In February 1991, Nedcor Bank Ltd (Nedbank) issued a letter of credit for $434,782.61 in favour of a German supplier (Boli GMBH) on the application of South African buyers. The German bank (VWB) paid the German supplier a discounted amount on the letter of credit based on documentation forwarded to Nedbank. By the due date for payment in February 1992, a dispute arose as the South African buyers contended the documentation was forged and goods were never shipped. The South African Reserve Bank (SARB) directed that the funds be paid into a blocked account in VWB's name pending clarification. On 24 February 1992, Nedbank credited the amount to a blocked account in VWB's name. In April 1992, the account was unblocked, but within hours the South African buyers obtained an interim attachment order. Goldblatt J later granted an interdict preventing Nedbank from discharging obligations under the letter of credit pending trial. VWB then brought proceedings seeking a declaration that Nedbank had discharged its obligations and seeking payment of the funds.
The appeal succeeded with costs, including costs of two counsel. The Full Court order was set aside. Nedbank was directed to pay VWB the sum of US $434,782.61 together with interest accrued from 24 February 1992 to date of payment. The South African buyers (second, third and sixth respondents) were ordered to pay the costs of the application, including costs of two counsel.
Payment, though ordinarily a bilateral juristic act requiring cooperation between debtor and creditor, can be validated by subsequent approval of the creditor even where the debtor has unilaterally chosen the method of payment. The creditor's subsequent approval is effective to validate the payment from the time when it was originally made. This principle applies even if the chosen method fails to place the performance at the immediate disposal of the creditor, and even if it fails to effectively sequester the performance from the debtor's own assets. The subsequent approval by the creditor is decisive in determining whether an effective payment has been made between debtor and creditor.
Cameron JA noted that the local bank's obligation under the letter of credit, and the German bank's entitlements under it, are best decided in conjunction with other matters to be determined at the pending trial action. The Court observed that the German bank wisely did not persist in seeking a declarator that the local bank had discharged its obligations under the letter of credit. The judgment emphasized that parties to a debt-discharging transaction may agree to any means of discharge. Cameron JA expressed some doubt whether the solution to the case lies in the application of the Exchange Control Regulations, but found it unnecessary to decide their effect definitively. Nienaber JA (in dissent) made extensive observations about the purpose and operation of the Exchange Control Regulations, particularly regarding blocked accounts, and noted that the issue of fraud committed in connection with the letter of credit, which all six High Court judges found to be at least prima facie established, should be resolved at trial.
This case is significant in South African law for establishing that subsequent approval by a creditor can validate a unilateral method of payment chosen by the debtor, even where that method does not immediately place the funds at the creditor's disposal and even where it fails to effectively sequester the performance from the debtor's own assets. The case reinforces the principle that the creditor's subsequent approval should be decisive in determining whether payment has been effectively made. It clarifies the operation of Exchange Control Regulations in relation to payment into blocked accounts and the distinction between discharge as between debtor and creditor versus entitlement to debit third-party funds. The judgment emphasizes the bilateral nature of payment as a juristic act while recognizing the validating effect of subsequent ratification.
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