---

IN THE HIGH COURT OF SOUTH AFRICA

(WITWATERSRAND LOCAL DIVISION)

CASE NO: 5142/97

DATE:22/04/1999

In the matter between:

SOUTH AFRICAN EAGLE INSURANCE COMPANY LTD..............................PLAINTIFF

and

NBS BANK LTD....................................................................................................DEFENDANT

JUDGMENT

VAN OOSTEN J:

1, INTRODUCTION

In this action the plaintiff claims payment of R 25 m from the defendant, together with interest a tempore morae and costs.

The defendant joined seven Third Parties to the action. The First, Fifth and Sixth Third Parties defended the action while the Second, Third, Fourth and Seventh Third Parties are in default. At the commencement of the trial and by agreement is was ordered that the action against the First, Fifth and Sixth Third Parties be separated from the main action and postponed sine die. The trial thereafter proceeded against the defendant only on the basis of an agreement, in respect of various issues, reached between the parties at a pre-trial conference.

2. THE PARTIES

The plaintiff is a short term insurance company, described in the evidence as one of the top 15 short term insurance companies in South Africa. Us total investment capital is

approximately R2 bn.

The plaintiff derives its income from insurance premiums. Premiums are received during the middle of each month. At the end of the month a cash assessment is made having regard to the defendant's existing investments and monies to be kept available for payment of claims. Any excess cash money is then invested with reputable financial institutions for a fixed term usually not exceeding twelve months.

The plaintiff's claim in this action arises from a set of five such investments, four of which remain unpaid allegedly placed by the plaintiff with the defendant.

The defendant is a registered bank, its business being investment and lending of money on interest. Its head office is in Durban with branches throughout South Africa of which the Kempton Park.branch is one. Branch managers are in charge of each branch; they report to regional managers who in turn ultimately report to the defendant's head office. The manager of the defendant's Kempton Park branch at the relevant time was Mr Vito Assante (The First Third Paviy in this action).

The defendant does not operate as a collecting banker and relies on deposits made as investments, for its business. In its retail division deposits are collected from the public at large through retail branch networks. Pre-published rigid rates of interest apply in respect of private investments. The corporate division of the defendant comprises the wholesaled money market which attracts large investors, like the plaintiff, where the rate of interest is usually negotiated, relative to the need of the bank and the size of the deposit invested.

3. SUMMARY OF THE FACTS .

3.1 BACKGROUND

Investments by the plaintiff were made in accordance with an investment strategy established by the defendant's investment Committee consisting, at the time, of the managing director, (Mr Peter Martin), the financial director (Mr Jim Carter) and Mr Keith Lober, the Group Investment and Taxation Manager. Investments were made by the investments department headed by Mr Lober with the assistance of an investment administration clerk, Ms Liz Pollock.

Part of the defendants investment strategy was to invest deposits with certain approved Banking institutions. A list containing the names of the approved institutions as well as their credit rating was always at hand serving as a guideline where to place a particular investment. Elected financial institutions included the name of the defendant with an approved investment limit of R40 m.

Cash deposits, comprising approximately 20 % of the defendant's, total investment portfolio, were made either on call or on fixed deposits. In the normal course of events an investment would be made as follows: - Gn an amount of cash becoming available for investment, Ms Pollock, with the aid of the defendant's priority list, would obtain two or three telephonic quotations of the interest rates offered over a three, six, nine or twelve month investment period. Having obtained this information, Mr Lober Would then, within the confines of the defendant's investment policy, decide where to place the investment. The proposed investment would then be confirmed with the relevant institution, by Ms Pollock. The processing of the transaction requires a cheque-requisition form made out by Ms Poilock and authorized by Mr Lober whereafter a cheque is made out in the defendant's accounts department in accordance With the details on the requisition. After signature of the cheque it is then either deposited directly into the plaintiffs account with the financial institution, or arrangements are made for collection of the cheque by a messenger of the financial institution.

3.2 MR JONES

Early in 1996, one Tiny Jones, a chartered accountant in Cape Town and the brother in law of the plaintiff's managing director, Mr Peter Martin, solicited an investment of R5 m from the plaintiff.

Jones was neither an employee of the defendant nor did he pretend to act on behalf of the defendant. The evidence indeed discloses that Jones acted as an independent broker.

Mr Lober testified that he was approached by Jones to invest available funds in either the defendant or Syfrets. Lober showed some interest, and the terms of an investment with the defendant were discussed, Martin was aware of the prospective investment with the defendant and in fact approved it. The normal processing procedures were followed and [10) a signed cheque was produced by the accounts department. The cheque was drawn by the plaintiff; made payable to the defendant; crossed "not negotiable - not transferable" and bore a superscription as to its purpose i e "Investment @ 15,10 % “.

3.3 THE USUAL PROCEDURE

Ms Pollock testified that on a prior occasion she had met Jones and Swanepoel (an associate of Jones) in Martin's office. When the investment transaction was concluded Swanepoel telephonically informed her that the signed cheque for the investment would be collected by either one of his associates, Trevor Bradley (The Fifth Third Party) or Peter Stevenson ( The Sixth Third Party). She was also informed that the cheque would be deposited at the defendant's Kempton Park branch. Having handed the cheque to the designated recipient thereof Ms Pollock would later, usually on the same day, receive a letter from the defendant's Kempton Park branch, signed by Assante, confirming the investment. A further document would simultaneously be delivered to her being defendant's computer generated deposit slip reflecting details of the interest amount on the investment, which was separately invested as a lump sum at the commencement of the transaction, Both documents, without more ado, ended up in the filing cabinet.

3.4 THE FIRST INVESTMENT: R5 M

Unbeknown to either Mr Lober or Ms Pollock, the cheque in question in this case, instead of being deposited at defendant's Kempton Park branch, found its way to a firm of attorneys in Kempton Park, Nel Oosthuizen & Kruger ("NOK").

NOK was a subscriber to the NBS Corporate Saver System. The system was designed by the defendant during 1987/88 and subscribed to by firms of attorneys, accountants and investments brokers. The system obviates the otherwise cumbersome administrative procedures associated with the establishment and maintenance of trust accounts on behalf of clients.

Basically the facility allows investment with the defendant of funds held by the subscriber on behalf of its clients at improved rates of interest. Funds deposited with the defendant, were on the basis that is was directly made by the subscriber. In receiving a deposit the defendant incurred a corresponding obligation to the subscriber-to repay the sum deposited on instructions from the subscriber in terms of a Written Corporate Saver Agreement. NOK was supplied with NBS cheque books, stationery as well as a computer terminal, enabling access to the defendant's mapper computer system. The subscriber was able to withdraw monies from its Corporate Saver Account subject to the limit imposed by the Corporate Saver Agreement. NOK's withdrawal limit was R 250 000 -00.

One account, in the name of the subscriber, called an "umbrella account", was opened in (10) the defendant's financial data base. The subscriber in turn was entitled to open sub-accounts for its individual clients in the Mapper Computer System. The clients of the subscriber had no direct link or dealings with the defendant.

NOK became a Corporate Saver Account holder in terms of a written agreement concluded with the defendant on 4 October 1995.

The defendant1 s cheque earmarked for investment with the defendant was deposited by NOK in the defendants bank account held at First National Bank, acting as the collecting banker. The deposit slip, embodying the pre-printed name of the beneficiaryi.e. NBS-Bank as well as a series of numbers, allowed a corresponding credit to be raised in NOK's

Corporate Savers Account, and was reflected as such in the defendant's system. NOK, as a result, became entitled to draw monies on its Corporate Savers Account for payment to third parties. The first investment of R5 m was ultimately repaid from NOK's Corporate Savers Account.

3.5 THE FOUR FURTHER INVESTMENTS

Four further investments made under similar circumstances followed. On 8 May 1996; 10 June 1996; 21 November 1996 and 5 December 1996 cheques in the amounts of R 5 m; RI0 m; R5 m and R5 m respectively were made out by the plaintiff for investment purposes, but eventually ended up in NOK's Corporate Savers Account.

Although the evidence is anything but clear on this aspect the position seems to be that(10) the R 25 m paid into NOK Corporate Savers Account simply "leaked away" and could not be repaid to the plaintiff. Early in 1997, the defendant discovered that a fraudulent scheme had been operated by Assante but repudiated any liability as follows in a letter dated 20 January 1997:

"We are at present investigating irregularities with regard to transactions in our Kempton Park branch.

We believe that you may hold a letter, bearing the signature of Vito Assante the

currently suspended manager of that branch, purportedly containing and undertaking or guarantee to pay you certain moneys in a specified future date.

We regret to advise you that the previous manager was not authorized to sign letters of this nature of behalf of the bank.

It would greatly assist our investigations if you would inform us of details of the transactions which gave rise to your receiving the letter and in particular with what individual you dealt

Wemust, however, emphasize, that the bank cannot accept liability for any payment on the basis of any such letter."

The defendant's attitude In essence is that the investments were not made with it and (10) further that Assante had no authority to commit the defendant to repayment.

4. THE PLAINTIFF'S CAUSES OF ACTION

In its main claim the plaintiff alleges that the defendant accepted the deposits as investments in terms of an oral investment agreement and the time for repayment having arrived, is contractually obliged to refund the sum of R 25 m.

In the alternative the plaintiff pleads that, in the absence of proof of the agreement of investment, it has a claim for repayment of the money in delict; enrichment or by reason of the defendant's infringement of certain provisions of the Banks Act 94 of 1990.

During argument at the end the trial Mr Brassey who, with Mr Bham appeared for the plaintiff, abandoned the plaintiffs action based on the infringement of the Banks Act.

I turn now to consider each of the plaintiff's causes of action under separate headings;

4.1 DEPOSIT/CONTRACT

In its main claim, under the heading "Deposit" the plaintiff pleads the investment

agreement as follows:

"3.1 On or about 7 or 8 May 1996, and at Johannesburg, alternativefv, KemptonW) Park, the plaintiff, duly represented by Keith Lober ("Lober") and/or Elizabeth Pollock ("Pollock") and the defendant, duly represented by Trevor Frederick Bradley ("Bradley") and/or Stephen John Swanepoel ("Swanepoel") and/or Vito Assante ("Assante") concluded an oral agreement ("the first agreement").

3.2 In terms of the first agreement -

3.2.1 the plaintiff agreed to deposit an amount of R5 miilion with the defendant's Kempton Park branch on 8 May 1996;

3.2.2 the defendant agreed to pay to the plaintiff interest at the rate of 15,1 % per annum on the amount deposited, such interest to be calculated from the date of deposit to the date of maturity referred to below;

3.2.3 the deposit would mature on 8 May 1997, on which date the capital amount deposited together with the interest thereon was payable to the plaintiff."

It is further alleged that pursuant to the agreement the amount of R5m was deposited with the defendant but that repayment, notwithstanding the maturity date having arrived, remains outstanding.

Each cheque is the subject matter of a separate claim and the terms pleaded in respect(io) of the four transactions are identical.

The defendant not only denies that the agreement was concluded with it, but further disputes the authority of Mr Lober and/or Ms Pollock to act on behalf of the plaintiff. Although the argument in support of this contention is not without merit, I will assume in favour of the plaintiff (without deciding this issue)that both Mr Lober and Ms Pollock were duly authorized by the plaintiff to conclude the agreement of investment.

Mr Harpur, who with Mr Stewart appeared for the defendant, submitted that the plaintiff has failed to prove the allegation that the agreement was concluded with the defendant represented by Mr Bradley and/or Mr Swanepoel and/or Mr Assante.

Mr Lober's evidence was that he had concluded the agreements with Mr Jones, who on the evidence before me, appears to have acted as an independent broker. Unbeknown to the plaintiff, exorbitant commissions were paid from NOK's Corporate Savers Account to Bradley and Associates in respect of each investment Jones and Swanepoel apparently worked in tandem in Cape Town while Bradley and Stevenson, on their instructions, effectively acted as messengers for the cheques. The evidence does not suggest that either Bradley or Swanepoel (who were not called to give evidence) were( acting as agents for the defendant, and their position can be equated with a person acting as a conduit or intermediary between the plaintiff and the defendant. They clearly had no authority to enter into an agreement of investment on behalf of the defendant. (See Bird v Sumervllle and Another 1961 (3) SA 194 (A) at 202 B-H)

Assante (who was also not called to give evidence) was similarly not involved in the negotiations with Mr Lober. Although he appears to be the master mind behind the fraudulent scheme, his involvement in the actual transactions was limited to issuing the letter of acknowledgment in respect of each transaction. Whatever his actions were, they must be considered in the light of the following admissions made by the plaintiff at a pre-trial conference:

"1. The plaintiff admits thai:

1.1 The First Third Party (Assante) had no actual authority, express or implied, from the defendant to issue the "guarantees" being annexures "SAE2*, ''SAE 4" "SAE 6" and SAE 8" of the plaintiff's declaration;

1.2 Assante knew that he had no actual authority to issue the said 'guarantees'".

I will return to this aspect of the matter when the plainitff's first alternative cause of action is considered.

In argument, Mr Brassey, in my view correctly so, conceded that no one acting on the defendant's behalf subjectively intended to conclude an agreement of investment by which the defendant would be bound. The plaintiff contrawise, intended to place the deposits^ l o) with the defendant for investment. There thus being no room for a finding that a direct meeting of minds ("wilsooreenstemming") had occurred, Mr Brassey was constrained to rely on the defendant's "appearance of consent" which - so he submitted - was sufficient for a contract of investment to come into being ("vertrouensteorie" - See Saambou Nasionale Bouverenigning v Friedman 1979 (3) SA 978 (A) at 993 E)

The "appearance of consent", so the argument continued, was created by NOK on the one hand and Assante on the other hand. NOK, as agent of the defendant, received the money which plaintiff intended to invest and acting in pursuance of the scheme it had hatched with Assante, deposited it into the bank account of the defendant in such a way as to secure the benefit of it for themselves. Assante, likewise issued the undertaking to repay (the "guarantee") in order to promote, not the defendant's interests, but his own interests and those of his "accomplices", including NOK.

Counsel's argument is based on factual inaccuracies and must be rejected. Under the Corporate Savers Scheme NOK, for the limited purposes thereof, was appointed as the agent of the defendant NOK did not hereby become a general agent of the defendant In depositing the funds into its Corporate Savers Account with the defendant, NOK acted as a principal in its own right in accordance with the procedure prescribed in the Corporate Savers Agreement. NOK clearly lacked authority to act as agent for the defendant for purposes of accepting deposits for investments, as was contemplated by the plaintiff. Assante's conduct in issuing the "guarantees" does not assist the plaintiff at all - he was acting without the authority of the defendant and furthermore promoted not the defendant's interests, but his own interests.

Apart from the merits of the plaintiff's argument, it was unable to overcome another insurmountable hurdle i.e. its failure to plead that NOK acted as defendant's agent for purposes of accepting performance under the investment agreement contemplated by the plaintiff. The pleadings moreover lacked the necessary averments to justify the plaintiff's reliance on the conduct of Assante or NOK, as an appearance of consent, to create an agreement. Imprefed (Pty) Ltd v National Transport Commission 1993 (3) SA 94 (A) at 107 C -108 F). On the contrary the allegation on behalf of plaintiff was that the agreement of investment was concluded orally and in the alternative in writing.

The evidence establishes that Mr Leber's trust was placed in Jones. The normal precautions and procedures in making investments were ignored. On the instruction of Mr Swanepoel, the cheques were handed to either Bradley or Stevenson - acting as plaintiffs' agents for delivery thereof to defendant's Kempton Park branch. Contrary to their undertaking, the cheques were delivered to NOK where they were deposited directly into defendant's bank account as an investment by NOK for the credit of their Corporate Savers Account with the defendant. Consensus ad idem was never reached and there is therefore no evidence to support the plaintiffs cause of action based on contract.

In the result the plaintiff's main claim cannot succeed.

4.2 THE ACKNOWLEDGMENT OF DEBT

The plaintiff's first alternative cause of action is based on the letter signed by Assante, referred to as an "Acknowledgment of Debt".

The first letter dated 7 May 1996 addressed to the plaintiff reads as follows: "Dear Sir,

FINANCE R 5 000 000

We hereby confirm that NBS Bank Ltd guarantees to repay the sum ofR5 000 000 '(five million Rand) on 7May 1997 to SA Eagle Insurance Co Ltd upon presentation of this letter.

Yours faithfully

(Signed) VASSANTE BRANCH MANAGER "

Similar letters followed the three further transactions.

Mrs Young who had been Assante's secretary at the defendant's Kempton Park branch testified (on behalf of the defendant) that she was instructed by Assante to type the letters referred to. Assante always appeared to be in a hurry when he requested her to type the(10) letters and she was told to delete them from her computer whereafter copies were put in a file to which she never had access. The original of each letter was handed to either Stevenson or Bradley, who were both regular visitors atthe branch. Her evidence supports the inescapable inference that Assante was part of a fraudulent scheme, disengaged from his normal duties as defendant's branch manager.

The plaintiff contends that the letters contain unequivocal acknowledgments of debt and guarantees to repay. Mr Harpur submitted that the contents of the letters, because of their vagueness, cannot be construed as either an express or an implied acknowledgment of debt. The argument is not.without substance but I will assume (without deciding the issue) the correctness of plaintiffs interpretation of the contents of the documents.

The plaintiff has not pleaded an acceptance of the acknowledgment of debt. In order to be legally enforceable an undertaking in the nature of an acknowledgment of debt would have to have been accepted animo contrahendi, (See: Adams v SA Motor Industry Employers Association 1981 (3) SA 1189 (A) at 1198 C; Chemfos Ltd v Plaasfosfaat (Pty) Ltd 1985 (3) SA 106 (A) at 115 B).

Mr Lober only saw the letters long after the investment decisions had been made and then only in response to a query from the defendant's internal auditors. Ms Pollock received the letters from either Bradley or Stevenson and her cursory reading thereof was only to satisfy herself that a fixed deposit had been made. The evidence, therefore does not establish that there was an acceptance of the acknowledgment of debt animo contrahendi.

Assante furthermore tacked authority (express or implied) to sign an acknowledgment of debt on behalf of the defendant as was formally admitted by the plaintiff.

The plaintiffs reliance in its replication on estoppel in regard to Assante's lack of authority must be rejected for the simple reason that there is no evidence that the defendant made the representation to the plaintiff that Assante was authorized to sign the acknowledgment of debt. The mere fact that Assante was the defendant's branch manager is in itself, of no consequence.

(See: Tuckers Land and Development Corporation vperpellief 1978 (2) SA 11 (T) at

15 E)

Finally, the defendant has raised the defence of non causa debiti, which must succeed as there was no agreement of investment and therefore no indebtedness to which the acknowledgment of debt could have applied.

In the result the plaintiffs first alternative claim must also fail.

4.3 THE PLAINTIFF'S CLAIM IN DELICT

In his argument, Mr Brassey, in respect of the plaintiffs claim in delict, confined himself firstly to the claim based on the negligence of the defendant and secondly to the claim based on the defendant's vicarious liability arising out of the fraudulent misrepresentation of Assante.

In support of the first claim in delict counsel sought to attack the defendant's system which allows a person depositing a cheque drawn exclusively in the defendant's favour, without

more, to lawfully appropriate the proceeds of the cheque for its own benefit. The effect of the system, so it was argued, was that the defendant, acting wholly of its own volition, deprived itself of the opportunity and ability to determine, by making the requisite enquiries, whether the drawer truly intended the ultimate beneficiary of the cheque to be the depositor rather than the defendant itself. The system, so the argument continued, should have allowed for automatic enquiries whenever the drawer and the beneficiary of the payment differed. In the absence thereof the defendant have to bear the risk of its failure.

There is, in my view, no merit in the argument. The system created by the defendant under the Corporate Savers Scheme was approved by the SA Reserve Bank as well as( the various Law Societies. Mr Munro, the audit manager in the defendant's retail division in detail described the operation of a Corporate Savers Scheme. It is clear from his evidence thatthedefendantwas entitled, in terms of the Corporate Saver System, to heed the instructions of the depositor of the cheques. Under these circumstances the defendant cannot reasonably be expected to enquire whether or not the named recipient of a cheque, drawn on the account of its customer, was in fact entitled to receive the funds. To impose such a duty on the defendant would inevitably lead to startling results.

It must further be remembered that the cheques were paid according to their tenor, by the defendant's bankers, First National Bank and Standard Bank - acting as the collecting bankers/ The defendant, not having seen the crossings on the cheques, obviously did not | become subject to the same obligations as those resting on a collecting banker.

The plaintiff's second delictual cause of action is based on Assante's fraudulent misrepresentation, which was to the effect that the defendant would repay the investments on due date. In its particulars of claim the plaintiff alleges that Assante's misrepresentation was made "through Swanepoel and/or Bradley".

There is no evidence in support of the plaintiffs allegations. If the terms of the guarantees are relied upon, they are quite different If Assante's conduct is relied upon it can only be Assante's' employment by defendant as branch manager. What is immediatly apparent is whatever conduct may be attributed to Assante, such conduct only occurred after the investment decision was made and could therefore not have induced the plaintiff in( making the investment.

The evidence of several witnesses including Mr Van der Walt, a forensic accountant who testified on behalf of the defendant show that Assante, while being employed as the manager of the defendant's Kempton Park branch, vigorously persued his own financial interests and that he entirely disengaged himself from his official duties.

In these circumstances vicarious liability cannot attach to the defendant ( Cf Ess Kay Electronics PTE Ltd and Another v First National Bank of Southern Africa Ltd1998 (4) SA 1102 (W) at 1106 F -1108 J)

It is my finding therefore that there is no basis for holding the defendant liable in delict.

The evidence as a whole leads me to the conclusion that the plaintiff was prompted by Jones to invest with the c-efendant. The alleged misrepresentations by Assante were irrelevant to plaintiff's investment decisions. The trust and confidence that befell Jones was of such a nature that it resulted in large investments that were made in total ignorance of the plaintiff's normal precautions an procedures referred to above.

4,4 ENRICHMENT

The plaintiff contends that on receipt and clearance of the cheques, the amounts were credited to the account of the defendant at its bank, thereby creating a claim in defendant's favour against the bank. The defendant's patrimony having swelled by the (10) value of the claim" and the fact that the payment lacked an underlying cause, entitle the plaintiff - so it is contended - to recover the payments from the defendant under the condictio sine causa. Counsel did not attempt to rely on the condictio indebiii.

The argument overlooks the nature and effect of the deposits made into NOK's Corporate Savers Account. Although the initial deposits were made into the defendants' bank account at either First National Bank or Standard Bank the defendant, by reason of the deposit instructions incurred an obligation to NOK as its customer. The defendant's obligation corresponded to the increase in its patrimony caused by the proceeds of the cheques. Under these circumstances the defendant has not been enriched, (See NedcorBank vAbsa Bank and Another 1995 (4) 727 (W) at 730 C - E)

The plaintiff has therefore failed to prove that the defendant has been enriched as a result of the deposits that were made. (Cf B & H Engineering v First National Bank of SA Ltd

1995 (Z)SA 279(A)).

As mentioned before each of the cheques was paid by the collecting banker in accordance with its tenor, and a banker/customer relationship furthermore existed between the
defendant and NOK. Each of these factors constitutes a valid causa and the condictio sine causa is therefore not available to the plaintiff. ( See Saambou Bank Ltd v Essa
1993(4)SA62(N)).

5. CONCLUSION

' The plaintiff cannot therefore succeed on any of the causes of action preferred in its particulars of claim.

6. COSTS

Mr Harpur has urged me to allow the costs of three counsel. The complexity of the matter does not-in my view warrant the unnecessary luxury of three counsel. In the result the plaintiffs claim is dismissed with costs, including the costs consequent upon the employment of two counsel.

HD VAN OOSTEN

JUDGE OF THE HIGH COURT

Counsel for Plaintiff: Adv M S M Brassey SC

Adv A E Bham
Attorneys for Plaintiff: Deneys Reitz

Counsel for Defendants: Adv G D Harpur

Adv A Stewart

Attorneys for Defendants: De Villiers Evans & Petit

C/o Cliffe Dekker & Fuller Moore Inc

Date of Judgment: 22 April 1999

---