About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
1987
>>
[1987] ZASCA 6
|
|
South African Bank of Athens Ltd. v Mercabank Ltd. (10/87) [1987] ZASCA 6 (12 March 1987)
IN THE SUPREME COURT OF SOUTH AFRICA
(
APPELLATE DIVISION
)
In the matter between:
THE SOUTH AFRICAN BANK OF ATHENS LIMITED
appellant
and
MERCABANK LIMITED
respondent
Coram
: CORBETT,
HEFER, GROSSKOPF, JJA, NICHOLAS
et KUMLEBEN, AJJA.
Dabe of appeal
: 2 March
1987
Date of judgment
: 12 March 1987
JUDGMENT
CORBETT
JA:
This is an appeal from a decision of GROSSKOFF J in the
Witwatersrand Local Division. In the Court be-low the respondent, Mercabank
Limibed ("Mercabank"), sued the appellant, the South African Bank of Athens
Limited
/ ("Dank
2
("Bank of Athens"), for —
(1) payment of the sum of R3 000 000;
(2) interest on the said sum of R3 000 000 at the
rate of 23%
per
annum
as from 1 November 1982
to date of
payment;
(3) payment of the sum of Rl 750 000;
(4) interest on the said sum of Rl 750 000 at the rate of l8%
per annum
as from 1 November 1982 to 8 November 1982, at the rate of 17,5% per
annum
as from 9 November 1982 to 23 November 1982, and at the rate of 17%
per
annum
as from 24 November 1982 to date of
payment;
(5) costs of suit.
Mercabank's claims were based upon an alleged
oral agreement of loan in terms of which Mercabank ad-vanced to the Bank of
Athens the
two capital sums stated
/ in
3
in claims (l) and (3). The interest claims, claims (2)
and (4),
represented the unpaid interest at the rates
initially agreed to and, in the
case of claim (4), also
at the amended rates verbally agreed to by the
parties
thereafter from time to time. In its plea the Bank of
Athens
denied the agreement of loan, but in the alternative
pleaded as follows:
"9.
Alternatively
, in the event of the above Honourable Court finding
that the plaintiff did lend and advance to the defendant the said several sums
of R3 000 000,00 and Rl 750 000,00 then the defendant avers and says —
(a) That the loans aforesaid were
subject to the following conditions,
namely —
(i) The defendant would immediately on receipt of the capital a-mounts of the
said loans lend the capital amounts of the loans to
a third party nomi-nated by
the plaintiff.
/ (ii) The
4
(ii) The said third party would
assume sole liability and be solely liable to the plaintiff for the capital
amount of the said loans, together with any interest payable
in respect of these
loans."
In addition, the Bank of Athens denied the authority of the bank official
alleged to have conbracted on its behalf to conclude such
an agreement of loan.
In its replication Mercabank joined issue on the plea and raised certain
es-toppels, mainly in regard to the
question of authority.
After a lengthy trial, productive of a voluminous record, the trial Judge
found in favour of Mercabank on these issues and made an
order as prayed, the
costs to include the costs of two counsel. With the leave of the trial Judge,
the Bank of Athens comes on appeal
to this Court against the wholé of the
judgment and order of the Court a
quo
. On appeal it was common cause
between counsel
/ that
5
that the question of authority was no longer a matter of debate and that the
alleged estoppels also fell away. In addition, it was
conceded that the Bank of
Athens had not substantiated the alternative defence raised in para. 9 of its
plea. The sole issue was,
therefore, whether Mercabank had established upon a
preponderance of probability the agreement of loan alleged by it.
It is Mercabank's case that this agreement of loan was concluded between Mr H
P de Beer, the money market manager of Mercabank,and
Mr G Trail, the money
market manager and chief accountant of the Bank of Athens, on 1 July 1982; and
that the money, amounting in
all to R4,75m, was advanced on the same day. As is
to be expected in the circumstances De Beer and Trail became the main witnesses,
and indeed the only witnesses of any real importance, in the case. I shall set
forth, as briefly as possible, their respective versions
of what occurred.
/ De Beer
6
De Beer assumed the position of money market mana-ger of Mercabank towards
the end of June 1982, when the then money market manager,
a Mr H Botha, left the
employ of Merca-bank. During the two years prior to this De Beer had act-ed as
Botha's assistant. Mercabank
is a merchant bank and it is the function of the
money market manager to see to the funding of the bank by way of deposits, to
handle
the general run of money market transactions, including the buying and
selling of money market securities such as bank acceptances,
promissory notes,
negotiable deposit certificates, treasury bills, Land Bank bills, government and
municípal stock etc, and
to lend or borrow money, either against security
or otherwise. It is the aim of the money market manager to see that the bank's
books
balance at the conclusion of each day. To this end surplus funds are
invested and, where there is a possible shortage, short term
loans are
negotiated to avoid an overdrawn bank account. De Beer, as money market
/ manager
7
manager, had authority to lend money only to a specified list of banking and
financial institutions.
De Beer explained that Mercabank's financial year ended on 30 June and that
it was a standard instruc-tion to the money market manager
that all surplus
funds placed on call on the money market should be called in as at that date.
Accordingly De Beer arranged for certain
loan moneys, plus outstanding interest,
to be repaid on 30 June 1982, In addition, acting on instructions from the chief
accountant
of the bank, Mr C J Swanepoel, De Beer arranged for a deposit of R3m
by the United Building Society ("UBS") with Mercabank to be
repaid on the same
date.
As at 30 June 1982 the Bank of Athens, a commercial bank, was a loan debtor
of Mercabank in two capital accounts: an amount of R3m
which had been advanced
to it on 21 August 1981 (this was recorded in the books of Mercabank under
account no 8l2) and an amount
of Rl,75m, which was the
/ sum
8
sum of various amounts which had been advanced to it in the period December
1980 to June 1981 and which had been "rolled over" after
30 June 1981 (this was
recorded in the books of Mercabank under account no 840). Included in the loan
moneys which De Beer called
in on 30 June 1982 were these two accounts, together
with unpaid interest.
According to De Beer, these two amounts were re-advanced on loan to the Bank
of Athens on the following day, ie 1 July 1982. And this
is the transaction
which con-stitutes Mercabank's cause of action against the Bank of Athens. De
Beer's account of what happened
is as follows.
On 1 July 1982 Trail telephoned him ( De Beer) and asked whether Mercabank
could lend the Bank of Athens
R4,75m. De Beer replied that Mercabank did not have
sufficient available
funds to provide so large a loan.
Trail thereupon asked whether Mercabank
would have sufficient
/ funds
9
funds if the UBS redeposited the R3m which had been repaid to it the day
before. De Beer's response was that if the UBS was prepared
to do this there
would be sufficient funds for the proposed loan to the Bank of Athens. Trail
stated that he would get into touch
with either the UBS or Mrs Louise Lawrence
of Magnum Acceptances Limited (De Beer could not in evidence recall which; and
the conversation
ended.
At this point I should digress to explain that Magnum Acceptances Limited was
a member of what was known as the Magnum group of companies.
This group ran into
serious financial difficulties towards the end of 1982 and its members were
eventually liquidated. This financial
collapse resulted in certain revelations
about the activities of the group and precipitated the dispute between the
par-ties. For
convenience I shall refer to the group as "Magnum" and I do not
find it necessary to distinguish be-
/ tween
10
tween the different companies comprising the group.
Two employees of Magnum who figure prominently in this case (although neither
was called as a witness) are the aforementioned Mrs
Lawrence and a Mr J D
Pennington. Pennington had previously been the money market manager at the Bank
of Athens and at the time of
the events with which this case is concerned was
evidently employed in the same capacity by Magnum. Mrs Lawrence also worked in
the
money market department of Magnum.
Magnum was not one of the financial institutions to which the money market
department of Mercabank was per-mitted to lend money on
call. Nevertheless money
market transactions in the form of the buying and selling of nego-tiable
securities and advances by Mercabank
against the deposit of securities (known as
"warehousing") did take place between Mercabank and Magnum. In addition Magnum
on occa-sion
acted as agent in the canvassing of deposits with
/ Mercabank
11
Mercabank. De Beer had come to know Mrs Lawrence in
the course of
transacting such business and he also met her
socially on a few occasions.
I revert now to the events of 1 July 1982. Shortly after his conversation
with Trail, De Beer was telephoned by Mrs Lawrence and asked
to quote deposit
rates for a deposit by the UBS so that she could pass on the in-formation to the
UBS. (It appears that Mrs Lawrence
acted as agent in placing the original
deposit by the UBS with Mercabank and renewing the deposit.) De Beer gave her
the required
information. Mrs Lawrence telephoned again later and a renewal of
the deposit by UBS was arranged. The actual deposit was made the
same day. After
the renewal of the deposit had been arranged De Beer telephoned Trail to tell
him that Mercabank was in a position
to lend the Bank of Athens the full amount
of R4,75m. It was then agreed between them that R3m of this amount would be
advanced on
/ call
12
call at an interest rate of 23%
per annum
and the balance of Rl,75m
for a fixed term until 2 August 1982 at an interest rate of 21%
per annum
and thereafter on call at an interest rate to be agreed.
The loan thus made to the Bank of Athens was implemented the same day by De
Beer. Following the normal procedure, he filled in a cheque
requisition voucher
giving the amount of the cheque (a single cheque in the sum of R4,75m was issued
to cover both loans) and essential
details of the transaction. On this voucher
De Beer wrote the words "Haal af" which meant that the cheque would be collected
by or
on behalf of the payee. The voucher was then taken to the treasury section
of the bank where a clerk typed out a cheque on the basis
of the voucher and
also completed in duplicate a remittance advice giving details of the
transaction. The clerk then took the cheque
requisition voucher, the typed (but
unsigned)
/ cheque
13
cheque and the remittance advice to Mr G P Geldenhuys, the assistant
accountant of the bank, who had signing powers in what was termed
"the B
category". Geldenhuys studied and checked the documents and on being satisfied
that the transaction was properly authorized
initialled the cheque requisition
order and signed the cheque. The documents then went to the chief accountant, Mr
Swanepoel (an
"A" category signatory), who followed the same procedure and
initialled the cheque requisition order and counter-signed the cheque.
The
documents were then taken back to the treasury section where they were
separa-ted into two bundles: the one, consisting of the
cheque requisition
voucher and the duplicate remittance advice, going to the administration section
for analysis and posting; and
the other, consisting of the cheque and the
original re-mittance advice, being stapled together, and placed in an envelope
ready
for collection. Later the same day the
/ cheque
14
cheque was collected. The loans were duly posted, the R3m transaction to a
new account,no 969, and the Rl,75m transaction to another
new account, no 970.
De Beer identified Exh. A as the cheque in question. It bears a Bank of Athens
date stamp with the date 1 July
1982.
Neither loan was called up until early in December 1982. Over the period
August to November 1982 Mercabank received cheques from the
Bank of Athens in
payment of interest due on the two loans of R3m and Rl,75m. A co-signatory of
these cheques was Trail. Accounts
nos 969 and 970 were duly credited with these
interest pay-ments. The interest payable in respectof the Rl,75m loan was varied
from
time to time by agreement between the parties. Upon the loans being called
up and arrear interest demanded, the Bank of Athens denied
liability. Action was
instituted on 9 December 1982.
15
Trail's version of what happened - which forms
the
basis of the defence to the action - is as follows.
He commenced employment
with the Bank of Athens on 1
October 1978 as money market manager and early
in 1982
he assumed also the position of chief accountant of the
bank. As
money market manager he had no authority to
lend the bank's money to Magnum. In the early part
of 1979 he met
Pennington. He had dealings with Penning-
ton in regard to the purchase and
sale of securities,
but the main form of transaction between them was
(as
Trail put it):-
" the utilisation of the bank to
channel funds from one company or set of persons to Magnum using the Bank of
Athens as a channel".
This so-called "channelling" commenced about the beginning of 198l and
continued more or less until the financial collapse of Magnum
at the end of
November/beginning Decem-
/ ber 1982
16
ber 1982. According to Trail, this channelling scheme was originally
suggested to him by Pennington and was designed to overcome the
fact that
Mercabank and other financial institutions, including the Bank of Athens, were
not prepared to make unsecured loans to
Magnum. In regard to each such
transaction, the initial arrange-ments were made between Magnum (through the
medium of Pennington
or Mrs Lawrence, who was also involved) and the other
financial institution concerned. The
modus operandi
would be that the
institution's cheque represent-ing the loan to Magnum would be made out in
favour of the Bank of Athens, but handed
over to a Magnum employee. The first
Trail would hear of the transaction would be when he was notified, usually by
Pennington or
Mrs Law-rence, that a channelled cheque was on its way to him. The
cheque would then be brought to him by a Magnum em-ployee, He
would thereupon
issue a Bank of Athens cheque
/ in
17
in favour of Magnum for an equivalent amount and this would be handed
to the Magnum employee. The first cheque (in favour of the Bank
of Athens) would
be duly deposited and the Bank of Athens would receive payment thereof;
and
the second cheque in favour of Magnum would be duly met by the Bank of Athens.
The only record of the trans-action in the books
of the Bank of Athens would be
entries in the Bank of Athens head office bank cheque account showing that the
cheque was received
and the contra cheque issued. When the loan capital had to
be repaid or when interest had to be paid a reverse procedure would be
adopted.
Magnum would deliver to Trail by messenger a Magnum cheque representing
thê amount of capital or interest, as the
case may be, and he would hand
over to the messenger a Bank of Athens cheque, which would be delivered by
Magnum to the financial
institution in-volved. The cheques would be paid in the
normal course
/ of
18
of business. The bank charged a commission for acting
as go-between in
these transactions and these commissions
were allocated in the bank's books
to ah account styled
"Capital Gains on Money Market Transactions". Although
Trail refused to
answer any question which might tend
to incriminate himself, it is obvious
(and this was conceded
by counsel appearing for the Bank of Athens) that
he
had received financial inducement to assist Magnum in
this way. It is
also clear that Trail was not authorized
to make such unsecured loans to
Magnum and that he con-
cealed his channelling dealings with Magnum from
the
senior management of the Bank of Athens, who remained
in ignorance
thereof until, as it was put, "the bubble
burst".
Initially Trail said that there were "about a dozen" institutions involved in
this channelling of funds to Magnum. Eventually he named
six, including
/ Mercabank
19
Mercabank. It is a necessary inference from his evidence that someone in
authority at each of these institutions, usually the money
market manager, was
willing to flout, in a clandestine manner, the rule that the institution
concerned would not make unsecured loans
to Magnum.
Turning to the transaction in issue in this case, Trail denied having had any
telephone conversations with De Beer on 1 July 1982
and rejected any suggestion
of negotiations between himself and De Beer concerning a loan of R4,75m by
Mercabank to the Bank of Athens,
let alone an agreement to that effect. On 1
July 1982 the Bank of Athens had no need to borrow R4,75m. The cheque for R4,75m
drawn
in favour of the Bank of Athens (exh. A) represented a channelling
operation, arranged (Trail presumed) between De Beer and either
Mrs Lawrence or
Pennington. A messenger from Magnum would have brought the cheque to him and he
would then have handed on the
/ bank's....
20
bank's contra cheque to the messenger. This contra cheque (exh. BBB), drawn
in favour of Magnum in an amount of R4,75m and dated 1
July 1982, was produced
and identi-fied by Trail. It was signed by a Mr Dziamski, who was employed in
the foreign exchange department
of the Bank of Athens, and by Trail himself.
With reference to the interest payments, Trail admitted having been a
co-signatory of
the relevant cheques. These cheques were also íssued as
part of the channelling operation and in each case only upon receipt
from Magnum
of a cheque which would have been either for a corresponding amount or for a
larger amount in order to cover the bank's
"handling fee" as well.
In substantiation of Trail's testimony as to channelling, evidence was placed
before the Court a
quo
which showed that in some nineteen or twenty
instances, between the dates 13 January 1981 and 11 October 1982,
/ amounts
21
amounts received by cheque from Mercabank were simulta-
neously "passed
on" to Magnum by the Bank of Athens;
and that in overtwenty instances between
31 July 198l
and 9 November 1982 amounts received by cheque by the
Bank of
Athens from Magnum were simultaneously "passed
on" to Mercabank. Included in
these amounts were not
only the amount of R4,75m paid to the Bank of
Athens
on 1 July 1982 and the interest payments during the pe-
riod August
to November 1982, but also the original advances
to the Bank of Athens of R3m and (in total) Rl,75m which
were called in on 30 June 1982.
Under cross-examination by counsel for the Bank of Athens De Beer denied any
knowledge of moneys ostensibly lent to the Bank of Athens
being passed on to
Magnum. In every case in which he was involved it was his intention to lend the
money to the Bank of Athens. It
was only after the collapse of Magnum that he
heard
/ about
22
about the channelling which had occurred.
De Beer was also cross-examined about two trans-actions which took place in
October 1982. These transactions, and De Beer's subsequent
efforts to cover them
up when it seemed that they would come to the knowledge of his supe-riors at
Mercabank, reflect very seriously
upon his integrity and are, therefore,
relevant in assessing his credibility as a witness. The facts, which were openly
admitted
by De Beer, were shortly as follows.
De Beer wished to purchase on the stock market shares in a company called
Trumcor, which was a member of the Mercabank group. Because
he was afraid of
being accused of "insider-trading", De Beer purchased the shares through his
broker on a cash account in order to
conceal his identity as the purchaser. De
Beer also needed to borrow money in order to pay for the shares. At about the
end of September
he approached Mrs Lawrence
/ of
23
of Magnum for a personal loan of about R80 000. Magnum agreed to lend the
money on the security of the shares which De Beer proposed
to buy, plus certain
other shares held by him. On 19 October 1982 De Beer's broker notified him that
an amount of R44 839 was due
in respect of certain shares purchased on his
behalf. De Beer then telephoned Mrs Lawrence and asked for an advance of this
amount
against the loan which Magnum had agreed to grant him. Mrs Lawrence
replied that Magnum did not then have suffi-cient funds to make
the loan to him
and asked whether Mercabank could not lend an amount of R100 000 to Magnum.
Although forbidden to do so, De Beer
agreed to make the
loan and asked at
what bank she intended to deposit the
money; to which she replied the Bank of
Athehs. In order to conceal the fact that this was an unauthorized loan De Beer
completed
the usual cheque requisition voucher as though it were a loan of R100
000 to the Bank of Athens.
/ As
24
As a result a cheque for this amount in favour of the Bank of Athens was duly
signed and a corresponding re-mittance advice completed.
On the same day De Beer
signed a document acknowledging his indebtedness to Magnum in respect of the
loan of R44 839 and ceding the
shares as security for the repayment of the loan
(exh. AA). At a certain stage after the cheque had been signed - it is not
necessary
to go into details - De Beer induced the typist who had typed the
cheque to add after the name of the payee, ie the Bank of Athens,
the words "Cr
Magnum" (meaning credit Magnum). He sent the cheque and exh. AA to Mrs Lawrence.
The cheque was deposited and cre-dited
to Magnum's account at the Bank of
Athens. There-after a Magnum cheque for R44 839 was delivered to the stockbroker
in exchange for
the shares, which were retained by Magnum in terms of exh. AA.
That was the first transaction.
/ On
25
On 28 October 1982 De Beer's broker informed him that a further amount of R47
269 was due in respect of shares purchased on his behalf.
De Beer approached
Magnum for another advance and this time was again told that Magnum was having a
"cash flow problem" and required
a loan from Mercabank, this time for R50 000.
De Beer agreed to provide this. Mrs Lawrence also stated that there was a
problem in
regard to the holding of the shares in safe custody at Magnum's
premises. It was then agreed that the shares be sent to De Beer for
safe-keeping. De Beer followed the same procedure as before and a cheque for R50
000 drawn in favour of the Bank of Athens was altered
after signature by the
addition of the words "Cr Magnum". On this occasion De Beer sent to Magnum,
together with the cheque, a document
certifying that Mercabank was holding the
shares in safe custody to the order of Magnum. Magnum then paid the broker and
all
/ the
26
the shares were delivered to De Beer, who put them in a file, which he placed
in safe custody at the bank. That was the second transaction.
Early in December 1982, after the Magnum "bubble had burst", the cheques and
other documentation relating to the loans of R100 000
and R50 000 to Magnum came
to the knowledge of the senior management of Mercabank. On 6 December 1982 De
Beer was confronted with
the situa-tion revealed in the documents by Dr C C
Ferreira, the managing director of Mercabank, and he admitted that he had made
these loans to Magnum without authorization. At that stage De Beer did not
reveal the further ramifi-cations relating to these loans.
He continued in the
employ of Mercabank.
At about the same time - De Beer is uncertain whether this happened before or
after his interview with Dr Perreira on 6 December 1982
- De Beer took steps
to
/ cover
27
cover up his tracks. He executed a new document (exh. DD),
addressed to Magnum, which he back-dated to 15 October
1982 and in which
he, on behalf of Mercabank, certified
that the bank was holding the shares in
question to the
order of Magnum, these shares —
"being shares ceded to you as security by C.P. Nominees in terms of a loan
agree-ment dated 15-10-1982 between yourselves and C.P.
Nominees."
(C.P. Nominees was, I may
say, a fictitious name for a non-existing entity.) At the same time De Beer also
executed a new agreement
(exh. EE) purporting to be a cession of the shares by
C.P. Nominees to Magnum as security for a loan of R92 108 (the total amount
paid
to De Beer's broker) to C P Nominees and recording that at the request of Magnum
the shares were being kept in safe custody
by Mercabank. This document was also
back-dated to 15 October 1982.
/ Exhs. DD
28 .
Exhs. DD and EE were delivered to Mrs Lawrence, who wrote "Agreed" at the
bottom of exh. EE and signed it. At De Beer's request Mrs
Lawrence returned exh.
BB to De Beer and agreed to substitute the name of C P Nominees for that of De
Beer in the books of Magnum
reflect-ing the loan of R92 108.
At about the same time De Beer drew up two letters (Bundle 310 and 315),
which were typed by his wife. The first, back-dated to 19
October 1982, purports
to be addressed to Magnum by Mercabank ánd to confirm the loan that day
of R100 000 by Mercabank to
Magnum. The second, back-dated to 28 October 1982
purports to be a similar confirmation of a loan of R50 000. Both letters were
signed
on behalf of Mercabank by De Beer and counter-signed by Mrs Lawrence, she
in each case dating her signature in accordance with the
spurious date óf
the letter. These letters were placed on file
/ at
29
at Mercabank.
On 27 January 1983 De Beer paid an amount of R9ó,832 (comprising the
loans plus interest) to the liqui-dator of Magnum, ostensibly
on behalf of C P
Nominees, and obtained the release of the shares.
De Beer's final touch, executed early in March 1983, was to tamper with the
cheque requisition vouchers relating to the cheques for
Rl00 000 and R50 000. In
each case he added the words "Cr Magnum" after the name of the Bank of Athens,
and also wrote at the top
of the voucher "lewer af aan Magnum - L Lawrence".
In the end all De Beer's efforts to conceal his dishonesty were of no avail.
During the first half of March 1983 as a result of information
placed before an
enquiry into the affairs of Magnum under the Companies Act, the link between the
loans to Magnum and De Beer's
/ personal
30
personal share dealings was revealed. De Beer was again confronted by Dr
Ferreira and admitted the link. He was summarily dismissed
on 15 March 1983.
In his evidence Trail conceded that by no means all the transactions between
Mercabank and the Bank of Athens were channelled ones.
On the contrary there
wére a number of "legitimate" transactions, relating to the buying and
selling of securities and to
the lending and borrowing of money on a short-term
basis. He was aware of an account in the books of the Bank of Athens in which
Mercabank was reflected both as a lender and as a borrower.
To sum up at this stage, in my view the evidence clearly establishes (i) that
Trail did channel moneys paid to the Bank of Athens
by other financial
institutions to Magnum, (ii) that Mercabank was one of the institutions thus
involved, and (iii) that, as regards
the R4,75m
/ transaction
31
transaction, the capital amount was channelled through
to Magnum and the
interest payments were similarly channel-
led in reverse through to
Mercabank. The fact that
there was such channelling does not, however,
conclude
the matter. The crucial question in this case is whether
or not
De Beer, acting on behalf of Mercabank, was party
to the channelling. In
other words, on the evidence
there are at least two possibilities. The first
is
that, as alleged or at any rate implied, by Trail, the
R4,75m
transaction was in truth a loan by Mercabank
to Magnum arranged between De
Beer and someone at Magnum
probably Mrs Lawrence or Pennington, the Bank of
Athens
figuring merely as a cloak for the loan in the records
of Mercabank and as a conduit for the payment of the
money to Magnum. The
second is that - and this in effect
is De Beer's version of what occurred - the loan was
a genuine one by Mercabank to the Bank of Athens, arranged
/ between
32
between De Beer and Trail, and that by an arrangement between Trail and
either Mrs Lawrence or Pennington (in which De Beer played
no part and of which
he was in fact ignorant) the money was unauthorisedly channelled through to
Magnum. The first possibility negates
Mercabank's case that there was a loan to
the Bank of Athens; the second possibility negates the case of the Bank of
Athens that
there was no loan to it. The case thus turns upon the conflicting
versions of De Beer and Trail, bearing in mind that the overall
onus to
establish the loan to the Bank of Athens rests upon Mercabank.
The trial Judge accepted De Beer's version of what occurred in regard to the
loan of R4,75m. He did so on the basis of his assessment
of the credibility of
De Beer and Trail as witnesses and also of the proba-bilities. With reference to
De Beer, the learned Judge
dealt at length with various criticisms levelled at
De
/ Beer's...
33
Beer's evidence and at his conduct relating to what I
shall call "the
October transactions" (ie the unautho-
rized dealings with Magnum on 18 and
28 October 1982
and all that flowed therefrom) and certain other col-
lateral transactions and cohcluded:
"Despite the criticisms levelled at De Beer I am of the view that he was
essentially a truthful and credible wit-ness, and that his
evidence on the
con-clusion of the loan agreement is reliable. His testimony regarding the loan
agreement is also consistent with
the relevant documents produced not only by
the plaintiff, but also by the defendant. There are further no documents or
entries in
the books of the parties to substantiate the defen-dant's allegation
that this was not a loan agreement."
Having similarly considered comprehensively Trail's evidence and the
criticisms thereof, GROSSKOPP J stated:
/ "Mr
Oshry
34
"Mr
Oshry
in my view fairly conceded on behalf of the defendant that the
Court cannot really rely on Trail as an honest witness. In my opinion
Trail was
not a credible witness, but a dishonest and evasive witness whose evidence is
untruthful and completely unreliable. I,
therefore, do not intend placing any
reliance on Trail's evidence unless it is properly corroborated. I may add that
Trail was found
to be 'wholly untruthful' in a simi-lar case against the same
defendant by COETZEE, J. in Apri 1984. That was in the case of
Magnum
National Life Assurance Company Limited
(formerly known as Nelsa)
v The
South African Bank of Athens Limited
. In my view Trail has done no better in
this case."
These are very strong credibility findings
in regard
to the two witnesses upon whose evidence the
case of each party really
depends and the reluctance
of the court, on appeal, to interfere with such
findings,
in the absence of misdirection, is well-known.
/ Before
35
Before us appellant's counsel, Mr
Oshry
, for the most
part repeated
the arguments which were apparently ad-
dressed to the Judge a
quo
and which, in my view, were
convincingly dealt with by him in his judgment. Mr
Oshry
did suggest, somewhat faintly, that there had been
misdirections, but it seems that these merely amounted
to contentions such as -
"He (the trial Judge) did not give due and proper weight to the criticisms of
the evidence of De Beer".
I doubt whether such a contention can be regarded as an alleged misdirection;
and, in any event, i consider the contention to be unfounded
since the learned
Judge was very conscious of the criticisms of De Beer's evi-dence, discussed
them at length and explained convincingly
why, despite these criticisms, he was
disposed to accept De Beer's evidence. And here I would merely repeat
/ what
36
what has been said on countless previous occasions, viz. that the trial judge
has the advantage, over the court of appeal, that he
sees and hears the
witnesses giving evidence and is able to observe their demeanour, their
appearance and their whole personalities.
I do not propose to deal in detail with all the arguments raised by
appellant's counsel before us. As I have said, they were all dealt
with
convincingly by the trial Judge and I wish to avoid unnecessary repe-tition. I
shall, therefore, confine myself to a statement
of the main reasons which
persuade me not only that no good ground has been advanced for interfering with
the findings of the trial
judge, but also that he came to the correct
decision.
Firstly, as regards the relative credibility of the two main witnesses, De
Beer and Trail, I have read their evidence with care and
can find no reason
/ to
to differ from the trial Judge's assessment of them. It is
perfectly true that the October transactions reflect very seriously upon
De
Beer's integrity and, therefore, on his truthfulness as a witness. On the other
hand, De Beer seems in evidence to have made a
clean breast of all his
misdeeds and indeed to have con-fessed to certain actions not previously known
to Mercabank or its legal advisers,
viz. the execution and filing of the
spurious letters (bundle 310 and 315). De Beer's evidence reads well, it
contains no serious
contradictions and no portion of it was shown to be
untruthful. Trail's evidence, on the other hand, was, in my opinion, fully
deserving
of the strictures on it expressed by the trial Judge in the passage
from his judgment quoted above. Before this Court Mr
Oshry
did not
concede quite as much as he apparently did before the trial Judge, but he did
state (I quote from his heads of argument)
—
/ "It
38
"It is accepted that Trail was a completely dishonest person who was
apparently in the pay of the Magnum Group and had, clearly, on
a number of
occasions betrayed the trust reposed in him by the appellant and his evidence
has, therefore, to be approached with a
considerable amount of caution."
Of course appellant's argument was that De Beer was equally unreliable and
that, therefore, Mercabank, upon whom the overall onus
lay, should fail.
Secondly, turning to the probabilities, it was as I have indicated, perfectly
feasible for the channel-ling procedure to be operated
merely by arrangement
between Trail and Magnum: there was no need for the money market manager, or
equivalent official, of the other
institution concerned to be involved or even
to have knowledge thereof. Moreover, it seems to me to be improbable that
responsible
officials in all the institutions named by Trail could have been
induced by Magnum to participate in so fraudulent
/ a scheme
39
a scheme for no apparent advantage. Ánd here I would emphasize that in
the case of De Beer (unlike that of Trail) it was not
suggested that he gained
any personal benefit from his alleged participation in the channelling
scheme.
Thirdly, the risks that such a money market manager would run if he
participated in such a channelling scheme are manifest. Not only
would it
involve him in devious deceptions and the preparation of spurious documentsi
resulting in incorrect postings in the institution's
books of account, but also,
if anything went wrong, there could be serious difficulties in recovering the
money. The institution
would hold no documentary proof of the loan to Magnum;
and the Bank of Athens could rightfully claim that it was not a borrower,
but a
mere conduit for the payment of the money. This emphasizes the unlike-lihood of
a number of money market managers becoming
/involved
40
involved in such a scheme.
Fourthly, Trail insisted that, in the case of such channelled transactions,
he had no dealings what-soever with the institution concerned;
and that this
applied in particular to the transaction in issue. It seems to me to be somewhat
improbable that Trail would be so
insulated. I would have thought that, if
officials at the named institutions did knowingly participate in this system of
channelling,
one or more of them (if not all) would at some stage have discussed
the matter with Trail - if only to ensure that he was in trubh
party to the
scheme and could be relied on to carry it out. And, of course, as stressed by
the Judge a
quo
, the alternative plea is wholly inconsistent with this
aspect of Trail's evidence. Indeed, it is difficult, in the light of Trail's
evidence, to imagine what the basis of the alternative plea was.
/ Fifthly,
41
Fifthly, there is the strange circumstance that when he came to
implement the October transactions De Beer resorted, with some difficulty,
to
the stratagem of adding "Cr. Magnum" to the cheques. Although this point may not
carry as much weight as some of the others mentioned,
it is strange that, if De
Beer was accustomed tp the channelling system by then, he and Mrs Lawrence
should not have employed the
usual procedure (which would not have entailed any
alteration to the cheques).
Finally there is the near-concession of
Mercabank's
case to be found in Trail's evidence
under cross-examinationn.
This was rightly relied upon to some extent by the
Court
a
quo
. It reads:
"Tell me, with regard to an answer you gave, it is not an answer to a
question I put to you - why did the third parties
want the Bank of Athens cheques at all?
I can only presume that they would not lend direct to Magnum.
/ But
42
But they would lend direct to you?--Obviously.
And they would be repaid by you?--
Yes."
For these reasons I am of the opinion that the trial Judge reached a correct
decision on the evidence in this case.
The appeal is dismissed with costs, including the costs of two counsel.
M M CORBETT.
HEFER JA) GROSSKOPF JA) NICHOLAS AJA) CONCUR.
KUMLEBEN AJA)