About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2013
>>
[2013] ZASCA 183
|
|
Absa Bank Limited v Hanley (08/2013) [2013] ZASCA 183; [2014] 1 All SA 249 (SCA); 2014 (2) SA 448 (SCA) (29 November 2013)
SAFLII
Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
and
SAFLII
Policy
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
CASE NO: 08/2013 Reportable
In the matter between:
ABSA BANK
LIMITED
...............................................................................
APPELLANT
and
DANIEL JOSEPH
HANLEY
.....................................................................
RESPONDENT
Neutral citation:
Absa
Bank v Hanley (08/13)
[2013] ZASCA 183
(29 November 2013).
Coram
: Malan, Wallis, Petse, Saldulker JJA et Van der Merwe
AJA
Heard
: 01 November 2013
Delivered
: 29 November 2013
Summary
: Bank and customer relationship - payment instruction
unauthorised - duties of customer in drawing payment instrument -
proximate
cause of loss - negligence of bank.
ORDER
On appeal from:
North Gauteng High Court, Pretoria (Mothle J
sitting as court of first instance):
The appeal is dismissed with costs including the costs of two
counsel.
JUDGMENT
Malan JA (Petse, Saldulker JJA et Van der Merwe AJA concurring)
[1]
This appeal concerns a fraud perpetrated on both the appellant
and the respondent by an international fraudster, who had been sought
by Interpol and the South African and other police services. Mr Joe
Hanley, the respondent, is an Irish solicitor. The appellant,
which
was the defendant in the court below, is ABSA Bank Limited, a South
African bank with its offices for its private bank based
in Parktown,
Johannesburg. The fraudster was introduced to Hanley as Roger Wilcox
but he was known to ABSA as Jean- Claude Olivier
Alain La Cote. La
Cote was subsequently arrested but escaped. His present whereabouts
are unknown.
[2]
Hanley
claimed an amount of US$ 1,6 million that ABSA, without his
authority, debited to and transferred from his currency investment
account held at ABSA Private Bank. Fortunately, some of the proceeds
of La Cote’s elaborate fraud were recovered and Hanley’s
claim was eventually agreed in an amount to US$ 896 500.
[3]
Mothle
J, sitting in the North Gauteng High Court, upheld Hanley’s
claim. He found that, although Hanley had been negligent
in some
respects the proximate cause of
Hanley’s loss was the negligence of the appellant’s
employees.
The background
[4]
On 23 June 2003, Hanley was introduced to
Andriëtte
Fourie, an assistant of Tim Hewan, a private banker, at the
offices of ABSA’s private bank. She opened the account and
subsequently
telephoned Hanley to give him the account number. Hanley
then made arrangements for US$ 1,75 million to be transferred from
his
solicitor’s account in Ireland into this account. Hanley
was the only signatory on the account. On 7 July an amount of US$
100
000 was transferred, with Hanley’s authority, from this account
to the bankers of Aer Lingus, AIB Bank, Dublin. On 9
July an amount
of US$ 1,6 million was transferred to Coutts & Co, London, via
Harris Bank, the appellant’s correspondent
bank in New York,
for an account in the name of ‘Storacar / client account Joe
Hanley’. Hanley’s case is that
he did not authorise the
transfer of the US$ 1,6 million. During the course of the trial it
became clear that he in fact did not.
It was accepted on appeal that
this transfer was unauthorised and that it was brought about by the
presentation of a fraudulent
transfer instruction to ABSA by La Cote
and his cohorts.
[5]
Hanley became involved with ABSA because his brother, Noel
Hanley, required finance to purchase certain aircraft on behalf of
Euroceltic
Airways Limited, a company controlled by him, from Aer
Lingus for US$ 3 million. In terms of the sale agreement a deposit of
US$
590 000 had to be paid, the balance being payable on delivery of
the aircraft. The purchaser was obliged to take delivery by 30
June
and, if not, the deposit was to be increased by US$ 100 000. In terms
of a subsequent variation of the agreement, however,
the deposit was
not to be increased provided delivery was taken on 4 July.
[6]
Noel
Hanley paid the deposit, had some cash available (US$ 600 000) but
still required finance for the balance. An aircraft broker
referred
him to La Cote, who was then in South Africa, and who had placed an
advertisement on the internet under the name Roger
Wilcox - CP
CORPCAN offering to finance aircraft deals. In terms of a funding
agreement dated 24 June 2003 concluded between the
latter and
Euroceltic, CP CORPCAN agreed to advance, subject to Government
authorisation (that is, Reserve Bank approval), US$
3,5 million to
Euroceltic on the deposit by the borrower of US$ 1,75 million as a
security deposit into either Euroceltic or Hanley’s
account in
Johannesburg. Thereafter, the amount of the security deposit had to
be transferred to an escrow account controlled by
both parties.
[7]
AIB Bank in Ireland was prepared to advance an amount of US$
1,150, 000 to Noel Hanley against a mortgage on his house. One of the
bank’s conditions was that the amount of their advance be
deposited into the account of a solicitor until the whole of the
purchase price was received. Hanley, who practised in partnership
with his sister under the name Hanley and Lynch, agreed to hold
the
loan amount subject to this condition. He received the amount of US$
1,75 million, that is, the amount his brother had available
plus the
amount advanced by AIB in the partnership account. He had full
control over it.
[8]
La Cote initially wanted the security deposit to be paid into
an account controlled by him. To this end and with the assistance of
Hewan, Hanley opened a bank account with the appellant under his name
but trading as Euroceltic Airways. Hanley, however, refused
to make
the deposit into this account because La Cote had sole signing powers
on it. It was then agreed that Hanley would come
to South Africa to
open a foreign currency account with the appellant in his own name.
[9]
Aer Lingus had agreed not to impose the penalty, provided
payment was made by 4 July but required that it be paid if the
extension
was to be to the end of July. A supplementary agreement
between Euroceltic and CP CORPCAN was concluded on 26 June 2003 in
terms
of which the latter agreed to provide this amount so as to
extend the date. It was eventually paid by Hanley in the
circumstances
referred to below.
The attempts
[10]
La
Cote made two attempts to misappropriate the funds in Hanley’s
account. The first was a letter sent by facsimile from the
Mostyn
Hotel, London, dated 30 June and addressed to Fourie requesting the
transfer of US$ 1,75 million from Hanley’s account
to Coutts &
Co for the account of ‘Storacar / client account Joe Hanley’.
The letter purported to be signed by
Hanley. It is clear that he did
not do so. When Fourie referred the letter to the Rosebank office of
the appellant, the transfer
was declined because the instruction had
come by way of facsimile. Hewan was made aware of the fax. He called
the number given
on the letter, spoke to a person he thought was
Hanley and informed him that the bank required the original
documentation. Hewan
also told the person that a certain amount had
to be left in the account for it to remain open. Hewan had neither
met nor spoken
to Hanley before.
[11]
The second attempt was made on the same date by letter also
from the Mostyn Hotel but for the transfer of US$ 1,74 million to the
same beneficiary (which would have left a credit balance in the
account). A letter was addressed to Hewan, also purporting to have
been signed by Hanley and containing the same contact telephone
number as the first. Hewan telephoned the person he thought was
Hanley and arranged for his nephew, who was travelling from London to
South Africa on that day, to bring the letter with him. He
fetched
his nephew at the airport and left the letter at their Rosebank
office. One Adele at that office noticed that the signature
differed
from Hanley’s specimen signature and declined to authorise
payment. Fourie and Hewan communicated again with this
person in
London and arranged for the bank’s transfer document, form 702,
to be faxed for completion to London.
The transfer forms
[12]
The bank’s transfer form, headed ‘Application for
overseas payment’, consisted of a single document printed on
both sides with spaces to be filled in on the front page indicating
the amount, customer name and address, as well as details of
the
beneficiary and its bank account. At the foot the words ‘Continues
overleaf’ were printed. The back page of the
form contained a
section where the purpose of the payment and the beneficiary’s
details were to be filled in. Other particulars
also had to be
supplied. The applicant had to sign the back page twice indicating
the date and place of signature. A blank section
for the bank’s
stamp was at the foot of the back page. The back page of the form did
not contain a space where the amount
to be transferred had to be
filled in. It had to be specified on the front page only. The form
could not be sent by facsimile as
a document consisting of one page
with printing on both sides. The back and front pages had to be
transmitted separately. A blank
702 form was faxed in this manner to
the person in London. It arrived in London as two separate pages.
The first transfer
[13]
Hanley was not in London on 30 June. On that day he flew with
his daughter from Dublin to the south of France for their holiday
until 12 July. La Cote telephoned him there and said that he was
sending his secretary to Paris with some documents, for him to
sign.
Hanley flew to Paris, met her on 3 July and signed two Cathedral Rock
loan agreements on behalf of his brother. They were
similar to the
ones he had already signed on 24 June but La Cote had explained to
him that they first required Reserve Bank approval
for the transfer
of the purchase price of the aircraft. Hanley refused, however, to
sign a third document (the second page of a
blank 702 transfer form).
[14]
On the insistence of his brother and La Cote, Hanley travelled
to Johannesburg again and arrived on 4 July. He had to attend to the
transfer of US$ 100 000 to Aer Lingus being the penalty for the
extension of the date of payment for the aircraft, to the end of
July. La Cote told him to wait at his hotel and arranged for the
transfer forms to be taken to the bank. One of La Cote’s
associates, Nick Havvas (who was known to Hanley as Peters), arrived
with two copied pages of the front and back of a 702 transfer
form.
Hanley signed at least five transfer forms during the course of that
day and completed at least four first pages with the
payment
instructions. All of them were signed and dated 3 July 2003, London
when he was in fact in Johannesburg. On the second
page of the first
one and in the space where the beneficiary details had to be filled
in Hanley wrote, ‘AER LINGUS LIMITED
DUBLIN AIRPORT DUBLIN VIA
NEW YORKDOLLAR A/C’. He gave it to Havvas. At this time he also
wrote his first letter, referred
to in paragraph 16 below, to the
bank and gave it to Havvas to take it to the bank. After Havvas had
left the hotel, La Cote telephoned
Hanley to tell him that the first
form was not acceptable to the Reserve Bank because he had written in
the space reserved for
filling in by the bank. Havvas returned with
another two page form and Hanley filled in both pages and on the
second page wrote
‘DEPOSIT PENALTY PAYMENT OF 100 000 US
DOLLARS to AER LINGUS LIMITED’ in the space reserved for the
purpose of payment.
La Cote was not satisfied and said that the
Reserve Bank would require the contract with Aer Lingus which would
delay the transfer.
Havvas brought him yet another transfer form
which he completed. He wrote in the space where the purpose of the
payment had to
be set out, ‘TO AER LINGUS LIMITED’. La
Cote was, yet again, not content.
[15]
La
Cote sent Havvas back again with another two page form. Hanley was to
remove all reference to Aer Lingus. Hanley filled it in
and on the
second page wrote ‘100 000 USD DEPOSIT SEE PAGE 1’. La
Cote was now satisfied. The scene was now set for
La Cote to
misappropriate the balance on the account. The amount on the last
document was subsequently altered to provide for payment
of US$ 1,6
million and the first page substituted with a false document
containing an instruction to the bank to make payment of
the amount
as altered.
[16]
Hanley’s
chronicle relating to his completion and signing of the different
forms is hardly satisfactory. He could not explain
a fifth form
signed by him where, in the space for the details of the beneficiary,
he wrote, ‘AER LINGUS LIMITED’,
and underneath it,
‘DUBLIN VIA NEW YORK DOLLAR ACCOUNT’. On the first page
the beneficiary was specified as Allied
Irish Bank (together with its
address and account number) and the amount as US$ 100 000. This
document was received by ABSA and
formed the basis of the transfer of
US$ 100 000 which Hanley admitted he had authorised. It is clear from
the minutes of the Rule
37 conference that Hanley admitted signing
it. In his evidence, however, he stated that he thought it was a
forgery. He was simply
unable to explain it. The letter that he gave
to Havvas was delivered to the appellant and was stamped by the bank
on 7 July 2003.
It was dated 3 July 2003, London, and read (‘the
first letter’):
‘Please transfer immediately today for value today the sum of
100 000 (one hundred thousand US Dollars) to:
Allied Irish Bank New York Branch 405 Park Avenue New York NY 10022
USA
ABA 0260-0885-3 Beneficiary Aer Lingus Limited
Account No 01……………..
from my account 8…….
Please fax details of Swift transfer ASAP to Aer Lingus legal
Department Attention John Gourley Fax No. +353-1-886 2460.
Regards
[Signed Daniel J Hanley].’
[17]
The last form referred to and Hanley’s first letter were
delivered to Fourie in an open Fedex envelope by Havvas. She approved
of them and the transfer requested was done through the Rosebank
office of the appellant. The two pages of the transfer form each
contained two stamps of the appellant’s international division,
both of which were dated 7 July 2013. Fourie, however, had
dealt with
this transfer already on 4 July when she sent the confirmation to AIB
and Hanley. Owing to the public holiday in the
USA, the transfer was
to be effected on 7 July only. AIB received the funds and Fourie
faxed
confirmation of the payment to Hanley at the
fax number of the Mostyn Hotel in London. Hanley did not receive it
but said he had
heard from his brother that the payment to Aer Lingus
had been made.
[18]
All the forms signed by Hanley were dated as at 3 July 2003 in
London but were in fact signed by Hanley on 4 July at his hotel in
Johannesburg. He had done so at the request of La Cote. He explained
that he did what La Cote had told him to do in order to obtain
Reserve Bank approval for the payment of the penalty amount so as to
extend the closing date of the aircraft purchase agreement.
He
testified that he was not familiar with South African banking law and
business affairs and had accepted what La Cote had told
him. While
Hanley was on vacation in France he spoke to Fourie and told her to
expect two transfers to be made into the account
(that is for the
purchase price of the aircraft and the amount of the penalty La Cote
undertook to provide). Shortly thereafter,
he received a call from La
Cote telling him not to communicate with the appellant as it would
jeopardise negotiations with the
Reserve Bank.
The second transfer
[19]
US$
1,65 million was left in Hanley’s account after the first
payment was made. On 5 July Hanley, reunited with his family
in the
south of France, received a call from La Cote who wanted to fax to
him some ‘pro forma’ documents for signature
to expedite
obtaining the Reserve Bank’s approval for the transfer of the
purchase price to the sellers of the aircraft.
Hanley received the
fax at the post office of the small village where he and his family
were staying. It read:
‘Please in hand writing nothing more nothing less and signed 3
times. Also fill in the transfer form, fax everything except
the back
pages of the transfer I only need the details of transfer at this
stage. +27 11 4769087 to my attention. Keep the originals,
I will
send a courier on Wednesday to pick them up.
Thanks
Remember the transfer has not been done yet! We are just getting
ready and will need the originals in order to proceed.’
Hanley wrote the letter to Fourie insisted on by La Cote and
completed the first page of the transfer form. The first page
provided
for the transfer of some US$ 5 415 million (this is the
total of US$ 3,5 million and the amount remaining in Hanley’s
account
plus interest) to the account of Hanley and Lynch. Although
not everything made sense to Hanley, he wrote the letter which La
Cote
had insisted he complete in his own hand. It was dated 8
July
2003, London, and read as follows (the second letter):
‘To
Andriëtte
Fourie
Thanks again for the transfer to Aer Lingus as it was a very urgent
matter. Please proceed immediately with the transfer as instructed
on
the attached document. The funds will be used in Europe as collateral
for an airplane business.
Please keep 25,000 US Dollars on my account and 25,000 US Dollars on
my brother’s account in order to keep our accounts open
for
further business.
Thank you
[Signed Daniel J Hanley (three times)].’
Hanley faxed all
these documents from the village post office to the number supplied
by La Cote.
[20]
An imposter pretending to be Hanley telephoned Fourie on 8
July and told her that a second request for a transfer was coming
through.
Havvas made his appearance at the bank again and gave her a
copy of the second letter and a two page transfer form in which the
transfer of US$ 1,6 million was requested. The documents were in an
open Fedex envelope. Fourie was suspicious because the envelope
was
opened but thought that, because there was a pending business
transaction between La Cote and Hanley, it was not unusual for
one
party to deliver the other’s documents. Fourie signed a stamp
on the transfer document confirming that Hanley’s
signature had
been verified. She did not notice the alteration on the second page
reading ‘1,600,000 USD DEPOSIT SEE PAGE
1’. It is not
disputed that the amount of US$ 100 000 was altered to 1,6 million by
writing a ‘1’ before the
100 000 and changing the
original ‘1’ into ‘6’. Fourie did not pay
attention to the alteration and did
not think that it stood out. In
any event, Hewan told her that the amount of US$ 1,6 million was
going out of the account. She
authorised the transfer which was
effected by the Rosebank office. In deciding to authorise the
transfer she did not rely on the
accompanying letter (which could not
have been the original) at all. The alteration was not initialled,
nor was there a signature
on the first page of the form.
[21]
Hanley
requested a bank statement from Fourie on 25 July 2003 and realised
then, for the first time, that an amount of US$ 1,6 million
had been
transferred out of his account.
Findings of the High Court
[22]
Mothle
J found that Hanley was a reliable and credible witness. He was,
however, generally critical of the appellant’s witnesses.
He
found that Gert Smith, a forensic investigator employed by the
appellant, had made concessions under cross-examination to the
effect
that the conduct of Hewan and Fourie was irregular and contrary to
banking practice. Fourie, he found, was not an impressive
witness.
She could not recall events that tended to implicate her and the
appellant but remembered those that were not contentious.
Alan
Bentley, who was called as a banking law expert, readily admitted
that he was not. He conceded that neither Fourie nor Hewan
conducted
themselves in accordance with normal banking practice. Hewan was
found to be unreliable and not credible.
[23]
Mothle
J found that Hanley was
naïve
to have
acted in the way he conducted himself. He did, however, take some
precautions to protect the funds in his account. For example,
he
refused to have the funds paid into La Cote’s account and
refused to sign a blank transfer form in France. In writing
the two
letters, completing the transfer form and dating them 3 July 2003,
London, Hanley was found to have been negligent. He
may have been
gullible in believing La Cote that the documents were required for
Reserve Bank permission. However, he was under
pressure from his
brother which compromised his objectivity. He failed, the judge below
found, to have exercised the care a reasonable
customer owed his
bank. His conduct, however, did not amount to a misrepresentation to
induce the bank to make payment. The plea
of estoppel was therefore
dismissed. The court below found the conduct of both Fourie and Hewan
to be negligent and the proximate
cause of the loss. During the
hearing of the appeal, counsel for the appellant, for obvious
reasons, indicated that the appellant
was no longer relying on
estoppel.
The bank and customer relationship
[24]
The appellant inter alia pleaded that it was a term of the
agreement between the parties that Hanley would execute all documents
that contained written instructions to withdraw funds with due
diligence and in a manner that did not facilitate fraud or forgery,
and that he had failed to do so.
[25]
The relationship between a bank and its customer is unique and
involves a debtor and creditor relationship. The relationship is
contractual and may involve several agreements establishing different
accounts. These agreements, generally, require the bank to
perform
certain services for the customer. Whether it relates to one or more
of these services, the agreement giving rise to them
is an agreement
of mandate.
[1]
The agreement between Hanley and the appellant involved the rendering
of payment services to him. A bank undertaking to transfer
funds on
the instructions of its customer acts as a mandatary.
[2]
The principal duty of the bank effecting a credit transfer is to
perform its mandate timeously, in good faith and without
negligence.
[3]
[26]
The
duty of the customer to draw his payment instructions with reasonable
care in order to prevent forgery or alteration and to
warn of known
or suspected fraud or forgery arises from this relationship. It has
been accepted that in the case of a telegraphic
transfer the same
principles as those governing the drawing and payment of cheques
apply. No doubt this is also the case where
the payment instruction
is given by way of an application for an overseas credit transfer,
such as in this case. It was stated
that ‘a customer owes a
duty to draw his cheques with reasonable care in order to prevent
forgery’.
[4]
The
customer’s duty is a restricted one:
[5]
‘Save in respect of drawing documents to be presented to the
bank and in warning of known or suspected forgeries he has no
duty to
the bank to supervise his employees, to run his business carefully,
or to detect frauds.’
The negligence or carelessness of the customer must be the real,
direct or immediate cause of the bank having been misled, and
must be
evident in the transaction itself, in the manner in which the cheque
or payment instruction was drawn.
[6]
[27]
The appellant, however, contended that the
requirement that the negligence of the customer had to be in the
transaction itself,
that is, in the manner in which the document
was
drawn, is not as limiting as it may seem. It was contended that the
relationship between a bank and its customer is a continuing
one and
therefore involves a continuing duty on either side to act with
reasonable care to ensure the proper operation of the account.
[7]
Attempts to widen the duty that a customer owes to his bank have not
been successful.
[8]
It required legislation in South Africa to place a somewhat more
extensive duty on certain selective customers to exercise reasonable
care in the custody of cheque forms and the reconciliation of bank
statements.
[9]
The fact that the relationship is a continuing one means no more than
that the customer has a continuing duty to inform the bank
of known
or suspected forgeries and to draw his payment instructions with
care. The appellant does not contend that Hanley had
been aware of
the forgery or alteration or that he suspected forgery or alteration
of his payment instruction.
Hanley’s conduct
[28]
The
question is whether Hanley complied with his duty to give his
instructions with reasonable care. The court below found that
he had
been negligent in writing the letters purporting to be from London.
Whether he had been negligent in doing so seems to me
irrelevant. The
reason why the appellant’s employees were under the impression
that Hanley was in London rather lies in the
two attempts made by the
two letters both dated 30 June 2003 and sent from the Mostyn Hotel,
London and the subsequent telephone
calls Hewan made to the London
number reflected on the letters. Hewan also arranged for his nephew
to collect a document at Heathrow.
Any impression on the part of the
appellant’s employees that Hanley was in London had been caused
by La Cote, not Hanley.
Fourie’s evidence is, in any event,
that she did not rely on Hanley’s second letter which also
purported to have been
written in London when deciding to make
payment of the US$ 1,6 million.
[29]
Hanley
did indeed try to link the two pages of the various transfer forms
signed by him. He was aware of the fact that he was signing
two
separate pages and that there was no blank space for a signature on
the first page. He attempted to link the two pages by adding
various
notations on the second page in the blocks left blank. Not all of
them were acceptable to La Cote. He completed the different
forms and
signed them under the most bizarre of circumstances. He did not go to
the bank, as he could and should have done, but
sat in a hotel room.
How he could have been persuaded by La Cote is difficult to believe.
Nevertheless, Hewan was also taken in
by La Cote. Hanley’s
attempts to reduce the risk involved in signing these forms were
ineffective. He realised that his signature
on the second page had to
refer to the first page where the amount and particulars of the
beneficiary appeared. It must have been
obvious to him that his
signature on the second page could be used with a different,
substituted, first page. This is what happened.
In doing so, despite
having been aware of the risks involved and anxious to safeguard his
position, he acted in breach of his contractual
duty to draw his
payment instruction with reasonable care. Page two of the transfer
document in which he instructed the bank to
transfer US$ 100 000 was
indeed used with a fraudulent page one in which payment of US$ 1,6
million was sought. It was, however,
not foreseeable that the figures
and words used to link the two pages, ‘100 000 USD DEPOSIT SEE
PAGE 1’, would be altered
as they were. Nor did the manner in
which Hanley wrote them on the second page facilitate the alteration.
The bank’s negligence
[30]
The appellant conceded in its heads of argument that the acts
and omissions of the bank’s officials left much to be desired
but submitted that they did not amount to negligence and were not the
proximate cause of the loss. In view of the many concessions
made by
the appellant’s witnesses, these submissions cannot be
accepted.
[31]
It was contended that the alteration of the US$ 100 000 to US$
1,6 million was not noticeable but only discernible on a close
inspection.
It was also contended that the alteration was not
apparent so as to put the bank on guard: it was not a cheque which
permits of
no alterations. The alteration was contained in a space
where the purpose of the payment had to be set out and not where the
amount
of the payment ordered had to be filled in. Moreover, so the
appellant argued, the amount as altered corresponded with the amount
on the first page of the two page document. Fourie accepted that it
was a coarse alteration although she did not notice it at the
time
she received the document. This is also my observation. Bentley
required an initial on the first page. He said in his
evidence-in-chief
that he would not have observed the alteration and
would not have expected the amount of the transfer to be in the space
providing
for the purpose of the payment. He did concede, however,
that where the payment instruction was contained in two separate
pages,
a signature on the first would have assisted. He would have
been concerned and would have telephoned the customer to confirm all
the details of the transfer. It would have been prudent to verify the
signature. He also conceded that there was some overwriting
of the
six over the zero next to it and agreed that if Fourie had noticed
the alteration she should have acted upon it by going
to a superior.
[32]
Hanley gave both his mobile phone and office numbers to Fourie
when he opened his account. Neither Fourie nor Hewan called him at
these numbers. They simply assumed that the person they were talking
to was Hanley. As I have said, any belief they might have
had that
Hanley was in London was caused by the first two attempts by La Cote
to withdraw the funds, not by Hanley’s carelessness
in writing
the two letters.
[33]
The
appellant, however, submitted that there was no reason to verify the
identity of the person who telephoned them or to whom Hewan
spoke
because he was merely conveying information and not requesting it.
The matter is not as simple as that. Hewan had neither
met nor spoken
to Hanley. Hewan telephoned a person he thought was Hanley after
receipt of the letter dated 30 June in which transfer
of US$ 1,75
million was requested, not to receive information from him, but to
inform him that some money had to be left in the
account after the
amount requested had been transferred. His call resulted in the
request being changed to one requesting transfer
of US$ 1,74 million
only. He telephoned the Mostyn Hotel where Hanley was supposed to be
staying. Hewan thereafter caused transfer
forms to be sent to the
person in London. He did all this without verifying his identity. He
asked no security questions as he
admitted he ought to have done. He
then gave instructions to an official that the transfer be made
urgently assuring him that he
had spoken to the customer personally.
[34]
Hewan
opened a resident account for La Cote well knowing that he was a
nonresident. He assisted La Cote in drafting the loan
agreement
between Noel Hanley and Cathedral Rock. He opened an account for him
without checking his place of residence or inquiring
about him. He
attempted to open the account in the name of Euroceltic without any
resolution by the company and ended up opening
an account for La Cote
trading as such. He was prepared to change the latter’s
non-resident status to resident well knowing
that La Cote lived
overseas. Indeed, he drafted and signed the loan agreement between La
Cote and Cathedral Rock on behalf of the
latter on 24 June 2003. He
knew that the agreement containing false particulars was going to be
presented to the exchange control
authorities and that he had no
authority to sign it. Hewan was actively involved in the
‘transaction’ between the Hanleys
and La Cote, and told
Fourie about it. Although none of his actions resulted directly in
the fraud, they facilitated La Cote’s
perpetration of it.
[35]
The
first letter and the 702 form were delivered to the bank. Fourie
received them in a Fedex envelope that was torn open. The second
instruction followed a call from a person she also assumed was
Hanley. The documents providing for the second transfer as well
as a
copy of the second letter were also delivered by Havvas in a Fedex
envelope that was torn open. Fourie’s suspicions
were raised:
‘I did not like the fact that the documents were delivered to
our offices, but as I said my thinking was that because there
was a
business transaction between the two parties, you know maybe it is
not unusual that the documents come through the messenger
of the
other party.’
Hewan, however,
had told her that she should not discuss the two clients with each
other. Nevertheless, her suspicions were such
that she googled Havvas
to see whether he in fact worked for La Cote. Neither did she ask him
why the envelope had been opened,
nor checked the sender’s
address on it. The Rosebank office of the appellant indeed required
that the signed 702 form be
couriered to them directly after
completion. Indeed, Fourie was not comfortable that they were
delivered through an intermediary.
In these circumstances, it was
unnecessary for her to ascertain whether Havvas worked for La Cote,
but she should have instead
confirmed the details of the transfer
requested with Hanley.
[36]
By
failing to notice the alteration and to confirm the details of the
transfer with Hanley, Fourie was negligent: her conduct fell
short of
the conduct demanded of a reasonable banker. She knew that the
Rosebank office of the appellant had refused payment on
the second
letter that arrived from London because the signature on it did not
match Hanley’s specimen signature. She should
have been
concerned and watchful. The very fact that photocopies of the bank’s
702 form were used should have made her aware
of the risks involved.
Hanley appreciated the risks. Her discomfort concerning the opened
envelopes and the delivery of the documents
by someone other than the
customer added to her concerns. If the circumstances warrant it, a
bank, before making payment, must
make inquiries. It was said:
[10]
‘If banks for fear of offending their customers will not make
inquiries into unusual circumstances, they must take with the
benefit
of not annoying their customers the risk of liability because they do
not inquire.’
The proximate cause
[37]
Hanley
should have, and probably did, realise that in signing the second
page of the 702 form the first page could be substituted
with a
different one reflecting a different amount and a different
beneficiary. He could not, however, reasonably have foreseen
the
possibility that the amount stated on the second page would be
altered as well. He did not facilitate the alteration, and wrote
the
figures and words with care. In these circumstances Fourie’s
negligence is the real, immediate or proximate cause of
the loss.
[11]
The appellant therefore did not show that it was entitled to debit
Hanley’s account in the absence of his authority.
[38]
In the
result the appeal is dismissed with costs including the costs of two
counsel.
F R MALAN
JUDGE OF APPEAL
Wallis JA (concurring for different reasons)
[39]
I have read the judgment of Malan JA and agree with him that
the appeal should be dismissed. However, I do so on the basis that I
do not think that Mr Hanley breached his contractual duty to the bank
not to prepare his payment instructions in a manner that
would
facilitate fraud or forgery. Had I reached the contrary conclusion I
would not have agreed with him that the cause of the
bank’s
loss was negligence on the part of Ms Fourie.
[40]
It is unnecessary for me to recapitulate the facts as they are
fully dealt with in Malan JA’s judgment. Those demonstrate that
there are many unexplained features of the dealings between the
Hanley brothers and Mr La Cote and his henchmen. For my part I
find
it extraordinary that a solicitor of 35 years experience could have
conducted himself in the fashion Mr Hanley described.
I find
particularly extraordinary his failure to speak to the bank directly
about these transactions; his behaviour in Johannesburg
on 4 July
2003 in signing multiple payment instructions on the directions of Mr
La Cote, when it must have been apparent that La
Cote was seeking to
remove the connection he was at pains to establish between the two
pages of those instructions; and his writing
a letter to the bank on
8 July 2003 from France on terms dictated by La Cote and having no
connection with any transaction of which
he was aware. But that is
not relevant to this case, which concerns a single payment
instruction used to perpetrate a fraud on
Mr Hanley and the bank,
although it will be the bank, and not Mr Hanley, that will bear the
loss arising from that fraud. The cases
cited by Malan JA demonstrate
clearly that the customer of a bank owes no general duty to conduct
their affairs without negligence
so as to avoid causing loss to the
bank. Accordingly Mr Hanley’s general conduct in regard to his
dealings with La Cote is
irrelevant.
[41]
I
stress that, in the first instance, the primary issue in this case is
whether Mr Hanley drew up the payment instruction that was
used by La
Cote to extract payment from the bank of US $1.6 million in a manner
that facilitated fraud or forgery. More exactly
it is whether he drew
up the instruction in a way that facilitated the very fraud that
occurred, namely the alteration of the amount
reflected on the second
page of the form and the substitution for the first page of a
different page making provision for the payment
to be made to Coutts
Bank for the benefit of an account under the name ‘Storacar /
Joe Hanley client account’. Unless
the bank can cross this
hurdle we do not reach the issue of causation or the question whether
the bank’s own negligence operated
to break the chain of
causation flowing from Mr Hanley’s breach of obligation, so as
to preclude the bank from debiting his
account with the sum of US
$1.6 million.
[42]
Malan JA finds Mr Hanley to have been negligent in that he
completed the payment instruction in two separate pages with, at the
end of the day, no clear link between them and handed the instruction
to a third party, who then substituted for a page dealing
with a
legitimate payment of US $100 000 to Aer Lingus, a page providing for
US $1.6 million to be paid to the Storacar account.
Seen in the
abstract, divorced from the circumstances of the present case, I
would agree with him, particularly in the case of
an experienced
solicitor who was alive to the potential for fraud arising from that
conduct. However, I think that in this case
it is not open to the
bank on the facts to contend that he was negligent in doing so.
[43]
My reasons for reaching that conclusion can be expressed
simply. First, it was the bank that provided the payment instruction
form
in two separate pages notwithstanding the fact that in its
printed manifestation it was printed on two sides of a single page
with
the notation at the foot of the first page ‘continues
overleaf’. Second, the fact that payment instructions could be
submitted to the bank in this form and be accepted and processed was
apparent from the fact that the form providing for payment
of US $100
000 to Aer Lingus was accepted and processed on that basis. Third, it
is clear from the fact that officials of the bank
added details, in
the form of Mr Hanley’s address and settlement instructions, to
the form by way of which the payment to
Aer Lingus was made, that
even if a form was incomplete in some respect the bank regarded
itself as entitled to complete the missing
items in accordance with
what they understood the customer’s wishes to be. Lastly, it is
apparent that the bank would accept
documents furnished to it via
intermediaries - a practical necessity one would have thought in
modern conditions.
[44]
In those circumstances it is apparent that when making such a
payment the bank principally placed reliance on the genuineness of
its client’s signature on the payment instruction furnished to
them. If that was genuine then they proceeded with the transaction
unless something else alerted them to the possibility of fraud. They
were not concerned with the form in which they were given
payment
instructions and conveyed that message to their customers. They did
not make it a term of the relationship with their customers
that they
would only act on instructions if they were provided in a particular
form. That is entirely understandable in a day and
age where
customers have neither the time nor the inclination, leaving aside
the logistical issues that arise in international
dealings, to go to
a local branch of the bank in order to complete standard forms. On
many occasions such forms will have to be
furnished to the customer
by electronic means. It does, however, carry with it the risk that,
if a customer adopts a less formal
way in which to give instructions,
reliance on the authenticity of their signature alone may not be a
sufficient guarantor against
fraud. That is what occurred in this
case.
[45]
The bank effectively communicated to Mr Hanley that he could
complete the payment instruction form in the manner that he did. That
being so, I do not think that it can now blame him for doing so and
accuse him of negligence in drawing his payment instructions
to it.
The form came to him in two separate sheets that may have been
supplied by the Rosebank branch of the bank responsible for
international transactions, but not Ms Fourie or her superior, Mr
Hewan. Mr Hanley filled it in and signed it twice. He handed
it to a
trusted intermediary for delivery to the bank. It transpires that he
had been duped in wording the form in the manner he
did and that the
intermediary was not worthy of the trust placed in him. But that does
not mean that the bank can claim that he
completed the form in a
manner that facilitated this fraud. If a bank indicates to its
customers that they can give instructions
to it by completing a
particular form provided to them in a particular way, it is the
bank’s responsibility if that mode
of giving instructions
enables a dishonest individual to perpetrate a fraud. The bank cannot
lay the blame for the fraud at the
door of the customer when the
customer did what the bank had conveyed was acceptable to it as a
means of giving it payment instructions.
[46]
That
conclusion means that the bank did not satisfy the first requirement
for it to debit its customer’s account with the
amount of a
payment that it concedes was unauthorised and made as a result of
fraud. It is strictly unnecessary for me then to
deal with the issue
of negligence on the part of Ms Fourie, which Malan JA holds is the
cause of the bank’s loss. However,
I respectfully disagree with
that finding and will briefly indicate why this is so.
[47]
As regards Ms Fourie’s failure to notice the alteration
of the figure of US $100 000 to read US $1,600,000 I think that she
is being condemned with the benefit of hindsight. The trial was
fought in circumstances where everyone knew about the alteration.
The
alteration has been the subject of lengthy forensic scrutiny and
pored over by witnesses, counsel and judges. In those circumstances
its existence is now obvious to all of us. But that is not how Ms
Fourie or any other member of the bank’s staff came to
examine
this document. In their case it arrived as a two page document
instructing them to pay an amount of US $1.6 million to
the Storacar
account. That amount was set out in both figures and words on the
first page of the instruction. The change was effected
in the top
left hand corner of the second page in a section dealing with the
purpose of the payment. It was not where any banker
would look to
discover the extent of their instructions. Of far more importance to
them would be that Mr Hanley’s signature
appeared twice on that
page. As I have said the authenticity of that signature was central
to the bank’s consideration of
the document. In those
circumstances I would expect even a reasonably careful bank official
to give the figures inserted in a note
that refers the reader back to
what appears on page 1 only the most cursory examination. If the
alteration had been picked up it
would undoubtedly have been
attributed to a slip of the pen rather than a sophisticated fraud.
[48]
As
regards the failure to interrogate more closely whether the payment
instruction undoubtedly came from Mr Hanley, it seems to
me that
insufficient weight is given by my colleague to the fact that, only
three days before she dealt with this payment instruction,
Ms Fourie
had processed an application in identical form for the payment of US
$100 000 to Aer Lingus. Prior to receipt of the
earlier instruction
Ms Fourie had been told to expect such an instruction in a telephone
conversation with a person she believed
to be Mr Hanley at the Mostyn
Hotel in London. She and her superior, Mr Hewan, had been led by the
fraudsters to believe that this
was where Mr Hanley was at the time.
When the payment was made it was accompanied by a genuine letter
written by Hanley, stressing
the urgency of the payment and asking
that proof of the payment be sent to the legal compliance officer of
Aer Lingus in Dublin.
This was done and a letter sent to Mr Hanley at
the Mostyn Hotel confirming that fact. There had been no response to
this payment
querying its authenticity and there could have been none
because it was in fact authentic.
[49]
In those circumstances I do not think that it was negligent
for Ms Fourie to process the second payment. Once again she had
received
a phone call telling her to expect the instruction and it
was delivered to her in the same way as the first one. She checked
that
the instruction was signed by Mr Hanley and sent it to the
Rosebank branch as before. The fact that it was accompanied by a
letter
from Hanley and signed by him, which referred to the Aer
Lingus transfer and on its face appeared to authorise the second
transaction,
can only have lent further authenticity to the
instruction, whether or not she paid much, or any heed, to its
contents. As before
she had a letter in Mr Hanley’s handwriting
and signed by him accompanying a payment instruction also signed by
him and she
accepted them at face value. To hold her negligent is to
say that she should have realised that a fraud was being perpetrated,
when Mr Hanley, who had far greater knowledge of and insight into the
situation, had never appreciated that fact. That is in my
respectful
view unfair to her and overly generous to Mr Hanley.
[50]
Malan
JA attaches considerable weight to the background that in his view
should have caused Ms Fourie to approach this instruction
with
greater caution. In my view, whatever concerns should have been
awakened by that background would have been dispelled by the
authentic instruction received to pay US $100 000 to Aer Lingus and
the fact that nothing untoward had emerged from giving effect
to that
instruction. For those reasons had it been necessary to address this
issue finally I would not have held that Ms Fourie
was negligent or
that any negligence on the part of the bank was the proximate cause
of the loss occasioned by the fraud.
M J D WALLIS
JUDGE OF APPEAL
APPARANCES:
For Appellant: André Gautschi SC and
Lara Grenfell
Instructed by:
Lowndes Dlamini c/o Savage Jooste & Adams, Pretoria
Matsepes Inc, Bloemfontein
For Resondent: F H Terblanche SC and M van Rooyen
Instructed by:
Le Grange Attorneys, Pretoria
Symington & De Kok, Bloemfontein
[1]
See
J T Pretorius ‘The Forgery of a Drawer’s Signature on a
Cheque: Proposals for the Reform of the South African
Law’ in
Coenraad Visser (ed) Essays in Honour of Ellison Kahn (1989) at 271;
See F R Malan, J T Pretorius and S F du Toit
Malan on Bills of
Exchange, Cheques and Promissory Notes in South African Law 5ed
(2009) at 300ff and R J Pothier Verhandeling
van het Wissel-Recht
(translation J van der Linden) 1.4.54.
[2]
Malan at 275ff.
[3]
McCarthy
Ltd v ABSA Bank Ltd
2010 (2) SA 321
(SCA) para 22. See Royal
Products Ltd v Midland Ltd and Bank of Valetta Ltd [1981] 2 Lloyds
LR 194 (QB) at 198; Selangor United
Rubber Estates Ltd v Cradock &
others
[1968] 2 All ER 1073
(ChD) 1119E-H and the authorities cited
in n 5.
[4]
OK Bazaars (1929) Ltd v
Universal Stores Ltd
1973 (2) SA 281
(C) at 288.
[5]
Big Dutchman (South Africa) (Pty)
Ltd v Barclays National Bank Ltd
1979
(3) SA 267
((W) at 283A-B. See
Holzman
v Standard Bank Ltd
1985
(1) SA 360
(W) at 363H-I;
Barclays
Bank DCO v Straw
1965 (2)
SA 93
(O) at 95D-F;
Standard
Bank of SA Ltd v Kaplan
1922
CPD 214
at 223-4;
Trull v
Standard Bank of South Africa Ltd
(1892)
4 SAR 203 at 205;
Union
Government v National Bank of South Africa
1921
[6]
See
Malan para 220 nn 32 and 33 and fn 5 above. For criticism of the way
in which the customer’s duties is formulated, see
J T
Pretorius 1985
Annual
Survey
349
and his contribution to
Essays
in Honour of Ellison Kahn
at
271 ff (fn 1 above). For criticism, in the case of estoppel, that
the negligence must be ‘in the transaction itself’,
see
Rabie and Sonnekus
The
Law of Estoppel in South Africa
original
text by the Hon P J Rabie and 2nd ed by J C Sonnekus at 154-5.
[7]
Greenwood v Martins Bank Ltd
[1932] 1 KB 371
(CA) at 380-1.
[8]
See
Tai
Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd
[1985]
2 All ER 947
(PC);
[1986] AC 80
(PC) and
Canadian
Pacific Hotels Ltd v Bank of Montreal
(1988)
40 DLR (4d) 385
[9]
See s 72B of the Bills of
Exchange Act 34 of 1964 introduced by
s 29
of the
Bills of Exchange
Amendment Act 56 of 2000
and the discussion in Malan para 220.
[10]
AL Underwood Ltd v Bank of Liverpool
[1924] 1 KB 775
(CA) at 793
quoted with approval in Columbus Joint Venture v ABSA Bank Ltd
2002
(1) SA 90
(SCA) para 24.
[11]
Saambou-Nasionale Bouvereniging v Friedman
1979
(3) SA 978
(A) at 1005F-G and cf
Union Government v National
Bank of South Africa Ltd
1921 AD
121
at 131, 134, 145 and 151. See, more recently,
Stellenbosch
Farmers’ Winery Ltd v Vlachos t/a The Liquor Den
2001
(3) SA 597
(SCA) para 20.