A Supreme Court judgment threatens local banks’ cheque=20 clearing system. Pat Sidley reports
A Supreme Court judgment against Amalgamated Banks of South=20 Africa (Absa) this week could affect the entire clearing=20 system of the country’s banks.
Understandably, Absa is likely to appeal against the=20
The case revolved around the practice of South Africa’s=20 banks of crediting an account immediately after a cheque is=20 deposited — but allowing 10 days for it to clear. If the=20 cheque bounces during that time the bank then reverses the=20
The problem which found its way into the court was whether=20 or not the banks can do this in all circumstances — even=20 if the person with the account does not know the credit is=20 in the form of cheque, and after the bank has said that=20 there is money in the account.
The consumer with the problem was well-known Johannesburg=20 attorney, Izzy Blumberg. The bank was a branch of Volkskas,=20 which is part of Absa.
Blumberg was contacted by a client in Swaziland who wanted=20 to deposit a large sum of money into Blumberg’s trust=20 account (which most attorney’s run for their clients).=20 Blumberg was to invest the money on behalf of his Swazi=20 client and pay various creditors.
His secretary was told by the Volkskas bank when the money=20 had been credited to the trust account and that the amount=20 had arrived as foreign currency. Blumberg had then signed=20 the relevant foreign exchange forms at the bank. He was not=20 told the money had been deposited as a cheque. The=20 transactions were all documented. To both his and the=20 bank’s horror after Blumberg had begun paying out large=20 amounts from the account on behalf of his client — the=20 cheque bounced.
Volkskas then did what most banks do and reversed the=20 credit in Blumberg’s trust account. Blumberg stopped=20 payment on as many of the cheques he had written on behalf=20 of his strange client as he could — but in the case of two=20 cheques which amounted to R85 000 it was too late, the=20 money had moved. Volkskas wanted its R85 000 back, but no=20 funds could be recovered from the Swaziland client.=20 Blumberg believed he was an innocent in the process, but=20 the bank sued him nevertheless.
The question the court would have to answer was whether,=20 quite regardless of the circumstances, the bank could always claim the money back in this way.
This week the Rand Supreme Court told Absa it could not.
The bank argued that it had followed common banking=20 practice in this country. It had, in addition, written to=20 Blumberg last year about his trust account which did not=20 have overdraft facilities, and drew to his attention a=20 clause on its deposit slips which said: “Cheques handed in=20 for collection will be available as cash when paid”. The=20 bank, in its letter, explained to Blumberg that this meant=20 he could not draw against cheques deposited which had not=20 been cleared. If he needed funds urgently — the bank said=20 it took a week or more to clear cheques — he could make an=20 arrangement with the bank for a speeded up clearance.
The judge hearing the case, Edwin Cameron, saw two meanings=20 in that letter.
The first was the inference Absa wanted: it warned the=20 customer that he or she ran the risk of having a cheque=20 dishonoured if it was drawn before the deposit was cleared.
But he saw another quite different significance in the=20 clause on the deposit slip. In effect, if the bank allowed=20 money to be drawn against an uncleared cheque, it was=20 implicitly clearing the amount.
He put it this way: “… the letter sets out not only a=20 legal disability, but a factual impediment to drawing=20 against uncleared effects. The implication is that cheque=20 deposits have been cleared to the extent that drawings may=20 be permitted.”
Blumberg had told the court that he had no knowledge that=20 the credit was made by a cheque and had no way of knowing. =20 Cameron, elaborating further said: “Where … a bank=20 permits a customer to draw on a credit, a customer acting=20 in good faith and without knowledge of the nature of the=20 deposit is surely entitled to infer that the deposit has in=20 fact been cleared. That is what occurred in this case.”
Cameron also believed another issue of principle was=20 involved. “This that a bank which not only credits a=20 customer’s account with a sum, but informs the customer of=20 that credit, and indeed allows the customer to draw against=20 the credit, alters its position in relation to the=20