Nedbank Limited v Houtbosplaas (Pty) Ltd and Another

Houtbosplaas (Pty) Ltd and TBS Alpha Beleggings (Pty) Ltd were long-standing clients of Nedbank Limited, holding multiple bank accounts for decades. Retired Judge van Dijkhorst was the sole director and held one preference share in each company. Four family trusts (named after his four daughters), of which he was the sole trustee, each held one preference and one ordinary share in the companies. In 2016, Nedbank requested copies of the trust deeds as part of its FICA verification obligations, claiming each trust held 25% voting rights. The companies' representative provided three of the four trust deeds but refused to provide the fourth (Hettie van Dijkhorst Trust deed), contending it was an invasion of privacy and that each trust held only 22% voting rights (not 25%). The companies argued the trusts were not Nedbank's clients. On 20 January 2017, following the impasse, the companies terminated their banking relationship and instructed Nedbank to close all accounts and transfer funds to ABSA Bank. Nedbank refused, citing FICA compliance and account restrictions. The companies provided the outstanding trust deed on 7 June 2017, after which Nedbank closed the accounts on 7 July 2017. The companies sued for mora interest for the five-month delay.

• Whether Nedbank was lawfully entitled under FICA to demand trust deeds from trusts that were not its clients but held shares in its client companies
• Whether the four trusts each held 25% or more voting rights at general meetings, triggering regulation 7(f)(ii) of FICA
• Whether Nedbank lawfully restricted/froze the companies' accounts pending receipt of the trust deeds
• Whether closing a bank account constitutes a 'transaction' under FICA requiring verification
• Whether the companies were entitled to mora interest for the period Nedbank unlawfully withheld their funds
• The proper interpretation of sections 21 and 22 of FICA and regulation 7(f)(ii)
• The proper interpretation of the companies' memoranda of incorporation regarding voting rights of preference shareholders

The appeal was dismissed with costs. The High Court's judgment granting mora interest to Houtbosplaas (R66,814.68) and TBS Alpha (R114,288.63), calculated from 20 January 2017 to 7 July 2017 at 10.25% per annum, plus costs on an attorney-and-own-client scale, was upheld.

The binding legal principles established are: (1) Section 21(2) of FICA (pre-amendment) required accountable institutions to establish and verify client identity only once when FICA took effect for existing business relationships, not for each subsequent transaction in the course of that relationship. (2) Regulation 7(f)(ii) of the FICA Regulations, requiring information about trusts holding 25% or more voting rights, applies only when establishing a new business relationship or concluding a single transaction, not to pre-existing long-standing banking relationships. (3) When interpreting a company's memorandum of incorporation regarding voting rights, preference shareholders' voting rights are only restricted in relation to matters concerning company property that would provide financial or material benefit to them or their estates; otherwise their voting rights on matters within the normal scope of company powers (including establishing, conducting and closing bank accounts) are untrammelled. (4) A bank acts unlawfully when it refuses to execute a client's legitimate instruction to close accounts and transfer funds based on an incorrect interpretation of FICA that imposes verification obligations that do not legally apply. (5) A client deprived of the use of capital due to a bank's unlawful refusal to release funds is entitled to mora interest without requiring special proof of loss, as such deprivation inherently causes loss under modern financial conditions.

The Court specifically noted that it was unnecessary to decide whether the closing of a bank account constitutes 'a single transaction' as contemplated in section 21(1) of FICA, and deliberately left this question open for determination in a future case. The Court also made general observations about the complexity of the banker-client contractual relationship, citing Standard Bank of SA Ltd v ABSA Bank Ltd, describing it as 'an inherently and conspicuously complex collection of juristic relationships.' The judgment includes observations about the purpose and objectives of FICA being to combat money laundering and terrorist financing, and acknowledges the importance of these objectives, while emphasizing that they must be pursued within the proper statutory framework and cannot justify overreach beyond what the statute permits.

This case is significant in South African banking law as it clarifies the scope of banks' verification obligations under FICA in relation to existing clients and the rights of bank clients to terminate banking relationships summarily. It establishes that: (1) FICA's verification requirements under section 21(2) apply at the inception of the Act for existing clients, not repeatedly for every transaction; (2) Regulation 7(f)(ii) applies only when establishing new business relationships or single transactions, not to ongoing existing relationships; (3) Banks cannot refuse to execute legitimate client instructions (including account closure) by improperly invoking FICA compliance where the statutory thresholds are not met; (4) Trusts that are not bank clients themselves cannot be compelled by banks to provide documentation merely because they hold shares in client companies, unless the statutory threshold (25% voting rights) is met; (5) Clients are entitled to mora interest when banks unlawfully withhold funds, without needing special proof of loss. The judgment reinforces client autonomy in banking relationships and limits banks' ability to use regulatory compliance as a pretext for refusing lawful instructions. It also provides important guidance on interpreting company memoranda of incorporation regarding voting rights.