Ess Kay Electronics Pte Ltd and Another v First National Bank of Southern Africa Ltd

The two appellants were Singapore companies trading in electronic equipment. In April 1996, a person claiming to be Mynhardt, representing Southern Fashions in Swaziland, placed orders with both appellants totaling US$250,000. Payment was to be by banker's drafts. The goods were shipped to Durban and the appellants' South African agent (Ishmael) received the bill of lading with instructions only to release it upon receiving proper banker's drafts. Two drafts dated 3 May 1996, purportedly drawn by the respondent bank on Barclays Bank PLC in New York, were faxed to the appellants. After verification, the bill of lading was exchanged for the drafts. The drafts were later dishonored as forgeries. Wildig, an employee of the respondent bank and head of the foreign exchange department, had forged the drafts. Between March and May 1996, Wildig was approached by an acquaintance, Jerome Clack, who offered him R10,000 to prepare fraudulent drafts. On 3 May 1996, Wildig removed two blank draft forms from a locked container without making any entries in the register, completed them at his wife's office with forged signatures, and delivered them to Clack. The appellants sued the bank for damages, claiming vicarious liability for Wildig's fraudulent conduct.

• Whether the respondent bank was vicariously liable for the fraudulent acts of its employee Wildig
• Whether Wildig acted within the course and scope of his employment when forging the banker's drafts
• Whether Wildig had actual, implied, or ostensible authority to issue the fraudulent drafts
• The test for determining when an employee's fraudulent conduct renders an employer vicariously liable
• Whether considerations of fairness and reasonableness to international traders require imposition of vicarious liability in these circumstances

The appeal was dismissed with costs.

An employer is vicariously liable for an employee's delict only when the delict is committed within the course and scope of the employee's employment. An act done solely for the employee's own interests and purposes, and outside the employee's actual authority, is not done in the course of employment even if done during employment hours or using the employer's facilities and resources. The test is whether the employee was acting within what was authorized and required by the duties of employment. The fact that an employee uses the position, facilities, and tools provided by the employer to commit fraud does not itself establish vicarious liability - the essential question is whether the specific acts were in fact authorized. In cases of fraud, vicarious liability requires that the employee had actual, implied, or ostensible authority for the acts in question. There can be no ostensible authority where the employer has not, by words or conduct, induced the victim's belief that the employee was acting within authority.

The court made several obiter observations: (1) It noted that the risk theory articulated in Feldman (Pty) Ltd v Mall 1945 AD 733 relates to the reason for the vicarious liability rule, not the content of the rule itself. (2) The court observed that considerations of fairness and reasonableness play a role in shaping public policy underlying vicarious liability but do not require that an employer be an insurer for an employee's wrongs. (3) The court commented that reasonable precautions by international traders, such as making inquiries to verify unusual payment instruments from new business contacts, would not unduly hamper international trade. (4) The court noted for completeness (though not argued) that English law determines the course of employment in fraud cases by reference to ostensible authority, citing Lloyd v Grace Smith & Co [1912] AC 716 and Armagas Ltd v Mundogas SA [1986] AC 717, and assumed South African law may be similar, though this was not determinative of the case.

This case is significant in South African law for clarifying the principles of vicarious liability, particularly in cases involving employee fraud. It reinforced the distinction between the rule of vicarious liability and the policy reasons underlying it, confirming the approach in Minister of Law and Order v Ngobo. The judgment emphasizes that vicarious liability arises only when an employee acts within the actual course and scope of employment, and that the mere fact that an employee uses the trappings, facilities, and tools of employment to commit fraud does not automatically render the employer liable. The case also clarifies that considerations of fairness and public policy inform the reasons for the rule but do not expand its content. It provides important guidance on when banks and other employers will be held liable for fraudulent acts of employees, protecting employers from liability where employees act entirely outside their authority for personal gain. The judgment also touches on the concept of ostensible authority in the context of fraud, noting the English approach while finding it inapplicable on the facts.