Brief Summary

Bills of Exchange — Notice of dishonour — Presentation for payment — Appellant presented a cheque for payment which was returned marked "stale" — Respondents contended that proper presentation was not made as the bank did not check for funds before returning the cheque — Appellant argued that notice of dishonour was dispensed with under s 48(2)(c)(iv) of the Bills of Exchange Act — Court held that the factual position regarding the bank's obligation to pay was decisive, and as there were insufficient funds, notice of dishonour was not required.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an appeal to the Supreme Court of Appeal arising from a provisional sentence action based on a cheque. The appellant, Eduardo Fernandes Braz (the plaintiff in the court of first instance), sued the respondents, Refino da Silva Afonso and Manuel Jose Ponte Pereira (the first and second defendants in the court of first instance), as joint drawers of the cheque.

In the court a quo (Roos J), the plaintiff’s claim in provisional sentence was dismissed with costs, including reserved wasted costs of an earlier postponement. The plaintiff appealed that dismissal to the Supreme Court of Appeal.

The general subject-matter of the dispute concerned liability on a cheque under the Bills of Exchange Act 34 of 1964, specifically whether the defendants (as drawers) were discharged because notice of dishonour had not been given after the cheque was returned unpaid, or whether notice was dispensed with under the statutory exceptions.

2. Material Facts

On 3 February 1993, the two respondents, together with two other persons, drew a cheque for R318 155,00 on the Sauer Street branch of the Bank of Lisbon in favour of the appellant or bearer. The respondents were joint drawers. At the relevant time, both respondents held accounts at that same branch.

On 2 June 1994, the plaintiff presented the cheque for payment at the Sauer Street branch by handing it to a teller together with a deposit slip requesting that the proceeds be credited to his account. The bank did not pay the cheque. It was returned to the plaintiff marked “stale”. It was common cause on appeal that no notice of dishonour was thereafter given to the defendants.

The appeal proceeded on the basis that the only issue between the parties was whether notice of dishonour was dispensed with. Embedded in the defendants’ case was an argument that, because the cheque was returned as “stale”, it was allegedly not processed in a way that involved checking or debiting the drawers’ accounts. The court treated this as a contention linked to presentation and dishonour, but the defendants did not develop a standalone case that there had been no proper presentment.

As to whether there were insufficient funds (or no adequate overdraft arrangements) to meet the cheque, the plaintiff had pleaded this as a ground for dispensing with notice of dishonour. The defendants did not, in their answering affidavit, provide a factual denial of that allegation; instead, they asserted that the state of funds was irrelevant because the bank’s refusal was said to be based on the cheque being stale. The Supreme Court of Appeal treated the plaintiff’s allegation of insufficient funds as established for purposes of provisional sentence due to the absence of a dispute on that factual averment, in the context of the procedural rules applicable to such actions.

3. Legal Issues

The central legal question was whether, despite the absence of notice of dishonour, the plaintiff could rely on a statutory dispensation so that the drawers were not discharged. This required determining whether the case fell within section 48(2)(c)(iv) of the Bills of Exchange Act 34 of 1964, namely whether (as between the drawee bank and the drawers) the bank was not bound to pay the cheque.

The dispute primarily concerned the application of law to fact, and in particular the correct construction and application of section 48(2)(c)(iv). A key interpretive question was whether the dispensation depended on an objective factual position (whether the bank was bound to pay), or whether it additionally depended on the bank’s reason for dishonouring the cheque (here, staleness), as the defendants argued.

A further procedural issue arose concerning provisional sentence pleading and proof: whether the plaintiff’s allegation of insufficient funds was the type of “simple condition or event” that could properly be averred in a provisional sentence summons and treated as established if not disputed on affidavit.

A discrete issue concerned the appropriate order as to the reserved wasted costs of a postponement that occurred because the court file contained no papers, a situation attributed to misfiling in the Registrar’s office.

4. Court’s Reasoning

The court began from the common cause premise that the cheque was dishonoured by non-payment and that no notice of dishonour had been given. Under section 46 of the Bills of Exchange Act 34 of 1964, the general position is that if notice of dishonour is not given to the drawer after dishonour by non-payment, the drawer is discharged. The plaintiff therefore bore the burden of establishing that notice was dispensed with. The court confirmed that the onus rested on the plaintiff to prove the dispensation.

The plaintiff relied on section 48(2)(c)(iv), which dispenses with notice of dishonour as regards the drawer where the drawee “is not bound, as between himself and the drawer, to accept or pay the bill”. Two grounds had been pleaded for why the bank was not bound: first, an alleged express or tacit agreement not to pay stale cheques; and second, insufficient funds or inadequate overdraft arrangements. The court addressed the second ground first and treated it as decisive.

A central aspect of the defendants’ case was that the bank refused payment because the cheque was “stale” and returned it without checking the drawers’ accounts; on this basis, they argued that the actual state of funds could not assist the plaintiff because it played no role in the dishonour decision. The court characterised this as an attempt to read into section 48(2)(c)(iv) an additional requirement that the reason for the dishonour must be lack of funds (or lack of arrangements), rather than the statutory question of whether the drawee was bound to pay.

The court rejected that approach, holding that section 48(2)(c)(iv) posed an objective inquiry: whether, on the actual facts, the bank was bound to the drawers to pay the cheque. The court stressed that the subsection’s wording directs attention to the legal relationship between drawee and drawer and whether the drawee is bound to pay, not to the bank’s subjective reasoning or internal processes at the time of presentment. In support of this construction, the court adopted the reasoning in Anglo-African Factors (Pty) Ltd v Cuppusamy and Another 1974 (3) SA 399 (D), which treated the objective factual position as “the very crux” of the dispensation, and held that the question is answered by the actual facts rather than the bank’s subjective opinion.

Before applying this objective standard, the court dealt with the defendants’ alternative argument that the plaintiff had failed to establish insufficient funds. The court held that the allegation of insufficient funds (or absence/inadequacy of overdraft arrangements), raised as part of the basis for dispensing with notice, fell within the category of a “simple condition or event” appropriate for provisional sentence pleading and capable of being resolved on affidavit. Because the defendants had not factually disputed this allegation in their answering affidavit, the court treated the fact of insufficient funds as established in accordance with provisional sentence principles.

Having held that the fact of insufficient funds was established, the court concluded that, objectively, the bank was not bound to pay the cheque as between bank and drawers. That sufficed to bring the case within section 48(2)(c)(iv), meaning the plaintiff was excused from giving notice of dishonour. The court held that the plaintiff was not required to concern himself with internal banking processes or the state of mind of bank officials; the statutory dispensation turned on the objective position.

The court also considered reliance placed (in argument) on Burton v Roth 1915 TPD 76. It distinguished the context and reasoning in that case, explaining that it did not support the defendants’ proposition that the statutory dispensation depends on the bank expressly refusing payment for lack of funds. Rather, read in context, the earlier case supported the view that an excuse for not giving notice rests on the fact that the banker has no funds of the drawer, not merely on what the banker says.

Because the insufficient funds ground was decisive, the court held it unnecessary to decide whether there was a tacit agreement between the bank and its customers not to pay stale cheques.

On the reserved wasted costs arising from the postponement before Mynhardt J (due to the absence of papers in the court file), the plaintiff’s attorney explained that papers had been returned to the Registrar timeously but were misfiled. The defendants contended the plaintiff’s attorney should have ensured the file was complete and the matter ripe for hearing. The court, considering the misfiling as negligence on the part of the Registrar’s staff and the practical realities of busy motion court practice, regarded it as fair that neither party should bear the wasted costs caused by the Registrar’s mishandling. It therefore made no order as to those wasted costs.

5. Outcome and Relief

The Supreme Court of Appeal upheld the appeal with costs.

It substituted the order of the court a quo with an order granting provisional sentence against the defendants jointly and severally for R318 155,00, together with interest at 15.5% per annum from 2 June 1994, and costs.

In relation to the earlier postponement, the court ordered that no order be made as to the wasted costs of 3 April 1996.

Cases Cited

Factory Investments (Pty) Ltd v Record Industries Ltd 1957 (2) SA 306 (T).

Rich and Others v Lagerwey 1974 (4) SA 748 (A).

Allied Holdings Ltd v Myerson 1948 (2) SA 961 (W).

Anglo-African Factors (Pty) Ltd v Cuppusamy and Another 1974 (3) SA 399 (D).

Burton v Roth 1915 TPD 76.

Carew v Duckworth [1869] 4 Exchequer 313.

Legislation Cited

Bills of Exchange Act 34 of 1964, sections 46, 48(2)(c)(iv), and 72.

Rules of Court Cited

No rules of court were cited by name in the judgment.

Held

The court held that the plaintiff established, for purposes of provisional sentence, the objective fact that there were insufficient funds (or inadequate arrangements) to meet the cheque, and that this meant the drawee bank was not bound to pay the cheque as between itself and the drawers. Consequently, the plaintiff fell within the dispensation in section 48(2)(c)(iv) of the Bills of Exchange Act 34 of 1964 and was excused from giving notice of dishonour. The absence of notice therefore did not discharge the drawers, and the plaintiff was entitled to provisional sentence.

The court further held that fairness required no order as to the wasted costs caused by misfiling in the Registrar’s office.

LEGAL PRINCIPLES

Section 48(2)(c)(iv) of the Bills of Exchange Act 34 of 1964 entails an objective inquiry: whether the drawee is bound, as between drawee and drawer, to pay the cheque. The applicability of the dispensation does not depend on the drawee’s subjective reasoning at the time of dishonour or on the internal steps the drawee took (or did not take) in processing the cheque.

In provisional sentence proceedings, an allegation integral to dispensing with notice of dishonour—such as that there were insufficient funds or inadequate arrangements to meet payment—may constitute a “simple condition or event” and, if not factually disputed on affidavit, may be treated as established for purposes of deciding whether provisional sentence should be granted.

Where the objective facts show the drawee was not bound to pay (including because there were insufficient funds), notice of dishonour is dispensed with under the Act, with the consequence that the drawer is not discharged by the holder’s failure to give such notice.

Braz v Afonso and Another (495/96) [1997] ZASCA 81; 1998 (1) SA 573 (SCA); [1997] 4 All SA 428 (A); (26 September 1997)