Brief Summary

Negligence — Duty of care — Appellant bank's breach of duty in cheque collection — Respondent, the drawer of a cheque for R600,000, claimed damages after the cheque was improperly processed by the appellant as collecting banker. The appellant allowed withdrawals from the cheque's proceeds by a third party, Marilor Properties, without proper endorsement or authorization. The trial court found the appellant liable for breaching its duty of care to the true owner of the cheque. The appellant contested the findings regarding the respondent's ownership of the cheque and the proof of loss. The Supreme Court of Appeal held that the respondent failed to establish its ownership of the cheque at the relevant time, as the evidence did not support an intention to transfer ownership to the named payee, thus overturning the trial court's decision.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an appeal to the Supreme Court of South Africa (Appellate Division) against a judgment of the Witwatersrand Local Division. The court a quo had granted judgment in favour of the plaintiff (now respondent) for damages of R600 000,00, together with interest and costs, arising from the defendant bank’s conduct as collecting banker in relation to a cheque.

The appellant was Absa Bank Limited, sued in delict for alleged breach of a duty of care. The respondent was Natasha Investment Company (Pty) Ltd, the drawer of the cheque and, on its pleaded case, the true owner of the cheque at the relevant time.

In the procedural history, the trial court (Myburgh J) refused leave to appeal with costs. On petition to the Chief Justice, leave to appeal was granted, and the costs of both applications for leave were ordered to be costs in the appeal.

The general subject-matter of the dispute concerned whether Absa, as collecting banker, was delictually liable to the respondent as the alleged true owner of a cheque which Absa collected and credited to its customer, in circumstances where the cheque’s proceeds were withdrawn and the drawer’s account was ultimately debited by the drawee bank.

2. Material Facts

It was common cause that on 22 March 1993 the appellant’s Troyeville/Bertrams branch received for collection a cheque in the amount of R600 000,00, dated 20 March 1993, drawn by the respondent on The Standard Bank of South Africa Limited in favour of Chemsteel Mineral Developments (Pty) Limited. The cheque was delivered for collection on behalf of Marilor Properties and Investments CC, a customer of the appellant maintaining a current account at the branch.

At the time it was received, the cheque did not bear an endorsement. The cheque was generally crossed and did not contain words such as “not negotiable” or “not transferable”. The printed words “or bearer” were crossed out and the word “order” was written in after the payee’s name.

Following deposit, the appellant permitted Marilor to withdraw R120 000,00 on 22 March 1993 and further sums thereafter; by 26 March 1993 the full amount had been withdrawn. The appellant presented the cheque to Standard Bank for payment; Standard Bank paid the proceeds to the appellant, which credited Marilor’s account accordingly. In paying, Standard Bank acted in good faith and without negligence, and debited the respondent’s account, which it was entitled to do.

The respondent led evidence principally through Levisohn, a chartered accountant who administered the South African affairs of Chemsteel. His evidence, in material outline, was that he was approached on 22 March 1993 by Du Toit and White, who showed him the cheque and asked him to deposit it into Chemsteel’s account and then make various disbursements (not for Chemsteel’s benefit, but for expenses directed by Du Toit). Levisohn declined to accept the cheque without instructions from his London principal (Sherry) and the men left with the cheque. Levisohn did not know whether his principal would have authorised the requested handling of the cheque and its proceeds.

The respondent led no evidence explaining the events from the drawing of the cheque (20 March 1993) to its receipt by Absa for collection (22 March 1993). In particular, the respondent did not call Kitallides, the person who drew the cheque on the respondent’s behalf, despite it being common cause that he was present and available to testify. The appellant closed its case without leading evidence.

On appeal, it was accepted that the appellant did not challenge the trial court’s finding that Absa had breached a duty of care owed to the true owner (if the respondent was indeed that true owner). The appeal was confined to whether the respondent proved (i) that it was the true owner of the cheque at the material time and (ii) that it had suffered loss (quantum), although the second issue fell away if the first was not established.

3. Legal Issues

The central legal question the appellate court was required to determine was whether the respondent had discharged the onus of proving that it was the true owner of the cheque at the time when the cheque was dealt with in a manner giving rise to the claimed delictual liability of the collecting banker.

This question was primarily one of the application of law to fact, specifically the inference (if any) that could be drawn about the drawer’s intention regarding the transfer of ownership in the cheque when it was delivered to Du Toit, and whether the proved facts justified the inference that ownership had not passed away from the respondent.

A further issue, raised but rendered unnecessary to decide if ownership was not proved, was whether the respondent proved that it had suffered loss in the amount claimed (R600 000,00) or at all. The appeal ultimately turned on proof and inference concerning ownership, and the proper approach to evidentiary gaps where a party bearing the onus fails to call available witnesses.

4. Court’s Reasoning

The appellate court proceeded from the premise, accepted by the respondent’s counsel, that the onus rested throughout on the respondent to establish that it was the owner of the cheque at the relevant time. In the circumstances, this required proof that when the respondent delivered the cheque to Du Toit, it did not intend to transfer ownership to Du Toit, but intended to retain ownership until delivery to Chemsteel, at which point Chemsteel would become owner.

The trial court had reasoned that the respondent’s intention could be gleaned from the cheque itself, because it was made payable to “Chemsteel or order”, and thus the respondent intended ownership to pass to Chemsteel or order. The appellate court held that if this was treated as a general principle—namely that the drawer’s intention to pass ownership to the payee can be inferred merely from the tenor of the cheque—this would be erroneous. While the instrument’s tenor may create a probability as to intended ownership, that probability may be neutralised or counterbalanced by the facts of a particular case.

On the evidence presented, the court held that the probability suggested by the cheque’s terms was indeed neutralised. Levisohn’s evidence showed that he (Chemsteel’s agent) did not even know of the cheque’s existence until it was shown to him by Du Toit; he had no reason to expect payment from the respondent to Chemsteel; and he did not know the cause of the cheque or why Chemsteel was named as payee. Despite these obvious uncertainties, the respondent led no evidence explaining the underlying transaction, why Chemsteel was nominated, or how Du Toit came to possess the cheque.

The appellate court emphasised the need not to confuse the proceeds of a cheque—which a drawer may or may not wish the payee to receive—with the cheque itself and the ownership of the cheque, expressly referring to authority warning against that conflation. It held that the reasoning of the court a quo rested on unwarranted speculation rather than a justifiable inference from proved facts. In the court’s view, the proved facts “cried out” for evidence from the respondent, including evidence on the causa for issuing the cheque, the purpose of naming Chemsteel as payee, and the circumstances of Du Toit’s possession and authority (if any) to deal with the cheque and its proceeds.

A significant aspect of the court’s reasoning was its treatment of the respondent’s failure to call Kitallides, who drew the cheque and was available. Given that the respondent could readily have supplied answers to the key questions by calling him (and possibly others) but chose not to do so, the court drew the inference that Kitallides’ evidence would have been adverse to the respondent’s case. The court expressly relied on authority dealing with adverse inferences where a party fails to call available witnesses. Conversely, the court held there was no duty on the appellant, which bore no onus, to call Du Toit.

The appellate court also addressed the trial judge’s view that Du Toit’s conduct was suggestive of dishonesty. It considered it improbable, on the proved facts, that Du Toit would have shown Levisohn the cheque drawn in favour of Chemsteel and requested deposit and disbursement if he believed he had no claim to it and was stealing it. The court further rejected the suggestion that if Du Toit truly believed himself owner he would have sought an endorsement in his favour, pointing out that Levisohn had already indicated he lacked authority to receive or deal with the cheque and was at most prepared to hold it pending enquiries. The court held that a proper consideration of the evidence did not establish, on a balance of probabilities, that Du Toit was acting dishonestly.

Having regard to the evidentiary gaps and the absence of proof excluding alternative explanations, the court stated that it was equally reasonable to postulate a private arrangement between the respondent and Du Toit without reference to Chemsteel, and that Chemsteel could have been used as an “account of convenience” with the expectation that its representative could be persuaded to cash the cheque and disburse proceeds as directed. Because there was nothing inconsistent with this probability, and nothing to gainsay it, the inference was not warranted that the respondent remained the owner and intended to pass ownership to Chemsteel by delivery through Du Toit.

On that basis, the court concluded that the respondent failed to discharge the onus of proving that it was the owner of the cheque at the material time. This made it unnecessary to determine the second issue concerning proof of loss and quantum.

5. Outcome and Relief

The appeal was allowed with costs, including the costs of two counsel. The order of the court a quo was set aside and replaced with an order granting absolution from the instance with costs.

In accordance with the earlier order granting leave to appeal on petition, the costs of both applications for leave were to be costs in the appeal.

Cases Cited

First National Bank of South Africa Limited v Quality Tyres (1970) (Pty) Limited 1995 (3) SA 556 (A).

Elgin Fireclays Limited v Webb 1947 (4) SA 744 (A).

Galante v Dickinson 1950 (2) SA 460 (A).

Legislation Cited

No legislation was cited in the judgment.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The respondent, bearing the onus, failed to prove on a balance of probabilities that it was the true owner of the cheque at the time relevant to the collecting banker’s delictual liability. The trial court’s inference of ownership based primarily on the cheque’s tenor was held to involve speculation and was not justified on the proved facts, particularly given the respondent’s failure to call the available witness who drew the cheque and could have explained the underlying transaction and Du Toit’s possession.

As a result, the respondent’s claim could not succeed, and absolution from the instance was the appropriate order. The appellate court therefore allowed the appeal, set aside the judgment for damages, and substituted an order of absolution with costs.

LEGAL PRINCIPLES

A plaintiff alleging delictual liability against a collecting banker, where liability depends on the plaintiff being the true owner of the cheque, bears the onus of proving such ownership at the material time.

The drawer’s intention regarding transfer of ownership in a cheque cannot necessarily be inferred conclusively from the cheque’s tenor merely because the instrument is made payable to a named payee “or order”. The tenor may create a probability, but that probability may be displaced or neutralised by the surrounding facts.

In determining ownership of a cheque, care must be taken not to conflate entitlement to (or intended receipt of) the proceeds with ownership of the instrument itself.

Where a party bearing the onus fails to call an available witness who could elucidate key facts, a court may draw an adverse inference that the witness’s evidence would not have supported that party’s case, particularly where the absence of such evidence leaves the case dependent on speculation rather than inference.

Where the plaintiff fails to discharge the onus on an essential element of the cause of action, the appropriate result may be absolution from the instance, making it unnecessary to decide further issues such as proof of loss or quantum.

Absa Bank Ltd. v Natasha Investment Company (Pty) Ltd (614/94) [1996] ZASCA 59 (29 May 1996)