McCarthy Limited v ABSA Bank Limited

McCarthy Limited, a motor vehicle trader, held a cheque account with ABSA Bank. Over several years, a McCarthy employee fraudulently created fictitious debts and caused McCarthy to draw cheques payable to combinations of the names 'Fourie' and 'Leathertech'. These crossed, non-transferable cheques were deposited into the account of Mr Fourie, an ABSA customer of modest means, and were immediately followed by large cash withdrawals. ABSA employees repeatedly approved these transactions despite suspicious features. A total of 193 fraudulent cheques amounting to nearly R15 million were paid. McCarthy sued ABSA in contract, alleging breach of the bank–customer mandate by negligently paying the cheques. The High Court granted absolution from the instance at the close of McCarthy’s case, prompting this appeal.

The appeal was upheld with costs, including the costs of two counsel. The order granting absolution from the instance was set aside and replaced with an order refusing absolution, with the costs of the absolution application to be costs in the cause.

The case is significant for clarifying the contractual duties of banks in South African law, particularly that a bank’s mandate includes a duty to exercise reasonable care when paying cheques. It highlights that, where a bank acts as both collecting and paying bank, knowledge gained in one capacity may be relevant to assessing negligence in the other, and it reinforces the correct, low threshold for refusing absolution from the instance.