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[2010] ZAWCHC 511
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Izembi Trading 46 CC v Nedbank Ltd t/a Nedbank Bussiness Bankers (22289/2010) [2010] ZAWCHC 511 (25 October 2010)
IN THE HIGH COURT
OF SOUTH AFRICA
(WESTERN CAPE HIGH
COURT, CAPE TOWN)
CASE
NUMBER: 22289/2010
DATE:
25 OCTOBER 2010
In
the matter between:
IZEMBI
TRADING 46 CC
….................................................................
Applicant
and
NEDBANK LIMITED t/a
NEDBANK
BUSINESS
BANKERS
…................................................................
Respondent
JUDGMENT
LOUW.
J
:
This
application started off on 8 October 2010 as an urgent application
for a
rule
nisi
serving
as an interim interdict. A full set of papers have now been filed
and the applicant now asks for final relief, namely
the enforcement
of a contract concluded between the parties on 6 October 2010, which
was to endure until 5 November 2010. In
argument Mr
Uijs
,
who appeared on behalf of the applicant, asked for the enforcement
of the contract for a period of one month from the date of
this
order. The applicant carries on a business which renders services to
institutions and individuals who receive regular electronic
payments
from their customers, which are activated by debit orders placed
against the customer's account at a commercial bank.
The respondent
is a commercial bank (the Bank), with whom the applicant concluded a
Corporate Payments System Service agreement
during August 2005. This
agreement was referred to in the papers as the CPS agreement. As an
ancillary to the CPS agreement,
the parties concluded a further
agreement, referred to as the facility agreement during December
2009.
The
Bank contends that it has validly cancelled the two agreements,
together with the further agreement concluded between the
parties on
6 October 2010, and that it did so on 7 October 2010. As a
consequence the Bank refuses to allow the applicant to
operate on
its electronic banking system. The cancellation of the agreement has
made it impossible for the applicant to render
a service to its
clients. The applicant accepts that the relationship between it and
the Bank must come to an end, but avers
that the Bank is obliged, in
terms of an interim agreement concluded on 6 October 2010 between
the parties, to extend the operation
of the CPS and facility
agreements for 30 days.
The
CPS agreement contains the following provisions regarding the breach
and duration and termination of the contract. Clause
11 deals with
breach and reads as follows:
"11.
If either party breaches any term, or fails to perform any of the
obligations in terms of this agreement, and such breach
or failure
is not corrected within five days of receiving written notice from
the affected party calling on it to do so, the
affected party shall
be entitled, without prejudice to any other rights it may have:
11.1.
To cancel this agreement with immediate effect.
11.2.
To claim an order of specific performance and/or;
11.3.
To claim damages."
Clause
12 is headed, duration and termination, and provides as follows:
12.1.
This agreement shall commence on the date of signature of the party
last signing and shall endure, for an initial period
of one year
(initial period). Thereafter the agreement shall be renewable on a
month to month basis.
12.2.
Notwithstanding the above, the agreement may be terminated at any
time by Nedbank.
12.2.1
On giving not less than 30 calendar days written notice of
termination to the client or;
12.2.2
In the event of any change in any law, or the application thereof,
or in the event of any change in the client's financial
position,
which may have the effect of prejudicing should it continue to
provide the service, in such case Nedbank shall be entitled
to
terminate this agreement on 48 hours written notice to the client.
12.3
The client shall be entitled to terminate the agreement only after
the expiry of the initial period on giving at least 30
days written
notice to Nedbank."
The
facility agreement places a limit of R20 million on the value of all
debit orders presented for collection to the Bank by
the applicant
for any one month and requires the applicant to lodge security of R2
million to be held in a call account with
the Bank to cover any
debit orders not honoured. This amount of security was based on the
industry norm of 10% defaults. The
facility agreement contains
further clauses relating to termination, including a clause which
lists certain 'events of default'
and provides for termination
pursuant thereto.
Clause
13 is headed, events of default, and provides as follows:
13.1
Notwithstanding the provisions as outlined, Nedbank shall be
entitled to claim immediate repayment of all amounts owing under
the
borrower facilities, should one or more of the events of default,
set out hereunder, occur and should the borrower fail to
remedy the
matter within the period, if any, stipulated by Nedbank at such
time."
Clause
13.2 then sets out a number of events of default which include the
following:
"13.2.4
If the borrower commits a breach of any of the terms and conditions
set out in any agreement entered into between
Nedbank and the
borrower. 13.2.13 If any material adverse change occurs in the
financial position of the borrower, which will,
in the opinion of
Nedbank, prevent the borrower from performing or observing its
obligations to Nedbank, or will impede its ability
to do so."
Clause
13.3 provides as follows:
"Where
an event of default occurs, Nedbank shall, without a diminution of
any other right which Nedbank may hereby or otherwise
acquire, be
entitled in its sole discretion to;
13.3.1
Cancel the borrower facilities and all existing agreements with
immediate effect or; 13.3.2 Claim immediate repayment of
all amounts
owing to Nedbank from whatever cause arising, all of which amounts
shall immediately become due and payable, or;
13.3.4 Restrict the
borrower's access to the borrower's facilities to limits considered
acceptable by Nedbank."
13.4,
which reads as follows:
"13.4
Material/materially means of such nature so as to prejudice, at the
sole discretion of Nedbank, Nedbank's rights under
the borrower
facilities and existing obligations of the borrower to Nedbank."
The
CPS agreement contains certain provisions regarding the manner in
which it would be implemented. These include that in terms
of clause
3.7:
"The
client (that is the applicant) shall not at any time operate or use
this service in any manner that may prejudice Nedbank."
And
clause 5, which is headed, 'client's acknowledgements', and provides
as follows:
"The
client acknowledges that:
5.1
Nedbank shall not be required to enquire into:
5.1.1.
The authority of any person who uses, or has used the service, or;
5.1.2.
The validity or integrity of any data or information provided by the
client to Nedbank for the purpose of the service.
5.5
The client accepts full and complete responsibility for the accuracy
and integrity of all instructions to Nedbank."
On
1 October 2010, the Bank gave written notice to the respondent of
termination of the CPS agreement with effect form 5 October
2010.
The Bank contends that the cancellation was justified by two events
which took place during June 2009 (the first event)
and 1 October
2010 (the second event) respectively. During June 2009, the Bank was
instructed by the applicant to collect an
amount of R5 million from
the bank account of the Foschini Group, which account was held at
FNB. The instruction was at the behest
of a client of the applicant,
described as "Advocate/Attorney Storey", represented by a
Ms Bridget Storey. Fortunately
it was established in time that
Foschini had not authorised the debit orders in question and the
funds transfer, which had already
taken place, was reversed.
The
second incident relates to four debit orders totalling R1.07 million
which were forwarded by the Bank, on the applicant's
instructions,
for collection from an account held at FNB Bank by an entity known
as Edcon. The instructions were that the money
be paid to the
applicant's client, Marbie Manufacturers, which entity held a bank
account with the Bank. On 1 October 2010 FNB
returned the request to
the Bank on the basis that authority by Edcon was lacking. The bank
sought to reverse the transfer of
funds to Marbie's account, which
had already taken place, but Marby, represented by the aforesaid Ms
Bridget Storey, had by that
time withdrawn almost all the funds
which had been transferred.
It
is common cause that the parties then, pursuant to this initial
cancellation, on 6 October 2010 concluded the interim agreement
in
terms whereof their contractual relationship would continue on the
same terms, but on certain further conditions insisted
upon by the
Bank until 5 November 2010. The day after the conclusion of the
interim agreement, that is on 7 October 2010, the
Bank, however,
summarily terminated the contractual relationship it had with the
applicant. The principal reason advanced by
the Bank for doing so,
is that the Bank became aware on that day that over the period
February 2009 to 1 September 2010, fraudulent
payments had been made
without authority out of Edcon's FNB account into
Marbie's
account at the Bank on the applicant's instructions.
The
result for the Bank is that in terms of the PSA System, which
operates between commercial banks, the Bank has a potential
liability to FNB which has been increased by the aforesaid
fraudulent payments which amounts to approximately R12 million, and
that the security of R2 million (plus a further security in the form
of bonds and a suretyship, the value of which is not clear)
would
not be sufficient to cover the Bank should it have a claim against
the applicant for the anticipated loss which, as I have
said, is
said to be in the region of R12 million.
The
Bank consequently contends that by reason of the clauses in the CPS
and facility agreements referred to earlier, it was entitled
to
cancel the interim agreement, as well as the two main agreements
summarily. In this regard reliance is also placed on the
provisions
of clauses 5.1.1 and 5.5 of the CPS agreement to which I referred
earlier and in terms of which the Bank was entitled
to rely on the
applicant for the integrity of the instructions upon which the Bank
activated the transfer of funds through its
system and link with the
other banks.
The
applicant contends that it has, and is willing to continue to honour
the interim agreement and the conditions imposed by the
Bank and
that the Bank is not entitled to cancel the agreement on the basis
of events which preceded the conclusion of the interim
agreement.
The applicant's case is that while it was aware of the investigation
in regard to the fraud relating to the Marbie
account since 2
September 2010, it doubts that the Bank was not also aware of the
fraud before it entered into the interim agreement
on 6 October
2010. In any event the applicant contends that since it is obliged
to, and does comply with the further stringent
conditions imposed by
the Bank in the interim agreement, the Bank will not be at risk for
the remaining period that the interim
agreement will remain
operative and that, therefore, there is no reason why the interim
agreement should be cancelled at this
stage.
The
applicant is seeking final relief enforcing the terms of the
contract it has with the Bank. The Bank contends that it has
validly
cancelled the contract, which in effect consists of three separate
agreements and that the applicant has not made out
a case for the
enforcement of the contract. While it is true that the onus is on
the Bank to prove a valid cancellation, the
matter must, as far as
factual disputes are concerned, be determined on the basis of the
common cause facts, as well as those
deposed to by the Bank's
deponents. It must, therefore, be accepted that the Bank was unaware
of the R12 million fraud when it
concluded the interim agreement.
It
is common cause that as at 2 September 2010 the applicant, as I have
said, knew of the investigation in regard to the unauthorised
payments to Marbie and that it did not inform the Bank of this fact
at the time they negotiated the conclusion of the interim
agreement.
The Bank, therefore, contends that its cancellation of the agreement
is valid for a number of reasons. These include,
firstly,
intentional misrepresentation by the applicant, which occurred when
it failed to inform the bank of the Marbie fraud
investigation The
context in which this occurred is that the Bank had initially given
notice of cancellation on 1 October 2010
on the basis of it having
found out about the second event referred to earlier, namely the
R1.07 million unauthorised debit orders.
Pursuant to the Bank
establishing this fact, it gave notice of cancellation and the
parties then entered into negotiations and
concluded the interim
agreement.
It
would appear to me that in these circumstances, the applicant was
obliged to inform the Bank of the further investigation regarding
Marbie and the 12 million suspected fraud. Mr Alwyn
Swart
who
deposed to the answering affidavit on behalf of the Bank, says, on
behalf of the Bank, that if the Bank had known of the further
allegations of fraud regarding the Marbie account, it would not have
concluded the interim agreement. In the context of the negotiations
and the facts known to the parties at that stage, it seems to me
that this statement cannot be disputed. In any event, it is
not
clearly untenable and it must be accepted for purposes of deciding
this matter.
I
turn to the second point raised by the Bank. In terms of clause
11.1.3 of the facility agreement, the applicant was obliged
to
inform the Bank forthwith on it becoming aware of any occurrence
which may adversely affect any security provided in terms
of the
facility agreement. The investigation regarding the unauthorised
debits came to the applicant's notice on 2 September
2010. It is
certainly an occurrence which might affect the security held by the
Bank. The applicant, in my view, contravened
this provision by not
informing the Bank of the investigation.
Thirdly,
in terms of clause 9 of the CPS agreement, the applicant indemnified
the Bank against any loss in relation to the service
provided by the
Bank to the applicant. There is presently a risk that the Bank will
be held liable for the transfer of approximately
R12 million. This
money is no longer in Mabie's account and the likelihood of
recovering the money from Mabie is said to be remote.
The
applicant's position,
vis-a-vis
the
Bank, is that it is potentially liable for the R12 million. This
constitutes a material change in the applicant's financial
position.
Clause
13.3.1 entitles the Bank to cancel forthwith "all existing
agreements with immediate effect" if an event of default,
as
defined in the agreement, should occur. The default events that are
relevant here and which are set out in the agreement,
are those
referred to in clauses 13.2.4, namely:
"If
the borrower commits a breach of any of the terms and conditions set
out in any agreement entered into between Nedbank
and the borrower."
And
13.2.13 which reads:
"If
any material adverse change occurs in the financial position of the
borrower, which will, in the opinion of Nedbank,
prevent the
borrower from performing or observing its obligations to Nedbank, or
will impede its ability to do so."
In
my view, on these papers, the Bank has shown that it was entitled to
cancel the interim agreement because of a material misrepresentation
and also the breaches of the agreement referred to above. The first
requirement for a final interdict is a clear right. The question
is
whether the applicant has proved facts which establish on a balance
of probabilities, a clear right as a matter of substantive
law. It
matters not that there is an onus on the respondent bank. The rule
in applications remains that in respect of a genuine
dispute of
fact, the applicant is bound by the respondent's version of the
facts. In my view the applicant has not established
a clear right
for the enforcement of the interim agreement and it follows that the
application must be dismissed as far as the
enforcement of the
interim agreement is concerned.
Further
relief is sought, which relates to the applicant's bank account held
with the Bank. The applicant seeks an order, directing
the Bank to
allow the applicant full and unrestricted access to the funds held
in bank account number 1186086807 of the respondent
Bank, being the
applicant's bank account. In this regard the Bank has stated in its
answering affidavit that there has been no
interference with the
applicant's right to operate on that bank account. To the extent
that there is some dispute in this regard,
it is recorded herein
that the Bank has no objection to the applicant continuing to
operate freely on this account. In the light
thereof, the applicant
has not made out a case for an order that it seeks in regard to the
bank account. As far as the issue
of cost is concerned, these must
follow the event.
In
the result I make the following order, the application is dismissed
with costs.
LOUW, J
/bw