The Standard Bank of South Africa Limited v Glen William Harris NO and Another

The liquidators of Demodig Plant (Pty) Ltd sought to recover R397,657.82 from Standard Bank. The cheque had been drawn by Barlow Tractor Co on Standard Bank's Isando branch in favour of Demodig as payee, dated 17 September 1998. It was crossed and marked 'not transferable'. One of Demodig's directors, Cross, brought the cheque to attorney JA du Toit on 18 September 1998 with instructions to deposit it in Du Toit's trust account pending further instructions. Du Toit sent the cheque to the bank's Randburg branch requesting that it be deposited into a separate trust savings account named 'JA du Toit Inc Trust - Demodig Plant (Pty) Ltd' in terms of s 78(2A) of the Attorneys Act. The bank collected the cheque and credited this account. Later, on instructions from Hutchinson (Demodig's other director), Du Toit transferred the proceeds to Botzamo to settle an alleged debt. The liquidators claimed the proceeds never reached Demodig and sued the bank for Aquilian liability as a negligent collecting bank.

• Whether a bank that both collects and pays a cheque (drawn on itself) can be held liable as a collecting bank when already absolved as paying bank under s 79 of the Bills of Exchange Act
• Whether the payee (Demodig) became the 'true owner' of the cheque
• Whether the bank received payment on behalf of someone not entitled thereto
• Whether the bank acted unlawfully and negligently in collecting a cheque crossed 'not transferable' for an attorney's trust account earmarked for the client rather than an account in the payee's own name
• Whether collection for an account nominated by the payee's authorized agent negates unlawfulness

The appeal was allowed with costs, including costs of two counsel. The trial court's order was set aside and replaced with an order dismissing the plaintiffs' claims with costs.

Where a collecting bank collects a cheque (including one crossed 'not transferable') on the instructions of the payee's duly authorized agent and credits an account nominated by that agent on behalf of the payee, the bank does not act unlawfully vis-à-vis the payee, nor can it be said to have received payment on behalf of someone not entitled thereto. The payee is ordinarily free to deal with the proceeds of a cheque as it chooses and can authorize collection into any account of its choice. A bank that acts as both paying and collecting bank (where a cheque is drawn on itself) may be held liable as a collecting bank even where it has protection as paying bank under s 79 of the Bills of Exchange Act 34 of 1964, as the different functions involve different steps and legal acts in which negligence may or may not be present.

The Court declined an invitation to make a general finding that it is neither unlawful nor negligent for a bank to collect a cheque for an attorney's trust account earmarked for the client even without specific authorization from the client-payee, stating that questions of unlawfulness and negligence must be determined on particular facts and that the Court does not answer academic questions unnecessary for deciding the case, particularly where only one side has argued the point. The Court noted the similar provisions governing estate agents' and sheriffs' trust accounts (s 32 Estate Agents Affairs Act 112 of 1976 and s 22 Sheriff's Act 90 of 1986) but made no findings about them. The Court expressed some suspicion about the management of Demodig's affairs and Du Toit's vague evidence regarding the debt to Botzamo, though this did not affect the outcome.

This case clarifies important principles regarding the liability of collecting banks in South African law: (1) It confirms that a single bank acting as both collecting and paying bank can be liable as collecting bank despite s 79 protection as paying bank (extending Eskom principles). (2) It establishes that where a bank collects a cheque (even one crossed 'not transferable') on the instructions of the payee's authorized agent and for an account nominated by the payee, the collection is not unlawful even if not into an account in the payee's name. (3) It demonstrates that the Aquilian liability requirements from Indac Electronics v Volkskas Bank must all be satisfied, and particularly that unlawfulness is negated where the bank acts on the payee's authorization. (4) It demonstrates judicial restraint in refusing to make general pronouncements about attorneys' trust accounts absent full argument from both sides. The case is important for banking practice regarding crossed cheques and trust accounts.