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[1994] ZASCA 146
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Standard Chartered Bank of Canada v Nedperm Bank Ltd (320/93) [1994] ZASCA 146; 1994 (4) SA 747 (AD); [1994] 2 All SA 524 (A) (30 September 1994)
Case no 320/93
IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)
In the matter between:
STANDARD CHARTERED BANK OF CANADA
Appellant
and
NEDPERM BANK LIMITED
Respondent
CORAM
: CORBETT CJ, VAN HEERDEN, KUMLEBEN, VAN DEN HEEVER, HARMS
JJA.
DATES OF HEARING
: 15 & 16
August 1994
DATE OF JUDGMENT
: 30 September 1994
J U D G M E N T
/
CORBETT CJ
:
2
CORBETT CJ
:
The appellant, Standard Chartered Bank of
Canada, was incorporated under Canadian law with its head office in Toronto. It
has various
branches in Canada, one of them being located in Vancouver. It is a
member of the Standard Chartered Bank group, the holding company
of the group
being Standard Chartered Bank of London, a company incorporated by Royal
Charter. The holding company has various subsidiaries
around the world, some of
them being wholly-owned and others partly-owned. The Standard Chartered Bank of
Canada is a wholly-owned
subsidiary. For convenience I shall refer to the
appellant as "Stanchart"; to the London office of the holding company as
"Stanchart
(London)"; to the head office of the Canadian bank as "Stanchart
(Toronto); and to the Vancouver branch as "Stanchart (Vancouver)".
3 The respondent is Nedpenn Bank Limited. Formerly
and
during the period with which this case is concerned it was known
as
Nedbank Limited. It is a bank duly incorporated under the law
of
South Africa and it has its principal place of business in Main
Street,
Johannesburg. It operates through various branches in South
Africa,
one of them being at Braamfontein, Johannesburg. I shall refer to
the
respondent as "Nedbank".
Another main actor in this case is Triomf
Fertilizer
(Richards Bay) (Pty) Ltd. ("Triomf RB"). It was at the material
times a wholly-owned subsidiary of Triomf Fertilizer Ltd, a
public
company quoted on the Johannesburg Stock Exchange, which also
had
its head office in Braamfontein. The Triomf companies produced a
phosphate-based fertilizer which was marketed in South Africa
and
overseas. In 1985 they enjoyed a 24 per cent share of the South
African market. Production took place at factory premises at
Richards
Bay, owned and operated by Triomf RB. In order to manufacture
its
4 product Triomf RB required sulphur, which it imported from
various
overseas countries, including Canada.
This appeal arises from an action instituted by
Stanchart
against Nedbank in the Witwatersrand Local Division in which
Stanchart claimed damages and other ancillary relief for a
misstatement alleged to have been made negligently by Nedbank.
The action, which was heard by Roux J, failed and was dismissed
with
costs. With the leave of this Court, Stanchart now appeals.
The facts
The facts of the matter are, to a large extent, not in dispute and may be
summarized as follows.
One of the suppliers of sulphur to Triomf RB was a Canadian corporation
known as Cansulex Limited ("Cansulex"). Cansulex had been
formed by a consortium
of leading international oil companies, who did not wish to be seen trading with
South Africa, as
5 the vehicle for conducting such a trade. In
exporting sulphur to
Triomf RB in South Africa Cansulex had since about 1982 made
use
of banking facilities provided by Stanchart (Vancouver). In
order to
understand how such facilities were granted and maintained
it is
necessary to know something about the organization of the
Stanchart
group.
The Canadian subsidiary, Stanchart, and its
various
branches operated as if they were divisions of the holding
company.
One of the directors of Stanchart was appointed by Stanchart
(London)
and control was exercised through him. There were various levels
of
authority. The managing director of Stanchart, appointed by
Stanchart (London), was authorised to approve transactions up to
a
certain sum and he could delegate his discretion up to certain
levels
to the Canadian branches of the bank. Any transaction which
exceeded his authority would have to be referred to Stanchart
(London) for approval.
6 Where a customer of the bank wished to be accorded
a
credit facility up to a certain prescribed level on a continuing
basis
(known as a "line of credit") the branch concerned would
formulate
the requirement on a form (known as "form 6048") which
would
contain the details relating to the customer, his financial position
and
the nature of the facility requested. The form 6048 would have to
be
accompanied by the latest audited financial statements of the
customer
and a bank report on the customer. If the bank manager concerned
was satisfied that the application for the credit facility was in
order
and should be granted, he would do so, provided that the level of
the
facility fell within his discretion. If it did not, then he would
submit
it to higher authority, i e Stanchart (Toronto), with a
favourable
recommendation. Stanchart (Toronto) could then approve the line
of
credit if it was satisfied to do so and the application was within
its
level of authority. If Stanchart (Toronto) was satisfied with
the
application, but it exceeded its level of authority, it would pass it
on
7 to Stanchart (London) with an appropriate recommendation.
Approval
would then depend on the decision of the London office.
A
credit line, once granted, normally endured for a year and if required for
longer had to be renewed annually. Renewal involved the
same procedure as an
application for a new facility.
This case is principally concerned with events which occurred in the
second half of 1985. At that stage the credit facilities duly
authorized and
granted to Cansulex in respect of its dealings with Triomf RB (and another
purchaser of sulphur in South Africa) were
regulated by a written agreement
between Stanchart and Cansulex dated 22 October 1984 ("the facility agreement").
Here I should mention
that Cansulex shipped consignments of sulphur from
Vancouver to Triomf RB at Richards Bay in terms of bills of lading and drew on
Triomf RB for the purchase price. In terms of the facility agreement Stanchart
undertook to discount bills drawn on Triomf RB in
respect of such sulphur
exports with recourse to
8
Cansulex. The agreement further provided, inter alia, that after
the
discounting of a bill and when authenticated advice had been
received from the collecting bank that the bill had been accepted by
the drawee
(Triomf RB) and provided that no notice of dishonour of a prior bill had been
received, recourse to Cansulex was to be
"released". In the event of the
dishonour of any bill by the drawee, no further releases of recourse to bills
currently outstanding
and discounted under the facility for that particular
drawee was to be provided, despite any subsequent acceptance, until the entire
matter had been resolved to the satisfaction of the bank. The discounting of
bills under this facility was to be secured by a letter
of
hypothecation.
The agreement placed an overall limit of US$5 000 000 on the facility and
further provided that "individual exposure" to a drawee
at any one time be
limited in the case of Triomf RB to US$2 000 000, with usances of up to 180 days
as from the date of bill of lading.
The facility was to be subject to "periodic
review not less
9
than annually" and was to be available "at the sole discretion of
the
bank".
In terms of this facility agreement, therefore, the
essential modus operandi was for Cansulex, having shipped a consignment of
sulphur
to Triomf RB from Vancouver and having drawn on Triomf RB for the
purchase price and other amounts due, to tender the unaccepted
bill of exchange
to Stanchart (Toronto) for discounting and, presumably, at the same time to
provide a letter of hypothecation in
respect of the documents of title. Pending
acceptance of the bill by Triomf RB Stanchart would have a right of recourse
against Cansulex,
but once Triomf RB had accepted the bill and provided that no
notice of dishonour of a prior bill had been received, the right of
recourse was
waived. This appears to have been in line with previous credit facilities
granted to Cansulex in respect of its South
African trade.
As the arrangements reflected in this agreement
10 brought Stanchart into a direct legal relationship with Triomf RB,
once
the latter had accepted the bill of exchange discounted and held by
Stanchart, this line of credit could only be established and maintained
if and
so long as Stanchart was satisfied with the financial position of Triomf RB, as
well as that of Cansulex. Accordingly with
the original establishment of the
line of credit a 6048 application was made in respect of both companies; and the
same procedure
applied to annual renewals.
A review of the line of credit to Cansulex in respect of its transactions
with Triomf (and other parties in South Africa) was due
at 31 July 1985. In the
succeeding months Stanchart (Vancouver), and more particularly the then branch
manager, Mr N M Peters, were
under considerable pressure from Toronto and London
to submit the usual application based on form 6048 for the renewal of this
facility.
One factor which evidently held up the process was the lack of
up-to-date financial statements in regard to Triomf RB and the Triomf
group
11
as a whole. This was due to the fact that the Triomf group had changed
the end of its financial year from 31 December to 30 June,
with the result that
until the financial statements for the 18 months ended 30 June 1985 were
published, the latest financial information
on the group was contained in the
set of accounts for the year ended 31 December 1983. In addition, there seems to
have been some
delay in the production of the 30 June 1985 statements as they
only became available eventually some time in December 1985.
By November 1985 the submission of the review (or renewal) application
had become extremely urgent and Stanchart (Vancouver) had reached
the point
where the officials concerned thought that the review might have to be
undertaken without the latest financial statements.
The bank, however, needed a
bank report on Triomf RB for purposes of the review process. In evidence at the
trial Mr Peters explained
the difference between a "full general" bank report
and a "special" bank report concerning a company. The former
12
would entail a report on the general financial standing of the company;
the latter would relate to information concerning a particular
amount
or type of transaction. What was required in this instance was a
full
general report.
On 18 November 1985 Stanchart sent a telex to the
Johannesburg branch of the Standard Bank of South Africa Limited
("Standard"), which appears to have acted on Stanchart's behalf
in
South Africa, asking for Standard's assistance in obtaining, inter
alia,
an up-to-date bank report on Triomf and indicating that Triomfs
bank
was the Braamfontein branch of Nedbank ("Nedbank
(Braamfontein)").
In pursuance of this request, Standard sent a telex to Nedbank
(Braamfontein) on 20 November 1985:
"PSE SUPPLY EXTREMELY URGENT FULL
GENERAL REPORT ON TRIOMF
REPLY
EXTREMELY URGENT PER RETURN TLX
AT VERY LATEST
TODAY URGENT."
On the next day Standard received the following telex in reply
from
13
Nedbank (Braamfontein):
"TRIOMF FERTILIZER RICHARDS BAY CO
PTY LTD IS ONE OF THE
LARGEST
FERTILIZER MANUF. IN THE COUNTRY
EXPERIENCES
MANAGES HOLDING
COMPANY IS QUOTED AND FIGURES ARE
AVAILABLE AS IN THE REST OF THE FERTILIZER INDUSTRY THE COMPANY HAS
SUFFERED SETBACKS. BUT THEY ARE TRADING NORMALLY AND WOULD IN
THESE
CIRCUMSTANCES BE REGARDED AS GOOD TO THEIR NORMAL COMMITMENTS IN THE; COURSE OF
BUSINESS."
On 22 November 1985 Standard telexed the content of this report to
Stanchart (Vancouver). It constitutes the fons et origo of Stanchart's
action
against Nedbank.
At about the same time Stanchart (Vancouver) received a bank report on
Cansulex. The bank which gave it described Cansulex as a "valued
customer" and
stated that all dealings were
14 satisfactory and that the company
was considered "responsible" for all
its normal business commitments. Stanchart (Vancouver)
then
proceeded with the preparation of the documentation for the
annual
review for the purposes of renewing this line of credit. The
bank |
reports in respect of both Cansulex and Triomf RB were
considered
to be favourable and they were included amongst the
documents submitted with the review application by Stanchart (Vancouver) to
Stanchart
(Toronto) on 29 November 1985. This application carried the
recommendation of the responsible officials at Stanchart (Vancouver).
On 7
January 1986 Stanchart (Toronto) appears to have processed the application and
on 15 January 1986 forwarded it to Stanchart
(London) with the recommendation
that, in view of the stale nature of the financial statements, the facility be
renewed only until
31 March 1986. In the meanwhile the line of credit remained
in place.
Despite the forwarding of the renewal application
to
15 Toronto, Stanchart (Vancouver) continued to press for the
up-to-date
financial statements relating to Triomf RB. On 17 December 1985
Standard notified Stanchart (Vancouver) that it was obtaining the
latest
balance sheet for Triomf RB and would forward it as soon as
possible.
According to Mr Peters, however, the financial statements had
not
been received by 20 January 1986, when he left Stanchart
(Vancouver)
to assume a position at head office in London.
On 25 November 1985 the group advances department
at
Stanchart (London) had issued a group administrative circular for
the
information of branches, dealing with the topic of "Business
with
South Africa" and the guidelines to be adopted in this
connection.
Paras. 2 to 5 of this circular read as follows:
"2. We are presently not able to entertain any new business which would
result in an increase in our overall total direct cross-border
exposure on South
Africa, i.e. where the direct obligor is an entity, either corporate or
personal, resident in South
16 Africa.
3.
Overdrafts etc
.
Approved short-term facilities for normal working capital and trade-related
purposes available on a committed basis to entities either
corporate or personal
resident in South Africa may continue in place. We have, however, written
separately to some administrations
in respect of facilities and the
administrations concerned should be guided accordingly.
4. Committed facilities to entities outside South Africa where the risk on
South Africa is only of a secondary nature may also continue.
Indeed there may
be new business opportunities in this category, particularly where short term
facilities are concerned which are
not dependent for servicing on a source
within South
Africa.
5.
Export
Bills
Export bills covering trade transactions with South Africa may only be
negotiated or advanced against where full recourse to drawers
(outside South
Africa) is retained. "
17 On 9 January
1986 Cansulex shipped a cargo of sulphur
in Vancouver for carriage to Richards Bay and delivery to Triomf
RB
and drew on the latter for an amount of US$2 697 122,50,
payable
180 days after the date of the bill of lading (i eon 8 July 1986) to
the
order of Cansulex, this sum being the purchase price and
other
amounts due in respect of the sulphur. On 14 January 1986
and
acting in terms of the existing line of credit Stanchart
(Vancouver) at
the request of Cansulex discounted the bill and
Cansulex was credited
with an amount of US$2 580 628,46 (the
discounted value of the bill)
through Stanchart (Toronto). Thereafter, on 30 January 1986, the
bill
was accepted by Triomf RB; and on the same date the shipping
documents were delivered by Nedbank, acting on behalf of
Stanchart,
to Triomf RB.
When the bill of exchange was presented for payment
on
8 July 1986 it was dishonoured. Notice of dishonour was duly
given.
Shortly thereafter, on 14 July 1986, Triomf RB was placed under
18
provisional liquidation on its own application. On 11 September
1987
and in terms of sec 311 of the Companies Act the Supreme Court
(Witwatersrand Local Division) sanctioned a compromise between Triomf
RB and its
creditors and the provisional liquidation order was discharged. Stanchart had in
the meanwhile proved a claim in liquidation
for the amount of the dishonoured
bill and in due course it received, in respect of its claim and in terms of the
sanctioned compromise,
dividends of R618 606,01 and R108 647,63. There were no
further dividends paid and at the time of trial there was no prospect of
any
further dividends.
Stanchart's Case in Summary
In short, Stanchart's case against Nedbank, as
presented
in the Court below and on appeal to us, was that the bank
report on
Triomf RB dated 22 November 1985 and furnished to
Stanchart
(Vancouver) via Standard misstated the financial position
of Triomf
19 RB; that in so misstating the position Nedbank acted negligently;
that
this negligent misstatement was unlawful vis-a-vis Stanchart; that
as
a result of the incorrect bank report Stanchart discounted
Cansulex's
bill of exchange drawn on Triomf RB and suffered loss
when the bill
was dishonoured and the full amount thereof proved
irrecoverable
from Triomf RB.
The Issues
Nedbank joined issue generally on all aspects of
Stanchart's case and also raised the question of contributory
negligence
on the part of Stanchart. The issues are therefore:
(1) whether the bank report of 22 November misstated Triomf RB's financial
position;
(2)
whether
in the circumstances Nedbank acted
negligently;
(3) whether Stanchart suffered loss as a result of the furnishing of the
bank
report;
(4)
whether
in furnishing this report Nedbank acted unlawfully
vis-
20 a-vis Stanchart; and
(5) whether Stanchart was
guilty of contributory negligence and if
so what the consequence of this should be.
The onus
in respect of the first four issues was clearly upon Stanchart;
and on Nedbank in respect of the fifth.
In addition, two further questions which arose are
firstly
whether any judgment for damages that might be given in favour
of
Stanchart should be expressed in United States dollars or in
rands;
and secondly whether Stanchart is entitled to interest and, if so,
how
this should be computed.
1 intend to deal with each of these issues in turn,
but
before doing so 1 wish to refer briefly to the course taken by the
trial
in the Court a quo.
The Trial
At a pre-trial conference held on 28 February
1992
21
shortly before the commencement of the trial, it was agreed that
all
documents discovered by either party were what they purported to
be and were admissible in evidence without formal proof, unless objection
was
made in respect of any particular document. At the trial two bundles of
discovered documents were handed in. Stanchart's bundle
labelled exhibit "A",
consisted (in the appeal record) of 814 pages; while Nedbank's bundle, labelled
exhibit "B", ran to 868 pages.
Each bundle was numbered and the documents
referred to by the letter A or B (as the case may be) and the number.
In presenting Stanchart's case its counsel relied heavily, in certain
respects, on documents to be found in these bundles and the
inferences to be
drawn from them. In his opening address Mr
Solomon
, senior counsel for
Stanchart, spent almost the first two days reading to the Court extracts from
various documents in these bundles
and indicating what, in his submission, they
established. In addition, the evidence of Mr Peters, of Mr Avery, his successor
in office,
and
22 Mr Smallwood, the general manager in London
responsible for Canada
in 1985/86, was led. Nedbank's counsel, on the other hand, handed
in
certain documents emanating from Standard, but called no viva
voce
evidence. As I shall indicate, it was submitted that certain
inferences
could be drawn from the failure to call any of Nedbank's officials
as
witnesses.
The Alleged Misstatement
.
In my view, the evidence clearly established that in 1985 Triomf RB was
in a parlous financial position and that during the course
of the year the
situation deteriorated progressively. The correctness of the financial
statements of the company for the period 1
January 1984 to 30 June 1985 was
admitted on behalf of Nedbank at the pre-trial conference, as also were the
corresponding financial
statements for the Triomf group. As to Triomf RB, the
balance sheet shows issued and authorized capital of R80 000 000 in the form
of
23
ordinary shares and a preferential share capital of R10 000 000.
The
income statement shows a turnover (for the 18 months) of R251
403 000, as compared with R349 618 000 for the 12 months ended 31 December
1983:
a very substantial decline. The income statement also shows a net operating loss
of R22 060 000 and total loss for the period
amounting to R103 613 000. This
latter figure includes a currency exchange loss of R64 827 000. After
adjustments for dividends paid
on preference shares and an export allowance had
been made, this resulted in the accumulated loss of the company, as shown in its
balance sheet, increasing from R14 502 000 in the previous accounting period to
R117 506 000 as at 30 June 1985. The balance sheet
also discloses current assets
of R63 105 000 and current liabilities of R68 218 000, a shortfall of R5 113
000, which indicates that
the company was by then unable to finance its current
liabilities from its own current assets.
This last-mentioned conclusion is substantiated if
regard
24
be had to various internal notes and memoranda emanating
from
Nedbank and forming part of Exh "B". These show that Triomf RB
enjoyed an agreed credit facility with Nedbank of R100 000 000, but
that by
October/November 1985 this facility had been exceeded by borrowings to the tune
of over R40 000 000; that Nedbank was very
concerned about the apparent
inability of Triomf RB to reduce its borrowings and remain within its credit
facility; and that Nedbank
was constantly urging Triomf RB to do so. As evidence
of this concern, are the facts that at this time Nedbank insisted on monitoring
Triomf s accounts on a daily basis and exercising strict control over them.
Triomf RB needed the bank's approval for the issue of
cheques of any
significance.
The bank kept a close watch on all transactions and requests for letters
of credit, etc. In some instances cheques were held back
in order to reduce the
bank's exposure and in others applications for letters of credit were
refused.
25
From many of these documents the bank's concern at
what
it perceived to be a worsening
situation is graphically apparent. It is
clear that the entire
fertilizer industry in this country was, for various
reasons, in a
depressed state. Costs were rising and sales were
declining. By November 1985 Triomf RB had been forced to
suspend production at one of its factories and the other was
working
to half capacity. This was in contrast to the position in January
1985
when both factories were in full production.
It is clear that at this stage Triomf RB was totally dependent on Nedbank
in order to continue trading. It was being propped up by
the bank. It is also
clear that Nedbank was becoming increasingly nervous of the situation and was
wondering how long it could and
should continue to support Triomf RB and the
group as a whole. As counsel for Nedbank conceded before us. Triomf RB was then
"commercially
insolvent" and at any moment Nedbank "might pull the plug" (to use
counsel's expression).
26
Reference may be made to a few Nedbank documents
by
way of illustration. B286 is an
inter-departmental memorandum, from
the advances department to the
general management of the bank. It
is dated 29 October 1985. It is
to be inferred from it that another
department of the bank had
requested that a foreign bill in favour of
Cansulex and accepted by Triomf RB in the sum of USS453 000
(R 1,423 million) be paid. Various officials seem to have appended
their comments. The official who appears to have initiated the
memorandum remarks (in the left-hand column):
"This is the item which Standard Bank Richards Bay sought our report.
Suggest we pay in view of that."
Here I may
digress to explain that on about 25 October 1985 the Richards Bay branch of
Standard had requested Nedbank for a full general
report on Triomf RB and a
report as to whether it was "good for" Rl,45 million, which amount was to be
paid on 29 October
27 1985; and that in response thereto Nedbank
reported to Standard as
follows (see exhibits B277 and B282):
"Triomf Fertilizer Richards Bay Co (Ply) Ltd is one of the largest
fertilizer manufacturers in the country. Experienced management.
Holding company
is quoted and figures are available.
Within the context of their activities Rl,45 million is a reasonable amount,
i e they are regarded as good for the amount if in the
normal course of
business."
Despite
the discrepancy in figures, it is clear that this is
the bank report referred to in B286. Against the above-quoted
comment in B286 another official (I am deducing this from
handwriting) wrote (in the right-hand column):
"I really have no feeling for increasing the exposure but I fear that the
non-payment via Std would be disastrous."
Lower down in the left-hand column a third official made the
28
comment:
"I am getting very nervous about this. Fail to
understand how Mr Triomf could have told me that
we should see a reducing tendency when he
pleaded with me to make a payment when account
was ± R28 million over the top. Either he is
misleading us, or his financial management leaves
a lot to be desired. !
I fail to see how we can continue in this manner. We need an in-depth
discussion investigation."
And against this comment there are, in the right-hand column, the
following remarks by a fourth official:
"1 fear we have no option, but o/stds [outstandings] are high - at R134m
(as they are). Its at least R34m too much. I've already asked
that deposit
situation (re collections and discounts) be
investigated".
The next page in the bundle (B288) contains the following cryptic, but
significant, notes:
29
"I refuse to be put under pressure in this manner by these people. First the
LC's now the bill. Tell him we'll RD unless they collect
their debtors
very
smartly.
Did
he keep his promise with regard to the LPC's?"
Who the officials are who wrote these comments only Nedbank knows and it
did not choose to disclose this in evidence or put them in
the witness-box. The
inference to be drawn from them, prima facie at any rate, is, however, clear.
The bank was very worried about
Triomf RB's progressive descent into debt; the
bank was querying the ability of the management of Triomf RB and even its bona
fides;
the bank was entertaining thoughts of not meeting Triomf RB's paper
unless the situation improved; and generally the bank was wondering
how long it
could continue to support Triomf RB.
As 1 have indicated, Triomf s financial statements for the 18 months
ended 30 June 1985 were published only in December.
30
Preliminary results appear, however, to have become available
early
in November 1985. An internal Nedbank memorandum shows that it
had the draft balance sheet by 14 November 1985. The bank was aware
of the
losses incurred during this accounting period, including the foreign exchange
loss, which was described by an official in
a memorandum as "astronomical". In
another memorandum dated 16 October 1985 another official of the bank, reporting
on an interview
with the person representing Triomf RB, commented:
"We are presently approaching a very critical stage in our relationship
with clients."
Finally, there is a revealing internal memorandum (B376), dated 20
November 1985, recording the reaction of a bank official to the
request for a
bank report on Triomf which gave rise to the report in issue. I quote it in
full:
31
"Branch phoned to advise that they have received a report request on Triomf
Richards Bay.
No amount is asked for, simply a full general report.
Enclosed is the reply we gave to Standard Bank Richards Bay last
month.
I expect we shall have to indicate that clients are in uncomfortable
circumstances.
It will be recalled that the amount previously arising on the earlier report
call
was not
paid on due date. In fact paid several days
later."
The reply to this
(B378) reads:
"Deleting the last paragraph say:
As in the rest of the Fertilizer Industry, the company has suffered
setbacks, but they are trading normally and would in these circumstances
be
regarded as good for their normal commitments in the course of
business."
Having regard to the aforegoing, I am of the opinion
that
32 the bank report furnished by Nedbank on 22 November 1985 was
inaccurate and misleading. By no stretch of imagination could
Triomf
RB be described as "trading normally". It had sustained heavy
losses;
it was manufacturing at a greatly reduced capacity; it was
wholly
dependent on borrowings from the bank in order to stay in
business;
and the bank was greatly perturbed about Triomf s precarious
financial
position and was wondering how long it should continue to keep
it
going. In my view, the further statement that Triomf RB "would
in
these circumstances (which would include 'trading normally') be
regarded as "good to (sic) their normal commitments in the course
of
business" was similarly misleading. They were unable to meet
their
normal commitments in the course of business from their own
resources. They could only do so with bank support. Their credit
facilities at the bank were stretched far beyond the agreed
maximum.
The bank was very perturbed at the situation and wondering how
long
it could continue to prop up Triomf RB. In some instances
financial
33 commitments were not met on due date.
It was argued on behalf of Nedbank that so long as the bank continued to
support and provide credit for Triomf RB the report was completely
accurate. For
the reasons already stated I cannot accept this argument. It was also argued
that by referring to "setbacks" the report
sufficiently alerted the reader of
the report to the financial position of Triomf RB. I do not agree. It seems to
me that, to the
reader, any warning that there might be in the reference to
"setbacks" would be neutralized by the rest of the report, particularly
the
reassuring words which follow.
For these reasons, I hold that the report misstated the true position
concerning Triomf RB and that the first issue must be resolved
in favour of
Stanchart.
Negligence
It is Stanchart's case that if the report misstated the
true
34 state of affairs, then Nedbank was guilty of, at least,
negligence in
issuing the report in those terms. This appears to me to be
correct.
It is true, as emphasized by Mr
Browde
on behalf of Nedbank,
that
the request for a bank report was marked "urgent" and that
Nedbank
was expected to furnish the report the same day. In
the
circumstances, it was not required of Nedbank to make a thorough
investigation of Triomf s financial affairs; and had the averment
of
negligence been based upon a failure to do so, it would, in my
opinion, not have been substantiated. But that is not Stanchart's
case.
Its case is that, as indicated in the portion of this judgment
dealing
with the incorrectness of the bank report, Nedbank's officials had
a
comprehensive and intimate knowledge of Triomfs financial
affairs
and that a skilled banker in Nedbank's position, acting
reasonably,
would not have furnished the report in question. I agree.
It may be asked - and this point was made by counsel
for
Nedbank - what was Nedbank to do, bearing in mind the
relationship
35 of banker and customer and the duty of
confidentiality owed by the
banker? It was not suggested, nor could it in my view have been
validly suggested, that the relationship between banker and
customer
justified the giving of a false bank report to a third party. It seems
to
me, therefore that the bank had either to give a true report (i e a
report
which truly reflected its knowledge of the position) or decline to
give
a report. It also had the option, to which I will refer again later,
of
attaching a disclaimer of liability or responsibility to its report;
but,
of course, this would not have afforded protection had the bank
known
that its report was untrue (cf. Commercial Banking Co of Sydney
v
R H Brown & Co [1972] 2 L1 L R 360, a decision of the High
Court
of Australia).
It was submitted by Mr
Browde
that in the
circumstances
all that the bank was obliged to do was to give an honest answer
and
that the question of negligence did not arise. For this submission
he
relied on certain remarks made in the leading English case of
Hedley
36 Byrne & Co Ltd v Heller & Partners Ltd
[1963] UKHL 4
;
[1963] 2
All ER 575
(HL)
at 594 E - 595 B. Whether the report in the present case
constituted
an honest answer to the request may be open to some
doubt.
Nedbank certainly had a material interest in providing a
favourable
report. An internal document dated 21 June 1985 indicates that
Nedbank then thought that the financial position of Triomf RB was
so
"sensitive" that it (Nedbank) could not allow another bank to be
"privy
to" the information which it had. In another internal memorandum
(undated but probably circulated at the beginning of September
1985)
it was stated that the overall position was "not comfortable" and
that
Nedbank was acutely aware of the need to avoid unfavourable
comment in the event of this becoming "public knowledge". In the
circumstances it seems probable that an unfavourable report on
Triomf
RB by Nedbank would have brought the supply of raw materials to
the
former to a virtual halt. That would have put an end to Triomf
RB
at a stage when Nedbank still harboured some hope of reducing
its
37 overall exposure to the company.
Stanchart's counsel, however, disclaimed any reliance on dishonesty or
fraud and I refrain from pursuing this aspect of the matter.
As regards the
remarks (by Lord Morris) in the Hedley Byrne case, these were of a tentative
nature and I am not persuaded that current
English law limits a banker's
potential liability for a misstatement in this way. As I read the English
authorities (which are collected
in Clerk & Lindsell on Torts, 16th ed,
under the general editorship of R W M Dias at 452 ff; see also the second
cumulative supplement,
at 31-3), provided that the necessary circumstantial
requirements are present a banker, like various other persons or bodies, may
in
a commercial situation owe a duty to exercise care when giving advice to
another. This is certainly, in my view, the position
under our law.
1 find, therefore, that the requirement of negligence was
established.
38
Loss and Causation
In evidence Mr Peters stated that he read the report furnished by Nedbank
on 22 November 1985 as being a favourable one and on the
strength of it he
forwarded the application for the renewal of the relevant line of credit to
Toronto, with the recommendation that
the renewal be granted; and also in the
meanwhile extended the line of credit pending the final decision on the
application by head
office. He further stated that had the report been an
unfavourable one or had Nedbank refused to give a report he would not have
been
able to recommend the renewal of the line of credit and would have cancelled it
immediately.
On this basis Stanchart contends that but for the negligent misstatements
contained in the report, the line of credit would have been
discontinued; that
in that event Cansulex's bill of US$2 697 122,50 would not have been discounted
by Stanchart (resulting in the
payment to Cansulex of USS2 580 628,46); and
that
39 Stanchart would not have suffered the loss which it did as a
result of
the dishonour of the bill and its inability to recover in full on the
bill.
Accordingly, so the argument runs, the giving of the
favourable bank
report was a factual cause of Stanchart's ultimate
loss. (Cf. the
similar line of evidence and reasoning in the case of
International
Shipping Co (Pty) Ltd v Bentley
1990 (1) SA 680
(A), at 694 I -
695 D.)
I see no reason not to accept this evidence of Mr
Peters
and the line of argument based upon it. It depends, of course,
partly
on the proposition that had Nedbank given a frank and, within
the
limitations of the brevity with which such reports are normally
couched, an accurate report on Triomf RB, the report would as a
matter of probability have been an unfavourable one and would
have
been viewed as such by Stanchart. I think that the proposition
is
well-founded. I have described at some length the financial
position
of Triomf RB as it was about the time of the furnishing of the
report
40
and Nedbank's knowledge and perceptions in that regard. I
am
convinced that Nedbank, acting reasonably and with the skill and
care of a banker, would inevitably have produced a report which,
whatever its
precise terms, would have conveyed some indication of Triomf s precarious
financial position and would have been regarded
by Stanchart as an unfavourable
report.
During the cross-examination of Mr Peters, counsel for Nedbank obtained
from him concessions that if Triomf RB was continuing to buy
sulphur and pay for
it and use it in the process of manufacture, they were trading normally; and
that had he known that Triomf RB
had suffered the losses which it did during the
financial period ended 30 June 1985, in the circumstances that existed at the
time
he received the report, this would have made no difference. It is not very
clear what Mr Peters meant by this latter concession,
but in any event I do not
regard this evidence as detracting materially from the proposition that had the
report accurately reflected
the true
41 position it would have been
an unfavourable one and would have been
so regarded by Stanchart. At no time in cross-examination was
the
global picture of Triomfs financial situation put to Mr Peters;
nor was
he asked whether, if the report had somehow reflected all
this, he
would have regarded it as a favourable one or not.
My conclusion is that the untrue report issued by
Nedbank
was a factual cause of Stanchart's loss. In other words, it was
a
conditio sine qua non of such loss. That, however, does not
conclude
the enquiry. It is still necessary to determine legal causation, i
e
whether the furnishing of the untrue report was linked
sufficiently
closely or directly to the loss for legal liability to ensue, or
whether
the loss is too remote. The principles applied in such an inquiry
have
recently been expounded by this Court in the cases of S v
Mokgethi
en Andere
1990 (1) SA 32
(A), at 39 D - 41 B; International
Shipping Co (Pty) Ltd v Bentley, supra, at 700 E - 701 G; and
Smit
42 v Abrahams, as yet unreported, dated 16 May 1994, at pp
22-5, 32-3,
36-7, 39-40 of the typescript. As appears from these judgments,
the
test to be applied is a flexible one in which factors such as
reasonable
foreseeability, directness, the absence or presence of a
novus actus
interveniens, legal policy, reasonability, fairness and justice all
play
their part.
In applying this general test there are two matters
upon
which I propose to concentrate: firstly, the apparent disregard of
the
group administrative circular dated 25 November 1985 (which I
shall
refer to by its exhibit number "A299") when the bill in question
was
discounted on 14 January 1986; and secondly, the question of
reasonable foreseeability. These matters have some bearing on
both
causation and unlawfulness and I shall deal with them under
separate
heads.
The Group Administrative Circular
("A2991")
43 The relevant portion of A299 has been quoted.
The
guideline in para 5, headed "Export Bills", is to the effect that
export
bills covering trade transactions with South Africa may only
be
negotiated or advanced against where full recourse to drawers
(outside
South Africa) is retained. Prima facie this would appear to apply
to
the discounting of the bill in question, but, as we know, the
discounting was done on the basis that once the bill was accepted
by
the drawee (Triomf RB) the right of recourse was waived.
Nedbank's
counsel pointed to this and argued that had Stanchart (Vancouver)
not
overlooked or ignored this guideline the right of recourse
against
Cansulex (the drawer) would have been retained with the result
that
upon the dishonour of the bill Stanchart could have recovered
the
amount of the bill from Cansulex and would thus not have
suffered
any loss.
Stanchart's witnesses were asked about this in
evidence.
It appears from their testimony that at the time of the discounting
Mr
44 Peters (the responsible official at the time) was of the
opinion that
para 3, and not para 5, of A299 applied in the case of the
established
credit line granted to Cansulex in respect of its
dealings with Triomf
RB and other purchasers of sulphur in South Africa. He
interpreted
para 3 as applying to existing facilities and para 5 as referring
to
future customers or customers requiring future facilities.
Mr Avery arrived at the Vancouver branch of the
bank
during the first week of January 1986, but formally took over from
Mr
Peters some two to three weeks later. During that period, while
familiarizing himself with the operations at the bank, he became
aware
of the discounting of the bill in question on 14 January 1986. He
was
aware of A299 and was surprised that the bill had been discounted
in
terms of the existing credit line. He had discussions with Mr
Peters
and a Mr Brown, the president of Stanchart (in Toronto). They
came
to the conclusion that there was some confusion as to the
interpretation
of A299 and it was decided to seek clarification from head office
in
45
London. Group advances in London apparently took the view
that
para 5 applied and that full recourse would have to be retained
as against Cansulex in its transactions with Triomf RB; and this view
was
conveyed to Toronto and Vancouver. When informed of this, Cansulex adopted the
attitude that inasmuch as Stanchart had unconditionally
discounted the bill in
terms of the agreed line of credit (as set forth in the facility agreement) it
was contractually bound to
release Cansulex from recourse once the bill was
accepted by the drawee (Triomf RB) and provided that there had been no
dishonouring
of prior bills in the interim (which there had not been). This
attitude on the part of Cansulex was regarded by Vancouver and Toronto
to be
"not unreasonable" and London eventually accepted that there was such a
commitment to Cansulex and agreed that the bill in
question should be allowed to
go through on a non-recourse basis. London did this on the recommendation of Mr
Smallwood, who saw
it as "purely a country risk problem": he had no reason to be
concerned about the
46 "client risk" aspect. As Mr Smallwood viewed
the position, the
Vancouver branch had misread the circular, A299, but the error
was
"understandable": a number of other branches had misinterpreted
the
circular in the same way, assuming that para 5 applied only to
totally
new transactions.
The circular, A299, is
certainly not a model of clarity and it does not surprise me that it was the
cause of fairly widespread confusion
within the bank. The unconditional
discounting of the bill in question, in conflict with the intent of A299, may
have been an error
of judgment, but 1 would hesitate to class it as a careless
or negligent act. Once the bill was unconditionally discounted, then
it seems to
me that in terms of the facility agreement Stanchart was contractually obliged
to release Cansulex on acceptance of the
bill by Triomf RB.
All these events, and more particularly the unconditional discounting of
the bill, apparently in contravention of A299, constitute
47 a
concomitant factual cause of Stanchart's loss. I shall consider later
what effect, if any, it has in regard to the question of legal
causation.
Reasonable Foreseeabilitv
What should reasonably have been foreseen by Nedbank, acting through its
officials, as the possible consequences of the furnishing
of an untrue bank
report to Standard in November 1985, depends partly on what the bank knew, or
must have known, at the time about
the relationships between Standard, Oansulex,
Stanchart and Triomf RB. Since none of the Nedbank officials gave evidence,
their state
of knowledge must be a matter of inference from the other evidence,
mainly the documents before the Court, and also from the very
fact that the
officials from whom some of the documents emanated did not enter the
witness-box.
The evidence shows that on about 30 January 1986 the bill in question,
together with the shipping documents, was presented
48 by Standard
(Richards Bay branch) to Nedbank (Richards Bay branch)
for acceptance by Triomf RB. From the bill and the
shipping
documents Nedbank would have known that the bill related to
the
purchase price of a shipment of sulphur to Triomf RB by Cansulex
and that the bill had been discounted by Stanchart. It would
also
have been aware of the fact that Standard had presented the bill
and
the documents on behalf of Stanchart. Nedbank's knowledge of the
roles played by Cansulex, Stanchart and Standard in this
transaction
appears, prima facie at any rate, from two documents emanating
from
Nedbank, viz A440, which is an advice of acceptance dated 3
February 1986 and addressed to Stanchart (Vancouver), and A441,
a
letter dated 3 February 1986 addressed to Stanchart (Vancouver)
which reads:
"We refer to the above mentioned Collection for US$2,697,122.50 in favour
of Triomf Fertilizer Richards Bay (Pty) Ltd. Order Cansulex
Limited and advise
that we have adopted this Collection
49
from Standard Bank Richards Bay.
The Bill has been accepted by Triomf Fertilizer and on due date 8 July 1986
we will settle the Collection in terms of your Covering
Schedule."
The language of
this communication does not seem altogether apt, but Nedbank's appreciation that
Cansulex, Stanchart, Triomf RB and
Standard were involved in this transaction
and of their respective roles is clearly to be inferred.
The same inference is to be drawn from two other documents emanating from
Nedbank (B493 and B494). These are inter-departmental memoranda
(dated 31
January 1986) referring to the bill in question and stating that it is in
respect of sulphur imported from Canada, that
the drawer is Cansulex, that the
bill is payable to Stanchart and that it has been accepted by Triomf RB. B493
contains the following
statement:
50
" Bill in the past presented by Standard
Bank
Richards Bay. We recently gave a bank
report to them. This is enclosed."
The fact that the writer associates the bank report given to Standard
Bank Richards Bay (clearly the report of 22 November 1985) with
the transaction
for the purchase of sulphur from Cansulex by Triomf RB involving, in their
respective roles, Stanchart and Standard,
is, in my view, highly
significant.
There had been numerous previous transactions on the same lines. The line
of credit in respect of exports of sulphur to Triomf RB
had been established in
August 1982 (A124) and was based upon a bank report on Triomf obtained in June
1982 from Nedbank through
the agency of Standard. The same procedure seems to
have been adopted in subsequent years.
In evidence Mr Peters stated, under cross-examination, that there had
been many such transactions in the past, i e collections
51 through
Standard on Triomf "of this type" (referring to the bill in
question); that Stanchart had in the past directed several requests
for
banker's reports on Thomf to Nedbank via Standard; and
that
Nedbank was aware of the fact that Stanchart (Vancouver)
was
discounting bills drawn on Triomf RB. The cross-examiner did not
challenge these statements, nor did he put a contrary version to
the
witness.
I have already referred to the bank report which was obtained by
Standard, acting on behalf of Stanchart, in late October 1985 and
to the
memorandum B286 (dated 29 October 1985) which followed shortly thereafter. From
the comments in B286 it is clear that Nedbank
associated the report with a
purchase transaction involving Cansulex as seller. No doubt, too, Nedbank would
have been aware of the
fact that, as usual, the bill had been discounted by
Stanchart.
Under cross-examination Mr Avery agreed that in
the
52 normal course a bank report would not be given directly to
someone
who is not a banker; that consequently if banker A seeks a
full
general report from banker B with regard to a customer of bank
B, the
latter would realise and understand that banker A may be
acting on
behalf of a third party; and that banker B would know that
the report
was required either because the third party was
contemplating doing
business with the customer or granting him credit or because
banker
A himself was considering taking over the bank account of the
customer.
In the circumstances of the present case, as I
have
outlined them, it seems very unlikely that Standard would have
contemplated taking over Triomf RB as a customer or that Nedbank
would have thought that this was the reason for the request for
the
bank report in November 1985. The probability is that Nedbank
realised that in requesting the report Standard was acting on behalf
of
a third party who was contemplating doing business with Triomf
RB
53 or granting it credit in some way. As I have indicated, the
evidence
shows that at that time Nedbank must have been aware of the
business
modus operandi whereby Cansulex sold sulphur to Triomf RB,
drew
on the latter for the price and discounted the bill with
Stanchart; and
of the fact that Standard acted on behalf of Stanchart, both in
the
carrying out of such transactions and in the obtaining of bank
reports.
Admittedly Standard did not disclose on whose behalf it was
acting
when requesting the report in question and Nedbank would not
necessarily have known that it was Stanchart. Nevertheless,
Nedbank
must have realised that among the persons on whose behalf
Standard
could be acting, a possible, indeed a likely, party was
Stanchart.
Furthermore, Nedbank knew the role which Stanchart played in
transactions with Triomf RB and would, or should, have foreseen
that
if the report failed to disclose Triomf RB's precarious
financial
position, Stanchart might, in reliance on the report, do business
with
Triomf RB, in the sense of discounting a bill drawn on and to
be
54 accepted by Triomf RB, and might suffer loss should Triomf
RB
collapse financially.
In delict the reasonable forseeability test does not require that the
precise nature or the exact extent of the loss suffered or the
precise manner of
the harm occurring should have been reasonably foreseeable for liability to
result. It is sufficient if the general
nature of the harm suffered by the
plaintiff and the general manner of the harm occurring was reasonably
foreseeable. (See Burchell,
Principles of Delict, at 92 ff and the authorities
there cited).
Applying that general approach to the facts of the present case, I am of
the opinion that the loss suffered by Stanchart as a result
of the incorrect
report furnished by Nedbank on 22 November 1985 was reasonably foreseeable by
Nedbank.
Legal Causation
Taking all the facts of the case into account I am
of the view that
55 legal causation was established in this case. As
I have indicated, the
loss suffered by Stanchart was of the general category which
was
reasonably foreseeable at the time when the incorrect bank
report was
given by Nedbank. There was no undue lapse of time to
break, or
even strain, the chain of causation. The bill in question
was
discounted approximately 7 weeks after the bank report was
given. It
is true that the actual loss only became a fact six months later, but
that
was because of the usance of the bill. In reality the loss was
sustained when Stanchart purchased what turned out later to be a
worthless asset, viz a bill which the drawee was unable to meet on
due
date.
The fact that, apparently in conflict with the
group
administrative circular (A299), the bill in question was discounted
on
a non-recourse basis does not, in my view, render Stanchart's loss
too
remote. This factor, admittedly, made Stanchart generally more
vulnerable to loss in that it prevented Stanchart from recouping
its
56
loss, flowing from the dishonour of the bill by the drawee, from
the
drawer. And it may well be that this particular factor was not
reasonably foreseeable by Nedbank at the relevant time. Nevertheless,
the untrue
bank report remained a prime and material causal factor throughout. The
disregard of A299 was at most a concomitant cause,
rendering Stanchart more
vulnerable, and I do not think that the fact that it may not have been
foreseeable should exempt Nedbank
from liability. Moreover, as I have stressed,
the law does not require the exact manner of the loss occurring to be reasonably
foreseeable.
Nedbank's counsel pointed to the informal, terse and uninformative nature
of the request for a bank report, the short time allowed
the bank for its
response and the magnitude of the claim; and argued that in the circumstances it
was not fair to hold the bank liable
for the loss suffered by Stanchart. 1 am
not sure whether this argument was advanced with reference to the issue of
causation or
that of unlawfulness, but in any event I do not think that it can
prevail. A
57 bank report is, and should be regarded as, a serious
matter, with the
potential for serious consequences to the party requiring it and
acting
upon it. I do not think that the short time allowed in fact
prejudiced
Nedbank: it was fully conversant with Triomf RB's
financial situation.
But even if it did feel prejudiced it was not obliged to respond
immediately: it could have asked for time. And finally, it could
have
protected itself against a negligent report by a disclaimer of
liability,
as is apparently a common practice amongst banks.
A further point raised by counsel for Nedbank,
which
seemed to have relevance to causation, was that in discounting the
bill
in question (the face value of which was USS2 697 122,50) Mr
Peters
acted in contravention of the line of credit agreement which
limited
"individual exposure" to any one drawee, in the case of Triomf RB,
to
USS2 000 000. 1 do not think that this point leads anywhere.
Clearly it was open to Stanchart to waive this requirement and
according to the evidence it did so. There is no reason to reject
this
58 evidence.
Having carefully weighed all the relevant factors
and
circumstances and applying the flexible test referred to above, I
hold
that Stanchart established that its loss was caused by Nedbank's
negligent misstatement.
Unlawfulness
The question here is whether Nedbank in furnishing
the false bank report to Standard acted unlawfully, ie in breach of a legal duty
owed to Stanchart not to furnish a false bank report. The various factors which
are taken into consideration by our courts in deciding
whether or not such a
duty exists in a particular instance appear from cases such as the pathfinding
decision of this Court in Administrator,
Natal v Trust Bank van Afrika Bpk
1979
(3) SA 824
(A); and also Simona & Co (Pty) Ltd v Barclays NationalAbdoW Band
Ltd
59 1984(2) SA 888 (A), at 913 F - 914 C; International Shipping
Co
(Pty) Ltd v Bentley, supra, at 694 D - I; Bayer South Africa
(Pty)
Ltd v Frost
[1991] ZASCA 85
;
1991 (4) SA 559
(A), at 568 D-F, 574 I - 575 D. In
the
present case the following factors seem to me to be important:-
(1)
The context in which the statement was made
.
The statement was made in response to a serious request, in a strictly
business context, for a full bank report. The request was not
a casual enquiry;
nor was the report given in circumstances where it was clear that it was not to
be taken seriously. Indeed quite
the contrary was the case.
(2)
The nature of the statement
The statement, i e the report, related to matters in respect of which
Nedbank, as Triomf RB's banker, had particular knowledge and
the expertise to
make a statement or express an opinion. Indeed, it was uniquely placed to do so.
Moreover, the giving of a bank
report on
60
a customer is part of the normal business of a banker.
(3)
The purpose of the statement and Nedbank's
knowledge
thereof
The
purpose of obtaining the bank report was to enable Stanchart to
decide whether to continue Cansulex's line of credit,
specifically
insofar as transactions with Triomf RB were concerned. Although
it has not been shown that Nedbank knew that this was the
purpose,
it is to be inferred, as I have already indicated, that as a matter
of
probability Nedbank realised that Standard's request for the report
was
made on behalf of some third party who was contemplating doing
business with Triomf or granting it credit in some way.
(4)
Reliance by third party on report
Nedbank must have realised that this third party would rely on the report
in deciding whether to do business with Triomf RB or give
it
61
credit and could suffer loss if the report incorrectly gave a
favourable
account of Triomf RB's financial
position.
(5)
Relationship between the parties
There was no
direct contact or dealing between Stanchart or Nedbank in regard to this report
and it is this fact, mainly, that gives
rise to difficulty on this aspect of the
case. Nevertheless, as I have found, Nedbank must have realised that the
probable recipient
of the report was a third parly contemplating business with
Triomf RB or giving credit in some way to Triomf RB; amd that among the
persons
on whose behalf Standard might be acting a possible, indeed likely party, was
Stanchart (see the section on foreseeability
above). This renders the
relationship between the parties, if not a direct one, at least a reasonably
close one.
62 (6)
Public policy, fairness etc
There are, in my view, no considerations of public policy or fairness or
equity to deny Stanchart relief in this case. This is not
the kind of case where
a finding in favour of the plaintiff raises the spectre of limitless liability
or places an undue or unfair
burden upon the bank. As I have already emphasized,
the bank could have refused to give the report or it could have protected itself
against the consequences of a negligent report by a disclaimer.
In all the circumstances it seems to me that under our law a case for
unlawfulness has been made out. Counsel for respondent, relying
on certain
English authorities (principally Caparo Industries plc v Dickman and Others
[1990] UKHL 2
;
[1990] 1 All ER 568
(HL)), argued, however, that in the present case Nedbank
owed no duty of care to
63 Stanchart and that, therefore, the
requirement of unlawfulness was
absent. 1 hesitate to propound how an English court would decide the
question of the existence of a duty of care on the facts of the
present case.
Indeed it would be somewhat presumptuous of me to attempt to do so. After
reading the relevant English decisions, however,
I am not persuaded that they
provide persuasive support for the argument of respondent's counsel.
The starting point in English law is the Hedley Byrne case (supra), which
factually bears a resemblance to the present one in that
it also related to
enquiries by a bank directed to the defendant merchant bank concerning the
financial position of X Ltd, a customer
of the defendant. The enquiries were
made on behalf of the plaintiff, an advertising firm, which was a customer of
the enquiring
bank and
64 which wished to do business with X Ltd.
The defendant gave
favourable responses to these enquiries, but with disclaimers of
responsibility. Relying upon these replies, the plaintiff entered
into
advertising contracts with X Ltd and subsequently suffered
economic
loss when X Ltd went into liquidation. For the purposes of
deciding
the appeal in the House of Lords it was assumed that there had
been
negligence in the furnishing of these favourable reports. Striking
out
in a new direction and disapproving certain earlier decisions,
the
House of Lords decided that, but for the disclaimer, the
circumstances
of the case might have given rise to a duty of care on the part of
the
defendant. Portion of the headnote in the All England Reports
reads
as follows:
65
"If, in the ordinary course of business or professional affairs, a person
seeks information or advice from another, who is not under
contractual or
fiduciary obligation to give the information or advice, in circumstances in
which a reasonable man so asked would
know that he was being trusted, or that
his skill or judgment was being relied on, and the person asked chooses to give
the information
or advice without clearly so qualifying his answer as to show
that he does not accept responsibility, then the person replying accepts
a legal
duty to exercise such care as the circumstances require in making his reply; and
for a failure to exercise that care an action
for negligence will lie if damage
results...."
(See also Mclnery
v Lloyds Bank Limited [1974] 1 Lloyd's Rep 246 (CA); Box v Midland Bank [1979] 2
Lloyd's Rep 391 (QBD); Cornish
v Midland Bank p/c (Humes, third party)
[1985] 3
All ER
513
(CFA); all cases dealing with the liability of a banker
for negligent advice given, in terms of the Hedley Byrne principles.)
It is not necessary to analyse the reasoning in the
various
66
judgments in (he Hedley Byrne case for the general effect of
that
decision, considered in the light of subsequent relevant authority, was
clearly set forth in the Caparo case (supra). It appears from
the latter
decision, which related to the liability of auditors negligently certifying a
company's accounts, that for the imposition
of a duty of care in tort, and
particularly in cases of negligence resulting in pure economic loss, English law
has adopted three
basic criteria, viz foreseeability of damage, proximity of
relationship and that the attachment of legal liability in the circumstances
be
fair, just and reasonable. (See also White and another v Jones and others
[1993]
3 All ER 481
(CA), at 487 g - 488 f.)
With regard to the test of proximity, as applied to a case of negligent
misstatement, Lord Oliver of Aylmerton stated in the Caparo
case, supra, at 589
c - g, the following:
"The point that is, as it seems to me, significant in the present context,
is the
unanimous
67
approval in this House of the judgment of Denning LJ in Candler's case
[1951] 1 All ER 426
at 434,
[1951] 2 KB 164
at 181, in which he expressed the
test of proximity in these words: 'Did the accountants know that the accounts
were required for
submission to the plaintiff and use by him?' In so far as this
might be said to imply that the plaintiff must be specifically identified
as the
ultimate recipient and that the precise purpose for which the accounts were
required must be known to the defendant before
the necessary relationship can be
created, Denning LJ's formulation was expanded in the Hedley Byrne case, where
it is clear that,
but for an effective disclaimer, liability would have
attached. The respondents there were not aware of the actual identity of the
advertising firm for which the credit reference was required nor of its precise
purpose, save that it was required in anticipation
of the placing of advertising
contracts. Furthermore, it is clear that 'knowledge' on the part of the
respondents embraced not onlv
actual knowledge but such knowledge as would be
attributed to a reasonable person placed as the respondents were placed. What
can
be deduced from the Hedley Byme case, therefore, is that the necessary
relationship between the maker of a
68
statement or giver of advice (the adviser) and the recipient who acts in
reliance on it (the advisee) may typically be held to exist
where (1) the advice
is required for a purpose, whether particularly specified or generally
described, which is made known, either
actually or inferentially, to the adviser
at the time when the advice is given, (2) the adviser knows, either actually or
inferentially,
that his advice will be communicated to the advisee, either
specifically or as a member of an ascertainable class, in order that
it should
be used by the advisee for that purpose, (3) it is known, either actually or
inferentially, that the advice so communicated
is likely to be acted on by the
advisee for that purpose without independent inquiry and (4) it is so acted on
by the advisee to
his detriment. That is not, of course, to suggest that these
conditions are either conclusive or exclusive, but merely that the actual
decision in the case does not warrant any broader
propositions."
This
formulation has been relied on subsequently (see eg James McNaughton Papers
Group Ltd v Hicks Anderson & Co (a firm)
[1991] 1 All ER 134
(CA), at 143
b-d; Morgan Crucible Co
69 plc v Hill Samuel Bank Ltd and others
[1991] 1 All ER 148
(CA),
at 158 b-e) and appears to express the essence of the Court's
decision.
(See also Clerk & Lindsell, second cumulative supplement, at
32-3.)
Where Lord Oliver speaks of the purpose being made known
inferentiallv
to the adviser, to the adviser knowing
inferentiallv
that his
advice will be communicated to the advisee and to the adviser
knowing
inferentiallv
that the advice is to be acted upon, it
seems
clear that he is referring to such knowledge as would be attributed
to
a reasonable person in the circumstances in which the adviser
was
placed (see Caparo case, supra, at 589 e and James McNaughton
Papers Group case (supra), at 144 h-j).
Applying the formulation to the facts of the present
case,
as I have found them to be, it would seem that in terms of English
law
the necessary proximity existed. Nedbank knew, actually or
inferentiallv, that the bank report was required for the purpose
of
70 determining the financial stability and creditworthiness of
Triomf RB;
that its advice would be communicated to someone, a client
of
Standard (who may well have been Stanchart), intending to
do
business with Triomf RB or rely upon its creditworthiness; and
that
the advice so communicated was likely to be acted on by such
person
(the advisee) for that purpose without independent enquiry. And,
of
course, in this case it was so acted upon. In the light of the
further
findings regarding foreseeability and the absence of any reason
based
on public policy, fairness or equity to deny relief, I am not
persuaded
that, if English law were to be applied, a different result would
be
reached in this case.
For these reasons I hold that unlawfulness was
established
in this case. This means that Stanchart was entitled to succeed in
its
claim for damages, subject to the question of contributory
negligence.
Contributory Negligence
71 In its plea Nedbank pleaded that Stanchart had been
guilty
of contributory negligence in that
it permitted the credit granted to
Cansulex to remain in place,
discounted the bill drawn on Triomf RB
and relinquished its right of
recourse against Cansulex -
(i) when a reasonable businessman would in the
circumstances have done none of these acts;
(ii) without first seeking and obtaining sufficient information
concerning Triomf RB to ensure that it was prudent to
do
so;
(iii) without first obtaining and
examining detailed information
concerning the financial position and trading results
of
Triomf RB; and
(iv) without first
ensuring that the information contained in
the report was still applicable.
In
further particulars for trial Nedbank stated that amongst the
72
information concerning Triomf RB which Stanchart ought to have
obtained and studied before discounting the bill was that to be
found
in the June 1985 financial statements. This and the
alleged
disobedience of the group administrative circular (A299)
were the two
matters relied upon by Mr
Browde
on appeal to
establish contributory
negligence. The evidence of Mr Peters was to the effect (as I
have
already mentioned) that the June 1985 financial statements had
not
been received in Vancouver by 20 January 1986 and were thus not
available there when the bill was discounted. Nedbank, upon whom
the onus rested, did not establish any negligence in this regard.
As
to the group administrative circular, the alleged disobedience of
this
was not pleaded as a ground of contributory negligence and I do
not
think that Nedbank can now rely upon this. In any event, I am
not
73 persuaded that the disregard of the circular amounted to
contributory
negligence.
Accordingly I hold that contributory negligence does not arise in this
case.
Two matters relating to the relief to be granted to Stanchart remain to
be considered. They are: (i) whether this Court can, and should,
award Stanchart
damages in United States dollars, and (ii) whether Stanchart is entitled to
interest on damages as a separate claim.
Damages Awarded in Dollars
?
As a result of Nedbank's negligent misstatement Stanchart suffered a
loss, which it computes on the basis of the amount for which
it discounted the
bill of exchange, less dividends paid (in terms
74 of the
compromise) on its claim in the liquidation of Triomf RB. In
its statement of claim Stanchart seeks to be paid damages for this
loss
expressed in US dollars. This raises two questions: (a) whether
it is
competent for this Court to award delictual damages in a
foreign
currency, and (b) whether, on the facts in this case, an
award in US
dollars should be made.
In the case of Voest Alpine Intertrading
Gesellschaft
MBH v Burwill and Co SA (Pty) Ltd
1985 (2) SA 149
(W) the
Court found that the plaintiff had suffered damages for breach
of
contract, for which the defendant was liable, in a certain amount of
US
dollars and went on to consider the question as to what was the
correct
date for this amount to be converted into rand for, as the Judge
(Nestadt J) put it (at 150F) -
75
"[n]ot only is defendant entitled to pay in rand, but this Court is obliged
to give judgment only in rand, not in a foreign currency
(though I have not been
able to find the source of this
rule)."
It further appears
that it was not argued by plaintiffs counsel that the Court had the power to
give judgment in a foreign currency
(at 152 C-D). In the result the Court
decided that the conversion date was the date of the breach of contract giving
rise to the
claim for damages.
The questions as to whether our Courts have the power to grant judgment
in a foreign currency and, if so, when it should do so have
been considered in a
number of matters decided since Voest's case: see Murata Machinery Ltd v Capelon
Yams (Pty) Ltd
1986 (4) SA 671
(C); Elgin Brown and Hamer (Pty) Ltd v
DampskibsselskabetTorm Ltd
1988 (4) SA 671
(N); and Barclays Bank of Swaziland
Ltd v Mnyeketi
1992 (3) SA 425
(W). To these may be added the decision of the
Zimbabwe Supreme Court in Makwindi Oil Procurement (Pvt) Ltd v National Oil Co
of
76 Zimbabwe (Pvt) Ltd
1989 (3) SA 191
(ZSC). The general
conclusion reached by these decisions, guided to some extent by
recent
English authority, is that the Court is empowered in an
appropriate
case to give judgment in a foreign currency. The arguments and
authorities supporting this proposition are fully set forth in the
various
judgments, and in this connection I would refer particularly
to the full
and lucid exposition by Stegmann J in the Barclays Bank of
Swaziland case (Mpra), and it is not necesary for me to repeat
them.
I am in general agreement with this conclusion and am satisfied
that
our Courts do have the power to grant judgment in a foreign
currency.
In none of the South African cases referred to above
was
the claim one for delictual damages. They related to money
claims
due on a contract, damages for breach of contract and to the
enforcement of a foreign judgment. The Zimbabwean case, however,
concerned damages for misrepresentation. I can see no reason for
dealing differently with claims for delictual damages and
accordingly
77 hold that in a case such as the present the Court has the power to
give
judgment in a foreign currency.
In the case of Malilang and Others v MV Houda
Pearl
1986 (2) SA 714
(A),
1986 (3) SA 960
(A) this Court, sitting as
a
court of appeal in an Admiralty matter, held that it was not empowered to
grant judgment in a foreign currency. As was made clear,
however (see 1986 (3)
SA at 967 J), this ruling related strictly to Admiralty proceedings in terms of
the Colonial Courts of Admiralty
Act of 1890 and would not necessarily apply to
proceedings under the Admiralty Jurisdiction Regulation Act 105 of 1983. A
fortiori
it has no application outside the Admiralty field.
With regard to the question as to when the Court should exercise its
power to grant judgment in a foreign currency, the leading English
case of The
Despina R
[1979] 1 All ER 421
(HL) is helpful and instructive. In that case
there were two appeals before the House of Lords, one concerning damages for
tort and
relating to a vessel
78
named "The Despina R" and one concerning damages for breach of
contract and relating to a vessel named "The Folias". It is to the former
appeal that I shall refer. The Despina R had been involved
in a collision with
another vessel off Shanghai and repairs to the Despina R had been carried out in
Shanghai, Yokohama and Los Angeles.
It was held that damages could be recovered
in a currency other than sterling; and on that basis the question was in which
currency
the court's award should be made. Apart from sterling, there were,
firstly, the currencies in which the repair expenses had been
incurred (the
Chinese currency, RMB, Japanese yen and US dollars), termed by the Court "the
expenditure currency"; and, secondly,
the currency in which the loss was
effectively felt or borne by the plaintiff, having regard to the currency in
which it generally
operated or with which he had the closest connection, which
was called "the plaintiffs currency" and in this case was US dollars.
In
considering these alternatives, Lord Wilberforce said (at 427 c-d) -
79
"My Lords, in my opinion, this question can be solved by applying the
normal principles which govern the assessment of damages in
cases of tort (I
shall deal with contract cases in the second appeal). These are the principles
of restitutio in integrum and that
of the reasonable foreseeability of the
damage sustained. It appears to me that a plaintiff, who normally conducts his
business through
a particular currency, and who, when other currencies are
immediately involved, uses his own currency to obtain those currencies,
can
reasonably say that the loss he sustains is to be measured not by the immediate
currencies in which the loss first emerges but
by the amount of his own
currency, which in the normal course of operation, he uses to obtain those
currencies. This is the currency
in which his loss is felt, and is the currency
which it is reasonably foreseeable he will have to spend."
Lord Russell of Killowen expressed his viewpoint thus (at 432
e-f):
"In this case the plaintiffs business was conducted in US dollars, it being
managed in New York. The other foreign currency was necessarily
acquired in
exchange for US dollars. The true loss of
the
80
plaintiffs was a loss of US dollars, and in pursuit of the remedy of
restitutio in integrum, or full and proper compensation, I conclude
that the
claim and judgment should be for the US dollars lost. It may be said that there
is in any given case support in simplicity
for a system by which you take as the
relevant foreign currency the currency of direct disbursement; but that
simpliciry may lead
away from a true and fair assessment of the damage sustained
by the claimant."
The Court decided in favour of the plaintiffs currency, viz U S
dollars.
1 should here digress to explain that in English law the term restiutio
in integrum is sometimes used, in the context of tort, to
express the broad
general principle by which damages for the tortious act are assessed. As Earl
Jowitt stated in the case of British
Transport Commission v Gourley
[1955] UKHL 4
;
[1955] 3 All
ER 796
(HL) at 799 D-E (a claim for damages for personal injuries) -
"The broad general principle which should
govern
81
the assessment of damages in cases such as this is that the tribunal should
award the injured party such a sum of money as will put
him in the same position
as he would have been in if he had not sustained the injuries (see per Lord
Blackburn in Livingstone v Rawyards
Coal Co (1) (1880), 5 App Cas at p 39). The
principle is sometimes referred to as the principle of restitutio in
integrum.
(See also McGregor
on Damages, 15th ed (1988), paras 10 and 11.) The same general principle obtains
in our law of delict, though it
is not usual to refer in this connection to
restitutio in integrum. As Rumpff CJ put it in Dippenaar v Shield Insurance Co
Ltd
1979 (2) SA 904
(A). at 917 B -
"In our law, under the ler aquilia, the defendant must make good the
difference between the value of the plaintiff's estate after
the commission of
the delict and the value it would have had if the delict had not been
committed".
82 (See also De Jager v Grunder
1964 (1) SA 446
(A), at
449 E and
456 G; Erasmus v Davis
1969 (2) SA 1
(A), at 9 A.)
In a subsequent English case, The "Lash
Atlantico",
[1987] 2 Lloyd's Rep 114 (CA), Kerr LJ, having referred to
various
passages in the speeches in The Despina R (supra), including
those
which I have cited, said (at 118):
"Have the plaintiffs established that their loss falls to be measured in
dollars? In my judgment they plainly have, because the passages
which I have
read are redolent of the fundamental consideration that one has to have regard
to the currency in which the relevant
commercial operations were normally
carried out."
(See also Bingham J in Société Francaise Bunge SA v Belcan
NY:
83 The Federal Huron
[1985] 3 All ER 378
(QBD), at 383
c.)
In the Elgin Brown case (supra) Leon J, delivering
the
judgment of the Full Bench of Natal (Broome J and Friedman J
concurring) and having referred to The Despina R, stated (at 674 I
-
J):
"In this case we are dealing with a situation where the main heads of the
actual loss suffered by the plaintiff either in the sense
of money actually
expended or in the sense of money not received was suffered in a foreign
currency. That was the currency in which
the plaintiffs loss 'was felt'. That
being so, the only way in which the plaintiff can be compensated properly for
its loss is to
grant judgment in a foreign currency. When judgment is given in a
foreign currency it is necessarily implicit that it may be satisfied
in South
Africa by payment in the foreign currency or by the payment of its equivalent in
rand when paid."
When one turns to the facts of the present case, it is apparent that
the
84 loss suffered by Stanchart was basically in US dollars, the
currency in
which the bill of exchange was expressed and which was paid or
credited to Cansulex when the bill was discounted. This was the
currency in which its loss was "felt". The type of transaction
which
led to the loss had on previous occasions, it would seem, always
been
done in US dollars and, having regard to Nedbank's state of
knowledge
about this transaction and Stanchart's involvement (as
previously
elaborated), I am of the view that a loss in dollars was
reasonably
foreseeable. In oral argument before us Mr
Browde
. very fairly
(and
in my opinion very correctly) conceded that, if the Court was
empowered to grant judgment in a foreign currency, he could not
advance any argument that in this case the judgment should not be
in
the foreign currency suggested, viz US dollars.
I accordingly conclude that the damages to be awarded
in
this case should be expressed in US dollars. It is implicit in any
order
to this effect that the judgment debt may be satisfied in South
Africa
85 by payment in the foreign currency or by the payment of
its
equivalent in rand when paid. (Cf Elgin Brown case, at 674 J;
and
see also the English cases of Miliangos v George Frank
(Textiles)
Ltd
[1975] 1 All ER 1076
(CA), at 1086 b; The Despina R [1977]
3 All ER 874
(CA), at 902 f. Any other conversion date could
render
meaningless the award in the foreign currency.
In their heads of argument and in oral argument before
us
appellant's counsel asked that in the event of the appeal
succeeding
and the Court holding that the damages be expressed in US dollars,
we
should make a declaratory order to that effect and give a direction
that
in the event of the parties being unable to reach agreement on
the
quantum of capital, they should be entitled to set the matter
down
before the Witwatersrand Local Division for determination
thereof.
A similar declaration was asked for in regard to a claim for the
payment of interest, if successful. This accords with an
agreement
entered into between the parties during the course of the trial in
the
86 Court a quo, and will be acceded to.
The Interest Claim
Generally, under our common law a debtor is not
liable for interest on a monetary debt unless and until he is in mora, i e in
wrongful
default in making payment. In the case of Victoria Falls &
Transvaal Power Co Ltd v Consolidated Langlaagte Mines Ltd
1915 AD 1
, 31-3, it
was held that on a claim for unliquidated damages only ascertainable as to the
amount after "a long and intricate investigation"
the defendant could not be
taken to be in mora, and therefore could not be held liable for interest on the
damages prior to judgment,
since the law did not attribute mora to a debtor who
did not know and could not ascertain the amount which he had to pay. In the
Victoria Falls case Innes CJ nevertheless guarded himself by saying (at
32):
87
"I do not say that under no circumstances whatever could such damages carry
interest. Cases may possibly arise in which though the
claim is unliquidated the
amount payable might have been ascertainable upon an inquiry which it was
reasonable the debtor should
have made. Such cases, should they occur, may be
left open."
An exception to
the general rule that a claim for unliquidated damages does not carry interest
is where the parties have fixed by
agreement the amount of the claim and thereby
rendered it liquidated. Mora then commences when the creditor demands payment of
the
agreed sum or, failing demand, serves summons on the debtor (see West Rand
Estates Ltd v New Zealand Insurance Co Ltd
1926 AD 173
, at 181-3).
The question left open by Innes CJ in the passage from his judgment in
the Victoria Falls case quoted above, namely whether a creditor
can be awarded
interest on unliquidated damages from a date prior to judgment where he could
reasonably have ascertained the
88 amount payable, remains
unanswered as far as this Court is concerned
(see Union Government v Jackson and Others
1956 (2) SA 398
(A),
at 416 B-G; Russell NO and Loveday NO v Collins
Submarine
Pipelines Africa (Ply) Ltd
1975 (1) SA 110
(A), at 155 B-D; Adampol (Pty)
Ltd v Administrator, Transvaal
1989 (3) SA 800
(A), at 816 F-817C). I shall
return to this point later.
In its statement of claim Stanchart claimed, as a separate prayer,
payment of an amount calculated at rates of interest reflected
in an annexure
(B) on the sum of USS2 580 628,46 (alternatively R6 087 234,38) from 14 January
1986 to 12 October 1988; on the sum
of USS2 333 538,68 (alternatively R5 468
628,37) from 13 October 1988 until 30 June 1989; on the sum of USS2 333 538,68
(alternatively
R5 468 628,37) from 1 July 1989 to date of payment. Annexure B is
a schedule reflecting the three month London Interbank Lending
Rates (LIBOR)
prevailing from time to time, as from January 1986 to June 1989. In the
alternative interest was claimed on the sum
89 of US$2 333 538,68
(or alternatively on R5 468 628,37) at the rate
prescribed pursuant to the Prescribed Rate of Interest Act from
the
date of judgment to date of payment. In the particulars of claim
it
was alleged that the LIBOR rates were the rates at which
Stanchart
could have invested or lent the moneys in question. In the course
of
the trial certain agreements were reached in regard to the LIBOR
rates
but it is not necessary to detail these.
In argument before us appellant's counsel made it
clear
that this interest was claimed as an item of special damages,
distinct
from mora interest. It was submitted that the time had come for
the
law to take account of what counsel termed "commercial realities"
and
to eliminate the iniquity of the loss sustained by a claimant
for
damages being deprived of his money prior to final judgment and
payment pursuant thereto. M
r Browde
's riposte, for which
there
seems some justification, was to the effect that by delaying
action
against Nedbank for nearly three years (the combined summons was
90
issued only on about 4 July 1989) Stanchart was part-author of its
loss
of interest.
Be that as it may, I do not think that
there is any basis, in a case such as this, for an award of interest as special
damages. Appellant's
counsel were not able to cite any authority in support of
this claim and I know of none. The allowance of such a claim would, as
I see it,
run counter to the principles of law relating to the award of interest upon
amounts claimed as damages to which I have
alluded above. It cannot be allowed.
If this conclusion be thought to be contrary to commercial realities and
inequitable, then the
only remedy is appropriate legislation. I express no
opinion, however, upon the desirability of such a change in the law.
As something of an afterthought (so it seemed to me) appellant's counsel
argued that interest prior to judgment could be awarded as
mora interest as from
the date of service of the combined summons. I shall assume that such a claim is
covered by the
91
particulars of claim. Assuming also that there
are exceptions to the
rule laid down in the Victoria Falls case
(supra), this claim for interest by Stanchart could only be entertained if at
some stage
prior to the service of the combined summons the main claim became
liquidated so that Nedbank knew exactly what it had to pay by
way of damages in
order to discharge its liability and so could be placed in mora. In my view, the
main claim did not become so liquidated.
Until the full extent of the dividends
payable to Stanchart was ascertained (which was evidently on an unknown date
after the commencement
of the action) the amount of the damages payable could
not be calculated.
In all the circumstances, I am of the view that, even if there are
exceptions to the rule in the Victoria Falls case, this is not
one of them. The
claim for mora interest can, therefore, not be allowed. As to post-judgment
interest, this is governed by sec 2
of
92
the
Prescribed Rate of Interest Act 55 of 1975
.
Order
Accordingly, the following order is
made:-
(1) The appeal is allowed with costs, such costs to include those incurred
in the employment of two
counsel.
(2)
The
order of the Court a quo is set aside and there is
substituted
the following:
"An order -
(a) Declaring that defendant (Nedbank) is liable to plaintiff (Stanchart)
in damages for negligent misstatement, such damages to be
expressed in US
dollars; and that this liability may be satisfied in South Africa in US dollars
or by the payment of its equivalent
in rand at the time of payment;
(b) Directing that in the event of the parties being unable to reach
agreement on the quantum of damages payable in US dollars, they
shall be
entitled to set the matter down
93
before the Witwatersrand Local Division of the Supreme Court for the
determination of such quantum; and
(c) Ordering defendant to pay plaintiff's costs, including the costs
incurred in the employment of two
counsel."
M M CORBETT
VAN HEERDEN JA)
KUMLEBEN JA) CONCUR
J U D G M E N T
VAN HEERDEN JA
2 I agree with the judgment of the Chief Justice and in particular with
his
conclusion that the damages awarded in this case
should be expressed in US
dollars. As pointed out by him, it is
implicit that the judgment debt may be
satisfied by the payment of
the rand equivalent of the US currency at the date
of
payment.
It is true, of course, that in our law damages must be assessed at the
date
of delict. This means that the loss must be
converted into money at that date.
However, although foreign
currency as a rule is not legal tender in this country,
it is nevertheless also money - in contradistinction to a commodity - and
there
does not appear to be a compelling reason militating against
an award of US
dollars where the loss was directly incurred in that currency. On the
contrary,
in such a case it would be somewhat artificial to require a conversion of
the loss
into rands at the date when the loss was suffered. In sum, appellant's
monetary
loss was 2 580 628,46 US dollars (minus, of course, the dividends later
received
by it), and it is therefore entitled to payment of that amount or, at the
election
of the respondent, its rand equivalent.
VAN HEERDEN JA
JUDGMENT
HARMS JA:
2
HARMS JA:
Save in relation to one aspect, I am in full agreement with
the
judgment of the Chief Justice. My disagreement
relates to the question
whether, in this case, it would be correct to order the respondent to pay
to
the plaintiff damages expressed in US dollars, with the rider that
the
liability may be satisfied in South Africa in US dollars or by the
payment
of its equivalent in rand at the time of payment
The plaintiff formulated its claim for damages in the alternative.
The
main claim was made up of the amount for which the
draft was discounted
(US$ 2 580 628,46) less the amounts recovered as a result of the
compromise. They were R 618 606,01 (allegedly received on 12
October
1988) and R 108 647,63 (received on a date unknown, but prior to
trial).
The alternative claim was for the rand equivalent of the US $2 580
628,46
at the date when the draft was discounted, less the compromise
dividends.
3
The effect of the order proposed by the Chief Justice is to uphold the
main claim.
It may, for purposes of this judgment, be assumed that a
South African court is entitled to grant judgment in a foreign currency and
that, to that extent, the decision in Voest Alpine Intertrading Gesellschaft MBH
v Burwill and Co SA (Pty) Ltd
1985 (2) SA 149
(W) was incorrect. A typical
instance where that could occur would be where the defendant bound himself in
contract to such a performance
(Murata Machinery Ltd v (Capelon Yarns) Ltd
1986
(4) SA 671
(C). It is simply an application of the rule that a party must
perform according to his promise (cf Van der Merwe v Viljoen
1953 (1) SA 60
(A)). I am also prepared to accept that, in enforcing a foreign judgment, our
courts are entitled to express an order in foreign
currency to be converted at
the date of payment (Barclays Bank of Swaziland Ltd v Mnyeketi
1992 (3) SA 425
(W)), on the
4
ground that any other order could alter the effect of the foreign
judgment. The only problem with this assumption is that if the provisions
of the
Enforcement of Foreign Civil Judgments Act 32 of 1988 were to apply to the
judgment debt, the judgment must be registered
as if it were a judgment for the
amount in the currency of the Republic, calculated at the rate of exchange
prevailing at the date;
of the foreign judgment (sec 3 (4)). A similar provision
applies in respect of foreign arbitral awards (sec 2 (2) Recognition and
Enforcement of Foreign Arbitral Awards Act 40 of 1977). It can further be that,
depending on the nature of a breach of contract and
the contemplation of the
parties in relation to damages, that damages for the breach may be calculated in
a foreign currency.
The reason for the propriety of these orders is that they are all orders
ad factum praestandum. They are not orders for the payment
of 'money'
5
debts because, as I shall endeavour to indicate, foreign currency is not
for purposes of our law money.
The judgment in Elgin Brown &
Hamer (Pty) Ltd v Dampskibsse-Iskabet Torm
1988 (4) SA 671
(N), however, went
further: it held that if a loss in such a case was 'felt in a foreign currency
the court has a discretion (at
674F) to express its order in that currency and
that it is implicit in this type of order that the judgment 'may be satisfied in
South Africa by payment in the foreign currency or by the payment of its
equivalent in rand when paid' (at 674I-J). I have a number
of difficulties with
the reasoning in that judgment. First, it is unclear what the nature of the loss
was. It was merely stated that
it related to money actually expended or money
not received. The court also relied on a passage from Van Leeuwen Censura
Forenis
in which the author stated that, in the case of a contract of loan for
consumption, the debtor has to return what he has
6
bargained for. In this respect Van Leeuwen stated no more than was stated
in the Murata case (supra); he was not dealing with breach
of contract and his
statement had no bearing on the issue. More specifically, Van Leeuwen did not
indicate it to be a principle of
Roman-Dutch law that in matters involving
foreign exchange the creditor should receive what he had bargained for (per
Stegmann J
in the Barckyas Bank of Swaziland case at 43IE). Even if Van Leeuwen
can be read to have laid down this broad principle, it can only
apply to the
case where the defendant is called upon to perform in terms of 'what he had
bargained for', i e, in a claim for specific
performance. Another matter is the
so-called discretion. I do not know whence this discretion arose, nor under what
circumstances
it should be exercised in favour of or against a party (who,
presumably, has substantive rights).
7
Money as currency is 'that which passes freely from hand to hand
throughout the community in final discharge of debts' Moss v Hancock
[1899] 2 QB
111
at 116). Only South African currency issued by the Reserve Bank has this
attribute
(sec 14
,
15
and
16
of the
South African Reserve Bank Act 90 of 1989
).
Foreign currency has not. A person who wishes to obtain foreign currency must
purchase it from an authorised dealer. The dealer
may only sell it on die; terms
and subject to the conditions imposed by the Reserve Bank. Had it been possible
to trade freely in
this country in and with foreign currency, the position may
well have been different but under present circumstances foreign currency
appears to me to be goods and not money. The statement in Elgin Brown that it is
implicit in an order expressed in foreign currency
that it may be satisfied in
South Africa by payment in that currency is, on the face of it, obviously
correct. Whether that is legally
possible in the light of the
8
Exchange Control Regulations, I have my reservations. The point is,
however, that the order cannot be enforced in that 'implied' form.
The fact that
the order may be satisfied in its equivalent in rand appears to me to point
indubitably to the conclusion that the
order is not for the payment of money. I
also know of no other instance where a defendant can comply with a court order
by performing
in an 'equivalent'.
Turning then to delictual claims, the Zimbabwe Supreme Court recently had
occasion to consider the matter and it propounded a rule
s
imil
ar to that
formulated in the Elgin Brown case supra. (See Makwindi Oil Procurement (Pvt)
Ltd v National Oil Co of Zimbabwe (Pvt) Ltd
1989 (3) SA 191
(ZSC).) It accepted
the invitation to follow what it called the innovative lead taken by the English
courts (in the cases referred
to by Corbett CJ) and it held that '(f)luctuations
in world currencies justify the acceptance of the rule not only that a court
order
may be expressed in units
9
of foreign currency, but also that the amount of the foreign currency is
to be converted into local currency at the date when leave
is given to enforce
the judgment' (at 1971-J). It may be noted in passing that the judgment,
although duly considered on this aspect,
was in the event obiter.
In the absence of binding or convincing local authority, I believe that
the matter should be decided with reference to some of the
basic principles
relating to aquilian liability. Conscious of stating the obvious, the following
needs to be stressed :
(1) The purpose of an aquilian claim is to compensate the victim in money
terms for his loss. Bell J pointed out as long ago as 1863
that when damages are
due by law they are to be awarded in money because money is the measure of all
things (The Wynberg valley Railway
Company v Eksteen
1 Roscoe 70
at 75). (He
qualified the general proposition but his qualification is not in the present
context germane.) This rule still stands
10
Santam Versekeringsmaatskappy Bpk v Byleveldt 1973 (2)SA 146 (A) 150A-C;
Southern Insurance Association Ltd v Bailey NO
1984 (1) SA 98
(A) 111D-F; 7
LAWSA par 1 and 17).
(2)
Damages are
assessed at the date of the delict (Philip Robinson Motors (Pty) Ltd v N M (Pty)
Ltd
1975 (2) SA 420
(A) 428F-G; 429E). It is in respect of claims for specific
performance that a later date may be the date to consider
(ibid).
(3)
There is a clear
distinction between aquilian relief and restitutio in integrum(cf Zimmermann The
Law of Obligation p680). The underlying
principles of the one cannot simply be
engrafted upon the other (as was done in Makwindi Oil supra at
199D).
(4)
The principle of
nominalism underlies the law of delict. It means that a debt sounding in money
has to be paid in terms of its nominal
value irrespective of any fluctuations in
the purchasing power of currency (SA
11
Eagle Insurance Co Ltd v Hartley
[1990] ZASCA 106
;
1990 (4) SA 833
(A) 839G-H; and
compare Voet 12.1.24 and sec 2 of the Currency and Exchanges Act 9
of
1933).
It is convenient to illustrate the application of these principles
with
reference to a few examples: (a) A clerk of a
stockbroker steals share scrip
of a client and disposes of it. The client's claim for damages is
calculated
as at the day of the theft by determining the value of those shares on
that
day. (b) Similarly, if the plaintiff suffered a loss of a specific number
of
Krugerrand, his delictual claim will be for the value of those coins in
rand
as at the day of the wrong. It does not matter whether he felt his loss
in
gold coins, (c) A plaintiff banker deals in the ordinary course of
his
business in foreign currency and keeps substantial amounts of dollars in
his
vault. The defendant, a client, enters the vault in order to visit his
safety
deposit box. He is aware of the nature of the banker's business.
He
12 negligently starts a fire and $lm dollar notes are destroyed.
There can be
no doubt that the defendant will be liable to pay as damages an amount
in
rand, calculated in rand as at the day of the fire.
Returning to the facts of the instant case, I fail to see why,
simply
because the plaintiff is a foreign plaintiff,
these basic principles do not
apply and why he should be treated differently. The argument that to
do
otherwise would mean that the plaintiff may be denied the amount of
his
actual loss (eg Elgin Brown case supra at 674G-H) misses the point - it
is
inherent in the law of delict and the principle of nominalism that a
plaintiff
may, at the end of the day, be out of pocket. In any event, any loss
flowing
from the depreciation of the local currency is not caused by the
wrong
(High and Pickering
1994 SALJ 270
at 282) and it seems to me to
be
unjust to condemn a defendant to the payment of damages which he
had
not caused. The argument advanced by Van Heerden JA in his
judgment
13
concurring with that of that of the Chief Justice, namely that foreign
currency is also money and not a commodity, must, with respect,
also apply to my
example (c). And once it applies to that example, why does it not apply to
example (b)? I therefore agree as a matter
of principle with Nestadt J (in the
Voest case supra at 151B-C) that fluctuations in the value of currency - in casu
since the date
of the delict - have to be ignored.
This conclusion renders it strictly unnecessary to consider the reasoning
of the English courts simply because their conclusion is
in conflict with the
principles of our law. However, if I understand the English rule correctly, the
plaintiff is entitled to payment
in the currency in which he normally conducts
his business and not in the currency in which he sustained his loss. It was on
this
basis that the plaintiff was non-suited in Makwindi Oil supra (at
198E-199G). The appellant is a Canadian bank. No evidence was produced
to show
that it conducts its business normally in US
14
dollars. The fact that its immediate loss was felt in that currency is,
on the Makwindi Oil approach, irrelevant. It seems to me that
on this further
ground the relief sought cannot be granted.
In conclusion, I am also not aware of any compelling reasons why, as a
matter of public policy, our law has to adapt in this regard
in order to conform
with English law. One reason I can surmise is that it will bring our law in line
with international trends. On
the other hand, I do not know to what extent the
rule has been accepted - if at all - in civil law countries. This is a relevant
consideration because the issue relates to the principles underlying the law of
delict and not the law of tort. Another reason may
be that international trade
requires such an adaptation. Against that it may be argued that the rule may
well work within a more
stable currency environment and in a developed economy.
Whether South Africa can afford the luxury of this sophisticated rule, has
not
been shown. It has been
15
indicated that the rule has not found favour with the Legislature and it
appears to me to be unacceptable to have one rule applying
to admiralty cases,
certain foreign judgments and foreign arbitral awards and another to all other
cases. (It is in a sense ironical
that the rule in damages claims was introduced
into the English law in admiralty claims). The rule furthermore introduces an
element
of uncertainty and it enables a plaintiff to detrimentally affect the
position of the defendant by means of delaying the proceedings.
This is
illustrated by the facts of this case: summons was issued on the last possible
day, namely three years after the loss was
suffered. It is already more than
eight years since the dishonour of the bill. Another element of unfairness is
this: strong currencies
have low rates of interest and weaker currencies high
rates. The order proposed will mean that the statutory interest payable on
the
judgment debt (calculated as from
16
the date of Roux J's judgment, namely 19 March 1992) will be the
relatively high South African rate calculated on dollars.
The
plaintiff suffered its loss when the bill was dishonoured i e on 8 July 1986. At
that stage the rand:dollar exchange rate was
2,458. The plaintiffs loss was
accordingly (2,458 x 2 580 (528,46) less (618 606,01 + 108 647,63) or R 5 615
931,09 and in my view
the order of the court a quo should consequently be
substituted with an order for payment of that amount.
LTC HARMS JA
VAN DEN HEEVER JA concurs