THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 1334/2019
In the matter between:

FIRSTRAND BANK LIMITED

APPELLANT

AND

THE SPAR GROUP LIMITED

RESPONDENT

Neutral citation: FirstRand Bank Limited v The Spar Group Limited (1334/2019)
[2021] ZASCA 20 (18 March 2021)
Coram:
CACHALIA,
DAMBUZA
and
MAKGOKA
JJA
and
SUTHERLAND and UNTERHALTER AJJA
Heard:

9 November 2020
Delivered: This judgment was handed down electronically by circulation to the
parties’ representatives by email, and by publication on the Supreme Court of
Appeal website and release to SAFLII. The time and date for hand down is deemed
to be 10h00 on the 18th day of March 2021.

Summary: A bank which is aware that funds deposited by a third party into its
client’s bank account to which the client has no legitimate claim may not appropriate
such funds on the premise that the client has a claim to the funds and use them by
way of set off to discharge the client’s debt to the bank – A bank which is aware that
a third party has deposited funds into its client’s bank account and is aware that the
client has no legitimate claim to the funds is under a duty to take steps to prevent
harm to the third party by way of the misappropriation of those funds by its client –
the bank’s failure to prevent harm to the third party renders it a co-wrongdoer with
the client for the theft.

ORDER

On appeal from: Gauteng Division of the High Court, Pretoria (Baqwa J, Madiba J
concurring and Thlapi J dissenting sitting as court of appeal):

The appeal is dismissed with costs including the costs of two counsel.

JUDGMENT

Sutherland and Unterhalter AJJA (Cachalia, Dambuza and Makgoka JJA
concurring)

Introduction
[1] This case is about banks, their customers, and third parties who have put
money into the customers’ accounts. It considers two interrelated questions. First,
can a bank set off the customer’s debts to the bank against amounts standing to the
credit of a customer, if the bank knows that a third party has a claim to these funds?
If not, what claim does the third party have against the bank? Second, does the bank
owe a legal duty to the third party if the bank allows the customer to utilise the
money deposited by the third party into the customer’s account, if the bank knows
the customer has no valid claim to those funds?

[2] The respondent, Spar Group Ltd (Spar), conducts business as a franchisor of
the Spar brand of retail grocers and the Tops brand of liquor vendors. Spar fell into
a dispute with one of its franchisees, Umtshingo Trading 30 (Pty) Ltd (Umtshingo),

whose controlling mind was Mr Arnaldo Paolo (Mr Paolo). The Umtshingo
business, in terms of the franchise agreement, operated three outlets. For each outlet,
Umtshingo kept a bank account with the appellant, Firstrand Bank Ltd, which trades
as First National Bank (FNB or the Bank), at its Nelspruit branch. One outlet, a
grocer, styled Bella Donna Kwik Spar, was owned by a close corporation,
Central Route Trading 30 CC (Central Route), the sole member of which was
Mr Paolo. Despite this distinct corporate identity, the franchise agreement regulated
all three outlets as a single business conducted by Umtshingo, and Central route 30
CC was, de facto, a division of the whole business – Umtshingo. Its account, in the
name of Central Route, was referenced as 323. The other two outlets were liquor
stores, Bela Donna Tops, whose account was referenced as 656, and Sonpark Tops,
whose account was referenced as 309. These latter two accounts were held in the
name of Umtshingo.

[3] Spar held a notarial bond over the assets of Umtshingo. Umtshingo defaulted
on its obligations under the franchise agreement. In consequence, Spar obtained a
provisional order from the local magistrates’ court perfecting its security. The terms
of the notarial bond permitted Spar to take over the Umtshingo businesses and run
them for its own account. Armed with the provisional order, Spar confronted
Mr Paulo with the stark option of closing the shops or allowing Spar to trade for its
own account in terms of a ‘short term business lease’, during the interim period, until
a final order to perfect the bond was granted. Mr Paolo was keen to avoid closure,
supposedly to escape a loss of business reputation, and acquiesced, save in one
important respect, to the terms of a draft agreement which regulated this
arrangement. The single reservation was that Mr Paolo refused to de-link the
speedpoint credit card devices of the stores from the bank accounts of Umtshingo. It
is this resistance that is the fons et origo of the controversy in this case.

[4] Spar ran the outlets on the terms of the unsigned draft agreement and in the
course thereof, credited the stock on hand to Umtshingo and brought in new stock.
Cash receipts were deposited into a Spar account. However, the speedpoint credit
card devices in use, which facilitated electronic deposits of revenue directly into
Umtshingo’s designated accounts, remained in use. Spar continued to allow revenue
earned from its trading to be deposited into these three accounts, albeit reluctantly,
whilst taking several steps to try to get Mr Paolo to consent to a change or to get
FNB to redirect the revenue to a Spar account. Spar’s failure to achieve either of
these objectives resulted in substantial sums flowing into Umtshingo’s accounts.

[5] Mr Paolo therefore retained control over the accounts and, during the period
of Spar’s trading, effected substantial disbursements out of two of these accounts,
namely account 656 and account 309. Moreover, the debit balances (in respect of
Umtshingo’s overdraft liability, its debts to FNB in respect of a loan and a guarantee
paid by FNB to Spar) in two of the accounts, ie account 323 and account 309, were
purportedly extinguished by FNB applying set off against the credits in these
accounts that derived from the revenue generated by Spar and deposited into the
accounts.

[6] The upshot was that Spar contended that FNB ought not to have allowed
disbursements to be made at Mr Paolo’s behest because Umtshingo had no rightful
interest or claim to the funds, and that FNB, furthermore, was not entitled to set off
Umtshingo’s debts in respect of which Spar had a quasi-vindicatory claim.

[7] The four claims made by Spar were as follows:
(a) Claim 1: R1,343,422.92 used by FNB to discharge the overdraft in account 323.
(b) Claim 2: R2,039,948.68 disbursed by Paulo from account 655.

(c) Claim 3: R1,358,890.90 disbursed by Paulo from account 309.
(d) Claim 4: R898,744.92 used by FNB to discharge the debts due to it by
Umtshingo. FNB alleged that this claim had prescribed by the time that it was added
to the other claims, by way of an amendment made by Spar to the pleadings on
6 March 2013.

[8] FNB’s defence was that it had lawfully appropriated the sums claimed because
these were amounts due and payable to FNB. It was common cause that Umtshingo
was indebted to FNB in the amounts alleged by FNB and that FNB did not obtain
the permission of Spar to effect the set off of Umtshingo’s indebtedness to the Bank.
The quantum of Spar’s claims was not in dispute.

[9] The issues that therefore arose for decision were these:
(a) Was FNB entitled to set-off the credits that derived from the funds deposited
into the accounts by Spar against Umtshingo’s debts owing to FNB?
(b) Was FNB liable in delict to Spar for the losses it suffered when Mr Paulo caused
sums to be withdrawn from these accounts, which funds derived from deposits into
the accounts by Spar, and to which neither Mr Paulo, nor Umtshingo, had any
rightful interest or claim?
(c) Had Claim 4 prescribed?

[10] Spar sued FNB in the Gauteng Division of the High Court. At the conclusion
of the trial, claim 4 was dismissed because it was held to have prescribed, and the
other three claims were dismissed on the basis that FNB had not done anything to
incur liability to Spar. On appeal to the full court of the Gauteng Division, these
results were reversed by a majority decision. Spar was held to have proven its case
in respect of all four claims. The dissenting judgment endorsed the trial court’s

holding, but did not deal with the prescription issue. It is the majority judgment of
the full court that is on appeal to this Court.

[11] To make sense of the evidence that gave rise to the issues, it is necessary first
to examine the course of events in some detail. The only witnesses to testify at trial
were three Spar employees. Much of what occurred was contemporaneously
captured in prolific correspondence, among the several actors and their attorneys.
The evidence adduced, some six years after the events, was often little more than a
running commentary on the correspondence and a spirited but valueless exchange
with counsel about the what-ifs of those events.

The narrative of material events
[12] The appropriate place to begin is on 1 February 2010. Umtshingo was in
financial trouble. On that date it reached agreement with FNB to reorganise its credit
facilities to alleviate the distress. Umtshingo was granted a loan of R2.1m.
Central Route was granted an overdraft of R200,000. These arrangements were
concluded between FNB and Umtshingo. Spar was neither privy thereto, nor
informed of these facts. In addition, FNB, on Umtshingo’s behalf, had provided Spar
with a performance guarantee of R400,000, an additional burden on the business, if
it were to be called up.

[13] Spar held a general notarial bond over the assets of Umtshingo. Spar, in
response to a default by Umtshingo, which was in arrears in the sum of
R2,539,408.14, on 5 March 2010, obtained a provisional order, perfecting its
security. On 8 March 2010, Spar took physical control of the business. The return

day was 1 April, 26 days hence. This date, as it turned out, was extended and then
again extended.

[14] Spar, as a consequence of assuming beneficial control over the trading
activities of Umtshingo, registered the Umtshingo businesses for VAT and became
liable as a vendor. Mr Paolo was asked to authorise a delinking of the speedpoint
credit card devices from Umtshingo’s accounts so that the revenue would flow to a
Spar account. Mr Paolo refused to do so because he intended to challenge the
provisional order, although the terms of the ‘short term business lease’ held out no
ultimate harm to his interests, as it provided for the net profit made by Spar to be
credited against Umtshingo’s indebtedness to Spar, regardless of the final outcome
of the application to perfect the notarial bonds. FNB also refused to change the bank
account linked to the speedpoint devices, unless Mr Paulo agreed thereto, or a court
order was presented to it. Of course, until the provisional order perfecting the bond
had been made final, there was no relevant order to present to FNB. What, then, was
to regulate affairs in the interim?

[15] Axiomatically, Spar risked the revenue of its own trading being diverted. This
was obvious because Mr Paulo alone could exercise control over the Umtshingo
accounts. This was appreciated by Spar’s management. Rob McLagan, the
Branch Manager of FNB, Nelspruit, got wind of the takeover before any formal
communication from Spar. On 9 March, he emailed Lorraine Hopley, Spar’s
Lowveld Divisional Credit Manager to ask what was afoot. Ms Hopley replied to
Mr McLagan that Spar had ‘perfected [its] notarial bond on an urgent basis’. Further,
she stated that the three outlets were henceforth to be run by Spar for its own account.
She reminded Mr McLagan of the R400,000 guarantee that would be called up as
soon as the final order was to hand. She expected the order to be obtained in ‘early

April’. Also, she expressed scepticism that Mr Paolo was ‘likely to survive’,
financially, alluding to the prospect of the liquidation of Umtshingo.

[16] Mr McLagan was alarmed. FNB was then exposed in respect of account 323
in the amount of R1,343,422.92 and in respect of account 309 in an amount of
R292,140.84.1 Mr McLagan thereupon asked why the notarial bond was invoked
because, as regards FNB, Umtshingo was not delinquent. Hours later, Ms Liezel
van der Walt, Spar’s accountant,2 emailed FNB to ask for a change to the bank
details and requested that she be informed of the bank’s procedure so as to achieve
this result. She alluded to two earlier instances, Longtom Spar and Silinda Spar,
where, similarly, the businesses had been taken over by Spar, during an interim
period until a final order was granted, and, as her email implied, FNB had changed
bank accounts in those instances. The implication was conveyed that there was an
expectation by Spar that such a change would be straightforward. It is not clear
whether the two examples alluded to were businesses that banked at the Nelspruit
branch of FNB of which, therefore, that branch would have had knowledge or
whether they were examples of which it was taken for granted that the Nelspruit
branch would have had knowledge because of the ostensibly informal relationship
between Spar and FNB. Spar was itself a client account-holder of FNB at its Durban
branch, a relationship which Spar thought was pertinent to its dealings in matters
such as this.

[17] Mr McLagan alerted his senior staff to the Spar takeover. He had also spoken
to Mr Paolo who had questioned the legitimacy and the legality of the court order

1 The scale of the exposure compared to what was arranged on 1 February 2010 is unexplained.
2 Ms Van der Walt was Mrs Streicher by the time she testified. Her name by which she was known at the time of the
events is retained.

obtained from the magistrate.3 Significant for the controversy, Mr McLagan noted
his concern that ‘. . . we sit with an account where there is no income to service our
facility’. Ms Grobler, the FNB Risk Manager, warned that because the client could
no longer trade, ‘. . . we cannot allow any debits against the accounts’. Ms Grobler
made two further remarks. First, she stated that she was irked by Spar acting against
a franchisee without telling FNB, which was not in line with ‘a franchise
arrangement’ between FNB and Spar. Plainly, she understood that a risk to FNB by
a potential default of a client because of action taken by Spar was an event of which
she expected prior notification. This suggests that Spar routinely knew with whom
its franchisees banked and exchanged information about them. Second, she
announced that she would take up this dissatisfaction with Spar’s Franchise
Specialist, Ms Ash Sodha. Ms Grobler reported the next day to Mr McLagan:
‘I spoke to Ash . . . regarding our dissatisfaction surrounding the way Spar deals with distressed
franchisees where FNB is also involved as a credit provider. . . The bank (who has marked
unsecured facilities for the specific franchisee based on the Spar model) is then left with an
unsecured exposure and no business to service the [debt?]’4
Plainly, the principal concern of the several FNB officials was the bank’s risk.

[18] Meanwhile, Ms Hopley was in earnest pursuit of Mr Paolo’s consent to delink
the speedpoint credit card devices. On 11 March 2010, she emailed Mr Paolo’s
attorney, having previously sent a draft lease agreement for signature. She had also
been present on 8 March when the seizure of the business was effected. At that time,
she had spoken to Mr Paolo and his attorney about the ‘short term business lease’.
The draft agreement contained a consent to change the bank account. She warned
Mr Paolo that a delay could result in the closure of the stores. In similar vein, on

3 In due course Mr Paulo’s skepticism about the perfection order was proven correct because it was dismissed on the
grounds that the court that ordered it had no jurisdiction to do so.
4 The last word of the sentence is obscured in the document in the record.

19 March 2010. Ms van der Walt emailed FNB with reference to an earlier oral
request made on 12 March, reiterating the requirement to change the account. She
also furnished the new proposed account details.

[19] It is notable that in this email from Ms van der Walt the three outlets were
expressly mentioned and her request to change the details of the bank account was
couched as if a single bank account was in issue. It is common cause that at this time
Spar was unaware that there were three distinct bank accounts; that FNB had not
divulged their existence; and that Spar was under the incorrect impression that all
revenue was being channelled into the 323 account. FNB’s failure to alert Spar is a
central aspect of the dispute.

[20] Four days later, on 23 March 2010, Ms van der Walt was still chasing after a
change of the bank accounts. She undertook to provide a copy of the
provisional order which she hoped would be ‘sufficient proof’ to have the
bank account details changed. She supplied the provisional court order. Soon
afterwards, she reported to Ms Hopley that FNB had insisted on a final order and
that a request to change the details would only be considered thereafter. Ms Hopley
then emailed Mr McLagan. She stated that the predicament was plain: if the account
was not changed, the revenue would have to be refunded to Spar. She then asked:
‘Please can you at least give me the assurance that [Paolo] does not have access to this money in
the interim as he will have to pay us back irrespective of what happens on 1 April. If necessary,
could you put a hold on this money in the account until the matter is resolved.’

[21] Mr McLagan answered:
‘The belladonna account has been frozen and only pre-funded cheques are being paid. Pre-funded
means a deposit out of the client’s own external funds. . . .’ (Emphasis added.)

[22] What was meant by client’s ‘own external funds’ was not further elaborated
upon. However, it may be reliably surmised that such a remark could not have been
understood to include the revenue generated by Spar. The theme of a ‘frozen’
account came up again in relation to some cash takings that were deposited,
mistakenly, into the 323 account. On 31 March, Ms Hopley raised this error with
McLagan and asked that the sum be transferred to Spar’s account, alternatively, to
‘freeze’ the sum pending the final court order. Mr McLagan refused. On 31 March
he emailed Ms Hopley to advise that this could not be done without Paulo’s consent.
He added:
‘I do reiterate that the account is frozen and no day-to-day payments are permitted without prior
approval or against confirmation of a specific deposit from Paulo to cover the payment.’
(Emphasis added.)
These assurances by Mr McLagan were significant communications and are
pertinent to understanding Spar’s conduct in tolerating the revenue flows into
Umtsthingo’s accounts.

[23] At about this time, the exact time being uncertain, Spar put up a sign in the
outlets saying that credit card payments would not be accepted. Mr Paolo objected
and insisted the ban be lifted, supposedly to preserve his business reputation. Spar
acquiesced. Nevertheless, the saga of Mr Paulo’s refusal to change bank accounts
persisted, with his attorney as spokesman. On 7 April, the attorney, in an email to
Spar’s attorney, claimed that Mr Paolo’s continued refusal was based on FNB’s
insistence. This finger-pointing between Mr Paolo and FNB continued.

[24] On 24 May 2010, Spar called in the R400,000 guarantee from FNB. This
triggered an email from Mr McLagan to Mr Paolo, bemoaning the delays in
finalising the perfection order. Significantly, he stated:

‘The fact that Spar Group has taken over the daily management of the franchisee and the business
is for all intents and purposes no longer under your control, the bank is currently extending
facilities to an entity with no trading capability. This position in itself holds risk for the bank due
to the absence of a business case to support the lending.’ (Emphasis added.)
Mr McLagan thereupon noted an exposure of R575,334.13 on the Central Route
account 323. He demanded a reduction of R100,000 per month. In respect of the
Umtshingo accounts, he demanded rectification of the default on the loan in a sum
of R21,802.23 by 31 May. It is significant that at this date, two and a half months
after Spar had taken over the outlets, the exposure of FNB on account 323 had
reduced from R1,343,422.92, on 10 March, to R575,334.13. The only, and obvious,
source of funds to reduce this exposure was the earnings of Spar.

[25] Not unsurprisingly, Spar was interested from the outset to know the state of
‘the account’. Mr McLagan refused to disclose any details. On 27 May 2010, he
emailed Ms van der Walt and said this:
‘The speedpoint monies are banking into the account which is currently blocked. Unfortunately I
am unable to give you details on the amount or balances in the account in terms of client
confidentiality until a final order is granted and we are instructed to do so in terms of the law.’
(Emphasis added)
Significantly, Mr McLagan alluded to ‘the account’, singular, thereby concealing
the existence of two other accounts into which Spar-generated revenue was steadily
flowing, and leaving Spar under the impression only one account existed.

[26] On 2 June 2010, a communication from FNB’s Manager, Customer Service,
Speedpoint, in the Corporate and Commercial Banking office in Pretoria, to
Mr McLagan, advised him of Spar’s request to change the bank accounts.
Mr McLagan queried the legitimacy of this request. Mr McLagan then emailed the
Risk Manager, Ms Grobler, to question whether Spar could just introduce new

speedpoint accounts ‘. . . while the business is still technically that of Mr Paolo?’ He
opined that despite Spar running the store, Mr Paolo should consent or an ‘order of
court should be perfected’. This view was then backed up by Ms Grobler, acting on
the advice of ‘Corrie’, that no amendments should be made without Paolo’s consent
or pursuant to a court order.

[27] Shortly thereafter, on15 June 2010, Ms Hopley sought clarity that the account
had been frozen from 8 March and not 24 March. Mr McLagan evaded a direct
answer. He stated that he had no formal notification on 8 March. He omitted
reference to the email of 10 March notifying him of Spar’s takeover. On 17 June,
Ms Hopley reminded Mr McLagan of the 10 March communication. Mr McLagan
again evaded an answer. He regurgitated his stock reply about being unable to do
anything until a final order was presented. He added that on 10 April, a month after
his first knowledge of the takeover, all limits on the account, ie, making payments
from the account dependent upon external sources, had been lifted. Moreover, he
added:
‘We have no control over credit balances which the client is able to transfer.’

[28] The very next day 18 June 2010, Spar’s attorney ceased to beg Mr Paolo to
consent to an account change, more than three months after first asking. An urgent
application was threatened. Mr Paolo’s attorney again obfuscated and blamed the
bank for the refusal and alleged FNB required nothing less than the final order. An
urgent application to freeze the account was then launched. A provisional order was
granted on 24 June 2010 and confirmed on 27 July 2010.

[29] Mr Paulo’s attorney, on 25 June 2010, was quick to point out to FNB that the
order to freeze mentioned only the 323 account. Thus, the other two accounts were

not to be frozen. On 28 June 2010, Mr McLagan sought advice whether he should
unblock the other two accounts. Ms Grobler then told him to lift the block on these
accounts:
‘ . . . although we suspect that Spar intended for all the proceeds of the Spar and the 2 Tops outlets
to be frozen, the order specifically mentions that a hold is to be placed on funds flowing into that
one account.’
To FNB’s knowledge therefore Spar remained ignorant that there were three
accounts, and despite the acknowledgement by Ms Grobler of Spar’s
misapprehension, a deliberate decision was taken that no disclosure be made to Spar.

[30] Ultimately, the provisional order perfecting the bond was not confirmed.

[31] On 25 October 2010, about eight months after the takeover of the business, a
demand was made by Spar to FNB to pay the moneys that Spar had earned whilst
trading. The letter of demand conveyed that even then Spar was under the mistaken
impression that all the revenue from all three outlets was being channelled into one
account. Mr Paulo also claimed the credit balance in this account.

[32] After further ruminations, FNB accepted it was in the position of a stakeholder
and thereupon itself on 24 February 2011, three months after the demand had been
made, initiated an application to obtain an order of court to pay the sum in account
323 to Spar. In the argument advanced on appeal, on behalf of FNB, it was submitted
that because the account in issue, account 323, was in the name of Central Route,
Umtshingo Trading (Pty) Ltd was not a party. This sophistry is, of course, literally
correct, but substantively a misrepresentation of the true relationship between FNB
and Umtshingo.

[33] Central Route was deregistered on 24 February 2011.

[34] On 10 March 2011, a month after FNB launched the interpleader application,
the Managing Director, Spar Lowveld, addressed yet another request to FNB to
cancel several speedpoint devices. There is an oblique allusion to Ms van der Walt
being aware by this time that Mr Paolo must have been operating more than one
account. On 11 March 2011, Spar’s attorney tackled Mr Paolo’s attorney with the
accusation of Mr Paolo diverting money from the two Tops outlets to ‘another
account or accounts under his control’. The generalised tenor in which these
allegations was articulated indicated that Spar knew no details and had surmised the
diversion of funds, possibly from reading the 323 account statement, disclosed in
FNB’s interpleader application and realising that substantial sums were not
accounted for. Mr Du Preez, the Divisional Financial Director, Lowveld Spar,
deposed to an answering affidavit in which he stated that it was only in the course
of this interpleader application that Spar learned that there had been credit card
revenue diverted from the two Tops stores ‘ . . . to an account other than the frozen
account’ (ie Account 323). This information could only have been derived from the
contents of FNB’s founding affidavit and Mr Paolo’s answering affidavit. Mr Paolo
had alluded to the two Tops accounts (albeit giving the wrong account number in
one case, ‘988’, instead of 309) in his answering affidavit dated 15 June 2011. An
order directing FNB to pay over the money was eventually given on 23 March 2012.

[35] The liquidation of Umtshingo took place on 6 August 2012. On
10 August 2012, the three outlets ceased to trade.

[36] On 22 January 2015, in replying to a Rule 35(3) notice, FNB’s attorneys
provided details of account 309. This was when Spar first learned of the 309 account

and of the transactions that had occurred. It promptly caused an amendment to be
made to its pleadings in the form of claim 4.

Analysis of Claims 1 and 4
[37] FNB’s professed entitlement to claim set off is the appropriate starting point
of the analysis. It is a durable proposition of our law that when the customer of a
bank deposits money into their account, the money becomes the property of the bank.
The bank enjoys a real right of ownership. In the usual case, the deposit gives rise to
a credit balance in the account of the customer and a personal obligation owed by
the bank to its customer to pay the credit balance, together with interest, if agreed.5

[38] The ownership by the bank of deposits made into an account by a customer is
of systemic importance to the banking system. Deposits made into the accounts of
customers are pooled so as to permit the bank, in turn, to grant credit and make loans.
The bank is the economic intermediary that secures savings and enables borrowing.
Central to this function is the recognition of the bank’s ownership of the deposits
made with it and the bank’s right to extend loans without reference to the customers
who made such deposits. Were it otherwise, absent customer consent, the bank’s
loans would be akin to theft.

[39] The personal obligation of the bank to pay the balance standing to the credit
of the customer may be discharged by payment to the customer, payment to persons
designated by the customer, or set off. Set off comes about when two parties are
mutually indebted to one another, and both debts are liquidated, due and payable.
The bank may set off a customer’s indebtedness to the bank against that customer’s

5 ABSA Bank Bpk v Janse van Rensburg 2002 (3) SA 701 (SCA) at 709A-B; Dantex Investment Holdings (Pty) Ltd v
National Explosives (Pty) Ltd (In Liquidation) 1990 (1) SA 736 (A).

claim against the bank, arising from deposits made by the customer and standing to
their credit. Put simply, the bank may set off the credit and debit balances of the
same client. These claims are then extinguished.

[40] Set off, like payment, extinguishes a debt, but does so reciprocally – one debt
extinguishes another. Set off is not an appropriation of property. The operation of
set off and the FNB’s reliance upon it cannot be characterised as an issue as to
whether FNB lawfully appropriated the property of Spar. Rather, the issue is whether
FNB could set off Umtshingo’s indebtedness against the credit balance in
Umtshingo’s accounts, arising from the deposits made into those accounts by Spar.

[41] There is no dispute as to Umtshingo’s indebtedness to FNB. That much was
common ground. The question is whether FNB was indebted to Umtshingo. It will
ordinarily be the case that, when the customer of a bank makes a deposit into their
account, it is an incident of the contract between the bank and its customer that the
bank has an obligation to pay its customer the credit balance arising from the deposit
made. The customer enjoys a personal right to payment from the bank.

[42] However, this is not invariably the case. The customer may be acting as the
agent of a third party, permitting the third party to utilise the account. The third party
may make a deposit into an account, whether in error or by arrangement with the
account holder, to which the third party enjoys an entitlement. Here, the money, once
deposited, is no less the property of the bank. The origin of the deposit is not relevant
to the assumption of ownership by the bank.

[43] Who then acquires the personal right to the credit arising from the deposit?
One answer is provided by an agreement subsisting between the bank, the customer

and the third party depositor, in terms of which deposits made into the account give
rise to an obligation by the bank to pay any credit thereby accruing in the account to
the third party. In such a situation, the bank cannot set off the indebtedness of its
customer to the bank against the bank’s indebtedness to the third party. No mutuality
exists, the debts are not due as between the same parties.

[44] What then occurs if there is no such agreement as between the bank and the
third-party depositor? Does the knowledge of the bank that a third party has
deposited money into a customer’s account, to which the customer has no claim,
give rise to any right enjoyed by the third party to payment of this money from the
bank? And if so, what right would that be?

[45] These questions gave rise to the different interpretations of Joint Stock6 that
divided the courts below. On one interpretation of the majority judgment in
Joint Stock, agreement and knowledge were used interchangeably, but the true ratio
of the majority judgment was that the claim of the third party rests upon agreement
with the bank. So understood, Joint Stock, on its facts, simply recognised that where
the bank owes a personal obligation to the third party to pay the credit balance
accruing from the third party’s deposits, the bank cannot set off its customer’s
indebtedness to the bank against the bank’s debt that is due to the third party. The
other interpretation of Joint Stock is that it went further and recognised that the
bank’s knowledge of the entitlement of the third party, rather than its customer, to
the funds credited to the account may give rise to a right enjoyed by the third party
to payment from the bank.

6 Joint Stock Co Varvarinskoye v ABSA Bank Ltd and Others [2008] ZASCA 35; 2008 (4) SA 287 (SCA).

[46] This difference of interpretation, pertinent for the resolution of the case before
us, is best approached in the following way. The evidence at trial clearly established
that Spar had, for its own benefit, assumed control of the trading activities of
Umtshingo’s businesses. Whatever reservations Mr Paolo may have expressed as to
the perfection of Spar’s notarial bond, he plainly acquiesced in the arrangement that
Spar take over the running of the businesses, at least until his reservations were
finally determined by a court. It follows that moneys deposited into the accounts of
Umtshingo were the proceeds of Spar’s trading activities to which Umtshingo had
no claim.

[47] Although the deposit of the proceeds of these businesses into the accounts of
Umtshingo gave rise to credits in the accounts of Umtshingo held with FNB, this did
not mean that Umtshingo had a claim against FNB for the amounts standing to its
credit. In Perry NO7 stolen money was deposited into a Nedbank account. Schutz JA
explained that, by operation of law, ownership of this money passed to Nedbank and
could not be claimed by way of the rei vindicatio. However, the mere fact that the
customer’s account had been credited with the stolen money did not mean that the
customer (and thief) had a claim against Nedbank for payment of the amount
standing to his, ostensible, credit.

[48] The same position arises when funds are paid into a bank account in error.
The customer into whose account an amount is paid in error has no entitlement to
the funds credited to that account.8 And an appropriation of the funds by such a
customer, with knowledge that they were not entitled to deal with the funds, would
amount to theft.

7 First National Bank of Southern Africa Ltd v Perry NO and Others 2001 (3) SA 960 (SCA).
8 Nissan South Africa (Pty) Ltd v Marnitz NO and Others 2005 (1) SA 441 (SCA) paras 25 and 26.

[49] Umtshingo had no entitlement to the funds paid into the accounts held with
FNB. Those funds were the proceeds of the business conducted by Spar for its own
benefit. At a minimum, FNB knew that this was so. In these circumstances,
Umtshingo enjoyed no personal right against FNB to the funds credited to its
accounts that derived from Spar’s deposits.

[50] Once that is so, it follows that FNB cannot contend that Umtshingo’s
indebtedness to the Bank was set off against FNB’s indebtedness to Umtshingo
because FNB owed no such debt to Umtshingo. FNB’s defence of set off must
therefore fail.

[51] What then is the basis upon which Spar enjoyed a claim to the funds credited
to the Umtshingo accounts in respect of which FNB cannot rely upon set off? In both
Joint Stock9 and Nissan10 it was common ground that if no person had an interest or
claim to the money credited to the account, other than the party in the position of
Spar, then that party was entitled to payment from the bank.

[52] There are two central conclusions to be found in Joint Stock11. First, there is
no inflexible rule that only an account holder may assert a claim to money held in
their account with a bank. Second, the following conclusion was reached, ‘[n]or does
the proposition that money deposited in an account becomes the property of a bank, necessarily
militate against a legitimate claim by another party’.

[53] Both propositions are borne out by a well-established authority. As to the first
proposition, there are a variety of circumstances in which persons other than the

9 At para 42.
10 Supra, para 27.
11 At para 31.

account holder may claim payment from the bank of the credit balance in an account.
That entitlement may arise in different ways. As already indicated, when stolen
money is deposited into an account or a deposit is made in error, the account holder
is not entitled to claim the credit balance. The person from whom the funds
originated may do so.

[54] So too, in McEwan12 where an agent deposited the money of his principal into
an account, upon the insolvency of the agent, the agent’s trustees had no claim to the
balance in the account, the claim lay with the principal. In Dantex13, the court
recognised that an agreement might regulate the use of an account and the
entitlements of an account holder to the use of credits in the account. These cases
were traversed in Joint Stock.

[55] The cases also make it plain that there is no inconsistency in recognising that
money deposited with a bank becomes the property of the bank and that persons
enjoy personal rights against the bank to the credit balance on account deriving from
the deposit made. What has sometimes created ambiguity is the description of an
account holder ‘owning’ the moneys deposited into an account. That is not so. The
bank is the owner of the money deposited, save only in the rather special case, cited
in Dantex, that the depositor of money, deposited as a corpus and held separately,
may vindicate the money.14 However, the money deposited with the bank gives rise
to personal rights in respect of the credit that is thereby created in the books of the
bank.

12 McEwen NO v Hansa 1968 (1) SA 465 (A).
13 Dantex Investment Holdings (Pty) Ltd v National Explosives (Pty) Ltd (In Liquidation) 1990 (1) SA 736 (AD) at
749H – 750A.
14 J Voet Commentarius ad Pandectas (2012) para 20.4.13.

[56] Once this distinction is recognised, two questions arise. What is the nature of
the personal right against the bank, and enjoyed by whom? In the standard case, the
customer deposits money into their account and has a personal right against the bank
to be paid the credit reflected on the account (with interest, if agreed) or otherwise
to direct the bank as to who should be paid. The personal right is an incident of the
contract that subsists between the customer and the bank.

[57] However, as may be observed from the cases to which we have referred, the
personal right to claim against the bank may not be enjoyed by the customer. The
customer may be the agent of a principal in respect of the account, and the principal
will then have the claim. Or the bank, the customer and a third party may have an
agreement as to the rights of the third party to the use of the account and the credit
balance on account. On one interpretation, Joint Stock is such a case.

[58] More difficult is the position in a case such as the present where there is no
privity as between FNB and Spar, nor is it claimed that Umtshingo was acting as the
agent of Spar. On the evidence, however, Spar and Umtshingo had agreed that Spar
was entitled to the proceeds of the businesses that it was running. Spar was entitled
to these moneys and deposited them with FNB. The evidence also amply
demonstrated that FNB knew of Spar’s entitlement to the moneys deposited. In these
circumstances, Umtshingo had no right to claim the credits arising from these
deposits. And, as set out above, FNB could not apply set off.

[59] What rights, if any, does Spar have against FNB? It was submitted that
Joint Stock may be understood on the basis that FNB’s knowledge of Spar’s
entitlement to the funds founds Spar’s claim against FNB. This is not the correct
way to interpret the holding in Joint Stock. It is not the knowledge of a bank that

gives rise to the rights of the third party. It is the consequences of such knowledge
that matters. Once it was apparent to FNB that its customer had no entitlement to the
moneys deposited, two consequences, traversed above, follow. First, the customer,
Umtshingo, had no claim against FNB in respect of the credit reflected in the
accounts. Second, FNB could not apply set off, as there was no mutuality of debts
as between FNB and its customer.

[60] FNB was the owner of the funds deposited. Could FNB enjoy the benefit of
that ownership, without any duty to account to Spar, absent an agreement between
FNB and Spar? Joint Stock answered this question in the negative. It did so on the
basis set out in Nissan.15 If the customer was not entitled to claim from the bank,
then the third party was entitled to do so. The basis of that entitlement was explained
in Nissan.

[61] In Nissan, the appellant, in error, paid a substantial amount of money into the
account of Maple which was duly credited. Maple was not entitled to the funds.
Maple had no claim against the bank in respect of the funds. In Nissan, as also in
Joint Stock, it was accepted by counsel that, if the customer had no claim, the
appellant was entitled to payment. The basis of that acceptance in Nissan derives
from the decision of this court in Perry NO, a case of the deposit of stolen funds into
a bank account. The bank became the owner of the funds deposited. The bank
resisted payment to the cessionary, who had taken cession of the claim from the
person originally entitled to the funds deposited. The bank was not obliged to make
payment to its customer because the funds deposited were stolen. As a result, the

15 Joint Stock para 42; Nissan paras 25-27.

bank was enriched, and an enrichment action lay against it, in particular the
condictio ob turpem vel iniustam causam.

[62] In Perry NO, the funds deposited were stolen. In Nissan, the funds were
deposited in error. The court in Nissan nevertheless required that, since the account
holder credited with the deposit had no claim against the bank, payment must be
made to the appellant who had paid in error. To do otherwise would permit of the
unjustified enrichment of the bank. In Joint Stock, as in the present case, the funds
deposited were neither stolen, nor deposited in error. The funds were deposited
pursuant to an arrangement between the bank’s customer and the third party. Yet in
Joint Stock, the court reached the same conclusion as did the court in Nissan: the
bank owed a duty to pay the third party. That is so on the basis of the same underlying
principle recognised in Perry NO. Since the bank incurred no liability to its
customer, without an obligation to pay the third party, who had the original
entitlement to the funds deposited, the bank would be unjustly enriched.

[63] It must be acknowledged, as Perry NO’s case illustrates, that there is no small
measure of difficulty in determining what condictio would be of application. But the
general principle is clear. Once the bank has no liability to its customer in respect of
the deposits made, the bank is enriched. The bank owns the deposits, and its assets
have increased at the expense of the third party, whose funds were deposited. The
third party is thereby impoverished. Absent an order upon the bank to make payment
to the third party, the court would countenance the bank’s unjust enrichment. The
recognition of this unjust state of affairs has led our courts to recognise a remedy
against the bank to pay to the third party the amount standing to the credit of its
customer’s account, as was done in Joint Stock. That remedy is, in this case,
appropriate too.

[64] Lastly, Spar described its claim as quasi-vindicatory. That characterisation
should be avoided. The Bank is the owner of the funds deposited. Spar’s rights are
not proprietary in nature. They are founded upon quite different legal principles, as
set out. If Spar’s rights were quasi-proprietary, an entirely different set of issues
would become relevant. Not least, how a quasi-proprietary right could prevail over
the Bank’s ownership of the moneys deposited.

[65] For these reasons, the appeal must fail in respect of claims 1 and 4.

Analysis of Claims 2 and 3
[66] The core facts pertinent to these claims are these. It is common cause that
during the period of Spar’s trading, it generated revenue which, through the credit
card speedpoint channel, was electronically deposited into both accounts 655 and
309. Similarly, it is common cause that Mr Paolo caused disbursements out of these
accounts of, respectively, R2,039,948.68 and R1,358,890.00. Umtshingo was
liquidated and Central Route was deregistered. Spar could not recover its losses from
Umtshingo.

[67] The basis for Spar’s claim against FNB was described in the pleadings as a
duty of care owed by FNB to take reasonable steps to protect Spar from loss as a
result of Paulo withdrawing funds from the accounts. It is more accurately described
as a legal duty. The plea denied the existence of such a duty. In the alternative, FNB
pleaded that if such a claim is competent, and if FNB was in some degree negligent
and that FNB’s negligence was causally connected to the harm suffered, Spar too
was negligent.

[68] The cause of action is predicated upon the legal duty of FNB to prevent
Mr Paulo, as the controlling mind of Umtshingo, from making disbursements from
Umtshingo’s accounts, into which Spar had deposited the funds generated by it.

[69] Whether such a legal duty exists must commence with a consideration of the
position of Mr Paulo. The evidence at trial supports two factual propositions, already
addressed in the consideration of claims 1 and 4. First, Mr Paulo entered into an
arrangement with Spar that permitted Spar to run the Umtshingo businesses for
Spar’s benefit. Consequently, Mr Paulo knew that the proceeds of the businesses
deposited into the Umtshingo accounts with FNB were Spar’s funds, and Umtshingo
had no entitlement to these funds. Second, FNB knew of the arrangement between
Umtshingo and Spar, and knew also that Umtshingo (and hence Mr Paulo) had no
entitlement to the funds deposited.

[70] When Mr Paulo made disbursements from Umtshingo’s accounts, his conduct
amounted to theft. In Nissan,16 this court explained that an account holder has no
entitlement to a credit resulting from a mistaken transfer into his bank account.
Should the account holder, well knowing that the credit is not due to him, appropriate
the amount credited to his account by withdrawing funds, the account holder is guilty
of theft.

[71] Mr Paulo knew that the funds deposited by Spar were the proceeds of the
Umtshingo businesses to which Umtshingo had no claim. That was the arrangement
he had struck with Spar. He knew, as a result, that Umtshingo had no claim to the
credits generated by the deposits made by Spar into the accounts. Mr Paulo

16 Nissan para 25.

nevertheless made disbursements from the accounts. Mr Paulo thereby appropriated
the funds, knowing that neither he, nor Umtshingo, were entitled to the funds.
Mr Paulo stole the funds.

[72] The issue that arises is whether FNB’s knowledge that Umtshingo had no
entitlement to the funds deposited by Spar, and nevertheless permitted Mr Paulo to
make disbursements from the accounts, gave rise to any liability by FNB to Spar in
delict. Clearly, since the actions of Mr Paulo amounted to theft, Spar had a cause of
action against Mr Paulo and Umtshingo. The disbursements were wrongful. But
Umtshingo was in liquidation, and Mr Paulo, no doubt, had no assets to satisfy any
claim that Spar might have made against him. Whether FNB can be held liable for
the wrongful conduct of Mr Paulo, depends upon whether FNB was a joint
wrongdoer.

[73] This issue was determined in Yorkshire Insurance Co Limited,17 recently
affirmed in this court in Breetzke.18 In Yorkshire Insurance Co Limited, Harris, a
professional trustee and liquidator, paid cheques in respect of estates under his
administration into his personal bank account and stole the money. A delictual action
was brought against the bank. Greenberg J held that Harris, in drawing the cheques,
for an unauthorised purpose, commenced the process of misappropriation. The bank
honoured the cheques, knowing that Harris had no right to draw them. The bank was
a party to Harris’ unlawful conduct, and hence a joint wrongdoer.

[74] Breetzke concerned a breach of trust. Wallis JA expressed the principle thus:

17 Yorkshire Insurance Co Limited v Barclays Bank (Dominion, Colonial & Overseas) 1928 WLD 199.
18 Breetzke and Others NNO v Alexander NO and Others [2020] ZASCA 97; 2020 (6) SA 360 (SCA).

‘Where the execution of a breach of fiduciary duty involves or requires the involvement or
participation of a third party, and that third party has knowledge that the transaction in question
involves a breach of fiduciary duty, it seems to me clear that the legal convictions of the community
demand that the third party share the liability of the person breaching the fiduciary duty. That is
not because they owe a similar duty to the injured party, but because by aiding, enabling or
facilitating the breach they are themselves equally responsible for the injury caused to, or loss
suffered by, the injured party.’

[75] Although Mr Paulo’s disbursements from the accounts were not a breach of
fiduciary duty, they were plainly wrongful. The Bank enabled Mr Paulo’s conduct
by allowing him to operate the accounts, well knowing that Umtshingo had no claim
to the credits reflected in the accounts. Indeed, the Bank had assured Spar that the
Bank had frozen the one account of which Spar had knowledge. The Bank was a
joint wrongdoer owing a legal duty to Spar.

Contributory negligence by Spar?
[76] Did Spar blunder culpably? With hindsight, Spar, doubtless, appreciated that
it could not rely on FNB to make proper and open disclosure, nor rely on FNB’s
assurances. The notion of Spar’s contributory ‘negligence’ is ironic because nothing
FNB did was as a result of negligence. Its conduct, as traversed above, was
throughout, deliberate and partisan in its own interest. From the outset Spar wanted
the accounts changed. It was blocked by both Mr Paulo and FNB who passed the
blame to each other. The deliberate misleading of Spar by FNB about the truth of
what was happening is the single most important fact to explain Spar’s conduct. Spar
relied on FNB’s assurances of ‘the account being frozen’ which was a
misrepresentation. This conduct by FNB lies at the core of its culpable facilitation
of the theft by Mr Paulo.

[77] When Spar was told that the limits on the only account it knew of, account
323, were lifted, it reacted immediately by an urgent application to freeze the funds.
The contention that Spar should have done so sooner ignores the context. FNB
officials discussed the misapprehension of Spar which their own conduct had
brought about and resolved to preserve Spar’s ignorance. There is no merit in the
submission that Spar was contributorily negligent in circumstances that were created
by FNB’s conscious preference of its own interests, and cynical obfuscation of
critical facts which render FNB a joint wrongdoer with Mr Paulo. Fault cannot be
founded on the premise that a person could have avoided a loss, by its own timeous
volition, if at the relevant time, it was not unreasonable for the person not to have
taken that step. To argue that Spar could have been ‘more careful’ is a misdirected
perspective. In this context the argument was advanced that the speedpoint devices
should have been removed. However, this ignores the fact that Mr Paolo prevented
that from happening. Spar’s conduct was not, in these circumstances, negligent nor
a contributing cause of its loss.

[78] Moreover, as the details of FNB’s conduct as a joint-wrongdoer with Mr Paulo
make plain, it is incongruent to construe Spar’s conduct, as described, as being
negligent in relation to the culpable conduct of a joint wrongdoer.

[79] For these reasons, the appeal must be dismissed in respect of claims 2 and 3.

Analysis of the prescription argument: claim 4.
[80] The formulation of claim 4 was introduced by an amendment in July 2015.
The reaction of FNB to that was to plead prescription, the claim relating, of course,
to events in 2010 to 2011. The stance of FNB is not that Spar knew of the claim in

2010 or 2011. FNB accepts, as it must, that Spar was ignorant until 2015. Instead, it
seeks to avoid liability by pleading that Spar could have learned of its claim, at the
latest, in 2011 by using reasonable care. This dispute therefore is informed by s 12
of the Prescription Act 68 of 1969 which provides:
‘(1) Subject to the provisions of subsections (2), (3), and (4), prescription shall commence to run
as soon as the debt is due.
(2) If the debtor wilfully prevents the creditor from coming to know of the existence of the debt,
prescription shall not commence to run until the creditor becomes aware of the existence of the
debt.
(3) A debt shall not be deemed to be due until the creditor has knowledge of the identity of the
debtor and of the facts from which the debt arises: Provided that a creditor shall be deemed to have
such knowledge if he could have acquired it by exercising reasonable care.
(4) . . . .’

[81] Spar alleges that FNB, within the meaning in s 12(2), prevented Spar from
learning of the debt. The debt in question, it must be emphasised, is the consequence
of the purported set off by FNB in respect of credits in account 309. It was by this
act that FNB became a debtor of Spar. The debt is the sum of R898,744.92 by which
FNB had been enriched and Spar impoverished between March 2010 and
8 May 2010 as a result of FNB’s purported set off. To know of the ‘debt’ it would
have been necessary to know that (1) an identifiable sum of money purportedly set
off, (2) from an identifiable account (3) by an identifiable person.

[82] The trial court held that Spar had the necessary minimum knowledge of this
debt by June 2011 because at that time Mr Paolo had made the affidavit alluded to
in the traverse of the facts.19 A deficit in the funds in account 323 the statements of
which account were disclosed in the interpleader application would, so the trial court

19 See above, para 33.

held, have indicated that, when compared to the takings, money was missing. The
court held that the revelation of two other accounts, but not account 309, should have
prompted further and better enquiries by Spar. The key argument advanced on behalf
of FNB is that Ms Hopley should have demanded further bank statements in 2011.
However, this submission is meritless. There was no reasonable prospect of those
statements being forthcoming because of the obdurate stance of both FNB and of
Mr Paolo. The so-called ‘concession’ relied on from Ms Hopley that no
‘investigations’ were carried out by Spar, takes the matter no further because of
FNB’s stance.

[83] The majority of the full court disagreed that Spar could have learned of the
debt at that time, and correctly so. It addressed specifically the notion that Spar could
have used rule 35(12) in the interpleader application to access account 309. The
full court correctly observed that account 309 was not mentioned in the affidavit of
Mr Paolo, although he had referred to account 655 and to account ‘988’, the latter
being a dormant account and of no relevance to the case. Thus, no demand to access
account 309 could have been made.

[84] As a result of the deliberate non-disclosure by FNB, even during the early
stages of litigation, Spar had been misled to believe that Mr Paulo had disbursed
money in the sum of R2,331,324.33, the amount initially claimed in claim 3. Only
after the 2015 discovery of account 309 did it become evident that the ‘missing
money’ had not been filched by Mr Paulo, but that FNB had purported to effect a
set off, as it had in respect of account 323. It was impossible for Spar to identify
FNB as a debtor until that information was disclosed. The amendment effected was
to reduce the quantum in claim 3 and claim against FNB in claim 4.

[85] These circumstances were a direct result of FNB’s wilful non-disclosure.
FNB’s plea initially filed in August 2013 made reference to account 988, a dormant
account, thereby perpetuating the misrepresentation. A request for discovery made
by Spar in November 2013 was answered only in August 2014. Account 988 was
not discovered by FNB in response to that request. On a further demand for better
discovery, eventually the existence of account 309 was revealed in 2015. A plainer
illustration of the circumstances contemplated in s 12(3) would be hard to unearth.
Accordingly, the claim had not prescribed.

[86] In summary, the law is as follows:
(1) Where a deposit, to the knowledge of the bank, is made into the bank account of
a customer to which the customer has no entitlement, the bank cannot set off its
customer’s indebtedness to the bank against the credit in the customer’s account
deriving from such deposit. The third party whose moneys were deposited enjoys a
claim against the bank for the amount so credited.

(2) A customer, with no entitlement to moneys deposited into their account, who
knows that they enjoy no such entitlement, may not make disbursements from the
account in respect of credits deriving from these moneys. To do so amounts to theft.
A bank that knows that its customer enjoys no such entitlement and nevertheless
permits its customer to make disbursements in these circumstances renders itself a
joint wrongdoer. As such the bank owes a legal duty to the third party who was
entitled to the moneys deposited and suffers loss as a result of the customer’s
disbursements.

[87] FNB wrongly misappropriated the funds as averred in claims 1 and 4 and is
liable to pay Spar the amounts pleaded.

[88] FNB wrongly allowed Paolo to misappropriate funds from the accounts as
averred in claims 2 and 3 and is liable to pay Spar the amounts pleaded.

[89] Accordingly, the appeal must fail.

[90] The costs of Spar, including the costs of two counsel should be borne by FNB,
and having regard to the issues debated, should include the costs of two counsel.

The order
The appeal is dismissed with costs including the costs of two counsel.

-----------------------------------------------

Roland Sutherland
Acting Judge of Appeal

-----------------------------------------------
David Unterhalter
Acting Judge of Appeal

Appearances
For the Appellant:
D M Leathern SC (with him P A Swanepoel SC)
Instructed by:

Rorich Wolmarans & Luderitz, Pretoria

Symington De Kok, Bloemfontein

For the Respondent:
J P Vorster SC (with him F P Strydom)
Instructed by:

Moss Marsh Geogiev, Mbombela,
Weavind & Weavind, Pretoria,

Peter Skein Attorneys, Bloemfontein.

SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM:

The Registrar, Supreme Court of Appeal
DATE:

18 March 2021
STATUS:
Immediate
Please note that the media summary is for the benefit of the media and does not form part of
the judgment of the Supreme Court of Appeal.

FirstRand Bank Limited v The Spar Group Limited (1334/2019) [2021] ZASCA 20 (18 March 2021)

Today the Supreme Court of Appeal (SCA) unanimously dismissed the appeal with costs including the
costs of two counsel.
This case was about banks, their customers, and third parties who have put money into the customers’
accounts. The respondent, Spar Group Ltd (Spar), conducted business as a franchisor of the Spar
brand of retail grocers and the Tops brand of liquor vendors. Spar fell into a dispute with one of its
franchisees, Umtshingo Trading 30 (Pty) Ltd (Umtshingo), whose controlling mind was Mr Paolo. Spar
held a notarial bond over the assets of Umtshingo. Umtshingo defaulted on its obligations under the
franchise agreement. In consequence, Spar obtained a provisional order from the local magistrates’
court to perfect its security. The terms of the notarial bond permitted Spar to take over the Umtshingo
businesses and run them for its own account which it did. The single reservation was that Mr Paolo
refused to de-link the speedpoint credit card devices of the stores from the bank accounts of
Umtshingo.
Spar ran the outlets on the terms of the unsigned draft agreement and in the course thereof, credited
the stock on hand to Umtshingo and brought in new stock. Spar took several steps to try to get Mr
Paolo to consent to a change or to get FNB to redirect the revenue to a Spar account. Spar’s failure
to achieve these objectives resulted in substantial sums flowing into Umtshingo’s accounts. Mr Paolo
retained control over the accounts and effected substantial disbursements.
FNB’s conduct was twofold. First, the debit balances in two of the accounts were extinguished by FNB
applying set off against the credits in these accounts that derived from the revenue generated by Spar
and deposited into the accounts. Second, disbursements were made at Mr Paolo’s behest despite the
credit balances being derived from the revenue generated by Spar’s trading.
Spar claimed that because Umtshingo had no rightful interest or claim to the funds, FNB was not
entitled to set off Umtshingo’s debts from Spar’s revenue. Moreover, FNB owed Spar a duty of care
not to allow Mr Paulo to steal money from the accounts. Spar had four claims, two in relation to an

improper set off by FNB, and two in respect of Mr Paulo causing money to be withdrawn from the
Umtshingo accounts.
FNB’s defences were that it lawfully appropriated the sums by way of set off because these were
amounts due and payable to FNB by Umtshingo, that it was not liable to protect Spar from Mr Paulo
withdrawals of money from the accounts, that in respect of one claim relating to set off, the claim had
prescribed by the time it was made, and lastly, if there was any liability to Spar, Spar was contributorily
negligent.
The issues that arose for decision were these:
(a) Was FNB entitled to set-off the credits that derived from the funds deposited into the accounts by
Spar against Umtshingo’s debts owing to FNB?
(b) Was FNB liable in delict to Spar for the losses it suffered when Mr Paulo caused sums to be
withdrawn from these accounts, which funds derived from deposits into the accounts by Spar, and to
which neither Mr Paulo, nor Umtshingo, had any rightful interest or claim?
(c) Had one of four distinct claims, relating to set off, prescribed because it was instituted more than
three years after the set off had occurred?
Spar had sued FNB in the Gauteng Division of the High Court. At the conclusion of the trial, one claim
relating to a set off was dismissed because it was held to have prescribed, and the other three claims
were dismissed on the basis that FNB had not done anything to incur liability to Spar. On appeal to
the full court of the Gauteng Division, these results were reversed by a majority decision. Spar was
held to have proven its case in respect of all four claims. It was the majority judgment of the full court
that was on appeal to this Court.
This Court noted that there was no dispute as to Umtshingo’s indebtedness to FNB. The question was
whether FNB was indebted to Umtshingo in respect of the credit balances. This Court held that
although the deposit of the proceeds of these businesses into the accounts of Umtshingo gave rise to
credits in the accounts of Umtshingo held with FNB, this did not mean that Umtshingo had a claim
against FNB for the credit balance because those funds were the proceeds of the business conducted
by Spar for its own benefit.
FNB could not contend that Umtshingo’s indebtedness to the FNB could be set off against the credit
balances. This Court held that once it was apparent to FNB that its customer had no entitlement to the
moneys deposited, two consequences followed. First, the customer, Umtshingo, had no claim against
FNB in respect of the credit balance reflected in the accounts. Second, FNB could not apply set off,
as there was no mutuality of debts as between FNB and its customer. Therefore, the customer was
not entitled to claim from the FNB but Spar was entitled to do so.

In respect of the claims relating to withdrawal of funds from the accounts by Mr Paulo, the cause of
action was predicated upon the legal duty of FNB to prevent Mr Paulo as the controlling mind of
Umtshingo, from making disbursements from Umtshingo’s accounts, into which Spar had deposited
the funds generated by it. FNB knew of the arrangement between Umtshingo and Spar and also knew
that Umtshingo had no entitlement to the funds deposited. When Mr Paulo made disbursements from
Umtshingo’s accounts, his conduct amounted to theft. The Bank enabled Mr Paulo’s conduct by
allowing him to operate the accounts, well knowing that Umtshingo had no claim to the credits reflected
in the accounts. The Bank was therefore a joint wrongdoer and breached a legal duty to Spar in this
regard.
As to the defence of contributory negligence by Spar, this Court held that Spar had relied on FNB’s
assurances of ‘the account being frozen’ which was a misrepresentation as the existence of another
account was deliberately concealed. Therefore, it was incongruent to construe Spar’s conduct, as
being negligent in relation to the culpable conduct of a joint wrongdoer.
As to the defence of prescription, the belated addition of a claim relating to a set off by FMB from a
particular account was the result of Spar being denied knowledge of the existence of the account and
of the set off until a much later moment. It was impossible for Spar to identify FNB as a debtor until
that information was disclosed. These circumstances were a direct result of FNB’s wilful non-
disclosure. Accordingly, prescription could not begin to run until that knowledge was acquired.
For these reasons, the appeal was dismissed in respect of all claims with the costs of Spar, including
the costs of two counsel to be borne by FNB.

--The End--