THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Case No:  192/11

Reportable

In the matter between:

THE STANDARD BANK OF SOUTH AFRICA LIMITED

APPELLANT

and

ECHO PETROLEUM CC

RESPONDENT

Neutral citation: Standard Bank v Echo Petroleum (192/11) [2012] ZASCA 18 (22
March 2012)

Coram:
HEHER, SNYDERS, MALAN, WALLIS JJA AND BORUCHOWITZ AJA

Heard:
9 March 2012

Delivered:
22 March 2012

Updated:

Summary:
Bank – funds transferred to customer’s account by third party contracting
with customer – bank setting off credit thus arising against debit balance in
second account – no right of vindication from bank by third party.

___________________________________________________________________________________
_
ORDER

On appeal from: North Gauteng High Court (Pretoria) (Mothle AJ sitting as court of
first instance):
The appeal succeeds with costs. The order of the court a quo is set aside and replaced
with the following:
‘The application is dismissed with costs.’
__________ _______________________________________________________________________
JUDGMENT
_____________________________________________________________________
HEHER JA (SNYDERS, MALAN, WALLIS JJA AND BORUCHOWITZ AJA concurring):
[1] The issue in this appeal is, in broad terms, the following. A deposits money into B’s
bank account, in payment for goods that will be delivered in the future, intending that B will
use these funds to purchase the goods B has sold to A. Unknown to A, B is heavily
indebted to its bank, which promptly sets off the credit brought about by A’s deposit
against the debt. Can A recover the amount it deposited from the bank?

[2] The appeal is against an order made by Mothle AJ in the North Gauteng High
Court in which the learned judge ordered the appellant (‘the Bank’) to pay R710 000 to the
respondent (‘Echo’) with costs of suit. He subsequently granted the Bank leave to appeal
to this Court.

[3] Echo brought an urgent application on 3 October 2008 claiming payment of the
money from Sky Petroleum Ltd (‘Sky’) and the Bank jointly and severally. The juridical
basis was unspecified in the founding affidavit but its vindicatory nature was made clear in
a supplementary founding affidavit deposed to eight days later:
‘The payment [of] R710 000.00 was paid to the First Respondent [Sky] in terms of a cash
agreement of sale. As such, it had never been the intention of the Applicant to transfer ownership
of the said money to the First Respondent before the Applicant had received the requisite product.
If the First Respondent cannot deliver the product then obviously the First Respondent must return
the money to the Applicant. This obligation flows not just from the First Respondent’s breach of the

agreement but also because the money was not the property of the First Respondent to start with.
At all relevant time the Applicant was and remained the owner of the money. As is evident from
Annexure “I” the money of the Applicant is clearly identifiable. . . .
I am advised that even though the money might be in the possession of the First Respondent prior
to the First Respondent providing the product to the Applicant, that the First Respondent did not
hold this money, at the time, with the necessary intention to deal with it as an owner. Only after the
First Respondent had delivered the product would the First Respondent acquire the necessary
intention to deal with it as an owner. . . .
I am further advised that the First Respondent was quite able to identify the Applicant’s funds
which had been transferred into its bank account which is owed and owned by the Applicant.’ (sic)

[4] Only the Bank opposed the relief. By the time that judgment was delivered (on 28
October 2010, through no fault of the learned judge) Sky had been liquidated and the order
for payment was made against the Bank only, on grounds of unjust enrichment.

[5] The facts concerning the terms of their transaction were essentially within the
knowledge of Echo and Sky. The Bank’s deponents said that the Bank was unaware of the
contractual arrangements between them. Although counsel for the Bank contended in his
heads of argument for the existence of unresolved disputes of fact, the picture that
emerges from the affidavits was not such as to leave doubt about the material
circumstances of the case.

[6] Echo carried on business as a wholesale supplier of fuel. It sold Sasol products.
Sasol allowed only authorised contractors to purchase fuel directly from it. Echo was not
so authorised and was accordingly obliged to purchase fuel from Sky which was. Echo
made frequent use of its services during the period January to October 2008.

[7] The modus operandi of their relationship is made clear in the affidavits of Mr Eben
Marais, Echo’s sole member, and Mr Tongai Mureka, a manager at Sky with whom Marais
usually dealt.

[8] Sky’s price for any order would consist of the price charged to Sky by Sasol plus a
profit at an agreed rate of about R0,02 per litre of fuel. Echo would order petroleum from

Sky, either before 10h00 or before 14h00 on a particular day. It paid the purchase price
into Sky’s bank account. Once Sky had received an order from Echo and had been paid it
would in turn place an equivalent order on Sasol and pay Sasol with the funds received
from Echo. If the payment in respect of an order had been deposited before 13h00 on a
business day Sky would, during the afternoon, make available loading documents that
permitted Echo to take delivery from Sasol at its Secunda premises. If payment was made
after 13h00 documents would not be issued until the following day. If no payment was
made by Echo the order would simply lapse. Both Sky and Sasol sold the petrol on a
purely cash in advance basis.

[9] Using the loading documents issued by Sasol and sent by Sky to it, Echo would
load the product at a Sasol depot. It was Marais’s practice to send the trucks to await
delivery even before the receipt of the loading documents in the assurance of timeous
receipt of such documents.

[10] On 1 October 2008 Marais faxed an order to Sky for six consignments of lead
replacement and unleaded petrol and diesel for a total price of R710 111. He initially
transferred R700 000 to the credit of Sky’s bank account believing that Sky would meet the
balance out of a substantial credit owed to Echo by it. Informed later in the day that Sky
held insufficient funds in its account for that purpose, Marais caused a further R10 000 to
be transferred.

[11] By about 16h30 on the same day Echo had received no loading documents. Marais,
whose trucks were waiting at Sasol, ready to load, telephoned Mureka. He, after enquiry,
sent an e-mail to Marais at 16h00 saying that he was uncertain as to cause of the delay
and would investigate further.

[12] During the morning of 2 October Marais spoke telephonically with Mr Carlos Vieira
of the Bank who informed him that the Bank had given instructions to freeze the Sky
account.

[13] At 12h01 on that day Mureka notified Echo as follows:
‘I have been instructed to inform you that you need to send an urgent demand to Standard Bank

advising that if funds are not cleared for payment, you will apply for a court order for the release of
those funds. This will be done specifically on the basis that these were earmarked for payment to
Sasol on your behalf and do not belong to Sky. Accordingly you are to cancel your order and
demand the return of your funds.
We will do everything in our power to assist you and your lawyers are at liberty to contact us for
any documents or affidavits that you may require to support your claim.
We assure you that the funds have not been used or dispersed for our own purposes.’

[14] At 12h41 Marais confirmed the conversation:
‘As discussed Echo Petroleum CC paid yesterday 1 October 2008 the amounts of R700 000 and
R10 000 respectively into the account of Sky Petroleum Limited (Account number 252103602).
This money was earmarked to be paid over to Sasol on our behalf and is not the property of Sky
Petroleum Limited.
According to Sky Petroleum Limited the account was frozen by Standard Bank for reasons
unknown to me.
Unless the amount of R710 000.00 . . . is returned into our account before close of business today,
we will bring a court application on an urgent basis to compel Standard Bank to return the money.’
(My emphasis.)

[15] At 16h04 on the same day Marais responded, cancelling the orders placed on 1
October and requesting repayment of the amount of R710 000.

[16] At about 16h50 Echo received an e-mail from Mrs Val Botha of the Bank, who had
earlier confirmed telephonically that the account had been frozen and the money in the
account had been applied to a debt owed by Sky to the Bank, as follows:
‘Please be advised that the bank accepted your deposits in the ordinary course of business into the
account of Sky Petroleum (Pty) Ltd and any arrangements entered between you and Sky
Petroleum are not binding on the bank. As a result, the bank is not able to comply with your
demand.’

[17] At the request of Marais he was sent a copy of Sky’s bank account by the Bank.
Receiving it at about 17h00 on 2 October, he was surprised to observe that the deposit of
R710 000 was still in Sky’s account despite the information communicated to him earlier by
Mrs Botha.

[18] On 3 October 2008 Echo instituted proceedings in the High Court to recover from
the Bank the money appropriated by it.

[19] In Echo’s founding affidavit Marais alleged that the Bank was fully aware of the
practice followed by Echo and Sky in relation to the ordering of fuel, payment for it, and
that ownership of the money would not pass until Sasol supplied the loading documents to
Echo.

[20] The Bank, in its answering affidavit deposed to by Mrs Botha, set out the following
history of its relationship with Sky.

[21] Early in 2008 Sky operated a current account (the ‘253 account’) with an overdraft
facility of R1 million. Later it opened a second current account without such a facility (the
‘602 account’) which had to be conducted by agreement on a credit basis.

[22] From March 2008 Sky was in financial difficulty and the Bank appointed officials to
manage its facilities. On 22 June the Bank placed Sky on terms to settle the debt failing
compliance with which it would withdraw all such facilities at the end of July. Sky did not
comply. Further futile negotiations ensued while the Bank held back on the implementation
of its threat.

[23] On 1 October the 253 account reflected a debit balance of R897 730,41. The credit
balance on the 602 account stood at R3 870,86. On that date Mrs Botha, who was
monitoring the accounts, noticed that the balance on the 602 account had grown to
R713 870,86. She decided that the Bank should effect a set off of the two accounts by
appropriating the credit on the 602 account to the debit on the 253 account. During the
morning she caused an electronic block to be placed on the first-mentioned account that
prevented access by Sky and gave instructions for the funds in it to be transferred to the
253 account. Because of the internal processes of the Bank the transfer was only reflected
on the following day.

[24] Mrs Botha denied that the deposits by Echo were ‘earmarked’ for payment to Sasol.
She pointed out that although Marais had said under oath that Echo’s order form contained

full details (of the terms of the deposit) there was no reference in it to such an
appropriation. Moreover, she deposed, the 602 account was a general account in respect
of which no ‘earmarking’ of funds is possible; when payment was made into the account
the effect was a merger of the funds with those of Sky. Mothle AJ found that the funds
were earmarked but gave no reasons. In the face of the Bank’s unrebutted evidence that
conclusion cannot be sustained. Any effective ‘earmarking’, ie designation for a particular
limited purpose, must be objectively ascertainable by a third party who is sought to be
bound by it, and not confined to the knowledge of the direct parties.

[25] Mrs Botha admitted that the 602 account had been used, from about January 2008,
to conduct Sky’s wholesale fuel business and to pay its business debts in respect thereof.
She (and other deponents on behalf of the Bank) denied any knowledge of the modus
operandi of the business and in particular whether transactions between Echo and Sky
were conducted on a cash on delivery, or, more accurately, a cash prior to delivery, basis.

[26] This appeal depends, in the first instance, on whether a customer of a bank to
whose credit a deposit had been made acquired a right to deal with the proceeds of that
credit.

[27] The general rule is that moneys deposited into a bank account fall into the
ownership of the bank. The resulting credit belongs to the customer, the bank having a
contractual obligation to pay the customer on demand and to honour cheques validly
drawn on the account to the extent that it stands in credit: S v Kearney 1964 (2) SA 495
(A) at 502H-503A.

[28] The bank’s apparent ownership of the funds in an account does not in all
circumstances confer an absolute or unqualified right on it to treat the funds as its own or
the credit as the property of its customer: Burg Trailers SA (Pty) Ltd and Another v Absa
Bank Ltd 2004 (1) SA 284 (SCA) paras 9 and 13; Nissan South Africa (Pty) Ltd v Marnitz
NO (Stand 186 Aeroport (Pty) Ltd intervening) 2005 (1) SA 441 (SCA) para 23; Joint Stock
Co Varvarinskoye v Absa Bank Ltd 2008 (4) SA 287 (SCA) paras 31 to 42; Nedbank v
Pestana 2009 (2) SA 189 (SCA) paras 8 and 9.

[29] In reliance on these principles counsel for the respondent submitted that Echo and
Sky contracted on the basis of a sale for cash on delivery; until Sky tendered delivery it
was not entitled to payment. The consequence was, he said, that Echo’s deposit and the
bank’s passing of a credit in favour of Sky were conditional upon delivery, an event that
had not occurred by the time that the Bank appropriated the credit (and would not occur
because of the cancellation of the agreement).

[30] I regret that I cannot agree with counsel. His argument depends on a distortion of
the facts. Nor does it reflect the true basis of the relationship between Echo and Sky. The
founding affidavit shows that Echo transferred the price pursuant to a contractual
obligation to pay in advance of delivery so as to enable Sky in turn to pay Sasol and
thereby procure delivery of the fuel to Echo. As soon as the deposit was credited to it Sky
became entitled to use the funds for that purpose, and was, therefore, entitled to the
benefit of the credit. The credit was thus a debt of the Bank to Sky against which existing
debts of Sky to it could be set off. When Sky was unable to procure delivery Echo obtained
a claim against it for breach of contract as any other creditor in its position would have.
Such a claim did not include a vindicatory right to the contractual consideration that had
been paid. On Sky’s insolvency Echo became a concurrent creditor in its estate.

[31] Echo did not prove that the Bank had knowledge of the modus operandi of Sky’s
business with it. Even if the Bank had been so informed it was not bound to subordinate its
interests to Sky in the absence of agreement between them: cf Absa Bank Ltd v Intensive
Air (Pty) Ltd 2011 (2) SA 275 (SCA) at 280I-281B.

[32] Counsel for Echo, somewhat desperately, submitted that no set-off was possible in
the absence of demand by the Bank for repayment of the debit amount on the 253
account. This, he conceded, had been made in June 2008, but pointed out that the 602
account had, between the date of demand and the receipt of Echo’s deposit at the
beginning of October stood in credit in varying amounts that frequently exceeded the debit
balance on the 253 account. This, he submitted, served as a making of the funds available
for payment in satisfaction of the Bank’s demand. That the Bank chose not to appropriate
the credits was of no significance; what was important was that a further demand became
necessary in order to again render the 253 account due and payable. As no further

demand was forthcoming the debit on that account could not be claimed by the Bank and
accordingly was not capable of set-off.

[33] This seems to be a wholly artificial argument. When demand was made for payment
of the 253 account the debit balance became due and payable. The Bank did not then or
later (until 2 October) consolidate the accounts or apply set off. The debt arising on the
253 account was never discharged and the demand stood. Although set off occurs
automatically by operation of law, it only operates, retrospectively, if and when the debtor
(the Bank) elects to rely on it. See Southern Cape Liquors (Pty) Ltd v Delipcus Beleggings
Bpk 1998 (4) SA 494 (C) at 499I-501D and the authorities there cited. That election only
took place on 2 October at a time when the 253 account remained unpaid and subject to
the unsatisfied demand.

[34] I conclude, therefore, that Echo had no right in law to reclaim the deposit (or the
amount of it) from Sky or the Bank by vindication. Although no foundation was laid for a
claim based on unjust enrichment, it is clear from what I have said that the Bank acted
lawfully in appropriating the credit and Echo could not have succeeded on that cause
either.

[35] The appeal succeeds with costs. The order of the court a quo is set aside and
replaced with the following:
‘The application is dismissed with costs.’

_________________

J A HEHER

JUDGE OF APPEAL

APPEARANCES
APPELLANT:
A E Bham SC

Shaun Nel Attorneys, Johannesburg

Lovius Block, Bloemfontein

RESPONDENT:
H N de Wet

Cilliers & Reynders Inc, Lyttelton

Phatshoane Henney Attorneys, Bloemfontein