ABSA Bank Limited v Lombard Insurance Company Limited; Firstrand Bank Limited v Lombard Insurance Company Limited

Ms Manickum was employed by Lombard Insurance as a financial accountant. She held accounts with both ABSA Bank and FNB (Firstrand Bank), most of which were in debit. Ms Manickum forged a letter purporting to be from a client of Lombard Insurance requesting repayment of a cash deposit. She caused approximately R2.1 million to be transferred from Lombard Insurance's account to her FNB current account on 2 August 2007, extinguishing a debit balance of R57,013.42. On 3-4 August 2007, she transferred: R1 million to reduce her FNB home loan; R100,000 to extinguish her FNB credit card debt; R400,000 to her ABSA current account (wiping out a R47,440.68 debit); and R150,000 more to ABSA. She also paid R50,000 to discharge her ABSA credit card debt of R43,275.53. When the theft was discovered, credit balances remained in some accounts which were transferred to the trustees of Ms Manickum's insolvent estate. Lombard Insurance sought recovery of the stolen funds from both banks via the condictio ob turpem vel iniustam causam.

• Whether banks that received stolen money into accounts held by the thief are enriched when the stolen funds are used to extinguish the thief's debts to the banks
• Whether the doctrine of suum recipit applies to prevent recovery of stolen funds that discharged legitimate debts
• Whether payment of a debt with stolen funds constitutes valid discharge of that debt where the creditor receives payment in good faith
• Whether banks have a duty to repay stolen funds received to the credit of a thief's account where those funds discharged the thief's debts

The appeal by FNB (case 684/2011) was upheld with costs, and the application against FNB was dismissed. The appeal by ABSA (case 629/2011) was upheld with costs including costs of two counsel, save that ABSA was ordered to pay Lombard's costs up to the time of filing of ABSA's heads of argument. ABSA was ordered to pay Lombard Insurance the sum of R573,346.66 (representing credit balances) together with interest that accrued until date of payment and costs of suit.

A creditor-bank that receives stolen money in good faith and applies it to discharge a legitimate debt owed by the thief is not enriched, because it merely exchanges one form of wealth (a book debt/claim) for another of equal value (the payment). The principle of suum recipit applies: there is no restitution from one who received what is due to him, even though payment was made with stolen money, provided the creditor acted in good faith. For a bank to be liable to restore stolen funds under the condictio ob turpem vel iniustam causam, it must be enriched. Where stolen funds discharge a debt, the bank suffers no enrichment; only the debtor (thief) is enriched by having the debt extinguished. A bank may be liable to restore stolen funds only to the extent those funds remain as credit balances in the thief's account, as the bank then holds funds without a corresponding liability to account to the customer-thief.

The court observed that extensive legislation aimed at prevention of money laundering already applies to banks, including duties of care established in common law (citing Indac Electronics v Volkskas Bank). Any further development of the law to impose additional liability on banks for receiving stolen funds should be by way of legislation rather than judicial development. The court noted that the validity of payment should not be questioned merely because stolen funds were used where the creditor acts in good faith, as this would lead to payment transactions being declared invalid ex post facto after discovery of theft. The court emphasized that an agreement to discharge a debt, like any agreement, may be concluded expressly or tacitly by conduct, and that notification of acceptance would be impractical and superfluous in banking transactions, with acceptance evidenced by the credit entry and its non-reversal.

This case is a leading authority on the suum recipit principle in South African law of unjustified enrichment. It establishes important distinctions in the treatment of stolen money paid into bank accounts: where stolen funds discharge legitimate debts owed to a bank acting in good faith, the bank is not enriched and cannot be compelled to repay those amounts to the victim of the theft. The victim's remedy lies against the thief. However, where stolen funds create or increase credit balances, the bank holds those funds without a corresponding liability to the thief and may be liable to restore them to the true owner. The judgment clarifies the application of earlier cases such as Perry, Nissan, and provides important guidance on when banks may be liable for receiving stolen funds, emphasizing the requirement of actual enrichment for liability under the condictio ob turpem vel iniustam causam.