Merchant Commercial Finance (Pty) Ltd v Katana Foods CC

The appellant, a commercial finance company operating a factoring business, entered into a factoring agreement with Black Ginger 81 (Pty) Ltd, purchasing and taking cession of claims arising from Black Ginger’s credit sales to its customers. Katana Foods CC was one such customer. Katana’s director and buying officer, Mr David Rahman, repeatedly verified to the appellant that goods reflected on invoices had been sold and delivered to Katana, enabling the appellant to factor those invoices and pay Black Ginger. In truth, all the sales were fictitious and formed part of a fraudulent scheme between Mr Rahman and Black Ginger’s manager. Thirteen fictitious invoices were factored, but the appellant recovered its money on all except the last three invoices, in respect of which it suffered a loss of R404 557,26. Although the last three payments were authorised before formal verification, the appellant alleged that Mr Rahman’s prior fraudulent conduct induced it to make those payments. The High Court granted absolution from the instance, and a Full Court dismissed the appeal, finding no causation. The appellant appealed to the Supreme Court of Appeal.

The appeal succeeded with costs. The orders of the trial court and Full Court were set aside. Katana Foods CC was ordered to pay the appellant R404 557,26 together with interest a tempore morae and the appellant’s costs of suit.

The case clarifies South African law on causation in delict, particularly in fraud cases involving ongoing schemes. It confirms that prior fraudulent conduct can establish causation for later losses, even where specific misrepresentations occur after payment, and emphasises a holistic, common-sense approach to factual and legal causation.