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[2012] ZASCA 18
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Standard Bank of South Africa Ltd v Echo Petroleum CC (192/11) [2012] ZASCA 18; 2012 (5) SA 283 (SCA) (22 March 2012)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 192/11
Reportable
In the matter between:
THE STANDARD BANK OF
SOUTH AFRICA LIMITED
…........................
APPELLANT
and
ECHO
PETROLEUM CC
…......................................................................
RESPONDENT
Neutral citation
:
Standard Bank v Echo Petroleum
(192/11)
[2012] ZASCA 18
(22
March 2012)
Coram:
HEHER,
SNYDERS, MALAN, WALLIS JJA AND BORUCHOWITZ AJA
Heard:
9 March
2012
Delivered:
22
March 2012
Updated:
Summary:
Bank –
funds transferred to customer’s account by third party
contracting with customer – bank setting off credit
thus
arising against debit balance in second account – no right of
vindication from bank by third party.
____________________________________________________________________________________
ORDER
On appeal from:
North Gauteng High Court (Pretoria)
(Mothle AJ sitting as court of first instance):
The appeal succeeds with
costs. The order of the court a quo is set aside and replaced with
the following:
‘
The
application is dismissed with costs.’
__________
_______________________________________________________________________
JUDGMENT
_____________________________________________________________________
HEHER JA (SNYDERS, MALAN,
WALLIS JJA AND BORUCHOWITZ AJA concurring):
[1] The issue in this
appeal is, in broad terms, the following. A deposits money into B’s
bank account, in payment for goods
that will be delivered in the
future, intending that B will use these funds to purchase the goods B
has sold to A. Unknown to A,
B is heavily indebted to its bank, which
promptly sets off the credit brought about by A’s deposit
against the debt. Can
A recover the amount it deposited from the
bank?
[2] The appeal is against
an order made by Mothle AJ in the North Gauteng High Court in which
the learned judge ordered the appellant
(‘the Bank’) to
pay R710 000 to the respondent (‘Echo’) with costs of
suit. He subsequently granted the
Bank leave to appeal to this Court.
[3] Echo brought an
urgent application on 3 October 2008 claiming payment of the money
from Sky Petroleum Ltd (‘Sky’)
and the Bank jointly and
severally. The juridical basis was unspecified in the founding
affidavit but its vindicatory nature was
made clear in a
supplementary founding affidavit deposed to eight days later:
‘
The
payment [of] R710 000.00 was paid to the First Respondent [Sky] in
terms of a cash agreement of sale. As such, it had never
been the
intention of the Applicant to transfer ownership of the said money to
the First Respondent before the Applicant had received
the requisite
product. If the First Respondent cannot deliver the product then
obviously the First Respondent must return the money
to the
Applicant. This obligation flows not just from the First Respondent’s
breach of the agreement but also because the
money was not the
property of the First Respondent to start with. At all relevant time
the Applicant was and remained the owner
of the money. As is evident
from Annexure “I” the money of the Applicant is clearly
identifiable. . . .
I
am advised that even though the money might be in the possession of
the First Respondent prior to the First Respondent providing
the
product to the Applicant, that the First Respondent did not hold this
money, at the time, with the necessary intention to deal
with it as
an owner. Only after the First Respondent had delivered the product
would the First Respondent acquire the necessary
intention to deal
with it as an owner. . . .
I
am further advised that the First Respondent was quite able to
identify the Applicant’s funds which had been transferred
into
its bank account which is owed and owned by the Applicant.’
(sic)
[4] Only the Bank opposed
the relief. By the time that judgment was delivered (on 28 October
2010, through no fault of the learned
judge) Sky had been liquidated
and the order for payment was made against the Bank only, on grounds
of unjust enrichment.
[5] The facts concerning
the terms of their transaction were essentially within the knowledge
of Echo and Sky. The Bank’s
deponents said that the Bank was
unaware of the contractual arrangements between them. Although
counsel for the Bank contended
in his heads of argument for the
existence of unresolved disputes of fact, the picture that emerges
from the affidavits was not
such as to leave doubt about the material
circumstances of the case.
[6] Echo carried on
business as a wholesale supplier of fuel. It sold Sasol products.
Sasol allowed only authorised contractors
to purchase fuel directly
from it. Echo was not so authorised and was accordingly obliged to
purchase fuel from Sky which was.
Echo made frequent use of its
services during the period January to October 2008.
[7] The modus operandi of
their relationship is made clear in the affidavits of Mr Eben Marais,
Echo’s sole member, and Mr
Tongai Mureka, a manager at Sky with
whom Marais usually dealt.
[8] Sky’s price for
any order would consist of the price charged to Sky by Sasol plus a
profit at an agreed rate of about
R0,02 per litre of fuel. Echo would
order petroleum from Sky, either before 10h00 or before 14h00 on a
particular day. It paid
the purchase price into Sky’s bank
account. Once Sky had received an order from Echo and had been paid
it would in turn place
an equivalent order on Sasol and pay Sasol
with the funds received from Echo. If the payment in respect of an
order had been deposited
before 13h00 on a business day Sky would,
during the afternoon, make available loading documents that permitted
Echo to take delivery
from Sasol at its Secunda premises. If payment
was made after 13h00 documents would not be issued until the
following day. If no
payment was made by Echo the order would simply
lapse. Both Sky and Sasol sold the petrol on a purely cash in advance
basis.
[9] Using the loading
documents issued by Sasol and sent by Sky to it, Echo would load the
product at a Sasol depot. It was Marais’s
practice to send the
trucks to await delivery even before the receipt of the loading
documents in the assurance of timeous receipt
of such documents.
[10] On 1 October 2008
Marais faxed an order to Sky for six consignments of lead replacement
and unleaded petrol and diesel for
a total price of R710 111. He
initially transferred R700 000 to the credit of Sky’s bank
account believing that Sky would
meet the balance out of a
substantial credit owed to Echo by it. Informed later in the day that
Sky held insufficient funds in
its account for that purpose, Marais
caused a further R10 000 to be transferred.
[11] By about 16h30 on
the same day Echo had received no loading documents. Marais, whose
trucks were waiting at Sasol, ready to
load, telephoned Mureka. He,
after enquiry, sent an e-mail to Marais at 16h00 saying that he was
uncertain as to cause of the delay
and would investigate further.
[12] During the morning
of 2 October Marais spoke telephonically with Mr Carlos Vieira of the
Bank who informed him that the Bank
had given instructions to freeze
the Sky account.
[13] At 12h01 on that day
Mureka notified Echo as follows:
‘
I
have been instructed to inform you that you need to send an urgent
demand to Standard Bank advising that if funds are not cleared
for
payment, you will apply for a court order for the release of those
funds. This will be done specifically on the basis that
these were
earmarked for payment to Sasol on your behalf and do not belong to
Sky. Accordingly you are to cancel your order and
demand the return
of your funds.
We
will do everything in our power to assist you and your lawyers are at
liberty to contact us for any documents or affidavits that
you may
require to support your claim.
We
assure you that the funds have not been used or dispersed for our own
purposes.’
[14] At 12h41 Marais
confirmed the conversation:
‘
As
discussed Echo Petroleum CC paid yesterday 1 October 2008 the amounts
of R700 000 and R10 000 respectively into the account of
Sky
Petroleum Limited (Account number 252103602).
This
money was earmarked to be paid over to Sasol on our behalf and is not
the property of Sky Petroleum Limited
.
According
to Sky Petroleum Limited the account was frozen by Standard Bank for
reasons unknown to me.
Unless
the amount of R710 000.00 . . . is returned into our account before
close of business today, we will bring a court application
on an
urgent basis to compel Standard Bank to return the money.’ (My
emphasis.)
[15] At 16h04 on the same
day Marais responded, cancelling the orders placed on 1 October and
requesting repayment of the amount
of R710 000.
[16] At about 16h50 Echo
received an e-mail from Mrs Val Botha of the Bank, who had earlier
confirmed telephonically that the account
had been frozen and the
money in the account had been applied to a debt owed by Sky to the
Bank, as follows:
‘
Please
be advised that the bank accepted your deposits in the ordinary
course of business into the account of Sky Petroleum (Pty)
Ltd and
any arrangements entered between you and Sky Petroleum are not
binding on the bank. As a result, the bank is not able to
comply with
your demand.’
[17] At the request of
Marais he was sent a copy of Sky’s bank account by the Bank.
Receiving it at about 17h00 on 2 October,
he was surprised to observe
that the deposit of R710 000 was still in Sky’s account despite
the information communicated
to him earlier by Mrs Botha.
[18] On 3 October 2008
Echo instituted proceedings in the High Court to recover from the
Bank the money appropriated by it.
[19] In Echo’s
founding affidavit Marais alleged that the Bank was fully aware of
the practice followed by Echo and Sky in
relation to the ordering of
fuel, payment for it, and that ownership of the money would not pass
until Sasol supplied the loading
documents to Echo.
[20] The Bank, in its
answering affidavit deposed to by Mrs Botha, set out the following
history of its relationship with Sky.
[21] Early in 2008 Sky
operated a current account (the ‘253 account’) with an
overdraft facility of R1 million. Later
it opened a second current
account without such a facility (the ‘602 account’) which
had to be conducted by agreement
on a credit basis.
[22] From March 2008 Sky
was in financial difficulty and the Bank appointed officials to
manage its facilities. On 22 June the Bank
placed Sky on terms to
settle the debt failing compliance with which it would withdraw all
such facilities at the end of July.
Sky did not comply. Further
futile negotiations ensued while the Bank held back on the
implementation of its threat.
[23] On 1 October the 253
account reflected a debit balance of R897 730,41. The credit balance
on the 602 account stood at R3 870,86.
On that date Mrs Botha, who
was monitoring the accounts, noticed that the balance on the 602
account had grown to R713 870,86.
She decided that the Bank
should effect a set off of the two accounts by appropriating the
credit on the 602 account to the debit
on the 253 account. During the
morning she caused an electronic block to be placed on the
first-mentioned account that prevented
access by Sky and gave
instructions for the funds in it to be transferred to the 253
account. Because of the internal processes
of the Bank the transfer
was only reflected on the following day.
[24] Mrs Botha denied
that the deposits by Echo were ‘earmarked’ for payment to
Sasol. She pointed out that although
Marais had said under oath that
Echo’s order form contained full details (of the terms of the
deposit) there was no reference
in it to such an appropriation.
Moreover, she deposed, the 602 account was a general account in
respect of which no ‘earmarking’
of funds is possible;
when payment was made into the account the effect was a merger of the
funds with those of Sky. Mothle AJ
found that the funds were
earmarked but gave no reasons. In the face of the Bank’s
unrebutted evidence that conclusion cannot
be sustained. Any
effective ‘earmarking’, ie designation for a particular
limited purpose, must be objectively ascertainable
by a third party
who is sought to be bound by it, and not confined to the knowledge of
the direct parties.
[25] Mrs Botha admitted
that the 602 account had been used, from about January 2008, to
conduct Sky’s wholesale fuel business
and to pay its business
debts in respect thereof. She (and other deponents on behalf of the
Bank) denied any knowledge of the modus
operandi of the business and
in particular whether transactions between Echo and Sky were
conducted on a cash on delivery, or,
more accurately, a cash prior to
delivery, basis.
[26] This appeal depends,
in the first instance, on whether a customer of a bank to whose
credit a deposit had been made acquired
a right to deal with the
proceeds of that credit.
[27] The general rule is
that moneys deposited into a bank account fall into the ownership of
the bank. The resulting credit belongs
to the customer, the bank
having a contractual obligation to pay the customer on demand and to
honour cheques validly drawn on
the account to the extent that it
stands in credit:
S v Kearney
1964 (2) SA 495
(A) at
502H-503A.
[28] The bank’s
apparent ownership of the funds in an account does not in all
circumstances confer an absolute or unqualified
right on it to treat
the funds as its own or the credit as the property of its customer:
Burg Trailers SA (Pty) Ltd and Another v Absa Bank Ltd
2004
(1) SA 284
(SCA) paras 9 and 13;
Nissan South Africa (Pty) Ltd v
Marnitz NO (Stand 186 Aeroport (Pty) Ltd intervening)
2005 (1) SA
441
(SCA) para 23;
Joint Stock Co Varvarinskoye v Absa Bank Ltd
[2008] ZASCA 35
;
2008 (4) SA 287
(SCA) paras 31 to 42;
Nedbank v Pestana
[2008] ZASCA 140
;
2009
(2) SA 189
(SCA) paras 8 and 9.
[29] In reliance on these
principles counsel for the respondent submitted that Echo and Sky
contracted on the basis of a sale for
cash on delivery; until Sky
tendered delivery it was not entitled to payment. The consequence
was, he said, that Echo’s deposit
and the bank’s passing
of a credit in favour of Sky were conditional upon delivery, an event
that had not occurred by the
time that the Bank appropriated the
credit (and would not occur because of the cancellation of the
agreement).
[30] I regret that I
cannot agree with counsel. His argument depends on a distortion of
the facts. Nor does it reflect the true
basis of the relationship
between Echo and Sky. The founding affidavit shows that Echo
transferred the price pursuant to a contractual
obligation to pay in
advance of delivery so as to enable Sky in turn to pay Sasol and
thereby procure delivery of the fuel to Echo.
As soon as the deposit
was credited to it Sky became entitled to use the funds for that
purpose, and was, therefore, entitled to
the benefit of the credit.
The credit was thus a debt of the Bank to Sky against which existing
debts of Sky to it could be set
off. When Sky was unable to procure
delivery Echo obtained a claim against it for breach of contract as
any other creditor in its
position would have. Such a claim did not
include a vindicatory right to the contractual consideration that had
been paid. On Sky’s
insolvency Echo became a concurrent
creditor in its estate.
[31] Echo did not prove
that the Bank had knowledge of the modus operandi of Sky’s
business with it. Even if the Bank had
been so informed it was not
bound to subordinate its interests to Sky in the absence of agreement
between them:
cf Absa Bank Ltd v Intensive Air (Pty) Ltd
2011
(2) SA 275
(SCA) at 280I-281B.
[32] Counsel for Echo,
somewhat desperately, submitted that no set-off was possible in the
absence of demand by the Bank for repayment
of the debit amount on
the 253 account. This, he conceded, had been made in June 2008, but
pointed out that the 602 account had,
between the date of demand and
the receipt of Echo’s deposit at the beginning of October stood
in credit in varying amounts
that frequently exceeded the debit
balance on the 253 account. This, he submitted, served as a making of
the funds available for
payment in satisfaction of the Bank’s
demand. That the Bank chose not to appropriate the credits was of no
significance;
what was important was that a further demand became
necessary in order to again render the 253 account due and payable.
As no further
demand was forthcoming the debit on that account could
not be claimed by the Bank and accordingly was not capable of
set-off.
[33] This seems to be a
wholly artificial argument. When demand was made for payment of the
253 account the debit balance became
due and payable. The Bank did
not then or later (until 2 October) consolidate the accounts or apply
set off. The debt arising on
the 253 account was never discharged and
the demand stood. Although set off occurs automatically by operation
of law, it only operates,
retrospectively, if and when the debtor
(the Bank) elects to rely on it. See
Southern Cape Liquors (Pty)
Ltd v Delipcus Beleggings Bpk
1998 (4) SA 494
(C) at 499I-501D
and the authorities there cited. That election only took place on 2
October at a time when the 253 account remained
unpaid and subject to
the unsatisfied demand.
[34] I conclude,
therefore, that Echo had no right in law to reclaim the deposit (or
the amount of it) from Sky or the Bank by vindication.
Although no
foundation was laid for a claim based on unjust enrichment, it is
clear from what I have said that the Bank acted lawfully
in
appropriating the credit and Echo could not have succeeded on that
cause either.
[35] The appeal succeeds
with costs. The order of the court a quo is set aside and replaced
with the following:
‘
The application is
dismissed with costs.’
_________________
J A HEHER
JUDGE OF APPEAL
APPEARANCES
APPELLANT: A E Bham SC
Shaun Nel Attorneys,
Johannesburg
Lovius Block,
Bloemfontein
RESPONDENT: H N de Wet
Cilliers & Reynders
Inc, Lyttelton
Phatshoane Henney
Attorneys, Bloemfontein