On 11 October 1994, the Department of Customs and Excise drew a cheque in favour of OTK (Kooperatief) Beperk, which was crossed and marked "not negotiable". The cheque was posted to OTK but was stolen en route. On 14 October 1994, a person calling himself Roy Laasen contacted Mr Carl Boden, a partner at Van Hulsteyns Attorneys, claiming to be a Zimbabwean businessman seeking to invest in South Africa and requesting the firm to channel funds through its trust account. Boden agreed subject to written instructions and clearance of funds. On 28 October 1994, the stolen cheque was irregularly deposited into the appellant's trust account at First National Bank's Sandton City branch by being surreptitiously placed into a courier bag destined for the bank's Centralized Bookkeeping Centre (CBC), bypassing normal teller procedures. The account was credited and the cheque was subsequently presented for payment and paid by the drawee bank. On 8 November 1994, after what Boden considered a reasonable clearance period, he paid the full amount (less his fee) into a designated Durban account as instructed by Laasen. In December 1994, the theft was discovered. The Government instituted action against the appellant under section 81 of the Bills of Exchange Act 34 of 1964, seeking to recover its loss.
1. The appeal was dismissed with costs including the costs of two counsel. 2. The first respondent was directed to pay the appellant's and the second respondent's costs relating to the application for condonation and the second respondent's costs of appeal including the costs of the counter-application.
The binding legal principles established are: (1) Possession in section 81(1) of the Bills of Exchange Act 34 of 1964 must be construed in accordance with the common law concept of possession. (2) Mediate possession is recognized for purposes of section 81(1). (3) Where a bank holds a cheque for collection only, it does not possess the cheque for purposes of section 81 (as the mental element of possession is lacking), but the customer on whose behalf it is to be collected does possess it through mediate possession. (4) Irregular or fraudulent means of introducing a cheque into a bank's system does not negate possession where bank officials processed the cheque in reliance on deposit documentation identifying the depositee, and where the bank presented the cheque for payment on behalf of that person. The intention to hold the cheque for the identified depositee and the presentation of the cheque on that person's behalf establishes mediate possession, rendering that person liable under section 81(1).
The court made observations regarding costs in third party proceedings: (1) The employment of two counsel can be reasonable bearing in mind the amount involved and the importance of the matter to all parties. (2) Where a second respondent's involvement in appeal proceedings (including opposing an appeal, filing papers opposing a condonation application, and filing a conditional counter-application) is brought about by the first respondent's application for condonation, it is reasonable to direct the first respondent to pay the attendant costs, including the second respondent's costs of appeal. These observations provide guidance on the exercise of discretion in awarding costs in complex multi-party litigation involving third party notices and conditional appeals.
This case is significant in South African banking and commercial law for clarifying the concept of possession under section 81 of the Bills of Exchange Act 34 of 1964. It establishes that: (1) possession in section 81(1) must be interpreted according to common law principles of possession; (2) mediate possession through a collecting bank is sufficient to establish possession for purposes of section 81 liability; (3) the customer on whose behalf a bank collects a cheque is in mediate possession of that cheque, even where the bank acts as collecting agent only; and (4) irregular or fraudulent means of depositing a cheque do not negate possession where bank officials processed the cheque in accordance with deposit documentation and intended to hold it for the person identified as the depositee. The case reinforces the protective policy underlying section 81, which enables the true owner of a stolen crossed cheque marked 'not negotiable' to recover losses from persons in the chain of possession, and confirms that liability cannot be avoided merely because a cheque entered the banking system through irregular means.