Absa Bank Limited v Mahomed Arif and Another

The respondents, retail businessmen, alleged that they invested large sums of cash with Absa Bank through its agent, Mr Naresh Mistry, at Absa’s Marabastad agency. They relied on purported Absa deposit investment certificates reflecting interest-bearing fixed deposits in the names of fictitious entities. It later emerged that Mistry had committed extensive fraud, misappropriating client funds, and that the alleged investment accounts did not exist on Absa’s systems. The respondents admitted that they intentionally used fictitious account names to conceal income and evade tax from SARS, on Mistry’s advice. Absa denied that valid investment contracts existed, disputed the authenticity of the deposit receipts, and contended that Mistry lacked authority to conclude illegal agreements designed to defraud the fiscus. The High Court upheld the respondents’ contractual claims, holding Absa liable on the basis of Mistry’s authority. Absa appealed to the Supreme Court of Appeal.

The appeal was upheld with costs, including the costs of two counsel. The order of the High Court was set aside and replaced with an order dismissing both respondents’ actions with costs, including the costs of two counsel.

The case is significant for clarifying the limits of a bank’s liability for fraudulent acts committed by its agents, particularly where the transactions are illegal and designed to evade tax. It underscores the necessity of proving actual or ostensible authority, the importance of proper pleading (especially estoppel), and affirms that courts will not enforce contracts tainted by illegality and dishonesty. It also reinforces public policy considerations in refusing to uphold claims arising from tax evasion schemes.