OK Bazaars 1929 Limited v Standard Bank of South Africa Limited (278/2000) [2002] ZASCA 5 (12 March 2002)

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[2002] ZASCA 5
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OK Bazaars 1929 Limited v Standard Bank of South Africa Limited (278/2000) [2002] ZASCA 5; 2002 (3) SA 688 (SCA) (12 March 2002)

21
THE SUPREME
COURT OF APPEAL
OF SOUTH
AFRICA
Reportable
CASE NO
:
278/2000
In the matter between :
OK
BAZAARS (1929) LIMITED
Appellant
and
THE
STANDARD BANK OF SOUTH AFRICA LIMITED
Respondent
______________________________________________________________________
Before: NIENABER, ZULMAN, CAMERON, NAVSA AND NUGENT
JJA
Heard: 18 FEBRUARY 2002
Delivered:
12
MARCH 2002
Misstatement - whether made
negligently - whether causing loss - new causative act not breaking
chain of causation.
______________________________________________________________________
J U D G M
E N T
______________________________________________________________________
NUGENT JA
NUGENT JA:
[1]
This appeal arises from a misstatement made
by an employee of the appellant that is alleged to have caused
economic loss to the respondent.
The respondent’s claim for
recovery of damages in respect of the loss succeeded in the
Johannesburg High Court (before
A Gautschi AJ
) and the
appellant appeals to this Court with the leave of the court
a quo.
[2]
The respondent (“Standard Bank”) is a
well-known commercial bank. At the time that is relevant to this
appeal its customers
included the appellant (I will refer to it as
Hyperama, which is the name of the relevant division of the
appellant) and a company
known as KTC Resources (Pty) Ltd (“KTC”).
KTC was controlled by a certain Mr Khalid Malik. Malik also
controlled a company
known as Samarkand (Pty) Ltd (“Samarkand”).
[3]
KTC’s account was held at the Sandton
branch of Standard Bank. When KTC opened the account in October 1996
it ceded to Standard
Bank its rights to “all book debts and other
debts, and claims of whatsoever nature, present and future, … as a
continuing covering
security … for all sums of money which (we) may
now or at any time hereafter owe or be indebted in to the Bank …”.
The deed
of cession entitled Standard Bank to collect any debts that
might become due to KTC, obliged KTC to hand to the bank all bills of
exchange that it received in respect of such debts, and recorded that
KTC would act as Standard Bank’s agent in the collection
of moneys
that became due to KTC.
[4]
KTC was an importer of merchandise. The
financing of its international transactions was dealt with at
Standard Bank’s international
business division where Mr Vaughan
McTaggart was employed as an international business consultant.
[5]
Early in September 1997 Malik wrote to
McTaggart requesting the bank to establish what he referred to as a
“back-to-back” letter
of credit for KTC to enable KTC to import a
quantity of swimming pool chemicals from Spain. What he had in mind
was a transaction
that entailed Standard Bank establishing an
irrevocable letter of credit in favour of KTC’s overseas supplier
against the security
of an assurance by KTC’s customer in this
country that Standard Bank would be reimbursed from the purchase
price of the goods.
[6]
Attached to Malik’s letter was a completed
application form for the establishment of the letter of credit, a pro
forma invoice
recording the purchase of the goods by KTC from a Swiss
corporation known as Serenade Holdings Inc (“Serenade”), and an
unsigned
document that was described by Malik as a copy of a
“guarantee format from the Hyperama”. The document, which was
unsigned,
purported to emanate from Hyperama, and recorded that
Hyperama had placed an irrevocable order upon KTC for the supply of
the goods
in question. It also recorded that Hyperama undertook to
pay Standard Bank a specified sum (a portion of the purchase price)
for
the account of KTC sixty days after the goods had been delivered.
(Provision was made for part payments to be made against part
deliveries.)
[7]
In anticipation of the undertaking being
given by Hyperama McTaggart arranged for an irrevocable letter of
credit to be prepared
in accordance with KTC’s instructions. The
effect of the letter of credit was that Standard Bank undertook
irrevocably to pay
Serenade the sum of US$ 210 800 (plus or minus 5%
to allow for a variation of the price as a result of part shipments)
against presentation
to Standard Bank of specified documents. Those
documents included commercial invoices in triplicate for the amount
of the particular
drawing (quoting a specified indent number) and
three sets of clean on board negotiable marine bills of lading to the
order of the
consignor and endorsed in blank. The moneys were to be
paid by Standard Bank to the account of Serenade’s bank (Banque
Francaise
de l’Orient) at Bankers Trust New York 120 days from
sight of the documents. The letter of credit recorded that the goods
would
be shipped in five equal deliveries between certain specified
dates.
[8]
Mr John Overton was at that time the general
manager of the home and wear section of Hyperama’s business (the
section of its business
that dealt in merchandise other than
foodstuff). He had overall responsibility for buying merchandise for
that section of the business
and about thirty buyers reported to him.
[9]
Soon after the letter of credit was prepared
McTaggart received a telefax from Malik enclosing a copy of a letter
that had been signed
by Overton on behalf of Hyperama. That letter
is the foundation for the respondent’s claim and it is useful to
set it out in full.
The letter was addressed to the manager of
Standard Bank and continued as follows:
“
Dear Sir,
IRREVOCABLE
UNDERTAKING TO PAY
We confirm that we have purchased from KTC RESOURCES
(PTY) LIMITED, (“the goods") for the price of R1,881,268.20
excluding
VAT (One Million Eight Hundred and Eighty One Thousand Two
Hundred and Sixty Eight and 20/100 Rands only) as presented by our
contract
numbers JAB 003/3084; JAB 003/3085; JAB 003/3086; JAB
003/3087; JAB003/3088; JAB003/3089 (“the order”), and that KTC
RESOURCES
(PTY) LIMITED’S rights but not its obligations in terms
of the order have been ceded to you.
We understand that you have agreed to finance the
purchase of the goods from the supplier in Spain on the strength of
our undertaking,
which is given as follows:
We
hereby irrevocably undertake that 60 days after the end of the month
of delivery of the goods to Hyperama stores, which goods
are
substantially in compliance with the order, we shall pay you an
amount of R1,702,547.76 (One Million Seven Hundred and Two
Thousand
Five Hundred and Forty Seven and 76/100 Rands only) plus VAT. The
cheque will be made payable in favour of KTC RESOURCES
(PTY) LIMITED
and will be available about one week before due date at OK Shared
Service Centre at Edenvale Hyperama, Brickfield
Road, Germiston.
KTC RESOURCES (PTY) limited are to collect cheques from Edenvale.
2. We acknowledge the fact that you are acting purely as
financiers. We confirm that we will pay the amounts to you as per
condition
1) of this letter and that any claims or disputes which
might arise in respect of the goods will be instituted against KTC
RESOURCES
(PTY) LIMITED.
3. We further confirm that until payment
has been received by you, ownership in the goods will remain vested
in you, although risk
in the goods shall pass to us upon delivery to
our stores.”
(
sic
).
[10]
Who was responsible for the wording of the
letter is not altogether clear. Overton said that it might have been
based upon a draft
submitted to him by Malik and that the wording was
approved, if not drafted, by Hyperama's administration department.
But whoever
it was who chose the wording, there was no suggestion
that anybody but Overton was responsible for the contents.
[11]
The
wording of the letter did not correspond with that of the “guarantee
format” submitted to McTaggart at the outset, but the
only
discrepancy that is relevant for present purposes relates to the
manner in which payment would be made. The initial document
recorded
that payment would be made direct to Standard Bank for the credit of
the account of KTC held at its Sandton branch, whereas
the letter
signed by Overton recorded that Hyperama would effect payment by
furnishing a cheque to KTC drawn in KTC’s favour.
As pointed out
by the appellant, that arrangement left Standard Bank vulnerable to
dishonesty on the part of KTC, but it was nonetheless
acceptable to
McTaggart (who said that he expected KTC to deposit the cheque in its
account with Standard Bank, which is what it
was obliged to do in
terms of the deed of cession) and upon receiving the letter Standard
Bank established the letter of credit.
[12]
Unbeknown
to Overton, and to Standard Bank, the letter was false in one
essential respect: Hyperama had not purchased the goods from
KTC.
That is not to say that Hyperama had not purchased the goods
at
all
, but only that it had purchased them from Samarkand and
not from KTC. It follows that the purchase price would accrue to
Samarkand,
and not to KTC, and there would be no debt to which the
undertaking could apply.
[13]
In
the ordinary course a copy of the letter would have been forwarded by
Overton to the accounts department of Hyperama so that payment
for
the goods could be effected in accordance with its terms. Had he
done so the error might have been discovered, but Overton was
retrenched shortly after he wrote the letter and his copy was still
on his desk when he vacated his office; its fate is unknown.
[14]
Standard
Bank discharged the letter of credit on due date by paying the sum of
US$210,080.35 to Serenade’s bank in five tranches.
(I will return
later in this judgment to certain events that occurred before that
took place). Meanwhile McTaggart received a delivery
schedule from
KTC reflecting that the goods were to be delivered to Hyperama, in
batches, between October 1997 and January 1998.
[15]
By
early July 1998 Standard Bank had received no payments from either
KTC or Hyperama and McTaggart began to make enquiries. It
was then
that he discovered that Hyperama had purchased the goods from
Samarkand and not from KTC, and that Hyperama appeared to
be unaware
of the undertaking that Overton had given. By then part of the
purchase price had already been paid to Samarkand. McTaggart
presented Overton’s letter to Hyperama and requested that the
balance be paid to Standard Bank but Hyperama considered that it
was
obliged to pay Samarkand. Presumably it then did so because no
payments were received by Standard Bank.
[16]
In
the meantime Malik fled the country and KTC was placed in
liquidation. It is not disputed that Standard Bank will recover no
more than R52 272 in respect of its claim against KTC for the
moneys that were paid on its behalf. In the action that is the
subject of this appeal Standard Bank claimed damages from Hyperama
equivalent to the balance that it lost and the court
a quo
granted
judgment in that amount.
[17]
It
is well established that a negligent misstatement causing economic
loss is actionable in our law. In
Bayer South Africa (Pty) Ltd v
Frost
[1991] ZASCA 85
;
1991 (4) SA 559
(A) at 568B-D Corbett CJ set out the
requirements of the action as follows:
“…
a delictual action for damages is
available to a plaintiff who can establish (i) that the defendant, or
someone for whom the defendant
is vicariously liable, made a
misstatement to the plaintiff; (ii) that in making this misstatement
the person concerned acted (a)
negligently and (b) unlawfully; (iii)
that the misstatement caused the plaintiff to sustain loss; and (iv)
that the damages claimed
represent proper compensation for such loss.
(See also
Siman and Co (Pty) Ltd v Barclays National Bank Ltd
1984 (2) SA 888
(A) at 911B-C.) The defendant may, of course, have
some special defence in law, but the abovestated formulation
represents in broad
outline what a plaintiff must prove in order to
establish prima facie a cause of action on the ground of a negligent
misstatement.”
[18]
McTaggart said that Standard Bank relied
upon the undertaking that was given by Hyperama when it established
the letter of credit.
The undertaking, by itself, did not amount to
a misstatement (it was a promise, no doubt genuinely made, rather
than a statement
of fact) but the undertaking was not given in
isolation. It was linked by its context to the misstatement of fact
that preceded
it (that the goods had been purchased from KTC). What
Overton stated, in effect, was that a debt would become due to KTC,
and he
then undertook to pay that debt to Standard Bank. The
undertaking, without the assurance that a debt would become due,
would have
been of no account, and the two went hand in hand: to rely
upon the undertaking was to rely as much upon the preceding
misstatement
of fact.
[19]
In
its heads of argument the appellant submitted, rather ingeniously,
that inasmuch as the debt was to be paid by furnishing a cheque
to
KTC, the letter truthfully recorded that Standard Bank would not be
paid (which is indeed what occurred) and accordingly that
the letter
was not false in its essential respect. That construction of the
letter is somewhat artificial but is also, in my view,
not correct.
Far from stating that Standard Bank would not be paid the letter
expressly recorded that the debt would be paid to
Standard Bank, to
whom the debt had in any event been ceded in terms of the general
cession of debts: the furnishing of a cheque
to KTC was no more than
the means by which that obligation would be discharged. But what is
in any event more important than the
proper construction of the
undertaking is that the whole arrangement was underpinned by the
false statement of fact. If the misstatement
had not been made there
would have been no undertaking and indeed no transactions at all
concerning KTC.
[20]
The
learned judge found that Overton made the misstatement negligently
and that finding was placed in issue before us but in my view
it was
clearly correct. Overton was well aware that Standard Bank intended
financing the acquisition of the goods on the strength
of what was
said in the letter and he was clearly under a duty to take reasonable
care to ensure that what he said was correct.
The most cursory
examination of Hyperama’s records would have revealed the true
state of affairs. Written orders placed by the
buyers in Overton’s
department were recorded in a book that was readily to hand. Perusal
of the book, if not of the orders themselves,
would have shown that
the goods had been purchased from Samarkand and not from KTC. There
was some suggestion by the appellant that
Overton was misinformed by
one of the buyers in Hyperama's employ as to what was recorded in the
book but that is not correct: the
buyer gave him the reference
numbers of the relevant orders but nothing more than that. Neither
Overton, nor anyone on Hyperama's
staff, took any steps to verify the
facts. On his own account Overton merely assumed that what had been
said by Malik was correct.
It was also submitted that Overton was
entitled to rely upon what had been said by Malik but it must have
been abundantly clear
to Overton that Standard Bank required
Hyperama’s independent confirmation of the facts and not merely a
repetition of what Malik
had said for otherwise the letter would not
have been required.
[21]
In
my view the learned judge correctly found that Overton was negligent.
It was not disputed before us that his negligent conduct
was
unlawful, nor was it disputed that Hyperama is vicariously liable for
his conduct.
[22]
The
remaining question is whether the negligent misstatement caused
Standard Bank’s loss. In applying the test for factual causation
as set out by this Court in
International Shipping Co (Pty) Ltd v
Bentley
1990 (1) SA 680
(A) at 700F-G it is of no consequence
whether one notionally eliminates the unlawful conduct altogether, or
whether one substitutes
lawful conduct in its stead, for in either
event the result is the same. The evidence is clear that, but for
the undertaking given
by Overton, the letter of credit would not have
been established, and I have already observed that the evidence in
that regard ought
not to be too narrowly construed. The undertaking
went hand in hand with the preceding misstatement of fact and the
reliance that
was placed upon the undertaking was equally reliance
upon the misstatement. Had the misstatement not been made, in my
view it is
clear that Standard Bank would not have established the
letter of credit, and if it had not established the letter of credit
then
naturally it would not have sustained the loss. Moreover, if
Standard Bank had been told instead that the goods had been purchased
from Samarkand, it obviously would not have established a letter of
credit on behalf of KTC. Whether it would have established a
letter
of credit on behalf of Samarkand is a matter for speculation, but if
it had, there is no reason to conclude that it would
have suffered
the loss (no doubt the ‘back to back’ arrangement would have
related instead to Samarkand’s debt). Factually,
then, the
misstatement caused the loss.
[23]
A
further question, however, is whether that causative link should be
recognized as a matter of law (which is usually described as
a
question of legal causation). The test to be applied in that regard
was described by this Court in
Standard Chartered Bank of Canada v
Nedperm Bank Ltd
[1994] ZASCA 146
;
1994 (4) SA 747
(A) 765A-B as “… 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.”
[24]
The
relevant consideration in the present case is whether certain events
that occurred after the letter of credit was established,
and before
payment was made, properly constituted a new intervening cause that
severed the causative link as a matter of law. But
before turning to
those events, it is helpful to reiterate some of the principles
relating to letters of credit.
[25]
A
bank ('the issuing bank') that establishes a letter of credit at the
request and on the instructions of a customer thereby undertakes
to
pay a sum of money to the beneficiary against the presentation to the
issuing bank of stipulated documents (
Schmitthof’s Export Trade:
The Law and Practice of International Trade
10
th
ed by
D'Arcy, Murray & Cleave [2000] 166-167). The documents that are
to be presented (which invariably include documents of
title to the
goods in question) are stipulated by the customer and the issuing
bank generally has no interest in their nature or
in their terms
(
Commercial Banking Co. of Sydney Ltd v Jalsard Pty. Ltd
[1973] AC 279
(PC) at 286C-D;
Loomcraft Fabrics CC v Nedbank Ltd
and Another
[1995] ZASCA 127
;
1996 (1) SA 812
(A) at 815 G-I.) Its interest is
confined to ensuring that the documents that are presented conform
with its client’s instructions
(as reflected in the letter of
credit) in which event the issuing bank is obliged to pay the
beneficiary. If the presented documents
do not conform with the
terms of the letter of credit the issuing bank is neither obliged nor
entitled to pay the beneficiary without
its customer's consent. The
obligation of the issuing bank was expressed as follows in
Midland
Bank, Ltd v Seymour
[1955] 2 Lloyd’s Rep. 147 at 151:
"There is, of course, no doubt that
the bank has to comply strictly with the instructions that it is
given by its customer.
It is not for the bank to reason why. It is
not for it to say: 'This, that or the other does not seem to us very
much to matter.'
It is not for it to say: 'What is on the bill of
lading is just as good as what is in the letter of credit and means
substantially
the same thing.' All that is well established by
authority. The bank must conform strictly to the instructions which
it receives."
[26]
Nevertheless, an issuing bank that is
presented with non-conforming documents may refer the documents to
its customer, who might
be willing to accept them notwithstanding the
discrepancies. If they are accepted by the customer, and the
beneficiary or his agent
is so advised, then naturally the issuing
bank becomes entitled and obliged to pay the beneficiary.
[27]
I
have pointed out that in the present case the documents that were
required included commercial invoices in triplicate and bills
of
lading. Shortly after the letter of credit was established Malik
instructed Standard Bank to amend it so as to require that the
“notify party” on the bills of lading (the person that is to be
notified when the shipment is due to land, which is usually the
consignee’s clearing agent) was Samarkand. I mention that only
because it was the first indication that Samarkand had some
connection
with the transaction: by itself the instruction was not
significant.
[28]
On
20 October 1997 Serenade’s bank presented documentation to Standard
Bank to support the first two draws on the letter of credit
and
requested confirmation that payment would be made on due date (120
days from sight of the documents). Certain of the documents,
and in
particular the commercial invoices, did not conform with the terms of
the letter of credit. The commercial invoices ought
to have
reflected that KTC was the purchaser, but reflected instead that the
purchaser was Samarkand, and they also omitted to quote
the specified
order number.
[29]
In
accordance with ordinary practice Standard Bank forwarded the
documents to KTC, drawing attention to the discrepancies, and
requested
KTC to advise whether the discrepancies were acceptable.
Malik replied that they were and authorized Standard Bank to make
payment.
Standard Bank in turn advised Serenade’s bank that the
discrepancies had been accepted whereupon it became bound to pay the
relevant
amount on due date. On 27 November 1997 those events were
repeated when similarly non-conforming documents were presented in
support
of the third, fourth and final draws on the letter of credit.
[30]
At
that stage Standard Bank was not yet bound to pay Serenade (it was
bound to pay only against the presentation of conforming documents)
but it became bound to pay once Serenade’s bank was informed that
the discrepancies were accepted. If the person who examined
the
documents had been astute (and if he was aware of the undertaking
that had been given by Hyperama) he might have realised that
something was amiss when he saw Samarkand’s name on the invoice.
The question that he might have asked is how the goods could
have
been sold by KTC to Hyperama if Samarkand, and not KTC, was the
importer? If, on the other hand, he was not particularly suspicious,
he might also have thought that the invoice was merely erroneous, or
that some arrangement had been made between Samarkand and KTC,
and
given the matter no further thought, bearing in mind that an issuing
bank generally has no interest in the documents other than
to ensure
that they conform (or to ensure that the customer accepts the
discrepancies if they do not conform).
[31]
The
appellant submitted that Standard Bank’s loss was not caused by the
establishment of the letter of credit, but was caused rather
by
Malik's acceptance of the discrepancies, for without that, Standard
Bank would not have become obliged to pay. Accordingly, it
was
submitted, the loss was caused by Malik and not by Hyperama.
[32]
Whether
or not a new intervening cause relieves the original actor of
liability for the consequence of his act is one aspect of the
broader
enquiry into legal causation (
Standard Chartered Bank of Canada,
loc cit
). It might, in some cases, have the effect of
"severing the legal
nexus
with the result that the
consequence should not be imputed to the [original] actor”
(Neethling, Potgieter & Visser,
Law of Delict
4
th
ed [2001] 205) notwithstanding that the causative link remains
factually intact.
[33]
I
have already drawn attention to the fact that the test for legal
causation is, in general, a flexible one. When directed specifically
to whether a new intervening cause should be regarded as having
interrupted the chain of causation (at least as a matter of law if
not as a matter of fact) the forseeability of the new act occurring
will clearly play a prominent role (
Joffe & Co Ltd v Hoskins
and Another
1941 AD 431
at 455-6;
Fischbach v Pretoria City
Council
1969 (2) SA 693
(T);
Ebrahim v Minister of Law and
Order and Others
1993 (2) SA 559
(T) at 566B-C; Neethling
et
al
,
supra
, 205; Boberg
The Law of Delict
441). If
the new intervening cause is neither unusual nor unexpected, and it
was reasonably foreseeable that it might occur, the
original actor
can have no reason to complain if it does not relieve him of
liability.
[34]
It
must have been apparent to Overton that Standard Bank required
independent assurances from Hyperama precisely because it wished
to
guard against being defrauded. It was reasonably foreseeable in the
circumstances that if the assurances were incorrect Standard
Bank
might be defrauded, and moreover, that any fraud that was perpetrated
would be brought to its natural conclusion, which is what
occurred
when Malik accepted the discrepancies. In my view the fact that he
would do so could reasonably have been foreseen and
it does not
operate to relieve Hyperama of liability.
[35]
In
argument before us it was also submitted that Standard Bank was at
fault itself for omitting to detect the significance of the
discrepancies and then acting so as to avoid incurring liability. A
corporation has no capacity for either thought or for action:
it
thinks and acts only through the intervention of human agency. The
appellant's submission invites the question who the human
agent might
have been who should have realized the significance of the
inconsistency and thereby averted the occurrence of the loss.
It
would need to have been a person who not only saw the invoice, but
who also knew of the terms of the undertaking, for in the
absence of
one or the other the inconsistency would not have been significant.
Initially the appellant selected McTaggart to shoulder
the blame but
the evidence does not establish that McTaggart saw or even knew of
the discrepancies before they were accepted (he
said that he might
have been aware of them but he could not be sure). Conversely, the
evidence does not establish that his assistant
(who dealt with the
discrepancies) was aware of the undertaking. Whether Standard Bank
was at fault was an issue that might have
been explored if a plea of
contributory negligence had been raised. It was not. In the context
of causation the criticism levelled
against Standard Bank is of no
consequence.
[36]
Even
if one or other of Standard Bank’s employees was in a position to
discover the inconsistency and recognize its significance,
in my view
his failure to do so did not relieve Hyperama of liability. Overton
was well aware that Standard Bank intended to finance
the purchase of
the goods and he must have expected that it would do so in accordance
with ordinary banking practice as it applies
to international trade.
He could reasonably have foreseen that once the letter of credit was
established a financial commitment
would arise in the ordinary course
without any further enquiries being made in relation to the
transactions, and that is what occurred.
The subsequent events were
neither unusual nor unexpected and occurred as a natural consequence
of the letter of credit being established.
In the absence of other
compelling considerations (and in my view there are none) the casual
link (as a matter of law) remained
intact notwithstanding the
omission (if there was one) and the court
a quo
correctly held
that Hyperama was liable.
[37]
The
appeal is dismissed with costs including the costs occasioned by the
employment of two counsel.
__________________
R.W.
NUGENT JA
NIENABER
JA)
ZULMAN JA)
CAMERON
JA) CONCUR
NAVSA JA)