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[2010] ZASCA 171
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ABSA Bank Ltd v Intensive Air (Pty) Ltd (In Liquidation) and Others (2011 (2) SA 275 (SCA); [2011] 3 All SA 2 (SCA)) [2010] ZASCA 171; 31/2010 (1 December 2010)
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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case No: 31/2010
In the matter between:
ABSA BANK LIMITED
................................................................................
Appellant
and
INTENSIVE AIR (PTY) LIMITED (IN LIQUIDATION)
....................
First Respondent
GEOFF FERREIRA NO
............................................................
Second
Respondent
LESLIE MATUSON NO
................................................................
Third
Respondent
RISCHARD CASSIM NO
............................................................
Fourth
Respondent
Neutral citation:
ABSA Bank v Intensive Air
(31/2010)
[2010] ZASCA 171
(1 DECEMBER 2010)
Coram:
HARMS DP, CACHALIA, SNYDERS and SHONGWE
JJA and BERTELSMANN AJA
Heard:
2 NOVEMBER 2010
Delivered: 1 DECEMBER 2010
Summary:
Banking – banker and customer
relationship – company income paid into sole director’s
and shareholder’s
personal account – credit in director’s
account appropriated by bank setting it off against director’s
debts
owing to bank – no agreement with bank to hold funds
credited to director’s account as those of the company –
absence of ius in re.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from: North Gauteng High Court, Pretoria
(Hartzenberg and Claassen JJ and Mabuse AJ sitting as full court).
The following order is
made:
1. The appeal is upheld
with costs, including the costs of two counsel.
2. The order of the full
court is set aside and the following order is substituted therefore:
‘
The
appeal is dismissed with costs, including the costs of two counsel.’
______________________________________________________________
JUDGMENT
______________________________________________________________
BERTELSMANN AJA (HARMS DP, CACHALIA, SNYDERS and
SHONGWE JJA concurring).
[1] Dr J W K Louw
(‘Louw’), a Johannesburg heart surgeon, had a passion for
flying. He established an air ambulance
service in the eighties,
first under the name ‘Care Air’ and then ‘Intensive
Air’ of which he was the sole
proprietor. He expanded the air
ambulance into a full air travel operation during about 2001.
[2] A licence to conduct
air passenger travel services was issued to the first respondent,
Intensive Air (Pty) Ltd, a company (‘the
company’) with
limited liability duly incorporated in terms of the Companies Act 61
of 1973. The company is in liquidation.
Louw was the sole shareholder
and director of the company. Louw opened several bank accounts with
the appellant, Absa Bank Ltd,
at the latter’s Private Bank
Division.
[3] One of the accounts
opened by Louw was a cheque account with account number 4061777725,
conducted in his personal name trading
as ‘Intensive Air’.
Louw identified himself as the sole proprietor of this business when
the bank opened the account
in his name. This account was described
in the proceedings in the court of first instance as the ‘ticket
account’ because
all the proceeds of tickets sold by the
company to its passengers on its regular flights, and no other funds,
were deposited into
this account. This account was opened in May
2000, some time before the air transport services commenced.
[4] Other accounts opened
by Louw with the bank in his own name included one called the
‘aircraft lease account’, upon
which Louw obtained an
overdraft of R25m. This sum Louw devoted to the purchase of several
passenger aircraft in his personal capacity
that he leased to the
company.
[5] Another account was
conducted as Louw’s personal and practice account, while the
company also conducted an account with
the bank into which speed
point payments were received. Further accounts in the name of both
Louw and the company were opened at
Standard Bank.
[6] Louw was obliged to
pay the interest to the bank on the overdraft of R25m on a monthly
basis. The funds required for this purpose
were transferred from the
ticket account to the aircraft lease account. These interest payments
were in turn credited as aircraft
rental payments to Louw’s
loan account in the company, which reflected a debt of R5m to Louw,
arising from rentals and money
lent and advanced when the company was
liquidated. It is important to note that the loan account represented
a reconstruction of
these transactions by the company’s
auditors as these were not properly recorded by Louw.
[7] The funds in the
ticket account were also used to pay other company expenses such as
the fuel and the aircraft maintenance accounts.
Some transfers were
also made to Louw’s personal account.
[8] Louw provided
security for the bank’s claims against the company and himself
in the form of a suretyship for the company’s
liabilities, a
cession of his loan account in the company, a cession of his
policies, by registering bonds over his immovable properties
and
executing a cession of all sums standing to his credit in any account
conducted with the bank.
[9] The air passenger
service ran into financial difficulties and the company was
liquidated during the first half of 2002, the
liquidation application
having been lodged on 10 April 2002. At that date a credit balance of
R293 656.56 was shown in the
ticket account, which the bank
appropriated by claiming that it was automatically set-off against
Louw’s indebtedness to
it.
[10] The second to fourth
respondents were appointed as the first respondent’s final
liquidators. They regarded the payment
of funds earned by the company
into the ticket account as dispositions to the bank without value,
liable to be set aside in accordance
with
s 26
of the
Insolvency
Act 24 of 1936
read with the provisions of s 340 of the
Companies Act. They also claimed the credit balance in the ticket
account, on the
date of insolvency, as moneys earned by the company
to which the latter was entitled. The bank disputed these assertions.
Summons
was issued. Respondents’ first claim was for payment of
R7 387 957.34 as the total of all dispositions without
value, while payment of the amount of R293 656.56 was demanded
on the grounds that it ‘belonged’ to the company.
The
bank pleaded specifically that the ticket account was opened in
Louw’s name as sole proprietor of ‘Intensive Air’.
The respondents therefore had to prove that it was the company, and
not Louw in his personal capacity, that was entitled to claim
the
credit balance in this account.
[11] The respondents
called the company’s financial manager, Mr Gerhard Louw (not
related to Louw), as their first witness.
He confirmed that the
ticket account, on which he had signing powers, had been opened in
Louw’s personal name and that the
latter was the account
holder. He explained that funds were channelled from this account to
the aircraft lease account –
which was also held in Louw’s
name - and were further used to pay the company’s liabilities.
[12] He testified that he
had recommended that the company’s finances should be dealt
with separately from the director’s
affairs, but that his
advice was not implemented.
[13] The evidence of Mr
Richard Evans, the company’s accountant, was also that the
relevant accounts were held in Louw’s
name and that the funds
deposited into them were used to defray the company’s expenses.
Evans regarded the book-keeping practices
he found when he joined the
company as unsatisfactory, but could not effect a change before the
company was liquidated.
[14] This was the sum
total of the evidence presented to support the respondent’s
claims. The other witnesses called by the
respondents did not give
any evidence that had a bearing on the issues in dispute between them
and the bank. For reasons that remained
unexplained Louw was not
called to testify. The bank closed it case without calling witnesses.
[15] The trial court
dismissed both claims. It found that the ticket account was held by
Louw personally. Money deposited into that
account did not constitute
a disposition to the bank. The first claim was dismissed on this
ground. By the same token, the credit
balance appropriated by set-off
was held to have been Louw’s asset and not that of the company,
rendering the second claim
unenforceable. Leave to appeal to the full
court was granted in respect of the second claim only. A petition to
this court for
leave to appeal against the dismissal of the first
claim failed.
[16] The full court
upheld the appeal against the dismissal of the second claim. Relying
upon this court’s judgment in
Joint Stock Co Varvarinskoye v
Absa Bank Ltd & others
[2008] ZASCA 35
;
2008 (4) SA 287
(SCA), it held that
the liquidators had established that Louw had conducted the air
service venture through the company and not
in his own name. The
funds deposited into the ticket account were thus those of the
company and ‘belonged’ to the company.
As a result the
bank was not entitled to set-off any credit in the ticket account
against any claim it might have against Louw
personally.
[17] The full court found
support for this conclusion in the fact that Louw held a loan account
in the company. The existence of
this account, the full court
reasoned, was proof that the affairs of the company were conducted
separately from Louw’s financial
dealings. It adopted the view
that, had Louw’s funds been intermingled with those of the
company, it would have been nonsensical
to conduct the loan account
at all. This finding is not supported by the evidence.
[18] Special leave to
appeal to this court having been granted, the bank argued that the
full court erred in regarding funds deposited
into the ticket account
as those of the company. They ‘belonged’ to Louw as the
latter had agreed with the company,
whose sole shareholder, director
and guiding mind he was, to deposit the income from the ticket sales
into this account of which
he was the holder. The respondents
supported the full court’s reasoning.
[19] Before further
considering the judgment of the full court, it is useful to recall
some basic principles in this area of the
law.
[20] The relationship
between banker and client is one of debtor and creditor. ‘...it
has long been judicially recognised
in this country that the
relationship between bank and customer is one of debtor and creditor.
When a customer deposits money it
becomes that of the bank, subject
to the bank’s obligation to honour cheques validly drawn by the
customer...’ per
Holmes JA in
S v Kearney
1964 (2) SA
495
(A) at 502-503. Although the liquidators proceeded from the
assumption that the funds in Louw’s account ‘belonged’
to the company, their case clearly was not vindicatory or
quasi-vindicatory, but contractual. Their case had to be that the
company
(and not Louw) represented by its sole director had opened
the account with the bank and that it was the bank’s creditor,
in spite of the fact that the bank’s Private Bank Division does
not deal with corporate accounts and that the account was
conducted
in Louw’s name.
[21] The respondents
therefore had to prove that Louw was a disclosed agent of the
company. The bank must have agreed to conduct
the account on this
basis:
Dantex Investment Holdings (Pty) Ltd v National Explosives
(Pty) Ltd
(in liquidation)1990 (1) SA 736 (A) at 748E-749. Milne
JA says at 749D-E:
‘…
in
our law, money held by virtue of a fiduciary relationship in which
the holder stands to another is, unlike the position in English
law,
not deemed to be earmarked and is not charged with the fiduciary
obligation.’
And at 749I
‘
There
is no evidence to suggest that the Bank agreed to hold the funds in
respect of those cheques as agent for Dantex.’
Van den Heever J in Ex
parte Estate Kelly
1942 OPD 265
at 272, states:
‘
[b]y
paying these monies into the bank, Kelly acquired a personal claim
against the bank and his creditors have nothing but personal
claims
against him.’
[22] Had Louw been an
undisclosed agent, the liquidators would have had no claim against
the bank:
Symon v Brecker
1904 TS 745.
Had the company’s
money been stolen, and had the thief paid off his overdraft with the
stolen money, the company would have
had no claim for repayment
thereof against the bank,
(First National Bank of Southern Africa
Ltd v Perry NO & others
2001 (3) SA 960
(SCA) para 16) but
would, of course, have had a claim against the thief and a possible
enrichment action against anyone who knowingly
received or retained
the stolen money. Had the thief, however, deposited the stolen money
into an account where it was still identifiable
as the fruit of the
misdeed, the company would have had a quasi-vindicatory claim to it :
Nissan South Africa (Pty) Ltd v Marnitz NO & others
(
Stand
186 Aeroport (Pty) Ltd intervening
)
2005 (1) SA 441
(SCA). The
liquidators may also have shown that the rights of the account holder
to operate upon the account had been limited in
terms of an agreement
between the company and the bank, as was the case in
Varvarinskoye.
[23] Turning then to the
judgment appealed against, the full court appears to have overlooked
the specific circumstances that prevailed
in the
Varvarinskoye
matter. There, Absa Bank had been expressly informed that the
moneys standing to the credit of an account conducted in the name of
its client, MDM, were held specifically to provide a fund from which
sub-contractors of the appellant joint stock company would
be paid.
Funds could only be withdrawn from this account for the purpose of
effecting payment of approved sums to clearly identified
sub-contractors. Every withdrawal had to be expressly authorised by
the appellant. Absa Bank was fully aware of these facts and
knew that
MDM had no claim to the money deposited in the account in its name.
MDM had signed cross-suretyships with and in favour
of two associated
companies that were clients of Absa Bank. When MDM and its associated
companies experienced financial hardship
and the associated companies
were unable to meet their commitments to Absa Bank, the latter
purported to appropriate the funds
in the MDM account, claiming that
the money deposited into the dedicated account became the property of
the bank, as if the account
had been opened by a client in the
ordinary course of banking business. Only the account holder, it was
argued, could claim the
money standing to the credit of an account,
and MDM’s claim had been extinguished by the set-off effected
by enforcing the
cross-suretyships.
[24] On appeal in
Varvarinskoye
this court confirmed that if funds held in an
account can be identified as having been reserved for or ‘belonging’
to another by agreement with the bank, the account holder is not
entitled to deal with those funds. The person actually entitled
thereto has a quasi-vindicatory claim to demand payment of such funds
from the bank:
Fedsure Life Assurance Co Ltd v Worldwide African
Investment Holdings (Pty) Ltd & others
2003 (3) SA 268
(W).
Should they become intermingled with other moneys in an account held
by a person not entitled thereto, they can no longer
be identified as
funds to which a non-account holder has a better claim than the
holder and the money becomes the property of the
bank. The claimant
is then left with only a personal claim against the holder of the
account:
Dantex Investment Holdings (Pty) Ltd
supra.
[25] By agreeing to the
specific terms under which the MDM-account was conducted in
Varvarinskoye
, Absa Bank was placed in the position of the
joint stock company’s agent holding the latter’s money as
a separate fund
reserved for a specific purpose. Absa Bank was
therefore not entitled to appropriate the credit balance in MDM’s
account
to itself. To Absa Bank’s knowledge, the funds
‘belonged’ to the appellant and could not be set-off
against MDM’s
liabilities to Absa Bank. The appeal was upheld
in accordance with basic principles and without purporting to create
new ones.
[26] The facts in this
case differ significantly from those in
Varvarinskoye
. It is
clear that the bank was not party to any agreement to treat the funds
in Louw’s ticket account in any way other than
those of the
account holder. There is no evidence of any agreement other than that
of client and banker entered into by Louw and
the bank. While the
bank was certainly aware of the fact that Louw was director and
shareholder of the company, there was no suggestion
made to it at any
stage that Louw was not entitled in his personal capacity to the
proceeds of the company’s ticket sales
– which funds were
in turn devoted in large measure to the payment of company expenses.
The financial arrangements made by
Louw in respect of his own and the
company’s funds may have been unorthodox, imprecise and even
chaotic, while the recordal
of the various transactions in his and
the company’s books of account may have been, as counsel for
the bank put it during
the hearing in the court of first instance ‘
an auditor’s nightmare’. It does not follow that he
therefore did
not conduct the ticket account in his personal
capacity.
[27] The existence of the
loan account in the company does not contradict this conclusion. It
does not, as the full court held,
prove that the company and Louw
conducted separate books and drew clear distinctions between
transactions performed by the one
or the other. The evidence of the
financial director and the accountant emphasises that Louw
transferred company earnings into
accounts he held with the bank,
intermingled them with his own funds and used the available financial
resources to pay company
and personal expenses. They confirmed that
the loan account was basically created by the company’s
auditors in an effort
to untangle Louw’s various transactions
in the company’s books. In any event the existence of its loan
account did
not establish that the bank had a contract with the
company.
[28] Louw clearly
regarded the company and its business as his personal fiefdom which
he could control as he pleased. His own financial
fortunes were
intertwined with those of the business. From the bank’s
perspective there was no reason to suspect that the
agreement between
Louw and the company to transfer the proceeds of ticket sales into
Louw’s personal account was anything
but bona fide and
untainted by any illegality. Unlawful conduct in respect of any
arrangement between Louw and the company cannot
be presumed: ‘[t]here
exists a presumption in law that parties intend to perform agreements
in a lawful manner’ per
Snyders AJA in
Wypkema v Lubbe
2007
(5) SA 138
(SCA) para 17 and
Juglal NO & another v Shoprite
Checkers (Pty) Ltd t/a OK Franchise Division
2004 (5) SA 248
(SCA).
[29] The onus was on the
respondents throughout to establish that the funds in the ticket
account ‘belonged’ to the
company. They failed to present
any evidence that would justify this conclusion. The witnesses called
in support of the respondents’
case had no knowledge of the
agreements between Louw and the company and Louw and the bank. They
could not gainsay that Louw was
the contracting party who agreed with
the bank to open the ticket account. Louw was the bank’s debtor
and the set-off against
the credit balance of this account was
effective.
[30] The appeal must
succeed. The following order is made:
1. The appeal is upheld
with costs, including the costs of two counsel.
2. The order of the full
court is set aside and the following order is substituted therefore:
‘
The
appeal is dismissed with costs, including the costs of two counsel.’
______________________
E BERTELSMANN
Acting Judge of Appeal
APPEARANCES:
For appellant: F H Terblanche SC
J E Smit
Instructed by:
Tim du Toit & Co Inc, Westcliff, Johannesburg
Naudes Inc, Bloemfontein
For respondent: F Snyckers
Instructed by:
Postma Attorneys c/o VFV Mseluku Attorneys, Pretoria
Symington & De Kok, Bloemfontein