Joint Stock Company Varvarinskoye v Absa Bank Limited and Others

The appellant, a Kazakh mining company, funded the Varvarinskoye mining project and appointed MDM Ferroman (Pty) Ltd as lead contractor. To safeguard payment of subcontractors, funds provided by the appellant were deposited into an Absa Bank account (account 1313) held in the name of an associated company, Metallurgical Design and Management (Pty) Ltd (the sixth respondent). The account was used solely to warehouse funds earmarked for payment to subcontractors and MDM, subject to a strict payment mechanism requiring joint authorisation and compliance with contractual formalities. Absa was fully aware of the source and purpose of the funds. Despite this, Absa applied set-off and appropriated approximately R28 million from the account to reduce indebtedness owed to it by MDM and the sixth respondent under other accounts and cross-suretyships. The appellant contended that neither MDM nor the account holder had any legal interest in the funds at the time of appropriation and that Absa was not entitled to set-off.

The appeal was upheld with costs. Absa Bank Limited was ordered to repay to the appellant the amount of R28 244 780.59, together with mora interest from the date of appropriation.

The case is a leading South African authority on third-party claims to funds held in bank accounts and the limits of a bank’s right of set-off. It confirms that where funds are deposited for a specific purpose and the bank has knowledge thereof, the account holder’s apparent control does not confer a beneficial entitlement. The judgment clarifies the concept of earmarked funds and strengthens protection against unjustified bank appropriations.