If a
duly authorised representative opens an account on behalf of his principal, it
is the principal, and not the representative, who is bound by the
contract [16] and who is, accordingly, the customer of the bank. [17] If a person,
professing to act on behalf of another, opens an account without the
necessary authority, then the person in whose name the account is opened
does not become a customer, [18] as no contract comes into existence between
him and the bank. [19]
•
The term ‘customer’ cannot be interpreted as meaning simply a person other
than a bank, as it is also possible for one bank to become the customer of
another. [20]
•
If a bank account is opened in the trade or business name of a sole
proprietorship, it is the sole proprietor who is the customer of the bank as the
sole proprietorship itself is not a legal entity. [21]
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•
A bank account may be opened in the name of a partnership [22] and in the
name of an inter vivos or testamentary trust. [23]
•
Where a fiduciary is under a statutory obligation to operate a trust account,
and he opens such an account with a bank, then he is the person who
generally becomes the bank’s customer and not the beneficiaries for whose
benefit the funds in the account are held. [24] So, for instance, where an
attorney opens a trust account then a bank–customer relationship is created
between the attorney and the bank. [25] There is no trust relationship created
between the bank and the attorney’s client. [26]
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4.3 Classification of the bank-customer relationship [27]

The relationship that exists between the bank and its customer is based on
contract. [28] However, it is difficult to identify the exact type of contract that exists
as it does not fit comfortably into any single category of contract recognised in
Roman and Roman-Dutch law. [29] In essence, the bank-customer relationship is a
multi-faceted one that exhibits elements of different types of contract, most notably
those of loan for consumption (mutuum) and mandate (mandatum). [30] The bank-
customer relationship, however, is a complex one and may involve various other
types of contracts depending on the nature of the service that the bank offers to its
customer. For instance, where the customer deposits certain valuables with the bank
for safekeeping, the relationship between the parties is governed by a contract of
deposit (depositum). However, where the customer hires a safety-deposit box from
the bank for the purposes of storing such valuables, the relationship may be one of
lease. [31] Furthermore, in certain instances, the bank may act as a representative of
its customer, such as where it concludes a contract on the latter’s behalf. In other
instances, the bank may act as both a mandatary as well as a representative such
as where it furnishes investment advice to its customer and also enters into an
investment contract with a third party on behalf of that customer.
Due to its complexity, the bank-customer relationship is often classified as a
contract sui generis. [32] It has been suggested, however, that the better approach is
not to attempt to find a particular pre-existing characterisation but rather to
examine the specific legal relationship that exists between the bank and its
customer in any given case. [33] This approach certainly has merit if one considers
Page 116
that the parties are, in principle, free to vary the terms of their contract with each
other and that they may also conclude special contracts to regulate specific
transactions and banking services.
4.4 General elements of the bank-customer relationship

4.4.1 Loan
It is generally accepted that the basic relationship between a bank and its customer
in respect of a current account is one of debtor and creditor. [34] If the account
reflects a credit balance, the customer is the creditor and the bank, the debtor.
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Money deposited by the customer to the credit of the account is essentially a loan
given by him to the bank. [35] Where the account is overdrawn, the roles of the
parties are reversed: the bank is the creditor and the customer, the
debtor. [36] Every payment made by the bank against an overdraft is essentially a
loan given to the customer, and every deposit paid by the customer into the
overdrawn account serves to reduce or discharge his indebtedness to the bank. [37]
The bank becomes the owner of the money that is deposited or paid into its
customer’s bank account. [38] The bank does not hold the money as an agent or
trustee for the customer but holds it in its own right and can use the money
immediately for its own purposes. [39] The customer merely acquires a personal right
to payment of the amount standing to the credit of his account. [40] The customer
may exercise this right either by withdrawing the money or by instructing the bank
to make payment to a third party. [41] The bank, however, is not
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obliged to account to its customer for any amount standing to the credit of his
account where such money is acquired by theft or fraud. [42]
The fact that the bank becomes the owner of the money in its customer’s bank
account has the following consequences:
•
When the bank makes payment either to the customer himself or to a third
party, the bank is paying out its own money rather than the money of its
customer. [43] The bank then reimburses itself by debiting the customer’s
account. [44]
•
If the bank pays out on a cheque in circumstances that do not entitle it to
debit the customer’s account, [45] it is the bank — and not the customer —
that must sue to recover the amount paid from the person to whom payment
has been made. [46]
•
If the bank is liquidated, the funds form part of its insolvent estate and the
customer only has a concurrent claim for payment of the amount owing to
him. [47]
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4.4.2 Mandate
The relationship between the bank and its customer invariably incorporates a
mandate, [48] in terms of which the bank agrees to carry out one or more banking
services for the customer. [49] The naturalia of the contract of mandate apply to
some extent [50] but there are exceptions: for example, the bank is not obliged to
account for the use to which it puts its customer’s money [51] and it is not obliged to
keep its funds separate from those of its customer. [52]
4.5 Sources of terms

The terms of the bank-customer relationship derive for the most part from the
agreement between the parties (express or tacit), trade usage, [53] and the common
law. [54] Being a matter of contract, the parties are free to settle on whatever terms
they wish, [55] subject to any statutory restrictions. [56] The parties frequently
conclude
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additional contracts for specific dealings, and for banking services, [57] such as
electronic banking and the provision of safety-deposit boxes. [58] These additional
contracts are frequently embodied in standard-form contracts.
4.6 Formation of the bank-customer relationship

The bank-customer relationship is formed when a bank agrees to open an account
on behalf of a person and accept him as its customer. [59] The contract is normally
concluded by way of offer and acceptance. [60] The prospective customer makes an
offer by completing and submitting an application form to open an account and the
bank may either accept or reject this offer. [61] If the bank decides to accept the
offer, the contract comes into existence when the bank communicates its acceptance
to the customer. The act of opening the account indicates acceptance of the offer
but it is not essential: provided there is consensus between the parties with regard
to the opening of the account, the contract will come into existence even before the
account is opened. [62]
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Apart from consensus, there are certain other requirements which must be
satisfied for a valid bank-customer contract to come into existence.
•
The person purporting to represent the bank in concluding the contract must
have authority to do so. Such authority may be given expressly or tacitly, or it
may be implied by law. [63] If the person purporting to be the bank’s
representative lacks the necessary authority, a contract will not come into
existence between the bank and the prospective customer. However, the bank
may be held bound to the agreement if it either ratifies it or is estopped from
denying that the person purporting to act on its behalf had the necessary
authority. [64]
Page 122
•
The customer must have capacity to conclude the contract. This requirement
may not be satisfied, for instance, if the prospective customer was an
unassisted minor with limited or no contractual capacity; [65] or if he was
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mentally ill at the time of contracting to the extent that he was unable to
understand and appreciate the transaction which he purported to enter. [66]
Page 124
•
If a person purports to open a bank account on behalf of another, he must
have authority to represent the prospective customer. [67]
•
The agreement must be certain [68] and capable of performance. [69]
Page 125
•
The agreement must be lawful: it must not be against public policy [70] or
prohibited and rendered void by legislative enactment. [71] The requirement of
lawfulness may also not be satisfied if the agreement was entered into for an
unlawful purpose. [72]
Page 126
•
The parties must have intention to create a contract (animus contrahendi). [73]
•
Any formalities, where applicable, must be complied with. [74]
4.7 Specific duties of the bank

The bank-customer contract is founded on a comprehensive mandate, which obliges
the bank to render one or more services to its customer. The duties of the bank
typically include:
•
keeping and accounting the customer’s accounts with the bank; [75]
Page 127
•
repaying on demand money standing to the credit of the customer’s account
by honouring his payment instructions; [76]
•
receiving and collecting payments on behalf of the customer, whether such
payments are made by way of cash, cheque or electronic means; [77] and
•
furnishing the customer with statements of account.
The bank may extend the range of its duties to a customer by agreeing to undertake
other services. This may include providing its customer with electronic banking
facilities, issuing the customer with debit, cheque or credit cards; and giving effect
to its customer’s payment orders by other means such as by paying his stop orders,
debit orders and carrying out his credit transfers. [78]
Three specific duties are discussed further below: the duty to pay cheques, the
duty to collect payment on cheques, and the duty to furnish statements of account.
4.7.1 The duty to pay cheques

The bank is obliged to honour cheques drawn by its customer on his current
account. [79] Payment must be made on demand [80] — the bank is not, as a general
rule, entitled to defer payment for the purpose of making inquiries. [81] In paying its
customer’s cheques, the bank acts as the mandatary of its customer and must make
payment in good faith, [82] to the holder of the cheque, in accordance with the
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customer’s mandate. [83] If the bank makes payment in this manner then it is
entitled to debit its customer’s account with the amount paid. [84]
The bank’s duty to pay its customer’s cheques is not absolute. The following
conditions must be satisfied before the bank is bound to honour a cheque.
•
Payment must have been demanded during business hours [85] and at the
branch on which the cheque was drawn. [86]
•
The cheque must be properly drawn. [87] It must comply with the prescribed
elements of form as set out in the Bills of Exchange Act [88] and it must be
unambiguous, [89] genuine [90] and complete. [91] The bank may refuse to pay
cheques that have differing words and figures, [92] or which are undated, [93] or
stale. [94] There is no obligation on a bank to pay a post-dated cheque before
its due date. If a bank pays out on such a cheque, it may not debit its
customer’s
Page 129
account until the due date arrives and it runs the risk of not being able to
debit his account at all should the drawer countermand payment in the
interim. [95]
•
The cheque must be in such a condition so as not to arouse any reasonable
suspicion that it has been altered or otherwise tampered with. [96]
•
The cheque must be signed by the customer or his duly authorised
agent. [97] The bank acts in breach of its mandate if it honours a cheque which
does not bear an authorised signature or signatures. [98] A cheque on which
the customer’s signature, as drawer, has been forged does not represent the
customer’s mandate and, if the bank pays out on such a cheque, it is not
entitled to debit the customer’s account. [99]
•
The customer must have sufficient available funds in his account to meet the
full amount of the cheque. [100] Alternatively, he must have arranged an
overdraft facility with the bank for the payment of his cheques. [101] In such a
case the bank will be obliged to honour cheques drawn up to amount of the
overdraft limit. [102] If, as a result of the bank’s conduct, the customer is
reasonably misled into believing that his account is in credit or that he has a
larger amount in his account than is actually the case, the bank may be
estopped from denying that the customer has sufficient funds to meet the full
amount of his cheques. [103] However, estoppel will apply only if the
representation emanated from the bank [104] and the customer has suffered
prejudice as a result of his acting on the strength of the bank’s
representation. [105]
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The bank’s duty and authority to pay a customer’s cheque terminates when the
customer countermands payment on it. [106] In order for the countermand to be
effective it must identify the cheque with reasonable particularity and give the bank
a reasonable opportunity to act on it. [107] The bank must be given actual notice of
countermand — there is no such thing as constructive countermand. [108]
The bank’s duty and authority to pay a customer’s cheque also terminates when
the bank receives notice of the customer’s death [109] or incapacity; [110] or notice
that the customer has been sequestrated or placed under judicial
management [111] or declared a prodigal. [112] In order for any such notice to be
effective, it must identify the customer with reasonable particularity and give the
bank a reasonable opportunity to act on it. [113]
If the bank dishonours a cheque which it is obliged to pay, the customer may
hold the bank liable for breach of contract. [114] The customer is entitled to claim
general damages for loss suffered. In certain circumstances, he may also be entitled
to claim special damages for injury to his creditworthiness, such as where he is a
businessman or trader and credit is an essential element of his business. [115] The
customer may also have recourse against the bank in delict, if he can establish that
it unlawfully and negligently infringed his creditworthiness, [116] or that it used
defamatory words in indicating that his cheques had been dishonoured. [117]
4.7.2 The duty to collect payment on cheques

The bank is obliged to collect payment on cheques that its customer delivers to it for
collection. [118] When acting in this capacity, the bank is generally referred to as
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the ‘collecting bank’. [119] The bank may collect payment either as the agent or
mandatary of the customer, or as a holder for value in its own right. [120] Generally
speaking, the bank’s role involves presenting the cheque for payment to the drawee
bank, collecting the proceeds of the cheque and crediting the account of the
customer with the amount collected. [121] If the drawer and payee of the cheque both
have accounts at the same bank or at the same branch, the bank acts in a dual
capacity as both a collecting and paying bank.
In practice, the collecting bank usually sends the cheque through the clearing
system of the Automated Clearing Bureau (Pty) Ltd (ACB) and provisionally credits
its customer’s account with the amount of the cheque. [122] The cheque is processed
by the ACB and the information recorded is forwarded to the drawee bank, which
then decides whether or not to honour the cheque. [123] The ACB makes certain
accounting adjustments between the banks with regard to all cheques sent for
clearance on that day, and the resulting balances are provisionally debited or
credited, as the case may be, against the accounts which the respective banks hold
with the Reserve Bank. [124] If the cheque is honoured these provisional entries
become final. However, if the cheque is dishonoured the drawee bank must return
the cheque to the ACB or collecting bank within a prescribed period of time. [125]
The bank is obliged to exercise reasonable care in performing its collecting
function. [126] In particular, it is obliged to present the cheque for payment within a
Page 132
reasonable time and it must inform the customer promptly if the cheque is
dishonoured. [127] If the bank fails to present the cheque for payment within a
reasonable period of time, it may be liable to the customer for any loss that he
suffers as a result thereof. [128]
4.7.3 The duty to furnish statements of account [129]
There is authority for the view that in the absence of an agreement or statutory
provision to the contrary, there is no general obligation on a bank to furnish a
statement of account to its customer. [130] The justification given for this is that the
relationship between a bank and its customer is not a fiduciary one but rather one of
debtor and creditor. [131] It is submitted, however, that a duty to furnish statements
of account — either periodically or, at the very least, upon the customer’s request —
can be implied on the basis of trade usage. [132] To refuse to import such a duty into
the bank-customer contract on the basis that the relationship between the
Page 133
parties is one of debtor and creditor is not justified, as this is describes only one
facet of their relationship. [133]
4.8 General duties of the bank

4.8.1 The duty to exercise reasonable care and skill
The bank is under a duty to exercise reasonable care and skill in performing its
mandate. [134]
This duty requires the bank to, inter alia, correctly ascertain and interpret its
customer’s instructions [135] and to ensure that any applicable legislation is complied
with. [136] The duty extends to the whole range of banking services that the bank
may provide to its customer. [137] Thus, for instance, the bank must exercise
reasonable care and skill in performing the following functions:
•
opening bank accounts; [138]
•
paying cheques; [139]
•
collecting payment on cheques; [140]
•
issuing duplicates of deposit slips; [141] and
•
giving effect to credit transfers. [142]
In assessing the conduct of a mandatary who is a professional, the court has regard
to ‘the general level of skill and diligence possessed and exercised at the time by
Page 134
the members of the branch of the profession to which the [mandatary]
belongs’. [143] Whether the bank has attained this objective standard in any
particular case has to be decided in light of all relevant factors including the
following. [144]
•
the prima facie assumption that individuals are honest;
•
the practice of bankers;
•
the very limited time within which banks have to decide what course of action
to take; and
•
the extent to which an operation is unusual or out of the ordinary course of
business.
If the bank acts in breach of its duty, it may be held liable for breach of contract.
Under certain circumstances, the customer may also have recourse against the bank
in delict. [145] In applying the test for negligence, the conduct of the bank in any
given case must be measured against the standard of care expected of a reasonable
bank (bonus argentarius). [146] A failure by the bank to comply with its own
regulations is a relevant factor in determining whether or not it has been negligent
and, in certain instances, such failure may constitute prima facie proof of
negligence. [147]
The bank’s duty to exercise reasonable care and skill is further augmented by the
provisions of the CPA. [148] In terms of the Act, where a supplier (such as a bank)
undertakes to perform any services for or on behalf of a consumer (such as the
customer of a bank), the latter has the right to timely performance and completion
of those services and is entitled to timely notice of any unavoidable delay in the
performance thereof. [149] If the bank fails to perform its services to the standard
expected, the customer may require the bank to either remedy any defect in quality
of the service performed; [150] or refund to him a reasonable portion of the price paid
for the services performed having regard to the extent of its failure. [151]
Page 135
4.8.2 The duty of secrecy

The bank owes its customer a duty of secrecy. [152]
Thus far, our courts have not properly examined and explained the basis of the
duty. [153] Under the influence of English law, [154] they seem to have imported the
duty directly into our law on the assumption that it is an implied or tacit term of the
bank-customer contract. [155] There is clearly a practical need for a bank to maintain
secrecy regarding its customer and his affairs [156] and the duty of secrecy may be
justified by considerations of public policy. [157] It has been argued, however, that
contract alone cannot be the basis for the duty as it does not explain why a bank is
obliged to keep information confidential even if it relates to a prospective customer
or a past customer. [158] It has been suggested that the duty of
Page 136
secrecy may also be founded on the protection of privacy; [159] legislation; [160] and
even custom. [161]
In essence, the duty of secrecy necessitates that the bank must treat as
confidential any information pertaining to its customer and his affairs, which it may
acquire in the course of its dealings with him. This may include information
pertaining to the state of the customer’s account (ie whether there is a credit or
debit balance and the amount of such balance); any transactions which he conducts
with the bank; and any securities, if any, that are given in respect of the
account. [162] The duty is not confined to information derived from the customer
himself; it also extends to information acquired from a third party or from any other
extraneous source. [163] Secrecy must be maintained even after termination of the
bank-customer relationship. [164]
The duty to maintain secrecy is not absolute. [165] It may be relaxed in the
following circumstances: [166]
•
where disclosure is compelled by law;
•
where the bank owes a duty to the public to make disclosure;
•
where the interests of the bank require disclosure; and
•
where disclosure is made with the express or tacit consent of the customer.
(i) Disclosure compelled by law [167]
A number of statutes contain provisions that override the duty of secrecy such as
FICA; [168]
Page 137
the Bills of Exchange Act; [169] the Attorneys Act; [170] the Prevention and Combating
of Corrupt Activities Act; [171] and the Protection of Constitutional Democracy against
Terrorist and Related Activities Act. [172] The bank is also obliged to furnish
information pertaining to its customer if a court order requires it to do so. [173]
Page 138
(ii) Public duty to make disclosure

The duty of secrecy that the bank owes to its customer may be overridden by the
public interest; [174] for instance, where the customer uses his bank account for
fraudulent purposes. [175] The ‘public interest’ exception seldom arises in practice and
it has to a large extent been overtaken by legislation. [176]
(iii) Interests of the bank require disclosure

The duty of secrecy may also be relaxed when the bank’s own interests require it to
disclose information pertaining to the customer or his affairs. [177] For instance,
where the bank decides to sue the customer on an overdraft, the bank may be
required to disclose information pertaining to the overdrawn account in its
pleadings. [178]
(iv) Disclosure with the express or tacit consent of the customer

The customer may authorise the bank to disclose information about him and his
affairs. [179] The most common example is where the customer requests his bank to
provide a reference on him to a third party. [180] Even when the bank has obtained
the consent of its customer, it must also act within the ambit of that consent. [181]
The bank commits breach of contract if it makes disclosure when it is not
permissible for it to do so. [182] The customer may obtain an interdict to prevent the
bank from disclosing information in breach of its duty. [183] Disclosure of confidential
information would also, prima facie, appear to be a violation of the customer’s right
to privacy, giving the customer recourse against the bank in
Page 139
delict. [184] Disclosure in breach of a statutory provision may also amount to a
criminal offence if the statute so provides. [185]
4.8.3 The duty to act in good faith

As far as the bank’s deposit-taking and lending activities are concerned, the
relationship between the bank and its customer is not a fiduciary one but rather one
of debtor and creditor. [186] The debtor-creditor classification, however, does not
account for all aspects of the bank-customer relationship. [187] In certain situations
the bank may owe a fiduciary duty towards its customer and is, therefore, obliged to
act in good faith. [188] Generally speaking, the existence of a fiduciary duty and its
nature and extent are ‘questions of fact to be adduced from a thorough
consideration of the substance of the relationship and any relevant circumstances
which affect [its] operation’. [189] Examples of situations where the bank may owe
such a duty are:
Page 140
•
where it administers its customer’s property as trustee; [190] and
•
where the customer approaches the bank for financial advice and the bank
agrees to act as his financial adviser. [191]
At common law, a mandatary who owes a duty of good faith towards the mandator
must be open and honest in his dealings with him; and must avoid any conflict
between his interests and those of the mandator. [192] These principles would appear
to apply equally to a bank to the extent that it may owe a fiduciary duty towards a
customer. [193]
4.9 Duties of the customer [194]
The main duties that the customer owes to the bank are:
•
to pay overdrawings, interest, and bank charges;
•
to exercise reasonable care in drawing payment instructions;
•
to notify the bank of any known or suspected forgeries;
•
to reimburse and indemnify the bank.
Page 141
4.9.1 The duty to pay overdrawings, interest and bank charges

(i) Overdrawings and interest
The customer is bound to pay, on demand, the amount by which his account is
overdrawn. [195] He is also obliged to pay interest on the overdrawn account where
this has been expressly or tacitly [196] agreed upon, or where there is a trade usage
that obliges him to do so. [197] Where the bank relies upon trade usage, it must
prove the ordinary requirements for the implication of a trade usage. [198]
(ii) Bank charges
The customer is obliged to pay the bank a reasonable commission for services that it
has rendered to him. [199] In practice, the bank’s entitlement to levy bank charges is
frequently regulated by an express agreement between the parties. [200] Even in the
absence of such an agreement, it is submitted that the bank’s right to levy charges
for services rendered — and a corresponding duty on the part of the customer to
pay such charges — may be regarded as a term of the bank-customer contract
implied by trade usage [201]
Page 142
or law. [202]
Legislation may also regulate the bank’s entitlement to levy charges, [203] and
may impose limitations on the amounts that it may charge its customer. For
instance, in terms of the CPA, the bank may not supply services to a customer at a
price or on terms that are unfair, unreasonable or unjust. [204] Furthermore, the NCA,
read with its regulations, also sets out the maximum fees that may be charged for a
credit agreement [205] and it also prohibits a credit provider (such as a bank) from
levying certain charges or fees on a customer. [206]
4.9.2 The duty to exercise reasonable care and skill in drawing

payment instructions
The customer owes the bank a duty to exercise reasonable care in drawing his
payment instructions. [207] In particular, he must refrain from drawing them in a
manner which may facilitate fraud or alteration. [208] The customer is clearly under
Page 143
such a duty when he draws cheques on his current account. [209] However, the same
principle also applies in the case of telegraphic transfers, [210] and where the
customer’s payment instructions are given by way of an application for an overseas
credit transfer. [211] If the customer acts in breach of his duty, and the cheque or
other payment instrument is forged or altered and subsequently paid by the bank,
the customer’s account may be debited by the bank with the amount so
paid. [212] This is provided that the customer’s negligence was ‘the real, direct or
immediate cause of the bank having been misled’ [213] and was ‘evident in the
transaction itself [ie] in the manner in which the cheque or payment instruction was
drawn’. [214] Even if the customer was negligent in drawing his payment instructions,
the bank may not debit the customer’s account if the bank was negligent in making
payment and its negligence was the proximate cause of the ensuing loss. [215]
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4.9.3 The duty to notify the bank of known or suspected

forgeries [216]
The customer has a duty to warn the bank of any known or suspected forgeries of
his signature. [217] If the customer fails to do this, the bank will be entitled to debit
his account for the amount paid out on the forged instrument. The basis for the
bank’s entitlement to debit the customer’s account under these circumstances is
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often said to be estoppel. [218] However, the bank’s entitlement can be also explained
in terms of the ordinary principles of mandate and there may be no need to consider
estoppel. [219] It is submitted that Tyree correctly explains the position when he
states:
. . . estoppel only arises if there is a duty to disclose, but such a duty can only arise as a
result of an implied term of the banker-customer contract. If there is such a duty, then a
breach of it may be relied upon directly and there is no need to consider an estoppel. [220]
4.9.4 The duty to reimburse and indemnify the bank for expenses
or losses
The customer has a duty to reimburse the bank for any expenses or losses that it
may incur in executing its mandate. [221] So, for instance, when the bank gives effect
to its customer’s mandate and makes payment to a third party, the bank is entitled
to be reimbursed by its customer for the amount so paid. [222] In practice, this
reimbursement is achieved by the bank’s debiting of its customer’s account. [223]
The customer also has a duty to indemnify the bank against any liability that it
may incur in carrying out his mandate. [224] For instance, if a bank, in performing its
mandate in collecting payment on a cheque incurs liability to the true owner thereof,
it may be entitled, under certain circumstances, to be indemnified against this
liability by its customer who deposited the cheque for collection. [225]
4.9.5 Statutory duty to exercise care in custody of cheque forms

and reconciliation of bank statements
In terms of s 72B of the Bills of Exchange Act (as amended) there is a duty on
certain customers of a bank to exercise reasonable care in the custody of cheque
forms and in the reconciliation of its bank statements. [226] This duty applies to:
•
any person who is required by law to have his financial statements audited by
a person registered in terms of s 15 of the Public Accountants’ and Auditors’
Act 80 of 1991, or by the Auditor-General; and
Page 146
•
any person obliged to appoint an accounting officer in terms of s 59 of the
Close Corporations Act. [227]
The duty imposed by s 72B will apply to persons such as estate
agents; [228] Eskom; [229] and public companies. [230]
4.10 Overdraft facilities

An overdraft is a credit facility [231] that is linked to the customer’s bank account. [232]
Page 147
The bank may expressly or tacitly agree [233] to provide an overdraft facility to its
customer either at the time the account is opened or at any other time during the
subsistence of the bank-customer relationship. [234] In granting an overdraft facility,
the bank agrees to make payments to or on behalf of the customer in excess of the
amount standing to the credit of his account, usually up to an agreed limit. [235] Each
payment made against the overdraft gives rises to a separate debt which the
customer then owes to the bank. [236] An overdraft is therefore a series of loans
repayable on demand. [237] It should be noted that the mere fact that the bank has
allowed its customer to overdraw his account does not by itself give rise to a debt
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between the parties; such a debt arises only when the customer actually uses the
overdraft facility and the moneys are paid out by the bank. [238]
The customer is obliged to pay interest on an overdraft if there is an express or
tacit agreement or a trade usage to this effect. [239] At common law, the bank may
unilaterally vary the interest rate charged on an overdraft if this has been expressly
or tacitly agreed upon by the parties. [240] However, in terms of the NCA, a credit
provider may not unilaterally increase the rate of interest applicable to a credit
agreement except where the credit agreement is subject to a variable interest
rate. [241] In addition, the Act provides that a credit provider may not unilaterally
change the period of repayment of the principal debt (except to lengthen it); [242] or
change the manner of calculating the minimum payment due periodically under a
credit facility. [243]
The customer may discharge his indebtedness to the bank — either partially or
wholly — by paying money or depositing a cheque into the overdrawn
account. [244] There is authority to the effect that the debt will be discharged even if
the funds which the customer deposited into his account were stolen, provided that
the bank was unaware of this. [245]
The bank may be entitled to suspend or terminate an overdraft facility under
certain circumstances. Where the NCA is applicable, the bank may suspend a
Page 149
credit facility at any time where the consumer is in default under the
agreement. [246] The Act does not require notice to be given under these
circumstances. Furthermore, subject to certain limitations, [247] the Act entitles the
bank to terminate a credit facility at any time by giving the customer ten business
days’ written notice before doing so. [248] The Act does not require reasons to be
given for terminating a credit facility and it has been suggested that a credit
provider can terminate ‘without advancing or even having any reason’ for doing
so. [249]
Where the NCA is not applicable, it is submitted that in the absence of a
cancellation clause, the bank may terminate if the customer breaches the terms of
the overdraft agreement and this breach is sufficiently serious to warrant
termination. [250] This must be determined on a case by case basis having regard to
the terms of the overdraft agreement. [251] Furthermore, where the Act is not
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applicable, it is submitted that the bank must give the customer reasonable notice of
its intention to terminate the overdraft facilities, in the absence of an agreement to
the contrary. [252]
Where the bank suspends or terminates the customer’s overdraft facilities, there
would generally [253] be no obligation to honour any further payment instructions
given to it by its customer if there is an insufficient credit balance in his account to
meet the full amount of his demand. [254] However, it is submitted that if the bank
unjustifiably suspends or terminates an overdraft facility and then proceeds to
dishonour the customer’s payment instruments then this would amount to a breach
of contract and may render the bank liable for damages.
4.11 Reversal of credit entries

Where a customer makes a deposit into his bank account or a third party makes a
payment into the account, the bank is obliged to pass a credit entry in his (the
customer’s) favour. The credit entry in the bank’s books constitutes prima facie
evidence of the transactions so recorded. [255] The general principle is that when the
bank unconditionally credits the account of its customer with a particular amount, it
is obliged to account to him for this amount on demand and may not reverse the
credit entry without his concurrence. [256] However, the mere act of crediting a
Page 151
customer’s account in the bank’s books does not in all circumstances create an
absolute duty on the bank to account to its customer. [257] A credit entry can be
validly reversed under the following circumstances: [258]
•
where the credit entry is treated as provisional or conditional, such as where it
is subject to a hold period in terms of standing banking practice; [259]
•
where the customer acquired the money by way of theft or fraud; [260]
•
where the drawer’s signature on a cheque has been forged or where bank
notes deposited in the account were forgeries; [261] and
•
where the money was erroneously transferred. [262]
The bank’s right to reverse a credit entry, under these circumstances, is a term of
the bank-customer contract implied by law and banking custom and usage. [263]
4.12 Payment from accounts [264]
In the absence of an agreement to the contrary, if a debtor is indebted to a creditor

in respect of more than one debt, he can when making a payment indicate either
expressly or tacitly how such payment is to be allocated. [265] Similarly, if a customer
has more than one account with the same bank and he makes a payment
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to the bank, he can indicate which account he wants to have credited with the
amount paid. [266] This is the case even if the account chosen is in credit and the
other account is overdrawn. [267] Generally, a customer may also appropriate within
a particular account by specifying that any amount paid into the account should be
used to meet a particular debit item within the account. [268] If the customer (debtor)
does not appropriate the payment then the right to do so passes to the bank
(creditor). [269] Failing appropriation by either party, appropriation is determined
according to certain residual common-law rules. [270]
In English law, default rules of appropriation have been developed for payments
credited to a current account maintained at a bank. In terms of the rule articulated
in Clayton’s case, [271] the first item on the debit side of the account is discharged or
reduced by the first item on the credit side. [272] However, in Standard Bank of South
Africa Ltd v Oneanate Investments (Pty) Ltd, [273] the Supreme Court of Appeal held
that the so-called rule articulated in Clayton was no more than a presumption of fact
as opposed to a rule of law. [274] Accordingly, failing proof of appropriation by the
debtor or the creditor, the court is not bound to follow Clayton and is free to apply
the common-law rules governing appropriation of payments. [275]
4.13 Set-off between bank accounts [276]
Where a customer has two separate current accounts with the same bank, one with
a credit balance and the other, a debit balance, the respective debts that the
Page 153
bank and customer owe to each other in respect of those accounts may be reduced
or extinguished by set-off. [277] Set-off applies by operation of law provided that the
following general requirements are satisfied: [278]
•
The obligations must be mutual in the sense that both parties must be
indebted to each other in the same capacity. [279] Thus, for instance, there can
be
Page 154
no set-off between an overdrawn current account held by a customer in his
personal capacity and an account operated by him in his capacity as
trustee. [280]
•
The debts must be of the same kind. [281]
•
The debts must be due and enforceable.
•
Both debts must be liquidated. [282]
Set-off will apply even if the bank accounts are held at different branches of the
same bank. [283] However, set-off will not apply if it is excluded by statute, [284] or if
the parties have excluded its operation by express or tacit agreement. [285]
Page 155
Where a bank maintains both a current account and a loan account for the same
customer, the parties normally tacitly agree that the two accounts are to be
maintained separately and that they may not be consolidated. [286] Accordingly, in
the absence of an express agreement to the contrary, the debt which the customer
owes to the bank in respect of the loan account may not be set off against any credit
balance in the latter’s current account, during the subsistence of the bank-customer
relationship. [287]
Page 156
If set-off has taken place between the bank and its customer and the estate of
one of them is sequestrated within a period of six months thereafter, then in terms
of the Insolvency Act, [288] the trustee of the sequestrated estate may either:
•
abide by the set-off; or
•
if the set-off was not effected in the ordinary course of business [289] he may,
with the approval of the Master, disregard it and call upon the person
concerned to pay to the estate the debt which he would owe it but for the set-
off.
If the latter course of action is chosen, the person concerned shall thereafter be
obliged to pay that debt and prove his claim against the estate as if no set-off had
taken place. [290]
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4.14 Banker’s lien

In English law, the bank has a general lien over all securities and other documents
that the customer has lodged with it. [291] This gives the bank the right to retain
possession of such items and also the right to sell them to satisfy its claims. [292] In
South African law, the bank has no general right of retention over negotiable
instruments and other securities belonging to the customer. [293] The banker’s lien is
not something that was recognised in Roman-Dutch law. [294] In Kuhne v African
Banking Corporation, [295] the court expressed doubt as to whether such a lien had
been introduced into South African law by s 25(3) of the Bills of Exchange
Act, [296] and this section has now been repealed. [297]
In Duba v Ketsikili [298] the court said that money paid to the credit of the
customer’s account was ‘subject to the banker’s lien and may be appropriated to the
customer’s debt to the bank’. [299] This statement was obiter and, it is submitted,
incorrect. [300] A lien cannot attach to the credit balance of a customer’s
account [301] as this is a debt due by the bank to the customer. [302] The bank is the
owner of the money in the account and a person cannot have a lien over his own
property. [303]
Notwithstanding what has been said above, it should be pointed out that there is
nothing that precludes a customer from pledging a negotiable instrument or other
document to the bank as security for a loan. [304]
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4.15 Trust accounts

The term ‘trust account’ is used here to denote an account maintained at a bank by
a person (a ‘trustee’ or ‘fiduciary’) who holds the funds in the account on behalf of,
or for the benefit of, another person or persons (‘the beneficiary/beneficiaries’).
Typically, a trust account will be opened where the trustee or fiduciary is either
obliged by law to open and operate such an account; [305] or is otherwise authorised
Page 159
to administer the proprietary interests of the beneficiary or beneficiaries either
generally or specifically in relation to that account. [306]
The fact that the customer has a trust account does not change the nature of the
bank-customer relationship, which remains one of debtor and creditor. The trust
account does not create a trust relationship between the bank and the beneficiaries
of the trust. [307] The bank is the owner of money standing to the credit of the trust
account and if the bank is liquidated, the customer only has a concurrent claim
against the insolvent estate. [308]
Trust accounts, however, are to some extent governed by special rules:
•
They must, as a general rule, be kept separate from any personal accounts
which a trustee or fiduciary may have with the bank. [309]
Page 160
•
The bank is not obliged to honour cheques drawn on a trust account if it
knows that the trustee or fiduciary is withdrawing money in breach of his
trust. [310]
•
Set-off cannot be applied between an overdrawn current account held by a
trustee or fiduciary in his personal capacity and a trust account operated by
him in his capacity as trustee or fiduciary. [311]
•
A trust account may sometimes confer rights on other parties other than the
account holder — such the Law Society [312] or Master of the High Court [313] —
and it is important for the bank to know what its rights and obligations are in
this regard.
•
A trustee or fiduciary who commits a breach of trust by misapplying or
misappropriating trust funds can be held liable to the trust beneficiaries in
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delict. [314] A bank may also incur liability if it knowingly assists the trustee or
fiduciary in perpetrating a breach of trust. [315] This may happen, for instance,
if the bank pays a trust cheque drawn by the trustee or fiduciary in breach of
his trust; [316] or collects payment on a cheque drawn on a trust account on
behalf of a trustee or fiduciary who is not entitled to payment; [317] or allows
the trustee or fiduciary to use trust money to reduce a personal overdraft that
he has with the bank. [318] The bank’s liability under these circumstances is
founded in delict in terms of the Aquilian action and the bank and trustee or
fiduciary are liable as joint wrongdoers. [319] In order to hold the bank liable as
joint wrongdoer, however, it must be shown that the bank had knowledge
that the trustee or fiduciary was acting in breach of his trust. [320] The fact that
the
Page 162
bank itself stands to benefit from the misapplication of trust funds [321] may
give to rise to a strong inference that the bank had such knowledge. [322] It
has also been held in our law that knowledge may be found to exist when a
person has real suspicions about something and deliberately refrains from
making inquiries. [323] Thus want of knowledge will not provide any protection
to the bank if it ‘deliberately shuts its eyes to what is going on’. [324]
•
A collecting bank that negligently collects payment on a cheque drawn on a
trust account, on behalf of a person who is not entitled to payment, may incur
liability to the true owner of a cheque. [325] This is the position even if the bank
did not have knowledge that a breach of trust was being committed. [326]
4.16 Termination of the bank-customer relationship

4.16.1 Circumstances in which the relationship terminates
(i) Agreement
The parties may expressly or tacitly agree to terminate their contract.
(ii) Notice of termination

In the absence of agreement to the contrary, the customer may summarily
terminate his contract with the bank by notifying it to this effect. [327] The bank has a
Page 163
similar power, [328] but it must allow the customer a reasonable period of
notice. [329] The question of what constitutes ‘reasonable notice’ depends on the
circumstances of each case. [330] Relevant factors include the nature of the account
in question, [331] and whether the customer needs time to make alternative
arrangements. [332] If the bank threatens to close the customer’s bank account
unlawfully then the customer may obtain an interdict preventing it from doing
so. [333] The customer is also entitled to recover damages for any loss that he suffers
as a result of unlawful closure of the account. [334]
(iii) Death or dissolution of the customer

The bank-customer relationship terminates upon the death of the customer if he is a
natural person. [335] If the customer is a juristic person, such as a company or a
close corporation, the bank-customer relationship will also terminate upon its
Page 164
dissolution. [336] Similarly, dissolution of a partnership will terminate the relationship
created with the bank in respect of the partnership account. [337]
(iv) Sequestration of the customer

There is academic support for the view that the bank-customer relationship
terminates if the customer is sequestrated or placed under liquidation. [338] This view
appears to be premised on the notion that the mandate which founds the
relationship between the parties is automatically terminated under these
circumstances. [339] The better view, however, is that insolvency does not
automatically terminate a contract of mandate. [340] Instead, it is necessary to
examine the nature of the particular mandate in question in order to determine
whether or not it terminates. [341] In this respect, it arguable that insolvency does
not automatically terminate the bank-customer relationship but may restrict the
bank’s ability to perform its mandate towards its customer in certain
respects. [342] The bank may, for instance, be able to receive payments on behalf of
the customer. However, once it receives notice of the customer’s sequestration it
may not be able to act upon payment instructions given by him. This is because the
insolvent customer is divested of his right to dispose of money standing to the credit
of his account, [343] which by operation of law passes initially to the Master of the
High Court and subsequently to the trustee upon his appointment. [344]
Page 165
(v) Insanity of the customer

Academic writers have expressed different views on the question of whether the
bank-customer relationship will automatically terminate if the customer becomes
insane. [345] It is arguable that if the customer is mentally incapacitated to such an
extent that he no longer has contractual capacity, [346] then the contract of mandate,
which underpins the bank-customer relationship, may terminate under these
circumstances. [347] However, from the bank’s perspective it may be difficult to
determine whether the customer is so mentally disabled so as to be deprived of
contractual capacity. [348] Chorley and Holden suggest that the bank should treat the
customer as sane unless there is conclusive evidence of mental disability. [349]
(vi) Dissolution of the bank [350]
The bank-customer relationship terminates upon dissolution of the bank. [351] This
may occur if the bank is wound up either voluntarily or by the court. If the bank
amalgamates with another bank, or subsequently sells and transfers its assets and
liabilities to another bank then, by operation of law, the amalgamated or transferee
bank, as the case may be, obtains the same rights and is subject to the same
obligations as the amalgamating banks or transferor bank prior to the
transfer. [352] Furthermore, all agreements, transactions or documents made or
entered into by the amalgamating banks or transferor bank are subsequently
construed as having been made by or in favour of the amalgamated or transferee
bank. [353]
Page 166
(vii) Effluxion of time (in the case of a fixed deposit)

A fixed deposit is a deposit of money with the bank for a fixed period of time,
subject to certain terms of repayment. [354] After the expiry of that period of time,
the account terminates and the customer then has the choice of either reinvesting
the money for a further period or of obtaining payment. [355]
4.16.2 Consequences of termination

Generally speaking, when the bank-customer relationship terminates the whole of
the balance standing to the credit of the customer’s account becomes immediately
repayable by the bank. [356] Conversely, if the customer’s account is in debit, the
bank may sue to recover any debit balance that exists in respect of that
account. [357] Complications may arise if the customer holds several accounts at the
bank and decides to close only one of more of these accounts. The position in such
an instance appears to be that the closing of one or more accounts with the bank
does not terminate the bank-customer relationship provided that the customer still
has at least one account open with the bank. [358] While the bank’s mandate in
respect of the closed accounts terminates, [359] the bank’s duties and obligations in
respect of the remaining accounts continues.
Termination of the bank-customer relationship also brings to an end certain
duties that the bank owes to its customer such as the duty to honour its customer’s
cheques [360] and the duty to collect cheques. Notable exceptions in this regard are
the duty of secrecy, which continues notwithstanding the termination, [361] and any
accrued duties of the customer to pay overdrawings, interest and bank charges, for
which he remains liable.
Page 167
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[1] Cf Williams 73-4.

[2] National Bank of SA Ltd v Liepner 1922 WLD 101 at 103-4; Estate Kootcher Appellant v
Commissioner for Inland Revenue Respondent 1941 AD 256 at 260; Barclays Bank (DC & O) v SA
Paper Processing Ltd 1956 (2) SA 349 (T) at 355.
[3] Netherlands Bank of South Africa v Stern NO 1955 (1) SA 667 (W) at 669; Rosen v Barclays
National Bank Ltd 1984 (3) SA 974 (W) at 978.
The law sometimes treats the different branches of a bank as though they are separate legal
entities:
•
A bank is obliged to make payment of the amount standing to the credit of a customer’s account
only if payment is demanded at the branch of the bank at which the account is kept (Joachimson
v Swiss Banking Corporation [1921] 3 KB 110 (CA) at 127; Clare & Co v Dresdner Bank [1915] 1
KB 576 at 578; Arab Bank Ltd v Barclays Bank (Dominion, Colonial and Overseas) [1954] 2 All
ER 226 at 236; Burnett v Westminister Bank Ltd [1966] 1 QB 742 at 760; Kircos v Standard
Bank of South Africa Ltd 1958 (4) SA 58 (R) at 60). There is no obligation to pay if the customer
demands payment at a different branch (cf Clare & Co v Dresdner Bank [1915] 1 KB 576 at 578-
9). For these purposes, the law treats the branch of the bank at which the account is maintained
as an entity separate from other branches of the same bank (Tyree & Weaver 225).
•
A notice given to a particular branch of a bank stopping payment on a cheque does not serve as
notice to other branches that payment has been stopped (Burnett v Westminister Bank
Ltd [1966] 1 QB 742 at 760; London Provincial and South Western Bank Limited v
Buszard [1918] 35 TLR 142). In the Buszard case, notice of countermand was given to the
branch of the bank on which the cheque was drawn. It was held that this did not disentitle
another branch from paying a person who presented the cheque for payment. The courts
adopted a similar approach with regard to a notice served on the bank in terms of s 99 of the
Income Tax Act 58 of 1962. In terms of this section — which has since been repealed — the
bank could be appointed as an agent to collect money from persons who were indebted to SARS.
In Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA) (see also n 256), a notice in terms of s 99 was
served at the bank’s head office. The court held that this did not serve as constructive notice to
each of the other branches of the bank and, until a branch had received actual notice, it was
entitled to continue its ordinary, everyday banking functions (at para 15).
•
In terms of s 58 of the Bills of Exchange Act 34 of 1964, if the bank pays an order cheque with a
forged or unauthorised indorsement to a person who is not the holder of the instrument, it may
nevertheless be entitled to debit the drawer’s account with the amount paid if payment was
made in good faith and in the ordinary course of business. The bank is not entitled to the
protection of s 58 if the indorsement purports to be that of a customer of the bank at the branch
on which the cheque is drawn. However, the bank may invoke the protection of s 58 if the
indorsement purports to be that of a customer of a different branch.
[4] National Bank of SA Ltd v Liepner 1922 WLD 101 at 104; Ellinger, Lomnicka & Hare 249.
[5] Moorcroft para 18.14; cf Williams 74. In criminal law, vicarious liability arises only in respect of
statutory crimes — not common-law ones — and only when it is created either expressly or by
implication (Snyman 242-3. See also Burchell 439; Kemp et al 214).
Generally speaking, in order to hold a person vicariously liable for the delictual acts of another, it
must be shown that:
•
a particular relationship existed between the parties such as an employer-employee relationship
or a relationship of principal-agent, at the time the delict was committed;
•
the employee or agent, as the case may be, committed a delict; and
•
in doing so, he was acting in the course and scope of his employment (in the case of an
employee) or was acting within the scope of his authority (in the case of an agent).
See Neethling & Potgieter 389-99 and the authorities cited there.
For examples of cases in which the bank was found to be vicariously liable in delict see, for
instance, Durr v Absa Bank 1997 (3) SA 448 (A); and Page v First National Bank 2009 (4) SA 484
(E).
An employer may not be held liable for the delictual acts of an employee if the wrongful act
performed by the latter is far removed from his employment functions (cf Neethling & Potgieter 394-6
and the authorities cited there). Thus, for instance, in the case of Ess Kay Electronics Pte Ltd v First
National Bank of Southern Africa Ltd 1998 (4) SA 1102 (W), an employee of the defendant bank was
employed as the head of the bank’s foreign exchange department. He stole blank foreign bank drafts
from the bank, made them out in favour of the plaintiffs, and then affixed fictitious signatures to
them. The plaintiffs subsequently accepted the forged drafts as payment for goods. The court found
that there was not a sufficiently close link between the employee’s unlawful acts and his authorised
functions as departmental head of foreign exchange (at 1109). His delictual acts were therefore far
removed from his appointed functions. Accordingly, the bank could not be held vicariously liable (at
1109-10).
[6] In Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 (PC)
506-7, the court used the term ‘rules of attribution’ to describe the rules by which the acts of natural
persons are attributed to a company (see also Northview Shopping Centre v Revelas Properties 2010
(3) SA 630 (SCA) paras 20-21). In the Meridian case, the court pointed out that the company’s
primary rules will generally be found in its founding documents (at 506-7). However, in respect of
rules that are not expressly stated, these may be implied by company law (at 506-7).
In terms of the so-called ‘organic theory’, the ‘persons whose thoughts and acts are regarded as
the thoughts and acts of the company itself are treated as organic parts of the company’ (Williams
75. Cf Lennards Carrying Company Limited v Asiatic Petroleum Co Ltd 1915 AC 705 at 713). In First
National Bank of SA Ltd v Rosenblum 2001 (4) SA 189 (A) para 18, the court summed up the position
as follows: ‘The bank, as an artificial non-human entity, is obviously incapable of being negligent
itself in fact. In law it is the negligence of human beings which is either attributed to the bank itself if
those human beings were the controlling or directing minds of the bank or, if they were not and were
mere employees acting in the course and within the scope of their employment with the bank, it is
their negligence for which the bank is vicariously liable.’
The organic theory is often applied in the context of criminal law where mens rea is a prerequisite
for liability (Williams 75). However, it is also applied in other instances, for example to impose
delictual liability on a company where vicarious liability does not apply (see, for instance, Lennard’s
Carrying Co Ltd v Asiatic Petroleum Co Ltd 1915 AC 705 at 713); or to determine the intention of a
company for purposes of tax liability (see, for instance, Secretary for Inland Revenue v Trust Bank of
Africa Ltd 1975 (2) SA 652 (A) at 668-9; Commissioner for Inland Revenue v Nedbank Ltd 1986 (3)
SA 591 (A)). In applying the organic theory, it is the intention or negligence of the persons who
represent the directing mind of the company and who control what it does which is important (HL
Bolton (Engineering) Co Ltd v Graham & Sons Ltd [1957] 1 QB 159 at 172), and not the intention or
negligence of employees or subordinates who merely carry out orders from above (Tesco
Supermarkets v Nattras 1972 AC 153 (HL) at 170; Anderson Shipping (Pty) Ltd v Guardian National
Insurance Co Ltd 1987 (3) SA 506 (A) at 515-16; R v Kritzinger 1971 (2) SA 57 (A) at 59-60; Levy v
Central Mining Corp Ltd 1955 (1) SA 141 (A) at 149-50). In Secretary for Inland Revenue v Trust
Bank of Africa Ltd 1975 (2) SA 652 (A), the court had to determine the bank’s intention in entering
into a share transaction. This intention had to be sought in the thoughts and acts of the persons who
managed and controlled its affairs (at 668). Ordinarily, this would have been the board of directors.
However, in this case, considerable powers were conferred upon the management committee of the
bank. Accordingly, the court found that the intention of the management committee could be taken to
indicate the intention of the bank (at 669).
[7] The term ‘customer’ is not defined in the Banks Act 94 of 1990. The Bills of Exchange Act
makes express reference to the term customer in several sections (see for example s 58; s 81(5); s
82 and s 83(1)(b)) but does not define it.
[8] Chorley & Holden 35; Cranston (2002) 129; Importers Company Ltd v Westminister Bank
Ltd [1927] 2 KB 297 at 305. Clause 12 of the Code of Banking Practice (2012) defines a ‘personal
customer’ as ‘any individual, who maintains an account or who receives other services from a bank’
(own emphasis). The Code of Banking Practice therefore seems to adopt a wide interpretation of the
term customer and does not limit the definition to a person who has a bank account.
[9] Cranston (1999) 12.
[10] Pennington, Hudson & Mann 19; Smith (1979) 24-5; Ellinger, Lomnicka & Hare 116;
Schoeman et al para 1.2.1. The type of bank account that is opened is arguably irrelevant in
determining whether or not a person is a customer of a bank (Ellinger, Lomnicka & Hare 116;
Takirambudde 369). However, in South African law there is authority for the view that the opening of
a savings account does not give rise to a bank-customer relationship for the purposes of the Bills of
Exchange Act, as this account cannot be drawn on by way of cheque (Standard Bank of South Africa
Ltd v Minister of Bantu Education 1966 (1) SA 229 (N) at 244). The correctness of this decision has,
however, been questioned (Takirambudde 369-70; Malan, Pretorius & Du Toit 256 n 101). In Absa
Bank Ltd v Hanley 2014 (2) SA 448 (SCA) the court regarded a person who opened an investment
account as the bank’s customer and found that he owed the bank a duty to exercise reasonable care
in drawing his payment instructions (paras 25-29). See also Hanley v Absa Bank Limited [2012] 4 All
SA 318 (GNP) para 1.
[11] Ladbroke v Todd (1914) 30 TLR 433, 434; Standard Bank of South Africa Ltd v Minister of
Bantu Education 1966 (1) SA 229 (N) 243.
[12] Commissioners of Taxation v English, Scottish and Australian Bank Ltd [1920] AC 683 at 687-
8.
[13] Tyree & Weaver 214; Clark v London & Country Banking Co [1897] 1 QB 552 at 554.
[14] Where the bank agrees to open an account for a person or entity it will normally also conclude
a specific agreement detailing, inter alia, which persons are authorised to operate the account, draw
cheques and sign other documents.
[15] De Jager 130. Representation is a necessity in instances where a bank account is opened on
behalf of a juristic person such as a company or a close corporation.
[16] If the representative contracts on behalf of an undisclosed principal then the third party with
whom he has contracted may elect to hold him liable in terms of the contract (see, for
instance, Stafford t/a Natal Agricultural Co v Lions River Saw Mills (Pty) Ltd 1999 (2) SA 1077 (N) at
1085-6).
[17] Thus, where a guardian opens an account on behalf of a minor, it is the minor who is bound by
the contract and who is the customer of the bank (on the contractual capacity of minors to open bank
accounts see n 65 below). Similarly, where a bank account is opened on behalf of a company or a
close corporation, it is the company or close corporation, as the case may be, who is the customer of
the bank. Furthermore, as both a company and a close corporation are separate legal entities they
are, in principle, liable for their own respective debts.
[18] Stoney Stanton Supplies (Coventry) Ltd v Midland Bank Ltd [1966] 2 Lloyd’s Rep 373 at 384;
Pennington, Hudson & Mann 19; Ellinger, Lomnicka & Hare 118.
[19] Robinson v Midland Bank Ltd (1925) 41 TLR 402 at 406-7; Stoney Stanton Supplies
(Coventry) Ltd v Midland Bank Ltd [1966] 2 Lloyd’s Rep 373 at 384; Strydom NO v Absa Bank 2001
(3) SA 185 (T) at 192. In Strydom’s case, the plaintiff was an executrix who instituted action against
the bank for damages suffered when a certain T fraudulently opened an account at the bank in the
name of the deceased estate using a forged power of attorney. The court held, inter alia, that T’s
unauthorised opening of the account had not established a contract between the plaintiff and the
bank (at 192).
The person in whose name the account is opened may nevertheless be bound by the agreement
with the bank if he either ratifies it or is estopped from denying that the person purporting to act on
his behalf had the necessary authority to conclude the agreement.
[20] Importers Company, Limited v Westminister Bank, Limited [1927] 2 KB 297 at 309-10; Tyree
& Weaver 213.
[21] The sole proprietor is the one who is personally liable for any bank charges and overdrawings
that may arise in respect of the account. Furthermore, a debt due by or to the sole proprietor may be
set off against any debit or credit balance, as the case may be, arising in respect of the account
opened in the name of the sole proprietorship business (see n 279).
[22] While the partnership is in existence, the bank is required to maintain its account separately
from any other accounts which it may keep for the individual partners. Even though the partnership,
for this purpose, is treated as though it is a customer of the bank in its own right, the partnership
itself is not a separate legal entity (see, for instance, Ehrig & Wyer v Transatlantic Fire Insurance
Co 1905 TS 557 at 560; R v Shamosevitch & Schaltz 1915 AD 682 at 693; R v Levy 1929 AD 312 at
322; Strydom v Protea Eiendomsagente 1979 (2) SA 206 (T) at 209). It is the partners who have the
right to dispose of the money standing to the credit of the account; who are the joint owners of the
so-called ‘partnership property’; and who are ultimately liable for debts incurred in the course of the
partnership business (see further n 337).
[23] The bank must maintain this account separately from any other accounts that it keeps for the
individual trustees. Even though the trust, for this purpose, is treated as though it is a customer of
the bank in its own right, a trust is not generally recognised in South African law as a separate legal
entity outside of specific legislation to the contrary (see, for instance, Commissioner for Inland
Revenue v Macneillie’s Estate 1961 (3) SA 833 (A) at 840; Land and Agricultural Development Bank
of SA v Parker [2004] 4 All SA 261 (SCA) para 10; Olivier v Firstrand Bank Ltd [2011] JOL 27019
(GNP) para 17. See also Du Toit (2007) 22-5 and the authorities cited there). The trust estate is an
accumulation of assets and liabilities that vests in the trustees in their official capacities (Land and
Agricultural Development Bank of SA v Parker [2004] 4 All SA 261 (SCA) para 10; Commissioner for
Inland Revenue v Macneillie’s Estate 1961 (3) SA 833 (A) at 840; Olivier v Firstrand Bank Ltd [2011]
JOL 27019 (GNP) para 17). The trustees are regarded as non-beneficial owners of any trust assets
(Braun v Blann and Botha NNO 1984 (2) SA 850 (A) at 859), and such assets do not form part of the
personal estates of the trustees (s 12 of the Trust Property Control Act 57 of 1988).
[24] See 4.15.
[25] Plunkett v Barclays Bank Ltd [1936] 2 KB 107 at 118-19; De Villiers v Kaplan 1960 (4) SA 476
(C) at 478-9. It is the attorney and not his client that is entitled to operate the trust account and
make withdrawals from it (see Fuhri v Geyser NO 1979 (1) SA 747 (N) at 749, cited with approval
in Wypkema v Lubbe 2007 (5) SA 138 (SCA) para 5).
Similarly, where a liquidator or trustee opens an account on behalf of an insolvent estate, it is the
trustee or liquidator, as the case may be, who is the customer of the bank and who is entitled to
operate the account (Klopper v Volkas Bpk 1963 (1) SA 930 (T) at 932-3). It is submitted that the
same principles apply mutatis mutandis to trust accounts opened by an estate agent and executor.
[26] Louw NO v Coetzee 2003 (3) SA 329 (SCA) para 15.
[27] On the nature of the relationship between the South African Reserve Bank and the state
see The Godfather v Commissioner for Inland Revenue 1993 (2) SA 426 (N) at 432; Malan, Pretorius
& Du Toit 257-9.
[28] Foley v Hill (1848) 2 HL Cas 28; Standard Bank of SA Ltd v Oneanate Investments (Pty)
Ltd 1995 (4) SA 510 (C) at 530; Harding v Standard Bank of South Africa Ltd 2004 (6) SA 464 (C) at
471; Di Guilio v First National Bank of South Africa 2002 (6) SA 281 (C) para 19; Joint Stock Co
Varvarinskoye v Absa Bank 2008 (4) SA 287 (SCA) para 37; Absa Bank Ltd v Hanley 2014 (2) SA 448
(SCA) para 25; Hapgood 145.
[29] Cowen & Gering (1966) 366-7; Itzikowitz 256. The general relationship between the bank and
its customer cannot adequately be classified as one of depositum (In re White v Brown (Standard
Bank) (1883) 4 NLR 88 at 91-2; Ormerod v Deputy Sheriff, Durban 1965 (4) SA 670 (D) at 673) nor
as one of commodatum (AG Canada v AG Quebec [1947] AC 33 at 44). As to the question of whether
the contract can be adequately classified as one of mutuum, see Cowen & Gering (1966) 366-7. See
also Malan, Pretorius & Du Toit 296.
[30] Schulze (2002 (1)) 459; Sharrock & Kidd 45 n 2.
[31] See Chapter 5.
[32] GS George Consultants and Investments (Pty) Ltd v Datasys (Pty) Ltd 1988 (3) SA 726 (W) at
736; Malan, Pretorius & Du Toit 296; Sharrock & Kidd 45 n 2. See, however, Di Giulio v First National
Bank of South Africa Ltd 2002 (6) SA 281 (C) where the court expressed the view that the complexity
of the relationship between the bank and customer did not justify its classification as a contract sui
generis (at para 20). The court found that the relationship between the parties emanated from a
contract of mandate and that even though the rights and obligations arising from the contract may be
complex in nature, the relationship remained one of mandate (at para 20).
[33] Per Moseneke J in Standard Bank of South Africa Ltd v Absa Bank Ltd 1995 (2) SA 740 (T) at
747. See further Schulze (2002 (1)) 460; Moorcroft para 15.4.
[34] Estate Ismail v Barclays Bank (DC & O) 1957 (4) SA 17 (T) at 26; S v Kearney 1964 (2) SA
495 (A) at 503; Rousseau NO v Standard Bank of SA Ltd 1976 (4) SA 104 (C) at 106; Standard Bank
of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at 530-1; Kircos v Standard Bank of
South Africa Ltd 1958 (4) SA 58 (R) at 60; Commissioner of Customs and Excise v Bank of Lisbon
International Ltd 1994 (1) SA 205 (N) at 213; Di Guilio v First National Bank of South Africa 2002 (6)
SA 281 (C) para 19; Louw NO v Coetzee 2003 (3) SA 329 (SCA) para 12; Joint Stock Co
Varvarinskoye v Absa Bank 2008 (4) SA 287 (SCA) para 37; Absa Bank Ltd v Intensive Air (Pty)
Ltd 2011 (2) SA 275 (SCA) para 20; Absa Bank v Lombard Insurance Company Ltd 2012 (6) SA 569
(SCA) para 19; Absa Bank Ltd v Hanley 2014 (2) SA 448 (SCA) para 25.
The debtor-creditor classification is not confined to current accounts — it applies mutatis mutandis
to:
•
a loan account;
•
a deposit account (Hart (Inspector of Taxes) v Sangster [1957] 2 All ER 208 at 210-11); and
•
a savings account (Schulze (2002 (1)) 440; Ellinger, Lomnicka and Hare 363). A savings
account, in any event, is a special form of deposit account (Holden 29).
With regard to a loan account, the customer is the debtor and the bank, the creditor. In the case of a
deposit or savings account with a credit balance, the customer is the creditor and the bank is the
debtor. There is authority to the effect that it is not legally possible to have an overdrawn deposit
account (Barclays Bank Ltd v Okenarhe [1966] 2 Lloyd’s LR 87 (QB) at 94, Hapgood 214). Similarly,
it has been held that it is not legally possible to overdraw a savings account (Standard Bank of South
Africa Ltd v Minister of Bantu Education 1966 (1) SA 229 (N) at 235). In practice, however, it is
conceivable that a savings or deposit account may reflect a debit balance under certain limited
circumstances (cf Ellinger, Lomnicka and Hare 362). This may be the case, for instance, where the
bank and its customer expressly or tacitly agree that such an account may be overdrawn; or where
bank charges or other fees levied by the bank are debited to that account and this exceeds the
amount of any money standing to the credit of the account. Under these circumstances, it is
submitted that the customer will be the bank’s debtor to the extent of that debit balance.
In Carrim v Omar 2001 (4) SA 691 (W), the court considered the nature of the relationship
between an Islamic Bank and its customer which was governed by a contract concluded in accordance
with Islamic Shariah law. In this instance, the contract governing the relationship between the parties
was known as a ‘Mudhaarabah contract’. This was a contract ‘between two parties whereby one gives
the other a sum of money for the purposes of investment, both parties agreeing beforehand the ratio
in which they would be sharing the profits arising from the relationship’ (at 727). The court pointed
out that the terms of this contract differed from the ordinary contract between a commercial bank
and its customer (at 728-9). In this respect, the court pointed out that the relationship arising out of
the ‘Mudhaarabah’ contract was more complex than that of debtor and creditor (at 729). The Islamic
bank’s customer was more of an ‘investor’ and not a depositor in the strict sense and the relationship
was more akin to a form of partnership providing for eventualities relating to both profits and losses
(at 731). The investment in an Islamic Bank in terms of such a ‘Mudhaarabah’ contract therefore
could not be equated with a deposit in an ordinary commercial bank where the basic relationship is
one of debtor and creditor (at 731-2).
[35] Kearney NO v Standard Bank of South Africa Ltd 1961 (2) SA 647 (T) at 650; Standard Bank
of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at 531-2; Sharrock & Kidd 46.
[36] Kearney NO v Standard Bank of South Africa Ltd 1961 (2) SA 647 (T) at 650; Standard Bank
of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at 531-2; Sharrock & Kidd 46. A
deposit slip issued by the bank ordinarily constitutes prima facie proof that money was deposited with
it (Kircos v Standard Bank of South Africa Limited 1958 (4) SA 58 (SR) at 61; Randfontein
Transitional Local Council v Absa Bank Ltd 2000 (2) SA 1040 (W) at 1048).
[37] Ruskin NO v Barclays Bank DCO 1959 (1) SA 577 (W) at 581-2; Kearney NO v Standard Bank
of South Africa Ltd 1961 (2) SA 647 (T) at 650; Sharrock & Kidd 46.
[38] S v Kearney 1964 (2) SA 495 (A) at 503; Louw NO v Coetzee 2003 (3) SA 329 (SCA) para
12; Joint Stock Co Varvarinskoye v Absa Bank 2008 (4) SA 287 (SCA) para 37; Standard Bank of
South Africa Ltd v Echo Petroleum CC 2012 (5) SA 283 (SCA) para 27; Trustees, Estate Whitehead v
Dumas 2013 (3) SA 331 (SCA) para 13.
[39] Legally speaking, it is therefore incorrect to describe money standing to the credit of a
customer’s account as ‘his money’ (R v Davenport [1954] 1 All ER 602 (CA) at 603; R v
Stanbridge 1959 (3) SA 274 (C) at 278; Rousseau NO v Standard Bank of SA Ltd 1976 (4) SA 104
(C) at 106; Smith (1979) 25). It is often said that the customer has a ‘special property or interest’ in
the money even though he is not the owner thereof (S v Kotze 1965 (1) SA 118 (A); S v
Graham 1975 (3) SA 569 (A) at 577; Commissioner of Customs and Excise v Bank of Lisbon
International Ltd 1994 (1) SA 205 (N) at 213). The notion of a ‘special property or interest’ is
relevant for criminal law purposes (cf Dantex Investment Holdings (Pty) Ltd v National Explosives
(Pty) Ltd (in liquidation) 1990 (1) SA 736 (A) at 750; Gering & Tobias 349).
[40] Ex parte Kelly 1942 OPD 265 at 272; Dantex Investment Holdings v National Explosives (Pty)
Ltd (in liquidation) 1990 (1) SA 736 (A) at 748; Gilbey Distillers and Vintners (Pty) Ltd v Absa Bank
Limited 2001 JDR 0411 (C) para 68; Muller NO v Community Medical Aid Scheme 2012 (2) SA 286
(SCA) paras 13-15; Trustees, Estate Whitehead v Dumas 2013 (3) SA 331 (SCA) para 13; De Jager
131.
[41] Although cheques have traditionally been the way to effect third party payments, in modern
banking practice payment can be effected by various methods which include, inter alia, the use of a
debit, cheque or credit card and internet, telephone or cellphone banking facilities (Tyree 79; Ellinger,
Lomnicka & Hare 213).
There is no general obligation on a bank to pay a customer interest on any amount standing to
the credit of the latter’s current account (Ogilvie 228). However, the bank may be obliged to pay
interest if there is an express or tacit agreement to this effect. With regard to deposit accounts, the
bank normally agrees to pay the customer interest.
It is usually said that the customer has a right to payment on demand. Demand is necessary to
render the debt payable in the case of a current account or a savings account payable at call
(Ellinger, Lomnicka & Hare 122). In the case of a fixed deposit, the customer’s right to payment is
deferred until the expiry of a stated period of time or notice; or until fulfilment of some other
condition (Ormerod v Deputy Sheriff, Durban 1965 (4) SA 670 (D) at 673). In these cases, it is
unnecessary for a customer to make any demand to render the debt payable (Pennington, Hudson &
Mann 24; Ellinger, Lomnicka & Hare 122).
Where demand is necessary, the customer is, strictly speaking, required to make it at the branch
of the bank at which the account is maintained (Joachimson v Swiss Banking Corporation [1921] 3 KB
110 (CA) at 127. See also Burnett v Westminister Bank Ltd [1966] 1 QB 742 at 760). The rationale
for this is that the branch where the account is kept is the place where the customer’s precise
liabilities are known (Cranston (1999) 12). Nowadays, however, banks have centralised computer
systems (Cranston (1999) 12). This essentially means that any branch can now ascertain the precise
liabilities of a customer. In any event, in practice, banks normally permit their customers to withdraw
money at ATMs from other branches or from other banks or to make payment electronically at points
of sale (Ellinger, Lomnicka & Hare 123).
The customer’s right to claim payment of the amount standing to the credit of his account can be
attached and sold in execution at the instance of the judgment creditor (Ormerod v Deputy Sheriff,
Durban 1965 (4) SA 670 (D) at 673-4). This is provided that the right which the creditor seeks to
attach has vested in the judgment debtor (Ormerod v Deputy Sheriff, Durban 1965 (4) SA 670 (D) at
674).
[42] Absa Bank v Lombard Insurance Company Ltd 2012 (6) SA 569 (SCA) para 14; Nissan South
Africa (Pty) Ltd v Marnitz 2005 (1) SA 441 (SCA) para 23. It has been held, however, that the
position may be different where the customer acquired the money ‘in a contractual context’ by
inducing a third party, by fraudulent misrepresentation, into making the payment (Trustees, Estate
Whitehead v Dumas 2013 (3) SA 331 (SCA) para 15). Under these circumstances, it has been held
that the bank is still obliged to account to the customer for the money paid into his account
notwithstanding the fraudulent misrepresentation (paras 15 and 24). For criticism of this case, see ch
6.
[43] R v Davenport [1954] 1 All ER 602 at 603; R v Stanbridge 1959 (3) SA 274 (C) at
278; Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at 532; Smith
(1979) 25.
[44] Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at 532.
[45] For instance, where the bank pays a cheque on which its customer’s signature as drawer has
been forged (Pennington, Hudson & Mann 23). See also para 4.7.1 and ch 8 dealing with
unauthorised payment.
[46] Pennington, Hudson & Mann 23.
[47] Louw NO v Coetzee 2003 (3) SA 329 (SCA) para 12. The customer is not a secured or
preferent creditor as far as his deposit with the bank is concerned (Space Investments Ltd v Canadian
Imperial Bank of Commerce Co (Bahamas) Ltd [1986] 3 All ER 75 at 76-8).
In terms of s 4(5) of the Financial Institutions (Protection of Funds) Act 28 of 2001 ‘trust property’
that is invested, kept in safe custody, controlled or administered by a financial institution or nominee
company (as defined in the Financial Services Act 97 of 1990) does not form part of the assets of that
financial institution. Accordingly, any such property kept, controlled or administered by a bank does
not form part of its insolvent estate. Trust property, in this context, encompasses property held in
trust by the relevant institution or company itself and does not include trust moneys deposited by an
attorney in a trust account (Louw NO v Coetzee 2003 (3) SA 329 (SCA) paras 12-15).
[48] OK Bazaars (1929) v Universal Stores Ltd 1973 (2) SA 281 (C) at 288; Di Giulio v First
National Bank of South Africa 2002 (6) SA 281 (C) paras 17-20; Great Karoo Eco Investments (Edms)
h/a Grobbelaarskraal Boerdery v Absa Bank Bpk 2003 (1) SA 222 (W) para 33; McCarthy v Absa
Bank Ltd 2010 (2) SA 321 (SCA) para 16; Absa Bank Ltd v Hanley 2014 (2) SA 448 (SCA) para 25;
Malan, Pretorius & Du Toit 296; Schulze (2007 (1)) 370 at 372; Hapgood 140-1.
[49] Di Guilio v First National Bank of South Africa 2002 (6) SA 281 (C) paras 17-20. The contract
of mandate between the parties is not affected by whether the customer’s account is in credit or is
overdrawn; in both instances the bank acts as mandatary in carrying out its customer’s instructions
(Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at 532; Malan,
Pretorius & Du Toit 296).
[50] Schulze (2007 (1)) 372; Schulze (2002 (2)) 621; Pretorius (2005) 57; Moorcroft para 15.6;
Schoeman et al para 1.2.3.
[51] Itzikowitz 256.
[52] Cf Space Investments Ltd v Canadian Imperial Bank of Commerce Co (Bahamas) Ltd [1986] 3
All ER 75 at 76.
[53] The 2004 version of the Code of Banking Practice expressly stated, inter alia, that none of its
provisions would give rise to a trade custom between the bank and its customer (clause 1). However,
as Schulze correctly points out ‘the mere fact that a particular banking practice or usage has been
acknowledged and explained in the Code in the first place, is already a strong indication that it
qualified or existed as a banking practice or trade usage in its own right’ (Schulze (2002 (1)) 456-7.
See also Du Toit (2014) 570; Malan, Pretorius & Du Toit 298-9). In the 2012 version of the Code of
Banking Practice, the aforementioned statement has been omitted.
[54] Schulze (2002 (1)) 438-61. Certain aspects of the relationship are governed by legislation. For
example, the duty imposed on certain customers of the bank to exercise reasonable care in the
custody of cheque forms and in the reconciliation of bank statements is governed by s 72B of the Bills
of Exchange Act (see para 4.9.5 below).
[55] Moorcroft para 15.1.
[56] The Consumer Protection Act 68 of 2008 (CPA) and National Credit Act 34 of 2005 (NCA) place
certain limitations on the provisions that can be included or excluded from certain bank-customer
contracts.
[57] Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at 532;
Schoeman et al para 1.2.2; Hapgood 145.
[58] See also Hapgood 145.
[59] Ladbroke v Todd (1914) 30 TLR 433, 434; Schoeman et al para 1.2. The question of when the
bank-customer relationship comes into existence depends on how the term ‘customer’ is construed;
ie, whether or not one accepts the proposition that the existence of a bank account is essential for a
person to be classified as a customer. If one adopts a wide interpretation of the term ‘customer’, then
the question as to when the relationship comes into existence will depend on the type of service that
the customer requires from the bank and will have to be determined in accordance with the ordinary
principles of contract.
[60] Chorley & Holden 38; Wadsley & Penn 104; Goosen et al 188-90; Pennington, Hudson & Mann
21; Schoeman et al para 1.2.2. The general principles of contract and agency are applicable. See
generally Cranston (2002) 136-40.
[61] Goosen et al 188-90. Generally speaking, the bank is not obliged to open an account for a
person and accept him as its customer (Cranston (2002) 163; Geva 27; Moorcroft para 18.11). The
bank’s right of contractual freedom was recognised in Bredenkamp v Standard Bank 2010 (4) SA 468
(SCA), which affirmed the bank’s right to close the account of a customer with whom it no longer
wanted to do business (see n 332 below). However, the bank’s right to refuse to open an account is
not completely unfettered (Geva 27-9). For instance, a bank may not unfairly discriminate against
customers with regard to providing access to services offered, on the basis of one or more of the
prohibited grounds in terms of s 9 of the Constitution (s 8 of the CPA).
[62] Ladbroke v Todd (1914) 30 TLR 433 at 434; Chorley & Holden 37-8; Tyree 45-6. See
also Woods v Martins [1958] 3 All ER 166 at 173-174; Standard Bank of South Africa Ltd v Minister of
Bantu Education 1966 (1) SA 229 (N) at 243.
The bank must exercise reasonable care in opening a bank account for a prospective customer
(KwaMashu Baker Ltd v Standard Bank of South Africa Ltd 1995 (1) SA 377 (D) at 395-6; Energy
Measurements (Pty) Ltd v First National Bank of South Africa 2001 (3) SA 132 (W) at 158-60; Fourie
(1993) 1; Goosen et al 196) In particular, the bank must comply with the obligations imposed on it
by FICA. A failure to exercise reasonable care in the opening of the account could have certain
repercussions:
•
Failure to comply with the obligations imposed by FICA is an offence in terms of the Act (s 46(1)
and (2)).
•
A collecting bank which opens a bank account negligently can incur delictual liability to the true
owner of the cheque (See Energy Measurements (Pty) Ltd v First National Bank of South
Africa 2001 (3) SA 132 (W) at 157-69, 174).
•
In certain circumstances it is also possible that the bank may owe a legal duty to a third party
not to open a bank account negligently. This was recognised in Commissioner, South African
Revenue Service v Absa Bank Ltd 2003 (2) SA 96 (W), where the court decided that a prima
facie legal duty had been established on the part of the bank to avoid causing the Commissioner
for the South African Revenue Service and the Minister of Finance pure economic loss by
negligently opening and maintaining an account that was fraudulently used to obtain VAT
refunds for a series of fictitious transactions (at 123-4). The court, however, did not make a final
determination in this regard as the matter was brought at the exception stage. See
also Peterson and another NNO v Absa Bank 2011 (5) 484 (GNP) at 494-5 and, for a discussion
of this case, see Schulze (2012 (1)) 833-4; Schulze (2013) 496-7.
[63] The courts have accepted that an agent who is employed in a particular capacity or who
occupies a particular position impliedly has the authority to perform juristic acts that is usually vested
in such an agent (Reed NO v Sager’s Motors (Pvt) Ltd 1970 (1) SA 521 (RA) 524-5; Glofinco v Absa
Bank (t/a) United Bank 2001 (2) SA 1048 (W) at 1057-9; Intercontinental Finance and Leasing
Corporation (Pty) Ltd v Stands Fifty Six and Fifty Seven Industrial Ltd 1979 (3) SA 740 (W) at 747-9.
See also Quinn and Co Ltd v Witwatersrand Military Institute 1953 (1) SA 155 (T) at 159-60). So, for
instance, a person employed as a branch manager of a bank may have implied authority to represent
the bank in transactions that a branch manager of a bank is usually empowered to conclude, such as
accepting deposits from the public and undertaking to repay them (cf Glofinco v Absa Bank (t/a)
United Bank 2002 (6) SA 470 (SCA) para 15; African Life Assurance Co Ltd v NBS Bank Ltd 2001 (1)
SA 432 (W) at 452-3). The bank’s internal regulations may, however, place limits on the scope of an
agent’s authority (cf Glofinco v Absa Bank (t/a) United Bank 2001 (2) SA 1048 (W) at 1058-
9; Glofinco v Absa Bank (t/a) United 2002 (6) SA 470 (SCA) paras 15-18). For instance, a branch
manager of a bank may not be authorised to perform transactions above a certain amount or he may
not be able to bind the bank as surety (cf Glofinco v Absa Bank (t/a) United Bank 2001 (2) SA 1048
(W); Glofinco v Absa Bank (t/a) United Bank 2002 (6) SA 470 (SCA)). Under these circumstances,
implied authority will not be found to exist if the agent acts beyond the scope of his authority
(Glofinco v Absa Bank (t/a) United Bank 2001 (2) SA 1048 (W) at 1063).
[64] Cf South African Eagle Insurance Co Ltd v NBS Bank Ltd 2002 (1) SA 560 (SCA) at 573-
5; NBS Bank Ltd v Cape Produce Co (Pty) Ltd 2002 (1) SA 396 (SCA) paras 24-25. In order to hold a
‘principal’ liable on the basis of estoppel, the following requirements must be satisfied.
•
The ‘principal’ must have made a representation, either by words or conduct, that the ‘agent’
had authority to conclude the contract on his behalf.
•
The representation must have been such that the ‘principal’ should reasonably have expected
that the third party would act on the strength of it.
•
The third party must have acted on the strength of that representation to his prejudice.
•
The third party’s reliance on that representation must have been reasonable.
See NBS Bank Ltd v Cape Produce Co (Pty) Ltd 2002 (1) SA 396 (SCA) para 26; Glofinco v Absa Bank
Ltd t/a United Bank 2002 (6) SA 470 (SCA) para 12.
Estoppel was successfully raised in the cases of NBS Bank Ltd v Cape Produce Co (Pty) Ltd 2002
(1) SA 396 (SCA) paras 28-37 and South African Eagle Insurance Co Ltd v NBS Bank Ltd 2002 (1) SA
560 (SCA) at 575-7. However, it did not succeed in the cases of Glofinco v Absa Bank (t/a) United
Bank 2002 (6) SA 470 (SCA) and Absa Bank Limited v Arif 2014 (2) SA 466 (SCA).
In Glofinco v Absa Bank (t/a) United Bank 2002 (6) SA 470 (SCA) the bank was sued on a series
of dishonoured cheques which its branch manager — purportedly acting on behalf of the bank — had
signed as surety for the drawer. In the Supreme Court of Appeal, the majority of the court found that
estoppel could not succeed as there was no representation from the bank that its branch manager
had authority to bind it as surety (at para 27). In this respect, the court pointed out that the
transaction in question was not an ordinary one which a bank manager would normally conclude (at
para 27). In a minority judgment, however, Nugent JA found that the question that had to be asked
was not whether the principal would ordinarily have concluded the contract, but rather ‘whether the
contract fell within the scope of the principal’s ordinary business’ (at para 46). In casu, he found that
that the representation as to the branch manager’s authority emanated from the bank (at paras 43-
47) and that it was not unreasonable for a member of the public, when dealing with the bank, to trust
the word of its branch manager (at para 53).
In the Arif case, M had operated two agencies on behalf of Absa Bank and had concluded
investment agreements with the respondents. The agreements in question were in fact illegal, as
fictitious account-holder names were used to conceal undeclared taxable funds from SARS. When M
subsequently misappropriated the funds, the respondents sought to hold the bank liable by alleging
that they had authorised M to represent them in concluding the agreements. As to the question of
whether Absa was liable, the court found that the respondents had failed to prove that M had express
or implied authority to conclude the investment agreements on behalf of Absa (at paras 32-33).
Furthermore, they could not succeed on the basis of estoppel as they could not reasonably have
believed that engaging in fraudulent conduct fell within M’s functions and that Absa had authorised
him to represent it in an unlawful activity (at para 33).
[65] The capacity of a minor to open and operate a bank account is regulated by both the common
law and statute. A distinction must be drawn between minors below the age of 7, minors between the
ages of 7 and 16, and minors of 16 years and older:
•
A minor below the age of 7 years has no capacity to act and may not conclude a contract even
with the assistance of his guardian (Voet 26.8.9; 41.2.6). In order to acquire rights and duties
under a contract, his guardian must act on his behalf (Voet 26.9.2).
•
A minor between the ages of 7 and 16 has limited contractual capacity. He may conclude
contracts in his own name with the assistance of his guardian. However, it seems that when the
minor enters into a contact in terms of which he only acquires rights and does not incur any
duties, he can conclude the contract without assistance (Voet 26.8.2).
•
In terms of s 87(1) of the Banks Act 94 of 1990, unless the bank’s founding documents provide
otherwise, a minor over the age of 16 may be a depositor with a bank with the consequence that
he may open and operate a bank account without his guardian’s consent. The Act does not
specify what type of account may be opened by such a minor. Some writers state that the Act
allows a minor to open an investment account, such as a savings account or a fixed deposit, but
they do not specifically mention anything about current accounts (Fourie (1993) 191; Goosen et
al 196-7). It is not clear whether this omission is deliberate and, if so, whether the implication is
that the bank cannot open a current account for a minor above the age of 16. Nevertheless, it
seems clear that the section empowers a minor to open even a current account without his
guardian’s consent and there does not appear to be anything in the Act to support a view to the
contrary.
Where a minor concludes a contract with the assistance of his guardian, or if the guardian contracts
in the name of the minor, it is the minor and not the guardian who is bound by the contract (Moolman
v Erasmus 1910 CPD 79 at 85; Skead v Colonial Banking and Trust Co Ltd 1924 TPD 497 at 500).
Conversely, if a minor enters into a contract without his guardian’s assistance then he is not bound by
the contract. The contract is not void but it ‘limps’ in the sense that the other party to the contract is
liable to perform whatever obligation he has undertaken but he cannot force the minor to comply with
the contract (Voet 26.8.3-26.8.4; Edelstein v Edelstein 1952 (3) SA 1 (A) at 13). If the minor,
however, seeks fulfilment of the contract then he himself will have to fulfil his obligations in terms
thereof (Edelstein v Edelstein 1952 (3) SA 1 (A) at 13). In terms of s 39(1)(b) of the CPA, an
agreement is voidable at the option of the consumer, if at the time the agreement was made (i) the
consumer was an unemancipated minor; (ii) the agreement was made without the consent of an
adult responsible for that minor; and (iii) the agreement has not been ratified by either an adult
responsible for that minor or the consumer after being emancipated or becoming an adult (s
39(1)(b)(i)-(iii)). This does not apply, however, if the consumer, or any person acting on behalf of the
consumer, directly or indirectly, by act or omission, induced the supplier into believing that the
consumer had an unfettered legal capacity to contract, or attempted to obscure or suppress the fact
that the consumer did not have an unfettered legal capacity to contract (s 39(2)(a)-(b)).
[66] Pheasant v Warne 1922 AD 481 at 487; Lange v Lange 1945 AD 33 at 341-2; Theron v AA Life
Assurance Association Ltd 1993 (1) SA 736 (C) at 739. Mental incapacity to contract is a question of
fact (Theron v AA Life Assurance Association Ltd 1993 (1) SA 736 (C) at 739). A contract entered into
with a person who lacks the necessary mental capacity at the time of contracting is void ab initio
(Pheasant v Warne 1922 AD 481 at 487). Section 39(1)(a) of the CPA provides that an agreement to
supply any services is void if the customer is subject to a court order holding him to be mentally unfit
and the supplier knew or could reasonably have determined that he was subject to the court order.
See, however, s 39(2) of the CPA (mentioned in the preceding footnote).
With regard to the capacity of a company to open and operate a bank account, it should be
pointed out that the Companies Act 61 of 1973 conferred certain plenary powers upon a company,
including the common powers set out in Schedule 2, to enable it to realise its main and ancillary
objects (s 34). This included the power to, inter alia, open and operate bank accounts; to overdraw
such accounts; and to borrow and invest money (see generally Beuthin & Luiz 84; Williams 139;
Cilliers et al 65). The Companies Act 71 of 2008 does not explicitly confer these powers upon a
company. However, the Act provides that a company shall have all of the legal powers and capacity
of an individual except to the extent that a juristic person is incapable of exercising such powers or
having any such capacity (s 19(1)(b)(i)); or except to the extent that the company’s Memorandum of
Incorporation provides otherwise (s 19(1)(b)(ii)). Prima facie, this provision confers almost unlimited
legal capacity on a company (Cassim (2010) 170-1; Cassim et al 168-9). Therefore, it is submitted
that unless the company’s Memorandum of Incorporation limits, restricts or qualifies the purposes,
powers or activities of the company, it will have the capacity to, inter alia, open and operate a bank
account, to overdraw the account and to borrow and invest money.
With regard to close corporations, it should be pointed out that the Close Corporations Act 69 of
1984 specifically provides that the close corporation shall have ‘the capacity of a natural person of full
capacity in so far as a juristic person is capable of having such capacity or exercising such powers’ (s
2(4)).
[67] The authority to represent the account-holder may be given expressly or tacitly; or it may be
implied by law. With regard to implied authority, the following should be noted.
•
Each partner in a partnership has implied authority to perform all acts that are incidental to the
proper conduct of the partnership business, thereby binding his partners and the firm (Braker &
Co v Deiner 1934 TPD 203 at 206-7). However, the partners and the firm are not bound by acts
that fall outside the ordinary or usual scope of the partnership business (Meyer v Mosenthal Bros
Ltd 1925 TPD 281 at 284).
•
Any member of a close corporation is an agent of that corporation vis-à-vis third parties who are
dealing with that corporation (s 54(1)). Any act of the member is binding upon the close
corporation whether or not the act is performed for the purposes of carrying on the business of
the corporation (s 54(2)). This is unless the member concerned has in fact no power to act for
the corporation in the particular matter, and the person with whom the member has dealt with
had, or ought reasonably to have had, knowledge of this fact (s 54(2)).
•
In terms of the Companies Act 71 of 2008, the business and affairs of a company must be
managed by or under the direction of its board, which has the authority to exercise all of the
powers and perform any of the functions of the company, except to the extent that the Act or
the company’s Memorandum of Incorporation provides otherwise (s 66). Furthermore, in terms
of s 20(7) of the Act, any person, other than a director, prescribed officer or shareholder of the
company, who deals with a company in good faith, is entitled to presume that the company in
making any decision in the exercise of its powers, has complied with all of the formal and
procedural requirements in terms of the Act, its Memorandum of Incorporation, and any internal
rules. This is unless the person concerned knew or ought reasonably to have known that the
company had failed to comply with any such requirement. This subsection must be construed
concurrently with, and not in substitution for, any relevant common-law principle relating to the
presumed validity of the actions of a company in the exercise of its powers.
[68] Generally speaking, an agreement may be rendered void for vagueness as a result of the use
of vague or imprecise language (Levenstein v Levenstein 1955 (3) SA 615 (SR) at 619); or if the
parties have failed to agree on certain material particulars; or if the debtor is bound to perform only
should he wish to do so (Davidowitz v Van Drimmelen 1913 TPD 672 at 676, Levenstein v
Levenstein 1955 (3) SA 615 (SR) at 619). However, a contract which gives the creditor the option of
determining the extent of the debtor’s performance up to a specified limit is valid (Christie & Bradfield
104). It has been held, for instance, that a clause in an overdraft agreement conferring upon the
bank the right to unilaterally increase the rate of interest payable is valid, subject to the limitation
that the bank must exercise its discretion reasonably (Nedbank Ltd v Capital Refrigerated Truck
Bodies (Pty) Ltd 1988 (4) SA 73 (N) at 74-75; Otto 2; Otto & Otto 88. See also NBS Boland Bank Ltd
v One Berg River Drive CC; Deeb v Absa Bank Ltd; Friedman v Standard Bank of South Africa
Ltd 1999 (4) SA 928 (SCA) at 935-7; Malan, Pretorius & Du Toit 321-2). Similarly, the courts have
also upheld the validity of mortgage agreements which gave the bank the right to unilaterally vary
the interest rate payable at any time (NBS Boland Bank v Berg River Drive CC; Deeb v Absa Bank
Ltd; Friedman v Standard Bank of SA Ltd 1999 (4) SA 928 (SCA); Investec Bank (Pty) Ltd v GVN
Properties CC 1999 (3) SA 490 (W) 499. See also Otto & Otto 88-9; Otto 4-5). Thus far, our courts
have not finally resolved the issue of whether such an agreement would be valid even if the creditor
is given an absolute discretion to determine the extent of the debtor’s performance. In NBS Boland
Bank v Berg River Drive CC; Deeb v Absa Bank Ltd; Friedman v Standard Bank of SA Ltd 1999 (4) SA
928 (SCA), the court raised this issue but found it unnecessary to decide whether such a stipulation
will be invalid as being in conflict with public policy, or whether it may only be assailed when it is
done in bad faith (at para 30).
[69] An agreement may be void if the performance to which a party agrees is legally or physically
impossible (see Van der Merwe et al (2012) 160-4; Christie & Bradfield 97-9 and the authorities cited
there).
[70] With regard to agreements which are against public policy, the following should be noted.
•
An agreement to commit a delict or a crime (for instance, theft or fraud) is against public policy.
•
An agreement, or one or more terms of an agreement, may be so unconscionable and unfair, or
harsh and oppressive as to be contrary to public policy (cf Sasfin (Pty) v Beukes 1989 (1) SA 1
(A); Botha (now Griessel) v Finanscedit (Pty) Ltd 1989 (3) SA 773 (A) at 782-3). For an
agreement or clause to be struck down on this basis it must be ‘clearly inimical to the interests
of the community’ (Sasfin (Pty) v Beukes 1989 (1) SA 1 (A) at 8).
•
It has been held that a clause stipulating that a signed certificate by the bank would be
conclusive proof of the amount owed by the debtor under the contract is contrary to public policy
(Ex parte Minister of Justice: In re Nedbank Ltd v Abstein Distributors (Pty) Ltd and Donelly v
Barclays National Bank Ltd 1995 (3) SA 1 (A) at 21-2). However, a clause providing that such a
certificate would constitute prima facie proof of the amount owed by the debtor is not against
public policy as it does not exclude rebutting evidence (Berlesell (Edms) Bpk v Lehae
Development Corp Bk 1998 (3) SA 220 (O) at 227).
•
As public policy generally favours the utmost freedom of contract, the court’s power to declare
contracts (or terms in contracts) unenforceable should be used sparingly (Botha (now Griessel) v
Finanscedit (Pty) Ltd 1989 (3) SA 773 (A) at 782-3). A contract (or a term in a contract) will not
be declared against public policy merely because it offends ‘one’s individual sense of propriety
and fairness’ (Sasfin (Pty) v Beukes 1989 (1) SA 1 (A) at 9). In Diner’s Club SA (Pty) Ltd v
Singh 2004 (3) SA 630 (D), the court upheld the validity of a particular clause in a credit card
agreement which provided that the cardholder would bear the loss occasioned by the
unauthorised use of his credit card irrespective of who used his pin. The court found that even
though the clause was one-sided it was not against public policy, and the credit card-issuer was
entitled to protect itself, especially since the card could be used throughout the world (at 658-9).
In Bredenkamp v Standard Bank of South Africa Ltd 2010 (4) SA 468 (SCA), the court upheld
the right of a bank to terminate a contract with its customer. The court pointed out that the
bank had a valid contract with its customer which gave it the right to cancel. Furthermore, the
court found that the bank had exercised its right in a bona fide manner and the termination did
not offend any identifiable constitutional values and was not contrary to public policy (at para
64).
[71] The fact that an agreement is prohibited by legislative enactment does not necessarily mean
that it void — it is void only if the legislature intended this result. For instance, in terms of s 11, it is
an offence for a company to carry on the business of a bank if it is not registered as required by the
Act. However, an agreement entered into with such a company, in terms of which deposits are made,
is not void (Dulce Vita v Chris van Coller [2013] 2 All SA 646 (SCA) para 35; Gazit Properties v Botha
and Others NNO 2012 (2) SA 306 (SCA) para 10). An indication that the legislature did not intend
such agreements to be void may be found in the fact that s 83 of the Act empowers the Registrar of
Bank to order the repayment of money obtained while unlawfully carrying on the business of a bank
(Gazit Properties v Botha and Others NNO 2012 (2) SA 306 (SCA) para 10; Dulce Vita v Chris van
Coller [2013] 2 All SA 646 (SCA) para 35. For a discussion of these cases, see Schulze (2013) 488-
92).
[72] Kennedy v Steenkamp 1936 CPD 113 at 116; Van der Merwe et al (2012) 171; Christie &
Bradfield 399-401. This may be the case, for instance, where a bank account is opened for the
purposes of perpetrating fraud or other criminal activities. If both parties were aware of this purpose,
the agreement is illegal and void (Ganie v Ismail 1957 (2) SA 132 (C) at 134). However, if only one
party (ie the guilty party) was aware of the illegality, the innocent party can enforce the contract
against him, but the latter does not have the option of enforcing it (Ganie v Ismail 1957 (2) SA 132
(C) at 134).
In Colonial Banking and Trust Co Ltd v Hill’s Trustee 1927 AD 488, a bank and an insurance
company had devised a scheme for the purposes of evading s 48(1) of the Insurance Act 27 of 1923.
This section prohibited an insurance company from accepting a proposal for life insurance in terms of
which the first year’s premium or any part thereof was to be paid by way of a promissory note, bill of
exchange or other negotiable instrument — excluding a cheque payable on demand. The defendant,
who was a proposer for life insurance, signed a form — presented to him by the insurance company
— which provided, inter alia, that the bank would allow the defendant to open a current account and
would honour his cheques whether his account was in credit or not. The defendant, in turn, would
repay any overdraft granted to him by the bank. Pursuant to this arrangement, the defendant drew a
cheque in payment of his first year’s premium which was paid by the bank. Although the defendant
had no prior account with the bank, an account was subsequently opened and an overdraft was
granted to him by the bank for the purpose of meeting the amount of the cheque. When the bank
subsequently sued to recover the amount paid, the court found that it could not do so as the
agreement was made for the purpose of contravening s 48(1) of the Act and was unenforceable.
Cf Fox v Muller 1930 OPD 180, where the court found that a genuine transaction entered into for
purposes of evading the provisions of s 48 of the Insurance Act was legitimate and not void (at 184).
[73] See Christie & Bradfield 94-5 and the authorities cited there. Animus contrahendi might be
lacking, for instance, if the parties entered into a simulated agreement for the purposes of avoiding
tax liability or a statutory prohibition. In such an instance, the courts will usually strip away the
disguise that the parties tried to create by entering into the simulated agreement, and give effect to
whatever consequences flow as a result thereof. The case of Colonial Banking and Trust Co Ltd v Hill’s
Trustee 1927 AD 488 (discussed in the preceding footnote) provides an illustration of a simulated
agreement entered into for the purposes of evading a statutory prohibition. Although the matter was
not expressly decided on the basis of lack of animus contrahendi, it is clear that the parties opened
the account for the purposes of evading the provisions Insurance Act 27 of 1923. The court indeed
found that the transaction between the bank and its customer was merely a simulated one and, in
cashing the cheque, the bank was not doing ordinary business with a customer (at 495).
[74] Generally, no formalities are required for the conclusion of the contract. However, the NCA
imposes formalities on certain bank-customer contracts which constitute credit agreements in terms
of the Act (such as agreements to provide overdraft or credit card facilities). The Act provides that a
credit provider must ‘deliver to the consumer, without charge, a copy of a document that records
their credit agreement, transmitted to the consumer in a paper form, or in a printable electronic form’
(s 93(1)). Implicitly, therefore, this would then seem to require that credit agreements must be
recorded in writing. Although the Act itself is silent on whether failure to comply with this requirement
would render the agreement void, the section has been interpreted by some writers as meaning that
non-compliance will not result in invalidity (see, for instance, Christie & Bradfield 134).
The CPA also provides that the relevant Minister may prescribe certain categories of consumer
agreements which must be in writing (s 50(1)). At the time of writing, no such categories of contracts
have been identified.
[75] Malan, Pretorius & Du Toit 296; Schulze (2002 (1)) 459.
[76] Muller NO v Community Medical Aid Scheme 2012 (2) SA 286 (SCA) para 13; Trustees, Estate
Whitehead v Dumas 2013 (3) SA 331 (SCA) para 13.
[77] Absa and Firstrand v Lombard Insurance Co Ltd 2012 (6) SA 569 (SCA) para 19. In Gilbeys
Distillers and Vintners (Pty) Ltd v Absa Bank 2001 JDR 0411 (C), the court also said that if a bank
received funds by a credit transfer, which were identified as being for the credit of its customer’s
account, the bank owed its customer a contractual duty to credit the account accordingly (at para
57).
[78] Schulze (2007 (1)) 370.
[79] Estate Ismail v Barclays Bank (DC & O) 1957 (4) SA 17 (T) at 26; S v Kearney 1964 (2) SA
495 (A) at 503; Trust Bank of Africa Ltd v Marques 1968 (2) SA 796 (T) at 798; McCarthy Ltd v Absa
Bank Ltd 2009 (2) SA 398 (W) para 6; McCarthy Ltd v Absa Bank Ltd 2010 (2) SA 321 (SCA) para
16; Standard Bank of South Africa Ltd v Echo Petroleum CC 2012 (5) SA 283 (SCA) para 27; Mather
3; Malan, Pretorius & Du Toit 299. It is normally only a current account that can be drawn on by way
of cheque. Generally speaking, a fixed deposit or savings account cannot be drawn on by way of
cheque (Standard Bank of SA Ltd v Minister of Bantu Education 1966 (1) SA 229 (N) at 234). In
practice, however, the bank may have its own internal rules, which may allow a customer to draw on
a savings account or other type of account by way of cheque. An example of this in practice is the so
called ‘corporate saver account’. This is essentially an ordinary savings account with certain additional
features, which normally include, inter alia, the right to draw on the account by way of cheque
(cf African Life Assurance Co Ltd v NBS Bank Ltd 2001 (1) SA 432 (W) at 441-3).
[80] Kircos v Standard Bank of South Africa Ltd 1958 (4) SA 58 (SR) at 60; Standard Bank of
South Africa Ltd v Echo Petroleum CC 2012 (5) SA 283 (SCA) para 27. When the bank is presented
with a cheque for payment, it must either pay it or refuse to pay it (Freeman v Standard Bank of
South Africa 1905 TH 26 at 30. Cf Cowen & Gering (1966) 369).
[81] Freeman v Standard Bank of South Africa 1905 TH 26 at 30; Harding v Standard Bank of
South Africa Ltd 2004 (6) SA 464 (C) at 472. The bank is, however, entitled to a reasonable period
within which to satisfy itself as to the identity of the payee: see National Bank v Paterson 1909 TS
322 at 327. See also Cowen & Gering (1966) 369.
[82] In McCarthy Ltd v Absa Bank Ltd 2010 (2) SA 321 (SCA), the court cited with approval Malan,
Pretorius & Du Toit’s statement (at 297) that ‘[i]n paying cheques, the bank must adhere strictly to
the customer’s instructions and must perform its duties with the required degree of care, generally in
good faith and without negligence’ (at para 22).
[83] National Bank v Patterson 1909 TS 322 at 325; Estate Ismail v Barclays Bank (DC & O) 1957
(4) SA 17 (T) at 26; Hollandia Reinsurance v Nedcor Bank Ltd 1993 (3) SA 574 (W) at 574-
5; Kunneke v Eerste Nasionale Bank Van Suidelike Afrika 1997 (3) SA 300 (T) at 307; Harding v
Standard Bank of South Africa Ltd 2004 (6) SA 464 (C) at 472-3; Mather 58; Malan, Pretorius & Du
Toit 297; Cowen & Gering (1966) 375. The bank must make ‘payment in due course’ ie make
payment to the holder in good faith and, if his title is defective, without notice thereof (s 1 of the Bills
of Exchange Act). In the case of a bearer instrument, the person in possession of the instrument
qualifies as the holder. The holder of an order instrument is either the payee or the last indorsee who
is in possession of the instrument (see the definition of ‘holder’ in s 1 of the Act).
[84] Volkskas Bpk v Johnson 1979 (4) SA 775 (C) at 777-8. The drawer may alter his mandate to
the bank in several ways such as by crossing the cheque (Discounting and Shipping Co (Pty) Ltd v
Franskraalstrand (Pty) Ltd 1962 (2) SA 559 (W) at 562); or by marking the cheque in a particular
manner (for example by inscribing the words ‘not transferable’ on the face of the cheque). If the bank
makes payment to the holder of the instrument, it is entitled to debit the customer’s account with the
amount so paid. Conversely, if the bank does not make payment to the holder then it is not entitled
to debit its customer’s account. However, there are certain provisions in the Bills of Exchange Act
which confer protection on the bank under certain circumstances (see s 58, s 79 and s 83 of the Act).
[85] Joachimson v Swiss Banking Corporation [1921] 3 KB 110 (CA) at 127.
[86] Woodland v Fear (1857) 7 E & B 519; Joachimson v Swiss Banking Corporation [1921] 3 KB
110 (CA), 127; Kircos v Standard Bank of South Africa Ltd 1958 (4) SA 58 (SR) at 60.
[87] Cunliffe Brooks & Co v The Blackburn and District Benefit Society (1884) 9 AC 857 at 864. In
terms of s 28(4) of the Administration of Estates Act 66 of 1965, all cheques drawn upon an estate
bank account must be drawn to order and must contain the name of the payee and the cause of
payment. However, failure to comply with this provision does not render the cheque invalid and the
bank is not obliged to refuse to honour a cheque that is not drawn in the prescribed form: Standard
Bank v Estate van Rhyn 1925 AD 260 at 275-7. It is submitted that the same principle would apply in
respect of a cheque drawn in contravention of s 70(4) of the Insolvency Act 24 of 1936 (Smith (1998)
188 n 19; Sharrock, Van der Linde & Smith 135).
[88] Willis 34; Sharrock & Kidd 47.
[89] London Joint Stock Bank Ltd v Macmillan and Arthur [1918] AC 777 (HL) at 824.
[90] Trull v Standard Bank of South Africa Ltd (1882) 4 SAR 203 at 205.
[91] Bates v Haywood (1882) 2 EDC 153 at 155.
[92] Willis 135.
[93] Griffiths v Dalton [1940] 2 KB 264 at 265; Willis 35.
[94] Willis 135. In practice, banks usually regard cheques as stale if they have been in circulation
for a period of six months, and, in the case of bank cheques, three months (Malan, Pretorius & Du
Toit 251). The Code of Banking Practice (2012) defines a stale cheque as ‘a cheque which has not
been paid because it is too old’ (clause 12). The Code seems to acknowledge that in practice there
may be different time limits which the banks may use in determining whether or not a cheque is stale
(cf clause 12).
[95] Sharrock & Kidd 47 n 20.
[96] London Joint Stock Bank Ltd v Macmillan and Arthur [1918] AC 777 (HL) at 824. This will be
the position, for example, if there are unsigned alterations on the face of the cheque or if it is torn.
[97] Mather 61. In Evans v Richmond 1905 TS 279 the drawer was named ‘Richmond’ but the
cheque was signed ‘Richmonond’. It was held that the bank was under no obligation to make
payment (at 281).
[98] See Kunneke v Eerste Nasionale Bank van Suidelike Afrika Bpk 1997 (3) SA 300 (T) at
307; Harding v Standard Bank of South Africa Ltd 2004 (6) SA 464 (C) at 472; Di Guilio v First
National Bank of South Africa 2002 (6) SA 281 (C) at 291.
[99] Standard Bank of SA Ltd v Kaplan 1922 CPD 214 at 228; Cowen & Gering (1966) 373-4. The
bank is entitled, but not obliged, to dishonour cheques that are fraudulently made (Standard Bank of
South Africa Ltd v Peens 2005 (1) SA 315 (SCA) paras 18-20).
[100] Cunliffe Brooks & Co v The Blackburn and District Benefit Society (1884) 9 AC 857 at
864; Witbank District Coal Agency v Barclays Bank 1928 TPD 18 at 20; Stapelberg NO v Barclays
Bank DC & O 1963 (3) SA 120 (T) at 124; Govender v Standard Bank of SA Ltd 1984 (4) SA 392 (C)
at 398.
[101] Cunliffe Brookes & Co v The Blackburn and District Benefit Building Society (1884) 9 AC 857
at 864; Govender v Standard Bank of SA Ltd 1984 (4) SA 392 (C) at 398.
[102] Cowen & Gering (1966) 372-3; Willis 34. See also R v Wessels 1933 TPD 313 at 315.
[103] Barker 17; Trust Bank Africa Ltd v Wassenaar 1972 (3) SA 139 (D) at 142-3; Absa Bank Ltd
v Blumberg and Wilkinson 1995 (4) SA 403 (W) at 411-12.
[104] Trust Bank Africa Ltd v Wassenaar 1972 (3) SA 139 (D) at 142-3.
[105] Jonker v Boland Bank PKS Bpk 2000 (1) SA 542 (O). In this case the court pointed out that
in order to rely on estoppel, the customer must show that he suffered prejudice of a patrimonial
nature as a result of the bank’s representation. In casu, the customer was unable to establish this
and his reliance on estoppel was unsuccessful (at 549-50).
[106] Section 73(a). See also Discounting and Shipping Co (Pty) Ltd v Franskraalstrand (Pty)
Ltd 1962 (2) SA 559 (W) at 562. The termination of the bank’s duty and authority to pay its
customer’s cheques must be distinguished from the termination of the bank-customer contract
(see 4.16 below).
[107] Section 73 proviso.
[108] Curtice v London City and Midland Bank Limited [1908] 1 KB 293 (CA) at 298-301.
[109] Section 73(b). Cf RB Ranchers (Pvt) Ltd v Estate Mclean 1985 (4) SA 583 (ZH); RB Ranchers
(Pvt) Ltd v Mclean’s Estate 1986 (4) SA 271 (ZS) at 276-7.
[110] Section 73(b).
[111] Section 73(c). See, however, the business rescue provisions which have now been introduced
by the Companies Act 71 of 2008.
[112] Section 73(c).
[113] Section 73 proviso.
[114] Trust Bank of Africa Ltd v Marques 1968 (2) SA 796 (T) at 798; First National Bank of South
Africa Ltd v Budree 1996 (1) SA 971 (N) at 981.
[115] Barclays Bank v Giles 1931 TPD 31 at 35; Trust Bank of Africa Ltd v Marques 1968 (2) SA
796 (T) at 798; First National Bank of South Africa Ltd v Budree 1996 (1) SA 971 (N) at 981.
[116] Creditworthiness has been recognised as a subjective right, the infringement of which could
lead to patrimonial loss (see Neethling & Potgieter 52-3 n 104; Hawker v Life Offices Association of
South Africa 1987 (3) SA 777 (C) at 780).
[117] Malan, Pretorius & Du Toit 309. The following words have been held to be defamatory per se:
‘not provided for’ (Haine v De Nederlandsche Bank voor Zuid-Afrika 1924 WLD 139 at 146-7) and
‘present again’ (Baker v Australia and New Zealand Bank 1958 NZLR 907 at 911). It has been held
that the words ‘refer to drawer’ are not per se defamatory (Flach v The London and South Western
Bank Ltd (1915) 31 TLR 334 at 336).
[118] Joachimson v Swiss Bank Corporation [1921] 3 KB 110 (CA) at 127; Kircos v Standard Bank
of South Africa Ltd 1958 (4) SA 58 (R) at 60; McCarthy Ltd v Absa Bank Ltd 2009 (2) SA 398 (W)
para 6; McCarthy Ltd v Absa Bank Ltd 2010 (2) SA 321 (SCA) para 16; Mather 3; Pennington,
Hudson & Mann 39; Malan, Pretorius & Du Toit 132; Sharrock & Kidd 50.
[119] Section 1.
[120] Freeman v Standard Bank of South Africa Ltd 1905 TH 26 at 31; First National Bank of
Southern Africa Ltd v Richards Bay Taxi Centre (Pty) Ltd [1999] 2 All SA 533 (N) at 538; Malan,
Pretorius & Du Toit 132.
If the bank acts as an agent or mandatary of the customer, it acquires no rights for itself in
respect of the instrument (First National Bank of Southern Africa Ltd v Richards Bay Taxi Centre (Pty)
Ltd [1999] 2 All SA 533 (N) at 538). The customer remains the owner of the cheque (Freeman v
Standard Bank of South Africa Ltd 1905 TH 26 at 31) and the bank cannot sue on the cheque in its
own name (Standard Bank of SA v Minister of Bantu Education 1966 (1) SA 229 (N) at 245).
A holder for value has been described as ‘someone who has given value for a cheque or bill in
exchange for the rights therein’: First National Bank of Southern Africa Ltd v Richards Bay Taxi Centre
(Pty) Ltd [1999] 2 All SA 533 (N) at 541. Section 25 of the Bills of Exchange Act provides that ‘a
holder takes a bill for value if he takes it under onerous title’. When the bank becomes a holder for
value, it places the amount of the cheque to the credit of the customer’s account and obtains the
right to sue on the cheque in its own name (Freeman v Standard Bank of South Africa Ltd 1905 TH 26
at 31).
[121] Having collected the proceeds of the cheque, the bank is under an obligation to credit the
customer’s account accordingly (Pennington, Hudson & Mann 39; Sharrock & Kidd 50; Ellinger,
Lomnicka & Hare 220). The collecting bank then holds the proceeds in its own right (Absa Bank Ltd v
Standard Bank of SA Ltd 1998 (1) SA 242 (SCA) at 251). If the customer’s account was in credit at
the relevant time, the collecting bank becomes a debtor of the customer to the extent of the
increased amount. If the account was overdrawn, the customer’s indebtedness to the bank will be
reduced to the extent of the amount collected.
[122] Lawack 50-2. Sharrock & Kidd 2-3.
[123] Ibid.
[124] Ibid.
[125] Ibid.
[126] KwaMashu Bakery Ltd v Standard Bank of South Africa Ltd 1995 (1) SA 377 (D) at
397; Powell v Absa Bank Ltd t/a Volkas Bank 1998 (2) SA 807 (SE) at 818-19; Malan, Pretorius & Du
Toit 410; Sharrock & Kidd 50. A mandatary, after all, is obliged to exercise reasonable care and skill
in the performance of his mandate (see 4.8.1). In certain instances, a collecting bank that acts
negligently in performing its functions may incur delictual liability to the true owner of the cheque
(Indac Electronics (Pty) Ltd v Volkas Bank Ltd 1992 (1) SA 783 (A) at 797-801; Kwamashu Bakery
Ltd v Standard Bank of South Africa Ltd 1995 (1) SA 377 (D) at 390-5).
[127] Sharrock & Kidd 50.
[128] Ogilvie 290. Such a failure by the bank may amount to a breach of its mandate and may
entitle the customer to sue for breach of contract.
[129] For a discussion of this duty, see Malan, Pretorius & Du Toit 297; Holden 79-80; Pennington,
Hudson & Mann 39-40.
[130] Nedperm Bank Ltd v Vebri Projects CC 1993 (3) SA 214 (W) at 222. There would obviously
be a duty on the bank to deliver statements of account to its customer if there is an express or tacit
agreement to this effect or if the bank is required to do so by statute.
An example of a statute that obliges the bank to deliver statements of account to its customer
under certain circumstances is the NCA. In terms of the Act, the bank is required to deliver periodic
statements of account to the customer (s 108(1)). Such an agreement may not provide for more than
three months between deliveries of successive statements of account (s 108(3)(a)). Notwithstanding
this, the Act provides that a statement of account need not be delivered in respect of a credit facility
if no amount has been debited or credited to the account during the statement period (s 108(3)(b)).
Monthly statements of account are generally required in the case of a credit facility, such as an
overdraft or a credit card account, but the bank and the customer can agree to reduce the frequency
of such statements (s 108(3)(a)).
[131] Nedperm Bank Ltd v Vebri Projects CC 1993 (3) SA 214 (W) at 222. See also Absa Bank Bpk
v Janse van Rensburg 2002 (3) SA 701 (SCA) para 15-16; Moorcroft para 15.6.
[132] Cf Holden 79-80; Malan, Pretorius & Du Toit 297. In practice, banks usually follow a practice
of providing statements of account, either periodically or upon a customer’s request. The existence of
this practice would seem to be supported by the Code of Banking Practice in terms of which banks
undertake to provide their customers with regular account statements including through electronic
banking terminals (clause 7.4 of the Code of Banking Practice (2012)). The Code of Banking Practice
also provides that statement details may be available on request (clause 7.4).
Section 72B of the Bills of Exchange Act imposes an obligation on certain customers of the bank
to, inter alia, exercise reasonable care in the reconciliation of their bank statements
(see 4.9.5 below). This presupposes that the bank is in fact furnishing statements of account to such
customers. It has been argued that this section seems to support the implication of a term to the
effect that the bank is under a duty to furnish such statements of account (Malan, Pretorius & Du Toit
297).
[133] Wadsley & Penn 107.
[134] Hilton v Westminster Bank Ltd (1926) 135 LT 358 at 362; Selangor United Rubber Estates
Ltd v Craddock (No 3) [1968] 2 All ER 1073 (Ch) at 1118; Schulze (2007 (1)) 372-4; Pennington,
Hudson & Mann 43. In Berzack v Nedcor Bank Ltd [2001] 1 All SA 410 (A), the court accepted that
the bank owed a duty to its customer to act ‘prudently’ and that this duty arose from the contractual
relationship between the parties (at para 10). See also Hanley v Absa Bank Limited [2012] 4 All SA
318 (GNP) para 76; Moorcoft para 15.3.
The bank’s duty to exercise reasonable care and skill is essentially a manifestation of the
common-law duty that a mandatary owes to the mandator (Schulze (2007 (1)) 372-3).
[135] Selangor United Rubber Estates Ltd v Craddock [1968] 2 All ER 1073 (Ch) at 1119. Under
certain circumstances, the bank may be under a duty to make enquiries before acting upon the
instructions of its customer (Selangor United Rubber Estates Ltd v Craddock [1968] 2 All ER 1073
(Ch) at 1111).
[136] Berzack v Nedcor Bank Ltd [2001] 1 All SA 410 (A) para 10.
[137] Selangor United Rubber Estates Ltd v Craddock (No 3) [1968] 2 All ER 1073 (Ch) at 1119.
[138] KwaMashu Bakery Ltd v Standard Bank of South Africa Ltd 1995 (1) SA 377 (D) at 395-
6; Energy Measurements (Pty) Ltd v First National Bank of South Africa Ltd [2000] 2 All SA 396 (W)
at 421-2; Fourie 1; Goosen et al 196 at 218
[139] McCarthy Ltd v Absa Bank Ltd 2010 (2) SA 321 (SCA) para 22.
[140] KwaMashu Bakery Ltd v Standard Bank of South Africa Ltd 1995 (1) SA 377 (D) at
397; Powell v Absa Bank Ltd t/a Volkas Bank 1998 (2) SA 807 (SE) at 818-19; Malan, Pretorius & Du
Toit 410; Sharrock & Kidd 50.
[141] Kircos v Standard Bank of South Africa Ltd 1958 (4) SA 58 (R) at 62.
[142] Absa Bank Ltd v Hanley 2014 (2) SA 448 (SCA) para 25; Malan, Pretorius & Du Toit 280. If
the bank agrees to extend the scope of its mandate with its customer to encompass the performance
of other services, the duty to exercise reasonable care and skill will also apply to these services as
well. For instance, this duty will apply where the bank undertakes to do the following:
•
provide the customer with financial advice (Page v First National Bank 2009 (4) SA 484 (E) para
11. See also Durr v Absa Bank 1997 (3) SA 448 (SCA) 460-4); and
•
provide the customer with a banker’s reference on a third party (Ramdhin 523).
[143] Van Wyk v Lewis 1924 AD 438 at 444; Durr v Absa Bank 1997 (3) SA 448 (A) at 460-4;
Schulze (2007 (1)) 370 at 374.
[144] Selangor United Rubber Estates Ltd v Craddock [1968] 2 All ER 1073 (Ch) at 1118.
[145] It is quite common for the delictual claim to be pleaded as an alternative to the contractual
claim. (See for instance, Poultney v Absa Brokers (Pty) Ltd ECD unreported case no 430/2000 (29
May 2002)).
[146] Lloyds Bank Ltd v EB Savory and Co (1933) AC 201 (HL) at 221; African Life Assurance Co
Ltd v NBS Bank Ltd 2001 (1) SA 432 (W) at 445-6; Powell v Absa Bank Ltd t/a Volkas Bank 1998 (2)
SA 807 (SE) at 819; IPF Nominees (Pty) Ltd v Nedcor Bank Ltd & Basfour 130 (Pty) Ltd 2002 (5) SA
101 (W) at 109; Great Karoo Eco Investments (Edms) Bpk h/a Grobbelaarskraal Boerdery v Absa
Bank Bpk 2003 (1) SA 222 (W) at 234; Malan, Pretorius & Du Toit 59; Schulze (2007 (1)) 374.
[147] IPF Nominees (Pty) Ltd v Nedcor Bank Ltd & Basfour 130 (Pty) Ltd 2002 (5) SA 101 (W) at
109; Contra Powell v Absa Bank Ltd t/a Volkskas Bank 1998 (2) SA 807 (SE) at 822.
[148] In terms of the CPA, consumers are entitled to have the services that are rendered to them
performed ‘in a manner and quality that persons generally are entitled to expect’ (s 54(1)(b)). The
Act, however, does not explain the aforementioned words.
[149] Section 54(1)(a).
[150] Section 54(2)(a).
[151] Section 54(2)(b).
[152] GS George Consultants and Investments (Pty) Ltd v Datasys (Pty) Ltd 1988 (3) SA 726 (W)
at 736-7; Cambanis Buildings (Pty) Ltd v Gal 1983 (2) SA 128 (NC) at 137; FirstRand Bank Ltd v
Chaucer Publications (Pty) Ltd [2008] 2 All SA 544 (C) paras 18-20; Smith (1979) 26-7; Itzikowitz
255-6; Van Jaarsveld 587-92; Schulze (2001) 601-3; Schulze (2007 (2)) 122. See also Abraham v
Burns 1914 CPD 452 at 456.
The courts tend to use the phrases ‘duty of secrecy’ and ‘duty of confidentiality’. The term
‘secrecy’ was used in cases such as Cywilnat (Pty) Ltd v Densam (Pty) Ltd 1989 (3) SA 59 (W);
and Commissioner, South African Revenue Service v Absa Bank Ltd 2003 (2) SA 96 (W) at 123. The
term ‘confidentiality’ seems to have been preferred in Optimprops 1030 CC v First National Bank of
SA [2002] 4 All SA 582 (N) at 581, 587. In FirstRand Bank Ltd v Chaucer Publications (Pty)
Ltd [2008] 2 All SA 544 (C) the court used the words ‘duty of confidentiality’ but also acknowledged
that the term ‘secrecy’ is sometimes used (at para 19). In some cases the courts use both terms
either together or interchangeably (see, for instance, Densam (Pty) Ltd v Cywilnat (Pty) Ltd 1991 (1)
SA 100 (A) at 109-10; GS George Consultants and Investments (Pty) Ltd v Datasys (Pty) Ltd 1988
(3) SA 726 (W) at 735-7). The Financial Intelligence Centre Act refers to ‘secrecy or confidentiality’ (s
37). It is submitted that for legal purposes there is no material difference between the two terms.
[153] See also Mather 21. Although the court did consider the duty in the case of GS George
Consultants and Investments (Pty) Ltd v Datasys (Pty) Ltd 1988 (3) SA 726 (W) at 735-7, this
judgment was unsatisfactory in some respects. The court did not explain why a bank is obliged to
keep information confidential even if it relates to a prospective customer or a past customer of the
bank. Furthermore, it did not properly explain if the duty could be founded on any other basis apart
from contract.
In FirstRand Bank Ltd v Chaucer Publications (Pty) Ltd [2008] 2 All SA 544 (C) para 18, the court
referred to the bank’s ‘contractual obligation to preserve the confidentiality [of its customer]’ but it
did not properly examine or explain the basis for this duty.
[154] In English law, it is well established that the bank owes a duty of secrecy to its customer
(Tournier v National Provincial & Union Bank of England [1924] 1 KB 461 at 471-2, 483-5; Hapgood
157; Wadsley and Penn 137-140; Pennington; Hudson and Mann 41-2).
[155] GS George Consultants and Investments (Pty) Ltd v Datasys (Pty) Ltd 1988 (3) SA 726 (W)
at 736. See also Densam (Pty) Ltd v Cywilnat (Pty) Ltd 1991 (1) SA 100 (A) at 109; Schulze (2001)
601-2. See also Schulze (2002 (2)) 624.
[156] In GS George Consultants and Investments (Pty) Ltd v Datasys (Pty) Ltd 1988 (3) SA 726
(W), the court explained why there was a practical need to maintain secrecy (at 736). The court
pointed out that the bank may acquire access to information about its customer’s business and his
affairs in the course of its relationship with him (at 736). The customer may want to conceal this
information from his competitors and he could suffer harm if such information falls into the wrong
hands (at 736).
[157] FirstRand Bank Ltd v Chaucer Publications (Pty) Ltd [2008] 2 All SA 544 (C) para 20.
[158] Malan, Pretorius & Du Toit 311-12.
[160] Malan, Pretorius & Du Toit 310. Schoeman et al para 1.3.1.3. It seems incorrect to suggest
that the duty is founded on legislation as there is no statute in South African law that specifically
entrenches the general duty of secrecy that the bank owes towards its customer. The Financial
Intelligence Centre Act 38 of 2001 (FICA), seems implicitly to recognise that accountable institutions
may be subject to a duty of secrecy. However, the provisions of the Act do not apply exclusively to
banks. Certain statutes might expressly impose a duty of secrecy on the bank under certain
circumstances. For instance, the NCA, which applies to certain bank-customer contracts, provides
that any person (such as a bank) who receives, compiles, retains or reports any confidential
information pertaining to a consumer or prospective consumer in terms of the Act must protect the
confidentiality of that information (s 68(1)).
[161] Schoeman et al para 1.3.1.3.
[162] Tournier v National Provincial & Union Bank of England [1924] 1 KB 461 at 485; Mather 24.
[163] Tournier v National Provincial & Union Bank of England [1924] 1 KB 461 at 474, 485.
[164] Tournier v National Provincial & Union Bank of England [1924] 1 KB 473 at 486.
[165] Tournier v National Provincial & Union Bank of England [1924] 1 KB 461 at 485. GS George
Consultants and Investments (Pty) Ltd v Datasys (Pty) Ltd 1988 (3) SA 726 (W) at 736. The fact that
the bank owes a duty of secrecy to its customer does not preclude it from ceding a claim that it may
have against him to a third party without the customer’s consent (Densam (Pty) Ltd v Cywilnat (Pty)
Ltd 1991 (1) SA 100 (A) at 112-16. See also Fourie (1993) 62).
[166] Tournier v National Provincial & Union Bank of England [1924] 1 KB 461 at 473.
[167] See generally Malan, Pretorius & Du Toit 310; Fourie (1993) 55-60.
[168] Act 38 of 2001. In terms of s 21(1)(a) of FICA, the bank may not establish a business
relationship with a customer or conclude a single transaction with him unless it has taken the
prescribed steps to establish and verify his identity (s 21(1)(a)). The bank is also required to keep
certain records pertaining to its customer for a period of five years. Upon the request of an authorised
representative of the Financial Intelligence Centre, the bank is obliged to provide the Centre with
various information, such as:
•
whether a specified person is or has been a customer of the bank (s 27(a));
•
whether a specified person is acting or has acted on behalf of any customer of the bank (s
27(b)); and
•
whether a customer of the bank is acting or has acted for another specified person (s 27(c)).
FICA imposes an obligation on banks to report suspicious and unusual transactions and certain cash
transactions involving amounts of money which are in excess of a prescribed amount (s 29). Similar
reporting duties are imposed when money is received via electronic funds transfer from outside South
Africa in excess of a prescribed amount or where money is sent via electronic funds transfer outside
of South Africa in excess of a prescribed amount (s 31). These obligations have been expanded on in
the regulations promulgated under the Act. The obligations that FICA imposes on the bank are
mandatory. In this regard, FICA provides that the reporting duties and other obligations which the Act
imposes on accountable institutions shall not be affected by any duty of secrecy or confidentiality (s
37).
[169] Section 81 of the Bills of Exchange Act 34 of 1964 allows the true owner of a lost or stolen
cheque to recover his loss from a subsequent possessor under certain circumstances. Section 81(3)
places a duty on anyone who came into possession of such cheque to furnish the true owner with any
information in connection with the cheque that would assist him in recovering his loss. It has been
held that this section overrides any protection of confidentiality that the bank ordinarily owes to its
customer (Optimprops 1030 CC v First National Bank of SA [2002] 4 All SA 582 (N) at 587). It should
be noted, however, that the information that must be disclosed is confined to information that is ‘in
connection with the cheque’. Determining what information is regarded as being ‘in connection with
the cheque’ must be decided on the facts and circumstances of each case (Optimprops 1030 CC v
First National Bank of SA [2002] 4 All SA 582 (N) at 587).
[170] Act 53 of 1979. In terms of s 78(13), the bank is obliged to furnish a signed certificate
indicating the balance of any trust account if it is directed to do so by the council of the Law Society
which has jurisdiction in the area in which the practitioner is practising.
The whole of the Attorneys Act 53 of 1979 will be repealed by the Legal Practice Act 28 of 2014 on
a date to be proclaimed. Section 91(4) of the Legal Practice Act obliges a bank to furnish a signed
statement in respect of a trust account or any separate account forming part of its trust account if it
is directed to do so by the South African Legal Practice Council or the Legal Practitioners’ Fidelity Fund
Board (which will be established in terms of the Act — cf s 4 and s 61). The provisions of the Legal
Practice Act discussed here have not yet come into effect at the time of writing.
[171] Act 12 of 2004. In terms of s 34(1) any person who holds a position of authority who knows
or ought reasonably to know that another person has committed an offence under Part 1, 2, 3 or 4,
or s 20 or 21 of the Act; or the offence of fraud, extortion, forgery or uttering a forged document
involving R100 000 or more, is obliged to report this to the police. For the purposes of this section, ‘a
person who holds a position of authority’ includes:
•
the executive manager of any bank or financial institution (s 34(4)(f)); and
•
any person who has been appointed as chief executive officer or an equivalent officer of, inter
alia, any board, committee, corporation, or financial institution whether established by
legislation, contract or any other legal means (s 34(4)(h)).
[172] Act 33 of 2004. In terms of s 12, any person who has reason to suspect that another person
intends to commit or has committed certain offences referred to in the Act, or is aware of the
presence of such a person, is obliged to report this suspicion or presence to any police officer.
[173] See Fourie (1993) 60. This is implicit in the wording of the provisions of the Criminal
Procedure Act 51 of 1977 (s 236(4)) and the Civil Proceedings Evidence Act 25 of 1965 (s 31).
Section 236(4) of the Criminal Procedure Act 51 of 1977 provides that a bank cannot be compelled to
produce books of account at any criminal proceedings unless the court so orders. Section 31 of the
Civil Proceedings Evidence Act 25 of 1965 contains a similar provision which applies to civil
proceedings.
[174] Tournier v National Provincial & Union Bank of England [1924] 1 KB 461 at 473; Pharaon v
Bank of Credit and Commercial International SA (in liquidation) (Price Waterhouse (a
firm) intervening); Price Waterhouse (a firm) v Bank of Credit and Commerce International SA (in
liquidation) [1998] 4 All ER (ChD) at 455, 463-5; FirstRand Bank Ltd v Chaucer Publications (Pty)
Ltd [2008] 2 All SA 544 (C) para 20. See also Schulze (2001) 608-9.
[175] See Commissioner, South African Revenue Service v Absa Bank Ltd 2003 (2) SA 96 (W) para
46.7; Goosen et al 194.
[176] Cf Mather 25. See, however, the discussion in Proctor 695-9.
[177] Cf Fourie (1993) 61.
[178] Cywilnat (Pty) Ltd v Densam (Pty) Ltd 1989 (3) SA 59 (W) at 59-60, Tournier v National
Provincial & Union Bank of England [1924] 1 KB 461 at 473.
[179] In Wolmarans v Absa Bank 2005 (6) SA 551 (C), an agreement between the bank and its
customer provided that the bank could disclose information about its customer’s accounts and his
conduct to the credit bureau ‘when asked for such information’. In casu, the bank proactively
furnished such information to the credit bureau. The court held that the agreement envisaged specific
and individualised requests for information from the credit bureau (at para 17). The bank could
therefore not use the agreement as a ‘contractual licence for impugning [its customer’s]
creditworthiness’ (at para 18).
[180] See generally Ramdhin 523-5.
[181] Ramdhin 524.
[182] See Turner v Royal Bank of Scotland [1999] Lloyd’s Rep 231 (CA), which is discussed in ch 5.
[183] Pennington, Hudson & Mann 41. Similarly, the customer may apply for an interdict to prevent
a third party from publishing confidential information pertaining to the state of his account or the
state of his affairs with the bank. Generally speaking, the bank itself does not have locus standi to
apply for an interdict to prevent a third party from publishing confidential information about its
customer (FirstRand Bank Ltd v Chaucer Publications (Pty) Ltd [2008] 2 All SA 544 (C) para 20. See,
however, Schulze (2007 (2)) 122, 125-6).
[184] In Abrahams v Burns 1914 CPD 452, the court stated that there was no reason why a
manager or clerk of a bank could not be sued personally in delict if he improperly discloses the state
of a customer’s account to a third party (at 457).
[185] For instance, in terms of the NCA, it is an offence to disclose any confidential information
concerning the affairs of any person or juristic person obtained in carrying out any function in terms
of the Act; or as a result of initiating a complaint or participating in any proceedings in terms of the
Act (s 156(1)), as qualified by s 156(2)). Wolmarans v Absa Bank 2005 (6) SA 551 (C), discussed
earlier, was decided prior to the commencement of the NCA.
FICA provides a measure of protection to banks. It provides that no civil or criminal action may be
instituted against an accountable institution in complying in good faith with the reporting duties
imposed on it in terms of the Act (s 38).
[186] Nedperm Bank Ltd v Vebri Projects CC 1993 (3) SA 214 (W) at 222; Absa Bank Bpk v Janse
van Rensburg 2002 (3) SA 701 (SCA) paras 15-16; Gilbey Distillers and Vintners (Pty) Ltd v Absa
Bank Limited 2001 JDR 0411 (C) para 71; Arora 302. As the owner of the money in the bank account,
the bank is not obliged to keep the money in trust for its customer or to deal with it as its customer’s
property (Gilbey Distillers and Vintners (Pty) Ltd v Absa Bank Limited 2001 JDR 0411 (C) para 71).
The bank is entitled to use the money for its own purposes and, in doing so, it is not liable to the
customer for breach of trust (Gilbey Distillers and Vintners (Pty) Ltd v Absa Bank Limited 2001 JDR
0411 (C) para 71).
[188] Schoeman et al para 1.2.5; Hewetson & Elliot 33-6; Goosen et al 191. In Duvenhage v Eerste
Nasionale Bank van SA Bpk 2005 (4) All SA 41 (N) the court held the relationship of trust that exists
between the bank and its customer meant that the bank manager in this case was under a duty to act
in the customer’s interests (at 53). Schulze points out that this relationship of trust referred to by the
court is, in essence, a manifestation of the duty of good faith that a mandatary owes towards a
mandator (Schulze (2006) 836).
[189] Phillips v Fieldstone Africa (Pty) Ltd 2004 (3) SA 465 (SCA) para 27. In this case, the court
pointed out that there was no magic in the term ‘fiduciary duty’ (at para 27). The court (at para 34)
also looked at the following characteristics which were said to be helpful — though not decisive — in
deciding whether a particular relationship between the parties was a fiduciary one:
•
scope for the exercise of some discretion or power;
•
that power or discretion can be used unilaterally so as to effect the beneficiary’s legal or
practical interests; and
•
a peculiar vulnerability to the exercise of that discretion or power.
[190] Hewetson & Elliot 33; Arora 302.
[191] Under these circumstances, a contract of mandate is created between the parties and this
obliges the bank to act in good faith in performing its mandate. For a more detailed discussion of the
circumstances where a fiduciary relationship may arise between a bank and its customer, see
Hewetson & Elliot 33-6. See also Goosen et al 191; Arora 302.
[192] In Estate Ismail v Barclays Bank (DC & O) 1957 (4) SA 17 (T), the court pointed out that a
bank may contract to act as an agent for its customer in certain aspects of its business, and that as
an agent it could not allow its own interests to conflict with its duty towards its customer (at 26). In
this case, the drawer stopped payment on a cheque and the bank dishonoured it in accordance with
his instructions. The bank subsequently took the cheque as a pledge from another customer and
proceeded to sue the drawer on the dishonoured instrument. In casu, the court found that the bank
was entitled to do this under these circumstances (at 26).
[193] In practice, it is quite common to find that the same bank might be acting for a number of
different customers in order to fulfil different obligations (Cambanis Buildings (Pty) Ltd v Gal 1983 (2)
SA 128 (NC) at 136). For instance, a landlord might appoint the bank to receive payment of rent
owing to him by a lessee, and the lessee might instruct the same bank to pay the rent to the landlord
by way of stop-order (Cambanis Buildings (Pty) Ltd v Gal 1983 (2) SA 128 (NC) at 136).
An example of when a potential conflict of interest might arise is where the bank is requested by
one customer to provide a reference on another customer (Ramdhin 523). On one hand, the bank will
owe a duty towards the reference-seeking customer to provide a reference that is accurate. However,
on the other hand, the bank owes a duty towards the customer in respect of whom the reference is
sought, to ensure that it does not unlawfully infringe his creditworthiness. It is submitted that if the
bank agrees to provide a reference under these circumstances then it must provide a reference that
is objective and it must not allow its obligations towards its respective customers to conflict (Ramdhin
523).
[194] There is authority for the view that there is no general duty on a customer to supervise his
employees, to run his business carefully, or to detect fraud (Big Dutchman (South Africa) (Pty) Ltd v
Barclays National Bank Ltd 1979 (3) SA 267 (W) at 283). Similarly, it has been held that there is no
general duty on a customer to examine his bank statements or to inform the bank of incorrect entries
made on them (Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1985] 2 All ER 947 (PC) at 955-
8; Big Dutchman (South Africa) (Pty) Ltd v Barclays National Bank Ltd 1979 (3) SA 267 (W) at 283).
For criticism of the court’s approach towards the non-recognition of the aforementioned duties see
Pretorius (1985) 348.
Pennington, Hudson & Mann 44-5; Sharrock & Kidd 51; Arora 297. See also Malan, Pretorius & Du
Toit 317.
[196] In Senekal v Trust Bank of Africa Ltd 1978 (3) SA 375 (A), the court pointed out that the
customer would ordinarily be aware of the bank’s practice of periodically debiting interest to an
overdrawn current account. The court held that a customer who receives periodic statements of
account from the bank, which indicate that interest has been periodically charged, without protest or
objection, acquiesces in the system and thereby tacitly agrees to be bound thereby (at 384).
However, the argument based on acquiescence is open to criticism as the customer is not under any
obligation to examine his bank statements (see Malan, Pretorius & Du Toit 322).
[197] Absa Bank Bpk h/a Volkas Bank v Retief 1999 (3) SA 322 (NC) at 338-9.
[198] Ibid 340. Schulze (2002 (1)) 455.
[199] Pennington, Hudson & Mann 44; Mather 3; Smith (1979) 26; Sharrock & Kidd 51; Arora 297.
The English case of Benson v Parry (1780) 2 TR 52 is cited by Holden in his discussion of the bank’s
right to charge the customer a reasonable commission for services rendered (at 48 n 83). He points
out that in this case, the court held, on appeal, that a country banker who discounted bills payable in
London was entitled to reasonable and fair commission for his services (Holden 48 n 83).
[200] Holden 48; Pennington, Hudson & Mann 44-5. Although the agreement between the parties is
normally an express one, a tacit agreement would suffice as well. In this respect, there is authority
for the view that if a customer knows that the bank is charging him for services rendered and he pays
these charges and does not object then he may be said to have acquiesced in this practice (Spencer v
Wakefield (1887) 4 TLR 194). The argument based on acquiescence, however, is open to criticism as
a customer is not under any obligation to examine his bank statements (see Malan, Pretorius & Du
Toit 322).
The bank is also free to waive its right to levy bank charges under certain circumstances, such as
where the customer agrees to maintain a minimum balance at the bank (Holden 49-50; Pennington,
Hudson & Mann 45).
[201] Cf Weaver & Shanahan 55; Hapgood 243. In order to rely on trade usage, however, the bank
must prove the ordinary requirements for the implication of the trade usage (cf Absa Bank Bpk h/a
Volkskas Bank v Retief 1999 (3) SA 322 (NC). Schulze (2002 (1)) 455). In terms of the Code of
Banking Practice, banks undertake to provide their customers with information on their relevant fees
and charges and to make their standard fees and charges available at all branches and through other
appropriate channels (clauses 6.6.1 and 6.6.2 of the Code of Banking Practice (2012)).
[202] There is a authority for the view that where a person accepts the services of a professional
mandatary then, in the absence of an agreement to the contrary, an obligation to remunerate the
mandatary may be implied by law (Hills v Taxing Master 1975 (1) SA 856 (D) 864; Wool Growers
Auctions Ltd v Elliot Brothers (East London) (Pty) Ltd (1969) 1 PH A9 (A) at 35-6. See also Verenigde
Adverteerders (Eiendoms) Bpk v Tanner 1947 (2) SA 1128 (T) at 1129; Jasat & Jasat v Deedat 2005
(3) SA 402 (N) at 408; Holden 49; Kerr 156 n 264). It is submitted that the above principle would
apply equally when the customer contracts with the bank for the provision of banking services.
Where the amount of remuneration has not been expressly or tacitly agreed upon, the mandatary
is entitled to remuneration at the customary rate (Verenigde Adverteerders (Eiendoms) Bpk v
Tanner 1947 (2) SA 1128 (T) at 1129; Jasat & Jasat v Deedat 2005 (3) SA 402 (N) at 408). In the
absence of an applicable customary rate, the mandatary is entitled to reasonable remuneration
(Barnabas Plein & Co v Sol Jacobson & Son 1928 AD 25 at 32; Muller v Pam Snyman
Eiendomskonsultante (Pty) Ltd 2001 (1) SA 313 (C) at 323).
[203] For instance, in terms of the NCA, a bank may charge a consumer a ‘service fee’ in respect of
a credit agreement that is subject to the Act (s 101(1)(c)). A service fee is ‘a fee that may be charged
periodically by a credit provider in connection with the routine administration cost of maintaining a
credit agreement’ (s 1).
[204] Section 48.
[205] Section 101(1)(c).
[206] Section 100(1).
[207] Absa Bank Ltd v Hanley 2014 (2) SA 448 (SCA) para 26; London Joint Stock Bank Ltd v
MacMillan and Arthur [1918] AC 777 (HL) at 789-93; Big Dutchman (South Africa) (Pty) Ltd v
Barclays National Bank Ltd 1979 (3) SA 267 (W) at 283; OK Bazaars (1929) Ltd v Universal
Stores 1973 (2) SA 281 (C) at 288. The duty applies where the customer draws the payment
instructions personally or even where he allows a third party to complete them on his behalf and
subsequently appends his signature to it (London Joint Stock Bank Ltd v MacMillan and Arthur [1918]
AC 777 (HL) at 811-12. Cf Young v Grote (1827) 4 Bing 253; Barclays National Bank v Straw 1965
(2) SA 93 (O)).
[208] Joachimson v Swiss Banking Corporation [1921] 3 KB 110 (CA) at 127; Burnett v
Westminister Bank Ltd [1966] 1 QB 742 at 760; OK Bazaars (1929) Ltd v Universal Stores 1973 (2)
SA 281 (C) at 288. Absa Bank Ltd v Hanley 2014 (2) SA 448 (SCA) para 26. The customer is bound
to take ‘the usual and reasonable precautions’ to prevent forgery (London Joint Stock Bank Ltd v
MacMillan and Arthur [1918] AC 777 at 789).
In London Joint Stock Bank Ltd v MacMillan and Arthur [1918] AC 777 (HL), a customer drew a
cheque in which he left blank the part of the cheque where provision was made for the amount to be
stated in words. Furthermore, where the amount should have been stated in figures there was only
the figures ‘2.0.0’ written with blank spaces on either side. A clerk subsequently altered the cheque,
presented it for payment and obtained payment from the bank for the altered amount. The court
found that the customer had acted in breach of his duty to exercise care in drawing his payment
instructions (at 811). The court found that he failed to take ordinary precautions in drawing his
cheque — he signed the cheque by leaving these blank spaces and he chose to place his faith in the
clerk instead of following the necessary precautions (at 811).
In Slingsby v District Bank [1932] 1 KB 544, the customer drew a cheque in which he left a blank
space after the payee’s name. A third party fraudulently inserted certain words in the space between
the payee’s name and the words ‘or order’ and subsequently obtained payment on the cheque. The
court found that in drawing the cheque in this manner, the customer did not act in breach of its duty
towards the bank (at 560-3) The court pointed out that it was not a usual precaution for a drawer to
draw lines before or after the name of a payee (at 560).
[209] London Joint Stock Bank Ltd v MacMillan and Arthur [1918] AC 777 (HL) 793; OK Bazaars
(1929) Ltd v Universal Stores 1973 (2) SA 281 (C) at 288.
[210] Cf Big Dutchman (South Africa) (Pty) Ltd v Barclays National Bank Ltd 1979 (3) SA 267 (W)
at 283-4; Absa Bank Ltd v Hanley 2014 (2) SA 448 (SCA) para 26; Malan, Pretorius & Du Toit 281.
[211] Absa Bank Ltd v Hanley 2014 (2) SA 448 (SCA) para 26.
[212] It is sometimes said that if the customer fails to draw his payment instructions with
reasonable care then he is liable for any loss that the bank may suffer as a result thereof (London
Joint Stock Bank Ltd v MacMillan and Arthur [1918] AC 777 at 793; Sharrock & Kidd 50-1). However,
in Fried v National Australia Bank Ltd [2001] FCA 907, the court pointed out that a breach of this duty
does not entitle the bank to sue the customer for damages (at para 147). Instead, the court adopted
the view that a breach of this duty could give rise to an estoppel which the bank can raise against the
customer in an action brought by the latter for wrongful debiting of his account (at para 147). In this
regard, however, it should be noted that the basis for the bank’s entitlement to debit the customer’s
account under these circumstances can be explained by the ordinary principles of mandate and there
may be no need to consider estoppel (See Schulze (2012 (2)) 387-8; Malan, Pretorius & Du Toit 300
n 31; Tyree 219. See also Burns v Forman 1953 (2) SA 226 (W) at 229).
[213] Absa Bank Ltd v Hanley 2014 (2) SA 448 (SCA) para 26.
[214] Ibid. This would seem to mean that in considering the negligence or otherwise of the
customer’s act, one is not concerned with matters extraneous to the manner in which he draws his
payment instructions (OK Bazaars (1929) Ltd v Universal Stores Ltd 1973 (2) SA 281 (C) at 291). It
has been suggested, however, that the expression ‘the negligence must have been in the transaction
itself’ has no real or special meaning and can be left out (Sonnekus 154-5). The issue is simply
whether the customer was negligent and, if so, whether his negligence can be regarded as being the
proximate cause of the ensuing loss (cf Pretorius (1985) 347-8).
[215] Absa Bank Ltd v Hanley 2014 (2) SA 448 (SCA) para 37. See also Barclays National Bank v
Straw 1965 (2) SA 93 (O).
In the Hanley case, the customer (Hanley) was an Irish solicitor who had an investment account
with the bank. He subsequently completed an application form for an overseas credit transfer in the
amount of US$100 000. The bank’s transfer form was a single-page document with writing on both
sides. However, as the form was faxed to Hanley, he consequently received the document in two
separate pages. Upon completing the transfer form, Hanley handed it to a third party (La Cote) who,
unbeknown to him, was a fraudster. La Cote removed the first page of the document and substituted
it with another page which was fraudulently altered. On the second page of the document, La Cote
also altered the amount from US$100 000 to US$1 600 000. This altered document was then given to
the bank which subsequently transferred US$1 600 000 out of Hanley’s account. The majority of the
court found that Hanley, as the bank’s customer, owed the bank a duty to draw his payment
instructions with reasonable care so as to prevent fraud or forgery (at para 25). On the facts, the
majority of the court found that Hanley was negligent in drawing his payment instructions (at para
29). This finding appears to have been based on the fact that he completed the payment instructions
on two separate pages with no clear link between them (paras 29 and 42). However, the majority of
the court nevertheless found that the bank was not entitled to debit his account as it was also
negligent in making payment and its negligence was the proximate cause of the ensuing loss (at para
37). In a separate concurring judgment, however, Wallis JA found, inter alia, that in light of the
specific facts of the case, Hanley was not negligent in drawing his payment instructions. In this
respect, Wallis JA found that the bank had sent the form to Hanley on two separate pages and by
completing this form, the customer was merely complying with what the bank had indicated to him
was an acceptable means of giving it payment instructions (at para 45). Accordingly, it could not be
said that Hanley was negligent (paras 42-45).
In the Straw case, the plaintiff’s wife ordered certain articles of clothing from two strangers. The
plaintiff requested one of the strangers to fill out the cheque and the plaintiff thereafter signed it. The
cheque was drawn for R1 and was made payable to cash or bearer. The cheque was completed in
Afrikaans and a space of at least one inch was left between the word ‘een’ and the word ‘rand’.
Likewise, a space of about one inch was also left between the figure ‘1’ and the noughts that
followed. By the time the cheque was presented at the bank for payment, the amount of the cheque
was raised to R1 000 and this amount was paid out by the bank. It was common cause that the
plaintiff (ie the bank’s customer) was negligent in drawing the cheque (at 98). However, the court
found that the bank was also negligent in paying the cheque and that the bank’s negligence was the
proximate cause of the ensuing loss (at 98). In reaching its conclusion that the bank was negligent,
the court considered the following:
•
The bank failed to notice that the word ‘duisend’ appeared to have been written in ‘thinner ink’
and that it had been compressed with the apparent object of fitting into space left between the
words ‘een’ and ‘rand’ (at 96-8)
•
A bank official should have been ‘put on his guard’ by the fact that the cheque was drawn
payable to cash or bearer and not to some ‘well-known institution or person’ (at 97).
•
Payment of the cheque would result in the drawer substantially overdrawing his account. The
court said that this should have ‘aroused very special and critical interest on the part of any
bank official’ (at 97).
[216] Pretorius argues that the customer’s duties to exercise reasonable care in drawing his
payment instructions and to report known or suspected forgeries are not ‘independent duties’ but are
part of the general duty that the customer owes to the bank to operate his current account with
reasonable care (Pretorius (1985) 347).
[217] Greenwood v Martins Bank Ltd [1932] 1 KB 371 (CA); Big Dutchman (South Africa) (Pty) Ltd
v Barclays National Bank Ltd 1979 (3) SA 267 (W) at 283; Absa Bank Ltd v Hanley 2014 (2) SA 448
(SCA) para 26.
[218] See, for instance, Cowen & Gering (1966) 374; Sharrock & Kidd 161-2 and the authorities
cited there. In terms of this view, the customer, by failing to warn or notify the bank of any known or
suspected forgeries, is estopped from denying the validity of his signature (see Tyree 224). In order
for estoppel to operate the customer must have had actual knowledge of the forgery — or imputed
knowledge in the case of juristic entity (Sharrock & Kidd 162 n 5). It appears that constructive
knowledge would not suffice: Universal Stores Ltd v OK Bazaars (1929) Ltd 1973 (4) SA 747 (A) at
762. A mere omission by the customer to discover the forgery does not give rise to an estoppel
(Standard Bank of SA Ltd v Kaplan 1922 CPD 214 at 224).
[219] Tyree 224; Malan, Pretorius & Du Toit 300 n 31.
[220] Tyree 224.
[221] Burns v Forman 1953 (2) SA 226 (W) at 229; Pretorius (2005) 56 at 57; Goosen et al 192.
[222] Cf Burns v Forman 1953 (2) SA 226 (W) at 229; Volkskas Bpk v Johnson 1979 (4) SA 775
(C) at 777-8; Pretorius (2005) 56 at 57.
[223] Ibid.
[224] Malan, Pretorius & Du Toit 395 n 14; Holden 223-4; Goosen et al 192; Malan & Pretorius 541
at 543-5.
[225] Malan, Pretorius & Du Toit 395 n 14; Indac Electronics (Pty) Ltd v Volkskas Bank Ltd 1992
(1) SA 783 (A) at 799; Malan & Pretorius 541 at 545-6. It has been suggested that there may be an
implied term in the bank-customer contract to the effect that a customer who deposits a cheque with
the bank for collection warrants that he is entitled to its proceeds (Malan, Pretorius & Du Toit 395;
Malan & Pretorius 546).
[226] For a discussion of this section, see Pretorius (2005) 56 at 59-70.
[227] See Malan, Pretorius & Du Toit 304; Moorcroft para 15.21.
[228] Section 32(3)(b) of the Estate Agency Affairs Act 112 of 1976.
[229] Section 21 of the Eskom Act 40 of 1987.
[230] In contrast to the Companies Act 61 of 1973, which required all companies to have their
financial statements audited, the Companies Act 71 of 2008, and the regulations promulgated in
terms thereof, impose this requirement on only certain companies. A public company, for instance, is
required to have its annual financial statements audited (s 30). Regulation 28(2) also stipulates which
companies must have their financial statements audited (for a discussion of this topic see Cassim et
al 604-6).
[231] In terms of s 8(3) of the NCA, an agreement constitutes a credit facility if:
‘(a)
a credit provider undertakes —
(i)
to supply goods or services or to pay an amount or amounts, as determined by the consumer
from time to time, to the consumer or on behalf of, or at the direction of, the consumer; and
(ii)
either to-
(aa)
defer the consumer’s obligation to pay any part of the cost of goods or services, or to repay to
the credit provider any part of an amount contemplated in subparagraph (i); or
(bb)
bill the consumer periodically for any part of the cost of goods or services, or any part of an
amount, contemplated in subparagraph (i); and
(b)
any charge, fee or interest is payable to the credit provider in respect of —
(i)
any amount deferred as contemplated in paragraph (a)(ii)(aa);
(ii)
any amount billed as contemplated in paragraph (a)(ii)(bb) and not paid within the time
provided in the agreement.’
[232] A current account with an overdraft facility falls within the definition of a credit facility in
terms of the NCA (Malan, Pretorius & Du Toit 323; Schulze (2007 (3)) 427 at 432). Accordingly it
constitutes a credit agreement and is subject to the provisions of the NCA. A current account without
an overdraft facility, however, is not governed by the Act (Schulze (2007 (3)) 436-7). The NCA does
not apply, inter alia, to the following agreements:
•
a credit agreement in terms of which the consumer is a juristic person whose asset value or
annual turnover, together with the combined asset value or annual turnover of all related juristic
persons, at the time the agreement is made, equals or exceeds R1 million (s 4(a)(i));
•
a large agreement in terms of which the consumer is a juristic person whose asset value or
annual turnover is, at the time the agreement is made, below R1 million (s 4(b));
•
a credit agreement in terms of which the consumer is the State (s 4(a)(ii)) or an organ of State
(s 4(a)(iii));
•
a credit agreement in respect of which the credit provider is located outside the Republic,
approved by the Minister on application by the consumer in the prescribed manner and form (s
4(d)).
Where the NCA does not apply, the common law will continue to govern the legal position in such
cases (Schulze (2007) 441).
In terms of s 81 of the NCA there are certain instances where a credit agreement is unlawful and
void ab initio. This includes, inter alia, the following:
•
where the consumer was an unemancipated minor unassisted by his guardian; or
•
where the consumer was subject to an order of a competent court holding that person to be
mentally unfit; or
•
where the consumer was under an administration order and the administrator concerned has not
consented to the credit agreement.
[233] A cheque drawn by a customer for an amount in excess of that standing to the credit of his
account may be treated as a request for an overdraft (Standard Bank of SA Ltd v Oneanate
Investments (Pty) Ltd 1995 (4) SA 510 (C) at 545-6; Trust Bank of Africa Ltd v Wassenaar 1972 (3)
SA 139 (D) at 142-3). When the bank pays the cheque under these circumstances, this constitutes an
acceptance of this request resulting in a tacit overdraft agreement (Standard Bank of SA Ltd v
Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at 546).
[234] Moocroft para 15.12. The mere fact that a customer’s account reflects a debit balance does
not mean that he has been granted an overdraft by the bank. An overdraft is founded on an express
or tacit agreement between the bank and its customer (Standard Bank of SA Ltd v Oneanate
Investments (Pty) Ltd 1995 (4) SA 510 (C) at 545). In the absence of such an agreement, there is no
general obligation on the bank to allow his customer to overdraw his account (McIntyre v The
Robinson South African Banking Company (1903) 17 EDC 111 at 117; Standard Bank of SA Ltd v
Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at 545). Accordingly, if the customer instructs
the bank to make payment either to himself or to a third party and there are insufficient funds in the
account for this purpose, the bank may ignore this instruction in the absence of an agreement to the
contrary (Cranston (2002)161).
It is possible for the bank and its customer to agree that an overdraft will be granted only on a
temporary basis, for instance in order to accommodate a particular transaction (Moorcroft para
15.12). In McIntyre v The Robinson South African Banking Company (1903) 17 EDC 111, the court
found that there was a temporary overdraft between the parties, which was at the discretion of the
bank manager, and this overdraft terminated as soon as the account showed a credit balance (at
116).
[235] Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at 545-6.
There is no obligation on the bank to make payment if the customer exceeds the limit of the overdraft
(Trust Bank of Africa Ltd v Wassenaar 1972 (3) SA 139 (D) at 143). However, the bank may elect to
do so and claim repayment thereof from the customer (Trust Bank of Africa Ltd v Wassenaar 1972 (3)
SA 139 (D) at 143).
In terms of the NCA, either the consumer (s 118(1)) or the credit provider (s 118(3)) may reduce
the credit limit under the credit facility by written notice to the other party. A credit limit under a
credit facility may also be increased by agreement (s 119(b)); or unilaterally (s 119(3)) subject to
certain limitations imposed under s 119(4). A credit facility may also be increased temporarily:
•
if the credit provider honours an instrument issued by the consumer, despite the fact that it
results in a debt that exceeds the established credit limit (s 119(2)(a)); or
•
the credit provider agrees to raise the credit limit in response to a request from the consumer in
order to accommodate a particular transaction, on condition that the preceding credit limit will
again apply within a specified period, or after a specified occurrence has taken place (s
119(2)(b)).
Malan, Pretorius & Du Toit 317.
[237] Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at 546. See
further Malan, Pretorius & Du Toit 317.
[238] Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at 546.
[239] However, as pointed out, the bank must prove the ordinary requirements for the implication
of a trade usage.
[240] Malan, Pretorius & Du Toit 321. A clause in an agreement entitling the bank to unilaterally
vary the interest rate is also valid, in principle (see n 67 above). Section 103(4) of the NCA provides
that an interest rate may vary during the term of a credit agreement ‘only if the variation is by fixed
relationship to a reference rate stipulated in the agreement, which reference rate must be the same
as that used by that credit provider in respect of any similar credit agreements currently being issued
by it’.
[241] Section 104(1)(b).
[242] Section 120(1)(a).
[243] Section 120(1)(b).
[244] Absa Bank Ltd v Standard Bank of SA Limited 1998 (1) SA 242 (SCA) at 251. See also Absa
Bank Ltd v Lombard Insurance Co Ltd 2012 (6) SA 569 (SCA) para 19. In order for the debt to be
discharged — either partially or wholly — the cheque must be honoured on presentation.
[245] Absa Bank Ltd v Lombard Insurance Co Ltd 2012 (6) SA 569 (SCA) paras 18-19. See,
however, Schulze (2012 (2)) 393-4 and the sources cited there. In the Lombard case, M was an
employee of Lombard Insurance, which carried on business as a short-term insurer and licensed
financial services and credit provider. M was heavily indebted and she forged a letter purporting to be
a request from one of Lombard’s customers for repayment of cash which the latter had deposited.
She subsequently induced Lombard into making payments via electronic transfer into various
accounts which she had at FNB and Absa. This was done on the pretext that these were payments
being made to the customer. These payments reduced and, in some instances, extinguished the
various debit balances which she had in her accounts. The issue before the SCA was whether receipt
of the stolen funds by the banks served to discharge the debts that M had owed to them (at para 9).
In reaching its judgment, the court pointed out that in order to discharge a debt there must generally
be an agreement between the parties to this effect (at para 18). If the funds were stolen then the
agreement would be contra bonos mores and invalid if both parties were aware of this (at para 18).
However, in this case, the debt-extinguishing agreement was valid as the banks acted in good faith
and without knowledge of the fact that the funds were stolen (at paras 18-19).
[246] Section 123(3)(b). This would be the case, for instance, where the customer fails to
timeously pay any amounts that are due in terms of the credit agreement (Otto & Otto 73).
[247] The NCA places certain limitations on the circumstances where a credit provider can
terminate a credit facility. In this respect, the Act provides that a credit provider may not close or
terminate a credit facility solely on the grounds that:
•
the credit provider has declined a consumer’s request to increase the credit limit (s 123(5)(a));
•
the consumer has declined the credit provider’s offer to increase the credit limit (s 123(5)(b));
•
the consumer has requested a reduction in the credit limit, unless that reduction would reduce
the credit limit to a level at which the credit provider does not customarily offer or establish
credit facilities (s 123(5)(c)); or
•
the card, personal identification code or number or other identification device used to access
that facility has expired (s 123(5)(d)).
The Act uses both the words ‘close’ and ‘terminate’ in s 123. It has been suggested that nothing turns
on this inconsistent use of these words in this section and that this is ‘merely an example of untidy
drafting’ (Otto & Otto 74 n 6)
[248] Section 123(3)(b).
[249] Otto & Otto 73.
[250] An example given by Malan, Pretorius & Du Toit is that the bank may be entitled to terminate
where it discovers that its customer is engaged in an unlawful activity (at 318). It is submitted that
the bank may also be entitled to terminate an overdraft facility if it receives notice of its customer’s
death or incapacity; or notice that the customer has been sequestrated or declared a prodigal as its
duty and authority to pay terminates under these circumstances (see 4.7.1 above).
[251] If an overdraft facility is granted on condition that the customer must furnish the bank with
some form of security as cover for the facilities provided, the bank may be entitled to terminate the
facility if that security is subsequently destroyed, extinguished or withdrawn. In Volkskas Bpk v Van
Aswegen 1961 (1) SA 493 (A), overdraft facilities were granted to the customer, on the express
condition that it would be covered by a contract of suretyship. The bank subsequently received notice
from the surety to terminate the suretyship. The court held that the bank was not obliged, without
the cover of suretyship, to pay out on further cheques tendered or placed in circulation. Cf Penderis
and Gutman NNO v Liquidators, Short-term Business, AA Mutual Insurance Association Ltd 1992 (4)
SA 836 (A). In the Penderis case, the bank granted overdraft facilities to the customer and certain
machinery was hypothecated by a general notarial bond as security for the overdraft. The customer
also had an insurance contract with a company which provided, inter alia, that the premiums would
be paid by debit order. When the machinery was subsequently destroyed in a fire, the bank
summarily suspended the overdraft facilities and this resulted in the debit order being dishonoured.
In determining whether the bank was entitled to suspend the overdraft facility, the court looked at
the agreement between the parties and the terms of the general notarial bond (at 841-2). The court
found that the terms of the bond stipulated the circumstances where the bank was entitled to act
against the customer without notice (at 842). Destruction of the goods was not covered by this (at
842). Accordingly, the bank was not justified in suspending the overdraft facilities without notice
under these circumstances.
[252] Malan, Pretorius & Du Toit 318; Tyree 451. In Penderis and Gutman NNO v Liquidators of The
Short-Term Business, AA Mutual Insurance Association Ltd 1991 (3) SA 342 (C) at 349-50, the court,
on the authority of Volkskas Bpk v Van Aswegen 1961 (1) SA 493 (A), adopted the view that that an
overdraft facility can be revoked summarily if it was granted on the strength of certain security and
that security is subsequently withdrawn, lost or extinguished (349-50). However, on appeal, the
Appellate Division pointed out that the Van Aswegen case must be seen in its context. The Appellate
Division explained that the court in the Van Aswegen case was not formulating rules of general
application but was merely considering the provisions of the specific overdraft agreement in issue
which were in the form of a resolutive condition (at 841). The correct position appears to be that in
the absence of a contractual term to the contrary, the bank must give its customer reasonable notice
of its decision to terminate the overdraft facilities (Penderis and Gutman NNO v Liquidators, Short-
term Business, AA Mutual Insurance Association Ltd 1992 (4) SA 836 (A) at 841; Malan, Pretorius &
Du Toit 317-18).
[253] The bank may not, however, refuse to honour cheques that have been drawn and put into
circulation before it has given the customer notice that the facilities are to be withdrawn (Rouse v
Bradford Banking Company Co Ltd [1894] AC 586 at 596).
[254] Cf McIntyre v The Robinson South African Banking Company (1903) 17 EC 111 at
117; Volkskas Bpk v Van Aswegen 1961 (1) SA 493 (A); Moorcroft para 15.12.
[255] Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1998 (1) SA 811 (SCA) at
823; Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA) para 8.
[256] Pestana v Nedbank Limited [2008] 1 All SA 603 (W) at 607-8 confirmed on appeal
in Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA). See also Take and Save Trading CC v Standard
Bank of SA Ltd 2004 (4) SA 1 (SCA) para 17; Trustees, Estate Whitehead v Dumas 2013 (3) SA 331
(SCA) para 14. In the Pestana case, P had instructed a branch of a bank to transfer an amount of
money to the respondent, who was also a customer of the same bank. The bank carried out the
transfer and passed a credit entry in favour of the respondent. At the time the transfer was carried
out, the relevant branch was not aware that P was substantially indebted to SARS, and that the bank
had been appointed as an agent in terms of s 99 of the Income Tax Act 58 of 1962 and was required
to collect money from him. Upon realising this, the bank reversed the credit transfer without the
concurrence of the respondent. The court held that the bank was not entitled to do this under these
circumstances (at para 15). Payment had not been made erroneously — the intention was to make
payment to the respondent (at para 15). The court adopted the view that in carrying out the transfer,
the bank was giving effect to a valid and lawful mandate from its customer (at para 15). Accordingly,
it could not unilaterally reverse the credit transfer.
[257] First National Bank of Southern Africa Ltd v Perry NO 2001 (3) SA 960 (SCA) para
32; Trustees, Estate Whitehead v Dumas 2013 (3) SA 331 (SCA) para 14.
[258] In Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1998 (1) SA 811 (SCA) at 823,
the court said the following: ‘[I]f a customer deposits a cheque into its bank account, the bank would
upon receiving the deposit pass a credit entry to that customer’s account. If it is established that the
drawer’s signature has been forged it cannot be suggested that the bank would be precluded from
reversing the credit entry previously made. So, too, if a customer deposits bank notes into its account
the bank would similarly pass a credit entry in respect thereof. If it subsequently transpires that the
bank notes were forgeries it can again not be successfully contended that the bank would be
precluded from reversing the credit entry.’
[259] Burg Trailers SA (Pty) Ltd v Absa Bank Ltd 2004 (1) SA 284 (SCA) para 9; Nedbank Ltd v
Pestana 2009 (2) SA 189 (SCA) para 9.
[260] Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA) para 9; Trustees, Estate Whitehead v
Dumas 2013 (3) SA 331 (SCA) para 14; Nissan South Africa (Pty) Ltd v Marnitz NO (Stand 186
Aeroport (Pty) Ltd Intervening) 2005 (1) SA 441 (SCA) para 23. The position may be different,
however, where the customer acquired the money in a ‘contractual context’ (see Trustees, Estate
Whitehead v Dumas 2013 (3) SA 331 (SCA) paras 15-24, and the discussion in n 42 and ch 6).
[261] Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1998 (1) SA 811 (SCA) at
823; Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA) para 9; Trustees, Estate Whitehead v
Dumas 2013 (3) SA 331 (SCA) para 14.
[262] Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA) para 9; Trustees, Estate Whitehead v
Dumas 2013 (3) SA 331 (SCA) para 14. See also Nissan South Africa (Pty) Ltd v Marnitz NO (Stand
186 Aeroport (Pty) Ltd Intervening) 2005 (1) SA 441 (SCA) paras 24-26.
[263] Cf Standard Bank of SA Ltd v Sarwan [2002] 3 All SA 49 (W) at 55.
[264] For a discussion on appropriation of payments generally see Wessels paras 2284-2311;
Christie & Bradfield 444-7; Malan, Pretorius & Du Toit 320.
[265] Christie & Bradfield point out that the debtor does not really have a ‘right’ to appropriate in
the sense that he is allowed to dictate to the creditor (Christie & Bradfield 444). The creditor, after
all, is not always bound to accept the payment on the basis tendered by the debtor (see Stiglingh v
French (1892) 9 SC 386 at 411; Brink NO v The High Sheriff (1895) 12 SC 414 at 420).
[267] Ibid. WP Greenhalgh & Sons v Union Bank of Manchester [1924] 2 KB 153 at 155, 157-8.
[268] Wadsley & Penn 343. See, however, Malan, Pretorius and Du Toit 320 n 184.
[269] Wadsley & Penn 344. This situation would seldom arise in practice as banks normally require
their customers to indicate which account they want to be credited when completing a pre-printed
deposit slip or when making payment via electronic banking (Tyree 83).
[270] For a discussion of these rules, refer to ch 6 on payment.
[271] Devaynes v Noble; Clayton’s case 35 ER 767.
[272] See also Malan, Pretorius & Du Toit 320 n 184.
[273] 1998 (1) SA 811 (SCA).
[274] At 830-1. See also Schulze (2002 (2)) 603.
[275] Schulze (2002 (2)) 603.
[276] In the discussion that follows, ‘set-off’ will be used in preference to the terms ‘combining
bank accounts’ which is used frequently in English law. Combining bank accounts is often
distinguished from set-off proper on the following basis: Set-off presupposes the existence of mutual
but independent obligations between a debtor and creditor (Halesowen Presswork and Assemblies Ltd
v Westminster Bank Ltd [1971] 1 QB 1 at 46). However, the respective obligations that the bank and
customer owe to each other do not exist independently per se. This is because the bank’s liability to
its customer is ‘the net amount of the combined balance, taking both accounts into consideration as if
they were in fact only one single account’ (Wadsley & Penn 352). Nevertheless, from a practical point
of view, there is no material difference between set-off and combining accounts as they are both
essentially carried out by ‘an accounting exercise’ which involves ‘the determination of the final
balance due by the customer to the bank and vice versa’ (Ellinger, Lomnicka & Hare 252).
In English law, it is well established that a bank has the right to combine accounts (Garnett v
McKewan (1872) LR 8 Ex 10). This is a common-law right, which arises by implication of law
(Wadsley & Penn 355; Ellinger, Lomnicka & Hare 252). Thus far, in South African law, our courts have
not expressly considered whether a bank has a right to combine accounts as such, and whether there
is an implied term of the bank-customer relationship to this effect (see, however, In Re White v
Brown (Standard Bank) (1883) 4 NLR 88). Instead, our courts have approached cases of this nature
on the basis of set-off, which arises by operation of law (see for instance, Absa Bank Ltd v Intensive
Air (Pty) Ltd and Others 2011 (2) SA 275 (SCA); Standard Bank of South Africa Ltd v Echo Petroleum
CC 2012 (5) SA 283 (SCA); Trustees of Douglas & Co’s Insolvent Estate v Natal Bank (1883) 4 NLR
74 at 76-7; Bain v Barclays Bank (DC & O) Ltd 1937 SR 191, 202-206). Pretorius also points out that
in South Africa a bank may only combine accounts — in the absence of an agreement to the contrary
— on the basis of set-off (Pretorius (2008) 53).
A distinction should be drawn between set-off and lien as they are sometimes not properly
differentiated from each other in the context of the bank-customer relationship (see, for
instance, Duba v Ketsikili 1924 EDL 332 at 341). Set-off is ‘a method by which contractual and other
debts may be extinguished’ (Christie & Bradfield 494; Fourie 99). A lien, however, is essentially a
means of enforcing contractual and other debts whereby the creditor is given the right to retain
possession of the debtor’s property until his claim against the latter has been satisfied (Scott para
50). With regard to this distinction generally see Hapgood 713-14; Fourie (1993) 102-3.
[277] See, for instance, Standard Bank of South Africa Ltd v Echo Petroleum CC 2012 (5) SA 283
(SCA); Bain v Barclays Bank (DC & O) Ltd 1937 SR 191. In terms of the Code of Banking Practice,
banks undertake to inform their customers promptly after they have effected set-off in respect of any
of their accounts (clause 7.5).
[278] Cf Smith (1980) 27; Fourie (1993) 99; Fourie (1983) 170. These requirements must also be
satisfied before set-off can operate between two bank accounts which are not both current accounts.
For a discussion of whether set-off applies only if a defendant elects to rely on it, and whether he can
choose not to do so and enforce his claim by way of action, see ch 6 and the authorities cited there.
In Ball v Keefer (1883) 2 HCG 27, a bank claimed provisional sentence on a promissory note which
was endorsed by its customer. At the relevant time, the customer had sufficient funds in his account
to meet his liability on the note. The court held that the bank should not have sued the customer on
the note (at 30). Instead, the bank should have debited the customer’s account with the amount that
was due (at 30). The court held that the parties were simultaneously indebted to each other and that
the principle of compensatio (ie set-off) applied (at 30).
[279] Pretorius (2008) 53; Smith (1980) 28; De Jager 132; Fourie (1983) 170-3. As a sole
proprietorship is not a separate legal entity, a debt which the sole proprietor owes to the bank in his
personal capacity can be set off against the balance standing to the credit of an account opened in
the name of the sole proprietorship business (see, for instance, Absa Bank Ltd v Intensive Air (Pty)
Ltd 2011 (2) SA 275 (SCA)). In the Intensive Air case, L opened several accounts with the bank. One
of the accounts — ‘the ticket account’ — had a credit balance and was opened by L as the sole
proprietor of a business trading as Intensive Air. When the business gradually expanded, L formed a
company — Intensive Air (Pty) Ltd — of which he was the sole shareholder and director. The ticket
account was used to deposit all proceeds of the tickets sold by the company to passengers on its
regular flights. The credit balance in the ticket account was subsequently set off against the debit
balance arising in respect of an overdrawn account that Louw held with the bank in a personal
capacity. When Intensive Air (Pty) Ltd was liquidated, the liquidators claimed that the money in the
ticket account fell into the insolvent estate as it ‘belonged to the company’ (at para 16). Accordingly,
they argued that set-off could not apply under these circumstances. The court found, however, that
the bank was not a party to any agreement to treat the ticket account as the company’s account (at
para 26). L was the bank’s debtor and accordingly the debit balance owing on L’s overdrawn account
could be set off against the balance standing to the credit of the ticket account (at para 29).
Even though a partnership is not a separate legal person, for the purposes of set-off, the law
treats the partnership as though it were a separate legal entity. In this regard the following should be
noted:
•
During the existence of a partnership, a debt which an individual partner owes to the bank may
not be set off against a debt which the bank owes to the partnership (Trustees of Douglas & Co’s
Insolvent Estate v Natal Bank (1883) 4 NLR 74 at 77-8). Similarly, during the existence of a
partnership, a debt that the partnership owes to the bank may not be set off against a debt that
the bank owes to an individual partner (Bain v Barclays Bank (DC & O) Ltd 1937 SR 191 at 202).
•
Upon dissolution of the partnership, the partners may be sued individually for partnership debts.
Accordingly, a debt owed by or to the partnership may be set off against a debt owed to or by
an individual partner (Bain v Barclays Bank (DC & O) Ltd 1937 SR 191 at 202).
•
If the partnership is dissolved and a new partnership is subsequently formed, any debts owing
by the old partnership to the bank may not be set off against debts which the bank owes to the
new partnership (Trustees of Douglas & Co’s Insolvent Estate v Natal Bank (1883) 4 NLR 74 at
77-8. See also Fourie (1993) 100; Christie & Bradfield 498-9). Similarly, debts owed by the new
partnership to the bank cannot be set off against debts owed by the bank to the old partnership
(Christie & Bradfield 498-9).
[280] Re Gross; Ex parte Kingston (1871) LR 6 Ch App 632 at 639.
[281] Cf Smith (1980) 29. An obligation to deliver property, for instance, cannot be set off against
an obligation to pay money (see Chapter 6 on payment and the sources cited there). Thus, where a
customer deposits valuables or documents with the bank for safekeeping; the bank’s obligation to
deliver these things to the customer may not be set off against a debt which the customer may owe
to the bank in respect of a loan or overdrawn account (Smith (1980) 29; Van der Merwe et al (2007)
548-9. Cf Ngangelizwe Kama v Yates & Murray (1902) 17 EC 60 at 67). For a discussion of the bank’s
safe custody services see ch 5.
[282] The debts must be capable of easy and speedy proof (see Smith (1980) 29; Van der Merwe
et al (2012) 472; Christie & Bradfield 495-6 and the authorities cited there). Bank charges and a debt
arising in respect of an overdraft usually fall into this category (Christie & Bradfield 496).
[283] Garnett v M’Kewan (1872) LR 8 Ex 10; Pretorius (2008) 53. See also In Re White v Brown
(Standard Bank) (1883) 4 NLR 88; De Jager 132.
[284] Fourie (1993) 100. For instance, in terms of the Attorneys Act 53 of 1979, any debts that an
attorney owes to the bank in his personal capacity does not confer upon the bank any rights or
recourse whether by way of set-off, counter-claim, charge or otherwise, against money standing to
the credit of any trust account (s 78(11). This provision does not, however, deprive the bank of any
existing right that it may have (s 78(12)(a)). It also does not apply in respect of any liability that may
arise in respect of the trust account itself (s 78(11)). Thus for example, money standing to the credit
of a trust account may not be set it off against any debt arising from an overdrawn account operated
by the attorney in his personal capacity. However, this does not affect any other rights that the bank
may have in respect of the trust account itself, such as bank charges arising from the operation of the
account (Cameron et al 570. Cf s 91(2) and s 91(3) of the Legal Practice Act 28 of 2014 — these
provisions have not yet come into operation at the time of writing).
[285] Cf Barclays Bank Ltd v Okenarhe [1966] 2 Lloyd’s LR 87 (QB) at 95; Joint Stock Co
Varvarinskoye v Absa Bank 2008 (4) SA 287 (SCA) para 36.
Set-off may not operate where the bank and its customer expressly or tacitly agree that the two
bank accounts are to be maintained separately or that money deposited in one of the accounts is to
be used for a special purpose only. In the Joint Stock case, a customer of Absa Bank held several
accounts with the bank, including an account that had a credit balance (Account 1313), and another
account which was substantially overdrawn. By agreement with the bank’s customer, a third party
had deposited money into Account 1313 for the purpose of paying certain subcontractors. The
customer (ie the account holder) was not entitled to dispose freely of this money. When the credit
balance in Account 1313 was set off against the debit balance in respect of the overdrawn account,
the third party objected to this. The third party claimed that ‘the money in account 1313 rightly
“belonged” to it and that consequently Absa was not entitled to apply set-off against the funds in the
account’ (at para 22). The court agreed that set-off could not apply under these circumstances. The
court held that from the outset the bank was aware of the purpose of the account and the source and
purpose of the funds therein (at para 36). The court held that the bank had essentially agreed that
the funds could be withdrawn only after compliance with a prescribed procedure, which was set out in
the agreement between the parties (at para 36). The court held that the bank essentially acted as the
third parties’ agent to warehouse the money in Account 1313 (at para 36). Accordingly, the credit
balance in Account 1313 could not be set off against the debit balance in respect of the overdrawn
account. For a discussion of this case, see De Jager 133-40.
In Standard Bank of South Africa Ltd v Echo Petroleum CC 2012 (5) SA 283 (SCA), the court
found that set-off could apply in circumstances where the customer had a right to dispose of the
money standing to the credit of his account. In this case, Echo Petroleum, intending to purchase fuel
from Sasol, paid R710 000 into the bank account of Sky Petroleum Limited (Sky). Sky was a company
which was an authorised contractor for Sasol (it was only an authorised contractor that could
purchase petroleum directly from Sasol). However, before Sky could make payment to Sasol, the
money in this account was set off against a debit balance arising in respect of another overdrawn
account that Sky held with the bank. Echo Petroleum argued that set-off could not apply under these
circumstances. It argued that the payment that it made to Sky was conditional upon delivery of the
fuel — if Sky did not tender delivery of the fuel then it was not entitled to payment. The court
disagreed and held that Sky was entitled to use the money that Echo Petroleum had deposited as
soon as the deposit was credited to its account (at para 30). The money in that account was a debt
that the bank owed to Sky and could be set off against any debts that Sky owed to the bank (at para
30). The court pointed out that any effective ‘earmarking’ must be ‘objectively ascertainable by the
third party who is sought to be bound by it and not be confined to the knowledge of the direct parties’
(at para 24). Accordingly, in the present case, set-off could apply and Sky could not reclaim the
deposit from the bank.
[286] Sharrock and Kidd 48 n 27; Pretorius (2008) 53-4; Bradford Old Bank Ltd v Sutcliffe [1918]
2 KB 833 at 844-7. See also National Westminster Bank Ltd v Halesowen Presswork & Assemblies
Ltd [1972] AC 785 (HL) at 809; Wadsley & Penn 355-6.
[287] Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833 at 844-7; In re EJ Morel (1984) Ltd [1962]
Ch 21 at 31-2; National Westminster Bank Ltd v Halesowen Presswork & Assemblies Ltd [1972] AC
785 (HL) at 809, 819; Hapgood 717-19; Wadsley & Penn 355-6; Ellinger, Lomnicka & Hare 256-7. In
the Halesowen case, the court also agreed, in principle, that a current account and loan account may
not be combined during the subsistence of the bank-customer relationship. However, this was said to
be an implied term of the agreement between the bank and customer (at 809). The court, adopting
the same reasoning as in the Sutcliffe case, stated that if such a term was not implied, a customer
would have no security in drawing cheques on his current account if the balance of the loan account
exceeded the credit balance of the current account (at 809).
The position may be different where the parties expressly agree that set-off can operate between
the loan account and current account (Ellinger; Lomnicka and Hare 257 n 263). This is provided,
however, that the debt arising in respect of the loan account is due and enforceable.
[288] Act 24 of 1936.
[289] Cf Smith (1980) 30. In Al-Kharafi & Sons v Pema and Others NNO 2010 (2) SA 360 (W), the
court provided some guidance on the interpretation of s 46. The court pointed out that the enquiry
with regard to s 46 is not whether set-off occurred in the ordinary course of business, but rather
whether it was ‘brought about’ or ‘accomplished’ in the ordinary course of business (at para 28). The
question is whether ‘businessmen would regard the transaction, with all of its particular facets, as
usual or anomalous’ (para 27). A fraudulent disposition (for instance where the debtor knows that the
creditor will be prejudiced by the set-off) will not be regarded as being ‘in the ordinary course of
business’ (at para 15).
As there is a dearth of authority dealing with s 46, the cases relating to voidable dispositions can
be used to provide guidance in interpreting this section. In the context of voidable dispositions, the
courts have held that the test to determine whether a disposition is made in the ordinary course of
business, is an objective one, namely ‘whether, having regard to the terms of the transaction and the
circumstances under which it was entered into, the transaction was one which would normally have
been entered into by solvent business men’ (Joosab v Ensor NO 1966 (1) SA 319 (A) at
326; Hendriks, NO v Swanepoel 1962 (4) SA 338 (A) at 345; Van Zyl and Others NNO v Turner and
Another NNO 1998 (2) SA 236 (C) para 34).
Bertelsmann et al state that ‘a reduction by a bank of the amount of a customer’s overdraft by
appropriating deposits made’ is something which would be in the ordinary course of business unless
‘such deposits were only one incident in a transaction of an extraordinary character’ (at 266). A case
cited by the authors when referring to ‘a transaction of an extraordinary character’ is Patterson NO v
Trust Bank of Africa Ltd 1979 (4) SA 992 (A). In this case, the insolvent (S) was an attorney who sold
his practice to his professional assistant (C) for a cash sum of R15 000 plus certain further amounts
to be paid later. C did not have the cash amount available and he approached the practice’s bank, for
overdraft facilities in this amount. The bank agreed to grant the necessary facilities provided that the
whole amount thereof was paid into the practice’s overdrawn business account, and that a clause to
this effect was incorporated into the contract of sale between S and C. Pursuant to this contract, C
caused a cheque for R15 000 to be paid into S’s business account with the bank. In an application to
set aside this payment on the basis of it being a voidable preference, the court found that the
payment was not made in the ordinary course of business (at 1002-3). Although the tripartite
arrangement was, on the face of it, a normal banking transaction, the ‘overriding factor was S’s
defalcations on his trust account’ which had led to this series of events (at 1002). The contract
between C and S had been in the nature of a forced sale whereby the bank could dictate its terms in
order to ensure payment of the overdrawn account (at 1001-2). See also Fuller’s Trustee v Standard
Bank of SA Ltd 1922 NLR 478 at 484-8, 495-6.
[290] Section 46. Cf Pretorius (2008) 54.
[291] Brandao v Barnett (1846) 12 Cl & Fin 787 at 806-9; Ellinger, Lomnicka & Hare 864-7;
Wadsley & Penn 333-43; Hapgood 705-13; Malan, Pretorius & Du Toit 134.
[292] Wadsley & Penn 333. Halesowen Presswork and Assemblies Ltd v Westminster Bank
Ltd [1971] 1 QB 1 at 33-4 (reversed on appeal but on other grounds).
[293] Silke 425; Institute of Bankers in South Africa 260-1; Scott para 70. Contra Schoeman et al
para 1.3.2.
[294] Institute of Bankers in South Africa 260. See also Fourie (1993) 101.
[295] 1910 EDL 443.
[296] At 447. See also Institute of Bankers in South Africa 260; Malan, Pretorius & Du Toit 136;
Fourie (1993) 101-2. Section 25(3) of the Bills of Exchange Act (prior to being repealed) provided: ‘If
the holder of a bill has a lien on it, arising either from contract or by implication of law, he is deemed
a holder for value to the extent of the sum for which he has a lien.’
In Kuhne v African Banking Corporation 1910 EDL 443, the customer had lodged a promissory
note (which was out made in his favour) with the bank. He wanted the bank to discount the note and
to place a portion of the proceeds against his overdraft. However, the bank refused to discount the
note and the customer thereafter demanded its return. The bank refused this request on the basis
that it was retaining the note as security for the overdraft. The court found that as the note had been
lodged for a special purpose ie to be discounted, the bank could not deal with it in any other way nor
could they hold it subject to a lien (at 449). The court found that no lien had existed either by
contract or by implication of law in terms of s 25(3) of the Bills of Exchange Act (at 449). See also
Silke 426.
[297] By s 9 of the Bills of Exchange Amendment Act 56 of 2000.
[298] 1924 EDL 332.
[299] At 341.
[300] Cf Institute of Bankers in South Africa 260-1.
[301] Tyree 504; Ellinger, Lomnicka & Hare 866.
[302] Ibid. See also Wadsley & Penn 337-8, 352-3.
[303] Halesowen Presswork & Assemblies Ltd v Westminster Bank Ltd [1971] 1 QB 1 at 46
(reversed on appeal but on other grounds); Malan, Pretorius & Du Toit 135; Hapgood 708. See,
however, the discussion in Ellinger, Lomnicka & Hare 251.
[305] By statute, attorneys, estate agents and trustees of inter vivos and testamentary trusts are
obliged to open trust accounts:
•
Section 78(1) of the Attorneys Act 53 of 1979 obliges every practising practitioner to open and
keep a separate trust banking account at a banking institution in South Africa and to deposit
therein money held or received by him on account of any person. The Attorneys Act does not
prescribe what type of account must be opened, but in practice this will generally be a current
account (Lewis 271). In addition to the trust banking account, a practitioner may also open a
separate trust savings or other interest-bearing account with any banking institution and invest
money in that account. In contrast to the trust banking account in terms of s 78(1), the
Attorneys Act provides that the trust banking account can be opened with a banking institution
or building society (the latter are now called mutual banks). Trust investments can be classified
into two types, namely
—
Investments authorised in terms of s 78(2)(a) of the Attorneys Act being the investment of
money deposited in the trust banking account which is not immediately required for a particular
purpose. The interest on an investment in terms of s 78(2)(a) accrues to the Attorneys Fidelity
Fund; and
—
Investments specifically authorised by the client in terms of s 78(2A). The interest on an
investment in terms of s 78(2A) accrues to the client.
The Legal Practice Act 28 of 2014 also requires all legal practitioners to operate a trust account (s
86(1)). In terms of this Act, a trust account may only be kept at a bank which has made an
arrangement with the Legal Practitioners’ Fidelity Fund as contemplated in s 63(1)(g) of the Act (s
86(2)). Cf s 63(1)(g). A legal practitioner may not deposit or invest funds with a bank which is not a
party to such an arrangement except with the prior written consent of the Fund (s 86(6)). The
obligation to operate a trust account is not confined to attorneys — it also applies to advocates who
render legal services upon receipt of a direct request from a member of the public or from a justice
centre in expectation of a fee, commission, gain or reward (s 86(1) read with s 84(1) and s
34(2)(b)). The provisions of the Legal Practice Act discussed here have not yet come into effect at the
time of writing.
•
The Trust Property Control Act 57 of 1988 obliges a person who receives money in his capacity
of trustee to deposit such money in a separate trust account at a banking institution or building
society (s 10). The Act does not prescribe what type of bank account must be opened and this is
a matter that falls within the discretion of the trustee. Du Toit points out that this decision will
depend on what account will best serve the purposes of the trust (at 90). The Act also does not
specify whether the account must be opened in the name of the trust, but in practice, it appears
as though banks allow the account to be opened either in the name of the trust or in the name
of the trustees for the time being (Du Toit 90; Cameron et al 306).
•
Section 32(1) of the Estate Agency Affairs Act 112 of 1976 obliges every estate agent to open
and keep a separate trust account with a bank and to deposit therein all trust money which the
agent holds or receives.
•
Executors and trustees or liquidators of insolvent estates are also required to open accounts in
the course of administering deceased and insolvent estates:
—
In terms of the Administration of Estates Act 66 of 1965, unless the Master directs otherwise,
the executor of a deceased estate must open a cheque account in the name of the estate as
soon as he has money in the estate in excess of R1 000 (s 28(1)(a)). The executor may open
the estate bank account as soon as letters of executorship have been issued and does not have
to wait until he has money in the estate in excess of R1 000 (Kernick 44). The executor must
deposit into the estate account money that he has in hand or may from time to time receive for
the estate (s 28(1)(a)).
—
In terms of the Insolvency Act 24 of 1936, the trustee of an insolvent estate must open a
cheque account in the name of the insolvent estate with a banking institution within South Africa
(s 70(1)(a)). The trustee must deposit therein all money received by him on behalf of the
insolvent estate.
[306] The authority to administer the financial affairs of the beneficiary may be derived, inter alia,
by operation of law (such as where a guardian administers property on behalf of a minor); from a
court order (such as where a curator bonis administers the financial affairs of a mentally ill person or
other persons who are incapable of managing their affairs); or from an act of authorisation (ie where
a principal authorises an agent to act on his behalf).
[307] Louw NO v Coetzee 2003 (3) 329 (SCA) para 15. It seems that the same principles would
apply mutatis mutandis to accounts opened by executors; trustees or liquidators of insolvent estates;
estate agents; and accounts opened for testamentary or inter vivos trusts. For a discussion of the
position where the bank itself acts as a trustee of the customer’s assets, see ch 5.
[308] See Louw NO v Coetzee 2003 (3) 329 (SCA) paras 12-15 with regard to trust accounts kept
by attorneys. In Louw’s case the court held that an investment by an attorney in terms of s 78(2A) of
the Attorneys Act does not constitute trust property in terms of s 4(5) of the Financial Institutions
(Protection of Funds) Act 28 of 2001. Accordingly, such property forms part of the assets of the bank
and, if it is subsequently liquidated, there will only be a concurrent claim against the insolvent estate.
See also Bertelsmann et al 197.
[309] The Attorneys Act, Estate Agency Act and Trust Property Control Act expressly state that the
trust accounts must be separate. This also seems implicit in the Administration of Estates Act and
Insolvency Act as these Acts state that the accounts must be opened in the name of the deceased
and insolvent estate respectively.
An agent who holds funds on behalf of his principal in terms of an agreement may, however, be
expressly or tacitly authorised to keep those funds in an account which is in his own name (cf Joint
Stock Co Varvarinskoye v Absa Bank 2008 (4) SA 287 (SCA)). However, even in such circumstances
there are usually restrictions placed on how such funds may be dealt with (cf Joint Stock Co
Varvarinskoye v Absa Bank 2008 (4) SA 287 (SCA)).
The Attorneys Act provides that money standing to the credit of a practitioner’s trust account shall
not be regarded as forming part of the assets of that practitioner and may not be attached on behalf
of any of his creditors (s 78(7); see also s 88 of the Legal Practice Act 28 of 2014). However, the
proviso to this subsection provides that ‘any excess remaining after payment of all claims of persons
whose money has, or should have, been deposited or invested in such trust account, and all claims in
respect of interest on money so invested, shall be deemed to form part of the assets of such
practitioner’.
The Estate Agency Affairs Act 112 of 1976 also provides that money standing to the credit of a
trust, savings or other interest-bearing account of an estate agent shall not form part of his assets (s
32(8)).
[310] Yorkshire Insurance Co Ltd v Barclays Bank (Dominion, Colonial and Overseas) 1928 WLD
200 at 208-9.
[311] See 4.12 above. Re Gross; Ex parte Kingston (1871) LR 6 Ch App 632 at 639. In this case, a
county treasurer had opened an account with the bank which was headed ‘Police Account’. He also
had a personal account with the bank which was overdrawn. When he subsequently become insolvent
and disappeared, the bank sought to offset the balance in respect of his overdrawn personal account
against the credit balance in the ‘Police Account’. However, the court found that set-off could not
operate under these circumstances as the bank knew that the ‘Police Account’ was a trust account (at
639). See also Smart 78-85; Tyree 96.
In Joint Stock Co Varvarinskoye v Absa Bank 2008 (4) SA 287 (SCA), in a separate concurring
judgment, Cachalia JA said that the agreement between the bank and the customer in this case
required that the money be held in trust and dealt with according to terms of the agreement (at para
53). Accordingly, set-off could not operate under these circumstances (see n 284 above).
[312] Cf s 78(13) of the Attorneys Act 53 of 1979.
[313] With regard to deceased estates, it should be noted that in terms of the Administration of
Estates Act 66 of 1965, the Master of the High Court has the same right to information in relation to
the estate bank account as the executor himself possesses (s 28(5)). The Master may examine any
vouchers relating to the account whether they are in the hands of the executor or the bank (s 28(5)).
The Act also confers various powers on the Master in relation to the bank account itself. The Act
empowers the Master to direct the manager of the relevant branch of the bank to refuse any further
withdrawals from the estate bank account except with his consent (s 28(6)).The Master may also
direct the manager of the relevant branch of the bank to pay into the Guardian’s Fund all moneys
standing to the credit of the account and which may be paid into the account in future (s 28(6)).
With regard to insolvent estates, the Insolvency Act 24 of 1936 also provides that the Master has
the same right to information relating to the estate bank account as the trustee himself possesses,
and may examine all vouchers in relation to the account whether in the hands of the bank or the
trustee (s 70(5)). Smith suggests that the aim of this provision is to enable the Master to take steps
to investigate any irregularities that he may suspect (Smith (1998) 188). In contrast to the
Administration of Estates Act, however, the Insolvency Act does not expressly empower the Master to
direct the bank to refuse any withdrawals from the estate bank account. However, the Act does
provide a safeguard for money standing to the credit of the estate account (see further Smith (1998)
188-9). In this respect, the Act provides that Master may, upon notice to the trustee, direct the
manager of the relevant branch of the bank to pay into the Guardian’s Fund all moneys standing to
the credit of the account and all moneys which may be paid into the account in future (s 70(6)). The
manager of the relevant branch of the bank must comply with such a direction (s 70(6)).
[314] This principle applies to trustees in the strict sense (see Cameron et al 362-7; Du Toit (2007)
137-8) and fiduciaries as well (cf Yorkshire Insurance Co Ltd v Barclays Bank (Dominion, Colonial and
Overseas) 1928 WLD 200 at 207; Rossiter v Barclays Bank 1933 TPD 374 at 385-7; Sasfin (Pty) Ltd v
Jessop 1997 (1) SA 675 (W) at 685-6; Silke 609). See, however, Clark NO v Gelb 1981 (1) SA 288
(W) at 295.
200 at 206-8; Rossiter v Barclays Bank 1933 TPD 374 at 385-6; Cameron et al 382-3. See also Silke
608-9.
In English law, a bank can be held liable as a constructive trustee under certain circumstances
(see generally Hapgood 585-93). Constructive trusts do not apply in South African law (Cameron
(1999) 341-58; Cameron et al 131).
With regard to trust accounts kept by practitioners, it should be noted that in terms of s 78(10) of
the Attorneys Act, a bank shall not by reason only of the name or style by which the account
concerned is distinguished, be deemed to have knowledge that the practitioner is not entitled to all
money paid into such account or with which such account is credited. It has been suggested that the
effect of this provision is that the bank will not be obliged to inquire into the terms of the trust; or to
ask whether a particular withdrawal would constitute a breach of trust (Honore & Cameron 309).
However, this provision does not preclude a bank from incurring liability if it had actual knowledge
that a withdrawal made by a practitioner from the trust account was a breach of trust (Honore &
Cameron 309). Cf s 91(1)(a) and (b) of the Legal Practice Act 28 of 2014 (which have not yet come
into operation at the time of writing).
200 at 206-7. It has been held that the mere fact that the bank knows that the trustee of an
insolvent estate has drawn a cheque on the estate account in his own favour does not imply that the
bank had knowledge that he was misapplying trust proceeds (Yorkshire Insurance Co Ltd v Standard
Bank of SA Ltd 1928 WLD 251 at 273-7, 283). Furthermore, where the bank pays a cheque drawn by
an agent of an executor on the estate account with intention of misappropriating trust moneys, the
bank will not incur liability unless it is shown that the bank was privy to the breach of trust (Standard
Bank v Estate van Rhyn 1925 AD 266 at 281). In this case, the bank paid a cheque drawn by an
agent of the executor (one Schultz) on the estate account with the intention of misapplying the
proceeds. In casu, the court held that the bank received no benefit from this transaction and
concluded that it was not privy to the intended misapplication (at 281). In Yorkshire v Barclays Bank
(Dominion, Colonial and Overseas) 1928 WLD 200, Greenburg J doubted whether it was essential to
show that the bank derived a personal benefit in order to prove privity where knowledge is actually
proved (at 209).
[317] Yorkshire Insurance Co Ltd v Standard Bank of SA Ltd 1928 WLD 251 at 271.
[318] Rossiter v Barclays Bank 1933 TPD 374 at 384-6.
200 at 206-7. As the bank may be liable as a joint wrongdoer, it follows that if the fiduciary or trustee
is not liable for breach of trust then the bank will not incur liability either.
[320] Yorkshire Insurance Co Ltd v Standard Bank of SA Ltd 1928 WLD 251 at 277.
[321] An example of when the bank may be said to benefit from a transaction is where the bank
applies misappropriated money to reduce an overdraft which the trustee has with the bank (Rossiter
v Barclays Bank 1933 TPD 374 at 384-5). In Rossiter’s case, the plaintiff was a minor whose mother
and grandparents gave him certain sums of money as gifts. The money was deposited into a deposit
account which was opened in the minor’s name and his mother had sole authority to operate the
account. The bank was aware of this arrangement. The father was indebted to the bank in respect of
an overdraft and, in his capacity as natural guardian of the minor, he pledged the deposit receipts to
the bank and agreed that on maturity the money should be applied in reduction of his overdraft. This
arrangement was made and subsequently carried out. The court found that the father committed a
breach of trust under these circumstances (at 384). Furthermore, the court found that the bank was
privy to this breach of trust and was accordingly liable to the minor (at 385-6).
[322] Rossiter v Barclays Bank 1933 TPD 374 at 386.
[323] In Frankel Pollak Vinderine Inc v Stanton NO [1996] 2 All SA 582 (W) the court said that
‘where a person has a real suspicion and deliberately refrains from making inquiries to determine
whether it is groundless, where he or she sees red (or perhaps amber) lights flashing but chooses to
ignore them, it cannot be said that there is absence of knowledge of what is suspected or warned
against’ (at 596).
[324] Yorkshire Insurance Co Ltd v Standard Bank of SA Ltd 1928 WLD 251 at 283. See
also Baylis’s Trustees v Cape of Good Hope Bank (1885-1886) 4 SC 439 at 443.
[325] Indac Electronics (Pty) Ltd v Volkskas Bank Ltd 1992 (1) SA 783 (A) at 797-801; KwaMashu
Bakery Ltd v Standard Bank of South Africa 1995 (1) SA 377 (D) at 390-5.
[326] Indac Electronics (Pty) Ltd v Volkskas Bank Ltd 1992 (1) SA 783 (A) at 797-801; KwaMashu
Bakery Ltd v Standard Bank of South Africa 1995 (1) SA 377 (D) at 390-5. Contra Yorkshire
Insurance Co Ltd v Standard Bank of SA Ltd 1928 WLD 251 in which it was held that negligence by
itself was not a ground for imposing liability on the collecting bank: it had to be shown that the bank
had knowledge that a breach of trust was being committed (at 282-3).
[327] Bredenkamp v Standard Bank of South Africa Ltd 2009 (6) SA 277 (GSJ) para 29. However,
in the case of a deposit account, the customer is normally required to give the bank an agreed period
of notice before closing the account.
[328] In practice, the bank may include a cancellation clause in its contract with the customer that
gives it the right to terminate the contract unilaterally. Where no such cancellation clause exists, it
has been argued, in accordance with the normal principles of contract, that the bank may unilaterally
terminate the relationship only if there is a material breach of the contract on the part of the
customer (Schulze (2011) 220-1).
[329] Joachimson v Swiss Bank Corporation [1921] 3 KB 110 (CA) at 127; Bredenkamp v Standard
Bank of South Africa Ltd 2009 (6) SA 277 (GSJ) para 29. In Prosperity Ltd v Lloyds Bank
Limited (1923) 39 TLR 372, the court expressed the view that the bank’s right to close an account in
credit (where reasonable notice is required) might be different from its right to close an account
which has a debit balance (at 373). The better view is that the bank must give the customer
reasonable notice even under these circumstances (Tyree & Weaver 497). In Penderis and Gutman
NNO v Liquidators, Short-term Business, AA Mutual Insurance Association Ltd 1992 (4) SA 836 (A),
the court also pointed out that the termination of a contract has important consequences and, in the
absence of an agreement to the contrary, a party who is entitled to terminate can do so only by
communicating his decision to the other party (at 841).
[330] Prosperity Ltd v Lloyds Bank Limited (1923) 39 TLR 372 at 373.
[331] Malan, Pretorius & Du Toit 327; Chorley & Holden 350.
[332] Mather 52-3; Chorley & Holden 350.
[333] Cf Bredenkamp v Standard Bank of South Africa Ltd 2009 (5) SA 304 (GSJ). In this case, the
applicants applied for an interim interdict restraining the bank from cancelling the contracts between
them, thereby terminating the relationship between the parties. The contracts in question contained a
clause entitling the bank to cancel them. The court granted the interim interdict and held that the
bank’s decision to close the accounts was anything but reasonable and that it operated unfairly
towards the applicants (at para 71). However, in the main application in Bredenkamp v Standard
Bank of South Africa Ltd 2009 (6) SA 277 (GSJ) the court found that the bank was entitled to cancel
the contracts and that the bank’s conduct in exercising this right was constitutionally fair (at para
67). (For a discussion of these two cases see Rautenbach 637-44; Schulze (2011) 211-15). This
latter decision was upheld on appeal in Bredenkamp v Standard Bank of South Africa Ltd 2010 (4) SA
468 (SCA). The SCA pointed out that the bank had a valid contract with the customer that gave it the
right to cancel. The bank exercised its right of termination in a bona fide manner and it gave the
appellants (the applicants in the court a quo) a reasonable time to take their business elsewhere (at
para 64). Furthermore, the termination did not offend any identifiable constitutional values and was
not contrary to public policy (at para 64). Accordingly, the appeal was dismissed with costs. For a
discussion of the SCA’s judgment, see Schulze (2011) 215-23.
[334] Pennington, Hudson & Mann 57. Cf Chorley & Holden 350.
[335] Hapgood 153; Malan, Pretorius & Du Toit 326-7 n 244. Cf Van Zyl & Joubert para 16. After
the bank receives notice of the customer’s death, it should not allow any transactions to take place in
respect of the deceased person’s bank accounts until an executor for the deceased estate has been
appointed by the Master of the High Court (Barker 14). Once the executor has been appointed he will
normally instruct the bank to close any bank accounts in the name of the deceased and pay the
proceeds into the estate bank account once this has been opened.
[336] Malan, Pretorius & Du Toit 326-7 n 244.
[337] Itzikowitz & Du Toit para 403. The partnership may dissolve, inter alia, by agreement
between the partners; as result of a change of membership; upon the sequestration of the
partnership; or of the estates of one or more of its members; or where a partner unilaterally
dissolves the partnership (Itzikowitz & Du Toit para 403). While the partnership is in existence, a
creditor cannot sue an individual partner for a debt incurred in the course of the partnership business
(Mdletshe v Litye 1994 (3) SA 874 (E) at 875-6). The creditor must first sue the partnership itself;
excuss the partnership assets and obtain an order terminating the partnership before suing the
partners individually. However, upon dissolution of the partnership, the partners immediately become
liable for all partnership debts (Simpson & Co v Fleck 3 Menz 213 at 217; Lee v Maraisdrif (Edms)
Bpk 1976 (2) SA 536 (A) at 543).
Even if a new partnership is subsequently formed and it utilises the same bank account as its
predecessor, it is not liable for any debts incurred by the former partnership — in the absence of an
agreement to the contrary (Trustees of Douglas & Co’s Insolvent Estate v Natal Bank (1883) 4 NLR
74 at 77-8).
[338] Malan, Pretorius & Du Toit 326 n 244; Itzikowitz & Du Toit para 403.
[339] The case of Goodricke & Sons v Auto Protection Insurance Co Ltd (In Liquidation) 1968 (1)
SA 717 (A) at 722 is often cited as authority for this proposition.
[340] Bertelsmann et al 245; Sharrock, Smith & Van der Linde 92-3.
[341] Bertelsmann et al 245; Sharrock, Smith & Van der Linde 92-3.
[342] This is assuming that the trustee of the insolvent estate elects to keep the insolvent’s bank
account open.
[343] The right to claim money standing to the credit of the account constitutes ‘property’ which
belongs to the insolvent estate (De Villiers v Kaplan 1960 (4) SA 476 (C) at 479; De Hart NO v
Kleyhans 1970 (4) SA 383 (O) at 387; Rousseau NO v Standard Bank of SA Ltd 1976 (4) SA 104 (C)
at 107; Herrigel NO v Bon Roads Construction Co (Pty) Ltd 1980 (4) SA 669 (SWA) at 674).
[344] Kearney NO v Standard Bank of Southern Africa Ltd 1961 (2) SA 647 (T) at 651; McEwen NO
v Hansa 1968 (1) SA 465 (A) at 472; Herrigel NO v Bon Roads Construction Co (Pty) Ltd 1980 (4) SA
669 (SWA) at 675. The trustee essentially steps into the shoes of the insolvent should he choose not
to close the account (Nedcor Investment Bank v Pretoria Belgrave Hotel (Pty) Ltd 2003 (5) SA 189
(SCA) at 192). Accordingly, it is now the trustee who becomes the true creditor of the bank in respect
of any money standing to the credit of any account (Davis’ Trustee v Standard Bank (1885-1887) 5
EDC 48 at 56; McEwen NO v Hansa 1968 (1) SA 465 (A) at 472).
[345] There are some writers who subscribe to the view that the mental disability of a customer will
terminate the bank-customer relationship (Pennington, Hudson & Mann 58; Tyree & Weaver 498).
Malan, Pretorius & Du Toit, however, adopt the view that insanity of the customer does not terminate
the bank-customer relationship (Malan, Pretorius & Du Toit 327 n 244). Chorley and Holden state that
the mental disability of the customer might terminate the relationship in all cases where the bank’s
authorisation is to act as an agent (at 351). However, the authors say that the bank’s position as
mandatory is not necessarily governed by the same considerations as those that affect his agency but
that the position is unclear (at 352).
[347] Joubert & Van Zyl para 16. See, however, Chorley and Holden 352.
[348] Chorley and Holden 352.
[349] In terms of the Bills of Exchange Act, the bank’s duty and authority to pay its customer’s
cheques only terminates when it receives notice of the customer’s incapacity (s 73(c)).
[350] As a public company, the bank, in principle, enjoys perpetual succession and is unaffected by
any changes in its members or directors. The legal personality of the bank, however, terminates
when it is dissolved.
[351] Re Russian Commercial and Industrial Bank [1955] 1 All ER 75 at 79; Cowen & Gering (1966)
420; Malan, Pretorius & Du Toit 327 n 244. Itzikowitz & Du Toit also argue that the bank-customer
relationship will terminate when the bank’s registration in terms of the Banks Act 94 of 1990 is
cancelled (para 403). Thus far, however, our courts have not decided this specific issue (see,
however, n 71 above and the cases cited there).
[352] Section 54(3)(b) of the Banks Act 94 of 1990 (as amended); Nedcor Investment Bank v
Visser NO 2002 (4) SA 588 (T) at 594.
[353] Section 54(3)(c). This excludes any agreements, transactions or documents which by virtue
of the terms and conditions of the amalgamation or transfer are not to be retained in force (s
54(3)(c)).
By operation of law, any pleadings in terms of which action is instituted by or against the
transferor bank or amalgamating banks, are also automatically amended by substitution of the
transferee or amalgamated bank as a party to the action (Nedcor Investment Bank v Visser NO 2002
(4) SA 588 (T) at 594; Absa Bank Ltd v Van Biljon 2000 (1) SA 1163 (W) at 1169).
[354] Rennie NO v The Master, Glaum NO v The Master 1980 (2) SA 600 (C) at 607.
[355] Standard Bank of SA Ltd v Minister of Bantu Education 1966 (1) SA 229 (N) at 234.
[356] Pennington, Hudson & Mann 56; Itzikowitz & Du Toit para 403.
[357] Pennington, Hudson & Mann 56. For a discussion of the position where the bank has granted
the customer a loan which is only repayable at a future date, see Pennington, Hudson & Mann 56.
[360] It must be remembered, however, that the bank’s duty and authority to pay the customer’s
cheques in the event of the customer’s death or incapacity, or when the customer is sequestrated or
placed under judicial management, terminates only when the bank receives notice of these events (s
73(b) and (c)).
[361] Tournier v National Provincial & Union Bank of England [1924] 1 KB 461 at 473, 485.
Page 171
Chapter 5
Miscellaneous banking services
Avishkaar Ramdhin
5.1
Safe custody
5.1.1
Deposit
5.1.2
Safety-deposit boxes
5.1.3
Standard-form contracts
5.2
Bankers’ references
5.2.1
Position of a bank that is requested by its customer to provide a
reference on a third party
5.2.2
Position where a bank is requested by a third party to provide a reference
on the bank’s own customer
5.3
Furnishing of financial advice
5.3.1
Mandate
5.3.2
Obligations in terms of the Financial Advisory and Intermediary Services
Act
5.3.3
Misrepresentation
5.4
Travel services
5.5
Estate and trust planning
List of works cited
5.1 Safe custody

A bank may offer certain safe-custody services to its customer. [1] Customers
typically use these services to provide for the safekeeping of things such as
jewellery; art work; wills; insurance policies; and stock and share certificates. [2]
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Safe custody may arise where the bank agrees to accept valuables or documents
which the customer deposits with it for safekeeping. [3] More commonly, it may take
the form of the bank providing a safety-deposit box for the use of its customer. [4]
5.1.1 Deposit [5]
A contract of deposit is created where a depositor (the bank’s customer) delivers a

thing to the depositary (the bank) for safekeeping and the latter agrees, either
gratuitously or for reward, to keep it in its custody and to return the identical thing
on demand or within an agreed period. [6]
Page 173
As depositary, the bank is obliged to keep the thing in its custody and to take
care of it. [7] The bank may be liable to the customer if the thing is lost or damaged
while it is in its custody unless it can show that this loss or damage occurred despite
the exercise of due diligence on its part. [8] The bank is also under a duty to return
the thing to the customer on demand or after the agreed period expires. [9]
The customer’s obligation is to pay the bank any remuneration that has been
expressly or tacitly agreed upon. [10] When the agreed period of the deposit lapses,
the customer is also obliged to remove the thing deposited from the bank’s
custody. [11] If no time has been agreed upon, the customer must remove it within a
reasonable time after the bank has requested him to do so. [12]
5.1.2 Safety-deposit boxes [13]
Where a bank provides a safety-deposit box for the use of its customer, the
relationship between the parties is frequently regulated by an express agreement. In
the absence thereof, the legal relationship between the parties depends on the exact
nature of the arrangement between them and, in particular, on the degree of access
and control that each party has over the box and its contents. [14]
(i) Customer has exclusive access to the contents of the box

A customer may have exclusive access to the box and control over its contents. This
would be the case where only he has a key to access it, and where the articles
lodged for safekeeping are handled exclusively by him. [15] Under these
circumstances, the bank generally does not act as depositary in respect of the things
stored in the box. [16] The contract between the parties is one of lease [17] and the
naturalia of this contract govern their relationship unless varied or excluded by
agreement.
Page 174
As lessor, the bank is obliged to place the property at the disposal of its
customer, the lessee. [18] This entails that the bank is obliged to give the customer
access to the safety-deposit box to enable him to store and retrieve his
things. [19] The bank is also obliged to give the customer the undisturbed use and
enjoyment of the hired property [20] and must and maintain it in a proper manner
during the subsistence of the lease. [21]
The customer’s principal obligation is to pay the bank rent. [22] In addition, he is
required to use the safety-deposit box properly and for the purposes of the lease, ie
for safekeeping. [23] The customer may not, for instance, use the box to conceal
stolen or illegal items. Upon termination of the contract, the customer is obliged to
remove his things from the box and must return to the bank any keys or other items
that the latter has given him to access it. [24]
(ii) Shared access and control [25]
Access to a safety-deposit box is commonly regulated by means of a two-key

system. [26] In terms of this system, both the bank and its customer have separate
keys to the box and the use of both keys is required to gain access. [27] Thus far, our
courts have not examined or explained the precise nature of the contract that
regulates the arrangement described above. [28] However, the legal position would
appear to depend on the degree of access and control that each party has to the box
and its contents. [29]
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With the two-key system, the bank would ordinarily have no means of accessing
the box without the co-operation of its customer. Accordingly, it cannot be said to
have control over the contents of the box, [30] and does not generally act as
depositary under these circumstances. The contract regulating the letting and hiring
of the safety-deposit box will be one of lease. [31]
Where the bank, however, retains a duplicate of its customer’s key, it may be
regarded as having a form of custody and control over the contents of the
box [32] which is analogous to that which is exercised by a depositary. [33] Under
these circumstances, the bank may incur liability if the contents of the box are lost,
stolen or damaged unless it can show that this loss, theft or damage occurred
despite the exercise of due diligence on its part. [34] Similarly, where the safety-
deposit box is movable and the bank moves the box and its contents from one place
to another, [35] it is submitted that the bank may be deemed to have custody and
control over the box and its contents under these circumstances. Accordingly, it is
submitted that the bank may incur liability if the contents of the box are
subsequently lost, stolen or damaged while it is being moved. [36]
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5.1.3 Standard-form contracts

In practice, a bank will normally have a standard-form contract to regulate its safe
custody services. [37] This contract will normally prohibit the customer from lodging
certain items with the bank for safekeeping such as illegal items; weapons and other
explosive or dangerous property. Contracts regulating the use of safety-deposit
boxes often include a clause requiring the customer to insure the contents
Page 177
of the box. The effect of such a clause is to allocate responsibility for any loss or
damage that may arise to the customer himself. [38]
The standard-form contract regulating the bank’s safe custody services will
invariably contain a clause excluding the bank’s liability for loss or damage arising in
various circumstances. [39] However, the validity and enforceability of such a clause
must be determined with reference to the provisions of the Consumer Protection
Act, [40] read with its regulations. [41] Prior to the CPA, our courts were prepared to
uphold and enforce exemptions clauses in contracts regulating the bank’s safe
custody services, even where such clauses excluded the bank’s liability for losses
and damages resulting from the negligence of its employees, and even in cases
gross negligence. [42] However, the CPA now prohibits a supplier (such as a bank)
from contracting out of liability for gross negligence, [43] and a term to this effect
would be void. [44] Although the Act does not prohibit a supplier from contracting out
of ‘ordinary negligence’, a clause that has the purpose or effect of limiting the
supplier’s vicarious liability for its agent(s) is now presumed to be unfair unless
proved otherwise. [45]
5.2 Bankers’ references [46]
A banker’s reference essentially consists of ‘information given [by the bank] in

confidence as to the respectability and financial standing of a particular person or
Page 178
business concern’. [47] The furnishing of bankers’ references is a service that a bank
may offer which is ancillary to its main banking business. A reference may either be
in the form of a code or a typed report, [48] and normally arises in two main
situations:
•
First, a bank may be requested by its customer to obtain a reference on the
creditworthiness of a third party.
•
Secondly, a bank may be requested by a third party to provide a reference on
one of its (the bank’s) own customers.
5.2.1 Position of a bank that is requested by its customer to

provide a reference on a third party
The bank’s customer may request it to obtain or provide a reference on a third
party. The third party may be another customer of the same bank, or a customer of
a different bank. If the bank agrees to obtain or provide the reference, a contract of
mandate is created between it and the reference-seeking customer. [49]
Where the third party is not one of its customers, the reference-seeking bank will
obtain the reference by addressing a request to the bank of the third party, which
may then provide the reference. The reference-seeking bank, under these
circumstances, acts as an intermediary between its customer and the bank
furnishing the reference. It is submitted that the reference-seeking bank will not
incur any liability if the reference provided by the third party’s bank is inaccurate or
incorrect. [50] This is because its mandate is limited to obtaining the reference and
conveying it to its customer. [51] The position may be different, however, if the
reference-seeking bank incorrectly conveys the information provided by the referee
bank to its customer. [52] This may arise, for instance, if the referee bank provides
an unfavourable reference on the third party but the reference-seeking bank
conveys this information to its customer in a favourable manner, and this causes the
customer to contract with the third party and suffer loss. [53] If the reference-seeking
bank conveys the information in such a manner, this would constitute a breach of
the duty to exercise reasonable care and skill that it owes towards its customer and
will entitle the latter to sue for breach of contract. [54]
Where a bank is requested to provide a reference on a third party who is one of
its own customers, the bank’s mandate incorporates both the preparation of the
reference and the conveyance of this to its reference-seeking customer. [55] If the
bank acts in breach of its duty to exercise reasonable care and skill and provides a
Page 179
reference that is inaccurate or incorrect, the reference-seeking customer may sue
the bank for breach of contract. [56]
A potential conflict of interest may also arise when a bank is requested by one of
its customers to provide a reference on another customer. If the bank undertakes to
provide a reference under these circumstances then it is submitted that it will owe
the reference-seeking customer a duty to act in good faith. [57] Such a duty will
entail, inter alia, that the bank, as mandatary, must be open and honest in its
dealings with its customer and must avoid conflicts of interest. Accordingly, it is
submitted that if a bank agrees to provide a reference under these circumstances
then it must provide one that is objective, honest and accurate and it must not allow
its obligations towards its respective customers to conflict. [58]
5.2.2 Position where a bank is requested by a third party to

provide a reference on the bank’s own customer
A third party may also request a bank to provide a reference on one of its (the
bank’s) own customers. The bank is not obliged to respond to this request, and may
decline to provide the reference. [59] However, if the bank decides to provide a
reference then it should exercise care in doing so in order to avoid any potential
liability to its customer or to the third party to whom the reference is
furnished. [60] In providing a reference, there is no obligation on a bank to make
extraneous inquiries into its customer’s affairs. [61] It is sufficient for the bank to
provide a reference based on information that it already has at its disposal.
A bank’s practice of giving references on its customer to third parties gives rise to
the following questions:
•
Does a bank require its customer’s consent before it can give a reference on
him to a third party?
•
Can a bank incur liability to its customer if it provides an unfavourable
reference on him?
•
Can a bank incur liability to the third party for furnishing the latter with an
incorrect or inaccurate reference?
(i) Is the customer’s consent necessary?

Prima facie, the practice of furnishing a banker’s reference to a third party is a
violation of the duty of secrecy that a bank owes towards its customer. [62] However,
the bank will generally be absolved from liability for any breach of confidence where
the customer has expressly or tacitly consented to the reference being
given, [63] and the bank acts within the parameters of this consent.
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In Turner v Royal Bank of Scotland, [64] a bank argued that the furnishing of
bankers’ references was an established part of banking practice and that a customer
who opens an account with the bank impliedly consents to references being provided
on him. [65] The court, however, rejected this argument. The court pointed out that
customers were often unaware of the existence of this practice. Accordingly, it could
not be regarded as being so notorious so as to constitute an established usage. [66]
If a bank furnishes a reference without the express or tacit consent of its
customer, it may incur liability for breach of contract. [67] The customer may also sue
the bank in delict for infringement of his right to privacy. [68] However, failing to
provide a reference when requested to do so by a third party may also be
problematic, as this may be tantamount to a bank furnishing an unfavourable
reference. [69] Therefore, in order to avoid any potential liability, it is advisable for a
bank to ensure that it obtains the express consent of its customer before giving a
reference on him. [70] Furthermore, even if a bank obtains the prior consent of its
customer, it should ensure that the reference that it provides is framed in general
terms only, and that it does not disclose any other confidential information about the
customer’s affairs. [71] If the bank fails to do so then this may, in itself, constitute a
breach of its duty of secrecy.
(ii) Bank’s liability to its customer for furnishing an unfavourable banker’s

reference on him to a third party
Where a bank provides a reference which portrays its customer in an unfavourable
manner, then this might cause damage to the customer’s creditworthiness and the
Page 181
third party to whom the reference is furnished may also refuse to have any further
dealings with him. [72] If the customer can establish that the bank unlawfully and
negligently infringed his creditworthiness by providing the unfavourable reference,
then he might have recourse against the bank in delict. [73] Furthermore, if the bank
furnishes a reference that goes beyond a mere general statement of its customer’s
financial position and it wrongfully and unjustifiably causes injury to the latter’s
reputation, then the customer may be able to sue the bank for defamation. [74]
It appears unlikely that the customer will be able to successfully sue a bank in
delict, if the bank furnishes an unfavourable reference that is accurate — in the
sense that it amounts to a true reflection of the state of the customer’s
affairs. [75] The difficulty confronting the customer in such an instance would be
proving negligence on the part of the bank, and also proving that he suffered loss as
a result of the accurate reference being furnished. [76]
(iii) Bank’s liability to a third party for furnishing an incorrect or inaccurate

banker’s reference [77]
Page 182
If a bank provides the third party with an incorrect or inaccurate reference then the
latter may have recourse against the bank in delict. [78] It is further submitted that if
the bank provides such a reference then the party can sue the bank for breach of
contract. [79]
In order to protect itself against any potential liability, a bank may attach a
disclaimer of liability to its reference. [80] However, there is authority to the effect
that a disclaimer of liability may not afford protection to a bank, where it knows that
its reference is untrue. [81] Furthermore, the validity and enforceability of such a
clause must be determined in light of the CPA, read with its regulations. [82]
5.3 Furnishing of financial advice

There is no general obligation on a bank to act as its customer’s financial
adviser. [83] However, such an obligation may arise where the bank expressly or
Page 183
tacitly undertakes to act as such. [84] Where the bank holds itself out as a financial
adviser — such as by advertising its services — this may give rise to a strong
inference that it has undertaken to provide such advice in the course of its
business. [85]
5.3.1 Mandate
Where a customer approaches the bank for financial advice and the latter agrees to
act as his financial adviser, a contract of mandate is created between the bank and
the customer. As mandatary, the bank is obliged to perform its mandate in
accordance with the customer’s instructions. If the bank fails to advise him either at
all or in accordance with the latter’s instructions then this would amount to a breach
of contract.
As mandatary, the bank is obliged to act in good faith and must avoid conflicts
between its own interests and those of its customer. [86] It is also obliged to exercise
reasonable care and skill in furnishing financial advice. [87] Generally, in determining
what would constitute ‘reasonable care and skill’, the court will have regard to the
general level of skill and diligence possessed and exercised at the time, by members
of the branch of the profession to which the mandatary belongs. [88] However, where
an investment adviser holds himself out as an expert, or professes to have a certain
degree of skill, his conduct will be measured against the standard of a person
professing to have such skill and expertise — and not against the standard of an
average or ordinary adviser. [89]
If the bank acts in breach of its duties to act in good faith and to exercise
reasonable care and skill, then this would amount to a breach of contract.
Furthermore, the bank may also incur delictual liability if it furnishes advice to its
customer wrongfully, either intentionally or negligently, and this causes the
Page 184
customer to suffer loss. [90] However, the bank may, in principle, include an
exemption clause which protects it from liability under these circumstances. [91]
5.3.2 Obligations in terms of the Financial Advisory and

Intermediary Services Act [92]
The bank’s obligations in furnishing financial advice are further augmented by the
provisions of the Financial Advisory and Intermediary Services Act (the
Page 185
FAIS Act). In terms of the Act, a bank may not act as a financial services provider
unless it has been issued with a licence to act as such. [93] The bank must also
ensure that its representatives are competent to render financial services and that
they are fit and proper for the purposes of the Act. [94] Failure to comply with the
aforementioned provisions is an offence. [95] In terms of the Act, a bank is also guilty
of an offence if it deliberately makes a misleading, false or deceptive statement, or
conceals any material fact. [96]
Various codes of conduct have also been published under the FAIS Act. [97] These
codes of conduct impose various obligations on financial service providers. For
instance, the Specific Code of Conduct [98] requires a financial services provider, such
as a bank, to act with skill, care and diligence in performing its functions. [99] In
terms of the Code, the bank is also obliged to act honestly and fairly in the interests
of clients and the integrity of the financial services industry. [100] The Code
Page 186
also imposes an obligation to, inter alia, make relevant information available to
clients in plain language [101] and to maintain adequate internal complaints
procedures. [102]
5.3.3 Misrepresentation
A customer often seeks financial advice in order to determine whether or not to
enter into a contract with the bank or a third party.
Where the bank makes a misrepresentation which induces its customer to
contract with it, the contract is voidable at the customer’s instance. [103] To have this
effect, however, the representation must have been material [104] and must have
made with the intention of inducing the customer to enter into the
contract. [105] Misrepresentation may occur where the bank falsely represents a fact
to a customer or where the bank expresses an opinion which it does not genuinely
hold. [106] Non-disclosure of material facts — which the bank was under a duty to
disclose — may also constitute a misrepresentation. [107] If the customer decides to
rescind the contract, it terminates ab initio. [108] However, if he decides to abide by
the contract then both parties will have to perform their respective obligations in
terms thereof. Whether the customer decides to rescind or abide by the contract,
Page 187
he still has the option of claiming delictual damages for the fraudulent or negligent
misrepresentation. [109]
Where the bank’s misrepresentation induces the customer into contracting with
an innocent third party, the option of rescission is not available. [110] Under these
circumstances, however, the customer may still have a claim against the bank in
delict for damages arising out of its fraudulent or negligent misrepresentation.
5.4 Travel services [111]
An important service that the bank may offer to its customer is to supply him with
foreign currency, usually in the form of cash or travellers’ cheques. [112] Generally, a
bank may only sell foreign currency if it is an authorised dealer, ie a person
authorised by the Treasury [113] to deal in foreign exchange. [114] Where a bank sells
foreign currency it must do so on the terms and subject to the conditions imposed
by the Reserve Bank. [115] Furthermore, in carrying out its functions the bank must
also ensure that it complies with any applicable exchange control regulations. [116]
Travellers’ cheques issued by banks (and other financial institutions) offer the
customer a convenient alternative to carrying cash while travelling
overseas. [117] The customer may convert the cheque into cash or, alternatively, use
it to pay suppliers for goods and services. [118] Travellers’ cheques may take different
forms. [119] Commonly, however, most travellers’ cheques require the traveller to
sign the cheque on two separate occasions. [120] The traveller first signs the cheque
in the presence of the issuing bank at the time of acquisition. [121] Thereafter, the
traveller is obliged to append a second signature to the cheque — called a
‘countersignature’ — in the presence of the party cashing the cheque or supplying
Page 188
him with goods or services. [122] The issuing bank promises to pay the amount
specified on the cheque when it is presented for payment provided that the first
signature and the countersignature correspond with each other. [123]
Travellers’ cheques are normally issued pursuant to an express agreement with
the issuing bank. [124] This agreement will typically set out, inter alia, various
conditions which the customer must adhere to when using the cheques and will
usually govern the rights and obligations of the parties in the event that the cheque
is lost or stolen. [125] In the absence of an agreement to the contrary, the traveller
may claim the face value of the cheque from the issuing bank if the cheque is lost or
stolen before he has appended his countersignature. [126] However, if the cheque is
lost or stolen after the traveller has appended his countersignature, he will normally
have no right to claim its value from the issuing bank. [127]
Most credit and debit cards issued by the bank can be used to withdraw cash or
pay for goods and services when travelling both locally and internationally. Some
banks even offer special travel cards to their customers who are travelling
abroad. [128] These cards usually enable customers to preload money in a selected
foreign currency at an exchange rate which is normally fixed at the date the money
is loaded. These cards can then be used to withdraw cash or pay for goods and
services directly in the relevant foreign currency concerned.
Another important service that the bank may provide to its customer is travel
insurance. This insurance is normally aimed at providing the customer with cover
for, inter alia, accidents, cancellation of flights, loss of luggage, and medical
emergencies. [129]
Page 189
5.5 Estate and trust planning

Some banks have estate and trust planning departments at certain branches. These
departments perform functions such as drafting wills and trust deeds for customers
and attending to the administration of trusts and deceased estates. [130] If a bank is
appointed as an executor of a deceased estate, or a trustee of an inter vivos or
testamentary trust, it will have to perform the usual functions required of such
persons by law. [131]
Where the bank administers its customer’s property as trustee, its rights and
obligations differ significantly from those that it has under the normal bank-
customer relationship. [132] Any property held by the bank in its capacity as trustee
does not form part of the assets of the bank. [133] The bank is also obliged to keep
trust property separate from its other assets and this must be clearly indicated in its
books of account. [134]
The Financial Institutions (Protection of Funds) Act [135] also imposes certain
restrictions on the manner in which trust property may be invested. [136] In
particular, the Act provides that trust property may not be invested except in a
manner directed in, or required by, the trust instrument or agreement under which
the trust is administered. [137] Furthermore, the Act also requires a financial
institution’s directors, members, employees, officials and other agents to observe
Page 190
the utmost good faith in the exercise of their powers or duties. [138] It also obliges
them to exercise the care and diligence required of a trustee in doing so. [139] Failure
to comply with the provisions of the Act is an offence. [140]
Where a bank fails to properly comply with its obligations as trustee and commits
a breach of trust, it may be held liable to the trust beneficiaries in delict. [141]
Page 191
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B
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Bradfield & Lehmann Bradfield, G & K Lehmann Principles of Sale and Lease 3
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Bradfield Bradfield, G ‘Deposit’ in F du Bois (ed) Wille’s Principles of
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C
Cameron et al Cameron, E et al Honore’s South African Law of Trusts 5
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Chorley & Holden Lord Chorley & JM Holden Law of Banking 6 ed (1974)
Chrisitie & Bradfield Christie, RH & GB Bradfield Christie’s The Law of Contract
Cowen & Gering Cowen, DV & L Gering The Law of Negotiable Instruments
in South Africa 5 ed (Juta, Cape Town, 1985)
Cranston Cranston, R Principles of Banking Law 2 ed (2002)
D
De Jager De Jager, J ‘Much ado about nothing? Legal principles on
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authorised financial services providers and
representatives conducting short-term deposit business
and the bank and customer relationship’ (2004)
3 Tydskrif vir die Suid-Afrikaanse Reg 574
E
Ellinger Ellinger, EP ‘Travellers’ cheques and the law’ (1969)
19 University of Toronto Law Journal 132.
Ellinger, Lomnicka & Ellinger, EP, E Lomnicka & CVM Hare Ellinger’s Modern
F
Fourie (1993) Fourie, AB The Banker and the Law (1993)
Fourie (1995) Fourie, A ‘Confidential bank reports’ (1995) 92 (1) SA
Banker 28
G
Gering & Tobias Gering, L & DG Tobias Handbook on the Law of Negotiable
Instruments 3 ed (2007)
Goosen et al Goosen, W et al Banking in the New Millennium (1999)
H
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[1] Barker 234-5; Goosen et al 246; Schulze (2001) 82; Malan 217-18; Ogilvie 686-7; Itzikowitz &
Du Toit para 347; Willis 184-9. This service may also be offered to persons who are not account-
holders at the bank (cf Moorcroft para 11.5.2.2.9). On the meaning of the term ‘customer’ within the
context of the bank-customer relationship, see ch 4.
The notion of safekeeping or safe custody ‘denotes an undertaking to retain and have charge of
something, not merely a passive acquiescence that something may be left somewhere’ (Minister of
Posts & Telegraphs v Daddy Bros and Johnstone (Pty) Ltd 1965 (3) SA 394 (E) at 396; Bradfield
962).
[2] Goosen et al 246. See also Malan 217-18; Smith (1980) 29. Things deposited with a bank for
safekeeping do not form part of its assets and it may not use them for its own purposes (De Jager
129).
[3] Barker 234-5; Malan 217; Goosen et al 246. See also Schulze (2001) 82; Willis 184-6. The
customer will usually place his things in a sealed envelope or a small locked box and hand this over to
the bank for safekeeping in the latter’s vault (Malan 217; cf Ogilvie 687). In modern banking practice,
it is rare for safe custody to take this form. See, however, First National Bank’s ‘sealed envelope
service’ (cf Clark ‘FNB increases safe custody fees by 500%’, available
at http://www.moneyweb.co.za/archive/fnb-increases-safe-custody-fee-by-500/. For an overview of
the bank’s 2013/2014 safe-custody fees, see http://www.fnb.co.za/downloads/pricing-
guide/Personal_Pricing2013-2014.pdf. The bank’s safe custody fees do not appear in its 2015 pricing
guide.
[4] Schulze (2001) 82. For an overview of the facilities offered by the major commercial banks in
South Africa, see Arde ‘How safe is your safety deposit box?’, available
at http://www.iol.co.za/business/personal-finance/banking/how-safe-is-your-safety-deposit-box-
1.1714604.
Standard Bank offers a service whereby its customers can hire a safety-deposit box or a ‘vault
locker’ from the bank. Whereas a safety-deposit box is portable, the vault locker cannot be removed
from the bank’s premises (Arde ‘How safe is your safety deposit box?’, available
at http://www.iol.co.za/business/personal-finance/banking/how-safe-is-your-safety-deposit-box-
1.1714604).
[5] For a discussion on the nature of a contract of deposit (depositum), see generally Zimmermann
205-7.
[6] Newman & McQuoid-Mason 130; Bester para 174; Bradfield 962; Malan 217; Schulze (2001)
80-2. Strictly speaking, deposit is a gratuitous contract (Voet 16.3.1; Randfontein Transitional Local
Council v Absa Bank Ltd 2000 (2) SA 1040 (W) 1059; Newman & McQuoid-Mason 130). However, in
modern South African law, the contract may also be for reward in which case the term ‘bailment’ is
normally used to describe it (Randfontein Transitional Local Council v Absa Bank Ltd 2000 (2) SA
1040 (W) at 1059; Bradfield 963; Newman & McQuoid-Mason 132; Bester para 176).
The safe custody of valuables and documents with a bank will seldom, if ever, constitute a
gratuitous contract of deposit as banks invariably charge a fee for their services (Willis 184; Tyree
214). It is therefore common for some authors to describe the relationship between a bank and its
customer, with regard to safe custody, as one of bailment (see, for instance, Smith (1980) 29). Even
in the absence of a fee, it has been suggested that the contract will still not be regarded as being
purely gratuitous (Port Swettenham Authority v TW Wu & Co (M) Sdn Bhd [1978] 3 All ER 337 at
340; cf Tyree 214). In the Port Swettenham Authority case, the court said: ‘[A] bank, which offers its
customers, in the ordinary course of business, the service of looking after goods deposited with it,
can hardly be described as a gratuitous bailee. The bank must realise that were it to refuse a
customer such a service it would probably lose the customer who would have no difficulty in finding
another bank which would be happy to render the service which is normally offered by banks to their
customers’ (at 340).
It has been suggested that if a bank charges the customer a fee for its safe custody services then
the contract between the parties is not one of deposit but ‘the hire of services’ (Itzikowitz & Du Toit
para 347). This view appears to be incorrect (see Willis 185-6). A contract for the letting and hiring of
services describes a contract between a master and servant/employer and employee (Willis 185-6;
Bradfield & Lehmann 136; Le Roux 924 n 1). This clearly does not correctly describe the bank’s
relationship with its customer when it accepts valuables and documents for safe-keeping (Willis 185-
6).
[7] Newman & McQuoid-Mason 130; Bester paras 178-9; Bradfield 963-4.
[8] Randfontein Transitional Local Council v Absa Bank Ltd 2000 (2) SA 1040 (W) at 1059. It has
been stated that ‘the safekeeping of something by a bank does not mean that it becomes an insurer
of the safety of the [customer’s] property’ (Absa Bank Ltd v Fouche 2003 (1) SA 176 (SCA) para 16).
In the Fouche case, the court pointed out that even as depositary, the bank’s obligation is limited to
not negligently losing or damaging the thing that is in its care (para 16).
[9] Newman & McQuoid-Mason 130; Bester para 181; Bradfield 965.
[10] Bester para 184; Bradfield 966.
[11] Bester para 183; Bradfield 966; cf Parker, Wood & Co Ltd v Lourenco Marques Wharf Co
Ltd 1905 TS 790 at 795.
[12] Parker, Wood & Co Ltd v Lourenco Marques Wharf Co Ltd 1905 TS 790 at 795.
[13] The term ‘safe deposit locker’ is also sometimes used instead of ‘safety-deposit box’ (see, for
instance, Malan 218). However, for the purposes of this chapter, the use of the term safety-deposit
box is preferred.
For an overview of the South African cases dealing with safety-deposit boxes, see Schulze (2003)
59; Schulze (2001) 82-5.
[14] Ellinger, Lomnicka & Hare 748.
[15] Cf Goosen et al 246.
[16] Schulze (2001) 82. See also Ellinger, Lomnicka & Hare 748. The position may be different
where the bank retains a duplicate of its customer’s key (see n 32 below).
[17] Schulze (2001) 82; cf Ellinger, Lomnicka & Hare 748.
[18] On the duty of a lessor to place the property at the disposal of a lessee, see Kerr 294-6;
Bradfield & Lehmann 143-4 and the authorities cited there.
[19] This includes an obligation to deliver to the customer any keys and other items which may be
needed to access the box.
[20] The lessor must not, inter alia, do anything that interferes with the lessee’s use and
enjoyment (Kerr 296-9; Bradfield & Lehmann 149-54). The bank may act in breach of this duty, for
instance, if it unjustifiably prevents the lessee from obtaining access to the safety-deposit box.
[21] The bank must ensure that the box is maintained in a condition that is reasonably fit for the
purposes of the lease, ie for safe custody purposes (cf Kerr 301-16; Bradfield & Lehmann 144-9;
Lehmann 912-13 and the authorities cited there). See also Absa Bank Ltd v Fouche 2003 (1) SA 176
(SCA) para 34.
[22] See Kerr 349-61; Bradfield & Lehmann 155-8; Lehmann 914-15 and the authorities cited
there. The rent agreed upon by the parties should be a fixed or determinable amount (Proud
Investments (Pty) Ltd v Lanchem International (Pty) Ltd 1991 (3) SA 738 (A) at 746-8).
[23] On the duty of a lessee to use the hired property properly, see Kerr 405-14; Lehmann 917-18;
Bradfield & Lehmann 162-4 and the authorities cited there.
[24] This essentially reflects the common-law duty of a lessee to restore the property to the lessor
on termination of the lease. In this regard, see Kerr 414-24; Bradfield & Lehmann 164; and the
authorities cited there.
[25] Ogilvie 692.
[26] Cf Malan 218; Mensky v Absa Bank Limited t/a Trust Bank [1997] 4 All SA 280 (W) at 284-5;
Ogilvie 691-2.
[27] Cf Mensky v Absa Bank Limited t/a Trust Bank [1997] 4 All SA 280 (W) at 284-5; Ogilvie 691-
2.
[28] Cf Mensky v Absa Bank Limited t/a Trust Bank [1997] 4 All SA 280 (W), where the court was
asked to consider whether the contract in casu was one of depositum or lease but found it
unnecessary to decide this issue (at 287). For a comment on the court’s view that it did not make a
material difference whether the contract was one of lease or deposit, see Schulze (2001) 78 at 84.
[29] Ellinger, Lomnicka & Hare 748.
[30] Ogilvie 692. Cf Malan 218.
[31] Schulze (2001) 82.
[32] Commissioner of Taxation v Australia & New Zealand Banking Group (1979) 143 CLR 499
(HCA) at 519-21, 533. The question in this case was whether the bank had control or custody of
documents in a safety-deposit box for the purpose of certain income tax legislation. The documents
were held in the safety-deposit box on behalf of a customer in terms of an agreement with the bank.
The bank and its customer each had separate keys to the box and the use of both keys was required
to gain access to it. The bank, however, also made a duplicate of the customer’s key and retained this
in its possession. Although the court left open the question of whether there was a bailment
relationship between the parties, the court held that the bank had ‘custody’ and ‘control’ over the
contents of the safety-deposit box for the purposes of the legislation (at 521, 533). By retaining a
duplicate of the customer’s key, the bank had the power to open the box without the concurrence of
its customer (at 519).
[33] Ogilvie 692; Ellinger, Lomnicka & Hare 748.
[34] Cf Ogilvie 692.
[35] For instance, where a branch of the bank moves from one premises to another (cf Mensky v
Absa Bank Limited t/a Trust Bank [1997] 4 All SA 280 (W)).
[36] See, however, Mensky v Absa Bank Limited t/a Trust Bank [1997] 4 All SA 280 (W). In this
case, the plaintiff entered into a written agreement with the bank in terms of which she hired a
safety-deposit box at one of the bank’s branches. The plaintiff had deposited jewellery and foreign
currency in the box. The safety-deposit box was subsequently mislaid when the relevant branch
moved from one premises to another. The plaintiff subsequently sued the bank for the value of the
lost items. The contract which the plaintiff concluded with the bank contained an exemption clause
which excluded the bank’s liability under various circumstances. While the bank had undertaken to
exercise reasonable care for the security of the area where the boxes were kept, it was a specific
term of the contract that the customer himself was responsible for insuring the contents of the box.
Notwithstanding this, the plaintiff contended that this exemption clause was not applicable, as the
loss had occurred while the box was being removed by the bank when it relocated. In deciding
whether the exemption clause applied, the court considered the following:
•
The provision of safety-deposit boxes was not a profitable business for the bank (at 295-6). It
provided the facility at a modest fee and it was not entitled to know what the customer was
placing in the box.
•
A bank’s insurers, if they were to cover the bank’s liability, would be undertaking a risk of an
unknown and fluctuating magnitude (at 297).
•
A customer who hired a box had it within his control to insure the contents (at 297). He could
also obtain and update valuations in respect of the contents and could select the insurer (at
297).
•
In this case, the parties had also expressly, by contract, allocated the insurance liability to the
customer (at 298).
The court accordingly upheld the exemption clause and dismissed the customer’s claim (at 299-302).
For a discussion of this case, see Schulze (2001) 82-4.
[37] As to the question of whether a bank is obliged to disclose any shortcomings in its security
system to a prospective customer who wants to hire a safety-deposit box, see Absa Bank Ltd v
Fouche 2003 (1) SA 176 (SCA). In this case, the respondent stored her jewellery in a safety-deposit
box at a branch of the bank. A written contract for the hire of box was concluded between the parties.
There was a burglary at the bank during which the safety-deposit box of the respondent (among
others) was cut open and the contents was stolen by the burglars. The respondent sued to recover
her loss from the bank. It was common cause that the respondent did not have a cause of action in
contract as the parties agreed that the terms of the contract exempted the appellant from liability for
loss arising from its negligence (para 3). The issue on appeal was whether the bank had been guilty
of fraudulent or negligent non-disclosure and whether this induced the respondent to enter into the
contract (para 3). It was the respondent’s case that the bank should have revealed two shortcomings
in its security system which were not apparent to a prospective customer, namely
•
there was no peripheral or motion detecting device connected to an alarm, and
•
no guard was employed to watch over the bank’s premises at night.
The customer contended that she would have not have hired the safety-deposit box if these
shortcomings were disclosed to her at the outset (para 7). The majority of the court found that there
was no duty on the bank to disclose this information to the respondent (para 22). The court held that
if the customer had given any indication that she considered the level of security at the branch pivotal
to her decision to contract, then an honest person might have behaved differently (para 19).
However, in casu, there was nothing in the conduct of the respondent that would have alerted an
honest person to the fact that she considered information about the security arrangements at the
branch to be material (para 19). Accordingly, the majority of the court found that the bank was not
liable.
In a dissenting judgment, however, Schutz JA held that the bank was liable to the plaintiff in delict
(para 41). He held that there was a duty on the bank to warn the respondent and that it was
negligent in failing to discharge its duty (paras 23 and 40). He also found that had the respondent
known the true facts regarding the security system, she would not have entrusted her valuables to
the bank (para 39). Accordingly, he concluded that the bank’s negligent misstatements caused the
loss that the respondent had suffered (para 41). In reaching this decision, Schutz JA concluded that it
was ‘almost whimsical’ to describe what the bank provided as a security system (para 29). In this
respect, he pointed out the following:
•
the safe was free-standing — it was not bolted to the floor or a wall;
•
there was no perimeter alarm system of any sort and there was no alarm on the safe;
•
there was no movement detector;
•
at night there was no guard on duty to watch over the bank’s premises; and
•
certain sections of the outer walls of the branch, including one next to which the safe stood,
were made of breakable glass.
For a discussion of the Fouche case, see Schulze (2003) 59.
[38] Mensky v Absa Bank Limited t/a Trust Bank [1997] 4 All SA 280 (W) at 299.
[39] See, for example, First National Bank of SA Ltd v Rosenblum 2001 (4) SA 189 (SCA) where
the exemption clause read as follows: ‘The bank hereby notifies all its customers that while it will
exercise every reasonable care, it is not liable for any loss or damage caused to any article lodged
with it for safe custody whether by theft, rain, flow of storm water, wind, hail, lightning, fire,
explosion, action of the elements or as a result of any cause whatsoever, including war or riot
damage, and whether the loss or damage is due to the bank’s negligence or not.’
[40] Act 68 of 2008.
[41] GN R293 in GG 34180 of 1 April 2011.
[42] In First National Bank of SA Ltd v Rosenblum 2001 (4) SA 189 (SCA) the bank’s staff had
either stolen the contents of a safety-deposit box or allowed a third party to steal it. The contract
governing the relationship between the parties expressly contained an exemption clause which
protected the bank from liability ‘whether the loss or damage [was] due to the bank’s negligence or
not’. It was argued by the respondents that there was no direct reference to the bank’s employees in
the relevant clause and that the bank was not exempted for the negligent acts of its employees. The
court rejected this argument. The court held that the bank was an artificial non-human entity and
was incapable of being negligent by itself (para 18). The negligence of those human beings who were
regarded as being the bank’s controlling mind could be imputed to it, and it could also be held
vicariously liable for the negligence of its employees. The clause therefore covered loss or damage
resulting from the negligence of the bank’s employees (paras 17-18). The court also found that the
clause was wide enough to exclude liability for gross negligence (para 26). For a discussion of this
case see O’Brien 597. See also Mensky v Absa Bank Limited t/a Trust Bank [1997] 4 All SA 280 (W)
at 295-9.
[43] In terms of s 51(c)(i) of the CPA, an agreement which is subject to the Act may not contain a
clause which purports ‘to exclude or limit the liability of a supplier of goods or services for any loss
which is directly or indirectly attributed to the gross negligence of the supplier or any person acting
for, or controlled by, the supplier’. This provision applies to banking services (s 1).
[44] Section 51(3).
[45] Regulation 44(3)(d).
[46] Also called status opinions or bankers’ reports. For a discussion of this topic, see Ramdhin
522; Hood 89-94; Hewetson & Elliot 43-9.
[47] Tyree & Weaver 405; Ramdhin 522.
[48] Goosen et al 244; Fourie (1995) 30; Ramdhin 522. See also Hood 90. For an illustration of the
code used for bankers’ references see Goosen et al 245.
[49] Ramdhin 522.
[50] Ramdhin 522.
[51] Ramdhin 522-3.
[52] Ramdhin 523; Ellinger, Lomnicka & Hare 723-4.
[53] Ramdhin 523. See also Ellinger, Lomnicka & Hare 723-4.
[54] Ramdhin 523.
[55] Ramdhin 523.
[56] Ramdhin 523.
[57] Ramdhin 523.
[58] Ramdhin 523.
[59] Standard Chartered Bank of Canada v Nedperm Bank Ltd 1994 (4) SA 747 (A) at 763.
[60] Ramdhin 523.
[61] Parsons v Barclay & Co Ltd 1908-10 All ER Rep 429 at 432-3.
[62] Ramdhin 524; Ellinger, Lomnicka & Hare 720-1; Chorley & Holden 248.
[63] The customer may tacitly consent by providing the name of his bank as a referee in the course
of his dealings with another person (Chorley & Holden 248; Smart 10; Tyree 194).
[64] [1999] Lloyd’s Rep 231 (CA). In this case, Turner had a business account and personal
account with one of the branches of the Royal Bank of Scotland. On a number of occasions, his bank
responded to certain status enquiries from National Westminster Bank about him. Turner claimed that
the bank had disclosed confidential information without his knowledge or consent, and he sued the
bank for, inter alia, breach of contract. The court held that the bank was liable. The court pointed out
that banks could not simply agree on and enforce a banking practice without the knowledge of their
customers (at 235-6). In this instance, Turner was unaware of this banking practice and nothing was
said or done to inform him of it. As a matter of fact, it was found that the bank had gone to great
lengths to conceal this practice from its customers (at 235-6). Accordingly, in these circumstances,
implied consent could not be found to exist.
[65] At 233. See also Ramdhin 525.
[66] At 235-6. See further Ramdhin 525. Smart also points out that although a bank could easily
prove the existence of the practice of furnishing references, it might not be easy to prove that it is
understood and accepted by the general public (Smart 10; see also Smith (1979) 27).
Ellinger, Lomnicka & Hare point out that it is not clear whether the decision in the Turner case also
applies to business customers and whether the customer’s consent must be general or specific (at
721).
[67] Hapgood 166.
[68] Ramdhin 525.
[69] Barker 141; Ramdhin 525.
[70] Tyree 195; Ramdhin 525; cf Hewetson & Elliot 44. It has been suggested that the customer’s
consent is not required provided that the report is ‘only in general terms, is correct and given to
another bank or made known to a customer of the supplying bank’ (Malan, Pretorius & Du Toit 313).
It is submitted, however, that these factors do not justify the practice of banks giving references
without their customers’ consent but merely reduce the possibility of a customer challenging a bank
on this practice.
[71] Fourie (1995) 30; Ramdhin 525.
[72] Fourie (1995) 30; Ramdhin 525. The importance of creditworthiness to a person’s business or
occupation was recognised in the case of Wolmarans v Absa Bank Ltd 2005 (6) SA 551 (C) at 562.
[73] Ramdhin 525.
[74] Ramdhin 525; Ellinger, Lomnicka & Hare also point out that if a customer requests the bank to
give a reference on him to a third party, and the bank provides an unfavourable reference that is
inaccurate or incorrect, then the customer may be able to sue the bank for breach of mandate (at
720-2).
[75] Ramdhin 526.
[76] In Turner v Royal Bank Scotland [2001] EWCA Civ 64, Turner instituted action against the
bank in tort for breach of a duty of care ‘not to knowingly or recklessly’ injure his commercial
interests. He alleged that the bank disclosed information about his affairs that was misleading,
malicious and false. The court found that the bank did not breach any duty of care that it may have
owed to Turner in furnishing the reference (para 18). Furthermore, the court found that Turner had
failed to establish that he had suffered financial loss as a result of the reference given by the bank
(para 18). Accordingly, his action was unsuccessful.
[77] Ramdhin 526. In Standard Chartered Bank of Canada v Nedperm Bank Ltd 1994 (4) SA 747
(A), the appellant bank (Standard Chartered Bank of Canada ‘Stanchart’) sued the respondent bank
(Nedperm Bank ‘Nedbank’) for damages which it allegedly suffered as a result of its reliance upon a
negligent misstatement made by Nedbank in a banker’s reference. Stanchart, with the assistance of
Standard Bank, had requested an up-to-date reference on a company called Triomf Fertilizer
(Richards Bay) (Pty) Ltd (‘Triomf RB’), which was a customer of Nedbank. Nedbank furnished a
reference, which read as follows (rendered in lower case): ‘Triomf Fertilizer Richards Bay Co Pty Ltd is
one of the largest fertilizer manuf in the country . . . as in the rest of the fertilizer industry the
company has suffered setbacks, but they are trading normally and would in these circumstances be
regarded as good to their normal commitments in the course of business.’ The court held that the
reference furnished by Nedbank was inaccurate and misleading (at 762). Triomf RB could not be
described as ‘trading normally’. It had sustained heavy losses, was manufacturing at a greatly
reduced capacity and was wholly dependent on borrowings from the bank in order to stay in business
(at 762). The court found that Nedbank had acted unlawfully ie in breach of a legal duty owed to
Stanchart not to furnish a false banker’s reference (at 769). In reaching this conclusion, the court
took into account factors such as the context in which the statement was made (at 771-3); the
nature of the statement (at 770); the purpose of the statement and bank’s knowledge thereof (at
770); reliance by the third party on the report (at 770); the relationship between the parties (at
770); and considerations of public policy and fairness (at 770). The court also held that the
requirement of negligence had been established, as a skilled bank in Nedbank’s position would not
have furnished the report in question (at 762). Moreover, the court found that the loss sustained by
Stanchart was caused by Nedbank’s negligent misstatement (at 769). Accordingly, it was held that
Nedbank was liable for furnishing the incorrect banker’s reference.
[78] This would be on the basis of a negligent misstatement causing pure economic loss (Ramdhin
526). South African law recognises a claim for pure economic loss based on negligent misstatement
— see Administrateur, Natal v Trust Bank van Afrika Bpk 1979 (3) SA 824 (A); Bayer SA (Pty) Ltd v
Frost 1991 (4) SA 559 (A) at 568. For the position in English law, see Hedley Byrne & Co Ltd v Heller
& Partners Ltd 1963 (2) All ER 575 (HL). In order to succeed with such an action, a plaintiff must
prove the following requirements:
•
that the bank, or someone for whom the bank is vicariously liable, made a misstatement to him;
•
that in making this misstatement the bank (or its agent or employee) acted both negligently and
unlawfully; and
•
that the misstatement caused him to sustain loss, and that the damages claimed represent
proper compensation for such loss.
See Bayer SA (Pty) Ltd v Frost 1991 (4) SA 559 (A) at 568; Administrateur, Natal v Trust Bank van
Afrika Bpk 1979 (3) SA 824 (A).
[79] Ramdhin 527. In Erasmus v Inch 1997 (4) SA 584 (W), Wunsh J stated obiter that there was
no reason why the third party in the Standard Chartered Bank case could not have framed its claim in
contract (at 592). Wunsh J seemed to accept that a contract was constituted by the bank’s
agreement to provide the banker’s report, and that the bank’s liability stemmed from its implied duty
to exercise reasonable care in furnishing the report (at 592-3). In the ordinary course of events,
there would not be any contractual relationship between a bank and a third party who requests the
reference. Furthermore, there is no obligation on a bank to comply with the third party’s request for a
reference. However, it is submitted that if the bank agrees to provide a reference, a contract of
mandate comes into existence between the bank and the third party (see further Ramdhin 527).
[80] Ramdhin 527. See, for instance, Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] 2 All ER
575 (HL) where a bank furnished a reference which contained an express disclaimer of liability. Even
though the House of Lords found that the bank owed a duty to the enquirer to exercise care in
furnishing its reference, the court found that the disclaimer of liability protected the bank from any
potential liability (at 595, 599-600, 613).
[81] Ramdhin 527. Standard Chartered Bank of Canada v Nedperm Bank Ltd 1994 (4) SA 747 (A)
at 763; Commercial Banking Co of Sydney Ltd v RH Brown & Co (1972) 126 CLR 337.
[82] See the discussion above in para 5.1.3.
[83] Cranston 206. There is also no general duty on a bank to advise its customer on the tax
implications of a transaction (Schioler v Westminister Bank [1970] 2 QB 719 at 728).
[84] Allan 216.
[85] In Woods v Martins Bank Ltd [1959] 1 QB 55, the bank’s brochures indicated that its
managers could be freely consulted for investment advice. The court held that it was part of the
bank’s business to give financial advice and that it was under a duty to exercise reasonable care and
skill in doing so (at 63). Contra Banbury v Bank of Montreal [1918] AC 626 (PC).
In modern banking practice, many banks have their own financial advisers to advise customers on
a wide range of issues such as, inter alia, investments; the purchase and sale of securities; and
mergers and acquisitions.
[86] See ch 4.
[87] Woods v Martins Bank Ltd [1959] 1 QB 55 at 173-4; Wadsley & Penn 199. See also Tyree 205-
6.
[88] Van Wyk v Lewis 1924 AD 438 at 444.
[89] Durr v Absa Bank 1997 (3) SA 448 (A) at 460-4. In this case, the appellant and various
members of her family took investment advice from the bank’s investment adviser. They were
advised to invest their money in the debentures and preference shares issued by two companies. This
turned out to be poor advice as the companies were subsequently liquidated and the whole
investment was lost. The court held that the test or standard to establish whether the adviser had
acted negligently in giving investment advice was whether he failed to act with ‘the necessary skill
and knowledge of a regional manager of the broking division of a bank professing investment skill and
offering expert investment advice’ (at 463-4). On the facts of the case, the court held that the adviser
had indeed acted negligently and the bank was held liable on the basis of vicarious liability (at 469-
70).
[90] Cf Poultney v Absa Brokers (Pty) Ltd (ECD) unreported case no 430/2000 (29 May 2002). In
this case, the plaintiff received advice from a financial and investment adviser (the second defendant)
who was employed by Absa Brokers (Pty) Ltd (the first defendant). Acting on this advice, the plaintiff
ceded an insurance policy to a third party for R463 353. The third party then sold the policy to
someone else for R950 000 and the latter in turn sold the policy to another person for the sum of
R1 042 482. The plaintiff alleged that the second respondent had given her poor advice and she sued
the defendants jointly and severally basing her claim in contract and, in the alternative, in delict. The
court held that the second defendant had a mandate to ensure that the plaintiff received proper
advice (para 36). This included a mandate to advise her on the most advantageous way of dealing
with the policy (para 36). The court found that the defendant did not take the necessary steps that
were required in the execution of his mandate (paras 49-51) and that he had wrongfully caused
damage to the plaintiff (para 53). Accordingly, the court granted judgment in favour of the plaintiff.
In Page v First National Bank 2009 (4) SA 484 (E), the plaintiff was a farmer who had several
bank accounts with First National Bank. This included a money market account in which he had
invested certain funds. The second defendant, who was employed by the bank as a financial
consultant and investment adviser, advised the plaintiff to take R750 000 out of the money market
account and to invest it in an offshore investment in order to obtain a better return. However, when
the plaintiff redeemed the investment, the capital had depleted to R580 000 due to a combination of
currency fluctuations and charges that were levied. The plaintiff subsequently sued the defendants for
the loss that he had suffered. The court granted judgment against the defendants jointly and
severally (para 22). The court found that the defendants failed to exercise the necessary care in
furnishing the advice and that this had caused the loss that the plaintiff had suffered (para 18). By
advising him to invest in an offshore investment, the defendants had failed to properly consider the
plaintiff’s needs and had acted in breach of the duty of care that they had owed to him (paras 15-16).
[91] In Page v First National Bank 2009 (4) SA 484 (E), the bank relied on a clause in its contract
with the plaintiff which provided that the bank did not ‘assume responsibility for the performance of
investments’. The court, however, found that, having regard to the contract as a whole, this exclusion
clause was ambiguous as the same contract also contemplated that the bank could be held liable for
the professional negligence of its consultants under certain circumstances (para 10). Accordingly, this
clause could not absolve the bank from liability (para 10).
Ordinarily, the validity and enforceability of an exemption clause will have to be determined in
light of the CPA.
However, it should be noted that although the CPA applies to, inter alia, banking services, the
definition excludes from its ambit ‘services which constitutes advice or intermediary services that is
subject to regulation in terms of the Financial Advisory and Intermediary Services Act, 2002’ (s 1).
[92] Act 37 of 2002. ‘Financial services provider’ refers to any person (excluding a representative)
who furnishes advice; renders an intermediary service or both as a regular feature of its business (s
1). The Act defines advice in s 1 as ‘any recommendation, guidance or proposal of a financial nature
furnished, by any means or medium, to any client or group of clients:
(a)
in respect of the purchase of any financial product; or
(b)
in respect of the investment in any financial product; or
(c)
on the conclusion of any other transaction, including a loan or cession, aimed at the incurring of
any liability or the acquisition of any right or benefit in respect of any financial product; or
(d)
on the variation of any term or condition applying to a financial product, on the replacement of
any such product, or on the termination of any purchase of or investment in any such product.’
However, advice does not include, inter alia, ‘factual advice’ given merely—
•
on the procedure for entering into a transaction in respect of any financial product;
•
in relation to the description of a financial product;
•
in answer to routine administrative queries;
•
in the form of objective information about a particular financial product; or
•
by the display or distribution of promotional material’ (s 1(3)(a)(i)).
[93] Section 7(1)(a).
[94] Section 13(2)(a). In terms of the Act, a ‘representative’ of a financial services provider is
defined in s 1 as:
‘any person including a person employed or mandated by such first-mentioned person, who
renders a financial service to a client for or on behalf of a financial services provider, in terms of
conditions of employment or any other mandate, but excludes a person rendering clerical,
technical, administrative, legal, accounting or other service in a subsidiary or subordinate
capacity, which service—
(a)
does not require judgment on the part of the latter person; or
(b)
does not lead a client to any specific transaction in respect of a financial product in response to
general enquiries.’
No person may act as the bank’s representative unless such a person has been appointed to act as
such by the bank (s 7(2)). The requirements to act as a representative are set out in s 6A.
[95] Section 36(a).
[96] Section 36(b).
[97] These codes of conduct are binding on all financial service providers and their representatives
upon publication (s 15(1)). This is unless they are not applicable, or unless the bank has been
exempted from complying with its provisions. These codes are aimed at ensuring that clients will be
able to make informed decisions and that their financial needs will be appropriately and suitably
satisfied (s 16(1)). For a discussion of the various codes of conduct, see Van Zyl 334-47; Schoeman
et al paras 2.6.7.2-2.6.7.5; Hattingh & Millard 115-49; Du Toit 574-9.
[98] Specific Code of Conduct for Authorised Financial Services Providers and Representatives
conducting Short-term Deposit Business, 2004 (BN 102 in GG 26844 of 29 September 2004). This
code applies to banks that render financial services in respect of deposits with terms not exceeding
12 months.
[99] Clause 6(a). The FAIS Act explicitly states that a code of conduct drafted under the Act must
oblige authorised financial services providers and their representatives to, inter alia, ‘act honestly and
fairly, and with skill, care and diligence, in the interests of clients and the integrity of the financial
services industry’ (s 16(1)(a)).
[100] Clause 6(a).
[101] Clause 6(a).
[102] Clause 6(f).
[103] Cf Bowditch v Peel and Magill 1921 AD 561 at 572-3.
[104] Pathescope (Union) of SA Ltd v Mallinick 1927 AD 292 at 307; Charles v Malherbe, Bosch &
Co (Pty) Ltd 1949 (3) SA 381 (C) at 388; Dutch Reformed Church Council v Crocker 1953 (4) SA 53
(C) at 61.
[105] Absa Bank Ltd v Fouche 2003 (1) SA 176 (SCA) para 6. See also Christie & Bradfield 293-6
and the authorities cited there.
[106] Christie & Bradfield 285. Where the bank expresses an opinion which it genuinely holds, no
misrepresentation occurs (cf Lamb v Walters 1926 AD 358; Feinstein v Niggli 1981 (2) SA 684 (A) at
695; Christie & Bradfield 285).
[107] There is no general duty on a contracting party to disclose all material facts to the other
party (Speight v Glass 1961 (1) SA 778 (D) at 781; Hoffman v Moni’s Wineries Ltd 1948 (2) SA 163
(C) at 168; Flaks v Sarne 1959 (1) SA 222 (T) at 226; Absa Bank Ltd v Fouche 2003 (1) SA 176
(SCA) para 5). However, a duty to disclose may arise, inter alia, in the following circumstances:
•
Where a contracting party tells a half-truth, ie discloses certain information but omits certain
other material information (Marais v Edlman 1934 CPD 212). This may occur, for instance,
where the bank informs the customer of the benefits offered by a particular investment but does
not disclose the risks involved (Cranston 207).
•
Where a contracting party makes a statement which is no longer correct because of subsequent
changes in circumstances (cf Viljoen v Hillier 1904 TS 312 at 315-16; Cloete v Smithfield Hotel
(Pty) Ltd 1955 (2) SA 622 (O) at 626-7).
•
Where a fact falls within the exclusive knowledge of one of the contracting parties and the other
party relies on him for frank disclosure of this (Absa Bank Ltd v Fouche 2003 (1) SA 176 (SCA)
at 180-1; McCann v Goodall Group Operations (Pty) Ltd 1995 (2) SA 718 (C) at 726; Pretorius v
Natal South Sea Investment Trust Ltd 1965 (3) SA 410 (W) at 418). The information must be
such that the right of the other party to have it communicated to him ‘would be mutually
recognised by honest men in the circumstances’ (Absa Bank Ltd v Fouche 2003 (1) SA 176
(SCA) at 180-1; Pretorius v Natal South Sea Investment Trust Ltd 1965 (3) SA 410 (W) at 418).
•
Where a person has knowledge of certain unusual characteristics relating to a transaction, or
circumstances surrounding it, and policy considerations require that the other party be apprised
of this (McCann v Goodall Group Operations (Pty) Ltd 1995 (2) SA 718 (C) at 726).
[108] Christie & Bradfield 301.
[109] Van der Merwe et al (2012) 119; cf Bowditch v Peel and Magill 1921 AD 561 at 572-3.
[110] Karabus Motors (1959) Ltd v Van Eck 1962 (1) SA 451 (C) at 453; Christie and Bradfield
282.
[111] Chorley & Holden 251-63; Goosen et al 243-4.
[112] Foreign currency means ‘any currency which is not legal tender in the Republic, and includes
any bill of exchange, letter of credit, money order, postal order, promissory note, traveller’s cheque
or any other instrument for the payment of currency payable in a currency unit which is not legal
tender in the Republic’ (reg 1). In S v Katsikaris 1980 (3) SA 580 (A) at 598 the court held that
travellers’ cheques were not foreign currency within the meaning of the Exchange Control
Regulations. However, the regulations have subsequently been amended to include reference to
travellers’ cheques (see Willis 191).
[113] ‘Treasury’ means ‘the Minister of Finance or an officer in the Department of Finance who, by
virtue of the division of work in that Department, deals with the matter on the authority of the
Minister of Finance’ (reg 1). The Treasury has appointed the Reserve Bank to carry out its functions
and powers under the regulations, with certain exceptions (see Itzikowitz & Du Toit para 414 n 4).
[114] Regulation 2(1). A person who is not an authorised dealer may nevertheless apply to an
authorised dealer for permission to buy, borrow, sell or lend foreign currency (reg 2(3)).
[115] Regulation 2(1); Standard Chartered Bank of Canada v Nedperm Bank 1994 (4) SA 747 (A)
at 781.
[116] Berzack v Nedcor Bank Limited [2001] 1 All SA 410 (A) para 10.
[117] Cowen & Gering 295.
[118] Cowen & Gering 297. See also Willis 190.
[119] Stassen 181-2; Itzikowitz & Du Toit para 362; Willis 190.
[120] Cowen & Gering 297-8; Schoeman et al para 6.4.4.
[121] Cowen & Gering 297-8; Schoeman et al para 6.4.4.
[122] Cowen & Gering 297-8; Schoeman et al para 6.4.4; Ellinger 134.
[123] Ogilvie 722.
[124] Malan, Pretorius & Du Toit 9.
[125] Ibid. Ogilvie 724; Schoeman et al para 6.4.4. The agreement may, for instance, require the
customer to promptly notify the issuing bank of any theft or loss of a traveller’s cheque (Ellinger 140-
2; Malan, Pretorius & Du Toit 9).
[126] Cowen & Gering 309; Ogilvie 723-4; Ellinger 134; Schoeman et al para 6.4.4; Weaver &
Shanahan 137. The issuer will usually require the traveller to sign an indemnity to protect itself from
liability in the event that the cheque is subsequently presented for payment with a genuine
countersignature on it (Ogilvie 723; Weaver & Shanahan 137).
[127] Cowen & Gering 310; Schoeman et al para 6.4.4; Ellinger 143; Weaver & Shanahan 138.
[128] Examples of such travel cards include the following:
•
Standard Bank’s ‘Travel Wallet’
(see http://www.standardbank.co.za/standardbank/Personal/Banking/Foreign-
Exchange/TravelWallet/About-TravelWallet).
•
FNB’s ‘Multi-currency Cash passport’ (https://www.fnb.co.za/travel-products/multi-currency-
cash-passport.html).
•
Nedbank’s ‘AMEX Travel Card’
(http://www.nedbank.co.za/website/content/travel_check/travel_card.asp).
•
Absa Bank’s ‘Multi-Currency Cash Passport’
(http://www.absa.co.za/Absacoza/Individual/Banking/International-Banking/Convert-%26-
carry-cash/Cash-Passport).
•
Bidvest Bank’s ‘World Currency Card’ (https://www.bidvestbank.co.za/personal-banking/forex-
services/travel-forex.aspx).
[129] See, for example, the travel insurance offered by Absa Bank
(http://www.absa.co.za/Absacoza/Individual/Insuring/Travel-Insurance) and First National Bank
(https://www.online.fnb.co.za/insurance/travel-insurance.html).
[130] Willis 195; Goosen et al 247.
[131] Before a person can act as an executor, he must report the estate to the Master of the High
Court and obtain letters of executorship. The Administration of Estates Act 66 of 1965 also imposes
various obligations on executors. An executor is obliged, inter alia, to open a bank account in the
name of the deceased estate (s 28(1)); to collect any debts due to the estate and pay any debts
owed by estate; to place the required notices in a newspaper and Government Gazette (s 29); to
draft a liquidation and distribution account (s 35); and to pay the legacies and beneficiaries any
amounts due to them.
At the outset, a trustee must obtain letters of authority from the Master of the High Court to
enable him to act in this capacity. In the case of an inter vivos trust, the trust deed must also be
registered with the Master. The Trust Property Control Act 57 of 1988 obliges a trustee to open a
bank account and to deposit money received in his capacity of trustee into that account (s 10). In
addition, the trustee must, inter alia, preserve the trust property and administer it in accordance with
the provisions of the trust instrument and any relevant legislation (see generally Cameron et al 262-
344). A trustee must also, at the request of the Master, satisfactorily account for his administration of
the trust estate and for the disposal of trust property (s 16(1); Cameron et al 343; Administrators,
Estate Richards v Nichol 1999 (1) SA 551 (SCA) at 561).
[132] See ch 4.
[133] Section 4(5) of the Financial Institutions (Protection of Funds) Act 28 of 2001. In terms of
this section, trust property that is invested, held, kept in safe custody, controlled or administered by
a financial institution (which includes a bank as defined in the Banks Act 94 of 1990) or a nominee
company will not form part of the assets or funds of that financial institution or nominee company.
Trust property means ‘any corporeal or incorporeal, movable or immovable asset invested, held, kept
in safe custody, controlled, administered or alienated by any person, partnership, company or trust
for, or on behalf of, another person, partnership, company or trust’ (s 1).
[134] Section 4(4).
[135] Act 28 of 2001.
[136] Section 4(1).
[137] Section 4(1). Cf Space Investments Ltd v Canadian Imperial Bank of Commerce Co
(Bahamas) Ltd [1986] 3 All ER 75, at 76-8; Louw NO v Coetzee 2003 (3) SA 329 (SCA) para 15.
[138] Section 2(1)(a) and (b). Such a person may not ‘alienate, invest, pledge, hypothecate, or
otherwise encumber or make use of the funds or trust property . . . in a manner calculated to gain
directly or indirectly any improper advantage for any person to the prejudice of the financial
institution or principal concerned’ (s 2(1)(c)). In terms of the Trust Property Control Act 57 of 1988, a
trustee must, in the performance of his duties and the exercise of his powers, act with the care,
diligence and skill which can reasonably be expected of a person who manages the affairs of another
(s 9(1)).
[139] Section 2(1)(a) and (b).
[140] Section 10.
[141] Space Investments Ltd v Canadian Imperial Bank of Commerce Co (Bahamas) Ltd [1986] 3
All ER 75 at 76; Cameron et al 362. See also ch 4 and the sources cited there.
Page 194
Chapter 6
Payment
Robert Sharrock
6.1
The nature of payment
6.2
The legal concept of money
6.3
The medium of payment
6.4
The amount of payment
6.5
The time and place of payment
6.5.1
The time of payment
6.5.2
The place of payment
6.6
Payment by post
6.7
Payment by and to a third person
6.7.1
Payment by a third person
6.7.2
Payment to a third person
6.8
Receipt for payment
6.9
The appropriation of payments
6.9.1
Appropriation by the parties
6.9.2
Residual appropriation rules
6.10
Guarantee of payment
6.11
Conditional payment
6.12
Payment ‘in full settlement’
6.13
Set-off
6.13.1
The requirements for set-off to operate
6.13.2
The effect of set-off
6.13.3
When set-off is excluded
6.14
Frustration of payment
6.15
Mistaken payment
6.16
Payment obtained by theft or fraud
6.17
Proof of payment
List of works cited
6.1 The nature of payment

Payment is the rendering of what is owed under a monetary obligation by a person
competent to render it to a person competent to accept it. [1] Payment discharges
the
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obligation [2] and any obligation accessory to it. [3] Payment is a bilateral juristic act
requiring the agreement or co-operation of both parties. [4] If the creditor refuses
the
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debtor’s tender of payment, no payment takes place, even if the tender is a valid
one. [5]
For payment to take place the debtor must, as a rule, give the creditor an
unfettered right to immediate use of the funds in question. [6] No payment occurs,
for example, in the case of an electronic transfer of funds if the funds transferred
are not immediately and unconditionally available to the creditor, [7] or if the transfer
imposes a duty on the creditor to hold the funds separately for the debtor or for a
third party. [8] However, if the creditor has agreed to accept something less than full
and immediate use of the funds, such as their delivery to an independent third party
or their transfer into a blocked bank account in the creditor’s name, the rendering of
this act discharges the obligation. Assent to the alternative mode of discharge may
be given ex post facto; so a unilateral act by the debtor in purporting to make a
qualified or lesser form of payment, if subsequently accepted by the creditor as
constituting payment, is effective to discharge the debt. [9]
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6.2 The legal concept of money

Money in the sense of currency has been judicially defined as ‘that which passes
freely from hand to hand throughout the community in final discharge of
debts’. [10] The term ‘money’ in the strict legal sense refers to all chattels which are
issued under the authority of the law of the State of issue and which, in terms of
that law, are denominated with reference to a unit of account and serve as the
universal means of exchange in that State. [11] In South Africa, only notes and coins
issued by the Reserve Bank have these attributes. [12] Funds held in a bank or a
credit facility with a bank and electronic money (‘e-money’) [13] are widely accepted
as equivalent to money for economic purposes and perform the function of a
medium of exchange, [14]
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but they do not satisfy the legal definition of money. [15] Foreign currency is also not
money for legal purposes. [16]
6.3 The medium of payment

Unless agreed otherwise, payment of a money debt must be in ‘legal tender’; that
is, in banknotes and coins that the creditor is obliged to accept in redemption of the
debt. [17] As mentioned above, in South Africa, only the South African Reserve Bank
has the power to issue these banknotes and coins. [18] According to s 17 of the South
African Reserve Bank Act, [19] the following constitute legal tender for payment of
the amounts indicated: [20]
•
banknotes — any amount; [21]
•
gold coins — any amount; [22]
•
other coins — an amount, per transaction, not exceeding:
—
R50, where coins of a denomination of R1, R2 or R5 are tendered;
—
R5, where coins of a denomination of 10, 20 or 50 cents are tendered;
Page 199
—
50c where coins of a denomination of 1c, 2c or 5c are tendered. [23]
It will be observed that the section restricts the amount that a party may legally
tender in coins (other than gold coins).
If the debt is expressed in a foreign currency then, unless agreed otherwise, the
debtor has the choice of paying in that currency [24] or paying in South African
currency [25] converted at the rate of exchange prevailing at the time of payment
(not at the time of conclusion of the contract or when the debt became due [26]).
In the absence of agreement to the contrary, a creditor is entitled to refuse a
payment which does not qualify as legal tender. [27] However, in practice, the courts
Page 200
readily accept that the parties have tacitly agreed upon payment by a means other
than delivery of legal tender. [28]
6.4 The amount of payment

For a tender of payment to be valid it must be for the full amount owing. [29] The
creditor may insist on the exact sum being paid — he cannot be made to give
change — and, unless agreed otherwise, he is not compelled to accept payment in
instalments. [30]
Page 201
The amount owing and payable is generally that specified in the contract. In the
absence of contrary agreement, the debtor need not make any adjustment for
currency depreciation (whether due to inflation or a weakening of the rand on
monetary markets) and, by the same token, he may not take advantage of any
appreciation in the value of the currency. [31] South African law applies the principle
of currency nominalism, in terms of which the debtor must pay the sum stipulated
as being due (the ‘nominal’ sum), irrespective of any interim fluctuations in the
purchasing power of the currency. It follows that the creditor bears any loss
resulting from depreciation and the debtor, any loss due to appreciation. [32]
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6.5 The time and place of payment

6.5.1 The time of payment
Payment must be made at the time or within the period expressly or tacitly agreed
upon (if any). [33] If the parties have agreed that the debtor must make payment on
or by a particular day, the debtor has until the last moment of the stipulated day to
pay. [34] To determine precisely when an agreed period of days, weeks, months or
years expires, the court must ascertain, if possible, what the parties themselves
intended, by examining the wording of the contract in the light of any admissible
evidence. If, through this process, the court can arrive at the common intention of
the parties, it must give effect to that intention. [35] If the court is unable to
ascertain
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what the parties intended, it must adopt the civilian method for computation of time
periods [36] (inclusion of the first day of the period and exclusion of the last
day) [37] unless special circumstances justify the court departing from this method
and applying the so-called natural method of computation (calculation de momento
ad momentum, from the precise moment that the period begins until the identical
moment on the last day of the period). [38]
Where there is no agreement on the date or time for payment, then the debtor
must perform immediately or, if the parties did not contemplate immediate
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payment, within a reasonable time. [39] What amounts to a reasonable time depends
upon the circumstances of the case. [40]
At common law, a party who owes a monetary debt may pay it before the date
stipulated for payment, provided the time clause was inserted in the contract purely
for his benefit. [41] If the time clause was inserted solely for the benefit of the
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creditor, or for the benefit of both of the parties, the creditor is not obliged to accept
early payment. [42] However, where the clause is pro creditore only to the extent
that it permits the creditor to earn a favourable rate of interest, then the debtor may
make early payment if he also pays interest up to the due date of payment. [43]
In relation to certain debts, the debtor has a statutory right to make early
payment and secure a recalculation of interest. [44]
6.5.2 The place of payment

The debtor must make payment at the place expressly or tacitly agreed upon (if
any). [45] In the absence of express or tacit agreement on where payment must be
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made, the place must be determined by reference to statute law, trade usage, or
any common-law rule applicable to that specific type of contract. [46] If these sources
do not indicate a place for payment, the question hinges on whether the time for
payment is fixed, expressly or tacitly. If it is, the debtor must seek out the creditor
and pay him. [47] If no time is fixed, the creditor must go to the debtor for
payment. [48]
Page 207
However, once the creditor has demanded payment from the debtor within a stated
period (one which allows the debtor a reasonable opportunity to perform), [49] the
debtor is thereafter required to seek out the creditor before expiry of the period and
render performance to him. [50]
If payment is tendered at the incorrect place, the creditor may either reject the
payment [51] or accept it and hold the debtor liable for breach of contract. [52]
Payment to a person outside the Republic is prohibited without Treasury
permission or exemption. [53] However, the permission or exemption need not be
obtained as a prerequisite to instituting action, so the court can grant judgment
against the debtor and, if necessary, order execution against his property, even
though no permission or exemption has been granted. [54]
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Where payment is made in cash, the place where payment actually occurs is
where the debtor delivers the cash to the creditor. Where payment is made by
electronic transfer of funds, the actual place of payment is where the funds are
received by the payee in his bank account, not where the payer gives the instruction
to transfer the funds. [55]
6.6 Payment by post

For a payment to discharge a monetary debt, the debtor must place the money or
payment instrument at the disposal of the creditor. It follows that if the debtor
chooses to post a cheque, postal order or other payment instrument to the creditor
and it does not reach him, the debt is not paid and the debtor is not
discharged. [56] But the courts have made an exception to the rule and hold that the
mere act of posting discharges the debt if the following requirements are
satisfied: [57]
Page 209
•
The creditor requests or authorises the debtor to transmit his payment by
post. [58]
Page 210
•
In the case of a cheque, the debtor complies with any agreed terms regarding
the manner in which the cheque is to be drawn. [59]
•
The debtor posts the instrument in a correctly addressed and stamped
envelope. [60]
•
The instrument is lost or stolen in transit and, in the case of a cheque, paid by
the bank in circumstances entitling it to debit the account of the drawer of the
instrument. [61]
The above exception does not apply if the parties have agreed that any payment
made by the debtor must be received by the creditor in order to be effective. [62]
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6.7 Payment by and to a third person
6.7.1 Payment by a third person
Since payment of a monetary debt involves no delectus personae, [63] it may be
made by the debtor’s agent, [64] by a surety for the debtor, [65] or by an independent
third person. [66] The third person may make payment without the knowledge or
consent of the debtor, and even against his will. [67] The creditor may not refuse the
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tender of payment on the basis that it emanates from someone other than the
debtor or a person appointed by the debtor. [68]
For the third person to discharge the obligation he must make it clear to the
creditor that he is paying for or in the name of the debtor [69] and he must make the
payment unconditionally. [70] The obligation is not discharged if the third person fails
to indicate for whom he is paying, [71] or if he tenders payment subject to a condition
that the creditor is not obliged to accept, or if he pays what is owed, not to
discharge the debt, but to purchase and obtain cession of the creditor’s claim
Page 213
against the debtor. Having made payment on behalf of the debtor, the third person
has a right of recovery against him in certain circumstances. [72]
Page 214
The parties to a contractual debt may agree that payment of the debt will be
made by an independent third person — someone who is not privy to their contract.
In such a case, payment by the third person discharges the debtor’s obligation. The
third person, not being a party to the contract, cannot be compelled to render
payment, [73] but the debtor may be held liable for breach of contract [74] if the third
party fails to pay. [75]
6.7.2 Payment to a third person

For a payment to discharge a debt, the payment must be made to a person
recognised by law as competent to receive it in discharge of the debt. [76] If the
creditor appoints an agent to accept payment on his behalf in discharge of the debt
or designates a third person (such as his own creditor) to whom payment may
Page 215
be rendered in discharge of the debt, the debtor may pay the agent [77] or third
Page 216
person, [78] although he is not compelled to do so. The creditor is at liberty to revoke
the appointment or withdraw the designation and, if he does, the debtor may
thereafter make payment only to the creditor. [79]
Debtor and creditor sometimes agree that the debtor may or must make payment
to a third party (usually a creditor of the creditor) — known in Roman law as
an adiectus solutionis causa. [80] In such a case, the debtor has a contractual right
(as opposed to merely a revocable power) to pay the adiectus. [81]
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Nevertheless, the creditor may prohibit the debtor from paying the adiectus and
demand payment to himself where the debtor has no interest in paying
the adiectus rather than the creditor and the creditor has good grounds for objecting
to payment being made to the adiectus — for example, that it will cause him (the
creditor) to suffer loss. [82]
There is uncertainty whether the debtor is discharged where, without the
creditor’s assent, he pays a person to whom the creditor owes a debt and the
creditor refuses to ratify the receipt of payment by that person. [83] There is case
authority to the effect that the debtor may discharge his debt in this way, but only
to the extent that the creditor is enriched by the payment and only if he (the debtor)
acted bona fide and had an acceptable reason for believing that the payment would
discharge his obligation to the creditor. [84] This approach is potentially damaging to
the creditor [85] and it is arguable that the position should rather be that
unauthorised performance to the creditor’s creditor does not discharge the debt, and
the principles of enrichment and negotiorum gestio must
Page 218
be applied to bring about any necessary adjustment to the parties’ respective
positions. [86]
6.8 Receipt for payment

A party who pays a debt is entitled to a receipt and may withhold payment until he
is given one. [87] A bank that pays out on a cheque to a party purporting to be the
payee may demand that he indorse the instrument as a form of receipt. [88]
6.9 The appropriation of payments

A debtor who owes two or more monetary debts to one creditor may make a
payment to the creditor which is insufficient to discharge all the debts. In such a
case, it is necessary to determine how the payment is to be appropriated between
the debts. [89]
6.9.1 Appropriation by the parties

If the parties have agreed in advance how the money is to be applied (if, for
instance, they have stipulated that the creditor must apply the money to a particular
debt, or that he may allocate the money to whichever debt or debts he sees fit), the
court must give effect to that agreement. [90]
If the parties have not concluded any prior agreement on how the payment is to
be apportioned among the debts, then the question depends on whether either the
debtor or the creditor has allocated the payment to any particular debt or debts.
Page 219
•
The debtor may, before or at the time of making payment, indicate to which
debt (or debts) the payment is to be applied. If he does, the payment must be
appropriated accordingly. [91] He need not give an express indication if his
intention is clear in the circumstances. [92]
•
If the debtor has not expressly indicated an appropriation and the
circumstances do not suggest one, the creditor may choose the debt(s) to
which to apply the payment. [93] For the creditor’s appropriation to be
effective, he must make his intention known to the debtor before or at the
time of
Page 220
payment so as to give the debtor an opportunity of stipulating
otherwise. [94] The creditor is required to act equitably in making his
choice [95] and he cannot appropriate payment to a debt which is disputed, or
not yet due, or not legally enforceable. [96]
6.9.2 Residual appropriation rules

In the absence of a prior arrangement between the parties or an allocation by either
party, payment is appropriated according to a set of residual rules. [97] The payment
is applied, in the first instance, to the most onerous debt — that is, the debt the
debtor has the most interest in discharging. [98] If the debts are equally onerous, the
payment
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is appropriated to the debts in chronological order, starting with the oldest. [99] If the
debts are equally old, the payment settles the debts proportionately. [100]
An exception to the residual rules is made where the debts are capital and
interest thereon. [101] The creditor is obliged to credit the payment first to interest
Page 222
and then to capital. [102] The rationale is that otherwise the creditor may be left with
a claim on which no interest is accruing. [103]
6.10 Guarantee of payment

Payment guarantees are typically used in sales of land to ensure that payment takes
place. In a sale of land for cash, the buyer is obliged, in principle, to pay the price
against (pari passu with) registration of transfer of the land in the Deeds
Registry. [104] In practice, it is not possible to determine precisely when registration
will take place (and hence, when the buyer must make payment) [105] and so it is
accepted that the buyer need not pay at the exact moment of transfer, it being
sufficient if he pays when the fact of transfer is communicated to him. This,
however, creates a risk that transfer may be registered without the buyer making
payment at all. [106] To avoid or minimise this risk, the law provides that the buyer
must, prior to registration of transfer, do one of the following: pay the money over
to the seller; hand the money to an agreed third person (stakeholder) to be held by
Page 223
him pending transfer; or provide the seller with a suitable guarantee for payment on
transfer. [107] In most cases, the buyer chooses the latter option. [108]
The following should be noted regarding the required payment guarantee:
•
There is no prescribed form for the guarantee. The relevant rule is that, in the
absence of agreement to the contrary, the buyer is obliged to provide a
‘satisfactory’ guarantee; that is, one that is reasonably sufficient for the
Page 224
purpose. [109] Unless agreed otherwise, the guarantee need not be a bank
guarantee [110] and it need not be irrevocable. [111]
•
If the agreement provides that the guarantee must be ‘acceptable to the
seller’ (or something to this effect), the seller is obliged to exercise a
reasonable judgement in determining whether the guarantee furnished by the
buyer is sufficient. [112]
•
The buyer is bound to furnish the guarantee only once the seller indicates that
he is willing and able to lodge the transfer documents. [113] The seller’s
conveyancer must be ready to lodge in the sense of being ready to take
immediate steps to effect registration, without necessarily committing himself
to an exact date. [114]
Page 225
•
If the buyer sues to enforce transfer, he may tender the required guarantee in
his summons. [115]
•
If the guarantee is withdrawn prior to transfer being registered, the buyer
remains liable to pay the price. [116]
There is nothing to prevent parties making an agreement that departs from the
above rules (for example, one that requires the buyer to pay the price in full before
the seller becomes liable to transfer the property). [117] However, if the parties wish
to make such an agreement they must make their intention clear, as the courts are
reluctant to depart from the common-law position because of the possible
disadvantage to the buyer or seller in doing so. [118]
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6.11 Conditional payment

For a tender of payment to be valid it must accord with the terms of the
contract [119] and it must be unconditional. [120] The creditor may refuse a tender of
payment which is made subject to a condition that the creditor is not obliged to
accept. [121] However, payment ‘under protest’ is not conditional payment. [122]
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6.12 Payment ‘in full settlement’

A debtor who denies owing the full amount claimed by the creditor may tender
payment of a lesser amount and accompany the tender with the words ‘in full
settlement’. [123] The question that arises in these cases is: may the creditor keep
the payment and sue for the balance? The answer depends on whether the parties
have concluded a compromise.
In this regard, the following should be noted.
•
A compromise is essentially an agreement between the parties to a disputed
obligation or to a lawsuit, settling the matter in dispute, each party receding
from his previous position and conceding something. [124] The typical reasons
for a party agreeing to compromise are that he is uncertain as to the merits of
his side of the dispute, or unsure whether he will be able to prove his version
of events in court, or not prepared to incur the inconvenience (trauma) or
expense of litigation.
•
Compromise is usually classified as a form of novation because it is intended
to replace, and has the effect of replacing, any obligation which exists
between the parties. But it differs from novation in three respects: (i) it must
be concluded to settle a dispute between the parties; [125] (ii) each party must
depart from his prior position and concede something, either by diminishing
his claim or increasing his liability; and (iii) the agreement does not require a
valid existing obligation as a prerequisite for its formation. Parties often
conclude a compromise precisely because they are uncertain as to whether
there is any obligation between them. If the claim in respect of which they
agree to compromise is invalid, the validity of the compromise is not
affected. [126]
Page 228
•
A compromise, once concluded, finally disposes of the dispute between the
parties and forms the sole basis of their rights and duties in respect of the
settled claim. It has the same effect as res judicata on a judgment given by
consent. [127] It follows that, in the event of the compromise being breached,
the innocent party cannot fall back on the original obligation or cause of
action, unless the compromise expressly or by clear implication gives him this
right [128] (or the defaulting party raises no objection to his doing so). [129] The
innocent party must, in other words, proceed with a new action on the
compromise, unless the compromise itself provides that its effectiveness is
conditional on its being properly performed or that, if it is not properly carried
out, the original cause of action will revive. [130] The compromise may also
provide that it will not affect the validity of any security (for example a
mortgage bond) forming part of the original contract. [131]
•
A compromise, like any agreement giving rise to an obligation, is usually
formed by offer and acceptance.
Page 229
•
If a debtor, in submitting a payment ‘in full settlement’, denies liability
altogether or admits liability for a lesser sum than he pays, or professes
ignorance as to the extent of his liability, it may be inferred that he intends to
make an offer of compromise. [132] If the debtor admits liability for the amount
that he pays, the question of whether he intends a compromise must be
determined by considering the language of his statement as a whole and the
surrounding circumstances. [133] The words ‘in full settlement’, in themselves,
are not decisive. [134] The debtor may have used them simply to indicate that
he was paying all that he owed, and not that the creditor should keep the
money only if he was prepared to forego his claim for any balance. [135]
Page 230
•
If there is real doubt as to whether the debtor intended to make an offer of
compromise or merely to tender payment of what he thought he owed, the
construction must go against him because he had it in his power to make his
intention clear. [136]
•
If the debtor’s actions amount to an offer of compromise, the creditor’s
position is as follows. If he accepts the offer, a compromise is formed and he
cannot sue for the alleged balance of his claim. [137] If he rejects the offer he is
not entitled to keep the money or cash the cheque. He is obliged to return the
payment, since it was tendered in implementation of the offer and on the
premise that the offer would be accepted. [138]
•
Whether an offer of compromise has been accepted is a factual issue,
dependent on the circumstances of the case. [139] The fact that the creditor
banks, or appropriates to himself, the payment accompanying the offer of
compromise may indicate acceptance of the offer, but not necessarily so. [140]
Page 231
In every case, the question whether there has been acceptance is one of fact,
dependent on all the circumstances. If, for example, the creditor
simultaneously notifies the debtor that he is ‘accepting the payment entirely
without prejudice to my right to recover the balance outstanding’, there is no
acceptance. [141]
6.13 Set-off
Set-off or compensation (compensatio) is a method by which mutually owed debts
— contractual or otherwise [142] — are extinguished. [143] Set-off has the same
extinguishing effect as payment and is regarded as its legal equivalent. [144] It
promotes economic efficiency in that it allows reciprocal debts to be discharged
without the expense and inconvenience of a duplication of performance. [145]
Page 232
6.13.1 The requirements for set-off to operate

For set-off to operate, the following requirements must be satisfied:
•
The parties to the set-off must be separate legal entities.
•
The parties must be mutually indebted to each other (each must be both the
creditor and the debtor of the other) [146] and each must owe and be owed in
the same capacity. [147] Set-off does not take place if the debts are not
mutually
Page 233
owed [148] or if either party owes in one capacity and is owed in
another. [149] In principle, set-off cannot operate once one of the debts has
been ceded, [150] but it takes place in any event if the debtor has not been
notified of the cession and the other requirements for set-off (those other
than mutual indebtedness) are satisfied. [151]
Page 234
•
The debts must be of the same kind (eiusdem generis). [152] Set-off being a
form of payment, one party cannot compel the other to accept something
different to what he is owed. [153] Thus, an obligation to pay money cannot be
set off against an obligation to deliver or transfer property [154] and an
obligation to deliver one type of movable thing cannot be set off against an
obligation to deliver another [155] (however equal in value the movables may
be). [156] A debt of an unascertained thing belonging to a certain class may be
set off against a debt of the same indeterminate thing in that class, but not
against a debt of a specific thing in that class. So, for instance, set-off
operates if A and B both owe each other ‘a horse’ but not if A owes B ‘a horse’
and B owes A a particular horse. [157] Debts belonging to the
same genus qualify for set-off even if they have to be performed at different
places and even if one is secured and the other is not. [158]
•
The debts must be due and enforceable. [159] Set-off operates as a reciprocal
payment and hence each party must be entitled to recover payment from the
other at the moment when set-off is supposed to take effect. [160] It follows
that set-off does not operate if, for instance, either of the debts is invalid or
Page 235
otherwise unenforceable, [161] or is subject to a suspensive time clause or
condition, [162] or must first be fixed or approved by a third
person. [163] However, the requirement of enforceability is relaxed to the
extent that a natural obligation is accepted as being capable of set-off against
a civil obligation. [164]
•
The debts must be liquidated; that is, admitted, established by judgment, or
capable of speedy and easy proof. [165] The concept of speedy and easy proof
is
Page 236
an elastic one and allows the court a measure of discretion. [166] A debt
evidenced by a liquid document obviously qualifies, [167] but liquidity to this
degree is not essential. [168] A claim for damages is ordinarily not speedily and
Page 237
easily proved and is therefore usually taken to be incapable of set-off. [169] The
same can be said of a debt that is opposed bona fide on its merits. [170]
Although an unliquidated counterclaim cannot be set off against a liquidated claim, a
debtor with an unliquidated counterclaim may, if sued by the creditor, achieve set-
off by requesting in his counterclaim that judgment in respect of the claim (or the
portion which would be extinguished by the counterclaim) be postponed until
judgment on the counterclaim has been given. The court is then obliged to give
judgment on both claim and counterclaim simultaneously and, if the debtor’s
counterclaim is successful, it becomes liquidated and susceptible of set-off against
the creditor’s claim. [171]
Page 238
6.13.2 The effect of set-off

Set-off operates automatically (ex lege, by intendment of law) as soon as the
requirements set out above are met: it need not be specifically invoked. [172] In this
respect, it differs from payment, which involves a voluntary act on the part of the
Page 239
debtor. [173] However, like payment, set-off must be pleaded and proved for a court
to be able to take cognisance of it. [174]
Set-off discharges both of the debts, wholly or in part. [175] It has the same effect
as full or partial payment of each debt. [176] If the debts are for the same amount,
both are completely extinguished. If the debts are for different sums, the greater is
reduced by the amount of the smaller, which is extinguished. [177] If either debt is
secured (by real or personal security), the security is discharged to the same
extent. [178] Sequestration of the estate of one of the parties after set-off has taken
Page 240
place does not, in principle, alter its legal effect, [179] but the Insolvency
Act [180] allows for set-off prior to insolvency to be disregarded in certain
circumstances. [181]
6.13.3 When set-off is excluded

Parties may by agreement exclude the applicability of set-off to their reciprocal
debts. This occurs, for example, where they agree that, instead of passing credits in
favour of each other, they will make payments to each other, [182] or that either of
the debts will be paid ‘without deduction or set off.’ [183] In some instances, set-off is
excluded by statute [184] or by the common law. [185] The granting of a sequestration
or liquidation order creates a concursus creditorum, which prevents set-off from
taking place. [186]
Page 241
6.14 Frustration of payment
A debtor is excused from making payment (relieved of the consequences of not
doing so) if:
•
The creditor makes it clear that he will not accept any tender of payment. [187]
•
The debtor tenders full and unconditional payment to the creditor and the
latter refuses it. [188]
•
The creditor makes it impossible for the debtor to make payment in
accordance with the terms of the contract. [189]
•
The creditor fails to carry out his obligation to account to the debtor, with the
result that the debtor is unable to determine how much he is obliged to
pay. [190]
Page 242
6.15 Mistaken payment

If a third party pays the amount of the debt to the creditor in the mistaken belief
that he (the third party) is the debtor, the debt is not discharged and he may bring
a condictio indebiti to recover what he has paid. [191]
6.16 Payment obtained by theft or fraud

A party who obtains payment of a sum of money by theft or fraud has no legal right
to that money. [192] So where a bank credits a customer’s account with an amount of
money that the customer has obtained by theft or fraud, the bank is not obliged to
pay the amount to the customer on demand or obey the customer’s instruction as to
the disposal of the funds. The customer has as little entitlement to the credit entry
in the account as he has to the money itself. [193] However, it has been held that this
principle applies only to payments obtained ‘outside a contractual
context’. [194] Furthermore, if the funds are used to pay a debt which the
Page 243
thief or fraudster owes the bank and the bank has no knowlege of how the funds
were obtained, the debt is discharged. The relevant principle is payment of a debt
with stolen or fraudulently obtained funds discharges the debt if the creditor is
unaware that the funds are stolen or have been obtained by fraud. [195]
6.17 Proof of payment

If a debtor alleges that he has paid his debt, the onus is on him to prove it. [196] If he
fails to establish his allegation on a balance of probabilities, judgment must go
Page 244
against him (there is no question of the court granting absolution from the
instance). [197] A receipt is prima facie proof of the payment of a money debt. [198] As
mentioned above, a party who makes payment of a debt is entitled to a receipt and
may withhold payment until he receives one. [199]
Page 245
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[1] Cf Harrismith Board of Executors v Odendaal 1923 AD 530 at 539: ‘Payment is the delivery of
what is owed by a person competent to deliver to a person competent to receive.’ See also Grotius
3.39.7; Rhodesian Pulp and Paper Industries Ltd v Plastelect (Pty) Ltd 1975 (1) SA 955 (W) at
959; Bouwer NO v Saambou Bank Bpk 1993 (4) SA 492 (T) at 498.
The term ‘payment’ is also used in a wider sense to denote the performance or satisfaction of an
obligation or the furnishing of what is due. In S v Harvey 1987 (3) SA 40 (ZS), Gubbay JA explained
(at 43): ‘The word “payment” has a wide as well as a narrow meaning. In its wide sense it means the
satisfaction or performance of an obligation. . . . In its narrow sense it means something which can
be calculated in money.’ See also Voet 46.3.1; Harris v Pieters 190 AD 644 at 652; Woudstra v
Jekison 1968 (1) SA 453 (T) at 457; Rhodesian Pulp and Paper Industries Ltd v Plastelect (Pty)
Ltd 1975 (1) SA 955 (W) at 959; Terblanche v Archdeacon 1979 (3) SA 201 (T) at 206; Malangu v De
Jager 1996 (3) SA 235 (LCC) at 242; Primesite Outdoor Advertising (Pty) Ltd v Salviati & Santori
(Pty) Ltd 1999 (1) SA 868 (W) at 883. Cf Bowles v Redruth Motor Supplies (Pty) Ltd 1952 (3) SA 615
(W) at 619 (delivery of a payment guarantee does not amount to payment).
In Roman law, the word ‘solutio’ was used to describe the discharge of an obligation by
performance. It embraced all forms of performance, including payment: see eg D 46.3.54; D
50.16.176. See also Wessels paras 2117-18.
Payment presupposes an obligation (‘the rendering of what is owed’). However, payment of a
natural obligation is not recoverable: see Voet 12.6.2; Pothier para 195; Wessels paras 1271-3;
Zimmermann 7. The same applies to payment of a debt that has prescribed. Section 10(3) of the
Prescription Act 68 of 1969 provides that payment of a debt that has been extinguished by
prescription is regarded as payment of a debt. This section is ‘a deeming provision designed to
protect the recipient of payment of a debt which has been totally discharged by effluxion of
time’: Kuhne & Nagel AG Zurich v APA Distributors (Pty) Ltd 1981 (3) SA 536 (W) at 538-9; Standard
General Insurance Co Ltd v Verdun Estates (Pty) 1990 (2) SA 693 (A) at 699. A necessary implication
of the section is that the debtor has no action for recovery of the payment, enrichment or otherwise.
The ‘rendering of what is owed’ may be achieved by the delivery of cash (in the sense of
banknotes and coins) or by an electronic payment. Chapter 7 considers the various mechanisms and
systems for effecting electronic payment that have been developed over the years. See also C Visser
189; Meiring 164; Schulze (2004(1)) 50.
As will be seen below (at 212), in principle there is no limit on the range of persons who are
competent to pay a monetary obligation, the rule being that payment may be made by an
independent third party, without the knowledge of the debtor, and even against his will. As to the
persons who are competent to receive payment, see 215-19.
A contract to exchange foreign currencies ordinarily does not involve any payment in the narrow
sense since the contractants do not undertake monetary obligations and deal with the currencies as
goods, not money. See Goode 16.
[2] Harrismith Board of Executors v Odendaal 1923 AD 530 at 539: ‘[Payment] when made . . .
operates to discharge the obligation of the debtor. . . .’ See also Grotius 3.39.5-6; Voet
46.3.1: Rhodesian Pulp and Paper Industries Ltd v Plastelect (Pty) Ltd 1975 (1) SA 955 (W) at
959; Bouwer NO v Saambou Bank Bpk 1993 (4) SA 492 (T) at 498; Malangu v De Jager 1996 (3) SA
235 (LCC) at 242.
[3] Pothier para 377; Moti and Co v Cassim’s Trustee 1924 AD 720 at 737.
[4] In Vereins- und Westbank AG v Veren Investments 2002 (4) SA 421 (SCA), Cameron JA
observed (para 11): ‘[T]he established view is that payment is a bilateral act which, in the absence of
contrary agreement, requires the co-operation of debtor and creditor.’ In the same case, Nienaber JA
said (para 38): ‘Performance of an obligation, whenever the co-operation of a creditor is required in
order to enable the debtor to effect it, consists of a bilateral juristic act. . . . The payment of a money
debt is a case in point. . . . It requires an animus solvendi of the debtor corresponding to that of the
creditor as to a manner, recognised by law, whereby the debtor relinquishes and the creditor acquires
access to and control over the funds to be transferred. A debtor, for instance, would not be able to
effect payment by electronic transfer to his creditor’s banking account unless the latter has furnished
him with his banking details for that purpose. In such a case, although the creditor can draw on it, it
would not count as proper performance binding the creditor because his corresponding animus
solvendi is lacking. He may reject any such attempt at payment if some or other legal consequence,
such as the cancellation of a lease, should be dependent on it. In different circumstances his conduct
may, however, indicate assent after the event.’ In Matador Buildings (Pty) Ltd v Harman 1971 (2) SA
21 (C), Diemont J said (at 25): ‘Payment is a bilateral transaction in which both the payer and the
payee must co-operate. . . . A lessee who pushes the rent under the office door and then retrieves it
half an hour later, or 24 hours later, before the lessor is even aware of what has happened, is no
more making payment than a debtor who puts a coin in his creditor’s hand and then snatches it
back.’ See also Saambou-Nasionale Bouvereniging v Friedman 1979 (3) SA 978 (A) at 993; Italtile
Products (Pty) Ltd v Touch of Class 1982 (1) SA 288 (O) at 292-3; Volkskas Bank Bpk v Bankorp Bpk
(h/a Trust Bank 1991 (3) SA 605 (A) at 612 (disapproving Rosen v Barclays National Bank Ltd 1984
(3) SA 974 (W) at 979); Kei Brick & Tile Co (Pty) Ltd v AM Construction 1996 (1) SA 150 (E) at
159; Pfeiffer v First National Bank of SA Ltd 1998 (3) SA 1018 (SCA) at 1025; Burg Trailers SA (Pty)
Ltd v Absa Bank Ltd 2004 (1) SA 284 (SCA) at 289; Nissan South Africa (Pty) Ltd v Maritz NO (Stand
186 Aeroport (Pty) Ltd intervening) 2005 (1) SA 441 (SCA) para 24; Absa Bank Limited v Lombard
Insurance Co Ltd 2012 (6) 569 (SCA) para 18. See also Joubert (1987) 274; De Wet and Van Wyk
263.
Being a juristic act, payment must be made by someone who has capacity to perform juristic acts.
Payment by a person who lacks the necessary capacity is recoverable on the basis of unjustified
enrichment. See Bowman, De Wet and Du Plessis NNO v Fidelity Bank Ltd 1997 (2) SA 35 (A) at
42; Wilkens NO v Bester 1997 (3) SA 347 (A) at 357. See also Reineke.
[5] Rejection of a valid tender has legal consequences for the creditor. See 241 fn 188.
[6] Vereins- und Westbank AG v Veren Investments 2002 (4) SA 421 (SCA) paras 11-12; Absa
Bank Limited v Lombard Insurance Co Ltd 2012 (6) SA 569 (SCA) para 18.
[7] As, for example, where the debtor’s bank transfers the funds to the creditor’s bank for the
account of the creditor but the pay date is later than the date of transfer and the creditor is obliged to
pay interest on any amount withdrawn in the intervening period. See A/S Awilco v Fulvia SpA di
Navigazione The Chikuma [1981] 1 All ER 652 (HL) at 656-7; Goode 19.
[8] As, for example, where the debtor transfers funds to the creditor to be held by him in trust
pending the occurrence of an event. The moneys are not freely available to the creditor, since he is
obliged to keep them separate from his own money and he remains accountable for them to the
debtor.
[9] Vereins- und Westbank AG v Veren Investments 2002 (4) SA 421 (SCA) paras 12-25. Cameron
JA commented (para 24): ‘[S]ubsequent approval by the creditor validates any method the debtor
may unilaterally have chosen to effect the discharge, even if that method fails to place the
performance at the immediate disposal of the creditor, and even if that method fails to sequester the
performance effectively from the debtor’s own assets.’
[10] Standard Chartered Bank of Canada v Nedperm Bank Ltd 1994 (4) SA 747 (A) at 781, quoting
from the judgment of Darling J in Moss v Hancock [1899] 2 QB 111 at 116. The full definition given
by Darling J in Moss is ‘that which passes freely from hand to hand throughout the community in final
discharge of debts and full payment of commodities, being accepted equally without reference to the
character or credit of the person who offers it and without the intention of the person who receives it
to consume or apply it to any other use than in turn to tender it to others in discharge of debts or
payment of commodities’.
Goode 1 points out that the legal meaning of ‘money’ may vary according to the context in which
it is used. In a will, for example, the word may include rights to payment of money or even the whole
of the testator’s patrimony.
[11] Mann 1.17. In terms of this definition, for an entity to qualify as money in the legal sense: (i)
it must be a ‘chattel’; that is, tangible movable property; (ii) it must be issued by or under the
authority of a State; (iii) it must have a nominal value determined by reference to a ‘unit of account’
(in South Africa, the unit of account is rands and cents); and (iv) it must be the universal means of
exchange throughout the territory of the issuing state. See Goode 1-3. Cf also Crawford 402-3, who
points out that for something to qualify as money in the legal sense: (i) it must be commonly
accepted as a medium of exchange, and not considered as goods or merchandise; (ii) it must not be
linked to the credit of the transferor, but given and accepted as final payment of a debt; (iii) it must
be capable of passing between parties by mere delivery; (iv) it must be self-contained, in the sense
that it requires no collection, clearing or settlement and leaves no record; (v) the transferee must be
able to take it free of the claims of prior owners or holders.
Over the centuries a diverse range of objects has served as money, but the need for money to
function effectively as a medium of exchange — in particular, the need for it to be standard, durable
and easy to handle — has reduced the forms of money in use to coins and notes.
[12] Standard Chartered Bank of Canada v Nedperm Bank Ltd 1994 (4) SA 747 (A) at 781. Section
15(1) of the South African Reserve Bank Act 90 of 1989 states that, subject to s 14(1), the monetary
unit of the Republic is the rand (abbreviated as R), and the cent (abbreviated as c), which is one-
hundredth part of the rand. Section 14(1) gives the Reserve Bank the sole right to issue banknotes
and coins in the Republic. In terms of s 16(1), the bank is empowered to make coins of the
denominations, material, mass and standard fineness set out in Schedule 2 to the Act. The Minister
may from time to time amend this schedule by notice in the Gazette: s 16(2).
In certain circumstances, notes and coins may qualify as goods rather than money as where, for
example, a party agrees to make over specific notes or coins (for example an identified store) and the
sum to be paid in return is fixed by reference not to the nominal value of the notes and coins, but to
their perceived intrinsic value or their value in relation to another currency. See further Goode 3-9.
[13] For discussion of the concept of electronic money, see Rees 270-2; Lawack-Davids 312;
Schulze (2004(2)) 703.
[14] The holder of a bank account with a credit balance can effect payment of a monetary debt by
transferring funds (electronic value) from the account to the bank account of the creditor. The
transfer may be achieved in various ways; for example, by means of a cheque, a credit card, or an
electronic funds transfer. The transfer of electronic value functions as a surrogate for payment in
legal tender. In place of his claim against the debtor, the creditor receives a claim against a bank
which he can convert into legal tender, if he so wishes.
[15] A claim or right to payment, not having any corporeal or physical existence, cannot qualify as
money for legal purposes. See Goode 1-2. See also Akindemowo 466; Loubser & Swart 357-9.
[16] The Exchange Control Regulations define foreign currency as any currency other than currency
which is legal tender in the Republic, including any bill of exchange, letter of credit, money order,
promissory note, traveller’s cheque or any other instrument for the payment of currency payable in a
currency unit which is not legal tender in the Republic: GN R1111 in GG Extraordinary 123 of 1
December 1961 reg 1 sv ‘foreign currency’. In Standard Chartered Bank of Canada v Nedperm Bank
Ltd 1994 (4) SA 747 (A) at 781, Harms JA pointed out that ‘[a] person who wishes to obtain foreign
currency must purchase it from an authorised dealer. The dealer may only sell it on the terms and
subject to the conditions imposed by the Reserve Bank. Had it been possible to trade freely in this
country in and with foreign currency, the position may well have been different but under present
circumstances foreign currency appears . . . to be goods and not money.’
[17] In Esterhuyse v Selection Cartage (Pty) Ltd 1965 (1) SA 360 (W), Trollip J explained the basic
principle as follows (at 361): ‘In contract, where the debtor is obliged to pay money to the creditor,
the medium of payment must be that which the contract expressly or impliedly specifies, as
determined by reference to its terms and such evidence of custom, usage and the surrounding
circumstances as is admissible to aid in its interpretation. In this regard, in an ordinary commercial
contract, in the absence of anything signifying the contrary, only some slight indication in the
contract or evidence would generally suffice for inferring or implying that payment of the creditor can
be effected by cheque, because that is now a widely used and recognised medium of payment in such
transactions. In the absence, however, of such contractual definition of the medium, the payment
must be made in legal tender.’ See also Die Afrikaanse Pers Bpk v Perestrello 1949 (2) SA 346 (W) at
350; Vena v Vena 2010 (2) SA 248 (ECP) para 10.
[18] South African Reserve Bank Act 90 of 1998, s 14(1). The bank’s power is limited in certain
respects: (i) any banknote it issues must be of a denomination, in a form, and of a material,
approved by the Department of Finance (s 14(2)); and (ii) the coins it issues must be made of gold,
platinum, silver, nickel, copper, tin, zinc or steel, or alloys of those metals, and must be of the
denominations, mass, and standard fineness set out in Schedule 2 to the Act (s 16(1)).
[19] Act 90 of 1989.
[20] See generally Cowen & Gering 7; Willis 200; Malan, Pretorius & Du Toit para 40.
[21] Section 17(1). This subsection provides that a tender of a note of the bank is a legal tender of
payment of the amount specified on the note.
[22] Section 17(2)(a). According to this subsection, a tender of a gold coin lawfully in circulation in
the Republic is a legal tender of the amount specified on the coin.
[23] Section 17(2)(b)(i)-(iii). Cf S v Block 1967 (4) SA 313 (C) at 315, where it was held to be
‘perfectly competent’ for a municipality to insist that a ‘new’ 5c coin be used for parking bays, even
though the ‘old’ 5c coin was still legal tender.
[24] As pointed out in Murata Machinery Ltd v Capelon Yarns (Pty) Ltd 1986 (4) SA 671 (C) at 674,
payment in a foreign currency will be a criminal offence unless the necessary consent has been
obtained under the exchange control regulations. See also Christie 409.
[25] In Eden v Pienaar 2001 (1) SA 158 (W), Cloete J explained (at 163-4): ‘A distinction exists
between money of account and money of payment. Money of account is the currency in which a debt
is expressed or liability to pay damages is calculated and money of payment is the currency in which
such debt or liability is to be discharged. In South Africa, where the money of account is not South
African rands, the option to pay in either the money of account or South African rands is afforded to
the debtor. . . .’ See also Barry Colne & Co (Transvaal) Ltd v Jackson’s Ltd 1922 CPD 372 at 375-6.
[26] In Murata Machinery Ltd v Capelon Yarns (Pty) Ltd 1986 (4) SA 671 (C), Van den Heever J
remarked (at 674): ‘[L]ogically the conversion should be made when payment is actually made, not
when it merely falls due. To hold otherwise would be to pave the way for a defaulting debtor to profit
through his default and I find nothing in our law compelling me to “hold otherwise”.’ See also Elgin
Brown and Hamer (Pty) Ltd v Dampskibsselskabet Torm Ltd 1988 (4) SA 671 (N) at 674; Makwindi
Oil Procurement (Pvt) Ltd v National Oil Co of Zimbabwe (Pvt) Ltd 1989 (3) SA 191 (ZS) at 197-
8; Barclays Bank of Swaziland Ltd v Mnyeketi 1992 (3) SA 425 (W) at 436; Standard Chartered Bank
of Canada v Nedperm Bank Ltd 1994 (4) SA 747 (A) at 777, 780; Radell v Multilateral Motor Vehicle
Accidents Fund 1995 (4) SA 24 (A) at 29; Skilya Property Investments (Pty) Ltd v Lloyds of London
Underwriting 2002 (3) SA 765 (T) at 815; Echodelta Ltd v Kerr and Downey Safaris (Pvt) Ltd 2004
(1) SA 508 (ZH) at 512. Contra Barry Colne & Co (Transvaal) Ltd v Jackson’s Ltd 1922 CPD 372 at
377; Bassa Ltd v East Asiatic (SA) Co Ltd 1932 NPD 386 at 390-1; Voest Alpine Intertrading
Gesellschaft mbH v Burwill and Co SA (Pty) Ltd 1985 (2) SA 149 (W) at 151. In these cases, it was
held that the date of conversion to rand equivalent is when the payment falls due. For critical
discussion of the decision in Voest, see Radesich 233; Tager 119; High & Pickering 282; Shaw 84.
In Murata Machinery Ltd v Capelon Yarns (Pty) Ltd 1986 (4) SA 671 (C) at 674, Van den Heever J
pointed out that in the cases in which it was held that the date of conversion is when payment falls
due, the court was asked to choose solely between that date and an earlier one, not between due
date and date of actual payment.
If a monetary debt in an international transaction is expressed to be payable in South African
currency, payment must be made in that currency. See Joffe v African Life Assurance Society
Ltd 1933 TPD 189 at 197-8; Aktiebolaget Tratalja v Evelyn Haddon & Co Ltd 1933 CPD 156 at 159-
61.
[27] Cf Warsow v Woermann Brock & Co 1920 SWA 78 at 80-1.
In line with this principle, the courts have accepted that a creditor cannot be compelled to take a
cheque (irrespective of its precise nature or the creditworthiness of the drawer) unless the parties
agreed or contemplated that payment might be made by cheque. See, for example, Palmer v
Rhodes (1888) 5 HCG 56 at 61; National Bank of South Africa Ltd v Leon Levson Studios Ltd 1913
WLD 11 at 16; Schneider and London v Chapman 1917 TPD 497 at 500, 504; Esterhuyse v Selection
Cartage (Pty) Ltd 1965 (1) SA 360 (W); Rennie NO v The Master; Glaum NO v The Master 1980 (2)
SA 600 (C) at 615; J L Cohen Motors SWA (Pty) Ltd v Alberts 1985 (2) SA 427 (SWA) at 430; B & H
Engineering v First National Bank of SA Ltd 1995 (2) SA 279 (A) at 285; Buys v Roodt (nou
Otto) 2000 (1) SA 535 (O) at 540-1. Cf Reid v Carnofsky’s Trustee 1910 EDL 166 at 173; Blumberg v
Sauer 1944 CPD 74 at 78; Bold v Cooper 1949 (1) SA 1195 (W) at 1200; Meikle and Co Ltd v Van
Eyssen 1950 (2) SA 405 (T) at 412; Sibbald v Dakota Motors 1956 (3) SA 203 (T) at 206. Factors
relevant to whether the parties contemplated payment by cheque include the size of the sum
payable; any attendant dangers in delivering cash at the place of payment; whether the creditor’s
representative would normally be entrusted with the discretion to accept a cheque or the duty of
receiving one; whether acceptance of a cheque would prejudice the creditor’s rights in any way (for
instance, deprive the creditor of a lien); whether the creditor has been prepared to take the debtor’s
cheques for earlier payments or in previous transactions; whether the creditor will experience any
difficulty in banking or cashing the cheque; whether the creditor has any reason to doubt the debtor’s
creditworthiness; and whether the creditor gave the debtor reasonable advance notice that he would
not accept a cheque in payment. Cf Van der Merwe et al 444.
A creditor who, despite being entitled to refuse a cheque, receives one without objection and only
later contends that payment ought to have been made in cash may be held to have waived his right
to insist on cash or may be estopped from denying that he was willing to accept a cheque.
[28] In relation to cheques, it has been held that a court will not require very strong evidence to
make a finding that the parties agreed upon or envisaged payment by cheque. See Schneider and
London v Chapman 1917 TPD 497 at 500. In Esterhuyse v Selection Cartage (Pty) Ltd 1965 (1) SA
360 (W), Trollip J described the court’s approach as follows (at 361): ‘[I]n an ordinary commercial
contract, in the absence of anything signifying the contrary, only some slight indication in the
contract or evidence would generally suffice to inferring or implying that payment of the creditor can
be effect by cheque, because that is now a widely used and recognised medium of payment in such
transactions.’ In B & H Engineering v First National Bank of SA Ltd 1995 (2) SA 279 (A), the court
observed (at 285): ‘It is trite law that a creditor, to whom a money debt is owing, may insist on strict
compliance with his contract and demand payment in cash. However, payment by means of cheques
and other negotiable instruments has become common in commercial practice and creditors normally
agree to accept such payment.’ See also Sibbald v Dakota Motors 1956 (3) SA 203 (T) at
207; Froman v Robertson 1971 (1) SA 115 (A) at 121; Rennie NO v The Master; Glaum NO v The
Master 1980 (2) SA 600 (C) at 615; Joubert (1987) 280.
[29] Boland Bank Bpk v Steele 1994 (1) SA 259 (T) at 266. If a tender of payment is for the full
amount owing, the creditor is not entitled to refuse it and can be made to perform. See Nkengana v
Schnetler [2011] 1 All SA 272 (SCA) para 15.
[30] Payment in instalments constitutes incomplete performance for these purposes. See Grotius
3.39.9; Voet 12.1.21, 46.3.11; Van der Linden Inst 1.18.1; Shapiro v Berry 1933 WLD 112 at 113-
14; Paizer v Phitides 1940 WLD 189 at 194-5; Bernitz v Euvrard 1943 AD 595 at 602-3; Machinery
Exchange (Pvt) Ltd v Logamundi Agricultural Engineers (Pvt) Ltd 1967 (3) SA 202 (R) at 205; Premier
Finance Corporation (Pty) Ltd v Ward 1976 (2) SA 816 (T) at 820; Hauptfleisch v Viviers 1977 (3) SA
1018 (T) at 1019; Ex parte Minister of Justice 1978 (2) SA 572 (A) at 588; Le Roux v Yskor Landgoed
(Edms) Bpk 1984 (4) SA 252 (T) at 258; Nedperm Bank Ltd v Lavarack 1996 (4) SA 30 (A) at 46.
The rule applies to performance generally: the debtor is not entitled to render performance in parts,
even though the performance may be divisible. See Moosa v Robert Shaw & Co Ltd 1948 (4) SA 914
(T) at 917; BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA 319 (A) at
433; Forfif (Pty) Ltd v Macbain 1984 (3) SA 611 (W) at 617; Wessels para 2237.
If the debtor tenders part payment and the creditor accepts it, the obligation is discharged pro
tanto. See Union Bank v Beyers (1884) 3 SC 89 at 103-5, 106-7; Paizer v Phitides 1940 WLD 189 at
191. However, the creditor may still raise the exceptio non adimpleti contractus and refuse to carry
out any reciprocal obligation resting on him until the shortfall in the debtor’s payment has been
remedied. See BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA 319
(A) at 434.
A debtor who pays a greater instalment than he owes effectively makes early payment of the
additional amount. See 205-6 for the principles governing early payment.
[31] Contractants are free to make provision in their contract for changes in the value of currency
due to inflation or deflation. For examples of such provisions, see Sonarep (SA) (Pty) Ltd v Motorcraft
(Pty) Ltd 1981 (1) SA 889 (N) at 890; Westinghouse Brake & Equipment (Pty) Ltd v Bilger
Engineering (Pty) Ltd 1986 (2) SA 555 (A) at 566.
[32] In SA Eagle Insurance Co Ltd v Hartley 1990 (4) SA 833 (A), EM Grosskopf JA explained (at
839-40): ‘The principle of nominalism of currency . . . underlies all aspects of South African law,
including the law of obligations. Its essence, in the field of obligations, is that a debt sounding in
money has to be paid in terms of its nominal value irrespective of any fluctuations in the purchasing
power of currency. This places the risk of a depreciation of the currency on the creditor and saddles
the debtor with the risk of an appreciation. . . . Nominalism is the norm in the common law of
Western States with similar systems to our own. . . . It is not necessary to consider . . . in detail [the
reasons commonly given for currency nominalism] except to point out that it would represent a
revolutionary transformation of our legal system if courts were to be called upon to determine the
true economic value (in terms of purchasing power) of all obligations sounding in money. I need not,
however, labour this point: currency nominalism, for whatever reason, is firmly entrenched in our
law.’ See also Barclays Bank of Swaziland Ltd v Mnyeketi 1992 (3) SA 425 (W) at 432; Radell v
Multilateral Motor Vehicle Accidents Fund 1995 (4) SA 24 (A) at 28-9; Adel Builders (Pty) Ltd v
Thompson 1999 (1) SA 680 (SE) at 687; Eden v Pienaar 2001 (1) SA 158 (W) at 165; D’Ambrosi v
Bane 2006 (5) SA 121 (C) paras 15-17; Farlam & Hathaway 719-20 n 2; Spandau 31.
Some countries adopt an alternative principle known as currency revalorisation, which, in defining
the extent of the debtor’s liability, takes account of the functional value (‘purchasing power’) of
money. In SA Eagle Insurance Co Ltd v Hartley 1990 (4) SA 833 (A) at 841, the Supreme Court of
Appeal expressly rejected this principle and reaffirmed the principle of currency nominalism. The
court overruled Everson v Allianz Insurance Ltd 1989 (2) SA 173 (C), in which it was held that a claim
for general damages ex delicto could be adjusted to protect the plaintiff against depreciation in the
value of the rand during the period between the commission of the delict and the award of damages.
EM Grosskopf JA considered that introducing a principle of revalorisation would require legislative
sanction. For further discussion of the issue, see Delport (1982) 4 MBL 115 at 123-4; Wunsch 9.
In Eden v Pienaar 2001 (1) SA 158 (W), Cloete J suggested (at 167) that a creditor is protected from
the effect of inflation by s 2A of the Prescribed Rate of Interest Act 55 of 1975, in terms of which both
a liquidated and an unliquidated debt bear interest (the latter from the date on which payment is
demanded or claimed by summons) at the rate prescribed by the Minister of Justice in terms of s 1(2)
of the Act. The Act does indeed mitigate the effect of currency depreciation that occurs after the debt
has fallen due but the Act does not counteract currency depreciation that occurs between the
incurring of the debt and the time that it becomes due.
[33] The time for payment may effectively be extended by the principle of reciprocity or
dependence of performances. If the obligations of the debtor and creditor are reciprocal, the debtor is
not bound to make payment, notwithstanding that the time for payment has arrived, until the
creditor has performed (or tendered to perform) his own obligation. The debtor, in these
circumstances, may raise the exceptio non adimpleti contractus in opposition to any premature claim
for payment by the creditor.
[34] Grotius 3.3.50; Voet 45.1.19; Born v Madolwana 1912 EDL 225 at 228; Land Values Ltd v
Highlands North Investment etc Co (Pty) Ltd 1931 WLD 174 at 179. This rule applies even where the
creditor has agreed to accept payment by cheque. The creditor is obliged to take the cheque after
banking hours, notwithstanding that he cannot cash it until the following day. In Van Loggenberg v
Sachs 1940 WLD 253, Millin J stated the principle as follows (at 255): ‘[W]hen a creditor consents to
receive a payment by cheque, the cheque (provided only there is money in the bank to meet it) is for
all purposes as good as money; and a debtor who has up to midnight on a given day to make his
payment and is authorised to pay by cheque is under no obligation to bring it in time for it to be
cashed the same day. . . .’
[35] Joubert v Enslin 1910 AD 6 at 37-8; Holmes v North Western Motors (Upington) (Pty)
Ltd 1968 (4) SA 198 (C) at 202-3; Nell v Mulbarton Gardens (Pty) Ltd 1976 (1) SA 294 (W) at 297-8.
The courts have adopted the following interpretations in relation to stipulated time periods:
•
The word ‘days’ in an agreed stipulated period of days means ‘calendar days’. Whether this
interpretation applies where the contract in question has been made an order of court is unclear.
In certain cases (Ex parte Venter and Spain NNO: Fordom Factoring Ltd; Venter and Spain v
Povey 1982 (2) SA 94 (D) at 101; Pierre Cronje (Pty) Ltd v Adonis 2010 (4) SA 294 (WCC) para
14) the courts have taken the view that the word ‘days’ in a consent order must be understood
as referring to ‘court days’. Contra Hutchison 256, who argues that since a judgment by consent
is essentially contractual in origin and nature, is should be interpreted as a contract rather than
as a judgment. In Bosveld Hotel (Pty) Ltd v Nissen 1979 (2) SA 746 (T) at 748, the court
considered that the word ‘days’ in a consent order could reasonably mean either calendar or
court days and it ruled that evidence was admissible of the circumstances and collateral facts to
establish one of the possible meanings.
•
Use of the words ‘after’ or ‘of’ in describing the period which follows a stipulated date or event
indicates an intention to exclude the stipulated date or day of occurrence of the event from the
reckoning of the period. See eg National Bank of South Africa Ltd v Leon Levson Studios
Ltd 1913 AD 213 at 217; Nell v Mulbarton Gardens (Pty) Ltd 1976 (1) SA 294 (W) at 297-8.
Cf Holmes v North Western Motors (Upington) (Pty) Ltd 1968 (4) SA 198 (C) at 204-5.
•
‘Tomorrow’ means the whole of the following day; that is, until midnight on that day. See Land
Values Ltd v Highlands North Investment etc Co (Pty) Ltd 1931 WLD 174 at 179.
•
‘On registration of transfer’ means pari passu with transfer, not before it. See Ras v
Simpson 1904 TS 254 at 255-6.
•
The choice of a bank, office, or place of business as the place of payment indicates an intention
that payment should be made on a business day, with the corollary that, if the last day of the
period is a Sunday or a public holiday, payment should take place on the next business day:
see Davis v Pretorius 1909 TS 868 at 871-2; National Bank of SA Ltd v Leon Levson Studios
Ltd 1913 AD 213 at 218. Cf Lawley v Van Dyk (1888) 2 SAR 246 at 248. In the National
Bank case, Innes J explained as follows (at 218): ‘. . . [W]here rent is payable at a bank or
business place, that implies that the payment is to be made on a day when offices or banks are
open, and that the lessee, therefore, is only called upon to pay on a business day. Indeed, that
exact point was decided in Davis v Pretorius (1909 TS 868), where the court held that the
parties must, under such circumstances, he taken to have contemplated that the payment would
not be due at the office or the bank on a Sunday or a public holiday when that place either
ought, or in the ordinary course of business might be expected, to be closed. The obligation
becomes due upon the days in question, but its discharge having been stipulated to be
performed at a place not open on those days, the debtor is excused from then tendering
performance, and is in time on the next succeeding business day.’
[36] The court may not have recourse to s 4 of the Interpretation Act 33 of 1957 (which deals with
the reckoning of periods of days) because this Act does not apply to the interpretation of contracts: s
1 sv ‘Application of Act’. Cf Joubert v Enslin 1910 AD 6 at 24-5, 37-8.
[37] In Holmes v North Western Motors (Upington) (Pty) Ltd 1968 (4) SA 198 (C) at 203, Corbett J
explained the process involved when applying the civilian method of computation: ‘[T]he period is
first calculated by commencing with the day immediately following the day upon which the event
occurred, thus determining the last day of the period; this last day is then excluded by a fiction which
regards it as completed at the moment of its birth (ultimus dies coeptus pro completo habetur); and
finally, in order to ensure that the period does not fall short by one day, the day upon which the
event occurred is included. Thus the method is described as involving an inclusion of the first day, ie
the day upon which the event occurred, and an exclusion of the last day, ie the last day arrived at by
the first step in the process of computation.’ See also Joubert v Enslin 1910 AD 6 at 25, 37; National
Bank of SA Ltd v Leon Levson Studios Ltd 1913 AD 213 at 217-18; Thomas v Liverpool & London &
Globe Insurance Co of SA Ltd 1968 (4) SA 141 (C) at 145; South African Mutual Fire and General
Insurance Co Ltd v Fouché; AA Mutual Insurance Association, Ltd v Tlabakoe 1970 (1) SA 302 (A) at
309-10.
[38] Joubert v Enslin 1910 AD 6 at 25, 37; Tiopaizi v Bulawayo Municipality 1923 AD 317 at
321; Holmes v North Western Motors (Upington) (Pty) Ltd 1968 (4) SA 198 (C) at 202-3. Cf Cock v
Cape of Good Hope Marine Assurance Company (1858) 3 Searle 114 at 117, 120-1; Cregoe v
Bezuidenhout and the Lark Syndicate (1897) 4 OR 95 at 102-3 (legal result the same adopting either
method of computation); Thomas v Liverpool & London & Globe Insurance Co of SA Ltd 1968 (4) SA
141 (C) at 149 (‘the ordinary civilian method should not be departed from unless the language makes
it clear that such departure was intended by the contracting parties . . .’).
In Dormell Properties 282 CC v Renasa Insurance Co Ltd and Others NNO 2011 (1) SA 70 (SCA)
at paras 27-31, 54-9, the court pointed out that the civilian method of computation is applicable only
where the contract stipulates a period in days, weeks, months, or years. The method has no
relevance if the contract specifies an expiry date or states that the period will continue until the
occurrence of a particular event. A construction guarantee provided that it would expire on the
‘guarantee expiry date’ (28 February 2008). The court held that the guarantee had been valid for the
full day of 28 February 2008 and it had not expired the day before.
[39] In Mackay v Naylor 1917 TPD 533, Mason J observed (at 537-8): ‘The general rule of law is
that obligations for the performance of which no definite time is specified are enforceable forthwith
. . ., but the rule is subject to the qualification that performance cannot be demanded unreasonably
so as to defeat the objects of the contract or to allow an insufficient time for compliance. . . .’ This
principle was reaffirmed in Strelitz (Pty) Ltd v Siegers & Co (Pty) Ltd 1959 (3) SA 917 (E) at 921; Nel
v Cloete 1972 (2) SA 150 (A) at 169; Alfred McAlpine & Son (Pty) Ltd v Transvaal Provincial
Administration 1974 (3) SA 506 (A) at 535; San Sen Woodworks v Govender 1984 (1) SA 486 (N) at
490; Ally and Others NNO v Courtesy Wholesalers (Pty) Ltd 1996 (3) SA 134 (N) at 143. See also
Grotius 3.3.51; Voet 45.1.19; Van Leeuwen RHR 4.3.3; Van der Linden Inst 1.14.9; Celliers v
Papenfus and Rooth 1904 TS 73 at 79; Federal Tobacco Works v Barron & Company 1904 TS 483 at
485; Young v Land Values Ltd 1924 WLD 216 at 226; Saadien v Bradley 1931 CPD 276 at
278; Fluxman v Brittain 1941 AD 273 at 294; Concrete Products Co (Pty) Ltd v Natal Leather
Industries 1946 NPD 377 at 380; Blundell McCawley 1948 (4) SA 473 (W) at 477; Hayter’s Radio
Exchange v Hidge 1949 (1) SA 18 (E) at 21; Credit Corporation of SA Ltd v Roy 1966 (1) SA 12 (D)
at 14; Evrard v Ross 1977 (2) SA 311 (D) at 321; Cardoso v Tuckers Land and Development
Corporation (Pty) Ltd 1981 (3) SA 54 (W) at 61; Ver Elst v Sabena Belgian World Airlines 1983 (3) SA
637 (A) at 644; Johannesburg City Council v Norven Investments (Pty) Ltd 1993 (1) SA 627 (A) para
12; Munnikhuis v Melamed NO 1998 (3) SA 873 (W) at 887; Phasha v Southern Metropolitan Local
Council of the Greater Johannesburg Metropolitan Council 2000 (2) SA 455 (W) at 465-6; Krige v
Wallace; Wallace v Krige 1990 (3) SA 724 (C) at 744; Stockdale v Stockdale 2004 (1) SA 68 (C) para
15. See generally, Joubert (1971).
[40] Celliers v Papenfus and Rooth 1904 TS 73 at 79; Benoni Produce and Coal Co Ltd. v
Gundelfinger 1918 TPD 453 at 457; Blundell v McCawley 1948 (4) SA 473 (W) at 477; Krige v
Wallace; Wallace v Krige 1990 (3) SA 724 (C) at 744; Phasha v Southern Metropolitan Local Council
of the Greater Johannesburg Metropolitan Council 2000 (2) SA 455 (W) at 466.
[41] In Kelly v Holmes Bros 1927 OPD 29, De Villiers JP remarked (at 32): ‘[B]y the Roman-Dutch
law a future date fixed for the payment of money is considered to be stipulated for the benefit of the
debtor, so that he may waive that benefit and pay before the date fixed, unless it clearly appears
from the express words of the contract or (presumably) from other admissible considerations, that
the time stipulation was made for the benefit of the creditor as well as the debtor, or of the creditor
alone.’ In this case, the balance of the purchase price under a deed of sale carried interest at 6 per
cent and was payable in instalments over a period of four years. De Villiers JP held that the buyer
could claim transfer at any time by tendering the full balance with interest to the date of payment.
See also McCabe v Burisch 1930 TPD 261 at 265-6; Bernitz v Euvrard 1943 AD 595 at 602; De Bruyn
v Peypers 1955 (1) SA 483 (GW) at 487; Ebrahim NO v Hendricks 1975 (2) SA 78 (C) at 81; Ex parte
Minister of Justice 1978 (2) SA 572 (A) at 587; AA Farm Sales (Pty) Ltd (t/a AA Farms) v
Kirkaldy 1980 (1) SA 13 (A) at 19. Cf Roberts v Nourse (1892) 4 SAR 180 at 181.
There is a rebuttable presumption that a time clause was inserted for the benefit of the debtor.
See Van Leeuwen CF 1.4.4.31; Voet 12.1.20; 46.3.12.
In Kelly v Holmes Bros 1927 OPD 29 at 32, the court accepted that the mere fact that a debt
bears interest does not mean that the time clause operates wholly or partly for the creditor’s benefit.
This view was confirmed in McCabe v Burish 1930 TPD 261. The balance of the price in terms of a
deed of sale was payable in instalments with interest at 8 per cent. The court held that the buyer
could at any time tender the full balance of the price due with interest to date. Tindall J commented
(at 266): ‘It is true that the seller stipulated for interest at 8 per cent on the unpaid balance; but, as
pointed out in [Kelly v Holmes Bros 1927 OPD 29 at 32] . . ., the mere fact that a debt bears interest
is not sufficient to take it out of the general rule. And the rate of interest stipulated for in the present
case is not so unusually high as to justify any special inference.’ In Commissioner for Inland Revenue
v Cactus Investments (Pty) Ltd 1999 (1) SA 264 (T), Southwood J remarked (at 279): ‘Where
interest is payable on a debt and the future date is fixed solely for the benefit of the debtor, the
debtor can reduce his liability for interest by anticipating the date of payment.’
In Nedperm Bank Ltd v Lavarack 1996 (4) SA 30 (A), Nienaber JA observed (at 39): ‘In like
manner that a debtor is permitted, pace the contract, to make a payment in advance of an instalment
date (cf Bernitz v Euvrard 1943 AD 595 at 602), so too he is entitled to make a payment in excess of
its amount. Provided it was intended as a payment on account of the indebtedness and accepted as
such, the overpayment will discharge or reduce the indebtedness, as the case may be.’
[42] Saadien v Bradley 1931 CPD 276 at 277-8. In this case a sale of immovable property provided
that the seller was to give transfer within six months from the date of the sale. The court held that
this clause was for the benefit of the seller as well as the buyer and, accordingly, the buyer could not
insist on paying and obtaining transfer before expiry of the six-month period.
[43] See Voet 12.1.20; Van der Keessel Thes 542; Bernitz v Euvrard 1943 AD 595 at 602; Western
Bank Ltd v Hammond 1975 (2) SA 625 (T) at 630; Premier Finance Corporation (Pty) Ltd v
Ward 1976 (2) SA 816 (T) at 820; Hauptfleisch v Viviers 1977 (3) SA 1018 (T) at
1019; Commissioner for Inland Revenue v Cactus Investments (Pty) Ltd 1999 (1) SA 264 (T) at 279.
Cf Tillett v Willcox 1941 AD 100 at 107; Campbell v Ramlakan 1949 (3) SA 126 (D) at 127; Eyre v
Higgins 1949 (4) SA 803 (C) at 804.
[44] Section 125 of the National Credit Act 34 of 2005 allows a consumer (or guarantor) to ‘settle
the credit agreement’ at any time with or without advance notice to the credit provider by paying the
sum of (a) the unpaid balance of the principal debt at that time; (b) the unpaid interest charges and
all other fees and charges payable up to the settlement date; and (c) in the case of a large
agreement, an early termination charge. Cf Standard Credit Corporation Ltd v Kleyn 1988 (4) SA 441
(W) at 443-5; Allied Credit Trust (Pty) Ltd v Cupido and Another 1996 (2) SA 843 (C) 846-9; Western
Bank Ltd v Woodroffe 1976 (1) SA 482 (N) at 487-8.
[45] In Matador Buildings (Pty) Ltd v Harman 1971 (2) SA 21 (C), Diemont J remarked (at 27): ‘It
seems to me that where two parties to a contract — a creditor and a debtor — agree that the debtor
shall discharge his obligation by making payment to agent A, at Cape Town, the debtor cannot make
a valid payment to agent B, at Beaufort West. It does not matter whether B has implied authority or
not — the place of payment is wrong. If any authority is needed for this proposition I need only cite
Wessels, Contract, para 2258, where the learned author states: “If the contract specifically mentions
the place where the payment is to be made, then the debtor must carry out its terms and cannot
validly pay elsewhere without the creditor’s consent”.’ In Coloured Development Corporation Ltd v
Shabodien 1981 (1) SA 868 (C), Rose Innes J said (at 873): ‘[W]here there is express agreement as
to place of payment and it is ascertainable by interpretation of the very words of the parties, then
there is no room for implication by reason, for example, of the fact that the parties have adopted a
business practice over a long period of time, or that the creditor invites the use of the post. Those
implications are not needed whereby interpretation or construction the actual intention is
ascertainable. Thus, too, the common law as to place of payment where nothing is said, as discussed
and set out in the case of Venter v Venter 1949 (1) SA 768 (A), where, by rule of law, a place of
payment is propounded in the absence of anything being said by the parties, is irrelevant. . .’. See
also Buys v Roodt (nou Otto) 2000 (1) SA 535 (O) at 540-1.
If the parties have agreed that the debtor may pay his debt by depositing the relevant amount
into a bank account nominated by the creditor, then the debtor discharges his obligation by delivering
or transmitting the funds to the relevant bank and instructing it to credit the creditor’s account with
the payment. The debtor does not have to go further and ensure that the bank follows his instruction
and credits the correct account. See Cambanis Buildings (Pty) Ltd v Gal 1983 (2) SA 128 (NC) at 136.
In Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA) para 15, the court confirmed that if a branch of a
bank carries out its customer’s mandate to transfer funds from his account to the account of another
customer at the same branch, a complete and unconditional payment is effected, and the bank
cannot subsequently unilaterally reverse the transfer. Griesel AJA observed: ‘In executing that
mandate in the ordinary course of its business, the branch clearly intended to pay on behalf of [one
customer] . . . and to accept payment on behalf of the [the other]. . . . The fact that the branch
subsequently changed its mind cannot, in my view, undo the validity of the completed transaction. As
it was put by the court a quo: “Once the debit and credit occurred as they did, they constituted a
completed juristic act independent of any underlying justa causa”.’
[46] Cf Erwee v Naude 1915 OPD 85 at 85-6, in which the court did not apply the general rule of
the common law applicable to loan for use or consumption — that the borrower must return the
property at the place where it was lent — because the parties had tacitly agreed that the place of
repayment of the loan would be the lender’s new residence. See also Covaco (Pty) Ltd v Mohawk
Industries (Pty) Ltd 1969 (1) SA 409 (D) at 410, in which the court held that the effect of a lease not
specifying a place for payment of the rent brought into operation the common-law rules as to the
place for payment.
An example of a common-law naturalium governing the place of payment is the rule that a seller
of specific goods must deliver them at the place where they are when the contract is concluded. See
Pothier 512. An example of a statutory provision governing the place of payment is s 19(2) of the
Consumer Protection Act 68 of 2008, which provides that ‘unless otherwise expressly provided or
anticipated in an agreement, it is an implied condition of every transaction for the supply of goods or
services that . . . the supplier is responsible to deliver the goods or perform the services . . . at the
agreed place of delivery or performance; and . . . the agreed place of delivery of goods or
performance of services is the supplier’s place of business, if the supplier has one, and if not, the
supplier’s residence’.
[47] Segal v Mazzur 1920 CPD 635 at 641; Collet v Eva 1926 CPD 187 at 190; Northmore v Scala
Cinemas (Pty) Ltd 1936 TPD 280 at 285-6; Venter v Venter 1949 (1) SA 768 (A) at 778
(overruling Shapiro v Kotler and Rabinowitz 1935 WLD 60). Cf Schietekat v Naumov 1936 CPD 493 at
495-6. In Venter’s case, the court accepted (at 780) that the debtor in these circumstances may elect
to perform ‘at any convenient place where he may lawfully perform his contract’ — he is not
compelled, in other words, to perform where he finds the creditor or at the creditor’s residence or
place of business — but, in such a case, he bears the risk of the creditor not receiving the
performance timeously.
[48] In Northmore v Scala Cinemas (Pty) Ltd 1936 TPD 280, Maritz J explained the principle as
follows (at 285): ‘Where no time and no place for payment have been fixed . . . the creditor in order
to place the debtor in mora must seek him out and demand payment, the debtor before demand
having no means of knowing when the creditor wants his money. It seems to me, however, that
when a debtor promises to liquidate his indebtedness to his creditor within a definite time and no
place of payment is stated, the question as to where the payment has to be made loses its
importance. The debtor knows when he must pay and generally speaking it would not be
unreasonable to impose the duty on him of advising his creditor not only when he is going to pay but
also where he is going to pay.’ See also Maltz v Meyerthal 1920 TPD 338 at 341; Government v
Fisher’s Executrix 1921 TPD 328 at 333. Cf Patel v Desai 1928 TPD 443 at 448-9.
[49] In other words, if he has issued a demand (interpellatio) which will place the debtor in mora if
he fails to comply with it.
[50] Once again, the debtor is at liberty to dispense with locating the creditor and may make
payment at any place he considers convenient, but if he does this he runs the risk of the creditor not
receiving the funds in time.
[51] In Matador Buildings (Pty) Ltd v Harman 1971 (2) SA 21 (C) at 27, the stipulated place for
payment of rent was an office in Long Street and the lessee had purported to make payment to a
bank in Strand Street. The court held that in refusing to receive payment at the bank and forthwith
returning the cheque to the lessee, the lessor had acted within its rights.
[52] If the debtor performs at the wrong place and as a result the creditor does not receive
performance timeously, the creditor may hold the debtor liable for late payment. See eg Segal v
Mazzur 1920 CPD 635; Collet v Eva 1926 CPD 187; Northmore v Scala Cinemas (Pty) Ltd 1936 TPD
280; Gordon v Tarnow 1947 (3) SA 525 (A); Venter v Venter 1949 (1) SA 768 (A).
[53] Regulation 3(1)(c) of the Exchange Control Regulations (published in GN
R1111 GG Extraordinary 123 of 1 December 1961) provides that subject to any exemption which may
be granted by the Treasury (that is, the Minister of Finance: reg 1), no person shall, without
permission granted by the Treasury, make any payment to or on behalf of a person resident outside
the Republic, or place any sum to the credit of such person.
[54] See Barclays National Bank Ltd v Thompson 1985 (3) SA 778 (A) at 796 (overruling
earlier dicta and decisions to the opposite effect). Hoexter JA observed (at 794-5): ‘I am unable to
accept the argument that Treasury exemption or permission is a fact which entitles the plaintiff to
payment. This argument . . . confuses legal liability with performance. What entitles the plaintiff to
payment is the existence of a valid claim reinforced (should the court uphold it) by a judicial decree.
The presence or absence of Treasury exemption or permission is relevant only insofar as it may be
necessary to consider whether in making due performance of his legal and fully exigible obligation to
the judgment creditor the judgment debtor commits or does not commit the criminal offence created
by reg 22. The commission or avoidance of that offence by the judgment debtor has nothing
whatsoever to do with the independent existence of the plaintiff’s claim and its due enforcement by
legal process. . . . Regulation 3(1)(c) makes no reference whatever to legal proceedings. Had the
object behind reg 3(1)(c) been to make legal proceedings an instrument for the enforcement of reg
3(1)(c) by requiring Treasury exemption or permission as a prerequisite to an action for the payment
of money by a plaintiff living outside the Republic, it would have been a simple matter so to frame it.
Regulation 3(1)(c) is not so framed. . . . Embodied in the regulations is a criminal sanction which is
designed to enforce compliance therewith. The penalty prescribed for non-compliance is a stiff one. In
my view the Legislature was here content with the said criminal sanction as being sufficient to ensure
compliance with reg 3(1)(c).’ Hoexter JA added (at 796-7) that it was not open to the court to refuse
judgment on the ground that it would be ineffective in the absence of Treasury exemption or
permission. The judge endorsed the view of Beck 125 at 133, 135 that the doctrine of effectiveness
does not apply in this type of case and ‘[t]he purely economic requirement of exchange control . . . in
no way fetters the court’s jurisdiction or power [to grant judgment]’. See also Van Zyl and Others
NNO v The Master, Western Cape High Court 2013 (5) SA 71 (WCC) paras 26-30.
In Oilwell (Pty) Ltd v Protec International Ltd 2011 (4) SA 394 (SCA), Harms DP commented on
the implications of Barclays National Bank Ltd v Thompson 1985 (3) SA 778 (A). He pointed out (at
paras 24-5) that the Exchange Control Regulations are ‘for the public interest and not to protect any
private interests. They were adopted for the sake of the Treasury and not for the sake of disgruntled
or disaffected parties to a contract. This is apparent from the penalty provision. But, more
importantly, it appears from regs 22A, 22B and 22C. They provide that any money or goods, in
respect of which a contravention has been committed, may be attached by the Treasury; these may
be forfeited to the State; and any shortfall may be recovered by the Treasury from not only persons
involved in the commission of the offence, but also from anyone enriched or who has benefited as a
result thereof. To add irremediable invalidity to the transaction would amount to overkill and . . .
would lead to “greater inconveniences and impropriety”. . . . This does not mean that in the absence
of Treasury consent the transaction is enforceable without more. Parties who enter into a contract
that may conceivably be hit by the Regulations are, unless the contract provides otherwise . . ., both
obliged to take the necessary steps to obtain the Treasury’s consent. . . . This must be so because of
the supposition that the parties negotiated in good faith and intended to enter into an effective
contract. There is nothing preventing the Treasury from consenting to a transaction ex post facto, a
necessary corollary of the judgment in Barclays National Bank Ltd v Thompson. . . . This means that
the transaction, absent consent, is not void at the behest or election of one of the parties to it. A
party faced with a claim based on a transaction which that party believes is covered by the
Regulations can therefore not rely only on the lack of consent to avoid the claim. The defendant may
in appropriate circumstances file a dilatory plea pending the determination by the Treasury of its
application for the necessary consent. Once the Treasury refuses to grant consent, the defendant
would be entitled to resist the claim on that ground. If performance took place without consent,
neither party may claim restitution. It would then be for the Treasury to invoke regs 22A, 22B and
22C to undo the effect or proposed effect of the transaction.’
[55] Bush v BJ Kruger Incorporated [2013] 2 All SA 148 (GSJ) para 67.
[56] Tomson v Ross 1947 (2) SA 1233 (W) at 1235; Goldfields Confectionery and Bakery (Pty) Ltd
v Norman Adam (Pty) Ltd 1950 (2) SA 763 (T) at 772-3; Greenfield Engineering Works (Pty) Ltd v
NKR Construction (Pty) Ltd 1978 (4) SA 901 (N) at 908. Similarly, if the payment reaches the creditor
only after the due date, the debtor does not discharge his obligation. See eg Segal v Mazzur 1920
CPD 634 at 642.
[57] If the requirements are satisfied, the creditor bears any loss flowing from theft or
unauthorised appropriation of the payment.
[58] Dadoo & Sons Ltd v Administrator, Transvaal 1954 (2) SA 442 (T) at 445: ‘The legal position
appears to be that if a creditor requests a debtor to settle his debt by sending a cheque through the
post he agrees to run the risk of loss in the transit. By making this request he does not appoint the
post office his agent but he authorises the manner of payment. It will depend on the facts of each
case whether or not the request was actually made by the creditor.’ For similar statements of this
principle, see Goldfields Confectionery and Bakery (Pty) Ltd v Norman Adam (Pty) Ltd 1950 (2) SA
763 (T) at 769; Greenfield Engineering Works (Pty) Ltd v NKR Construction (Pty) Ltd 1978 (4) SA 901
(N) at 908; Mannesmann Demag (Pty) Ltd v Romatex Ltd 1988 (4) SA 383 (D) at 389. See also Segal
v Mazzur 1920 CPD 634 at 642; Barclays National Bank Ltd v Wall 1983 (1) SA 149 (A) at 156-7;
Hahlo 211; Boberg 124.
The request or authorisation to use the post may form part of the parties’ original agreement, but
it need not do so. In Mannesmann Demag (Pty) Ltd v Romatex Ltd 1988 (4) SA 383 (D), Nienaber J
pointed out (at 389-90) that ‘[m]ore often than not the request [to use the post] only reaches the
debtor [after formation of the original contract]. . . . In that event, if the debtor accedes to the
request, the parties have reached agreement about the particular mode of performance to be
employed in that particular instance. It is a term of this subsequent agreement that the creditor
assumes the risks of any inadequacies in the method selected by him. And to the extent that it is
presented, as it invariably is, as a proposition of law, the term becomes one that is implied by law.
This implied term is not, however, inviolable.’
A request or authority to use the post to effect payment may be implied from the circumstances of
the case. See, for example, HK Outfitters (Pty) Ltd v Legal & General Assurance Society Ltd 1975 (1)
SA 55 (T) at 62.
•
An important consideration in deciding whether the creditor has tacitly requested or authorised a
posted payment is whether he has provided only a post office address for communicating with
him. The mere fact that the creditor gives a post office address as one of his addresses is
obviously not enough. See Goldfields Confectionery and Bakery (Pty) Ltd v Norman Adam (Pty)
Ltd 1950 (2) SA 763 (T) at 770-2.
•
In Dadoo & Sons Ltd v Administrator, Transvaal 1954 (2) SA 442 (T) the court was divided on
the question whether a request to pay by post may be implied from the fact that the parties are
located some distance apart. Blackwell J considered that common sense suggests that there is
an implied invitation to use the post to make payment if the creditor is ‘in a town so distant as
to rule out, in ordinary commercial usage, the possibility of employment of a special
messenger’(at 444). Rumpff J, by contrast, was of the view that the mere fact that the debtor
and creditor live in different towns is not sufficient to imply a request to be paid by cheque
through the post, even where the creditor knows or expects that the debtor will send a cheque
through the post (at 445).
•
The courts have accepted that mere knowledge or expectation by the creditor that the debtor
will send a cheque through the post is not a sufficient ground for implying a request or authority
for the debtor to do this. See Segal v Mazzur 1920 CPD 634 at 642; Tomson v Ross 1947 (2) SA
1233 (W); Goldfields Confectionery and Bakery (Pty) Ltd v Norman Adam (Pty) Ltd 1950 (2) SA
763 (T) at 770; HK Outfitters (Pty) Ltd v Legal & General Assurance Society Ltd 1975 (1) SA 55
(T) at 62; Barclays National Bank Ltd v Wall 1983 (1) SA 149 (A) at 159; Stabilpave (Pty) Ltd v
South African Revenue Service 2014 (1) SA 350 (SCA) para 13. In the Stabilpave case, the
debtor (SARS) had given the creditor a tax assessment form which indicated that it (SARS)
intended to pay the creditor by cheque through the post because the creditor’s tax record did
not contain the banking particulars required for an electronic transfer. The court held (at para
13) that the mere fact that the creditor expected to be paid by cheque through the post and
raised no objection to this did not give rise to a tacit request or election by the creditor to be
paid in this way. See also Nagel & Pretorius 482.
[59] Cf Greenfield Engineering Works (Pty) Ltd v NKR Construction (Pty) Ltd 1978 (4) SA 901 (N)
at 910-11; Mannesmann Demag (Pty) Ltd v Romatex Ltd and Another 1988 (4) SA 383 (D) at 391-2.
It is suggested that where contractants agree on the posting of a cheque, they normally also tacitly
agree — especially where a substantial sum is involved — that the debtor will adopt the following
recognised safeguards to minimise the risk of theft and unauthorised payment: accurately state the
creditor’s name (as provided by the creditor), cross the cheque, make the cheque payable to order
(not bearer), and mark the instrument ‘not transferable’ or, at least, ‘not negotiable’.
[60] In Mannesmann Demag (Pty) Ltd v Romatex Ltd 1988 (4) SA 383 (D), Nienaber J remarked
(at 389): ‘Evidence of a regular routine or office practice from which an inference of due posting can
be drawn would be sufficient to prove, on a balance of probability, that the cheque was posted.’
Cf Barclays National Bank Ltd v Wall 1983 (1) SA 149 (A) at 157.
[61] The mandate arising from a cheque requires the drawee bank to make payment in due course;
that is, payment to the holder of the instrument, unless the holder’s title is defective and the bank
has had notice of this: Bills of Exchange Act 34 of 1964 s 1 sv ‘payment in due course’. In principle, if
the bank pays anyone other than the holder, it is not entitled to debit the drawer’s account. However,
the Bills of Exchange Act makes inroads into this principle. See chapter 8 para 8.2.2. See also
Sharrock & Kidd 163-6.
[62] In Coloured Development Corporation Ltd v Sahabodien 1981 (1) SA 868 (C), Rose Innes J
explained this principle as follows (at 872-3): ‘There is nothing exceptional or untoward or unusual for
a creditor, while transacting business through the post, to stipulate that he shall not regard any
performance by the debtor as having been completed, notwithstanding that the post office be used,
until the performance reaches his hand and his pocket in the place where he does business. The
analogy of the acceptance of an offer by a letter through the post seems to me an apposite one. . . .
There is an assumption, where the post is the designated method of transacting the business, that
the acceptance is concluded at the moment and at the place of the posting of the letter of acceptance
and not at the time and place of the receipt of that letter. But if an offeror, in his offer, using the
post, stipulates that there shall be no conveyance of the acceptance so as to conclude [the]
agreement, until the letter of acceptance shall be received by him and read by him, clearly there can
be no acceptance of the offer merely by the posting of the letter accepting it. It seems to me that
that analogy applies, and validly applies, to the situation where there is an agreement as to the mode
of payment and where, in addition to the authorisation of the use of the post for the effecting of a
payment, there is a stipulation that before payment is perfect it must be received.’
[63] A contractual debt involves a delectus personae if the contract expressly requires the debtor to
perform in person or if it appears from the terms of the contract or the circumstances that only the
debtor can properly execute the promised performance. This is the position, for example, where the
rendering of the promised performance requires a particular skill or capacity which only the debtor
possesses or where the desired quality or value of the performance is dependent on its being
rendered by the debtor. See Voet 46.3.1; Pothier para 207; Corrans v Transvaal Government and
Coull’s Trustee 1909 TS 605 at 614.
[64] See Voet 46.3.1. If the debtor and the creditor both appoint the same bank as agent for
purposes of payment, and the bank fails to transfer funds between the parties’ respective accounts
with the bank, the obligation is not discharged and the debtor is liable for non-performance.
See Cambanis Buildings (Pty) Ltd v Gal 1983 (2) SA 128 (NC) at 136. In this case, a sublessee had
by means of a stop-order, instructed a bank to deduct a monthly amount (the rental amount) from
his account at the bank and transfer it into the account of the landlord at the same bank. The bank
failed to carry out the instruction for one month even though the sublessee had deposited sufficient
funds in his account. The court accepted that the bank was the agent of the landlord to receive the
rental. The sublessee’s depositing of the required amount at the bank was not sufficient to discharge
his liability. A further step was necessary (transfer of the amount into the account of the landlord)
and for this step the sublessee had appointed the bank as his agent. However, the bank had failed to
execute his instruction. Steenkamp J observed (136): ‘To my mind there is no substance in the
argument of [the sublessee] that the mere depositing at the bank of an amount to be credited to his
own account should be considered as proper payment in terms of the lease agreement. If the
[sublessee’s] agent, the bank, has failed to carry out its obligations in terms of the stop-order, the [
the sublessee] has to bear the consequences.’
If the debtor’s agent pays more than is owed, the debtor may seek a refund on the basis of
unjustified enrichment. The agent is not entitled to claim the refund. See Bowman, De Wet and Du
Plessis NNO v Fidelity Bank Ltd 1997 (2) SA 35 (A) at 43.
[65] Corrans v Transvaal Government and Coull’s Trustee 1909 TS 605 at 612-14, 622-4, 627-
8; Alexander NO v Administrator, Transvaal 1974 (2) SA 248 (T) at 255.
[66] For an example of this, see APA Network Consultants (Pty) Ltd v Absa Bank Ltd 1996 (1) SA
1159 (W) at 1165-6.
[67] In Pienaar v Boland Bank 1986 (4) SA 102 (O), Lichtenberg J remarked (at 110-11): ‘The legal
position is that if a debt is owed by a debtor to a creditor, then the payment by a stranger of such
debt or an offer of payment by a stranger of such debt which is made for and on behalf of, and in
respect of, the debtor’s debt constitutes payment or tender, as the case may be, as effectually as if it
were made by the debtor himself. This is so even if the creditor objects to the payment or tender
where it makes no difference to the creditor by whom performance is made or tendered, eg where
the debt is a money-debt, and the creditor is in such a case obliged to accept the payment or tender.
. . . Where the creditor is in law obliged to accept the performance tendered, the debtor — and, on
the premise relevant in the present case, the stranger making payment or tender thereof on his
behalf — must surely have a concomitant right to force the creditor to accept such performance: ubi
jus, ibi remedium . . .’ See also Grotius 3.39.10; Van Leeuwen CF 1.4.32.3; Voet 46.3.1; Pothier para
464; Union Bank v Beyers (1884) 3 SC 89 at 102; Bousfield v The Divisional Council of
Stutterheim (1902) 19 SC 64 at 70-1; Rolfes, Nebel & Co v Zweigenhaft 1903 TS 185 at 195; Estate
Thomas v Kerr (1903) 20 SC 354 at 367; Landers v Vogel (1906) 27 NLR 458 at 461; Rossler v
Kemsley Millbourn Acceptance Corporation (Pty) Ltd 1931 NPD 335 at 344; Reliance Agencies (Pty)
Ltd v Patel 1946 CPD 463 at 473; Commissioner for Inland Revenue v Visser 1959 (1) SA 452 (A) at
457-8; Froman v Robertson 1971 (1) SA 115 (A) at 124, 126; Info Plus v Scheelke 1998 (3) SA 184
(SCA) at 192; YST Properties CC v Ethekwini Municipality 2010 (2) SA 98 (D) para 45.
Payment by a third person obviously does not give rise to privity of contract between the third
person and the creditor: see Landers v Vogel (1906) 27 NLR 458 at 461. If the obligation
subsequently fails, the third person cannot recover what he has paid; only the debtor can do so.
See Eksteen v Kruger 1962 (3) SA 133 at 141-2. Cf Hazis v Transvaal and Delagoa Bay Investment
Co Ltd 1938 WLD 167 at 172.
A third person who performs against the will of the debtor may have no claim for reimbursement
on the basis of negotiorum gestio. See 213 fn 72.
[68] Pothier para 464; Bousfield v The Divisional Council of Stutterheim (1902) 19 SC 64 at 70-
2; Reliance Agencies (Pty) Ltd v Patel 1946 CPD 463 at 473; Froman v Robertson 1971 (1) SA 115
(A) at 126-7; Pienaar v Boland Bank 1986 (4) SA 102 (O) at 110; Wessels paras 2133-4.
If the creditor may not object to payment being made by a third person, it follows that the
consent of the creditor is not needed to validate an agreement between the debtor and a third person
that the latter will discharge the debtor’s obligation to the creditor. See Randcoal Services Ltd v
Randgold and Exploration Co Ltd 1998 (4) SA 825 (SCA) at 837. Van Heerden DCJ remarked (at
837): ‘If A is a debtor of B nothing prevents A and C from agreeing that with immediate effect C will
discharge A’s obligation. . . . [T]he agreement between A and C is . . . enforceable by A even if B’s
consent cannot be obtained. It is . . . a simple case of one party undertaking to discharge the other’s
debt.’
[69] Van Leeuwen CF 1.4.32.3; Estate Thomas v Kerr (1903) 20 SC 354 at 367; Rossler v Kemsley
Millbourn Acceptance Corporation (Pty) Ltd 1931 NPD 335 at 344-5; Commissioner for Inland
Revenue v Visser 1959 (1) SA 452 (A) at 457-8; Pienaar v Boland Bank 1986 (4) SA 102 (O) at
110; Absa Bank Limited v Lombard Insurance Co Ltd 2012 (6) 569 (SCA) para 18. Cf Traub v
Barclays National Bank Ltd; Kalk v Barclays National Bank Ltd 1983 (3) SA 619 (A) at 632. See also
Wessels para 2134.
According to B & H Engineering v First National Bank of SA Ltd 1995 (2) SA 279 (A) at 293, where
a debtor draws a cheque in favour of the creditor and the bank pays out on the cheque, the bank
does not make payment for or in the name of the debtor, but executes a neutral act. The payment
nevertheless discharges the debtor’s obligation because the parties, in agreeing to give and take a
cheque, accept that payment by the bank is all that must occur for the obligation to be discharged.
The debtor, in effect, pays ‘his own debt through the instrumentality of the bank’.
If a third person makes payment in his own name, in the mistaken belief that he is the debtor and
owes the debt in question, the debt is not discharged and the third party may bring a condictio
indebiti to recover what he has performed. See Voet 12.6.9. Cf Klug and Klug v Penkin 1932 CPD 401
at 404; Absa Bank Ltd t/a Bankfin v Stander t/a CAW Paneelkloppers 1998 (1) SA 939 (C) at 944,
957; D Visser 578.
[70] Blake v Wickham & Hattingh 1952 (1) PH A14 (O).
[71] Mitchell Cotts & Co v Commissioner of Railways 1905 TS 349 at 358, 361, 362-3; Shaw v
Burger 1994 (1) SA 529 (C) at 534. Cf Standard Bank of SA Ltd v Nair (Bissessur and Another, Third
Parties) 2001 (1) SA 998 (D) at 1006-7.
[72] The right of recovery exists where (i) the third person, in making the payment, acted
reasonably (as a bonus paterfamilias would have done) and with the intention of promoting the
interests of the debtor and being reimbursed for doing so (not animo donandi) and (ii) the debtor did
not authorise or ratify the payment. The third party’s claim for reimbursement in these circumstances
is based on negotiorum gestio (the actio negotiorum gestorum contraria) and is for the full amount
paid, regardless of whether the payment actually benefited or enriched the debtor. See Amod Salie v
Ragoon 1903 TS 100 at 103; Williams’ Estate v Molenschoot and Schep (Pty) Ltd 1939 CPD 360 at
371-2. Cf Gouws v Jester Pools (Pty) Ltd 1968 (3) SA 563 (T) at 571-2; Standard Bank Financial
Services Ltd v Taylam 1979 (2) SA 383 (C) at 387-8; Kirsten v Bankorp Ltd 1993 (4) SA 649 (C) at
659; Maritime Motors (Pty) Ltd v Von Steiger 2001 (2) SA 584 (SEC) at 599-600.
The third person is not precluded from obtaining reimbursement where he made the payment out
of self-interest (sui lucri causa) and not with the intention of promoting the interests of the debtor,
provided the other elements of the actio negotiorum gestorum contraria are satisfied. The third
person’s claim in these circumstances is the ‘extended’ or ‘quasi’ actio negotiorum gestorum
contraria (also called the actio negotiorum gestorum utilis), which is founded on unjustified
enrichment; so the third person is entitled to recover the amount of the payment or the debtor’s
enrichment, whichever is the lesser. See D 3.5.6(3); Voet 3.5.9; Odendaal v Van Oudtshoorn 1968
(3) SA 433 (T) at 437-43; Standard Bank Financial Services Ltd v Taylam 1979 (2) SA 383 (C) at
387. Cf New Club Garage v Milborrow and Son 1931 GWLD 86 at 99-100; Harman’s Estate v
Bartholomew 1955 (2) SA 302 (N) at 308; Louw v WP (Koöperatief) Bpk 1998 (2) SA 418 (SCA) at
430. The courts initially disallowed a claim for reimbursement where the third person had acted out of
self-interest (see eg Bernstein v Tayler (1888) 5 HCG 258, 266; Shaw v Kirby 1924 GWLD 33 at
36; Van Staden v Pretorius 1965 (1) SA 852 (T) at 854-5) but the view adopted in these cases has
not prevailed.
Recovery with the extended actio negotiorum gestorum contraria is also competent where the
third person made the payment in the mistaken belief that he was contractually obliged to make it
(cf Knoll v SA Flooring Industries Ltd 1951 (1) SA 404 (T) at 408; B & H Engineering v First National
Bank of SA Ltd 1995 (2) SA 279 (A) at 295), or that he was was managing his own affairs: cf Absa
Bank Ltd t/a Bankfin v Stander t/a CAW Paneelkloppers 1998 (1) SA 939 (C) at 944, 957.
According to Standard Bank Financial Services Ltd v Taylam 1979 (2) SA 383 (C), reimbursement
with the extended actio negotiorum gestorum contraria is possible even where the third party made
the payment out of self-interest and contrary to the express wishes of the debtor, provided the third
party can establish that the payment did not amount to ‘indiscriminate or gratuitous meddling’ in the
affairs of the debtor and that both parties had a ‘real interest’ in the payment being made, so the
payment was necessary to achieve ‘justice between man and man’. Van Zyl JP explained the relevant
principles as follows (at 392-3): ‘It has been contended that the granting of an action on the grounds
of unjust enrichment where the gestor has sui lucri causa meddled in the domini’s affairs against his
expressed wishes is a very wild and unbridled horse to saddle. This, in fact, is not so. The horse may
be a bit wild but it is certainly not unbridled. The circumstances in which the payment was made
contrary to the wishes of the dominus are always an important factor in determining whether the
payment was or was not justly done. The law does not allow rights to be acquired by meddling
indiscriminately in the affairs of another, but meddling is allowed in circumstances where such
meddling is necessary in order to do justice between man and man. [See eg Odendaal v Van
Oudtshoorn 1968 (3) SA 433 (T)]. There was not a gratuitous interference in the affairs of
the dominus. The interference took place to give proper effect to a contract which the dominus had
entered into with the gestor. Had the gestor not acted sui lucri causa, but to give effect to the
contract which the dominus had entered into with a third party, the negotiorum gestorum relationship
could well have been created. It is this link that allows the equitable action to arise in the shadow of
the actio negotiorum gestorum contraria. This link is also a portion of the bridle that prevents
indiscriminate or gratuitous meddling in the affairs of another. Where there is a meddling in the
affairs of another in own interest against the expressed wishes of the other, it is even more important
that the meddling should not be gratuitous, but that both parties should have a real interest in the
matter that is meddled with. It is not only the meddling that must not be gratuitous, but there must
not be a gratuitous disregard of the wishes of the dominus. In fact, there must be some just cause for
disregarding his wishes. The public spiritedness and the good neighbourliness that occasions the
concern for the affairs of another must be present to bring the matter within the ambit of the actio
negotiorum gestorum contraria. . . . There can be no question of unjust enrichment if a debt that was
not owing is paid or more is paid than was due and where payment was made contrary to the wishes
of the debtor and a retention right is lost. It may be to the very real disadvantage of the debtor. The
payment of a debt in circumstances depriving the debtor of the opportunity of bargaining with his
creditors or placing the debtor in a weaker position to effect a compromise may also not be to the
advantage of the debtor.’ See also Colonial Government v Smith & Co (1901) 18 SC 380 at 392-
3; Blesbok Eiendomsagentskap v Cantamessa 1991 (2) SA 712 (T) at 717-8; Kirsten v Bankorp
Ltd 1993 (4) SA 649 (C) at 659. For critical discussion of Standard Bank Financial Services v Taylam,
see Van Zyl Negotiorum Gestio 110; Eiselen & Pienaar 228; D Visser 586-7. Generally, see Wessels
paras 3555-78; 3613-33; Van Zyl Saakwaarnemingsaksie ch 4; Vos 39-40, 83-6, 213-18; Eiselen &
Pienaar 205; D Visser 573-8, 581-7.
[73] This is so, even if the debtor provided the third party with money to pay the debt.
See Scheepers v Innes (1879) 9 Buch 16 at 17, in which it was accepted that the mere receipt of
money to be paid to another person does not give the latter a right of action against the receiver.
[74] For breach of a warranty that the third person will make the payment.
[75] Grotius 3.3.3; Voet 45.1.5; Groenewegen 3.20.3; Aronowitz v Atkinson 1936 SR 45 at 48-9;
Wessels para 454. In Aronowitz v Atkinson 1936 SR 45 the court accepted that a contractual
undertaking that a third person will do or give something is binding in South African law, and if the
third person fails to do or give what is promised, the creditor may hold the debtor liable in damages.
[76] Grotius 3.39.7; Harrismith Board of Executors v Odendaal 1923 AD 530 at 539 (‘Payment is
the delivery of what is owed . . . to a person competent to receive [it]’). If the creditor is deceased or
if his estate has been sequestrated, the executor or trustee of the estate is recognised as the party
competent to receive payment in discharge of the obligation. See Pothier para 478. If the creditor has
ceded his right, the cessionary is (as a rule) the only party who is competent to receive performance.
See eg LAWSA ‘Cession’ paras 173, 175.
[77] Payment to the agent is regarded in law as payment to the creditor and discharges the
obligation. See Baker v Probert 1985 (3) SA 429 (A) at 438-9; Viljoen v Trakman NO 1994 (3) SA
116 (A) at 126-7. See also Minister of Agriculture and Land Affairs v De Klerk 2014 (1) SA 212 (SCA)
paras 13-14. The position is not altered by the fact that the agent or third person is subsequently
unable for some reason (for example, supervening insolvency) to pass on the funds to the creditor.
See Baker v Probert 1985 (3) SA 429 (A) at 438. Cf Premier Milling Co (Pty) Ltd v Van der Merwe and
Others NNO 1989 (2) SA 1 (A) at 9.
Whether payment to an agent results in the debt being discharged depends on whether the agent
has authority to accept payment on the creditor’s behalf in discharge of the debt. If, for example, the
agent is authorised merely to receive the payment pending the creditor’s instructions and has no
authority to accept it in discharge of the debt, then payment does not take place until the creditor
gives his acceptance, expressly or tacitly. Cf Baker v Probert 1985 (3) SA 429 (A) at 439; Minister of
Agriculture and Land Affairs v De Klerk s2014 (1) SA 212 (SCA) para 16. In each instance, the debtor
must show that the agent whom he paid had express, tacit or implied authority to accept the
payment on behalf of the creditor in discharge of the debt, or that the creditor is estopped from
denying that he had such authority, or that the creditor ratified the agent’s acceptance of the
payment in discharge of the debt. See Voet 46.3.4, 5; Pothier para 492. Cf Roberts v Bryer Bros 1931
OPD 197 at 198-9; Bird v Summerville 1961 (3) SA 194 (A) at 204. The mere fact that the person to
whom payment is made is the creditor’s agent for certain purposes does not mean that he has
authority to accept the payment in discharge of the debt. So, for example, the following agents do
not have the required authority: an agent to book orders: Roberts v Bryer Bros 1931 OPD 197 at
199; an agent to procure loan applications: Loan, Trust and Agency Co v Victor (1869) 2 Buch 58 at
65-6; an agent to sell: Tank v Jacobs (1881) 1 SC 289 at 290; Field & Co v Marks & Co (1897) 12
EDC 13, 21; Mangold Brothers v De Klerk (1905) 19 EDC 255, 261; and an estate agent: Earlie
Homes Estates v Miller 1977 (4) SA 288 (C) at 290; Van Vliet v Adler, Kessly and Salomon 1979 (3)
SA 1156 (W) at 1161; Baker v Probert 1985 (3) SA 429 (A) at 439.
In Verbeek v Maher 1978 (1) SA 61 (N) at 67-8, it was held, with reference to Sorrel v
Finch (1976) 2 All ER 371 (HL) at 379, 380, that if a buyer of property pays a deposit to an estate
agent to be held in trust pending transfer of the merx, the estate agent holds the deposit as a
sequester or stakeholder. This construction was followed in Sadie v Currie’s City (Pty) Ltd 1979 (1)
SA 363 (T) at 365, where it was held the estate agent in these circumstances is not the agent of
either of the parties and occupies a position that is sui generis. In Baker v Probert 1985 (3) SA 429
(A) at 442-4, the court rejected this view and confirmed that the estate agent receives the deposit as
agent of the seller.
The court in Stopforth Swanepoel & Brewis Inc v Royal Anthem (Pty) Ltd 2015 (2) SA 539 (CC)
evidently overlooked the principles governing payment to an agent. The question was whether, upon
the failure of a sale of immovable property, the seller was obliged to refund a deposit and an amount
of transfer duty that the buyer had paid to the attorneys appointed as conveyancers to attend to
transfer of the property. This depended on whether the seller had authorised the attorneys to accept
the payments on its behalf in discharge of the relevant obligations of the buyer under the sale
agreement. However, the court did not consider this specific issue. It reasoned (at para 30) that the
seller was liable to refund the payments to the buyer because the attorneys had ‘acted on instructions
from [the seller]’ and had been ‘obliged [by law] to keep the funds in an interest-bearing trust
account’, so ‘the payment into the attorneys’ account ought to have been regarded as payment to
[the seller]’.
If an agent has authority to accept payment, but his authority is limited to accepting payment in
cash, the debtor does not discharge his obligation by using some other method of payment, such as a
promissory note or cheque. In Esterhuyse v Selection Cartage (Pty) Ltd 1965 (1) SA 360 (W), Trollip
J observed (at 361): ‘In the absence . . . [of any] contractual definition of the medium [of payment],
the payment must be made in legal tender. In that case, a tender of payment by cheque, if objected
to by the creditor, is not valid.’ See also African Motherhood Endowment Society v Mostert 1923 CPD
26 at 28 (‘an agent to receive money is not authorised to take something else in lieu of money,
unless he has special authority to that effect’).
If an agent is authorised to accept payment by cheque, the debtor discharges the debt by handing
the cheque to the agent (provided, of course, the cheque is subsequently honoured). In Rhodes
Motors (Pvt) Ltd v Pringle-Wood 1965 (4) SA 40 (SRA), the creditor’s agent had authority to accept
payment by cheque and to instruct customers to draw cheques in favour of the creditor. In breach of
this authority, the agent had the debtor make out a cheque in favour of another company. The
cheque was met on presentation. The court held that the debtor had discharged his liability to the
creditor. MacDonald AJA remarked (at 46): ‘[The agent] was employed . . . to instruct customers to
draw cheques in favour of his employer and his employer is answerable for the manner in which he
conducted himself in carrying out this duty. It was . . . clearly within the scope of [the agent’s]
ostensible authority to advise a customer of the appropriate method of drawing a cheque in favour of
his employer and the misrepresentation made by [the agent] in this connection is binding on [the
creditor]’.
[78] Standard Bank of SA Ltd v Harris and Another NNO (JA du Toit Inc intervening) 2003 (2) SA
23 (SCA) para 17; De Villiers and Another NNO v BOE Bank Ltd 2004 (3) SA 1 (SCA) para 59.
[79] The creditor may be estopped from denying the ‘agent’s’ authority to accept performance if he
fails to give adequate notice of revocation to the debtor.
[80] Pothier para 480: ‘Sometimes in contracts, whereby one man enters into an obligation to pay
something to another, a third person is indicated, a payment to whom shall be considered as made to
the creditor; such a person has a capacity to receive for the creditor by the agreement itself; and
consequently a payment to him is as effectual as one to the creditor. Such third persons, to whom it
is agreed that the debtor shall pay, are called by the Roman Jurists, adjecta solutionis gratia. The
persons so indicated are usually creditors of the creditor indicating them. For instance, you sell me an
estate for 10 000 l and it is stipulated by the contract that I shall pay the money in your discharge to
a third person, who is your creditor to that amount.’ In Kopman v Benjamin 1951 (1) SA 882 (W) at
886, Roper J described an adjectus solutionis causa as ‘a person, other than the creditor, to whom,
by agreement between the parties, the debtor is entitled to pay what is due to the creditor, and so
discharge his obligation.’
An adiectus solutionis causa is not a party to the contract and cannot sue on it in his own name.
His right is restricted to receiving payment from the debtor. See Compaan v Dorbyl Structural
Engineering (Pty) Ltd t/a Brownbuilt Metal Sections 1983 (4) SA 107 (T) at 110-11; Stupel & Berman
Inc v Rodel Financial Services (Pty) Ltd 2015 (3) SA 36 (SCA) para 15. He should not be confused
with the third contractant in a tripartite contract (see eg Shaw NO v Burger 1994 (1) SA 529 (C) at
534); or an adstipulator (beneficiary) in a stipulatio alteri. See, for example Thal NO v Baltic Timber
Co 1935 CPD 110 at 116; Kopman v Benjamin 1951 (1) SA 882 (W) at 886; Malelane
Suikerkorporasie (Edms) Bpk v Streak 1970 (4) SA 478 (T) at 483; JR 209 Investments (Pty) Ltd v
Pine Villa Estate (Pty) Ltd; Pine Villa Estate (Pty) Ltd v JR 209 Investments (Pty) Ltd 2009 (4) SA 302
(SCA) para 15.
[81] Pothier para 489 explains this point as follows: ‘A person to whom the creditor has indicated
the payment to be made by the agreement itself, is very different from one who has merely an
authority from the creditor to receive. The power of paying to a person having a simple authority
ceases by a revocation of the authority notified to the debtor, which the creditor may make at
pleasure. The reason is that such a right of payment being founded merely upon the procuration of
the creditor, which like every other procuration is revocable, it follows, that as the procuration is
determined by the revocation, the right founded by it must determine also. On the contrary, the right
of paying to the person indicated by the agreement being founded upon the agreement itself, of
which it constitutes a part, and which cannot be derogated from, but by mutual consent, the creditor
cannot deprive the debtor of it, and the debtor, notwithstanding any prohibition by the creditor, may
according to the law of the agreement, pay to the person indicated: this is laid down by the law.’ See
also Steward’s Trustee v Altensted (1899) 13 EDC 151 at 158-9; Norman Kennedy v Norman
Kennedy Ltd; Judicial Managers Norman Kennedy Ltd NO v Reinforcing Steel Co Ltd 1947 (1) SA 790
(C) at 802: Stupel & Berman Inc v Rodel Financial Services (Pty) Ltd 2015 (3) SA 36 (SCA) paras 14-
15.
[82] Pothier para 489 states the principle as follows: ‘[I]f the creditor alleges that he has reasons
for objecting to the payment being made to [the] . . . person indicated by the contract, and the
debtor has no interest in paying to that person, rather than to the creditor himself, or any other
indicated by him, in lieu of the person indicated by the contract; to insist upon paying to the person
indicated would be a degree of ill-humour and unreasonable obstinacy on the part of the debtor,
which justice must disapprove.’ See also Casssim v Latha 1930 TPD 659 at 662; Thal NO v Baltic
Timber Co 1935 CPD 110 at 115; Mahomed v Lockat Bros & Co Ltd 1944 AD 230 at 237-8; Norman
Kennedy v Norman Kennedy Ltd; Judicial Managers Norman Kennedy Ltd NO v Reinforcing Steel Co
Ltd 1947 (1) SA 790 (C) at 802; Surtees NO and Heath NO v Wire Industries Steel Products and
Engineering Co (Coastal) Ltd 1952 (4) SA 291 (O) at 298; Palmer v President Insurance Co Ltd 1967
(1) SA 673 (O) at 678.
It follows that the creditor cannot unilaterally prevent payment to the adiectus if the right to pay
the adiectus is of value to the debtor. An example of such a right is the right of the owner in a
building contract to pay subcontractors or suppliers of materials. This enables the owner to ensure
continuity of work where the contractor gets into financial difficulties and cannot pay workers or
suppliers of materials. See Norman Kennedy v Norman Kennedy Ltd; Judicial Managers Norman
Kennedy Ltd NO v Reinforcing Steel Co Ltd 1947 (1) SA 790 (C) at 802-4.
Certain dicta in Casssim v Latha 1930 TPD 659 at 662-3 suggest that a creditor may prohibit
payment to an adiectus solutionis causa provided only there is no prejudice to the debtor. In Norman
Kennedy v Norman Kennedy Ltd; Judicial Managers Norman Kennedy Ltd NO v Reinforcing Steel Co
Ltd 1947 (1) SA 790 (C) at 803 and in Palmer v President Insurance Co Ltd 1967 (1) SA 673 (O) at
677-8 these dicta were rejected as too widely stated.
[83] If the creditor ratifies the receipt of performance by his creditor; in other words, confers
authority on him ex post facto to receive performance on his behalf, then the debtor is discharged.
See Pothier para 492.
[84] Bouwer NO v Saambou Bank Bpk 1993 (4) SA 492 (T) at 501. The court adopted a narrower
view than that taken in earlier cases, that the debtor is discharged to the extent that the performance
benefits or enriches the creditor. See Resnik v Lekhethoa 1950 (3) SA 263 (T) at 266-7; Pettigrew
(Pvt) Ltd v Cone Textiles (Pvt) Ltd t/a Darryn Textile Mills 1976 (3) SA 569 (R) at 572. Cf Harman’s
Estate v Bartholomew 1955 (2) SA 302 (N) at 303, 307-8.
[85] For example, the creditor may have more pressing debts to discharge than the one selected by
the debtor, or may have a good reason for using the money for some other purpose.
[86] See Schulze (1994) 128.
[87] Voet 46.3.15; Price v Natal Bank (1887) 8 NLR 153 at 155; Van Noorden v De Jongh and
Hofmeyer (1892) 9 SC 296, 298; National Bank of South Africa Ltd v Leon Levson Studios Ltd 1913
WLD 11 at 16; Liebenberg v Loubser 1938 TPD 414 at 415. The debtor may not demand, as a
precondition for his making payment, that the creditor to sign a receipt and post it to him. See Reid v
Carnofsky’s Trustee 1910 EDL 166, 173. Kotzé JP remarked (at 173): ‘This is not an instance where a
tender is made by cheque transmitted by letter, accompanied with the request that a receipt should
be sent in return . . . Such a tender would not be conditional.’
[88] Price v Natal Bank (1887) 8 NLR 153 at 155.
[89] The rules of appropriation of payments derive from Roman law and have remained largely
unchanged since Roman times. For a statement of the rules, see Grotius 3.39.15; Voet 46.3.16; Van
der Linden Inst 1.18.1; Pothier paras 528-35. See also eg Executors of Jacob Watermeyer v Executor
of EB Watermeyer (1870) 3 Buch 69 at 72; Insolvent Estate of Wilhelm v Shepstone (1878) 1 NLR 1
at 4-5; Jefferson, Executor of Stewart v De Morgan (1882) 2 EDC 205 at 211-12; Wolhuter v
Zeederberg (1884) 3 HCG 437 at 440-1; Scott v Sytner (1891) 9 SC 50 at 53; Brink NO v The High
Sheriff (1895) 12 SC 414 at 420-1; Macrae v National Bank of SA Ltd 1927 AD 62 at 66-7; R v
Sanyambira 1941 SR 119 at 120-1; Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995
(4) SA 510 (C) at 572; Pfeiffer v First National Bank of SA Ltd 1998 (3) SA 1018 (SCA) at 1025-6;
Wessels paras 2306-13.
[90] See eg Pfeiffer v First National Bank of SA Ltd 1998 (3) SA 1018 (SCA), in which Nienaber JA
remarked (at 1025-6): ‘Payment being a bilateral juristic act between debtor and creditor . . . it is, in
the first instance, a matter for those parties themselves how the allocation is to be made when
different obligations are owed by the debtor to the creditor.’ See also Macrae v National Bank of SA
Ltd 1927 AD 62 at 69; Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510
(C) at 572. In the latter case, the court accepted that the residual rules governing the appropriation
of payments do not apply if it is found that the parties or the circumstances have either expressly or
tacitly excluded one or more of them.
[91] Voet 46.3.16; Van der Linden Inst 1.43.1. If the creditor accepts the payment, he is obliged to
appropriate it to the debt(s) selected by the debtor: Macrae v National Bank of SA Ltd 1927 AD 62 at
66.
By making an appropriation, the debtor cannot compel the creditor to accept a payment which he
would otherwise have been entitled to refuse, such as payment of a debt not yet due or a part
payment: see Pothier para 498; Executors of Jacob Watermeyer v Executor of EB Watermeyer (1870)
3 Buch 69 at 73; Stiglingh v French (1892) 9 SC 386 at 411; Brink NO v The High Sheriff (1895) 12
SC 414 at 420; Standard Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510
(C) at 575.
According to Singer NO v The Master 1996 (2) SA 133 (A) at 142, a debtor who owes interest
under a mortgage bond cannot compel the creditor to allocate payments to capital rather than
interest. See also Brink NO v The High Sheriff (1895) 12 SC 414 at 420. This view is inconsistent with
the principle that appropriation is, first and foremost, a matter for the parties themselves to resolve
and it is only where neither of the parties has made an appropriation that the residual appropriation
rules (including the rule that payment must be allocated to interest before capital) come into play.
This principle seems to have been followed by the appeal court in Standard Bank of South Africa Ltd v
Oneanate Investments (Pty) Ltd (in liquidation) 1998 (1) SA 811 (SCA) at 832 and by both majority
and minority judges in Pfeiffer v First National Bank of SA Ltd 1998 (3) SA 1018 (SCA) at 1025-6,
1032.
It would seem that if the creditor rejects the debtor’s appropriation when he is not entitled to do
so, he commits repudiation or mora creditoris.
[92] The debtor’s intention will generally be clear, for example, where:
•
He has consistently agreed to the creditor appropriating his payments in the manner adopted:
see South African Metropolitan Life Assurance Co Ltd v Ferreira 1962 (4) SA 213 (O) at 216-17.
•
The amount of the payment corresponds with one particular debt; see Italtile Products (Pty) Ltd
v Touch of Class 1982 (1) SA 288 (O) at 291.
•
He admits one debt and disputes the others.
•
The creditor has demanded payment of one of the debts and the debtor, without any
explanation, has forwarded the amount demanded: see Durban City Council v Glenore
Supermarket and Café 1981 (1) SA 470 (D) at 480.
In Stiglingh v French (1892) 9 SC 386 at 411, De Villiers CJ held that if the course of dealing between
parties has been such that the creditor has been reasonably led to believe that the payment was
intended to be appropriated to a particular item and he has acted upon that belief; the debtor cannot
afterwards object to the appropriation. See also South African Metropolitan Life Assurance Co Ltd v
Ferreira 1962 (4) SA 213 (O) at 215-16.
[93] Durban City Council v Glenore Supermarket and Café 1981 (1) SA 470 (D) at 480: ‘If a debtor
when paying a debt does not allocate payment to any particular debt and the circumstances do not
give rise to an inference that he pays any specific debt then the choice becomes that of the creditor
which he must exercise at the time when payment is made.’ See also Jefferson, Executor of Stewart v
De Morgan (1882) 2 EDC 205 at 212; Croghan’s Executrix v Whitby and Webber 1904 TH 101 at
107; Macrae v National Bank of SA Ltd 1927 AD 62 at 66-7; Standard Bank of SA Ltd v Oneanate
Investments (Pty) Ltd 1995 (4) SA 510 (C) at 572; Wessels para 2293.
[94] Voet 46.3.16; Jefferson, Executor of Stewart v De Morgan (1882) 2 EDC 205 at 212; Stiglingh
v French (1892) 9 SC 386 at 411; Bulleid v Campbell (1904) 9 HCG 347 at 352; Muller v Mulbarton
Gardens (Pty) Ltd 1972 (1) SA 328 (W) at 330. In some South African cases, it has been held that
the creditor may inform the debtor of his decision regarding appropriation within a reasonable time
after making it. See Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C)
at 572; Zietsman v Allied Building Society 1989 (3) SA 166 (O) at 178. This appears to defeat the
purpose of the rule, which is to ensure that the debtor, by being informed of the creditor’s intentions,
can choose not to make payment on the creditor’s terms.
There is authority to the effect that the creditor’s appropriation may be incorporated in the receipt
he issues and that this, in fact, constitutes the best evidence of the appropriation. See Van der
Linden Inst 1.18.1; Jefferson, Executor of Stewart v De Morgan (1882) 2 EDC 205 at 212; Scott v
Sytner (1891) 9 SC 50 at 53; In re Roberts (1892) 9 SC 188 at 190.
The courts have not dealt with the question of how the creditor is to make an appropriation where
the debtor makes payment by post. It is suggested that the creditor must communicate his
appropriation to the debtor within a reasonable time and the debtor then has a reasonable interval in
which to object to the appropriation.
[95] In Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C), Selkowitz
J observed (at 572): ‘The creditor’s power [to appropriate the payment] is not an unlimited one. He
cannot act inequitably.’ See also Jefferson, Executor of Stewart v De Morgan (1882) 2 EDC 205 at
212; South African Metropolitan Life Assurance Co Ltd v Ferreira 1962 (4) SA 213 (O) at 217.
[96] Voet 46.3.16; Jefferson, Executor of Stewart v De Morgan (1882) 2 EDC 205 at 212-
13; Bulleid v Campbell (1904) 9 HCG 347 at 351; Richter v Vermaak 1932 NPD 337 at 342.
The debtor bears the onus of proving that the appropriation made by the creditor was invalid or
inequitable. See South African Metropolitan Life Assurance Co Ltd v Ferreira 1962 (4) SA 213 (O) at
217.
[97] See eg Stiglingh v French (1892) 9 SC 386 at 411; Ebrahim (Pty) Ltd v Mahomed 1962 (1) SA
90 (N) at 97; Zietsman v Allied Building Society 1989 (3) SA 166 (O) at 178; Standard Bank of SA
Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at 572; Pfeiffer v First National Bank of SA
Ltd 1998 (3) SA 1018 (SCA) at 1025-6.
[98] In Ebrahim (Pty) Ltd v Mahomed 1962 (1) SA 90 (N), Henning J remarked (at 97): ‘The
fundamental principle underlying [the residual] . . . rules is that payment made by a debtor to his
creditor should, in the absence of express appropriation by either party, be appropriated to the debt
which is most onerous to the debtor . . ., or, as it has been put, to the debt which it would be most in
the interest of the debtor to pay . . .’ This passage was adopted in Miloc Financial Solutions (Pty) Ltd
v Logistic Technologies (Pty) Ltd 2008 (4) SA 325 (SCA) para 46. See also Pothier para
530; Executors of Jacob Watermeyer v Executor of EB Watermeyer (1870) 3 Buch 69 at 72; Wolhuter
v Zeederberg (1884) 3 HCG 437 at 441; Eaton Robins & Co v Nel (2) (1909) 26 SC 624 at 630; Land
and Agricultural Bank of SWA v Howaldt and Vollmer 1925 SWA 34, 39; Western Bank Ltd v
Woodroffe 1976 (1) SA 482 (N) at 488; Standard Bank of SA Ltd v Oneanate Investments (Pty)
Ltd 1995 (4) SA 510 (C) at 572; Creutzburg v Commercial Bank of Namibia Ltd [2006] 4 All SA 327
(SCA) para 14; Miloc Financial Solutions (Pty) Ltd v Logistic Technologies (Pty) Ltd 2008 (4) SA 325
(SCA) para 46. Cf Italtile Products (Pty) Ltd v Touch of Class 1982 (1) SA 288 (O) at 292, in which
Viljoen AJ considered that ‘there is much to be said for the view that the accepted rules with regard
to appropriation of payments, and the principle underlying them, are not based upon the debtor’s
interest but upon implied agreement between the parties’.
The type of debt which is arguably the most burdensome for the debtor is one for breach of which
the debtor faces civil imprisonment. This is followed by (in order of decreasing severity): a judgment
debt in respect of which a warrant of execution has been issued, a judgment debt simpliciter; a debt
subject to parate executie; and a debt that entails a penalty of some kind if not paid. ‘Penalty’ in this
connection means some additional obligation (for example, interest or an acceleration of payments)
which the debtor can avoid by paying the debt in question when it falls due: see Ebrahim (Pty) Ltd v
Mahomed 1962 (1) SA 90 (N) at 99.
It is obviously more in the interests of the debtor for payment to be applied to a debt which the
creditor can sue upon immediately rather than one which he can only sue upon in the future; an
admitted debt rather than a disputed one; an enforceable debt rather than one which merely
constitutes a natural obligation; a debt for which the debtor is solely liable rather than one for which
he is jointly or jointly and severally liable; and a debt for which the debtor is liable as principal rather
than one for which he is liable as surety. See Grotius 3.39.15; Voet 46.3.16; Insolvent Estate of
Wilhelm v Shepstone (1878) NLR 1 at 4-5; Wolhuter v Zeederberg (1885) 3 HCG 437 at
441; Ebrahim (Pty) Ltd v Mahomed 1962 (1) SA 90 (D) at 97-100; 1962 (2) SA 183 (N) at 186-
90; Pfeiffer v First National Bank of SA Ltd 1998 (3) SA 1018 (SCA) at 1026.
In Pfeiffer v First National Bank of SA Ltd 1998 (3) SA 1018 (SCA), the court accepted that one of
the residual appropriation rules is that a secured debt must be paid before an unsecured one.
Nienaber JA considered that a debt secured by a deed of suretyship should be classified as an
onerous debt (at 1026). In Harms JA’s view, ‘[t]he obvious reason for the rule is that good faith
requires that the creditor and the debtor should as far as possible ease the burden of the surety’ (at
1032). See also Insolvent Estate of Wilhelm v Shepstone (1878) NLR 1 at 5; Northern Cape Co-
Operative Livestock Agency Ltd v John Roderick & Co Ltd 1965 (2) SA 64 (O) at 73; Zietsman v Allied
Building Society 1989 (3) SA 166 (O) at 178.
According to Italtile Products (Pty) Ltd v Touch of Class 1982 (1) SA 288 (O) at 293-4, the
likelihood of being sued for provisional sentence on a debt does not render the debt more
‘burdensome’ for purposes or appropriation of payments. Viljoen AJ reasoned that the only additional
burden for the debtor is a heavier burden of proof (if he is to avoid making provisional payment) and
this is a procedural consequence which does not affect the character of the debt itself and is not of
the same nature as the ‘burdens’ referred to in the accepted appropriation rules. This reasoning is not
convincing.
[99] Insolvent estate of Wilhelm v Shepstone (1878) NLR 1 at 4; Wolhuter v Zeederberg (1884) 3
HCG 437 at 441; Scott v Sytner (1891) 9 SC 50 at 53; African Banking Corporation v Blauwklip
Garden Co Ltd (1908) 25 SC 946 at 949; Eaton Robins & Co v Nel (2) (1909) 26 SC 624 at 630; Land
and Agricultural Bank of SWA v Howaldt and Vollmer 1925 SWA 34 at 39; Fluxman v Brittain 1941 AD
273 at 300; Zietsman v Allied Building Society 1989 (3) SA 166 (O) at 178; Creutzburg v Commercial
Bank of Namibia Ltd [2006] 4 All SA 327 (SCA) para 14.
[100] Grotius 3.39.15; Voet 46.3.16; Van der Linden KH 1.18.1; Wolhuter v Zeederberg (1884) 3
HCG 437 at 441; Pfeiffer v First National Bank of SA Ltd 1998 (3) SA 1018 (SCA) at 1026.
[101] Brink NO v The High Sheriff (1895) 12 SC 414 at 420. See also Commercial Bank of
Zimbabwe Ltd v MM Builders & Suppliers (Pvt) Ltd 1997 (2) SA 285 (ZH) at 318; Standard Bank of
South Africa Ltd v Oneanate Investments (Pty) Ltd (in liquidation) 1998 (1) SA 811 (SCA) at 831-2.
[102] Grotius 3.39.15; Voet 46.3.16; Van der Linden Inst 1.43.1; Wolhuter v Zeederberg (1884) 3
HCG 437 at 441; Bank of Africa v Craven NO (1888) 5 HCG 112 at 118; Brink NO v The High
Sheriff (1895) 12 SC 414 at 420; Ex parte Attwell’s Estate 1938 CPD 543 at 545; Central Africa
Building Society v Pierce NO 1969 (1) SA 445 (RA) at 454; Western Bank Ltd v Lester and
McLean 1976 (3) SA 457 (SE) at 466; Standard Bank of South Africa Ltd v Oneanate Investments
(Pty) Ltd (in liquidation) 1998 (1) SA 811 (SCA) at 832; Pfeiffer v First National Bank of SA Ltd 1998
(3) SA 1018 (SCA) at 1032.
Section 126(3) of the National Credit Act 34 of 2005 corresponds with the common-law rule. The
subsection provides that a credit provider must, with each payment made under a credit agreement,
credit the consumer as follows: (a) first, to satisfy any due or unpaid interest charges; (b) secondly,
to satisfy any due or unpaid fees or charges; and (c) thirdly, to reduce the amount of the principal
debt.
The common-law rule regarding appropriation of payments to interest before capital does not
apply to judgment debts on which interest is payable: Ebrahim (Pty) Ltd v Mahomed 1962 (2) SA 183
(N) at 189.
[103] Cf Western Bank Ltd v Woodroffe 1976 (1) SA 482 (N) at 488.
[104] In Greenberg v Waschke 1911 WLD 1, Wessels J remarked (at 6): ‘[I]f A offers to sell his
land unconditionally to B for a fixed sum and B accepts the offer, that then there is an implied
condition that the cash shall be tendered against transfer. In other words, where nothing is said as to
the mode of payment, a sale of land for a fixed price means that the price must be paid pari
passu with transfer.’ See also, for example, Ras v Simpson 1904 TS 254 at 255-6; Maserowitz v
Little 1911 TPD 1061 at 1063.
[105] In Breytenbach v Van Wijk 1923 AD 541, Wessels JA explained (at 546-7): ‘An interval must
always elapse between the time that the deeds are tendered to the Registrar of Deeds for transfer
and the actual registration in the name of the purchaser. The deeds must be examined and may even
be rejected if flaws are discovered in them. The purchaser cannot know at what exact moment the
registration is effected in the Deeds Office and therefore he cannot be in attendance with his money.’
[106] For example, owing to insolvency or a change of heart. See Breytenbach v Van Wijk 1923 AD
541 at 546.
[107] In Breytenbach v Van Wijk 1923 AD 541 Wessels JA explained the position as follows (at
547): ‘Now in theory it is [the purchaser’s] . . . duty to tender the purchase price at the moment that
delivery of the immovable is given to him and that delivery occurs at the moment his name is entered
on the register as the new dominus of the property. In practice, however, this is impossible and
therefore the law requires that the purchaser should satisfy the seller, at the latest, when the deeds
are ready and handed in at the Deeds Office that he will receive the purchase price when the transfer
is effected. It is not enough for the purchaser to say that he has the money and that he is in a
position to pay: he must either pay the money over or hand it to a party agreed upon or else he must
give some satisfactory guarantee.’
In AA Farm Sales (Pty) Ltd (t/a AA Farms) v Kirkaldy 1980 (1) SA 13 (A), Trollip JA explained the
function of a payment guarantee (at 16-17): ‘In a sale for cash the obligations of the seller and
purchaser are reciprocal and concurrent — the merx must be delivered pari passu with the payment
of the price. But in a sale of land that is impossible, especially under our system of land registration.
Hence, as a reasonable and practical expedient, the purchaser can fulfil his obligation by furnishing
the seller with a suitable guarantee that the price will be paid on registration of the transfer into the
purchaser’s name. While the parties are, of course, free to agree that the price should be paid before
or after such registration, the possible disadvantages of that to the purchaser or the seller
respectively are so serious that clear language manifesting such an intention is required. Those
disadvantages are, of course, the inability (due, for example, to supervening insolvency) or the
unwillingness of the one party ultimately to perform his obligation after the other party has performed
his. . . . In such a contract the reason for recognizing and permitting the purchaser to adopt the . . .
expedient [of a guarantee] is therefore to protect the financial interest of both parties and to
overcome their possible mutual distrust or uncertainty that if the one performs the other may be
unable or unwilling to perform.’ See also Andrews v Lidaks 1971 (1) SA 892 (W) at 894 (banker’s
guarantee, payable against transfer, brings about, as nearly as commercially practicable, the
payment concomitantly with delivery required by common law); Rosen v Ekon 2001 (1) SA 199 (W)
at 204 (purpose of payment guarantee is to satisfy seller he will receive price when transfer effected).
In AA Farm Sales (Pty) Ltd (t/a AA Farms) v Kirkaldy 1980 (1) SA 13 (A) at 17, the court
considered that it was unclear whether the expedient of a payment guarantee is ‘an incident of the
contract implied by law or a term necessarily implied in the contract itself’. It is suggested that it is a
common-law consequence (naturalium) of a sale of land which contemplates payment of the price (or
a substantial portion of the price) on transfer. See also Sterkstroom Belgrave Hotel (Pty) Ltd v
Schwulst 1956 (2) SA 154 (E) at 158.
[108] See eg Trichardt v Muller 1915 TPD 175, in which De Villiers JP remarked (at 178): ‘As
regards immovable property the expedient which is resorted to in South Africa in practice is quite a
reasonable one; transfer is seldom or never passed into the name of the purchaser without some sort
of guarantee, usually a bank guarantee, that the money will be paid.’
[109] Breytenbach v Van Wijk 1923 AD 541 at 547. See also Wilson v Spitze 1989 (3) SA 136 (A)
at 142. A guarantee that makes payment conditional upon the registration of a mortgage bond is not
sufficient for these purposes if the buyer’s payment obligation in the contract is not subject to his
obtaining a loan against security of the bond in question. See eg Davis v Braatvedt 1989 (3) SA 327
(N) at 332. Cf Rosen v Ekon 2001 (1) SA 199 (W) at 211.
[110] Breytenbach v Van Wijk 1923 AD 541 at 547.
[111] Rosen v Ekon 2001 (1) SA 199 (W) at 204-12. Cf Koumantarakis Group CC v Mystic River
Investment 45 (Pty) Ltd 2008 (5) SA 159 (SCA) paras 24, 39-49.
[112] Koumantarakis Group CC v Mystic River Investment 45 (Pty) Ltd 2008 (5) SA 159 (SCA) para
39; Blake v Cassim and Another NNO 2008 (5) SA 393 (SCA) para 21; Southern Era Resources Ltd v
Farndell NO 2010 (4) SA 200 (SCA) para 17. The issue in these cases was the effect of a clause that
requires a buyer to furnish a payment guarantee that is satisfactory to the seller. In Koumantarakis,
it was held (at para 39) that, in deciding whether to accept or reject the guarantee provided by the
buyer, the seller must exercise an honest judgement and reach a decision based on reasonable
grounds. In Blake, it was held that should the seller be driven to put the buyer on terms to deliver the
guarantee, there is no obligation on the seller to define what form of guarantee will be acceptable.
Mpati JA remarked (at para 21): ‘[O]nce a guarantee has been furnished the seller will either accept
or reject it. If it is rejected, the seller will obviously advise the basis of the rejection, which, if
unreasonable, may be challenged by the purchaser. In Southern Era Resources, the court pointed out
(at para 17) that the discretion given to a seller in an agreement of sale to accept or reject a
guarantee has to be exercised reasonably: the seller, in other words, must exercise the judgment of a
fair-minded person or arbitrio boni viri. If the seller decided to reject the guarantee provided by the
buyer, that rejection would have to be reasonable and, if not, the decision would be open to
challenge.’
[113] In Hammer v Klein 1951 (2) SA 101 (A) Hoexter JA explained the position (at 105-6): ‘The
seller does not require the banker’s guarantee until he is ready to lodge. The risk that he might lose
his dominium in the property sold before he has received the purchase price does not arise until the
documents required for transfer are on the point of being lodged with the Registrar of Deeds. It
follows that the seller is not entitled to demand that the buyer should provide a banker’s guarantee
on a date earlier than that on which the seller proposes to lodge with the Registrar of Deeds the
documents required for transfer. And if he does make such a demand, the buyer is entitled to ignore
it without running any risk of being placed in mora. The buyer duly performs his obligations if he
tenders the banker’s guarantee at any time before the seller actually lodges the documents required
for transfer with the Registrar of Deeds.’ See also Rosen v Ekon 2001 (1) SA 199 (W) at 201.
[114] In Wilson v Spitze 1989 (3) SA 136 (A), Vivier JA explained (at 144): ‘As the buyer cannot
know when the seller will be ready to lodge, there is a duty upon the seller, when demanding a
transfer guarantee, to inform the buyer when he proposes to lodge. It does not have to be an exact
date, and it will be sufficient compliance with the rule if the seller informs the buyer that he will
without any delay after receiving the required guarantee, lodge the necessary documents in the
Deeds Office.’ See also Linton v Corser 1952 (3) SA 685 (A) at 694; Wehr v Botha 1965 (3) SA 46 (A)
at 61; Theron v Theron 1973 (3) SA 667 (C) at 671; WD Russell (Pty) Ltd v Witwatersrand Gold
Mining Co Ltd 1981 (2) SA 216 (W) at 221. Cf Holtzhausen v Gore NO 2002 (2) SA 141 (C) at 152-5.
[115] In WD Russell (Pty) Ltd v Witwatersrand Gold Mining Co Ltd 1981 (2) SA 216 (W) Nestadt J
remarked (at 221): ‘Whilst . . . in an agreement of purchase and sale of land the obligation to furnish
a guarantee is not entirely reciprocal with the seller’s duty to pass transfer but pre-dates it, it is . . .,
unless there is a term providing otherwise, not necessary, where a purchaser sues for transfer, that,
prior to the issue of summons, the guarantee should have been furnished or even tendered. It
suffices if this is done in the summons. This is because, although the guarantee is to be furnished
before transfer, it is only due when the seller is ready to lodge the necessary transfer documents. Ex
hypothesi, in the case of a purchaser having to take action to obtain transfer, such documents would
(normally) not yet have been lodged when summons is issued. It follows that . . . there would have
been no obligation on the plaintiff to have furnished or tendered it prior to the issue of summons. . . .’
The judge went on to hold (at 222) that the position was not rendered any different by the fact that
the guarantee had to be in a form approved by the seller: ‘There is no reason in principle why, in the
case of a guarantee having to be objectively suitable, a tender in the summons to furnish it would be
sufficient but, in the case of its form having to be approved by the seller, such tender would not. In
logic I can see no difference between the two situations save that when the guarantee has to be
approved by the defendant its suitability is to be more subjectively tested. This consideration cannot
in the latter case be a justification for the advancement in time of the purchaser’s obligation to
furnish the guarantee.’
[116] Bowles v Redruth Motor Supplies (Pty) Ltd 1952 (3) SA 615 (W) at 619-20.
[117] For examples, see Maserowitz v Little 1911 TPD 1061 at 1063; Sterkstroom Belgrave Hotel
(Pty) Ltd v Schwulst 1956 (2) SA 154 (E); Andrews v Lidaks 1971 (1) SA 892 (W) at 894-5; Botha v
Que Que Municipality 1973 (2) SA 754 (R) at 756; AA Farm Sales (Pty) Ltd (t/a AA Farms) v
Kirkaldy 1980 (1) SA 13 (A) at 17.
[118] In AA Farm Sales (Pty) Ltd v Kirkaldy 1980 (1) SA 13 (A) Trollip JA remarked (at 17): ‘While
the parties are, of course, free to agree that the price should be paid before or after . . . registration
[of transfer], the possible disadvantages of that to the purchaser or the seller respectively are so
serious that clear language manifesting such an intention is required.’ See also Breytenbach v Van
Wijk 1923 AD 541 at 546; Wehr v Botha 1965 (3) SA 46 (A) at 60. Cf Trichardt v Muller 1915 TPD
175 at 177; Slomowitz v Van der Walt 1960 (4) SA 270 (T) at 274-6; Hofmeyer NO v Brunofarms
(Pty) Ltd 1955 (2) PH A42 (C); Holtzhausen v Gore 2002 (2) SA 141 (C) at 152.
[119] A tender that does not accord with the contract, such as a tender to pay at a different time or
place or in a different manner to that specified, is ineffective. See Aubrey Feinberg Investments (Pty)
Ltd v Runge 1981 (2) SA 598 (T) at 606.
The general rule is that a contractual obligation must be performed in the manner stipulated in
the contract (in forma specifica) rather than by way of an equivalent (per aequipollens). The principle
is the same irrespective of the nature of the obligation: it does not differ, for example, in relation to
an obligation to perform a piece of work (obligatio faciendi): see Grotius 3.3.41; Voet 46.3.10,
19.1.14; Van der Keessel Praelec 3.3.41, Thes 512; BK Tooling (Edms) Bpk v Scope Precision
Engineering (Edms) Bpk 1979 (1) SA 319 (A) at 433.
[120] Wilken v Holloway 1915 CPD 418 at 422-3 (citing Bowen J in Greenwood v Sutcliffe 1892 1
Ch 1 at 11: ‘A man has a right to tender money, reserving all his rights, and such a tender is good,
provided he does not seek to impose conditions’). In Boland Bank Bpk v Steele 1994 (1) SA 259 (T)
at 266, the court pointed out that for a tender of payment to be effective it must be made ‘met opene
beurse en klinkende gelde’, unconditionally, and for the whole amount payable. See also Unit
Inspection Co of SA (Pty) Ltd v Hall Longmore & Co (Pty) Ltd 1995 (2) SA 795 (A) at 802.
[121] See eg Managers, Oudtshoorn Public School v Keating 3 CTR 111 251; Reid v Carnofsky’s
Trustee 1910 EDL 166 at 173; Derry v Harris 1917 CPD 463 at 465; Liebenberg v Loubser 1938 TPD
414 at 415; Boland Bank Bpk v Steele 1994 (1) SA 259 (T) at 266.
A debtor does not make his tender of payment conditional by demanding a receipt. Aliter if he
tenders to pay only part of the debt and demands a receipt in full settlement.
If the creditor accepts an offer of the amount owing in return for ceding the debt to a third
person, the debt is not discharged but purchased. See eg Shaw NO v Burger 1994 (1) SA 529 (C) at
534. The court in Standard Bank v Nair 2000 (1) SA 998 (D) appears to have overlooked this
possibility. The bank had taken cession of a party’s right of recovery as true owner of a cheque in
terms of s 81(1) of the Bills of Exchange Act 34 of 1964 in exchange for compensating the true owner
for his loss. The court held (at 1007) — wrongly, it is submitted — that because the bank had paid
the full amount of the claim, the true owner had no right left to cede.
[122] Helderberg Laboratories CC v Sola Technologies (Pty) Ltd 2008 (2) SA 627 (C) para 18; YST
Properties CC v Ethekwini Municipality 2010 (2) SA 98 (D) para 4.
As to various possible meanings of payment ‘under protest’ see: Union Government (Minister of
Finance) v Gowar 1915 AD 426 at 445-6; Lilienfeld & Co v Bourke 1921 TPD 365 and 369-70; Port
Elizabeth Municipality v Uitenhage Municipality 1971 (1) SA 724 (A) at 741-2; Commissioner for
Inland Revenue v First National Industrial Bank Ltd 1990 (3) SA 641 (A) at 651; Goldroad (Pty) Ltd v
Fidelity Bank (Pty) Ltd 1996 (4) SA 1151 (T) at 1154-5; Venter NO v Eastern Metropolitan
Substructure of the Greater Johannesburg Transitional Council 1998 (3) SA 1076 (W) at 1079.
In YST Properties CC v Ethekwini Municipality 2010 (2) SA 98 (D) Sishi J observed (at para 45):
‘On a close examination of [Commissioner for Inland Revenue v First National Industrial Bank
Ltd 1990 (3) SA 641 (A) at 649 and Venter NO v Eastern Metropolitan Substructure of the Greater
Johannesburg Transitional Council 1998 (3) SA 1076 (W) at 1080] . . ., it is clear that payment made
under protest is not conditional and constitutes full payment of the debt owed. It is up to the person
paying, to establish in other proceedings that the amount paid was not actually owing and that it
should be repaid. . . . [U]ntil a court makes such a finding . . ., the party paid . . . is in exactly the
same position as any other person who receives money in discharge of a debt.’
A payment made ‘under protest’ is recoverable with the condictio indebiti. See eg Union
Government (Minister of Finance) v Gowar 1915 AD 426 at 433-4, 453; Commissioner for Inland
Revenue v First National Industrial Bank Ltd 1990 (3) SA 641 (A) at 647; Shuttleworth v South
African Reserve Bank 2015 (1) SA 586 (SCA) paras 33-5.
[123] The debtor may do this, for example, by writing these words on the relevant cheque or in a
letter enclosing or delivered at the same time as the payment.
[124] In Karson v Minister of Public Works 1996 (1) SA 887 (E), Leach J observed (at 893): ‘It is
well settled that the agreement of compromise, also known as transactio, is an agreement between
the parties to an obligation, the terms of which are in dispute, or between the parties to a lawsuit, the
issue of which is uncertain, settling the matter in dispute, each party receding from his previous
position and conceding something, either by diminishing his claim or by increasing his liability. . . .’
See also Grotius 3.4.2; Voet 2.15.1, 10; Cachalia v Harberer & Co 1905 TS 457 at 462-3; Estate
Erasmus v Church 1927 TPD 20 at 24-6; Dennis Peters Investments (Pty) Ltd v Ollerenshaw 1977 (1)
SA 197 (W) at 202; Gollach & Gomperts (1967) (Pty) Ltd v Universal Mills and Produce Co (Pty)
Ltd 1978 (1) SA 914 (A) at 921; Trust Bank van Afrika Bpk v Ungerer 1981 (2) SA 223 (T) at
225; Tauber v Von Abo 1984 (4) SA 482 (E) at 485.
[125] In Karson v Minister of Public Works 1996 (1) SA 887 (E) at 893, Leach J pointed out that
‘[i]t is . . . the very essence of a compromise that the parties thereto . . . agree to the settlement of
previously disputed or uncertain obligations . . .’. See also Cachalia v Harberer and Co 1905 TS 457
at 462; Brachvogel v Boschrand Citrus Co Ltd 1923 WLD 222 at 224; Estate Erasmus v Church 1927
TPD 20 at 24; Mothle v Mathole 1951 (1) SA 785 (T) at 788; Dennis Peters Investments (Pty) Ltd v
Ollerenshaw 1977 (1) SA 197 (W) at 202.
[126] In Paramount Stores Ltd v Hendry (2) 1957 (2) SA 482 (W) at 485, Bresler J approved the
following statement by Wessels vol 1 (1937) para 2458: ‘If . . . a claim is made upon [an agreement]
about the validity of which the defendant has a doubt and a transactio follows, the defendant cannot
upset the compromise on the ground that the agreement which was compromised was in fact invalid.’
See also Smit v Key 1906 EDC 46 at 48; Van Zyl v Niemann 1964 (4) SA 661 (A) at 669; Dennis
Peters Investments (Pty) Ltd v Ollerenshaw 1977 (1) SA 197 (W) at 202-3; Hamilton v Van Zyl 1983
(4) SA 379 (E) at 383; Tauber v Von Abo 1984 (4) SA 482 (E) at 486; Syfrets Mortgage Nominees
Ltd v Cape St Francis Hotels (Pty) Ltd 1991 (3) SA 276 (SE) at 288.
[127] Cachalia v Harberer & Co 1905 TS 457 at 464; Western Assurance Co v Caldwell’s
Trustee 1918 AD 262 at 270; Estate Erasmus v Church 1927 TPD 20 at 28; Mohle v Mathole 1951 (1)
SA 785 (T) at 790; Van Zyl v Niemann 1964 (4) SA 661 (A) at 669-70; Massey-Ferguson (SA) Ltd v
Ermelo Motors (Pty) Ltd 1973 (4) SA 206 (T) at 215; Gollach v Gomperts (1967) (Pty) Ltd v Universal
Mills & Produce Co (Pty) Ltd 1978 (1) SA 914 (A) at 922; Jonathan v Haggie Rand Wire Ltd 1978 (2)
SA 34 (N) at 38; Syfrets Mortgage Nominees Ltd v Cape St Francis Hotels (Pty) Ltd 1991 (3) SA 276
(SE) at 288.
[128] In Mothle v Mathole 1951 (1) SA 785 (T) at 790, Roper J said: ‘The theory that on failure by
[a] defendant to perform his obligations under [a] compromise, in whole or in part, the plaintiff is
entitled to revert to his original cause of action is entirely inconsistent with the rule
that transactio has the effect of res judicata and bars proceedings on the original cause of action. . . .
The effect of a transactio in destroying the lawsuit may of course be avoided by an express
reservation of the right of the plaintiff to proceed upon the original cause of action. . . . The terms of
the agreement may also be such that such a reservation is to be implied. In the absence of either an
express or implied reservation, however, the effect is as stated.’ See also Strydom’s Executor v
Celliers 1908 TS 485 at 489; Brachvogel v Boschrand Citrus Co Ltd 1923 WLD 222 at 224-
5; Markides v Ashe and Ashby 1932 SR 8 at 11; Van Zyl v Niemann 1964 (4) SA 661 (A) at 669-
70; Jonathan v Haggie Rand Wire Ltd 1978 (2) SA 34 (N) at 38; Crause v Ocean Betonite Co (Edms)
Bpk 1979 (1) SA 1076 (O) at 1088; Nagar v Nagar 1982 (2) SA 263 (Z) at 267; Hamilton v Van
Zyl 1983 (4) SA 379 (E) at 383. Dicta to the contrary in Kraamer v M and A Ferreira 1917 EDL
29; Trust Bank of Africa Ltd v Eksteen 1968 (3) SA 529 (N) at 532 cannot be supported.
[129] Cf Robertson v Strydom 1923 CPD 199.
[130] Depending on the wording of the relevant provision, the compromise will, when the cause of
action revives, either remain and co-exist with it or fall away. In the former instance, the aggrieved
party will have the choice of proceeding on the compromise or on the original cause of action.
See Strydom’s Executor v Celliers 1908 TPD 485 at 489-90; Bacon v SAR & H 1925 CPD
261; Markides v Ashe and Ashby 1932 SR 8; Hanomag SA (Pty) Ltd v Otto 1949 CPD 437 at 447; Van
Zyl v Niemann 1964 (4) SA 661 (A) at 669-70; Antonie v Koekoe 1966 (2) SA 610 (O) at 613; Trust
Bank van Afrika Bpk v Eksteen 1969 (1) SA 276 (A) at 284; Dennis Peters Investments (Pty) Ltd v
Ollerenshaw 1977 (1) SA 197 (W) at 202.
[131] Cf Syfrets Mortgage Nominees Ltd v Cape St Francis Hotels (Pty) Ltd 1991 (3) SA 276 (SE) at
288.
[132] In Absa v Van der Vyver NO 2002 (4) SA 397 (SCA), Howie JA commented (para 18):
‘Sending one’s creditor a cheque “in full settlement” coupled with a denial of liability would almost
certainly signify an offer of compromise. But there may be an offer of compromise if there is simply
no admission of liability accompanying the payment. And one may have to do with an offer of
compromise even if there is an admission of liability. . . . In [Paterson Exhibitions CC v Knights
Advertising and Marketing CC 1991 (3) SA 523 (A)], for example, the admission was, in effect, no
more than that something was owing, but without admitting how much or that the payment offered
represented the admitted indebtedness.’ See also Rigg v Forrest 1913 CPD 350 at 354; Harris v
Pieters 1920 AD 644 at 649; Steenkamp v Union Government 1947 (1) SA 449 (C) at 455; Blumberg
v Atkinson 1974 (4) SA 551 (T) at 554.
Roman-Dutch law called an offer to settle an admitted liability an oblatie. If accepted by the
creditor, it brought an end to the matter. If refused, the debtor was protected against costs, provided
he followed up the offer with consignatie (a form of payment into court). In Harris v Pieters 1920 AD
644, Innes CJ held that a debtor who admits part of his debt and sends a cheque for that amount
with the words ‘in full settlement’ either makes a tender, the South African equivalent of the Roman-
Dutch oblatie, or a payment with an attempt to attach a condition to it. In the former case, the
creditor having cashed the cheque, cannot sue for the balance. In the latter case, he may do so.
[133] SA Scottish Finance Corporation Ltd v Smit 1966 (3) SA 629 (T) at 635. Prior correspondence
may shed light on what the debtor intended. See eg Burt v National Bank of SA Ltd 1921 AD 59; Cecil
Jacobs (Pty) Ltd v McLeod & Sons 1966 (4) SA 41 (N) at 46-8; Barclays National Bank v
Waisbrod 1975 (1) SA 45 (D) at 50. The fact that the debtor is prepared to admit liability for what he
pays does not necessarily exclude the possibility that he intends to compromise. Cf Harris v
Pieters 1920 AD 644 at 649; Van Breukelen v Van Breukelen 1966 (2) SA 285 (A) at 290; Andy’s
Electrical v Laurie Sykes (Pty) Ltd 1979 (3) SA 341 (N) at 344.
[134] In Harris v Pieters 1920 AD 644, De Villiers JA remarked (at 654-5): ‘Now the phrase “in full
settlement” is ambiguous and may mean one of two things. A debtor, in offering a sum in full
settlement may intend to tender the amount unconditionally, only adding the words “in full
settlement” by way of emphasising his contention that the amount tendered covers the whole of his,
liability. In that case the offer is made animo solvendi. Or he may intend to offer the amount on
condition that the creditor by accepting it should forego his claim for the balance. In the latter case
the offer is made for the purpose of entering into a new contract with the creditor, animo
contrahendi therefore.’ In Andy’s Electrical v Laurie Sykes (Pty) Ltd 1979 (3) SA 341 (N), Didcott J
said (at 346): ‘A payment’s description as one “in full settlement” is not necessarily decisive. The
circumstances may show that, despite the description, the payment is intended to satisfy nothing
more than an admitted debt. If that is its true rating, the words “in full settlement” are of no further
consequence and may safely be ignored.’ See also Briggs v Titlestad 1938 NPD 446 at 451.
Contra Burt NO v National Bank of SA Ltd 1921 AD 59 at 67; Cecil Jacobs (Pty) Ltd v Macleod &
Sons 1966 (4) SA 41 (N) at 46. As Christie 477 points out: ‘In view of the conflict of judicial opinion it
can hardly be said that the debtor has overcome the double obstacle of the onus and the contra
proferentem rule by the use of these words alone.’
[135] In Andy’s Electrical v Laurie Sykes (Pty) Ltd 1979 (3) SA 341 (N), Didcott J remarked (at
345): ‘[The] ambiguity [of the words “in full settlement”] . . . is capable of being and often is
removed by the completion of the phrase. A payment “in full settlement of my debt”, for instance,
sounds very much like the discharge of an admitted liability and that alone. Extrinsic circumstances
may, of course, throw further light on the transaction. Otherwise, however, that is how the
expression seems likely to be understood. The words “my debt” suggest one that is acknowledged,
not just alleged. Such indebtedness, and nothing more, is then identified as the object of the
“settlement”. And a “settlement” is sometimes an appropriate label, in common parlance at any rate,
for an outright payment, as distinct from a compromise. A payment “in full settlement of your claim”,
on the other hand, has a very different ring. Once again, the context may illuminate something else
behind the terminology. . . . Unless it does, however, the “claim” as a whole has now become the
target of the “settlement”, and the “settlement” itself assumes the unmistakable hue of a
compromise.’ See also Van Coller v Swartz 1921 TPD 40 at 44. Cf Moosa v Essa 1931 NPD 365 at
369.
[136] A tender and statement which are unclear or ambiguous will be construed contra
proferentem. If the debtor cannot establish that the creditor ought reasonably to have interpreted his
actions as an offer of compromise, the court will hold that they do not constitute one. See Harris v
Pieters 1920 AD 644 at 648-9, 655; Andy’s Electrical v Laurie Sykes (Pty) Ltd 1979 (3) SA 341 (N) at
345; Kei Brick & Tile Co (Pty) Ltd v AM Construction 1996 (1) SA 150 (E) at 159; Karson v Minister of
Public Works 1996 (1) SA 887 (E) at 896.
[137] Odendaal v Du Plessis 1918 AD 470 at 478-9; Harris v Pieters 1920 AD 644 at 648-9,
655; Burt NO v National Bank of South Africa Ltd 1921 AD 59 at 62, 67; Absa v Van der Vyver
NO 2002 (4) SA 397 (SCA) para 16.
[138] Paterson Exhibitions CC v Knights Advertising & Marketing CC 1991 (3) SA 523 (A) at 528.
For critical discussion of this case, see Kritzinger 571.
[139] In Burt NO v National Bank of South Africa Ltd 1921 AD 59, Innes CJ said (at 62): ‘[Whether
a tender of payment “in full settlement” has been accepted] is a matter which must always depend
upon the declarations and conduct of the alleged acceptor, viewed in the light of relevant
circumstances. Every case must be decided on its own facts; the object being in each case to
ascertain whether the parties were ad idem. No doubt the acts of the person concerned are a most
important element in arriving at the result. Often they are decisive; but not always; there may be
other circumstances which preclude the usual inferences.’
[140] Paterson Exhibitions CC v Knights Advertising & Marketing CC 1991 (3) SA 523 (A) at
529; Absa v Van der Vyver NO 2002 (4) SA 397 (SCA) para 9. In Paterson Exhibitions, the appeal
court effectively rejected the view, adopted in several earlier cases, that if the creditor accepts the
payment accompanying the offer, he necessarily commits himself to acceptance of the compromise,
irrespective of whether or not he simultaneously disclaims any intention to accept. See eg Neville v
Plasket 1935 TPD 115 at 120; Turgin v Atlantic Clothing Manufacturers 1954 (3) SA 527 (T) at
532; Louw v Granowsky 1960 (2) SA 637 (SWA) at 641; Tractor and Excavator Spares (Pty) Ltd v
Lucas J Botha (Pty) Ltd 1966 (2) SA 740 (T) at 743; Cecil Jacobs (Pty) Ltd v Macleod & Sons 1966 (4)
SA 41 (N) at 50-1; Andy’s Electrical v Laurie Sykes (Pty) Ltd 1979 (3) SA 341 (N) at 343.
[141] As pointed out above, the creditor would, in such a case, be obliged to return the money,
because the debtor tendered it on the basis that his offer would be accepted. Payment into a trust
account in the name of the debtor coupled with an undertaking to return the payment if so required,
do not constitute acceptance. See Burt NO v National Bank of South Africa Ltd 1921 AD 59 at 63-6,
67-8. Aliter if the creditor pays the amount into his own trust account pending the result of
proceedings which he has instituted against the debtor.
[142] Set-off is not confined to particular types of debt. Cf Voet 16.2.13.
[143] Symon v Brecker 1904 TS 745 at 747, 751; Treasurer-General v Van Vuuren 1905 TS 582 at
589; Schierhout v Union Government (Minister of Justice) 1926 AD 286 at 289; In re Trans-African
Insurance Co Ltd (in liquidation) 1958 (4) SA 324 (W) at 325; Standard Bank of South Africa Ltd v SA
Fire Equipment (Pty) Ltd 1984 (2) SA 693 (C) at 696.
[144] See Symon v Brecker 1904 TS 745 at 747; Lawson v Stevens 1906 TS 481 at 483; Motor
Fuels Corporation (in liquidation) v Linder Brothers 1927 NPD 279 at 282-3; Faatz v Estate
Maiwald 1933 SWA 73 at 83; Cameron NO v Whittaker and Kenworthy 1944 WLD 137 at 141; Richter
NO v Riverside Estates (Pty) Ltd 1946 OPD 209 at 224; Allison v Massel & Massel 1954 (4) SA 569 (T)
at 576; In re Trans-African Insurance Co Ltd (in liquidation) 1958 (4) SA 324 (W) at 325; Joint
Municipal Pension Fund (Transvaal) v Pretoria Municipal Pension Fund 1969 (2) SA 78 (T) at
85; Agricultural & Industrial Mechanisation (Vereeniging) (Edms) Bpk v Lombard 1974 (3) SA 485 (O)
at 492-3; Nicol v Burger 1990 (1) SA 231 (C) at 237; Western Cape Housing Development Board v
Parker 2005 (1) SA 462 (C) at 470, 473; Wessels paras 2493-4.
Set-off has been aptly described as ‘payment effected brevi manu’: Faatz v Estate Maiwald 1933
SWA 73 at 87; Joint Municipal Pension Fund (Transvaal) v Pretoria Municipal Pension Fund 1969 (2)
SA 78 (T) at 86; Schnehage v Bezuidenhout 1977 (1) SA 362 (O) at 365-6; Public Carriers
Association v Tolcon Road Concessionaries (Pty) Ltd 1989 (4) SA 574 (N) at 590; Nicol v Burger 1990
(1) SA 231 (C) at 237; and as ‘a kind of fictitious payment’: Richter NO v Riverside Estates (Pty)
Ltd 1946 OPD 209 at 224. In Joint Municipal Pension Fund (Transvaal) v Pretoria Municipal Pension
Fund 1969 (2) SA 78 (T), Trollip J remarked (at 86) that when a debt has been extinguished by
reason of set-off it is ‘quite correct in ordinary parlance’ to describe the debt as having been ‘paid’.
However, set-off differs from payment in that it does not involve a voluntary act on the part of the
debtor. It takes place automatically, once the requirements for its operation are in place.
The debts need not be monetary ones: non-pecuniary debts may qualify for set-off, such as
obligations to deliver movables, obligations to transfer shares in a particular company or obligations
to transfer undivided shares in a particular immovable property. See Pothier para 588; Wessels paras
2539, 2542 and 2544.
[145] Wessels para 2538: ‘The idea which underlies the law of compensation is the avoidance of
circuity. If a debtor is bound to deliver to his creditor things that are similar in every way to what the
creditor must deliver to the debtor, it is unnecessary for the double delivery to take place’. See also
Joubert (1987) 286. Cf Pothier para 587; Joint Municipal Pension Fund (Transvaal) v Pretoria
Municipal Pension Fund 1969 (2) SA 78 (T) at 86.
[146] Voet 16.2.7; Oudtshoorn Town Council v Smith 1911 CPD 558 at 560; Schierhout v Union
Government (Minister of Justice) 1926 AD 286 at 289; Packery v Padiachy 1929 TPD 231 at
235; Toucher v Stinnes (SA) Ltd 1934 CPD 184 at 188; Rixom NO v Mashonaland Building Loan and
Agency Co Ltd 1938 SR 207 at 214; Cameron NO v Whittaker and Kenworthy 1944 WLD 137 at
139; Standard Bank of South Africa Ltd v SA Fire Equipment (Pty) Ltd 1984 (2) SA 693 (C) at
696; Van Zyl NO v Look Good Clothing CC 1996 (3) SA 523 (SE) at 530-1; AAA Brick Co (Pty) Ltd v
Coetzee 1996 (3) SA 578 (B) at 581; Ackermans Ltd v Commissioner, South African Revenue
Service; Pep Stores (SA) Ltd v Commissioner, South African Revenue Service 2011 (1) SA 1 (SCA)
para 8; Capricorn Beach Home Owners Association v Potgieter t/a Nilands 2014 (1) SA 46 (SCA) para
13; Standard Bank of South Africa Ltd v Renico Construction (Pty) Ltd 2015 (2) SA 89 (GJ) para 9.
The mutual indebtedness may exist because of a cession or delegation. See Voet
16.2.4; Liquiators of the Cape of Good Hope Bank v Forde & Co (1890) 8 SC 30 at 32. Cf De Villiers v
Commallie (1846) 3 Menz 544; Beukes v Steyn (1874) 4 Buch 19; Schlodder v Brandt (1897) 11 EDC
79.
Since a sole proprietorship is not a juristic person, the requirement of mutual indebtedness is
satisfied where the owner of the business owes a debt incurred in the course of the business and the
creditor owes him a debt arising from a transaction unconnected with the business. See Bouwer v
Brown (1879) 9 Buch 165. The same reasoning should logically apply to a partnership (since a
partnership is also not a separate legal entity), but there is authority to the effect that, during the
existence of a partnership, a debt owed to or by the partnership cannot be set off against a debt
owed by or to an individual partner: see Voet 16.2.10; Van Leeuwen CF 1.4.36.24; Trustees of
Douglas & Co’s Insolvent Estate v Natal Bank (1883) 4 NLR 74 at 77-8; Machen’s Trustee v
Henrey (1884) 4 EDC 22 at 23; Brider v Wills (1886) 4 SC 282 at 284-5. This exception to the rule
does not apply after dissolution of the partnership: see Divine Gates & Co v African Clothing
Factory 1930 CPD 238 at 241-2; Bain v Barclays Bank (DC&O) Ltd 1937 SR 191 at 202; and it is
limited to commercial partnerships: see Wessels para 2525.
The requirement of mutual indebtedness is satisfied and, accordingly, set-off operates, where an
agent contracts on behalf of an undisclosed principal and the latter elects to adopt the contract and
claim performance in favour of himself. The third party may raise against the principal any defences
that he could have raised against the agent and, consequently, may aver that the debt that he owed
the agent was extinguished as a result of set-off with a pre-existing debt owed to him by the agent.
See Heydenrych v Woolven (1897) 14 SC 376 at 378-9; Wells v Don & Co 1917 EDL 303 at 306-
8; Symon v Brecker 1904 TS 745 at 747-8; Wessels & Co v Rudman 1911 CPD 667 at 671-
3; Karstein v Moribe 1982 (2) SA 282 (T) at 297. In Symon v Brecker 1904 TS 745 Innes CJ
explained the legal position as follows (at 747-8): ‘[T]he principal may adopt the contract . . . only
. . . subject to the consequences of his agent’s act. For instance, payment to the agent would be a full
discharge; the principal could not demand payment over again. And in my opinion compensation
between the agent and the third party would also inure as against the principal. Compensation . . .
operates ipso jure, and is really in intendment of law a form of payment. That being so, if a debt has
been extinguished by compensation operating against the agent, when the principal appears upon the
scene he cannot enforce it; he is too late.’
[147] Estate JC Stephan v Estate HR Stephan (1908) 25 SC 104 at 110. In this case, De Villiers CJ
said: ‘The general rule is that the debts, of which two persons are reciprocally debtors, are
extinguished by the credits of which they are reciprocally creditors. . . . [T]here is no reason why this
rule should not be applied to a case where persons are reciprocally debtors and creditors in a
representative character.’ See also Wessels para 2516.
[148] Buchenroder v The Orphan Chamber (1828) 1 Menz 308 Buchenroder v The Orphan
Chamber (1828) 1 Menz 308; In re Richardson v Nisbet & Dickson and the Sheriff (1833) 3 Menz
354; Ferreira v Zeiler (1884) 1 SAR 189; De Villiers v Commaille (1846) 3 Menz 544; Liquidators of
the Cape of Good Hope Bank v Forde and Co (1890) 8 SC 30; De Beer v Kotzé 1913 CPD
252; Packery v Padiachy 1929 TPD 231 at 235; Van Aswegen v Van Staden 1961 (2) SA 143 (W) at
145; Meaker v Roup, Wacks, Kaminer & Kriger 1987 (2) SA 54 (C) at 62-3; Van Zyl NO v Look Good
Clothing CC 1996 (3) SA 523 (SE) at 530-1; Porterstraat 69 Eiendomme (Pty) Ltd v PA Venter
Worcester (Pty) Ltd 2000 (4) SA 598 (C) at 611-12; Capricorn Beach Home Owners Association v
Potgieter t/a Nilands 2014 (1) SA 46 (SCA) para 13.
If A and B are jointly and severally indebted to C and C is indebted to A, then set-off takes place
between A and C and, as a result, B’s liability also terminates. See Pothier para 274; Bain v Barclays
Bank (DC & O) Ltd 1937 SR 191 at 202-3; JR & M Moffett (Pty) Ltd v Kolbe Eiendoms Beleggings
(Edms) Bpk 1974 (2) SA 426 (O) at 432; Wessels paras 2535-7; LAWSA ‘Obligations’ para 244; De
Wet & Van Wyk 275-6. The position is analogous to that which arises where a debt is secured by
suretyship and set-off takes place between the creditor and principal debtor. The surety may rely
upon the set-off, not because his obligation is extinguished as a result of it, but because his liability is
accessory to that of the principal debtor and terminates if the principal obligation is discharged. See
eg Voet 16.2.11; Pothier para 595; Burge 187; Liquidators of the Cape of Good Hope Bank v Forde &
Co (1890) 8 SC 30 at 33; Divine Gates & Co v African Clothing Factory 1930 CPD 238 at 242; JR & M
Moffett (Pty) Ltd v Kolbe Eiendoms Beleggings (Edms) Bpk 1974 (2) SA 426 (O) at 432; Miller v
Muller 1965 (4) SA 458 (C) at 464; Standard Bank of South Africa Ltd v SA Fire Equipment (Pty)
Ltd 1984 (2) SA 693 (C) at 696-8; Muller v Botswana Development Corporation Ltd 2003 (1) SA 651
(SCA) at 654; Wessels para 2533.
[149] Voet 16.2.8-10; Pothier para 594; Lock v Keers 1945 TPD 113 at 115; Joubert (1987) 290.
Thus, a debt owed by a party personally is not extinguished by a debt that is owed to him in his
capacity as executor of a deceased estate: Wehmeyer v Wehmeyer (1875) 5 Buch 126 at 127; Rixom
v Mashonaland Building Loan and Agency Co Ltd 1938 SR 207 at 213-15; or as trustee of an insolvent
estate: Ziervogel v Van Zyl (1886) 5 EDC 121; De Beer v Kotzé 1913 CPD 252 at 254; Blakes
Maphanga Inc v Outsurance Insurance Co Ltd 2010 (4) SA 232 (SCA) para 14; or as custodian
parent: Exley v Exley 1952 (1) SA 644 (O) at 647; or as guardian: Van Leeuwen CF 1.4.36.20;
Pothier para 594; Muller Bros v Kemp (1858) 3 Searle 142 at 171; Wessels para 2517. Contra Voet
16.2.8; Muller Brothers v Kemp (1858) 3 Searle 142 at 158 (dissenting judgment of Cloete J); Cauvin
v Landsberg (1851) 1 Searle 86 at 91.
[150] Baskin & Barnett v Barnard 1928 CPD 58 at 60; Smith v Howse (1835) 2 Menz
171; Oudtshoorn Town Council v Smith 1911 CPD 558 at 560; Van Zyl NO v Look Good Clothing
CC 1996 (3) SA 523 (SE) at 530-1. Cf Porterstraat 69 Eiendomme (Pty) Ltd v P A Venter Worcester
(Pty) Ltd 2000 (4) SA 598 (C) at 611-12.
[151] Clark v Van Rensburg 1964 (4) SA 153 (O) at 160-3; Agricultural and Industrial
Mechanisation (Vereeniging) (Pty) Ltd v Lombard 1974 (3) SA 485 (O) at 494-6. Cf Headleigh Private
Hospital (Pty) Ltd t/a Rand Clinic v Soller & Manning Attorneys 2001 (4) SA 360 (W) at 372.
In Agricultural and Industrial Mechanisation (Vereeniging) (Pty) Ltd v Lombard 1974 (3) SA 485 (O),
the court reviewed the institutional writings and held that certain earlier decisions to the effect that
the debtor cannot rely upon set-off, even where he has had no notice of the cession, ought not to be
followed.
[152] Gaius Inst 4.66 expresses this requirement as follows: ‘Only property of the same kind and
nature is involved in the set-off: as for instance, money is set off against money; wheat against
wheat; wine against wine; and it is even held by some authorities that wine cannot be set off against
wine, or wheat against wheat, unless it is of the same nature and quality.’ See also Grotius 3.40.9;
Van Leeuwen CF 1.4.36.5; Voet 16.2.18; Wessels para 2538.
It has been contended that the eiusdem generis requirement did not apply in Roman law because
of the principle omnis condemnatio percuniaria est: see Zimmermann 767; Loots & Van Warmelo
181.
[153] Pothier para 590.
[154] Pothier para 590; Van der Vyver v Gee (1908) 25 SC 632 at 633-4; Lansdell v Sam 1912
CPD 335 at 338-9. See also Smith 29; Joubert (1987) 290. It makes no difference that the market
price or value of the property is well ascertained. See Wessels para 2541.
[155] Debts to deliver movables of the same genus are susceptible of set-off only if if the movables
are exactly the same. So, for example, a debt of white wine cannot be set off against a debt of red
wine. See Pothier para 590; Wessels para 2540. The litmus test appears to be whether each party’s
performance would discharge his own obligation. See Wessels para 2539.
[156] D 12.1.2; Wessels para 2452.
[157] See Pothier paras 588, 590; Wessels para 2503. Set-off cannot operate between debts of the
same kind if one of the debtors may choose, or may be required, to render an alternative
performance. If set-off applied in such a case, it would effectively alter the alternative obligation into
a simple one to the detriment of the party benefited by the choice. See Wessels para 2545.
[158] Voet 16.2.14; Burkhardt & Co v Jacobsen’s Trustee (1909) 26 SC 293 at 296; Wessels para
2509.
[159] Pothier para 591; Treasurer-General v Van Vuuren 1905 TS 588 at 589; Schierhout v Union
Government (Minister of Justice) 1926 AD 286 at 289; Toucher v Stinnes (SA) Ltd 1934 CPD 184 at
188; Cameron NO v Whittaker and Kenworthy 1944 WLD 137 at 139; Richter NO v Riverside Estates
(Pty) Ltd 1946 OPD 209 at 224; Mahomed v Nagdee 1952 (1) SA 410 (A) at 416-17; Stapelberg v
Schlebusch NO 1968 (3) SA 596 (O) at 604; Schnehage v Bezuidenhout 1977 (1) SA 362 (O) at 365-
7; Roman Catholic Church (Klerksdorp Diocese) v Southern Life Association Ltd 1992 (2) SA 807 (A)
at 815; Siltek Holdings (Pty) Ltd (in liquidation) t/a Workgroup v Business Connexion Solutions (Pty)
Ltd [2009] 1 All SA 471 (SCA) paras 6-7, 9; Ackermans Ltd v Commissioner, South African Revenue
Service; Pep Stores (SA) Ltd v Commissioner, South African Revenue Service 2011 (1) SA 1 (SCA)
para 8; Standard Bank of South Africa Ltd v Renico Construction (Pty) Ltd 2015 (2) SA 89 (GJ) para
9.
[160] Pothier para 591: ‘[T]he reason [the debts must be enforceable] is evident: compensation is
a reciprocal payment by each of the parties; now the debtor, whose credit is not expired, not being
liable as yet to pay the debt, is not bound to allow it as a compensation for his own demand.’ See
also Treasurer General v Van Vuuren 1905 TS 582 at 589-90.
[161] See eg Standard Bank of SA Ltd v Absa Bank Ltd 1995 (2) SA 740 (T) at 749; Asco Carbon
Dioxide Ltd v Lahner 2005 (3) SA 213 (N) at 220-2. Set-off is excluded where one of the debts is
temporarily unenforceable due to the exceptio non adimpleti contractus. See Schnehage v
Bezuidenhout 1977 (1) SA 362 (O) at 366.
[162] Voet 16.2.17; Redelinghuys’s Trustees v Rossouw’s Trustees (1847) 3 Menz 317; London and
South African Bank v The Official Liquidator of the Natal Investment Co 1871 NLR 1 at 4; Treasurer-
General v Van Vuuren 1905 TS 582, 589-90; Colonial Treasurer v Schoeman 1907 TS 273, 275; SA
Metropolitan Life Assurance Co Ltd v Ferreira 1962 (4) SA 213 (O) at 216; Thorne and Another NNO v
The Government 1973 (4) SA 42 (T) at 45; Schnehage v Bezuidenhout 1977 (1) SA 362 (O) at
367; Roman Catholic Church (Klerksdorp Diocese) v Southern Life Association Ltd 1992 (2) SA 807
(A) at 814-15; Wessels para 2553.
A period of grace does not exclude the operation of set-off: see Pothier para 591; Van Pareen v
Pareen’s Properties (Pty) Ltd 1948 (1) SA 335 (T) at 339-40; Wessels para 2560.
There seems to be no reason why set-off should not operate in respect of a debt subject to a
suspensive time clause if the party in whose favour the time clause was inserted elects to waive the
benefit of the clause and render the debt immediately enforceable. See Van
Leewen CF 1.4.36.9; LAWSA ‘Obligations’ para 244; Van der Merwe et al 472. In Siltek Holdings (Pty)
Ltd (in liquidation) t/a Workgroup v Business Connexion Solutions (Pty) Ltd [2009] 1 All SA 471
(SCA) paras 10-11 the court raised this issue but found it unnecessary to decide it.
An obligation which is subject to a resolutive condition is capable of set-off but, if the condition is
fulfilled and the obligation terminates, the law regards the set-off as never having occurred. See
Wessels para 2562. Thus, a judgment debt which is subject to a pending appeal may be set off
against a contra debt due by the judgment creditor but, if the judgment debt is set aside on appeal,
the opposing debt again becomes enforceable. Cf Hardy NO & Mostert v Harsant 1913 TPD 433 at
447.
[163] Wessels para 2552.
[164] Voet 16.2.13. The courts have held that the following qualify for set-off: a gambling
debt: Fensham v Jacobson 1951 (2) SA 136 (T) at 137-8; Rosen v Wasserman 1984 (1) SA 808 (W)
at 812-13; Nicol v Burger 1990 (1) SA 231 (C) at 232-7; a debt in respect of liquor sold on credit,
rendered unenforceable by statute: Gordon v Haefele 1914 CPD 909 at 915-18; money paid by
mistake not recoverable with a condictio indebiti: Smith v Bezuidenhout en Kie 1967 (3) SA 41 (O) at
44; and an attorney’s claim for an agreed fee in respect of attorney and client costs: Allison v Massel
and Massel 1954 (4) SA 569 (T) at 576; Kruger v Resnik 1955 (1) SA 287 (T) at 289-90; Mahomed v
Yssel 1963 (1) SA 866 (D) at 868-9.
It appears that a debt which has prescribed cannot be set off. See Swanepoel v Van der
Westhuizen 1930 TPD 806 at 809-10; Pentecost & Co v Cape Meat Supply Co 1933 CPD 472 at 479-
80. Section 10(3) of the Prescription Act 68 of 1969 provides that payment of a prescribed debt must
be regarded as payment of a debt, but the section does not mention set-off.
[165] Voet, 16.2.17; Van Leeuwen CF 1.4.36.3-4; Pothier para 592; Smith v Morum Bros (1877) 7
Buch 20; Hofmeyer v Kruger and Verster (1883) 2 HCG 8 at 10; Treasurer-General v Van
Vuuren 1905 TS 588 at 589; Petersen Ltd v Inag African Industrial and Agricultural Trading Co 1934
CPD 141 at 143; Toucher v Stinnes (SA) Ltd 1934 CPD 184 at 188; Whelan v Oosthuizen 1937 TPD
305 at 311; Brittnell v Gresham Motors (Cape) (Pty) Ltd 1939 CPD 1 at 3-4; Cameron NO v Whittaker
and Kenworthy 1944 WLD 137 at 139; Bardopoulos and Macrides v Miltiadous 1947 (4) SA 860 (W)
at 866; Coetzer v Boekee 1956 (4) SA 245 (T) at 248; Fatti’s Engineering Co (Pty) Ltd v Vendick
Spares (Pty) Ltd 1962 (1) SA 736 (T) at 738; Quality Machine Builder v M I Thermocouples (Pty)
Ltd 1982 (4) SA 591 (W) at 594-5; Trinity Engineering (Pvt) Ltd v Anglo-American Shipping Co (Pvt)
Ltd 1986 (1) SA 700 (ZS) at 702, 703; Academy of Learning (Pty) Ltd v Hancock 2001 (1) SA 941 (C)
at 950; Western Cape Housing Development Board v Parker 2005 (1) SA 462 (C) at 474; Siltek
Holdings (Pty) Ltd (in liquidation) t/a Workgroup v Business Connexion Solutions (Pty) Ltd [2009] 1
All SA 471 (SCA) para 6; Blakes Maphanga Inc v Outsurance Insurance Co Ltd 2010 (4) SA 232
(SCA) para 15; Standard Bank of South Africa Ltd v Renico Construction (Pty) Ltd 2015 (2) SA 89
(GJ) paras 15-18. Cf Cronje v Cronje 1968 (1) SA 134 (O) at 137-8.
What must be easily proven is the amount of the debt and the fact that the debt is due. See
Pothier para 592; Wessels para 2459. However, set-off will operate even if the total amount of a debt
cannot be determined, provided some part of it is liquidated. See Toucher v Stinnes (SA) Ltd 1934
CPD 184 at 189-90.
The ease-of-proof requirement was introduced in Roman law to protect plaintiff creditors against
the chicanery of defendant debtors. See Wessels para 2490. For a judicial discussion of the historical
background to the requirement, see Adjust Investments (Pty) Ltd v Wiid 1968 (3) SA 29 (O) at 31-3.
The courts have adopted various formulations of the ease-of-proof requirement. See eg Kruger v
Van Vuuren’s Executrix (1887) 5 SC 162 at 167-8; Bain v Barclays Bank (DC & O) Ltd 1937 SR 191 at
203; Lewis & Sacks v Meyer 1904 TS 898 at 901-2; Becker v Forster; Karsten v Forster 1913 CPD
962 at 970; Hardy NO & Mostert v Harsant 1913 TPD 433 at 445; Arie Kgosi v Kgosi Aaron
Moshette 1921 TPD 524 at 525-6; Lester Investments (Pty) Ltd v Narshi 1951 (2) SA 464 (C) at
469; Bhima v Proes Street Properties (Pty) Ltd 1956 (1) SA 458 (T) at 460; Tierfontein Boerdery
(Edms) Bpk v Weber 1974 (3) SA 445 (C) at 452.
In Oos-Randse Bantoesake Administrasieraad v Santam Versekeringsmaatskappy Bpk (2) 1978
(1) SA 164 (W) at 168-9, Colman J held that the test for determining whether a debt is liquidated is
whether the amount of the debt ‘has been fixed by agreement or by the judgment of a court . . . [or
whether] the ascertainment of the amount is a mere matter of calculation’. In Standard Bank of
South Africa Ltd v Renico Construction (Pty) Ltd 2015 (2) SA 89 (GJ) Sutherland J agreed with this
test but accepted (at para 18) that he was bound by the weight of authority to apply the test for
liquidity adopted in Fatti’s Engineering Co (Pty) Ltd v Vendick Spares (Pty) Ltd 1962 (1) SA 736 (T) at
738 and other cases. However, he cautioned (at para 17): ‘The upshot is that a critical dimension of
the concept of “liquidity” is an intrinsically uncertain and unavoidably variable component: a randomly
selected judge’s discretion. A judicial discretion implies a range of “correct” or perhaps, better
described, “appropriate” outcomes which are, in turn, dependent on fact-specific findings. In my
respectful view it is quite hard to admire such a principle or to genuinely appreciate the usefulness of
a judicial discretion about what ought, ideally, to be a hard fact, in the sense Colman J conceived it
in Oos-Randse Bantoesake Administrasieraad v Santam Versekeringsmaatskappy Bpk (2) 1978 (1) SA
164 (W). The utility of a judicial discretion to secure equitable outcomes is hardly to be questioned,
but a judicial discretion about a fact does provoke some misgivings.’
[166] Kruger v Van Vuuren’s Executrix (1886) 5 SC 162 at 168; Whelan v Oosthuizen 1937 TPD
305 at 311; Lester Investments (Pty) Ltd v Narshi 1951 (2) SA 464 (C) at 469; Adjust Investments
(Pty) Ltd v Wiid 1968 (3) SA 29 (O) at 32; Trinity Engineering (Pvt) Ltd v Anglo-African Shipping Co
(Pvt) Ltd 1986 (1) SA 700 (Z) at 702-3.
[167] Voet 16.2.17; Wessels para 2557. See also Trustees of George Greig & Co v Norden and
Alexander (1857) 3 Searle 6; Theron v Wolf (1894) 11 SC 16.
[168] Treasurer General v Van Vuuren 1905 TS 588 at 589; Becker v Forster; Karsten v
Forster 1913 CPD 962 at 970. The test is not as stringent as that applied for determining whether a
claim is for ‘a liquidated amount in money’ for purposes of obtaining summary judgment. See Leymac
Distributors Ltd v Hoosen 1974 (4) SA 524 (D) at 527. See also Consolidated Fish Distributors (Pty)
Ltd v Sargeant, Jones, Valentine & Co 1966 (4) SA 427 (C) at 431.
[169] Becker v Forster; Karsten v Forster 1913 CPD 962, 970; Wessels para 2550.
For examples of damages claims regarded as unliquidated and, therefore, incapable of set-off,
see Manuel’s Trustee v Norden (1845) 3 Menz 526; Maxwell v Table Bay Harbour (1900) 17 SC 558
at 560; Colonial Government v Bonner (1904) 21 SC 347 at 351; Lewis & Sachs v Meyer 1904 TS 898
at 900-2; Arndt & Cohn v Dickinson & Fisher (1908) 29 NLR 7 at 9-11; Lansdell v Sam 1912 CPD 335
at 338-9; Hipkin v Nigel Engineering Works (Pty) Ltd 1941 TPD 155 at 157-8; Bardopolous and
Macrides v Miltiadous 1947 (4) SA 860 (W); Bhima v Proes Street Properties (Pty) Ltd 1956 (1) SA
458 (T) at 460; Rosettenville Motor Exchange v Grootenboer 1956 (2) SA 624 (T) at 632; Strachan v
The Master and Another 1963 (2) SA 620 (N) at 625; Bonne Fortune Beleggings Ltd v Kalahari Salt
Works (Pty) Ltd 1974 (1) SA 414 (NC) at 428; Greenberg v Meds Veterinary Laboratories (Pty) Ltd
1977 (2) SA 277 (T) at 286; Janowsky v Payne 1989 (2) SA 562 (C) at 565; Academy of Learning
(Pty) Ltd v Hancock 2001 (1) SA 941 (C) at 950; Standard Bank of South Africa Ltd v Renico
Construction (Pty) Ltd 2015 (2) SA 89 (GJ) paras 22-30.
For examples of damages claims which have been held to be sufficiently liquidated for purposes of
set-off, see Hofmeyer v Kruger and Verster (1883) 2 HCG 8 at 10; Lester Investments (Pty) Ltd v
Narshi 1951 (2) SA 464 (C) at 469-75; Snyman v Theron 1952 (2) SA 353 (T) at 356-7. A claim for
damages is obviously susceptible of set-off if it is admitted or if the parties have agreed that it may
be set-off. Cf The Government v Thorne and Another NNO 1974 (2) SA 1 (A) at 9.
[170] Wessels 2554. Cf Pothier para 592.
The fact that a debt is opposed does not per se exclude the operation of set-off. See eg Kruger v
Van Vuuren’s Executrix (1886) 5 SC 162 at 168; Ford Bros v Clayton 1906 TS 201 at 208; Whelan v
Oosthuizen 1937 TPD 305 at 310; Deutschsued-westafrikanische Wollzuechterei Gesellschaft mbH v
Weiss 1942 SWA 54 at 57; Coetzer v Boekee 1956 (4) SA 245 (T) at 248; Wessels para 2558. But if
the debtor’s opposition is genuine and concerns the merits, the debt will usually not be capable of
speedy and easy proof. For examples, see: Ford Bros v Clayton 1906 TS 201; Ex parte Berson 1938
WLD 107; Levin and Kagan v Berson 1938 WLD 107 at 115; Bhima v Proes Street Properties (Pty)
Ltd 1956 (1) SA 458 (T); Adjust Investments (Pty) Ltd v Wiid 1968 (3) SA 29 (O) at 33; Arie Kgosi v
Kgosi Aaron Moshette 1921 TPD 524 at 526; Gramowsky v Steyn 1922 SWA 48 at 55-6; Baskin &
Barnett v Barnard 1928 CPD 58 at 60; National Bank v Marks and Aaronson 1923 TPD 69 at
71; Tredoux v Kellerman 2010 (1) SA 160 (C) para 18; Blakes Maphanga Inc v Outsurance Insurance
Co Ltd 2010 (4) SA 232 (SCA) para 17.
For opposition to affect the liquidity of a claim, the opposition must be founded on a dispute of
fact: if it is founded on a point of law alone, the claim is taken to be liquidated: see Kruger v Van
Vuuren’s Executrix (1886) 5 SC 162 at 168.
[171] Hesse and Ritter v Louw 1930 SWA 92 at 102-4; Hipkin v Nigel Engineering Works (Pty)
Ltd 1941 TPD 155 at 158-9; Abbott v Nolte 1951 (2) SA 419 (C) at 426; Snyman v Theron 1952 (2)
SA 353 (T) at 355; Du Toit v De Beer 1955 (1) SA 469 (T) at 472-4; Rosettenville Motor Exchange v
Grootenboer 1956 (2) SA 624 (T) at 632; Pilcher and Conways (Pty) Ltd v Van Heerden 1963 (3) SA
205 (O) at 207; S & R Valente (Pty) Ltd v Benoni Town Council 1975 (4) SA 364 (W) at 365; Robot
Paints, Hardware & Timber Co (Pty) Ltd v South African Industrial Equipment (Pty) Ltd 1975 (4) SA
829 (T) at 833; Parekh v Shah Jehan Cinemas (Pty) Ltd 1980 (1) SA 301 (D) at 307; Standard Bank
of South Africa Ltd v SA Fire Equipment (Pty) Ltd 1984 (2) SA 693 (C) at 698-9; Truter v
Degenaar 1990 (1) SA 206 (T) at 209; Ter Beek v United Resources CC 1997 (3) SA 315 (C) at
333; Consol Ltd t/a Consol Glass v Twee Jongegezellen (Pty) Ltd 2002 (2) SA 580 (C) at 584; Muller
v Botswana Development Corporation Ltd 2003 (1) SA 651 (SCA) at 654-5. See also Rule 22(4) of
the Uniform Rules of Court (High Court).
[172] C 4.31.14; Grotius 3.40.7; Pothier para 599. The weight of case authority favours this view.
See eg Trustees of Van Niekerk v Tiran (1881) 1 SC 358 at 360; Kruger v Van Vuuren’s
Executrix (1886) 5 SC 162 at 166; Symon v Brecker 1904 TS 745 at 747, 751; Treasurer-General v
Van Vuuren 1905 TS 588 at 590; Gordon v Haefele 1914 CPD 909 at 915-16, 918; Paver Bros v De
Beer 1916 OPD 236 at 240; Schierhout v Union Government (Minister of Justice) 1926 AD 286 at
289-90; Toucher v Stinnes C (SA) Ltd 1934 CPD 184 at 188; Whelan v Oosthuizen 1937 TPD 304 at
310; Lester Investments (Pty) Ltd v Narshi 1951 (2) SA 464 (C) at 472; Mahomed v Nagdee 1952 (1)
SA 410 (A) at 416-18; In re Trans-African Insurance Co Ltd (in liquidation) 1958 (4) SA 324 (W) at
325-6; South African Metropolitan Life Assurance Co Ltd v Ferreira 1962 (4) SA 213 (O) at
215; Union Trust Maatskappy (Edms) Bpk v Thirion 1965 (3) SA 648 (GW) at 653; Van Aswegen v
Pienaar 1967 (3) SA 677 (O) at 681; The Government v Regna-Adwel Business Machines Africa (Pty)
Ltd 1970 (2) SA 428 (T) at 435; Great North Farms (Edms) Bpk v Ras 1972 (4) SA 7 (T) at
10; Transkei Development Corporation Ltd v Oshkosh Africa (Pty) Ltd 1986 (1) SA 150 (C) at
153; Nichol v Burger 1990 (1) SA 231 (C) at 237; AAA Brick Co (Pty) Ltd v Coetzee 1996 (3) SA 578
(B) at 581; Commissioner of Taxes v First Merchant Bank of Zimbabwe Ltd 1998 (1) SA 27 (ZS) at
30; Southern Cape Liquors (Pty) Ltd v Delipcus Beleggings Bpk 1998 (4) SA 494 (C) at 500-
1; Western Cape Housing Development Board v Parker 2005 (1) SA 462 (C) at 470; Blakes Maphanga
Inc v Outsurance Insurance Co Ltd 2010 (4) SA 232 (SCA) para 15.
In Roman law, set-off operated ipso jure, but no effect was given to it unless the defendant
claimed the right of set-off. See Wessels para 2491. In South Africa, there is some authority to the
effect that set-off takes place only if the defendant elects to rely on it and that he can choose not to
do so and enforce his claim by way of action. See Van Leeuwen CF 4.36.1; Voet 16.2.3; Hardy NO
and Mostert v Harsant 1913 TPD 433 at 447-8; Bain v Barclays Bank (DC & O) Ltd 1937 SR 191 at
203; Harris v Tancred NO 1960 (1) SA 839 (C) at 843; Wessels para 2494; De Wet & Van Wyk 281-
3; Van der Merwe et al 473-4. Cf Standard Bank of South Africa Ltd v Echo Petroleum CC 2012 (5) SA
283 (SCA) para 33, where Heher JA (confusingly) stated that set-off occurs automatically by
operation of law, but only operates retrospectively if and when the debtor elects to rely on it. It is
thought, with Christie 494, that the appeal court effectively settled this issue at an early stage when
it opted for automatic operation in Schierhout v Union Government (Minister of Justice) 1926 AD 286
at 289-90. It subsequently confirmed this ruling in Mahomed v Nagdee 1952 (1) SA 410 (A)
and Blakes Maphanga Inc v Outsurance Insurance Co Ltd 2010 (4) SA 232 (SCA). Van Niekerk 31
points out that automatic operation creates greater certainty by establishing more precisely when set-
off takes effect and is more economically efficient, since it ensures that debts are settled at the
earliest possible date. See also Joubert (1987) 288-9, who considers that the balance of convenience
would appear to favour automatic operation.
[173] Van Aswegen v Pienaar 1967 (3) SA 677 (O) at 681. Cf Harris v Tancred NO 1960 (1) SA 839
(C) at 843; Absa Bank Ltd v Standard Bank of SA Ltd 1998 (1) SA 242 (SCA) at 251.
It follows that pleading a denial or no knowledge of the other party’s claim does not preclude a
plea of set-off in the alternative should the claim be established. See Ferguson & Timpson Ltd v
African Industrial & Technical Services (Pty) Ltd 1949 (4) SA 340 (W) at 345; Wessels para 2498.
[174] Grotius 3.40.7; Pothier para 599; Kruger v Van Vuuren’s Executrix (1887) 5 SC 162 at
166; Symon v Brecker 1904 TS 745 at 751; Treasurer-General v Van Vuuren 1905 TS 588 at
590; Whelan v Oosthuizen 1937 TPD 305 at 310; Lester Investments (Pty) Ltd v Narshi 1951 (2) SA
464 (C) at 473; In re Trans-African Insurance Co Ltd (in liquidation) 1958 (4) SA 324 (W) at
326; Van Aswegen v Pienaar 1967 (3) SA 677 (O) at 681; Schierhout v Union Government (Minister
of Justice) 1926 AD 286 at 289-90; Siltek Holdings (Pty) Ltd (in liquidation) t/a Workgroup v Business
Connexion Solutions (Pty) Ltd [2009] 1 All SA 471 (SCA) para 6. See also Still v Norton (1836) 2
Menz 223 at 224; Murray v Roome and Sorey (1855) 2 Searle 157 at 159.
There is authority to the effect that if a defendant with a liquidated claim does not plead or prove
set-off and judgment is given against him, he may refuse to pay the judgment debt on the grounds
that it has been extinguished by set-off (and may, if necessary, apply to stay execution on the
judgment debt). See Voet 16.2.2; Mosenthal Bros v Coghlan and Coghlan (1888) 5 HCG 87 at
90; Mahomed v Ebraheim 1911 CPD 29 at 31-2; Mostert v McMillan 1912 EDL 350 at 354; Rainsford
v African Banking Corporation 1912 CPD 1106 at 1115; The Government v Regna-Adwel Business
Machines Africa (Pty) Ltd 1970 (2) SA 428 (T) at 433; Wessels para 2499. This view rests on the
premise that the judgment does not establish a new cause of action. If it does, it is difficult to see
how the principle of set-off can be applicable, since the defendant’s claim will already have been
extinguished automatically by set-off prior to judgment. The only basis on which the claim on the
judgment might be attacked is that it was obtained as a result of an error.
[175] Where it extinguishes a debt in its entirety, a subsequent cession of that debt is obviously
not possible: see Voet 16.2.5; Walker v Syfret 1911 AD 141 at 159, 162. Where it extinguishes part
of a debt, the balance of that debt may be ceded. See Wessels para 2527.
[176] The rules regarding appropriation of payments apply: so if A owes B several debts, all
capable of set-off, the law will regard as extinguished the debt which it was most in the interest of A
to discharge: Pothier para 602; Metropolitan Life Assurance Co Ltd v Ferreira 1962 (4) SA 213 (O) at
215-17; Wessels para 2579.
If one of the debtors pays his debt without realising that it has already been discharged by set-off,
he may reclaim the payment with a condictio indebiti. See Pothier para 603; Southern Cape Liquors
(Pty) Ltyd v Delipcus Beleggings BK 1998 (4) SA 494 (C) at 501.
[177] Schierhout v Union Government 1926 AD 286 at 289-90; Standard Bank of South Africa Ltd v
SA Fire Equipment (Pty) Ltd 1984 (2) SA 693 (C) at 696.
[178] Liquidators of the Cape of Good Hope v Forde & Co (1890) 8 SC 30 at 33; Burkhardt & Co v
Jacobsen’s Trustee (1909) 26 SC 293 at 296; Standard Bank of South Africa Ltd v SA Fire Equipment
(Pty) Ltd 1984 (2) SA 693 (C) at 698; Inter Industria Bpk v Nedbank Bpk 1989 (3) SA 33 (NC) at
40; Muller and Others v Botswana Development Corporation Ltd 2003 (1) SA 651 (SCA) at 654. If the
debts are unequal in size and the larger debt is secured, the security remains in respect of the
balance of that debt. See Voet 16.2.2; Pothier para 600; Wessels para 2579.
[179] Richter NO v Riverside Estates (Pty) Ltd 1946 OPD 209 at 223.
[180] Act 24 of 1936.
[181] These are the set-off was not effected in the ordinary course of business and sequestration
intervened within six months after the set-off or within 12 months after the creditor acquired his
claim by cession (if this was the case). In such circumstances, the trustee may, with the approval of
the Master, disregard the set-off and call upon the creditor concerned to pay to the estate the debt
which he owed the debtor. The creditor is then obliged to pay that debt and may prove his claim
against the estate as if no set-off had taken place (s 46).
[182] Herrigel NO v Bon Roads Construction (Pty) Ltd 1980 (4) SA 669 (SWA) at 676-7.
A party may waive his right to rely on set-off. To establish waiver, it must be proved on a balance
of probabilities that, with full knowledge of his right, he decided to waive it, either expressly or by
conduct that is irreconcilable with an intention to retain the right. See Southern Cape Liquors (Pty)
Ltd v Delipcus Beleggings BK 1998 (4) SA 494 (C) at 501.
[183] Altech Data (Pty) Ltd v MB Technologies (Pty) Ltd 1998 (3) SA 748 (W) at 761; Win Twice
Properties (Pty) Ltd v Binos 2004 (4) SA 436 (W) at 439. Cf Poynton v Cran 1910 AD 205 at 217.
A ‘without deduction or set-off’ clause does not prevent the party required to perform without
deduction or set-off from invoking the defence of reciprocity. See TH Restaurants (Pty) Ltd v Rana
Pazza (Pty) Ltd 2012 (5) SA 378 (WCC) paras 38-48.
[184] See eg Barret v R 1926 NPD 96 at 98-9; Fourie v Sweigers 1950 (1) SA 369 (C) at 371.
[185] The following are incapable of set-off at common law:
•
a claim for arrear tax: Grotius 3.40.11; Voet 16.2.16; Van Leeuwen CF 1.4.36.11, 13; Pothier
para 589; Schierhout v Union Government (Minister of Justice) 1926 AD 286 at 291; Pentecost &
Co v Cape Meat Supply Co 1933 CPD 472 at 479; Commissioner of Taxes v First Merchant Bank
of Zimbabwe Ltd 1998 (1) SA 27 (ZS) at 30; Wessels para 2567;
•
a debt owed by one state department to another: Pothier para 589; Commissioner of Taxes v
First Merchant Bank of Zimbabwe Ltd 1998 (1) SA 27 (ZS) at 30; cf Master of the Supreme
Court v Roth 1905 TS 582 at 593-4;
•
a claim for maintenance: Voet 16.2.16; Pothier para 589; Tregoning v Tregoning 1914 WLD 95
at 96; Greathead v Greathead 1946 TPD 404 at 411; Luttig v Luttig 1994 (1) SA 523 (O) at 527;
Wessels para 2566;
•
a claim for the return of goods handed over under a contract of deposit (depositum): Voet
16.2.15; Ngangelizwe Kama v Yates & Murray (1903) 17 EDC 60 at 67; Wessels para 2567; or a
contract of loan for use (commodatum): Wessels para 2567; or handed over as a result of a
delict (fraud, etc): LAWSA ‘Obligations’ para 244; De Wet & Van Wyk 28; or lost as a result of
spoliation: Voet 16.2.16; Pothier para 589; Wessels para 2567.
If set-off cannot be raised against the state where taxes are claimed, it ought not to be allowed
against a claim for municipal rates: cf Pothier para 589; Wessels para 2569.
[186] Trustee of Murtha v Coghlan (1882) 1 HCG 511 at 516, 518-19; Seydell v Boltman (1900) 17
SC 337 at 338-9; Walker v Syfret NO 1911 AD 141 at 160, 166; National Bank of SA Ltd v Cohen’s
Trustee 1911 AD 235 at 254; Visser’s Trustee v Spangenberg 1920 CPD 73 at 75; Packery v
Padiachy 1929 TPD 231 at 235-6; Estate Silbert & Co v De Jager 1933 CPD 88 at 99-100; Richter NO
v Riverside Estates (Pty) Ltd 1946 OPD 209 at 226; Consolidated Agencies v Agjee 1948 (4) SA 179
(N) at 190; Magill, Grant & Nell (Pty) Ltd v Administrator, Natal 1968 (4) SA 44 (D) at 51; Thorne
and Another NNO v The Government 1973 (4) SA 42 (T) at 45; The Government v Thorne and
Another NNO 1974 (2) SA 1 (A) at 9; Ex parte Venter and Another NNO: In Re Rapid Mining Supplies
(Pty) Ltd (in provisional liquidation); African Gate and Fence Works Ltd intervening 1976 (3) SA 267
(O) at 281; Herrigel NO v Bon Roads Construction (Pty) Ltd 1980 (4) SA 669 (SWA) at 677; Roman
Catholic Church (Klerksdorp Diocese) v Southern Life Association Ltd 1992 (2) SA 807 (A) at
815; Siltek Holdings (Pty) Ltd (in liquidation) t/a Workgroup v Business Connexion Solutions (Pty)
Ltd [2009] 1 All SA 471 (SCA) para 8.
[187] The debtor is excused if the creditor makes it clear that he will not accept any performance
from the debtor or that he will only accept a performance that differs materially from that required by
the contract. The debtor need not go to the lengths of tendering performance in these circumstances.
See Fraustaeder v Sauer (1892) 9 SC 512 at 513-14; Fichardt Ltd v Weber 1911 OPD 17 at
23; Douglass v Dersley 1917 EDL 221 at 232-3; Ford Agencies v Hechler 1928 TPD 638 at 641-
2; Major’s Estate v De Jager 1944 TPD 96 at 103-4.
[188] For the requirements for a valid tender of performance, see 227. Refusal of a valid tender of
performance produces certain legal consequences for the creditor:
•
The creditor is precluded from asserting that the debtor was in breach of his obligation.
•
The creditor is liable for breach of contract (repudiation, mora creditoris).
•
If the creditor sues the debtor for performance, the debtor may rely upon the tender to avoid
liability for costs. In such a case the debtor must repeat the tender in his plea: see Inspection Co
of SA (Pty) Ltd v Hall Longmore & Co (Pty) Ltd 1995 (2) SA 795 (A) at 802. Cf Naudé v
Kennedy 1909 TS 799 at 806-10.
•
The creditor may be made to render his own performance even though his duty to perform is
conditional upon the debtor first rendering his performance — the principle of reciprocity is
suspended for as long as the creditor refuses to accept the debtor’s performance. See eg Major’s
Estate v De Jager 1944 TPD 96 at 104; Hurwitz’s Trustees v Magdeburg Fire Insurance
Company 1917 TPD 443 at 448.
[189] Van Loggenberg v Sachs 1940 WLD 253 at 255-6; Hanekom v Amod 1950 (4) SA 412 (C) at
415-16. The test for determining whether the debtor is excused liability for non-performance in such
cases is whether he did all that he could reasonably have been expected to do to render performance.
See Hanekom v Amod 1950 (4) SA 412 (C) at 416. See also Brown v Moosa 1917 WLD 22 at
24; Bardopoulos and Macrides v Miltiadous 1947 (4) SA 860 (W) at 865.
[190] See eg Maltz v Meyerthal 1920 TPD 338 at 340-1. Cf Williamson v Burke (1906) 20 EDC 130
at 131-2.
[191] Voet 12.6.9.
[192] The condictio ob turpem vel iniustam causam lies against a possessor of stolen or
fraudulently obtained money who acquired it with knowledge of the theft or fraud or who became
aware of it at a later stage. See First National Bank of Southern Africa Ltd v Perry NO 2001 (3) SA
960 (SCA) paras 24-5; Absa Bank Ltd v Intensive Air (Pty) Ltd 2011 (2) SA 275 (SCA) para 22; Absa
Bank Limited v Lombard Insurance Co Ltd 2012 (6) 569 (SCA) paras 11-12, 14.
[193] In Nissan South Africa (Pty) Ltd v Marnitz NO (Stand 186 Aeroport (Pty) Ltd
Intervening) 2005 (1) SA 441 (SCA) paras 17-18, Streicher JA accepted that if money paid into a
customer’s bank account was obtained through fraud or theft, the bank is not obliged to pay the
money to the customer on demand. The judge remarked (at para 23): ‘[T]he submission . . . that,
once a bank has unconditionally credited a customer’s account with an amount received, the bank is
required to pay the amount to the customer on demand, even where the customer came by such
money by way of fraud or theft, is not correct. If stolen money is paid into a bank account to the
credit of the thief, the thief has as little entitlement to the credit representing the money so paid into
the bank account as he would have had in respect of the actual notes and coins paid into the bank
account.’ See also Commissioner of Customs and Excise v Bank of Lisbon International Ltd 1994 (1)
SA 205 (N) at 208-15.
[194] In Trustees, Estate Whitehead v Dumas 2013 (3) SA 331 (SCA), the court held that the
principle governing payments obtained by theft or fraud applies only to payments obtained ‘outside a
contractual context’. The first respondent (Dumas) had been induced by fraud to pay money into the
Absa account of the fraudster (Whitehead) as a precursor to entering into a transaction with him. The
court held that Dumas was not entitled to demand a refund of the money from the bank. Cachalia JA
said the following (at paras 23-4): ‘[Both Nissan South Africa (Pty) Ltd v Marnitz NO (Stand 186
Aeroport (Pty) Ltd intervening) 2005 (1) SA 441 (SCA) and Commissioner of Customs and Excise v
Bank of Lisbon International Ltd 1994 (1) SA 205 (N)] were concerned with theft or fraud outside a
contractual context. By contrast the investment transaction between Dumas and Whitehead, though
tainted by fraud, nevertheless constituted the causa for the payment. Dumas intended to pay
Whitehead and voluntarily made the payment into Whitehead’s account; it is immaterial that the
payment was solicited through Whitehead’s misrepresentation and fraud. . . . [T]he personal right to
the credit of the one account-holder is extinguished upon the transfer and a new personal right
created immediately for the other. Whitehead, as a customer of Absa, immediately acquired the new
right to the money in his account, which was enforceable against the bank when ownership passed to
it, despite the absence of valid causa — ie a valid underlying agreement. Absa then had both a duty
to account and a corresponding liability to its customer, Whitehead.’
The court’s approach is untenable. The phrase ‘outside a contractual context’ is capable of various
shades of meaning but Cachalia JA evidently did not intend the concept of ‘payment in a contractual
context’ to mean payment in terms of a contract between the parties. Dumas’ payment to Whitehead
occurred before the parties had concluded their proposed ‘investment transaction’ and Cachalia JA
acknowledged that there was no valid underlying agreement between the parties. His earlier
statement that the ‘investment transaction’ between Dumas and Whitehead constituted the causa for
the payment must be viewed in this light — there was, in fact, no investment transaction, only the
promise or expectation of one to come. The principle applied by Cachalia JA was simply that money
paid into a bank account as a result of the fraud of the account-holder may not be recovered from the
bank if the payment was made in a ‘contractual context’. Adopting this principle significantly
undermines the efficacy of the theft or fraud principle because cases of illicitly acquired funds
frequently occur in a contractual setting, where there is the promise of a contract of some kind. There
is a theoretically sound reason for holding that a payment into a bank account made in performance
of a fraudulently induced contract is not recoverable from the bank. The account-holder in these
circumstances has a contractual right to the funds (albeit one that is impeachable on the grounds of
fraud) and; on the funds being paid into his account, he must necessarily acquire a right to the
resultant credit in the account. However, it is not clear why the same result should follow where the
account-holder’s fraud has not actually brought about a contract between the parties. There is no
logical reason for treating these fraudulently induced payments differently from any other payments
obtained by fraud or theft. In each case, the policy reasons for holding the payment to be ineffective
are identical.
[195] See Absa Bank Ltd v Intensive Air (Pty) Ltd 2011 (2) SA 275 (SCA) para 22; Absa Bank
Limited v Lombard Insurance Co Ltd 2012 (6) 569 (SCA) paras 16-18. In the latter case, Malan JA
explained the underlying rationale (para 18): ‘A debt-extinguishing agreement . . ., like any other
agreement, [cannot] . . . be contra bonos mores. It will be invalid where both parties know that the
debt will be discharged with stolen money. This conclusion hardly requires authority. But none of the
authorities . . . suggest[s] that the same result would follow where the creditor is in good faith and
unaware of the fact that the debt is to be discharged with stolen funds. Any suggestion that the
validity of the payment may be questioned for this reason would lead to series of payment
transactions being declared invalid ex post facto after discovery of the theft. Nor is it required that
the law be developed further. The common law has already been developed to impose a duty of care
on a collecting bank. Extensive legislation aimed at the prevention of money laundering applies to
banks. Any further development along the lines suggested on behalf of Lombard Insurance which, to
my mind, is neither necessary nor desirable, should be by way of legislation.’
[196] Pillay v Krishna 1946 AD 946 at 955.
The debtor must prove that his payment relates to the particular obligation in question. Cf Italtile
Products (Pty) Ltd v Touch of Class 1982 (1) SA 288 (O) at 290.
Factors which indicate that a debt has been paid are the antiquity of the debt, subsequent
payments by the creditor to the debtor, admissions by the creditor, and payment of later debts owed
by the debtor to the creditor. In Executors of Schonnberg v Executors of Vos (1880) 1 SC 325, De
Villiers CJ said (at 330) that the fact that a debt is old ‘raises a certain presumption in favour of its
having been paid’. However, it would appear that the antiquity of a debt does not create any
presumption — it is merely a factor which must be taken into consideration along with any other
relevant facts. See Watermeyer v Neethling qq Denyssen (1831) 1 Menz 26-7 (the lapse of 20 years
did not per se create a presumption of payment which it was necessary to rebut by evidence).
Cf Trustees Stellenbosch Bank v PA Myburgh (1876) 6 Buch 206 at 207; Christian & Co v Hall (1882)
2 EDC 203; Hampson v Mulcahy (1884) 3 HCG 76 at 78; Erasmus v Brooks (1899) 6 Off Rep 154 at
155-6; Pelser v Kirchner’s Executor (1904) 18 EDC 125 at 126.
[197] Evidence of payment to a creditor who has died must be carefully scrutinised. See Estate
Lynch v Stewart 1913 CPD 451 at 454; Pillay v Krishna 1946 AD 946 at 958; Electra Home Appliances
(Pty) Ltd v Five Star Transport (Pty) Ltd 1972 (3) SA 583 (W) at 585-6.
[198] In Abraham v Cassiem 1920 CPD 568, Kotzé J observed (at 570): ‘[A] receipt . . . is not
necessarily conclusive evidence of payment: it is prima facie evidence of payment. An explanation
may be given as to why the receipt was handed to the defendant, and no payment may have taken
place as a matter of fact. So that it is only rebuttable evidence of payment.’
A receipt has the characteristics of an admission of payment and, as such, is cogent evidence of
it. However, it is not conclusive evidence and the creditor is at liberty to challenge its validity (for
instance, aver that it was issued by mistake) or its authenticity (allege that it is a forgery).
See Duncker v Paddon and Brock Ltd 1903 TH 166 at 173-4; Broide v Margolius & Co 1918 CPD 560
at 563-4. If the creditor denies the authenticity of the receipt which the debtor has produced and
alleges that it is a forgery, the onus is on the debtor to prove that the receipt was duly issued by the
creditor or his agent. In Naidoo v Cassimjee 1964 (3) SA 540 (N), Miller J remarked (at 543): ‘To
constitute strong or any proof of payment . . . [a] receipt produced by the defendant must be
genuine; it has no evidential value if it is not. It cannot avail a defendant to produce a document
which he calls a receipt unless at the same time he shows that it is in fact a receipt issued by the
plaintiff. . . . When the plaintiff . . . denies that he issued or signed the receipt, it is for the defendant
to prove that that receipt was issued and signed by the plaintiff. The mere fact that he is in
possession of a document which purports to be a receipt issued and signed by the plaintiff cannot
without more avail him.’ See also Welch v Harris 1925 EDL 298 at 305-6; Mercahnd v Butler’s
Furniture Factory 1963 (1) SA 885 (N) at 889.
A duplicate deposit slip stamped and initialled by a bank teller is considered to be a form of
receipt. See Kircos v Standard Bank of South Africa Ltd 1958 (4) SA 58 (SR) at 61.
[199] Van Noorden v De Jongh and Hofmeyer (1892) 9 SC 296 at 298; Liebenberg v Loubser 1938
TPD 414 at 415. A bank which pays out on a cheque to a party purporting to be payee may demand
that he indorse the instrument as a form of receipt. See Price v Natal Bank (1887) 8 NLR 153 at 155.
Section 85 of the Bills of Exchange Act 64 of 1964 provides that, if an unindorsed cheque has been
paid by the bank on which the cheque is drawn, such payment is prima facie evidence of the receipt
by the payee of the sum mentioned in the cheque.
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Chapter 7
Payment systems
Melanie Roestoff
7.1
Introduction
7.2
Paper-based transfers
7.2.1
Bills of exchange, cheques and promissory notes
7.2.2
Stop orders and debit orders
7.3
Electronic funds transfers
7.3.1
General
7.3.2
Credit and debit transfers
7.3.3
Consumer-activated EFT systems
7.3.4
The legal effect of an EFT
7.3.5
7.3.6
International funds transfers
7.4
Payment cards
7.4.1
Types of payment cards
7.4.2
Credit cards
List of works cited
7.1 Introduction
Payment by means of cash represents the first of the three great ages of
payment. [1] Under South African law, cash payment is regarded as the only form of
legal tender. [2] However, paying cash is not always practicable and, because of the
risk involved, a variety of other payment mechanisms and payment systems have
been developed over the years. [3] Geva [4] explains the concepts of ‘payment
mechanism’ and ‘payment system’ as follows:
Any machinery facilitating the transmission of money which bypasses the transportation of
money and its physical delivery from the payor to the payee is a payment mechanism. A
payment mechanism facilitating a standard method of payment through a banking system
is frequently referred to as a payment system. Payment over a payment mechanism is
initiated by payment instructions, given by the payor or under the payor’s authority, and is
often referred to as a transfer of funds.
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Paper-based transfers represent the second of the three great ages of
payment. [5] The best known examples of paper-based instruments include bills of
exchange, cheques, promissory notes, [6] stop orders, debit orders, [7] travellers’
cheques [8] and documentary letters of credit. [9] Payment may also be effected
through tangible paying methods other than paper-based paying instruments, such
as credit, debit or cheque guarantee cards. [10]
Intangible methods of payment such as electronic transfers represent the third
great age of payment. [11] Unlike the position with paper-based transfers, the
payment instruction in an electronic transfer is not given in a permanent form.
Consequently physical delivery of a document is unnecessary to effect
payment. [12] After cash payment the electronic transfer of funds is fast becoming
the most popular means of payment. [13] One of the advantages of electronic
transfers is the fact that payment can be effected without it being necessary for the
creditor and debtor to be in each other’s presence. [14]
The South African National Payment System (NPS) is regulated by the National
Payment System Act (NPS Act). [15] The purpose of the NPS Act is to provide for the
management, administration, operation, regulation and supervision of payment,
clearing and settlement systems in South Africa. In terms of the NPS Act the South
African Reserve Bank is empowered to oversee and regulate the NPS and to
recognise a ‘payment systems management body’ (PSMB), which would be
mandated to organise, manage and regulate the participation of its members in the
payment system. [16] The PSMB that is currently recognised by the Reserve Bank is
the Payments Association of South Africa (PASA), [17] which was established in
1995. [18]
The abundance of different methods of payment is the result of a revolution in
banking generally and payment methods specifically. [19] Changes in information
technology, changes in communications technology and globalisation appear to be
the three main reasons for this ‘revolution’. [20]
In 2014, a total of 13.8 million cheques were presented for collection
representing a value of R244 million. During the same period approximately
447 million credit card purchases amounting to R228 million and 1.1 billion
electronic
Page 250
fund transfers amounting to R8 401 million were processed. [21] Compared to earlier
statistics, it is clear that there has been a sharp increase in the number and value of
electronic funds transfers and credit card purchases and a concomitant sharp
decrease in the number and value of cheques presented for collection. [22]
The rights and liabilities of parties involved in cheques are regulated by the Bills
of Exchange Act, [23] but to date, in spite of the above-mentioned statistics, South
Africa has not enacted legislation dealing with the rights and liabilities of the parties
involved in electronic funds transfers and credit card transactions specifically and
comprehensively. [24] This is in stark contrast to developments in other jurisdictions
where specific legislation has been enacted to regulate the rights and liabilities of
parties involved in these types of transactions. [25]
7.2 Paper-based transfers

7.2.1 Bills of exchange, cheques and promissory notes
Bills of exchange, cheques and promissory notes are negotiable instruments and are
regulated by the Bills of Exchange Act (BEA). [26]
(i) Functions and definitions of bills of exchange and cheques

Bills are commonly used for purposes of credit and investment. [27] However, as an
instrument of payment, it has to a large extent been replaced by the
cheque. [28] Cheques are mainly used as a means of effecting payment and are
hardly ever negotiated. [29] However, a cheque is not money or legal tender and a
creditor is not obliged to accept a cheque as payment. [30]
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The BEA [31] defines a bill as an unconditional order in writing addressed by one
person to another, signed by the person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed or determinable future time, a sum
certain in money to a specified person or his order or to bearer. [32]
The BEA defines a cheque as a bill [33] drawn on a bank [34] and payable on
demand. [35] Section 71(1) provides that the provisions of the BEA applicable to a bill
payable on demand apply to cheques, except as otherwise provided for in
chapter 2. [36]
A cheque, when it is drawn, involves three parties, namely the drawer, [37] the
drawee banker [38] and the payee [39] or bearer [40] if the cheque is payable to
‘bearer’.
At first glance, it would appear that a cheque where the bank draws a cheque on
itself, in other words where the same bank is both the drawer and drawee, does not
comply with the definition of a bill in terms of s 2(1) in so far as it requires an order
‘addressed by one person to another’. But, in terms of s 3(2), the holder may in
such a case treat the instrument, at his option, either as a cheque or as a
promissory note. [41] Such a cheque, which in practice is known as a ‘bank cheque’
would therefore be valid. [42] Also, in terms of the amended s 71, a bank cheque will
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be regarded as a cheque in terms of the BEA. [43] Bank cheques are mainly used in
transactions involving large sums of money as these transactions call for a safe
method of effecting payment. [44]
A cheque that is not dated, [45] or which is antedated or post-dated, [46] or bears
the date of a non-business day is not invalid for that reason only. [47] Obviously a
bank may refuse to pay a post-dated cheque if its due date has not arrived yet and,
if it has been countermanded before that date, payment must be refused. If the
bank
Page 253
pays before its due date it will do so at its own risk and the bank would not be
entitled to debit its client’s account with the amount of the cheque. [48]
(ii) Crossings and markings on cheques

The BEA provides for two types of crossings, namely general and special
crossings. [49] The effect of a general crossing is that the drawee bank may not pay it
to any person other than a bank, while in the case of a special crossing the drawee
bank may only pay the bank to which it is crossed, or the agent for collection of the
latter, if it is a bank. [50] A crossed cheque may therefore only be paid to a bank and
not over the counter. [51] A crossing on a cheque does not affect its negotiability and
it will therefore remain an order or a bearer cheque, or a cheque which is valid inter
partes.
The addition of the words ‘not negotiable’ on a crossed cheque does not prevent
the transfer of the cheque. However, the holder will not have, and will not be able to
give a better title to the cheque than that which the person from whom he took it
had. [52] Any transfer will therefore be subject to the nemo plus iuris rule and no
person would be able to become the holder in due course if these words have been
added by the drawer before issue of the cheque. [53]
Section 81 enables the true owner [54] of a lost or stolen cheque marked ‘not
negotiable’ to claim compensation from certain subsequent possessors. Section
81(1)
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provides that the true owner of such a cheque will be entitled to recover the amount
of his loss (or the amount of the cheque, whichever is the lesser) [55] from any
person who was a possessor [56] of the cheque after the theft or loss and who either
gave consideration [57] therefor, or took it as a donee. [58] This action is given to the
true owner if the cheque was paid by the drawee bank under circumstances that do
not, in terms
Page 255
of the BEA, [59] render that bank liable to the true owner for any loss he may sustain
due to the cheque having been paid. [60]
The words ‘account payee only’ on a cheque are not regulated by the
BEA. [61] These words have no effect on the transferability of the cheque. The words,
according to the Appellate Division, ‘operate as some safeguard [62] if the cheque
should fall into the wrong hands’. It is to be construed as a mere direction to the
collecting bank (and not the drawee bank) that the specified payee should receive
the money. However, the words would cease to operate if the specified payee
transfers it, because the payee then parts with his rights to receive the money. [63]
The words ‘not transferable’ on a cheque prohibit any transfer of the cheque and
are in effect an order to the drawee bank to pay the specified payee only. [64] No
person but the payee would thus be able to acquire the right of payment or to
become holder of the cheque. [65] Section 6(5) provides that ‘if a bill contains words
prohibiting transfer, [66] or indicating an intention that it should not be transferable,
it is valid as between the parties to the bill, but is not negotiable’.
After the BEA’s amendment in 2000, [67] a special type of non-transferable cheque
has been created. In terms of s 75A(1) where a cheque bears boldly [68] across its
face the words ‘not transferable’ or ‘non transferable’, with or without the word
‘only’ after the payee’s name:
(a)
the cheque shall not be transferable but shall be valid as between the parties
thereto;
Page 256
(b)
the cheque shall be deemed to be crossed generally, unless it is crossed
specially; [69] and
(c)
the words ‘not transferable’ or ‘non-transferable’ may not be cancelled and
any cancellation shall be of no effect.
Section 75A(2) provides that a bank shall not be negligent by reason only of its
failure to concern itself with—
(a)
an indorsement intended to prevent transfer of the cheque; [70] or
(b)
words prohibiting transfer or indicating an intention that it should not be
transferable other than in the manner provided for in section 75A(1). [71]
Section 84(2) sets out the rights afforded to the collecting bank in instances where a
holder has delivered a non-transferable cheque in terms of s 75A to the bank for
collection. [72] Section 84(2) provides that if such a cheque is delivered by the
holder [73] thereof to a bank for collection and the holder is indebted to the bank, the
bank shall be deemed to be holder thereof taking the cheque in pledge for such
indebtedness with the same rights and subject to the same liabilities as the holder
had.
(iii) Consequences of payment by cheque

Acceptance of a cheque as payment suspends all rights of the creditor under the
underlying obligation until the cheque is dishonoured. [74] Therefore, payment by
Page 257
cheque constitutes a conditional discharge of the underlying obligation. [75] The
condition is that the cheque be honoured upon presentation. [76]
If the cheque is in fact dishonoured the creditor is entitled to proceed to enforce
the underlying debt or to enforce payment on the instrument itself. [77] The mere
acceptance of a cheque as payment does not constitute a novation of the debt for
which it was given. Only where the parties have agreed to novate the debt; that is,
to extinguish the debt and to replace it with the cambial obligation on the cheque,
will the underlying debt be discharged unconditionally. [78]
The underlying debt is also discharged where the bank pays a cheque after the
creditor lost the cheque or after it was stolen from him and the bank was in terms of
the BEA entitled to debit the debtor’s account with the amount of the cheque. [79]
The legal position with regard to cheques sent by mail is as follows: [80] If a
debtor mails a cheque to his creditor without the latter requesting or authorising him
to do so and the cheque is intercepted by a third person and paid by the drawee
bank to the third person in circumstances entitling the bank to debit the drawer’s
account with the amount of the cheque, the underlying debt would not be
discharged. In such a case the debtor thus bears the risk of the cheque’s theft or
loss. However, where the creditor indeed requested or authorised [81] the debtor to
mail the cheque, then the underlying debt is deemed to be discharged, provided
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that the cheque be paid. [82] A request or authorisation to send a cheque through the
post may be implied from the circumstances of the case. [83]
Page 259
(iv) Cheque collection process [84]
In order to obtain payment a creditor may present a cheque for payment to the
bank on which it is drawn, [85] but as a rule the creditor will deposit the cheque in its
own bank account to be collected on its behalf. [86]
The Automated Clearing Bureau (Pty) Ltd (ACB) was established in 1973 by the
South African clearing banks to provide for a computerised system for the collection
and payment of cheques. [87] This system uses sophisticated computer
equipment [88] and processes cheques by means of magnetic ink character
recognition (MICR). The MICR system made it possible for a cheque to be debited on
the same day it was deposited for collection. [89] With regard to the collection of
cheques the ACB acted as a mandatary and not as a representative of the
participating banks or their customers. [90]
The process of automated clearing of cheques was introduced to shorten the
collection process by replacing human physical handling of the cheques with a
faster, computerised process. However, physical movement of paper was still not
reduced sufficiently by this process. [91] The system of truncation of cheques [92] was
introduced to address this problem. [93] The usual route a cheque follows is from the
holder to the collecting bank, to the clearing-house, to the drawee bank and back to
the drawer. With truncation, the cleared cheque is not returned to the drawer but is
retained either by the collecting bank, the clearing house or the drawee
bank. [94] There are thus different forms of truncation, the most sophisticated being
the form
Page 260
where physical presentation of the cheque is dispensed with and the cheque is
retained by the collecting bank. [95] In such a case, payment is made to the payee’s
account, and at the same time the drawer’s account is debited without the physical
movement of paper. [96]
If a bill is duly presented for payment and payment is refused the holder obtains
a right of recourse against the drawer. [97] Before the 2000 amendments, the BEA
did not provide for electronic presentment of cheques. Section 50(4) called for the
physical presentation of bills and cheques [98] by providing that a holder of a bill who
presents it for payment must exhibit the bill to the person from whom he demands
payment, and when the bill is paid the holder shall forthwith deliver it to the party
paying it. Therefore, forms of truncation that dispensed with physical presentation
by the holder made recourse by the holder against the drawer and indorsers
impossible, as presentment in accordance with the provisions of the BEA did not
occur. Section 50(4) of the BEA has, however, been amended to make it subject to
the provisions of s 43A. Section 43A [99] now allows for presentment for payment to
the drawee by a collecting bank on behalf of the holder and accordingly makes it
possible to introduce various forms of truncation. [100] Such presentment may
occur: [101]
(a)
at a place designated in the rules of any clearing house of which both the
drawee bank and the collecting bank are members;
(b)
at a place of payment designated by the drawee bank; or
(c)
by means of data transmitted in terms of an agreement to which both the
drawee bank and the collecting bank are party by or on behalf of the
collecting bank to the drawee bank, identifying the cheque with reasonable
certainty.
In terms of s 43A(2) a cheque is deemed to be identified with reasonable certainty
if:
(a)
the sum ordered to be paid by the cheque;
(b)
the number of the cheque, if any;
(c)
the name and number of the account against which the cheque is drawn;
(d)
the drawee bank,
are specified or are readily ascertainable by the drawee bank from the date
transmitted by or on behalf of the collecting bank.
Although s 43A specifically provides for electronic presentment of cheques, it
should be noted that the duty of the drawee bank to examine the
cheque [102] presented for payment is not affected. [103] In this regard s 43A(3)
provides that
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where presentment has occurred in accordance with s 43A, the drawee shall not be
relieved of any liability to which the drawee would have been subject in relation to
the cheque if it had been physically presented. [104]
In 1993 the banking industry jointly owned several companies that provided
shared services to the banks through a variety of different payment channels. The
need arose to consolidate them into a single structure and in March 1993 the
banking industry reached agreement and founded Bankserv. In May 2010 Bankserv
was rebranded as BankservAfrica in order to, inter alia, reflect their extended
activities and product offering into Africa. [105] BankservAfrica is regulated in terms of
the National Payment Systems Act, [106] by the Reserve Bank and by the Payments
Association of South Africa (PASA) and the Central Banks within the other countries
where BankservAfrica provides services. [107]
With regard to the clearing of cheques, BankservAfrica also provides a ‘Code Line
Clearing’ (CLC) service. [108] CLC clearing differs from MICR clearing in that it is a
data-based rather than a paper-based clearing system. The collecting bank captures
the data regarding the individual cheques on its computers and transmits it to the
clearing house. [109] Thereafter the actual cheque is sent to Bankserv so that the
electronic data can be matched with the cheque. [110]
(v) Moment of payment of cheque

Establishing the moment of payment of a cheque is of importance where the drawer
attempts to countermand payment of a cheque, as a countermand is possible only
where payment has not already taken place. The moment of payment is also
relevant where the drawer has been sequestrated before payment has taken place,
since the creditor will then probably only have a concurrent claim against the
insolvent estate of the drawer. [111]
Where a cheque is paid over the counter, payment takes place when the money is
handed over to the holder. However, where payment is effected through the
collection process of a clearing bureau, it is submitted that the clearing arrangement
should apply. Payment would then be final only when the period in which the drawee
may dishonour the cheque in terms of the clearing agreement expires without notice
of dishonour by the drawee. The moment of payment is therefore not determined by
the decision to honour the cheque. [112]
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(vi) Certified and bank-guaranteed cheques

Cheques are hardly ever accepted by the drawee bank, but they are often certified
or the bank may also guarantee payment.
Before the enactment of s 72A of the BEA, legal uncertainty existed regarding the
exact nature and consequences of certification. [113] In terms of s 72A(1) a bank-
certified cheque is one signed by the drawee and which contains words to the effect
that the cheque will be paid or that funds will be available for its payment. [114] With
regard to the liability of the drawee certifying a cheque, s 72A(2) has the effect of
making the drawee liable on the cheque itself, which liability is comparable to that of
an acceptor of a bill. [115] Section 72A(2) provides that the drawee certifying a
cheque undertakes that he will pay the holder, or the drawer or an indorser who has
been compelled to pay the cheque, the amount
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recoverable in terms of s 55 [116] according to the tenor of his certification. Moreover,
the drawee is precluded from denying to a holder in due course:
(a)
the existence of the drawer, the genuineness of his signature and his capacity
and authority to draw the cheque; and
(b)
the existence of the payee and his then capacity to indorse.
Certified cheques must be distinguished from so-called bank-guaranteed
cheques. [117] The guarantee on a bank-guaranteed cheque is generally effected by
setting out the terms and conditions of the guarantee on the back of the cheque and
is usually coupled with the use of a ‘cheque card’. [118] The liability of the bank in
such a case is based on the contract of guarantee that has been concluded outside
the instrument itself. The bank’s liability is therefore independent and additional and
not accessory to that of the drawer. [119] This means that the payee may disregard
the drawer and hold the bank directly liable if the cheque is not paid. [120]
In terms of s 73 of the BEA, the bank’s duty and authority to pay a cheque are
terminated, inter alia, when the customer countermands payment. [121] The question
therefore arises whether the customer would be entitled to countermand payment of
a certified or bank-guaranteed cheque. [122] It is submitted that a customer
requesting certification in actual fact requests the bank to undertake liability on the
cheque and thereby impliedly waives his right to countermand payment of such a
cheque. [123] The parties may also agree that the certification or guarantee should be
subject to the condition that the customer may not countermand payment. It should
also be noted that the drawee certifying a cheque or guaranteeing payment
undertakes as against the payee or holder to pay the cheque according to the tenor
of its certification or guarantee. The certification or guarantee is therefore not
dependent upon the relationship between the drawer and holder and the drawee
would thus be unable to rely on a countermand of payment by the drawer. A
countermand will not relieve him of his obligation to pay. However, should the
holder obtain the cheque through fraud, it is submitted that the holder should not be
permitted to rely on the independence of the bank’s obligation to pay the
holder. [124]
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(vii) Drawee bank’s duty to pay cheques

In terms of the bank and customer contract it is the duty of the bank to pay cheques
drawn on it provided that there are sufficient funds or credit available to cover the
amount of the cheque. [125] However, if the drawer’s signature on the instrument has
been forged or appended without the drawer’s authority and the bank pays the
instrument, the bank would not be entitled to debit the drawer’s account with the
amount of the cheque, as the bank does not have the drawer’s mandate to pay the
instrument. [126] The instrument is furthermore not a valid cheque, as a forged or
unauthorised signature is wholly ineffective. [127]
The duty and authority of a bank to pay is terminated by receipt of:
(a)
countermand of payment;
(b)
notice of the customer’s death or incapacity; or
(c)
notice of the customer having been sequestrated or wound up or placed under
judicial management [128] or declared a prodigal;
provided such countermand or notice identifies the cheque, in the case of a
countermand, and the customer with reasonable particularity and gives the bank a
reasonable opportunity to act on it. [129]
As a general rule, the bank is obliged to make a payment in due course. In terms
of s 1 of the BEA a payment in due course ‘means payment made at or after the
maturity of a bill to the holder thereof in good faith and, if his title to the bill is
defective, without notice thereof.’ If the bank does not make a payment in due
course it will as a general rule not be entitled to debit the customer’s account with
the amount of the cheque. However, certain provisions of the BEA protect the bank
even where it has not made a payment in due course. [130] In this regard ss 58,
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79 and 83 of the BEA, which constitute terms implied in the contract between the
bank and customer, are relevant. [131]
Section 58 affords protection to the drawee bank where it has paid on the basis of
a forged or unauthorised endorsement and therefore not to the holder of the
instrument. Section 58 applies to order cheques, [132] and thus not to non-
transferable cheques which, by definition, are not payable to order but to a specific
person only. [133] In terms of this section the bank will be deemed to have paid the
cheque in due course, provided the bank paid in good faith [134] and in the ordinary
course of business. [135] However, the bank will not be protected if the indorsement
purports to be that of a person who is a customer of the bank at the branch [136] on
which the said cheque is drawn. [137] Section 58 deals with forged or
unauthorised indorsements in the technical sense of the word. If someone
pretending to be the payee of the cheque, requests payment over the counter at the
drawee bank, he or she would usually be asked to sign on the back of the cheque.
This signature is not an indorsement for the purposes of s 58 as it was not appended
with the purpose of negotiating the cheque but only for the purposes of identification
and receipt. [138]
Section 79 applies to all crossed cheques including non-transferable
cheques. [139] Section 79 provides that, if a bank pays a crossed cheque [140] in good
faith and
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without negligence, [141] the bank will be entitled to the same rights and be placed in
the same position as if payment of the cheque had been made to the true owner
thereof. The bank will therefore be entitled to debit its customer’s account with the
amount of the cheque even though payment may not have been made to the bank
collecting for the holder. [142] However, the bank is obliged to pay strictly in
accordance with the crossing. [143] Should the bank fail to do so, it will be liable to
the true owner of the cheque for any loss he may sustain owing to the cheque
having been so paid. [144] Section 79 also affords protection to the drawer of a
crossed cheque, provided the drawee bank has paid in accordance with the crossing
in good faith and without negligence and that such payment has occurred after the
cheque has come into the hands of the payee. In such a case the drawer will be
released from liability and will ‘be entitled to the same rights and be placed in the
same position as if payment had been made to the true owner thereof’ [145] even
though payment may not have been made to the bank collecting for the holder. [146]
Section 83 affords protection to the drawee bank paying cheques that have not
been indorsed or that have been irregularly indorsed. Section 83 provides that if the
bank in good faith and in the ordinary course of business credits the account of its
customer with, or pays to another bank, [147] the amount of any cheque [148] drawn
on it, the bank will not incur any liability by reason only of the absence of, or
irregularity of an indorsement on the cheque, and the cheque will be discharged by
such crediting or payment. Section 83 applies only to cheques capable of being
indorsed and therefore does not apply to non-transferable cheques. [149]
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(viii) Collecting bank’s duty to collect cheques

Section 84(1) protects the collecting bank in case of unindorsed or irregularly
indorsed order cheques [150] delivered for collection. [151] In such a case the bank
acquires all the rights it would have had, had the holder upon delivery to the bank
indorsed the cheque in blank. [152] The bank will therefore enjoy the rights of a
holder [153] and if it has given value for the cheque and has complied with all the
other requirements for a holder in due course, [154] it will also qualify as a holder in
due course. [155]
In Indac Electronics v Volkskas Bank Ltd the question arose as to ‘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’. [156] The Appellate Division held that there is ‘no reason in principle why a
collecting banker should not be held liable under the extended lex Aquilia for
negligence to the true owner of a cheque, provided all the elements or requirements
of Aquilian liability have been met’. [157] A delictual action for
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damages would thus be available to a true owner [158] of a cheque if it can establish
that: [159]
(a)
the collecting bank received payment of the cheque on behalf of someone who
was not entitled to payment;
(b)
in receiving payment, the collecting bank acted negligently and unlawfully;
(c)
the conduct of the collecting bank caused the true owner to sustain loss; and
(d)
the damages claimed represent proper compensation for such loss.
In Indac [160] only the element of unlawfulness was in issue and the question was
therefore whether the facts gave rise to a legal duty on the part of the collecting
bank not to act negligently. In determining whether the collecting bank was under
such duty, Vivier JA pointed out that the court is required to exercise a value
judgement embracing all relevant facts and involving considerations of
policy. [161] However, as the case was decided on exception, a final evaluation and
balancing of the relevant policy considerations was not undertaken. [162] Vivier JA
finally held: [163]
It is sufficient for present purposes to say, firstly, that the lex Aquilia does provide a basis
upon which a collecting banker may be held liable in negligence to the true owner of a lost
or stolen cheque, and, secondly, that there are considerations of policy and convenience in
the present case which prima facie indicate the existence of a legal duty on the part of the
collecting banker to prevent loss by negligently dealing with the cheque in question.
This prima facie indication may be rebutted by the evidence which the defendant might
lead at the trial, duly tested and evaluated in the light of any countervailing evidence which
might be led by the plaintiff.
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In KwaMashu Bakery Ltd v Standard Bank of South Africa Ltd [164] Combrinck J
confirmed the prima facie view of the Appellate Division that a legal duty exists on
the part of the collecting bank. [165] It furthermore held that the collecting banker
owes the true owner of a cheque a duty to display reasonable care in collecting the
proceeds of a cheque so as to ensure that it is credited to the account of the payee
and not of someone not entitled to such proceeds. [166]
With regard to the standard of care required, [167] and particularly the steps the
collecting bank ought to take to discharge the duty of care, Combrinck J held that,
as a first step towards protection of the true owner, it is expected of a reasonable
banker not only to satisfy itself of the identity of a new client but also to gather
sufficient information regarding such client to enable the bank to establish whether
the client is the person or entity which he, she or it purported to be. [168]
(ix) Definition and functions of a promissory note

A promissory note serves to prove a debt and is often used as an acknowledgement
of debt. It could furthermore also be used as security, as an investment, or to obtain
credit. [169]
The BEA defines a promissory note as an unconditional [170] promise [171] in writing
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made by one person to another, signed by the maker, [172] and engaging to pay on
demand or at a fixed or determinable future time, a sum certain in money, to a
specific person, or to his order, or to bearer. [173] A note is not invalid by reason only
that it contains also a pledge of collateral security with authority to sell it or dispose
thereof. [174]
(x) Liability of maker

The maker of a note engages that he will pay it according to its tenor and is
precluded from denying to a holder in due course the existence of the payee and his
then capacity to indorse. [175]
A note may be made by two or more persons who may be liable thereon jointly,
or jointly and severally, according to its tenor. [176]
(xi) Presentment for payment

If a note payable on demand has been indorsed, it must be presented for payment
within a reasonable time [177] of the indorsement and if it is not, the indorser is
discharged. [178]
If a note is in the body of it [179] made payable at a particular place, [180] it must
be presented for payment at that place in order to render the maker liable. [181] Such
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presentment is not, however, required if the particular place is the place of business
of the payee and the note remains in his hands. [182]
With regard to the indorser of a note, s 91(2) provides that presentment for
payment is necessary to render the indorser of a note liable. If the note is in the
body of it made payable at a particular place, presentment at that place is necessary
to render an indorser liable. [183] However, where the place of payment is indicated
by way of memorandum only, presentment at that place is necessary to render an
indorser liable, provided that presentment to the maker elsewhere, if sufficient in
other respects, shall be sufficient to render an indorser liable. [184]
7.2.2 Stop orders and debit orders

(i) Stop orders
By giving a stop order, the account holder [185] (debtor) mandates [186] his bank to
pay a fixed amount of money on a regular basis [187] to a specified third party and to
deduct the amount from the customer’s account. [188] If the bank without good
reason fails to comply with the instruction, the account holder will in principle be
entitled to claim damages of the bank on the grounds of breach of contract. [189] The
bank’s obligation to deduct the amount and to pay it over to the third party is
subject to the account holder having sufficient funds available in his account or
adequate overdraft facilities to cover the amount of the stop order. [190] A stop order
does not create a legal tie between the account holder and the third party or
between the bank and the third party. [191] The account holder may therefore at any
time revoke the instruction to the bank. [192] Unlike the position regarding
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acceptance of a cheque as payment, [193] the instruction by the account holder in
terms of the stop order does not suspend his liability in terms of the contract
between him and the third party. [194] Neither does it amount to payment in terms of
the said contract. Payment takes place only once the bank has actually paid the
amount to the third party. [195]
(ii) Debit orders

An account holder (debtor) may also utilise a debit order in order to effect regular
payments to a third party (creditor). [196] As with a stop order the debit order also
contains an authorisation to the bank to debit the debtor’s account. However, a
debit order differs from a stop order in that the debtor also authorises the third
party to request payment from the debtor’s bank. [197] With a debit order the
amounts deducted may also vary, subject to agreement between the debtor and the
third party. Unlike the position regarding stop orders, the creditor’s right in terms of
a debit order to payment is suspended until the creditor has indeed requested
payment. Only when the debt has not been paid after such a request has been made
will the creditor be entitled to enforce his rights on the basis of non-payment. [198] A
debit order is paid when the paying bank makes payment and not when the
provisional book entries, which may still be reversed, are made. [199] With regard to
the moment of payment it should be noted that the creditor accepts the
authorisation contained in the debit order form. Consequently the creditor would not
be entitled to rely on late payment by the debtor as breach of contract, where the
fact that he is credited later than the stipulated date results from delays inherent in
the system. [200]
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7.3 Electronic funds transfers

7.3.1 General
There is no universally accepted legal definition of an electronic funds
transfer. [201] The United Nations Commission on International Trade broadly defines
it as ‘a funds transfer in which one or more of the steps in the payment process that
were previously done by paper-based techniques are now done by electronic
techniques’. [202]
An electronic funds transfer is not an instrument of payment, but rather a method
of payment. [203] It furthermore does not constitute payment by legal tender. [204]
It is something of a misnomer to speak of a ‘transfer of funds’ as there is in
actual fact no physical transfer of notes and coins to the beneficiary. The transfer is
actually executed by way of a series of mandates which eventually results in the
crediting of the beneficiary’s account and the debiting of the originator’s account.
Payment by funds transfer therefore entails the adjustment of balances on the bank
accounts of the payer and the payee. [205] The transfer of funds also does not entail a
cession of the rights which the originator has against his bank to the beneficiary. [206]
According to Schulze [207] an electronic funds transfer constitutes a novation of
the original debt. The beneficiary accepts that the money will, in terms of the
transaction underlying the electronic funds transfer, be paid to him or her by the
originator’s bank. [208] Payment by means of an electronic funds transfer is therefore
an absolute, not a conditional form of payment. [209]
The concept ‘electronic funds transfer’ embraces a wide variety of services and
transactions, including transfers effected through an automated teller machine
(ATM), a point-of-sale facility (EFTPOS), by telephone, by mobile cellular phone, or
by way of a personal computer where the customer is a registered user of internet-
banking services or through magnetic material such as magnetic tapes. [210]
A distinction is drawn between consumer-activated EFT systems and non-
consumer activated systems. The latter are systems activated by banks to facilitate
electronic transfers between banks and to send financial messages. [211] Clearing
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houses are used to effect electronic transfers between banks. [212] In South Africa,
BankservAfrica currently fulfils this role. [213] Consumer-activated EFT systems
include the ATM, EFTPOS, internet, mobile/cellular phone and telephone banking and
electronic money. [214]
7.3.2 Credit transfers and debit transfers

Depending on the way in which the payment order is communicated to the
originator’s bank, two types of electronic funds transfer systems can be
distinguished, namely credit transfers and debit transfers. [215] The credit transfer
and the debit transfer are the electronic versions of the stop order and debit order
respectfully. [216]
(i) Credit transfers

In the case of a credit transfer it is said that the debtor (originator) ‘pushes’ the
funds from his account to the account of the creditor (beneficiary) resulting in the
debiting of the originator’s account and the beneficiary obtaining a personal right
against his bank to credit his account. [217]
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In essence, a credit transfer entails an instruction (payment order) by a customer
(the originator) to his or her bank (the originator’s bank) to transfer funds from his
or her account to the beneficiary’s bank. [218] The bank therefore acts as the
mandatary of the customer and their legal relationship is governed by the contract
of mandate. [219] Thus, the bank’s duties are to adhere to the terms of his customer’s
mandate and to exercise reasonable care and skill in carrying it out. [220]
The originator and the beneficiary in a credit transfer may be one and the same
person, where, for example, the originator gives a payment order to transfer funds
from his cheque account to his savings account. But where the beneficiary’s account
is held at another bank, two banks will have to work together to complete the
electronic fund transfer. The beneficiary’s bank will be paid by the originator’s bank
and will then transfer the funds to the beneficiary’s account. [221]
(ii) Debit transfers

In the case of a debit transfer the creditor instructs his bank to collect payment of a
debt which is usually recurring. Thus, in the case of a debit transfer it is said that
the creditor ‘pulls’ the funds to his account. [222] The right of the debtor’s bank to
debit his account is based on his express, tacit or subsequent agreement. Where the
debtor instructs his bank in advance to effect payment by way of a debit transfer the
relationship between the debtor and his bank will be one of mandate. [223]
Apart from debit transfers being utilised to effect payment in specific
transactions, it may also be utilised to effect payment to a creditor to whom large
numbers of parties are indebted on a regular basis. Such a creditor may then
prepare its own magnetic tapes or other computer memory devices with debit
instructions on them. [224]
7.3.3 Consumer-activated EFT systems

(i) Automated teller machines
Nearly all banking transactions, namely cash withdrawals, balance enquiries, inter-
account transfers, cheque book requests, mini-statements, deposits and electronic
account payments, can be effected at an ATM. [225] However, an ATM functions as a
method of payment only in the case of a transfer of funds. [226]
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Where an ATM card is used to withdraw cash from an ATM there will only be one
contractual relationship between the card-issuing bank and the
customer. [227] However, there is some uncertainty as to the position where a card-
holder withdraws money by using an ATM card issued by the card holder’s own
bank, from an ATM operated by another bank. [228]
One of the important legal issues regarding automated teller machines is the
allocation of the risk when unauthorised withdrawals have taken place. [229] In this
regard it should be noted that most financial institutions offering ATM facilities
conclude an express contract with their clients in terms of which the bank is
authorised to debit the client’s account with the amount of all withdrawals effected
by use of the ATM card and PIN. The client bears the risk of a possible unauthorised
withdrawal until the bank is notified of the loss or theft of the ATM card or
PIN. [230] Even in the absence of such an express provision it is submitted that it
would be a tacit term of the contract that the client will bear the risk of a possible
unauthorised use until he informs the bank of the loss of his ATM card. [231] It should
also be noted that there is no obligation on the bank to draw the attention of the
client to the existence of potential risks and to his potential liability. [232]
(ii) Electronic funds transfer at point of sale

An example of a debit transfer is the so-called electronic funds transfer at the point
of sale (EFTPOS). [233] The EFTPOS payment system, which is utilised in conjunction
with a debit or credit card, is founded on mandate as the customer instructs his
bank electronically to effect payment. The bank is authorised to effect payment by
the swiping of the customer’s card and the keying in of his PIN number where after
it would no longer be possible to countermand payment. [234] Since the bank acts as
mandatary it has to act with diligence and skill in the exercise of its mandate. [235]
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Under English law it is generally accepted that payment by debit card should be
treated like payment by credit card and thus be regarded as constituting absolute
and not conditional payment of the underlying indebtedness. [236]
Where the EFTPOS system is utilised by a cardholder there are at least
three [237] contractual relationships that would come into existence. [238] The first is
the contract between the client and supplier, the second is the contract between the
client and bank and the third is the contract between the supplier and bank. The
contract between the client and supplier relates to the underlying contract (for
example a contract of purchase and sale) in terms of which the parties agree that
the supplier will accept an EFTPOS card as means of payment. [239]
The contracts between the client and bank and between the supplier and bank
will usually be regulated in terms of standard-form contracts, which may vary to
some extent. [240] The most important standard terms as far as the client is
concerned are the following: [241]
(a)
The client is liable for all unauthorised transactions until he or she notifies the
bank of the loss of the card or PIN.
(b)
The client is obliged to keep his PIN secret.
(c)
The EFTPOS transaction cannot be revoked.
The most important terms of the contract between the supplier and the bank relate
to the time at which the supplier’s bank account will be credited with the relevant
amount and the procedures dealing with erroneous and unauthorised payments. [242]
Where the EFTPOS system is an on-line system the money is electronically
transferred directly from the cardholder’s account to the supplier’s account.
However, if it is an off-line system the payment instructions are stored on a
magnetic tape or disk for processing at a later stage. [243]
In an off-line system the supplier is not able to ascertain whether the cardholder
has sufficient funds to pay the supplier. In such a case the contract between the
supplier and the bank will authorise the supplier to accept purchases by means of
EFTPOS up to a specified limit and the bank, by implication, undertakes to pay these
amounts. However, if the transaction amount exceeds the specified limit, the
supplier will have to obtain authorisation from the bank first. [244] The bank will also
not pay the supplier if the supplier did not comply with prescribed security
procedures such as checking the signature or the list of stolen and lost cards. [245] It
would furthermore appear that an off-line EFTPOS transaction does not constitute
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a novation of the cardholder’s obligation and that the supplier may still claim from
the cardholder if the bank does not pay. [246]
An EFTPOS payment system ‘is the computer age version of a cash transaction —
it allows retail payments to be effected by the transfer of funds electronically from
the accounts of customers to the accounts of retailers’. [247] Thus, as with a cash
transaction, payment by means of EFTPOS actually constitutes immediate
settlement of the payment obligation. [248]
Where the transaction is an off-line transaction, Schulze [249] suggests that the
electronic fund transfer may constitute a granting of credit to the cardholder. It is
submitted that the question whether or not the off-line transaction is a cash or credit
sale should be answered by referring to the position pertaining to cheque
payments. [250] The intention of the parties should therefore determine whether
payment by means of an off-line EFTPOS transaction is a cash or credit transaction.
As a rule the parties’ intention will be to conclude a cash sale, thus that delivery and
payment of the purchase price should be effected at the same time or as soon as
possible thereafter. [251]
A recent development in the EFTPOS field is the so-called smart card. [252] The
smart card is a plastic card, the size of a conventional credit card with a
microcomputer chip embedded in it, enabling it to store large amounts of data and
to process information. [253] One of the main advantages of a smart card is the high
degree of security it provides. [254] The microchip in a smart card offers a much
higher degree of security than is the case with the magnetic-strip cards, [255] which
are currently in the process of being replaced with the micro-chip technology. [256]
When a smart card is used to effect payment the card is inserted in a smart card
reader in order to access the data stored in the card. A security-access code (for
example a PIN number) associated with the data stored in the card must then be
provided. The smart card reader then ‘communicates’ with the card to ensure that it
is not forged by sending a ‘randomly coded challenge’ to the card. To respond
correctly to this challenge the correct ‘secret key’ should be loaded on the card. [257]
A further advantage of smart card technology is that it allows for off-line
authorisations when transactions are processed. Telecommunication costs are
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therefore reduced. [258] If it is used on-line a direct debit is effected to the
cardholder’s account. When it is used off-line it authorises its own transactions
without having to communicate with a mainframe computer and is therefore not
exposed to computer network failure. [259]
The smart card provides a number of payment possibilities. It can function as
electronic cash, as an electronic debit card or credit card and also as an ‘electronic
purse’. [260] However, the smart card’s use is not limited to electronic fund transfer
applications, as it may also be used to effect payment, for example for telephone
calls, bus fares, car parking and borrowing library books. [261] Other non-payment
cards, for example identification cards, clock-system cards and SIM cards in cellular
phones, also make use of smart card technology. [262]
(iii) Internet banking, mobile/cellular phone banking and telephone

banking
Internet banking, mobile/cellular phone banking [263] and telephone banking enables
the client to access most banking services from almost anywhere in the world.
Although electronic banking is extremely convenient, it carries a number of risks for
clients. [264]
In their agreements concluded with their customers for the provision of electronic
banking services, banks typically contract out of liability for any loss incurred due to,
for example, the malfunction of the customer’s computer or the telephone network,
or for any other defect which is beyond the bank’s control. [265] They also do not
accept liability for losses incurred due to the system being unavailable for any
reason, [266] or for any loss incurred due to the fact that an unauthorised person
obtained access to the system. [267] These contracts also often provide that the bank
will not be liable when an error has been made by the client, although the bank will
assist the client in correcting the error. Some agreements also contain clauses in
terms of which the bank will not be obliged to verify the destination account
numbers, the parties’ names or the amounts involved in a
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funds transfer. Should the account number and the name of the beneficiary not
correspond, the account number shall prevail. [268]
The standard-form contracts pertaining to internet, cellular phone or telephone
banking services are clear evidence of the banks’ intention to ensure that the
greatest extent of liability is carried by the client. [269] However, in light of the
decision by the Constitutional Court in Barkhuizen v Napier, [270] many of the clauses
in these contracts may be contestable. [271] The Constitutional Court held that the
application of the principle of pacta sunt servanda is subject to constitutional control
and that the inequality of contractual parties’ bargaining positions is an important
factor to be taken into consideration in this regard. [272] It should also be noted that
ss 48-52 of the Consumer Protection Act (CPA) [273] providing for the consumers’
right to fair, just and reasonable terms and conditions will be available to bank
clients when banks seek to enforce these clauses on them. [274]
(iv) Electronic money

The South African Reserve Bank published its final position paper on electronic
money (e-money) in 2009. [275] E-money is defined as ‘monetary value represented
by a claim on the issuer. This money is stored electronically and issued on receipt of
funds, is generally accepted as a means of payment by persons other than the
issuer and is redeemable for physical cash or a deposit into a bank account on
demand’. [276] Included in this concept are e-money cards (‘electronic purses’),
prepaid software products for use on the internet (‘digital cash’) [277] and mobile
money (‘m-money’). [278] However, products that enable consumers to use
conventional payment systems, such as paying by credit card on the internet, are
excluded. [279]
The ‘electronic purse’ [280] is an important example of the application of a smart
card. [281] The card may be loaded by the bank, or other issuer, with an agreed
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amount of money. This allows the cardholder to use the card to effect payment until
the available balance is exhausted, whereafter the card may be reloaded by the
bank or other issuer. [282]
In its endeavour to reduce risk in the national payment system and due to the
nature of e-money as described in the position paper [283] only South-African
registered banks are allowed to issue e-money. [284] The position paper also places
certain duties on banks, as issuers of e-money: [285]
(a)
As required by the Banks Act [286] deposits of e-money must be held in a
separately identifiable e-money account for each holder of e-money and
comply with the relevant sections of the Banks Act and its regulations.
(b)
All relevant legislation, including the Banks Act, the South African Reserve
Bank Act, [287] the National Payment System Act [288] and the Financial
Intelligence Centre Act [289] must be adhered to.
(c)
The public must be made aware of the conditions of use, the possible liability
of the issuer and the extent to which the holders of the e-money would be
entitled to claim from the issuer for any possible losses suffered.
The advantages of payment effected by way of an electronic purse are that it is
anonymous and fast, the money is transferred directly from the electronic purse to
the receiver, it is instantly available and a personal identification number (PIN),
signature or verification is unnecessary. [290]
Although e-money may qualify as money, [291] it is submitted that it does not
qualify as legal tender. [292] A merchant is therefore under no obligation to accept e-
money in payment for goods and services. [293]
Schulze lists a number of potential legal problems pertaining to the use of smart
cards and e-money — inter alia, the following: [294]
(a) Data-related problems: Payment by means of an electronic purse means that
any dispute with regard to the record of balances and transactions on the electronic
card will have to be solved after the money has already been transferred from the
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card to the supplier. In the case of credit cards this is not an issue as the cardholder
buys on credit with the bank’s money. There is no real-time payment between the
card issuer and the supplier and accordingly sufficient time is left to solve any
dispute with regard to the actual amount owed by the card issuer to the supplier and
which in turn, has to be refunded by the card issuer from the account held by the
cardholder with the card issuer.
(b) Countermanding payment: It is currently not certain whether a cardholder
would be entitled to countermand a payment instruction made with an electronic
purse. As payment with an electronic purse entails real-time and unconditional
payment it would appear that the cardholder would not be entitled to countermand
payment as payment would then already have taken place. The card issuer would
probably also not be willing to accept a countermand as it would not want to become
involved with the underlying contract between the cardholder and issuer. Unlike the
position with regard to a three-party credit card, where the issuer binds itself to pay
the debts pertaining to the use of the credit card, there is no relationship between
the issuer of the electronic purse and the supplier.
(c) The physical loss of the electronic purse: From the provisions of the South
African Code of Banking Practice it is clear that a bank client who loses his electronic
purse will be in the same position as someone who has lost his wallet with cash
therein. [295] However, if the client has notified his bank of the loss, the bank is not
entitled to transfer money from the client’s account to the electronic purse. [296]
7.3.4 The legal effect of an EFT

(i) Duties of the banks involved
(a) The originator’s bank

As has been pointed out above, the originator’s bank is under a duty to exercise
reasonable care and skill when carrying out its mandate. [297]
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The duty of the originator’s bank to adhere to his mandate is strict and a bank is
not entitled to debit its customer’s account where it acts on a forged or unauthorised
mandate. [298] This is a well-established rule with regard to cheques, where the
handwritten signature is individual to and identifies the signer. However, the use of
an electronic access device does not identify the person who actually gave the
payment instruction. [299] Consequently, it has been suggested that the bank’s
liability with regard to electronic funds transfers should not be strict, but rather be
premised on its negligence with a corresponding duty on the customer to exercise
reasonable care and diligence to prevent unauthorised electronic funds
transfers. [300] The South African Code of Banking Practice also imposes this duty on
bank customers as it requires customers to take reasonable care when using
electronic access devices to effect funds transfers. [301]
The bank is also obliged to install and uphold a reasonably efficient security
system and must exercise reasonable care and skill to ensure that the equipment is
working properly. [302] In this regard it should be noted that the South African Code
of Banking Practice obliges banks to ‘provide reliable banking and payment systems
services and take reasonable care to make these services safe and secure’. [303] The
2004 Code provided that its provisions may not be used to influence the
interpretation of the legal relationship between the customer and his or her bank
and that it will not give rise to a trade custom or tacit contract between the client
and his or her bank. The current version of the Code does not contain this provision.
Schulze questioned the effectiveness of the provision in the earlier version of the
Code. The fact that a particular banking practice has been acknowledged and
explained in the Code is, according to Schulze, a strong
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indication that it existed as a banking practice or trade usage in its own right even
before inclusion in the Code. [304] Furthermore, the fact that all major banks
currently subscribe to the Code and endeavour to adhere to its provisions also points
to the existence of a trade usage and it could thus be argued that its provisions
could be regarded as implied terms in the banker-client contract. [305] Du Toit argues
that the FAIS specific code of conduct [306] obliges a ‘provider’, inter alia a bank, to
‘take care to ensure that the relevant services relating to deposits are safe and
secure and reliable’. [307] Du Toit [308] thus argues that as the Code forms part of the
FAIS Act, [309] this provision, and all provisions of the Code that might influence the
bank-client relationship, will be implied by law in the banker-client contract.
The originator’s bank will be vicariously liable for the negligence of its employees
and agents. [310] However, it will not be vicariously liable for the acts of third parties,
unless the bank has by its own negligence facilitated those acts, for example where
its poor security system has enabled a thief to access the bank’s computer
system. [311] Unless the originator’s bank has given some sort of a contractual
undertaking to its customer regarding the reliability of the network or other
telecommunication system provided by a third party, or with regard to the
equipment of the beneficiary bank, the originator’s bank will not be liable for any
defects in such systems or equipment. [312] However, should the bank be aware of
any such defects it may be negligent if it does not do what is to be regarded as
reasonably practicable in the circumstances. [313]
There is no contractual relationship between the originator’s bank and the
beneficiary and therefore the originator’s bank does not owe any duty of care to the
beneficiary. [314] However, where the beneficiary himself is a customer of the
originator’s bank, the bank in its capacity as the beneficiary’s bank will owe him a
contractual duty of care. [315] It would also appear that the originator’s bank does not
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owe the beneficiary a duty of care which, if breached, would lead to its delictual
liability. [316]
(b) The intermediary bank

The intermediary bank, as a sub-mandatary of the originator’s bank, stands in no
contractual relationship with the originator. [317] Consequently it would not owe the
originator any duty of care.
However, the intermediary bank appointed by the originator’s bank owes that
bank an implied contractual duty of care and skill [318] and in English law a
concurrent duty of care will also arise in tort. [319]
(c) The beneficiary bank

In English law, the beneficiary’s bank is regarded as acting on behalf of and as agent
of the originator’s bank when it receives the payment instruction from the
originator’s bank. But once the beneficiary bank executes the instruction, its position
changes, in that its principal is no longer the originator’s bank, but the beneficiary
who becomes entitled to the funds. [320] As is the position regarding the relationship
between the originator’s bank and the originator, the beneficiary’s bank also owes
its customer, the beneficiary, a contractual duty of care and skill. [321] The duty does
not only relate to the way the bank processes a payment received from the
originator’s bank, but also entails the proper maintenance of its equipment so that it
would be able to receive the payment in the first place. [322]
It is clear that there is no contractual nexus between the originator and the
beneficiary bank. [323] However, the question arises as to whether the beneficiary
bank owes a duty of care to the originator, which, if breached, would render the
beneficiary bank liable in delict. Thus, the issue to be considered concerns the
question of wrongfulness, that is, whether the beneficiary bank owes a duty of care
to the originator to handle the transfer with due care and in accordance with
ordinary standards and practices of the banking industry. [324]
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Malan, Pretorius and Du Toit [325] compare the situation with the duty of care
owed by the collecting bank to the owner of a lost or stolen cheque. [326] In the case
of the collection of a cheque a duty on the collecting bank to ensure that the name
of the payee corresponds with the name of the account into which payment is to be
deposited, is in fact recognised. [327] The authors maintain that it would be very
controversial if there is no duty owed by the beneficiary’s bank to the originator to
match the name of the account holder with the name of the beneficiary. [328] They
argue that banks are supposed to render a professional service and also deal with
the public’s money. They also point out that this consideration has played an
important role in the recognition of such a duty of care on the part of the collecting
bank. [329] In this regard it should also be noted that PASA has recently approved a
reduction of the cheque limit from R5 million to R500 000. In many instances
consumers are therefore compelled to make use of credit transfer facilities when the
debt exceeds R500 000. [330]
The full court of the Cape Provincial Division in Gilbey Distillers & Vintners (Pty)
Ltd v Absa Bank Ltd was of the opinion that the beneficiary bank does not owe the
originator a duty of care which, if breached, would lead to its delictual liability. [331]
The court in Gilbey did not consider the duties of the beneficiary’s bank to verify
or match the name of the beneficiary with its account number. [332] Simplified, the
facts were briefly that Gilbeys (the originator) instructed their bank, First
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National Bank (FNB — the originator’s bank) to perform eight transfers to the
amount of R103 million, to what was then Trust Bank (the beneficiary bank).
However, the account number indicated on the telefax instruction to FNB belonged
to Fundtrust (Pty) Ltd, a company which was liquidated shortly after the erroneous
transfer. Gilbeys eventually sued Trust Bank for an amount of approximately
R33 million being the balance after refunds and a dividend payment have been
made to Gilbeys. Gilbeys’ particulars of claim contained six alternative causes of
action, of which three were based on delict.
The court was of the view that the claims in delict could not succeed. [333] The
court pointed out that all Gilbeys’ claims were claims in respect of pure economic
loss and as such would require an extension of Aquilian liability into an area not
recognised previously. [334] The court pointed out that in South African law, apart
from cases concerning negligent misstatements, claims for pure economic loss in the
context of a banker’s liability have not been extended beyond the liability of a
collecting banker to the true owner of a cheque for the economic loss caused by the
collecting banker’s negligence in dealing with the cheque. [335]
The court also expressed its doubts as to the correctness of comparing the
relationship between the originator and the beneficiary bank with the relationship
between the true owner of a cheque and the collecting bank. [336]
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The court found that it was not convinced that Aquilian liability could be extended
as contended for by Gilbeys. [337] The court reasoned as follows: [338]
The facts alleged in the particulars show that in respect of each credit transfer, the plaintiff
gave a mandate to FNB and that FNB in turn gave a mandate to Trust Bank. The duties of
the bankers were thus governed by contract. . . . Gilbeys thus initiated the sequence of
contracts and was in a position by means of its instructions to its mandatary (FNB) to
determine (subject to the inter-bank agreement of clearance and settlement which Gilbey
chose to utilise) the content of the mandate which FNB gave towards Trust Bank. In
alleging a legal duty of the transferee bank to the originator, Gilbeys needs to contend
that, interlaced with the aforesaid contractual duties, there are legal duties which the legal
convictions of the community demand, so that — if the transferee bank should breach the
obligations which it owes to the transferor bank in contract — it should compensate the
originator of the transfer directly in delict for economic loss that the originator may suffer
as a result. We are not persuaded that there is any good ground of reason or policy to
extend Aquilian liability in this way. Moreover, the effect of the assertion of a legal duty of
care owed directly by Trust Bank to Gilbeys in the circumstances of the case, will be to
require the transferee bank in an inter-bank credit transfer to protect the originator,
outside the framework of the contracts deliberately entered into, against the consequences
of the originator himself having caused the insertion in the payment instructions of the
account number to be credited. We find ourselves unable to accept this proposition. [339]
(ii) Countermand of an electronic funds transfer

The originator’s bank is under a duty to abide by his customer’s notice of
countermand of a payment order, provided such notice is clear and unambiguous
and brought to the actual (not constructive) knowledge of the bank. The notice of
countermand must furthermore be given to the branch where the originator keeps
his account, unless the parties agreed otherwise. [340]
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At common law, a mandator may revoke a mandate at any time before its
performance or completion. [341] The question therefore arises as to the principles
that apply when determining the availability of a customer’s right to
countermand. [342] In the case of an instruction to pay to a customer at the same
bank a countermand is possible only until the time when the funds have been
transferred or credit given to the beneficiary. [343] However, where a customer
instructs its bank to pay another bank a countermand is possible only before the
beneficiary bank accepts the payment order from the originator’s
bank. [344] Acceptance may take place by returning an acceptance message or by
acting on the payment instructions in some or other way, [345] which may occur at a
point prior to crediting the beneficiary’s account. [346]
The originator’s bank may obviously include an express term in its contract with
the originator providing that the originator would not be entitled to countermand
payment after a certain point in the payment process. [347] The standard-form
contracts pertaining to electronic banking services typically provide that the
customer cannot cancel or withdraw any instructions given. [348]
From the above it should be clear that a payment instruction may become
irrevocable before payment has actually been made to the beneficiary. However, as
soon as payment has indeed been completed it would no longer be possible to
countermand payment. [349]
(iii) Completion of payment
The question arises as to when payment by means of an electronic fund transfer is
to be considered complete. [350] Determining the exact moment of payment is of
importance where, for example, the customer wishes to countermand payment,
where the death, sequestration or liquidation of the customer terminates the bank’s
authority to pay or where the agreement between the parties requires payment at a
specific date. [351]
The disadvantage of electronic funds transfers in general is the fact that the
transfer is normally completed instantly. There is no real period of delay between
the time when the payment order is given and the time when the beneficiary’s
account is credited as is the case with a cheque or credit card. In the latter two
instances there is a delay between the moment of the issue of the cheque or use of
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the credit card and the moment when the account is debited or payment demanded
on the credit card account. [352]
At present, there is no legislation regulating the issue of the moment of payment
and it would therefore be best for the parties involved to determine their rights and
duties by agreement. [353] However, where payment takes place through an
electronic system (such as Bankserv) the completion of payment is determined by
the rules of the system and there is thus no need for specific provisions in the
agreement between the parties. [354] Where payment does not take place through an
electronic system, the courts will, in the absence of an agreement between the
parties, look at banking practice to answer the question relating to the moment of
payment. [355]
Malan, Pretorius and Du Toit [356] submit that the moment of payment in the case
of a direct debit and credit at the point of sale and in the case of credit transfers and
internet credit transfers is when the creditor acquires an unconditional right to
payment against his or her bank.
Paget [357] distinguishes between intra-branch, inter-branch and inter-bank credit
transfers. In the case of an intra-branch transfer the originator and beneficiary hold
accounts at the same branch of the bank. In such a case payment takes place the
moment the bank decides to make the transfer unconditionally. [358] Payment may
thus be complete even before the actual credit was made to the beneficiary’s
account [359] and even though the beneficiary had not been informed of the
decision. [360]
An inter-branch transfer involves the transfer of funds between accounts held at
different branches of the same bank. [361] Paget [362] submits that the rules that apply
in the case of an intra-branch transfer also apply in the case of an inter-branch
transfer. Thus, payment would be considered to be complete when the bank decides
to credit the beneficiary’s account unconditionally. As the branch where
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the beneficiary’s account is kept is the most important branch so far as his account
relationship with the bank is concerned, Paget submits that completion of an inter-
branch transfer depends on the decision of the beneficiary branch as this is the
branch that holds the beneficiary’s account to be credited. [363]
In an inter-bank transfer funds are transferred between accounts held at different
banks. In such a case, payment as between the originator and beneficiary is
complete when the beneficiary bank receives payment instructions from the
originator’s bank and decides [364] to make an unconditional credit to the
beneficiary’s account. [365]
English case law suggests that the beneficiary’s bank acts as an agent of the
beneficiary. [366] Consequently payment as between the originator and beneficiary
will only be complete where the beneficiary’s bank has, in addition, the beneficiary’s
actual or ostensible authority to accept payment on his behalf. [367] For payment to
be considered complete it does not matter that the beneficiary bank has not actually
credited the beneficiary’s account or that the beneficiary has not been notified of the
transfer. [368] As soon as the beneficiary bank has decided to credit the beneficiary’s
account unconditionally the bank accepts the beneficiary as its creditor and is
accordingly substituted for the originator as the beneficiary’s debtor. At that
moment it can be said that payment has been effected between the originator and
beneficiary. [369]
(iv) Recovery of erroneous payments and reversibility of payment

Where the originator’s bank acts within his mandate it is entitled to debit the
originator’s account with the amount of the transfer. The fact that the agreement
between the originator and the beneficiary that gave rise to the payment instruction
was prompted by the beneficiary’s fraud or misrepresentation, or by
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the mistake of the originator, is immaterial to the bank, provided it acted in good
faith. [370] The originator will then be obliged to recover the erroneous payment from
the beneficiary on the grounds of unjustified enrichment. [371]
Obviously a countermand of payment is no longer possible once payment has
taken place. But the question arises as to whether payment may then be
reversed. [372] From existing South African case law it would appear that the bank
may not unilaterally reverse an unconditional credit without the beneficiary’s
consent unless there is some legitimate reason for reversal, such as where the
beneficiary came by the money by way of fraud or theft, or where a wrong account
has been erroneously credited. [373] In Nedbank v Pestana [374] the appellant bank’s
head office was notified of its appointment by the South African Revenue Service
(SARS) as an ‘agent’ in terms of s 99 of the Income Tax Act. [375] In terms of this
notice the bank was informed that one of its customers was indebted to SARS in an
amount of some R340 million. The notice required the bank to collect funds from the
customer’s account, as and when they become available, in order to settle the
customer’s indebtedness to SARS. In ignorance of this notice, one of the appellant
bank’s branches, upon instruction of the said customer, transferred funds from the
customer’s account to the respondent’s account held at the same branch of the
bank. When the branch was notified of the SARS notice later the same day, it simply
reversed the transfer to the respondent’s account without requesting or acquiring
the consent of the respondent. The respondent then instituted action against the
appellant on the basis that the appellant acted without his authority. The bank
contended that it was obliged to reverse the transfer as the instruction by its
customer to transfer the money to the respondent’s account was received after the
bank’s appointment in terms of s 99. Accordingly the transfer was invalid and
erroneously done and the respondent was not entitled to receive the money so
transferred. The trial court [376] found for the bank and the respondent appealed to
the full court. The full court [377] held that a completed and unconditional payment
had been effected when the bank credited the respondent’s account, with the result
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that the bank could not unilaterally reverse the credit. [378] The bank appealed
against this decision to the Supreme Court of Appeal. Although, according to the
Appeal Court, there are instances where a credit may be validly reversed by a
bank, [379] the court emphasised that: [380]
[a]bsent some legitimate reason for reversal, however, the general principle is that once
an amount has been validly transferred by A to the credit of B’s bank account, the credit
belongs to B and the bank has to keep it at B’s disposal; it cannot simply retransfer the
money back into the account of A without the concurrence of B.
The Appeal Court found that on the agreed facts and documents before the court,
there was no suggestion of fraud or theft or any other improper conduct relating to
the transfer of the money. [381] Accordingly, it held that, until such time as the
branch
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received actual notice of the bank’s appointment as an agent in terms of s 99, the
branch was entitled to continue its ordinary, everyday banking functions and was
entitled to accept a valid mandate from its customer to transfer money from his
account to that of the respondent. When transferring the money, the bank clearly
intended to pay on behalf of its customer and to accept payment on behalf of the
respondent. The decision to pay was therefore not ‘erroneous’. The fact that the
branch afterwards changed its mind did not affect the validity of the completed
transaction. The appeal was therefore dismissed. [382]
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7.3.5 Applicable legislation

(i) General
According to Schulze [383] the most serious concern relating to the use of electronic
payment systems is the high security risk that the consumer has to put up with
compared to the low risk the bank has to bear. [384] A consumer who chooses to pay
with a negotiable instrument has the protection of the BEA at his or her disposal.
This Act determines the rights, responsibilities and liabilities of all parties to the
negotiable instrument. [385] At present South Africa has not enacted legislation
dealing specifically with the rights and liabilities of the parties involved in electronic
funds transfers. [386]
Malan and Pretorius [387] maintain that there is a need for legislation that
addresses the uncertainty regarding the moment of payment, the possibility of
countermanding payment instructions and possible remedies in cases of erroneous
transfers. Customers must furthermore also have certainty regarding the extent to
which they can rely on the operation and content of inter-bank agreements. In this
regard the authors contend that steps should at least be taken to publish the
standard terms on which banks engage in the business of facilitating credit and
other transfers for customers as it is in the interest of transparency and sound
business practice. Lawack-Davids and Marx [388] are of the view that specific
legislation in the form of a ‘Payments Act’ that can deal with payments-related
issues, as opposed to the payment system issues dealt with in the National Payment
System Act, [389] is needed.
In South Africa it is currently only banks that provide electronic transfer services
and they unilaterally establish the terms and conditions by which these electronic
methods of payment may be utilised. Because there are only a small number of
banks doing business in South Africa, there is also, to the detriment of the
consumer, not much competition between banks. Consumers also come off second
best regarding the risk-bearing issue in that the clearing process regarding
electronic funds transfers (unlike the clearing process pertaining to cheques) does
not require the matching of the name of the beneficiary with that of the account
number to which the consumer wishes to transfer payment. [390] Furthermore, the
decision by PASA to further reduce to R500 000 [391] the maximum value for which a
cheque can be made out compels consumers to make use of electronic fund
transfers when the debt exceeds R500 000, while it provides them with less
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protection, against for example the negligence of the bank, than in the case of a
cheque. [392]
In what follows legislation that will have general application with regard to
electronic funds transfers will be briefly discussed.
(ii) The Electronic Communications and Transactions Act

The Electronic Communications and Transactions Act (ECT Act) [393] provides a
general framework for the facilitation and regulation of electronic communications
and transactions, including electronic transactions for financial services, [394] but it
does not deal exclusively with electronic banking services. [395]
The ECT Act applies in respect of any electronic transaction [396] or
data [397] message. [398] The Act’s objects are to enable and facilitate electronic
communications and transactions in the public interest and in this regard to, inter
alia, promote legal certainty and confidence in respect of electronic communications
and transactions; [399] to develop a safe, secure and effective environment for the
consumer, business and government to conduct and use electronic
transactions; [400] and to ensure compliance with accepted international technical
standards in the provision and development of electronic communications and
transactions. [401]
Chapter II of the Act deals with the facilitation of electronic transactions and is
divided in two parts, the first dealing with the legal requirements for data
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messages [402] and the second with the communication of data messages. Part 1
creates obligatory provisions while part 2 applies only if the parties involved have
not reached agreement on the issues provided for therein. [403] Section 11 provides
for the legal recognition of data messages. [404] Moorcroft points out that banks often
publish the contractual terms relating to the use of electronic banking facilities and
credit cards on the internet. The author submits that the recognition of these data
messages in terms of s 11 implies that the published information may form part of a
valid contract between the bank and the client. However, the mere fact that
information is published in the form of a data message does not make it
contractually binding. [405] The Act provides only that such information will not be
without legal force and effect merely because it is wholly or partly in the form of a
data message. [406] The Act furthermore also provides that information would not be
without legal force and effect merely because it is not contained in the data message
but is merely referred to in such message. [407]
Of particular significance for the subject matter of this chapter [408] are the
provisions of s 20, which provides for automated transactions. An ‘automated
transaction’ is an electronic transaction conducted or performed, in whole or in part,
by means of data messages in which the conduct or data messages of one or both
parties are not reviewed by a natural person in the ordinary course of such natural
person’s business or employment. [409] In an automated transaction an agreement
may be concluded where an electronic agent [410] performs an action required by law
for the conclusion of an agreement. [411] It may also come into existence where one
or all of the parties to the transaction made use of an electronic
agent. [412] However, a party using an electronic agent is presumed to be bound by
the agreement irrespective of whether he reviewed the actions of the electronic
agent or the terms of the agreement, [413] provided that those terms were capable of
being reviewed by a natural person representing that party before conclusion of the
agreement. [414] Where a natural person interacts directly with an electronic agent
and a material error has been made during the creation of a data message the
agreement will be void if the electronic agent did provide the natural person with an
opportunity to prevent or correct the error, [415] provided that he gave
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notice of the error as soon as practicable after learning of it, [416] that he took
reasonable steps to return any performance received, or, if instructed to do so, to
destroy that performance [417] and that he did not use or receive any material benefit
or value. [418]
Chapter VII, dealing with the consumer protection provisions, [419] applies only to
electronic transactions and not data messages. [420] Furthermore, it applies only to
electronic transactions where one of the parties is a ‘consumer’ in terms of the
Act. [421] The Act defines a ‘consumer’ as ‘any natural person who enters or intends
entering into an electronic transaction with a supplier as the end-user of the goods
or services offered by that supplier’. In terms of s 44 the consumer is entitled to a
cooling-off period, but in terms of s 42(2) this does not apply to electronic
transactions for financial services, which include, inter alia, banking services.
Section 43(5) and (6) could provide a bank client with the necessary relief where
he or she suffered damages due to, for example, a phishing scam or other
fraudulent activity with regard to an EFT transaction. [422] Section 43(5) provides
that a ‘supplier must utilise a payment system that is sufficiently secure with
reference to accepted technological standards at the time of the transaction and the
type of transaction concerned’ and in terms of s 46(6) ‘the supplier is liable for any
damage suffered by a consumer due to a failure by the supplier to comply with
subsection (5)’. It could be argued that s 43(5) imposes a contractual duty on the
bank, as supplier [423] of internet banking services, towards its client, to provide a
payment system [424] as secure as possible. It could be argued that such duty forms
part of the bank-client contract as it would be implied by statute. It may also be
possible to hold the bank liable in delict for any damages suffered in the event of the
system not being secure. [425]
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Section 43 furthermore places a duty on the supplier to make certain information
available to consumers on the website on which its goods and services are
offered [426] and to provide the consumer with an opportunity to review, correct or
withdraw from an electronic transaction. [427]
It should be clear from the above discussion that the ECT Act has general
application only with regard to electronic banking transactions. Therefore, until
specific legislation has been enacted, the legal relationship between the bank and
the customer who instructs the bank to transfer funds will be regulated mainly by
the common-law principles of the law of contract (including the express and implied
terms of their agreement) specifically the contract of mandate. [428]
(iii) The Consumer Protection Act

It should be noted that the Consumer Protection Act (CPA), [429] which has recently
been introduced, would also be of general application with regard to electronic
banking transactions as it applies to ‘banking services or related or similar financial
services’ unless it is regulated under the Financial Advisory and Intermediary
Services Act (FAIS) [430] or in terms of the Long-Term Insurance Act [431] or Short-
Term Insurance Act. [432]
It is submitted that the CPA contains provisions which may be utilised by
consumer clients to protect them when the bank seeks to impose on them certain
contractual provisions relating to the provision of EFT services. [433] Section 50(2) of
the Act furthermore provides that if a consumer agreement between a supplier and
consumer is in writing, the supplier must provide the consumer with a free copy, or
free electronic access to a copy, of the terms and conditions of the agreement. This
document must furthermore comply with the requirements of s 22, which provides
for a consumer’s right to information in plain and understandable language. [434]
(iv) The Protection of Personal Information Act

The Protection of Personal Information Act (PPI Act) [435] was assented to in
November 2013. However, the Act is not fully in operation yet. [436] As soon as all
the provisions of the PPI Act come into force, parties who process personal
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information [437] will have to comply with the Act’s requirements within one year
after such commencement. [438]
The PPI Act aims to protect personal information processed by responsible
parties [439] by regulating the manner in which it may be processed and by providing
data subjects [440] with rights [441] and remedies [442] where such processing is not in
accordance with the Act. The Act furthermore establishes measures, including the
establishment of an Information Regulator, in order to ensure compliance with the
Act and enforcement of the rights protected by the Act. [443]
The eight conditions for lawful processing of personal information are set out in ss
8 to 25 of the Act. [444] For the purposes of this chapter, the seventh condition in
respect of ‘security safeguards’ as referred to in ss 19 to 22 is of note. In addition,
the provisions on ‘unlawful acts in connection with an accountholder’ in ss 105 and
106 will have an important bearing on the banking sector and electronic banking
transactions. [445]
Section 19 requires responsible parties to secure the integrity and confidentiality
of personal information in their possession or under their control by taking
appropriate, reasonable, technical and organisational measures to prevent loss, or
damage of personal information and unlawful access to personal
information. [446] The required measures to be taken include: [447]
(a)
identifying of all reasonable foreseeable internal and external risks to personal
information in the responsible party’s possession or under its control;
(b)
establishing and maintaining of appropriate safeguards against the risks
identified;
(c)
verifying that the safeguards are effectively implemented on a regular basis;
and
(d)
ensuring that the safeguards are continually updated in response to new risks
or deficiencies in previously implemented safeguards.
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The responsible party must also have due regard to generally accepted information
security practices and procedures that may apply to it generally or be required in
terms of specific industry or professional rules and regulations. [448]
Should there be reasonable grounds to believe that the personal information of a
data subject has been accessed or acquired by an unauthorised person, the
responsible party is, in terms of s 22, required to notify the Regulator and the data
subject. [449] Non-compliance with this section [450] has the effect that the data
subject or the Regulator may institute a civil action for damages against the
responsible party. [451]
A responsible party who contravenes [452] the provisions of the Act pertaining to
lawful processing of an account number [453] of the data subject, is guilty, in terms of
s 105(1), of an offence, [454] provided that the responsible party knew or ought to
have known that there was a risk that the contravention would occur, or that it
would cause substantial damage or distress to the data subject and that he or she
failed to take reasonable steps to prevent the contravention. [455]
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Although the Act does not explicitly deal with ‘phishing’ and other similar
scams, [456] it is submitted that s 106 aims to protect data subjects against this type
of fraud. In terms of s 106 a third party who knowingly (or recklessly) [457] without
the consent of the responsible party obtains or discloses an account number of a
data subject, or procures the disclosure of such an account number to another
person, is guilty of an offence. [458]
7.3.6 International funds transfers

Funds transfers are not confined within national boundaries. [459] An international
funds transfer takes place when the originator’s bank or the beneficiary’s bank, or
both banks, are situated in a country other than that of the currency of the
transfer. [460] The process pertaining to an international funds transfer corresponds
with that of a domestic funds transfer, but usually involves greater use of
intermediary banks. The process is also more complicated as it involves two
transfers, one in each currency, between two banks and may also be subject to
more than one legal system. [461] The transactions in this regard may be seen as one
global transaction [462] or as a set of linked, but individual transactions. [463]
Where either the originator’s bank or the beneficiary’s bank is situated in the
country of the currency of the transfer will be a so-called onshore transfer. However,
where neither bank is situated in the country of the currency of the transfer, the
transfer would be an offshore transfer. [464]
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) was
set up in 1973 as a non-profit-making co-operative company to transmit payment
messages internationally. [465] SWIFT is based in Brussels and wholly
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owned by its members. [466] The relationship and dealings between SWIFT and its
users are regulated by SWIFT by-laws. They consist of the Articles of Association,
the General Membership Rules and the SWIFT User Handbook. [467] Subject to
limited exceptions, SWIFT’s Membership Rules contain a general disclaimer for
liability for a breach of its duties. [468] The relationship between SWIFT and each
SWIFT user is governed by Belgian law. [469]
7.4 Payment cards

7.4.1 Types of payment cards
The following are the main types of payment cards: [470]
(a)
Credit cards issued by banks, which are used to pay for goods and services
and to obtain cash.
(b)
Store or retail cards, which are also credit cards, except that the retailer is at
the same time the person to whom the card is presented for payment and the
issuer who grants the credit.
(c)
Charge cards, [471] for example the American Express or Diners’ Club cards,
which are a variant of the credit card but used mainly to facilitate payment
rather than to provide a credit facility. The cardholder does not have a
revolving credit facility and needs to settle his account in full at the end of
each month. [472]
(d)
Debit or EFTPOS cards, [473] which are used to effect an electronic funds
transfer and thus pay for goods and services at the point of sale (EFTPOS)
and also to obtain cash. [474]
(e)
Cheque guarantee cards, which are used to guarantee payment of a cheque
up to a specified amount. [475]
(f)
ATM cards, which are used mainly to obtain cash from an automated teller
machine or to make a balance enquiry. [476]
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(g)
Digital cash cards, also known as e-money or electronic purses, [477] which
may be used independently of a bank account and which are used to effect
payment by way of an electronic funds transfer. [478]
The payment cards mentioned above, as well as the largest part of the issues
regarding credit cards have already been dealt with. The discussion that follows will
therefore focus on the remaining relevant issues pertaining to credit cards.
7.4.2 Credit cards

(i) General [479]
The creation of credit cards was the first attempt to provide for an alternative
method of payment to that of cash or paper. [480] Most credit card transactions are
effected by means of the EFTPOS payment system, but it may also be completed
manually, for example, where the payment system is unavailable. [481] The difference
between an EFTPOS credit card transaction and an EFTPOS debit card transaction is
that with the former the cardholder may choose to pay the outstanding balance on
the card in full or in instalments, while payment with a debit card constitutes a full
and immediate payment to the supplier. [482] With most credit card schemes a
separate account is opened for the cardholder, while a debit card operates directly
on the customer’s current account, which is debited as the card is used to pay for
goods and services or to obtain cash. [483]
Although the credit card’s primary function [484] is payment, it may also function
as a form of credit as the cardholder only pays the card issuer for purchases made
with the card at a later stage. A credit card gives the cardholder a revolving credit
facility with a monthly credit limit. The cardholder need not settle his account in full
at the end of each month but may choose to take extended credit, subject to an
obligation to make a specified minimum payment each month. In such a case
interest is also charged on the balance due at the end of a set period. [485] Apart
from revolving credit, the issuer may also grant credit on a longer term which will
allow the cardholder to obtain goods or services on a so-called ‘budget’
account. [486] A credit card may furthermore also be used to effect cash withdrawals
and may
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also be used to purchase goods or services over the internet, telephone or
fax. [487] A credit card is clearly not a negotiable instrument as it does not comply
with the requirements for a negotiable instrument. [488]
Three parties are usually involved in the case of a credit card, the card issuer, the
cardholder and the supplier who accepts payment by means of a credit card. In the
case of a three-party credit card the issuer is not a retailer, but usually a financial
institution such as a bank. The tripartite credit card should therefore be
distinguished from bipartite credit cards, or store or retail cards, which are issued by
a supplier to his approved credit clients and which can be used only at the
establishments of the issuer. [489]
(ii) Credit card schemes

Credit card schemes are usually implemented by way of direct payment-obligation
schemes, which are based on standard form contracts. The card issuer concludes
standard-form contracts with all the various suppliers in terms of which they agree
to accept credit cards issued by the card issuers as payment for goods and services.
Subject to certain conditions and usually after deduction of a certain percentage, the
issuer in turn agrees to reimburse the suppliers for purchases made by the
cardholders. The issuer thus undertakes a direct payment obligation to the supplier.
The issuer furthermore also concludes a standard form contract with each
cardholder in terms of which the cardholder may make payments up to an agreed
credit limit. The issuer debits the cardholder with these amounts and the latter
agrees to pay these amounts or a portion thereof within a specific time directly to
the issuer. [490]
The legal relationship between the parties to a tripartite credit card scheme is
regulated by the standard form contracts, the general principles of contract law and
the National Credit Act. [491] As payment by credit card qualifies as an electronic
transaction it should be clear that the ECT Act will have general application.
Furthermore, the CPA will also have general application as this Act applies to any
banking services which would include the provision of credit cards. [492]
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(iii) Application of the National Credit Act

The National Credit Act (NCA), [493] which regulates, inter alia, maximum interest
rates, charges and fees, [494] applies to credit card schemes. [495]
The provisions pertaining to a ‘credit facility’, which constitutes, inter alia, a
‘credit agreement’ in terms of the Act, [496] apply to credit card transactions. [497] In
terms of the definition of a ‘credit facility’ in s 8(3) an agreement will inter alia
qualify as such when —
(a)
the credit provider [498] undertakes to pay an amount [499] as determined by
the consumer on behalf of, or at the direction of the consumer; [500]
(b)
there is some deferral of repayment; [501] and
(c)
there is a fee, charge, or interest imposed in respect of the deferred
payment. [502]
Credit card schemes [503] are therefore clearly regulated by the NCA, [504] and the
provisions requiring a credit provider to conduct a credit assessment, [505] the
provisions pertaining to a consumer’s right to apply for debt review and a
rescheduling of his debt obligations as well as the provisions providing for the
possibility that a credit agreement may be declared reckless by an order of
court [506] will apply to, inter alia, credit card transactions.
Regarding the practice of card issuers inviting prospective consumers to use
credit cards by posting the cards to them, it should be noted that the Act prohibits a
credit provider from making an offer to enter into a credit agreement where the
agreement will automatically come into existence unless the consumer declines the
offer. [507] A credit provider may also not make an offer to increase the credit limit
under a credit facility on the basis that the limit will be automatically increased
unless the consumer declines the offer. [508] A credit limit under a credit facility may
furthermore be increased only by agreement with the consumer, or
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unilaterally if the consumer has previously requested in writing that the credit limit
may be increased automatically from time to time. However, this request may not
be made orally; neither may it be part of the standard provisions that have been
agreed to by the consumer. [509]
(iv) Legal relationships [510]
It is generally accepted that a three-party credit card involves at least [511] three
legal relationships: first, the contract between the card issuer and the cardholder;
secondly, between the card issuer and each supplier; and, lastly, the contract
concluded between the cardholder and the supplier in terms of which goods and
services are purchased from the supplier. [512]
(a) Card issuer and cardholder

The card issuer, which in South Africa is usually a bank, concludes a contract with
the cardholder in terms of which it issues a credit card to the cardholder which the
cardholder may, up to a certain limit, use as a means of payment at selected
suppliers for goods and services. The contract provides that the cardholder will be
liable to reimburse the issuer once the latter has paid the supplier. This liability is
based on mandate and credit. [513] As their relationship is founded on mandate the
issuer has to execute its instruction honestly, diligently and in good faith. [514]
(b) Card issuer and supplier

The card issuer also concludes contracts with various suppliers, in terms of which
they agree to accept the credit cards issued by these financial institutions as
payment for goods or services. The issuer in turn agrees, subject to certain
stipulated conditions [515] and minus a certain percentage, to pay for the purchases
made by the cardholders. [516]
(c) Cardholder and supplier

The relationship between the cardholder and the supplier is primarily regulated by
the underlying contract, such as a contract of sale, between them. The credit card is
Page 308
merely used as a means of payment. [517] The supplier is contractually bound to the
card-holder to accept payment by credit card if all the contractual requirements are
met. [518]
Under English law, the cardholder’s obligations to the supplier are absolutely
discharged when payment is effected by way of a credit card unless it is an express
term of the agreement between the cardholder and the supplier that payment is
conditional. [519] It would therefore appear that the supplier’s contract with the
cardholder includes a novation of the cardholder’s obligation in terms of which the
supplier undertakes to look only to the card issuer for payment. [520]
The position under South African law is uncertain. Stassen [521] suggests that the
relationship between the cardholder and the supplier is similar to that where a
cheque is used as a means of payment. It therefore does not effect a novation of the
original debt and constitutes a conditional payment. The supplier may therefore still
claim from the cardholder if the card issuer does not make payment. [522] Moorcroft
submits that the condition will be fulfilled and the debt thus be discharged once the
card issuer pays the supplier. However, he submits that the debt will also be
discharged when the cardholder pays the card issuer the amount due to the supplier
in terms of his agreement with the card issuer. [523]
The position under English law regarding the legal nature of payment by credit
card appears to be logical. There is an important distinction between cheque
Page 309
payments and credit card payments. Payment by cheque does not give the supplier
the advantage of the drawee bank’s undertaking to pay, whereas payment by credit
card affords the supplier the card issuer’s direct payment obligation.
Cornelius, [524] it is submitted, correctly states that payment by credit card amounts
to a proper delegation resulting in novation. Payment by credit card is therefore final
and extinguishes the debt between the supplier and the cardholder, while the credit
card issuer becomes liable for payment. However, the supplier can claim from the
credit card issuer only when the legal and contractual requirements for valid
payment by credit card have been met. [525] If they have not, delegation does not
take place and the cardholder remains indebted to the supplier. [526]
(v) Unauthorised use of credit cards

Typically the standard contract concluded between the card issuer and the
cardholder provides that the cardholder is liable for all transactions on the card prior
to notification of loss to the card issuer and also for transactions involving the use of
the PIN unless the cardholder can prove that he did not disclose the PIN
intentionally or negligently. [527] After notification the issuer will bear the loss, but
the issuer may refuse to compensate the supplier once the latter has received a list
of lost, stolen or revoked cards. [528]
The NCA provides statutory protection to consumers who access a credit facility
by use of a card, PIN or other identification device, in that they will not be liable for
any transactions after the consumer has notified the card issuer of the loss or theft
of the card, PIN or other device. [529] Where a credit facility is accessed by use of a
card, PIN or similar identification device, the Act requires that the document
recording the credit agreement should set out a contact telephone number at which
the consumer may report the loss or theft of the card, PIN or device. [530] However,
the protection in terms of this provision will not apply where the consumer’s
signature appears on the voucher, sales slip or record or where there is other
evidence that the consumer authorised or was responsible for that particular use of
the credit card. [531]
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Where unauthorised transactions are processed due to the supplier’s negligence,
the supplier will carry the risk. In this regard credit card companies have
implemented a so-called system of ‘chargebacks’ [532] that allows cardholders to
dispute transactions. If the supplier did not obtain authorisation or did not follow the
security and administration procedures in terms of their agreement with the card
issuer, the supplier’s account will be debited with the amount. [533]
Page 311
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[1] Paget para 17.1; Lawack-Davids Thesis 139.

[2] See s 17 of the South African Reserve Bank Act 90 of 1989 regarding the requirements of legal
tender.
[3] Malan, Pretorius & Du Toit para 2; Lawack-Davids Thesis 139; Schwellnus 358; Sealy & Hooley
684.
[4] Geva (1992) § 1.03[1]. See also Geva (1986) 1. In terms of s 1 of the National Payment
System Act 78 of 1998, the concept ‘payment system’ entails ‘a system that enable payments to be
effected or facilitates the circulation of money and includes any instruments and procedures that
relate to the system’.
[6] See para 7.2.1 below.
[7] See para 7.2.2 below.
[8] See in respect of travellers’ cheques ch 5 para 5.4 above and see further Schulze Commercial
Law 421 and Volker 215 et seq.
[9] Lawack-Davids Thesis 139; Meiring (1996) 165. Documentary letters of credit are discussed
in ch 9.
[10] Schulze (2004(2)) 667. See para 7.4 below.
[12] Meiring (1996) 165.
[13] Schulze (2007) 379. See para 7.4 below.
[14] Schulze (2004(1)) 52.
[15] Act 78 of 1998. See ch 3, para 3.3.2 for a discussion of the NPS Act. See further in respect of
the regulation of the NPS Volker 263 et seq and Lawack-Davids (2008) 453.
[16] Section 3(1) of the NPS Act and see Volker 268.
[17] See further in respect of PASA Volker 305 et seq.
[18] See Volker 268.
[19] Schulze (2004(2)) 667.
[20] Schulze (2004(2)) 667.
[21] South African Reserve Bank Quarterly Bulletin (June 2015) Statistical Tables S-13.
[22] During 2001, for example, a total of 237,781 million cheques with a value of R3 840 billion
were presented for collection, while there were 186,657 million credit card purchases amounting to
R54 million and 358,740 million electronic funds transfers with a total value of R3 484 billion: see
South African Reserve Bank Quarterly Bulletin (March 2004) Statistical Tables S-13. According to
Schulze (2004(3)) 703 n 4 the decrease in the number and value of cheques presented for collection
may be attributed to the unanimous decision taken by South African banks in 2001 not to accept any
cheques in excess of R5 million for collection. The decision of the banks came into operation on 2
January 2002. Subsequently, in December 2011, PASA approved a further reduction of the cheque
limit from R5 million to R500 000. This decision has been endorsed by the South African Reserve
Bank and became effective on 16 July 2012 — PASA Media Statement — Cheque Item Limit
Reduction (5 December 2011) Category: Ad Hoc News, available at https://www.resbank.co.za.
[23] Act 34 of 1964.
[24] See Nagel, Roestoff & Papadopoulos para 32.70; Schulze (2004(2)) 670; Malan & Pretorius
(2007) 21; Meiring (1999) 38; Van Jaarsveld 98. An exception is s 94 of the National Credit Act 34 of
2005, discussed in para 7.4.2 below.
[25] See Nagel, Roestoff & Papadopoulos para 32.70; Malan & Pretorius (2006) 607 et seq; Meiring
(1999) 38; Van Jaarsveld 98; Lawack-Davids & Marx 446.
[26] Act 34 of 1964.
[27] Malan, Pretorius & Du Toit para 2.
[29] Nagel, Roestoff & Papadopoulos para 31.02. See Sharrock & Kidd 3 et seq for the advantages
and disadvantages of a cheque as method of payment.
[30] Tjollo Ateljees (Edms) Bpk v Small 1949 (1) SA 856 (A) at 876; Esterhuyse v Selection
Cartage (Pty) Ltd 1965 (1) SA 360 (W) at 362; Malan, Pretorius & Du Toit paras 188 and 199; Cowen
& Gering 48.
[31] BEA s 2(1).
[32] A cheque is payable to order ‘if it is expressed to be so payable, or if it is expressed to be
payable to a particular person and does not contain words prohibiting transfer or indicating an
intention that it should not be transferable’: s 6(3). A cheque is payable to bearer ‘if it is expressed to
be so payable, or if the only or last indorsement on it is expressed to be payable to the order of
“cash” or to “cash or order”’: s 6(2).
[33] Thus, a cheque needs to comply with the requirements for a valid bill set out in s 2(1) of the
BEA. Combining the definition of a cheque and bill, Sharrock & Kidd 17 provide the following definition
of a cheque: ‘An unconditional order in writing addressed by one person to a banker, signed by the
person giving it, requiring the banker to whom it is addressed to pay on demand a sum certain in
money to a specified person or his order, or to bearer.’
[34] The drawee bank. In terms of s 1 of the BEA a ‘bank’ is defined as ‘a body of persons, whether
incorporated or not, that carries on the business of banking and includes the South African Reserve
Bank contemplated in the South African Reserve Bank Act, 1989 (Act No. 90 of 1989), a bank as
defined in s 1 of the Banks Act, 1990 (Act No. 94 of 1990), a mutual bank as defined in s 1 of the
Mutual Banks Act, 1993 (Act No. 124 of 1993), and the Post Office Savings Bank as defined in s 1 of
the Post Office Act, 1958 (Act No. 44 of 1958)’. See also Malan, Pretorius & Du Toit para 193. When
cheques are crossed, another bank, the so-called ‘collecting bank’, becomes involved in the process.
The Act provides for two types of crossings, namely general and special crossings: see s 75(1) and
(2) of the BEA.
[35] Section 1.
[36] Sections 71-86.
[37] That is, the person who gives the written order to pay.
[38] That is, the banker to whom the order to pay is addressed.
[39] That is, the person in whose favour the cheque was drawn. The payee must be named or
otherwise indicated with reasonable certainty: BEA s 5(1). If the payee negotiates the cheque by way
of indorsement and delivery he will thereafter be known as the indorser. If he indorses the cheque to
another person by name, this person will be known as the indorsee.
[40] The Act defines the ‘bearer’ as the person in possession of a bill payable to bearer: BEA s 1.
[41] S v De Castro 1979 (2) SA 1 (A) at 19.
[42] See in general with regard to bank cheques Malan, Pretorius & Du Toit para 197; Cowen &
Gering 219 et seq; Meiring (1994) 232; Hugo 226. See also Lawack-Davids Thesis 162 et seq and
Pretorius (1999(3)) 592 regarding so-called ‘electronic cheques’. These are cheques requested by a
customer at an ATM. Pretorius (1999(3)) 595-6 submits that electronic cheques should be regarded
as valid cheques and not as bank cheques. ‘internet cheques’ are currently not recognised in South
Africa: Lawack-Davids Thesis 163 et seq. With internet cheques all details on the cheque are
completed electronically while the BEA (s 1 read with s 2) requires a written paper document signed
by the drawer: Lawack-Davids Thesis 165.
[43] Section 71(2) provides that, notwithstanding the provisions of s 3(2), the provisions of the Act
applicable to a cheque apply to a bill drawn by a bank on itself and payable in demand. It is therefore
no longer necessary to rely on s 82 of the BEA to apply the provisions of s 81 to bank cheques: see
Malan, Pretorius & Du Toit para 197; Malan & Pretorius (1994) 368 and Meiring (1994) 232 for
criticism of the decision in Orlando Fine Foods (Pty) Ltd v Sun International (Bophuthatswana)
Ltd 1994 (2) SA 249 (B).
[44] Cowen & Gering 219. A bank cheque is regarded as a safe method of payment because the
drawer is allowed to countermand payment only in exceptional circumstances and it is not likely that
the drawer — a bank — will become insolvent: see Malan, Pretorius & Du Toit para 197.
[45] In terms of s 8(1)(b) such an instrument will be payable on demand and in terms of s 18(2)
the person in possession of such a cheque will have prima facie authority to fill in the date. The date
of a cheque is important as it indicates whether it has become stale, in which case the bank may
refuse payment on it. It is banking practice and also an implied term of the bank-customer
relationship that a cheque becomes stale after the expiry of six months or, in the case of bank
cheques, after three months: Malan, Pretorius & Du Toit para 191; Moorcroft para 34.3. See also para
12 of the South African Code of Banking Practice 2012 (available at http://bit.ly/1Kl6i19) and Jadine
Engineering (Pty) Ltd v Tool Storing Systems (Pty) Ltd (1993) 2 Commercial Law Digest (W) at 4.
Where a cheque has become stale, it is submitted that the bank is entitled to refuse payment on it.
According to Malan, Pretorius & Du Toit para 191, the bank’s right to refuse payment is probably
based on an implied term in the contract between bank and customer. However, the fact that a
cheque is regarded as stale does not affect the validity of the cheque as between the drawer and
holder: see Jadine Engineering (Pty) Ltd v Tool Storing Systems (Pty) Ltd (1993) 2 Commercial Law
Digest (W) at 4; Malan, Pretorius & Du Toit para 191 n 61; Sharrock & Kidd 39 n 92; Gering (1995)
549.
[46] According to Holmes JA in Standard Bank of SA Ltd v Sham Magazine Centre 1977 (1) SA 484
(A) at 505 a post-dated cheque becomes a valid cheque on or after the post-date. But see Tobias
(2005) 80 who submits that a post-dated cheque remains a cheque from its inception within the
meaning of the BEA. See also Oelofse (1981) 51. Oelofse points out that the answer to the question
whether a post-dated cheque is a cheque is important as certain provisions of the BEA (ss 58 and 72-
86) apply only to cheques. Some contend that a post-dated cheque is not payable on demand as
required in terms of the definition of a cheque in s 1 of the BEA: Cowen & Gering 190. However,
in African Bank Ltd v Covmark Marketing CC; African Bank Ltd v Soodho 2008 (6) SA 46 (D) at 57
Moosa AJ — correctly, it is submitted — suggested that ‘s 11(2) . . . when read together with the
definition of a bill of exchange in s 2(1) of the Act and the definition of a cheque in s 1 of the Act . . .
has the effect of rendering such instrument a demand instrument notwithstanding that the effective
date of demand may be sometime in the future.’ The court held (at 56 and 59) that in terms of the
definition of a ‘bill’ in s 1 read together with the definition of a ‘bill of exchange’ in s 2(1) and the
provisions of s 11(2), that a post-dated cheque is indeed a cheque as countenanced under the Act
and that there is therefore no impediment to a party becoming a holder in due course of such an
instrument. See also Tobias (2007) 186.
[47] See ss 2(4)(a) and 11(2).
[48] Malan, Pretorius & Du Toit para 191; Sharrock & Kidd 47 n 20.
[49] Section 75(1) and (2). A general crossing consists of two parallel transverse lines only, or two
parallel transverse lines with the words ‘not negotiable’. A special crossing consists of the name of a
bank, with or without the words ‘not negotiable’ or ‘and Company’ or any abbreviation thereof. It is
not necessary to add two parallel lines to a special crossing. In terms of s 76 the following persons
may cross a cheque: (a) the drawer or collecting bank may cross the cheque generally or specially;
(b) if the cheque has not been crossed, the holder may cross it generally or specially; (c) if the
cheque has been crossed generally the holder may cross it specially; (d) if the cheque has been
crossed generally or specially, the holder may add the words ‘not negotiable; (e) the bank to which a
cheque has been crossed specially may again cross it specially to another bank for collection. Section
77 provides that a crossing is a material part of a cheque and that a person may not obliterate,
cancel or, except as authorised by the Act (in terms of s 76) add to or alter such a crossing.
[50] Section 78(1) and (2). If a cheque is crossed specially to more than one bank (except when
crossed to two banks of which the one bank is an agent for collection of the other) the drawee bank is
obliged to refuse payment of the cheque: s 78(3). If the drawee bank pays a cheque contrary to the
provisions of s 78(1)-(3), it will be liable to the true owner of the cheque for any loss he sustains as a
result of the cheque being so paid: s 78(4).
[51] Standard Bank of SA Ltd v Sham Magazine Centre 1977 (1) SA 484 (A) at 504.
[52] Section 80. See also Standard Bank of SA Ltd v Sham Magazine Centre 1977 (1) SA 484 (A) at
493; OK Bazaars (1929) Ltd v Universal Stores Ltd 1972 (3) SA 175 (C) at 179; Absa Bank Ltd v
Greyvenstein 2003 (4) SA 537 (SCA) para 2 at 541.
[53] Nagel, Roestoff & Papadopoulos para 31.30.
[54] The concept ‘true owner’ is not defined in the BEA. It is submitted that the person who was
entitled to possession and from whose possession the cheque was stolen or lost, should, as a general
rule be regarded as the ‘true owner’ for the purposes of s 81: Nagel, Roestoff & Papadopoulos para
31.32; Schulze Commercial Law 407. Cowen & Gering 437 define ‘true owner’ as the person ‘entitled
to possession of the instrument and to the enjoyment of interest therein’. However, the authors
submit that it is not necessary that the said interest be ownership. The concept goes further than the
‘holder’ of a cheque and includes the drawer and pledgee: Nagel 334. Malan, Pretorius & Du Toit para
264 point out that the South African courts have often applied the principles of the law of property to
determine who the true owner of a cheque is. See eg Standard Bank of South Africa Ltd v
Harris [2002] 4 All SA 164 (SCA) para 13 at 171; Absa Bank Ltd v Greyvenstein 2003 (4) SA 537
(SCA) para 9 at 543. However, it is submitted that the meaning of ‘true owner’ for the purposes of s
81 should be distinguished from its meaning when used in the context of the collecting banker’s
delictual liability towards the ‘true owner’ of a cheque: First National Bank of SA Ltd v Quality Tyres
(1970) (Pty) Ltd 1995 (3) SA 556 (A). See also the discussion in para 7.2.1 (viii) below.
[55] The claim in terms of s 81 does not arise from the bill or from contract and will therefore
become prescribed after three years: Pentz v Government of the Republic of South Africa 1983 (3) SA
584 (A) at 593.
[56] Section 81 therefore also imposes liability on a bona fide possessor and in this way gives the
true owner a remedy similar to an action for conversion in terms of English law: Malan, Pretorius &
Du Toit para 264; Cowen & Gering 434; Sharrock & Kidd 168. A person will not be liable in terms of
this section if he can prove that when he became a possessor of the cheque, it did not appear to be
crossed (or previously crossed) and marked ‘not negotiable’: s 86(6). Every possessor of such a
cheque is deemed, until the contrary is proved, to have given consideration or to have taken it as a
donee: s 81(4). This presumption may be rebutted by proving that no consideration was given, or
that it was not acquired as a gift, eg where possession was obtained for the purpose of collecting
payment for another: Fonds Adviseurs Bpk v Trust Bank van Afrika Bpk 1974 (4) SA 883 (A) at 889
and 892. However, in certain instances a person is irrebuttably presumed to have been a possessor of
a cheque and to have given consideration for it or to have accepted it as a donee: (a) where a person
(other than a collecting bank employing another bank as its agent for the collection of a cheque) has
after the loss or theft paid the cheque into his bank account after having paid, or for the purpose of
doing so, the amount of the cheque to the person from whom he received it (s 81(2)); (b) where a
person had the cheque in his custody after the theft or loss and failed to furnish the true owner on
request with information at his disposal in connection with the cheque (s 81(3)). See also Optimprops
1030 CC v First National Bank of SA [2002] 4 All SA 582 (N) where s 81(3) was relied on in order to
hold the collecting bank liable, and Nagel 334. Section 81(5) affords protection to the collecting bank.
In terms of this subsection, a bank that receives payment on the cheque for a customer will (subject
to s 81(3)) not be regarded as having given consideration for it merely because, in its own books, it
credited its customer’s account with the amount of the cheque before receiving payment on it, or
because any such payment was applied towards the reduction or settlement of a debt owed to it by
the customer (eg an overdraft): Malan, Pretorius & Du Toit para 264; Sharrock & Kidd 168.
[57] In other words, a quid pro quo in exchange for the cheque. This term has the same meaning
as ‘value’ in the expression ‘holder for value’: Malan, Pretorius & Du Toit para 264. See also Fonds
Adviseurs Bpk v Trust Bank van Afrika Bpk 1974 (4) SA 883 (A) at 889-90. Section 81(8) provides
that the giving of a consideration includes the receiving of any such cheque in reduction or settlement
of any debt or liability.
[58] That is, the person who has acquired the cheque as a gift: Malan, Pretorius & Du Toit para
264. The requirement that the possessor must have given consideration for the cheque or that he
must have taken it as a donee, indicates that the purpose of s 81(1) is to impose liability on a person
who possesses the cheque in its own right and not as an agent for another: Malan, Pretorius & Du
Toit para 264; Fonds Adviseurs Bpk v Trust Bank van Afrika Bpk 1974 (4) SA 883 (A) at 890; Van
Hullsteyns Attorneys v Government of the Republic of South Africa 2002 (2) SA 294 (SCA) para 6 at
301. A person who has discharged his liability in terms of s 81(1) and who took the cheque in good
faith and without notice of any defect, will have the same rights as those conferred upon the true
owner in terms of s 81(1), against any prior possessor of the cheque after the theft or loss of the
cheque (s 81(7)(a)) and the same applies mutatis mutandis to a person who has discharged his
liability in terms of this section: s 87(7)(b).
[59] Thus, in terms of ss 78 and 79. See also Standard Bank of SA Ltd v Nair (Bissessur, Third
Parties) 2001 (1) SA 998 (D) at 1003.
[60] Section 81(1).
[61] See in general in respect of the ‘account payee only’ marking Malan, Pretorius & Du Toit para
265; Sharrock & Kidd 84; Cowen (1977) 19; Gering (1977) 152.
[62] It is not exactly clear what is meant by the words ‘some safeguard’. Malan, Pretorius & Du Toit
para 265 suggest that a disregard of the words in question may be relevant with regard to the
possible delictual liability of the collecting bank. See also Nagel, Roestoff & Papadopoulos para 31.33.
[63] Standard Bank of SA Ltd v Sham Magazine Centre 1977 (1) SA 484 (A) at 504.
[64] This would also be the case where the cheque is drawn payable to order and in addition
contains words prohibiting transfer: Aboobaker v Gableite Distributors (Pty) Ltd 1978 (4) SA 615 (D).
The words ‘not transferable’ (or ‘only’ added after the payee’s name) also enjoy priority over the fact
that the cheque has been made payable to bearer: Impala Plastics (Pty) Ltd v Coetzer 1984 (2) SA
392 (W).
[65] Volkskas Bpk v Johnson 1979 (4) SA 775 (C) at 778.
[66] For example, where the words ‘not transferable’ or the word ‘only’ are added after the name of
the payee.
[67] By s 33 of the Bills of Exchange Amendment Act 56 of 2000.
[68] It is not clear what is meant with the word ‘boldly’ in s 75A(1). It would appear as if cheques
containing the word ‘only’ after the payee’s name would not fall within s 75A’s scope of application
and that the legislator has actually created two categories of cheques that cannot be transferred,
namely those bearing the words ‘not transferable’ or ‘non-transferable’ boldly across their face in
terms of s 75A, and those that contain other words indicating an intention to prohibit further transfer,
in terms of s 6(5): Malan, Pretorius & Du Toit para 277; Nagel, Roestoff & Papadopoulos paras 31.36-
31.37. Gering Handbook 376 suggests that the Amendment Act does not invalidate the use of other
wording prohibiting transfer, such as the word ‘only’ inserted after the payee’s name in terms of s
6(5). Such wording, although not constituting a non-transferable cheque in terms of s 75A, will
therefore continue to be valid and effective inter partes.
[69] The drawee bank will therefore be entitled to the protection in terms of s 79 BEA:
Gering Handbook 375.
[70] Section 75A(2)(a). According to Gering Handbook 376 the effect of this subsection is that the
bank need not concern itself with a restrictive indorsement on the reverse side of the cheque and that
a failure to do so will not constitute negligence on the part of the bank.
[71] Section 75A(2)(b). It is suggested, that s 75A(2) should not be interpreted to mean that the
collecting banker may simply ignore a restrictive indorsement on the reverse side of a cheque or
words prohibiting transfer other than in the manner provided for in s 75A(1). It is submitted that it
would generally be negligent for a bank to collect payment of such a cheque on behalf of anyone than
the named indorsee or payee: Malan, Pretorius & Du Toit para 278. The authors’ interpretation of s
75A(2) hinges upon the legislature’s use of the word ‘only’ in s 75A(2). They suggest that ‘if
the only ground on which negligence can be based is the existence, but not necessarily the
prominence, of words such as “only” or “TRANSFER PROHIBITED”, the bank may rely on the
protection of s 75A(2). The existence of these words will seldom, if at all, be the only ground on
which a finding of negligence can be made’. See also Nagel, Roestoff & Papadopoulos para 31.66;
Moorcroft para 19.1; Gering Handbook 376. Gering’s interpretation seems to support the view that a
bank may indeed ignore words prohibiting transfer, other than in the manner provided for in s
75A(1). The author suggests: ‘A bank need not concern itself with any other form of wording on a
cheque intended to prohibit transfer of the instrument under Section 6(5) (or under Section 6(3)),
and such failure will not constitute negligence on the part of the bank.’
[72] This section was inserted by s 41 of the Bills of Exchange Amendment Act 56 of 2000.
[73] Since the cheque is non-transferable, the holder can only be the named payee. Section 84(2)
will therefore not apply when someone who is not the payee of the cheque deposits it for collection:
Malan, Pretorius & Du Toit para 267; Nagel, Roestoff & Papadopoulos para 31.58.
[74] B & H Engineering v First National Bank of SA Ltd 1995 (2) SA 279 (A) at 285-6; Moss & Page
Trading Co (Pty) Ltd v Spancraft Furniture Manufacturers & Shopfitters (Pty) Ltd 1972 (1) SA 211 (D)
at 215; Hofmeyr and Marquard v Goldberg 1963 (2) SA 313 (C) at 315-16; Grewar and Hanekom
(Pty) Ltd v Roux 1959 (2) SA 182 (C) at 183; Gordon v Tarnow 1947 (3) SA 525 (A) at 540; Estate
Lowry v Saporiti (1909) 30 NLR 35 at 42.
[75] Therefore, if the cheque is paid by the bank, the debt is deemed to be discharged on the date
the debtor delivered the cheque to the creditor and not when the cheque was paid out by the bank:
Sharrock & Kidd 59.
[76] In Eriksen Motors (Welkom) Ltd v Protea Motors 1973 (3) SA 685 (A) at 693 the court held:
‘[P]ayment by cheque is prima facie regarded as immediate payment subject to a condition. The
condition is that the cheque be honoured on presentation. When the cheque is so honoured, the date
of payment of the debt is the date of the giving of the cheque. Conversely, if the cheque is
dishonoured there has been no payment.’ See also Absa Bank Ltd v Mutual and Federal Insurance Co
Ltd 2003 (1) SA 635 (W) at 644-5. See also Malan, Pretorius & Du Toit para 199 and authority cited
in n 193-5; Lawack-Davids Thesis 143 and authority cited in n 741.
[77] See Sharrock & Kidd 60; Nagel & Pretorius (2014(2)) 642.
[78] Holiday v Hulett (1880-1881) 2 NLR 43 at 44; Short v Van der Merwe (1907) 21 EDC 237 at
242; Brenner v Hart 1913 TPD 607 at 611-12; Tregellas v Hardy & Co 1921 CPD 352; Williams v
Kirk 1932 CPD 159 at 162; Kaplan v Schulman 1933 CPD 544 at 547; Bassa Ltd v East Asiatic (SA)
Co Ltd 1932 NPD 386 at 392; Milner v Webster 1938 TPD 598 at 601; Grewar and Hanekom (Pty) Ltd
v Roux 1959 (2) SA 182 (C) at 183; Moolje NO v Rodrigues 1971 (3) SA 912 (R) at 915; Adams v SA
Motor Industry Employers Association 1981 (3) SA 1189 (A) at 1199-1200; B & H Engineering v First
National Bank of SA Ltd 1995 (2) SA 279 (A) at 285-6; Hallmark Motor Group (Pty) Ltd v Phillip
Motors CC [1997] 4 All SA 707 (W) at 710. See also Malan, Pretorius & Du Toit para 199; Sharrock &
Kidd 60 and Nagel & Pretorius (2014(2)) 641.
[79] Sharrock & Kidd 60. See ss 58, 79 and 83 discussed in para 7.2.1 (vii) below.
[80] See in general Malan, Pretorius & Du Toit para 199; Sharrock & Kidd 60-1;
Gering Handbook 93-4; Lawack-Davids Thesis 143 et seq.
[81] Even if there was an express request to send a cheque through the post the question is still
whether the cheque has been drawn in the ordinary and proper business fashion appropriate to the
amount of the cheque. In Greenfield Engineering Works (Pty) Ltd v NKR Construction (Pty) Ltd 1978
(4) SA 901 (N) at 908 et seq, Hoexter J found that the parties’ agreement included a tacit term that
the cheque should be crossed; that it should describe the payee accurately; and that the cheque
should be drawn payable to order. See also De Beer (1979) 157; Sher 67.
[82] Goldfields Confectionery & Bakery (Pty) Ltd v Norman Adam (Pty) Ltd 1950 (2) SA 763 (T) at
769; Dadoo & Sons Ltd v Administrator, Transvaal 1954 (2) SA 442 (T) at 444 and 445; HK Outfitters
(Pty) Ltd v Legal & General Assurance Society Ltd 1975 (1) SA 55 (T) at 61; Greenfield Engineering
Works (Pty) Ltd v NKR Construction 1978 (4) SA 901 (N) at 908; Barclays National Bank Ltd v
Wall 1983 (1) SA 149 (A) at 156-7; Mannesman Demag (Pty) Ltd v Romatex Ltd 1988 (4) SA 383 (D)
at 389-90. Absa Bank Ltd v Mutual & Federal Insurance Co Ltd 2003 (1) SA 635 (W) at 645. See also
Burchell 211; De Beer (1979) 157; Visser (1983) 325; De Beer (1986) 353; Boberg 124.
[83] In Goldfields Confectionery and Bakery (Pty) Ltd v Norman Adam (Pty) Ltd 1950 (2) SA 763
(T) at 770 et seq, the court held that the sending of a statement of account to the debtor which
contained the creditor’s post-office box number and address did not give rise to an implied request
that payment should be through the post. Neither did the fact that the debtor had habitually for a
long period paid his account by sending cheques through the post without objection give rise to such
an implied request. See also Barclays National Bank Ltd v Wall 1983 (1) SA 149 (A) at 159 — the fact
that the creditor does not object to cheques being sent through the post does not justify an inference
that the creditor directly or impliedly authorised the debtor to send cheques by mail. In Dadoo & Sons
Ltd v Administrator, Transvaal 1954 (2) SA 442 (T) at 445 Rumpff J was of the view that the mere
fact that the debtor and creditor live in different towns does not constitute an implied request by the
creditor to be paid through the post even if he knows or suspects that the debtor will send the cheque
through the post. But see contra the judgment of Blackwell J at 444. In HK Outfitters (Pty) Ltd v
Legal & General Assurance Society Ltd 1975 (1) SA 55 (T) at 62, Botha J held that a request and
authorisation by the creditor in a written document that payment be made to him at the address
provided, clearly implies a request and authority to send the cheque to the address mentioned by
means of putting it in the post. In Stabilpave (Pty) Ltd v The South African Revenue
Services (946/2008) [2009] ZAGPPHC 159 (11 December 2009) the plaintiff’s tax assessment form
contained a notice that payment of any credit will be made by cheque unless banking details to effect
payment electronically have been provided. Ismails AJ held that the plaintiff, by not providing his
banking details, had chosen that payment be made to it by post. Consequently the plaintiff bore the
risk of the loss of the cheque. Nagel & Pretorius (2010) 484 suggest that the decision was wrong.
They argue (at 485 and see also Nagel & Pretorius (2014(1)) 349) correctly, it is submitted, that
‘the notification by SARS cannot be construed as an “agreement” . . . between the parties, let alone
as a “request” by the creditor that the payment be made by cheque and be posted to it. . . .
“Agreement” at its very least implies an offer and an acceptance.’ The matter
in Stabilpave subsequently went on appeal to the Full Bench of the North Gauteng High Court (see
Nagel & Pretorius (2014(1)) 346 et seq for a discussion of the judgment of the full bench). On appeal
to the SCA (Stabilpave (Pty) Ltd v South African Revenue Services 2014 (1) SA 350 (SCA), Meyer AJA
(with Brand, Lewis, Bosielo and Theron JJA concurring) referred with approval to Nagel & Pretorius’s
criticism (at para 7) and held as follows (at para 13): ‘The clear implication of the notice is an advice
from SARS that the tax record of Stabilpave reflected no banking particulars and that payment would
therefore be effected by means of a cheque through the post. No choice was afforded to Stabilpave.
The method of payment was dictated by SARS. The mere fact that a creditor knows or expects to be
paid by cheque through the post or that it does not raise an objection does not in itself give rise to an
implied request or election by the creditor to be paid in such manner.’ The court accordingly held that
the risk of loss was not assumed by Stabilpave and remained with SARS. SARS thus did not discharge
its indebtedness by posting a cheque for the amount of the refund that was due to Stabilpave (at
para 14).
[84] See generally with regard to the clearing system of the ACB Rosen v Barclays National Bank
Ltd 1984 (3) SA 974 (W); Volkskas Bank Bpk v Bankorp Bpk (h/a Trust Bank) 1991 (3) SA 605
(A); KwaMashu Bakery Ltd v Standard Bank of South Africa Ltd 1995 (1) SA 377 (D) at 382-6;
Oelofse (1985) 9; Greeff & Nagel 57; Meiring (1993) 323; Visser (1991) 3; Pretorius (1998) 327;
Sharrock & Kidd 2; Oelofse (1991) 374; Malan (1978) 109-10; Nagel & Pretorius (2014(2)) 644 et
seq.
[85] See s 50(4) BEA as to the prescribed manner of presentation.
[88] In Volkskas Bank Bpk v Bankorp Bpk (h/a Trust Bank) 1991 (3) SA 605 (A) at 611-12, Hefer
JA pointed out that the fact that sophisticated techniques are utilised does not mean that long-
standing legal principles should be replaced by new ones. In essence, the cheque-collecting procedure
has not changed; the only difference is that the process has now been automated.
[89] See Malan, Pretorius & Du Toit para 189 for an explanation regarding the operation of the
MICR system. See also KwaMashu Bakery Ltd v Standard Bank of South Africa Ltd 1995 (1) SA 377
(D) at 384-5.
[90] Malan, Pretorius & Du Toit para 189. The same applies to BankservAfrica: Moorcroft para 33-
10. Meiring (1993) 325 suggests that the ACB, with regard to its clearing function, acts as a mere
conduit or nuntius. She points out, however, that the ACB is also used to process direct credit and
debit transactions and suggests that the ACB, when fulfilling this function, acts as representative of
the banks.
[91] Cowen (1981) 197; Visser (1989) 196.
[92] See in general on ‘truncation’ or ‘cheque retention’ Malan, Pretorius & Du Toit para 190; Malan
(1978) 110-12; Meiring (1992) 379-82; Visser (1989) 196; Van Zyl 15 and 79; Meiring (1993) 21;
Arora 195. According to Arora ‘truncation’ is a process that involves the capture of relevant data to
enable payment to be made to the payee’s account, and at the same time for the drawer’s account to
be debited, without the physical movement of paper.
[93] Oelofse (1985) 6.
[94] Visser (1989) 196.
[96] Arora 195.
[97] BEA s 45.
[98] Malan, Pretorius & Du Toit para 190. See also Navidas (Pty) Ltd v Essop 1994 (4) SA 141 (A)
at 147, where Hefer JA pointed out that the clearing house system does not provide for presentment
in accordance with the provisions of the BEA (before its amendment).
[99] Inserted by the Bills of Exchange Amendment Act 56 of 2000.
[100] Malan, Pretorius & Du Toit para 190; Gering Handbook 284.
[101] Section 43A(1).
[102] For example, for forgeries, alterations and other irregularities: Malan, Pretorius & Du Toit
para 190.
[105] See www.bankservafrica.com.
[106] Act 78 of 1998.
[107] See www.bankservafrica.com; Moorcroft para 33.10. See in respect of the activities,
regulation, origins and history of BankservAfrica, Volker 324 et seq.
[108] Moorcroft para 33.10. See also Pretorius (2001) 260 regarding the legal implications of CLC.
[109] Pretorius (2001) 261; Nagel & Pretorius (2014(2)) 644 n 21.
[111] See Visser (1991) 4; Oelofse (1985) 8; Lawack-Davids Thesis 147; Nagel, Roestoff &
Papadopoulos 31.08; Sharrock & Kidd 62.
[112] Volkskas Bank Bpk v Bankorp Bpk (h/a Trust Bank) 1991 (3) SA 605 (A) at 612; Greeff &
Nagel 56; Pretorius (1998) 330. In Volkskas the drawee bank had indeed decided to honour the
cheque in question, but the court was of the opinion that the drawer could still countermand payment
within the time period allowed for by the clearing agreement, as the drawee bank had not made its
decision to honour the cheque known. See also Malan, Pretorius & Du Toit para 215. In Rosen v
Barclays National Bank Ltd 1984 (3) SA 974 (W) at 978 the court held that payment is effected when
the drawee bank makes the decision to honour the cheque. This decision was followed in Penderis &
Gutman NNO v Liquidators of the Short-term Business, AA Mutual Insurance Association Ltd 1991 (3)
SA 342 (C) at 345 and Wavecrest Enterprises v Cema Africa (Pty) Ltd (In Liquidation) 1991
(2) Commercial Law Digest 266 (C), but has been subjected to severe criticism: Visser (1991) 4;
Oelofse (1991) 364; Meiring (1999) 39-40; Greeff & Nagel 57 et seq; Nagel & Pretorius (2014(2))
645. According to Pretorius (1998) 327 et seq the main difficulty with the Rosen decision is that it
disregarded the clearing agreement. Accordingly an outsider would not be able to determine when a
cheque has been paid as there was no external manifestation of the decision to honour the cheque.
Unfortunately, Hefer AJ in Volkskas distinguished the facts of Rosen from the facts in Volkskas since
the drawee bank and the collecting bank in Rosen were branches of the same bank whereas
in Volkskas they were two separate banks. The decision in Burg Trailers SA (Pty) Ltd v Absa Bank
Ltd 2004 (1) SA 284 (SCA) has, it is submitted, contributed to the legal uncertainty regarding the
moment at which a cheque is paid: Nagel & Pretorius (2014(2)) 655. It would appear that the court
in Burg Trailers is of the opinion that there are two periods of time which may apply with regard to
the payment of cheques. The first is the time period mentioned in Volkskas and the second is the
‘hold period’ of ten days: Nagel & Pretorius (2014(2)) 650. In this regard the court in Burg
Trailers stated in an obiter dictum (at 289-90): ‘According to standard banking practice, cheques are
accepted subject to a hold period, in this case, of ten days. It is common cause that the client may
not during that period insist upon payment of the amount even if it otherwise had been “paid”. This
means that the bank is not unconditionally liable for the amount standing to the credit of the client
and that the credit may be reversed during that period.’ In this regard the court relied on an obiter
remark in Absa Bank Ltd v Standard Bank of SA Ltd 1998 (1) SA 242 (SCA) at 252. Nagel & Pretorius
(2014(2)) 651 have the following, it is submitted, valid criticism against the court’s opinion in this
regard: ‘The problem is that this obiter remark . . . is now used in Burg Trailers as authority for
creating a second clearing period of ten days in conjunction with the clearing period of Bankorp, and,
to top it all, that a bank is entitled to reverse a credit entry during this extended period despite the
fact that the cheque had been “paid” within the meaning of Bankorp. It is submitted that the ten day
period is nothing but an antiquated urban legend that pre-dates the decision in Bankorp. The contract
between the bank and its customer normally stipulates that the proceeds of a cheque that had been
deposited for collection would be available once the cheque had been paid. No mention is made of a
ten day period. The question whether the drawer of a cheque would be entitled to countermand
payment should in principle be determined by whether there has been compliance with the clearing
rules, as outlined in Bankorp.’
[113] Dijkman (1988(3)) 84; Dijkman (1988(1)) 72; Greeff & Nagel 62 et seq; Pretorius (1992)
210; Stassen (1985(2)) 149; Pretorius (1999(2)) 564.
[114] For example, ‘Good for the sum of R . . . until 28 February 2013’ together with the signatures
of (usually) two bank officials on the back of the cheque.
[116] That is, the amount of the cheque and interest thereon from the time of presentment for
payment.
[118] A cheque card is a numbered metal or plastic card which contains an undertaking by the
bank to guarantee on certain conditions, cheques drawn on them: Malan, Pretorius & Du Toit para
196. Malan, Pretorius & Du Toit point out that the cheque card is frequently used in Europe, but in
South Africa a credit card that fulfils various functions, including that of a cheque card, is generally
used. See also Visser (1989) 191 et seq.
[119] Malan, Pretorius & Du Toit para 196; Sharrock & Kidd 62; Moorcroft para 34.3; Visser (1989)
193.
[120] See Sharrock & Kidd 62.
[121] Section 73(a).
[122] Pretorius (1992) 210 and Pretorius 564; Greeff & Nagel 56; Dijkman (1988(3)) 83; Stassen
(1985(2)) 149. As to whether a bank cheque can be countermanded, see Hugo 226.
[123] Malan, Pretorius & Du Toit para 262 n 136; Pretorius (1999(2)) 564.
[124] See Wavecrest Enterprises v Cema Africa (Pty) Ltd (In Liquidation) 1991 (2) Commercial Law
Digest 266 (C) where the court held that the drawer was entitled to countermand payment because
of the holder’s fraud and also to an interdict prohibiting the bank from paying out the cheque. See
also the discussion of the case by Greeff & Nagel 56; Pretorius (1992) 210.
[125] Kearny NO v Standard Bank of South Africa Ltd 1961 (2) SA 647 (T) at 650; Stapelberg NO v
Barclays Bank DC & O 1963 (3) SA 120 (T) at 124; Trust Bank of Africa Ltd v Marques 1968 (2) SA
796 (T) at 798; Eskom v First National Bank of Southern Africa Ltd 1995 (2) SA 386 (A) at 391.
[126] Standard Bank of SA Ltd v Kaplan 1922 CPD 214. However, a customer owes a contractual
duty to his banker to draw cheques with reasonable care in order to prevent a forgery: OK Bazaars
(1929) Ltd v Universal Stores Ltd 1973 (2) SA 281 (C) at 288. The bank may thus debit the client’s
account with the amount of the cheque where the client draws a cheque in breach of this duty. Malan,
Pretorius & Du Toit para 220 submit that ‘it is unlikely that the “normal” or “unsophisticated”
customer’s negligence as custodian of his cheque book, or any customer’s negligence in the
appointment or supervision of his employees would entitle the bank to debit his account.
Furthermore, it is not the normal consumer’s duty to examine his bank statements, nor to inform his
bank of incorrect entries made on them.’ However, as pointed out by Malan, Pretorius & Du Toit ibid,
companies and other ‘sophisticated’ customers must now, owing to the amendments to the BEA in
2000, exercise reasonable care in the custody of their cheque forms and in the reconciliation of bank
statements: see s 72B of the BEA and the discussion by Malan, Pretorius & Du Toit para 220. See also
Pretorius (2005) 56; Gering Handbook 343 et seq.
[127] Section 22 of the BEA.
[128] Judicial management in terms of the Companies Act 61 of 1973 has been replaced with a new
business rescue provision: see chap 6 of the Companies Act 71 of 2008. It is therefore submitted that
the bank’s mandate in terms of s 73 of the BEA will be terminated on receipt of notice that the
customer has been placed under business rescue.
[130] Nagel, Roestoff & Papadopoulos para 31.42-31.43.
[131] Nagel, Roestoff & Papadopoulos para 31.45-31.55.
[132] Section 58 applies to all bills payable to order on demand and therefore also to cheques,
including crossed cheques: Malan, Pretorius & Du Toit para 262; Cowen & Gering 380; Sharrock &
Kidd 163; Schulze Commercial Law 409. However, it is submitted that another interpretation of the
scope of application of s 58 is possible. It should be noted that s 58 does not form part of the group
of sections of the BEA dealing with crossed cheques (ss 75-81). Since s 79 deals with the protection
of the drawee bank in the case of crossed cheques it could be argued that s 58 was intended to apply
to uncrossed cheques only.
[133] Malan, Pretorius & Du Toit para 272; Schulze Commercial Law 410.
[134] In terms of s 94 of the BEA something is deemed to be done in good faith if it is done
honestly, whether or not it is done negligently. A person can therefore be negligent while acting in
good faith.
[135] A cheque will, for example, be paid outside the ordinary course of business where it is paid
after the close of business, or where a large amount is paid over the counter in suspicious
circumstances: Malan, Pretorius & Du Toit para 221. The phrase refers to the course of business of
the banking community at large and not to a specific bank or group of banks: Sharrock & Kidd 163.
In deciding whether payment has been done in the ordinary course of business the court will probably
be influenced by the evidence of persons experienced in banking: Sharrock & Kidd 163-4.
[136] Section 58 also applies where the instrument is paid by a branch other than the branch on
which the cheque is drawn, and not only where the instrument is paid by the bank at the branch
where the account is kept: Malan, Pretorius & Du Toit para 221 n 54.
[137] Thus, if the signature relates to a customer of a bank at a branch other that the branch on
which the cheque was drawn, the bank will still be protected: Sharrock & Kidd 165 n 22; contra
Cowen & Gering 379-80.
[138] National Bank v Paterson 1909 322 TS at 327; Stapelberg NO v Barclays Bank DC & O 1963
(3) SA 120 (T).
[139] Gishen v Nedbank Ltd 1984 (2) SA 378 (W) at 382 and see the case discussion by Pretorius
(1984) 250; Eskom v First National Bank of South Africa Ltd 1995 (2) SA 386 (A) 397-400. See also
Malan & Pretorius (1996) 282; Malan, Pretorius & Du Toit para 274.
[140] Sharrock & Kidd 165 suggest that s 79 affords added protection to a bank in respect of
crossed cheques. The bank may debit its customer’s account even if it has not paid in the ordinary
course of business (in terms of s 58) as long as it has paid without negligence and in accordance with
the crossing. The bank will be furthermore protected even if the forged or unauthorised indorsement
purports to be that of a customer of the bank. See also Schulze Commercial Law 410-12.
[141] The drawee bank bears the burden of proof in this regard: Eskom v First National Bank of
Southern Africa Ltd 1995 (2) SA 386 (A) at 390-4.
[142] Eskom v First National Bank of Southern Africa Ltd 1995 (2) SA 386 (A) at 391. Section 79
also applies where the collecting bank and drawee bank are branches of the same bank: Eskom v
First National Bank of Southern Africa Ltd 1995 (2) SA 386 (A) 391 at 394-7. See also Standard Bank
of South Africa Ltd v Harris [2002] 4 All SA 164 (SCA) at 169; Standard Bank of SA Ltd v Nair
(Bissessur, Third Parties) 2001 (1) SA 998 (D) at 1005.
[143] Section 79 read with s 78(4).
[144] Section 78(4). The bank paying in good faith and without negligence will however not incur
any liability if the crossing had been obliterated and it did not appear to be crossed at the time of
presentment for payment, or to have had a crossing which had been obliterated, or to have a
crossing that had been added to or altered, otherwise than as authorised by the BEA: see the proviso
to s 78(4).
[145] See s 79.
[146] See Malan, Pretorius and Du Toit para 262; Schulze Commercial Law 410.
[147] Section 83 therefore does not apply where a cheque has been paid over the counter: Malan,
Pretorius & Du Toit para 221 n 62 and para 266; Sharrock & Kidd 166; Schulze Commercial Law 412.
[148] Section 83 also applies to certain other documents or drafts in terms of s 83(1)(b), (c) and
(2).
[149] Schulze Commercial Law 412; Pretorius (1984) 253. Malan, Pretorius & Du Toit para 275
note, however, that the applicability of s 83 to a non-transferable cheque is controversial. This issue
was also left open in Gishen v Nedbank Ltd 1984 (2) SA 378 (W) at 382. Malan, Pretorius & Du Toit
para 275 point out that the ‘words of the section are wide and capable of being applied to non-
transferable cheques. In addition, it is logical to apply the same rules to the payment of all cheques.
The latter argument is supported by subsec (1)(b) and (c) and subsection (2) which clearly apply to
documents other than cheques and indeed to document which are not necessarily capable of being
indorsed.’
[150] Section 84(1) also applies to drafts or other documents referred to in s 83.
[151] See in general regarding s 84(1) Malan, Pretorius & Du Toit para 267; Gering Handbook 418-
19; Malan (1974) 59; Pretorius (1999(1)) 417-18; Nagel, Roestoff & Papadopoulos para 31.57.
[152] See Bloems Timber Kilns (Pty) Ltd v Volkskas 1976 (4) SA 677 (A) at 686; Nedbank Ltd v
Aldick 1981 (3) SA 1007 (D) 1013. In Aldick, Leon J applied s 84 in order to hold the payee liable who
had indorsed the cheque merely for identification purposes. Sinclair 368 criticises the decision as
follows: ‘Although the wording of s 84 gives the bank the right it would have had had there been an
endorsement in blank by the holder, the section cannot, it is believed, be construed to create
a liability where none existed before. Section 84 was designed to create the rights of a holder for a
bank against persons already liable on the instrument, in cases where there is no indorsement or an
irregular indorsement by the holder to the bank’.
[153] The bank therefore does not become holder of the cheque. Section 84(1) merely affords the
bank the rights it would have had if the holder had indorsed the cheque in blank after delivery:
Malan, Pretorius & Du Toit para 267; Malan (1974) 60; Pretorius (1999(1)) 418. See also Bloems
Timber Kilns (Pty) Ltd v Volkskas 1976 (4) SA 677 (A) at 686 where the court stated: ‘Sec 84 was not
intended to define the status of a banker who takes delivery of a cheque in the circumstances
outlined in the section. It deals purely with his rights’. Although the bank does not become holder,
the document remains a liquid document. Consequently provisional sentence can be obtained on it,
provided the essential allegations are made, inter alia that the cheque was delivered by a holder and
that the other requirements of s 84(1) are complied with: Malan, Pretorius & Du Toit para 267
and Trust Bank van Afrika Bpk v Bendor Properties Ltd 1977 (2) SA 632 (T) at 634 and 636. But
see First National Bank of SA Ltd v Richards Bay Taxi Centre (Pty) Ltd 1998 Commercial Law
Reports 433 (D) at 439.
[154] See s 27(1) of the BEA.
[155] Bloems Timber Kilns (Pty) Ltd v Volkskas 1976 (4) SA 677 (A); Malan Pretorius & Du Toit
para 267.
[156] Indac Electronics v Volkskas Bank Ltd 1992 (1) SA 783 (A) at 789-90.
[157] Indac Electronics v Volkskas Bank Ltd 1992 (1) SA 783 (A) at 797.
[158] Only the owner of a lost or stolen cheque may claim against the collecting bank: Strydom NO
v Absa Bank Bpk 2001 (3) SA 185 (T) at 193-4 and see Moorcroft para 19.6. The specialised meaning
of ‘true owner’ in terms of s 81 of the BEA is not applicable here: First National Bank of SA Ltd v
Quality Tyres (1970) Pty Ltd 1995 (3) SA 556 (A) at 570 and see the discussion in para
7.2.1 (ii) above. The concept ‘serves merely to signify that party, of the two parties who are the
potential competing claimants to ownership, who is found to be the owner in fact: First National Bank
of SA Ltd v Quality Tyres (1970) Pty Ltd 1995 (3) SA 556 (A) at 568.
[159] Indac Electronics v Volkskas Bank Ltd 1992 (1) SA 783 (A) at 797; Standard Bank of South
Africa Ltd v Harris [2002] 4 All SA 164 (SCA) para 2 at 167; Absa Bank Ltd v Greyvenstein 2003 (4)
SA 537 (SCA) para 3 at 541. For a comprehensive discussion of the delictual liability of the collecting
bank and for sources dealing with this topic see Malan, Pretorius & Du Toit paras 281-94. See also
Moorcroft paras 19.1-19.11; Gering Handbook 407-11.
[160] 1992 (1) SA 783 (A) at 797.
[161] Indac Electronics v Volkskas Bank Ltd 1992 (1) SA 783 (A) at 797. In this regard Vivier JA
mentioned five factors (at 798-9) that operate in favour of recognising the existence of such a legal
duty: (a) the extent of the potential loss incurred (the face value of the cheque) is finite and the
potential claimants are easily predictable and limited to the drawer or payee (or someone holding title
under him); (b) there is an ever-present risk that payment of a cheque can be obtained by an
unlawful possessor with relative ease and there is therefore a need to protect the true owner of the
cheque; (c) the collecting bank undertakes in the course of its professional services to collect cheques
payable to its client and should be aware that its failure to exercise reasonable care may result in loss
to the true owner of the cheque; (d) the collecting bank is the only party who is able to know whether
the cheque is being collected on behalf of a person who is entitled to receive payment; and (e) the
drawer or true owner of a cheque is unable to take steps to protect himself from the loss. On the
other hand, the collecting bank that is held liable for damages will have a claim for reimbursement
against its customer who deposited the cheque for collection.
[164] 1995 (1) SA 377 (D) at 392.
[165] See also Fedgen Insurance Ltd v Bankorp Ltd 1994 (2) SA 399 (W) at 409.
[166] KwaMashu Bakery Ltd v Standard Bank of South Africa Ltd 1995 (1) SA 377 (D) at 395.
[167] That is, the negligence issue: KwaMashu Bakery Ltd v Standard Bank of South Africa
Ltd 1995 (1) SA 377 (D) at 389.
[168] KwaMashu Bakery Ltd v Standard Bank of South Africa Ltd 1995 (1) SA 377 (D) at 395-6.
Such obligation would, according to the court, in no way impact on the banking system or involve an
unreasonable amount of time and cost. See further in respect of the standard of care required when
the collecting banker opens a new account: Energy Measurements (Pty) Ltd v First National Bank of
SA Ltd 2001 (3) SA 132 (W); Strydom NO v Absa Bank Bpk 2001 (3) SA 185 (T); Columbus Joint
Venture v Absa Bank Ltd 2002 (1) SA 90 (SCA); Powel v Absa Bank Ltd t/a Volkskas Bank 1998 (2)
SA 807 (SE). Inexplicable differences in the name of the payee and the name of the account holder
obliges the collecting bank to make enquiries: Absa Bank Ltd v Mutual & Federal Insurance Co
Ltd 2003 (1) SA 635 (W). The collecting bank will be negligent if it acts on an indorsement which, ex
facie the cheque, is clearly not a proper or valid indorsement: Absa Bank Bpk v Ons Beleggings
BK 2000 (4) SA 27 (SCA). The collection of a cheque crossed ‘not transferable’ for an account other
than that of the specified payee gives rise to a prima facie inference of negligence: Standard Bank of
South Africa Ltd v Harris [2002] 4 All SA 164 (SCA) at 172 para 17.
[169] Malan, Pretorius & Du Toit paras 2 and 297.
[170] The promise will be conditional if it is dependant on the performance by another person of an
obligation but it would be unconditional if it merely refers to the reason for the promise without
making it dependant on it: Ramchuran v Follows 1941 NPD 381; Van Zyl, Hofmeyr & Warren v
Swanepoel 1913 CPD 244; Shaw v Shaw & Adamson (1896) 13 SC 81; Malan, Pretorius & Du Toit
para 298. But see Impey v Levyno (1880-1881) 1 EDC 284 and the discussion of this case by Malan,
Pretorius & Du Toit para 298. However, the requirement of an unconditional promise obviously does
not prevent the debtor from relying on the fact that the payee failed to perform his obligations in
terms of the underlying obligation as a defence when he is sued on the promissory note — Malan,
Pretorius & Du Toit para 298 and authority cited in n 39.
[171] In contrast to a bill and cheque, which both contain an order to pay. A promise involves an
undertaking to pay not merely an acknowledgment of debt with an implied undertaking to pay.
Therefore an IOU will not qualify as a promissory note and is simply an acknowledgement of debt:
see Malan, Pretorius & Du Toit para 298 and authority cited in nn 20-2 and 24. Fixed deposit
certificates that simply acknowledge the receipt of money also do not qualify as promissory notes:
Malan, Pretorius & Du Toit ibid and authority cited in n 29. A “Good for”, on the other hand, has been
held to qualify as a promissory note: Malan, Pretorius & Du Toit para 298 and authority cited in n 31.
[172] The maker of a note corresponds with the acceptor of a bill and the first indorser, with the
drawer of an accepted bill payable to the drawer’s order: s 93(2) of the BEA. However, it should be
noted that the provisions of the BEA relating to acceptance and bills in a set are not applicable to
notes: s 93(3).
[173] Section 87(1) of the BEA: see Weszak Beleggings (Edms) Bpk v Venter 1972 (1) SA 730 (T);
Peterson 163. In terms of s 87(2) an instrument in the form of a note payable to the maker’s order is
not a note unless it is endorsed by the maker. In terms of s 88 a note is inchoate and incomplete
until delivery thereof to the payee or bearer. This section seems to be unnecessary as s 19
extensively deals with delivery: Malan, Pretorius & Du Toit para 296 n 15.The provisions of the BEA
relating to bills apply with the necessary modifications to notes: s 93(1).
[174] Section 87(3).
[175] Section 92.
[176] Section 89(1). A note that reads ‘I promise to pay’ and is signed by two or more persons, or
any other note signed by two or more persons is deemed to be their joint and several note unless a
contrary intention appears upon the face of the note: s 89(2) and see SA Bank of Athens Ltd v
Solea 1977 (2) SA 612 (W) at 614; Von Geyso v Herald 1916 TPD 479.
[177] What a reasonable time is depends on the nature of the instrument, trade usages and the
facts of the particular case: s 90(2).
[178] Section 90(1).
[179] The body of the note is that part of the note which contains the promise to pay — Nagel and
Roestoff para 32.08. If the place for presentment of payment does not appear in the body of the note
it is not obligatory to be presented there: Veritas International Promotions (Pty) Ltd v Trustees
Langdad Trust 1985 (3) SA 945 (C).
[180] This entails that the place must be described with sufficient detail for it to be easily identified.
The place must therefore exist and the description must not be too vague or general: see Nagel and
Roestoff para 32.09; Phillips v Kilfoil 1922 EDL 202; Searle’s Ltd v Rankin 1923 CPD 549.
[181] Section 91(1)(a); Brown v Joubert 1918 TPD 297; Ebersohn v Claassen 1963 (1) SA 467
(T); Greeff v Myers 1948 (3) SA 943 (E); Schnehage v Bezuidenhout 1977 (1) SA 362 (O). In no
other case is presentment for payment necessary to render the maker liable: s 91(1)(b).
[182] Section 91(1)(a); Brown v Joubert 1918 TPD 297; Jordaan v Vermeulen 1959 (4) SA 230
(C); Abromowitz v Jacquet 1950 (2) SA 564 (W).
[183] Section 91(3)(a).
[184] Section 91(3)(b).
[185] A stop order is therefore a payment instrument which is utilised in conjunction with a current
cheque or transmission account: Stassen (1985(1)) 88.
[186] The legal relationship between the bank and account holder is based on mandatum and the
liabilities of the bank are those of a mandatary: Stassen (1985(1)) 88.
[187] For example, monthly.
[188] A stop order may, for example, be utilised to effect monthly home loan repayments, payment
of insurance premiums and credit agreement payments: Stassen (1985(1)) 88; Schulze (1992) 54.
See regarding the definition of a stop order Cambanis Buildings (Pty) Ltd v Gal 1983 (2) SA 128 (NC)
at 135; Willis 194.
[189] Stassen (1985(1)) 88-9; Schulze (2004(1)) 56. In practice, a claim for damages is often
excluded as the stop order form signed by the account holder usually contains a clause in terms of
which the mandator would have no claim whatsoever if the bank without fault on its side fails to
make payment promptly: Stassen (1985(1)) 89.
[190] Stassen (1985(1)) 88; Schulze (1992) 54.
[191] Cambanis Buildings (Pty) Ltd v Gal 1983 (2) SA 128 (NC) at 136.
[192] Cambanis Buildings (Pty) Ltd v Gal 1983 (2) SA 128 (NC) at 133; Consolidated Frame Cotton
Corporation Ltd v Sithole 1985 (2) SA 18 (N) at 24; Stassen (1985(1)) 88; Schulze (1992) 55. Unless
the parties’ intention points to the conclusion of such an agreement, the mere fact that a stop order
authorisation was produced and implemented will not create a stipulatio alteri which would enable the
third party to claim the amount from the bank: Consolidated Frame Cotton Corporation Ltd v
Sithole 1985 (2) SA 18 (N) at 24; Schulze (1992) 55.
[193] In this instance all rights of the creditor under the underlying obligation are suspended until
the cheque is dishonoured: see the discussion in para 7.2.1 above.
[194] Schulze (1992) 55 suggests that the position will be different where the third party has
accepted the customer’s ‘offer’ to pay by means of a stop order. However, the author points out that
each case will depend on the agreement between the parties regarding the manner in which payment
would be effected
[195] Stassen (1985(1)) 88; Schulze (1992) 55.
[196] See in respect of the use, types, cancelling and disputes regarding debit orders: South
African Code of Banking Practice 2012 para 9.4.1-4.
[197] Stassen (1985(1)) 89; Schulze (1992) 56. If the bank allows for it, authority for a debit order
can be given in paper form or by using a debit card and PIN. In exceptional cases voice mandates
may be given to the third party provided that it is followed up by written confirmation from the
customer within the stipulated period: South African Code of Banking Practice 2012 para 9.4.1. See
further in respect of debit orders mandated by voice recording: Volker 64 et seq.
[198] Stassen (1985(1)) 90.
[199] See Malan, Pretorius & Du Toit para 203 n 13; Penderis & Gutman NNO v Liquidators, Short-
term Business AA Mutual Insurance Association Ltd 1992 (4) SA 836 (A) at 839.
[200] Stassen (1985(1)) 90.
[201] Paget para 17.1.
[202] See United Nations UNCITRAL Legal Guide on Electronic Funds Transfers (1987) 12 para 6;
Lawack-Davids Thesis 182.
[203] Schulze (2004(2)) 670.
[204] Paget paras 17.10 and 17.15; Lawack-Davids Thesis 187.
[205] Paget para 17.16.
[206] Malan, Pretorius & Du Toit para 202; Paget paras 17.20 and 17.153. Paget (para 17.20)
states that a transfer of value, rather than a transfer of funds is probably a more accurate description
of the process, but emphasises that there is definitely no transfer of property by this process. See
also Ellinger, Lomnicka & Hare 559-60; Schulze (2004(2)) 671 et seq.
[207] Schulze (2004(2)) 672.
[208] Schulze (2004(2)) 671.
[209] Schulze (2004(2)) 673. As has been pointed out in para 7.2.1 above, payment by cheque
amounts to payment of the debt subject to the condition that the cheque is indeed paid by the
drawee bank on presentation: Malan, Pretorius & Du Toit para 199.
[210] Visser (1985) 648; Meiring (1987) 115 and Meiring (1999) 38; Visser (1989) 198; Schulze
(2004(1)) 54.
[211] Paget para 17.4; Schulze Commercial Law 431.
[212] Schulze Commercial Law 432.
[213] See also the discussion in para 7.2.1 above.
[214] Paget para 17.4; Schulze Commercial Law 432; Meiring (1999) 37. There are several new
payment systems in South Africa functioning outside the traditional bank system, such as the
abundance of newly available products which enable members of public to effect so-called ‘mobile
payments’, ie payments conducted by means of a cellular telephone (see in respect of EFT payment
transactions on mobile phones: Volker 92 et seq, and in respect of card-related mobile payments:
Volker 164 et seq, and see also Schulze Commercial Law 443-4). Also to be mentioned is PayPal
which is at present the leading internet payment intermediary system (for more detail on PayPal’s
functioning, advantages and disadvantages see Volker 86 et seq; Schulze Commercial Law 444-5;
Nagel, Roestoff & Papadopoulos para 32.120 et seq.) A further new technology that should be
mentioned is the so-called ‘virtual currencies’ (VCs) which are becoming increasingly popular among
members of public to, amongst others, purchase goods and services. See Nagel, Roestoff &
Papadopoulos para 32.124 et seq. An example is Bitcoin, a software based online payment system,
which operates without the involvement of the central bank or commercial banks. The South African
Reserve Bank Position Paper on Virtual Currencies (No 2 of 2014 para 2.1) defines a VC as ‘a digital
representation of value that can be digitally traded and functions as a medium of exchange, a unit of
account and/or a store of value, but does not have legal tender status’. The Reserve Bank’s view is
that it does not oversee, supervise or regulate the VC landscape, systems or intermediaries for
effectiveness, soundness, integrity or robustness. Consequently, any and all activities related to the
acquisition, trading or use of VCs are performed at the end-user’s sole and independent risk and have
no recourse to the Bank. However, the bank continues monitoring developments in this regard and
reserves the right to change its position should the landscape warrant regulatory intervention
(Position Paper paras 5.1 and 5.3). See further in respect of VCs Volker 255 et seq.
[215] United Nations UNCITRAL Legal Guide on Electronic Funds Transfers (1987) 12; Malan,
Pretorius & Du Toit para 202-3; Visser (1989) 200; Paget para 17.25 et seq; Ellinger, Lomnicka &
Hare 562.
[216] Lawack-Davids Thesis 185.
[217] Malan, Pretorius & Du Toit para 202; Meiring (1999) 38.
[219] Malan, Pretorius & Du Toit para 208; Meiring (1987) 115 and Meiring (1999) 39; Lawack-
Davids Thesis 187. See also Gilbey Distillers & Vintners (Pty) Ltd v Absa Bank Ltd (C) unreported case
no 12698/94 (4 December 1998) para 58.
[220] See Joubert & Van Zyl para 10; Schulze (2004(1)) 62; Lawack-Davids Thesis 187; Meiring
(1999) 39; Sealy & Hooley 702.
[221] Schulze (2004(1)) 53.
[222] United Nations UNCITRAL Legal Guide on Electronic Funds Transfers (1987) 14 para 14;
Malan, Pretorius & Du Toit para 203; Meiring (1999) 37.
[224] United Nations UNCITRAL Legal Guide on Electronic Funds Transfers (1987) 14 para 16.
[225] See with regard to the operation of the ATM system Meiring (1987) 115; Schulze Commercial
Law 432 et seq; Paget para 17.120.
[226] Malan & Pretorius (2006) 595; Lawack-Davids Thesis 186.
[227] Paget para 17.217.
[228] According to Paget para 17.218: ‘[i]t is arguable that there is a unilateral contract between
the card holder and the bank whose ATM is used, which comes into existence in a similar way to the
unilateral contract which arises when a supplier accepts a cheque card. Alternatively, depending on
the master agreement between the banks, the bank dispensing cash from its ATM may do so as the
agent of the bank that issues the card to the card-holder’. See also Moorcroft para 20.13.
[229] Visser (1985) 646.
[230] Visser (1985) 646; Meiring (1987) 115.
[231] Oelofse (1985) 13; Schulze Commercial Law 434.
[232] Visser (1985) 659; Meiring (1987) 116.
[233] Malan para 204; Visser (1989) 201; Lawack-Davids Thesis 197 et seq.
[234] Lawack-Davids Thesis 198. See also Paget paras 17.122 and 17.273.
[235] See Joubert & Van Zyl para 10; Lawack-Davids Thesis 198.
[236] Paget para 17.220; Sealy & Hooley 794.
[237] If there is more than one bank involved, there would be a further contract between the
settlement banks: Schulze Commercial Law 436.
[238] Nagel, Roestoff & Papadopoulos para 32.27; Schulze Commercial Law 436; Cornelius 154.
[239] Nagel, Roestoff & Papadopoulos para 32.27; Schulze Commercial Law 436. Malan, Pretorius &
Du Toit para 204 suggest that payment by means of EFTPOS is payment in terms of an agreement
between the parties and not a datio in solutionem.
[242] Nagel, Roestoff & Papadopoulos para 32.31; Schulze Commercial Law 437.
[247] Visser (1989) 201. See with regard to the operation of the EFTPOS transaction Nagel,
Roestoff & Papadopoulos para 32.24.
[250] See Grosvenor Motors (Potchefstroom) Ltd v Douglas 1956 (3) SA 420 (A); Eriksen Motors
(Welkom) Ltd v Protea Motors 1973 (3) SA 685 (A).
[251] See also Nagel, Roestoff & Papadopoulos para 32.34.
[252] Visser (1989) 203. For more detail on smart card technology see Volker 183 et seq.
[253] Schulze (2004(1)) 54; Schulze (2004(3)) 707.
[254] Faul 384; Lawack (1998) 235; Schulze (2004(1)) 54 et seq; Schulze (2004(3)) 707.
[255] For more detail on magnetic strip technology see Volker 179 et seq.
[256] See Schulze (2004(1)) 55 et seq; Lawack (1998) 235; Van der Bijl (2007) 331. Laser cards
offer more security advantages than smart cards, but they would probably not be introduced in South
Africa in the near future due to the high cost involved: Lawack (1998) 237. See also Schulze
(2004(3)) 705 et seq regarding the development in security markings on payment cards.
[257] Schulze (2004(1)) 55. See with regard to the operation of a smart card: Faul 382; Schulze
(2004(3)) 707 et seq.
[258] Schulze (2004(1)) 56 et seq.
[259] Meiring (1987) 117.
[260] Lawack (1998) 237 et seq; Faul 385 et seq.
[261] Schulze (2004(1)) 54.
[262] Schulze (2004(1)) 53; Schulze (2004(3)) 707 n 20.
[263] For a discussion of the legal and regulatory framework of mobile banking and in particular
mobile payments see Lawack-Davids (2012) 77.
[265] Schulze Commercial Law 439; Lawack-Davids & Marx 451 et seq.
[266] Moorcroft para 20.14; Schulze Commercial Law 439; Lawack-Davids & Marx 452.
[267] Schulze Commercial Law 439; Lawack-Davids & Marx 452. See also Van der Bijl (2009) 159
regarding the allocation of the risk pertaining to unauthorised mobile banking transactions and SIM
card fraud and see further Nashua Mobile (Pty) Ltd v GC Pale CC t/a Invasive Plant Solutions 2012 (1)
SA 615 (GSJ) regarding the possibility of holding the cellphone provider liable on the basis of delict in
the case of a SIM-swap. As regards fraud, phishing and other unauthorised activities pertaining to
internet banking transactions see Nagel, Roestoff & Papadopoulos para 32.56 et seq; Cassim 406 et
seq. For an example of a phishing scam see the facts in Roestoff v Cliffe Dekker Hofmeyr Inc 2013
(1) SA 12 (GNP) and see the discussion of this case by Schulze (2012) 827.
[268] Lawack-Davids & Marx 452. See also Nagel, Roestoff & Papadopoulos para 32.55 for a list of
clauses that may appear in the standard-form contracts.
[269] Lawack-Davids & Marx 452; Nagel, Roestoff & Papadopoulos para 32.67.
[270] Barkhuizen v Napier 2007 (5) SA 323 (CC).
[271] Lawack-Davids & Marx 453.
[272] Barkhuizen v Napier 2007 (5) SA 323 (CC) at 330 and 341.
[273] Act 68 of 2008.
[274] See the discussion with regard to the application of the CPA in para 7.3.5 below.
[275] The South African Reserve Bank Position Paper on Electronic Money (Nov 2009), available
at http://bit.ly/pnoSAD (hereafter Position Paper (2009)).
[276] Position Paper (2009) para 3.
[277] Cranston 270; Crawford 404. See also Lawack-Davids Thesis 206 et seq; Loubser & Swart
359 et seq; Volker 253 et seq; Paget 17.135-140 for a discussion of the different types of e-money
products and systems.
[278] Lawack-Davids (2012) 84. See also Schulze Commercial Law 440-5.
[279] Cranston 270; Crawford 404.
[280] The South African Code of Banking Practice para 12 defines an ‘electronic purse’ as ‘[a]ny
card or function of a card in to which money is prepaid and which can be used for a range of
purposes. Some purses may also have an “e-cash” facility for small value transactions, which are not
recorded in an audit trail.’
[281] Schulze (2004(3)) 708.
[282] Schulze (2004(3)) 708.
[283] Position Paper (2009) para 3.
[284] Position Paper (2009) paras 1 and 7.
[285] Position Paper (2009) para 7; Nagel, Roestoff & Papadopoulos para 32.118.
[286] Act 94 of 1990.
[287] Act 90 of 1989.
[288] Act 78 of 1998.
[289] Act 38 of 2001.
[290] Schulze (2004(1)) 53; Loubser & Swart 355.
[291] See in this regard Crawford 399.
[292] Schulze (2004(1)) 51. See also Loubser & Swart 358; Paget para 17.225.
[293] Paget para 17.225. However, a merchant who is a member of an electronic money scheme,
and who displays the scheme’s logo to the public, makes a standing offer to accept e-money in
payment. Whether payment by e-money constitutes an absolute or conditional discharge of the
underlying indebtedness depends on the intention of the parties. Therefore as is the position with
regard to payment by credit card, payment by means of e-money would presumably be intended by
the parties to constitute an absolute and not a conditional discharge of the underlying indebtedness
between the merchant and the customer. Thus, by accepting a payment in electronic money the
creditor accepts the issuer’s payment obligation instead of the customer’s liability: Paget para 17.225.
[294] New Developments 709 et seq. See also Schulze Commercial Law 441 et seq.
[295] Para 7.7.
[296] Para 7.8.3. See also para 3.1 of the Code in terms of which banks undertake to take
immediate steps to prevent a customer’s electronic purse from being used to access or misuse the
customer’s account as soon as the customer has informed the bank about the loss or theft of the
electronic purse.
[297] Malan, Pretorius & Du Toit para 208; Meiring (1987) 115 and Meiring (1999) 39; Lawack-
Davids Thesis 187; Schulze (2004(1)) 62. See with regard to English law Royal Products Ltd v
Midland Bank Ltd [1981] 2 Lloyd’s Rep 194 at 198; Ellinger, Lomnicka & Hare 610; Sealy & Hooley
702. Paget para 17.163 points out that there are various aspects of the originator’s bank’s duty to
exercise reasonable care and skill: ‘Where the customer does not specify how the transfer is to be
made, the bank is free to choose the method of transfer, so long as it exercises reasonable care and
skill when making its choice. Where the customer specifies a particular method of transfer, the bank
is not bound to use that method, unless the specification is deemed to be of the essence of the
instruction, so long as the alternative method of transfer is at least as secure and as speedy a
method of transfer as that specified. Where the time of transfer is not specified by the customer, or it
cannot be inferred from the method of transfer specified by the customer, the bank must make the
payment within a reasonable time. Where it is necessary for the originator’s bank to employ the
services of an intermediary (correspondent) bank it must take reasonable care to engage a reliable
intermediary.’
[298] Paget para 17.215. See also Schulze (2004(1)) 60 et seq.
[300] Geva (1998). According to Geva (at 110-12) the ‘negligence’ of the bank ‘is not individual to
a bank employee, as where the latter failed to detect the forgery of a manual signature; rather, in the
electronic context, we are concerned with “systemic negligence”, by the bank organisation as a
whole, on the level of implementing satisfactory computer as well as office procedures. . . .
Accordingly, a bank establishing a reasonable security procedure for verifying electronic
authentication has discharged its contractual obligation to the consumer and may be justified in
debiting the customer’s account once the procedure has been pursued.’ Sealy & Hooley 706 (see also
Paget para 17.161) agree with this approach and submit that it is in line with the bank’s broad duty
to use reasonable care and skill in carrying out his mandate as set out in Royal Products Ltd v Midland
Bank Ltd [1981] 2 Lloyd’s Rep 194.
[301] See paras 7.6-8 of the Code. See also Nagel, Roestoff & Papadopoulos para 32.11.
[302] Malan, Pretorius & Du Toit para 209; Paget para 17.163; Sealy & Hooley 706.
[303] South African Code of Banking Practice 2012 para 4.5. However, the Code similarly obliges
the customer to take due and proper care: para 4.5. See also para 3.2 regarding the customer’s
responsibilities in respect of his or her duties to protect his or her PIN, to give notice to the bank of
unauthorised activities on the customer’s account, to take notice of cautionary notices at ATMs and to
take reasonable steps to prevent fraud, theft or unauthorised use of the customer’s account or
personal information when making use of internet, telephone or cellphone banking channels. As
regards payment services and specifically in respect of internet, telephone and cell phone banking,
the banks undertake ‘to take reasonable measures to ensure that [their] internet banking systems
and technology are secure and are regularly reviewed and updated for this purpose’: see para 9.3 of
the Code. See also para 7.7 as regards the customer’s duty to protect his or her account. Para 7.7.5
for example, cautions customers to be alert to the risk of muggings, card swapping and other criminal
activities when using ATMs or other electronic banking devices.
[304] Schulze (2002(I)) 456-7.
[305] See Du Toit (2014) 570. See also the discussion in chapter 2 para 2.4.2 above.
[306] The Specific Code of Conduct for Authorised Financial Service Providers and Representatives
Conducting Short-Term Deposit Business Board Notice 123 of 2003 made in terms of The Financial
Advisory and Intermediary Services Act 37 of 2002 (FAIS).
[307] Du Toit (2004) 577; see also Malan & Pretorius (2006) 604.
[308] Du Toit (2004) 576.
[309] See the definition of ‘this Act’ in s 1(1) FAIS.
[310] Paget para 17.164; Royal Products Ltd v Midland Bank Ltd [1981] 2 Lloyd’s Rep 194 at 198.
Paget para 17.164 points out that the originator’s bank would also be liable for the negligence of any
intermediary bank it employs. However, in practice the originator’s bank generally disclaims liability
for the negligence and default of the intermediary.
[311] Paget para 17.165.
[312] The standard-form contracts in South Africa typically exclude the bank’s liability for loss
caused by the customer’s inability to access the system due to problems experienced with network
coverage or availability of service: Nagel, Roestoff & Papadopoulos para 32.55.
[313] Paget para 17.165. According to Paget para 17.165, the network or other
telecommunications system provider may be contractually liable to the originator’s bank or the
beneficiary’s bank, but there is no contractual relationship between these providers and the originator
and beneficiary and it is also unlikely that these providers would be held to owe either of them a duty
of care in tort.
[314] Paget para 17.170; Ellinger, Lomnicka & Hare 615; Sealy & Hooley 708.
[316] See with regard to the English law Paget para 17.171; Ellinger, Lomnicka & Hare 615 and
Sealy & Hooley 708. These authors confirm that the originator’s bank will in the normal course of
events not owe the beneficiary a duty of care in tort.
[317] See Gilbey Distillers & Vintners (Pty) Ltd v Absa Bank Ltd (C) unreported case no 12698/94
(4 December 1998) para 59; Malan, Pretorius & Du Toit para 210; see with regard to the position in
English law Royal Products Ltd v Midland Bank Ltd [1981] 2 Lloyd’s Rep 194 at 198; Paget para
17.174; Ellinger, Lomnicka & Hare 620.
[318] Malan, Pretorius & Du Toit para 210; Paget para 17.175; Ellinger, Lomnicka & Hare 617;
Sealy & Hooley 713.
[319] Paget para 17.175; Ellinger, Lomnicka & Hare 617; Sealy & Hooley 713.
[320] Malan, Pretorius & Du Toit para 212; Paget para 17.177.
(4 December 1998) para 57; Paget para 17.179.
[322] Paget para 17.179; Malan, Pretorius & Du Toit para 212.
[323] Malan, Pretorius & Du Toit para 211; Paget para 17.182 and see Gilbey Distillers & Vintners
(Pty) Ltd v Absa Bank Ltd (C) unreported case no 12698/94 (4 December 1998) paras 56 and 57.
[325] Malan, Pretorius & Du Toit para 211. See also Malan & Pretorius (2007) 3 et seq.
[326] See the discussion in para 7.2.1 (viii) above. See also Lawack & Pretorius 108 et seq.
[327] Malan, Pretorius & Du Toit para 214 n 66. See eg Kwamashu Bakery Ltd v Standard Bank of
South Africa Ltd 1995 (1) SA 377 (D) at 397; Absa Bank Ltd v Mutual & Federal Insurance Co
Ltd 2003 (1) SA 635 (W) at 643.
[330] PASA Media Statement: Cheque Item Limit Reduction (2011-12-05) Category: Ad Hoc News,
available at https://www.resbank.co.za. See also Malan, Pretorius & Du Toit para 214; Schulze
(2004(1)) 64.
(4 December 1998) paras 66-77 and see the discussion and criticism of this case by Malan, Pretorius
& Du Toit paras 213-14. See also Geva (2004(1)) and Geva (2004(2)).
[332] Malan, Pretorius & Du Toit para 214; Geva (2004(1)) 3. However, there is foreign authority
that supports the existence of such a duty: see the comparative study done by Malan & Pretorius
(2006) and Malan & Pretorius (2007). For example, in Royal Bank of Canada v Stangl (1992) 32
ACSW (3d) 17 (Ontario Court, General Division), a Canadian decision, the beneficiary bank was held
to be negligent when it credited funds to a specified account number without seeking clarification
from the originator’s bank whose payment order indicated a different-named beneficiary than the
beneficiary to whom the account number actually belonged. However, the English High Court in Abou-
Rahman v Abacha [2005] EWHC 2662 (QB) refused to follow the Stangl decision and held that the
beneficiary bank does not owe a duty of care to the originator to clarify any discrepancies in the
originator’s instructions regarding the beneficiary’s identity with the originator: Paget para 17.184.
Paget points out that ‘[t]his would appear to leave the originator without redress against the
beneficiary’s bank that mistakenly credits funds to the wrong account, or against his own bank where
it has sent accurate payment instructions to the beneficiary’s bank’. Because payment may be
complete as between the originator and the beneficiary before funds are actually credited to the
beneficiary’s account (Momm v Barclays Bank International Ltd [1977] QB 790). Paget para 17.184
argues that the originator’s best option is perhaps to claim that ‘despite the mistake made by the
beneficiary’s bank, the payment was nevertheless complete as between the originator and the
beneficiary, leaving the beneficiary to claim against his own bank’.
[333] Gilbey Distillers & Vintners (Pty) Ltd v Absa Bank Ltd (C) unreported case no 12698/94 (4
December 1998) para 77.
December 1998) para 81. Referring to Commissioner, South African Revenue Service v Absa Bank
Ltd 2003 (2) SA 96 (W) and BOE Bank Ltd v Ries 2002 (2) SA 39 (SCA), Malan, Pretorius and Du Toit
para 214 are of the view that the court’s approach with regard to the question of pure economic loss
does not represent the latest jurisprudential thinking in this regard.
[336] The court stated (at para 82): ‘As originator of a credit transfer which is effected in terms of
a transaction between banks, Gilbeys is not in a position comparable to that of the plaintiff in the case
of Indac Electronics (Pty) Ltd v Volkskas Bank Ltd [1992 1 SA 738 (A)]. Nor was Trust Bank in the
position of a collecting bank which intrudes itself into the process at the instance of its own customer
for whose identity it effectively vouches.’ Referring to Rhostar (Pty) Ltd v Netherlands Bank of
Rhodesia Ltd 1972 (2) SA 703 (R) at 717, Malan, Pretorius & Du Toit para 214 respond as follows:
‘[T]he liability of the collecting bank towards the owner of a lost or stolen cheque is based not only on
the fact that the collecting bank “introduces itself into the process at the instance of its own customer
for whose identity it effectively vouches” but on an evaluation of all the circumstances. One of the
considerations leading to the imposition of a duty of care on a collecting bank, as it has first been
expressed, is that “there is something on the face of the cheque taken in relation to the customer for
whom it is collected, which should put the banker upon inquiry”.’ The authors furthermore maintain
that ‘in the case of the collecting bank, the duty of care (in the policy duty sense) is owed not to its
customer, but to the true owner of the lost or stolen cheque. The true owner of a cheque need not
necessarily be the drawer or even the payee or indorsee. While it is true that Gilbeys “is not in a
position comparable to that of the plaintiff in the case of Indac”, this is, with respect, neither here nor
there. Gilbeys is at least in the same position as the drawer of the cheque and may indeed suffer loss
if the beneficiary bank does not credit the correct person as indicated in the payment instruction. In
the case of a lost or stolen cheque the collecting bank owes a duty of care to the owner of the cheque
both where the owner is the drawer of the cheque and where he is not. Since the beneficiary bank is
undertaking professional services one can at least expect the bank to exercise reasonable care and
skill when making the payment or crediting the account of the named beneficiary.’
December 1998) paras 83-6.
[339] Malan, Pretorius & Du Toit para 214 maintain that the court did not consider the full
implications of the phrase ‘the plaintiff gave a mandate to FNB and that FNB in turn gave a mandate
to Trust Bank’. According to the authors, ‘[t]he giving of the mandate cannot be seen in a vacuum.
The “mandate” consisted of instructions (be it paper based or electronic) to effect payment to a
named beneficiary with a named account number. If there is no duty to match the named beneficiary
with the account number then one could hardly argue that the payment and crediting was made with
any skill or care. It would be very controversial if there is no duty on the beneficiary’s bank to match
the name of the account holder with the name of the beneficiary. Banks are rendering a professional
service and are dealing with the public’s money. In the case of the collection of cheques this
consideration has played an important role in the recognition of such a duty of care on the part of the
collecting bank. The public uses the credit transfer facilities offered by banks and, in some cases, are
obliged to do so. Were the argument raised that the matching of the account number with the name
of the beneficiary would involve too great an expense, one could echo the words of Combrinck J
in Kwamashu Bakery Ltd v Standard Bank of South Africa Ltd [1995 (1) SA 377 (D) at 394-5]: “[I]t
lies ill in the mouth of the person who does an act which creates a certain risk to aver that because
guarding against the risk is very expensive it is therefore not liable. The absurdity of such a
proposition appears from its logical result being that the more risky and the more dangerous a
venture undertaken by a person who does not have to undertake that venture and the more it would
cost to safeguard against such risk materializing, the less likely he is to be held liable, because of the
cost being too high.”’
[340] Paget para 17.185.
[341] See Joubert & Van Zyl para 16.
[342] Paget para 17.187; Cranston 233.
[343] Malan, Pretorius & Du Toit para 216; Geva (1997(1)) 20.
[344] Geva (1997(1)) 20.
[345] For example, by debiting an account of the originator’s bank held by the beneficiary bank or
by making an unconditional decision to credit the beneficiary’s account: Paget para 17.188; Cranston
233.
[346] Malan, Pretorius & Du Toit para 216 and n 101. Paget para 17.188; Cranston 233.
[347] Paget para 17.189.
[348] See Nagel, Roestoff & Papadopoulos para 32.55.
[349] Meiring (1999) 40; Paget para 17.191; Momm v Barclays Bank International Ltd [1977] QB
790.
[350] Paget para 17.192 et seq; Lawack-Davids Thesis 187 et seq.
[351] Paget para 17.192; Lawack-Davids Thesis 188; Sealy & Hooley 723; Vroegop 64.
[352] Visser (1989) 199; Schulze (2004(2)) 674.
[354] Meiring (1999) 40; Vroegop 79.
[355] Meiring (1999) 40.
[356] Para 204. As authority the authors refer to Vereins- und Westbank AG v Veren
Investments 2002 (4) SA 421 (SCA) 429. See also Meiring (1999) 40.
[357] Paget para 17.197 et seq.
[358] See also Sealy & Hooley 724; Vroegop 81.The leading English case is Momm v Barclays Bank
International Ltd [1977] QB 790. In Momm at 803C the court held that payment was complete when
the bank ‘decided to accept [the originator’s] instructions to credit the [beneficiary’s] account and the
computer processes for doing so were set in motion’ (own emphasis). Paget para 17.200 submits
‘that initiation of the payment process is not essential to completion of the transfer. Initiation of the
mechanical accounting process merely provides objective evidence that a decision to credit the
beneficiary’s account has been made, evidence which may be available from other sources, eg the
bank’s own authorization slips or other internal memoranda.’ However, Paget para 17.200
emphasises the fact that the bank must decide to make an unconditional credit to the beneficiary’s
account for payment to be complete, as a provisional, or conditional credit would allow for its
subsequent reversal.
[359] Momm v Barclays Bank International Ltd [1977] QB 790; Paget para 17.203; Vroegop 81.
[360] Momm v Barclays Bank International Ltd [1977] QB 790; Paget para 17.201; Vroegop 81.
[361] Paget para 17.204.
[362] Paget para 17.204.
[363] Paget para 17.204.
[364] A mere receipt of funds by the beneficiary’s bank is not sufficient to constitute payment. It is
the beneficiary bank’s to accept the funds for the beneficiary’s credit that is important: Paget para
17.207; contra Vroegop 82 et seq.
[365] Paget para 17.206.
[366] See Paget para 17.193 and cases cited in n 2. Paget para 17.194 argues that there are three
good reasons why the beneficiary bank should be regarded as the beneficiary’s agent in a credit
transfer: ‘First, if the beneficiary bank is not acting as the beneficiary’s agent then the originator’s
bank transfers funds to someone who is not authorised to receive them. The transfer of funds to an
unauthorized person would not discharge the originator’s underlying indebtedness to the beneficiary.
Secondly, treating the beneficiary’s bank as the beneficiary’s agent is consistent with the rule that
payment is complete as between originator and beneficiary on receipt of funds and before credit is
posted to the beneficiary’s account. Thirdly, failure to regard the beneficiary’s bank as the
beneficiary’s agents draws an unnecessary distinction between payment by credit transfer and
payment by debit transfer so far as completion of payment is concerned.’ See also Paget para 17.208.
But note the criticism of King 381 who suggests that in the case of a credit transfer, the relationship
between the beneficiary’s bank and the beneficiary is not one of agency but one of banker and
customer. According to this viewpoint the beneficiary bank merely receives payment in the normal
course for its customer, the beneficiary, as it would any other payment into its customer’s account:
see Paget para 17.193. See also Malan, Pretorius & Du Toit para 207, who submit that the beneficiary
bank does not represent the beneficiary when it receives payment.
[367] Paget para 17.208.
[368] Paget para 17.206.
[369] Paget para 17.206.
[370] Paget para 17.212.
[372] Meiring (1987) 121.
[373] Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA) para 9; Nissan South Africa (Pty) Ltd v
Marnitz NO (Stand 186 Aeroport (Pty) Ltd intervening) 2005 (1) SA 441 (SCA) para 23. The South
African Code of Banking Practice para 9.3.13 cautions customers to take care when entering numbers
while doing their banking and to ensure that the correct amounts are transferred to the correct
accounts or beneficiaries. The Code further states that banks are not able to reverse duplicate or
erroneous payments a customer has made to other accounts unless the specific consent of those
account holders is obtained.
[374] Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA). See also Schulze (2009) 396 for a discussion
of the SCA decision.
[375] Act 58 of 1962.
[376] Pestana v Nedbank Ltd (WLD) unreported case no 04/27732 (29 May 2005). See also
Schulze (2007) 379.
[377] Pestana v Nedbank Ltd 2008 (3) SA 466 (W) criticised by Schulze (2008) 290. See also
Schulze (2007) 379. But see contra Sonnekus 348 and Du Toit (2009) 1. Du Toit (at 20) submits that
there is no ground upon which the bank would be entitled to unilaterally reverse a credit without the
intervention of a court. As in the case of certified cheques, the court should be approached before
reversal of the credit.
[378] Pestana v Nedbank Ltd 2008 (3) SA 466 (W) paras 13-14.
[379] See Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA) para 9. The Appeal Court (para 8) also
referred to Standard Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (In Liquidation) 1998
(1) SA 811 (SCA) 823 where Zulman JA provided the following examples: ‘[I]f a customer deposits a
cheque into its bank account, the bank would upon receiving the deposit pass a credit entry to that
customer’s account. If it is established that the drawer’s signature has been forged it cannot be
suggested that the bank would be precluded from reversing the credit entry previously made. So,
too, if a customer deposits bank notes into its account the bank would similarly pass a credit entry in
respect thereof. If it subsequently transpires that the bank notes were forgeries it can again not be
successfully contended that the bank would be precluded from reversing the credit entry.’
[380] Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA) para 9. In Take & Save Trading CC v
Standard Bank of SA Ltd 2004 (4) SA 1 (SCA) para 17 Harms JA made the following obiter remark:
‘[H]ow can a bank retransfer an amount transferred by A into the account of B back into the account
of A without the concurrence of B? [Counsel] could not suggest any ground on which this can be
done; there simply is none. Once transferred, the money or credit belongs to B and the bank has to
keep it at B’s disposal.’ See also Nissan South Africa (Pty) Ltd v Marnitz NO 2005 (1) SA 441 (SCA)
para 22 where Streicher JA interpreted Harms JA’s remark as follows: ‘Harms JA said that once an
amount is transferred by A to the credit of B’s bank account, the credit belongs to B and the bank
cannot, on the instructions of A, retransfer it without the concurrence of B. The statement must be
read in its context. The court was dealing with a valid transfer of funds from A’s account to B’s
account in payment of cigarettes to be delivered and actually delivered after such transfer, the
transfer could obviously not be reversed without B’s consent’ (own emphasis). See also Schulze
(2004(2)) 675 et seq for a discussion of the Take & Save Trading and Nissan cases.
[381] Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA) para 10. In this regard Schulze (2009) 401
suggests that the decision by the SCA has therefore not shut the door for a future court to hold that a
credit transfer can be reversed in certain circumstances, eg where there was a suggestion of fraud in
respect of the transfer of money. In Absa Bank Ltd v Lombard Insurance Co Ltd 2012 (6) SA 569 the
SCA confirmed the correctness of its statement regarding the validity of a reversal in certain
instances. However, the SCA found that the issue in Lombard ‘was simply not addressed in Pestana’
(para 15). Lombard dealt with the issue whether a bank may use funds it received from a client who
fraudulently obtained the funds to discharge the debts of the client towards the bank (see C Pretorius
589). The facts were briefly that the fraudster (M) and client of the two appellant banks (FNB and
Absa) caused the respondent (L) to transfer funds from L’s bank account to M’s current account with
FNB. The credit transfer extinguished the debit balance on that account and left it in credit.
Subsequently M made further transfers from her FNB current account to her credit card and home
loan accounts with FNB, extinguishing the debit in the credit card account and reducing the amount in
the home loan account. M furthermore also transferred funds to her current account at Absa,
extinguishing its debit balance, and leaving it in credit. From this account she made a further transfer
to her credit card account with Absa and thus also extinguished its debit balance. According to Malan
JA, delivering the unanimous judgment of the SCA, the issue in Lombard was whether receipt of the
stolen funds by the appellant banks operated as a discharge of M’s respective debts to them (para 9).
L, relying on the condictio ob turpem vel iniustam causam, successfully applied to the High Court for
the return of the stolen amounts. On appeal by FNB and Absa, L argued that the banks were enriched
as the funds discharged M’s debts. The banks relied on the defence of suum recipit, ie that there can
be no enrichment as they received what was due to them (para 16). The SCA found for the banks and
held that the banks had not been enriched by the receipt of the funds as their position remained the
same. According to the court M was in actual fact enriched as L’s funds were used to discharge M’s
debts. The court furthermore held that the debt-extinguishing agreements between M and the banks
were valid. Although such agreements could not be contra bonos mores, and would thus be invalid
where both parties knew stolen money would be used to discharge the debt, the banks, in casu were
bona fide and unaware of the fact that the funds were obtained through fraud or theft. See further C
Pretorius 603 et seq where the author argues in favour of enrichment liability on the part of the banks
in appropriate instances. The author concludes (at 604) ‘that the legal position as set out
in Lombard could potentially benefit by requiring that the bank (as creditor) should only be legally
permitted to retain stolen money to discharge the debt of its customer (as debtor) where the bank’s
belief in the legitimacy of — and its consequent entitlement to — the funds is reasonable. Merely to
require subjective good faith on the part of the bank in such circumstances could have the unintended
effect of sanctioning criminal activity such as fraud, theft and money laundering. It also favours the
position of the bank above that of the true owner who has illegally and unlawfully been divested of his
property. Requiring reasonable belief on the part of the bank may not altogether relieve the position
of the true owner, but perhaps an objective qualification in terms of which the conduct of the bank is
evaluated will provide a better compromise. Such an approach, while not discounting the need for
certainty in such matters, appears to balance the interests of the parties more evenly’. See also
Lawack & Pretorius 112-13. Referring to the facts in Lombard that the fraudster was clearly heavily
indebted, the authors argue (at 112) as follows: ‘Surely when millions of Rands unexpectedly poured
into these accounts, converting debits into substantial credits, the bank’s suspicions as to the source
of these windfalls should reasonably have been raised? In the absence of any enquiries by the banks,
it may be questioned whether their reliance on the legitimacy of the funds and their right to them was
reasonable and, consequently, argued that at least the potential for unjustified enrichment arose in
the circumstances.’ The authors conclude (at 115) that it might be argued that there is a duty on
banks to monitor bank accounts especially if there is some ground to suspect ‘irregular’ or out of the
extraordinary movements in the bank account. See further regarding the enrichment issue, the
decision in Trustees, Estate Whitehead v Dumas 2013 (3) SA 331 (SCA), which dealt with the right of
an investor in a pyramid scheme to reclaim the money he paid into the bank account of the operator
of the scheme with an enrichment action after the operator’s sequestration and see also the
discussion of this case by Pretorius & Seanego 512.
[382] Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA) paras 15-17.
[383] Schulze (2004(1)) 57.
[384] See also Meiring (1987) 116.
[385] Meiring (1987) 118.
[386] Schulze (2004(2)) 670. See also Malan & Pretorius (2007) 21.
[387] Malan & Pretorius (2007). See also Schulze (2007) 387 making an appeal to the South
African banking industry to introduce a Code of Conduct which would regulate the use of electronic
fund transfer systems.
[388] Lawack-Davids & Marx 457.
[389] Act 78 of 1998.
[390] Schulze (2004(1)) 60.
[391] See PASA Media Statement: Cheque Item Limit Reduction (5 December 2011) Category: Ad
Hoc News, available at https://www.resbank.co.za (last visited: 17 September 2015).
[392] Schulze (2004(1)) 64.
[393] Act 25 of 2002.
[394] See s 42 of the ECT Act.
[395] This is in contrast with the position in, for example, the USA, where legislation has been
enacted to regulate the issuance and use of these electronic methods of payment: Schulze (2004(1))
58; Schulze (2004(2)) 670. However, in the UK, there is no all-embracing statutory regime governing
the electronic transfer of funds: Paget para 17.144. In the USA consumer transactions are regulated
by the federal Electronic Funds Transfer Act (15 USC s 1693) enacted in 1978 and Regulation E that
implements it. Electronic funds transfers that are not covered by this Act, ie wholesale transfers
between corporations and financial institutions, are regulated by art 4A of the Uniform Commercial
Code, where it has been adopted as state law: Paget para 17.146. See generally with regard to the
USA legislation Geva (1992) § 6.03 and 2.02 et seq; Geva (1997(1)) 21 et seq and Geva (1997(2))
198 et seq. See also Paget para 17.147 et seq with regard to European Union initiatives pertaining to
electronic payment systems and cross-border financial transactions. These measures have mostly
been in the area of consumer protection.
[396] An ‘electronic transaction’ is not defined in the ECT Act, but a ‘transaction’ is defined as a
transaction of either a commercial or non-commercial nature which includes the provision of
information and e-government services. In the light of the definitions of ‘electronic agent’, ‘electronic
communication’ or ‘electronic signature’, with data as the common denominator, Nagel, Roestoff &
Papadopoulos para 32.74 suggest that an ‘electronic transaction’ will be a transaction where the use
of data, or electronic representations of information, is an essential element of the commercial or
non-commercial transaction.
[397] Section 1 defines ‘data’ as ‘electronic representations of information in any form’.
[398] Section 4(1). Section 1 defines ‘data message’ as ‘data generated, sent, received or stored
by electronic means and includes (a) voice, where the voice is used in an automated transaction;
and (b) a stored record’.
[399] Section 2(1)(e).
[400] Section 2(1)(j).
[401] Section 2(1)(m).
[402] Sections 11-20.
[403] Section 21.
[404] Further to s 11, s 22(1) confirms that a valid agreement will come into existence when
concluded partly or in whole by means of data messages: Nagel, Roestoff & Papadopoulos para
32.76.
[406] Section 11(1); Moorcroft para 20.8.
[407] Section 11(2).
[408] See also Nagel, Roestoff & Papadopoulos para 32.77.
[409] Section 1.
[410] Section 1 defines ‘electronic agent’ as ‘a computer program or an electronic or other
automated means used independently to initiate an action or respond to data messages or
performances in whole or in part, in an automated transaction’.
[411] Section 20(a).
[412] Section 20(b).
[413] Section 20(c).
[414] Section 20(d).
[415] Section 20(e)(i).
[416] Section 20(e)(ii).
[417] Section 20(e)(iii).
[418] Section 20(e)(iv).
[419] Sections 42-49.
[420] Section 42(1).
[421] See Nagel, Roestoff & Papadopoulos para 32.80.
[422] The ECT Act does not explicitly deal with the crime of phishing. However as it involves
internet fraud, Cassim 415 suggests that it is addressed by ss 86 and 87. Section 86 provides, inter
alia, that a person who intentionally accesses or intercepts any data without authority to do so, is
guilty of an offence. Section 87 addresses computer-related fraud and forgery and in this regard
provides that a person who performs any of the acts in terms of s 86 for the purpose of obtaining any
unlawful advantage by causing fake data to be produced with the intent that it be considered or acted
upon as if it were authentic, is guilty of an offence: s 86(2). Section 89 addresses the penalties that
may be imposed on conviction of offences in terms of ss 86 and 87.
[423] That is, if the bank can be regarded as a ‘supplier’ in terms of the ECT Act. It should be noted
that the ECT Act does not define the term ‘supplier’.
[424] The EFT Act does not define the term ‘payment system’. It is therefore uncertain whether s
43(5) would apply to the situation where an EFT transfer is effected to a third party (and not to the
supplier of the services) by utilising a bank’s internet banking services. According to Buys & Cronjé
149 this section refers not only to systems that effect online credit card payments but also to debit
card payments, e-cash redemption and debit orders confirmed electronically. However, the authors
do not mention internet EFT transfers.
[425] Nagel, Roestoff & Papadopoulos paras 32.85-86. See also Lawack-Davids & Marx 455.
[426] See s 43(1)(a)-(r).
[427] Section 43(2).
[428] Malan, Pretorius & Du Toit para 208; Schulze (2004(1)) 59; Paget para 17.152.
[429] Act 68 of 2008.
[430] Act 37 of 2002.
[431] Act 52 of 1998.
[432] Act 53 of 1998. See the definition of ‘service’ in s 1(c) of the CPA. See also Lawack-Davids &
Marx 456.
[433] See eg ss 48-52 providing for the consumer’s right to fair, just and reasonable terms and
conditions. See also Lawack-Davids & Marx 456; Nagel, Roestoff & Papadopoulos para 32.90.
[434] See s 22.
[435] Act 4 of 2013.
[436] The provisions regarding the office of the Information Regulator (see ss 1 and 39-54) and the
issuing of regulations (see ss 112-113) are already in effect: Proclamation No R25 in GG 37544 of 11
April 2014.
[437] See s 1 for the definitions of ‘personal information’ and ‘processing’.
[438] Section 114.
[439] Ie, ‘a public or private body or any other person which, alone or in conjunction with other,
determines the purpose of and means for processing personal information’: see s 1.
[440] Ie, the persons to whom personal information relates: s 1.
[441] See s 7.
[442] See ss 73-99.
[443] Section 2.
[444] They are ‘accountability’ in terms of s 8; ‘processing limitation’ in terms of ss 9-12; ‘purpose
specification’ in terms of ss 13 and 14; ‘further processing limitation’ in terms of s 15; ‘information
quality’ in terms of s 16; ‘openness’ in terms of ss 17-18; ‘security safeguards’ in terms of ss 19-22;
and ‘data subject participation’ in terms of ss 23-25: see s 4.
[445] See Nagel, Roestoff & Papadopolous para 32.93.
[446] Section 19(1). Where the information is processed by an operator or person acting under
authority, such operator or person is obliged to ensure that the information is processed with the
knowledge of the responsible party and that it is kept confidential. The responsible party must, in
terms of a written contract with the operator, ensure that the operator establishes and maintains the
security measures referred to in s 19(2): see ss 20 and 21. An ‘operator’ is ‘a person who processes
personal information for a responsible party in terms of a contract or mandate, without coming under
the direct authority of that party’: s 1.
[447] Section 19(2).
[448] Section 19(3).
[449] Notification is not required where the identity of the data subject cannot be established (s
22(1)). The responsible party is entitled to delay notification where the Regulator or relevant public
body made a determination that notification will impede a criminal investigation by such public body:
s 22(3). Notification must be made as soon as reasonably possible after discovery of the compromise,
taking into account the needs of law enforcement or any measures reasonably necessary to
determine the scope of the compromise and to restore the integrity of the responsible party’s
information system: s 22(2). The notification must be in writing and communicated to the data
subject by mail to the data subject’s last known physical or postal address, by e-mail to the data
subject’s last known e-mail address, by placing it in a prominent position on the responsible party’s
website, by publishing it in the news media or in any way as may be directed by the Regulator: s
22(4). In terms of s 22(5) the notification must provide sufficient information to allow the data
subject to take the necessary protective measures, including a description of the possible
consequences of the security compromise and the measures the responsible party intends to take or
has taken to address the security compromise. The notification must also include a recommendation
regarding the measures to be taken by the data subject to mitigate the adverse effects of the
compromise, and if known, the identity of the unauthorised person who accessed the personal
information. The Regulator may also direct a responsible party to publicise the fact of a security
compromise if there are reasonable grounds for believing that it would protect a data subject who
may be affected by the compromise: s 22(6).
[450] See s 73(a) and in general also a breach of condition 7 pertaining to security safeguards: s
73(b).
[451] Section 99. The data subject need not prove intent or negligence on the part of the
responsible party. See Nagel, Roestoff & Papadopolous para 32.100.
[452] The contravention must be of a serious or persistent nature and likely to cause substantial
damage or distress to the data subject: s 105(2).
[453] An ‘account number’ is any unique identifier that has been assigned to one data subject only,
or jointly to more than one data subject by a financial institution or other institution which enables
the data subject or subjects to access funds or credit facilities: s 105(5). A ‘unique identifier’ is ‘any
identifier that is assigned to a data subject and is used by a responsible party for the purposes of the
operations of that responsible party and that uniquely identifies that data subject in relation to that
responsible party’: s 1.
[454] Section 105(1) read with s 8. A person convicted of an offence in terms of s 105(1) is liable
to a fine or to imprisonment for a period not exceeding 10 years, or to both such fine and such
imprisonment: s 107(a). See also s 109 regarding administrative fines in respect of offences
committed in terms of the Act.
[455] Section 105(3). It is a valid defence for the responsible party to contend that he or she has
taken all reasonable steps to comply with the provisions of s 8: s 105(4).
[456] For a comparative investigation regarding measures aimed at curbing phishing and other
scams: see Cassim 411 et seq.
[457] The offence created by s 106 therefore does not merely cover fraudulent conduct in respect
of the obtaining and disclosure of the account number. See Nagel, Roestoff & Papapolous para
32.108.
[458] Section 106(1). It is a valid defence to contend that the obtaining, disclosure or procuring of
the account number was necessary for the purpose of the prevention, detection, investigation or
proof of an offence or that it was required or authorised in terms of the law or a court order, or where
the third party acted in the reasonable belief that he or she was legally entitled to obtain, disclose or
procure the account number or that consent was given or that it was in the public interest: s 106(2).
A person who sells or offers to sell an account number that he or she has obtained in contravention of
s 106(1) is also guilty of an offence: s 106(3)-(5). A person convicted of an offence in terms of s
106(1) is liable to a fine or to imprisonment for a period not exceeding 10 years, or to both such fine
and such imprisonment: s 107(a). See also s 109 regarding administrative fines in respect of offences
committed in terms of the Act.
[459] Visser (1989) 204.
[460] See in general Paget para 17.50 et seq; Ellinger, Lomnicka & Hare 569-71; Moorcroft paras
20.4-20.6; Lawack-Davids Thesis 194 et seq.
[461] Paget paras 17.50-17.51. Ellinger, Lomnicka & Hare 569. Moorcroft para 20.4 n 17 points out
that it is important to identify the law applicable in accordance with the principles of private
international law: see in this regard Du Toit (2006) 53.
[462] This view is followed in some continental legal systems such as France: Paget para 17.52.
[463] This is the traditional approach followed by art 4A of the Uniform Commercial Code: Paget
para 17.52.
[464] See further in respect of onshore and offshore transfers: Paget paras 17.53-17.59.
[465] Vroegop 79. The system enables payment instructions and related messages, including
statements, foreign exchange and money market confirmations, collections, documentary credits,
interbank securities, trading and balance reporting to be transmitted between members and other
users all over the world: Paget para 17.61. SWIFT is merely a messaging system. It does not have a
settlement component: Ellinger, Lomnicka & Hare 570. For more detail regarding SWIFT payments
and SWIFT see Volker 78 et seq and 336 et seq.
[466] Banks, eligible securities broker-dealers and third-party investment management institutions:
Paget para 17.61.
[467] Paget para 17.64.
[468] Paget paras 17.65-17.66.
[469] Paget paras 17.61 and 17.64. Ellinger, Lomnicka & Hare 590.
[470] Visser (1989) 197; Schulze (2004(3)) 703 et seq; Volker 116 et seq. See also Sealy & Hooley
778 et seq and Ellinger, Lomnica & Hare 649 et seq regarding the main types of payment cards in
general circulation in the UK.
[471] Also called ‘travel and entertainment cards’: Ellinger, Lomnicka & Hare 650, or ‘special
organisation cards’: Visser (1989) 197.
[472] Lawack-Davids Thesis 172; Cornelius 154.
[473] However, it should be noted that a credit card may also be utilised in an EFTPOS transaction:
see para 7.3.3 above.
[475] Schulze (2004(3)) 704 and see the discussion in para 7.2.1 above.
[477] See the discussion in para 7.3.3 (iv) above.
[478] Schulze (2004(3)) 704.
[479] See with regard to the legal aspects of credit cards in general Smith 107; Stassen Thesis 134
and Stassen (1978(1)), (1978(2)), (1978(3)), (1978(4)) and (1979(1)); Stassen & Meiring 28; Van
Jaarsveld & Oosthuizen 140 et seq; Nagel, Roestoff & Papadopoulos para 32.35 et seq;
Schulze Commercial Law 416 et seq; Lawack-Davids Thesis 171 et seq; Van Jaarsveld 92; Cornelius
153; Schulze (2005) 202.
[480] Visser (1989) 197.
[481] Nagel, Roestoff & Papadopoulos paras 32.41-32.42.
[482] Van Jaarsveld 95.
[483] Thus, in some ways, debit cards are the modern equivalent of cheques as they give the
customer direct access to his bank account: Ellinger, Lomnicka & Hare 651; Sealy & Hooley 778.
[484] See Stassen Thesis 22 et seq regarding the economic functions of a credit card.
[485] In the case of a credit card which is a so-called ‘charge card’ the cardholder is expected to
settle his account in full within a period specified on the monthly statement sent to him by the card
issuer: Ellinger, Lomnicka & Hare 650; Sealy & Hooley 778.
[487] Nagel, Roestoff & Papadopoulos para 32.43. See in general with regard to online card
payments Buys & Cronjé ch 15.
[488] Stassen & Meiring 34.
[489] Stassen (1978(1)); Van Jaarsveld 94 and 99.
[490] Van Jaarsveld & Oosthuizen 146 et seq; Nagel, Roestoff & Papadopoulos paras 32.37-39;
Smith 116; Stassen Thesis 26 et seq; Cornelius 155; Van der Bijl (2007) 334. With a cession scheme,
by contrast, the contract between the card issuer and supplier provides for the ‘sale’ or cession of its
personal right against the cardholder to the credit card issuer in return for a percentage of the
amount: Van Jaarsveld & Oosthuizen 146; Smith 114; Stassen Thesis 27 and 172 et seq; Cornelius
155. In Western Bank Ltd v Registrar of Financial Institutions 1975 (4) SA 37 (T) at 47 and 52 the
court came to the conclusion that because of such cession the credit transaction in casu was not a
money-lending transaction and therefore not subject to the now repealed Limitation and Disclosure of
Finance Charges Act 73 of 1968. This Act, which was renamed in 1986 as the Usury Act was repealed
by s 172(4) of the NCA. In terms of s 8 of the NCA a ‘credit facility’, for example a credit card
transaction, is regarded as a ‘credit agreement’ in terms of the NCA and would therefore be subject to
the NCA.
[491] Van der Bijl (2007) 334.
[492] See the discussion of the ECT Act and the CPA in para 7.3.5 above.
[493] Act 34 of 2005.
[494] See s 105 of the NCA.
[495] Otto & Otto 20; Scholtz et al para 4-1.
[496] See s 8(1)(a).
[497] Scholtz et al para 8.2.2. A credit card transaction is not an ‘incidental credit agreement’ in
terms of s 1. The definition refers to ‘an account [which] was tendered for goods or services that
have been provided’. According to Otto & Otto 22 ‘[t]he issuer of a credit card (for example a bank)
renders an account for credit the bank has extended to the consumer by paying his debt owed to the
supplier of goods or services. The account is not “tendered” by the bank for the goods or services as
such, nor does the supplier of the goods or services submit an account. He receives his payment from
the bank by virtue of the credit card used by the consumer to effect payment.’ See also Scholtz et al
para 8.2.3.3.
[498] That is, the issuer of the card, which is usually a bank.
[499] That is, the amount of the purchases made by the credit card holder.
[500] That is, to the supplier of the goods or services. See s 8(3)(a)(i).
[501] Section 8(3)(a)(ii)(aa).
[502] Section 8(3)(b)(i).
[503] Including bipartite credit card schemes: Van der Bijl (2007) 335; Nagel, Roestoff &
Papadopoulos para 32.35.
[504] Schulze Commercial Law 418; Van der Bijl (2007) 335.
[505] See s 81(2).
[506] See ss 86 and 87 of the NCA.
[507] Section 74(1). In terms of s 89(1)(b) such agreement will be unlawful.
[508] Section 74(2). Such provision will be unlawful in terms of s 90(1) of the Act.
[509] Section 119(a)-(c), (4) and (5)(a). See also Van der Bijl (2007) 335.
[510] Stassen Thesis 28 et seq; Van Jaarsveld & Oosthuizen 147 et seq; Lawack-Davids Thesis 172
et seq; Schulze Commercial Law 419 et seq; Van Jaarsveld 101 et seq; Van der Bijl (2007) 334.
[511] Cornelius 154 points out that the three-party credit card usually involves a fourth
relationship, as the issuing bank usually issues credit cards under licence from a confirming agency,
for example American Express, Diner’s Club, MasterCard or Visa.
[512] Cornelius 164 does not regard these legal relationships as separate bilateral relationships. He
submits that the various parties all take part in the same credit card scheme and are accordingly
involved in a single multilateral contractual relationship.
[515] For example, that the supplier has obtained authorisation if the price is over a specified
ceiling: Sealy & Hooley 793.
[516] Stassen (1978(3)) 13.
[517] Van Jaarsveld & Oosthuizen 147.
[518] See Cornelius 165 et seq. Suppliers often advertise their willingness to accept payment by
credit card in the media or by displaying credit card promotion material on their business premises.
Stassen (1978(3)) 13, Stassen (1978(5)) 143 suggests that such advertisement constitutes an offer
by the suppliers to all cardholders. A cardholder who therefore presents a credit card for payment
accepts such offer and the supplier is obliged to accept such payment. The correctness of this
viewpoint is to be questioned. As Cornelius indicates, it is not certain that advertisements of this
nature can be regarded as offers, as opposed to invitations to do business, despite Stassen’s
allegation to the contrary. Moreover, if it indeed constituted an offer, a supplier would, in the absence
of fraud, be obliged to accept payment by credit card, even if all the requirements in terms of the
contracts between the credit card issuer and the supplier and between the credit card issuer and the
cardholder, have not been complied with.
[519] Paget paras 16.6-16.7 and Re Charge Card Service Ltd [1988] 3 All ER 702 (CA) 707 et seq.
[520] See Moorcroft para 20.10.
[521] Stassen Thesis 31 et seq; Stassen (1978(5)) 137 et seq; Stassen (1978(4)) 35 and 37;
Stassen (1979) 184-5. See also Van Jaarsveld & Oosthuizen 148; Schulze Commercial Law 420;
Lawack-Davids Thesis 173 and 175 et seq; Van der Bijl (2007) 334.
[522] Stassen Thesis 159 et seq refers to payment by credit card as a non-novating delegation.
See also Van Jaarsveld & Oosthuizen 149 n 55. Cornelius 164 criticises this viewpoint. According to
the author, delegation necessarily involves novation as a so-called delegation without novation
merely amounts to a mandate to pay.
[523] Moorcroft para 20.10 argues as follows: ‘In the absence of an agreement to the contrary . . .
the supplier’s acceptance of credit-card payment is conditional upon two events the fulfilment of
either of which discharges the card user. First, should the card issuer pay the supplier, the first
condition is fulfilled and the debt discharged. Second, when the card user (the client of the bank who
is also the client of the supplier) pays the card issuer the amount due to the supplier in terms of his
agreement with the card issuer his debt is also discharged, the second condition is fulfilled, and he
cannot be expected to pay the same amount twice. After all, the client is entitled to pay the debt to
the card issuer in the belief that the supplier will look to the issuer for payment as there is a
contractual nexus between the supplier and the issuer in terms of which the issuer should pay the
underlying debt.’
[524] Cornelius 167-8.
[525] For example, the card must be valid, the credit limit must not be exceeded, the signature on
the transaction slip must correspond with that on the card and the card must not be listed as being
lost or stolen: Cornelius 168 n 76.
[526] Cornelius 171.
[527] Moorcroft para 20.11 and see Diners Club SA (Pty) Ltd v Singh 2004 (3) SA 630 (D) at 658-9
where the court held with regard to unauthorised ATM withdrawals that a clause in a contract was not
contra bonos mores where it held the cardholder liable irrespective of who made use of the PIN. See
also Schulze (2005) 205 et seq for a discussion of this case.
[528] Stassen & Meiring 38; Van Jaarsveld & Oosthuizen 150; Nagel, Roestoff & Papadopoulos para
32.46; Schulze Commercial Law 420. See also Van der Bijl (2007) for a discussion of the position
relating to the allocation of the risk where cloned credit cards have been used.
[529] See s 94(2).
[530] Section 94(1).
[531] Section 94(2). See Schulze Commercial Law 420. See also Van der Bijl (2007) 336. The
author points out that the implementation of the EMV (Europay, Mastercard and Visa) system could
thus be problematic as the use of this system eliminates the need for the signing of transaction slips
and evidence as to whether the consumer signed for the transaction would therefore be wanting.
[532] See in general with regard to ‘chargebacks’ Buys & Cronjé 370.
[533] Nagel, Roestoff & Papadopoulos para 32.24; Lawack-Davids & Marx 446.
Page 317
Chapter 8
Unauthorised cheque payments and
electronic funds transfers
Corlia van Heerden
8.1
Introduction
8.2
Unauthorised cheque payments
8.2.1
Payment without a mandate
8.2.2
Failure to observe the terms of the mandate
8.2.3
Recovery of unauthorised payments
8.3
Unauthorised electronic funds transfers
8.3.1
Introduction
8.3.2
Payment without mandate
8.3.3
Payment contrary to mandate
8.3.4
Recovery of unauthorised electronic funds transfers
List of works cited
8.1 Introduction
The nature of the bank-customer relationship and the various duties of the parties to
this relationship have been dealt with extensively in Chapter 4. This chapter
considers the rights of the bank and the parties in situations where payment by the
bank is unauthorised, either because the bank is not mandated to make such
payment or because payment is effected contrary to the terms of the mandate
between the bank and its customer. The position regarding unauthorised payments
in respect of cheques is considered first, followed by a discussion of unauthorised
payments by means of an electronic funds transfer. [1] The liability of the collecting
bank in the context of cheques and that of the beneficiary bank in the context of
electronic payments will also be considered.
8.2 Unauthorised cheque payments

8.2.1 Payment without a mandate
(i) Drawer’s signature forged or unauthorised
In the case of a current account, there is a general mandate which provides that the
bank will accept and pay cheques drawn upon it, on demand, [2] subject to the
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customer having sufficient funds in, or overdraft facilities attaching to, his current
account. [3] The cheque must, however, be valid and payment thereof
authorised. [4] Only when payment has been validly made to the holder of a cheque
with the required degree of care may the bank debit the current account of its client
with the amount of the cheque. [5] However, a cheque does not constitute the
customer’s mandate if his signature on the instrument has been forged or appended
without his authority. [6] This applies even if the forgery is an extremely skilful one
and cannot be recognised. [7]
A customer owes a contractual duty to his bank to draw his cheques with
reasonable care in order to prevent forgery or alteration that could mislead the
bank. [8] Thus, unless a customer draws a cheque without reasonable care as a
result of which the customer ‘facilitates’ subsequent deception and loss, the drawee
bank cannot debit its customer’s account with the amount of a cheque on which the
signature was forged or unauthorised. [9] Generally, in English and South African
law, the customer has no duty to take reasonable precautions in the management of
his business with the bank to prevent forged cheques from being presented to the
drawee bank for payment, nor is he obliged to check periodic bank statements to
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enable him to notify the bank of unauthorised debit items. [10] However, the Bills of
Exchange Amendment Act (hereinafter called the BEA Amendment
Act) [11] introduced s 72B, [12] which imposes a ‘radical’ duty on certain selective
customers of a bank, for example companies, who are required to have their
financial statements audited or who are obliged to appoint an accounting
officer, [13] to exercise ‘reasonable care in the custody of cheque forms and in the
reconciliation of its bank statements’. [14] Also, if a customer knows or suspects that
his signature as drawer on a cheque has been forged, the customer must timeously
inform the drawee bank of this fact or suspicion, failing which he will have to bear
any loss which may flow from the forgery. [15]
Section 22 of the Bills of Exchange Act (BEA) specifically addresses the position
with regard to forged or unauthorised signatures. [16] It provides that, if a signature
on a bill is forged or placed thereon without the authority of the person whose
signature it purports to be, such signature is wholly inoperative. Consequently no
right to retain the bill or give a discharge therefor or to enforce payment thereof
against any party thereto can be acquired through or under that signature, unless
the party against whom it is sought to retain or enforce payment of the bill is
precluded from ‘setting up the forgery or want of authority’. Section 22, however,
contains a proviso that nothing contained in the said section shall affect the
ratification of an unauthorised signature not amounting to forgery.
Malan, Pretorius and Du Toit remark that although there are some exceptions to
the rule that a forged or unauthorised signature is inoperative, the rule is firmly
embedded in English and South African law. [17] The rule, as contained in s 22 of the
BEA, basically entails that no one who acquires a bill through a forged or
unauthorised indorsement can be a holder. [18] It is therefore not possible to make a
payment to such a person in due course [19] nor can the person whose signature is
forged or unauthorised be held liable on the instrument (unless he is precluded from
relying on the forged or unauthorised signature). [20]
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A forged signature differs from an unauthorised signature: in the case of a forged
signature a person imitates the signature of another with the intention to deceive or
defraud whereas with an unauthorised signature a person signs a cheque on behalf
of another without his consent or authority. In accordance with the proviso to s 22 it
is possible to ratify an unauthorised signature. A forged signature cannot be ratified
because the forger does not profess to act on behalf of the person whose signature
is forged. [21] With regard to an unauthorised signature, the legal position is that one
person can bind another only if he is authorised to do so. Such authorisation,
however, is a question of fact which has to be determined with reference to the facts
of the particular case. [22]
The words ‘unless the party against whom it is sought to retain or enforce
payment of the bill is precluded from setting up the forgery or want of authority’ in s
22 indicate that the customer may in certain instances be estopped from denying
vis-à-vis the bank that his signature is genuine: for example if he knew that it had
been forged and failed to warn the bank of the forgery within a reasonable
time. [23] Malan, Pretorius and Du Toit point out that by adopting or confirming the
forgery the person whose signature is forged represents it to be genuine and he can,
for that reason, be estopped from denying its genuineness. [24] Another example
where a person can be estopped from relying on a forged or unauthorised signature
on a bill is contained in s 53(2)(b) of the BEA, which provides that the indorser of a
bill, by indorsing it, is precluded from denying to a holder in due course the
genuineness and regularity in all respects of the drawer’s signature and all previous
indorsements. [25]
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Estoppel can also be raised in respect of the lack of authority of an agent. This
will occur where the principal, [26] and not the authorised agent, [27] by words or
conduct that can reasonably be expected to mislead, [28] represents that the agent
has authority to act on his behalf and the representee acts on this
misrepresentation. [29] A company can also be estopped from denying the ostensible
authority of an agent
Page 322
although it cannot be estopped if its articles of association (now memorandum of
incorporation) prohibit or disallow the granting of a particular authority. [30]
If a forged or unauthorised cheque is indeed paid out in circumstances where the
proviso to s 22 does not apply, the bank acts without a mandate or authority and
cannot debit the customer’s account with the amount of the cheque. [31] Malan,
Pretorius and Du Toit indicate that although it is possible to vary the terms of the
bank and customer contract in such a way that the bank is entitled to debit its
customer’s account even if payment has not been made to a holder or the
customer’s signature on a cheque is forged or unauthorised, such terms are not
customary to South African banking practice. [32]
With regard to the onus of proof in the context of a forged or unauthorised
signature, it has been held that the genuineness of a signature or the authority
under which it is made must be proved by the party alleging it. [33]
Thus, where the signature on a cheque is forged or unauthorised and the drawee
bank is not able to escape liability on the basis of estoppel or ratification (which
applies to unauthorised signatures only) or the fact that the customer drew the
cheque in a negligent manner, which was the proximate cause of the forgery and
loss, the drawee bank will not be able to debit its customer’s account and the bank
will have to bear the loss. However, the drawee bank may possibly be able to
recover its loss from the payee or thief who forged the signature or from the person
who appended the unauthorised signature on the basis of unjustified enrichment
provided that the requirements to prove such a claim are met. [34]
(ii) Payment countermanded

A cheque ceases to represent the customer’s mandate once
he effectively countermands payment on it. [35] Section 73 of the BEA Amendment
Act codified the requirements for an effective countermand, namely that notice must
be given to the branch of the drawee bank upon which the cheque is drawn, it must
refer unequivocally to the cheque that is being countermanded and it must
timeously
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come to the notice of the drawee bank. [36] When a cheque has been countermanded
the duty to pay is replaced by the duty to refuse payment. [37] If the bank pays the
cheque after the effective countermand thereof it is not entitled to debit the
customer’s account unless there is an indemnity clause operating in its favour
entitling it to do so. [38] A drawee bank may thus contract validly that, if it
inadvertently pays a countermanded cheque, it may nevertheless debit the account
of the drawer with the amount of the paid cheque. [39]
The onus of proof that a cheque has been effectively countermanded rests on the
drawer of the cheque. [40]
Where a drawee bank has paid out a cheque despite its being effectively
countermanded the loss falls on the bank and may be recovered from the bank’s
customer (whose debt has been extinguished) or in certain instances from the payee
(such as where a cheque did not serve to extinguish a debt) on the basis of
unjustified enrichment provided that the requirements for such a claim are met. [41]
8.2.2 Failure to observe the terms of the mandate

(i) Payment to a non-holder
The mandate arising from a cheque directs the drawee bank to make payment in
due course. [42] ‘Payment in due course’ means payment made at or after the
maturity of a bill to the holder in good faith and, if the holder’s title to the bill is
defective, without notice thereof. [43] In the case of a bearer instrument, including a
cheque with a fictitious payee or indorsee, the bank is required to pay anyone in
possession of the cheque. [44] Where the cheque is payable to order, the bank is
directed to pay the payee or last indorsee. [45] In principle, if the drawee bank pays
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anyone other than the holder, it cannot debit the drawer’s account. [46] However, as
pointed out by Sharrock and Kidd, the BEA makes a number of inroads into this
general rule in order to protect banks. [47]
(a) Forged or unauthorised indorsement

Sections 58 and 79 of the BEA protect a bank where it pays a party who took the
instrument through a forged or unauthorised indorsement [48] and who therefore
does not qualify as the holder. [49] Section 58 applies to cheques generally (crossed
and uncrossed) and s 79 applies to crossed cheques. [50] The rationale for the
protection is that the drawee bank should be afforded some measure of protection
as the indorser would usually not be its client, with the result that the drawee bank
would not be able to verify the indorser’s signature against its records.
The protection afforded by section 58 of the BEA
Section 58 of the BEA provides that if a drawee bank pays a cheque payable to order
on demand in good faith and in the ordinary course of business it is not incumbent
upon such bank to show that the indorsement of the payee or any subsequent
indorsement was made by or under the authority of the person whose indorsement
it purports to be. In such instance the banker is deemed to have paid the cheque in
due course, although such indorsement has been forged or made without authority
provided, however, that such indorsement does not purport to be that of a person
who is a customer of the banker at the branch on which the said bill is drawn.
Malan, Pretorius and Du Toit indicate that the English precedents of s 58
protected the drawee bank against liability to the true owner for
conversion. [51] They point out that although liability for conversion is not part of
South African law, the section may nevertheless have a useful function in our law as
they submit that it provides a ground of justification for protecting the drawee bank
against possible Aquilian liability for negligence against the owner of a lost or stolen
cheque. [52]
The provisions of s 58 are implied by law in the bank and customer
contract. [53] As indicated, s 58 protects the bank in the circumstances set forth
therein by providing that the payment is ‘deemed’ to have been made in ‘due
course’. [54] The legislature intended the same consequences to follow a payment in
terms of s 58 as would have been the case if the payment had actually been made
in due course, meaning that where the drawee bank pays a cheque in the
circumstances provided
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for by s 58, the bank will be deemed to have complied with its contractual
obligations vis-à-vis its customer. [55]
The prerequisites for application of s 58 are the following:
(a)
The cheque concerned must be an order cheque.
(b)
The forged or unauthorised signature through which payment was obtained
must be that of an indorser (not the drawer) and must have been appended
as an indorsement in the true sense; that is, with the purpose of negotiating
the instrument, and not merely as a signature of identification or receipt. [56]
(c)
The forged or unauthorised indorsement must not purport to be that of a
customer of the bank at the branch on which the cheque was drawn. [57]
Thus, s 58 relieves the drawee bank that makes a payment on an indorsed cheque
in good faith and in the ordinary course of business, of the burden of proving the
genuineness of indorsements or the presence of authorisation in those cases where
the bank is required to show that it has made payment to the ‘holder’ of a bill
payable to order on demand. [58] Section 58 therefore applies only when the person
to whom payment has been made derived his title from the validity of an
indorsement. [59] The word ‘indorsement’, though capable of more than one meaning
as per s 95 of the BEA, must be given a technical meaning for purposes of s 58,
namely; that it refers to a signature placed on the cheque animo indorsandi; that is,
with the intention of incurring the liability of an indorsee and transferring the
instrument. [60]
Malan, Pretorius and Du Toit point out that s 58 protects the drawee bank only
where the indorsement purports to be genuine and authorised in the above sense,
but is in fact not. [61]
In Stapelberg NO v Barclays Bank DC&O [62] it was held that, bearing the above
meaning of ‘indorsement’ in mind, it is clear that s 58 does not apply where the thief
of a bill payable to order represents himself as payee. Section 58 protects the
drawee bank when it pays someone purporting to derive his or her title as holder
from a forged or unauthorised indorsement, such as where a thief forges the
indorsement of the payee and presents the bill for payment purporting to be the
holder through an apparently genuine indorsement. [63] However, when the thief
‘indorses’ the instrument by way of receipt or identification only, his ‘indorsement’ is
not an indorsement for the purposes of s 58 and the drawee bank will not be
protected by the section. [64]
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The drawee bank must have made payment in good faith and in the ordinary
course of business to enjoy the protection afforded by s 58. Section 94 of the BEA
provides that a thing is deemed to be done in good faith within the meaning of the
Act if it is in fact done honestly, whether it is done negligently or not. Thus, where a
bank acts negligently in effecting payment it will still comply with the requirement of
good faith as long as it makes the payment honestly and is unaware of the fact that
the person to whom payment is effected is not entitled to such payment. [65]
The phrase ‘ordinary course of business’ [66] is not defined in the BEA, but
Sharrock and Kidd indicate that it refers to the course of business of the banking
community at large, not that of a particular bank or group of banks. [67] A payment
may be made in the ordinary course of business and yet be made
negligently. [68] Thus the fact that the bank may have been negligent does not
render its payment one made in bad faith, nor does it per se amount to a deviation
from the ‘ordinary course of business’. [69]
It is further pointed out by Malan, Pretorius and Du Toit that s 58 does not
protect the drawee bank that pays a non-transferable cheque as such a cheque is
payable to a specific person only. [70] Thus s 58 applies to crossed and uncrossed
order cheques but not to non-transferable cheques.
The drawee bank bears the onus of proving that it is entitled to the protection of
s 58. Should it make payment on an indorsed cheque in circumstances where it is
not protected by s 58 it will not be entitled to debit the customer’s account and will
have to bear the loss. The drawee bank may, however, recover its loss from the
person who received payment or the thief who fraudulently indorsed the cheque on
the basis of unjustified enrichment if the requirements for such a claim are met.
The protection afforded by section 79 of the BEA
Section 79 protects the drawee bank and the drawer where a cheque is crossed by
providing that if a drawee bank, in good faith and without negligence pays a
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cheque, if crossed generally, to a banker, and if crossed specially, to the banker to
whom it is crossed, or the latter’s agent for collection (who is a banker) then the
banker paying the cheque (and if the cheque has come into the hands of the payee,
the drawer) [71] is entitled to the same rights and to be placed in the same position
as if payment of the cheque had been made to the true owner thereof.
The effect is that the bank receives added protection and may debit its
customer’s account as if it had paid according to its mandate. [72] The bank may
debit the customer’s account even if it has not paid the cheque in the ordinary
course of business, provided it paid without negligence and observed the
crossing. [73] Thus the payment is regarded as having been made in due course,
discharging the drawer’s liability on the cheque and on any underlying
obligation. [74] Sharrock and Kidd point out that because s 79 has no proviso
equivalent to the proviso in s 58, it seems that the drawee bank may claim to be
discharged even where the forged or unauthorised signature purports to be that of a
customer of the bank. [75]
The onus of proof that it is entitled to the protection of s 79 is on the drawee
bank. [76] Thus it will have to prove that not only did it act in good faith but also that
it was not negligent in paying the cheque.
If the drawee bank is not able to rely on the protection afforded by s 79 it cannot
debit the customer’s account with the payment it has made and the bank will have
to bear the loss. However, it may be able to recover such loss from the thief of the
cheque or the person who received payment based on unjustified enrichment,
provided that the requirements for such a claim are met. [77]
(b) Marking excluding transferability

Section 6(5) of the BEA provides that if a bill contains words prohibiting transfer, or
indicating an intention that it should not be transferable, it is valid as between the
parties to the bill, but it is not negotiable. [78] Section 75A of the BEA in addition
provides for ‘institutional’ non-transferable cheques. [79] Non-transferable cheques
generally have to be crossed as a result of a decision of the commercial banks not
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to accept uncrossed non-transferable cheques for collection. [80] It has further been
decided by the commercial banks that a crossed cheque marked ‘non-transferable’
will only be accepted for collection if the name of the payee corresponds exactly with
the name of the account holder on whose behalf it is collected. [81]
Section 79, as set out above, also protects the bank in the case of a crossed
cheque rendered non-transferable by a marking or a restrictive indorsement. [82] It
allows the bank to debit the drawer’s account even if it paid someone other than the
stipulated payee or indorsee — the only party who can qualify as the holder [83] —
provided the payment was made in good faith, without negligence and in accordance
with the crossing. [84]
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Section 79 has been interpreted and applied in various cases involving crossed
non-transferable cheques. In Volkskas Bpk v Johnson [85] the court indicated that in
terms of the bank and customer relationship, a bank on which a cheque is drawn, is
obliged to execute its customer’s order as it is expressed on the cheque. [86] It
further indicated that a cheque which is not negotiable because it contains words
prohibiting transfer or indicating an intention that it is non-transferable (such as the
word ‘only’ that was inserted on the cheque in this matter) affords no one but the
payee the right to claim payment. [87] The court dismissed the plaintiff’s claim as it
held that the cheque fell within the scope of application of s 6(5) of the BEA, was not
transferable and payment could have been made to the payee only. [88] The
applicability of s 79 to a non-transferable crossed cheque was not raised in Volkskas
Bpk v Johnson. [89]
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However, subsequently in Gishen v Nedbank Ltd, [90] the court held that there is
nothing in s 79 which renders its provisions inapplicable to a non-transferable
cheque and that the wording of s 79 should not be given a restricted meaning. [91]
Malan, Pretorius and Du Toit suggest that Gishen has been correctly decided and
that s 79 applies to all cheques, including non-transferable cheques and also to
those of which the drawee bank is also the collecting bank. [92] This view was
confirmed in Eskom v First National Bank of Southern Africa, [93] which settled the
effect of the crossing of a non-transferable cheque on the order of the drawee bank
to pay a specific person. In Eskom a customer sued his bank based on breach of
contract because the bank, on which a posted cheque, crossed generally and
marked ‘not transferable’, had been drawn, paid the cheque, not to the named
payee, but to someone not entitled to it who had stolen it and deposited it for
collection at another branch of the drawee bank and subsequently collected payment
of part of the amount. [94]
The court indicated that the statutory protection provided by s 79 affects the
rights and obligations of the parties to a crossed cheque and thus ‘in a sense,
modifies the parties’ contract’ not through consensus but because of a legislative
act. [95] However, it was not prepared to hold that s 79 created an implied term in
the bank-customer contract. [96] It indicated that the prime obligation of a banker
towards a customer who operates a cheque account is to pay a cheque drawn on it
‘according to its tenor’. [97] Included in this obligation is a duty to pay the correct
person designated by the cheque, namely the holder thereof. [98] Where a cheque is
crossed there is an additional obligation on the drawee banker to pay the amount of
the cheque specifically to a banker and the drawee banker would accordingly be
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obliged to pay a banker (the collecting banker) on behalf of the holder. [99] However,
s 79 ‘disturbs this situation by granting a drawee banker protection where he pays
the wrong collecting banker, that is, a collecting banker acting for someone other
than the holder’. [100]
The court held that several considerations pointed to the burden of proof for
purposes of invoking the protection of s 79, resting on the drawee bank, namely
that the requirements of good faith and absence of negligence were stated
conjunctively, the facts which would show good faith and the absence of negligence
are usually within the bank’s peculiar knowledge, and also, s 79 provides relief to a
drawee bank from its normal obligations. [101] It further held that s 79 applies also
where the cheque is drawn on one branch and collected by another branch of the
same bank. [102] Accordingly it was held that s 79 applies to all crossed cheques,
including those marked ‘non-transferable’. [103]
Subsequently in Standard Bank of South Africa Ltd v Harris, [104] where the bank
operated as both the paying and the collecting bank in respect of a crossed non-
transferable cheque, the Supreme Court of Appeal rejected the contention that the
authority of the Eskom case should be restricted in that it cannot be regarded as
authority for the broader proposition that a bank which had already been absolved
from liability as paying bank under s 79, may still be liable as collecting bank in
respect of the same transaction.
In McCarthy Ltd v Absa Bank Ltd, [105] the account of one customer (Fourie) of the
defendant bank was used by a third party to perpetrate fraud by creating fictitious
debts in the account of another customer (McCarthy) and by causing crossed non-
transferable cheques to be drawn and signed by authorised signatories of McCarthy
in purported payment of those fictitious debts. [106] In this instance the bank was
thus both the drawee bank and the collecting bank. [107] McCarthy’s
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sought to recover the amounts paid in terms of the cheques from the bank on the
basis that it, as drawee bank, paid the cheques negligently as it ought to have at
least suspected that the bearer (Fourie) was not entitled to the cheques and should
have made enquiry before it paid the cheques. [108] The court indicated that where
the paying bank is not the collecting bank it will generally not be capable of knowing
to whom the cheque is being paid, whereas in the case where the bank that is
collecting a crossed cheque is also the paying bank (as was the case in this matter),
such bank will indeed know or at least be capable of knowing to whom it is paying
because the holder and drawer of the account to which the cheque is paid are both
its customers. [109] Accordingly it had to be accepted that employees of such a bank
who acted both as drawee and collecting bank were possessed of knowledge that
should have led them to suspect that the recipient might not be entitled to the
cheques. [110] It also had to be accepted that they knew that the cheques had been
drawn by their customer, who would have to pay them. [111] Thus the court held that
on the evidence a court might find that in this instance the bank ought to have
made further enquiry before it paid the cheques and that its failure to do so was
negligent thus disentitling it to the protection of s 79. [112]
According to Malan, Pretorius and Du Toit it follows from the application of s 79 to
non-transferable cheques that the drawee bank effecting payment of a crossed non-
transferable cheque (including a s 75A non-transferable cheque which is deemed to
be crossed) [113] in accordance with the provisions of s 79, is entitled to debit the
account of the drawer even if payment is not made to the payee or to a bank
collecting on behalf of the payee. [114]
Whether the presence of indorsements on the reverse of a non-transferable
cheque is indicative of negligence for the purposes of s 79 on the part of the drawee
bank who erroneously pays such a cheque is a controversial matter and as
indicated, the court in Gishen declined to express an opinion on this
issue. [115] According to Malan, Pretorius and Du Toit it may well be the position but
they remark that much depends on current banking practices and the construction
that can be placed on the ‘indorsement’. [116]
Thus, in summary it can be stated that where a drawee bank pays a crossed
cheque, including a crossed non-transferable cheque, in circumstances where it is
not protected by s 79, it cannot debit its customer’s account and the loss resulting
from the payment has to be borne by the drawee bank. The drawee bank can,
however, recover its loss from the thief or the person who received payment on the
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basis of unjustified enrichment provided the requirements for a claim based on
unjustified enrichment are met. [117]
(c) No indorsement or irregular indorsement

Section 83 deals with the effect of payment to or crediting of accounts by bankers of
certain amounts of unindorsed or irregularly indorsed cheques and other
instruments. It affords a measure of protection to a drawee bank which pays an
order instrument to someone other than the payee or last indorsee. [118] The
requirements for protection in such instances are that:
(a)
the party who presents the instrument for payment is also a customer at the
bank, or is itself a bank; and
(b)
the payment or crediting of the customer’s account was done in good faith
and in the ordinary course of business.
Section 83(1) protects a drawee banker in the aforementioned circumstances by
providing that the drawee banker will not incur any liability by reason only of the
absence of, or irregularity in, the indorsement of a cheque, and the cheque will be
discharged by crediting of the account of the bank’s customer with such
payment. [119]
Thus, where another customer (who is not the payee or last indorsee) of the bank
deposits an order cheque into his account, the bank is not precluded from debiting
the drawer’s account merely because the cheque was not indorsed, or indorsed
irregularly, in favour of such other customer. [120] Similarly, where payment is
collected by another bank, the drawee bank is not prevented from debiting the
drawer’s account simply because the cheque was not indorsed in favour of the
collecting bank’s customer or the collecting bank itself. [121] However, the bank is not
protected and cannot debit the drawer’s account if it pays an unindorsed or
irregularly indorsed order cheque over the counter. [122]
The applicability of s 83 to a non-transferable cheque is controversial. [123] Malan,
Pretorius and Du Toit indicate that, on the one hand, the history of s 83 makes its
applicability to non-transferable cheques unlikely, since non-transferable cheques
are incapable of being ‘indorsed’ with the result that there can be no question of ‘an
absence of, or irregularity in, indorsement’ of the cheque as required by s
83. [124] However, on the other hand, they opine that the wide wording of the section
makes it capable of being applicable to non-transferable cheques and they further
contend that it is logical to apply the same rules to the payment of all cheques. [125]
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The onus rests on the drawee bank to prove that it is entitled to the protection of
s 83. If it pays an unindorsed or irregularly indorsed cheque in circumstances where
it is not entitled to the protection of s 83 the drawee bank will have to bear the loss.
However it may be able to recover such loss from the thief or the person who
received payment on the basis of unjustified enrichment provided the requirements
for such a claim are met. [126]
(ii) Payment contrary to a crossing

Malan, Pretorius and Du Toit indicate that the crossing of cheques has come to be
regarded as a method by which the drawer or owner of a cheque could protect
himself against the consequences of its theft, loss or forgery. [127] The protection lies
therein that by crossing the cheque the drawer instructs its bank to make payment
in a specific manner, namely to a bank only, with the result that the risk of payment
being made to an unlawful possessor is considerably reduced as payment of a
crossed cheque takes place through the ‘filter’ of another bank. [128]
Section 78(4) of the BEA is relevant in the event of payment contrary to a
crossing. It provides that if a drawee banker
(a)
pays a crossed cheque if it is crossed as contemplated in s 78(3), namely if it
is crossed specially to more than one banker; [129]
(b)
pays a crossed cheque to any person other than a banker if it is crossed
generally; or
(c)
pays a crossed cheque, if it is crossed specially, to any person other than the
banker to whom it is crossed or the latter’s agent for collection (if he is a
banker)
then the banker is liable to the true owner of the cheque for any loss he may sustain
owing to the payment of the cheque in the aforementioned instances. [130]
Section 78(4), however, contains a proviso to the effect that if a cheque is
presented for payment and it does not, at the time of presentment, appear to be
crossed or to have had a crossing which has been obliterated, or to have a crossing
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which has been added to or altered (otherwise than as authorised by the BEA), the
drawee banker who pays it in good faith and without negligence will not incur
liability by reason of the cheque having been crossed, or of the crossing having been
obliterated or added or altered otherwise than as authorised by the Act. [131]
The liability introduced by s 78(4) is not based on fault or contract but is strict
liability, which is comparable to liability for conversion as in English law. [132]
The onus of proving that it can escape liability for payment of a crossed cheque
contrary to its crossing by virtue of the proviso contained in s 78(4) rests on the
drawee bank. Where the drawee bank is discharged the true owner of a crossed
cheque marked ‘not negotiable’ can recover his loss from any subsequent possessor
of the cheque. [133]
Where a drawee bank, however, pays a cheque contrary to a crossing in
circumstances in which the proviso to s 78(4) does not apply, it is not entitled to
debit its customer’s account as it is acting contrary to its mandate. The bank will
thus be liable for any loss occasioned to the true owner of the cheque as a result of
the payment. However, the drawee bank may be able to recover its loss from the
thief or the person who received payment on the basis of unjustified enrichment
provided that the requirements for such a claim are met. [134]
(iii) Premature payment of post-dated cheque

A drawee bank is as a general rule obliged to pay cheques in due course, which
means, inter alia, that payment should be made at or after the maturity of the
cheque. [135] Where a cheque is post-dated [136] the drawee bank is mandated to
make payment only once the post date has arrived and it may debit the customer’s
account only on the due date. [137] Payment prior to the said post date is regarded as
premature and contrary to the bank’s mandate, with the result that the bank may
not debit the customer’s amount with the amount of the premature
payment. [138] There is no provision in the BEA that protects the drawee bank in such
instance.
The onus of proving that a post-dated cheque was not paid before its due date
rests on the drawee bank. [139] If the bank pays a post-dated cheque prior to its due
date it cannot debit its customer’s account until such time as the post date has
arrived.
Where the bank makes a premature payment and the customer in the interim —
thus prior to the arrival of the due post date for payment — countermands such
payment, Sharrock and Kidd submit that the bank will not have a claim based on
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enrichment to recover the amount paid. [140] Malan, Pretorius and Du Toit, however,
remark that the drawee bank paying a post-dated cheque before its ‘post’ date does
usually not purchase it and acquires no rights in the instrument: it does not become
a holder in due course, but they submit that it may have a claim based on
unjustified enrichment against its customer. [141] It is submitted that despite
premature payment of a post-dated cheque, payment thereof may serve to
extinguish the debt owed by the drawer to the payee thus having the effect of
enriching the drawer should the bank be prohibited from recovering the payment
from its customer, the drawer. It is submitted that this will be the position
regardless of whether the customer countermanded the cheque in the interim period
— after its payment but prior to its due date. Where applicable, however, the
customer may possibly be able to claim the interest he could have earned had the
money been kept in his account until the due date for payment of the cheque
arrived.
(iv) Payment of more than the amount stipulated by the drawer
The customer’s mandate to the drawee bank requires it to pay the amount for which
the cheque is drawn. [142] If someone other than the drawer (and without the
drawer’s authority) subsequently alters the amount on the cheque the bank may not
pay out such increased amount as it will be acting contrary to the drawer’s original
mandate.
As indicated, the customer owes a duty to his bank to take reasonable care in the
preparation of his mandate [143] and specifically not to draw a cheque in such a way
as to facilitate its alteration. [144] If the customer breaches this duty and his
negligence is the proximate cause of the bank paying out a larger amount on the
cheque as altered, then he must bear the resultant loss. [145] Negligence other than
in the drawing of the mandate does not, however, operate against the drawer. [146] A
bank cannot, therefore, debit the account of its customer for more than the
authorised amount because the customer failed to keep his chequebook in a safe
place [147] or failed to supervise his employees adequately. [148]
In the context of alteration of cheques, note should also be taken of s 62 of the
BEA, which provides that if a bill is materially altered the liability of all parties who
were parties to the bill as at date of alteration and who did not assent to the
alteration, must be regarded as ‘if the alteration had not been made, but any party
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who has himself made, authorized or assented to the alteration, and all subsequent
indorsers are liable on the bill as altered’. [149]
Where the drawer alleges that the amount of the cheque was raised without
authority, the bank bears the onus of proving the contrary or that the customer’s
negligence was the real or proximate cause of the alteration.
Where the drawee bank pays out a cheque on which the amount was altered
without the drawer’s authorisation it is precluded from debiting the customer’s
account and the bank will have to bear the loss. However, it may be able to recover
this loss from the thief or person who effected the alteration without authorisation or
the person who received payment on the basis of unjustified enrichment provided all
the requirements for such a claim are met. [150]
8.2.3 Recovery of unauthorised payments

(i) The drawee bank’s right of recovery
Where a drawee bank has made an unauthorised payment in instances that fall
outside the scope of protection afforded by ss 58, 78, 79 and 83 of the BEA, or
outside the scope of an indemnity clause, if any, contained in the bank-customer
contract, the bank is not entitled to debit its customer’s account. The question then
arises whether the drawee bank will be able to recover the amount of the
unauthorised payment from the party to whom such payment was made or from
another person and if so, on what basis such moneys can be recovered. It appears
that the basis for the recovery of unauthorised payments by the drawee bank may
be founded on unjustified enrichment. However the evolution of the South African
law of unjustified enrichment has been controversial and not less so in the context
of recovery of unauthorised payments by banks.
(a) Introduction
Enrichment occurs either through performance (or transfer) or in another
manner. [151] The general requirements for any action based on enrichment involve
an enquiry whether one person has been enriched sine causa ‘at the expense of’
another person who is impoverished. [152] Enrichment may also come about by
payment or transfer, although no erroneous performance to the defendant in the
strict sense is involved. [153]
It has been asked for many years whether South African law should recognise a
general enrichment action. [154] In Nortje v Pool [155] the Appellate Division (as it then
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was) rejected the existence of a general enrichment action in our law. Nortje v
Pool was critically reconsidered in McCarthy Retail Ltd v Shortdistance Carriers
CC [156] where the Supreme Court of Appeal stated that if a general enrichment
action was ever to be adopted into modern South African law ‘it would be wiser to
wait for that rare case to arise which cannot be accommodated within the existing
framework and which compels such recognition’. [157]
Not only was the recognition of a general enrichment action shrouded in
controversy but the question regarding which condictio should be employed for
purposes of an enrichment action by a bank that made an unauthorised payment
was also controversial as authors and courts were divided as to whether the
condictio indebiti or the condictio sine causa specialis would be the appropriate
remedy. Malan, Pretorius and Du Toit point out that the central and controversial
requirement of the condictio indebiti is mistake; that is, that the performance must
have been made erroneously believing that it was due. [158] The error must be
reasonable or excusable and the ignorance not supina aut affectata. [159] Opposed to
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the condictio indebiti is the condictio sine causa specialis, which is regarded by
Zimmermann as the ‘rag-picker’ of the condictiones because it applies in instances
where none of the other condictiones [160] apply. [161] The condictio sine causa
specialis may apply in, but is not limited to, the following instances: [162] Where
money or property is transferred to another in terms of a causa that falls away
(condictio ob causam finitam); where a defendant has bona fide disposed of or
consumed the plaintiff’s property and the defendant has obtained possession of the
property through a negotium between him and the plaintiff, or the defendant has
obtained money or perhaps other property of the plaintiff otherwise than through a
negotium with him ex causa lucrativa; or where the bank claims repayment of the
amount paid after a cheque had been countermanded. It has been suggested by
Malan that the enrichment action of the drawee bank against the payee or recipient
of the cheque should be based on the condictio sine causa specialis rather than the
condictio indebiti since it is not the bank itself which is making the performance to
the payee. [163] As will appear from the discussion below, this suggestion by Malan
has been vindicated in B & H Engineering v First National Bank Ltd [164] although
more recently the court in Leeuw v First National Bank Ltd [165] held that there is no
principle that the condictio indebiti is not available to a bank that wishes to recover
money on the basis of unjustified enrichment. The condictio sine causa and the
condictio indebiti are not, however, the only condictiones that are relevant in the
context of unjustified enrichment resulting from unauthorised payment by banks:
the condictio ob turpem vel iniustam causam might also be appropriate where a
defendant receives money with knowledge of the illegality of the causa in
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terms of which the money was transferred or if a defendant retains money (for
example a credit balance in a bank account) after learning of such illegality. [166]
(b) The rule in Price v Neal and subsequent developments

The locus classicus with regard to the question relating to the recoverability of the
unauthorised payment of a cheque by a bank is the judgment in Price v Neal. [167] In
this case, the drawer’s signature on two cheques was forged and the cheques were
both indorsed ‘for a valuable consideration’ to the innocent defendant and paid by
the plaintiff. [168] The gist of the judgment was that ‘a drawee pays (or accepts) at
his peril a bill, on which a drawer’s signature is forged’. [169] Thus, applied in the
context of a drawee bank, the rule in Price v Neal entails that the drawee bank is
denied an action for recovery of the amount paid against a bona fide indorsee. [170]
The earliest South African case in which reference was made to the doctrine
in Price v Neal was Natal Bank Ltd v Roorda [171] where the plaintiff bank mistakenly
paid out a cheque which had been countermanded. [172] The court held that it was
clear law that money paid under a mistake of fact may, in general, be
recovered. [173]
The English case of National Westminster Bank Ltd v Barclays Bank International
Ltd, [174] where the former bank paid out on a cheque on which the signature of its
customer, the drawer, was forged, constituted a turning point in the law after Price v
Neal. [175] The plaintiff claimed that its payment of the cheque had been under a
mistake of fact on the basis of its genuine belief that the drawer’s signature was
genuine, whereas it was forged. [176] The collecting bank pleaded no knowledge of
either of these matters. [177] The recipient in turn pleaded estoppel by
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representation, alleging that the plaintiff had represented that the cheque was
genuine and he had acted thereon to his detriment. [178] He also pleaded that the
bank had been negligent by breaching its duty of care to payees in connection with
the honouring of cheques. [179] The court dismissed the negligence plea and held that
‘in deciding whether or not to honour a customer’s cheque, at any rate when it is in
proper form and the customer’s signature appears genuine, a bank owes no duty of
care to a payee’. [180] It further held, with regard to the defence of estoppel, that the
English cases dealing with this defence were not applicable to a totally forged or
‘sham’ bill. [181]
Malan, Pretorius and Du Toit point out that subsequent to the National
Westminster Bank decision, the rule in Price v Neal is said to apply only to
instruments which are not forgeries in toto but which contain at least one genuine
signature and have been negotiated to a bona fide holder. [182] Thus it follows that
where payment is made to someone who has acquired the instrument through a
forged or unauthorised indorsement, the drawee bank will be entitled to recover the
amount paid. [183]
After much controversy it is now settled law that where the drawee bank made an
unauthorised payment to a person who received such payment in respect of a debt
owed to him by the drawer of a cheque, such person is not unjustly enriched by the
payment: The developments in this regard can be traced back to Barclays Bank Ltd
v WJ Simms Son & Cooke (Southern) Ltd [184] where the drawee bank successfully
sought to recover the amount of a countermanded cheque from the defendants. The
court held that when the bank makes a payment without the customer’s authority it
does so neither as mandatary nor as agent, so that the payment has no effect
whatever on the rights or obligations arising from such underlying
agreement. [185] The drawer remains obligated to the payee and the latter retains his
right to claim performance from the drawer. [186] The court thus held that
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the drawee bank had the right to recover the money from the payee unless the
payee had in good faith ‘changed his position or was deemed in law to have done
so’. [187]
In Govender v Standard Bank of South Africa Ltd [188] where the plaintiff
erroneously effected payment on a cheque after it had been countermanded by the
drawer, it was argued that the mistake by the bank was negligent and unreasonable
and therefore that the condictio indebiti could not succeed. [189] As pointed out by
Malan, Pretorius and Du Toit, reasonableness was not, however, at that time in
South African law, a prerequisite for the condictio sine causa and the court held that
the latter was the appropriate remedy for purposes of recovery of the payment by
the drawee bank. [190] The court, however, rejected the claim mainly because it held
that the payee had not been enriched by the payment as the cheque was given as
payment for a debt and on payment of the cheque the debt of the drawer was
discharged. [191] It also indicated that because the drawee bank in this instance had
been indemnified by its customer against liability in the event of an inadvertent
payment it consequently suffered no loss as a result of the payment of the
countermanded cheque. [192]
In First National Bank of SA Ltd v B & H Engineering [193] the court a quo held that
a banker who had mistakenly paid out on a countermanded cheque was entitled to
recover the payment from the payee by means of the condictio sine causa. The
court, however, disagreed with the judgment in Govender that the payment of the
cheque had been a ‘final payment’ which had discharged the debt owed by the
drawer to the payee. [194]
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The judgment of the court a quo was overturned on appeal in B & H Engineering
v First National Bank of SA Ltd. [195] The Appellate Division accepted that the
appropriate remedy was the condictio sine causa specialis rather than the condictio
indebiti. [196] The court subsequently held that payment by the bank in this specific
instance indeed discharged the drawer’s debt. [197] It indicated that where parties
agree ‘to make and accept payment of a debt by cheque, the debt is extinguished
when the bank pays the cheque to the payee, whether or not payment was at that
stage authorised by the drawer’. Accordingly there is no reason why the
countermand of the drawer should disturb the result that the debt is discharged by
the payment of the cheque. [198]
Page 344
Where the amount of an unauthorised payment is paid into the overdrawn bank
account of the person who receives payment, it extinguishes the debt of such person
vis-à-vis his bank and the said bank is not enriched by such payment. The drawee
bank that made the unauthorised payment will thus be entitled to recover only any
credit balance that remains in the erstwhile overdrawn bank account. [199]
However, the drawee bank will not be able recover the amount paid to an
innocent payee for value where the signature on a cheque had been forged by a
thief. [200]
Where a forged cheque is paid by the drawee bank who subsequently seeks to
recover its loss by means of an enrichment action based on the condictio ob turpem
vel iniustam causam on the basis that the money had been transferred under an
illegal agreement, it is not only the person who receives the money with knowledge
of the illegality of the transfer but also one who learns of it while he is still in
possession of the moneys that can be held liable if he has been enriched
thereby. [201]
Page 345
In Leeuw v First National Bank Ltd [202] the aspect of which condictio served as
basis for an unjustified enrichment claim where an unauthorised payment was
made, resurfaced. The court held that there is no principle in our law that the
condictio indebiti is not available to a bank that wishes to institute a claim to recover
an unauthorised payment on the basis of unjustified enrichment. [203]
As indicated below, in the most recent development regarding unjustified
enrichment actions by banks in the context of unauthorised payments, Absa Bank
Ltd v Lombard Insurance Co Ltd, [204] the condictio ob turpem vel iniustam causam
and the principle of suum recipit were subsequently considered in an action based
on unjustified enrichment albeit in the context of a fraudulent credit transfer. [205] It
is submitted that the principles laid down in that case would apply equally where the
unauthorised payment was effected by cheque.
(ii) The true owner’s rights of recovery

Where the drawee bank pays a cheque in circumstances which entitle it to debit the
drawer’s account and which do not render the drawee bank liable to the true owner
of the cheque, the loss resulting from the payment has to be borne by the true
owner. [206] However, the true owner is not without remedy and may recoup his loss
in various ways. [207]
(a) The meaning of ‘true owner’

The true owner is either the drawer of a cheque or the party who is vested with the
right to payment on the instrument. [208] Who the true owner is, is a factual question
and has to be determined in each case by applying the ordinary principles
Page 346
applicable to movable corporeal property. [209] This entails that ownership of a
cheque passes on delivery provided the transferor has the intention to pass
ownership and the transferee the intention to acquire it. [210]
Special principles apply to the delivery of cheques by post. [211] If a debtor posts a
cheque to his creditor without the latter’s consent, delivery is only completed when
the creditor receives the cheque. [212] If a debtor posts a cheque to his creditor
without the creditor’s consent and the creditor does not receive it, the debt is not
discharged. [213] As the cheque has not been delivered ownership thereof does not
pass to the creditor and the risk of its theft or loss remains with the
debtor. [214] However, if the parties expressly or tacitly agreed that payment could
be made by posting of a cheque, ownership of the cheque passes when the cheque
is posted. [215] The creditor then becomes the true owner of the cheque and bears
the risk of its theft or loss. [216] Sharrock and Kidd explain the concept of the ‘true
owner’ in this context as follows: [217] assume that D draws a cheque in favour of P
with the view of paying a debt that he owes to P. Until delivery of the cheque, D is
its true owner. If D posts the cheque, he remains the true owner whilst the cheque
is in transit, unless P expressly or tacitly requested that the cheque be posted. If
after receipt of the cheque, P delivers it to I in payment of a debt, I becomes the
new true owner.
(b) The doctrine of conversion

In terms of the English law doctrine of conversion, a party who obtains possession of
a stolen cheque thereby incurs liability to the true owner of the cheque. [218] Liability
for conversion is not based on fault but is strict. Salmond [219] defines conversion as
‘an act . . . of wilful interference, without lawful justification, with any chattel in a
manner inconsistent with the right of another whereby that other is deprived of the
use and possession of it’. The doctrine of conversion renders a
Page 347
possessor of stolen property liable to the owner of that property whether the
possessor knew that the property was stolen or not. In Marfani & Co Ltd v Midland
Bank Ltd, [220] Diplock LJ describes the effect of the doctrine of conversion and its
significance for a collecting bank as follows:
At common law, one’s duty to one’s neighbour who is the owner, or entitled to possession,
of any goods is to refrain from doing any voluntary act in relation to his goods which is a
usurpation of his proprietary or possessory rights in them. . . . [I]t matters not that the
doer of the act of usurpation did not know, and could not by the exercise of any reasonable
care have known, of his neighbour’s interest in the goods. The duty is absolute, he acts at
his peril. A banker’s business, of its very nature, exposes him daily to this peril. . . . If the
customer is not entitled to the cheque which he delivers to his banker for collection, the
banker, however innocent and careful he might have been, would at common law be liable
to the true owner of the cheque for the amount of which he receives payment, either as
damages for conversion or under the cognate cause of action, based historically upon
assumpsit, for money had and received.
The doctrine of conversion is not part of South African law. [221] Roman-Dutch law
permits an owner of property to pursue his property into the hands of strangers,
even those who came by it honestly. But once they part with the property honestly,
the true owner is without remedy against them. [222]
(c) The true owner’s rights of recovery against an intermediary

The South African common law gives the true owner of a lost or stolen cheque an
action in delict for the amount of his loss against a mala fide intermediary (and
against the collecting bank) if, in collecting payment, it acted mala fide. [223] In
relation to a bona fide intermediary, as stated above, the doctrine of conversion
does not form part of South African banking law. However, the South African
legislature, by enacting s 81 of the BEA, has given the true owner of a cheque that
is crossed and marked ‘not negotiable’ a sui generis remedy similar to the English
doctrine of conversion. [224]
The section applies where a cheque that is crossed and marked ‘not negotiable’ is
stolen or lost and subsequently paid by the drawee bank under circumstances which
do not render the bank liable under the BEA to the true owner of the cheque for loss
he has sustained owing to the cheque having been paid. In this instance, the true
owner is entitled to recover the amount of loss that he has sustained as a
Page 348
result of the cheque having been paid, or the amount of the cheque, whichever is
the lesser, from any person who possessed the cheque after the theft or loss, and
either gave consideration for it or took it as a donee. [225] The liability in terms of s
81(1) is strict and is not dependent on negligence on the part of the
possessor. [226] It is also not affected by the fact that the theft or loss came about
through the true owner’s own negligent conduct. [227] For purposes of s 81 the giving
of a ‘consideration’ includes the receiving of any such cheque in reduction or
settlement of any debt or liability. [228]
For purposes of s 81(1), the following persons are deemed to have been
possessors of the cheque and to have given consideration therefor: [229]
(a)
A person who, after the theft or loss, paid such cheque into his account with a
banker after having paid, or for the purpose of paying, the amount of the
cheque or part thereof to the person from whom he received the cheque, or,
on his direction, to any other person. [230] This, however, does not apply to a
collecting banker employing another banker as his agent for the collection of
any such cheque.
(b)
A person who took the cheque into his possession or custody after the theft or
loss thereof and who fails to furnish the true owner or any person who, in
terms of s 81(7), has the rights of a true owner, at his request, with any
information at his disposal in connection with the cheque. [231] In this instance,
the person in possession is deemed to have given consideration for the
cheque or to have taken it as a donee. Sharrock and Kidd point out that this
presumption may be rebutted by proving, for instance, that the possessor
obtained the cheque for the purpose of collecting payment on it for
another [232] or for safe-keeping, carriage or briefing counsel. [233]
Section 81(5) partially exempts the collecting bank from liability in terms of s 81(1).
It provides that a banker who receives payment of any such stolen or lost cheque,
shall not, subject to the provisions of s 81(3), [234] be regarded as having given a
consideration therefor merely because he has in his own books credited his
customer’s account with the amount of the cheque before receiving payment
thereof, or because payment is applied towards the reduction or settlement of any
debt owed by the customer to the banker. However, if the collecting bank gave
consideration in some other way — such as cash over the counter for the cheque,
Page 349
or allowed the customer to draw against the cheque at once — then it can be held
liable. [235]
Optimprops 1030 CC v First National Bank of SA [236] is the first reported decision
where the owner of a lost crossed cheque that was marked ‘not negotiable’
successfully relied on s 81(3) in order to hold the collecting bank (an erstwhile
possessor of the stolen cheque) liable for its failure to furnish the owner with
adequate information regarding the stolen cheque. [237] In this case the owner of
some 18 stolen cheques twice requested the collecting bank in writing to furnish it
with information regarding the stolen cheques. It was common cause that the
collecting bank failed to furnish the information because the letters had gone
astray. [238] The only information that was given to the plaintiff was that the cheques
had been deposited into an account which was operated in the name of one ‘P
Naidoo’. [239] In allowing the plaintiff’s claim based on s 81(3) of the Act, the court
held that the section overrides any protection of confidentiality that a bank may
ordinarily invoke on behalf of its clients. It also pointed out that there was nothing in
s 81 implying that the possessor or custodian would be absolved from the duty to
furnish the information if he can establish that the owner was already in possession
of the information at the time it was requested. The section should not be
interpreted in any manner to restrict the ordinary meaning of the words used. The
question of the precise extent of the information which the erstwhile possessor must
furnish the true owner must be decided on the particular facts of each case. [240]
In any action under s 81, if the defendant proves that when he became the
possessor of the cheque it did not appear to be crossed or to have had a crossing
Page 350
which had been obliterated, and to be marked ‘not negotiable’ or to have borne any
words which might have been the words ‘not negotiable’ and had been obliterated,
he is entirely exempt (subject to the provisions of s 81(3)) from liability under s 81
and is thus afforded a complete defence. [241]
Section 81(7) also affords a right of recovery to certain possessors who were
liable against the true owner by virtue of the operation of s 81. A person who has
discharged his liability under s 81(1) and who took the cheque in good faith and
without any notice of any defect in the title of the transferor has the rights conferred
upon a true owner by s 81(1), against any prior possessor of the cheque (who
became a possessor thereof after the theft or loss and who either gave a
consideration therefor or took it as a donee). [242] A prior possessor who is called
upon to make payment, having discharged his liability, also has the rights of a true
owner against earlier possessors. [243]
(d) The true owner’s right of recovery against the drawer

If the true owner is the payee, he also has a delictual action against the drawer for
any loss occasioned by the drawer’s negligence in drawing the cheque. [244]
(e) The true owner’s right of recovery against the collecting bank
Moorcroft aptly remarks that the collecting bank is not merely one more
intermediate possessor of a cheque and that to describe it as a mere agent for its
customer is to ignore its essential role in the banking system. [245] In South African
law, however, the issue of delictual liability of a collecting bank to the owner of a
lost or stolen cheque has been controversial. [246] In the context of holding the
collecting bank liable in delict it was especially the elements of wrongfulness and
negligence that were problematic.
Wrongfulness: collecting bank’s duty of care
In Yorkshire Insurance Co Ltd v Standard Bank of SA Ltd [247] the court was not
prepared to rule that the collecting bank owed a duty of care to the true owner of a
lost or stolen cheque. It held that for a collecting bank to be liable in delict to the
true owner of a cheque, it must know that its customer intended to commit a breach
of trust. [248] The court indicated that the mere knowledge that cheques drawn in the
name of a third party were being paid into the customer’s account
Page 351
was not sufficient to found liability, but the bank officials could also not deliberately
close their eyes and then claim ignorance. [249] Thus it held that constructive
knowledge was sufficient to render the bank liable, but that the bank could not be
held liable on the basis of negligence. [250]
The Rhodesian court in Rhostar (Pvt) Ltd v Netherlands Bank of Rhodesia
Ltd, [251] however, acknowledged a duty of care owed by the collecting banker to the
true owner of a lost or stolen cheque. It held that
[t]he collecting banker is the only one who is in a position to know whether or not the
cheque is being collected on behalf of the person who is entitled to receive payment . . . a
paying banker has no knowledge whether or not a cheque is being collected on behalf of a
person entitled to it and has to rely, and does rely, on the collecting banker to present a
cheque for collection on behalf of the person to whom it is lawfully payable . . . a duty of
care arises and is owed by the collecting banker to the drawer of the cheque to take due
and reasonable care to prevent him from sustaining loss. [252]
South African courts were reluctant to follow suit. In Atkinson Oates Motors Ltd v
Trust Bank of Africa Ltd [253] the court declined an opportunity to hold the collecting
bank delictually liable as it was of the opinion that no sound reason existed to
‘depart from the safe guide’ adopted in Yorkshire Insurance. This opportunity was
also declined in Worcester Advice Office v First National Bank of Southern Africa
Ltd [254] despite the court hinting at recognition of such liability.
Eventually in Indac Electronics (Pty) Ltd v Volkskas Bank Ltd [255] the Appellate
Division (as it then was) held that there was no reason in principle why a collecting
banker should not be held liable under the extended lex Aquilia for negligence to the
true owner of a cheque to whom it caused pure economic loss, provided that all the
elements or requirements for Aquilian liability have been met. [256]
The plaintiff in Indac alleged that it was the true owner (and payee) of a crossed
cheque that was marked ‘not negotiable’ and made payable to ‘Indac Electronics’ or
order. The plaintiff also alleged that it never endorsed the cheque. One of the
defendant’s other branches received the cheque for collection on behalf of a certain
Le Roux, who was a customer of the defendant at its collecting branch. The
defendant paid the proceeds of the cheque to Le Roux despite the fact that he had
no right to receive such payment. The plaintiff alleged that the defendant was
aware, or, alternatively, should have been aware, of the fact that Le Roux was not
Page 352
entitled to payment of the proceeds of the cheque and that in the circumstances, as
the collecting bank, it owed a duty of care to the plaintiff as payee and true owner of
the cheque to avoid causing loss to it by dealing negligently with the cheque. The
defendant was alleged to have acted in breach of such duty and, in so doing, to
have caused the plaintiff to sustain loss in the amount of the cheque. The defendant
excepted to this cause of action on the basis that in the absence of actual knowledge
of its customer’s defective title, the defendant, as collecting bank, was under no
legal duty to avoid dealing negligently with the cheque. In the court a quo the
defendant was successful. [257] This decision was reversed on appeal.
The appeal court pointed out that a delictual action for damages would be
available to the owner of a lost or stolen cheque if he could establish (a) that the
collecting bank had received payment of the cheque on behalf of someone who had
not been entitled to payment, (b) that in receiving such payment the collecting bank
had acted unlawfully and negligently, (c) that the conduct of the collecting bank had
caused the owner to sustain loss, and (d) that the damages claimed represented
proper compensation for such loss. [258] The court stated that in determining whether
the collecting bank was under a duty not to act negligently (for without such a legal
duty there can be no unlawfulness) it was required to exercise a value judgement
embracing all relevant facts and involving considerations of policy. [259]
The court highlighted five considerations that it considered pertinent to the
question whether a collecting bank owes a duty of care to the owner of a lost or
stolen cheque: [260]
(a)
The objection of limitless or indeterminate liability usually raised against the
recoverability of pure economic loss does not arise in a set of facts such as
the present, since the extent of the potential loss is finite (the face value of
the cheque) and the potential claimants are easily predictable and limited to
the drawer or the payee (or someone holding title under him). Further, each
potential claim will arise separately from any other and will be related to a
specific act on the part of the collecting bank. [261]
(b)
There is an ever-present risk that payment of a cheque may be obtained with
relative ease by an unlawful possessor. There is thus a need for protection of
the true owner of a cheque, particularly since he relies on the collecting bank
to look at the named payee on the face of the cheque before collecting and
paying the cheque which his customer has handed to him for collection. [262]
Page 353
(c)
The collecting bank undertakes in the course of its professional services to
collect other persons’ cheques payable to its client and it should be aware that
its failure to exercise reasonable care may result in loss to the true owner of
the cheque. The collecting bank possesses or professes to possess special skill
and competence in its field, and it can or ought to appreciate the significance
of instructions upon a cheque. The collecting bank is thus able to reduce, if
not avoid, loss to the true owner of a cheque by exercising reasonable care in
the collection of cheques: ‘If there were no legal duty to take reasonable care,
the collecting bank need not examine or even look at the cheque to ascertain
to whom it is payable. The crossing of a cheque would be of little consequence
if no legal duty existed on the part of the collecting bank.’ [263]
(d)
It must be accepted that the business of banking has changed substantially in
recent times, resulting in changes in the bank–customer relationship. In South
Africa the formation of the Automated Clearing Bureau has mechanised the
clearing process of cheques. As a result, collecting banks, while they accept
responsibility for collecting the correct amounts, apparently do not regard it
as their responsibility to ensure that cheques are collected for the correct
party unless they are put on notice to make enquiries in a specific case. The
collecting bank, however, is the only party capable of knowing whether the
cheque is being collected on behalf of a person who is entitled to receive
payment and the drawee bank has to rely on the collecting bank to ascertain
whether payment is being collected on behalf of a person who is so entitled.
The collecting bank is fully aware of its responsibility and it is under a duty to
ensure that it presents a cheque for payment only on behalf of a client who is
entitled to receive payment of the cheque.
(e)
The drawer or true owner of a cheque is unable to take any steps to protect
himself from the loss he will suffer if the collecting bank negligently collects
payment on behalf of a person who is not entitled thereto. However, when a
collecting bank does act negligently and is held liable and pays damages to
the owner, the collecting bank will always have a claim for reimbursement
against its customer who deposited the cheque for collection. If the collecting
bank’s customer is unable to pay, it would be more appropriate to visit liability
on the bank that chose to accept its customer’s business than on the innocent
true owner. [264]
The court concluded that considerations of policy and convenience prima facie
indicated a legal duty on the part of the collecting bank to the owner of a lost or
stolen cheque not to cause pure economic loss by dealing negligently with such a
cheque. [265] It was not, however, concerned with the standard of care required of
the
Page 354
collecting bank and emphasised that the standard of care was an aspect to be
evaluated in the light of evidence. [266]
Subsequently in KwaMashu Bakery Ltd v Standard Bank of South Africa
Ltd [267] the view adopted in Indac was challenged on the basis that the duty it
sought to impose was too onerous and that in the interests of the banking public
and the banking procedures prevailing at that time a collecting bank should not be
liable to the true owner for negligence. [268] Detailed evidence was presented to the
court explaining the path a cheque travels from the time that it is deposited for
collection with a collecting bank until it is returned to the drawer by a drawee
bank. [269] The court, however, concluded that there was nothing in the evidence
that persuaded it to depart from the finding in Indac regarding the duty of the
collecting banker and that it was not shown that the factors taken into account by
the Appellate Division in reaching its finding in Indac were unfounded or
inapplicable. [270]
The court highlighted a number of further considerations which militated against
the non-recognition of a duty of care by the collecting bank as held in Indac,
namely: [271]
Page 355
(a)
The public makes use of the non-transferable cheque particularly when large
sums of money are involved — they are aware of the value of a non-
transferable cheque and are in need of protection against a possible loss that
could be incurred when using this type of cheque.
(b)
Banks had, even prior to the decision in Indac, developed a system of
checking that the proceeds of a non-transferable cheque go to the actual
payee and not to someone not entitled to them — these costs have thus
already been absorbed by banks without difficulty. [272]
(c)
Some commercial banks in South Africa had adopted a resolution that non-
transferable cheques may be accepted for the credit only of an account
bearing a name identical to that of the payee named on the cheque — thus
indicating that banks do not regard the aforementioned duty as too onerous.
(d)
Although there are costs involved with the existence of a duty as held
by Indac, such costs were not disproportionate to the harm guarded against.
(e)
If there is no duty of care owed by a collecting banker, then banks need not
bother to look at cheques that are deposited for collection in order to
ascertain whether the depositor is the named payee.
Malan, Pretorius and Du Toit point out that the recognition of a duty of care on the
collecting bank does not inevitably entail delictual liability on the part of the
collecting bank, since all the requirements for Aquilian liability must be satisfied
before a bank can be held accountable for the loss it may have caused. [273] They
further submit that the unlawfulness issue should now be regarded as
settled. [274] That it is indeed so has been confirmed by the Supreme Court of Appeal
in Telematrix (Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards
Authority. [275]
Negligence: the test to be applied
In Kruger v Coetzee [276] the general test for negligence was stated to be whether a
diligens paterfamilias in the position of the defendant would have foreseen the
reasonable possibility of his conduct injuring another in his person or property and
causing him patrimonial loss and would take reasonable steps to guard against such
occurrence, and that the defendant failed to take such reasonable steps.
Page 356
However, when the liability of a professional person is at stake, the standard of care
against which his conduct has to be measured is that which may reasonably be
expected of a person engaged in that profession. [277] Negligence in the context of
banking is not defined in the BEA or in the English Cheques Act of 1957 and Malan,
Pretorius and Du Toit indicate that several meanings are given to it in English
decisions. [278]
In principle the conduct of a bank as professional entity should comply with that
of bonus argentarius. [279] The standard of care required to be exercised by a bank
should further be measured by the general level of skill and diligence possessed and
exercised at the relevant time of the conduct in question. [280] Although a court may
take cognisance of the standard of care generally adopted by other members of the
profession, conformity with general practice has been held to be merely prima facie
evidence of the absence of negligence. [281] When one deals with the standard of
care required, the question of negligence is a factual one which must be determined
with regard to the particular circumstances of a specific case. [282]
Page 357
In Powell and another v Absa Bank Ltd t/a Volkskas Bank, [283] it was held that a
bank’s internal rules and regulations serve as a useful guide in the determination of
negligence but that proof of a breach of the rules and regulations is not proof of
negligence. However, in IPF Nominees (Pty) Ltd v Nedcor Bank Ltd (Basfour 130
(Pty) Ltd, Third Party) [284] and Great Karoo Eco Investments (Edms) Bpk h/a
Grobbelaarskraal Boerdery v Absa Bank Bpk [285] this statement was criticised and it
was held that a breach of internal rules and regulations may in appropriate cases be
determinative of negligence. [286]
Moorcroft points out that while the control measures, rules, regulations and
training manuals introduced by banks will not always be definitive of their
obligations, banks will be expected to comply at the very least with the standards
they themselves impose. [287] However, he submits that courts should not allow
these documents to be the sole determining factor and should continue to enquire
whether the conduct complained of meets the standard of the bonus
argentarius. [288] In African Life Assurance Co Ltd v NBS Bank Ltd [289] it was held
that while a court should be hesitant in condemning a practice generally adopted by
banks, the court should not refrain from forming its own opinion on whether the
practice complies with the standard of care expected of bankers. Moorcroft,
however, submits that a failure by a bank to comply with the Code of Banking
Practice may justify an inference of negligence. [290]
Negligence in the collection of cheques
The duty of care to be exercised by a collecting bank vis-à-vis the true owner of a
cheque implies that the collecting bank should not act negligently in the collection of
cheques. [291]
Page 358
In Rhostar (Pvt) Ltd v Netherlands Bank of Rhodesia Ltd [292] the court, having
recognised the duty of care owed by the collecting bank to the true owner of a
cheque, stated that:
[G]enerally speaking, when there is something on the face of the cheque, taken in relation
to the customer for whom it is collected, which should put the banker upon inquiry, he
ignores it at his peril. So that where a cheque is payable to a specified payee it is prima
facie evidence of negligence in the collecting banker to take the cheque for collection on
behalf of a person other than that indicated. [293]
In the context of collection of cheques the identity of the customer on whose behalf
the bank collects the cheque is important and the information regarding the identity
of such customer falls peculiarly within the knowledge of the collecting bank where
his account is kept.
A particular marking or inscription on a cheque can constitute one of the factors
that may affect the degree of care to be applied, since such markings or inscriptions
may in certain circumstances require a greater degree of care to be
exercised. [294] ‘Non-transferable’ cheques, for example, are not capable of being
indorsed and Malan, Pretorius and Du Toit submit that a bank would be prima facie
negligent if it collects payment of such a cheque on behalf of a customer who
purports to be holding it in terms of an ‘indorsement’. [295] In Volkskas Bank Bpk v
Bonitas Medical Aid Fund [296] a crossed non-transferable cheque was paid to
someone other than the payee. The court a quo [297] held that because the teller who
received the cheque for collection paid no attention to the ‘not transferable’ crossing
or even to the fact that the collecting bank itself was named as payee, the
Page 359
collecting bank ‘must be considered to have had, at least, constructive knowledge
that the proceeds of the cheque were being applied to the credit of a person not
entitled thereto in terms of the instrument itself.’
Negligence in the opening of an account
An enquiry into the negligence of a collecting bank vis-à-vis the true owner of a
cheque may in appropriate circumstances compel a consideration of the standard of
care that the bank exercised upon opening an account for a prospective client.
Malan, Pretorius and Du Toit point out that when a bank opens a new account for a
prospective client it is standard banking practice to take reasonable steps to
ascertain at least the identity of the client. [298]
In KwaMashu Bakery Ltd v Standard Bank of South Africa Ltd, [299] the court dealt
with the steps the defendant bank ought to have taken to discharge this duty and
stated that the question had to be determined by ‘what reasonable, practical and
affordable measures would the reasonable prudent banker have taken in order to
have prevented the harm which resulted’. [300] It indicated that a reasonable prudent
banker would first ‘not only satisfy himself of the identity of a new client but also
gather sufficient information in regard to such client to enable him to establish
whether the person is the person or entity he, she or it purports to be. Checks could
be made on places of employment, address given, whereabouts of next of kin etc
before accepting a person as a customer’. [301]
The decision in Energy Measurements (Pty) Ltd v First National Bank of South
Africa Limited [302] deals with the duties of the collecting bank when it opens a new
Page 360
account for a prospective client. There can be little doubt that this is an important
judgment that may yet prove to be very influential because of the important
guidelines it contains. The court identified the following ‘compelling’ considerations
for the imposition of a duty of care on a collecting bank when opening a new account
for a prospective customer:
(a)
The risk that an account may be opened for fraudulent purposes to serve as a
conduit for stolen cheques is a clear and recognised one. Once an account is
opened, the channelling of a stolen cheque through such an account becomes
a relatively easy exercise.
(b)
The opening of an account is a necessary prerequisite to obtaining payment in
respect of stolen cheques which are drawn in favour of a specific
payee [303] and marked as non-transferable. In the absence of an account that
can serve as a conduit for such cheques it would be extremely difficult to
obtain the proceeds of the theft thereof.
(c)
A bank is free to either accept or decline the custom of a client and in opening
an account and making the bank’s facilities available to the customer, it
creates a potential risk to the public and in particular to owners of cheques if
that account is thereafter misused for fraudulent purposes.
(d)
In contradistinction to the pressures of time under which collecting banks
have to operate in processing high volumes of cheques, a bank is not
operating under such time constraints or pressure in deciding whether to open
a new account or not.
(e)
No significant additional costs or time would be spent if care were taken in
considering whether an account should be opened or not, and it would clearly
not impact on the banking system as such.
(f)
The decision whether an account should be opened provides the best
opportunity to prevent fraud from being perpetrated. [304]
The court found that the evidence showed that banks in practice actually foresee the
reasonable possibility that by opening bank accounts, such accounts may be used
for fraudulent purposes that could cause patrimonial loss to the owners of stolen
cheques. It pointed out that the potential danger is even greater if regard is to be
had to the fact that the account in Energy Measurements was opened on behalf of a
company and by a person, neither of which were known to the bank and neither of
which had a banking history. [305] The court found that from the evidence it seems to
be generally accepted that at a minimum a bank has the duty to ascertain the
identity of a prospective client and to obtain some information to
Page 361
establish the bona fides of the prospective customer. [306] In this regard the court
also considered the question whether the scope of the bank’s enquiry should be
limited to establishing the identity of the client and nothing more unless apparent
suspicions are aroused. [307] It held that there are the following ‘sound’ reasons for
concluding that the mere establishing of the identity of a prospective customer is not
sufficient, even if it involves a reference to the official company documentation to
ensure that it is in fact incorporated and registered as well as the obtaining of an
identity document:
(a)
The possibility of an account being used for fraudulent purposes is much
less [308] if the account is applied for by a prospective customer known to the
bank or by a customer with a banking history.
(b)
The fact that a company is registered and that its director or directors are
persons who can furnish an identity document contributes very little towards
establishing whether a bona fide business is to be conducted by means of the
account.
(c)
The credit checks undertaken by a bank, if used merely to ascertain whether
there are any judgments or adverse credit information, would merely serve to
protect the bank’s interest and it would contribute nothing towards reducing
the risk to owners of stolen cheques.
(d)
The very least that is required of a bank is to properly consider all the
documentation that is placed before it and to apply its mind thereto instead of
merely ensuring that the required documents were furnished. If banks are
merely to be required to collect documents to prove identity, such as an
identity document or the memorandum or articles of association, the duty of
care to the true owners of a cheque would be meaningless and devoid of any
substance.
(e)
Unless the bank places itself in a position to obtain information so as to verify
the bona fides of the prospective client, it has done nothing or very little to
protect the true owners of cheques whose cheques may be channelled
through that account for fraudulent purposes.
(f)
Enquiries to independent and verifiable references can be made discreetly and
without offending a prospective client. [309]
Page 362
The decision of the court a quo in Energy Measurements was subsequently upheld
by the Supreme Court of Appeal in Columbus Joint Venture v Absa Bank
Ltd. [310] The appeal court quoted with approval the statement by the court a quo
that when opening a new account ‘the very least that is required of a bank is to
properly consider all the documentation that is placed before it and to apply their
minds thereto’. [311]
The Columbus Joint Venture case dealt specifically with the opening of a bank
account for an existing client. [312] The court’s decision illustrates the significance and
critical value of expert evidence to prove negligence on the part of the collecting
bank. [313]
The first question the court was asked to resolve was whether the plaintiff
Page 363
remained the owner of the cheques because the duty of care that a collecting bank
owes is a duty of care to the owner of a cheque. [314] It found that the plaintiff
remained the owner of the cheques because there was no real consent to transfer
ownership because of the fraud. [315] The next question was whether the defendant
acted negligently in opening the account and subsequently collecting the cheques.
To answer this question the court embarked on an extensive and comparative
review of the South African, English, Canadian and Australian law. [316] It in addition
explained why it is important that a bank that is opening an account on behalf of a
prospective client should act with reasonable care:
A bank opening an account for a customer would by the very nature of the relationship
make inquiries concerning the customer, his status (ie whether a single or married person,
whether a company or partnership or other entity), his home and work, his telephone
numbers, the authority of signatories, etc. The purpose of these inquiries would primarily
be to ascertain the trustworthiness or standing of the customer so as to prevent loss to the
bank and, generally, to ensure that the customer conducts his account regularly and
according to set principles. A credit risk may also be involved where the bank extends
credit to the customer. In such a case particulars of the customer’s income, place and
duration of employment, qualifications, etc may be relevant. The two inquiries may
overlap. However, a bank may also be exposed to liability by the conduct of the client.
Liability for conversion in English law is the obvious example. An example in South African
law is liability under s 81 of the Bills of Exchange Act 34 of 1964 if the bank were to
advance funds to the customer on account of a cheque to which the section applies before
it is cleared. . . . As far as the duty of care towards the owner of a lost or stolen cheque is
concerned, it is clear that these precautions may to some extent overlap with the enquiries
undertaken by the bank in determining the trustworthiness and creditworthiness of a
customer. It is nevertheless a separate duty intended to protect the interests, not of the
bank or the customer, but of the true owner of a lost or stolen cheque that may be
presented for collection to the bank. [317]
Page 364
The court held that where a stranger requests that an account be opened for him
the circumstances are quite different than when an existing client so applies. An
existing client asking for further facilities or another account is known to the bank
and his personal particulars are, if not known, at least ascertainable. Thus the court
formulated the guideline that-
where a stranger approaches the bank the need for objective evidence of his
trustworthiness and creditworthiness is apparent. His own ipse dixit is not sufficient. . . .
Either a reference should be followed up or information about the customer’s identity or
residence, employment etc obtained . . . where the customer is an existing one much is
known of him and the bank need not repeat the process unless circumstances call for
inquiries to be made. A bank should also be careful not to inquire where inquiries might
offend the customer and invade his privacy. A right balance should be struck: a bank
should inquire where it is put on inquiry or the transaction is out of the ordinary. A bank
official is not called upon to cross-examine the customer to determine whether he is lying.
Nor does the bank have to ask him about his previous employment or about the source of
his funds, unless the circumstances call for such an inquiry. [318]
The court then proceeded to deal with the alleged grounds of negligence on the part
of the collecting bank. It held that a bank can generally accept what an existing
customer tells it and it is not required to cross-examine its customer or act as a
detective where there is nothing in the circumstances indicating something
untoward. [319] The court pointed out that where the collecting bank opens an
account for a new customer the bank must not only ‘properly consider all the
documentation that is placed before it and apply their minds thereto’, [320] but the
‘bank is [also] under a duty to take reasonable measures to ascertain and verify the
new customer’s identity and trustworthiness, for without the disincentive that
verification of the relevant details provides, the risk that the account could be used
for fraudulent purposes looms large’. [321] The court further pointed out that a bank
is under an obligation to take reasonable steps to ensure that its clients are who
they say they are and to scrutinise with reasonable caution documentation
submitted to it in substantiation of the uses to which they propose to put the
accounts they open. The collecting bank is not the guarantor of the probity of its
customers, or at least of their dealings or doings, as against all they injure by
utilising banking facilities reasonably extended to them. [322] However, amid current
conditions where fraud is rife, [323] if circumstances ‘should put a bank on inquiry in
extending new facilities to an existing customer or creating facilities for a new
Page 365
customer, the necessary inquiries must be made, and fear of offending the customer
cannot inhibit performance of that duty’. [324]
Note should also be taken of the provisions of the Financial Intelligence Centre
Act, [325] which came into operation in 2002 and which is aimed at the combating of
money-laundering activities and the financing of terrorist activities. This Act imposes
certain duties on banks to identify their clients by taking prescribed steps before
entering into a business relationship or transaction with them. These ‘prescribed’
steps are not, however, set out in the Act. The aspects to which these steps relate
are set out in ss 21 and 22 of the Act, which apply to new and existing clients
respectively, and which require the bank to establish and verify the identity of the
client and also the authority of the client where he acts on behalf of another person
as well as the identity and authority of any person who acts on behalf of the client.
It imposes a recordkeeping duty upon the bank regarding these steps, including the
manner in which a person’s identity was established and the nature of the business
relationship or transaction entered into. It is submitted that failure to adhere to
these statutory obligations regarding verification of the customer’s details may also
point towards negligence by the bank in performing its duties. [326]
Malan, Pretorius and Du Toit point out that the possibility of contributory
negligence on the part of the drawer and the issue of causation may also play a
critical role in the determination of the liability of the collecting
bank. [327] In Columbus Joint Venture v Absa Bank Ltd [328] the court stated with
regard to contributory negligence, that a customer’s duty to his own bank is a
limited one and his duty to the collecting bank cannot exceed his duty to his own
bank. In Holscher v Absa Bank [329] the court reduced the plaintiff’s claim against the
bank by the value of the plaintiff’s claim against the insolvent estate of the broker
who stole a cheque that the plaintiff had made out to a third party. This judgment
was, however, rejected in Lloyd-Gray Lithographers (Pty) Ltd v Nedcor Bank Ltd t/a
Nedbank [330] and overruled by the Supreme Court of Appeal, [331] which held that the
court a quo appeared to have erroneously proceeded on the basis that the thief and
Page 366
the negligent collecting bank were not liable in solidum. In Greenfield Engineering
Works (Pty) Ltd v NKR Construction Company (Pty) Ltd [332] it was held that the
drawer of a cheque had acted negligently because he had drawn the cheque ‘in an
improper and unbusinesslike manner’.
The question of vicarious liability also arises in the context of the liability of the
collecting bank. [333] In Absa Bank Ltd v Bond Equipment (Pretoria) (Pty) Ltd [334] it
was held that the bank was not vicariously liable for the acts of its employee who
stole certain cheques and deposited them in an account with the collecting bank as
the employee’s criminal behaviour was ‘the very antithesis’ of an act carried out in
the course and scope of his employment. [335]
(iii) Collecting bank’s right of recovery against its customer

Where a customer deposits a cheque for collection into his bank account, he
instructs his bank to obtain payment of the cheque. As pointed out by Malan, the
cheque may, however, involve the potential liability of the collecting bank either in
terms of s 81 of the BEA or under the lex Aquilia to the true owner for negligence
and this raises the question whether the customer depositing the cheque for
collection incurs any liability to the collecting bank where the latter becomes liable
on account of the collection of the cheque. [336] As indicated above, in Indac
Electronics (Pty) Ltd it was remarked obiter that ‘when a collecting bank does act
negligently, is held liable and pays damages to the true owner, he would always
have a claim for reimbursement against his customer who deposited the cheque for
collection’. [337] Malan, Pretorius and Du Toit submit that it is an implied term of the
relationship between bank and customer that the customer warrants his entitlement
to the proceeds of the instrument deposited for collection. [338] They point out that in
English law it seems to be accepted that where the collecting bank is ‘liable to the
true owner for innocent conversion of a cheque, [it] may be entitled to be
indemnified by [its] customer (who delivered the cheque to [it] as agent for
collection) in respect of the amount paid in settlement of that liability’. [339] Thus
where a collecting bank incurs liability towards the true owner of a cheque that was
paid to the collecting bank’s customer who was not entitled to the cheque, the bank
will be able to sue its customer for breach of the bank-customer agreement in terms
whereof the customer’s entitlement to the proceeds of the cheque was warranted.
Page 367
8.3 Unauthorised electronic funds transfers

8.3.1 Introduction
Schulze remarks that in its simplest form an electronic funds transfer, which can be
divided into credit transfers and debit transfers, is just like a cheque — an
instruction by the customer to the bank for the transfer of money to another account
or to the beneficiary. [340] In the case of a credit transfer, [341] the person who wishes
to make payment (the originator), instructs the bank (the originator’s bank) to
transfer the funds from his account to the account of the beneficiary. [342] In the case
of a debit transfer, the person to whom payment must be made claims the money
from the bank where the debtor keeps his account. [343] The money that is
transferred into the account of the beneficiary, once it becomes available to be
withdrawn, loses its separate identity due to commixtio [344] and becomes part of the
debit or credit balance in the account of the beneficiary. [345]
Page 368
Electronic fund transfers are effected by means of payment orders by a customer
to his bank pursuant to the general bank and customer agreement or general
mandate in terms of which the bank is obliged to give effect to payment orders of
the customer. [346] Malan and Pretorius indicate that by characterising the bank and
customer agreement as a general mandate providing inter alia for the payment of
cheques and payment orders, the naturalia of the agreement can be
determined. [347] When payment is effected by electronic funds transfer the bank
that effects the payment does not represent its customer but functions as a mere
mandatary. [348] Similarly the payee or beneficiary is also not represented by the
beneficiary bank when it collects payment. [349]
The common law of mandatum requires that banks must exercise reasonable care
and skill in the exercise of their mandate and that it should be carried out within a
reasonable time and without negligence. [350] The mandatary also has the duty to
perform its mandate in good faith. [351] Malan and Pretorius point out that the
principal duty of the originator’s bank, arising from banking practice, is to adhere to
the terms of the payment order. [352] Also relevant in the context of electronic funds
transfers is that the bank is obliged to install and maintain a reasonably efficient
security system and to ensure that the system is operating efficiently. [353]
The customer’s duty at common law is to draw his payment instruction with
reasonable care so as not to facilitate fraud or deception and to ensure that the
payment order is ‘clear and unambiguous’. [354] This duty is confirmed by the Code of
Banking Practice. [355]
Page 369
Note should also be taken of the role of the intermediary bank in the context of
electronic funds transfers. An intermediary bank is a submandatary of the
originator’s bank, standing in no contractual relation with the originator. [356] It has
been suggested that an intermediary bank does not owe the originator a duty of
care. [357]
There is also no contractual relationship between the originator and the
beneficiary bank, even if the beneficiary bank is regarded as a mere submandatary
of the originator’s bank. [358]
Malan and Pretorius [359] indicate that although the techniques involved in making
payment by electronic funds transfer, specifically credit transfers, may differ from
those employed when a cheque is used, their legal constructions are not necessarily
different. [360] Payment by credit transfer is payment of the underlying debt for which
the payment order is given. [361]
As indicated in previous chapters, [362] South Africa does not yet have
comprehensive legislation dealing with electronic funds transfers. [363] The legal
relationship between the parties to such transfers are thus governed by common-
law principles of contract and of mandate, legislation such as the National Credit
Act, [364] the Consumer Protection Act [365] and the Electronic Communications and
Transactions Act, [366] and soft law such as the Code of Banking Practice and the
(confidential) inter-bank agreement. [367] Schulze remarks
Page 370
that probably the most serious concern surrounding the development and day-to-
day use of smart cards, e-money and electronic transfer technology is the high
proportion of the security risk that the card or purse holder has to bear, in
comparison with the little or no risk that the bank bears. [368] He indicates that
although it cannot be denied that payment by way of electronic funds transfer
eliminates many of the risks traditionally associated with cheques, it is also true that
by virtue of certain provisions of the BEA as well as the large number of judicial
precedents interpreting the provisions of the BEA, customers enjoy more (statutory)
protection against for example, the negligence of the bank in respect of cheques,
than in the case of electronic transfer of funds. [369] Because the use of electronic
transfers and other forms of electronic payment (including internet payments) are
not regulated by statute, banks are free to determine unilaterally the rules and
conditions that apply to these types of transactions. [370] They are thus able to curtail
their liability for unauthorised payments by means of certain provisions in the bank-
customer contract as long as these provisions are not in conflict with the
aforementioned legislation. The Code of Banking Practice may also have the effect
that in certain instances protection for banks may be implied in the bank-customer
contract in so far as electronic funds transfers are concerned. [371]
For purposes of discussing the liability of banks for unauthorised payments in the
context of electronic funds transfers, it should be noted that payments by smart
card, e-money or electronic transfers in general are processed or cleared on the
basis of an account number only. [372] Schulze indicates that this in stark contrast to
Page 371
the clearing processes of cheques, where both the account number and name of the
payee (in the case of a non-transferable cheque) are compared to see whether the
payment instruction indeed matches the designated payee and his bank
account. [373] Also of note is the decision by South African banks with effect from 1
January 2002 to no longer accept cheques in excess of R5 million for collection with
the result that such payments have to be effected by electronic funds transfer —
another reason for the exponential increase in electronic funds transfers over the
past couple of years. [374]
There is a dearth of authority in South Africa regarding the liability of banks for
unauthorised payments in the context of electronic funds transfers, possibly as a
result of the lack of governing legislation and the fact that because the bank-
customer agreement generally allocates the risk for unauthorised electronic
payments to the customer, very few cases make their way to the courts. However,
some development has occurred in the context of credit transfers as a genus of
electronic funds transfers. The discussion below will thus focus on the liability of
banks for unauthorised credit transfers.
8.3.2 Payment without mandate

(i) Forged or unauthorised payment instruction
Although credit transfers are generally effected electronically [375] the payment
instruction preceding a credit transfer is not necessarily given electronically: such
instruction can be given either by the use of a bank card at an automated teller
machine or point-of-sale or by the use of other electronic devices but also by means
of an oral or written instruction to the bank to effect a credit transfer. Where a
customer gives an oral or written instruction to his bank to effect a credit transfer,
the risk of forgery and unauthorised payment clearly presents itself. Where the
payment instruction is expressed in computer language, the handwritten signature is
replaced by an electronic key which is used to authenticate the
message. [376] Schulze points out that this instruction or message can, in the
absence of sufficient security measures, be altered, erased or transferred to another
medium without this fact becoming known by examination of the medium. [377] A
customer’s bank card can also be lost or stolen and a third party who has knowledge
of the PIN for the card will be able to use the card to make withdrawals or effect
credit transfers. [378] The ease with which fraud can be perpetrated where a bank
card is
Page 372
used to effect an electronic funds transfer explains why banks generally seek to
protect themselves in the bank-customer agreement against liability for
unauthorised payments. As indicated, in the absence of governing legislation, banks
have taken measures to protect themselves in such instance by inserting certain
standard terms relating to liability in the context of electronic funds transfers into
the bank-customer agreement in terms of which the risk for loss due to
unauthorised payment as a result of theft or fraud is largely allocated to the
customer. [379]
The Code of Banking Practice impliedly reinforces the measures taken by banks to
protect themselves against liability in the context of electronic funds transfers: it
requires the customer to keep his PIN, password or other unique means of
identification personal and never to disclose it to anyone, specifically not an
employee of the bank. [380] It further provides that the customer will be responsible
for all transactions relating to additional (secondary) cards. Paragraph 7.7 of the
Code deals with protection of the customer’s account and obliges the customer to
take care of, inter alia, his cards, electronic purse, passwords and other means of
personal identification ‘to help prevent fraud’. [381] The Code further requires the
customer to inform the bank as soon as possible if the customer suspects that his
cards or electronic purse has been stolen or a third party unlawfully knows the
customer’s PIN, password, information regarding the customer’s accounts or
personal information or other unique means of personal identification. [382] The
customer is similarly obliged to inform the bank if there are unauthorised
transactions on his account. [383] Responsibility for losses is addressed in detail by
the Code and generally entails that the customer will be responsible for losses where
the customer acted fraudulently or negligently (that is, by not keeping his PIN
confidential or not reporting theft or loss of his card timeously). [384] The extent to
which these provisions will be binding in a court of law are, however, uncertain. [385]
Page 373
Generally if the paying bank (originator’s bank) transfers funds from its
customer’s account without the customer’s authorisation, it breaches its mandate
and can be held contractually liable. [386] Thus where the bank pays out in
consequence of a forged or unauthorised electronic funds transfer instruction it will
generally not be able to debit its customer’s account. However, in view of the lack of
governing legislation, the bank-customer agreement will generally govern the
liability of the bank for unauthorised electronic payments and will have to be
consulted in order to determine whether it indemnifies the bank regarding such
payments or otherwise allocates the risk of loss to the customer.
In Diners Club Ltd v Singh [387] the relationship between a bank and its customer
was considered in the context of alleged unauthorised withdrawals made with the
customer’s credit card. The court upheld a clause in the bank-customer agreement
which provided, inter alia, that the customer (as cardholder) would be liable for
amounts credited regardless of who used the card and PIN. It is, however,
submitted that due to the coming into operation of the Consumer Protection
Act [388] courts will now, in instances where the said Act applies, be able to scrutinise
the provisions of the bank-customer agreement for unfair contract terms and non-
compliance with the prescriptions of the Act regarding exemption clauses. [389]
Where a customer gives a written instruction for an electronic funds transfer in a
manner that facilitates fraud and the manner in which the payment instruction is
drawn is the proximate cause of his loss, the common law and generally also the
bank-customer agreement dictate that the customer will have to bear the loss. The
bank-customer agreement generally also provides that if the proximate cause of the
unauthorised payment was that the client lost his card or his card was stolen and he
failed to report such loss or theft timeously (that is, before any unauthorised
transfers or withdrawals are made) to the bank he bears the risk for the subsequent
loss of money. [390] The same applies where the customer does not guard his PIN
with the result that a third party who has acquired knowledge of the PIN makes
unauthorised transfers or withdrawals from the customer’s account. In the
aforementioned instances and also where the customer was aware of a forgery or
unauthorised payment instruction but failed to warn the bank timeously thereof,
Page 374
he will not be able to hold the bank liable for his loss. This will also be the situation
where the customer subsequently ratified an unauthorised payment instruction.
In Absa Bank Ltd v Hanley [391] the defendant, a customer of the plaintiff bank
who kept an investment account at the bank, alleged that he did not authorise a
certain transfer of money from his account but that the transfer was effected
through a fraudulent document submitted by another customer of the bank. The
bank alleged that the amount was transferred as a result of the defendant’s
negligence in allowing the other customer to come into possession of a transfer
instruction document that was signed by the defendant. [392] However, the court a
quo held that the bank transferred the money from the defendant’s account, not
because of any negligence by the defendant, but primarily because the bank failed
to apply prudent and acceptable banking practices. [393] This judgment was
confirmed on appeal. [394]
(ii) Countermand of payment

At common law, a mandator is entitled to revoke a mandate at any time before its
performance or completion. [395] In terms of the bank and customer agreement the
bank is usually obliged to give effect to a countermand of payment of a cheque or of
any other payment instruction.
Schulze points out that in the case of an electronic funds transfer the time taken
for delivery of the payment instruction depends on whether it is only a bilateral
transfer between banks or whether it has to be routed through a clearing system
before the transfer is transmitted to the recipient bank. [396] In the case of a bilateral
transfer, the delivery of the payment instruction is almost immediate. [397] However,
Page 375
where the payment instruction has to be routed through a clearing system, the
clearing system causes a delay because the payment instructions have to be sorted
first and then batched before they are sent forward. [398] This delay allows the
originator of the instruction to revoke or countermand the payment instruction. [399]
As pointed out, unlike the provisions of the BEA with regard to the
countermanding of cheques, no legislation currently exists that governs the position
regarding the countermanding of electronic funds transfers. It can generally be
stated that in the case of an instruction to pay a customer at the same bank the
notice of countermand must reach the bank before payment into the beneficiary’s
account. [400] Where an inter-bank transfer is involved a countermand is possible
only before the beneficiary’s bank receives the instruction. [401]
However, where the bank-customer agreement contains provisions to the effect
that once a payment instruction to effect an electronic funds transfer has been
received from the customer and processed by the receiving bank it cannot be
revoked; the customer will be bound by the agreement and will not be able to
countermand the payment instruction. The bank will thus be able to debit the
customer’s account with the amount paid.
Where the bank-customer agreement does not bar a countermand of an
electronic funds transfer or provides a cut-off time after which an electronic funds
transfer can no longer be countermanded, the manner in which the countermand will
be effected is by not transferring the funds if the countermand reaches the
originator’s bank before the transfer is effected, alternatively by means of a reversal
of the credit transfer. [402] For purposes of countermand and the liability of the
originating bank in the context of credit transfers a distinction should be drawn
between the situation where the originator of a payment instruction countermands
payment as a result of which the bank effects a reversal of money credited to the
Page 376
beneficiary’s account and the situation where the bank, upon realising that it had
erroneously transferred money from its customer’s account, unilaterally effects a
reversal of a credit transfer. [403] Only the former situation is relevant in the context
of an unauthorised payment subsequent to countermand by the originator.
In Take & Save Trading CC v The Standard Bank of SA Ltd [404] a customer
attempted to countermand a credit transfer by instructing its bank to ‘reverse’
electronic payments made to another party subsequent to the credit transfer having
been effected. [405] The other party, who received the money as payment for a debt
owed by the originator, however, objected to the reversal as a result of which the
bank refused to comply with its customer’s instruction. [406] By way of an obiter
remark the court indicated that the transfer was final and could only be reversed
with the consent of the beneficiary. [407]
8.3.3 Payment contrary to mandate

Certain unique problems relative to negotiable instruments present themselves in
the context of cheques which are not present in the context of credit transfers as a
genus of electronic fund transfers, such as the matter of irregular or unauthorised
indorsements. Unlike cheques, where the BEA protects the drawee bank in certain
instances where the bank makes a payment contrary to its mandate, such as
payment of a crossed cheque to a non-banker, there is no legislation currently in
place that regulates electronic funds transfers and which may provide for protection
of the originator bank in certain instances. [408] Although aspects such as
indorsements are not applicable in the context of electronic funds transfers, there
are some instances, as in the case of cheques, where a bank paying in terms of an
electronic funds transfer could be acting contrary to its mandate, for example where
it transfers a larger amount than authorised by its customer or where it transfers an
amount of money prior to the date indicated by the originator on the payment
instruction.
(i) Payment of a larger amount than instructed

The originator’s mandate to his bank requires it to pay the amount for which the
instruction is given. If someone other than the originator (and without the
originator’s authority) subsequently alters the amount on a written payment
Page 377
instruction the bank may not pay out such increased amount as it will be acting
contrary to the originator’s original mandate.
As indicated, a customer owes a duty to his bank to take reasonable care in the
preparation of his mandate [409] — where a written payment instruction is given, he
should thus not ‘draw’ a payment instruction for an electronic funds transfer in such
a way as to facilitate its alteration. [410] If the customer breaches this duty and his
negligence is the proximate cause of the bank paying out a larger amount on the
payment instruction as altered, then he must bear the resultant loss. [411]
Where, however, the originator’s bank pays out a larger amount than originally
instructed by the originator as a consequence of an alteration to the originator’s
payment instruction, and the originator was not negligent regarding the manner in
which the payment instruction was drawn, the bank will have to bear the loss.
However, the bank may be able to recover its loss from the beneficiary or the
person who altered the amount on the payment instruction on the basis of
unjustified enrichment, provided all the requirements for such a claim are met. [412]
(ii) Payment prior to the due date

The issue of the liability of the originator’s bank for an unauthorised payment
effected prior to its due date will generally not arise where the payment instruction
is given electronically, due to the immediate nature of such electronic payment.
However, where a customer gives an oral or written payment instruction to its bank
to effect a credit transfer on a specific date and the bank effects the transfer before
that date it breaches its mandate and would be liable for any loss suffered by the
customer as a result of the unauthorised earlier payment. This would also be the
situation where the customer in the interim; that is, before the due date for
payment by credit transfer, countermands the payment instruction. It is, however,
submitted that in both instances the bank may be able to recover its loss from the
person unjustifiably enriched by the payment provided the requirements for such a
claim are met. [413]
8.3.4 Recovery of unauthorised electronic funds transfers

(i) The bank’s right of recovery
(a) Reversal of a credit transfer

Instances occur where banks erroneously effect unauthorised, unintended or
fraudulent transfers and this gives rise to the question whether and under what
Page 378
circumstances such credit transfer may be reversed. [414] In the context of the
liability of banks for unauthorised payments it is therefore necessary to consider this
vexed issue.
It is possible for a bank to reverse a credit transfer that was erroneously made,
inter alia where such credit transfer was not authorised by the customer. [415]
The debate regarding the circumstances in which a credit transfer may be
reversed was sparked by an obiter statement in Take and Save Trading CC v
Standard Bank of South Africa Ltd. [416] In the court a quo an employee of the bank
testified about an inter-bank agreement under the auspices of the Automated
Clearing Bureau that provided that without the beneficiary’s consent an electronic
funds transfer could not be reversed. [417] On appeal the court made the following
obiter remark: [418]
One may assume in the [customer’s] favour that the instruction [to transfer money
electronically] had been given. One may even assume in their favour that there is no inter-
bank agreement preventing the reversal of electronic transfers. All that being assumed,
how can a bank retransfer an amount transferred by A into the account of B back into the
account of A without the concurrence of B? . . . could not suggest any ground on which this
can be done, there simply is none.
This dictum thus implies that a credit transfer, once effected, is final and cannot be
reversed without the consent of the beneficiary.
Schulze criticises the above obiter statement and submits that where the
beneficiary was never entitled to receive the money in the first place, his consent
should surely not be a prerequisite before the transfer may be reversed. [419] He
points out that the inter-bank agreement is confidential and one therefore has to
accept the evidence presented in Take and Save that the inter-bank agreements
prohibit the reversal of an electronic funds transfer unless the beneficiary consents
to it. [420] However, he questions whether this should govern all reversals of
electronic funds transfers as there are many instances where he opines that a
reversal without same having to be consented to by the beneficiary, would not only
be fair but also in line with public policy such as where the transfer was obtained
Page 379
by fraud perpetrated by the beneficiary. [421] According to Schulze there could be a
number of valid reasons why a bank would be entitled to reverse a credit transfer
unilaterally without the beneficiary’s consent, namely:
(a)
in the case of mistaken identity (where the money was transferred to the
wrong person);
(b)
where the wrong amount was transferred;
(c)
where the correct amount was transferred to the correct person but on the
wrong date (that is, prematurely); or
(d)
where the correct amount was transferred to the correct person on the correct
day but the bank was not entitled to effect the transfer. [422]
In Nedbank v Pestana, [423] the Supreme Court of Appeal confirmed the decision by a
full bench [424] that a completed and unconditional payment had been effected when
the bank credited the respondent’s account, with the result that the bank could not
unilaterally reverse the payment. [425] Pestana was presented by way of a
Page 380
stated case and it contained no statement regarding whether the initial credit
transfer to the customer’s account was fraudulent or not and thus the court could
not make any ruling in that regard. [426] The court did, however, make the following
notable statement: [427] ‘It is well established that, in general, entries in a bank’s
books constitute prima facie evidence of the transactions so recorded. This does not
mean, however, that in a particular case one is precluded from looking behind such
entries to discover what the true state of affairs is. . . . [E]xamples of where a credit
transfer may be validly reversed include cases where . . . the client came by the
money by way of fraud or theft.’
The question regarding the circumstances in which a credit transfer may be
reversed was again addressed by the Supreme Court of Appeal in Nissan South
Africa (Pty) Ltd v Marnitz (Stand 186 Aeroport (Pty) Ltd Intervening), [428] which,
Page 381
although it concerned an erroneous payment and not an unauthorised or fraudulent
payment (which is per se unauthorised), is also relevant with regard to the reversal
of unauthorised and fraudulent credit transfers. On appeal, the court distinguished
the obiter statement in Take and Save Trading on the basis that that case was
concerned with a valid transfer of funds in payment of a debt with the result that the
payment could not be reversed without the consent of the person who received the
money. [429] However, where stolen money (and also money erroneously transferred
to the account of a person not entitled thereto) was paid into an account to the
credit of the thief, the thief had as little entitlement to the credit representing the
money paid into the account as he would have had were actual notes and coins paid
into the account. This also applies where money is erroneously transferred into the
account of a person not entitled thereto. [430] In such an instance the court held that
the credit transfer could be reversed without the consent of the beneficiary. [431]
Thus in the context of unauthorised payments it may be concluded that an
unauthorised payment effected by means of a credit transfer may be reversed where
the beneficiary consents and also without the beneficiary’s consent if in the latter
instance it transpires that the beneficiary was not entitled to the money so
transferred; that is, that the credit transfer was not valid. That this is the position
was recently confirmed in Absa Bank Ltd v Lombard Insurance Co [432] as discussed
below, where an enrichment claim served before the court. The bank may therefore
in certain instances employ a reversal of a credit transfer to recover moneys
transferred without authorisation or as a result of fraud and so escape being held
liable for the specific unauthorised payment on the basis of breach of its mandate.
Whether a bank will be prepared to reverse a credit transfer in
Page 382
circumstances where such reversal would be competent will, however, depend
largely on the provisions of the specific bank-customer agreement. [433]
(b) Enrichment
Where the originator’s bank has effected payment by means of an electronic funds
transfer in circumstances that fall foul of the protection of either the common law or
the bank-customer agreement, and is thus not entitled to debit the customer’s
account, the bank may seek to recover the money it paid from the beneficiary or the
person who defrauded the bank. In this regard it is submitted that the principles
relating to unjustified enrichment actions by the drawee bank, as developed in the
context of cheques — as discussed above — will apply. [434]
That the courts will apply those principles also in the context of credit transfers
appears from Absa Bank Ltd v Lombard Insurance Co Ltd, [435] which dealt
specifically with a credit transfer. In this matter an employee of the respondent
fraudulently caused money belonging to a customer of the respondent to be
transferred electronically into the employee’s bank account and thereafter to various
other accounts, inter alia to her overdrawn current account with Absa, which had the
effect of extinguishing the overdraft and leaving the account with a considerable
credit balance. [436] The respondent subsequently sought to recover inter alia the full
amount credited to the fraudster’s current account from the bank by means of the
condictio ob turpem vel iniustam causam. It was contended that, following First
National Bank of Southern Africa (Pty) Ltd v Perry NO [437] and Nissan South Africa
(Pty) Ltd v Marnitz NO (Stand 186 Aeroport (Pty) Ltd Intervening), [438] a
development had taken place in our law in terms of which a bank that had credited a
thief’s account with the proceeds of stolen money is liable to the owner of the
money for the full amount because the bank would be unjustly enriched as it has no
obligation to account to its customer (the thief having no enforceable claim against
the bank). The Supreme Court of Appeal disagreed with this contention. [439] It
indicated that the basis on which the bank could resist the
Page 383
claim for recovery of the moneys was the defence of suum recipit, which in essence
means that the debtor suffers no loss by making the payment because although the
recipient is enriched, such enrichment is justifiable, the justification being his
entitlement to the payment (in casu the bank’s right to receive the money that
extinguished the overdraft). [440] It qualified the aforementioned by stating that in
order to discharge a debt it must be paid in the name of the true debtor and that
generally the discharge of a debt requires an agreement between the parties to that
effect. [441] It further stated that for payment by electronic means to be effective the
payee must acquire the ‘unfettered or unrestricted right to the immediate use of the
funds in question’. This requires the parties to be in agreement as to the debt to be
paid and such debt-extinguishing agreement may be concluded expressly or tacitly
by conduct. [442] The court stated that, in a case like the present, notification of the
acceptance of an offer to enter into a debt-extinguishing agreement would be
impractical and superfluous and that the acceptance was evidenced by the
corresponding credit and its non-reversal. [443] It pointed out that a debt-
extinguishing agreement may not be contra bonos mores and that it will be invalid
where both parties knew that the debt would be discharged with stolen money.
However, it remarked that none of the cases referred to in its judgment suggest that
the same result follows where the creditor is in good faith and unaware of the fact
that the debt is to be discharged with stolen funds. [444] Thus the court held that
‘[A]ny suggestion that the validity of the payment may be questioned for this reason
would lead to a series of payment transactions being declared invalid ex post
facto after discovery of the theft. Nor is it required that the law be developed any
further. The common law has already imposed a duty of care on a collecting bank.
Extensive legislation aimed at prevention of money laundering applies to banks. Any
further development along the lines suggested . . . which, to my mind
Page 384
is neither necessary nor desirable, should be by way of legislation.’ The court further
stated that payments made into the customer’s account extinguish any debt on it
and that it made no difference that the payment in the present case was made by
electronic transfer. [445]
(ii) The originator’s right of recovery

No contractual relationship exists between the originator of a payment order and the
beneficiary bank. This situation is comparable to the relationship between an owner
of a cheque and the collecting bank. [446] It may consequently be asked whether the
beneficiary bank owes any duty of care to the originator similar to the duty of care
that has been held to exist between a collecting bank and the true owner of a
cheque. As with the development of the recognition of a duty of care of the
collecting bank in the context of cheques, the first step in answering this question is
to consider the question of wrongfulness, namely whether the beneficiary bank owes
a duty of care to the originator to handle the transfer with due care and in
accordance with ordinary standards and practices of the banking industry. [447] Malan
indicates that some of the principles applicable to the recognition of a duty of care
on the part of the collecting bank to the owner of a lost or stolen cheque should also
apply in respect of payments by credit transfer although it is not suggested that the
two situations are in pari materia in all respects. [448]
The opportunity to consider whether such a duty of care by the beneficiary bank
to the originator of a payment instruction for an electronic funds transfer exists
arose in Gilbey’s Distillers and Vintners (Pty) Ltd v Absa Bank [449] where the plaintiff
instructed its bank to conduct eight transfers to another bank into a specified
account number, which account later transpired to belong to another entity. The
court held that there was no probity of contract between the originator’s bank and
the beneficiary bank. [450] It stated that where a series of mandates is necessary in
order to give effect to a payment instruction (for example
Page 385
the first mandatary has to engage with a second mandatary or submandatary for
such purpose) there is no direct nexus between the first principal and the
submandatary or any further submandataries. [451] This appears to be the position in
English law and although there does not appear to be any South African authority
directly in point the court was of the view that the position in South African law
should be the same in this regard. [452] The court further remarked that as originator
of a credit transfer effected in terms of a transaction between banks, the plaintiff in
the present matter was not in a position comparable to that of the plaintiff in Indac
Electronics (Pty) Ltd v Volkskas Bank Ltd. [453] Nor was the beneficiary bank in the
position of a collecting bank, which introduces itself into the process at the instance
of its own customer for whose identity it ‘effectively vouches’. [454] In alleging a legal
duty on the transferee (beneficiary) bank towards the originator, the plaintiff needed
to contend that, interlaced with the aforesaid contractual duties, there are legal
duties that the legal convictions of the community demand, so that — if the
transferee bank should breach the obligations it owes to the transferor bank in
contract — it should compensate the originator of the transfer directly in delict for
economic loss that the originator may suffer as a result. [455] However, the court
indicated that it was not persuaded that there is any good ground of reason or policy
to extend Aquilian liability in this way. [456] It remarked that the effect of the
assertion of a legal duty of care, owed directly by the transferee bank to the plaintiff
in the circumstances of the case, would be to require the transferee bank in an
inter-bank credit transfer to protect the originator, outside the framework of the
contracts deliberately entered into, against the consequences of the originator
himself having caused the insertion in the payment instruction of the account
number to be credited. [457] The court was thus not prepared to hold that the
beneficiary bank owed a duty of care to the originator of an electronic payment
instruction. [458]
Malan, Pretorius and Du Toit submit that the court was correct to conclude that
there is no contractual nexus between the originator and the beneficiary
bank. [459] However, they point out that the court’s approach to the problem of
liability in respect of pure economic loss does not represent the latest jurisprudential
thinking on the subject. [460] They further point out that the court also did not
consider the problem of matching the account number with the name of the
beneficiary although a comparative study of American, Canadian and English
Page 386
cases [461] and art 10 of the UNCITRAL Model Law on International Trade
Financing [462] support the existence of such a duty. [463] According to Malan,
Pretorius and Du Toit there is some merit in the expression by the court of its
misgivings about the analogy with the delictual liability of the collecting bank in the
case of a lost or stolen cheque. [464] However, they point out that the liability of the
collecting bank in the latter instance is based not only on the fact that the collecting
bank ‘introduces itself into the process at the instance of its own customer for whose
identity it effectively vouches’ but also on an evaluation of all the
circumstances. [465] One of the considerations leading to the imposition of a duty of
care on the collecting bank in the context of cheques is that ‘there is something on
the face of the cheque, taken in relation to the customer for whom it is collected,
which should put the banker upon inquiry’. [466] Thus they submit that while it is true
that the plaintiff in Gilbeys was not in a position comparable to the plaintiff in Indac,
the plaintiff in Gilbeys was at least in the same position as the drawer of a cheque
and could indeed suffer a loss if the beneficiary bank did not credit the correct
person as indicated on the payment instruction. Since the beneficiary bank is
undertaking professional services they submit that one can at least expect the
beneficiary bank to exercise reasonable care and skill when making the payment or
crediting the account of the named beneficiary. [467] They further indicate that in
response to the argument that the matching of the account number with the name
of the beneficiary would involve too great an expense, the sentiments regarding the
untenability of such a proposition as expressed in KwaMashu Bakery Ltd v Standard
Bank of South Africa Ltd [468] would be apt.
Page 387
Thus, although our courts have not yet recognised a duty of care owed by the
beneficiary bank to the originator of an electronic funds transfer which may in
appropriate instances lead to the delictual liability of a negligent beneficiary bank, it
is not unlikely that such a duty might be recognised in future. Alternatively the
possibility exists that, should our courts be loathe to recognise such a duty, the
legislature may address the issue by introducing legislation to govern electronic
funds transfers and by creating a statutory obligation that the beneficiary bank must
match account numbers and names when executing an electronic funds transfer.
Page 388
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Sonnekus (2000) Sonnekus, J The Law of Estoppel in South Africa (2000)
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[1] See also the discussion of Payment Systems in Chapter 7.

[2] Kircos v Standard Bank of South Africa Ltd 1958 (4) SA (SR) at 60; Freeman v Standard Bank
of South Africa Ltd 1905 TH 26. See, however, National Bank Ltd v Paterson 1909 TS 322 at 327
where it was held that a banker may claim a reasonable time to satisfy himself of the identity of the
person presenting the instrument.
[3] Barclays Bank Ltd v WJ Simms Son & Cooke (Southern) Ltd [1979] 1 All ER 522 at 539c. See
also Bank of Africa v Evelyn Gold Mining Company Ltd (1894) 1 OR 24 at 27; Standard Bank of SA
Ltd v Kaplan 1922 CPD 214; B Ligget (Liverpool) Ltd v Barclays Bank Ltd [1928] 1 KB 48 at 55; Van
Zyl 178.
[4] Van Zyl 179.
[6] Sharrock & Kidd 161; London Joint Stock Bank Ltd v Macmillan & Arthur [1918] AC 777 (HL) at
823; National Western Bank Ltd v Barclays Bank International Ltd [1975] AC 654 at 666.
[7] Cowen (1966) 374; Malan, Pretorius & Du Toit 272 n 20.
[8] See Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1985] 2 All ER 947 (PC); 1986 AC 80
(PC) and the discussion of this case in Malan, Pretorius & Du Toit 301-3, in which it is pointed out that
in English law the position is that in the absence of express agreement to the contrary, the duty of
care owed by a customer to the drawee bank in the operation of his current account is limited to a
duty to refrain from drawing a cheque in such a manner as to facilitate fraud or forgery as well as a
duty to inform the bank of any unauthorised cheques purportedly drawn on the account as soon as
the customer becomes aware of them. The customer has no duty to take reasonable precautions in
the management of his business with the bank to prevent forged cheques from being presented to
the drawee bank for payment, nor is he obliged to check periodic bank statements to enable him to
notify the bank of unauthorised debit items. See further OK Bazaars (1929) Ltd v Universal Stores
Ltd 1973 (2) SA 281 (C) at 288; Standard Bank of SA Ltd v Kaplan 1922 CPD 214 at 223-4; Big
Dutchman (South Africa) (Pty) Ltd v Barclays National Bank Ltd 1979 (3) SA 267 (W) at
283; Holzman v Standard Bank Ltd 1985 (1) SA 360 (W); Pretorius (1997(2)) 365; Pretorius (1982)
333.
[9] Malan, Pretorius & Du Toit 300 point out that if the customer draws a cheque in breach of this
duty and the bank suffers a loss as a result, the bank may debit his account with the amount of the
forged or the altered cheque if the carelessness of the customer was the real, direct or immediate
cause of the bank having been misled. The negligence must, however, have been in the transaction
itself, namely in the manner that the cheque was drawn. See, however, Pretorius (1985) 349, where
he remarks: ‘But to say that a customer has no duty to the bank to supervise his employees, to
conduct his business carefully or to detect fraud disguises the real problem. The reason for non-
liability is not the existence or non-existence of “selective” duties but the fact that either the
customer was negligent or that his conduct did not cause the particular loss.’ See also Pretorius
(1989) 271.
[10] Malan, Pretorius & Du Toit 303. See also Pretorius (1989) 271.
[11] Act 56 of 2000.
[12] Section 29 of the BEA Amendment Act.
[13] This duty in terms of s 72B applies to any ‘person who is required by law to have his financial
statements audited by a person registered in terms of s 15 of the Public Accountants and Auditors
Act, 1991 (Act No 80 of 1991) or by the Auditor-General, and any person obliged to appoint an
accounting officer in terms of s 59 of the Close Corporations Act, 1984 (Act No 69 of 1984)’.
[14] For a detailed discussion of s 72B see Pretorius (2005) 56.
[16] Nagel para 30.38.
[18] Ganie v Parekh 1962 (4) SA 618 (N) at 621-2. Malan, Pretorius & Du Toit 90, however,
indicate that conversely, art 16 of the Geneva Uniform Law on Bills of Exchange and Promissory
Notes (GULB) allows the person in possession to become holder even if he acquired the bill through a
forged or unauthorised signature. In terms of art 40 of the GULB a liberatory payment can also be
made to such a holder.
[19] Section 1 of the BEA defines a payment in due course as a payment made at or after the
maturity of a bill to the holder thereof in good faith and, if his title to the bill is defective, without
notice thereof.
[20] Malan, Pretorius & Du Toit 89. Where a person signs under a trade or assumed name he will
be liable as if he had signed in his own name. See Scania South Africa (Pty) Ltd v Smit 2003 (1) SA
457 (T). See also Pretorius (2003) 657 for criticism of this decision.
[21] Cowen (1966) 44; Nagel para 30.40.
[22] Malan, Pretorius & Du Toit 91; Suid-Afrikaanse Sentrale Koöperatiewe Graanmaatskappy Bpk v
Thanasaris 1953 (2) SA 314 (W). Cf Malan, Pretorius & Du Toit 90-4 regarding the authority of an
agent and representation of companies and close corporations.
[23] In this instance there is a duty on him to disclose to the party relying on the signature that he
suspects or knows that the signature is forged: Universal Stores Ltd v OK Bazaars (1929) Ltd 1973
(4) SA 747 (A) at 761-2; Greenwood v Martins Bank Ltd [1932] 1 KB 371 (CA) at 381; confirmed on
appeal: [1933] AC 51 (HL); Liquidators of the Union Bank v Beit (1892) 9 SC 109 at 138-9; McKenzie
v British Linen Co (1881) 6 App Cas 82 (HL). The customer must have had actual knowledge (or in
the case of a juristic person, imputed knowledge); that is, the knowledge he would have had but for
his own negligence, is not enough. Thus a negligent failure to detect the forgery (eg by checking
periodic bank statements) does not found an estoppel. See Edward & John Burke Ltd v Standard Bank
of South Africa Ltd 1905 TH 123; Standard Bank of South Africa Ltd v Kaplan 1922 CPD 214; Leites v
Contemporary Refrigeration (Pty) Ltd & Sonpoll Investments (Pty) Ltd 1968 (1) SA 58 (A) at 60-
1; Saambou-Nasionale Bouvereniging v Friedman 1979 (3) SA 978 (A) at 1004; Tai Hing Cotton Mill
Ltd v Liu Chong Hing Bank Ltd [1985] 2 All ER 947 (PC). See also Malan, Pretorius & Du Toit 94.
[24] Leach v Buchanan (1802) 4 Esp 226 (170 ER 700); Brown v Westminster Bank Ltd 1964 2
Lloyd’s Rep 187.
[25] Nagel para 30.38. Schulze Commercial Law 397 explains that at first blush s 53(2)(b) seems
to imply that a person who becomes a holder of a cheque through a forged or irregular signature can
still become a holder in due course of that cheque. However he cautions that one should remember
that this provision is merely aimed at creating something that may be called a ‘statutory estoppel’ in
favour of a ‘later holder in due course’ against an earlier ‘indorser’. As far as the earlier ‘indorser’ is
concerned the person in possession of the cheque is then in the position of a holder in due course.
However, this does not mean that the possessor has the rights of a holder in due course against
persons who signed the cheque before the indorsement was forged on the cheque. He points out that
even the ‘indorser’ who signs the cheque after receiving it by way of a forged indorsement is not
really an ‘indorser’, as only the holder of a cheque can ‘indorse’ it. Thus s 53(2)(b) protects a ‘holder
in due course’, who actually is not one, against an ‘indorser’, who also actually is not one. Schulze
indicates that what basically happens is that the appearance created to a later possessor is upheld,
provided that he would have been a holder in due course were it not for the fact that he obtained the
cheque by way of a forged indorsement. The fact that the appearance is upheld against the apparent
indorser does not turn the apparent indorser into an actual holder in due course, or even into an
ordinary holder. At most, he could be called a ‘holder by estoppel’. Payment by the drawee bank to
the ‘holder by estoppel’ will not discharge the cheque, because it is not payment to a holder. See
further Schulze Commercial Law 397-8 for a practical example.
[26] The position of a principal should be distinguished from that of an ‘undisclosed’ principal.
Malan, Pretorius & Du Toit point out (at 80) that an undisclosed principal cannot incur liability on a bill
since s 21 of the BEA provides that no person is liable on a bill as drawer, acceptor or indorser if he
has not signed it as such.
[27] Malan, Pretorius & Du Toit 95. Cf Rosebank Television & Appliance Co (Pty) Ltd v Orbit Sales
Corporation (Pty) Ltd 1969 (1) SA 300 (T) at 305; Insurance Trust and Investments (Pty) Ltd v
Mudaliyar 1943 NPD 45 at 60; Glofinco v Absa Bank Ltd (t/a United Bank) 2001 (2) SA 1048 (W) at
1065D-E; Glofinco v Absa Bank Ltd t/a United Bank 2002 (6) SA 470 (SCA); Ess Kay Electronics Pte
Ltd v First National Bank of Southern Africa Ltd 1998 (4) SA 1102 (W); 2001 (1) SA 1214 (SCA). It
should be noted that an authorised agent as well as an unauthorised agent can be held personally
liable on a bill by virtue of the provisions of s 24(1) of the BEA, which provides that if a person signs
a bill as drawer, acceptor or indorser and adds words to his signature indicating that he signs for or
on behalf of a principal, or in a representative capacity, he is not personally liable thereon. The
section, however, contains a proviso that if such person had in fact no authority to sign for or on
behalf of the person indicated as principal, or in a representative capacity, he shall be personally
liable on the bill. Section 8 of the BEA Amendment Act 56 of 2000 added to the section the words ‘or
if he signs as drawer and the name of the principal appears with his signature’.
[28] Malan, Pretorius & Du Toit 95. See also Strachan v Blackbeard & Son 1910 AD 282 at
289; Monzali v Smith 1929 AD 382 at 386; Big Dutchman (South Africa) (Pty) Ltd v Barclays National
Bank Ltd 1979 (3) SA 267 (W) at 285; Connock’s (SA) Motor Co Ltd v Sentraal Westelike Ko-
operatiewe Maatskappy Bpk 1964 (2) SA 47 (T) at 50-1. On the question whether fault is necessary
for an estoppel see Johaadien v Stanley Porter (Paarl) (Pty) Ltd 1970 (1) SA 394 (A) at 402; Oakland
Nominees (Pty) Ltd v Gelria Mining & Investment Co (Pty) Ltd 1976 (1) SA 441 (A); Sonnekus (2000)
133. The appointment of a person as a branch manager of a bank or building society could amount to
a representation to the outside world that such person has authority to accept deposits from the
public and to undertake to repay them: South African Eagle Insurance Co Ltd v NBS Bank Ltd 2002
(1) SA 560 (SCA); NBS Bank Ltd v Cape Produce Co (Pty) Ltd 2002 (1) SA 396 (SCA); Glofinco v
Absa Bank Ltd (t/a United Bank) 2001 (2) SA 1048 (W) at 1064; African Life Assurance Co Ltd v NBS
Bank Ltd 2001 (1) SA 432 (W) at 452.
[29] Malan, Pretorius & Du Toit 95. Cf Contemporary Refrigeration (Pty) Ltd (In Liquidation) v
Leites and Sonpoll Investments (Pty) Ltd 1967 (2) SA 338 (D); 1968 (1) SA 58 (A); Scala Café v
Rand Advance (Pty) Ltd 1975 (1) SA 28 (N) at 33; 1974 (1) SA 786 (D); Soref Bros (SA) (Pty) Ltd v
Khan Brothers Wholesale 1976 (3) SA 339 (D); Weedon v Bawa 1959 (4) SA 735 (D); Wolpert v
Uitzicht Properties (Pty) Ltd 1961 (2) SA 257 (W) at 269.
[30] Malan, Pretorius & Du Toit 95. Freeman & Lockyer v Buckhurst Park Properties (Mangal)
Ltd [1964] 1 All ER 630 (AC) at 645; Big Dutchman (South Africa) (Pty) Ltd v Barclays National Bank
Ltd 1979 (3) SA 267 (W) at 282. Malan, Pretorius & Du Toit 95 point out that the mere fact that a
person is deemed to have knowledge of the public documents of a company does not entitle him to
rely on their contents to found an estoppel — actual knowledge is required. Cf Insurance Trust and
Investments (Pty) Ltd v Mudaliyar 1943 NPD 45 at 60.
[31] Van Zyl 179.
[33] Lotzof v Lotzof 1915 AD 127 at 134; Sonfred (Pty) Ltd v Papert 1962 (2) SA 140 (W) at 143-
4; Leites v Contemporary Refrigeration (Pty) Ltd & Sonpoll Investments (Pty) Ltd 1968 (1) SA 58 (A)
at 62; Ganie v Parekh 1962 (4) SA 618 (N) at 622; Rand Advance (Pty) Ltd v Scala Café 1974 (1) SA
786 (D) at 789. Malan, Pretorius & Du Toit 90 point out that in an action for provisional sentence, in
the absence of a denial, a signature as well as the stamping with the official stamp of a corporation is
presumed to be genuine and authorised: Puzey and Diss Motors Ltd v Litherland 1961 (2) SA 177
(SR) at 182-3; Associated Engineers Co Ltd v Goldblatt 1938 WLD 139 at 143.
[34] See para 8.2.3(i) below.
[35] Sharrock & Kidd 162. See Nagel & Pretorius (2004) 640. For a discussion of the countermand
of bank and guaranteed cheques see Nagel & Pretorius (2013) 247.
[36] Section 73 contains the following proviso: ‘Provided such countermand . . . identifies the
cheque, in the case of a countermand, and the customer with reasonable particularity and gives the
drawee a reasonable opportunity to act on it.’
[38] Grocott & Sherry v African Banking Corporation Ltd (1904) 18 EDC 267; Govender v Standard
Bank of South Africa Ltd 1984 (4) SA 392 (C) at 406-7.
[39] Malan, Pretorius & Du Toit 328. Cf Govender v Standard Bank of SA Ltd 1984 (4) SA 392 (C)
at 497; Grocott & Sherry v African Banking Corporation Ltd (1904) 18 EDC 267. Malan, Pretorius &
Du Toit at 262, 328 submit that a bank certifying a cheque is not released by a countermand from its
duty to pay the amount of the cheque. Cf Nagel & Pretorius (2013) 247.
[40] Nagel & Pretorius (2004) 640.
[44] The Governor and Company of the Bank of England v Vagliano Brothers [1891] AC 107 (HL) at
153.
[45] Edward & John Burke Ltd v Standard Bank of South Africa Ltd 1905 TH 123 at 127; National
Bank v Paterson 1909 TS 322 at 327; Stapelberg NO v Barclays Bank DC&O 1963 (3) SA 120 (T) at
124. According to Bank of Africa v Evelyn Gold and Mining Company Ltd (1894) 1 OR 24 at 30-1, if
the description of the payee applies to more than one person, the bank’s mandate is to pay anyone
meeting that description. However in Mead v Young 100 ER 876 an indorsement by a party with the
same name as the real payee was held to be a forgery and ineffective to convey any title to the
indorsee. Malan, Pretorius & Du Toit submit (at 48) that this suggests that only the intended payee
can qualify as holder.
[48] In terms of s 1 of the BEA ‘indorsement’ means an indorsement completed by delivery.
[50] Sharrock & Kidd 163. For crossing of cheques see ss 75 and 75A of the BEA. A cheque drawn
in the manner as described in s 75A is deemed to be crossed generally, unless it is crossed specially.
[51] Malan, Pretorius & Du Toit 306. See also Leal and Co v Williams 1906 TS 554; National Bank v
Paterson 1909 TS 322. See also Malan (1978(1)) 329-30.
[54] In terms of s 1 of the BEA ‘payment in due course’ means payment made at or after the
maturity of a bill to the holder thereof in good faith and, if his title to the bill is defective, without
notice thereof.
[56] National Bank v Paterson 1909 TS 322. Sharrock & Kidd 164 point out that the signature
cannot operate as a valid indorsement by reason of s 22, but it will suffice for purposes of s 58 if it
purports to be an indorsement in the true sense.
[57] As per the proviso to s 58.
[59] Malan, Pretorius & Du Toit 305. Cf National Bank v Paterson 1909 TS 322 at 326-7.
[60] Stapelberg NO v Barclays Bank DC&O 1963 (3) SA 120 (T) at 125; National Bank v
Paterson 1909 TS 322 at 326-7. See also the examples provided by Sharrock & Kidd 164.
[62] Stapelberg NO v Barclays Bank DC&O 1963 (3) SA 120 (T) at 125.
[63] Stapelberg NO v Barclays Bank DC&O 1963 (3) SA 120 (T) at 126.
[64] Stapelberg NO v Barclays Bank DC&O 1963 (3) SA 120 (T) at 127. Malan, Pretorius and Du
Toit 305 comment that the result is that the protection of the bank often depends on the nature of
the representation made by the thief.
[65] Nagel para 31.48.
[66] Note the difference between ‘ordinary course’ and ‘due course’.
[67] Sharrock & Kidd 163. The authors point out that it has been held that in deciding whether a
payment falls within the ordinary course of business of the drawee bank, the court will be influenced
largely by the evidence of persons experienced in banking. For examples of what does and what does
not qualify as payment in the ordinary course of business see Slingsby v District Bank Ltd [1931] 2
KB 588 at 598; Baines v National Provincial Bank (1927) 96 LJKB 801; Auchterlonie & Co v Midlands
Bank [1928] KB 294. See Malan, Pretorius & Du Toit 306 for further examples of payments that are
made outside the ordinary course of business and which will not qualify as payments made in good
faith.
[68] Carpenters Company v British Mutual Banking Company Ltd [1938] 1 KB 511 (CA) at 534,
536; Stapelberg v Barclays Bank DC&O 1963 (3) SA 120 (T) at 123; Luntz 399. See also Cowen 381-
2 who states that, in practice, most negligent acts would not be performed in the ordinary course of
business.
[69] Malan, Pretorius & Du Toit 306; Cowen (1966) 381-2; Carpenters Company v British Mutual
Banking Co Ltd [1938] 1 KB 511 (CA); [1937] 3 All ER 811 (CA); Stapelberg NO v Barclays Bank
DC&O 1963 (3) SA 120 (T) at 123D-E; Selangor United Rubber Estates Ltd v Cradock (3) [1968] All
ER 1073 (Ch) at 1112.
[71] Schulze Commercial Law 411. The words ‘has come into the hands of the payee’ means ‘came
into possession of the payee’.
[76] See the discussion of Eskom v First National Bank of Southern Africa 1995 (2) SA 386 (A) at
para 8.2.2(i)(b) below.
[78] Schulze Commercial Law 408 points out that a cheque payable to ‘X only’ without the words
‘non-transferable’ can still not be negotiated or transferred and would qualify as a non-transferable
cheque. However, a cheque marked with the words ‘account payee only’ is not provided for by the
BEA and remains freely transferable. Cf Nagel para 31.34-31.40 and 31.49-31.53; Malan (1980) 391.
[79] Section 75A provides that:
‘(1) Where a cheque bears boldly across its face the words “not transferable” or “non
transferable”, either with or without the word ‘only’ after the payee’s name —
(a)
the cheque shall not be transferable but shall be valid as between the parties thereto;
(b)
the cheque shall be deemed to be crossed generally, unless it is crossed specially; and
(c)
the words “not transferable” or “non transferable” may not be cancelled and any purported
cancellation shall be of no effect.
(2) A bank shall not be negligent by reason only of its failure to concern itself with—
(a)
an indorsement intended to prevent transfer of the cheque; or
(b)
words prohibiting transfer, or indicating an intention that it shall not be transferable, other than
in the manner provided for in this section.’
Malan, Pretorius & Du Toit 49 submit that the legislature intended such a cheque (except where it is
drawn or made payable to bearer) not to be negotiable in the sense that no person other than the
payee can become holder thereof. Cf Malan, Pretorius & Du Toit 101, 112, 390-1, 412.
[80] Schulze Commercial Law 408. The author points out that the only way in which payment of an
uncrossed non-transferable cheque can be obtained is for its payee to present it for payment over the
counter of the drawee bank on which it was drawn. He further (at 410) indicates that the distinction
between s 58 and s 79 should be borne in mind when explaining the decision of the commercial banks
to accept for collection only crossed non-transferable cheques and not uncrossed ones: Only the
named payee may accept payment of a non-transferable cheque. If the drawee bank pays such a
cheque to the wrong person, it executes its mandate incorrectly and may not debit the account of its
customer with the amount of the cheque. If the cheque is crossed the bank may validly debit its
customer’s account as it is protected by s 79 as long as it pays the collecting bank in good faith and
without negligence. If the cheque is uncrossed the drawee bank is not protected by s 79. It can also
not seek the protection of s 58 as that section applies only to cheques that can be validly indorsed
(transferable cheques). Thus, because it is difficult for a drawee bank to establish whether a cheque
is actually being collected for the correct person, the banks have decided that they are not prepared
to forfeit the protection of s 79 and therefore they have agreed to accept only crossed non-
transferable cheques for collection.
[82] Schulze Commercial Law 411. Cf KwaMashu Bakery Limited v Standard Bank of South Africa
Limited 1995 (1) SA 377 (D). Malan, Pretorius & Du Toit submit (at 387) that the crossing of a non-
transferable cheque does not contradict the order given by the drawer. They indicate that the
crossing does not mean that payment must be made only to a bank (or in terms of s 78), but merely
prescribes the manner of payment. If payment is not made as is required by s 78 the consequences
set out in that section follow and the drawee bank may incur liability to the true owner for any loss he
may suffer. They further indicate that the provisions relating to crossings do not convert the
collecting bank into a creditor in respect of the cheque; the payee remains entitled to the rights in
respect of the cheque, and, they submit, payment may be made validly to him or his agent without
the drawee bank incurring the liability provided for in s 78.
[83] Aboobaker v Gableite Distributors (Pty) Ltd 1978 (4) SA 615 (D); Volkskas Bpk v
Johnson 1979 (4) SA 775 (C). See also Gishen v Nedbank Ltd 1984 (2) SA 378 (W) at 380; Bonitas
Medical Aid Fund v Volkskas Bank Ltd 1991 (2) SA 231 (W) at 235; De Villiers and Others NNO v
Electronic Media Network (Pty) Ltd 1991 (2) SA 180 (W) at 183; Eskom v First National Bank of
South Africa Ltd 1995 (2) SA 386 (A).
[84] Gishen v Nedbank Ltd 1984 (2) SA 378 (A); Bonitas Medical Aid Fund v Volkskas Bank
Ltd 1992 (2) SA 42 (W) at 47.
[85] 1979 (4) SA 775 (C). In this matter, which was brought as a stated case, the plaintiff claimed
an amount from its customer that was allegedly due on an overdrawn bank account. The overdraft
occurred when the plaintiff paid out a cheque for a certain amount and debited the customer’s
account with the said amount. The question arose whether the plaintiff was entitled to do so and
specifically whether the cheque was transferable to the person who received payment. The cheque
was made payable to ‘Tennant & Co (a/c I Abrahams) only’ (the words ‘Tennant & Co’ were inserted
in writing by the drawer). The printed words ‘of toonder/or bearer’ were deleted and above them the
word ‘only’ was inserted in writing. The cheque thus read ‘Pay Tennant & Co (a/c I Abrahams) only’.
The cheque was crossed generally, with the words ‘not negotiable’ appearing between the crossed
lines. Tennant and Co indorsed the cheque with the words ‘Pay to I Abrahams without recourse to us
— Tennant & Co’. The said Abrahams indorsed the cheque in blank and delivered it to one Sonia
Feinberg. It was then indorsed on her behalf and paid into her bank account. The plaintiff paid the
amount of the cheque to the latter bank (at 777B-H).
[86] At 777-8. The court indicated that a bank may debit the account of its customer with the
amount of a cheque paid only if it has complied with its customer’s instruction and that it is part of
the bank-customer relationship that the bank is precluded from paying anyone other than the person
indicated by the customer.
[87] At 778C-F.
[88] At 779D-F. The court held that the words ‘I Abrahams’ constituted a mere instruction to the
payee as to the manner in which the proceeds of the instrument had to be applied and were of no
particular importance in the matter. The fact that the cheque was crossed imposed an obligation on
the drawee not to pay it to anyone but a bank. It pointed out that this duty, however, does not
conflict with the duty to pay the payee only as these two apparently conflicting duties could be
performed by the drawee bank paying a bank collecting on behalf of the payee. Thus, the order given
by the drawer to the drawee bank in casu, had been to pay the amount of the cheque to the payee,
or, since it was crossed, to a bank collecting on behalf of the payee.
[89] As pointed out in Gishen v Nedbank Ltd 1984 (2) 378 (W) at 381F it may well have been that
the fact that Volkskas was decided as a stated case precluded such consideration. Cf Malan, Pretorius
& Du Toit 385.
[90] 1984 (2) SA 378 (W). In this matter, which concerned an application for summary judgment,
a cheque was drawn in favour of a named payee. The printed words ‘or bearer’ were deleted and the
word ‘order’ was inserted after the name of the payee. The cheque was crossed and marked ‘not
transferable’ (at 379D). The drawer alleged that the cheque was paid, not to the named payee, but to
someone else and that the drawee bank had thus acted in breach of its mandate to pay the cheque to
the named payee only. The court assumed that at the trial it would be established that the drawee
bank would be able to prove that (a) the drawer had been indebted to the payee; (b) the cheque had
been given to the payee in payment of that indebtedness; (c) the payee agreed to lend the amount of
the cheque to one Van der Merwe and so indorsed the cheque generally and delivered it to Van der
Merwe; (d) the latter handed the cheque to his bank for collection and the drawee bank paid the
amount of the cheque to the collecting bank; (e) the payee had no further claim against the drawer
as the drawer’s indebtedness to the payee had been extinguished — thus the plaintiff suffered no loss
and would be unjustly enriched at the expense of the drawee bank if the claim was granted. Cf Malan
(1980) 391; Sinclair 324 and Fourie 135.
[91] The court in Gishen, however, deliberately left open the question (at 381H-382A) whether the
presence of an indorsement on the reverse side of such a cheque constituted negligence on the part
of the drawee bank that pays the cheque and it also held that it was unnecessary to consider whether
s 83 of the BEA applies to a non-transferable cheque.
[92] Malan, Pretorius & Du Toit 386. Cf Malan & Pretorius (1993 (1)) 454; Malan & Pretorius (1996)
282.
[93] 1995 (2) SA 386 (A). See also Malan & Pretorius (1996) 282; Harmse (1995).
[94] At 388D-389B.
[95] At 391B-C.
[96] At 391C.
[97] At 391E.
[98] At 391F.
[99] At 391F.
[100] At 391G-H.
[101] At 391I-394D.
[102] At 395A-397D. The court stated that the language of ss 78 and 79 suggests that the sections
require payment of a crossed cheque to be made by one bank to another. However, it remarked that
it would not place an intolerable strain on the language to permit one bank to be both collecting
banker and paying banker and that ‘the exigencies of commerce would be best served by such a
construction’. It pointed out that the English courts have consistently over a long period followed the
practical course by ‘recognizing such a dual capacity, and this has been approved without question by
the authors and editors of standard text-books, in England as well as in South Africa’. The court
referred to the unreported judgment in Allied Bank Ltd v Standard Bank of South Africa Ltd (WLD)
case no 17397/91910 where it was held that where a bank acts both as collecting banker and as
paying banker it is not protected by s 79 but pointed out that the court in that matter gave no
authority for its view and that the correctness of that judgment was subsequently questioned
in Hollandia Reinsurance Co Ltd v Nedcor Bank Ltd 1993 (3) SA 574 (W). Cf Malan & Pretorius (1993)
454.
[103] The court stated that the section leaves one with little doubt that it is indeed the position: s
79 would apply to a case where the collecting bank that receives payment does so, not on behalf of
the payee, but on behalf of someone not entitled to it.
[104] [2002] 4 All SA 164 (SCA) paras 10-12. See also the discussion on the liability of the
collecting bank in para 8.2.3(i).
[105] 2010 (2) SA 321 (SCA).
[106] 323H-324F.
[107] The court pointed out (at 329H) that where the paying bank is not the collecting bank,
difficulties such as those in casu do not arise, because the paying bank will generally not be capable
of knowing to whom the cheque is being paid. Therefore s 79 affords the paying bank protection
against paying in conflict with the terms of its mandate.
[108] At 323H.
[109] At 324B.
[110] At 324C.
[111] At 324C.
[112] At 324C.
[113] See n 79 above.
[119] Section 83(1). See also s 83(2).
[123] Malan, Pretorius & Du Toit 388. As indicated above this question was deliberately left open
in Gishen v Nedbank Ltd 1982 (4) SA 378 (W) at 382-3. Malan, Pretorius & Du Toit further point out
the discrepancy that the English text of s 83 refers to ‘any cheque’ whereas the Afrikaans text refers
to ‘’n tjek’ (a cheque).
[125] Malan, Pretorius & Du Toit 388. They point out that the latter argument is supported by s
83(1)(b) and (c) and s 83(2), which clearly apply to documents other than cheques and indeed to
documents that are not necessarily capable of being ‘indorsed’.
[128] Malan, Pretorius & Du Toit 355. See also Malan & Pretorius (1992) 77; Moodley (1989(1))
103; Moodley (1989(2)) 135; Malan (1978(1)) 326; Malan (1979) 31.
[129] Section 78(3) provides that if a cheque is crossed specially to more than one banker, except
when crossed to two bankers of whom the one is an agent for collection of the other, the banker on
whom it is drawn must refuse payment thereof.
[130] Oelofse (1983) 20 criticises s 78(4) as being incompatible with s 79. Malan, Pretorius & Du
Toit, however, suggest (at 360) that Oelofse’s argument ignores the phrase ‘for any loss he may
sustain’ in s 78(4). They remark that it is true that where a cheque is not discharged (or a crossed
cheque is not paid in terms of s 79) the owner’s rights upon it remain unaffected, and he may
vindicate it or obtain a duplicate and present it for payment. Only where the cheque is discharged (or
paid in terms of s 79) do his rights fall away. Thus his loss occurs when his personal rights on the
instrument cease to exist. Malan, Pretorius & Du Toit point out, however (at 360), that this is not the
only way in which the owner may suffer a loss: where the drawer absconds or is insolvent, the
owner’s recourse against him becomes worthless, and where the credit on his account is used for
payment of the cheque, his loss may well be recoverable in terms of s 78(4), being loss suffered
owing to the cheque having been paid contrary to the crossing.
[131] Such payment can also not be questioned by reason of having been made to a person other
than a banker or the banker to whom the cheque was or is crossed, or the latter’s agent for collection
who is a banker, as the case may be.
[133] Section 81. See the discussion in para 8.2.3(ii)(c) below.
[135] See the definition of ‘payment in due course’ in s 1 of the BEA. See also Nagel para 31.42. Cf
Nagel & Pretorius (2009) 677.
[136] That is, given a date after date of issue on which ‘post date’ it can be paid.
[138] Cowen (1966) 370. See also Malan, Pretorius & Du Toit 250.
[139] This is so by virtue of the definition of payment in due course, which specifies, inter alia, that
it entails payment of a cheque at or after its maturity.
[142] Pretorius (1999) 390.
[143] Pretorius (1999) 390. Union Government v National Bank of SA Ltd 1921 AD 121 at 128.
[144] Pretorius (1999) 390. It has been held that it is not a usual precaution to draw lines before or
after the name of the payee — see Slingsby v District Bank Ltd [1932] 1 KB 544 at 559-60.
[145] Pretorius (1999) 390. Bank of Africa v Evelyn Gold Mining Company Ltd (1894) 1 OR
2446; Trull v Standard Bank of South Africa Ltd (1892) 4 SAR 203 at 205; OK Bazaars (1929) Ltd v
Universal Stores Ltd 1973 (2) SA 281 (C) at 288. Sharrock & Kidd 170 point out that the position is
the same as in English law.
[146] Sharrock & Kidd 170. See also the discussion in para 8.2.2 above.
[147] Greenwood v Martins Bank Ltd [1932] 1 KB 371 (CA) at 382.
[148] London Joint Stock Bank Ltd v Macmillan and Arthur [1918] AC 777 at 795; Big Dutchman
(South Africa) Ltd v Barclays National Bank Ltd 1979 (3) SA 267 (W) at 283.
[149] Section 62(2) provides that for purposes of s 62(1) ‘material alterations’ include any
alteration of the date, the sum payable, the time of payment and the place of payment, and, if a bill
has been accepted generally, the addition of a place of payment without the acceptor’s assent.
[151] Malan, Pretorius & Du Toit 331. See further Zimmermann (1985) 1; Zimmermann (1995)
403.
[152] Malan, Pretorius & Du Toit 332. The authors point out that this situation obviously becomes
more complex where more than two parties are involved. See also Van der Walt 221-2; Scholtens
375.
[153] Malan, Pretorius & Du Toit 333. For example, Nissan South Africa (Pty) Ltd v Marnitz NO
(Stand 186 Aeroport (Pty) Ltd Intervening) 2005 (1) SA 441 (SCA).
[154] Rulten NO v Herald Industries (Pty) Ltd 1982 (3) SA 600 (D) at 607. In Blesbok
Eiendomsagentskap v Cantamessa 1991 (2) SA 712 (T) at 719-20 the court remarked that in its
opinion the time has arrived to recognise a general enrichment action. Malan, Pretorius & Du Toit 330
posit whether the ‘general enrichment action’ is an ‘action’ existing alongside the traditional remedies
or whether it is a general remedy comprehending all the others as well. See also De Vos 328;
Sonnekus 32; Eiselen 124; Visser (2009) 454; Scott (2013) 1 and Pretorius (2013(1)) 275.
[155] 1966 (3) SA 96 (A) at 139-40. The court remarked that in Roman and Roman-Dutch law
there had been development beyond the confines of the traditional enrichment actions, but that it had
been completely casuistic in the particular circumstances and that ‘nêrens is die reël teen
ongeregverdigde verryking onafhanklik van een of ander erkende verrykingsaksie, en los van
bepaalde omstandighede, as ’n verbintenisskeppende feit aanvaar nie’.
[156] 2001 (3) SA 482 (SCA). The court stated (at 487-9) that:
Unlike other branches of our law, the rich Roman source material has not led to an unqualified
judicial recognition (with a few exceptions) of a unified general principle of unjustified enrichment
from which solutions to particular instances may be derived. Rather there has been an augmentation
of the old causes of action, from case to case, usually with reference to rules treated as being of
general application. This has led to more or less unified patchwork . . . And although there has been
no unequivocal recognition of a general enrichment action, time and again unjustified enrichment
principles have been treated as a source of obligations being the basis for creating a new class or
subclass of liability in particular circumstances. No better example of this can be found in the minority
judgment of Ogilvie Thompson JA in Nortje en ’n Ander v Pool 1966 3 SA 96 (A) — the majority
judgment in which is still sometimes held out as having given the final death-blow to a general
enrichment action.
The court indicated that one of the restraints upon the acceptance of a general enrichment action
is the belief, or fear, that a tide of litigation would be unleashed, but it opined that such a situation
was unlikely to materialise. In its opinion, under a general enrichment action only very few actions
would succeed which would not have succeeded under one or other of the old forms of action or their
continued extensions. Thus it remarked that, for the aforesaid reason, the acceptance of a general
enrichment action may not be as important as is sometimes thought, save that the denial of such an
action may sometimes lead to occasional individual injustices. According to the court a more daunting
consequence of the acceptance of a general enrichment action is the possible need for a
rearrangement of long-standing principles. It indicated that in this regard it was in favour of allowing
the old principles to stand and supplementing them with a general enrichment action which would
serve to fill in the gaps.
[157] At 489A.
[158] Absa Bank v Leech and Others NNO 2001 (4) SA 132 (SCA); Kommissaris van Binnelandse
Inkomste v Willers 1994 (3) SA 283 (A) at 333G-H; Alphina Investments Ltd v Blacher 2008 (5) SA
479 (C); Afrisure v Watson [2008] ZASCA 89 (11 September 2008).
[159] Rahim v Minister of Justice 1964 (4) SA 630 (A); Saambou Bank Ltd v Essa 1993 (4) SA 62
(N) at 68. In Bowman, De Wet and Du Plessis v Fidelity Bank 1997 (2) SA 35 (A) at 39J-40A the
Appellate Division held that the requirements of the condictio indebiti are not immutable. In Willis,
Faber Enthoven (Pty) Ltd v The Receiver of Revenue 1992 (4) SA 202 (A) at 220-1, 223-4 the
Appellate Division also did away with the rule that an error iuris prevents recovery in terms of the
condictio indebiti. In casu the court held that: ‘Bearing in mind that the remedy lies in the payment of
an indebitum . . . it is clear that where such a payment is made in error, it matters not whether the
error is one of fact or of law: in either case it remains the payment of an indebitum and, if not repaid,
the receiver remains enriched. The nature of the error thus has no bearing on either the indebitum or
the enrichment. The same result is achieved when the condictio indebiti is viewed . . . as one of
the condictiones sine causa. Again it matters not whether the error is one of fact or law for in both
instances the payment is made sine causa.’ The court thus held that the fact that money was unduly
paid in error of law is not by itself a bar to recovery by way of the condictio indebiti. It pointed out
that it does not follow, however, that any error of law would be sufficient ground for a successful
condictio and opined that South African law is to be adapted in such a manner as to allow no
distinction to be drawn in the application of the condictio indebiti between errors in law and errors of
fact and that an indebitum paid as a result of an error in law may be recovered provided that the
mistake is found to be excusable. See further Visser (1992(1)) 177; Pretorius (1993) 315; Visser
(1996) 288; Scott (2007) 827. See also John Bell & Co Ltd v Esselen 1954 (1) SA 147 (A); CIR v
Visser 1959 (1) SA 452 (A) and King v Cohen Benjamin & Co 1953 (4) SA 641 (W) where claims for
enrichment were refused.
[160] For example, the condictio indebiti, the condictio ob turpem vel iniustam causam and the
condictio causa data non secuta.
[161] Cf Zimmermann (1990) 871; Visser (2008) 338.
[163] Malan (1978(2)) 287-8.
[164] 1995 (2) SA 279 (A).
[165] 2010 (3) SA 410 (SCA).
[166] First National Bank of South Africa Ltd v Perry NO [2001] All SA 331 (A); Absa Bank Ltd v
Lombard Insurance Co Ltd 2012 (6) SA 569 (SCA).
[167] (1762) 3 Burr 1354; 97 ER 871.
[168] Van Zyl 180.
[169] Van Zyl 180; Malan (1978(2)) 276; Oelofse (1981) 120; Stassen & Oelofse 137; Joubert 76;
Cowen (1983) 1; Stassen 15; Pretorius (1995) 733; Malan (1992) 131.
[170] Van Zyl 181 indicates that the denial of the right to recover money paid by mistake was
based on equitable considerations and public policy in the form of commercial policy.
[171] 1903 TH 298.
[172] Van Zyl 190.
[173] In this regard the court relied on Kelly v Solari (1841) 9 M & W 54 (152 ER 24). It further
held that even though there had been ‘some negligence’ on the part of the plaintiff bank, it was not
‘such gross negligence’ as to preclude it from succeeding in its action and furthermore there was not
in the court’s view any detriment sustained by the plaintiff. In Leal & Co v Williams 1906 TS 554,
which related to a forged indorsement on a bank draft, the court, in an obiter observation (at 559)
suggested that, at common law, the bank which had made the ‘mistaken’ payment could recover it
from the payee. In casu it was prevented from doing so by the provisions of s 58 of the Bills of
Exchange Proclamation 11 of 1902. In John Bell & Co Ltd v Esselen 1954 (1) SA 147 (A) the secretary
of the plaintiff company fraudulently used one of its cheques to pay a personal debt to the defendant
as payee, who received the amount thereof in good faith. The court held that the plaintiff had not
knowingly made a payment in the mistaken belief of fact that the payment was due, in which event it
was not entitled to institute the condictio indebiti for the recovery of the payment. This judgment was
severely criticised because the plaintiff’s mistaken belief that the payment is due is totally irrelevant
for purposes of the condictio indebiti. Cf Van Zyl 190.
[174] [1974] 3 All ER 834; 1975 QB 654.
[175] Van Zyl 184.
[176] Van Zyl 184.
[177] Van Zyl 184.
[178] Van Zyl 184.
[179] Van Zyl 184.
[180] At 840j.
[181] Van Zyl 185.
[183] Malan, Pretorius & Du Toit 337. Provided that the signature of the drawer on the cheque is
genuine.
[184] [1979] All ER 522, 1980 QB 677. The facts in this matter were that a customer of the plaintiff
bank drew a cheque in favour of the first defendant, a building company to which it was indebted for
certain construction work. The first defendant’s banker, to whom the first defendant owed money,
thereupon appointed the second defendant as receiver in terms of a mortgage debenture held by
them. When the plaintiff’s customer learned of this he instructed the plaintiff to stop payment of the
cheque. Unaware of his countermand, the second defendant paid the cheque into the first defendant’s
bank account, requesting special clearance thereof. The plaintiff, overlooking the countermand,
mistakenly paid out the cheque. The defendants relied on three main defences: first, that there had
been no mistake of fact between the plaintiff or either of the defendants, alternatively it had been the
plaintiff’s unilateral mistake; secondly, that the money had been paid by the plaintiff and received by
the first defendant in discharge of an obligation owed to it under the building contract, alternatively
under the cheque; thirdly, that the plaintiff had failed to give notice of its claim on the day the
cheque was paid, thereby depriving the defendants of the opportunity to give notice of dishonour on
that day and hence changing their position to their detriment.
[185] At 538.
[186] At 539.
[187] At 540. Van Zyl 188. Relying on Cocks v Masterman (1829) 9 B&C 902; 109 ER 335, the
court indicated that if the plaintiff should fail to give notice of a forgery on the day of payment of the
forged bill and indicate its intention to recover the amount paid on the basis of its ignorance of the
forgery at the time of payment, it would deprive the defendant of the opportunity of giving notice of
dishonour on the day the bill falls due and the defendant would hence be deemed to have changed
his position to his detriment. The court understood from this that the defence of change of position
was based on the need for the defendant to give notice of dishonour: it would have no application
where notice of dishonour was not required.
[188] 1984 (4) SA 392 (C).
[189] Govender v Standard Bank of South Africa Ltd 1984 (4) SA 392 (C).
[190] Govender v Standard Bank of South Africa Ltd 1984 (4) SA 392 (C). The court indicated (at
404) that what was claimed in this case was not restitution of that which had been given or paid as a
performance, but rather ‘money which has come into the hands or possession of another for no
justifiable cause, that is to say, not by gift, payment discharging a debt, or in terms of a promise, or
some other obligation or lawful ground for passing of the money to the recipient’. The recipient incurs
liability to the extent that he is enriched at the expense of the person whose money it had been.
Since the claim is the condictio sine causa and not the condictio indebiti, the negligence of the
claimant does not affect the right of recovery. See also Saambou Bank Ltd v Essa 1993 (4) SA 62 (N)
at 68.
[191] At 406. The court indicated that since there was a ‘clear juridical connection between the
contractual obligations of the defendant and his receipt of payment from the bank’ the payee had not
been enriched by the payment.
[192] At 406-7.
[193] 1993 (2) SA 41 (T). See also Nagel & Roestoff 486.
[194] The court stated (at 44) that: ‘The drawee bank . . . was not purporting to discharge an
indebtedness owed by the drawer to the payee. Its (mistaken) purpose was merely to obey its
mandate. It paid in its own name, not as the agent of the drawer. This being so, the payment did not
fall within the rule in Froman v Robertson 1971 (1) SA 115 (A) that a payment without authority but
in the name of the debtor and in his discharge induces extinction of the obligation.’
[195] 1995 (2) SA 279 (A).
[196] At 284G-285C. It further accepted (at 285E) that the drawee bank’s claim had to be allowed
if the payee had been enriched and if the enrichment was unjustified. The court indicated that if the
effect of the payment by the bank was to extinguish the drawer’s debt to the payee there would have
been no enrichment as the payment discharged the debt and thereby eliminated the payee’s claim for
payment. However if the payee’s debt was not discharged, the payee would prima facie be enriched
as he would retain both his claim and the money paid to him.
[197] At 286H-I. The court stated: ‘[O]nce the creditor has received his money from the bank,
however, the purpose of the agreement to accept a cheque has been achieved. The creditor has been
paid. Why should it matter, as between debtor and creditor, what the arrangements were between
the bank and the debtor, and whether the bank has complied with these arrangements?’ It further
remarked that ‘Payment by the bank without authority . . . need not be a risk for the payee at all. An
effective debt-extinguishing agreement achieves its purpose when the creditor receives the money
owing to him. For this purpose it does not matter whether the payment was . . . attended by breach
of the contract between the bank and its customer, the drawer. And indeed, it seems highly
undesirable that the payee should be drawn into these matters. He does not normally know what the
arrangements are between the bank and the drawer. In particular, he would not usually know
whether his payment was authorised by the drawer or not. Indeed, this might be a matter of dispute
between the drawer and the bank. Why, for instance, should the payee, who was duly paid, be
saddled with the uncertainty and delay of a dispute between the bank and the drawer as to whether a
proper countermand had been given?’ For criticism of this judgment see Van Zyl 195-6. Malan,
Pretorius & Du Toit 346 point out that in a scenario like this where there was no enrichment of the
payee it does not mean that the bank is without a remedy because in such case the bank may well
have a claim against the drawer who was enriched by the bank having effected the discharge of his
debt.
[198] At 291. The court indicated that by countermanding payment of the cheque ‘the drawer
unlawfully and unilaterally attempted to frustrate the debt extinguishing agreement. When the
cheque was still paid despite the countermand, the debt extinguishing agreement achieved its
purpose as the creditor received his money’. The court pointed out (at 293) that it was common
cause that the bank was not the drawer’s agent but a neutral functionary, with the effect that the
acts and intent of the bank, by themselves, cannot result in the payment of the debt owed to the
payee. However, it indicated that the acts and intent of the bank ‘form only part of the picture. They
must be seen in the light of the debt-extinguishing agreement between the debtor and the creditor. It
is that agreement that defines the purpose for which the cheque is given, and for which payment is to
be received from the bank. If that agreement provides that any payment by the bank, even an
unauthorised one, would discharge the debt as between debtor and creditor, such agreement would
be valid inter partes. The fact that the bank does not know or care what the purpose of its payment is
does not matter. Its function is neutral, almost mechanical. It performs the act which the parties have
agreed would serve to complete the payment of the debt. . . . In our case the debtor is paying his
own debt through the instrumentality of the bank.’ Subsequently in Nedcor Bank Ltd v Absa Bank
Ltd 1995 (4) SA 727 (W) at 730D-E the court refused the enrichment claim of the drawee bank which
had erroneously paid a forged cheque against a collecting bank that had received the cheque from a
customer as it held that neither the customer (who received the proceeds of the cheque as payment
for goods sold and delivered) nor the collecting bank, was enriched but that the thief of the cheque
was the person who was enriched in the circumstances. Cf Malan, Pretorius & Du Toit 346.
[199] In Absa Bank Ltd v Standard Bank of SA Ltd 1998 (1) SA 242 (SCA) the court granted the
drawee bank’s claim for recovery of a payment where the drawer’s signature on a cheque was forged
and the cheque was paid into the account of a customer of the collecting bank whose account was at
that stage overdrawn but which, after payment of the aforesaid cheque, showed a credit balance (at
252F-G). Absa contended that it had not been enriched as the customer’s indebtedness towards it
had been extinguished as a consequence of the payment that was received and that Absa’s benefit
had been off-set by the corresponding loss of its claim against the said customer in respect of the
overdrawn account with the result that its patrimony remained unchanged. The court, however,
granted Standard Bank’s claim as it held that Absa, which bore the onus of proving that it had not
been enriched by Standard Bank’s payment, failed to prove that had it sued the said customer ‘he
could have been heard to say that his overdraft had been extinguished as a result of that payment’.
The court also stated: ‘When a customer pays a cash amount equal to the debit balance of his
overdrawn account into that account, there is no question of set-off operating. He simply pays the
amount owing to the bank. The position is no different if the customer deposits a cheque drawn on
another bank into his account. If his bank collects payment and effectively credits the account, the
debt is likewise paid, or partially paid.’
[200] First National Bank of Southern Africa Ltd v East Coast Design CC 2000 (4) SA 137 (D). The
court indicated that although the payee was enriched and the plaintiff impoverished and there was a
causal connection between such enrichment and impoverishment, the third requirement for the
condictio to succeed was not met as the payee’s retention of the money received from the plaintiff
was not sine causa.
[201] First National Bank of South Africa Ltd v Perry NO [2001] 3 All SA 331 (A). The facts (at
paras 1 and 2) were that a cheque was stolen from one of the appellant’s customers and made out to
one of its other customers, a firm of stockbrokers with whom one of the thieves had an account. The
thief then informed the stockbrokerage that the proceeds of the cheque deposited into its account
were intended for him as a result of which the stockbrokerage, in the belief that the cheque was
genuine, credited the thief’s account with the relevant funds. The court indicated (at para 22) that
neither the condictio sine causa nor the condictio indebiti was appropriate in this instance because the
payments were neither made without cause nor under a mistake that an obligation existed. The causa
in this case was the instruction by the client of the stockbrokerage and the appropriate condictio
therefore has its basis in the illegality of the transfer of the moneys. However, in Nissan South Africa
(Pty) Ltd v Marnitz NO (Stand 186 Aeroport (Pty) Ltd Intervening) 2005 (1) SA 441 (SCA) it was held
that if a thief had deposited stolen money into an account where it was still identifiable as the fruit of
the misdeed, the true owner thereof would have a quasi-vindicatory claim to it.
[202] 2010 (3) SA 410 (SCA). Although in this case the question whether it should be the condictio
sine causa or the condictio indebiti did not require to be addressed the court nevertheless found it
necessary, in order to avoid future confusion, to express its view regarding the use of the condictio
indebiti in unjustified enrichment claims.
[203] The court pointed out (at 415J-416A) that in Absa Bank Ltd v De Klerk 1991 (1) SA 861 (W),
on similar facts, it was correctly held that the condictio indebiti was the appropriate remedy for the
bank to have relied upon. It stated that in Saambou Bank Ltd v Essa 1993 (4) SA 62 (N) a thorough
comparative analysis was made of the facts that would give rise to a bank being entitled to rely on
the condictio indebiti as opposed to the condictio sine causa. In Essa it was held that if a bank
believed it was ‘obliged to pay on demand any withdrawal sought by its customer up to the amount of
the credit standing in his account’ the condictio indebiti was the appropriate remedy. It
distinguished B&H Engineering v First National Bank of SA Ltd 1995 (2) SA 279 (A) as it dealt with
the different scenario of a bank paying the amount of a cheque to a payee not realising that payment
had been countermanded. The court in Leeuw v First National Bank 2010 (3) SA 410 (SCA) pointed
out that in B&H Engineering there was no question of the bank performing vis-à-vis the payee, hence
the condictio indebiti did not find application.
[204] 2012 (6) SA 569 (SCA).
[205] See para 8.2.3(ii)(b) below.
[206] Sharrock & Kidd 167; Malan, Pretorius & Du Toit 393; First National Bank of SA Ltd v Quality
Tyres (1970) (Pty) Ltd 1995 (3) SA 556 (A) at 568; Absa Bank Bpk v Coetzee [1998] 1 All SA 1
(SCA) at 3; APA Network Consultants (Pty) Ltd v Absa Bank Ltd 1996 (1) SA 1159 (W) at
1167; Standard Bank of South Africa Limited v Harris [2002] 4 All SA 164 (SCA) at 171; Absa Bank
Ltd v Greyvenstein 2003 (4) SA 537 (SCA) at 543-4.
[207] Sharrock & Kidd 167; Malan, Pretorius & Du Toit 393.
[208] See De Beer (1977(1)) 122. See also Pafitis v Nauomoff 1965 (4) SA 591 (SR).
[209] Sharrock & Kidd 167. See also First National Bank of South Africa Ltd v Quality Tyres (1970)
(Pty) Ltd 1995 (3) SA 556 (A) at 568. The true owner’s name need not appear on the cheque: Malan,
Pretorius & Du Toit 397; Holscher v Absa Bank 1994 (2) SA 667 (T) at 672-3; APA Network
Consultants (Pty) Ltd v Absa Bank Ltd 1996 (1) SA 1159 (W) at 1167; Standard Bank of South Africa
Ltd v Harris [2002] 4 All SA 164 (SCA) at 171; Absa Bank Ltd v Greyvenstein 2003 (4) SA 537 (SCA)
at 543-4. See further Malan, Pretorius & Du Toit 394 regarding challenges posed by the law of
property in this context.
[215] Schulze Commercial Law 407. However, Schulze points out that this does not mean that the
drawer can draw the cheque in any manner he deems fit. The drawer has a legal obligation to
minimise the risk of theft or loss by correctly naming the payee, making the cheque payable to order
and crossing it. If the drawer fails to act as aforementioned he can be held liable on the basis of
negligence for loss that the true owner suffers as a result thereof. See Greenfields Engineering Works
(Pty) Ltd v NKR Construction (Pty) Ltd 1978 (4) SA 901 (N).
[216] Schulze Commercial Law 407. See also Stabilpave (Pty) Limited v South African Revenue
Services 2014 (1) SA 350 (SCA) and Nagel & Pretorius (2014) 346 and the authorities there cited.
[217] Sharrock & Kidd 167. See also First National Bank of SA Ltd v Quality Tyres (1970) (Pty)
Ltd 1995 (3) SA 556 (A) at 568.
[219] Salmond 95.
[220] [1968] 1 WLR 956 (CA) at 970-1.
[221] Leal & Co v Williams 1906 TS 554 at 557-8; Zimbabwe Banking Corporation Ltd v Pyramid
Motor Corporation (Pvt) Ltd 1985 (4) SA 553 (ZSC) at 555.
[222] In Yorkshire Insurance Co Ltd v Standard Bank of SA Ltd 1928 WLD 251 it was said (at 281-
2) that the bona fide possessor of stolen property ‘is not liable to the true owner for the value of the
property; in our law he is not liable for damages on the ground of conversion, or on the ground that
the price is “money had and received” for the true owner, as it is phrased in English law. It is true
that in the passages in question the authors are dealing with the vindicatory action or actio ad
exhibendum . . . ; but they state definitely that the purchaser who buys the stolen article in good
faith and disposes of it in good faith is not liable on any ground, neither ex delicto, nor upon contract
or quasi-contract nor in natural equity.’
[223] Yorkshire Insurance Co Ltd v Standard Bank of SA Ltd 1928 WLD 251 at 283; Atkinson Oates
Motors Ltd v Trust Bank of Africa Ltd 1977 (3) SA 188 (W); Worcester Advice Office v First National
Bank of Southern Africa Ltd 1990 (4) SA 811 (C) at 814-15; Bonitas Medical Aid Fund v Volkskas
Bank Ltd 1992 (2) SA 42 (W) at 48.
[224] See Cowen (1966) 426-35.
[226] Universal Stores Ltd v OK Bazaars (1929) Ltd 1973 (4) SA 747 (A) at 760D-E; Van Hullsteyns
Attorneys v Government of the Republic of South Africa 2002 (2) SA 295 (SCA).
[227] Universal Stores Ltd v OK Bazaars (1929) Ltd 1973 (4) SA 747 (A).
[228] Section 81(8).
[229] Section 81(2) and (3) read with s 81(4).
[230] Section 81(2).
[231] Section 81(3). See also Nagel (2003) 334.
[232] Fonds Adviseurs Bpk v Trust Bank van Afrika Bpk 1974 (4) SA 883 (A).
[233] See Cowen (1966) 438.
[234] That is, if a person took any such cheque into his possession or custody after the theft or
loss, and fails to furnish the true owner or any person who has the rights of a true owner in terms of
s 81(7), at the latter’s request, with any information at his disposal in connection with the cheque —
in which event such person is deemed to have been a possessor of the cheque and either to have
given consideration therefor or to have received it as a donee.
[235] Gordon v Capital and Counties Bank [1903] AC 240 at 246. Cf Standard Bank of SA Ltd v
Minister of Bantu Education 1966 (1) SA 229 (N).
[236] [2002] 4 All SA 582 (N).
[237] Although the plaintiff in Barclays National Bank Ltd v Wall 1983 (1) SA 149 (A) also based
her claim on the provisions of s 81(3), her claim was unsuccessful because she failed to prove that
she was in fact the true owner of the stolen cheques.
[238] At 585g.
[239] At 585g-h.
[240] At 587h-i. This view is in conformity with the judgment of the court a quo in Optimprops
1030 CC v First National Bank of Southern Africa Ltd [2001] 2 All SA 24 (D) at 29 where the court
stated:
The object of section 81(3) is obviously to enable the true owner to identify the previous possessor of
the cheque or cheques to enable him to recover his loss under section 81(1). Section 81(3) virtually
holds a gun to the head of the bank and says: ‘If you refuse to give the information you do so at your
peril’. The section constitutes an inroad into the duty of secrecy of a bank and confidentiality which
the banker owes to its client. The obligation placed on the bank however overrides the duty of
confidentiality as it is a disclosure under compulsion of law which is a recognised exception to the
bank’s duty . . . A bank can be placed in an invidious position where it receives a letter requesting
information regarding an account holder particularly where the information is not stated to be
required in connection with a cheque crossed and bearing the words ‘not negotiable’ and it is not said
to be required in terms of section 81(3). The logical course to be adopted by a prudent bank would be
to enquire for what purpose the information is sought and only once it is established that it is in
connection with a crossed ‘not negotiable’ cheque which has been lost or stolen and paid, furnish the
information requested.
See also Nagel (2003) 334.
[241] Section 81(6). He may, however, be held liable if he fails to furnish information to the true
owner in terms of s 81(3).
[242] Section 81(7)(a).
[243] Section 81(7)(b).
[244] Section 81(7)(b). See also Greenfields Engineering Works (Pty) Ltd v NKR Construction (Pty)
Ltd 1978 (4) SA 901 (N) at 913-17.
[246] Malan, Pretorius & Du Toit 396. Cowen, for instance, was opposed to the idea of delictual
liability of the collecting bank — see the discussion of Indac Electronics (Pty) Ltd v Volkskas Bank
Ltd 1992 (1) SA 783 (A) in para 8.2.3(ii)(e). See also De Beer (1977(2)) 360; Dendy 512; Pretorius
(2013(2)) 287 for a detailed discussion of the evolution of the recognition of the delictual liability of a
collecting bank.
[247] 1928 WLD 251. See also Pretorius (2013(2)) 285.
[248] At 252.
[249] At 252-3.
[250] At 253.
[251] 1972 (2) SA 703 (R) at 707H. See also Bank of Credit and Commerce Zimbabwe Ltd v UDC
Ltd 1991 (4) SA 82 (Z).
[252] Rhostar (Pvt) Ltd v Netherlands Bank of Rhodesia Ltd 1972 (2) SA 703 (R) at 715B-H. See,
however, the criticism of this decision in Indac Electronics (Pty) Ltd v Volkskas Bank Ltd 1992 (1) SA
783 (A) at 793H-794B.
[253] 1977 (3) SA 188 (W).
[254] 1990 (4) SA 811 (C). The court referred favourably to, inter alia, 11 reasons for the
extension of Aquilian liability to collecting banks.
[255] 1992 (1) SA 783 (A). In this matter the collecting bank received a cheque made out to
plaintiff or order and paid out the cheque to its customer who was neither the payee nor the payee’s
order. See also Hugo 115; Kidd 1; Malan & Pretorius (1993(2)) 206; Pretorius (1992) 307; Visser
(1992(2)) 211.
[256] At 797B.
[257] In upholding the exception, Eloff DJP regarded himself bound by the earlier Witwatersrand
Local Division decisions in Yorkshire Insurance Co Ltd v Standard Bank of SA Ltd 1928 WLD 251
and Atkinson Oates Motors Ltd v Trust Bank of Africa Ltd 1977 (3) SA 188 (W). In both these cases it
was held that in the absence of actual knowledge of its customer’s defective title there existed no
legal duty on the part of a collecting bank to avoid dealing negligently with a lost or stolen cheque.
[258] At 797C-E.
[259] At 797F.
[260] At 798D-800A.
[261] This observation vindicates the submission by Malan (1979) 38 that ‘none of the objections
usually levelled against the recovery of economic loss are however really relevant to the recognition
of the liability of the paying or collecting bank. The identity of the claimant is determinable.’
[262] At 799A-B.
[263] At 799D.
[264] The court remarked (at 799I) that it ‘may well be established at a trial that a collecting
banker by obtaining insurance cover could, relatively inexpensively, protect himself against such loss’.
[265] At 801A-D. It pointed out that Cowen did not favour the extension of Aquilian liability for
negligence to the collecting bank but indicated that it did not agree with Cowen’s contentions in this
regard (at 800A-J). The court stated: ‘On balance, the factors which I have mentioned operate in
favour of recognizing the existence of a legal duty on the part of a collecting banker to the true owner
of a lost or stolen cheque to avoid causing him pure economic loss by negligently dealing with such a
cheque. However, at the stage of deciding an exception a final evaluation and balancing of the
relevant policy considerations which have been mentioned . . . should not be undertaken. It is
sufficient for the present purposes to say, firstly, that the lex Aquilia does not provide a basis upon
which a collecting banker can be held liable in negligence to the true owner of a lost or stolen cheque,
and, secondly, that there are considerations of policy and convenience in the present case
which prima facie indicate the existence of a legal duty on the part of the collecting banker to prevent
loss caused by negligently dealing with the cheque in question.’ Cf also Volkskas Bank Bpk v Bonitas
Medical Aid Fund 1993 (3) SA 779 (A), where the court noted that no evidence was led to rebut the
prima facie indication of the existence of a legal duty on the collecting bank to prevent loss by
negligently dealing with a cheque. See further Visser (1992(2)) 214; Kidd 5; Malan & Pretorius
(1994(1)) 116.
[266] At 801B-D.
[267] 1995 (1) SA 377 (D). This was a test case.
[268] As pointed out by Malan, Pretorius & Du Toit 402 n 40, other decisions after Indac accepted
the existence of a duty of care and were more concerned with the question of negligence on the part
of the collecting bank. See Malan & Pretorius (1994 (2)) 218; Nagel (1995) 217; Nagel & Greeff 486.
In KwaMashu two cheques were made payable to ‘KwaMashu Bakery only’ and were marked in bold
across the middle and running vertically upwards in capital letters with the words ‘not transferable’.
Payment on these cheques was collected by the defendant bank on behalf of two thieves who had
opened an account at the collecting bank’s Durban branch under the name and style of ‘KwaMashu
Soccer Club’. When the one cheque was deposited over the counter to the teller the name of the
account holder on the deposit slip was given as ‘KwaMashu Bakery Limited (Soccer Club)’. The name
of the account holder on the other cheque was given as ‘KwaMashu Bakery’.
[269] At 390.
[270] At 392.
[271] At 393. The court held that it offends against ‘one’s sense of fairness and reasonableness for
bankers who by statute are the only institutions who are entitled to take and collect negotiable
instruments and are regarded by society as professional persons and institutions competent in dealing
with money matters to, on the one hand, procure custom by inviting the public to bank with them
and representing that they will collect cheques on behalf of their customers and on the other hand
saying “there is a risk that when we collect a cheque it may not be for the true owner but although
we are aware of this risk it is going to cost us too much to guard against it and therefore we are
going to take no steps to protect the true owner”.’ The court further remarked that it ‘lies ill in the
mouth of the person who does an act which creates a certain risk to aver that because guarding
against the risk is very expensive it is therefore not liable. The absurdity of such a proposition
appears from its illogical result being that the more risky and dangerous a venture undertaken by a
person who does not have to undertake that venture and the more it would cost to safeguard against
such risk materializing, the less likely he is to be held liable because of the cost being too high’. See
also Malan, Oelofse & Pretorius 592; Malan & Pretorius (1991) 707 for a discussion of other relevant
considerations.
[272] The evidence showed that banks require their tellers to remove and tag all cheques with
restrictive endorsements whereafter a designated officer examines such cheques and exercises a
discretion as to whether further enquiry is necessary.
[273] Malan, Pretorius & Du Toit 405; Moorcroft para 18.1. On the importance of having due regard
to all the requirements of the lex Aquilia when potential delictual liability of the collecting bank is
considered see Absa Bank Bpk v Ons Beleggings BK 2000 (4) SA 27 (SCA). See also Pretorius (2000
(1)) 605; Nagel (2000) 409.
[274] Malan, Pretorius & Du Toit 405; Moorcroft para 18.1.
[275] 2006 (1) SA 461 (SCA).
[276] 1966 (2) SA 428 (A) at 430E-F as confirmed by the Supreme Court of Appeal in Mkhatswa v
Minister of Defence 2000 (1) SA 1004 (SCA) at 1111-14.
[277] Malan, Pretorius & Du Toit 405. Van Wyk v Lewis 1924 AD 438 at 444; Randaree and Others
NNO v WH Dixon and Associates 1983 (2) SA 1 (A) at 4D-F; Rhostar (Pvt) v Netherlands Bank of
Rhodesia Ltd 1972 (2) SA 703 (R) at 717E-G; African Life Assurance Co Ltd v NBS Bank Ltd 2001 (1)
SA 432 (W) at 448. See also Pretorius (1987) 56; Scott (1980) 124. Malan, Pretorius & Du Toit 405 n
58 point out that case law dictates that the standard of care should further be measured by the
general level of skill and diligence possessed and exercised at the relevant time of the conduct in
question.
[278] Malan, Pretorius & Du Toit 406. See Borrie. In Marfani v Midland Bank Ltd 1968 1 WLR 956
(CA) it was stated that the purpose of s 4(1) of the English Cheques Act of 1957 is to substitute for
the bank’s absolute duty ‘a qualified duty to take reasonable care to refrain from taking any such step
which he foresees, or ought reasonably to have foreseen, was likely to cause loss or damage to the
true owner’. In Commissioner of Taxation v English, Scottish and Australian Bank Ltd 1920 AC 683
the test was formulated as follows: ‘Whether the transaction of paying any given cheque, coupled
with the circumstances antecedent and present, was so out of the ordinary course that it ought to
have aroused doubts in the banker’s mind, and caused them to make inquiry.’ In Lloyds Bank Limited
v EB Savory and Company 1933 AC 201 (HL) at 221 it was stated: ‘The standard by which the
absence, or otherwise, of negligence is to be determined must in my opinion be ascertained by
reference to the practice of reasonable men carrying on the business of bankers, and endeavouring to
do so in such a manner as may be calculated to protect themselves and others against fraud.’
[279] Fedgen Insurance Ltd v Bankorp Ltd 1994 (2) SA 399 (W) at 410J-411C; KwaMashu Bakery
Ltd v Standard Bank of SA Ltd 1995 (1) SA 377 (D) at 395H; Energy Measurements (Pty) Ltd v First
National Bank of SA Ltd 2001 (3) SA 131 (W). See further Malan (1978(1)) 326; Malan (1979) 31;
Hugo 127; Malan & Pretorius (1993 (2)) 213-14. See also Moorcroft paras 18.3 and 18.4.
[280] Van Wyk v Lewis 1924 AD 438 at 444; Rhostar (Pvt) Ltd v Netherlands Bank of Rhodesia
Ltd 1972 (2) SA 703 (R) at 714F-H. In Marfani & Co Ltd v Midlands Bank Ltd 1968 1 WLR 956 (CA) at
579-81 the court stated: ‘What facts ought to be known to the banker, that is, what inquiries should
he make, and what facts are sufficient to cause him reasonably to suspect that the customer is not
the true owner, must depend on the current banking practice, and change as the practice changes
. . . this court should be hesitant before condemning as negligent a practice generally adopted by
those engaged in banking business.’
[281] Colman v Dunbar 1933 AD 141 at 157.
[282] Neethling & Potgieter (2015) 133-4. Malan, Pretorius & Du Toit 407 comment that the infinite
variety of circumstances that may arise makes it undesirable, if not impossible, to formulate and
advance concrete standards of conduct for all conceivable situations. See also Durr v Absa Bank
Ltd 1997 (3) SA 448 (A); Powell v Absa Bank Limited t/a Volkskas Bank 1998 (2) SA 807
(SE); Columbus Joint Venture v Absa Bank Ltd 2000 (2) SA 491 (W) at 503; and Pretorius (2000 (2))
359.
[283] 1998 (2) SA 807 (SE) at 822J.
[284] 2002 (5) SA 101 (W) at 109C-H. The court stated (at 109E-G) that the regulations ‘are
generally designed to prevent and protect the bank against the adverse consequences which flow
from negligent conduct by its employees. They also reflect the level of reasonable conduct which is to
be expected from bank employees.’
[285] 2003 (1) SA 222 (W) paras 24-25.
[287] Moorcroft para 18.7. See also Big Dutchman (SA) (Pty) Ltd v Barclays National Bank
Ltd 1979 (3) SA 267 (W) at 284B-G.
[288] Great Karoo Eco Investments (Edms) Bpk h/a Grobbelaarskraal Boerdery v Absa Bank
Bpk 2003 (1) SA 222 (W) paras 27 and 28.
[289] 2001 (1) SA 432 (W) at 447E-448B.
[290] Moorcroft para 18.7 n 46.
[291] In McCarthy Ltd v Absa Bank Ltd 2003 (1) SA 222 (W) paras 24-25 the bank acted both as
drawee bank and as collecting bank in an instance where the plaintiff, who was a customer of the
bank, was fraudulently caused by an employee of the bank to draw certain cheques, the proceeds of
which were deposited in the account of another client of the bank and thereafter misappropriated.
The court held that there is no implied term between the banker and its customer that the bank will
fulfil its collecting without negligence vis-à-vis the consumer (400C). This is so because the drawer of
a cheque is protected against the negligence of a collecting banker by the law of delict and there is
thus no pressing need for such a term (at 400E). The court further held that a finding that such an
implied term does exist would deprive the bank of the advantage of apportionment of damages (at
400F).
[292] 1972 (2) SA 703 (R) at 717E-H. See also African Life Assurance Co Ltd v NBS Bank Ltd 2001
(1) SA 432 (W) at 447.
[293] See also Zimbabwe Banking Corporation Ltd v Pyramid Motor Corporation (Pvt) Ltd 1985 (4)
SA 553 (Z) at 558D-560D where the court remarked that a cheque is not to be equated with an
ordinary piece of stolen property as the ‘endorsements on a cheque reflect instructions that ought not
to be ignored, and a cheque describes itself in a way that a stolen car or watch cannot’. Thus it
remarked that the collecting bank is simply not in the same position as that of any other intermediate
possessor as it is a necessary part of the payment mechanism and is the ‘last line of defence of the
drawer’. In Bank of Credit and Commerce Zimbabwe Ltd v UDC Ltd 1991 (4) SA 82 (Z) at 89D-E it
was held that the ‘paying banker’ is entitled to rely on the collecting bank following the instructions
on the cheque.
[294] Malan, Pretorius & Du Toit 412. See also Philsam Investments (Pvt) Ltd v Beverley Building
Society 1977 (2) SA 546 (R); Rhostar (Pvt) Ltd v Netherlands Bank of Rhodesia Ltd 1972 (2) SA 703
(R); Malan & Pretorius (1991) 715; Malan & Pretorius (1993 (2)) 215. Malan, Pretorius & Du Toit
point out (at 412 n 86) that the words ‘account payee/only’ also constitute one of the factors that
may affect the degree of care to be applied. However, a collecting bank owes a duty of care to the
owner of a cheque whether or not these words or any other words prohibiting transfer appear on the
cheque. According to the authors words such as ‘account payee/only’ or those prohibiting transfer do
not as such impose a duty of care on the collecting bank but merely require that a greater duty of
care be exercised than in respect of other cheques. Cf Absa Bank Ltd v Mutual & Federal Insurance Co
Ltd 2003 (1) SA 635 (W).
[295] See s 75A(2). See also Malan, Pretorius & Du Toit 391.
[296] 1993 (3) SA 779 (A) at 791H-792A. See Malan & Pretorius (1994 (1)) 120; Pretorius (2000
(2)) 359.
[297] Bonitas Medical Aid Fund v Volkskas Bank Ltd 1992 (2) SA 42 (W).
[299] 1995 (1) SA 377 (D).
[300] At 395.
[301] At 395-6.
[302] 2001 (3) SA 132 (W). The facts in Energy Measurements were that on 10 February 1998 a
person introduced himself as Eugene Wayne to the Rivonia Branch of First National Bank. He
requested the bank to open a business cheque account in the name of ‘Tradefast 8 (Pty) Ltd trading
as Energy Measurements’. He filled out an application form supplied to him by the bank and furnished
the bank with a certificate of incorporation, memorandum of association, articles of association,
notice of registered office and postal address, certificate to commence business and other related
official documentation in the name of Tradefast 8 (Pty) Ltd. A document headed ‘Energy
Measurements. Management report’ was supplied on a letterhead of ‘Energy Measurements, Tradefast
8 (Pty) Ltd’. This document contained the projected sales figures and turnover of the company. After
the account was opened a cheque in favour of ‘Energy Measurements’ in the sum of R274 496.04 was
deposited into the account. A second cheque in favour of ‘Energy Measurements (Pty) Ltd’ was later
deposited into the account. It subsequently came to light that the opening of the bank account was
part of an elaborate fraudulent scheme. The cheques were stolen from the plaintiff and the Tradefast
8 (Pty) Ltd was a ‘shelf company’. Wayne must have bought the company from the person who
originally incorporated it and had his name registered as the sole shareholder and director. It was
thus possible for him to supply the bank with notarially certified copies of all the relevant company
documents. Although the bank did run a credit check on Tradefast 8 its sole purpose was to ascertain
whether judgments were standing against the account holder and to warn against possible losses by
the bank arising from previous conduct. The court found that it was apparent from the evidence that
the defendant bank did no more than collect the documents that established the identity of the
company and its director and accept their authenticity at face value. The bank officials did not in any
way apply their minds to the application form, the credit information or the projected income
statement that Wayne furnished or consider their contents. Had they done so, the very apparent
discrepancies would have been glaring to them and their suspicions would have been aroused by the
information that was furnished. The court thus held that the collecting bank failed in its duty to take
care to prevent losses to the owners of the cheques and held that the bank acted negligently.
[303] The court unfortunately referred to the ‘drawee’ instead of the ‘payee’ (at 160B).
[304] At 159J-160E.
[305] At 162A-B. This is the important distinction between Energy Measurements and Columbus
Joint Venture v Absa Bank Ltd 2000 (2) SA 490 (W). Also in Powell v Absa Bank Ltd t/a Volkskas
Bank 1998 (2) SA 807 (SE) at 821A the court held that the reasonable banker might be excused from
making enquiries in respect of an existing customer. See also Malan & Pretorius (1993 (2)) 206.
[306] At 163C-D. See Malan & Pretorius (1993 (2)) 214. See Marfani & Co Ltd v Midland Bank
Ltd [1968] 1 WLR 956 (CA) where the court pointed out that although ‘it might be thought desirable
that some such document as a passport or a driving licence should be asked for’ to establish identity,
the verification by some respectable referee may suffice in appropriate circumstances (at 980).
[307] At 166ff. In this regard the court examined the consideration that a more incisive enquiry
could possibly offend a prospective client. The court remarked: ‘This argument is also not a sound
one. A prospective client with no banking history should expect a more thorough probe into his
financial and business affairs than the scrutiny to which a person with an established business record
and proven banking history would be subjected. Requiring trade and other references is a common
business practice and no justification exists to exempt banks from such a duty. It must be borne in
mind that enquiries could be made in a discreet manner and without being offensive. A bona fide
prospective customer is unlikely to be offended if the enquiry is done in a professional way’ (at 165H-
166A).
[308] Although the court said ‘greater’, it is obvious that it should read ‘less’.
[309] At 166E-167D. The court remarked that the above safeguards are neither onerous, nor
impracticable nor costly. It would not require bank officials to become detectives or forensic
investigators. These steps are no more than would be taken by a prudent businessman who
safeguards himself against potentially untrustworthy clients. The court pointed out that once it was
accepted, as was done, that the collecting bank has a duty of care to guard against losses by the true
owners of cheques, that duty can only meaningfully be fulfilled by taking concrete and meaningful
steps. Otherwise, mere lip service will be paid to the duty (at 167C).
[310] 2002 (1) SA 90 (SCA).
[311] At 96G-97A. In National Vehicle Refurbishers CC v Nedcor Bank Ltd t/a Nedbank it was,
however, held that a bank is not per se negligent if it allows an account with a name similar to that of
an existing client to be opened at the same branch or at any other branch of the bank.
[312] The facts in this case were that the plaintiff had since March 1992 in its employ as group
legal advisor a person by the name of Alexander Bertolis. Since July 1991 Bertolis had an existing
personal cheque account with the defendant’s Boksburg branch. He also had a mortgage bond with
the defendant and all his particulars were known to the defendant. During October 1993 Bertolis
opened a current account with the defendant, not in his personal name but in the name of
‘Stanbrooke & Hooper’, an existing firm of solicitors specialising in European Community Law in
Brussels. At the time when the account was opened, Bertolis handed the defendant a typed document
that purported to be a franchise agreement between Stanbrooke & Hooper as franchisor and Bertolis
as franchisee. During the period November 1993 to April 1996 Bertolis sent quite a number of
fictitious invoices to the plaintiff under the pretence that the plaintiff owed money to Stanbrooke &
Hooper for professional services of a legal nature. The plaintiff drew 39 cheques in payment of these
accounts, totaling an amount of R777 302.40. Almost all of these cheques were drawn in favour of
‘Stanbrooke & Hooper’ and were crossed and marked ‘not transferable’. These cheques were
channelled through the aforementioned bank account. It subsequently became known that Bertolis
was a very dishonest person and that he was never authorised by any entity by the name of
Stanbrooke & Hooper to conduct business on its behalf and that he probably typed out and signed the
franchise agreement himself. Everything was part of an elaborate scheme to defraud his employer,
the plaintiff. The plaintiff sued the defendant as collecting bank and alleged that the defendant was
negligent in opening the previously mentioned account and also that the defendant was negligent in
collecting payment of the cheques.
[313] The matter was presented to the court by means of a stated case. Malan J pointed out at
509H-I that ‘[t]he stated case severely limits the facts and circumstances on which a finding of
negligence can be made. There is no evidence of what banking practice is or of what a prudent
banker would or should have done under the circumstances. The stated case is quite silent on the
matter. In the absence of evidence the question is thus whether the defendant displayed reasonable
care in opening the account.’ See also Powell v Absa Bank Ltd t/a Volkskas Bank 1998 (2) SA 807
(SE) and Pretorius (1997 (2)) 497.
[314] At 499. See African Life Assurance Company Limited v NBS Bank Limited 2001 (1) SA 432
(W) at 440 where the defendant argued that the duty of care cannot be owed to the payee of a
cheque. It is trite that the duty of care is owed to the owner of the cheque. If the payee is in fact the
owner of the cheque, the collecting bank owes the duty of care to the owner of the cheque.
[315] At 499. The court remarked: ‘Ownership of a cheque can be transferred only in accordance
with the general requirements of the law relating to the transfer of ownership in corporeal movables.
“There must be delivery of the thing, ie transfer of possession, either actual or constructive, by the
transferor to the transferee, and there must be a real agreement . . . between the transferor and the
transferee, constituted by the intention of the former to transfer ownership and the intention of the
latter to receive it.” (First National Bank of SA Ltd v Quality Tyres (1970) (Pty) Ltd 1995 (3) SA 556
(A) at 568G-H). In certain cases of fraud consensus would be excluded (Cornelissen NO v Universal
Caravan Sales (Pty) Ltd 1971 (3) SA 158 (A) at 170F) and consent would equally be absent in
instances of mistake where the other party is aware of the mistake; a fortiori where he induced the
mistake by fraud (S v Graham 1975 (3) SA 569 (A) 573F). Where the fraud is of a fundamental
nature occurring outside contractual context or consensus consent is vitiated and delivery does not
result in the transfer of ownership (Commissioner of Customs and Excise v Bank of Lisbon
International Ltd and another 1994 (1) SA 205 (A) 208F)’ (at 499G-500A).
[316] At 500-8. The judgment contains an explanation of some of the differences between the legal
systems: ‘[T]he concept of “customer” has a different significance in English law, where the
protection of s 4(1) of the Cheques Act, 1957, is dependent on payment being received for a
customer or a customer’s account being credited from that in Canadian law where it is of no particular
importance. Banks in Canada open accounts for persons walking into branches without making
inquiries and without risking liability (Crawford and Falconbridge Banking and Bills of Exchange 8th ed
(1986 . . .) § 3201.2 at 740-1; Toronto-Dominion Bank v Canadian Acceptance Corp Ltd (1969) 7
DLR (3d) 728 at 734). In South African law the term “customer” is of limited importance and is used
in sections 58, 73, 81(5), 82 and 83, none of which is of particular relevance in determining whether
a collecting bank has discharged its duty of care towards the true owner of a lost or stolen cheque’
(at 502C-E).
[317] At 502F-503A.
[318] At 510C-F.
[319] The court found (at 115B-C) that to require the defendant bank to telephone Belgium to
verify the existence of the franchise agreement would simply be asking too much. In the absence of
expert evidence indicating that there were circumstances indicating something untoward, the court
held that it could not be said that the defendant was negligent for failing to make inquiries as to
whether it would in fact be legal for Bertolis to have entered into the franchise agreement with
Stanbrooke & Hooper. In the absence of special circumstances it could also not be expected of the
bank to ascertain whether an existing client is in fact doing the business he says he is engaged in and
the bank was entitled to rely on the franchise agreement presented to it. The court thus found that
the plaintiff failed to prove that the defendant had been negligent.
[320] At 97A.
[321] At 98E-F.
[322] At 100D-F.
[323] At 101 para 23.
[324] At 102E-F. In this regard the court disagreed with the proposition of the court a quo where
Malan J opined that a bank should be careful ‘not to inquire where inquiries might offend the
customer and invade his privacy’ (at 510I-J).
[325] Act 38 of 2001.
[326] See also clause 7 of the Code of Banking Practice regarding various aspects of accounts.
[327] Malan, Pretorius & Du Toit 413. Cf Worcester Advice Office v First National Bank of Southern
Africa Ltd 1990 (4) SA 811 (C) at 820I-J; Bank of Credit and Commerce Zimbabwe Ltd v UDC
Ltd 1991 (4) SA 82 (ZS). Cf Kelly 509.
[328] 2000 (2) SA 491 (W) at 514C-D.
[329] 1994 (2) SA 667 (T).
[330] 1998 (2) SA 667 (W).
[331] Nedcor Bank Ltd t/a Nedbank v Lloyd-Gray Lithographers (Pty) Ltd 2000 (4) SA 915 (A). See
further Bank of Credit and Commerce Zimbabwe Ltd v UDC Ltd 1991 (4) SA 82 (Z) at 93A-E; Great
Karoo Eco Investments (Edms) Bpk h/a Grobbelaarskraal Boerdery v Absa Bank Bpk 2003 (1) SA 222
(W) for instances where apportionment was ordered. The Apportionment of Damages Act 34 of 1956
applies to delictual claims only — see Barclays Bank DCO v Straw 1965 (2) SA 93 (O).
[332] 1978 (4) SA 901 (N). The court expressed the view (at 912H) that the issue of causation in
this specific matter was not substantially problematic. See also Malan, Oelofse & Pretorius 636-7.
[334] 2001 (1) SA 372 (SCA). See further Nedcor Bank Ltd t/a Nedbank v Lloyd-Gray Lithographers
(Pty) Ltd 2000 (4) SA 915 (SCA). See also Neethling & Potgieter (1999) 772; Neethling 518;
Potgieter 731; Kelly 509.
[335] Paragraph 9. The court held (at para 11) that the thief had stolen from the innocent plaintiff
and defrauded the negligent collecting bank and thus that the thief and the bank were concurrent
wrongdoers at common law, with the result that the plaintiff was entitled to hold either or both of
them liable for the full amount of its loss.
[337] At 799I-J.
[338] Malan, Pretorius & Du Toit 395. See Malan & Pretorius (1999) 541.
[340] Schulze Commercial Law 430. It is trite, however, that an electronic funds transfer is not a
payment instrument but rather a method of payment. See Schulze (2004(1)) 670-1. Schulze points
out the following three differences between electronic funds transfers (in the instance where the
payment instruction is given electronically) and negotiable instruments: an electronic funds transfer is
not payable at a determinable future time or on demand; it is not payable to the order of a specified
person or to bearer; it does not include any words that can be construed as a formal instruction given
by the payee to his bank. See also Nedcor Bank Ltd (t/a Nedbank) v H Bhayat Wholesalers CC & Bank
of Lisbon International Ltd unreported WLD case no 31228/29 (21 February 1994) cited by Meiring
36, where the court stated: ‘The relationship between banker and customer vis-à-vis a cheque is in
my view in principle no different to the relationship between a banker and customer with regard to a
telegraphic transfer. It is just another means of withdrawing the money out of the customer’s account
in order that the payee, who is designated in terms of the telegraphic transfer receives the credit in
respect of such a transfer.’ Cf Moorcroft para 20.3.
[341] Malan & Pretorius (2006) 595 indicate that ‘credit transfer’ is somewhat of a misnomer as it
involves neither ‘funds’ in the sense of coins and notes nor a physical transfer of funds. The
transaction is executed by virtue of a series of mandates resulting in the crediting of the beneficiary’s
account. The beneficiary then obtains a personal right against his bank to credit and pay out the
amount of the transfer to him. At the same time the originator’s account with his bank is debited
reducing the amount he is entitled to claim from it. See also Schulze (2004(1)) 671. Comte 7
ventures the following summation of the concept ‘credit transfer’: ‘a credit transfer is a species of
“fund transfer” and is initiated by an order, subject (if the originator so requires) only to a stipulation
regarding time of payment, transmitted orally, in writing or electronically by the originator (or
sender) to a bank (the originator’s bank or receiving bank), instructing the bank to pay, or cause the
payment of, an amount of money to the beneficiary.’
[343] Schulze Commercial Law 430. Malan & Pretorius (2006) 595 explain that a debit transfer is
initiated by the creditor who instructs his bank to collect payment of a certain and mostly recurring
debt, from the debtor by ‘pulling’ the funds from the debtor’s account to his account. A debtor may
also authorise his bank in advance to effect payment of debts by means of a debit transfer, in which
event the transaction between the debtor and his bank can be characterised as one of mandate.
According to the authors (at 596) it would appear that any credit to the creditor’s account has
provisional effect only, subject to the debit transfer order being paid.
[344] Louw NO v Coetzee 2003 (3) SA 329 (SCA) at 334H-I; Commissioner of Customs and Excise
v Bank of Lisbon International Ltd 1994 (1) SA 205 (N) at 208I; Trustees Estate Whitehead v
Dumas 2013 (3) SA 331 (SCA) at 334E.
[345] Schulze (2007(1)) 384.
[346] Malan & Pretorius (2006) 602; Nagel para 32.09. Cf Schulze (2002(2)) 621; Schulze
(2007(2)) 372-7; Schulze (2001) 710.
[347] Malan & Pretorius (2006) 603.
[348] Malan, Pretorius & Du Toit 279. See B&H Engineering v First National Bank of SA Ltd 1995
(2) SA 279 (A) at 293. As pointed out by Malan, Pretorius & Du Toit 279 the agreement to accept any
specific means of payment rests on an agreement between the drawer, originator, credit card holder
and the payee. In Gilbeys Distillers and Vintners v Absa Bank (CPD) unreported case 12698/94 (4
December 1998) it was stated by the full court that the relationship between a bank and a customer
instructing the bank to transfer funds in the case of a money transfer was one of mandate. See also
Schulze (2004(2)) 53 for an explanation of the process involved in electronic funds transfers.
[351] Malan, Pretorius & Du Toit 280; Comte 12-16. See also Royal Products Ltd v Midland Bank
Ltd and Bank of Valetta Ltd 1981 2 Lloyd’s Rep 194 (QB). According to Joubert & Van Zyl 11, good
faith in this sense means that the mandatary must act ‘honestly and properly, in the interest of the
mandatory, and . . . refrain from intentionally causing him or her any harm’. Cf the discussion on the
standard of care to be exercised by a reasonable banker in para 10.2.3 above.
[352] Malan & Pretorius (2006) 604. See also Comte 15-16.
[353] Malan, Pretorius & Du Toit 280. See also Geva (2001) 392.
[354] Comte 15 where he remarks: ‘One can extrapolate that duty, in respect of credit transfers
initiated, for example, at the customer’s home through internet banking, as the duty to create and
send his payment order in a manner that prevents forgery, alteration or fraud.’
[355] See paras 7 and 9 of the Code of Banking Practice 2012, available at www.banking.org.za,
last accessed on 5 February 2015.
[356] Malan & Pretorius (2006) 605. The authors indicate that this exposition accords with the
common-law position where a submandatary incurs liability to the mandatary to account to him in
terms of their contract, while the mandatary is liable to the mandator for the submandatary’s conduct
and any breach of contract. Thus, where an intermediary bank is involved, the intermediary bank is
accountable to the originator’s bank and not to the originator himself. See further Joubert & Van Zyl
para 98 and Comte 11.
[358] Malan & Pretorius (2006) 606. See also Gilbeys Distillers and Vintners v Absa Bank (CPD)
unreported case no 12698/94 (4 December 1998) para 60.
[361] Schulze (2004(1)) 673 points out that payment by electronic funds transfer differs from
payment by cheque in the following respects: Payment by cheque usually does not give rise to a
novation of the underlying agreement — whether a new agreement is created is determined by the
intention of the parties. The acceptance of a cheque in payment of a debt amounts to payment of the
debt subject to the condition that the cheque is paid by the drawee bank on presentation. By
contrast, payment by electronic funds transfer is not subject to any such condition and is therefore an
absolute and not a conditional form of payment.
[362] See ch 7.
[363] Nagel para 32.27. Schulze (2013) 295 makes out a compelling case for regulation of
electronic payments in South Africa by highlighting the features of the Australian ePayments Code.
See also Schulze (2004(2)) 50; Visser (1989) 189; Schulze (1992) 53; Faul 381; Schulze (2004(3))
703.
[364] Act 34 of 2005.
[365] Act 68 of 2008.
[366] Act 25 of 2002.
[367] Schulze (2004(2)) 57 indicates that although the Electronic Communications and
Transactions Act provides a wide and general framework for the facilitation and regulation of
electronic communications and transactions, including electronic transactions for financial services (eg
s 42) it does not deal exclusively with electronic banking services and a number of aspects
surrounding the use of electronic banking products are not necessarily covered by the said Act. Cf
Volker 112.
[368] Schulze (2004(2)) 57.
[369] Schulze (2004(2)) 64.
[370] Schulze (2004(2)) 64. Schulze remarks: ‘It goes without saying that consumers currently
receive less than a fair deal from their banks and that the rules and conditions that apply to electronic
payments, especially when it comes to which party bears the risk of loss of money in the case of
fraud or an incorrect transfer of money, heavily favour the scribes of these rules and conditions,
namely the banks. By refusing to collect cheques with a face value in excess of R5 million, banks
have neatly sidestepped their responsibilities towards their clients in this regard. The clients are now
expected to make use of a method of payment (for instance, electronic transfers) which provides
them with considerably less legislative and judicial protection than they would have enjoyed had they
been allowed to draw a cheque to effect payment.’ Schulze (2004(1)) 670 further remarks that
because banks are the sole scribes of the rules and conditions under which electronic funds transfer
facilities are offered to potential (or existing) clients, the client has to assume the lion’s share of the
risk involved in using electronic funds transfers. See also Schulze (2005) 203, 205. It is, however,
submitted that legislation such as the Consumer Protection Act 68 of 2008 seeks to protect
consumers against unfair contract terms and that the provisions of bank-customer agreements may
be challenged in terms of this Act regarding, inter alia, aspects such as unfair contract terms as dealt
with by s 48 of the Act. See also para 8.3.2 below.
[371] It is not clear whether the Code of Banking Practice is legally binding in a court of law: the
2004 Code provided (para 2) that its provisions would be legally binding in a court of law but the
2012 Code does not contain this provision. Cf Moorcroft para 20.15.
[372] Schulze (2004(2)) 60.
[373] Schulze (2004(2)) 60. See also Pretorius (1998) 326; Pretorius (2001) 260.
[374] Schulze (2004(2)) 64. Regarding the increase in electronic funds transfers in South Africa,
see Schulze (2004(1)) 668; Schulze (2007(1)) 379.
[375] Comte 6.
[377] Schulze Commercial Law 430-1. Cf Van der Bijl 159; Cassim 401. See also Perlman 213.
[378] It is also possible for a customer to be in collusion with the person who is making the
fraudulent withdrawal or even for the customer to actually make such withdrawal himself under the
pretence that his card was stolen or used without authorisation. However, it is submitted that such
withdrawal cannot be regarded as an unauthorised payment due to the customer’s involvement.
[379] See Comte 19 for examples.
[380] Paragraph 7.6 of the Code of Banking Practice 2012.
[381] These precautions that the customer is obliged to take are listed in para 7.7 of the Code of
Banking Practice 2012.
[382] Paragraphs 7.7.8 and 7.7.9 of the Code of Banking Practice 2012.
[383] Paragraph 7.7.10 of the Code of Banking Practice 2012.
[384] See para 7.8 of the Code of Banking Practice 2012. The Code explicitly excludes the liability
of banks for certain losses beyond their reasonable control and lists examples of these in paras
7.10.6-7.10.9.
[385] Comte 18 opines that the Code will most likely not found a duty on the customer in a court of
law but may be used by a court to interpret and explain the general duties of the customer as
mandator and the bank as mandatary.
[386] Schulze (2004(2)) 61. Regarding the complexities that can arise when there is a dispute
between the bank and the customer as to whether there had in fact been an authorisation for an
electronic funds transfer by the client, see the discussion by Schulze of ‘EL-Zayed v Bank of NS’ at
61-2. See further Hayek 105.
[387] 2004 (3) SA 630 (D). See further Schulze (2004(4)) 143 and Schulze (2005) 202 where he
expresses the opinion that the said clause which provided that the credit card holder is responsible for
all credits to the card is unfair.
[388] Act 68 of 2008.
[389] Diners Club v Singh was decided before the Consumer Protection Act 68 of 2008 came into
full operation on 31 March 2011. This Act, which also applies to banking services, protects natural
person consumers as well as small juristic person consumers. It contains provisions regarding unfair
contract terms (s 48), exemption clauses (s 49) and quality of service (s 54).
[390] See Comte 19.
[391] [2014] All SA 249 (SCA).
[392] Thus the bank raised the defence of estoppel by contending that the customer owed a duty of
care with regard to how he operated his account.
[393] At 254E.
[394] On appeal it was pointed out that the principal duty of a bank effecting a credit transfer is to
perform its mandate timeously, in good faith and without negligence. The duty of the customer in
terms of the bank-customer relationship is to draw his payment instructions with reasonable care in
order to prevent forgery or alteration and to warn of known or suspected fraud or forgery. In the
present case, however, there were a number of factors that indicated that the bank was negligent: it
did not phone the customer to confirm his signature, it made the payment on the basis of a fax and
not an original form and it had opened a bank account for the other company without a company
resolution authorising the opening of the account. It further held that the customer could not
reasonably have foreseen that the amount on the second page of the instruction form would be
altered. He also did not facilitate the alteration and wrote the words and figures with care. It was not
his negligence but that of an employee of the bank that was the proximate cause of the loss as the
employee did not notice that the payment instruction had been altered.
[395] Ex parte Kelly 1943 OPD 76. Schulze (2007(1)) 383.
[396] Schulze Commercial Law 414; Comte 4, 21. The recipient bank, otherwise called the
‘receiving bank’, is the bank to whom the payment order is addressed and is not necessarily the
beneficiary bank.
[399] Schulze Commercial Law 414. See also Meiring 41 who questions the need for or relevance of
the countermand of an electronic funds transfer because she submits that the instantaneous nature of
electronic funds transfers leads to the conclusion that an instruction by a customer to pay by means
of electronic funds transfer should be irrevocable. She further states that perhaps an exception to the
principle of irrevocability of electronic funds transfers should be contemplated in the case of credit
transfers and that ‘the agreement between the receiving bank and its customer may provide that a
payment order may not be countermanded by the sender unless the countermand is received and
accepted by the receiving bank other than the beneficiary’s bank at a time and in a manner sufficient
to afford the receiving bank sufficient opportunity to act’.
[400] Malan, Pretorius & Du Toit 292. Schulze (2004(1)) 674 states that it is generally accepted
that once an authorisation for an electronic funds transfer has been given by a customer of a bank,
either to the bank itself, or where it has been communicated to the terminal, the electronic funds
transfer cannot be countermanded.
[401] Malan, Pretorius & Du Toit 292 where they raise the question whether such revocation is
possible only before the beneficiary bank receives the transfer instruction as well as cover for the
payment. See also Royal Products Ltd v Midlands Bank Ltd and Bank of Valetta 1981 2 Lloyd’s LR 194
at 198-9. Cf Geva (2001) 290; Malan, Pretorius & Du Toit 292 n 101; Schulze (2004(1)) 674.
[402] Such reversal should occur within a reasonable period of time after the transfer was made.
See Schulze (2007(1)) 387.
[403] See Pestana v Nedbank Ltd 2007 JDR 0353 (W); Pestana v Nedbank Ltd 2008 (3) SA 466
(W) (full bench); Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA) regarding the situation where a
unilateral reversal of a credit transfer was done by a bank subsequent to instructions from a third
party. It is submitted that it is only the originator of a payment instruction that can ‘countermand’
such instruction — if an instruction to reverse a credit transfer is given by another party it cannot be
regarded as a ‘countermand’ but merely as an instruction to reverse payment.
[404] [2004] 1 All SA 597 (SCA).
[405] The legality of the countermand did not serve before the court which was concerned with an
application for recusal of the presiding judge.
[406] At 597D-E.
[407] At 594B.
[412] See para 8.3.4(i)(b) below.
[413] See para 8.3.4(i)(b) below.
[414] Comte 22 remarks that ‘it seems fair to opine that at the earliest the reversal of credit
transfers becomes relevant when the payment order is transmitted to the receiving bank (which
usually is also the originator’s bank) and at the latest it becomes relevant when the beneficiary
obtains an unconditional right against the beneficiary bank which would probably manifest as the
“untrammelled power to dispose immediately, as cash in its hands, of the funds transferred”’. Cf
Nagel paras 32.50-32.52.
[415] In Standard Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (In Liquidation) 1998
(1) SA 811 (SCA) the Supreme Court of Appeal stated (at 823B) that ‘[e]ntries on bank accounts may
reflect valid juristic acts, but that is not necessarily so. Whilst in general it may be said that entries in
bank’s books constitute prima facie evidence of the transactions so recorded, this does not mean that
in a particular case one is precluded, unless say by estoppel, from looking behind such entries to
discover what the true state of affairs is’. See also Comte 41-2.
[416] [2004] 1 All SA 597 (SCA). As indicated this matter dealt with a countermand of a credit
transfer by the originator. See para 8.3.2(ii) above.
[417] At 598.
[418] At 599.
[419] Schulze (2004(1)) 677.
[420] Schulze (2004(1)) 677.
[421] Schulze (2004(1)) 677.
[422] For an example of such a set of facts see Nedbank Ltd v Pestana [2009] 2 All SA 58 (SCA).
[423] [2009] 2 All SA 58 (SCA). The facts in this matter were presented by way of a stated case
and were briefly that the respondent conducted a current account at the appellant bank (who in this
instance was both the originator bank and the beneficiary bank). Another client of the bank, also
Pestana, instructed the bank to transfer funds from his account to the respondent’s account. Acting in
terms of an instruction received from the Receiver of Revenue that Pestana owed it a large sum of
money, the bank reversed the aforementioned credit to the respondent’s account and paid an amount
requested by the Receiver by debiting Pestana’s account. The bank did not request the respondent’s
authority to reverse the credit and at no stage did the respondent authorise the bank to do so.
[424] Pestana v Nedbank Ltd 2008 (3) SA 466 (W), which followed upon the single-judge decision
in Pestana v Nedbank Ltd [2006] ZAGPHC 113 (29 May 2009). For a discussion of the latter decision
see Schulze (2007(1)) 379. The full bench decision was subsequently discussed by Schulze (2008)
290. In the latter article Schulze points out that the Pestana case was a stated case (which bound the
court to the agreed facts) and surmises (at 296, 297) that there may have been fraud involved in the
matter, as Pestana and the respondent were apparently related and the instruction from Pestana to
transfer the money to the respondent’s account came within three hours after the head office of the
bank received the s 99 notice from the Receiver of Revenue, thus giving rise to Schulze’s suspicion
that Pestana instructed the credit transfer to the respondent’s account to avoid the Receiver getting
hold of the money he owed to it. If the instruction was indeed tainted by fraud, he points out that it
would have been invalid, thus entitling the bank to reverse the credit.
[425] Paragraphs 10-16. The court indicated that there were two things that the s 99 notice sent
by the Receiver of Revenue did not do: First, it did not freeze Pestana’s account and, secondly, it did
not transfer or effect a cession of the funds in Pestana’s account to the Receiver of Revenue (para
10). The court further indicated (paras 12 and 13) that when the bank effected the credit transfer, it
could only have had one intention and that would have affected both its client, Pestana, and the
respondent. It was not possible for the bank to accept payment on behalf of the respondent while
simultaneously intending, on behalf of Pestana, not to pay. Thus the court held (para 16) that once
the bank intended to pay the respondent unconditionally, on behalf of Pestana, it could not intend not
to accept payment on behalf of the respondent. Therefore, if the payment to the respondent, or the
crediting of his account, was unconditional, it followed that the bank could not unilaterally reverse the
payment. Schulze (2009) 400 remarks that Pestana gives rise to the question whether a credit
transfer is a complete and independent juristic act that cannot be reversed under any circumstances.
He points out that the full court was, however, prepared to admit (para 16.3 of the full court
judgment) that even in the case where a bank had credited a client’s account unconditionally, that
would not necessarily mean that the bank will under no circumstances whatsoever be allowed to
unilaterally reverse a so-called ‘complete juristic act’. In this regard the full court referred to Standard
Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (In Liquidation) 1998 (1) SA 811 (SCA) at
823B where it held as follows: ‘Entries on bank accounts may reflect valid juristic acts, but that is not
necessarily so. Whilst in general it may be said that entries in a bank’s books constitute prima
facie evidence of the transactions so recorded, this does not mean that in a particular case one is
precluded, unless say by estoppel, from looking behind such entries to discover what the true state of
affairs is. So, for example, if a customer deposits a cheque into his bank account, the bank would
upon receiving the deposit pass a credit entry to that customer’s account. If it is established that the
drawer’s signature has been forged it cannot be suggested that the bank would be precluded from
reversing the credit entry previously made. So too, if a customer deposits bank notes into its account
the bank would similarly pass a credit entry in respect thereof. If it subsequently transpires that the
bank notes were forgeries it can again not be successfully contended that the bank would be
precluded from reversing the credit entry.’
[426] Schulze (2009) 400.
[427] Paragraph 17.
[428] 2005 (1) SA 441 (SCA). In this case a customer of the originator bank instructed the bank to
make payment of a large amount to the account of one of its creditors, which account was held at
another bank. As a result of a clerical error the wrong account details were furnished. It was unclear
whether the plaintiff’s clerk or the bank’s clerk was responsible for the error. The plaintiff
subsequently became aware of the erroneous payment but despite demand, the party into whose
account it was paid refused to pay it back unconditionally. The party who erroneously received the
money eventually went into liquidation after the plaintiff obtained a freezing order against its bank
account to prevent it from dealing with the credit balance on the account. The liquidators contended
that the credit in the account formed part of the insolvent estate and was subject to a concursus
creditorum. The court a quo held that the third party, and not the bank, was enriched by the transfer
of the funds and that the plaintiff did not have a claim against the bank but only a concurrent claim
against the insolvent estate. On appeal the plaintiff argued that there was no intention on its part to
pay the third party and that the third party had no entitlement as against its own bank to the
transferred money and could therefore not acquire a greater title as against the originator’s bank by
transferring the moneys to another account with the latter bank (para 12). The court briefly referred
to the practice that courts often grant interim interdicts against persons in respect of allegedly stolen
money paid into a bank account of the alleged thief and against the bank concerned, pending an
action to determine whether the money had been stolen. It further referred to First National Bank of
Southern Africa Ltd v Perry NO 2001 (3) SA 960 (A) where it was pointed out that a thief who
deposited stolen money into his bank account had no claim against his bank for payment of the
amount which the bank had (provisionally) credited to his account.
[429] Paragraph 23.
[430] The court indicated that this position applies not only where payment is made by cheque but
also where payment is effected by cash or electronic funds transfer. Just as a person is not entitled to
claim to be credited with the proceeds of a cheque mistakenly handed to him, he cannot claim to be
entitled to a credit because of an amount mistakenly transferred into his bank account. If he
withdraws the money to use it for his own purposes it amounts to appropriation and theft.
[431] Schulze (2004(1)) 683 comments that one can assume that Nissan South Africa Pty (Ltd) v
Marnitz (Stand 186 Aeroport (Pty) Ltd Intervening) 2005 (1) SA 441 (SCA) somewhat tempered the
robust approach followed in Take and Save Trading CC v The Standard Bank of South Africa
Ltd [2004] 1 All SA 597 (SCA) that an electronic funds transfer cannot be reversed without the
consent of the beneficiary. However he indicates that the following issues still beg for clarity: (a)
What exactly is the wording of the inter-bank agreement regarding reversal of credit? (b) The court
did not comment on the legal nature on an electronic funds transfer and whether it constitutes a
novation or an assignment; (c) What is the last possible moment at which an electronic funds transfer
can be countermanded? (d) Is it possible to countermand a transfer of funds where such transfer has
been valid? Note should also be taken of the fact that the court in Nissan made the following
cautionary statement (at 449-450): ‘If a third party claims to be entitled to the money deposited with
the bank, the bank need not investigate the matter but may adopt the stance of a stakeholder. It
would be well advised to adopt such a stance. Should the bank, in such an event, unilaterally reverse
the credit to the customer’s account, it would be doing so at its peril.’ Comte 42 remarks that it is
clear that the court made this cautionary statement to ensure that banks do not whimsically reverse
credit transfers, mistaken or otherwise. See also Comte 43 for criticism of the Nissan judgment.
[432] 2012 (6) SA 569 (SCA). See the discussion on enrichment in para 8.3.4(i)(b) below.
[433] Banks generally stipulate in their bank-customer agreements that the customer bears the
risk of loss due to fraudulent or unauthorised electronic payments and as such the banks will thus not
effect reversals of credit transfers that occurred in such instances. A bank might also choose to adopt
a stakeholder’s stance as advised in Nissan and choose not to become embroiled in disputes between
its customers or between its customers and third parties. Comte 61 also suggests that where a bank
is not certain that fraud has indeed occurred it might, instead of reversing the credit transfer, freeze
(apparently without the need for a court order directing it to do so) the beneficiary’s account so that
no further loss might be occasioned to the defrauded party.
[435] 2012 (6) SA 569 (SCA). See also Pretorius (2013(3)) 589.
[436] At 571H-572I.
[437] 2001 (3) SA 960 (SCA).
[438] 2005 (1) SA 441 (SCA).
[439] The court stated (at 574D-G) that too much has been read into these judgments and that
they did not advance the conclusion advanced by the respondent but actually, on a proper reading,
established the contrary. The court pointed out that Perry’s case, which was decided on exception, did
not deal with the question whether any debt owed by the thief to the bank, such as an amount on an
overdraft, was discharged by the bank’s crediting the account and that no view was expressed on the
question of enrichment in this regard. It further pointed out that the conclusion that the overdraft is
discharged by the receipt of the stolen funds is supported by Absa Bank Ltd v Intensive Air (Pty)
Ltd 2011 (2) SA 275 (SCA). According to the court (at 575B-D) the judgment in Absa Bank Ltd v
Standard Bank of SA Ltd 1998 (1) SA 242 (SCA) did also not further the contentions of the
respondent, as the implication of that judgment was that where a final credit was made to an account
that had the effect of extinguishing an overdraft on the account, such funds cannot be reclaimed from
the bank at which the account was kept. It indicated that Nissan’s case also did not support the
respondent’s contentions. It pointed out that Nissan was concerned with credit balances on an
account and not an overdraft and that the court found that a bank which credited its customer’s
account is not liable to pay the amount to the customer if the customer came to the money by theft
or fraud. The court emphasised that in Nissan the customer knew that it was not entitled to the
money credited to its account and stated (at 575H) that the implication of Nissan is that the amount
standing to the thief’s credit may be recovered by condiction but not the (part of the) amount that
discharged a debt owed by the thief to the bank. Thus in Nissan, the bank, by remaining in
possession of the funds without any corresponding liability to account to its customer, was enriched
and liable to make restitution to the owner. The court further remarked (at 576E-577D) that the
respondent’s contention is also not assisted by Nedbank Ltd v Pestana [2009] 2 All SA 58 (SCA)
because the issue in the present case was simply not addressed in Pestana.
[440] At 577E-578D.
[441] At 579A.
[442] At 579B.
[443] At 579C.
[444] At 579D.
[445] At 80D-E. The court stated that the legal effect of an electronic funds transfer is that no
physical money changes hands but that the account holder obtains a claim against his bank for the
credit against the account. Where the effect of the transfer is that there is no credit because the
entire amount transferred was used to extinguish the debt on the account, the customer acquires no
claim against his bank, but he is enriched to the extent that the debt is no longer due.
[448] Malan, Pretorius & Du Toit 283. See also Malan & Pretorius (2006) 594; Malan & Pretorius
(2007) 1; Geva (2004) 1.
[449] Unreported (CPD) case 12698/94 (4 December 1998).
[450] At 49-50. The court stated that the reason for this view was that ‘one of the incidents of the
ordinary relationship between banker and customer is that the bank undertakes to receive money and
collect bills for its customer’s account. It follows that where the bank receives funds by transfer,
which are being identified as being for the credit of a customer’s account, it has a contractual duty to
that customer to credit that account accordingly. The question is whether in accepting a transfer, the
bank also enters into a contract with the originator of the payment instruction. We think that as a
matter of banking law this question should be answered in the negative.’
[451] At 49-50.
[452] The court indicated that the creation of such nexus between the first mandatary and
submandatary and other submandataries would tend only to complicate banking transactions
unnecessarily.
[453] 1992 (1) SA 783 (A).
[454] Paragraph 82.
[455] Paragraph 85.
[456] Paragraph 85.
[457] Paragraph 86.
[458] Paragraph 86.
[459] Malan, Pretorius & Du Toit 285. See also Malan & Pretorius (2007) 3-6.
[460] Malan, Pretorius & Du Toit 286. The authors refer to Commissioner, South African Revenue
Service v Absa Bank Ltd 2003 (2) SA 96 (W) and BOE Bank Ltd v Ries 2002 (2) SA 39 (SCA) where a
new approach was adopted with regard to the question of pure economic loss.
[461] See Malan & Pretorius (2006) 607-12; Malan & Pretorius (2007) 1-3.
[462] Malan & Pretorius (2007) 2-3.
[463] Malan, Pretorius & Du Toit 286. See Malan & Pretorius (2006) 594; Malan & Pretorius (2007)
1.
[466] Malan, Pretorius & Du Toit 286. Rhostar (Pvt) Ltd v Netherlands Bank of Rhodesia Ltd 1972
(2) SA 703 (R). Malan, Pretorius & Du Toit also point out that in the case of the collecting bank the
duty of care (in the policy duty sense) is owed not to its customer but to the true owner of the lost or
stolen cheque who need not necessarily be the drawer or even indorsee.
[467] Malan, Pretorius & Du Toit 286. The authors point out that it would seem that the court did
not consider the full implications of the phrase ‘the plaintiff gave a mandate to FNB and that FNB in
turn gave a mandate to Trust Bank’. They remark that the giving of the mandate cannot be seen in a
vacuum. The mandate consisted of instructions (be it paper-based or electronic) to effect payment to
a named beneficiary with a named account number. If there is no duty to match the named
beneficiary with the account number, they submit one could hardly argue that the payment and
crediting was made with any skill or care. According to them it would be very controversial if there is
no duty on the beneficiary’s bank to match the name of the account holder with the name of the
beneficiary as banks render a professional service and deal with the public’s money. They further
point out that in the case of the collection of cheques this consideration has played an important role
in the recognition of such a duty of care on the part of the collecting bank.
[468] 1995 (1) SA 377 (D) at 394I-395A where it was stated: ‘It lies ill in the mouth of the person
who does an act which creates a certain risk to aver that because guarding against the risk is very
expensive it is therefore not liable. The absurdity of such a proposition appears from its logical result
being that the more risky and the more dangerous a venture undertaken by a person who does not
have to undertake that venture and the more it would costs to safeguard against such risk
materialising, the less likely he is to be held liable, because the cost is too high.’
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Chapter 9
Payment in and financing of international
sale transactions
Charl Hugo
9.1
Introduction
9.2
Payment in advance
9.3
Open account
9.4
Documentary collections
9.5
Documentary credits
9.5.1
Introduction
9.5.2
The different parties involved
9.5.3
The realisation of the documentary-credit transaction
9.5.4
The doctrine of strict compliance
9.5.5
9.5.6
Transferable credits, assignment of proceeds and back-to-back credits
List of works cited
9.1 Introduction
The principal parties in an international sale are the buyer or importer, the seller or
exporter and the financier (normally a bank) of the buyer. Although an international
sale is in legal principle no different from a domestic sale, the parties are subjected
to additional risks that are less prevalent in the domestic context. [1] Moreover, the
documents relating to the sale can be crucial — so much so that these sales are
sometimes referred to as documentary sales, [2] stressing the notion that the
documents are being sold as opposed to merely the goods. [3]
Regarding the risks, both parties are of course exposed to the possibility that the
other will not perform its contractual obligations. The buyer, for example, may be
either unable to pay (due to a lack of funds or even insolvency) or unwilling to pay
(because it has found a better bargain elsewhere). The seller, in turn, may, due to a
better bargain, be unwilling to perform its side of the contract, or may simply ship
sub-standard goods. Although these types of risks are also present in domestic
sales, they are enhanced in international sales due to the fact that the party wishing
to enforce the contract will often have to do so in a foreign jurisdiction (with the
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concomitant raising of costs and complexity). In addition, owing to the fact that the
parties are from different countries, they are less likely to know one another well,
and will normally have less access to information on one another, than in the case of
a domestic sale. The risk of the goods being damaged during transport is also more
acute. Moreover, in the international context the parties face risks lying in the states
or governments of the parties. These include the risk that proper performance of the
contract is prevented or made difficult by factors such as war, revolution, blockage
of funds, a trade embargo or boycott, the cancellation of export or import licences,
health requirements, anti-dumping legislation and tariff or quota
restrictions. [4] Against this background it is natural for the seller to prefer not to
relinquish control over the goods before receiving payment, and for the buyer to
prefer not to pay before taking control of the goods. To find a balance between
these conflicting interests can be challenging.
As regards the documents, the parties need to consider their respective roles
carefully. [5] The documents encountered include the transport document (mostly a
bill of lading or multi-modal (combined) transport document), the insurance
documents (especially where the seller is required to insure the goods, for example
in the case of CIF (Cost, Insurance and Freight) or CIP (Carriage and Insurance
Paid) sales), [6] the commercial invoice, the packing list, and any of a wide variety of
certificates (for example certificates of origin and quality of the goods), and a bill of
exchange. [7] The parties must accordingly consider carefully questions such as: the
type of transport document required (for example whether it needs to be
negotiable); the information to be reflected on the invoice; the insurance required;
whether certificates of quality or origin are required and if so what they must state;
whether a bill of exchange is necessary and if so what its function is to be. When the
documents required by the contract between the parties are drafted, it is important
that this be done meticulously. A slight deviation may well result in the seller not
being paid. This is especially the case where payment has been arranged by
documentary credit.
The method of payment agreed upon by the parties arises from the background
set out above, namely the documentary nature of the sale and the risks faced by the
parties. It is possible to identify four main methods: payment in advance; open-
account payment; payment by documentary collection; and payment by
documentary credit. [8] These are considered below in conjunction with trade-
financing practices such as discounting, factoring and forfaiting.
9.2 Payment in advance

It is conceivable that a seller in a strong bargaining position may simply require
payment in advance, for example ‘cash with order’. [9] This is most likely in
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circumstances where the seller has reason to doubt the economic or political stability
of the buyer’s country or its banking system. [10] This form of payment is highly
advantageous to the seller, who effectively bears no risk. The buyer, in turn, is in
the disadvantageous position that its capital is tied up before it receives
anything, [11] and it has no assurance that what it has purchased will be supplied or
received in time and be of the quantity or quality contracted for. It stands to reason
that the buyer should not consider this form of payment unless good information is
available on the seller and its reputation. [12] Due to the relatively small role played
by banks in this form of payment, the transaction costs are relatively low. [13]
A buyer could conceivably improve its position by agreeing to pay in advance only
if the seller provides an advance-payment or performance guarantee to the
buyer. [14]
9.3 Open account

Payment by open account can be regarded as the opposite of payment in advance.
Here the seller agrees to ship the goods to the buyer on the basis that its invoice will
be settled on a future date agreed upon by the parties. [15] It is therefore the seller
who bears the risk and the buyer who is in a strong bargaining position. The buyer
has the advantage of receiving the goods and inspecting them before paying for
them. It may even be able to trade with the goods and pay for them with the
proceeds. The main disadvantages to the seller are the release of title to the goods
to the buyer without assurance of payment, and the tying up of its own capital until
the buyer has received, inspected and approved the supplied goods. Clearly the
seller should only consider this form of payment if it has confidence in the buyer, the
stability of the buyer’s country and its import regulations. [16]
Much international trade is conducted on an open-account basis, especially in
long-standing trade relationships characterised by mutual trust, and trade with
subsidiaries or associated companies. [17] The increasing use of this form of payment
can also be ascribed to increased financial knowledge of the position of traders, and
its low transaction costs. [18]
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Excursus: Factoring
Trade financing is often facilitated by factoring; [19] that is, by a third party
discounting the invoices of the seller. [20] This is especially helpful to the seller
conducting business with a buyer on an open account basis. [21] Applied to an
international sale situation this means that the seller will cede (assign) [22] its right
to payment to the third party (the factor) [23] in exchange for a discounted amount
of the invoice price. [24] The factor will then assume the administrative burden of
collecting such payment from the buyer. [25] The advantage for the seller is that it
can save the time and costs of debt collection and credit control. The finance
provided to the seller by the factor can be with or without recourse. In the case of
recourse financing, should the factor not receive payment from the buyer, [26] the
seller will have to reimburse the factor for the money received from it in exchange
for a re-cession of the claim against the buyer. In the case of non-recourse
factoring, this risk is assumed by the factor. It stands to reason that in such a case
the commission required by the factor will be higher. [27] In addition to its
commission the factor may charge interest on advances made to the seller. [28] In
international trade there may be two factors, an export factor in the seller’s country
and an import factor in the buyer’s country, in which case the export factor will in
turn assign the rights assigned to it by the seller to the import factor. [29]
Another form of ‘receivables financing’ serving a very similar function is that in
which the seller acquires a loan from a third party (akin to a factor) and cedes its
claims against the buyer to the third party in securitatem debiti. In this case,
however, it is the seller and not the third party that collects payment from the
buyer, and there is no room for a ‘no-recourse’ arrangement. [30]
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The extent to which the factoring industry is regulated differs significantly from
jurisdiction to jurisdiction. [31] In South Africa it is not specifically regulated as an
industry.
The legal requirements and consequences of the cession (assignment) are not the
same in all jurisdictions. The answer to questions such as
•
what, if any, formalities must be complied with,
•
whether the buyer must be notified of the cession,
•
the effect of the buyer performing in good faith as against the seller after the
cession,
•
whether the cession must be accompanied by a document evidencing the
right, and
•
what the effect is of a pactum de non cedendo on the factor,
may differ. [32] Hence conflict rules can be important in this context. In South African
law the normal principles governing cession apply. [33] This means that notice of the
cession to the buyer is not necessary, [34] and that as a consequence the factor is
exposed to the risk of the buyer discharging the debt by paying the seller in good
faith. A further risk theoretically faced by the factor in South African law unless it
acquires the document evidencing the right from the seller, is that the seller may
cede the same right to another person to whom it does deliver the document
evidencing the right. In such a case the latter cessionary will be in the stronger
position. [35] Finally, a factor is bound by a pactum de non cedendo in South African
law. [36] This final aspect of the South African law is especially problematic from a
factoring perspective. As Sunkel points out, ‘a factoring house cannot be expected to
scrutinise each and every contract related to each and every book debt to determine
if some book debts are subject to a pactum de non cedendo’. [37] Despite these legal
impediments the factoring industry has grown significantly in South Africa. [38]
In the quest for harmonisation of this part of the law the International Institute
for the Unification of Private Law (UNIDROIT) drafted a convention on international
factoring, which was adopted in Ottawa in 1988 and came into force in 1995. South
Africa has not ratified it. [39] As a consequence, its potential application from a South
African perspective, although not impossible, is limited. [40] The United Nations
Commission on International Trade Law
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(UNCITRAL) adopted a wider ranging convention [41] on receivables financing in
2001, which is not yet in force. [42]
9.4 Documentary collections

Unlike payment in advance or payment by open account, documentary
collections [43] reflect a compromise offering advantages to both parties. The
compromise lies therein that the seller remains in control of the documents until it is
paid (in the case of a documents-against-payment arrangement (D/P
collection)) [44] or has obtained the buyer’s acceptance of a bill of exchange in favour
of the seller (in the case of a documents-against-acceptance arrangement (D/A
collection)). Although the seller and buyer can deal directly with one another, they
usually utilise banks as intermediaries. [45] The seller hands the commercial
documents [46] required by the buyer (typically the commercial invoice, transport
document, [47] insurance document, any of various certificates, [48] and, in the case
of DA collections, a bill of exchange drawn by the seller on the buyer in favour of the
seller) to its bank with collection instructions. The seller’s bank (the remitting
bank) [49] forwards the documents to its correspondent in the buyer’s country (the
collecting bank). The collecting bank presents the documents to the buyer, but will
release them only against payment (hence ‘documents against payment’) or against
acceptance of the bill of exchange (hence ‘documents against acceptance’). [50] The
banks involved deal only with the documents involved and not the goods. [51]
The advantage of DP collections from the perspective of the seller is that the
buyer does not acquire possession of the documents (and thereby control over the
goods) before payment. The seller effectively retains control over the documents by
means of the string of mandates (the contracts between the seller and the remitting
bank, and the remitting bank and the collecting the bank) [52] until
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the documents are released to the buyer by the collecting bank against
payment. [53] The relationship between the seller and the remitting bank, as well as
that between the remitting bank and the collecting bank is often [54] governed by the
International Chamber of Commerce’s Uniform Rules for Collections (URC), [55] which
must be incorporated into the contracts expressly. In Montani Lounge (Pty) Ltd v
Standard Bank of SA Ltd [56] it was held that if the seller’s instructions are to collect
under the URC, and the remitting and collecting banks agree so to collect, this
creates a tripartite contractual nexus between the seller, the remitting bank, and the
collecting bank. [57] Hence, should the collecting bank discharge its mandate
negligently this may expose it to a contractual claim for damages from both the
seller and the remitting bank. [58] There is privity of contract between them.
Although this case related to an earlier revision of the URC, the principles upon
which it is based are not affected by the current URC. [59]
The seller still, however, faces the risk of the buyer being unable or unwilling to
pay. This would leave the seller in the unenviable position of having to dispose of
the goods in a foreign port in what may well be a falling market and then enforcing
its contractual rights against the buyer (most probably in a foreign
jurisdiction). [60] Therefore, although DP collections protect the seller’s interests
considerably better than open-account payment, it would be fair to state that this
method of payment is still weighted in favour of the buyer. The growing trend of
using this form of payment can be ascribed to the fact that it is relatively cheap and
does not require of the buyer to establish a line of credit. [61]
Since, in the case of DA collections, the bill of exchange is a term draft, [62] the
buyer acquires the advantage of a period of credit — the period between
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acceptance of the bill and its maturity. [63] This may even enable the buyer to pay for
the goods from the profits it has made in trading with the same goods. The seller,
on the other hand, has parted with the commercial documents without receiving
payment. It has, however, received in return, as holder, [64] an accepted bill of
exchange — an easily enforceable instrument which in South African law can be
enforced by the quick provisional sentence procedure. The seller now has two
options: it can wait until the bill matures and then present it to the buyer (acceptor)
for payment; [65] alternatively the seller can discount (sell) the bill. [66] It stands to
reason that if the buyer (who as acceptor is primarily liable on the bill) has a good
financial standing, a financial institution will probably be willing to purchase the bill
at a discount. This will enable the seller to be paid before maturity of the bill. If so
the seller will negotiate the bill to the institution concerned by indorsing and
delivering it. This institution then becomes the holder. [67] In the event of the buyer
dishonouring the bill by non-payment, the holder, in accordance with the law of bills
of exchange, can enforce payment thereof against the buyer as acceptor [68] as well
as against the seller as drawer and indorser, [69] who are jointly and severally liable.
As such, this type of discounting transaction is with recourse against the seller and
must be differentiated from forfaiting, which is dealt with immediately below.
D/A collection is a form of payment clearly weighted in favour of the buyer. As
pointed out above, the buyer acquires credit. The seller, on the other hand, does not
have the assurance that when the bill is presented for acceptance the buyer will
accept. It also bears the risk that the buyer will be unable to pay the accepted bill
when it falls due. The seller, however, retains control over the documents until the
buyer has accepted the bill of exchange.
Excursus: Forfaiting
The discounting of the trade bill described above was with recourse. This means that
if the buyer (the acceptor) fails to pay (dishonours the bill) on maturity, the holder
of the bill can sue the seller as drawer and indorser. Forfaiting in contradistinction is
the purchasing of a debt expressed in a negotiable instrument (here the trade bill)
from the creditor (here the seller) on a non-recourse basis. [70] This means that if
the buyer were to dishonour the bill, the forfaiter (typically a bank, finance house or
professional forfaiting institution) [71] will have no recourse against the seller. Its
purpose in this context is to improve the cash flow of the
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seller. [72] The forfaiter may require the additional security of a third party [73] either
in the form of an aval [74] or a demand guarantee. [75] The D/A collection in such a
case is likely to require of the buyer not only to accept the bill in return for the
commercial documents, but also to have the bill avalised or guaranteed
independently (normally by its own bank). [76] This bill will then be negotiated by the
seller without recourse [77] to its bank (the forfaiter). The security for the bill of
exchange is abstract (autonomous) and independent of incidents concerning the
underlying contract of sale [78] although the forfaiter may ask to be advised of the
underlying transaction.
The forfaiter can in turn renegotiate the bill creating a secondary forfaiting
transaction. [79] In such a case the seller may not be protected by the non-recourse
clause in the original forfait contract as against the second forfaiter. To address this
concern the non-recourse clause may approximate the following: ‘We confirm that
we waive our right of recourse against you as drawer of these bills and will
endeavour to obtain a similar undertaking from any subsequent purchaser from
us.’ [80]
In this regard it should be noted that the Bills of Exchange Act allows the drawer
and indorser to add words to their signatures (such as ‘without recourse’ or ‘sans
recours’) indicating that the signature concerned does not attract liability on the
bill. [81] If the non-recourse agreement between the seller and the original forfaiter is
expressed in this manner on the bill of exchange itself, it is suggested that there can
be no basis upon which the seller can be held liable by any subsequent holder of the
bill. [82]
In order to structure tailor-made deals, forfaiters, sometimes through brokers,
may be involved early in the process, even before conclusion of the contract of
sale. [83] Finally it should be noted that the ICC has drafted Uniform Rules on
Forfaiting (URF 800), [84] which came into effect as from 1 January 2013. They are
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intended to support the typical forfaiting arrangement when contractually
incorporated. Early indications are that they will receive wide support. [85]
9.5 Documentary credits [86]
9.5.1 Introduction
The risks and insecurities inherent to the payment methods dealt with above may
prompt a seller to reinforce its position by exacting an undertaking to pay from a
bank. This means that the seller looks primarily to a bank (which is typically a
financially secure institution and committed to honouring its payment obligations).
This type of undertaking is known as a documentary credit or letter of credit. [87] In
the context of international contracts of sale, the documentary credit has become
the most important method of payment in insecure circumstances. [88] It is the
method of payment that achieves the highest degree of equilibrium between the
interests of the different parties. As a consequence, English judges have gone so far
as to term documentary credits the ‘life-blood of international commerce’. [89]
An accurate definition is very difficult owing to the many different varieties in use.
Documentary credits are accordingly best described in general terms. McKendrick,
for example, offers the following definition: ‘A documentary credit is in essence a
banker’s assurance of payment against presentment of specified documents.’ [90]
Documentary credits are almost invariably governed by the International
Chamber of Commerce’s Uniform Customs and Practice for Documentary
Credits (UCP). [91] These rules govern many (but not all) [92] aspects of the
relationships
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between the different parties involved in the documentary-credit transaction
(namely the buyer, seller and various banks) by virtue of contractual
incorporation. [93] The current revision, the UCP 600, [94] came into operation in
2007. [95] It defines a ‘credit’ (the abbreviated term by which it refers to a
documentary credit) in the following general terms:
Credit means any arrangement, however named or described, that is irrevocable and
thereby constitutes a definite undertaking of the issuing bank to honour a complying
presentation [a presentation of the specified documents]. [96]
This ‘assurance’ (see McKendrick’s definition) or ‘definite undertaking’ (see the UCP
600 definition) can, however, take a number of forms. It can be to pay (either on
sight [97] or on a deferred basis), [98] to accept a time draft drawn by the seller (and
to pay it when it matures), [99] or to pay a bank that has purchased the documents
from the seller. [100] Each of these is considered in more detail below.
9.5.2 The different parties involved

The documentary credit, most typically, is a method of payment agreed upon by the
buyer and seller in an international contract of sale. This payment clause obliges and
entitles the buyer to procure the issuing of the credit. [101] The buyer will
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accordingly apply to a bank for the issuing of the credit in favour of the seller. The
buyer is therefore the applicant and the seller the beneficiary of the credit. The bank
issuing the credit is known as the issuing bank. These are the primary and, at least
conceptually, the only essential parties to the documentary credit transaction. [102]
In practice, however, normally there are further banks involved. Typically the
issuing bank and the buyer will be in the same country (one would expect the
issuing bank to be the buyer’s bank). The seller will be in a different country. It is
unlikely that the credit will be communicated to the seller directly by the issuing
bank. It will, instead, be advised to the seller by a bank in its own country. [103] This
bank, the advising bank, will receive instructions (normally by means of
SWIFT) [104] from the issuing bank to do so. [105] The advising bank acts as a mere
messenger; it makes no payment undertaking towards the seller. Its sole obligation
(apart from advising the credit accurately) is to ‘satisf[y] itself as to the apparent
authenticity of the credit’. [106]
The issuing bank will also not expect the seller to present the documents to it in
the buyer’s country. Instead it will nominate a bank in the seller’s country that will
take delivery of the documents from the seller, and, if they are in conformity with
the requirements of the credit, will pay the seller (or accept its draft), as mandatary
of the issuing bank. [107] The nominated bank is therefore also not contractually
bound as against the seller to pay it or accept its draft. [108] It does so by virtue of its
contract of mandate with the issuing bank. The advising bank and the nominated
bank can be, but need not be, the same bank.
It should be noted, however, that the nominated bank is defined in the UCP 600
as ‘the bank with which the credit is available or any bank in the case of a credit
available with any bank’. [109] In the latter instance the ‘nominated’ bank is not
nominated in the sense of the word as used above (by virtue of a contract of
mandate) and becomes involved in the transaction solely by virtue of it having
‘negotiated’ the credit. The term ‘negotiation’ has a very specific meaning in the
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documentary-credit context and must not be confused with the negotiation of a bill
of exchange. The UCP 600 defines it as follows:
Negotiation means the purchase by the nominated bank [which, as seen above, includes
any bank in the case of a credit available with any bank] of drafts (drawn on a bank other
than the nominated bank) and/or documents under a complying presentation, by
advancing or agreeing to advance funds to the beneficiary on or before the banking day on
which reimbursement is due to the nominated bank. [110]
The nominated bank that has become part of the transaction solely by virtue of
having negotiated the credit is accordingly a bank that has made an advance to the
seller by purchasing the seller’s draft or documents (normally on a with-recourse
basis) [111] for which it will seek reimbursement from the issuing bank. The bank that
has purchased the seller’s documents in this manner is referred to sometimes as
the negotiating bank. However, the term is not used in the UCP 600 (which simply
extends the definition of nominated bank to include such a negotiating bank).
Hence, in the UCP, the term ‘nominated bank’ can refer to a bank acting in one of
two significantly different legal contexts.
In certain instances the seller may require that a bank in its own country (or in
another secure country) should confirm the issuing bank’s credit by adding its own
undertaking to that of the issuing bank. In the event of a credit so being confirmed,
the seller acquires a right not only against the issuing bank but also against
the confirming bank. [112] If the bank confirms the credit on request of the seller and
without being so instructed by the issuing bank, such confirmation (typically referred
to as a ‘silent confirmation’) operates as confirmation vis-à-vis the seller, but falls
outside the provisions of the UCP 600 and such a confirming bank is a mere advising
bank vis-à-vis the issuing bank. [113]
The confirming bank will often fulfil the functions also of the advising and
nominated bank. The obligation of the confirming bank, alike to that of the issuing
bank, may be to pay on sight, incur a deferred payment undertaking, accept the
seller’s time draft (and pay it on maturity) or pay a bank that has purchased the
documents from the seller. [114] When discharging its obligations the confirming bank
acts in two capacities. It acts not only as principal (in discharging its own obligation)
but also as the mandatary of the issuing bank in so far as proper performance by
the confirming bank discharges the obligations of the issuing bank as against the
seller. [115] In this respect it stands to reason that the confirming bank that has
performed properly is entitled to be reimbursed by the issuing bank. Since the
confirming bank binds itself to pay, it assumes a risk with which the nominated bank
is not burdened. Hence it will necessarily charge a confirmation commission
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thereby raising the costs of the transaction. [116] Such a credit is typically indicated
where the issuing bank (or its financial position) is suspect, or where the country in
which it is located is suspect. [117]
Finally it should be noted that the credit commonly provides for ‘bank-to-bank
reimbursement’. This means that the nominated or confirming bank will claim
reimbursement not from the issuing bank but from a different bank, the reimbursing
bank, outside the credit. [118] In this situation the documents are nevertheless
returned to the issuing bank and not presented to the reimbursing bank. [119]
9.5.3 The realisation of the documentary-credit transaction

(i) The operation of the documentary credit in general
The starting point is the contract of sale, which will stipulate that payment is to be
effected by means of a documentary credit. The particulars of the credit can already
be specified at this stage to varying degrees. [120] It may also indicate that the credit
is to be advised to the seller by a particular bank (the seller’s bank).
The next step is for the buyer to procure the issuing of the letter of credit. To do
so the buyer will normally complete an application form for the issuing of a letter of
credit at the bank of its choice. [121] This form will contain all the main particulars of
the letter of credit [122] including its expiry date, the documents to be delivered by
the seller, the identity of the nominated bank and whether it is a sight payment
credit, deferred payment credit, acceptance credit or a credit available by
negotiation (terms which are explained below). [123] It is important that the credit
applied for should be in accordance with any requirements set in the contract of
sale. If it is not, the seller will be entitled to reject it and sue for damages. [124] The
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bank may insist on being put in funds or require some form of acceptable security
from the buyer before accepting the application (mandate). [125]
Should the bank accept the application it will issue the credit which will typically
be manifested by SWIFT notification to the advising bank [126] which, in turn, will
communicate to the seller both the fact that the credit has been issued as well as its
terms (one of which will be the incorporation of the UCP). [127] The buyer’s obligation
to pay in terms of the contract of sale is normally only suspended by the issuing of
the credit and not discharged thereby. Hence, should the issuing bank for some
reason not pay the seller in terms of the credit, the seller will be able to enforce
payment under the contract of sale against the buyer. [128]
Once the credit has been communicated to it, the seller will consider the terms
and conditions of the credit. If the seller is of the opinion that the credit does not
meet the requirements of the contract of sale it should communicate its rejection
thereof to the other parties. [129] If the seller is satisfied with the credit it will
commence with the transport arrangements and the acquisition of all the documents
it needs to deliver to the nominated bank. When the documents are ready, and
before the expiry date of the letter of credit, the seller will deliver the documents to
the nominated bank [130] which will pay, incur a deferred payment undertaking,
accept a draft or negotiate the credit in accordance with its terms. [131]
The nominated bank will then pass on the documents to the issuing bank and be
reimbursed by the issuing bank or reimbursing bank. The issuing bank will in turn
pass on the documents to the buyer for the account of the buyer.
It is important to stress two principles from the outset: first, the documentary
credit transaction is a documentary transaction. This means, as the UCP 600 puts it,
that the ‘[b]anks deal with documents and not with goods, services or performance
to which the documents may relate’. [132] For this reason, too, the UCP 600
specifically provides that ‘[i]f a credit contains a condition without stipulating the
document to indicate compliance with the condition, banks will deem such
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condition as not stated and will disregard it’. [133] The banks will accordingly not
investigate the relationships underlying the documents, but only the documents
themselves. In this regard, however, it is important to note that the documentary
conditions must be complied with strictly. This so-called ‘doctrine of strict
compliance’ is a fundamental aspect of the law of documentary credits explored in
more detail below. [134] It permeates all the relationships in the transaction: in other
words, for the seller to be paid by the nominated bank it must tender strictly
complying documents, for the nominated bank to be reimbursed it must deliver
strictly complying documents to the issuing bank, and for the issuing bank to be
reimbursed by the buyer it must deliver strictly complying documents to the buyer.
The second principle to be stressed is the so-called ‘independence principle’,
which is also considered in more detail below. [135] The principle is encapsulated as
follows in the UCP:
Credits v. Contracts
a.
A credit by its nature is a separate transaction from the sale or other contract on which it
may be based. Banks are in no way concerned with or bound by such contract, even if any
reference whatsoever to it is included in the credit. Consequently, the undertaking of a
bank to honour, to negotiate or to fulfil any other obligation under the credit is not subject
to claims or defences by the applicant resulting from its relationships with the issuing bank
or the beneficiary.
A beneficiary can in no case avail itself of the contractual relationships existing
between banks or between the applicant and the issuing bank. [136]
This implies that when the question arises whether the issuing bank must honour
the credit, it is in principle to be answered with reference to the letter of credit only,
and not with reference to the contract of sale (for example whether conforming
goods were shipped by the seller) or with reference to the contract between the
buyer and the issuing bank (for example whether the issuing bank, if it pays, will be
able to be reimbursed by the buyer). Internationally there is one well-established
exception to the independence principle, namely fraud by the beneficiary of the
credit. Hence, if it is clear that the beneficiary of the credit is using it to perpetrate a
fraud on the buyer, courts in various jurisdictions are willing to intervene and
interdict payment. This aspect is also revisited in more detail below. [137]
(ii) Sight payment credits, deferred payment credits, acceptance credits

and credits available by negotiation
(a) Introduction
The mechanics of how the seller actually receives its money in terms of a letter of
credit depends upon the specific undertaking of the issuing bank. The UCP 600
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defines a documentary credit as ‘a definite undertaking of the issuing bank
to honour a complying presentation’. [138] ‘Honour’, in turn, is defined as follows:
Honour means:
a.
to pay at sight if the credit is available by sight payment.
b.
to incur a deferred payment undertaking and pay at maturity if the credit is available by
deferred payment.
c.
to accept a bill of exchange (‘draft’) drawn by the beneficiary and pay at maturity if the
credit is available by acceptance. [139]
From these definitions read in conjunction with the provisions of the UCP dealing
with the undertaking of the issuing bank [140] and those relating to credits available
by negotiation [141] it is possible to differentiate between credits providing for sight
payment, deferred payment, acceptance and negotiation.
(b) Sight payment credits [142]
In the case of a sight payment credit the seller presents documents to the
nominated bank. The nominated bank examines the documents [143] and if they are
in conformity with the requirements stated in the letter of credit, pays the seller.
Although a bill of exchange may be used it is not necessary. If a bill of exchange is
used, it will be a sight draft drawn on the nominated bank which is simply paid by
the nominated bank against delivery of conforming documents. The nominated bank
passes on the documents to the issuing bank and is reimbursed. [144] As explained
above the nominated bank is not bound as against the seller to pay the
seller, [145] but does so to comply with its contract with the issuing bank. Therefore,
should the nominated bank refuse to pay the seller against delivery of conforming
documents, the seller cannot enforce payment against the nominated bank; it can,
however, enforce payment against the issuing bank. [146]
(c) Acceptance credits [147]
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In the case of an acceptance credit the seller, together with the documents,
presents a term bill of exchange [148] drawn on the nominated bank in favour of the
seller. The nominated bank examines the documents and if they are in conformity
with the requirements stated in the letter of credit, accepts the bill of
exchange. [149] If the nominated bank refuses to accept the bill the seller can enforce
payment against the issuer. [150]
The seller, as holder of an accepted bill of exchange (a banker’s acceptance)
payable sometime in the future, can either retain the bill until it matures and then
present it to the nominated bank for payment, or can discount it by indorsing it to a
third party. [151] As in the case of the discounting of the term bill drawn on the buyer
in a D/A collection, the discounting transaction can be with or without recourse to
the seller. [152] Since the bill is a banker’s acceptance, discounting it is generally
unproblematic. The nominated bank, having accepted the bill of exchange, will pass
on the documents to the issuing bank which, in turn, will provide the nominated
bank with the necessary funds to meet the bill of exchange when it matures or will
reimburse the nominated bank once it has paid. [153] The issuing bank may also be
willing to release the documents to the buyer before the bill matures, in which case
the buyer will have the benefit of a period of credit equal to the period before the bill
matures. [154] Such an arrangement could enable the buyer to finance its purchase
from profits generated from selling the same goods.
As regards the discounting transaction it should be noted that since it takes the
form of negotiation of the bill of exchange by the seller to the discounter, the
discounter is likely to meet the requirements of a holder in due course. [155] Hence,
the discounter will acquire the bill free of equities. The implication is that even in the
event of the seller (the payee of the bill of exchange) for some reason or other (the
most likely being its own fraud) having been unable to enforce payment of the bill
against the nominated bank, the discounter (as indorsee) will nevertheless be able
to do so. [156]
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(d) Deferred payment credits [157]
As seen above the acceptance credit in effect defers the date of payment to the date
of maturity of the bill of exchange. A similar result can be accomplished without
using a bill of exchange. In the case of a deferred payment credit the bank
undertakes to pay on a future date often expressed with reference to the date on
the transport document (for example ‘90 days after the date of the bill of lading’). In
this case the seller will present the documents to the nominated bank, which will
examine them and inform the seller whether they have been accepted or not. If they
are in order the nominated bank accepts the obligation to pay the seller on the
specified future date. Payment is deferred in this manner. If the nominated bank
does not accept the deferred payment obligation the seller can enforce payment
against the issuing bank. [158]
As in the case of the acceptance credit the documents are passed on to the
issuing bank, which can also pass them on to the buyer before payment occurs. In
the same fashion as in the case of the acceptance credit, therefore, the buyer can in
principle acquire the goods before it needs to pay the issuing bank. From the seller’s
perspective, however, instead of receiving an accepted bill of exchange when it
surrenders the documents to the nominated bank, it receives only an unconditional
undertaking (a personal right) to be paid sometime in the future in accordance with
the deferred payment undertaking. This personal right can also be
discounted. [159] The discounting can be with or without recourse. [160] It is therefore
clear that deferred payment credits and acceptance credits serve very much the
same function. [161]
It is important to point out, however, that the discounting of a bill of exchange
and the discounting of a right to payment arising from a deferred payment credit,
differ in one important respect: whilst the purchaser of a bill of exchange can by
virtue of acquiring it as holder in due course acquire it free of equities, the purchaser
of the right to payment under a deferred payment credit acquires this right as
cessionary and therefore subject to the nemo plus juris rule. It is for this reason that
the nominated bank that had paid a deferred payment credit to a fraudulent
beneficiary prematurely in the case of Vereins- und Westbank AG v
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Veren Investments [162] was unsuccessful in its attempt to enforce reimbursement
from the issuing bank. Following the judgment of the similar English case of Banco
Santander SA v Bayfern Ltd [163] Stegmann J held that the nominated bank, by
paying prematurely, did not pay in accordance with its contract of mandate with the
issuing bank. [164] It could not therefore claim reimbursement in accordance with its
contract of mandate. Therefore the nominated bank, by paying prematurely, in
effect made an advance to the seller in exchange for cession of its rights against the
issuing bank. [165] Due to the seller’s fraud, however, the seller had no rights against
the issuing bank and could not, therefore, cede any rights to the nominated
bank. [166]
Judgments such as these (which predated the UCP 600) clearly did not meet with
the approval of the Banking Commission of the ICC and were a major catalyst for
the revision of the UCP. [167] Two provisions in effect have drawn a line through
judgments such as these. Article 12(b) reads as follows:
By nominating a bank to accept a draft or incur a deferred payment undertaking, an
issuing bank authorizes that nominated bank to prepay or purchase a . . . deferred
payment undertaking incurred by that nominated bank. [168]
It is accordingly clear that the nominated bank is now regarded as acting within its
mandate when it pays the beneficiary prematurely in a discounting transaction. This
principle, moreover, is further strengthened by the issuing bank’s reimbursement
obligations set out as follows in article 7(c):
An issuing bank undertakes to reimburse a nominated bank that has honoured or
negotiated a complying presentation and forwarded the documents to the issuing
bank. Reimbursement for the amount of a complying presentation under a credit available
by acceptance or deferred payment is due at maturity, whether or not the nominated bank
prepaid or purchased before maturity. . . . [169]
In light of these provisions of the UCP 600, it is clear that cases such as Banco
Santander and Vereins- und Westbank will be decided differently today and do not
reflect the current law. [170] In this regard it is important to take note that in these
cases the premature payment (or discounting transaction) was between the
beneficiary and either the nominated or confirming bank. It is possible, however,
that a completely different bank (one that is not involved in the documentary credit
transaction concerned) may purchase the seller’s rights under a deferred payment
credit in a discounting transaction. In such a case it is submitted that the analysis of
the Banco Santander and Vereins- und Westbank cases remains authoritative and
such a bank will be able to enforce payment against the issuing bank only as the
cessionary of the beneficiary and subject to the nemo plus juris rule.
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(e) Credits available by negotiation

In the event of a credit available by negotiation the seller will present the documents
to a bank stipulated in the credit, or, in the case of a so-called ‘open negotiable
credit’ [171] to any bank and request this bank to ‘negotiate’ the credit — in other
words to purchase the documents. [172] This may or may not involve the purchasing
of a bill of exchange drawn on some other bank (typically the issuing bank). The
purchasing of the documents is a discounting transaction since the bank purchasing
them will do so at a price less than the amount of the letter of credit.
If the issuing bank’s undertaking is framed as an undertaking not only as against
the seller, but also as against the bank negotiating the documents, the credit is
known as a ‘negotiation credit’. In this case the negotiating bank acquires its right to
be paid by the issuing bank from the credit itself. No cession of rights by the seller is
necessary. [173] If, however, the issuing bank’s undertaking is framed as an
undertaking only as against the seller, the credit is known as a ‘straight credit’. In
this case the negotiating bank can seek payment from the issuing bank only by
virtue of a cession of the seller’s rights. Hence, in this case, the negotiation
transaction will amount to a purchasing not only of the documents but also of the
seller’s right to claim payment from the issuing bank. [174]
The discounting can be with or without recourse [175] to the seller. Should the
bank decline to purchase the documents, the seller can enforce payment against the
issuing bank. [176] Having negotiated the credit in this sense the bank concerned
forwards the documents to the issuing bank and is paid the amount stipulated in the
letter of credit. The negotiating bank’s right to reimbursement arises from the
issuing bank’s undertaking in the letter of credit itself. [177]
9.5.4 The doctrine of strict compliance

(i) The doctrine in general
One of the foundations of the law of documentary credits is the so-called doctrine of
strict compliance. The doctrine as it applies to letters of credit has not been closely
analysed in South African case law as yet. [178] It was, however, clearly
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recognised and stated as follows by Nugent JA in OK Bazaars (1929) Ltd v Standard
Bank of South Africa Ltd:
A bank . . . that establishes a letter of credit at the request and on the instructions of a
customer thereby undertakes to pay a sum of money to the beneficiary against the
presentation to the issuing bank of stipulated documents. . . . The documents that are to
be presented . . . are stipulated by the customer and the issuing bank generally has no
interest in their nature or in their terms (Commercial Banking Co of Sydney Ltd v Jalsard
Pty Ltd [1973] AC 279 (PC) at 286C-D; Loomcraft Fabrics CC v Nedbank Ltd and
Another1996 (1) SA 812 (A) at 815G-I). Its interest is confined to ensuring that the
documents that are presented conform with its client’s instructions (as reflected in the
letter of credit) in which event the issuing bank is obliged to pay the beneficiary. If the
presented documents do not conform with the terms of the letter of credit the issuing bank
is neither obliged nor entitled to pay the beneficiary without its customer’s consent. The
obligation of the issuing bank was expressed as follows in Midland Bank Ltd v
Seymour [1955] 2 Lloyd’s Rep 147 at 151:
‘There is, of course, no doubt that the bank has to comply strictly with the
instructions that it is given by its customer. It is not for the bank to reason why. It
is not for it to say: ‘This, that or the other does not seem to us very much to
matter.’ It is not for it to say: ‘What is on the bill of lading is just as good as what is
in the letter of credit and means substantially the same thing.’ All that is well
established by authority. The bank must conform strictly to the instructions which it
receives.’ [179]
As is apparent from this dictum (and many others) our courts regard English case
law as highly influential (if not authoritative) in the law relating to letters of credit.
The significant attention given to it by the English courts over many years [180] is
accordingly highly relevant in South Africa. The doctrine is generally traced back to
an early case before the House of Lords — dating back to 1927 — Equitable Trust
Company of New York v Dawson Partners Ltd, in which Lord Sumner stated that
‘[t]here is no room for documents which are almost the same, or which will do just
as well’, [181] a dictum which Lord Diplock, speaking for the Privy Council some 50
years later in Gian Singh & Co Ltd v Banque de l’Indochine stated ‘has never been
questioned or improved upon’. [182] Adodo in his recent book, which focuses
specifically on the law and practice of documentary compliance, repeats the
statement but now for ‘nearly ninety years’. [183]
It is also clear, however, that the doctrine should not lead to what the court, in
the American case New Braunfels National Bank v Odiorne termed ‘oppressive
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perfectionalism’. [184] In the same vein, in Banque de l’Indochine et de Suez SA v J H
Rayner (Mincing Lane) Ltd, Parker J stated:
I also accept . . . that Lord Sumner’s statement cannot be taken as requiring rigid
meticulous fulfilment of precise wording in all cases. Some margin must and can be
allowed, but it is slight, and banks will be at risk in most cases where there is less than
strict compliance. They may pay on a reasonable interpretation . . . where instructions are
ambiguous, but where instructions are clear they are obliged to see to it that the
instructions are complied with and entitled to refuse payment to the beneficiary unless they
are. [185]
In Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran, however, when
invited to regard as trivial in this sense the absence of the number of the letter of
credit and the buyer’s name on all documents presented in terms of it, Lloyd LJ
stated: ‘I cannot regard as trivial something which, whatever may be the reason,
the credit specifically requires’. [186] He went on to say that it would not help ‘to
attempt to define the sort of discrepancy which can properly be regarded as trivial’
but nevertheless referred, by way of example, to Bankers Trust Co v State Bank of
India [187] ‘where one of the documents gave the buyer’s telex number as 931310
instead of 981310’. [188]
To draw clear principles from the precedents in this regard is almost impossible.
Some of the many examples are the following:
(i)
The letter of credit required a certificate from the ‘Chamber of Commerce’ of
Batavia. It received a certificate from the ‘Handelsvereeniging te Batavia’.
This was regarded as conforming. [189]
(ii)
The letter of credit specified the name of the buyer as ‘Cheergoal Industries
Ltd’ but the documents referred to ‘Cheergoal Industrial Ltd’. This was held to
be conforming. [190]
(iii)
The letter of credit required the bill of lading to show that the temperature at
the time of loading was not higher than 37.5° Celsius. It showed instead a
temperature not higher than 100° Fahrenheit (which is 0.5° Fahrenheit higher
than 37.5° Celsius). The court did not need to decide the case on this point
but stated that in strict law the document was probably non-conforming; it
further confessed that it would nevertheless have been reluctant to make such
a finding if that document had stood alone. [191]
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(iv)
The gross tonnage of the vessel was stated to be 51412.58 in the survey
report instead of 51412.18 as stated in the letter of credit and the invoice.
The court found the documents to be conforming. [192]
(v)
The letter of credit described the goods as 100 new Chevrolet trucks and
required an invoice, delivery order and US Government undertaking
confirming that the trucks were new. The invoice described them as ‘in new
condition’, the delivery order as ‘new–good’ and the undertaking as ‘new,
good’. The documents were held to be non-conforming. [193]
(vi)
The letter of credit called for shipping documents reflecting a consignment of
5 000 bags of sugar. The bill of lading received covered 4 997. The documents
were held to be non-conforming. [194]
(vii)
The letter of credit called for the goods to be described as ‘Coromandel
groundnuts’. They were so described in the invoice. However, the bill of lading
described them as ‘machine shelled groundnut kernels’. There was evidence
before the court that these were the same thing. The documents were held to
be non-conforming. [195]
(viii)
Adodo cites numerous further examples of discrepancies taken from common-
law cases, which were found to be non-conforming. They include (a)
discrepancies on bills of lading (‘Soran’ instead of ‘Sofan’, ‘Jun’ instead of ‘Jin’,
port of shipment ‘Balongan, West Java’ instead of ‘Balongan, Indonesia’, and
‘granulated white sugar’ instead of ‘standard white granulated sugar’); [196] (b)
discrepancies relating to dates on documents (‘30 June 1987’ instead of ‘30
June 1986’; ‘29 April 1983’ instead of ‘28 April 1983’); [197] and (c) a
certificate reading ‘The undersigned hereby certifies that . . . has failed to
make payment’ instead of ‘The undersigned hereby certifies that I have
determined that . . . has failed to make payment’. [198]
(ix)
The letter of credit called for the draft to contain the number of the letter of
credit, namely ‘86-122–S’. The tendered draft contained the number ‘86-122–
5’. The bank knew that none of its letters of credit ended with a numeral. The
draft was held to be conforming. [199]
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As is apparent from the above there is a tension between insistence on strict
compliance on the one hand, and discrepancies so trivial that they can be ignored on
the other. This tension is exacerbated by the fact that a large proportion of
presentations of documents are in fact non-conforming. [200] An important
consideration in the revision process leading to the UCP 600 was in fact to attempt
to reduce the number of rejections of documents by banks. [201] Against this
background attention must be drawn to certain provisions of the UCP 600.
(ii) The impact of the UCP 600

First, in terms of article 14(a) the bank concerned ‘must examine a presentation to
determine, on the basis of the documents alone, whether or not the documents
appear on their face to constitute a complying presentation’. [202] A ‘complying
presentation’ is defined as ‘a presentation that is in accordance with the terms and
conditions of the credit, the applicable provisions of these rules and international
standard banking practice’. [203]
As noted above [204] the International Standard Banking Practice for the
Examination of Documents under Documentary Credits (ISBP) is a set of rules
issued by the ICC as a ‘necessary companion’ [205] to the UCP. Its status is uncertain.
One may probably accept that the ‘international standard banking practice’ quoted
above, as Malek and Quest put it, ‘comprises, or at least includes, that contained in
the ISBP’. [206] So viewed the ISBP may well address some of the problems.
Paragraph A23 (of the 2013 revision), for example, deals with misspellings or typing
errors. It provides as follows:
A misspelling or typing error that does not affect the meaning of a word or the sentence in
which it occurs, does not make a document discrepant. For example, a description of the
goods as ‘mashine’ instead of ‘machine’, ‘fountan pen’ instead of ‘fountain pen’ or ‘modle’
instead of ‘model’ would not be regarded as a conflict of data [ie would not be regarded as
non-complying] under UCP 600 sub-article 14(d). However, a description shown as, for
example, ‘model 123’ instead of ‘model 321’ will be regarded as a conflict of data under
that sub-article. [207]
Paragraph 6 further lists a number of abbreviations which, if used, will not render
the document discrepant while paragraph 7 warns against the use of virgules (slash
marks) since ‘they may have different meanings’. [208]
Secondly, article 14(d) of the UCP 600 may also be an attempt by the ICC to
soften the rigours of strict compliance in so far as it provides that the data in a
document ‘when read in context with the credit, the document itself and
international standard banking practice, need not be identical to, but must not
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conflict with, data in that document, any other stipulated document or the
credit’. [209] While this article stresses three well-established principles of the
doctrine of strict compliance, namely that contradictions between a document and
the letter of credit itself, contradictions between the different required documents,
and inconsistencies within any particular document are valid reasons for their
rejection, [210] the formulation that the data concerned ‘need not be identical’
throughout the particular document and the set of documents, may well facilitate
argument that certain documents that were held to be non-conforming in the past,
could be acceptable today. In his comprehensive analysis Adodo, however, regards
this as a superficial argument. He states as follows:
[A]lthough Article 14(d) . . . articulates that ‘data in a tendered document need not be
identical to data in that document, any other stipulated document or the credit’, it should
not be forgotten that this provision is in substance in consonance with the courts’
understanding of the requirements of the strict documentary compliance doctrine. It is of
course possible to read the italicized words as laying down a substantial documentary
compliance rule of general application, unlike the doctrine which denotes the opposite and
insists that documents must immaculately conform to the terms of a credit. Still, in
practice, and as evidenced by the decisions . . . it can scarcely be doubted that there is no
real difference between what Article 14(d) says and the case law precept.
Thirdly, it should be noted that while article 18(c) of the UCP 600 provides that
‘[t]he description of the goods, services or performance in a commercial invoice
must correspond with that appearing in the credit’, article 14(e) provides that ‘[i]n
documents other than the commercial invoice, the description of the goods, services
or performance, if stated, may be in general terms not conflicting with their
description in the credit’.
Finally it must be pointed out that the UCP 600 contains certain tolerances
regarding the credit amount, quantity and unit prices. [211] Moreover, article 2
contains interpretation provisions dealing with: (a) how terms such as ‘first class’,
‘well known’, ‘qualified’, ‘independent’, ‘official’, ‘competent’ or ‘local’ used to
describe the issuer of a document are to be dealt with; [212] (b) as well as words
such
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as ‘prompt’, ‘immediately’ or ‘as soon as possible’; [213] (c) how phrases such as ‘on
or about’ will be interpreted; [214] (d) how the words ‘to’, ‘until’, ‘till’, ‘from’ and
‘between’ when used to determine a period of shipment are to be
interpreted; [215] (e) what the words ‘from’ and ‘after’ mean when used to determine
a maturity date; [216] and (f) what the terms ‘first half’ and ‘second half’ of a month
mean; [217] as well as (g) the terms ‘beginning’, ‘middle’ and ‘end’ of a month. [218]
(iii) Waiver and payment under reserve

Once the bank to which the documents have been presented has determined that
there are discrepancies it may in the first place refuse the documents. [219] The UCP
600, however, permits the issuing bank to seek a waiver of the discrepancies from
the buyer. [220] For a refusal of the documents to be valid the presentee bank (ie the
nominated or confirming bank) must act in accordance with the rejection procedure
set out in the UCP 600. [221] This entails a notice [222] identifying the
discrepancies [223] and indicating whether: (a) it is returning the documents; [224] (b)
it is holding them in accordance with previous instructions of the presenter [225] or
pending instructions of the presenter; [226] or (c) ‘the issuing bank is holding the
documents until it receives a waiver from the applicant and agrees to accept it, or
receives further instructions from the presenter prior to agreeing to accept a
waiver’. [227] If the presentee bank fails to act in accordance with the rejection
procedure, it may be obliged in terms of the so-called ‘preclusion rule’ to treat the
presentation as compliant. [228]
As indicated above, a large percentage of presentations are non-conforming. This
does not mean, however, that a large percentage of documentary credit transactions
are never realised, since the waiver of discrepancies is common. [229]
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A further possibility is that the presentee bank honours the credit despite the
discrepancies, but does so against an indemnity or guarantee provided by the
presenter. [230] Finally it can also pay ‘under reserve’. This amounts to payment by
the presentee bank on the basis that if the issuing bank rejects the documents, the
beneficiary must repay the presentee bank. Payment under reserve is not dealt with
in the UCP. [231] Nevertheless, in 1983, it was described as a widespread practice in
the Banque de l’Indochine case. [232] The fact that subsequent revisions of the UCP
have failed to deal with payment under reserve, it is suggested, means that the
Banking Commission of the ICC is satisfied with the interpretation thereof in the
case. Essentially two potential interpretations, the ‘lawyer’s view’ as opposed to the
‘commercial view’, were considered. [233]
The commercial view prevailed. Hence, when the presentee bank pays under
reserve, and the issuing bank rejects the documents on the basis of any of the
discrepancies identified by the presentee bank, the beneficiary must repay the
presentee bank irrespective of whether the identified discrepancies rendered the
documents non-conforming in law. The lawyer’s view in terms of which the money
had to be repaid only if the discrepancy relied on rendered the documents non-
conforming in law, [234] was thereby rejected. [235]
(iv) Concluding remarks

The doctrine of strict compliance is a highly problematic area in practice. The safest
approach for a presentee bank, having taken account of the latitudes provided for in
the UCP, is to insist upon exact compliance and, if necessary, to seek a waiver from
the buyer in respect of trivial discrepancies. It is well established that the de minimis
rule does not apply. Hence, Adodo concludes:
It is worth underscoring that the doctrine is extremely stringent . . . in that it does not
grant recovery on compassionate grounds or have a sympathetic ear. It may, and often
will, cause considerable hardship to a presenting beneficiary, issuer or nominated bank
claiming to be entitled to payment against tendered but less than faultless documents.
However, so far as the decisions are concerned, it is preferable for such a party to suffer
hardship when there is no reason in justice why the counterparty should be denied his
strict legal right to insist on perfectly complying documents. [236]
Finally, it is suggested that any discrepancy that requires of an examiner to delve
into the underlying trade, or to seek some or other input elsewhere in order to
determine the importance thereof, renders the document non-conforming. The
overriding principle is that banks deal with the documents alone and should be able
to determine their conformity without having to embark upon the actions described
above. Document examiners need not know whether Coromandel
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groundnuts are the same thing as machine shelled groundnut kernels, [237] or
whether there is a difference between raisins and dried grapes. [238] They are,
however, better placed to assess something such as the importance of the
documents containing the exact correct number of the letter of credit. [239]
9.5.5 The independence principle

(i) Introduction
The second foundation of the law of documentary credits is the independence
principle. Its basis in the UCP has already been referred to above. [240] The locus
classicus is the American case of Sztejn v J Henry Schroder Banking
Corporation [241] where the principle was stated as follows:
It is well established that a letter of credit is independent of the primary contract of sale
between the buyer and the seller. The issuing bank agrees to pay upon presentation of
documents, not goods. This rule is necessary to preserve the efficiency of the letter of
credit as an instrument for the financing of trade. One of the chief purposes of the letter of
credit is to furnish the seller with a ready means of obtaining prompt payment for his
merchandise. It would be a most unfortunate interference with business transactions if a
bank, before honouring drafts drawn upon it, was obliged or even allowed to go behind the
documents at the request of the buyer, and enter into controversies between the buyer
and the seller regarding the quality of the merchandise shipped. If the buyer and the seller
intended the bank to do this, they could have so provided in the letter of credit itself, and
in the absence of such provision, the Court will not demand, or even permit, the bank to
delay paying drafts which are proper in form. [242]
The essence of the principle is that the question whether or not the issuing bank
must pay the seller is to be determined with reference to the letter of credit alone,
and not with reference to the underlying contract of sale or the contract of mandate
between the buyer and the issuing bank. Hence, provided the seller has complied
with the terms and conditions of the credit, it is entitled to payment irrespective of
(i) whether it has performed its obligations under the contract of sale properly, or
(ii) whether the issuing bank, once it has paid, will be able to be reimbursed by the
buyer.
The issue normally arises in the first of the above contexts (as in the Sztejn case
above), and is well illustrated in various South African and English cases discussed
below. It seldom arises in the second context. An early German case, [243] however,
provides a good example of the second context: a German bank had issued a letter
of credit in favour of a German seller, on application from a Hungarian
buyer. [244] After the credit had been issued, exchange control regulations came into
force which in effect made it impossible for the German bank to be reimbursed by
the Hungarian buyer. The bank refused to pay and was sued by the
Page 423
seller. It raised the impossibility of reimbursement as defence. The German
Reichsgericht found that the bank’s promise was based on the freedom of Hungarian
exchange and that the state intervention in this regard could not leave the payment
obligation unaffected. The court’s finding clearly violated the independence principle
and is almost uniformly rejected by contemporary German commentators. [245]
Despite being stated in absolute terms in the UCP 600 jurisdictions throughout
the world have recognised exceptions to the independence principle. In fact the
major part of the jurisprudence that has developed this principle has arisen from the
conflict between the independence principle and the exceptions to it. The main
exception that has been well established is fraud by the beneficiary. Here, too,
the Sztejn case is the locus classicus. Shientag J put it as follows:
This is not a controversy between the buyer and the seller concerning a mere breach of
warranty regarding the quality of the merchandise; on the present motion, it must be
assumed that the seller has intentionally failed to ship any goods ordered by the buyer. In
such a situation, where the seller’s fraud has been called to the bank’s attention before the
drafts and documents have been presented for payment, the principle of the independence
of the bank’s obligation under the letter of credit should not be extended to protect the
unscrupulous seller. . . . The distinction between a breach of warranty and active fraud on
the part of the seller is supported by authority and reason. [246]
The issue typically comes before the court in one of two manners. The first
possibility is that the seller has delivered conforming documents but the bank
refuses to pay. The seller sues the bank, which in turn raises a defence based on
fraud (or some other exception to the independence principle). [247] The second
possibility is that the buyer, relying on an exception to the independence principle,
seeks an interdict against the bank to prevent it from paying or against the seller to
prevent it from triggering or receiving payment. [248]
It should be pointed out that although there are a few South African
documentary-credit cases relating to the independence principle and the exceptions
to it, there has been significantly more jurisprudential activity in this regard in the
context of independent (demand) guarantees. Chapter 10 is accordingly also highly
relevant in this regard. The legal principles relating to letters of credit and demand
guarantees are so similar that cases dealing with the one are routinely cited as
authority in the other. [249]
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The main South African cases relating to the independence principle in the
documentary credit context, and the fraud exception to it, are dealt with below with
reference to some influential and important English cases.
(ii) Case law
(a) Phillips v Standard Bank of South Africa Ltd [250]
The Phillips case was the first opportunity for a South African court to consider the
‘legal effect and consequences’ of documentary credits. Phillips purchased shoes
from an Italian exporter. Payment was arranged by deferred payment
credit. [251] When, prior to payment, Phillips discovered that some of the shoes were
materially defective he sought an interdict against the issuing bank to prevent it
from paying. Goldstone J had little hesitation in dismissing the application. Relying
mainly on the Sztejn [252] and United City Merchants [253] cases he stressed that the
credit constitutes a contract independent of the contract of purchase and sale. He
referred to the ‘one established exception’ of beneficiary fraud but held that it was
inapplicable to the facts in this case which were ‘quite consistent with an innocent
breach of contract’ by the seller. [254] He then set out what he termed to be the
‘correct approach’ to be adopted by our courts as follows:
1.
The Courts should recognise and give effect to the commercial purpose for which the
system of irrevocable documentary credits has been devised, viz to facilitate international
trade by giving to the seller, before he parts with his goods, the assurance that he will be
paid and that no dispute as to the performance by him of the contract with the purchaser
will constitute a ground for non-payment or delayed payment.
2.
Accordingly, where an irrevocable documentary credit constitutes an independent contract
between the issuing bank and the seller, the purchaser may not go behind the documents
and cause payment to be stopped or suspended because of complaints concerning the
quality of the goods or other alleged breaches of a contract by the seller. [255]
It is a clear, succinct and correct judgment which is well aligned to international
jurisprudence.
(b) Ex parte Sapan Trading (Pty) Ltd [256]
In the Sapan Trading case the court was confronted by an unusual problem. Sapan
(the South African buyer) and Finetrade (the German seller) had a dispute as to who
was responsible to pay Walon, a company employed by them to attend to formalities
relating to the release of the imported goods from the Durban docks and their
transport to Johannesburg. Ostensibly in order to found or confirm jurisdiction in the
WLD in relation to this dispute, Sapan applied for an order to attach Finetrade’s
claims under letters of credit issued by South African banks.
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In the court a quo, [257] Stegmann J dismissed the application on various grounds.
He found in the first place that Sapan had not made out a prima facie case. Its case
was based on its understanding of a ‘C&F’ sale which Stegmann found to be ‘so far-
fetched and obviously wrong’ that its evidence in this respect could not be accepted
as correct. [258] The court held, secondly, that the question whether Finetrade was
the owner of attachable property within the area of jurisdiction of the WLD (in the
form of claims under letters of credit) could not be determined from the letters of
credit alone — alone they were incomprehensible, and that to understand the rights
and obligations evidenced by them they needed to be read together with the
contracts between Sapan Trading and the issuing bank. [259] He further held that
even if it was accepted that Finetrade was the owner of claims against the issuing
bank by virtue of the letters of credit, it was by no means clear that the situs of
these claims was within the WLD (since the banks’ obligation was to pay in
Germany). In such a situation, he stated ‘there is some reason to doubt whether the
ordinary rule [ie that a claim for payment is located where the debtor is] does apply
with regard to documentary credit’. [260] Another reason for dismissing the
application was waiver. In this regard Stegmann J stated as follows:
[i]t seems to me to be a necessary implication . . . that when a buyer . . . promises to be
bound irrevocably by the principles embodied in . . . the UCP, he implicitly waives any right
which he may otherwise have acquired afterwards, on any ground (other than fraud on the
part of the seller), to stop payment of the documentary credit by the issuing bank, or to
interfere with the payment by attaching the seller’s claim to payment. [261]
Finally he dismissed the application for non-joinder of the banks, which in his view
were materially affected by the application. [262]
Sapan Trading appealed to the Full Bench. Streicher J accepted that Sapan
Trading had made out a prima facie case. [263] He also disagreed with the finding of
the court a quo that the obligations of the banks under the letters of credit could not
be determined without reference to the applications for the issuing of the credits. In
this regard he emphasised the independence of the different contracts and
concluded that ‘[i]t is the letter of credit and not the application that embodies the
agreement between the issuing bank and the beneficiary’. [264] Without making a
finding in this regard, Streicher J accepted for the purposes of judgment that
Finetrade was the owner of the rights and that they were located within the area of
jurisdiction of the court. This left the crucial question whether these rights could be
attached to found or confirm jurisdiction. [265] With reference to the Power
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Curber case [266] he held that the ‘whole purpose of this form of payment [was] . . .
that a seller should not be kept out of his money by litigation against him at the suit
of [a] buyer’ [267] and that interference by courts with these obligations of banks
‘would strike at the very heart of that country’s international trade’. [268]
In response to this line of reasoning Sapan Trading argued that while the issuing
bank could not be interdicted from paying, this did not rule out an attachment to
found or confirm jurisdiction since the effect of such an attachment would merely be
that instead of paying the beneficiary the bank paid the deputy sheriff, who would
hold the money on behalf of the beneficiary as security for the plaintiff’s claim. The
bank by so paying would still honour its contractual obligations towards the
beneficiary. Streicher J rejected this reasoning on the basis that the effect of the
attachment was that the beneficiary would not receive its money abroad before a
local court had decided the plaintiff’s claim. [269] He held that the general
international understanding of letters of credit was at odds with the granting of this
application.
The difficulty facing the court, however, was that by law it had no discretion to
refuse an attachment once an incola plaintiff had established a prima facie case
against a peregrine defendant. [270] The court sidestepped this problem by resorting
to an implied term:
In the light of the purpose of a letter of credit, the fact that it is a valuable instrument of
international trade, the very serious consequences to banks in general and to South African
banks in particular should the term not be implied, I am of the view that a term should be
implied by law into the agreement between the applicant and Finetrade that the applicant
would establish an irrevocable letter of credit, and that the applicant would not, by an
attachment to found or confirm jurisdiction in order to prosecute a counterclaim against
Finetrade, prevent the payment of the letter of credit in accordance with its terms. [271]
In a short concurring judgment Schutz J expressed the view that a similar term
should for the same reasons also be implied into the contract between the buyer and
the bank, and that the banks were interested parties who should have been joined
(as found by the court a quo). [272]
In conclusion it is suggested that this judgment is strong evidence of the
commitment of the South African courts to protecting the integrity and
independence of documentary credits. [273] The judgment cannot be faulted. It is
well-established law that a term can be implied into a contract on public policy
grounds. The court has made out a strong case that its decision is supported by
considerations of public policy. Unfortunately, however, the intriguing point raised
by Stegmann J in the court a quo, as to the location of a payment obligation where
payment is to be effected abroad by means of a documentary credit, was not
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answered by the Full Bench. In this regard it is suggested that the English
development is a salient one that should be followed by South Africa.
(c) Loomcraft Fabrics CC v Nedbank Ltd [274]
While the Phillips and Sapan Trading cases explored above entrenched the
independence principle firmly in South African law, the Loomcraft case provides the
jurisprudential basis for the fraud exception in South Africa. Loomcraft (a South
African close corporation) purchased a quantity of fabric from Perfel (a Portuguese
manufacturer). Payment was arranged by means of a deferred payment letter of
credit issued by Nedbank. On arrival of the goods they were inspected by Loomcraft,
which was dissatisfied. It then applied successfully for an interlocutory interdict
against Nedbank restraining it from paying. The basis was a fraudulent
misrepresentation on the bill of lading regarding the date of shipment. A final
interdict was eventually refused and Loomcraft appealed.
Scott AJA, having stated some fundamental principles relating to the law of
letters of credit, continued as follows:
The liability of the bank to the beneficiary to honour the credit arises upon presentment to
the bank of the documents specified in the credit, including typically a set of bills of lading,
which on their face conform strictly to the requirements of the credit. In the event of the
documents specified in the credit being so presented, the bank will escape liability only
upon proof of fraud on the part of the beneficiary.
This ‘established exception’ to the bank’s liability was formulated by Lord Diplock
in United City Merchants (Investments) Ltd and Others v Royal Bank of Canada and
Others [1982] 2 All ER 720 (HL) at 725g as follows: ‘. . . (W)here the seller, for the
purpose of drawing on the credit, fraudulently presents to the confirming bank
documents that contain, expressly or by implication, material representations of fact that
to his (the seller’s) knowledge are untrue.’ [275]
Against this background he stated that for the interdict to be granted the fraud must
be ‘clearly established’. This means that while the ‘onus . . . remains the ordinary
civil one which has to be discharged on a balance of probabilities . . . as in any other
case where fraud is alleged, it will not lightly be inferred’. [276]
Hence, for Loomcraft to succeed it had to establish clearly that Perfel was a party
to fraud in relation to the documents. The credit indicated ‘any main port in Portugal’
as the place of loading or taking in charge of the goods. The bill of lading (a
combined transport document) indicated ‘Leixoes CY [container yard]’ as the place
where the goods were taken in charge, and ‘Lisbon’ as the port of loading. The
vessel and voyage number were stated to be ‘Nuova Europa 219’. The bill of lading
was dated 8 May, which was the latest day permitted for shipment under the credit.
It further bore an undated stamp ‘actually on board’. Loomcraft argued that the
goods could not have been on board the Nuova Europa on 8 May, since the vessel
did not call at the port of Lisbon in the course of voyage 219. It contended that the
goods were actually loaded on board the Nuova Europa on 12 May in the course of a
different voyage to Italy, and from there carried on her voyage 219 to Durban.
Loomcraft alleged that Perfel had procured the issuing of the fraudulent bill of lading
in order to create the impression that it had met the deadline of 8 May.
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Perfel’s explanation was that Leixoes is a main port in northern Portugal and that
the goods were delivered there on 7 May where they passed through customs and
were taken in charge by the carrier’s agents. They were railed to Lisbon on 8 May
and loaded on board the Nuova Europa on 12 May. On 13 May the carrier’s agents
had stamped the date on the bills as well as the notation ‘on board’, for, on that
date, the goods were actually on board. It was noticed subsequently that the bills
were not correct as the goods had been taken in charge by the carrier earlier. The
date was accordingly corrected to 8 May. However, ‘unfortunately’ and ‘in
error’ [277] the ‘on board’ notation was not deleted. Perfel argued that in terms of the
credit the deadline was met provided the goods had been taken in charge at a major
port by 8 May. It did not require the goods to be on board a vessel by that date.
Although the court found features of Perfel’s explanation ‘less than satisfactory’ it
dismissed the appeal. Scott AJA stated as follows:
In order to succeed on the grounds of fraud, the appellant had to prove that Perfel, acting
through its agents, and with the purpose of drawing on the credit, presented the bills of
lading to the bank knowing that they contained material representations of fact upon which
the bank would rely and which they (the agents of Perfel) knew were untrue. . . . Mere
error, misunderstanding or oversight, however unreasonable, cannot amount to fraud. [278]
Applying the Plascon-Evans rule [279] that governs the burden of proof in application
proceedings he finally concluded that he was unpersuaded that ‘on the papers the
appellant succeeded in discharging the burden of proving the falsity of the
explanation given by Perfel in respect of the notation “actually on board” or, in other
words, that the bills of lading contained a fraudulent misrepresentation’. [280] To
establish fraud it was not enough to show that Perfel’s contentions (regarding for
example that Leixoes was a main port in Portugal and that the credit did not require
the goods actually to be on board the ship by 8 May) were wrong. It had to go
further and prove ‘that Perfel knew it to be incorrect and that the contention was
advanced in bad faith’. [281]
(d) Comments on the Loomcraft case and (further) exceptions to the independence
principle
The legal principles pertaining to the fraud exception as set out in
the Loomcraft judgment require comment on two issues, both of which arise from
the court’s adoption [282] of Lord Diplock’s formulation of the fraud exception in
the United City Merchants case. [283]
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The first comment relates to the statement that the fraud must lie in
the fraudulent presentation of documents. [284] This poses the question whether
fraud in the underlying transaction that is not specifically tied to the documents may
also be sufficient to provide an exception to the independence principle. It is
suggested that this question should be answered in the affirmative. [285] Exceptions
to the independence principle should be based on policy considerations. As a matter
of public policy it seems impossible to differentiate between fraud in the underlying
transaction and fraud in the documents; one cannot be regarded as more
reprehensible that the other.
The second comment relates to the statement that beneficiary fraud constitutes
the only exception to the independence principle. This statement is no longer a true
reflection of English law. In Mahonia Ltd v JP Morgan Chase Bank [286] the court, on
considerations of public policy, recognised in principle that illegality of the underlying
transaction may constitute an exception to the independence principle. In this case
the issuer of a standby letter of credit, [287] when sued upon it, raised the defence
that the letter of credit secured an illegal swap transaction in contravention of US
security laws and accepted accounting practice. The defence amounted in effect to
an illegality exception to the independence principle. Colman J referred to several
cases relating to the independence principle including Harbottle v National
Westminster Bank Ltd [288] in which the integrity of letters of credit and independent
guarantees was likened to ‘the life-blood of international commerce’, as well as
the Sztejn and United City Merchants cases in which the fraud exception was
developed. He regarded the United City Merchants case as a clear application of the
ex turpi causa principle stressing that the English courts would not permit the use of
their process by a dishonest person to perpetrate a fraud. Thus, the House of Lords
had in mind ‘that as a matter of public policy a claimant would not be entitled to use
the autonomy doctrine to derive a benefit from his own fraud’. [289]
The legal question, however, was whether illegality, as opposed to fraud, was
also a possible basis upon which the independence principle could be circumvented.
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Staughton LJ answered this question positively, but obiter, in Group Josi Re v
Walbrook Insurance Co Ltd. [290] Colman J took the same view stating:
If a beneficiary should as a matter of public policy (ex turpi causa) be precluded from
utilizing a letter of credit to benefit from his own fraud, it is hard to see why he should be
permitted to use the courts to enforce part of an underlying transaction which would have
been unenforceable on grounds of its illegality if no letter of credit had been involved,
however serious the material illegality involved. To prevent him from doing so in an
appropriately serious case such as one involving international crime could hardly be seen
as a threat to the lifeblood of international commerce. [291]
Although the defence, when subsequently considered on the merits, was
unsuccessful [292] since the transaction was not proven to have been in contravention
of US security laws, the principle was firmly established in this case and is supported
by English commentators. [293]
In conclusion in this context the South African case of Casey v Firstrand
Bank [294] is noteworthy. In this case a standby letter of credit securing a loan was
called up, and the amount demanded was in excess of the capital together with the
maximum interest permissible under the National Credit Act. Against this
background the parties reached an agreement that the excess amount was not
claimable. It is suggested that this agreement must have been based on the
(correct) assumption that the illegality of the underlying transaction can provide an
exception to the independence principle.
(iii) Conclusion
The independence principle is alive and well in South African law. However, there is
a need for jurisprudence developing the exceptions to the principle. Considerations
of public policy should determine this development. Public policy, it is suggested,
supports a fraud exception that goes wider than fraud specifically reflected in the
documents. It also supports the recognition of an illegality exception.
9.5.6 Transferable credits, assignment of proceeds and back-to-
back credits
The transferable credit is a specific type of credit which has been designed to serve
the interests of primarily the middle person involved in a string contract — ie a seller
that does not produce or manufacture the goods itself but acquires them elsewhere.
In order to be transferable, a credit must expressly be designated ‘transferable’. [295]
The word ‘transferable’ is, however, misleading. The credit itself is not
transferred. The credit simply confers upon the beneficiary the right to request the
appropriate bank, the transferring bank (which is akin to the nominated bank in
non-transferable credits) to make the credit available in whole or in part to another
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party or parties (the second or further beneficiaries). The transferring bank
therefore advises a new credit of the same issuing bank to the second
beneficiary. [296] This credit is independent of the original credit issued to the first
beneficiary. The new credit ‘must accurately reflect the terms and conditions of the
[original] credit’ except for the expiry date, the last date for presentation of
documents, and the period of shipment, all of which may be reduced or
curtailed. [297] It is important to note that the (first) beneficiary’s right to request the
bank in this manner to transfer the credit does not mean that the bank is obliged to
accede to the request. [298] However, it is suggested that banks should not lightly
refuse to transfer as this would have a stifling effect on a useful trade
instrument. [299] The UCP 600 allows the credit to be transferred once only (in other
words the second beneficiary cannot request a further transfer to a third
beneficiary). [300] It is possible, however, for the credit to be transferred to more
than one second beneficiary (for example where the seller manufactures something
from components sourced from different suppliers). [301]
The UCP 600 states that the transferring bank ‘means a nominated bank that
transfers the credit or, in a credit that is available with any bank, a bank that is
specifically authorized by the issuing bank to transfer and that transfers the credit’.
Thus, if the credit is available with any bank it is non-transferable despite being
designated as transferable, unless the issuing bank has specifically authorised a
bank to transfer. The UCP 600 has cleared up a problematic question [302] by stating
expressly that the issuing bank can also be a transferring bank. [303] Thus, if the
transferring bank declines to transfer, the seller can request the issuing bank to
advise the transfer to the second beneficiary.
The function of a transferable credit is that it enables the seller (first beneficiary)
to pay its supplier by effecting a ‘transfer’ of the credit to the supplier (second
beneficiary). The second beneficiary presents documents under the credit, including
its own invoice, and receives payment from the transferring bank. Typically it will
receive less than the amount designated in the original credit. The first beneficiary
acquires this difference, which reflects its profit, by presenting its own invoice to the
transferring bank. The transferring bank replaces the second beneficiary’s invoice
with that of the first beneficiary (the seller) before passing on the documents to the
issuing bank. Thus, although the buyer will know that the
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seller was being supplied by a third party, [304] the identity of the third party, and the
profit of the seller, can be kept confidential, thereby preventing the buyer from by-
passing the seller and dealing with the supplier directly. The bank is under a
contractual duty to keep the identity of the supplier and the seller’s profit
confidential. If the bank breaches this duty and the buyer starts dealing directly with
the supplier, the seller will have a contractual claim for damages against the bank
relating to its loss of profits. [305]
The precise effect of the transfer of the credit upon the relationships between the
parties is neither dealt with in the UCP 600, nor has it as yet been considered in
English or South African case law. This matter is generally regarded as somewhat
vexing. [306] It is submitted that the following analysis by Oelofse [307] is convincing:
(i) As between the issuing bank and the second beneficiary the transfer of the credit
establishes an independent obligation on the issuing bank to perform as against the
second beneficiary in accordance with the new credit. (ii) As between the first
beneficiary and the issuing bank the transfer of the credit has the effect of
suspending the first beneficiary’s rights as against the issuing bank under the
original credit for the duration of the period in which the new credit can be utilised
by the second beneficiary. If it lapses without having been utilised, the suspension
falls away and the first beneficiary can enforce its rights against the issuing bank
under the original credit. [308] If the transferred credit is utilised the first beneficiary’s
rights under the original credit are terminated, and, in their place, it acquires the
right to substitute documents and be paid its profit in the string contract.
The transfer of a credit must be distinguished from — to adopt the language of
the UCP — the assignment of proceeds of the credit. In this regard article 39 of the
UCP provides as follows:
The fact that a credit is not stated to be transferable shall not affect the right of the
beneficiary to assign any proceeds to which it may be or may become entitled under the
credit, in accordance with the provisions of applicable law.
This article is concerned with the assignment or — to employ South African legal
terminology — the cession, by the beneficiary of its right to payment [309] in terms of
the credit. [310] The cession can take place either after the beneficiary has delivered
conforming documents (for instance in the case of a deferred payment credit) or
before delivery of the documents. In the latter instance the cession
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should be subject to the condition that the beneficiary (cedent) delivers conforming
documents timeously. [311]
Finally, the transferable credit must be distinguished from the functionally related
but legally different back-to-back or subsidiary credit. [312] In the case of a back-to-
back credit a bank issues, at the seller’s request, a documentary credit to the
seller’s supplier in reliance on a letter of credit procured by the buyer in favour of
the seller. This second credit is entirely distinct from the first. However, the
documents specified in the back-to-back credit must be capable of being tendered
on behalf of the seller in terms of the first credit. Thus, the specifications must be
identical and the documents must relate to the same goods. When the documents
have been tendered by the supplier to the seller’s bank, the bank simply substitutes
the seller’s invoice for that of the supplier and presents the documents in terms of
the first credit as the collecting bank of the seller.
From the point of view of the bank issuing the back-to-back credit (the second
credit), the arrangement is risky. Due to the independence of the two credits, the
bank issuing the second credit will have to pay if conforming documents are
tendered regardless of whether its customer is able to obtain payment under the
backing credit. For this reason banks generally prefer to make use of a transferable
credit. [313] If, however, the seller wishes to conceal not only the identity of the
supplier from the buyer but also the very fact that it is being supplied, this can be
accomplished by using a back-to-back credit.
Page 434
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Bridge (2007) Bridge, Michael The International Sale of Goods 2 ed
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Carr Carr, Indira International Trade Law 4 ed (2010)
Chuah Chuah, JCT Law of International Trade: Cross-border
Commercial Transactions 5 ed (2013)
Cowen & Gering Cowen, Denis V & Leonard Gering Cowen The Law of
Negotiable Instruments in South Africa 5 ed (1985)
D
Dimatteo Dimatteo, Larry A International Contracting: Law and
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Enonchong Enonchong, Nelson The Independence Principle of Letters
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F
Fredericks & Neels Fredericks, Eesa A & Jan Neels ‘The proper law of a
(2003(1)) documentary letter of credit: Part 1’ (2003) 15 SA
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Fredericks & Neels Fredericks, Eesa A & Jan Neels ‘The proper law of a
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Horowitz Horowitz, Deborah Letters of Credit and Demand
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Hugo (1993) Hugo, Charl ‘The development of documentary letters of
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Hugo (1994) Hugo, Charl ‘The legal nature of the uniform customs and
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Hugo (1996(1)) Hugo, Charl Francois The Law Relating to Documentary
Credits from a South African Perspective with Special
Reference to the Legal Position of the Issuing and
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Hugo (1996(2)) Hugo, Charl ‘The 1993 revision of the uniform customs
and practice for documentary credits’ (1996) 8 SA Merc
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Hugo (2001) Hugo, Charl ‘Documentary credits: Apparently conforming
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Royal Bank of Canada’ (2001) 13 SA Merc LJ 593
Hugo (2002) Hugo, Charl ‘Discounting practices and documentary
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Hugo & Lambertyn Hugo, Charl & Olivier Lambertyn ‘Documentary credits
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ICC Publication 725 International Chamber of Commerce Uniform Rules for
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ICC Publication 732E International Chamber of Commerce ICC Banking
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ICC Publication 800E International Chamber of Commerce Uniform Rules on
Forfaiting (2012) ICC Publication 800E
ICC Publication 745 International Chamber of Commerce International
Standard Banking Practice (2013) ICC Publication 745
ICC Publication 978E International Chamber of Commerce Annual Review of
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Malek & Quest Malek, Ali & David Quest Jack: Documentary Credits 4 ed
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[1] On the risks faced by the parties in general see International Chamber of Commerce
(ICC) Export-Import 19-21; Carr 463.
[2] See, for example, ch 34 of McKendrick 1033 et seq; ICC Export-Import 26 para 8.1.
[3] Bridge (2007) 7 para 1.07; Dimatteo 109.
[4] ICC Export-Import 19-21.
[5] For a brief overview of the typical documents encountered in an international sale see Wolff
165-7.
[6] ICC Export-Import 98-9; Wolff 166-7.
[7] ICC Model International Sale Contract clause A8 (art 9); Wolff 167.
[8] See, for example, ICC International Sale clause A7 (art 5). Apart from the four methods listed
above it refers to a fifth category ‘Other’, which includes ‘cheque, bank draft, electronic funds transfer
to designated bank account of seller’. See further Carr 463.
[9] The term used by Wolff 176. See also Murray, Holloway & Timson-Hunt 162 para 9-002.
[11] See Adodo 1; Van Niekerk & Schulze 249.
[12] ICC Export-Import 163; Van Niekerk & Schulze 249.
[13] Wolff 176.
[14] Adodo 1; Wolff 177. See further, on advance payment guarantees in general, ch 10 below.
[15] Adodo 5-6 para 1.03; Van Niekerk & Schulze 254.
[16] ICC Export-Import 162.
[17] Chuah 554 para 11-003; Carr 464.
[18] This is due to banks not being involved in any manner other than to give effect to money
transfers from one account to another. See Wolff 176. See further ICC Export-Import 162; Chuah 554
para 11-003.
[19] Also referred to as ‘invoice financing’, ‘invoice discounting’, ‘receivables discounting’ or ‘sales
financing’ (see ICC Export-Import 196).
[20] Chuah 640 para 11-142. See further Wolff 155-8; Carr 507-8; ICC Export-Import 193-201.
For a recent concise exposition of factoring from a South African perspective see Sunkel 473-6.
[21] ICC Export-Import 193, 195, 197.
[22] The term used in English law.
[23] Which is likely to be a factoring company, subsidiary of a bank, finance house or a bank (see
Wolff 155; ICC Export-Import 195).
[24] In the form of a commission charged by the factor (a percentage of the face value of the
invoices) normally based on turnover (see Chuah 640 para 11-142; Wolff 155; ICC Export-
Import 198).
[25] Mostly, however, the factor undertakes all credit management and collection work, in other
words assumes the responsibility of the seller’s sales ledger (as opposed to simply that relating to a
particular sale). See in this regard Carr 507-8. The situation encountered in Dantex Investment
Holdings (Pty) Ltd v National Explosives (Pty) Ltd 1990 (1) SA 736 (A), in which the cedent (seller)
collected payment from the buyer as the agent of the cessionary, seems somewhat unusual.
[26] The precise obligation on the factor in this regard (for example whether a demand for payment
is sufficient or whether legal proceedings must be instituted by it) should best be provided for in the
factoring contract. See in this regard Wolff 157.
[27] Wolff 157.
[30] See Joubert 88-91.
[32] Wolff 156.
[33] Scott (1991) 260.
[34] Scott (1991) 262.
[35] Scott (1991) 261.
[36] A fact lamented in journal articles: see, for example, Scott (2008) 493-4; Sunkel 475.
[37] Sunkel 475.
[38] For some statistics in this regard see Sunkel 474-5.
[39] See http://www.unidroit.org/status-1988-factoring, accessed on 15 February 2015.
Noteworthy ratifications from a South African perspective are those by Germany and France. None of
the BRICS countries have ratified it, nor has the United Kingdom or the United States of America.
[40] Article 2(1) of the Convention provides when it will be applicable. It reads as follows: ‘This
Convention applies whenever the receivables assigned pursuant to a factoring contract arise from a
contract of sale of goods between a supplier and a debtor whose places of business are in different
States and: (a) those States and the State in which the factor has its place of business are
Contracting States; or (b) both the contract of sale of goods and the factoring contract are governed
by the law of a Contracting State.’
[41] Carr 509.
[42] http://www.uncitral.org/uncitral/en/uncitral_texts/security/2001Convention_receivables_statu
s.html.
[43] ‘Documentary’ collections must be differentiated from ‘clean’ collections. The latter is simply a
collection of payment which involves no documents (apart from a sight bill of exchange). See
Moorcroft & Raath para 32.2; Van Niekerk & Schulze 251; McKendrick 1054; ICC Export-Import 163.
[44] If a bill of exchange is used in the DP collection context, it will be a sight draft and not a time
draft. See Wolff 174; Chuah 556 para 11-010.
[45] McKendrick 1054. Murray, Holloway & Timson-Hunt 178 para 10-001.
[46] The commercial documents must be differentiated from the financial document used for
payment, typically a bill of exchange. See Wolff 175; Chuah 571 para 11-039.
[47] For example a marine bill of lading, combined transport document or a waybill.
[48] For example a certificate of quality, certificate of origin or an inspection certificate.
[49] Uniform Rules for Collections (1995), art 3(a)(2).
[50] McKendrick 1054; Van Niekerk & Schulze 251; Dimatteo 111.
[51] Moorcroft para 32.3; Bridge (2007) 257 para 6.19.
[52] The collecting bank is any bank involved in the collection process as mandatary of the
remitting bank. Where the collecting bank is the bank that actually presents the documents to the
buyer, it is known as the presenting bank. See arts 3(a)(3) and 3(a)(4) of the URC 522. See further
McKendrick 1054; Van Niekerk & Schulze 251.
[53] Van Niekerk & Schulze 251.
[54] Wolff 175. But see Van Niekerk & Schulze 252 who state that these rules have not reached the
level of international acceptance enjoyed by the UCP governing letters of credit (on which see para
9.5.1 below).
[55] Publication 522 (1995). On these rules, the main purpose of which is to promote uniformity in
collection practice, see in general Moorcroft paras 32.2-32.5; Van Niekerk & Schulze 252-4; Murray,
Holloway & Timson-Hunt 178-82 paras 10-002-10-004.
[56] 1995 (2) SA 498 (W). For a comprehensive discussion of the case see Moorcroft para 32.6.
[57] 508H-J. See also Van Niekerk & Schulze 253. The position is accordingly different to that of a
credit transfer where the originator’s instructions lead to a contractual nexus with only its own bank
(and not with any of the other sub-mandatary banks). See Malan, Pretorius & Du Toit 281-4 paras
210-13 and their discussion of Gilbeys Distillers and Vintners (Pty) Ltd v Absa Bank Ltd (CPD)
unreported case 12968/94 (4 December 1998).
[58] 508J-509B. Moorcroft para 32.6. English law also recognises that there is privity of contract
between the seller and the collecting bank which may render the collecting bank liable to the seller
for breach of contract if, for example, it were to release the documents to the buyer contrary to its
mandate. See in this regard Murray, Holloway & Timson-Hunt 182 para 10-004, who refer to Calico
Printers Association Ltd v Barclays Bank (1930) 36 Com Cas 197 (CA) and Bastone & Firminger Ltd v
Nasima Enterprises (Nigeria) Ltd [1996] CLC 1902 (QBD).
[59] The court’s decision was based on the provision in the URC that it binds the parties, and the
definition of ‘parties’ as including the seller, the remitting bank and the collecting bank. This remains
the position under the current URC. See arts 1(a) and 3(a) in this regard.
[60] Van Niekerk & Schulze 251-2; Wolff 173.
[61] Wolff 172; ICC Export-Import 164; Dimatteo 110.
[62] Sometimes referred to as a ‘trade bill’. See Cowen & Gering 182-4. See further Wolff 174.
[63] Adodo 6-7 para 1.04; Carr 464, 468; Chuah 556-7 para 11-010.
[64] The seller will be the payee in possession, and as such the holder. See the definition of ‘holder’
in s 1 of the Bills of Exchange Act 34 of 1964.
[65] If the seller decides on this option the collecting bank may merely advise the seller of the
acceptance and keep the bill to present it on behalf of the seller when it matures. See Chuah 557
para 11-010; Dimatteo 112.
[66] Adodo 7 para 1.04; Wolff 174; Carr 464-5, 467-8.
[67] As indorsee in possession: see s 1 of the Bills of Exchange Act 34 of 1964.
[68] See s 52 read with s 55 of the Bills of Exchange Act 34 of 1964.
[69] See s 53(1) and (2) read with s 55 of the Bills of Exchange Act 34 of 1964.
[70] For an early comprehensive analysis see Malan 200. See further Chuah 636-7 para 11-135;
Murray, Holloway & Timson-Hunt 262 para 13-009.
[71] Malan 200; Wolff 158.
[72] Malan 203; Murray, Holloway & Timson-Hunt 263 para 13-010; Wolff 159.
[73] Malan 200, 203-4; ICC Export-Import 202, 203; Wolff 159; Chuah 636-7 paras 11-135, 11-
137.
[74] In English law the liability of an aval is akin to that of an indorser (see s 54 of the English Bills
of Exchange Act, 1882). In South African law it is akin to that of a surety without the benefit of
excussion (see s 54A of the South African Bills of Exchange Act 34 of 1964).
[75] See ch 10 below. Murray, Holloway & Timson-Hunt 263-4 para 13-011, who state that the
guarantee will approximate the following: ‘Notice in writing of any default of the said [acceptor . . .] is
to be given to us [the guaranteeing bank] and forthwith upon receipt of such notice payment shall be
made by us of all sums then due from us under this guarantee.’ The authors also state that the
guarantee must be irrevocable, unconditional, divisible and assignable. See further in this regard
ICC Export-Import 203.
[76] Murray, Holloway & Timson-Hunt 263 para 13-011.
[77] Malan 201; section 14 of the Bills of Exchange Act 34 of 1964.
[78] Murray, Holloway & Timson-Hunt 264 para 13-011; Wolff 159.
[79] Malan 203; Wolff 159.
[80] Murray, Holloway & Timson-Hunt 264 para 13-012.
[81] Section 14 of the Bills of Exchange Act 34 of 1964. Under the Geneva Uniform Law on Bills of
Exchange and Promissory Notes (GULB), however, the drawer cannot release itself from guaranteeing
payment of the instrument. See in this regard Malan 201-2.
[82] This is clearly the case if the seller signed ‘without recourse’ both as drawer and as indorser.
The question is more problematic if only the indorsement is marked ‘without recourse’. On the
different position in countries governed by the GULB see Malan 201-2.
[83] Wolff 160.
[84] ICC Publication 800E (2012).
[85] Chuah 640 para 11-141.
[86] The law of documentary credits is a vast field on which much has been written. Regarding
South African books one should take note of Oelofse. Although somewhat dated, this remains a useful
book containing thorough comparative research and independent thinking. Van Niekerk & Schulze
have a helpful shorter discussion of the topic. There has also been one doctoral thesis, namely,
Hugo The Law Relating to Documentary Credits from a South African Perspective with Special
Reference to the Legal Position of the Issuing and Confirming Banks (1996), cited as Hugo (1996(1)).
It should further be noted that English law is highly influential in this field. Hence English textbooks
are also important. Attention is drawn to the following three: Malek, Quest & Jack; Bridge (2014) ch
23; and the relevant comprehensive chapter from McKendrick. Attention should also be drawn to
three helpful comparatively recent English textbooks that focus on particular aspects of the law of
documentary credits, namely: Adodo; Enonchong; and Horowitz.
[87] McKendrick 1055.
[88] Murray, Holloway & Timson-Hunt 184-5 para 11-001. See also McKendrick 1061, who states
that the popularity of letters of credit has fluctuated over time and is influenced by the confidence felt
by sellers in the creditworthiness of their customers, the strictness of exchange controls and whether
the transaction is part of an aid programme.
[89] RD Harbottle (Mercantile) Ltd v National Westminster Bank Ltd [1978] QB 146 at
155G; Intraco Ltd v Notis Shipping Corporation — The Bhoja Trader [1981] 2 Lloyd’s Rep 256 (CA) at
257.
[91] (2007) ICC Publication 600 (henceforth ‘UCP 600’). It has been described by commentators as
an exceptionally successful instrument of harmonisation. See, for example, McKendrick 1055 n 13;
Murray, Holloway & Timson-Hunt 186. On its development and history see Hugo (1993) 44 and Hugo
(1996(2)) 151; Schulze (2009) 228.
[92] Most notably they do not govern exceptions to the independence principle. See para
9.5.5 below in this regard. Matters not regulated by the UCP will need to be determined with
reference to some or other national law as indicated by the relevant principle of private international
law. For a comprehensive discussion of this aspect see Fredericks & Neels (2003) (Part 1) 63-73;
(Part 2) 207-27.
[93] Due to the wide acceptance of the UCP a case can also be made out for them qualifying as
trade usage. See in this regard Hugo (1994) 143; Van Niekerk & Schulze 264-5. In practice, however,
it is seldom necessary to resort to this reasoning due to the overwhelming incidence of express
contractual incorporation, both in the application for the issuing of the credit (for an example of such
an application see McKendrick 1063-4) and in the issued credit itself.
[94] The ICC has supplemented the UCP 600 by the Supplement to UCP 600 for Electronic
Presentation (the so-called eUCP), which contains 12 articles designed to deal with the electronic
presentation of documents. For a good overview of the eUCP see Bridge (2014) 2144-50 paras 23-
215 to 23-230. For a brief summary see Van Niekerk & Schulze 306. McKendrick 1059 states in
regard to this supplement: ‘When fully developed, a system of electronic presentation will have a
number of advantages, allowing the beneficiary conveniently to present documents directly to the
issuing bank instead of to . . . [a nominated bank], and providing for an automated system for the
checking of documents, which is currently a laborious manual process, thus saving labour and
reducing the currently high percentage of discrepancies. But it is likely to be some time before
electronic presentation comes into general use.’
[95] To facilitate documentary credit transactions the ICC has published a large number of
materials (see store.iccwbo.org), inter alia: (i) Annual Review of International Banking Law and
Practice, the latest being that of 2014, (ICC Publication 978E); (ii) Various ICC Banking Commission
Opinions, the latest one being for the years 2009-2011, ICC Publication 732E (2012); and
(iii) International Standard Banking Practice (ISBP) ICC Publication 745 (2013).
[96] Article 2 (the definitions article).
[97] In the case of a sight payment credit. See the definition of ‘honour’ in arts 2, 6(b) and 7(a)(i)
of the UCP 600.
[98] In the case of a deferred payment credit. See the definition of ‘honour’ in arts 2, 6(b) and
7(a)(i) of the UCP 600.
[99] In the case of an acceptance credit. See the definition of ‘honour’ in arts 2, 6(b) and 7(a)(i) of
the UCP 600.
[100] In the case of a negotiation credit. See the definition of ‘negotiation’ in arts 2 and 6(b) of the
UCP 600.
[102] Oelofse 23.
[103] Article 2 of the UCP 600 accordingly defines the advising bank as ‘the bank that advises the
credit at the request of the issuing bank’.
[104] The acronym stands for Society for Worldwide Interbank Financial Telecommunications and is
co-operatively owned by more than 1 000 member banks worldwide (Dimatteo 122 n 24). For the
advising of the credit in general see especially Adodo 39-42 paras 2.29-2.35 (who deals also with the
advising of the credit by tested telex, registered post and courier). See further McKendrick 1065.
[105] For the particulars of this advising of the credit see art 9 of the UCP 600. See further Oelofse
23-4.
[106] Article 9(b) of the UCP 600. If it cannot do so it must inform the bank from which the
instructions apparently emanate accordingly. See art 9(f) of the UCP 600. See further Bridge (2014)
2030 para 23-030; ICC Export-Import 168. If the instructions to advise were received by means of
SWIFT the authenticity of the credit is automatically apparent. See in this regard Malek & Quest 140
para 6.14.
[107] Oelofse 24-6. The UCP 600 accordingly defines the nominated bank with reference to ‘the
bank with which the credit is available’. See also art 6(a), which establishes the principle that the
credit is in any event always also available with the issuing bank itself.
[108] See art 12(a), (c) of the UCP 600. See further Oelofse 25-6.
[109] Article 2 (emphasis added).
[112] Article 2 of the UCP 600 defines ‘confirmation’ as ‘a definite undertaking of the confirming
bank, in addition to that of the issuing bank, to honour or negotiate a complying presentation’, and
the ‘confirming bank’ as a ‘bank that adds its confirmation to a credit upon the issuing bank’s
authorization or request’.
[113] McKendrick 1067-8.
[114] See art 8(a)(i) of the UCP 600.
[115] Oelofse 52, 55-6; Bridge (2014) 2013 para 23-004; Bridge (2007) 259 n 74; Malek & Quest
145 para 6.24.
[116] Malek & Quest 5 para 1.11.
[117] See Dimatteo 123-4 who states: ‘Exporters should consider getting confirmed LCs if they are
concerned about the credit standing of the foreign bank or when they are operating in a high-risk
market, where political upheaval, economic collapse, devaluation or exchange controls could put the
payment at risk.’
[118] This reimbursement is likely to be governed by a separate set of rules issued by the ICC,
namely the Uniform Rules for Bank-to-bank Reimbursement (URR) ICC Publication 725 (2008).
[119] Bridge (2014) 2151-2 para 23-233; Chuah 614-15 paras 11-104-11-106.
[120] The ICC Model International Sale Contract 25, for example, calls for an indication whether
the credit is confirmed, its place of issue (and confirmation if applicable), whether it is available by
sight payment, deferred payment, acceptance of drafts or negotiation, whether partial shipment and
transhipment is allowed, and the date upon which it is to be notified. It further calls upon the parties
to indicate which of the following documents will be required under the credit: transport document,
commercial invoice, packing list, insurance document, certificate of origin and inspection document.
[121] For a detailed exposition of this process see Adodo 29 para 2.03 et seq. See further
McKendrick 1062; Bridge (2014) 2012 para 23-004.
[122] Adodo 29 para 2.03 et seq; McKendrick 1062; Bridge (2014) 2012 para 23-004.
[123] See para 9.5.3(ii) below.
[124] McKendrick 1062; Carr 492-3.
[125] Adodo 31 para 2.09; McKendrick 1062. See further ICC Export-Import 165, which refers to a
required ‘internal credit approval’ before the letter of credit will be issued.
[126] Adodo 39 para 2.29 et seq; McKendrick 1062, 1065; Dimatteo 122.
[127] Adodo 31 para 2.08. For examples of such an advice see McKendrick 1071-2; Chuah 583-6.
[128] See W J Alan & Co Ltd v El Nasr Export and Import Co [1972] 2 QB 189 (CA) at 209C-211C
where the question is dealt with in relation to whether the issuing of the credit amounts to absolute
payment (discharging the buyer’s obligation) or conditional payment (merely suspending the
obligation). For a thorough discussion of this question from a South African perspective see Oelofse
83-94. The question is essentially one of interpreting the contract of sale. Put differently, nothing
prevents the parties from agreeing that the buyer will be discharged by the issuing of the letter of
credit, but this would be unusual. As stated in the WJ Alan case (at 209H) with reference to Soproma
SpA v Marine & Animal By-Products Corporation [1966] 1 Lloyd’s Rep 367 at 385, the idea of the
letter of credit is to provide a ‘reliable and solvent paymaster’ as opposed to a paymaster who does
not pay.
[129] If the seller fails to reject a non-conforming credit it was held in the WJ Alan case supra note
128 that the seller will thereby be held to have varied the contract of sale (217D-E) or have waived
the right to insist upon compliance with it (212H). For a comprehensive discussion of this issue see
Oelofse 68-70.
[130] McKendrick 1066; Carr 473; Bridge (2014) 2013 para 23-004.
[131] See art 7(a)-(v) of the UCP 600.
[132] Article 5. See further McKendrick 1082-4; Van Niekerk & Schulze 291.
[133] Article 14(h).
[134] See para 9.5.4.
[135] See para 9.5.5. Also referred to as the ‘autonomy’ of the credit. See, for example, Van
Niekerk & Schulze 290.
[136] Article 4.
[137] See para 9.5.5.
[139] Article 2. Hence Adodo 17 para 1.32 states that ‘[w]hile the central promise of the issuing
bank . . . is to “honour a complying presentation”, the means of honouring depends on the “mode of
availability” of the credit’ (footnotes omitted).
[140] See art 7 of the UCP 600.
[141] See art 7(a)(v) read with the definition of ‘negotiation’ in art 2 of the UCP 600.
[142] On sight payment credits in general see Adodo 18 para 1.34 (who states that this is the ‘least
utilized in financing major international sales transactions’); Hugo (1996(1)) para 1.6.4; McKendrick
1068; Bridge (2014) 2022 para 23-018; Carr 473. See also Oelofse 58, and Van Niekerk & Schulze
273 who refer to this type of credit as a ‘cash credit’.
[143] It has a maximum of five days to do so. See art 14(a) and 14(b) of the UCP 600.
[144] In terms of art 7(c) of the UCP 600 the ‘issuing bank undertakes to reimburse a nominated
bank that has honoured . . . a complying presentation and forwarded the documents to the issuing
bank’.
[145] In terms of art 12(a) of the UCP 600 ‘an authorization to honour . . . does not impose any
obligation on that nominated bank to honour’.
[146] Article 7(a)(ii) of the UCP 600, which provides as follows: ‘Provided that the stipulated
documents are presented to the nominated bank . . . and that they constitute a complying
presentation, the issuing bank must honour if the credit is available by: . . . ii. sight payment with a
nominated bank and that nominated bank does not pay’.
[147] On acceptance credits (as a form of usance credit) in general see Adodo 19 paras 1.38-1.39;
Hugo (1996(1)) para 1.6.4; Oelofse 58; Murray, Holloway & Timson-Hunt 217; McKendrick 1068;
Bridge (2014) 2022 para 23-018; Carr 473.
[148] Ie a bill maturing sometime in the future, also occasionally referred to as a ‘usance bill’. See
Malek & Quest 26 para 2.18.
[149] As envisaged in art 7(a)(iv) of the UCP 600.
[150] See art 7(a)(iv), which provides as follows: ‘Provided that the stipulated documents are
presented to the nominated bank . . . and that they constitute a complying presentation, the issuing
bank must honour if the credit is available by: . . . iv. acceptance with a nominated bank and that
nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not
pay at maturity’.
[151] See Hugo (2002) 106-7; McKendrick 1121; Murray, Holloway & Timson-Hunt 217; Bridge
(2014) 2022 para 23-018; Carr 474.
[152] See the discussion in para 9.4 above. The same principles apply in this situation. See also
McKendrick 1122.
[153] Article 7(c) of the UCP 600.
[154] Hugo (1996(1)) para 1.6.4; Bridge (2014) 2022 para 23-018.
[155] The essence of which is acquisition by negotiation, for value and in good faith. See s 27(1) of
the Bills of Exchange Act 34 of 1964. See further Hugo (2002) 107.
[156] Hugo (2002) 107; Banco Santander SA v Bayfern Ltd [1999] CLC 1321 at 1330.
[157] On deferred payment credits in general see Adodo 18-19 paras 1.35-1.37; Hugo (2002) 107-
9; Oelofse 60-1; Murray, Holloway & Timson-Hunt 216-17; McKendrick 1068; Bridge (2014) 2022
para 23-018; Carr 473.
[158] See article 7(a)(iii) of the UCP 600, which provides as follows: ‘Provided that the stipulated
documents are presented to the nominated bank . . . and that they constitute a complying
presentation, the issuing bank must honour if the credit is available by: . . . iii. deferred payment with
a nominated bank and that nominated bank does not incur its deferred payment undertaking or,
having incurred its deferred payment undertaking, does not pay at maturity’.
[159] See Hugo (2002) at 107-9. For an excellent comparative analysis of some such discounting
transactions (before the UCP 600) see Oelofse 106-11.
[160] Although forfaiting is traditionally associated with the discounting of a negotiable instrument,
the discounting of deferred payment rights is also regarded as forfaiting in some sources. See in this
regard ICC Export-Import 201 where forfaiting is described as the discounting ‘of trade-related debt
obligations’. At 204 deferred payment undertakings are cited as a specific example.
[161] The use of acceptance credits is more strongly associated with the common-law jurisdictions
while deferred payment credits are more common in civilian jurisdictions. See in this regard Hugo
(2002) 108. See further Adodo 18 para 1.35, who points out that these credits hold the advantage of
avoiding the stamp duty imposed on bills of exchange in some countries.
[162] 2000 (4) SA 238 (W).
[163] Banco Santander SA v Bayfern Ltd [1999] CLC 1321. For discussions of this important case
see Hugo (2002) 112-14; Malek & Quest 270-2 paras 9.43-9.47.
[164] 256 para [49], 258 para [52] and 260 para [56].
[165] 261-2 paras [59]-[62].
[166] 263-4 para [64].
[167] See Längerich; Hugo & Lambertyn 183-4, 202-3, 205.
[168] Emphasis added.
[170] See Malek & Quest 272 para 9.47. For criticism of this change see Takahashi passim.
[171] McKendrick 1074. Adodo 20 para 1.41 uses the term ‘unrestricted negotiation credit’ as
opposed to a ‘restricted negotiation credit’. The UCP 600 avoids this type of terminology, opting
rather to bring the concept under a more widely defined ‘nominated bank’. The former revision of the
UCP (ICC Publication 500 (1993)) used the term ‘freely negotiable credit’. See, inter alia, art 10(b)(i)
of the UCP 500.
[172] See the definition of ‘negotiation’ in art 2 of the UCP 600.
[173] See McKendrick 1070; Hugo (2002) 102; Oelofse 58-9.
[174] McKendrick 1070; Hugo (2002) 102; Oelofse 58-9.
[175] In other words a forfaiting transaction (provided, perhaps, a bill of exchange is involved).
[176] See art 7(a)(v) of the UCP 600, which provides as follows: ‘Provided that the stipulated
documents are presented to the nominated bank or to the issuing bank and that they constitute a
complying presentation, the issuing bank must honour if the credit is available by: . . . v. negotiation
with a nominated bank and that nominated bank does not negotiate’.
[177] See art 7(c) of the UCP 600, which provides as follows: ‘An issuing bank undertakes to
reimburse a nominated bank that has . . . negotiated a complying presentation and forwarded the
documents to the issuing bank.’ See further Oelofse 58-9.
[178] For South African discussions of the doctrine see Van Niekerk & Schulze 295-300; Oelofse
288-90 who deals with the doctrine under English (at 282-8), Dutch (at 290-2), German (at 292-300)
and American (at 300-10) law. See also Hugo (1996(1)) who also deals with the doctrine under
German (para 6.2.3), English and American (para 6.3.5) and South African (para 6.5.2) law.
[179] 2002 (3) SA 688 (SCA) at 697G-698C. See also the acknowledgment of the doctrine in Delfs
v Kuehne & Nagel (Pty) Ltd 1990 (1) SA 822 (A) at 825D-E, 826D-I.
[180] For an overview of the English law in this regard see especially Adodo 154-73; Malek & Quest
184 et seq; Bridge (2014) 2068-2103 paras 23-101-23-138; and McKendrick 1082-6. There is also a
useful summary of English case law relating to the doctrine in Karaganda Ltd v Midland Bank
plc [1998] Lloyd’s Rep (Banking) 173 (QBD Com Ct) at 177-8.
[181] [1926] 27 Ll L Rep 49 (HL) 52. Similarly, in an even earlier case, English, Scottish & Australia
Bank Ltd v Bank of South Africa [1922] 13 Ll L Rep 21 at 24, Bailhache J stated that ‘a person who
ships in reliance on a letter of credit must do so in exact compliance with its terms’ (my emphasis).
[182] [1974] 2 Lloyd’s Rep 1 (PC) at 12.
[183] Adodo 154-5 para 6.13.
[184] 780 2d 313 (1989) at 316-317.
[185] [1983] 1 QB 711 (CA) at 721E-G (emphasis added).
[186] [1993] 1 Lloyd’s Rep 236 (CA) at 240.
[187] [1991] 2 Lloyd’s Rep 443.
[188] Ibid.
[189] This was the finding of the trial judge of the court a quo that was left undisturbed by the
House of Lords in Equitable Trust Company of New York v Dawson Partners Ltd [1926] 27 Ll L Rep 49
(HL). See in this regard Adodo 161-2 para 6.32; Oelofse 286 n 90.
[190] See Adodo 163 n 75, Malek & Quest 187 para 8.35 and Oelofse 286-7 who refer to Hing Hip
Hing Fat Co Ltd v Daiwa Bank Ltd [1991] 2 HKLR 35. See also McKendrick 1086 n 135 who deals with
this as a typographical error.
[191] Soproma SpA v Marine & Animal By-Products Corporation [1966] 1 Ll L 367 at 390. See
further Oelofse 284; Adodo 155 n 25.
[192] Astro Exito Navegicion SA v Chase Manhattan Bank NA [1986] 1 Lloyd’s Rep 455 at 461 (the
court remarking that this discrepancy amounted to 1/285th of 1 per cent). See further Oelofse 285.
[193] Bank Melli Iran v Barclays Bank (Dominion, Colonial & Overseas) [1951] 2 Ll L Rep 367 at
375. Oelofse 284; Adodo 166 para 6.44; Malek & Quest 192 para 8.45.
[194] Adodo 155 para 6.14; Oelofse 284; Moralice (London) Ltd v ED & F Man [1954] 2 Ll L Rep
526 at 532-3.
[195] Oelofse 283; JH Rayner & Co Ltd and Oilseeds Trading Co Ltd v Hambros Bank Ltd [1942] 2
All ER 694. See also Bank of Italy v Merchants Nat Bank (1923) 140 NE 211 (Court of Appeals of New
York) at 212: ‘“Raisins” and “dried grapes” may or may not be the same thing. We do not know.’ The
point is that the examiner should not have to delve into the trade concerned.
[196] Adodo 155 para 6.14 (and the cases cited there).
[197] Adodo 155 para 6.14 (and the cases cited there).
[198] Adodo 155 para 6.14 with reference to American National Bank v Cashman Bros Marine
Contracting 550 SO 2d 98 (Dist Ct App Fla 1989).
[199] New Braunfels National Bank v Odiorne 780 2d 313 (1989) at 316-17. For a discussion of this
case see Hugo (1996(1)) para 6.3.5. See also Oelofse 303-4. In this case the court took the view that
there is a ‘logical distinction between discrepancies that relate to the business of the underlying
transaction and those that relate to the banker’s own business’. The number on the draft had nothing
to do with the underlying transaction.
[200] McKendrick refers to an estimate of up to 60 per cent.
[201] See Hugo & Lambertyn 178-9; Taneja.
[203] Article 2.
[204] See note 95.
[205] See the introduction to the UCP 600. See further Malek & Quest 16 paras 1.33, 172-4 paras
8.11-8.14.
[206] Malek & Quest 174 para 8.13.
[207] As quoted by Malek & Quest 189.
[208] See in general in this regard Malek & Quest 188-9 paras 8.38-8.39.
[210] See Bank Melli Iran v Barclays Bank (Dominion, Colonial & Overseas) [1951] 2 Ll L Rep 367
at 375; Midland Bank Ltd v Seymour [1955] 2 Ll L Rep 147 (QB) at 153; Soproma SpA v Marine &
Animal By-Products Corporation [1966] 1 Ll L 367 at 389-90; Banque de l’Indochine et de Suez SA v
J H Rayner (Mincing Lane) Ltd [1983] 1 QB 711 (CA) at 721. The first two cases go back to times
when English banks had not yet commenced subjecting their letters of credit to the UCP. The relevant
dicta, therefore, state the default legal principle and not an interpretation of a provision of the UCP.
See further Adodo 166 para 6.45.
[211] Article 30 provides as follows in this regard:
a.
The words ‘about’ or ‘approximately’ used in connection with the amount of the credit or the
quantity or the unit price stated in the credit are to be construed as allowing a tolerance not to
exceed 10% more or 10% less than the amount, the quantity or the unit price to which they
refer.
b.
A tolerance not to exceed 5% more or 5% less than the quantity of the goods is allowed,
provided the credit does not state the quantity in terms of a stipulated number of packing units
or individual items and the total amount of the drawings does not exceed the amount of the
credit.
c.
Even when partial shipments are not allowed, a tolerance not to exceed 5% less than the
amount of the credit is allowed, provided that the quantity of the goods, if stated in the credit, is
shipped in full and a unit price, if stated in the credit, is not reduced or that sub-article 30(b) is
not applicable. This tolerance does not apply when the credit stipulates a specific tolerance or
uses the expressions referred to in sub-article 30(a).
[212] They allow any issuer except the beneficiary itself.
[213] They will be disregarded.
[214] A period of five calendar days before until five calendar days after the specified date.
[215] They include the date or dates mentioned but the words ‘before’ and ‘after’ exclude the date
mentioned.
[216] They exclude the date mentioned.
[217] Respectively the 1st to the 15th, and the 16th to the last day of the month, all dates
inclusive.
[218] Respectively as the 1st to the 10th, the 11th to the 20th and the 21st to the last day of the
month, all dates inclusive.
[219] Article 16(a) of the UCP 600.
[220] Article 16(b) of the UCP 600.
[221] As set out in art 16. See further in general in this regard Bridge (2014) 2125 para 23-183 et
seq; Adodo 240 para 9.05 et seq; Murray, Holloway & Timson-Hunt 198-200 para 11-011.
[222] The notice must be given by telecommunication or other expeditious means within 5 days
following the day of presentation. See art 16(d) of the UCP 600. See further Murray, Holloway &
Timson-Hunt 199 para 11-011.
[223] Article 16(c)(ii).
[224] Article 16(c)(iii)(c).
[225] Article 16(c)(iii)(d).
[226] Article 16(c)(iii)(a).
[227] Article 16(c)(iii)(b).
[228] Article 16(f): ‘If an issuing bank or a confirming bank fails to act in accordance with the
provisions of this article, it shall be precluded from claiming that the documents do not constitute a
complying presentation.’
[229] McKendrick 1085 n 134. See also Adodo 240 para 9.05.
[230] Adodo 240 para 9.05.
[231] Despite the suggestion of Donaldson MR in Banque de l’Indochine et de Suez SA v JH Rayner
(Mincing Lane) Ltd [1983] 1 QB 711 (CA) that the ICC should consider doing so (at 727C-D).
[232] Banque de l’Indochine et de Suez SA v JH Rayner (Mincing Lane) Ltd [1983] 1 QB 711 (CA)
at 727C.
[233] At 727G.
[234] Set out at 727F. For a clear analysis see Adodo 241 para 9.06.
[235] At 727E-728E.
[236] Adodo 160 para 6.29.
[237] As in JH Rayner & Co Ltd and Oilseeds Trading Co Ltd v Hambros Bank Ltd [1942] 2 All ER
69.
[238] As in Bank of Italy v Merchants Nat Bank (1923) 140 NE 211 (Court of Appeals of New York).
[239] It is accordingly suggested that the approach in New Braunfels National Bank v Odiorne 780
2d 313 (1989) is commendable.
[240] See para 9.5.3(i).
[241] (1941) 31 NYS 2d 631.
[242] At 633.
[243] RGZ 144 133. See also Hugo (1996(1)) para 6.2.4.
[244] This is an unusual construction as one would normally have expected the issuing bank in
such a situation to have been Hungarian.
[245] See Hugo (1996(1)) para 6.2.4 n 49.
[246] Sztejn v J Henry Schroder Banking Corporation (1941) 31 NYS 2d 631 at 634-5.
[247] See, for example, United City Merchants (Investments) Ltd v Royal Bank of Canada [1983]
AC 168 (HL) and Mahonia Ltd v JP Morgan Chase Bank [2003] 2 Lloyd’s Rep 911.
[248] See, for example, Phillips v Standard Bank of South Africa Ltd 1985 (3) SA 301 (W)
and Loomcraft Fabrics CC v Nedbank Ltd 1996 (1) SA 812 (A), which are discussed below. In both of
these cases the buyer attempted to interdict the bank from paying. For an example of an attempt to
interdict the beneficiary from receiving payment see Union Carriage and Wagon Company Ltd v
Nedcor Bank Ltd 1996 CLR 724 (W).
[249] See, for example, Phillips v Standard Bank of South Africa Ltd 1985 (3) SA 301
(W); Lombard Insurance Company Ltd v Landmark Holdings (Pty) Ltd 2010 (2) SA 86 (SCA) at 90
para [20]; Coface South Africa Insurance Co Ltd v East London Own Haven t/a Own Haven Housing
Association 2014 (2) SA 382 (SCA) paras [10]-[12]; Kelly-Louw (2008) 69 para 2.5.2.5.4;
McKendrick 1129. See also the combined treatment of the instruments in Horowitz and Enonchong.
[250] Phillips v Standard Bank of South Africa Ltd 1985 (3) SA 301 (W). For discussions of the case
see Hugo (1996(1)) para 6.5.3; Oelofse 463-4; Van Niekerk & Schulze 302-3.
[251] This is not stated in the case but can be inferred from the facts in that Phillips received the
shoes before payment had taken place.
[252] Sztejn v J Henry Schroder Banking Corporation (1941) 31 NYS 2d 631.
[253] United City Merchants (Investments) Ltd v Royal Bank of Canada [1983] AC 168 (HL).
[254] At 303J-304A.
[255] At 304C-E.
[256] 1995 (1) SA 218 (W).
[257] Ex parte Sapan Trading (Pty) Ltd 3 CLD 200 (W). For discussions of this case see Hugo
(1996(1)) para 6.5.4; Oelofse 465-70; Van Niekerk & Schulze 294-5.
[258] At 209-10.
[259] At 213.
[260] At 222. This was due to developments in English law where the ordinary rule, that a claim for
payment is located where the debtor is, was held not to apply to a documentary credit debt, and that
such a debt was located where it was to be paid. See Power Curber International Ltd v National Bank
of Kuwait SAK [1981] 1 WLR 1233 (CA) at 1240F, 1242G.
[261] At 224.
[262] At 226.
[263] At 223F-I.
[264] At 223I-224B.
[265] At 224C-D.
[266] Power Curber International Ltd v National Bank of Kuwait SAK [1981] 1 WLR 1233 (CA).
[267] At 1243D (per Griffiths LJ).
[268] At 1241E (per Lord Denning MR).
[269] At 226A-H.
[270] See Longman Distillers Ltd v Drop Inn Group 1990 (2) SA 906 (A) at 914E-F.
[271] At 227D-E.
[272] At 228B-G.
[273] Oelofse 465 regards it as ‘arguably the best illustration of the principle of independence of a
letter of credit in South African law’.
[274] Loomcraft Fabrics CC v Nedbank Ltd 1996 (1) SA 812 (A).
[275] At 815I-816C (emphasis added).
[276] At 817G-H.
[277] At 821G.
[278] At 822G-H.
[279] See Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (A) at 634E-
635C.
[280] At 823A-B.
[281] At 823B-C.
[282] See the text above at note 275.
[283] United City Merchants (Investments) Ltd v Royal Bank of Canada [1983] AC 168 (HL),
quoted in para 9.5.5(ii)(c) above. For critical analyses of the case (which contains highly problematic
reasoning relating to aspects not covered here) see McKendrick 1104-7; Hugo (2001) 593-601.
[284] It must be borne in mind, however, that the fraud in the United City Merchants case was
indeed fraud in the documents. Whether Lord Diplock accordingly intended to restrict the exception to
documentary fraud is not a foregone conclusion. See Malek & Quest 254 para 9.15.
[285] This view is supported by Van Niekerk & Schulze 305. The authors further refer to an obiter
dictum in Union Carriage and Wagon Company Ltd v Nedcor Bank Ltd 1996 CLR 724 (W) to the effect
that had the beneficiary and applicant entered into a pactum de non petendo and the beneficiary
nevertheless sought to exact payment under the standby letter of credit, this may well have
amounted to fraud. They argue that this dictum reflects a wider view of fraud than documentary
fraud. This view, however, presupposes that the considerations where an interdict is sought against
the beneficiary are the same as when it is sought against the bank — which is not necessarily true.
See in this regard McKendrick 1101 (who also favours a wider fraud exception). Some authors,
however, favour restricting fraud to documentary fraud. See, for example, Carr 501.
[286] [2003] 2 Lloyd’s Rep 911.
[287] This is a letter of credit that serves primarily a security function as opposed to a payment
function. Standby letters of credit are discussed in ch 10 dealing with guarantees.
[288] [1978] QB 146.
[289] At 921 column 1.
[290] [1996] 1 Lloyd’s Rep 345 at 362 (citing as example an illegal arms transaction to be paid for
by letter of credit).
[291] At 927 column 2.
[292] [2004] EWHC 1938.
[293] McKendrick 1100; Carr 478; and Bridge (2014) 2057 para 23-083.
[294] [2013] ZASCA 131 (26 September 2013).
[295] Article 38(b) of the UCP 600.
[296] Bank Negara Indonesia 1946 v Larisa (Singapore) Pte Ltd [1988] 1 AC 583 (PC) at 596D;
Oelofse 483; Bridge (2014) 2183 para 23-292 and 2190 para 23-309.
[297] Article 38(g) of the UCP 600.
[298] This principle was first recognised expressly in the 1983 revision of the UCP (art 54(c)) and
thereafter reiterated in the 1993 revision (art 48(c)) and the current revision (art 38(a)). In Bank
Negara Indonesia 1946 v Larisa (Singapore) Pte Ltd [1988] 1 AC 583 (PC) at 599D, a case in which
the credits were governed by the 1974 revision, a similar interpretation was adopted.
[299] The disastrous consequences of such a refusal are all too apparent from Bank Negara
Indonesia 1946 v Larisa (Singapore) Pte Ltd [1988] 1 AC 583 (PC).
[300] Article 38(d). Article 48 of the 1993 revision of the UCP (the UCP 500) allowed a subsequent
transfer provided the credit expressly stated so. This proviso was not part of previous revisions (see
art 54(e) of the 1983 revision (the UCP 400)) and was abandoned in the UCP 600. Hence further
transfers are once again simply prohibited in absolute terms.
[301] Article 38(d) of the UCP 600.
[302] Since Bank Negara Indonesia 1946 v Larisa (Singapore) Pte Ltd [1988] 1 AC 583 (PC).
[303] Article 38(b).
[304] Simply as a consequence of the request that the credit be designated ‘transferable’.
[305] Jackson v Royal Bank of Scotland [2005] 1 Lloyd’s Rep 366 (HL).
[306] For analyses from an English legal perspective see Malek 313-15 paras 10-20-10-27; Bridge
(2014) 2190 para 23-309; McKendrick 1112-17. For a good analysis from a South African
perspective, see Oelofse 486-7.
[307] Oelofse 486-7.
[308] In practice, however, the seller (first beneficiary) will probably find it impossible to avail itself
of any rights under the original credit due to the fact that it will be unable to provide the necessary
documents. This was one of the problems of the seller in Bank Negara Indonesia 1946 v Larisa
(Singapore) Pte Ltd [1988] 1 AC 583 (PC).
[309] It is only the right to payment that can be ceded in this manner and not the right to present
documents under the credit. See in this regard Van Niekerk & Schulze 273; Oelofse 501; McKendrick
1119.
[310] See Van Niekerk & Schulze 272-3.
[311] Bridge (2014) 2193 paras 23-316-23-317.
[312] See in general on back-to-back credits Oelofse 63-4; Bridge (2014) 2191 para 23-310-23-
312; McKendrick 1119-20; Malek & Quest 31-3 para 2.28-2.31.
[313] Malek & Quest 31-2 para 2.28; McKendrick 1120.
Page 437
Chapter 10
Bank guarantees
Charl Hugo
10.1
Introduction
10.1.1
General remarks
10.1.2
The importance of differentiating between demand guarantees and
accessory guarantees
10.2
Different types of demand guarantees
10.2.1
Introduction
10.2.2
Performance guarantee
10.2.3
Payment guarantee
10.2.4
Advance payment guarantee
10.2.5
Retention guarantee
10.2.6
Maintenance guarantee
10.2.7
Tender guarantee
10.2.8
Counter-guarantee
10.3
10.3.1
Introductory remarks
10.3.2
The importance of the nature of the intervention sought from the court
10.3.3
The fraud exception
10.3.4
Other (potential) exceptions to the independence principle
10.4
The requirement of a complying demand
10.5
Conclusion
List of works cited
10.1 Introduction
10.1.1 General remarks
Bank guarantees, in contrast to letters of credit, have received significant attention
during the past decade in South African case law. This chapter concentrates on the
development of the law as reflected in these decisions. [1]
The term ‘guarantee’ can refer to either of two distinctively different instruments.
The focus in this chapter falls on the independent or demand
Page 438
guarantee, [2] which needs to be differentiated from the accessory guarantee. Both
are instruments of security in which a guarantor secures the performance of a
debtor to a creditor (the beneficiary of the guarantee) by binding itself to pay the
beneficiary a sum of money in the circumstances contemplated in the guarantee. In
the case of the accessory guarantee the guarantor is only liable to pay if the debtor
is in law in default of its obligations towards the creditor (beneficiary). As in the case
of a surety, the guarantor can accordingly raise any defence against the creditor
that would have been available to the debtor whose performance is secured by the
guarantee. A demand guarantee, on the other hand, has been aptly defined as
follows in the URDG 758: ‘demand guarantee . . . means any signed undertaking,
however named or described, providing for payment on presentation of a complying
demand’. [3]
As evident from this definition, this type of guarantee is not accessory but
independent (all that is required is a complying demand) — an aspect dealt with
below in more detail. Although demand guarantees can be used to secure any
conceivable obligation, they are especially prevalent in the construction industry,
where they serve a wide variety of purposes.
It is important, from the outset, to stress two points. The first, which has been
emphasised on various occasions by the South African and English courts, is that
there is a close relationship between demand guarantees and letters of credit: the
principles governing these two (abstract, independent or autonomous) instruments
are very similar. [4] This is especially true of the two foundations shared by these
parts of the law, namely the doctrine of strict compliance and the independence
principle, both of which receive more detailed attention below. The second is that
the South African courts, as in the case of letters of credit, have relied strongly on
English precedents. [5]
The main difference between letters of credit and demand guarantees lies in their
respective functions: while a letter of credit is an instrument of payment, a
Page 439
demand guarantee is an instrument of guarantee. The relationship is described by
Horowitz as follows:
Letters of credit and guarantees share the characteristic of abstraction from the underlying
agreement that called for their use. Nonetheless, they differ on one key respect. Letters of
credit are primary both in form and intent. They do what they appear to do: serve as the
payment method for the transaction. By contrast demand guarantees are primary in form,
but secondary in intent. They bear the appearance of primary instruments, because they
represent an on-demand form of payment. However they are secondary in intent,
inasmuch as they serve a ‘back-up’, or standby, role. [6]
A further difference is that while letters of credit are almost invariably governed by
the contractually incorporated Uniform Customs and Practice for Documentary
Credits (UCP 600), [7] the same cannot be said for demand guarantees. [8] The ICC’s
general conditions pertaining to such guarantees, the Uniform Rules for Demand
Guarantees (URDG 758), [9] are not yet that common in South Africa. They were not,
for example, incorporated in any of the guarantees featuring in the South African
judgments considered below. In such cases, the guarantee concerned must
accordingly be interpreted solely with reference to the provisions of the guarantee
itself. [10] It should be noted, however, that there is clear international evidence that
the popularity of the URDG is growing. [11] The URDG also contains a standard-form
guarantee which can be adapted as needs be by the parties. [12]
Despite the absence of the URDG, a reasonable degree of uniformity in guarantee
practice is evident in the South African construction industry. This is to be ascribed
to the use of standard-form contracts which include standard-form guarantees. In
this respect reference is to be made to the Joint Building Contracts
Page 440
Committee (JBCC) suite of agreements [13] and the General Conditions of Contract
for Construction Works (GCC) of the South African Institution of Civil
Engineering. [14] It should further be noted that the standard-form contracts of
the Federation Internationale des Ingenieurs-Conseil (FIDIC) and the New
Engineering Contract (NEC) are encountered also in South Africa.
The final point to be made by way of this general introduction is that, distinct
from demand guarantees issued by banks, insurance companies issue instruments,
also referred to as ‘guarantees’, which serve the same function as bank demand
guarantees. These instruments are better described as ‘guarantee policies’. The
fundamental legal principles relating to bank demand guarantees (such as
independence and (strict) documentary compliance) are equally applicable to these
instruments. As is evident from their ‘policy’ nature, however, they are issued on the
basis of an assessment of the risk by the issuer that is coupled to a
premium. [15] Hence, a guarantee policy is defined as follows in the Short-term
Insurance Act:
‘guarantee policy’ means a contract in terms of which a person, other than a bank, in
return for a premium, undertakes to provide policy benefits if an event, contemplated in
the policy as a risk relating to the failure of a person to discharge an obligation, occurs. [16]
10.1.2 The importance of differentiating between demand

guarantees and accessory guarantees
In the general remarks above the importance of differentiating between accessory
guarentees and independent guarantees was referred to. This was clearly
underscored in the judgment of Brand JA in the Zanbuild case. [17] In this case the
Department of Transport and Public Works (the department) concluded two JBCC
construction contracts with Zanbuild Construction providing for the construction of
two hospitals. [18] The contracts called for construction guarantees. Two such
guarantees were issued by Absa Bank in favour of the department. These
guarantees differed substantially both from the standard-form JBCC guarantee, and
the standard (in-house) guarantee called for by the department. They were
nevertheless accepted by the department. [19] One of the terms of the guarantee
was that the bank reserved its right to withdraw the guarantee after 30 days’ notice
to the employer of its intention to do so, with the proviso that the employer would
Page 441
have the right ‘to recover from the bank the amount owing and due to the employer
by the contractor on the date the notice period expires’. [20]
In accordance with the aforementioned term the bank notified the department on
28 August that it intended to withdraw from the guarantees and that the guarantees
would be cancelled on 28 September. [21] On 26 September the department
demanded immediate payment of the full amount of both guarantees, alleging
default on the part of Zanbuild, and affording Zanbuild a period of 10 days to
remedy its breach, failing which the department could give notice of
cancellation. [22] On 9 October the department purported to cancel the contracts.
Zanbuild disputed its right to do so and treated the cancellation as repudiation by
the department.
The department did not contend that it had any identifiable monetary claim
against Zanbuild under the construction contracts. Against this background Zanbuild
argued that no claim arose under the guarantees. The argument rested on the
interpretation of the guarantees as accessory guarantees. In essence Zanbuild
argued that the bank’s liability was limited to the extent that the department could
prove a monetary claim against Zanbuild under the construction contracts. The
department, on the other hand, took the view that the guarantees were independent
of the construction contracts. Hence it argued that the guarantees could be called up
without allegation or evidence of any claim against Zanbuild under the construction
contracts; all that was required was the submission of a demand to the bank
alleging that Zanbuild was in default. The court a quo granted an application by
Zanbuild to interdict the department from seeking, and the bank from making,
payment under the guarantees. [23] The department appealed to the SCA.
In his judgment Brand JA pointed out that both English and South African law is
familiar with the distinction between independent guarantees and accessory
guarantees. [24] In English law it is sometimes encountered in the terminology of
‘conditional bonds (or guarantees)’ as against ‘demand bonds (or
guarantees)’. [25] He stated the difference as follows:
The essential difference between the two . . . is that a claimant under a conditional bond is
required at least to allege and — depending on the terms of the bond — sometimes also to
establish liability on the part of the contractor for the same amount. An ‘on demand’ bond
. . . on the other hand, requires no allegation of liability on the part of the contractor under
the
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construction contracts. All that is required for payment is a demand by the claimant, stated
to be on the basis of the event specified in the bond. [26]
Brand JA further pointed out that dicta relating to independent guarantees cannot
simply be transposed to accessory guarantees and applied to them. [27] Although the
standard JBCC guarantee, as well as the in-house guarantee typically required by
the department, are clearly independent, this was not what the department
got. [28] As appears from the terms of the guarantees referred to above, they
provided ‘security for the compliance of the contractor’s performance of
obligations in accordance with the contract’ and ‘[bound] the bank as guarantor
for the due and faithful performance by the contractor of all its obligations in terms
of the said contract subject to [certain] . . . conditions’. [29] These provisions accord
with the language of suretyship rather than independent guarantees. [30] The
guarantees, moreover, contemplated more than one claim coupled to a pro rata
reduction of the bank’s exposure. This did not accord with the department’s
interpretation in terms of which any breach of the construction contract would
render the full amount of the guarantee payable on demand. [31] Furthermore, the
provision reserving the right to the bank to withdraw from the guarantees after 30
days’ notice (which was invoked in this case) specifically limited the liability of the
bank to ‘the amount owing and due to the employer by the contractor on the date
the notice period expires’. [32] This was also a clear indication of a liability akin to
that of a surety as opposed to that of an independent guarantor. [33]
Brand JA therefore ruled that as the department had not established any amount
owed to it by Zanbuild during the currency of the guarantees, it was not entitled to
demand payment under the guarantees, and its appeal was dismissed.
This decision highlights the importance of reading and interpreting the provisions
of a guarantee carefully. This is especially true in the case of ad hoc or bespoke
guarantees such as these. The mere fact that a guarantee is provided to secure the
performance of a contractor in a construction contract does not necessarily mean
that it is an independent demand guarantee. The department in this case probably
did not acquire the security it sought. The legal interpretation of guarantees can be
complex. Hence it may be wise for employers, in the absence of good reason to the
contrary, to insist on the use of standard-form guarantees, which have been
carefully formulated within the industry and in which the rights and obligations of
the parties have been well thought through and established, rather than to accept a
guarantee formulated by the guarantor or its attorneys.
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The outcome of this case would have been different if the guarantee had been a
JBCC, GCC or URDG standard-form guarantee.
10.2 Different types of demand guarantees

10.2.1 Introduction
As noted above, in South Africa guarantees have featured especially prominently in
the construction environment where they are encountered in different forms
designed to protect the interests of both the contractor and the employer. These
different forms are dealt with briefly below. It should be stressed, however, that
conceptually any conceivable obligation can be secured by a demand
guarantee, [34] and the different types described in the construction context below,
can be applied mutatis mutandis in other environments.
10.2.2 Performance guarantee

A performance (or construction) [35] guarantee assures payment to the employer in
the event of the contractor failing to perform its obligations under the construction
contract properly or at all. [36] The amount guaranteed is normally between 5 per
cent and 15 per cent of the construction-contract price. [37] The amount can be fixed
or variable. [38] In the case of a fixed amount, the amount guaranteed remains the
same for the full duration of the guarantee. In the case of a variable-amount
guarantee, the amount decreases during the course of construction with reference to
the work certified as complete by the principal agent or engineer.
The beneficiary of this type of guarantee is accordingly the employer. The
guarantee will mostly cover two eventualities, namely where the employer has
cancelled the construction contract due to the default of the contractor, and where
the contractor has been provisionally or finally sequestrated or liquidated. Hence,
both the JBCC and the GCC guarantee requires of the employer a demand alleging
that the contract has been cancelled due to the default of the contractor or that the
contractor has been finally or provisionally sequestrated or liquidated. In addition
the demand must annex either the notice of cancellation or the court order relating
to the final or provisional liquidation or sequestration. [39]
10.2.3 Payment guarantee

A payment guarantee normally assures payment to the contractor for work that it
has completed in terms of the contract. So viewed the beneficiary of this type of
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guarantee in the construction context is the contractor. [40] As security for payment
obligations, however, they are used in a wide range of situations (often in the form
of a standby letter of credit) such as, inter alia, in connection with a sale, loan or
bond issue. [41] This guarantee also provides for two eventualities. The first is where
the employer fails to pay the contractor in accordance with a payment certificate
issued by the principal agent or engineer. The second is where the principal agent or
engineer fails to issue a payment certificate. Hence the guarantee requires of the
contractor a demand alleging non-payment in accordance with a payment certificate
(which must typically be annexed to the demand), or a demand alleging the non-
issue of a payment certificate despite a prior demand to the employer to have such
certificate issued (which must typically be annexed to the demand to the guarantor).
10.2.4 Advance payment guarantee

A contractor may require payment of a portion of the contract price in advance
(ordinarily ranging between 5 per cent and 30 per cent of the contract price), [42] for
example in order to establish the site and move heavy machinery and workers to it.
In such a situation the employer may require a guarantee to secure the repayment
of the money it paid in advance in the event of the contractor failing to perform the
contract. [43] The beneficiary of this type of guarantee in the construction context is
accordingly the employer. The guarantee will typically require of the employer a
simple demand for payment alleging that the contractor has failed to perform the
contract properly. The guarantee is usually issued for the full amount of the
advance. [44]
10.2.5 Retention guarantee

Construction contracts often entitle the employer to retain a portion (normally
between 5 per cent and 10 per cent) [45] of each payment due to the contractor in
terms of the payment certificates issued. [46] These retention moneys serve as
security for defects that may emerge later. [47] In order to improve the cash flow of
the contractor, the employer may accept a retention guarantee in lieu of the
retention moneys. [48] This means that the employer will pay to the contractor the
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full amount reflected on the payment certificate (or release the retention moneys),
and, in the event of defects subsequently emerging, will call up the guarantee. The
amount of the guarantee may accordingly increase in relation to the successive
releases of retention money. [49]
10.2.6 Maintenance guarantee

The construction contract will often provide for the retention of a part of the contract
price for a period after completion of the contract (the defects liability period) to
provide security against emerging defects. These moneys are, however, often
released by the employer to the contractor on completion of the contract against a
maintenance guarantee. [50]
10.2.7 Tender guarantee

The specification of a contract and the concomitant invitation for and evaluation of
bids from prospective contractors entails significant work and expense for an
employer. Hence bidders are typically required to enter into the contract if it is
awarded to them. Against this background employers sometimes require a tender
guarantee from prospective contractors to provide compensation to the employer in
the event of the contractor failing to enter into a contract awarded to it. [51] The
amount of the guarantee ordinarily ranges between 1 per cent and 5 per cent of the
project value. [52]
10.2.8 Counter-guarantee
In some cases a potential guarantor will be unwilling to issue a guarantee on
application of a contractor unless the guarantor itself is the beneficiary of a
guarantee in terms of which it can demand payment in the event of its guarantee
being called up. Hence the URDG defines a counter-guarantee as an undertaking
‘given by the counter-guarantor to another party to procure the issue by that other
party of a guarantee . . . and that provides for payment upon the presentation of a
complying demand under the counter-guarantee issued in favour of that party’. [53]
10.3 The independence principle

10.3.1 Introductory remarks
In accordance with the independence principle, provided payment is demanded
strictly in accordance with the provisions of the guarantee, the guarantor must
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honour the guarantee irrespective of some or other dispute arising from either the
underlying contract (the construction contract) or from the contract of mandate
between it and the applicant for the guarantee. [54]
Drawing from earlier South African jurisprudence relating to letters of
credit, [55] Navsa JA stated the principle as follows in the Lombard Insurance case:
The guarantee . . . is not unlike irrevocable letters of credit issued by banks and used in
international trade, the essential feature of which is the establishment of a contractual
obligation on the part of a bank to pay the beneficiary (seller). This obligation is wholly
independent of the underlying contract of sale and assures the seller of payment of the
purchase price before he or she parts with the goods being sold. Whatever disputes may
subsequently arise between buyer and seller is of no moment insofar as the bank’s
obligation is concerned. The bank’s liability to the seller is to honour the credit. The bank
undertakes to pay provided only that the conditions specified in the credit are met. [56]
This much is well established. The principle also forms part of and is clearly
formulated in the URDG 758. [57]
10.3.2 The importance of the nature of the intervention sought

from the court
Not every interference in the payment of an independent guarantee violates the
independence principle. This emerged clearly from the judgment of Cloete JA in
the Kwikspace case. [58] The case was concerned with a construction guarantee and,
in accordance with a choice of law clause between the parties, was to be adjudicated
in accordance with Australian law. [59]
A number of disputes arose between the parties and, the employer, Sabodala,
eventually gave notice of its intention to have recourse to the guarantees. The
contractor, Kwikspace, thereupon successfully sought an urgent interim interdict in
the South Gauteng High Court preventing the employer from demanding payment
under the guarantee pending the outcome of an application for final relief. The final
relief was refused, but leave to appeal to the SCA was granted. [60] The basis of the
relief sought by Kwikspace was that Sabodala, in accordance with the construction
contract, was not entitled to call up the guarantee in the circumstances of the case.
The guarantees concerned, which were clearly
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independent demand guarantees, set out the guarantor’s (Nedbank’s) undertaking
as follows:
The Bank undertakes to be bound to effect payment . . . upon receipt by the Bank . . . of
the Principal’s first written demand that the Contractor has committed a breach of the
contract and/or has defaulted thereunder and/or has been provisionally or finally
sequestrated or liquidated or placed under judicial management. [61]
Kwikspace argued that the underlying construction contract ‘could, as a matter of
law, qualify the right of the Principal to present the guarantees for payment to the
Bank, despite the unconditional wording of the guarantees’. Applying Australian law,
Cloete JA held that this was correct. He quoted the following dictum from the Clough
Engineering case:
while the court will not restrain the issuer of a performance guarantee from acting on an
unqualified promise to pay . . . if the party in whose favour the bond has been given has
made a contract promising not to call upon the bond, breach of that contractual promise
may be enjoined on normal principles relating to the enforcement by injunction of negative
stipulations in contracts. . . . Stephen J recognised this in Wood Hall . . . by observing that
the provision of the contract may qualify the right to call on the undertaking contained in a
performance guarantee. [62]
It is clear from the court’s review of the Australian case law that it appreciated the
difference between the applicant seeking an interdict against the guarantor or
against the beneficiary. In the former case ‘the moving party seeks to prevent the
bank from performing its contract’ and in the latter ‘the moving party seeks to
prevent the beneficiary from breaching a provision of the underlying
contract’. [63] Hence it should be possible to restrain the beneficiary if there is an
express term in the underlying construction contract against the calling up of the
guarantee in the circumstances concerned. In theory an implied (tacit) term to this
effect should be just as good. However, in practice it will be harder to establish
‘because the implication cannot be made if it would stultify, or even if it would be
inconsistent with, the purpose for which the guarantee was taken’. [64] The court
accordingly accepted the basis upon which the application was founded. Kwikspace’s
appeal was nevertheless dismissed on the factual finding that, properly construed,
the construction contract did not deprive Sabodala of having recourse to the
guarantee in the circumstances of this case.
It is submitted that the principles set out above are a correct reflection also of the
South African law (although Cloete JA expressly restricted his judgment to an
exposition of the Australian law). [65] An interdict against the beneficiary, which in
effect simply enforces the construction contract between the applicant and the
beneficiary, does not violate the independence of the guarantee. Should the interdict
be sought against the guarantor, however, to prevent it from paying on
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the basis that it was called up in breach of the construction contract, this would
violate the independence principle.
This issue has also recently attracted attention in English law. In 2011 Enonchong
pointed out that although there was no reported English case in which the court
granted an injunction to restrain a beneficiary from demanding payment on the
ground that the demand was in breach of a promise in the underlying contract, there
was also no reported case refusing such an injunction. [66] Having reviewed dicta
from various English cases, the most notable being Themehelp Ltd v
West [67] and Sirius International Insurance Corp v FAI General Insurance Co
Ltd [68] he concluded that the authorities indicated ‘a movement towards recognition’
of the principle that ‘the court may restrain a beneficiary from demanding . . .
payment under a . . . demand guarantee where the beneficiary’s demand is or will
be in breach of a negative promise in a separate agreement with the account party
and where the bank is not joined as a defendant in the proceedings’. [69] The matter
was finally settled (and Enonchong’s prediction proved correct) in the case of Simon
Carves Limited v Ensus UK Limited [70] in which Akenhead J stated categorically:
In principle, if the underlying contract, in relation to which the bond has been provided by
way of security, clearly and expressly prevents the beneficiary party to the contract from
making a demand under the bond, it can be restrained by the Court from making a
demand under the bond.
This conclusion, it is respectfully suggested, is based on unassailable legal logic and
must be correct.
Despite the clear analysis in the Kwikspace case and the development of English
law in this regard, the SCA in Eskom Holdings Soc Ltd v Hitachi Power
Africa [71] somehow missed the point. Neither the English law nor the Kwikspace case
was referred to in the judgment. The case was concerned with three guarantees,
totalling some R600 million, that were issued in relation to the construction of the
Medupi power station. The applicant-contractor was Hitachi Power Africa (Hitachi),
the guarantor the Mizhuo Corporate Bank of Japan, and the beneficiary-employer
Eskom Holdings Soc Ltd (Eskom). When, in the course of an escalating dispute
between Hitachi and Eskom, it became clear that Eskom was going to call up the
guarantees, Hitachi, in an application against Eskom, sought an interdict to prevent
it from demanding payment of the guarantees [72] on the basis that such demands
would be in breach of the construction contract and/or a subsequent agreement
between the parties. [73] It was successful in the court a
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quo. [74] Eskom appealed to the SCA. In his judgment Mthiyane AP found that the
calling up of the guarantee was not in breach of either the construction contract or
any other contract. Although this may or may not have been a correct finding [75] the
problem with the judgment is that it was based largely on an interpretation of terms
of the guarantee. In the course of his judgment Mthiyane AP held that the
guarantees in question were independent (or ‘on demand’) and not accessory (or
‘conditional’) guarantees. [76] He referred to the requirements of the demand [77] as
set out in the guarantee. He then pointed out that the terms of the guarantees did
not require of Eskom to give notice of its intention to call up the guarantees:
[The bank is not] required to investigate whether notice was given and whether Eskom has
complied with the construction contract. In my view it makes business sense for the terms
of the guarantee not to have required the Bank to embark on this exercise. A bank is in the
business of handling money, not assessing and evaluating the merits or demerits of
contracts. The interpretation contended for by Hitachi and endorsed by the court
below would have required the bank, which was not even a party to the proceedings, to
traverse areas which fall outside the scope of its authority. . . . [78]
Further on in the judgment, he states in similar vein:
The interpretation contended for by Hitachi, which found favour with the high court,
suggesting that Eskom was required to give notice before claiming payment upon a
demand guarantee was erroneous and flew in the face of the plain meaning of the terms of
the guarantee. . . . In my view the high court misread the demand guarantee and imposed
the requirement of notice which was not provided for in its terms. . . . [79]
It is suggested, with respect, that these dicta were highly unfortunate and have cast
a significant shadow on this part of our law regarding guarantees. Hopefully the
matter will be revisited soon by the SCA along the clear lines of
the Kwikspace judgment. In so far as the interdict sought in the Eskom case was
one preventing the beneficiary from presenting a demand under the guarantee, it
did not require any investigation by the bank regarding compliance with the
construction contract. In fact, the bank was not involved in the litigation at all, and
entirely properly not joined in the proceedings. The interdict sought, if granted,
would not have violated the independence of the guarantee. It would simply have
amounted to an interdict enforcing the construction contract. Whether or not the
demand was in breach of the construction contract is a question that should have
been determined with reference to the construction contract itself, and not the
guarantee.
10.3.3 The fraud exception

The independence principle is not absolute. One well-established exception is fraud
by the beneficiary. [80] Bearing in mind the ease with which demand
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guarantees can be abused by beneficiaries, the existence of the fraud exception is
important.
In the Loomcraft Fabrics case, dealing with a letter of credit, Scott AJA stated
that upon presentation of conforming documents ‘the bank will escape liability only
upon fraud on the part of the beneficiary’. [81] For this ‘established exception’ [82] he
adopted the view from the United City Merchants case that it arises ‘where the
seller, for the purpose of drawing on the credit, fraudulently presents to the . . .
bank documents that contain, expressly or by implication, material representations
of fact that to his (the seller’s) knowledge are untrue’. [83]
The legal basis of the fraud exception in the common-law jurisdictions, [84] which
can be traced back historically to the American Sztejn case, [85] is clearly public
policy. In the Sztejn case Shientag J stated that ‘the principle of the independence of
the bank’s obligation . . . should not be extended to protect the unscrupulous
[fraudulent] seller’, [86] while Lord Diplock, in the United City Merchants case, put it
thus:
The exception for fraud on the part of the beneficiary seeking to avail himself of the credit
is a clear application of the maxim ex turpi causa non oritur actio or, if plain English is to
be preferred, ‘fraud unravels all’. The courts will not allow their process to be used by a
dishonest person to carry out a fraud. [87]
Transposing the fraud exception specifically to the guarantee situation (in which the
documentation typically consists merely of a demand augmented sometimes by one
other document substantiating the basis of the demand) Ackner LJ, in the United
Trading Corporation case, stated that it was available when it has been established
‘that it is seriously arguable that, on the material available, the only realistic
inference is that . . . [the beneficiary] could not honestly have believed in the
validity of its demand on the performance bond’. [88] In such a case the beneficiary’s
fraud can be raised as a defence by the guarantor or can form the basis of an
interdict against the bank or beneficiary preventing payment of the guarantee. Other
English judicial formulations refer to ‘a demand which the maker does not honestly
believe to be correct’; [89] a demand ‘dishonestly made . . . despite that
knowledge’; [90] and the presentation of a claim by a beneficiary ‘which he knows at
the time to be an invalid claim’. [91] This thinking clearly underlies the recent
formulation, in South Africa, by Theron JA in Guardrisk Insurance Company Ltd v
Kentz (Pty) Ltd:
Page 451
It is trite that where a beneficiary who makes a call on a guarantee does so with knowledge
that it is not entitled to payment, our courts will step in to protect the bank and decline
enforcement of the guarantee in question. [92]
The fraud exception was successfully relied upon in the Group Five case. [93] The
case was concerned with a JBCC construction guarantee. Group Five was
contractually bound to reimburse the guarantor in the event that the guarantee had
to be paid. The employer called up the guarantee, alleging that it had cancelled the
contract due to the default of the contractor. Group Five instituted proceedings
aimed at preventing payment of the guarantee, inter alia on the basis of fraud by
the employer. The fraud relied upon was that the employer chose not to cancel the
contract with the contractor due to a desire, or policy decision, rather to nurture the
contractor concerned in furtherance of BEE considerations — a fact expressly stated
by the head of the department in various documents before the court. Against this
background Satchwell J held that the subsequent demand alleging cancellation due
to the contractor’s default was indeed fraudulent. [94]
10.3.4 Other (potential) exceptions to the independence principle
In the Lombard case Navsa JA stated that ‘[t]he only basis upon which the bank can
escape liability is proof of fraud on the part of the beneficiary’. [95] This dictum has
subsequently been referred to and quoted without qualification and with apparent
approval several times in the SCA, namely: in both the majority [96] and
minority [97] judgments in the Dormell case (to which I return in more detail below);
the First Rand case; [98] the Eskom Holdings case; [99] and, most recently,
the Coface case. [100]
It is suggested, however, that it can no longer be said that fraud is the only
exception to the independence principle. One can go no further than stating that in
South Africa no other exception has as yet been clearly recognised. In England at
least one other exception has emerged. It arose in the Mahonia case in which
Colman J, stressing the public policy basis of the fraud exception, recognised also
Page 452
the existence of an illegality exception. With reference to examples of unlawful arms
transactions and unlawful heroin sales he stated:
If a beneficiary should as a matter of public policy (ex turpi causa) be precluded from
utilizing a letter of credit to benefit from his own fraud, it is hard to see why he should be
permitted to use the courts to enforce part of an underlying transaction which would have
been unenforceable on grounds of its illegality if no letter of credit had been involved,
however serious the material illegality involved. [101]
Further exceptions have been suggested or recognised in other jurisdictions. These
include the nullity exception (where a document presented to trigger payments is
null and void), which was raised but ultimately rejected [102] by the Court of Appeal
in the Montrod case. [103] Another is the unconscionability exception, which has been
recognised in Singapore [104] and has recently emerged, somewhat controversially, in
South Africa. [105] It would be fair to say that the international jurisprudence
regarding exceptions to the independence principle is a constantly developing
area, [106] which has led one commentator to conclude that ‘[c]ontractors should
take comfort that the law governing on-demand performance bonds is becoming
more heavily infused with concepts of fairness and equity’. [107]
Against this background the Dormell case [108] was of particular interest. In this
case the employer cancelled the construction contract on the basis of the
contractor’s default (which default was disputed by the contractor) and called up the
guarantee. The guarantor raised spurious defences that were nevertheless
successful in the South Gauteng High Court. The employer (Dormell) appealed to
the SCA. Before the appeal was heard the construction dispute was submitted to
arbitration and a final award, to the effect that the contractor had not been in
Page 453
default, was handed down. Against this background the guarantor applied for an
order allowing evidence of the arbitration and its outcome in the appeal on the
guarantee case. Its contention was that in the light of the award the guarantee was
no longer enforceable. [109]
In this respect the judgments of Bertelsmann AJA (writing for the majority) and
Cloete JA diverged. Bertelsmann accepted that when payment was initially
demanded the guarantor should have paid. He nevertheless found that, in light of
the final award of the arbitrator that established that Dormell was in the wrong, it
had lost the right to enforce the guarantee as there was no remaining ‘legitimate
purpose to which the guaranteed sum could be applied’. [110] Moreover, if ordered to
pay the guarantee ‘[the guarantor or contractor] would be entitled to repayment of
the full amount guaranteed’. [111] Such an order would accordingly cause additional
cost and inconvenience without practical effect. Hence, in terms of s 21A(1) of the
Supreme Court Act, [112] the court should exercise its discretion against
Dormell. [113] Although not expressed in these terms it should be noted that the
effect of Bertelsmann’s judgment was the recognition of a further exception to the
independence principle, namely the existence of a final judgment or award holding
that the beneficiary is not entitled to payment in terms of the underlying contract.
Cloete JA disagreed. He was strongly motivated by the independence principle,
subject only to the fraud exception. He stated as follows:
Once the appellant had complied with clause 5 of the guarantee [presented a proper
demand], the first respondent had no defence to a claim under the guarantee. It still has
no defence. The fact that an arbitrator has determined that the appellant was not entitled
to cancel the contract, binds the appellant — but only vis-à-vis the second respondent [the
contractor]. It is res inter alios acta as far as the first respondent is concerned. [114]
So viewed, the evidence relating to the arbitration was in fact irrelevant and ought
not to have been allowed. [115] Cloete JA took the view that there was insufficient
evidence before the court for a finding that the order sought by the appellant, if
granted, would have had no practical effect or result as contemplated in s 21A of the
Supreme Court Act. [116] Such a finding requires a positive conclusion of fact that
‘there is nothing on which the guarantee could operate if it were paid out’ — a
finding that could not be made on the papers before the court. In this regard Cloete
JA held that the proceeds of the guarantee ‘could and should be devoted to the
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payment of claims that might be found to exist once a final certificate is
prepared’. [117]
Although it does not appear as if Bertelsmann AJA considered European
continental law when writing his judgment, it is of interest to note that a similar
exception to the independence principle has long been recognised by both the
Swiss [118] and German [119] courts and has enjoyed wide support in continental legal
writing. [120]
It soon became clear, however, that the majority decision in the Dormell case
was perceived as having opened the door for defences based upon the underlying
contract which most judges on the Supreme Court of Appeal clearly found
untenable. [121] In the Coface case Navsa JA put it thus:
Since the decision in Dormell, and perhaps predictably, there has been an increasing
number of cases in which guaranteeing banks have sought to introduce contractual
disputes in order to avoid meeting the guarantee. In some cases the allegedly defaulting
contractor sought to join the fray. It is the very consequence that the line of cases prior
to Dormell sought to avoid. [122]
The question before the court in the Coface case did not relate to a final
determination of the underlying dispute by a court or arbitrator (as in Dormell); the
question was whether the guarantor could escape liability on the basis of a final
payment certificate and recovery statement reflecting that no money was owed to
the beneficiary of the guarantee. Citing with approval earlier obiter dicta in
the FirstRand [123] and Guardrisk [124] cases that favoured the minority judgment of
Cloete JA in the Dormell case, Navsa JA held that the majority judgment in
the Dormell case was clearly wrong and overruled it. [125] Hence the contents of the
payment certificate issued in terms of the construction contract could not provide a
defence to the guarantor.
It is necessary, however, in the wake of the Dormell and Coface cases, to sound a
warning. It would be a dangerous oversimplification to conclude on the basis of
these two cases that the fact that the underlying dispute has been finally resolved in
favour of the contractor, or that a final payment certificate indicates that no money
is owed to the employer-beneficiary of the guarantee, will always be irrelevant to
the question whether payment can be enforced against the guarantor. These are
facts that can and must be taken into account within the parameters of the
universally recognised fraud exception. It is evidence which, especially if
Page 455
known to the beneficiary prior to the demand, [126] can be indicative of the absence
of an honest belief on the part of the beneficiary that it is entitled to demand
payment under the guarantee. As such it can open the door to the fraud exception.
It is suggested, in conclusion, that the question whether a particular exception to
the independence principle should be recognised is ultimately a policy decision that
must be approached with an open mind. One should not lose sight of the fact that
demand guarantees hold serious potential for abusive calling [127] — and our courts
should guard against an approach that may inadvertently contribute to such conduct
by beneficiaries of guarantees.
10.4 The requirement of a complying demand

The doctrine of strict compliance as it applies to letters of credit is dealt with
above. [128] Essentially it holds that the beneficiary is entitled to be paid in
accordance with the letter of credit only if it has complied strictly with the
documentary conditions set out in the letter of credit. Against this background the
question arises as to the applicability of the doctrine to independent demand
guarantees. In this regard Bridge states as follows:
It is unclear whether international standard banking practice differentiates between
documentary credits and autonomous guarantees on the issue of compliance. The nature of
the demand documents that may be expected to be required under an autonomous
guarantee (as opposed to the commercial documents required under a documentary credit,
which may need to be able to be traded in a string) may support an interpretation of a
guarantee that affords the required documents a greater degree of latitude in achieving
compliance. . . . Once the requirements of the guarantee have been determined, however,
banks are authorised to pay only against a demand that does indeed comply with those
requirements. . . . [129]
In the event of the guarantee being governed by the URDG, they provide significant
guidance as to what amounts to a conforming demand. [130] They also set out a
prescribed rejection procedure. [131] Moreover, in accordance with the URDG, a non-
conforming rejected demand can be cured by a subsequent demand, provided that
the improved demand is submitted before expiry of the guarantee. [132]
Page 456
A further important aspect is that the URDG requires that the demand must include,
either as part of the demand itself or as a separate document, a statement ‘by the
beneficiary, indicating in what respect the applicant is in breach of its obligations
under the underlying relationship’, unless the guarantee expressly states that this is
not required. [133] This principle is a salutary one in that it obliges the beneficiary to
commit to a specific statement which may prevent the beneficiary from making an
abusive call. [134]
Distinct from the URDG, case law has established that the test for compliance of
the demand is one of substance as opposed to wording. [135] Moreover, the
determination whether a demand is conforming should be a relatively simple matter.
For this reason, in the Group Five case Satchwell J was loath to accept that a
demand was conforming where it had to contain a notice of cancellation and the
notice of cancellation relied upon was a summons from which the cancellation was
not clear. [136] Although the question has not been finally settled in English law, both
Kelly-Louw [137] and Enonchong [138] take the view that despite earlier English
decisions favouring a less strict standard, the pendulum has swung back and the
test today is indeed that of ‘strict compliance’. Strict compliance is also required in
Singapore. [139]
The South African SCA considered this question in the Compass
Insurance case [140] in which the work of a subcontractor was backed by an
independent guarantee issued by Compass that undertook to pay the employer
‘upon receipt of a first written demand from the Employer’. The guarantee further
provided that
Page 457
the demand had to aver either breach on the part of the subcontractor or that the
subcontractor had been liquidated, in which case the demand was to ‘enclose a copy
of the court order’. [141]
The subcontractor breached the contract and was issued with a breach notice. It
was subsequently provisionally wound up. Hospitality demanded payment under the
guarantee. Compass refused to pay on the basis that the demand did not comply
with the conditions of the guarantee in that it was not accompanied by a copy of the
liquidation order. [142] Hospitality applied to the South Gauteng High Court for an
order compelling payment. The order was granted by Willis J on the basis that as the
provisional sequestration order had been provided subsequently (after expiry of the
guarantee) and that there had been sufficient compliance with the terms of the
guarantee. [143] Compass appealed to the SCA.
Hospitality’s argument was that all concerned knew that the subcontractor had
been provisionally liquidated and that once there was knowledge of the existence of
the order that was sufficient for demand to be made. Strict compliance with the
terms of the guarantee was not required. It contended that the doctrine of strict
compliance was restricted to letters of credit and did not apply similarly to
independent guarantees. [144] In this regard it cited dicta from English case law. [145]
In dealing with this contention Lewis JA referred to Kelly-Louw’s views referred to
above that the English courts have swung back towards applying the doctrine of
strict compliance also to independent guarantees. She found it unnecessary,
however, to decide the question, ‘since in this case the requirements to be met by
Hospitality . . . in making demand were absolutely clear, and there was in fact no
compliance, let alone strict compliance’. [146]
In so far as the judgment required proper compliance with a clearly expressed
requirement in the guarantee, and in the process overruled the judgment of the
court a quo based on general knowledge of the liquidation and the fact that the
order was provided subsequently, it is suggested, despite Lewis’ reluctance to say
so, that the case has given impetus to the recognition of the doctrine of strict
compliance in South Africa.
In the State Bank of India case [147] the SCA had a further opportunity to clarify
this matter. Fourie AJA correctly stated that the guarantor is only obliged to pay
‘where a demand meets the terms of the guarantee’, and, therefore, that ‘it follows
that the beneficiary in the case of an on demand guarantee should comply with the
requirements stipulated in the guarantee’. Whether or not the demand is compliant,
according to the court, ‘will turn on an interpretation of the guarantee’.
Page 458
It is not clear what the court meant by this statement which, it is respectfully
submitted, does not take the matter any further. [148]
It would appear therefore that South African law has not, as yet, committed itself
to express recognition of the doctrine of strict compliance in the guarantee context.
Nevertheless, it requires a ‘proper’ demand, [149] which ‘meets the terms of the
guarantee’. [150] This, it is submitted, is indeed the language of strict compliance. [151]
10.5 Conclusion
The principles that have emerged clearly from the abundance of recent South
African case law relating to guarantees are: (i) the independence principle is well
entrenched and is to be protected strongly; (ii) fraud provides an exception to the
principle; (iii) defences other than fraud that arise from the underlying contract are
not likely to succeed; and (iv) although strict compliance has not been recognised
expressly in the context of guarantees, the standard imposed has nevertheless been
strict.
It is further submitted in conclusion that: (i) greater use of the URDG will lead to
greater certainty in this part of the law and is a course to be recommended to
guarantors; and (ii) that the courts should preserve an open mind regarding
exceptions to the independence principle and should be willing to recognise further
exceptions when supported by strong policy considerations.
Page 459
List of works cited

B
Bertrams Bertrams, Roland F Bank Guarantees in International
Trade 4 ed (2013)
Bridge Bridge, Michael G (gen ed) Benjamin’s Sale of Goods 9 ed
(2014)
C
Canaris Canaris, C-W HGB Staub Groβkommentar —
Bankvertragsrecht vol 1 4 ed (1988)
E
Ellinger & Neo Ellinger, Peter & Dora Neo The Law and Practice of
Documentary Letters of Credit (2010)
Enonchong Enonchong, Nelson The Independence Principle of Letters
of Credit and Demand Guarantees (2011)
F
Finsen Finsen, Eyvind The Building Contract: A Commentary on
the JBCC Agreements 2ed (2005)
G
GCC South African Institution of Civil Engineering General
Conditions of Contract for Construction Works 2 ed
(2010)
H
Horowitz Horowitz, Deborah Letters of Credit and Demand
Guarantees Defences to Payment (2010)
Hugo (1996) Hugo, Charl Francois The Law relating to Documentary
Credits from a South African Perspective with Special
Reference to the Legal Position of the Issuing and
Confirming Banks (LLD thesis, University of
Stellenbosch, 1996)
Hugo (2004) Hugo, Charl ‘Documentary credits and independent
guarantees’ Annual Banking Law Update (2004)
Hugo (2011) Hugo, Charl ‘Documentary credits and independent
guarantees’ Annual Banking Law Update (2011)
Hugo (2014(2)) Hugo, Charl ‘Protecting the lifeblood of commerce: A
critical assessment of recent judgments of the South
African supreme court of appeal relating to demand
guarantees’ 2014 TSAR 661
Hugo (2014(1)) Hugo, Charl ‘Construction guarantees and the SCA (2010-
2013)’ in Coenraad Visser and JT Pretorius
(eds) Essays in Honour of Frans Malan (2014)
K
Kelly-Louw (2008) Kelly-Louw, Michelle Selective Legal Aspects of Bank
Demand Guarantees (LLD thesis, University of South
Africa 2008)
Kelly-Louw (2009(1)) Kelly-Louw, Michelle ‘The documentary nature of demand
guarantees and the doctrine of strict compliance: Part
1’ 2009 SA Merc LJ 306
Kelly-Louw (2009(2)) Kelly-Louw, Michelle ‘The documentary nature of demand
guarantees and the doctrine of strict compliance: Part
2’ 2009 SA Merc LJ 470
Kelly-Louw (2009(3)) Kelly-Louw, Michelle ‘Illegality as an exception to the
autonomy principle of bank demand guarantees’
2009 CILSA 339
Page 460
Kelly-Louw & Marxen Kelly-Louw, Michelle & Karl Marxen ‘General update on the
law of letters of credit and demand guarantees’ Annual
Banking Law Update University of Johannesburg (2015)
Krüger Krüger, Wolfgang (editor) Münchener Kommentar zum
Bürgerlichen Gesetzbuch Band 2 Schuldrecht
Algemeiner Teil 4 Auflage (2001)
L
Liesecke Liesecke, R ‘Die neuere Rechtsprechung, insbesondere des
Bundesgerichtshofes, zum Dokumentenakkreditiv’
1966 Wertpapier Mitteilungen 467
Luecke Luecke, G Das Dokumentenakkreditiv in Deutschland,
Frankreich und der Schweiz — Eine Rechtsvergleichende
Darstellung (1976)
Lurie Lurie, John ‘On demand performance bonds: Is fraud the
only ground for restraining unfair calls’
2008 International Construction Law Review 443
M
Martinek Martinek, Michael (ed) J von Staudingers Kommentar zum
Bürgerlichen Gesetzbuch mit Einführiugnsgesetz und
Nebengesetzen Buch 2 Recht der Schuldverhältnisse
Neubearbeitung (2005)
Mckendrick McKendrick, Ewan Goode on Commercial Law 4 ed (2010)
U
Ulrich Ulrich, CM Rechtsprobleme des Dokumenten-
akkreditivs (1989)
URDG 758 International Chamber of Commerce Uniform Rules for
Demand Guarantees (2010) ICC Publication 758
[1] There have been a number of comprehensive treatises dealing with guarantees in recent times.
For a South African perspective see Kelly-Louw (2008). For influential foreign perspectives see
Bertrams, Enonchong & Horowitz.
[2] While the term ‘independent guarantee’ (as used in the United Nations Convention on
Independent Guarantees and Standby Letters of Credit) is actually a better reflection of the nature of
the guarantee, it appears that the term ‘demand guarantee’ (used inter alia in the International
Chamber of Commerce’s Uniform Rules for Demand Guarantees, ICC Publication 758 (2010)
(henceforth URDG 758)) has become better entrenched in South Africa, and is the term used below.
The terms ‘performance bond’ and ‘standby letter of credit’ are also encountered and refer to the
same type of instrument. See in general Kelly-Louw (2008) 5-7 para 1.2.
[3] Article 2.
[4] See, for example, Loomcraft Fabrics CC v Nedbank Ltd 1996 (1) SA 812 (A) at 816C-
817D; Union Carriage and Wagon Co Ltd v Nedcor Bank Ltd 1996 CLR 724 (W) at 730; Lombard
Insurance Co Ltd v Landmark Holdings (Pty) Ltd 2010 (2) SA 86 (SCA) para [20]; Dormell Properties
282 CC v Renasa Insurance Co Ltd 2011 (1) SA 70 (SCA) paras [38] (per Bertelsmann AJA) and [63]
(per Cloete JA). See also Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB
159 (CA) at 169A; Intraco Ltd v Notis Shipping Corporation (The ‘Bhoja Trader’) [1981] 2 Lloyd’s Rep
256 (CA) at 257. See further McKendrick 1129.
[5] In Phillips v Standard Bank of South Africa Ltd 1985 (3) SA 301 (W) Goldstone J referred to the
absence of South African case law in this regard and went on to explore and follow English and
American precedents (at 302I-304C). This approach was subsequently followed in the Appellate
Division by Scott JA in Loomcraft Fabrics CC v Nedbank Ltd 1996 (1) SA 812 (A) at 816A-817H. Since
then one would be hard-pressed to find any important guarantee or letter-of-credit case in which
English precedent is not referred to and relied upon.
[6] Horowitz 227 para 8.02. Hence letters of credit and demand guarantees are opposites in the
sense that if everything goes according to plan, the beneficiary of a letter of credit will call upon the
issuer for payment, but in the case of the demand guarantee, the beneficiary will not call for
payment.
[7] See ch 9 para 9.5.1 above.
[8] Bridge 2205 para 24-009.
[9] URDG 758. See further McKendrick 1129 and 1131. On the URDG 758 in general see Hugo
(2011) 116-19 para 2; Bridge 2205 para 24-009.
[10] See Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd 2010 (2) SA 86 (SCA) paras
[18]-[21]; Minister of Transport and Public Works, Western Cape v Zanbuild Construction (Pty)
Ltd 2011 (5) SA 528 (SCA) paras [5] and [19].
[11] McKendrick 1131 remarks that the URDG has been endorsed by UNCITRAL, recommended for
the UK by SITPRO, incorporated in the standard-form contracts of the International Federation of
Consulting Engineers (FIDIC), incorporated into the standard-form guarantee of the World Bank, and
is now available as an option in SWIFT messages.
[12] http://content.dcprofessional.com/dcpro_f_pdfs/Model%20forms%20758.pdf. The standard
form provides for specific fields that must be completed. One such field reads as follows: ‘ANY
DOCUMENT REQUIRED IN SUPPORT OF THE DEMAND FOR PAYMENT, APART FROM THE SUPPORTING
STATEMENT THAT IS EXPLICITLY REQUIRED IN THE TEXT BELOW: [Insert any additional document
required in support of the demand for payment. If the guarantee requires no documents other than
the demand and the supporting statement, keep this space empty or indicate “none”]’. Against this
background the undertaking of the guarantor is formulated as follows: ‘As Guarantor, we hereby
irrevocably undertake to pay the Beneficiary any amount up to the Guarantee Amount upon
presentation of the Beneficiary’s complying demand, in the form of presentation indicated above,
supported by such other documents as may be listed above and in any event by the Beneficiary’s
statement, whether in the demand itself or in a separate signed document accompanying or
identifying the demand, indicating in what respect the Applicant is in breach of its obligations under
the Underlying Relationship.’
[13] See in this regard Finsen. The work also contains various contracts from the suite as
annexures (including various guarantees at 453-9).
[14] 2 ed (2010). The standard-form guarantee appears at 117-19.
[15] Section 33(1) of the Short-term Insurance Act 53 of 1998 provides that ‘[a] short-term insurer
shall not — . . . (d) by means of suretyship or any other form of personal security, whether under a
primary or accessory obligation, give security in relation to obligations between other persons, unless
the short-term insurer is registered to provide policy benefits in terms of a guarantee policy and does
so in terms of a guarantee policy . . . without the approval of the Registrar, given generally or in a
particular case, and subject to such conditions as the Registrar may determine.’
[16] Section 1 of Act 53 of 1998.
[17] Minister of Transport and Public Works, Western Cape v Zanbuild Construction (Pty) Ltd 2011
(5) SA 528 (SCA). For a more comprehensive discussion of the case see Hugo (2014(1)) 166-8.
[18] Para [3].
[19] Para [4].
[20] Para [5].
[21] Para [6].
[22] Paras [7] and [8].
[23] Para [10].
[24] Paras [13], [14] and [15].
[25] Para [14]. He refers to Dormell Properties 282 CC v Renasa Insurance Co Ltd 2011 (1) SA 70
(SCA) and Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd 2010 (2) SA 86 (SCA) as
providing examples of independent guarantees and to the case of Basil Read (Pty) Ltd v Beta Hotels
(Pty) Ltd 2001 (2) SA 760 (C) as providing an example of an accessory guarantee. It needs to be
pointed out, however, that the term ‘conditional guarantee’ is potentially confusing in this regard,
since an independent demand guarantee can also be conditional. The focus should not be on
conditionality but on the question whether the guarantee is accessory.
[26] Para [13]. This dictum must, however, be approached with caution. It is suggested
respectfully that if the guarantee requires an allegation of liability under the construction contract,
this in itself does not mean that the guarantee cannot be a demand guarantee. If the guarantee
requires proof of liability under the construction contract, however, the guarantee would clearly be
accessory and not a demand guarantee.
[27] Paras [15], [16] and [17].
[28] Para [16].
[29] Para [18]. (The italics are mine.)
[30] Para [19].
[31] Para [21].
[32] See the text at note 20 above. (The italics are mine.)
[33] Para [22].
[34] For examples of demand guarantees (or standby letters of credit) having been used in other
contexts see Mahonia Ltd v JP Morgan Chase Bank [2003] 2 Lloyd’s Rep 911 (QB); Union Carriage
and Wagon Co Ltd v Nedcor Bank Ltd 1996 CLR 724 (W); and Casey v FirstRand Bank Ltd 2014 (2)
SA 374 (SCA).
[35] The term favoured in the JBCC guarantee. See Finsen 453.
[36] Bertrams 37; Kelly-Louw (2008) 28 para 2.4.2.2.
[37] Bertrams 37. See also Kelly-Louw (2008) 28 para 2.4.2.2, who places the parameters between
5 per cent and 10 per cent.
[38] See, for example, paras 1 and 2 of the JBCC construction guarantee in Finsen 453-4.
[39] See, for example, para 5 of the JBCC construction guarantee in Finsen 455 and para 5 of the
GCC guarantee at 118.
[40] It is also possible that an employer can be the beneficiary of a payment guarantee. Both the
JBCC construction guarantee (see Finsen 455 para 4) and the GCC performance guarantee (General
Conditions of Contract for Construction Works 118 para 4), for example, provide for the eventuality of
a payment certificate showing that the contractor is to pay the employer a sum of money, which
money is then not forthcoming. In this case the employer’s demand is simply that the contractor has
failed to pay the employer in accordance with the payment certificate, a copy of which is to be
annexed to the demand.
[41] Bertrams 41.
[42] Bertrams 39. See also Kelly-Louw (2008) 28 para 2.4.2.3, who sets the parameters between
10 per cent and 20 per cent.
[43] Kelly-Louw (2008) 28 para 2.4.2.3; Bertrams 39; and Ellinger & Neo 307.
[44] Bertrams 39.
[45] Bertrams 40.
[46] Kelly-Louw (2008) 29 para 2.4.2.4.
[47] Bertrams 40; Ellinger & Neo 307.
[48] Kelly-Louw (2008) 29 para 2.4.2.4.
[49] Bertrams 40.
[50] Also termed a ‘warranty guarantee’. See Kelly-Louw (2008) 29 para 2.4.2.5; Ellinger & Neo
307; Bertrams 38-9.
[51] Kelly-Louw (2008) 27 para 2.4.2.1; Bertrams 36; Ellinger & Neo 307.
[52] Bertrams 36. See also Kelly-Louw (2008) 27 para 2.4.2.1, who states the parameters as 0.5
per cent to 5 per cent.
[53] Article 2. A good example is provided by State Bank of India v Denel SOC Limited [2015] 2 All
SA 152 (SCA), in which the South African contractor, who was awarded contracts in India, in order to
obtain the required performance guarantees by an Indian bank, had to arrange counter-guarantees in
favour of the Indian bank with a South African bank. For a detailed discussion of counter-guarantees
(also referred to sometimes as ‘indirect four-party demand guarantees’) see Kelly-Louw (2008) 24-5
para 2.3.2.2.
[54] Enonchong 67 para 4.01; Kelly-Louw (2008) 41-8 paras 2.5.2.1-2.5.2.3; McKendrick 1129;
Bridge 2199-2201 paras 24-001 and 24-003.
[55] Loomcraft Fabrics CC v Nedbank Ltd 1996 (1) SA 812 (A) at 815G-I.
[56] Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd 2010 (2) SA 86 (SCA) para [20].
See further Dormell Properties 282 CC v Renasa Insurance Co Ltd 2011 (1) SA 70 (SCA) para
[38]; FirstRand Bank Ltd v Brera Investments CC 2013 (5) SA 556 (SCA) para [2]; Eskom Holdings
Soc Ltd v Hitachi Power Africa (Pty) Ltd [2013] ZASCA 101 (12 September 2013) para [14]; Coface
South Africa Insurance Co Ltd v East London Own Haven t/a Own Haven Housing Association 2014
(2) SA 382 (SCA) paras [9]-[13]. See also Edward Owen Engineering Ltd v Barclays Bank
International Ltd [1978] QB 159 (CA) at 171A-C; RD Harbottle (Mercantile) v National Westminster
Bank Ltd [1977] 2 All ER 862 (CA) 870; and Intraco Ltd v Notis Shipping Corporation (The ‘Bhoja
Trader’) [1981] 2 Lloyd’s Rep 256 (CA) at 257.
[57] Article 5(a).
[58] Kwikspace Modular Buildings Ltd v Sabodala Mining Company SARL [2010] 3 All SA 467 (SCA).
For a more detailed discussion of this case see Hugo (2014(2)) 667-9.
[59] Para [2].
[60] Para [5].
[61] Para [4]. Although the guarantee was not a standard-form guarantee the undertaking is very
similar to that encountered in the JBCC and GCC suites of agreements.
[62] Para [7]. The citations of the Australian cases referred to are: Wood Hall Ltd v Pipeline
Authority (24 ALR 385), and Clough Engineering Ltd (CAN 009 093 869) v Oil and Natural Gas
Corporation Ltd (249 ALR 458).
[63] Para [9] (with reference to Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd 1998 3 VR
812).
[64] Para [9].
[65] Paras [11] and [12].
[66] Enonchong 211 para 9.06.
[67] 1995 (3) WLR (CA) 751. In this case the beneficiary was restrained from demanding payment
on the basis of fraud. The court stated that in the circumstances it was not necessary for it to
consider whether such an injunction would be possible in the case of a ‘non-fraudulent breach’ (at
764D-E).
[68] [2004] 1 All ER (CA) 308. In this case the court stated obiter that had the question arisen
before it, it would have granted such an injunction (para [29]).
[69] Enonchong 213 para 9.13.
[70] 2011 EWHC 657 (TCC) para 33(d).
[71] Eskom Holdings Soc Ltd v Hitachi Power Africa (Pty) Ltd [2013] ZASCA 101 (12 September
2013). For a more detailed discussion of the case and this issue see Hugo (2014(2)) 670-3.
[72] Para [7].
[73] Para [8].
[74] Para [9].
[75] The contract was anything but a model of clarity. See Hugo (2014(2)) 671.
[76] Paras [12]-[15] — with reference to the analysis of Brand JA in Minister of Transport and
Public Works, Western Cape v Zanbuild Construction (Pty) Ltd 2011 (5) SA 528 (SCA) para [14].
[77] Quoted in para [15].
[78] Para [15] (my emphasis).
[79] Paras [19]-[20] (my emphasis).
[80] Reliance on the exception does not often succeed. The recent case of Group Five Construction
(Pty) Ltd v MEC for Public Transport, Roads and Works Gauteng [2015] 2 All SA 716 (GJ) considered
below provides a rare exception.
[81] Loomcraft Fabrics CC v Nedbank Ltd 1996 (1) SA 812 (A) at 815J.
[82] At 816A.
[83] United City Merchants (Investments) Ltd v Royal Bank of Canada [1983] AC 168 (HL) at 183G.
[84] The exception is also recognised in civilian jurisdictions. In German law it is based on the
doctrine of abuse of right (Rechtsmissbrauch) under para 242 of the German Civil Code. See in
general in this regard Hugo (1996) ch 6.
[85] Sztejn v J Henry Schroder Banking Corp 31 NYS 2d 631 (1941).
[86] Sztejn v J Henry Schroder Banking Corp 31 NYS 2d 631 (1941) at 634.
[87] United City Merchants (Investments) Ltd v Royal Bank of Canada [1983] AC 168 (HL) at 183-
4.
[88] United Trading Corporation SA v Allied Arab Bank [1985] 2 Lloyd’s Rep 554 (CA) at 561.
[89] Uzinterimpex JSC v Standard Bank plc [2007] 2 Lloyd’s Rep para 107.
[90] Banque Saudi Fransi v Lear Siegler Services Inc [2007] 2 Lloyd’s Rep 47 (CA).
[91] GKN Contractors Ltd v Lloyd’s Bank plc [1985] Building Law Reports 48 (CA) at 63.
[92] [2014] 1 All SA 307 (SCA) para [17]. No honest belief is also regarded as the heart of fraud in
this context by Cloete J in Scatec Solar SA 163 (Pty) Ltd v Terrafix Suedafrika (Pty) Ltd [2014]
ZAWCHC 24 (5 March 2014) para [28] (with reference to R v Myers 1947 (1) SA 375 (A) at 382-3).
See also Group Five Construction (Pty) Ltd v MEC for Public Transport, Roads and Works
Gauteng [2015] 2 All SA 716 (GJ) paras [40], [48] and [50].
[93] Group Five Construction (Pty) Ltd v MEC for Public Transport, Roads and Works
Gauteng [2015] 2 All SA 716 (GJ).
[94] Paras [38]-[50].
[95] Dormell Properties 282 CC v Renasa Insurance Co Ltd 2011 (1) SA 70 (SCA) para [20].
[96] Dormell Properties 282 CC v Renasa Insurance Co Ltd 2011 (1) SA 70 (SCA) para [38].
[97] Dormell Properties 282 CC v Renasa Insurance Co Ltd 2011 (1) SA 70 (SCA) para [63]. Cloete
JA refers also to Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159 (CA)
at 171B-C where Lord Denning stated that ‘the only exception is when there is a clear fraud of which
the bank has notice’.
[98] FirstRand Bank Ltd v Brera Investments CC 2013 (5) SA 556 (SCA) para [11].
[99] Eskom Holdings Soc Ltd v Hitachi Power Africa (Pty) Ltd [2013] ZASCA 101 (12 September
2013) para [14].
[100] Coface South Africa Insurance Co Ltd v East London Own Haven t/a Own Haven Housing
Association 2014 (2) SA 382 (SCA) para [13].
[101] Mahonia Ltd v JP Morgan Chase Bank [2003] 2 Lloyd’s Rep 911 (QB) para [68]. For a detailed
comparative analysis of the illegality exception in English, American and South African law see Kelly-
Louw (2009(3)) 339 et seq. For further authority in this regard see Lurie 454 et seq.
[102] Wrongly in my view, not because of the existence of a nullity exception to the independence
principle (a bizarre concept) but because a document that is a nullity cannot be a conforming
document. See Hugo (2004) para 3.2. See also the excellent analysis of Horowitz 47-53 paras 3.14-
3.21.
[103] Montrod Ltd v Grundkötter Fleischvertriebs GmbH [2002] 3 All ER 697 (CA).
[104] For an overview of the Singaporean law in this regard see Horowitz 162-9 and McKendrick
1107.
[105] See Sulzer Pumps (South Africa) (Proprietary) Limited v Covec-MC Joint Venture [2014]
ZAGPPHC 695 (2 September 2014) paras [41], [106]-[115] and Group Five Construction (Pty) Ltd v
MEC for Public Transport, Roads and Works Gauteng [2015] 2 All SA 716 (GJ) paras [50] and [54]. It
is ‘controversial’ due to the nexus between this exception and the exceptio doli generalis which has
been rejected by the SCA. For a discussion of these two cases see Kelly-Louw & Marxen 287-93.
[106] In her impressive treatise on the ‘defences to payment’ Horowitz 14 para 1.20 (and at the
conclusion of each chapter) works with a ‘spectrum of abstraction’ moving from the ‘most abstract’ to
the ‘least abstract’ (or from ‘autonomy’ to ‘interdependence’). The different potential defences are
plotted on the spectrum either to the left or right of an ‘ideal cut-off point’, which determines whether
or not the defence should be recognised. Her spectrum (or model) provides for development in that it
is not fixed but ‘movable for policy’.
[107] Lurie 465. The infusion with concepts of fairness and equity is also evident from the
prominence placed on ‘bad faith’ or a ‘lack of good faith’ in this context in TTI Team Telecon
International Limited v Hutchison 3G UK Limited [2003] EWHC 762 (TCC) para 31.
[108] Dormell Properties 282 CC v Renasa Insurance Co Ltd 2011 (1) SA 70 (SCA).
[109] Para [60].
[110] Paras [40] and [41].
[111] Para [42]. He cites Hudson & Wallace para 17.078 where it is said that ‘the Courts will
provide a remedy by way of repayment to the other contracting party if a beneficiary who has been
paid under an unconditional bond is ultimately shown to have called on it without justification’ — a
citation which was regarded as misplaced in Coface South Africa Insurance Co Ltd v East London Own
Haven t/a Own Haven Housing Association 2014 (2) SA 382 (SCA) para [25].
[112] Act 59 of 1959 (the legislation then in force).
[113] Para [45]. The relevant subsection reads: ‘When at the hearing of a civil appeal to the
Appellate Division . . . of the Supreme Court the issues are of such a nature that the judgment or
order sought will have no practical effect or result, the appeal may be dismissed on this ground
alone.’
[114] Para [64].
[115] Para [69].
[116] Para [68].
[117] Para [67].
[118] See Ulrich 123, who cites BGE 100 II 151.
[119] BGH (24 April 1958) 1958 Wertpapier Mitteilungen 696 at 697.
[120] See Martinek 387 para 281; Krüger 264 para 539; Canaris 697 para 1018; Liesecke 467-8;
Luecke 176.
[121] See Guardrisk Insurance Company Ltd v Kentz (Pty) Ltd [2014] 1 All SA 307 (SCA) paras
[22]-[25] and FirstRand Bank Ltd v Brera Investments CC 2013 (5) SA 556 (SCA) at 561F-562G.
Association 2014 (2) SA 382 (SCA) at 390J-391A.
[123] FirstRand Bank Ltd v Brera Investments CC 2013 (5) SA 556 (SCA) at 561F-562G.
[124] Guardrisk Insurance Company Ltd v Kentz (Pty) Ltd [2014] 1 All SA 307 (SCA) paras [22]-
[25].
Association 2014 (2) SA 382 (SCA) at 387H-391D.
[126] Which was not the case in Dormell. For this reason the minority decision is probably correct.
[127] See Bridge 2201 para 24-003.
[128] See ch 9 para 9.5.4 above.
[129] Bridge 2228. For a comprehensive and comparative legal analysis of this question see Kelly-
Louw (2009(1)) 306 et seq and (2009(2)) 470 et seq.
[130] Numerous sub-articles are helpful in this regard, for example: arts 19d (a document not
called for will be disregarded); 17a and 17e (a demand for less than the full amount of the guarantee
can be conforming but one for more than the full amount is non-conforming); 17b (more than one
demand can be made); 14a (the demand must be made at the place of issue of the guarantee or the
place indicated in the guarantee); 14b (the demand must be complete unless the guarantee indicates
that it can be completed later); 14c-e (guidance regarding electronic as opposed to paper
presentations); and 14g (the documents must be in the language of the guarantee unless the
guarantee indicates otherwise). The point of departure in assessing the conformity of the demand
should be art 19b: ‘Data in a document required by the guarantee shall be examined in context with
that document, the guarantee and these rules. Data need not be identical to, but shall not conflict
with, data in that document, any other required document or the guarantee.’
[131] Article 24.
[132] Article 7d. The same principle is evident from English case law pertaining to guarantees not
governed by the URDG. See in this regard AES-3C v Crédit Agricole Corporate and Investment
Bank [2011] Building Law Reports 249 QBD (TCC) ([2011] EWHC 123) para [55]; Manx Electricity
Authority v JP Morgan Chase Bank [2003] EWCA Civ 1324 (CA). See also Compass Insurance
Company Ltd v Hospitality Hotel Developments (Pty) Ltd 2012 (2) SA 537 (SCA) para [5], in which
Lewis JA stressed that the attempt to cure a defective demand in that case occurred ‘long after expiry
of the guarantee’, which suggests that such an attempt prior to expiry of the guarantee may have
been successful. The point was left open by Satchwell J in Group Five Construction (Pty) Ltd v MEC
for Public Transport, Roads and Works Gauteng [2015] 2 All SA 716 (GJ) paras [21] and
[28]. Nedbank Ltd v Procprops 60 (Pty) Ltd [2013] ZASCA 153 (20 November 2013) is capable of
being interpreted as that if a guarantee is expressed to be payable upon ‘first demand’ this precludes
subsequent demands. It is respectfully suggested that this is simply not correct.
[133] Article 15a read with art 15c.
[134] Esal (Commodities) Ltd v Oriental Credit Ltd [1985] 2 Lloyd’s Rep 546 at 550; Bridge at
2233-2234 para 24-067.
[135] See IE Contractors Ltd v Lloyd’s Bank Plc [1990] 2 Lloyd’s Rep 496.
[136] Group Five Construction (Pty) Ltd v MEC for Public Transport, Roads and Works
Gauteng [2015] 2 All SA 716 (GJ) paras [25]-[36]. In para [30] she states: ‘Firstly, I note the extent
of time and energy spent at the hearing of this application debating the content and meaning of this
summons and particulars of claim. If the cancellation was easily apparent therefrom, this would not
have been necessary. The particulars of claim hardly furnish a clear and unequivocal notice of
cancellation.’
[137] Kelly-Louw (2008) para 2.5.2.5.4.
[138] Enonchong paras 4.52-4.57. He refers to, inter alia, the following cases in this
regard: Maradive & Oil Services (SAE) v CAN Insurance Co (Europe) Ltd [2002] EWCA Civ 369 paras
[10] and [51]; and Frank Maas (UK) Ltd v Habib Bank AG Zurich [2001] Lloyd’s Rep (Banking) 14.
[139] See Enonchong para 4.52 (with reference to Brightside Mechanical and Engineering Services
Group Ltd v Standard Chartered Bank [1989] 3 MLJ 13).
[140] Compass Insurance Company Ltd v Hospitality Hotel Developments (Pty) Ltd 2012 (2) SA
537 (SCA).
[141] Para [4] (clause 4.2 of the guarantee).
[142] Para [3].
[143] Paras [3] and [5].
[144] Paras [7], [8] and [11].
[145] Siporex Trade SA v Banque Indosuez [1986] 2 Lloyd’s Rep 146 at 159; IE Contractors Ltd v
Lloyd’s Bank Plc [1990] 2 Lloyd’s Rep 496 at 501.
[146] Para [13]. A similar reticence to accept in so many words the applicability of the doctrine of
strict compliance in relation to independent demand guarantees is evident in Dormell Properties 282
CC v Renasa Insurance Co Ltd 2011 (1) SA 70 (SCA) para [39] where Bertelsmann AJA uses the term
‘a proper claim’ in this regard without elaborating on what this means.
[147] State Bank of India v Denel SOC Limited [2015] 2 All SA 152 (SCA) para [9].
[148] The statement is preceded by a reference to para [13] of Kwikspace Modular Buildings Ltd v
Sabodala Mining Company SARL [2010] 3 All SA 467 (SCA). It is submitted, with respect, that the
citation does not support the statement. The question of interpretation in that case related to whether
the guarantee was independent or accessory, and not to the level of compliance.
[149] See Dormell Properties 282 CC v Renasa Insurance Co Ltd 2011 (1) SA 70 (SCA) para [39].
[150] See State Bank of India v Denel SOC Limited [2015] 2 All SA 152 (SCA) para [9].
[151] This, too, is the conclusion reached by Kelly-Louw (2009(2)) 485.
Page xvii
Table of cases
A
AA Farm Sales (Pty) Ltd (t/a AA Farms) v Kirkaldy 1980 (1) SA 13 (A)
— 204, 223, 225
AAA Brick Co (Pty) Ltd v Coetzee 1996 (3) SA 578 (B)
— 232, 238
Abbott v Nolte 1951 (2) SA 419 (C)
— 37
Aboobaker v Gableite Distributors (Pty) Ltd 1978 (4) SA 615 (D)
— 255, 328
Abou-Rahman v Abacha [2005] EWHC 2662 (QB)
— 286
Abraham v Burns 1914 CPD 452
— 135
Abraham v Cassiem 1920 CPD 568
— 244
Abromowitz v Jacquet 1950 (2) SA 564 (W)
— 271
Absa Bank Bpk v Coetzee [1998] 1 All SA 1 (SCA)
— 345
Absa Bank Bpk v Janse van Rensburg 2002 (3) SA 701 (SCA)
— 37, 38, 132, 139
Absa Bank Bpk v Janse van Rensburg BK 2000 (4) SA 27 (SCA)
— 269
Absa Bank Bpk v Saunders 1997 (2) SA 192 (NC)
— 34, 35
Absa Bank h/a Volkskas Bank v Retief 1999 (3) SA 322 (NC)
— 35, 141, 322
Absa Bank Limited v Arif 2014 (2) SA 466 (SCA)
— 122
Absa Bank Ltd t/a Bankfin v Stander t/a CAW Paneelkloppers 1998 (1) SA 939 (C)
— 212, 213
Absa Bank Ltd v Fouche 2003 (1) SA 176 (SCA)
— 173, 174, 176, 186, 203
Absa Bank Ltd v Fouche 2003 (4) SA 537 (SCA)
— 268
Absa Bank Ltd v Hanley 2014 (2) SA 448 (SCA)
— 112, 115-116, 119, 133, 142-144
Absa Bank Ltd v Intensive Air (Pty) Ltd 2011 (2) SA 275 (SCA)
— 116, 153, 242, 243, 383
Absa Bank Ltd v Lombard Insurance Co Ltd 2012 (6) SA 569 (SCA)
— 148, 293, 340, 345
Absa Bank Ltd v Mutual and Federal Insurance Co Ltd 2003 (1) SA 635 (W)
— 257
Absa Bank Ltd v Standard Bank of SA Ltd 1998 (1) SA 242 (SCA)
— 131, 239, 262, 344, 383
Absa Bank Ltd v Van Biljon 2000 (1) SA 1163 (W)
— 166
Absa Bank v Leech and Others NNO 2001 (4) SA 132 (SCA)
— 338
Absa v Van der Vyver NO 2002 (4) SA 397 (SCA)
— 228, 229, 230
Academy of Learning (Pty) Ltd v Hancock 2001 (1) SA 941 (C)
— 236, 237
Ackermans Ltd v Commissioner, South African Revenue Service 2011 (1) SA 1 (SCA)
— 232, 234
Adams v SA Motor Industry Employers Association 1981 (3) SA 1189 (A)
— 257
Adel Builders (Pty) Ltd v Thompson 1999 (1) SA 680 (SE)
— 201
Adjust Investments (Pty) Ltd v Wiid 1968 (3) SA 29 (O)
— 236, 237
Administrateur, Natal v Trust Bank van Afrika Bpk 1979 (3) SA 824 (A)
— 182
Administrators, Estate Richards v Nichol 1999 (1) SA 551 (SCA)
— 189
AES-3C v Crédit Agricole Corporate and Investment Bank [2011] Building Law
Reports 249 QBD (TCC) ([2011] EWHC 123)
— 455
African Bank Ltd v Covmark Marketing CC 2008 (6) SA 46 (D)
— 252
African Bank Ltd v Soodho 2008 (6) SA 46 (D)
— 252
African Banking Corporation v Blauwklip Garden Co Ltd (1908) 25 SC 946
— 221
African Life Assurance Co Ltd v NBS Bank Ltd 2001 (1) SA 432 (W)
— 121, 127, 134, 321, 356, 358
African Metropolitan Life Assurance Co Ltd v Ferreira 1962 (4) SA 213 (O)
— 219, 220, 231
African Mining and Financial Association v De Catelin & Muller (1897) 4 OR 344
— 34
African Motherhood Endowment Society v Mostert 1923 CPD 26
— 215
Afrisure v Watson [2008] ZASCA 89 (11 September 2008)
— 338
AG Canada v AG Quebec [1947] AC 33
— 115
Agricultural & Industrial Mechanisation (Vereeniging) (Edms) Bpk v Lombard 1974
(3) SA 485 (O)
— 231
Aktiebolaget Tratalja v Evelyn Haddon & Co Ltd 1933 CPD 156
— 199
Albaraka Bank Ltd v Halaal Royal Snacks (Pty) Ltd, Unreported case no 08499/2010
of 8 February 2012 (GJ)
— 46
Alfred McAlpine & Son (Pty) Ltd v Transvaal Provincial Administration 1974 (3) SA
506 (A)
— 204
Page xviii
Al-Kharafi & Sons v Pema and Others NNO 2010 (2) SA 360 (W)
— 156
Allied Bank Ltd v Standard Bank of South Africa Ltd (WLD) case no 17397/91910
— 331
Allied Credit Trust (Pty) Ltd v Cupido and Another 1996 (2) SA 843 (C)
— 205
Allison v Massel and Massel 1954 (4) SA 569 (T)
— 235
Ally and Others NNO v Courtesy Wholesalers (Pty) Ltd 1996 (3) SA 134 (N)
— 204
Alpha Bank Bpk v Registrateur van Banke 1996 (1) SA 330 (SCA)
— 12, 70
Alphina Investments Ltd v Blacher 2008 (5) SA 479 (C)
— 338
Altech Data (Pty) Ltd v MB Technologies (Pty) Ltd 1998 (3) SA 748 (W)
— 240
American National Bank v Cashman Bros Marine Contracting 550 SO 2d 98 (Dist Ct
App Fla 1989)
— 417, 418
Amod Salie v Ragoon 1903 TS 100
— 213
Anderson Shipping (Pty) Ltd v Guardian National Insurance Co Ltd 1987 (3) SA 506
(A)
— 112
Andrews v Lidaks 1971 (1) SA 892 (W)
— 223, 225
Andy’s Electrical v Laurie Sykes (Pty) Ltd 1979 (3) SA 341 (N)
— 229, 230, 231
Antonie v Koekoe 1966 (2) SA 610 (O)
— 228
APA Network Consultants (Pty) Ltd v Absa Bank Ltd 1996 (1) SA 1159 (W)
— 211, 345, 346
Arab Bank Ltd v Barclays Bank (Dominion, Colonial and Overseas) [1954] 2 All ER
226
— 110
Arctocel (Pty) Ltd v Firstrand Bank Ltd unreported case no 32633/2015 (21 October
2015)
— 29
Arie Kgosi v Kgosi Aaron Moshette 1921 TPD 524
— 236, 237
Arndt & Cohn v Dickinson & Fisher (1908) 29 NLR 7
— 237
Aronowitz v Atkinson 1936 SR 45
— 214
Asco Carbon Dioxide Ltd v Lahner 2005 (3) SA 213 (N)
— 235
Associated Engineers Co Ltd v Goldblatt 1938 WLD 139
— 322
Astro Exito Navegicion SA v Chase Manhattan Bank NA [1986] 1 Lloyd’s Rep 455
— 417, 418
Atkinson Oates Motors Ltd v Trust Bank of Africa Ltd 1977 (3) SA 188 (W)
— 347, 352
Aubrey Feinberg Investments (Pty) Ltd v Runge 1981 (2) SA 598 (T)
— 226
Auchterlonie & Co v Midlands Bank [1928] KB 294
— 326
Awilco v Fulvia SpA di Navigazione The Chikuma [1981] 1 All ER 652 (HL)
— 196
B
B & H Engineering v First National Bank of SA Ltd 1995 (2) SA 279 (A)
— 200, 212, 213, 256, 259
Bain v Barclays Bank (DC & O) Ltd 1937 SR 191
— 153-154, 233, 236, 238
Baker v Australia and New Zealand Bank 1958 NZLR 907
— 130
Baker v Probert 1985 (3) SA 429 (A)
— 215
Ball v Keefer (1883) 2 HCG 27
— 153
Banbury v Bank of Montreal [1918] AC 626 (PC)
— 183
Banco Santander SA v Bayfern Ltd [1999] CLC 1321
— 411, 413
Bank (DC & O) v SA Paper Processing Ltd 1956 (2) SA 349 (T)
— 110
Bank Holdings Ltd Intervening) 2004 (3) SA 560 (W)
— 68
Bank Melli Iran v Barclays Bank (Dominion, Colonial & Overseas) [1951] 2 Ll L Rep
367
— 417-419
Bank Negara Indonesia 1946 v Larisa (Singapore) Pte Ltd [1988] 1 AC 583 (PC)
— 431, 432
Bank of Africa v Craven NO (1888) 5 HCG
— 112, 222
Bank of Africa v Evelyn Gold and Mining Company Ltd (1894) 1 OR 24
— 323
Bank of Credit and Commerce Zimbabwe Ltd v UDC Ltd 1991 (4) SA 82 (Z)
— 351, 358, 365
Bank of Italy v Merchants Nat Bank (1923) 140 NE 211 (Court of Appeals of New
York)
— 417, 418, 422
Bank of Lisbon and South Africa v De Ornelas 1988 (3) SA 580 (A)
— 39, 40
Banque de l’Indochine et de Suez SA v JH Rayner (Mincing Lane) Ltd [1983] 1 QB
711 (CA)
— 421
Banque Saudi Fransi v Lear Siegler Services Inc [2007] 2 Lloyd’s Rep 47 (CA)
— 450
Barclays Bank Ltd v Okenarhe [1966] 2 Lloyd’s LR 87 (QB)
— 116, 154
Barclays Bank Ltd v WJ Simms Son & Cooke (Southern) Ltd [1979] All ER 522, 1980
QB 677
— 318, 341
Barclays Bank of Swaziland Ltd v Mnyeketi 1992 (3) SA 425 (W)
— 199, 201
Barclays Bank v Giles 1931 TPD 31
— 130
Page xix
Barclays National Bank Ltd v Thompson 1985 (3) SA 778 (A)
— 207, 208
Barclays National Bank Ltd v Wall 1983 (1) SA 149 (A)
— 201, 210, 258, 349
Barclays National Bank v Straw 1965 (2) SA 93 (O)
— 142, 143
Barclays National Bank v Waisbrod 1975 (1) SA 45 (D)
— 229
Bardopolous and Macrides v Miltiadous 1947 (4) SA 860 (W)
— 237
Barnabas Plein & Co v Sol Jacobson & Son 1928 AD 25
— 142
Barret v R 1926 NPD 96
— 240
Barry Colne & Co (Transvaal) Ltd v Jackson’s Ltd 1922 CPD 372
— 199
Baskin & Barnett v Barnard 1928 CPD 58
— 233, 237
Bassa Ltd v East Asiatic (SA) Co Ltd 1932 NPD 386
— 199, 257
Bastone & Firminger Ltd v Nasima Enterprises (Nigeria) Ltd [1996] CLC 1902 (QBD)
— 400
Bates v Haywood (1882) 2 EDC 153
— 128
Bayer SA (Pty) Ltd v Frost 1991 (4) SA 559 (A)
— 182
Baylis’s Trustees v Cape of Good Hope Bank (1885-1886) 4 SC 439
— 162
Becker v Forster; Karsten v Forster 1913 CPD 962
— 236, 237
Benoni Produce and Coal Co Ltd v Gundelfinger 1918 TPD 453
— 204
Benson v Parry (1780) 2 TR 52
— 141
Berlesell (Edms) Bpk v Lehae Development Corp Bk 1998 (3) SA 220 (O)
— 125
Bernitz v Euvrard 1943 AD 595
— 200, 204, 205
Bernstein v Bester NO 1996 (2) SA 751 (CC)
— 29
Bernstein v Tayler (1888) 5 HCG 258
— 213
Berzack v Nedcor Bank Ltd [2001] 1 All SA 410 (A)
— 133
Beukes v Steyn (1874) 4 Buch 19
— 232
Bhayat Wholesalers CC & Bank of Lisbon International Ltd unreported WLD case no
31228/29
— 367
Bhima v Proes Street Properties (Pty) Ltd 1956 (1) SA 458 (T)
— 236, 237
Big Dutchman (South Africa) (Pty) Ltd v Barclays National Bank Ltd 1979 (3) SA 267
(W)
— 140, 142, 143, 144, 318, 321, 322
Bird v Summerville 1961 (3) SA 194 (A)
— 215
BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA 319
(A)
— 201, 226
Blake v Cassim and Another NNO 2008 (5) SA 393 (SCA)
— 224
Blake v Wickham & Hattingh 1952 (1) PH A14 (O)
— 212
Blakes Maphanga Inc v Outsurance Insurance Co Ltd 2010 (4) SA 232 (SCA)
— 233-238
Blesbok Eiendomsagentskap v Cantamessa 1991 (2) SA 712 (T)
— 214, 337
Bloems Timber Kilns (Pty) Ltd v Volkskas 1976 (4) SA 677 (A)
— 267
Blumberg v Atkinson 1974 (4) SA 551 (T)
— 229
Blumberg v Sauer 1944 CPD 74
— 200
Blundell McCawley 1948 (4) SA 473 (W)
— 204
Blundell v McCawley 1948 (4) SA 473 (W)
— 204
BOE Bank Ltd v Ries 2002 (2) SA 39 (SCA)
— 287, 385
Boland Bank Bpk v Steele 1994 (1) SA 259 (T)
— 200, 226
Bold v Cooper 1949 (1) SA 1195 (W)
— 200
Bonitas Medical Aid Fund v Volkskas Bank Ltd 1992 (2) SA 42 (W)
— 328, 347, 358
Bonne Fortune Beleggings Ltd v Kalahari Salt Works (Pty) Ltd 1974 (1) SA 414 (NC)
— 237
Born v Madolwana 1912 EDL 225
— 202
Bosveld Hotel (Pty) Ltd v Nissen 1979 (2) SA 746 (T)
— 202
Botha (now Griessel) v Finanscedit (Pty) Ltd 1989 (3) SA 773 (A)
— 125
Botha v Que Que Municipality 1973 (2) SA 754 (R)
— 225
Bousfield v The Divisional Council of Stutterheim (1902) 19 SC 64
— 211-212
Bouwer NO v Saambou Bank Bpk 1993 (4) SA 492 (T)
— 194, 195, 217
Bowditch v Peel and Magill 1921 AD 561
— 186, 187
Bowles v Redruth Motor Supplies (Pty) Ltd 1952 (3) SA 615 (W)
— 195, 225
Bowman, De Wet and Du Plessis NNO v Fidelity Bank Ltd 1997 (2) SA 35 (A)
— 196, 211
Page xx
Bpk v Johnson 1979 (4) SA 775 (C)
— 128, 145, 255, 328
Brachvogel v Boschrand Citrus Co Ltd 1923 WLD 222
— 227, 228
Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833
— 155
Braker & Co v Deiner 1934 TPD 203
— 124
Brandao v Barnett (1846) 12 Cl & Fin 787
— 157
Braun v Blann and Botha NNO 1984 (2) SA 850 (A)
— 114
Bredenkamp v Standard Bank of South Africa Ltd 2009 (5) SA 304 (GSJ)
— 163
Brenner v Hart 1913 TPD 607
— 257
Breytenbach v Van Wijk 1923 AD 541
— 222-225
Brider v Wills (1886) 4 SC 282
— 232
Brightside Mechanical and Engineering Services Group Ltd v Standard Chartered
Bank [1989] 3 MLJ 13)
— 456
Brink NO v The High Sheriff (1895) 12 SC 414
— 151, 219, 221, 222
Brink v Kitshoff NO 1996 (6) BCLR 752 (CC)
— 29
Brisley v Drotsky 2002 (4) SA 1 (SCA)
— 28
Broide v Margolius & Co 1918 CPD 560
— 244
Brown v Joubert 1918 TPD 297
— 270, 271
Brown v Moosa 1917 WLD 22
— 241
Brown v Westminster Bank Ltd 1964 2 Lloyd’s Rep 187
— 320
Buchenroder v The Orphan Chamber (1828) 1 Menz 308
— 233
Bulleid v Campbell (1904) 9 HCG 347
— 220
Burg Trailers SA (Pty) Ltd v Absa Bank Ltd 2004 (1) SA 284 (SCA)
— 151, 196, 262
Burkhardt & Co v Jacobsen’s Trustee (1909) 26 SC 293
— 234, 239
Burnett v Westminister Bank Ltd [1966] 1 QB 742
— 110, 118, 142
Burns v Forman 1953 (2) SA 226 (W)
— 143, 145
Burt v National Bank of SA Ltd 1921 AD 59
— 229
Bush v BJ Kruger Incorporated [2013] 2 All SA 148 (GSJ)
— 208
Buys v Roodt (nou Otto) 2000 (1) SA 535 (O)
— 200, 206
C
Cachalia v Harberer & Co 1905 TS 457
— 227, 228
Calico Printers Association Ltd v Barclays Bank (1930) 36 Com Cas 197 (CA)
— 400
Cambanis Buildings (Pty) Ltd v Gal 1983 (2) SA 128 (NC)
— 135, 140, 206, 211, 271
Cameron NO v Whittaker and Kenworthy 1944 WLD 137
— 231-235
Campbell v Ramlakan 1949 (3) SA 126 (D)
— 205
Capricorn Beach Home Owners Association v Potgieter t/a Nilands 2014 (1) SA 46
(SCA)
— 232-233
Cardoso v Tuckers Land and Development Corporation (Pty) Ltd 1981 (3) SA 54 (W)
— 204
Carpenters Company v British Mutual Banking Company Ltd [1938] 1 KB 511 (CA)
— 326
Carrim v Omar 2001 (4) SA 691 (W)
— 47, 116
Casey v Firstrand Bank [2013] ZASCA 131 (26 September 2013)
— 430
Casssim v Latha 1930 TPD 659
— 217
Catering Equipment Centre v Friesland Hotel 1967 (4) SA 336 (O)
— 34
Cauvin v Landsberg (1851) 1 Searle 86
— 233
Cecil Jacobs (Pty) Ltd v McLeod & Sons 1966 (4) SA 41 (N)
— 229
Celliers v Papenfus and Rooth 1904 TS 73
— 204
Central Africa Building Society v Pierce NO 1969 (1) SA 445 (RA)
— 222
Charles v Malherbe, Bosch & Co (Pty) Ltd 1949 (3) SA 381 (C)
— 186
Chief Lesapo v North West Agricultural Bank 2000 (1) SA 409 (CC)
— 29
Chief Lesapo v North West Agricultural Bank 2010 (4) SA 468 (SCA)
— 29
Christian & Co v Hall (1882) 2 EDC 203
— 243
CIR v Visser 1959 (1) SA 452 (A)
— 339
Clare & Co v Dresdner Bank [1915] 1 KB 576
— 110
Clark v London & Country Banking Co [1897] 1 QB 552
— 112
Clark v Van Rensburg 1964 (4) SA 153 (O)
— 233
Page xxi
Cloete v Smithfield Hotel (Pty) Ltd 1955 (2) SA 622 (O)
— 186
Clough Engineering Ltd (CAN 009 093 869) v Oil and Natural Gas Corporation Ltd
(249 ALR 458)
— 447
Cock v Cape of Good Hope Marine Assurance Company (1858) 3 Searle 114
— 203
Cocks v Masterman (1829) 9 B&C 902; 109 ER 335
— 342
Coetzer v Boekee 1956 (4) SA 245 (T)
— 235, 237
Coface South Africa Insurance Co Ltd v East London Own Haven t/a Own Haven
Housing Association 2014 (2) SA 382 (SCA)
— 423, 446, 451, 453, 454
Collet v Eva 1926 CPD 187
— 206, 207
Colonial Banking and Trust Co Ltd v Hill’s Trustee 1927 AD 488
— 126
Colonial Government v Bonner (1904) 21 SC 347
— 237
Colonial Government v Smith & Co (1901) 18 SC 380
— 214
Colonial Treasurer v Schoeman 1907 TS 273
— 235
Coloured Development Corporation Ltd v Shabodien 1981 (1) SA 868 (C)
— 205
Columbus Joint Venture v Absa Bank Ltd 2002 (1) SA 90 (SCA)
— 269
Commercial Banking Co of Sydney Ltd v Jalsard Pty Ltd [1973] AC 279 (PC)
— 415
Commercial Banking Co of Sydney Ltd v RH Brown & Co (1972) 126 CLR 337
— 182
Commissioner for Inland Revenue v Cactus Investments (Pty) Ltd 1999 (1) SA 264
(T)
— 205
Commissioner for Inland Revenue v Macneillie’s Estate 1961 (3) SA 833 (A)
— 114
Commissioner for Inland Revenue v Nedbank Ltd 1986 (3) SA 591 (A)
— 111
Commissioner of Customs and Excise v Bank of Lisbon International Ltd 1994 (1) SA
205 (N)
— 116, 117, 242, 367
Commissioner of Taxation v Australia & New Zealand Banking Group (1979) 143 CLR
499 (HCA)
— 175
Commissioner of Taxation v English, Scottish and Australian Bank Ltd 1920 AC 683
— 356
Commissioner, South African Revenue Service v Absa Bank Ltd 2003 (2) SA 96 (W)
— 121, 135, 138, 287, 385
Compaan v Dorbyl Structural Engineering (Pty) Ltd t/a Brownbuilt Metal Sections
1983 (4) SA 107 (T)
— 216
Compass Insurance Company Ltd v Hospitality Hotel Developments (Pty) Ltd 2012
(2) SA 537 (SCA)
— 456
Concrete Products Co (Pty) Ltd v Natal Leather Industries 1946 NPD 377
— 204
Connock’s (SA) Motor Co Ltd v Sentraal Westelike Ko-operatiewe Maatskappy Bpk
1964 (2) SA 47 (T)
— 321
Consol Ltd t/a Consol Glass v Twee Jongegezellen (Pty) Ltd 2002 (2) SA 580 (C)
— 238
Consolidated Agencies v Agjee 1948 (4) SA 179 (N)
— 241
Consolidated Fish Distributors (Pty) Ltd v Sargeant, Jones, Valentine & Co 1966 (4)
SA 427 (C)
— 236
Consolidated Frame Cotton Corporation Ltd v Sithole 1985 (2) SA 18 (N)
— 271
Contemporary Refrigeration (Pty) Ltd (In Liquidation) v Leites and Sonpoll
Investments (Pty) Ltd 1967 (2) SA 338 (D)
— 321
Cornelissen NO v Universal Caravan Sales (Pty) Ltd 1971 (3) SA 158 (A)
— 363
Corrans v Transvaal Government and Coull’s Trustee 1909 TS 605
— 211
Covaco (Pty) Ltd v Mohawk Industries (Pty) Ltd 1969 (1) SA 409 (D)
— 206
Crause v Ocean Betonite Co (Edms) Bpk 1979 (1) SA 1076 (O)
— 228
Credit Corporation of SA Ltd v Roy 1966 (1) SA 12 (D)
— 204
Creutzburg v Commercial Bank of Namibia Ltd [2006] 4 All SA 327 (SCA)
— 220, 221
Croghan’s Executrix v Whitby and Webber 1904 TH 101
— 219
Cronje v Cronje 1968 (1) SA 134 (O)
— 236
Crook v Petersen Ltd 1927 WLD 62
— 33
Crouch v Credit Foncier of England 1873 LR 8 QB 374
— 33
Cunliffe Brooks & Co v The Blackburn and District Benefit Society (1884) 9 AC 857
— 128, 129
Curtice v London City and Midland Bank Limited [1908] 1 KB 293 (CA)
— 130
Cywilnat (Pty) Ltd v Densam (Pty) Ltd 1989 (3) SA 59 (W)
— 135, 138
Page xxii
D
D’Ambrosi v Bane 2006 (5) SA 121 (C)
— 201
Dadoo & Sons Ltd v Administrator, Transvaal 1954 (2) SA 442 (T)
— 209, 258
Dantex Investment Holdings (Pty) Ltd v National Explosives (Pty) Ltd (In
Liquidation) 1990 (1) SA 736 (A)
— 117, 397
David Trust v Aegis Insurance Co Ltd 2000 (3) SA 289 (SCA)
— 16, 19
Davidowitz v Van Drimmelen 1913 TPD 672
— 124
Davis v Pretorius (1909 TS 868)
— 203
Davis’ Trustee v Standard Bank (1885-1887) 5 EDC 48
— 165
De Beer v Keyser 2002 (1) SA 827 (SCA)
— 19, 69
De Beer v Kotzé 1913 CPD 252
— 233
De Bruyn v Peypers 1955 (1) SA 483 (GW)
— 204
De Hart NO v Kleyhans 1970 (4) SA 383 (O)
— 164
De Villiers and Another NNO v BOE Bank Ltd 2004 (3) SA 1 (SCA)
— 216
De Villiers v Commallie (1846) 3 Menz 544
— 232
De Villiers v Kaplan 1960 (4) SA 476 (C)
— 114, 164
Delfs v Kuehne & Nagel (Pty) Ltd 1990 (1) SA 822 (A)
— 415
Dennis Peters Investments (Pty) Ltd v Ollerenshaw 1977 (1) SA 197 (W)
— 227, 228
Densam (Pty) Ltd v Cywilnat (Pty) Ltd 1991 (1) SA 100 (A)
— 135, 136
Derry v Harris 1917 CPD 463
— 226
Deutschsued-westafrikanische Wollzuechterei Gesellschaft mbH v Weiss 1942 SWA
54
— 237
Devaynes v Noble, Clayton’s case (1816) 1 Meriv 535 [35 ER 767]
— 41
Di Guilio v First National Bank of South Africa 2002 (6) SA 281 (C)
— 115, 116, 119, 129
Diner’s Club SA (Pty) Ltd v Singh 2004 (3) SA 630 (D)
— 125
Discounting and Shipping Co (Pty) Ltd v Franskraalstrand (Pty) Ltd 1962 (2) SA 559
(W)
— 128, 130
Divine Gates & Co v African Clothing Factory 1930 CPD 238
— 232, 233
Dormell Properties 282 CC v Renasa Insurance Co Ltd and Others NNO 2011 (1) SA
70 (SCA)
— 203
Douglass v Dersley 1917 EDL 221
— 241
Du Toit v De Beer 1955 (1) SA 469 (T)
— 237
Duba v Ketsikili 1924 EDL 332
— 153
Dulce Vita v Chris van Coller [2013] 2 All SA 646 (SCA)
— 125
Dulce Vita v Van Coller (SCA) unreported case no 2012/192 (22 March 2013)
— 69
Duncker v Paddon and Brock Ltd 1903 TH 166
— 244
Durban City Council v Glenore Supermarket and Café 1981 (1) SA 470 (D)
— 219
Durr v Absa Bank 1997 (3) SA 448 (A)
— 111, 133, 134, 183
Dutch Reformed Church Council v Crocker 1953 (4) SA 53 (C)
— 186
Duvenhage v Eerste Nasionale Bank van SA Bpk 2005 (4) All SA 41 (N)
— 139
E
Earlie Homes Estates v Miller 1977 (4) SA 288 (C)
— 215
Eaton Robins & Co v Nel (2) (1909) 26 SC 624
— 220, 221
Ebersohn v Claassen 1963 (1) SA 467 (T)
— 270
Ebrahim (Pty) Ltd v Mahomed 1962 (1) SA 90 (N)
— 220-222
Ebrahim NO v Hendricks 1975 (2) SA 78 (C)
— 204
Echodelta Ltd v Kerr and Downey Safaris (Pvt) Ltd 2004 (1) SA 508 (ZH)
— 199
Edelstein v Edelstein 1952 (3) SA 1 (A)
— 123
Eden v Pienaar 2001 (1) SA 158 (W)
— 199, 201
Edward & John Burke Ltd v Standard Bank of South Africa Ltd 1905 TH 123
— 320, 323
Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159 (CA)
— 438, 446, 451
Ehrig & Wyer v Transatlantic Fire Insurance Co 1905 TS 557
— 114
Reid v Carnofsky’s Trustee 1910 EDL 166
— 200, 218, 226
Page xxiii
Eksteen v Kruger 1962 (3) SA 133 (A)
— 212
Electra Home Appliances (Pty) Ltd v Five Star Transport (Pty) Ltd 1972 (3) SA 583
(W)
— 244
Elgin Brown and Hamer (Pty) Ltd v Dampskibsselskabet Torm Ltd 1988 (4) SA 671
(N)
— 199
Energy Measurements (Pty) Ltd v First National Bank of South Africa 2001 (3) SA
132 (W)
— 120
Energy Measurements and Columbus Joint Venture v Absa Bank Ltd 2000 (2) SA
490 (W)
— 360
English, Scottish & Australia Bank Ltd v Bank of South Africa [1922] 13 Ll L Rep 21
— 415
Equitable Trust and Insurance Co v Registrar of Banks 1957 (2) SA 167 (T)
— 17
Equitable Trust Company of New York v Dawson Partners Ltd [1926] 27 Ll L Rep 49
(HL)
— 416
Erasmus v Brooks (1899) 6 Off Rep 154
— 243
Erasmus v Inch 1997 (4) SA 584 (W)
— 182
Eriksen Motors (Welkom) Ltd v Protea Motors 1973 (3) SA 685 (A)
— 257, 278
Erwee v Naude 1915 OPD 85
— 206
Esal (Commodities) Ltd v Oriental Credit Ltd [1985] 2 Lloyd’s Rep 546
— 456
Eskom Holdings Soc Ltd v Hitachi Power Africa (Pty) Ltd [2013] ZASCA 101 (12
September 2013)
— 446, 448, 451
Eskom v First National Bank of Southern Africa Ltd 1995 (2) SA 386 (A)
— 264, 266
Ess Kay Electronics Pte Ltd v First National Bank of Southern Africa Ltd 1998 (4) SA
1102 (W)
— 111, 321
Estate Erasmus v Church 1927 TPD 20
— 227, 228
Estate Ismail v Barclays Bank (DC & O) 1957 (4) SA 17 (T)
— 116, 127, 128, 140
Estate JC Stephan v Estate HR Stephan (1908) 25 SC 104
— 232
Estate Kootcher Appellant v Commissioner for Inland Revenue Respondent 1941 AD
256
— 110
Estate Lowry v Saporiti (1909) 30 NLR 35
— 256
Estate Silbert & Co v De Jager 1933 CPD 88
— 240
Estate Thomas v Kerr (1903) 20 SC 354
— 211, 212
Esterhuyse v Selection Cartage (Pty) Ltd 1965 (1) SA 360 (W)
— 198, 199, 200, 215
Evans v Richmond 1905 TS 279
— 129
Evrard v Ross 1977 (2) SA 311 (D)
— 204
Ex parte Minister of Justice 1978 (2) SA 572 (A)
— 200, 204
Executors of Jacob Watermeyer v Executor of EB Watermeyer (1870) 3 Buch
— 218-220
Executors of Schonnberg v Executors of Vos (1880) 1 SC 325
— 243
Eyre v Higgins 1949 (4) SA 803 (C)
— 205
F
Faatz v Estate Maiwald 1933 SWA 73
— 231
Fatti’s Engineering Co (Pty) Ltd v Vendick Spares (Pty) Ltd 1962 (1) SA 736 (T)
— 235, 236
Federal Tobacco Works v Barron & Company 1904 TS 483
— 204
Fedgen Insurance Ltd v Bankorp Ltd 1994 (2) SA 399 (W)
— 269, 356
Feinstein v Niggli 1981 (2) SA 684 (A)
— 186
Fensham v Jacobson 1951 (2) SA 136 (T)
— 235
Ferguson & Timpson Ltd v African Industrial & Technical Services (Pty) Ltd 1949 (4)
SA 340 (W)
— 239
Ferreira v Zeiler (1884) 1 SAR 189
— 233
Fichardt Ltd v Weber 1911 OPD 17
— 241
Field & Co v Marks & Co (1897) 12 EDC
— 215
First National Bank of SA Ltd v B & H Engineering 1993 (2) SA 41 (T)
— 200, 212, 213, 256, 257, 339, 343
First National Bank of SA Ltd v Quality Tyres (1970) (Pty) Ltd 1995 (3) SA 556 (A)
— 254, 268, 345, 346, 363
First National Bank of SA Ltd v Rosenblum 2001 (4) SA 189 (A)
— 111
First National Bank of South Africa Ltd v Budree 1996 (1) SA 971 (N)
— 130
First National Bank of South Africa Ltd v Perry NO [2001] 3 All SA 331 (A)
— 344
First National Bank of Southern Africa Ltd v East Coast Design CC 2000 (4) SA 137
(D)
— 344
First National Bank of Southern Africa Ltd v Perry NO 2001 (3) SA 960 (SCA)
— 151, 242, 380
Page xxiv
First National Bank of Southern Africa Ltd v Richards Bay Taxi Centre (Pty) Ltd
[1999] 2 All SA 533 (N)
— 131
FirstRand Bank Ltd v Brera Investments CC 2013 (5) SA 556 (SCA)
— 446, 451, 454
FirstRand Bank Ltd v Chaucer Publications (Pty) Ltd [2008] 2 All SA 544 (C)
— 135, 138
Flach v The London and South Western Bank Ltd (1915) 31 TLR 334
— 130
Flaks v Sarne 1959 (1) SA 222 (T)
— 186
Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd 1998 3 VR 812)
— 447
Fluxman v Brittain 1941 AD 273
— 204, 221
Foley v Hill (1848) 2 HL Cas 28
— 115
Fonds Adviseurs Bpk v Trust Bank van Afrika Bpk 1974 (4) SA 883 (A)
— 254, 348
Ford Agencies v Hechler 1928 TPD 638
— 241
Ford Bros v Clayton 1906 TS 201
— 237
Forfif (Pty) Ltd v Macbain 1984 (3) SA 611 (W)
— 201
Fourie v Sweigers 1950 (1) SA 369 (C)
— 240
Fox v Muller 1930 OPD 180
— 126
Frank Maas (UK) Ltd v Habib Bank AG Zurich [2001] Lloyd’s Rep (Banking) 14
— 456
Frankel Pollak Vinderine Inc v Stanton NO [1996] 2 All SA 582 (W)
— 162
Fraustaeder v Sauer (1892) 9 SC 512
— 241
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 1 All ER 630
(AC)
— 322
Freeman v Standard Bank of South Africa 1905 TH 26
— 127
Fried v National Australia Bank Ltd [2001] FCA 907
— 143
Froman v Robertson 1971 (1) SA 115 (A)
— 114, 200, 212, 342
Fuller’s Trustee v Standard Bank of SA Ltd 1922 NLR 478
— 156
G
Ganie v Ismail 1957 (2) SA 132 (C)
— 125
Ganie v Parekh 1962 (4) SA 618 (N)
— 319
Garnett v McKewan (1872) LR 8 Ex 10
— 152
Gazit Properties v Botha and Others NNO 2012 (2) SA 306 (SCA)
— 20, 125
Gian Singh & Co Ltd v Banque de l’Indochine
— 415
Gilbey Distillers & Vintners (Pty) Ltd v Absa Bank Ltd (C) unreported case no
12698/94 (4 December 1998)
— 275, 285-288
Gilbey Distillers and Vintners (Pty) Ltd v Absa Bank Limited 2001 JDR 0411 (C)
— 117
Gishen v Nedbank Ltd 1984 (2) SA 378 (W)
— 265, 266, 328
GKN Contractors Ltd v Lloyd’s Bank plc [1985] Building Law Reports 48 (CA)
— 450
Glaum NO v The Master 1980 (2) SA 600 (C)
— 166, 200
Glofinco v Absa Bank Ltd (t/a United Bank) 2001 (2) SA 1048 (W)
— 321
Golden Cape Fruits (Pty) Ltd v Fotoplate (Pty) Ltd. 1973 (2) SA 642 (C)
— 33
Goldfields Confectionery and Bakery (Pty) Ltd v Norman Adam (Pty) Ltd 1950 (2) SA
763 (T)
— 208, 209, 258
Gollach & Gomperts (1967) (Pty) Ltd v Universal Mills and Produce Co (Pty) Ltd
1978 (1) SA 914 (A)
— 227
Goodricke & Sons v Auto Protection Insurance Co Ltd (In Liquidation) 1968 (1) SA
717 (A)
— 164
Gordon v Capital and Counties Bank [1903] AC 240
— 349
Gordon v Haefele 1914 CPD 909
— 235, 238
Gordon v Tarnow 1947 (3) SA 525 (A)
— 256
Gouws v Jester Pools (Pty) Ltd 1968 (3) SA 563 (T)
— 213
Govender v Standard Bank of South Africa Ltd 1984 (4) SA 392 (C)
— 323
Government v Fisher’s Executrix 1921 TPD 328
— 207
Gramowsky v Steyn 1922 SWA 48
— 237
Great Karoo Eco Investments (Edms) Bpk h/a Grobbelaarskraal Boerdery v Absa
Bank Bpk 2003 (1) SA 222 (W)
— 134, 357, 365
Great North Farms (Edms) Bpk v Ras 1972 (4) SA 7 (T)
— 238
Page xxv
Greathead v Greathead 1946 TPD 404
— 240
Greeff v Myers 1948 (3) SA 943 (E)
— 270
Greenberg v Waschke 1911 WLD 1
— 222
Greenfield Engineering Works (Pty) Ltd v NKR Construction (Pty) Ltd 1978 (4) SA
901 (N)
— 208-210, 257
Greenwood v Martins Bank Ltd [1932] 1 KB 371 (CA)
— 144, 320, 336
Greenwood v Sutcliffe 1892 1 Ch 1
— 226
Grewar and Hanekom (Pty) Ltd v Roux 1959 (2) SA 182 (C)
— 256-257
Griffiths v Dalton [1940] 2 KB 264
— 128
Grocott & Sherry v African Banking Corporation Ltd (1904) 18 EDC 267
— 323
Grosvenor Motors (Potchefstroom) Ltd v Douglas 1956 (3) SA 420 (A)
— 278
Group Five Construction (Pty) Ltd v MEC for Public Transport, Roads and Works
Gauteng [2015] 2 All SA 716 (GJ)
— 451, 452, 456
Group Josi Re v Walbrook Insurance Co Ltd [1996] 1 Lloyd’s Rep 345
— 430
GS George Consultants and Investments (Pty) Ltd v Datasys (Pty) Ltd 1988 (3) SA
726 (W)
— 115, 135, 136
Guardrisk Insurance Company Ltd v Kentz (Pty) Ltd [2014] 1 All SA 307 (SCA)
— 454
H
Haine v De Nederlandsche Bank voor Zuid-Afrika 1924 WLD 139
— 130
Halesowen Presswork and Assemblies Ltd v Westminster Bank Ltd [1971] 1 QB 1
— 152, 157
Hallmark Motor Group (Pty) Ltd v Phillip Motors CC [1997] 4 All SA 707 (W)
— 257
Hamilton v Van Zyl 1983 (4) SA 379 (E)
— 228
Hampson v Mulcahy (1884) 3 HCG 76
— 243
Hanekom v Amod 1950 (4) SA 412 (C)
— 241
Hanley v Absa Bank Limited [2012] 4 All SA 318 (GNP)
— 112, 133
Hanomag SA (Pty) Ltd v Otto 1949 CPD 437
— 228
Harbottle v National Westminster Bank Ltd [1978] QB 146
— 429
Harding v Standard Bank of South Africa Ltd 2004 (6) SA 464 (C)
— 116, 127-129
Hardy NO & Mostert v Harsant 1913 TPD 433
— 235, 236
Harman’s Estate v Bartholomew 1955 (2) SA 302 (N)
— 213, 217
Harris v Pieters 1920 AD 644
— 229-230
Harris v Tancred NO 1960 (1) SA 839 (C)
— 238, 239
Harrismith Board of Executors v Odendaal 1923 AD 530
— 194, 195, 214
Hart (Inspector of Taxes) v Sangster [1957] 2 All ER 208
— 116
Hauptfleisch v Viviers 1977 (3) SA 1018 (T)
— 200, 205
Hawker v Life Offices Association of South Africa 1987 (3) SA 777 (C)
— 130
Hayter’s Radio Exchange v Hidge 1949 (1) SA 18 (E)
— 204
Hazis v Transvaal and Delagoa Bay Investment Co Ltd 1938 WLD 167
— 212
Headleigh Private Hospital (Pty) Ltd t/a Rand Clinic v Soller & Manning Attorneys
2001 (4) SA 360 (W)
— 233
Hedley Byrne & Co Ltd v Heller & Partners Ltd 1963 (2) All ER 575 (HL)
— 182
Helderberg Laboratories CC v Sola Technologies (Pty) Ltd 2008 (2) SA 627 (C)
— 226
Hendriks NO v Swanepoel 1962 (4) SA 338 (A)
— 83, 156
Herrigel NO v Bon Roads Construction (Pty) Ltd 1980 (4) SA 669 (SWA)
— 240, 241
Hesse and Ritter v Louw 1930 SWA 92
— 237
Heydenrych v Woolven (1897) 14 SC 376
— 232
Hills v Taxing Master 1975 (1) SA 856 (D) 864
— 142
Hilton v Westminster Bank Ltd (1926) 135 LT 358
— 133
Hing Hip Hing Fat Co Ltd v Daiwa Bank Ltd [1991] 2 HKLR 35
— 416
Hipkin v Nigel Engineering Works (Pty) Ltd 1941 TPD 155
— 237
HK Outfitters (Pty) Ltd v Legal & General Assurance Society Ltd 1975 (1) SA 55 (T)
— 209, 258
HL Bolton (Engineering) Co Ltd v Graham & Sons Ltd [1957] 1 QB 159
— 112
Hoffman v Moni’s Wineries Ltd 1948 (2) SA 163 (C)
— 186
Page xxvi
Hofmeyer NO v Brunofarms (Pty) Ltd 1955 (2) PH A42 (C)
— 225
Hofmeyer v Kruger and Verster (1883) 2 HCG 8
— 235, 237
Hofmeyr and Marquard v Goldberg 1963 (2) SA 313 (C)
— 256
Holiday v Hulett (1880-1881) 2 NLR 43
— 257
Hollandia Reinsurance Co Ltd v Nedcor Bank Ltd 1993 (3) SA 574 (W)
— 331
Holmes v North Western Motors (Upington) (Pty) Ltd 1968 (4) SA 198 (C)
— 202-203
Holscher v Absa Bank 1994 (2) SA 667 (T)
— 346
Holtzhausen v Gore 2002 (2) SA 141 (C)
— 225
Holtzhausen v Gore NO 2002 (2) SA 141 (C)
— 225
Holzman v Standard Bank Ltd 1985 (1) SA 360 (W)
— 318
Hurwitz’s Trustees v Magdeburg Fire Insurance Company 1917 TPD 443
— 241
I
IE Contractors Ltd v Lloyd’s Bank Plc [1990] 2 Lloyd’s Rep 496
— 456-457
Impala Plastics (Pty) Ltd v Coetzer 1984 (2) SA 392 (W)
— 255
Impey v Levyno (1880-1881) 1 EDC 284
— 269
Importers Company Ltd v Westminister Bank Ltd [1927] 2 KB 297
— 112
Indac Electronics (Pty) Ltd v Volkskas Bank Ltd 1992 (1) SA 783 (A)
— 145, 162, 350, 351
Info Plus v Scheelke 1998 (3) SA 184 (SCA)
— 212
Insolvent Estate of Wilhelm v Shepstone (1878) 1 NLR 1
— 218
Inspection Co of SA (Pty) Ltd v Hall Longmore & Co (Pty) Ltd 1995 (2) SA 795 (A)
— 226, 241
Insurance Trust and Investments (Pty) Ltd v Mudaliyar 1943 NPD 45
— 321, 322
Inter Industria Bpk v Nedbank Bpk 1989 (3) SA 33 (NC)
— 239
Intercontinental Finance and Leasing Corporation (Pty) Ltd v Stands Fifty Six and
Fifty Seven Industrial Ltd 1979 (3) SA 740 (W)
— 121
Intraco Ltd v Notis Shipping Corporation (The ‘Bhoja Trader’) [1981] 2 Lloyd’s Rep
256 (CA)
— 403, 438, 446
Investec Bank (Pty) Ltd v GVN Properties CC 1999 (3) SA 490 (W)
— 124
IPF Nominees (Pty) Ltd v Nedcor Bank Ltd (Basfour 130 (Pty) Ltd, Third Party 2002)
(5) SA 101 (W)
— 357
Italtile Products (Pty) Ltd v Touch of Class 1982 (1) SA 288 (O)
— 196, 219, 221, 243
J
J L Cohen Motors SWA (Pty) Ltd v Alberts 1985 (2) SA 427 (SWA)
— 200
Jackson v Royal Bank of Scotland [2005] 1 Lloyd’s Rep 366 (HL)
— 432
Jadine Engineering (Pty) Ltd v Tool Storing Systems (Pty) Ltd (1993) 2 Commercial
Law Digest (W)
— 252
Janowsky v Payne 1989 (2) SA 562 (C)
— 237
Jasat & Jasat v Deedat 2005 (3) SA 402 (N)
— 142
Jefferson, Executor of Stewart v De Morgan (1882) 2 EDC 205
— 218-220
JH Rayner & Co Ltd and Oilseeds Trading Co Ltd v Hambros Bank Ltd [1942] 2 All ER
694
— 417, 422
Joachimson v Swiss Banking Corporation [1921] 3 KB 110 (CA)
— 110, 118, 128, 142
Joffe v African Life Assurance Society Ltd 1933 TPD 189
— 199
Johaadien v Stanley Porter (Paarl) (Pty) Ltd 1970 (1) SA 394 (A)
— 321
Johannesburg City Council v Norven Investments (Pty) Ltd 1993 (1) SA 627 (A)
— 204
John Bell & Co Ltd v Esselen 1954 (1) SA 147 (A)
— 339, 340
Joint Municipal Pension Fund (Transvaal) v Pretoria Municipal Pension Fund 1969 (2)
SA 78 (T)
— 231, 232
Joint Stock Co Varvarinskoye v Absa Bank 2008 (4) SA 287 (SCA)
— 115, 116, 117, 154
Jonathan v Haggie Rand Wire Ltd 1978 (2) SA 34 (N)
— 228
Jonker v Boland Bank PKS Bpk 2000 (1) SA 542 (O)
— 129
Joosab v Ensor NO 1966 (1) SA 319 (A)
— 83, 156
Page xxvii
Jordaan v Vermeulen 1959 (4) SA 230 (C)
— 271
Joubert v Enslin 1910 AD 6
— 202, 203
JR & M Moffett (Pty) Ltd v Kolbe Eiendoms Beleggings (Edms) Bpk 1974 (2) SA 426
(O)
— 233
JR 209 Investments (Pty) Ltd v Pine Villa Estate (Pty) Ltd 2009 (4) SA 302 (SCA)
— 216
K
Kalk v Barclays National Bank Ltd 1983 (3) SA 619 (A)
— 212
Kaplan v Schulman 1933 CPD 544
— 257
Karabus Motors (1959) Ltd v Van Eck 1962 (1) SA 451 (C)
— 187
Karaganda Ltd v Midland Bank plc [1998] Lloyd’s Rep (Banking) 173 (QBD Com Ct)
— 415
Karson v Minister of Public Works 1996 (1) SA 887 (E)
— 227, 230
Karstein v Moribe 1982 (2) SA 282 (T)
— 232
Kearny NO v Standard Bank of South Africa Ltd 1961 (2) SA 647 (T)
— 264
Kei Brick & Tile Co (Pty) Ltd v AM Construction 1996 (1) SA 150 (E)
— 230
Kelly v Solari (1841) 9 M & W 54 (152 ER 24)
— 340
Kennedy v Steenkamp 1936 CPD 113
— 125
King v Cohen Benjamin & Co 1953 (4) SA 641 (W)
— 339
Kircos v Standard Bank of South Africa Ltd 1958 (4) SA (SR)
— 317
Kirsten v Bankorp Ltd 1993 (4) SA 649 (C)
— 213
Kitchen v HSBC Bank plc [2000] 1 All ER (Comm) 787
— 36
Klopper v Volkas Bpk 1963 (1) SA 930 (T)
— 114
Klug and Klug v Penkin 1932 CPD 401
— 212
Knoll v SA Flooring Industries Ltd 1951 (1) SA 404 (T)
— 213
Kommissaris van Binnelandse Inkomste v Willers 1994 (3) SA 283 (A)
— 338
Kopman v Benjamin 1951 (1) SA 882 (W)
— 216
Koumantarakis Group CC v Mystic River Investment 45 (Pty) Ltd 2008 (5) SA 159
(SCA)
— 224
Kraamer v M and A Ferreira 1917 EDL 29
— 228
Kruger v Coetzee 1966 (2) SA 428 (A)
— 355
Kruger v Resnik 1955 (1) SA 287 (T)
— 235
Kruger v Van Vuuren’s Executrix (1887) 5 SC 162
— 236
Kuhne & Nagel AG Zurich v APA Distributors (Pty) Ltd 1981 (3) SA 536 (W)
— 195
Kuhne v African Banking Corporation 1910 EDL 443
— 157
Kunneke v Eerste Nasionale Bank van Suidelike Afrika Bpk 1997 (3) SA 300 (T)
— 129
KwaMashu Bakery Ltd v Standard Bank of South Africa Ltd 1995 (1) SA 377 (D)
— 259
Kwikspace Modular Buildings Ltd v Sabodala Mining Company SARL [2010] 3 All SA
467 (SCA)
— 447
L
Ladbroke v Todd (1914) 30 TLR 433
— 112
Lamb v Walters 1926 AD 358
— 186
Land and Agricultural Bank of SWA v Howaldt and Vollmer 1925 SWA 34
— 220
Land and Agricultural Development Bank of SA v Parker [2004] 4 All SA 261 (SCA)
— 114
Land Values Ltd v Highlands North Investment etc Co (Pty) Ltd 1931 WLD 174
— 202
Landers v Vogel (1906) 27 NLR 458
— 211
Lange v Lange 1945 AD 33
— 123
Lansdell v Sam 1912 CPD 335
— 234
Lawley v Van Dyk (1888) 2 SAR 246
— 203
Lawson v Stevens 1906 TS 481
— 231
Le Roux v Yskor Landgoed (Edms) Bpk 1984 (4) SA 252 (T)
— 200
Leach v Buchanan (1802) 4 Esp 226 (170 ER 700)
— 320
Leal and Co v Williams 1906 TS 554
— 324
Lee v Maraisdrif (Edms) Bpk 1976 (2) SA 536 (A)
— 164
Leeuw v First National Bank Ltd 2010 (3) SA 410 (SCA)
— 345
Page xxviii
Leites v Contemporary Refrigeration (Pty) Ltd & Sonpoll Investments (Pty) Ltd 1968
(1) SA 58 (A)
— 320
Lennards Carrying Company Limited v Asiatic Petroleum Co Ltd 1915 AC 705
— 111
Lester Investments (Pty) Ltd v Narshi 1951 (2) SA 464 (C)
— 236
Levin and Kagan v Berson 1938 WLD 107
— 237
Levy v Central Mining Corp Ltd 1955 (1) SA 141 (A)
— 112
Lewis & Sacks v Meyer 1904 TS 898
— 236
Leymac Distributors Ltd v Hoosen 1974 (4) SA 524 (D)
— 236
Liebenberg v Absa Bank Ltd t/a Volkskas Bank [1998] 1 All SA 303 (C)
— 38
Liebenberg v Loubser 1938 TPD 414
— 226
Life Assurance Co Ltd v NBS Bank Ltd 2001 (1) SA 432 (W)
— 134
Ligget (Liverpool) Ltd v Barclays Bank Ltd [1928] 1 KB 48
— 318
Lilienfeld & Co v Bourke 1921 TPD
— 226
Linton v Corser 1952 (3) SA 685 (A)
— 224
Liquidators of the Cape of Good Hope Bank v Forde and Co (1890) 8 SC 30
— 233
Liquidators of the Union Bank v Beit (1892) 9 SC 109
— 320
Lloyd-Gray Lithographers (Pty) Ltd v Nedcor Bank Ltd t/a
— 365
Lloyds Bank Limited v EB Savory and Company 1933 AC 201 (HL)
— 356
Loan, Trust and Agency Co v Victor (1869) 2 Buch 58
— 215
Lock v Keers 1945 TPD 113
— 233
Lodhi 5 Properties Investments CC v FirstRand Bank Ltd unreported case no
170/2014 of 22 May 2015 (SCA)
— 46
Lombard Insurance Company Ltd v Landmark Holdings (Pty) Ltd 2010 (2) SA 86
(SCA)
— 424
London and South African Bank v The Official Liquidator of the Natal Investment Co
1871 NLR 1
— 235
London Joint Stock Bank Ltd v Macmillan and Arthur [1918] AC 777 (HL)
— 128, 129, 142, 143
London Provincial and South Western Bank Limited v Buszard [1918] 35 TLR 142)
— 110
Longman Distillers Ltd v Drop Inn Group 1990 (2) SA 906 (A)
— 426
Loomcraft Fabrics CC v Nedbank Ltd and Another 1996 (1) SA 812 (A)
— 415, 424
Lotzof v Lotzof 1915 AD 127
— 322
Louw NO v Coetzee 2003 (3) SA 329 (SCA)
— 114
Louw v Granowsky 1960 (2) SA 637 (SWA)
— 230
Louw v WP (Koöperatief) Bpk 1998 (2) SA 418 (SCA)
— 213
Luttig v Luttig 1994 (1) SA 523 (O)
— 240
Lynch v Stewart 1913 CPD 451
— 244
M
Machen’s Trustee v Henrey (1884) 4 EDC 22
— 232
Machinery Exchange (Pvt) Ltd v Logamundi Agricultural Engineers (Pvt) Ltd 1967 (3)
SA 202 (R)
— 200
Mackay v Naylor 1917 TPD 533
— 204
Macrae v National Bank of SA Ltd 1927 AD 62
— 218
Magill, Grant & Nell (Pty) Ltd v Administrator, Natal 1968 (4) SA 44 (D)
— 241
Mahomed v Ebraheim 1911 CPD 29
— 239
Mahomed v Lockat Bros & Co Ltd 1944 AD 230
— 217
Mahomed v Nagdee 1952 (1) SA 410 (A)
— 234, 238
Mahomed v Yssel 1963 (1) SA 866 (D)
— 235
Mahonia Ltd v JP Morgan Chase Bank [2003] 2 Lloyd’s Rep 911 (QB)
— 443
Makwindi Oil Procurement (Pvt) Ltd v National Oil Co of Zimbabwe (Pvt) Ltd 1989
(3) SA 191 (ZS)
— 199
Malangu v De Jager 1996 (3) SA 235 (LCC)
— 195
Malelane Suikerkorporasie (Edms) Bpk v Streak 1970 (4) SA 478 (T)
— 216
Maltz v Meyerthal 1920 TPD 338
— 207
Managers, Oudtshoorn Public School v Keating 3 CTR 111 251
— 226
Page xxix
Mangold Brothers v De Klerk (1905) 19 EDC
— 215
Mannesman Demag (Pty) Ltd v Romatex Ltd 1988 (4) SA 383 (D)
— 258
Manuel’s Trustee v Norden (1845) 3 Menz 526
— 237
Manx Electricity Authority v JP Morgan Chase Bank [2003] EWCA Civ 1324 (CA)
— 456
Maradive & Oil Services (SAE) v CAN Insurance Co (Europe) Ltd [2002] EWCA Civ
369
— 456
Marais v Edlman 1934 CPD 212
— 186
Marfani & Co Ltd v Midland Bank Ltd [1968] 1 WLR 956 (CA)
— 347
Maritime Motors (Pty) Ltd v Von Steiger 2001 (2) SA 584 (SEC)
— 213
Markides v Ashe and Ashby 1932 SR 8
— 228
Maserowitz v Little 1911 TPD 1061
— 225
Master of the Supreme Court v Roth 1905 TS 582
— 240
Matador Buildings (Pty) Ltd v Harman 1971 (2) SA 21 (C)
— 196
Maxwell v Table Bay Harbour (1900) 17 SC 558
— 237
McCabe v Burisch 1930 TPD 261
— 204
McCann v Goodall Group Operations (Pty) Ltd 1995 (2) SA 718 (C)
— 186
McCarthy Ltd v Absa Bank Ltd 2003 (1) SA 222 (W)
— 357
McCarthy Ltd v Absa Bank Ltd 2009 (2) SA 398 (W)
— 127, 130
McCarthy Ltd v Absa Bank Ltd 2010 (2) SA 321 (SCA)
— 127, 131, 133
McEwen NO v Hansa 1968 (1) SA 465 (A)
— 164, 165
McIntyre v The Robinson South African Banking Company (1903) 17 EDC 111
— 147
McKenzie v British Linen Co (1881) 6 App Cas 82 (HL)
— 320
Mdletshe v Litye 1994 (3) SA 874 (E)
— 164
Mead v Young 100 ER 876
— 323
Meaker v Roup, Wacks, Kaminer & Kriger 1987 (2) SA 54 (C)
— 233
Meikle and Co Ltd v Van Eyssen 1950 (2) SA 405 (T)
— 200
Mensky v Absa Bank Limited t/a Trust Bank [1997] 4 All SA 280 (W)
— 39, 174, 175, 177
Mercahnd v Butler’s Furniture Factory 1963 (1) SA 885 (N)
— 244
Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC
500 (PC)
— 111
Meyer v Mosenthal Bros Ltd 1925 TPD 281
— 124
Midland Bank Ltd v Seymour [1955] 2 Lloyd’s Rep 147
— 415
Miller v Muller 1965 (4) SA 458 (C)
— 233
Milner v Webster 1938 TPD 598
— 257
Miloc Financial Solutions (Pty) Ltd v Logistic Technologies (Pty) Ltd 2008 (4) SA 325
(SCA)
— 220
Minister of Agriculture and Land Affairs v De Klerk 2014 (1) SA 212 (SCA)
— 215
Minister of Posts & Telegraphs v Daddy Bros and Johnstone (Pty) Ltd 1965 (3) SA
394 (E)
— 171
Minister of Transport and Public Works, Western Cape v Zanbuild Construction (Pty)
Ltd 2011 (5) SA 528 (SCA)
— 439, 440, 449
Mitchell Cotts & Co v Commissioner of Railways 1905 TS 349
— 212
Mkhatswa v Minister of Defence 2000 (1) SA 1004 (SCA)
— 355
Momm v Barclays Bank International Ltd [1977] QB 790
— 286
Montani Lounge (Pty) Ltd v Standard Bank of SA Ltd 1995 (2) SA 498 (W)
— 400
Montrod Ltd v Grundkötter Fleischvertriebs GmbH [2002] 3 All ER 697 (CA)
— 452
Moolje NO v Rodrigues 1971 (3) SA 912 (R)
— 257
Moolman v Erasmus 1910 CPD 79
— 122
Moosa v Robert Shaw & Co Ltd 1948 (4) SA 914 (T)
— 200
Moralice (London) Ltd v ED&FMan [1954] 2 Ll L Rep 526
— 418
Mosenthal Bros v Coghlan and Coghlan (1888) 5 HCG 87
— 239
Moss & Page Trading Co (Pty) Ltd v Spancraft Furniture Manufacturers & Shopfitters
(Pty) Ltd 1972 (1) SA 211 (D)
— 256
Moti and Co v Cassim’s Trustee 1924 AD 720
— 195
Motor Fuels Corporation (In Liquidation) v Linder Brothers 1927 NPD 279
— 231
Muller Bros v Kemp (1858) 3 Searle 142
— 233
Muller NO v Community Medical Aid Scheme 2012 (2) SA 286 (SCA)
— 117, 127
Muller v Botswana Development Corporation Ltd 2003 (1) SA 651 (SCA)
— 233
Page xxx
Muller v Mulbarton Gardens (Pty) Ltd 1972 (1) SA 328 (W)
— 220
Muller v Pam Snyman Eiendomskonsultante (Pty) Ltd 2001 (1) SA 313 (C)
— 142
Munnikhuis v Melamed NO 1998 (3) SA 873 (W)
— 204
Murata Machinery Ltd v Capelon Yarns (Pty) Ltd 1986 (4) SA 671 (C)
— 199
Murray v Roome and Sorey (1855) 2 Searle 157
— 239
N
Nagar v Nagar 1982 (2) SA 263 (Z)
— 228
Naidoo v Cassimjee 1964 (3) SA 540 (N)
— 244
Nashua Mobile (Pty) Ltd v GC Pale CC t/a Invasive Plant Solutions 2012 (1) SA 615
(GSJ)
— 280
Natal Bank Ltd v Roorda 1903 TH 298
— 340
National Bank of SA Ltd v Cohen’s Trustee 1911 AD 235
— 240
National Bank of SA Ltd v Liepner 1922 WLD 101
— 110
National Bank of South Africa Ltd v Leon Levson Studios Ltd 1913 WLD 11
— 199
National Bank of South Africa Ltd v Rosenblum and Another 2001 (4) SA 189 (SCA)
— 40
National Bank v Marks and Aaronson 1923 TPD 69
— 237
National Bank v Paterson 1909 322 TS
— 267
National Vehicle Refurbishers CC v Nedcor Bank Ltd t/a Nedbank
— 362
National Western Bank Ltd v Barclays Bank International Ltd [1975] AC 654
— 318
National Westminster Bank Ltd v Barclays Bank International Ltd [1974] 3 All ER
834; 1975 QB 654
— 340
National Westminster Bank Ltd v Halesowen Presswork & Assemblies Ltd [1972] AC
785 (HL)
— 155
Naudé v Kennedy 1909 TS 799
— 241
Navidas (Pty) Ltd v Essop 1994 (4) SA 141 (A)
— 260
NBS Bank Ltd v Cape Produce Co (Pty) Ltd 2002 (1) SA 396 (SCA)
— 321
NBS Boland Bank Ltd v One Berg River Drive CC; Deeb v Absa Bank Ltd; Friedman v
Standard Bank of South Africa Ltd 1999 (4) SA 928 (SCA)
— 124
Nedbank Ltd v Abstein Distributors (Pty) Ltd and Donelly v Barclays National Bank
Ltd 1995 (3) SA 1 (A)
— 125
Nedbank Ltd v Aldick 1981 (3) SA 1007 (D) 1013
— 267
Nedbank Ltd v Capital Refrigerated Truck Bodies (Pty) Ltd 1988 (4) SA 73 (N)
— 124
Nedbank Ltd v Pestana [2009] 2 All SA 58 (SCA)
— 379, 383
Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA)
— 110, 150, 151, 206, 292, 293, 294, 376
Nedbank Ltd v Procprops 60 (Pty) Ltd [2013] ZASCA 153 (20 November 2013)
— 456
Nedcor Bank Ltd (t/a Nedbank) v H Bhayat Wholesalers CC & Bank of Lisbon
International Ltd unreported WLD case no 31228/29 (21 February 1994)
— 367
Nedcor Bank Ltd v Absa Bank Ltd 1995 (4) SA 727 (W)
— 343
Nedcor Investment Bank v Pretoria Belgrave Hotel (Pty) Ltd 2003 (5) SA 189 (SCA)
— 165
Nedcor Investment Bank v Visser NO 2002 (4) SA 588 (T)
— 165
Nedperm Bank Ltd v Lavarack 1996 (4) SA 30 (A)
— 200
Nedperm Bank Ltd v Vebri Projects CC 1993 (3) SA 214 (W)
— 132, 139
Nel v Cloete 1972 (2) SA 150 (A)
— 204
Nell v Mulbarton Gardens (Pty) Ltd 1976 (1) SA 294 (W)
— 202
Netherlands Bank of South Africa v Stern NO 1955 (1) SA 667 (W)
— 110
New Braunfels National Bank v Odiorne 780 2d 313 (1989)
— 418
New Club Garage v Milborrow and Son 1931 GWLD 86
— 213
Ngangelizwe Kama v Yates & Murray (1902) 17 EC 60
— 154
Nicol v Burger 1990 (1) SA 231 (C)
— 231
Nissan South Africa (Pty) Ltd v Marnitz NO (Stand 186 Aeroport (Pty) Ltd
intervening) 2005 (1) SA 441 (SCA)
— 151, 242, 292, 337, 344
Nkengana v Schnetler [2011] 1 All SA 272 (SCA)
— 200
Norman Kennedy v Norman Kennedy Ltd; Judicial Managers Norman Kennedy Ltd
NO v Reinforcing Steel Co Ltd 1947 (1) SA 790 (C)
— 217
Page xxxi
Northern Cape Co-Operative Livestock Agency Ltd v John Roderick & Co Ltd 1965
(2) SA 64 (O)
— 221
Northmore v Scala Cinemas (Pty) Ltd 1936 TPD 280
— 206
Northview Shopping Centre v Revelas Properties 2010 (3) SA 630 (SCA)
— 111
Nortje en ’n Ander v Pool 1966 (3) SA 96 (A)
— 338
Nuwe Suid-Afrikaanse Prinsipale Beleggings (Edms) Bpk v Saambou Holdings Ltd
1992 (4) SA 676 (W)
— 12
O
Oakland Nominees (Pty) Ltd v Gelria Mining & Investment Co (Pty) Ltd 1976 (1) SA
441 (A)
— 321
Odendaal v Du Plessis 1918 AD 470
— 230
Odendaal v Van Oudtshoorn 1968 (3) SA 433 (T)
— 213
Oilwell v Protect International 2011 (4) SA 394 (SCA)
— 69
OK Bazaars (1929) Ltd v Universal Stores Ltd 1973 (2) SA 281 (C)
— 143, 264, 318, 336
Olivier v Firstrand Bank Ltd [2011] JOL 27019 (GNP)
— 114
Oos-Randse Bantoesake Administrasieraad v Santam Versekeringsmaatskappy Bpk
(2) 1978 (1) SA 164 (W)
— 236
Optimprops 1030 CC v First National Bank of SA [2002] 4 All SA 582 (N)
— 135, 137, 254
Optimprops 1030 CC v First National Bank of Southern Africa Ltd [2001] 2 All SA 24
(D)
— 349
Orlando Fine Foods (Pty) Ltd v Sun International (Bophuthatswana) Ltd 1994 (2) SA
249 (B)
— 252
Ormerod v Deputy Sheriff, Durban 1965 (4) SA 670 (D)
— 115, 118
P
Packery v Padiachy 1929 TPD 231
— 233
Pafitis v Nauomoff 1965 (4) SA 591 (SR)
— 345
Page v First National Bank 2009 (4) SA 484 (E)
— 111
Paizer v Phitides 1940 WLD 189
— 201
Palmer v President Insurance Co Ltd 1967 (1) SA 673 (O)
— 217
Paramount Stores Ltd v Hendry (2) 1957 (2) SA 482 (W)
— 227
Parekh v Shah Jehan Cinemas (Pty) Ltd 1980 (1) SA 301 (D)
— 238
Parker, Wood & Co Ltd v Lourenco Marques Wharf Co Ltd 1905 TS 790
— 173
Parsons v Barclay & Co Ltd 1908-10 All ER Rep 429
— 179
Patel v Desai 1928 TPD 443
— 207
Paterson Exhibitions CC v Knights Advertising and Marketing CC 1991 (3) SA 523
(A)
— 229
Paterson NO v Trust Bank of Africa Ltd 1979 (4) SA 992 (A)
— 83
Pathescope (Union) of SA Ltd v Mallinick 1927 AD 292
— 186
Patterson NO v Trust Bank of Africa Ltd 1979 (4) SA 992 (A)
— 156
Paulsen v Slip Knot Investments 777 (Pty) Ltd. 2015 (3) SA 574 (SCA)
— 42
Paver Bros v De Beer 1916 OPD 236
— 238
Pelser v Kirchner’s Executor (1904) 18 EDC 125
— 243
Penderis & Gutman NNO v Liquidators of the Short-term Business, AA Mutual
Insurance Association Ltd 1991 (3) SA 342 (C)
— 262
Penderis and Gutman NNO v Liquidators, Short-term Business, AA Mutual Insurance
Association Ltd 1992 (4) SA 836 (A)
— 150
Pentecost & Co v Cape Meat Supply Co 1933 CPD 472
— 235, 240
Pentz v Government of the Republic of South Africa 1983 (3) SA 584 (A)
— 254
Pep Stores (SA) Ltd v Commissioner, South African Revenue Service 2011 (1) SA 1
(SCA)
— 232, 234
Pestana v Nedbank Limited [2008] 1 All SA 603 (W)
— 150
Pestana v Nedbank Ltd [2006] ZAGPHC 113 (29 May 2009)
— 379
Pestana v Nedbank Ltd 2007 JDR 0353 (W)
— 376
Pestana v Nedbank Ltd 2008 (3) SA 466 (W)
— 292, 293, 376, 379
Petersen Ltd v Inag African Industrial and Agricultural Trading Co 1934 CPD 141
— 235
Pettigrew (Pvt) Ltd v Cone Textiles (Pvt) Ltd t/a Darryn Textile Mills 1976 (3) SA 569
(R)
— 217
Page xxxii
Pfeiffer v First National Bank of SA Ltd 1998 (3) SA 1018 (SCA)
— 218
Phasha v Southern Metropolitan Local Council of the Greater Johannesburg
Metropolitan Council 2000 (2) SA 455 (W)
— 204
Pheasant v Warne 1922 AD 481
— 123
Phillips v Fieldstone Africa (Pty) Ltd 2004 (3) SA 465 (SCA)
— 139
Phillips v Kilfoil 1922 EDL 202
— 270
Phillips v Standard Bank of South Africa Ltd 1985 (3) SA 301 (W)
— 423, 424, 438
Philsam Investments (Pvt) Ltd v Beverley Building Society 1977 (2) SA 546 (R)
— 358
Pienaar v Boland Bank 1986 (4) SA 102 (O)
— 211, 212
Pierre Cronje (Pty) Ltd v Adonis 2010 (4) SA 294 (WCC)
— 202
Pilcher and Conways (Pty) Ltd v Van Heerden 1963 (3) SA 205 (O)
— 237
Pine Villa Estate (Pty) Ltd v JR 209 Investments (Pty) Ltd 2009 (4) SA 302 (SCA)
— 216
Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (A)
— 428
Plunkett v Barclays Bank Ltd [1936] 2 KB 107
— 114
Port Elizabeth Municipality v Uitenhage Municipality 1971 (1) SA 724 (A)
— 226
Port Swettenham Authority v TW Wu & Co (M) Sdn Bhd [1978] 3 All ER 337
— 172
Porterstraat 69 Eiendomme (Pty) Ltd v PA Venter Worcester (Pty) Ltd 2000 (4) SA
598 (C)
— 233
Poultney v Absa Brokers (Pty) Ltd (ECD) unreported case no 430/2000 (29 May
2002)
— 184
Powell v Absa Bank Ltd t/a Volkskas Bank 1998 (2) SA 807 (SE)
— 134, 360, 360
Power Curber International Ltd v National Bank of Kuwait SAK [1981] 1 WLR 1233
(CA)
— 426
Premier Finance Corporation (Pty) Ltd v Ward 1976 (2) SA 816 (T)
— 200
Premier Milling Co (Pty) Ltd v Van der Merwe and Others NNO 1989 (2) SA 1 (A)
— 215
Pretorius v Natal South Sea Investment Trust Ltd 1965 (3) SA 410 (W)
— 186
Pretorius’s Trustee v Van Blommenstein 1949 (1) SA 264 (O)
— 83
Price v Natal Bank (1887) 8 NLR 153
— 218, 244
Price v Neal (1762) 3 Burr 1354; 97 ER 871
— 340
Price Waterhouse (a firm) v Bank of Credit and Commerce International SA (In
Liquidation) [1998] 4 All ER (ChD)
— 138
Primesite Outdoor Advertising (Pty) Ltd v Salviati & Santori (Pty) Ltd 1999 (1) SA
868 (W)
— 195
Prosperity Ltd v Lloyds Bank Limited (1923) 39 TLR 372
— 163
Proud Investments (Pty) Ltd v Lanchem International (Pty) Ltd 1991 (3) SA 738 (A)
— 174
Public Carriers Association v Tolcon Road Concessionaries (Pty) Ltd 1989 (4) SA 574
(N)
— 231
Puzey and Diss Motors Ltd v Litherland 1961 (2) SA 177 (SR)
— 322
Q
Quality Machine Builder v M I Thermocouples (Pty) Ltd 1982 (4) SA 591 (W)
— 235
Quinn and Co Ltd v Witwatersrand Military Institute 1953 (1) SA 155 (T)
— 121
R
R v Davenport [1954] 1 All ER 602 (CA)
— 117
R v Kritzinger 1971 (2) SA 57 (A)
— 112
R v Levy 1929 AD 312
— 114
R v Sanyambira 1941 SR 119
— 218
R v Shamosevitch & Schaltz 1915 AD 682
— 114
R v Stanbridge 1959 (3) SA 274 (C)
— 117
Radell v Multilateral Motor Vehicle Accidents Fund 1995 (4) SA 24 (A)
— 199
Rahim v Minister of Justice 1964 (4) SA 630 (A)
— 338
Rainsford v African Banking Corporation 1912 CPD 1106
— 239
Ramchuran v Follows 1941 NPD 381
— 269
Rand Advance (Pty) Ltd v Scala Café 1974 (1) SA 786 (D)
— 322
Randaree and Others NNO v WH Dixon and Associates 1983 (2) SA 1 (A)
— 356
Randcoal Services Ltd v Randgold and Exploration Co Ltd 1998 (4) SA 825 (SCA)
— 212
Randfontein Transitional Local Council v Absa Bank Ltd 2000 (2) SA 1040 (W)
— 40, 117, 172
Page xxxiii
Ras v Simpson 1904 TS 254
— 222
RB Ranchers (Pvt) Ltd v Estate Mclean 1985 (4) SA 583 (ZH)
— 130
RB Ranchers (Pvt) Ltd v Mclean’s Estate 1986 (4) SA 271 (ZS)
— 130
RD Harbottle (Mercantile) Ltd v National Westminster Bank Ltd [1978] QB 146
— 403
RD Harbottle (Mercantile) v National Westminster Bank Ltd [1977] 2 All ER 862 (CA)
— 446
Redelinghuys’s Trustees v Rossouw’s Trustees (1847) 3 Menz 317
— 235
Reed NO v Sager’s Motors (Pvt) Ltd 1970 (1) SA 521 (RA)
— 121
Registrar of Banks v New Republic Bank Ltd [1999] 2 All SA 459 (D)
— 68
Registrar of Banks v Regal Treasury Private Bank Ltd (Under Curatorship) (Regal
Treasury Bank Holdings Ltd Intervening) 2004 (3) SA 560 (W)
— 68
Reid v Carnofsky’s Trustee 1910 EDL 166
— 226
Reliance Agencies (Pty) Ltd v Patel 1946 CPD 463
— 211
Resnik v Lekhethoa 1950 (3) SA 263 (T)
— 217
Rhodes Motors (Pvt) Ltd v Pringle-Wood 1965 (4) SA 40 (SRA)
— 216
Rhodesian Pulp and Paper Industries Ltd v Plastelect (Pty) Ltd 1975 (1) SA 955 (W)
— 194
Rhostar (Pty) Ltd v Netherlands Bank of Rhodesia Ltd 1972 (2) SA 703 (R)
— 287
Richardson v Nisbet & Dickson and the Sheriff (1833) 3 Menz 354
— 233
Richter NO v Riverside Estates (Pty) Ltd 1946 OPD 209
— 231
Richter v Vermaak 1932 NPD 337
— 220
Rigg v Forrest 1913 CPD 350
— 229
Rixom NO v Mashonaland Building Loan and Agency Co Ltd 1938 SR 207
— 232
Roberts v Bryer Bros 1931 OPD 197
— 215
Roberts v Nourse (1892) 4 SAR 180
— 204
Robertson v Strydom 1923 CPD 199
— 228
Robinson v Midland Bank Ltd (1925) 41 TLR 402
— 113
Robot Paints, Hardware & Timber Co (Pty) Ltd v South African Industrial Equipment
(Pty) Ltd 1975 (4) SA 829 (T)
— 237
Roestoff v Cliffe Dekker Hofmeyr Inc 2013 (1) SA 12 (GNP)
— 280
Rolfes, Nebel & Co v Zweigenhaft 1903 TS 185
— 211
Roman Catholic Church (Klerksdorp Diocese) v Southern Life Association Ltd 1992
(2) SA 807 (A)
— 234, 235, 241
Roschcon (Pty) Ltd v Anchor Auto Body Builders CC 2014 (4) SA 319 (SCA)
— 14
Rosebank Television & Appliance Co (Pty) Ltd v Orbit Sales Corporation (Pty) Ltd
1969 (1) SA 300 (T)
— 321
Rosen v Barclays National Bank Ltd 1984 (3) SA 974 (W)
— 110
Rosen v Ekon 2001 (1) SA 199 (W)
— 223, 224
Rosen v Wasserman 1984 (1) SA 808 (W)
— 235
Rosenbach & Co (Pty) Ltd v Dalmonte 1964 (2) SA 195 (N)
— 54
Rosettenville Motor Exchange v Grootenboer 1956 (2) SA 624 (T)
— 237
Rossiter v Barclays Bank 1933 TPD 374
— 161, 162
Rossler v Kemsley Millbourn Acceptance Corporation (Pty) Ltd 1931 NPD 335
— 212
Rouse v Bradford Banking Company Co Ltd [1894] AC 586
— 150
Rousseau NO v Standard Bank of SA Ltd 1976 (4) SA 104 (C)
— 116, 117, 164
Royal Bank of Canada v Stangl (1992) 32 ACSW (3d) 17 (Ontario Court, General
Division)
— 286
Royal Products Ltd v Midland Bank Ltd [1981] 2 Lloyd’s Rep 194
— 282
Rulten NO v Herald Industries (Pty) Ltd 1982 (3) SA 600 (D)
— 337
Ruskin NO v Barclays Bank DCO 1959 (1) SA 577 (W)
— 117
S
S & R Valente (Pty) Ltd v Benoni Town Council 1975 (4) SA 364 (W)
— 237
S v Graham 1975 (3) SA 569 (A)
— 363
S v Katsikaris 1980 (3) SA 580 (A)
— 187
S v Kearney 1964 (2) SA 495 (A)
— 116
S v Kotze 1965 (1) SA 118 (A)
— 117
S v Sassin [2003] 4 All SA 506 (NC)
— 70
Page xxxiv
SA Bank of Athens Ltd v Solea 1977 (2) SA 612 (W)
— 270
SA Eagle Insurance Co Ltd v Hartley 1990 (4) SA 833 (A)
— 201
SA Metropolitan Life Assurance Co Ltd v Ferreira 1962 (4) SA 213 (O)
— 235
SA Scottish Finance Corporation Ltd v Smit 1966 (3) SA 629 (T)
— 229
Saadien v Bradley 1931 CPD 276
— 204, 205
Saambou Bank Ltd v Essa 1993 (4) SA 62 (N)
— 338, 342, 345
Saambou-Nasionale Bouvereniging v Friedman 1979 (3) SA 978 (A)
— 196, 320
Sadie v Currie’s City (Pty) Ltd 1979 (1) SA 363 (T)
— 215
San Sen Woodworks v Govender 1984 (1) SA 486 (N)
— 204
Sasfin (Pty) v Beukes 1989 (1) SA 1 (A)
— 125
Scala Café v Rand Advance (Pty) Ltd 1975 (1) SA 28 (N)
— 321
Scania South Africa (Pty) Ltd v Smit 2003 (1) SA 457 (T)
— 320
Scatec Solar SA 163 (Pty) Ltd v Terrafix Suedafrika (Pty) Ltd [2014] ZAWCHC 24 (5
March 2014)
— 451
Schierhout v Union Government (Minister of Justice) 1926 AD 286
— 231
Schietekat v Naumov 1936 CPD 493
— 206
Schioler v Westminister Bank [1970] 2 QB 719
— 182
Schlodder v Brandt (1897) 11 EDC 79
— 232
Schnehage v Bezuidenhout 1977 (1) SA 362 (O)
— 234
Schneider and London v Chapman 1917 TPD 497
— 199, 200
Scott v Sytner (1891) 9 SC 50
— 218, 220, 221
Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438
— 416
Searle’s Ltd v Rankin 1923 CPD 549
— 270
Secretary for Inland Revenue v Trust Bank of Africa Ltd 1975 (2) SA 652 (A)
— 111
Segal v Mazzur 1920 CPD 635
— 206
Selangor United Rubber Estates Ltd v Craddock (No 3) [1968] 2 All ER 1073
— 133
Senekal v Trust Bank of Africa Ltd 1978 (3) SA 375 (A)
— 141
Seydell v Boltman (1900) 17 SC 337
— 240
Shapiro v Berry 1933 WLD 112
— 200
Shapiro v Kotler and Rabinowitz 1935 WLD 60
— 206
Shaw v Burger 1994 (1) SA 529 (C)
— 212
Shaw v Kirby 1924 GWLD 33
— 213
Short v Van der Merwe (1907) 21 EDC 237
— 257
Shuttleworth v South African Reserve Bank 2015 (1) SA 586 (SCA)
— 226
Sibbald v Dakota Motors 1956 (3) SA 203 (T)
— 200
Siltek Holdings (Pty) Ltd (In Liquidation) t/a Workgroup v Business Connexion
Solutions (Pty) Ltd [2009] 1 All SA 471 (SCA)
— 234, 235, 236, 241
Simon Carves Limited v Ensus UK Limited 2011 EWHC 657 (TCC)
— 449
Simpson & Co v Fleck 3 Menz 213
— 164
Siporex Trade SA v Banque Indosuez [1986] 2 Lloyd’s Rep 146
— 457
Sirius International Insurance Corp v FAI General Insurance Co Ltd [2004] 1 All ER
(CA) 308
— 448
Skead v Colonial Banking and Trust Co Ltd 1924 TPD 497
— 122
Skilya Property Investments (Pty) Ltd v Lloyds of London Underwriting 2002 (3) SA
765 (T)
— 199
Slingsby v District Bank [1932] 1 KB 544
— 143
Slomowitz v Van der Walt 1960 (4) SA 270 (T)
— 225
Smit v Key 1906 EDC 46
— 227
Smith v Howse (1835) 2 Menz 171
— 233
Smith v Morum Bros (1877) 7 Buch 20
— 235
Snyman v Theron 1952 (2) SA 353 (T)
— 237
Sonarep (SA) (Pty) Ltd v Motorcraft (Pty) Ltd 1981 (1) SA 889 (N)
— 201
Sonfred (Pty) Ltd v Papert 1962 (2) SA 140 (W)
— 322
Soproma SpA v Marine & Animal By-Products Corporation [1966] 1 Lloyd’s Rep 367
— 408
Soref Bros (SA) (Pty) Ltd v Khan Brothers Wholesale 1976 (3) SA 339 (D)
— 321
South Africa Ltd 1905 TH 26
— 317
Page xxxv
South African Eagle Insurance Co Ltd v NBS Bank Ltd 2002 (1) SA 560 (SCA)
— 321
Southern Cape Liquors (Pty) Ltd v Delipcus Beleggings Bpk 1998 (4) SA 494 (C)
— 238
Southern Era Resources Ltd v Farndell NO 2010 (4) SA 200 (SCA)
— 224
Space Investments Ltd v Canadian Imperial Bank of Commerce Co (Bahamas) Ltd
[1986] 3 All ER 75
— 117, 119
Speight v Glass 1961 (1) SA 778 (D)
— 186
Spencer v Wakefield (1887) 4 TLR 194
— 141
Stabilpave (Pty) Limited v South African Revenue Services 2014 (1) SA 350 (SCA)
— 346
Stabilpave (Pty) Ltd v The South African Revenue Services (946/2008) [2009]
ZAGPPHC 159
— 258
Stafford t/a Natal Agricultural Co v Lions River Saw Mills (Pty) Ltd 1999 (2) SA 1077
(N)
— 113
Standard Bank Financial Services Ltd v Taylam 1979 (2) SA 383 (C)
— 213
Standard Bank Investment Corporation Ltd v Competition Commission [2000] 1 All
SA 494 (T)
— 70
Standard Bank Investment Corporation v The Competition Commission 2002 (2) SA
797 (SCA)
— 53
Standard Bank of SA Ltd v Absa Bank Ltd 1995 (2) SA 740 (T)
— 235
Standard Bank of SA Ltd v Harris and Another NNO (JA du Toit Inc intervening)
2003 (2) SA 23 (SCA)
— 216
Standard Bank of SA Ltd v Kaplan 1922 CPD 214
— 129
Standard Bank of SA Ltd v Minister of Bantu Education 1966 (1) SA 229 (N)
— 349
Standard Bank of SA Ltd v Nair (Bissessur and Another, Third Parties) 2001 (1) SA
998 (D)
— 212
Standard Bank of SA Ltd v Oneanate Investments (In Liquidation) 1998 (1) SA 811
(SCA)
— 38, 40, 41, 221
Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C)
— 38, 115-120, 141, 147, 218-220
Standard Bank of SA Ltd v Sarwan, [2002] 3 All SA 49 (W)
— 35
Standard Bank of SA Ltd v Sham Magazine Centre 1977 (1) SA 484 (A)
— 252
Standard Bank of South Africa Ltd v Absa Bank Ltd 1995 (2) SA 740 (T)
— 115
Standard Bank of South Africa Ltd v Echo Petroleum CC 2012 (5) SA 283 (SCA)
— 238
Standard Bank of South Africa Ltd v Harris [2002] 4 All SA 164 (SCA)
— 254
Standard Bank of South Africa Ltd v Minister of Bantu Education 1966 (1) SA 229
(N)
— 112, 116, 120
Standard Bank of South Africa Ltd v Peens 2005 (1) SA 315 (SCA)
— 129
Standard Bank of South Africa Ltd v Renico Construction (Pty) Ltd 2015 (2) SA 89
(GJ)
— 232
Standard Bank of South Africa Ltd v SA Fire Equipment (Pty) Ltd 1984 (2) SA 693
(C)
— 232
Standard Bank v Estate van Rhyn 1925 AD 266
— 69
Standard Bank v Nair 2000 (1) SA 998 (D)
— 226
Standard Chartered Bank of Canada v Nedperm Bank Ltd 1994 (4) SA 747 (A)
— 179, 181, 182, 197, 199
Standard Credit Corporation Ltd v Kleyn 1988 (4) SA 441 (W)
— 205
Standard General Insurance Co Ltd v Verdun Estates (Pty) 1990 (2) SA 693 (A)
— 195
Stapelberg NO v Barclays Bank DC&O 1963 (3) SA 120 (T)
— 323, 325, 326
Stapelberg v Schlebusch NO 1968 (3) SA 596 (O)
— 234
State Bank of India v Denel SOC Limited [2015] 2 All SA 152 (SCA)
— 445
Steenkamp v Union Government 1947 (1) SA 449 (C)
— 229
Sterkstroom Belgrave Hotel (Pty) Ltd v Schwulst 1956 (2) SA 154 (E)
— 223
Steward’s Trustee v Altensted (1899) 13 EDC 151
— 217
Stiglingh v French (1892) 9 SC 386
— 219, 220
Still v Norton (1836) 2 Menz 223
— 239
Stockdale v Stockdale 2004 (1) SA 68 (C)
— 204
Stoney Stanton Supplies (Coventry) Ltd v Midland Bank Ltd [1966] 2 Lloyd’s Rep
373
— 113
Stopforth Swanepoel & Brewis Inc v Royal Anthem (Pty) Ltd 2015 (2) SA 539 (CC)
— 215
Strachan v Blackbeard & Son 1910 AD 282
— 321
Strachan v The Master and Another 1963 (2) SA 620 (N)
— 237
Strelitz (Pty) Ltd v Siegers & Co (Pty) Ltd 1959 (3) SA 917 (E)
— 204
Page xxxvi
Strydom NO v Absa Bank 2001 (3) SA 185 (T)
— 113
Strydom v Protea Eiendomsagente 1979 (2) SA 206 (T)
— 114
Strydom’s Executor v Celliers 1908 TS 485
— 228
Stupel & Berman Inc v Rodel Financial Services (Pty) Ltd 2015 (3) SA 36 (SCA)
— 216
Suid-Afrikaanse Sentrale Koöperatiewe Graanmaatskappy Bpk v Thanasaris 1953
(2) SA 314 (W)
— 320
Sulzer Pumps (South Africa) (Proprietary) Limited v Covec-MC Joint Venture [2014]
ZAGPPHC 695 (2 September 2014)
— 452
Surtees NO and Heath NO v Wire Industries Steel Products and Engineering Co
(Coastal) Ltd 1952 (4) SA 291 (O)
— 217
Swanepoel v Van der Westhuizen 1930 TPD 806
— 235
Syfrets Mortgage Nominees Ltd v Cape St Francis Hotels (Pty) Ltd 1991 (3) SA 276
(SE)
— 228
Symon v Brecker 1904 TS 745
— 231
Sztejn v J Henry Schroder Banking Corporation (1941) 31 NYS 2d 631
— 424
T
Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1985] 2 All ER 947 (PC)
— 318
Take & Save Trading CC v Standard Bank of SA Ltd 2004 (4) SA 1 (SCA)
— 293, 376
Tank v Jacobs (1881) 1 SC 289
— 215
Tauber v Von Abo 1984 (4) SA 482 (E)
— 227
Telematrix (Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards Authority
2006 (1) SA 461 (SCA)
— 355
Ter Beek v United Resources CC 1997 (3) SA 315 (C)
— 238
Terblanche v Archdeacon 1979 (3) SA 201 (T)
— 195
Tesco Supermarkets v Nattras 1972 AC 153 (HL)
— 112
TH Restaurants (Pty) Ltd v Rana Pazza (Pty) Ltd 2012 (5) SA 378 (WCC)
— 240
Thal NO v Baltic Timber Co 1935 CPD 110
— 216, 217
The Godfather v Commissioner for Inland Revenue 1993 (2) SA 426 (N)
— 115
The Government v Regna-Adwel Business Machines Africa (Pty) Ltd 1970 (2) SA 428
(T)
— 238
The Government v Thorne and Another NNO 1974 (2) SA 1 (A)
— 237
Themehelp Ltd v West 1995 (3) WLR (CA) 751
— 449
Theron v AA Life Assurance Association Ltd 1993 (1) SA 736 (C)
— 123
Theron v Theron 1973 (3) SA 667 (C)
— 224
Theron v Wolf (1894) 11 SC 16
— 236
Thomas Construction (Pty) Ltd (In Liquidation) v Grafton Furniture Manufactures
(Pty) Ltd 1988 (2) SA 546 (A)
— 83
Thomas v Liverpool & London & Globe Insurance Co of SA Ltd 1968 (4) SA 141 (C)
— 203
Thorne and Another NNO v The Government 1973 (4) SA 42 (T)
— 235, 241
Thorpe NO v BOE Bank Ltd 2006 (3) SA 427 (SCA)
— 68
Three Rivers District Council v Governor & Company of the Bank of England (2001)
12 SA Merc LJ 531
— 56
Tierfontein Boerdery (Edms) Bpk v Weber 1974 (3) SA 445 (C)
— 236
Tillett v Willcox 1941 AD 100
— 205
Tiopaizi v Bulawayo Municipality 1923 AD 317
— 203
Tomson v Ross 1947 (2) SA 1233 (W)
— 208
Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA 319 (A)
— 226
Toronto-Dominion Bank v Canadian Acceptance Corp Ltd (1969) 7 DLR (3d) 728
— 363
Toucher v Stinnes (SA) Ltd 1934 CPD 184
— 234
Tournier v National Provincial & Union Bank of England [1924] 1 KB 461
— 135, 166
Tractor and Excavator Spares (Pty) Ltd v Lucas J Botha (Pty) Ltd 1966 (2) SA 740
(T)
— 230
Transkei Development Corporation Ltd v Oshkosh Africa (Pty) Ltd 1986 (1) SA 150
(C)
— 238
Traub v Barclays National Bank Ltd 1983 (3) SA 619 (A)
— 212
Treasurer-General v Van Vuuren 1905 TS 582
— 231
Tredoux v Kellerman 2010 (1) SA 160 (C)
— 237
Page xxxvii
Tregellas v Hardy & Co 1921 CPD 352
— 257
Trichardt v Muller 1915 TPD 175
— 223
Trinity Engineering (Pvt) Ltd v Anglo-American Shipping Co (Pvt) Ltd 1986 (1) SA
700 (ZS)
— 236
Tropic Plastic & Packaging c of SA Ltd 1969 (4) SA 108 (D)
— 34
Trull v Standard Bank of South Africa Ltd (1892) 4 SAR 203
— 336
Trust Bank Africa Ltd v Wassenaar 1972 (3) SA 139 (D)
— 129
Trust Bank of Africa Ltd v Eksteen 1968 (3) SA 529 (N)
— 228
Trust Bank of Africa Ltd v Marques 1968 (2) SA 796 (T)
— 127, 130, 264
Trust Bank van Afrika Bpk v Bendor Properties Ltd 1977 (2) SA 632 (T)
— 267
Trust Bank van Afrika Bpk v Ungerer 1981 (2) SA 223 (T)
— 227
Trustee of Murtha v Coghlan (1882) 1 HCG 511
— 240
Trustees of Douglas & Co’s Insolvent Estate v Natal Bank (1883) 4 NLR 74
— 232
Trustees of George Greig & Co v Norden and Alexander (1857) 3 Searle 6
— 236
Trustees of Van Niekerk v Tiran (1881) 1 SC 358
— 238
Trustees Stellenbosch Bank v PA Myburgh (1876) 6 Buch 206
— 243
Trustees, Estate Whitehead v Dumas 2013 (3) SA 331 (SCA)
— 242
Truter v Degenaar 1990 (1) SA 206 (T)
— 238
TTI Team Telecon International Limited v Hutchison 3G UK Limited [2003] EWHC
762 (TCC)
— 452
Turgin v Atlantic Clothing Manufacturers 1954 (3) SA 527 (T)
— 230
Turner v Royal Bank of Scotland plc [1999] 2 All ER (Comm) 664 (CA)
— 36
Turner v Royal Bank Scotland [2001] EWCA Civ 64
— 181
U
Union Bank v Beyers (1884) 3 SC 89
— 211
Union Carriage and Wagon Company Ltd v Nedcor Bank Ltd 1996 CLR 724 (W)
— 423, 429
Union Government (Minister of Finance) v Gowar 1915 AD 426
— 226
Union Government v National Bank of SA Ltd 1921 AD 121
— 336
Union Trust Maatskappy (Edms) Bpk v Thirion 1965 (3) SA 648 (GW)
— 238
Unit Inspection Co of SA (Pty) Ltd v Hall Longmore & Co (Pty) Ltd 1995 (2) SA 795
(A)
— 226
United City Merchants (Investments) Ltd v Royal Bank of Canada [1983] AC 168
(HL)
— 424
United Trading Corporation SA v Allied Arab Bank [1985] 2 Lloyd’s Rep 554 (CA)
— 450
Universal Stores Ltd v OK Bazaars (1929) Ltd 1973 (4) SA 747 (A)
— 145, 320, 348
Uzinterimpex JSC v Standard Bank plc [2007] 2 Lloyd’s Rep
— 450
V
Van Aswegen v Pienaar 1967 (3) SA 677 (O)
— 238
Van Aswegen v Van Staden 1961 (2) SA 143 (W)
— 233
Van Breukelen v Van Breukelen 1966 (2) SA 285 (A)
— 229
Van der Vyver v Gee (1908) 25 SC 632
— 234
Van Hullsteyns Attorneys v Government of the Republic of South Africa 2002 (2) SA
294 (SCA)
— 254
Van Loggenberg v Sachs 1940 WLD 253
— 202
Van Noorden v De Jongh and Hofmeyer (1892) 9 SC 296
— 244
Van Pareen v Pareen’s Properties (Pty) Ltd 1948 (1) SA 335 (T)
— 235
Van Staden v Pretorius 1965 (1) SA 852 (T)
— 213
Van Vliet v Adler, Kessly and Salomon 1979 (3) SA 1156 (W)
— 215
Van Wyk v Lewis 1924 AD 438
— 356
Van Zyl and Others NNO v The Master, Western Cape High Court 2013 (5) SA 71
(WCC)
— 208
Van Zyl and Others NNO v Turner and Another NNO 1998 (2) SA 236 (C)
— 156
Van Zyl NO v Look Good Clothing CC 1996 (3) SA 523 (SE)
— 232
Van Zyl v Niemann 1964 (4) SA 661 (A)
— 227
Van Zyl, Hofmeyr & Warren v Swanepoel 1913 CPD 244
— 269
Page xxxviii
Vena v Vena 2010 (2) SA 248 (ECP)
— 198
Venter and Spain v Povey 1982 (2) SA 94 (D)
— 202
Venter NO v Eastern Metropolitan Substructure of the Greater Johannesburg
Transitional Council 1998 (3) SA 1076 (W)
— 226
Venter v Venter 1949 (1) SA 768 (A)
— 206
Ver Elst v Sabena Belgian World Airlines 1983 (3) SA 637 (A)
— 204
Verbeek v Maher 1978 (1) SA 61 (N)
— 215
Vereins- und Westbank AG v Veren Investments 2000 (4) SA 238 (W)
— 413
Vereins- und Westbank AG v Veren Investments 2002 (4) SA 421 (SCA)
— 196, 290
Verenigde Adverteerders (Eiendoms) Bpk v Tanner 1947 (2) SA 1128 (T)
— 142
Veritas International Promotions (Pty) Ltd v Trustees Langdad Trust 1985 (3) SA
945 (C)
— 270
Viljoen v Hillier 1904 TS 312
— 186
Viljoen v Trakman NO 1994 (3) SA 116 (A)
— 215
Visser’s Trustee v Spangenberg 1920 CPD 73
— 240
Voest Alpine Intertrading Gesellschaft mbH v Burwill and Co SA (Pty) Ltd 1985 (2)
SA 149 (W)
— 199
Volkskas Bank Bpk v Bankorp Bpk (h/a Trust Bank) 1991 (3) SA 605 (A)
— 32, 259, 261
Volkskas Bpk v Johnson 1979 (4) SA 775 (C)
— 128, 145, 256, 328
Volkskas Bpk v Van Aswegen 1961 (1) SA 493 (A)
— 149, 150
Von Geyso v Herald 1916 TPD 479
— 270
W
W J Alan & Co Ltd v El Nasr Export and Import Co [1972] 2 QB 189 (CA)
— 408
Wallace v Krige 1990 (3) SA 724 (C)
— 204
Warsow v Woermann Brock & Co 1920 SWA 78
— 199
Watermeyer v Neethling qq Denyssen (1831) 1 Menz 26-7
— 243
Wavecrest Enterprises v Cema Africa (Pty) Ltd (In Liquidation) (CPD) unreported
case no A1163/88 (1 November 1990)
— 32
Wavecrest Enterprises v Cema Africa (Pty) Ltd (In Liquidation) 1991 (2) Commercial
Law Digest 266 (C)
— 262
WD Russell (Pty) Ltd v Witwatersrand Gold Mining Co Ltd 1981 (2) SA 216 (W)
— 224
Weedon v Bawa 1959 (4) SA 735 (D)
— 321
Wehmeyer v Wehmeyer (1875) 5 Buch 126
— 233
Wehr v Botha 1965 (3) SA 46 (A)
— 224, 225
Welch v Harris 1925 EDL 298
— 244
Wells v Don & Co 1917 EDL 303
— 232
Wessels & Co v Rudman 1911 CPD 667
— 232
Western Assurance Co v Caldwell’s Trustee 1918 AD 262
— 228
Western Bank Ltd v Hammond 1975 (2) SA 625 (T)
— 205
Western Bank Ltd v Lester and McLean 1976 (3) SA 457 (SE)
— 222
Western Bank Ltd v Registrar of Financial Institutions 1975 (4) SA 37 (T)
— 305
Western Bank Ltd v Woodroffe 1976 (1) SA 482 (N)
— 205, 220
Western Cape Housing Development Board v Parker 2005 (1) SA 462 (C)
— 231
Westinghouse Brake & Equipment (Pty) Ltd v Bilger Engineering (Pty) Ltd 1986 (2)
SA 555 (A)
— 201
Weszak Beleggings (Edms) Bpk v Venter 1972 (1) SA 730 (T)
— 270
Whelan v Oosthuizen 1937 TPD 305
— 235-239
White v Brown (Standard Bank) (1883) 4 NLR 88
— 115, 152, 154
Wilken v Holloway 1915 CPD 418
— 226
Wilkens NO v Bester 1997 (3) SA 347 (A)
— 196
Williams v Kirk 1932 CPD 159
— 257
Williams’ Estate v Molenschoot and Schep (Pty) Ltd 1939 CPD 360
— 213
Williamson v Burke (1906) 20 EDC 130
— 241
Willis, Faber Enthoven (Pty) Ltd v The Receiver of Revenue 1992 (4) SA 202 (A)
— 339
Page xxxix
Wilson v Spitze 1989 (3) SA 136 (A)
— 224
Win Twice Properties (Pty) Ltd v Binos 2004 (4) SA 436 (W)
— 240
Witbank District Coal Agency v Barclays Bank 1928 TPD 18
— 129
Wolhuter v Zeederberg (1884) 3 HCG 437
— 218
Wolmarans v Absa Bank 2005 (6) SA 551 (C)
— 138
Wolpert v Uitzicht Properties (Pty) Ltd 1961 (2) SA 257 (W)
— 321
Wood Hall Ltd v Pipeline Authority 24 ALR 385
— 448
Woodland v Fear (1857) 7 E & B 519
— 128
Woods v Martins Bank Ltd [1959] 1 QB 55
— 183
Wool Growers Auctions Ltd v Elliot Brothers (East London) (Pty) Ltd (1969) 1 PH A9
(A)
— 142
Worcester Advice Office v First National Bank of Southern Africa Ltd 1990 (4) SA 811
(C)
— 347, 365
Woudstra v Jekison 1968 (1) SA 453 (T)
— 195
WP Greenhalgh & Sons v Union Bank of Manchester [1924] 2 KB 153
— 152
Wypkema v Lubbe 2007 (5) SA 138 (SCA)
— 114
Y
Yorkshire Insurance Co Ltd v Barclays Bank (Dominion, Colonial and Overseas) 1928
WLD 200
— 160, 161
Yorkshire Insurance Co Ltd v Standard Bank of SA Ltd 1928 WLD 251
— 161, 162, 347, 352
Young v Grote (1827) 4 Bing 253
— 142
Young v Land Values Ltd 1924 WLD 216
— 204
YST Properties CC v Ethekwini Municipality 2010 (2) SA 98 (D)
— 212, 226
Z
Ziervogel v Van Zyl (1886) 5 EDC 121
— 233
Zietsman v Allied Building Society 1989 (3) SA 166 (O)
— 220, 221
Zimbabwe Banking Corporation Ltd v Pyramid Motor Corporation (Pvt) Ltd 1985 (4)
SA 553 (ZSC)
— 347, 358
Page 461
Index
A
ACADEMIC RESEARCH — 32
ACB see AUTOMATED CLEARING BUREAU (ACB)
ACCEPTANCE CREDITS — 410-411
ACCESSORY GUARANTEE — 438, 440-443
‘ACCOUNT PAYEE ONLY’ ON CHEQUES — 255
ACTIO NEGOTIORUM GESTORUM CONTRARIA — 213 n 72
ADDRESS
provision and verification — 102-105
ADIECTUS SOLUTIONIS CAUSA — 216-217
ADVANCE PAYMENT GUARANTEE — 444
ADVANCED PAYMENTS FOR PROPERTY — 18
ADVERTISING
customer protection — 92
for deposits — 13-14
ADVICE
meaning — 93, 184 n 92
ADVISING BANK
documentary credits — 405
AFFORDABILITY OF BANKING — 4
AFRICAN LAW see INDIGENOUS LAW
AFTER
meaning of in stipulated time periods — 202 n 35
AGENCY
agreement — 33
formation of bank-customer relationships — 121-122
money lending transactions — 16
AGREEMENTS
with mentally unfit persons — 92
with minors — 93
against public policy — 125
AMERICAN EXPRESS CARDS — 303
ANIMUS CONTRAHENDI — 126
ANTI-MONEY LAUNDERING LEGISLATION — 99, 365
APPROPRIATION
of payment by parties — 218-220
rules — 151-152, 220-222
AQUILIAN LIABILITY
collecting bank’s duty — 267, 351, 353 n 265, 355
electronic funds transfers — 287-288
unauthorised cheques — 324
ASSET MANAGEMENT — 5
ASSET TRANSFORMATION — 5
ASSIGNMENT OF PROCEEDS OF CREDIT — 432-433
ASYLYM SEEKERS — 103-105
Page 462
ATM see AUTOMATED TELLER MACHINES (ATM)
ATTORNEYS
legislation governing — 137 n 170
trust accounts — 159 n 309, 161 n 315
AUTHORISATION TO ESTABLISH BANK(S) — 73-74
AUTHORITATIVE SOURCES see PRIMARY SOURCES
AUTHORITY TO REPRESENT ACCOUNT-HOLDER — 124 n 67
AUTHORS
works of as source of law — 32
AUTOMATED CLEARING BUREAU (ACB) — 86, 131, 259, 353
AUTOMATED TELLER MACHINES (ATM)
cards — 303
electronic funds transfers — 273, 275-276
unauthorised withdrawals — 276
AUTOMATED TRANSACTIONS — 297-298
B
BACK-TO-BACK CREDIT — 433
BANK ACCOUNTS
set-off between — 152-156
BANK CHARGES
customer’s duty concerning — 141-142
BANK CHEQUE — 251-252
BANK FOR INTERNATIONAL SETTLEMENTS (BIS) — 49 n 179
BANK STATEMENTS
customer’s care in reconciliation of — 145-146
BANK SUPERVISION DEPARTMENT OF RESERVE BANK — 66
BANK-CUSTOMER RELATIONSHIP
classification — 115-116
contract and — 38-39
debtor and creditor — 38-39
duties of bank see DUTIES OF BANK
duties of customer see DUTIES OF CUSTOMERS
elements of — 116-119
formation of — 120-126
lien see LIEN
loans — 116-118
mandate — 119
meaning — 112
multi-faceted — 26, 39, 115-116
naturalia of — 33, 36
overdraft facilities see OVERDRAFT FACILITIES
as phenomena in banking law — 26
reversal of credit entries see REVERSAL OF CREDIT ENTRIES
Roman Law — 38-39
set-off between bank accounts see SET-OFF: between bank accounts
sources of terms — 119-120
termination of
by agreement — 162
consequences of — 166
Page 463
death or dissolution of customer — 163-164
dissolution of bank — 165
effluxion of time — 166
insanity of customer — 165
notice of — 162-163
sequestration of customer — 164
trust accounts see TRUST ACCOUNTS
BANKER’S LIEN see LIEN
BANKER’S REFERENCES
bank’s liability — 180-182
customer’s consent — 179-180
description of — 177-178
incorrect or inaccurate — 181-182
requested by
customer on another customer — 179
customer on third party — 178-179
third party on one of own customers — 179-182
unfavourable — 181-182
BANK-GUARANTEED CHEQUES — 262-263
BANKING ADJUDICATOR — 20, 106
BANKING CONSOLIDATION DIRECTIVE (BCD) — 52
BANKING INDUSTRY ROLEPLAYERS IN SOUTH AFRICA — 5
BANKING LAW
definition — 23
diversity of — 24-25
fields of — 24
globalisation — 27
major practical changes — 27
as part of law of obligations — 25-26
phenomena of — 25-27
private — 24
public — 24
replacement of common law with legislation — 26
sources of — 27-54
BANKING LEGISLATION
aim of — 3, 67-68
authorisation to establish bank(s) — 73-74
definition of ‘bank’ — 12-20
functioning of banks and controlling companies — 75-77
primary source of law — 28-31
prudential requirements — 77
registrar of banks — 71-73
registration of
banks — 68-71, 73-74
controlling companies — 74-75
restrictions and prohibitions — 77-78
shareholding in banks — 74-75
BANKING SECTOR — 2-3
Page 464
BANKING SECTOR SUPERVISION — 3
BANKING SERVICES see BANKER’S REFERENCES; ESTATE PLANNING; FINANCIAL
ADVICE; SAFE CUSTODY; TRAVEL SERVICES; TRUST PLANNING
BANKING TECHNOLOGY — 27 n 17
BANK-LIKE SERVICES — 4
BANKNOTES — 198
BANK(S)
authorisation to establish — 73-74
definition — 12-13, 251 n 34
dissolution of bank — 165
functioning of — 75-77
as legal person — 110-111
right of recovery of unauthorised electronic transfers — 377-384
role of in commerce — 1-2
standard to care — 356
types of — 3-12
BANKSERVAFRICA — 86-87, 183, 261, 274, 290
BANK-TO-BANK REIMBURSEMENT — 407
BASEL COMMITTEE ON BANKING SUPERVISION — 49-51
BASEL I — 50
BASEL II — 50, 105
BASEL III — 20, 50-51, 105-106
BCD see BANKING CONSOLIDATION DIRECTIVE (BCD)
BENEFICIARY BANK
duties of and electronic transfers — 285-288
BENEFIT FUND CONTRIBUTIONS — 19
BILL OF LADING — 395, 427
BILL OF RIGHTS — 28, 47
BILL(S)
definition of — 251
BILLS OF EXCHANGE
customer’s duty concerning cheques and bank statements — 145-146
electronic funds transfers — 370
functions and definitions — 250-253
legislation — 137 n 169, 319-320
unauthorised cheques — 319-320, 324-327
BIS see BANK FOR INTERNATIONAL SETTLEMENTS (BIS)
BITCOIN — 274 n 214
BRANCHES OF BANKS
as agencies of banking corporations — 110-120
BURIAL SOCIETIES — 43
BUSINESS DAYS
meaning of in stipulated time periods for payment — 202 n 35
BUSINESS OF A BANK
definition — 3, 13-14
exclusions — 14-17
‘general public’ — 13
soliciting or advertising for deposits — 13-14
Page 465
BUYER
documentary credits — 405, 407
C
CALCULATION DE MOMENTO AD MOMENTUM — 203
CALENDAR DAYS
meaning — 202 n 35
CARD ISSUER
relationships with supplier and cardholder — 307-309
CARDHOLDER
relationships with supplier and card issuer — 307-309
CARDS
payment — 303-311
CARE
bank to act with reasonable skill and — 133-134, 183, 282-283
beneficiary bank and electronic transfers — 285-286
collecting bank’s duty of to owner of lost or stolen cheques — 350-355
customer’s duty concerning drawing of payment instructions — 142-143
standard of — 356
CASH PAYMENTS — 248
CASH WITH ORDER — 395-396
CATALOGUE MARKETING — 92
CDD see CUSTOMER DUE DILIGENCE (CDD)
CELL PHONE BANKING see MOBILE BANKING SERVICES
CENTRAL BANKS — 3, 49, 66, 261
CERTIFIED CHEQUES — 262-263
CESSION (ASSIGNMENT)
documentary credits — 432-433
international sale transactions — 398
CFT see COUNTERING FINANCING OF TERRORISM (CFT)
CHARGE CARDS — 303
CHEQUE GUARANTEE CARDS — 303
CHEQUES
account payee only — 255
alteration of — 336-337
bank cheque — 251-252
bank-guaranteed — 262-263
bank’s duty to
collect payment on — 127, 130-132
furnish statements of accounts — 127, 132-133
pay — 127-130
bills of exchange legislation — 319-320, 324-327
certified — 262-263
clearing of — 33, 259
collecting bank’s duty to collect — 267-269
collection process — 259-261
consequences of payment by — 256-258
crossed — 253-256, 265-266, 327, 334-335
customer’s duty to exercise care in custody — 145-146
Page 466
definition — 251
dishonoured — 35, 130-131
drawee bank’s
duty to pay — 264-266
right of recovery — 337-345
estoppel and unauthorised — 320-322
forged signatures on — 129, 317-322
functions and definitions — 250-253
guarantee cards — 303
indorsed — 324-325, 333-334
irregular indorsements — 266, 319, 324-327, 333-334
lost or stolen — 257
by mail — 257-258, 346
markings on — 253-256
maximum value — 250 n 22, 286, 295, 371
moment of paying — 261
negligence in collection of — 357-359
no indorsements — 333-334
non-transferable — 255-256, 326-333, 358
not dated — 252
‘not negotiable’ on — 253, 327, 329, 335, 347, 349-351
‘not transferable’ on — 255, 327-333
onus of proof regarding forged or unauthorised signatures — 322
order — 265
parties involved — 251
payment
of amount more than stipulated — 336-337
in due course — 264-265, 323-327
in ordinary course of business — 324-327
presentment for — 260-261
post-dated — 128, 252, 335-336
premature payment of post-dated cheques — 335-336
recovery of unauthorised payments — 337-366
refusal to pay — 128
rights and liabilities of parties — 250
statistics on use — 249-250
travellers’ — 187-188
true owner and — 253-255, 267-269
truncation of — 259-260
unauthorised endorsements — 265
unauthorised payments
Aquilian liability — 324
collecting bank’s right of recovery against customer — 366
drawee bank’s right of recovery — 337-345
enrichment — 337-339, 343-346
estoppel — 340-341
failure to observe terms of mandate — 323-337
forged or unauthorised indorsements — 324-327
Page 467
in good faith — 323-327
irregular indorsements — 333-334
more than stipulated amount — 336-337
negligence — 324
negligence in in opening of account — 359-366
no indorsements — 333-334
non-transferable cheques — 327-333, 358
payment countermanded — 322-323
payment to non-holder — 323-334
payments contrary to crossing — 334-335
premature payment of post-dated cheques — 335-336
Price v Neal rule — 340-345
recovery of — 337-366
true owner’s right to recovery — 345-366
without mandate — 317-323
unauthorised signatures — 317-322
when customer countermands payment — 130
CIF (COST, INSURANCE AND FREIGHT) — 395
CIP (CARRIAGE AND INSURANCE PAID) — 395
CIVILIAN METHOD FOR COMPUTATION — 203
CLAYTON RULE — 41-42
CLC see CODE OF LINE CLEARING (CLC)
CLEARING
of cheques — 259
house rules — 33
houses and electronic funds transfers — 274
meaning — 86
system — 84-87, 131
system participant — 86
CLOSE CORPORATIONS
formation of bank-customer relationships — 123 n 66-124 n 67
CLOSE RELATIVES
payments to and deposits — 19
CLS see CONTINUOUS LINKED SETTLEMENT SYSTEM (CLS)
CLS BANK see CONTINUOUS LINKED SETTLEMENT BANK INTERNATIONAL (CLS
BANK)
CLS CURRENCIES — 80
CODE OF BANKING PRACTICE see SOUTH AFRICAN CODE OF BANKING PRACTICE
CODE OF LINE CLEARING (CLC) — 261
CODES OF CONDUCT FOR FINANCIAL SERVICE PROVIDERS — 185-186
COINS — 198-199
COLLECTING BANK
contributory negligence — 365
duty
of care to owner of lost or stolen cheque — 350-355
to collect cheques — 267-269
negligence
Page 468
in collection of cheques — 357-359
in opening of account — 359-366
and unauthorised cheque payments — 355-357
recovery of unauthorised cheque payments — 350-355
true owner’s right to recovery against — 350-366
vicarious liability and negligence in opening account — 365
wrongfulness — 350-355
COMBINING BANK ACCOUNTS see SET-OFF: between bank accounts
COMMERCE
role of banks in — 1-2
COMMERCIAL BANKS — 2-5
COMMERCIAL PAPER — 15
COMMON BOND — 15 n 81, 44
COMMON LAW
replacement with legislation — 26
Roman-Dutch law and — 40-42
COMMUNITY BANKS — 4
COMMUNITY SAVINGS CLUBS — 43
COMPANIES
formation of bank-customer relationships — 123 n 66-124 n 67
COMPARATIVE LAW
distinguished from foreign law — 52 n 203
COMPETITION LAW — 31
COMPETITIONS
promotional — 92
COMPROMISE
description of — 227
distinguished from novation — 227
payment and — 227-230
COMPUTATION
civilian method — 203
natural method of — 203
CONDICTIO INDEBITI — 338-339, 342-345
CONDICTIO OB CAUSAM FINITAM — 339
CONDICTIO OB TURPEM VEL INIUSTAM CAUSAM — 339, 344-345
CONDICTIO SINE CAUSA — 342
CONDICTIO SINE CAUSA SPECIALIS — 338-339, 343
CONDITIONAL BONDS see ACCESSORY GUARANTEE
CONDITIONAL PAYMENT — 226
CONFIDENTIALITY — 135-136 see also SECRECY
CONFIRMING BANK
documentary credits — 406
CONFLICT OF LAW — 47-48
CONSTITUTIONAL LAW — 28-30
CONSTRUCTION GUARANTEE — 440, 443, 446, 451
CONSUMER PROTECTION LEGISLATION — 90-93, 299, 369
CONSUMER RIGHTS — 91-93
Page 469
CONSUMER-ACTIVATED EFT SYSTEMS
automated teller machines (ATM) — 275-276
CONSUMERS
definition — 298
CONSUMPTION
loan for see MUTUUM
CONTINUOUS LINKED SETTLEMENT BANK INTERNATIONAL (CLS BANK) — 80
CONTINUOUS LINKED SETTLEMENT SYSTEM (CLS) — 80-81
CONTRACT(S)
bank-customer relationship — 38-39
of deposits — 115
of mandate — 38-39
standard-form
guarantees — 439-440
and safe custody — 176-177
sui generis — 39, 45, 115
CONTRIBUTORY NEGLIGENCE — 365
CONTROLLING COMPANIES — 74-77
CONVERSION
doctrine of — 346-347
COOLING-OFF PERIOD
direct marketing — 92
electronic communications and transactions legislation — 298
CO-OPERATIVE BANK SUPERVISORS — 8
CO-OPERATIVE BANKS — 2, 4, 8-9
CO-OPERATIVE BANKS DEVELOPMENT AGENCY — 9
CO-OPERATIVES
borrowing from members — 15
CORE NATIONAL PAYMENT SYSTEM FRAMEWORK AND STRATEGY VISION
2015 — 79
CORE PRINCIPLES FOR SYSTEMICALLY IMPORTANT PAYMENT SYSTEMS — 78
CORPORATE GOVERNANCE — 26
COUNTER-GUARANTEE — 445
COUNTERING FINANCING OF TERRORISM (CFT) — 99
COUNTERMANDING PAYMENT
electronic money and — 282
electronic transfers — 288-289
unauthorised
cheques — 322-323
electronic transfers — 374-376
COUNTERSIGNATURE — 187-188
CREDIT
definition by UCP 600 — 404
CREDIT AGREEMENTS
in duplum rule — 42
formalities — 126 n 74
Page 470
CREDIT CARDS
automatic existence of agreement — 306
automatically increased limit — 306
card issuer
and cardholder relationship — 307
and supplier relationship — 307
cardholder and supplier relationship — 307-309
credit legislation — 306-307, 309
difference between EFTPOS debit card and credit card transaction — 304
legal relationships — 307-309
parties involved — 305
purpose of — 304-305
schemes — 305
statistics on use — 249-250
for travelling — 188
tripartite — 305, 307
unauthorised use — 309-310
CREDIT CRUNCH — 1-2
CREDIT ENTRIES
reversal of — 150-151
CREDIT FACILITY — 306
CREDIT LEGISLATION
credit cards — 306-307
overdraft facilities — 147-149
pertaining to banks — 90
stokvels — 45
CREDIT PROVIDERS
registration as — 90
CREDIT SQUEEZE — 2
CREDIT TRANSFERS
reversal of — 377-382
CREDIT UNIONS — 43
CROSSED CHEQUES
drawee bank’s duty to pay cheques — 265-266
non-transferable — 328-333
payments contrary to crossing — 334-335
unauthorised payments — 327
CURATORSHIPS
settlement systems and — 83-84
CURRENCIES
CLS — 80
foreign — 187 n 112, 198 n 16
CURRENCY NOMINALISM — 201
CURRENCY REVALORISATION — 201 n 32
CUSTOM OR TRADE USAGE — 33-37, 48-52
Page 471
CUSTOMARY LAW see INDIGENOUS LAW
CUSTOMER DUE DILIGENCE (CDD) — 99, 102-103
CUSTOMER IDENTIFICATION — 99-105
CUSTOMERS
consent of for banker’s references — 179-180
death of — 163-164
dissolution of — 163-164
duties of see DUTIES OF CUSTOMERS
insanity of — 165
relationship with bank see BANK-CUSTOMER RELATIONSHIP
sequestration of — 164
who are — 112-114
CUSTOMERY LOYALTY PROGRAMMES — 92
D
DATA MESSAGES — 296-297
DATA-RELATED PROBLEMS
electronic money — 281-282
DAYS
meaning in stipulated time periods — 202 n 35
DEATH OF CUSTOMER — 163-164
DEBIT CARDS
for travelling — 188
DEBIT ORDERS — 272
DECEASED ESTATES
trust accounts — 160 n 313
DEDICATED BANKS — 4, 10-11
DEFAULT RULES OF APPROPRIATION — 151-152
DEFERRED PAYMENT CREDITS — 412-413
DELECTUS PERSONAE — 211
DELICTUAL LIABILITY
of bank — 111
beneficiary bank and electronic transfers — 285-287
financial advice — 183
DEMAND GUARANTEE
advance payment guarantee — 444
counter-guarantee — 445
distinguished from
accessory guarantee — 440-443
guarantee policy — 440
letter of credit — 438-439
doctrine of strict compliance — 455-458
existence of final judgment or award — 453
forfaiting — 402
fraud exception to independence principles — 449-451
illegality exception to independence principles — 451-452
independence principle — 445, 449-452
maintenance guarantee — 445
nullity exception to independence principle — 452
Page 472
payment guarantee — 443-444
performance guarantee — 443
requirement of complying demand — 455-458
retention guarantee — 444-445
tender guarantee — 445
types of — 443-445
DEPOSITORIES
commercial banks as — 4-5
DEPOSIT(S)
bank-customer relationship of contract of — 115
definition — 3, 9, 17-18
exclusions — 18-20
safe custody — 172-173
soliciting or advertising for — 13-14
DEPOSITUM — 26, 38-40, 115
DESIGNATED CLEARING SYSTEM PARTICIPANT — 86, 89
DESIGNATED SETTLEMENT SYSTEM — 79-81
DEVELOPMENT AGENCY FOR CO-OPERATIVE BANKS — 8-9
DEVELOPMENT BANK OF SOUTHERN AFRICA — 3, 6
DIGITAL CASH — 280
DIGITAL CASH CARDS — 304
DINERS’ CLUB CARDS — 303
DIRECT MARKETING — 92-93
DIRECTIVES ISSUED BY REGISTRAR OF BANKS — 72-73
DISCLOSURE
compelled by law — 136-138
with express or tacit consent of customer — 138-139
financial advice and duty of — 186
interest of bank requiring — 138
DISHONOURED CHEQUES — 35, 130-131
DISSOLUTION OF
bank — 165
customer — 163-164
DOCTRINE OF CONVERSION — 346-347
DOCTRINE OF STRICT COMPLIANCE
demand guarantees and — 455-458
description of — 409, 414-418
impact of UCP 600 — 418-420
waiver and payment under reserve — 420-421
DOCUMENTARY COLLECTIONS
advantages — 399-400
forfaiting — 401-403
DOCUMENTARY CREDITS
acceptance credits — 410-411
advising bank — 405
assignment of proceeds of credit — 432-433
back-to-back credit — 433
Page 473
bank-to-bank reimbursement — 407
buyer — 405, 407
cession (assignment) — 432-433
confirming bank — 406
credits available by negotiation — 414
deferred payment credits — 412-413
definition — 403, 409-410
doctrine of strict compliance — 409, 414-422
governance of — 403-404
independence principle — 409, 422-430
issuing bank — 405-407
letter of credit — 407-408, 414-417, 419, 422-423, 425-427, 429-430, 433
meaning of honour — 410
negotiation — 405-406
nominated bank — 405-406
open negotiable credit — 414
operation of — 407-409
parties involved — 404-407
realisation of documentary-credit transaction — 407-414
sight payment credits — 410
subsidiary credit — 433
transferable credits — 430-433
DRAWEE BANK
duty to pay cheques — 264-266
right of recovery for unauthorised cheque payments — 337-345
DRAWER
true owner’s right to recovery against — 350
DUTIES OF BANK
to act in good faith — 139-140
to collect payment on cheques — 127, 130-132
electronic funds transfers
beneficiary bank — 285-288
intermediary bank — 285
originator’s bank — 282-285
electronic money — 281
exercise of reasonable care and skill — 133-134
to furnish statements of accounts — 127, 132-133
to pay cheques — 126, 127-130
secrecy — 135-139
DUTIES OF CUSTOMERS
to exercise care in
custody of cheque forms — 145-146
in drawing payment instructions — 142-143, 318
reconciliation of bank statements — 145-146
to notify bank of known or suspected forgeries — 144-145
to pay overdrawing, interest and bank charges — 141-142
to reimburse and indemnify banks for expenses or losses — 145
Page 474
E
ECONOMIC LOSS
liability for pure — 267, 287, 351-352, 385
negligent misstatement — 182 n 78
ECONOMICS OF BANKING — 25 n 6
EFFLUXION OF TIME
termination of bank-customer relationship by — 166
EFTPOS CARDS — 303
EIUSDEM GENERIS — 234
ELECTRONIC AGENT — 297
ELECTRONIC COMMUNICATIONS AND TRANSACTION LEGISLATION — 296-
299, 369
ELECTRONIC FUNDS TRANSFERS
Aquilian liability — 287-288
automated teller machines (ATM) — 273
automated transactions — 297-298
BankservAfrica — 274
beneficiary bank as agent — 291
bills of exchange — 370
clearing houses — 274
completion of payment — 289-291
consumer protection legislation — 299, 369
consumer-activated EFT systems — 273-274, 275-282
countermand of — 288-289
credit legislation — 369
credit transfers — 274-275
debit transfers — 275
delictual liability — 285-287
duties of bank
beneficiary bank — 285-288
intermediary bank — 285, 369
electronic communications and transaction legislation — 296-299, 369
electronic money — 280-282
enrichment — 382-384
forged instructions — 371-374
inter-bank credit transfers — 290-291
inter-branch transfers — 290-291
intermediary bank — 369
international fund transfers — 302-303
internet banking services — 273, 279-289
intra-branch transfers — 290-291
larger amount than instructed — 376-377
legal effect of — 282-294
legislation — 295-302, 369-370
by magnetic tapes — 273
mobile banking services — 273, 279-289
national payment system — 295
Page 475
negligence — 283
non-consumer activated systems — 273
payment prior to due date — 377
by personal computer — 273
point-of-sale facility (EFTPOS) — 273, 276-279
reasonable care and skill — 282-283, 368
recovery of erroneous payments — 291-294
reversals — 291-294, 375-376, 377-382
right of recovery — 377-387
risks — 370
South African Code of Banking Practice — 283-284, 368, 372
telephone banking — 273, 279-289
unauthorised
contrary to mandate — 376-377
countermand of payment — 374-376
pin — 372-373
recovery of — 377-387
without mandate — 371-376
vicarious liability — 284
written instructions — 373
ELECTRONIC MONEY
countermanding payment — 282
data-related problems — 281-282
digital cash — 280
duties of bank — 281
electronic purses — 280-281
mobile money — 280
physical loss of — 282
ELECTRONIC PURSES — 280-281
ELECTRONIC TRANSACTIONS — 296-299
E-MONEY see ELECTRONIC MONEY
ENGLISH BANKING LAW — 52-54
ENRICHMENT
recovery of unauthorised
cheque payments — 337-339, 343-346
ENTERTAINMENT CARDS — 303
EQUITY BANKS — 4
ERRONEOUS PAYMENTS — 242, 277, 287, 291-295, 332, 342, 376, 378, 381
ESTATE AGENTS
trust accounts — 159 n 309
ESTATE PLANNING — 189-190
ESTOPPEL
bank’s representation — 121, 129
forged and unauthorised signatures on cheques — 320-322
Page 476
unauthorised payments of cheques — 340-341
EUROPEAN COMMUNITY LAW — 51-52
EUROPEAN IUS COMMUNE — 40-41, 53-54
EXEMPTIONS
proof of residential address — 102-105
EXPENSES
customer’s duty to reimburse and indemnify bank — 145
F
FACTORING — 396-399
FAIR AND RESPONSIBLE MARKETING — 92
FALSE REPRESENTATIONS — 92
FATF STANDARDS 2012 — 103-104
FEDERATION INTERNATIONALE DES INGENIEURS-CONSEIL (FIDIC) — 440
FIDIC see FEDERATION INTERNATIONALE DES INGENIEURS-CONSEIL (FIDIC)
FIDUCIARY AS CUSTOMER — 114
FINANCIAL ADVICE
delictual liability — 183
disclosure — 186
furnishing of — 182-187
good faith — 183
mandate — 183-184
misrepresentation — 186-187
reasonable care and skill — 183
statutory obligations — 184-186
FINANCIAL ADVISORY AND INTERMEDIARY SERVICES LEGISLATION — 93-
98, 184-186
FINANCIAL INTELLIGENCE CENTRE LEGISLATION — 98-106, 136 n 168, 365
FINANCIAL PRODUCT
meaning — 93-94
FINANCIAL SERVICE CO-OPERATIVES — 8
FINANCIAL SERVICE PROVIDERS
authorisation of banks as — 95-98
codes of conduct — 185-186
conditions and restrictions — 96
display and use of licence — 97
lapse of licence — 97
meaning — 94, 184 n 92
registration as — 90
representatives of — 185 n 94
suspension of licence — 97
FIRST-TIER BANKING — 4-6
FIXED DEPOSIT
termination of account — 166
FLOOR PLAN AGREEMENTS — 14 n 75
FOREIGN CURRENCY — 187 n 112, 198 n 16
FOREIGN EXCHANGE (FX) TRANSACTIONS — 80
FOREIGN LAW
distinguished from comparative law — 52 n 203
Page 477
FOREIGN MUNICIPAL LAW — 52-54
FORFAITING — 401-403
FORGED SIGNATURES ON CHEQUES — 129, 317-322
FORGERIES
cheques — 129, 317-322
customer’s duty to notify bank of suspected or known — 144
FORMAL SOURCES OF LAW — 28
FORMALITIES
credit agreements — 126 n 74
FRAUD
exception to independence principle — 427-430, 449-451
internet — 298
payment obtained by — 242-243
FRUSTRATION OF PAYMENT — 241
FULL SETTLEMENT
payment in — 227-231
G
G10 COUNTRIES — 49
GCC see GENERAL CONDITIONS OF CONTRACT FOR CONSTRUCTION WORKS (GCC)
GENERAL CONDITIONS OF CONTRACT FOR CONSTRUCTION
WORKS (GCC) — 440, 443
GENERAL PUBLIC
meaning — 13
GLOBALISATION — 27
GOLD COINS — 198-199
GOLD CONFERENCE, OCTOBER 1919 — 64
GOOD FAITH
duty to act in — 139-140
GOODS
meaning under consumer protection legislation — 91
‘GOOI-GOOI’ — 43
GROUP OF TEN (G10) COUNTRIES — 49
GUARANTEE POLICY — 440
GUARANTEES
accessory — 438
demand see DEMAND GUARANTEE
independent see DEMAND GUARANTEE
for payment — 222-225
GUARDIAN OF MINORS — 113 n 17
H
HIGH-BUDGET ASSOCIATIONS — 43
HONOUR
meaning of — 410
I
IDENTIFICATION OF CUSTOMERS — 99-102
ILLEGALITY EXCEPTION TO INDEPENDENCE PRINCIPLE — 429-430, 451-452
Page 478
IMPLIED AUTHORITY TO REPRESENT ACCOUNT HOLDER — 124 n 67
IN DUPLUM RULE — 41-42, 45
INDEPENDENCE PRINCIPLE
case law — 424-430
description of — 409, 422-424, 445-446
exceptions to other than fraud — 451-455
existence of final judgment or award — 453
fraud exception — 424, 427-430, 449-451
illegality exception — 429-430, 451-452
nature of court intervention — 446-449
nullity exception to — 452
public policy — 450-451
INDIGENOUS LAW — 42-46
INDORSED CHEQUES — 324-325, 333-334
INFRASTRUCTURE PROJECTS — 6
INSANITY OF CUSTOMER — 165
INSOLVENCY
clearing system — 84-85
national payment system — 81-85
set-off between bank accounts — 156
trust accounts for insolvent estates — 160 n 313, 161 n 316
INSPECTIONS
registration of banks — 70
INSTITUTIONALISED SELF-HELP PRACTICES — 8
INSURANCE
documents for international sale transactions — 395
guarantee policy — 440
premiums — 19
travel — 188
INTANGIBLE METHOD OF PAYMENT — 249
INTER VIVOS TRUSTS AS CUSTOMERS — 114
INTERDICTS
enforcement of registration of banks requirement — 70
INTEREST
on loans — 41
on overdraft facilities — 35, 148
prescribed rate — 201 n 32
INTERMEDIARIES
true owner’s right to recovery against — 347-350
INTERMEDIARY BANK
duties of and electronic transfers — 285, 369
INTERMEDIARY SERVICES
meaning — 94-95
INTERNATIONAL CHAMBER OF COMMERCE (ICC) — 48 n 176
INTERNATIONAL FUND TRANSFERS — 302-303
INTERNATIONAL LAW — 47-48
Page 479
INTERNATIONAL SALE TRANSACTIONS
cash with order — 395-396
cession (assignment) — 398
documentary collections — 399-403
documentary credits see DOCUMENTARY CREDITS
documents — 395
factoring — 396-399
open account — 396-399
parties to — 394
payment in advance — 395-396
receivables financing — 397
risks — 394-395
INTERNATIONAL STANDARD BANKING PRACTICE FOR THE EXAMINATION OF
DOCUMENTS UNDER DOCUMENTARY CREDITS (ISBP) — 418
INTERNATIONAL STANDARDS ON COMBATING MONEY LAUNDERING AND THE
FINANCING OF TERRORISM & PROLIFERATION — THE FATF
RECOMMENDATIONS — 103-104
INTERNATIONAL TRADE USAGE — 48-52
INTERNET BANKING SERVICES — 273, 279-289
INTERNET FRAUD — 298
INTERNET PAYMENT INTERMEDIARY SYSTEM — 274 n 214
INVESTMENT BANKING — 3
INVESTMENT BANKS — 5
INVESTMENT CLUBS — 43
ISBP see INTERNATIONAL STANDARD BANKING PRACTICE FOR THE EXAMINATION
OF DOCUMENTS UNDER DOCUMENTARY CREDITS (ISBP)
ISLAMIC LAW — 28, 46-47, 116 n 34
ISSUING BANK
J
JBCC see JOINT BUILDING CONTRACTS COMMITTEE (JBCC) SUITE OF AGREEMENTS
JOINT BUILDING CONTRACTS COMMITTEE (JBCC) SUITE OF AGREEMENTS — 439-
443, 451
JUDICIAL PRECEDENT — 32
K
KEY INDIVIDUAL
meaning — 94
KING CODE ON CORPORATE GOVERNANCE — 20, 105
‘KNOW YOUR CUSTOMER’ — 102
L
LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA — 3, 5-6
LEASE
bank-customer relationship — 115
LEGAL PERSON
bank as — 110-111
LEGAL PRACTICE LEGISLATION — 137 n 170
Page 480
LENDERS
commercial banks as — 4-5
LETTER OF CREDIT
difference between demand guarantee and — 438-439
documentary credits — 407-408, 414-417, 419, 422-423, 425-427, 429-
430, 433
LEX AQUILIA FOR NEGLIGENCE — 267-268, 351
LIABILITY
Aquilian liability see AQUILIAN LIABILITY
of bank
bank-guaranteed cheques — 263
to third party for incorrect or inaccurate banker’s reference — 181-182
for unfavourable banker’s reference about customer to third party — 180-181
vicarious liability — 111
delictual see DELICTUAL LIABILITY
of maker of promissory note — 270
of principle and bank-customer relationship — 121
pure economic loss — 385
Reserve Bank and limitation of — 78
LICENCING OF FINANCIAL SERVICE PROVIDERS — 96-97
LIEN
distinguished from set-off — 152 n 276
LIQUIDATION
and national payment system — 81-84
LOAN INTERMEDIARY — 1
LOANS
for consumption see MUTUUM
as element of bank-customer relationship — 116-117
interest on and Roman-Dutch law — 41
LOSSES
customer’s duty to reimburse and indemnify — 145
LOST CHEQUES — 253, 257, 268, 286, 324, 348-354
LOYALTY PROGRAMMES — 92
M
MAGNETIC INK CHARACTER RECOGNITION (MICR) — 259
MAGNETIC TAPES — 273
MAIL
cheques sent by — 257-258, 346
MAINTENANCE GUARANTEE — 445
MANDATE
contract of — 38-39, 115
as element of bank-customer relationship — 119
financial advice and — 183-184
foreign municipal law — 53
payments
contrary to — 323-337, 376-377
without — 317-323, 371-376
MANDATORIES
bank-customer relationship — 115
Page 481
business of a bank — 16
MANDATUM — 115
MARKETING
catalogue marketing — 92
direct — 92-93
negative option — 92
right to fair and responsible — 92-93
MATERIAL OR HISTORICAL SOURCES OF LAW — 28
MATURITY LOANS — 5
MEDIATION — 36
MENTAL CAPACITY TO CONCLUDE CONTRACT — 122-123
MENTALLY UNFIT PERSONS, AGREEMENTS WITH — 92
MICR see MAGNETIC INK CHARACTER RECOGNITION (MICR)
MIGRANTS — 101, 104-105
MINORS
agreements with — 93
as customers — 113 n 17
opening of bank account — 122
MISLEADING REPRESENTATIONS — 92
MISREPRESENTATION
financial advice — 186-187
MISTAKEN PAYMENT see ERRONEOUS PAYMENTS
M-MONEY — 280
MOBILE BANKING SERVICES — 4, 11-12, 273, 279-289
MOBILE MONEY — 280
MOBILE PAYMENTS — 11, 274 n 214
MONEY
legal concept of — 197
MONEY LAUNDERING — 99-101, 365
MONEY LENDING TRANSACTIONS
agency and — 16
MORICE, GEORGE — 24 n 4
MORTGAGE BONDS — 5
MUDHAARABAH CONTRACT — 47 n 165, 116 n 34
MULTI-MODAL (COMBINED) TRANSPORT DOCUMENT — 395
MUTUAL BANKS
regulation of — 2-3
stokvels and — 44
MUTUUM — 17, 38-40, 115
MZANSI INITIATIVE — 8, 102-105
N
NATIONAL PAYMENT SYSTEM (NPS)
categorisation of banks and — 3
clearing system — 84-87
description of — 3 n 13, 249
finality and irrevocability of settlements — 81
insolvency — 81-85
Page 482
intermediaries — 89
legislation — 78-89
management body — 87-88
netting — 81-84
payments to third parties and non-bank system participants — 88-89
Reserve Bank and — 65-66, 79
set-off — 82-83
settlement system — 79-81
NATURAL METHOD OF COMPUTATION — 203
NATURALIA OF BANK-CUSTOMER RELATIONSHIP — 33, 36
NEC see NEW ENGINEERING CONTRACT (NEC)
NEGATIVE OPTION MARKETING — 92
NEGLIGENCE
collecting bank
duty to collect cheques — 267-268
unauthorised cheque payments — 355-357
in collection of cheques — 267-268, 357-359
contributory — 365
in opening of account — 359-366
safety-deposit boxes — 176-177
test for — 355-357
unauthorised cheques — 324
NEGOTIATION
credits available by — 414
NET SETTLEMENT SYSTEM — 81-84
NETTING
definition — 83
NEW ENGINEERING CONTRACT (NEC) — 440
NOMINALISM OF CURRENCY — 201
NOMINATED BANK
‘NON TRANSFERABLE’ ON CHEQUES — 255-256
NON-BANK SYSTEM PARTICIPANTS
NON-CONSUMER ACTIVATED SYSTEMS — 273
NON-TRANSFERABLE CHEQUES
crossings — 328-333
indorsements on back — 332
unauthorised payments — 326-333, 358
‘NOT NEGOTIABLE’ ON CHEQUES — 253, 327, 329, 335, 347, 349-351
NOT TRANSFERABLE CHEQUES — 255, 327-333
NOVATION
cardholder’s obligation — 278, 308
distinguished from compromise — 227
of debt — 257, 273
Page 483
NPS see NATIONAL PAYMENT SYSTEM (NPS)
NULLITY EXCEPTION TO INDEPENCE PRINCIPLE — 452
O
OBLATIO — 229 n 132
OBLIGATIONS
law of and banking — 25-26
OFFENCES
registration of banks — 69-70
OFFICE OF THE REGISTRAR OF BANKS — 3
OFFSHORE TRANSFERS — 302
OMBUDSMAN FOR BANKING SERVICES — 36
OMBUDSMAN FOR FINANCIAL ADVISORY AND INTERMEDIARY
SERVICES — 20, 106
OMBUDSMAN FOR LONG- AND SHORT-TERM INSURANCE — 20, 106
‘ON REGISTRATION OF TRANSFER’
ONSHORE TRANSFERS — 302
ONUS OF PROOF
forged or unauthorised signatures on cheques — 322
‘ON-US’ PAYMENTS — 86
OPEN ACCOUNT — 396-399
OPEN NEGOTIABLE CREDIT — 414
OPENING OF BANK ACCOUNT — 120-126
‘OR’
ORDER CHEQUES — 265, 267, 326
‘ORDINARY COURSE OF BUSINESS’
payment in — 324-327
ORGANIC THEORY — 111 n 6
ORGANISED CRIME — 98-106
ORIGINATOR’S BANK
duties of and electronic transfers — 282-285
right of recovery for unauthorised electronic transfers — 384-387
OVERDRAFT FACILITIES
credit legislation — 147-149
discharge of indebtedness — 148
interest on — 35, 148
repayment period — 148
security over — 149 n 251
suspension or discharge — 148-150
P
PALERMO CONVENTION — 99
PAPER-BASED TRANSFERS see also BILLS OF EXCHANGE; CHEQUES; DEBIT
ORDERS; STOP ORDERS — 249
PARTNERSHIPS
as customers — 114
set-off between bank accounts — 153 n 279
Page 484
PASA see PAYMENTS ASSOCIATION OF SOUTH AFRICA (PASA)
PAYMENT CARDS see also AUTOMATED TELLER MACHINES (ATM): cards; CHARGE
CARDS; CHEQUE GUARANTEE CARDS; CREDIT CARDS; DEBIT CARDS; DIGITAL
CASH CARDS; EFTPOS CARDS; RETAIL CARDS; STORE CARDS
types of — 303-304
PAYMENT GUARANTEE — 443-444
PAYMENT INSTRUCTION
customer’s duty concerning drawing of — 142-143
meaning — 86
PAYMENT INTERMEDIARY SERVICES — 4-5
PAYMENT SYSTEM MANAGEMENT BODY — 87-88, 249
PAYMENT VERSUS PAYMENT (PVP) — 80
PAYMENT(S)
from accounts — 151-152
in advance for international sale transactions — 395-396
amount of — 200-201
appropriation
by parties — 218-220
residual rules — 220-222
cards — 303-311
in cash — 208, 248
compromise and — 227-230
concept of money — 197
conditional — 226
frustration of — 241
in full settlement — 227-231
at incorrect place — 207
intangible methods of — 249
mechanism — 248
medium of — 198-200
mistaken — 242, 277, 287, 291-295, 332, 342, 376, 378, 381
nature of — 194-196
obtained by theft or fraud — 242-243
to person outside republic — 207
place of — 205-208
by post — 208-210
proof of — 243-244
under protest — 226
receipt for — 218
rendering of what is owed — 194 n 1
set-off — 231-240
streams — 86
systems see ELECTRONIC FUNDS TRANSFERS; PAPER-BASED
TRANSFERS; PAYMENT CARDS
by third person — 211-214
to third person — 214-218
time of — 202-205
Page 485
by transfer of funds — 208
PAYMENTS ASSOCIATION OF SOUTH AFRICA (PASA) — 87-88, 249
PAYPAL — 274 n 214
PCH SYSTEM OPERATOR — 86
PENALTIES
registration of banks — 69-70
PENSION FUND CONTRIBUTIONS
deposits and — 19
PEOPLE’S LAW see INDIGENOUS LAW
PERFORMANCE GUARANTEE — 443
PERSONAL COMPUTER
electronic funds transfers by — 273
PERSONAL INFORMATION
protection of see PROTECTION OF PERSONAL INFORMATION LEGISLATION
PERSUASIVE SOURCES see PRIMARY SOURCES
PHISHING — 298, 302
PIN
unauthorised electronic funds transfers — 372-373
PLACE OF PAYMENT — 205-208
POINT-OF-SALE FACILITY (EFTPOS)
contractual relationship — 277
electronic funds transfers — 273, 276-279
on-line system — 277
off-line system — 277-278
smart cards — 278-279
POST
cheques sent by — 257-258, 346
POST OFFICE — 89
POSTAL PAYMENT — 208-210
POSTBANK OF SOUTH AFRICA — 4, 7-8, 89
POST-DATED CHEQUES — 128, 252, 335-336
PRESCRIBED RATE OF INTEREST — 201 n 32
PRICE V NEAL RULE — 340-345
PRIMARY SAVINGS AND LOANS CO-OPERATIVE BANKS — 9
PRIMARY SAVINGS CO-OPERATIVE BANKS — 9
PRIMARY SOURCES
custom or trade usage — 33-37
distinction between secondary sources and — 27-28
indigenous law — 42-46
Islamic Law — 46-47
judicial precedent — 32
legislation — 28-31
Roman Law — 37-40
Roman-Dutch law — 40-42
PRINCIPLE OF SUUM RECIPIT — 345, 383
PRIVATE BANKING
divisions in sector — 2
PRIVATE BANKING LAW — 24
Page 486
PRIVATE INTERNATIONAL LAW — 47-48
PROHIBITIONS
in terms of banking legislation — 77-78
PROMISSORY NOTES
definition — 269-270
functions of — 269-270
liability of maker of — 270
presentment for payment — 270-271
PROMOTIONAL COMPETITIONS — 92
PROOF OF PAYMENT — 243-244
PROTECTION OF PERSONAL INFORMATION LEGISLATION — 299-302
PRUDENTIAL REQUIREMENTS
banking legislation — 77
co-operative banks — 9
dedicated banks — 11
PRUDENTLY
bank to act — 133 n 134
PUBLIC BANKING LAW — 2, 24
PUBLIC COMPANY BANKS — 4
PUBLIC INTERNATIONAL LAW — 47
PUBLIC POLICY
agreements against — 125
independence principle — 450-451
PVP see PAYMENT VERSUS PAYMENT (PVP)
R
REAL-TIME GROSS SETTLEMENT (RTGS) — 80-81
REASONABLE CARE AND SKILL
consumer protection — 134
duties of bank — 133-134
electronic funds transfers — 282-283, 368
RECEIPT FOR PAYMENT — 218
RECEIVABLES FINANCING — 397, 399
RECONCILIATION OF BANK STATEMENTS — 145-146
RECOVERY
right of
bank’s — 377-384
collecting bank’s — 366
drawee bank’s — 337-345
payment by third person and — 213
true owner’s — 345-366
of unauthorised
cheque payments — 337-366
electronic payments — 377-386
REFERRAL SELLING — 92-93
REGISTRAR OF BANKS — 3, 70-73
Page 487
REGISTRATION
of banks
cancellation of — 73-74
direction by registrar concerning — 70-71
enforcement of registration requirement — 70-71
inspections — 70
interdicts — 70
legislation — 68-71, 73-74
offences and penalties — 69-70
of controlling companies — 74-75
as credit provider — 90
as financial service provider — 90
REGULATION OF INTERCEPTION OF COMMUNICATIONS AND PROVISION OF
COMMUNICATION-RELATED INFORMATION ACT (RICA) see RICA
REGULATORS — 108
REPRESENTATIONS
misleading or false — 92
REPRESENTATIVES
meaning of — 94, 185 n 94
RESERVE BANK
departmental structure — 66
functions — 65
history — 64-65
legislation governing — 65-66
limitation of liability — 78
and payment system management body — 87-88
RESERVE BANK SETTLEMENT SYSTEM — 79-81
RESIDENTIAL ADDRESS VERIFICATION — 102-105
RESIDUAL APPROPRIATION RULES — 220-222
RETAIL BANKS see COMMERCIAL BANKS
RETAIL CARDS — 303
RETENTION GUARANTEE — 444-445
REVALORISATION
principle of — 201 n 32
REVERSAL OF CREDIT ENTRIES — 150-151
RICA — 104
RIGHT OF RECOVERY see RECOVERY: right of
RISK MANAGEMENT — 1
RISK-BASED APPROACH see CUSTOMER DUE DILIGENCE (CDD)
ROMAN LAW — 37-40
ROMAN-DUTCH LAW — 40-42
RTGS see REAL-TIME GROSS SETTLEMENT (RTGS)
S
SAFE CUSTODY
deposits — 172-1723
safety-deposit boxes — 173-175
standard-form contracts — 176-177
Page 488
SAFETY-DEPOSIT BOXES
exclusive access by customer — 173-174
mislaid — 175 n 36
negligence — 176-177
safe custody — 173-175
shared access and control — 174-175
shortcomings in security system — 176 n 37
SALE see INTERNATIONAL SALE TRANSACTIONS
SAMOS see SETTLEMENT SYSTEM
SARB see RESERVE BANK
SAVINGS AND LOANS BANKS — 11
SAVINGS BANKS — 11
SAVINGS CLUBS — 43
SECONDARY CO-OPERATIVE BANKS — 9
SECONDARY SOURCES OF BANKING LAW
customary international law — 48-52
distinction between primary sources and — 27-28
foreign municipal law — 52-54
international law — 47-48
SECOND-TIER BANKS — 6-9
SECRECY see also CONFIDENTIALITY
bank’s duty of — 135-139
disclosure
compelled by law — 136-138
with express or tacit consent of customer — 138-139
interest bank requiring — 138
SECURITIES
sale or promotion — 5
SECURITY
for delivery or return of property — 18
for performance of contract — 18
SELLING
referral — 92-93
SEQUESTRATION
of customer — 164
set-off between bank accounts — 156
SERVICES
meaning under consumer protection legislation — 91
SET-OFF
between bank accounts
accounts at different branches — 154
distinguished from lien — 152 n 276
partnerships — 153 n 279
requirements — 153-154
sequestration — 156
voidable dispositions — 156 n 289
when will not apply — 154-155
debt must be due and enforceable — 234-235
Page 489
debt must be liquidated — 235-237
debts to be of same kind — 234
effect of — 238-240
liquidation — 82-83
mutual indebtedness — 232-233
requirements of — 232
sole proprietorships — 232 n 146
when excluded — 240
SETTLEMENT SYSTEM — 79-84, 88
SHAREHOLDING IN BANKS — 74-75
SHARIA LAW — 46-47, 116 n 34
SIGHT PAYMENT CREDITS — 410
SIGNATURES
unauthorised or forged on cheques — 317-322
SKILL
bank to act with reasonable care and — 133-134, 183, 282-283
SMART CARDS — 280-281
SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL TELECOMMUNICATION
(SWIFT) — 302-303
SOLE PROPRIETORSHIPS
as customers — 113
set-off — 232 n 146
SOLICITING OR ADVERTISING FOR DEPOSITS — 13-14
SOLUTIO — 194 n 1
SOURCES OF BANKING LAW — 27-54
SOUTH AFRICAN CODE OF BANKING PRACTICE
custom or trade usage — 36-37, 119 n 53
electronic funds transfers — 282-284, 368, 372
SOUTH AFRICAN RESERVE BANK (SARB) see RESERVE BANK
SPONSORSHIP ARRANGEMENT, CLEARING SYSTEM — 86
STANDARD OF CARE — 356
STATEMENTS OF ACCOUNT — 127, 132-133
STATUTORY REGULATION OF BANKS — 67-105
STIPULATED TIME PERIODS FOR PAYMENT — 202 n 35
STOKVELS
common bond — 44
credit legislation — 45
description of — 11, 43, 44-45
excluded from activities of ‘business of a bank’ — 44
mutual banks and — 44
qualification as — 45
types of — 43-44
STOLEN CHEQUES — 253, 257, 268, 286, 324, 348-354
STOP ORDERS — 271-272
STORE CARDS — 303
Page 490
STRICT COMPLIANCE
doctrine of — 409, 414-422
SUBSIDIARY CREDIT — 433
SUPPLIER
relationships with cardholder and card issuer — 307-309
SUUM RECIPIT
principle of — 345, 383
SWIFT see SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL
TELECOMMUNICATION (SWIFT)
T
TELEPHONE BANKING — 273, 279-289
TENDER GUARANTEE — 445
TERRORIST FINANCING — 99-101, 365
TERTIARY CO-OPERATIVE BANKS — 9
TESTAMENTARY TRUST AS CUSTOMER — 114
THEFT
payment obtained by — 242-243
THIRD PARTIES
payment to — 88-89, 214-218
payments by — 211-214
THIRD-TIER BANKS — 3-4, 10-12
TIME OF PAYMENT — 202-205
TOMORROW
meaning in stipulated time periods — 202 n 35
TRADE COUPONS — 92
TRADE USAGE — 33-37, 48-52
TRADING SECURITIES FOR CASH — 5
TRADITIONAL LAW see INDIGENOUS LAW
TRANSACTIO see COMPROMISE
TRANSACTION
definition — 296 n 396
TRANSFERABLE CREDITS — 430-433
TRANSPORT DOCUMENTS — 395
TRAVEL CARDS — 188, 303
TRAVEL INSURANCE — 188
TRAVEL SERVICES — 187-188
TRAVELLERS’ CHEQUES — 187-188
TRIPARTITE CREDIT CARDS — 305, 307
TRUE OWNER
cheques and — 253-255
doctrine of conversion — 346-347
meaning of — 345-346
right of recovery
against collecting bank — 350-366
against drawer — 350
against intermediary — 347-350
TRUNCATION OF CHEQUES — 259-260
TRUST ACCOUNTS
attorneys — 159 n 309, 161 n 315
Page 491
deceased estates — 160 n 313
estate agents — 159 n 309
insolvent estates — 160 n 313, 161 n 316
rules — 159-162
TRUST PLANNING — 189-190
TRUST PROPERTY — 118 n 47, 189
TRUSTEES
bank as — 189-190
TRUSTS AS CUSTOMERS — 114
TWIN PEAKS — 20, 106
U
UCP 600 see UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS
(UCP)
UNBANKED CONSUMERS — 3-4
UNCITRAL MODEL LAW ON INTERNATIONAL TRADE FINANCING — 386
UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (UCP) — 48 n
176, 403, 405-406, 408-410, 413, 418-423, 431-432, 439
UNIFORM RULES FOR COLLECTIONS (URC) — 401
UNIFORM RULES FOR DEMAND GUARANTEES (URDG 758) — 438-439, 455-456
UNIFORM RULES ON FORFAITING (URF 800) — 402
UNITED CONVENTION AGAINST TRANSNATIONAL ORGANISED CRIME (PALERMO
CONVENTION), 2000 — 99
UNITED NATIONS CONVENTION AGAINST ILLICIT TRAFFIC IN NARCOTIC DRUGS
AND PSYCHOTROPIC SUBSTANCES (VIENNA CONVENTION), 1988 — 99
V
VAULT LOCKERS see SAFETY-DEPOSIT BOXES
VCS see VIRTUAL CURRENCIES (VCS)
VERIFICATION OF CUSTOMERS — 99-102
VICARIOUS LIABILITY — 111, 284, 365
VILLAGE BANKS — 4, 10
VIRTUAL BANKING — 27 n 17
VIRTUAL CURRENCIES (VCS) — 274 n 214
VOIDABLE DISPOSITIONS
set-off between bank accounts — 156 n 289
W
WAIVER
doctrine of strict compliance and payment under reserve — 420-421
WRITING OF AUTHORS — 32
WRONGFULNESS
unauthorised cheque payments — 350-355

Banking Law

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Page v

Robert Sharrock (managing editor)

Chapter 1: Banks and banking law

Chapter 2: The nature of banking law and its sources

Chapter 3: The South African banking system

Chapter 4: The Bank-customer relationship

Chapter 5: Miscellaneous banking services

Chapter 7: Payment systems

Chapter 8: Unauthorised cheque payments and electronic funds transfers

Chapter 9: Payment in and financing of international sale transactions

Chapter 10: Bank guarantees

1.1 The role of banks in commerce

crunch’ or a ‘credit squeeze’ where it becomes extremely difficult for potential

1.2 The South African banking sector

1.3 Different types of banks

1.3.2 First-tier banks

Generally a commercial bank may be defined as a bank whose main business is

(ii) Investment banks

(iii) The Land and Agricultural Development Bank of South Africa

(iv) The Development Bank of Southern Africa

1.3.3 Second-tier banks

the clients or members participate in the day-to-day management of the affairs of

(ii) The Postbank of South Africa

(iii) Co-operative banks

1.3.4 Third-tier banks

(ii) Dedicated banks

(iv) Mobile banking services

1.4 The Banks Act

1.4.2 The definition of ‘bank’

(ii) The definition of ‘the business of a bank’ and excluded activities

controlled by him or her, as well as a subsidiary of that person, are deemed to be

(iii) The definition of ‘deposit’ and excluded payments

Apparently the purpose of this exclusion is to exclude any payment in consideration

Contravention of s 11(1) is an offence and is punishable with a fine and/or

1.4.3 Miscellaneous matters

List of works cited

2.2 The diversity of South African banking law

2.3.1 Banking law as part of the law of obligations

2.3.2 Bank-customer relationship a multi-faceted one

2.3.3 Government policy of legislating to replace the common law

2.3.5 Major practical changes in banking sector

2.4 The sources of South African banking law [18]

2.4.1 The distinction between primary sources and secondary

2.4.2 Primary sources

(ii) Judicial precedent [72]

By way of a broad generalisation, judicial precedent may be described as a judicial

(iii) Custom or trade usage [79]

(iv) Roman law

(v) Roman-Dutch law

(vi) Indigenous law

(vii) Islamic law

2.4.3 Secondary sources

(i) International law

(ii) Customary international law (international trade usage)

(b) The Basel Committee on Banking Supervision

(c) European Community law [192]

Finally, brief reference has to be made to the growing importance of European

(b) English law