IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
REPORTABLE
CASE NO: 581/98
In die matter between:

ESS KAY ELECTRONICS PTE LTD
First Appellant
SUGNOMAL HOLDINGS PTE LTD
Second Appellant
and
FIRST NATIONAL BANK OF SOUTHERN AFRICA LTD
Respondent
CORAM:
Van Heerden ACJ,  Grosskopf,  Howie,  Streicher  JJA and   Mthiyane AJA
HEARD:
7 November 2000
DELIVERED:
28 November 2000
Vicarious liability for employee’s fraud - course of employment - ostensible
authority.
J U D G M E N T
HOWIE JA
HOWIE JA

[1] Each of the two appellants instituted a damages claim in a joint action in the
High Court at Johannesburg, seeking to hold the respondent vicariously liable for
fraudulent misrepresentation  to which one of its employee’s was a party.   Their
claims failed and with the trial court’s leave they appeal.   For convenience I shall
refer to the parties by their trial designations.   (The trial court’s judgment is
reported in 1998 (4) SA 1102 (WLD) ).
[2] The plaintiffs are Singapore companies trading in electronic equipment and
the defendant is a South African commercial bank.   The evidence on the plaintiffs’
behalf was given by Mr K Primalani, a director of first plaintiff, Mr E Ishmael a
South African business associate of Mr Primalani’s, and Mr KP Wildig, the
employee for whose wrongful conduct defendant was allegedly vicariously liable.
[3] Primalani testified that in April 1996 a South African business contact
telephoned him, intimating that someone by the name of Mynhardt was interested
in buying goods for import into South Africa.   In time, a man professing to be

Mynhardt and to be acting on behalf of a Swaziland business called Southern
Fashions telephoned Primalani and eventually placed orders with both plaintiffs.
Terms were discussed and finalised.   The purchase price payable to first plaintiff
was US $130 000 and that payable to second plaintiff, US $120 000.   Payment was
to be effected by a banker’s draft in favour of each plaintiff.   The goods were to
be shipped to Durban and would be released only when the plaintiffs’ South
African agent received the drafts in exchange for the bill of lading.   These
arrangements having been made, Primalani invoiced the plaintiffs, organised the
shipment and took out insurance for the goods while in transit.  After the ship left
Singapore he received the bill of lading and sent it, with the invoices and insurance
documentation, by courier to Ishmael in South Africa.   As the bill of lading entitled
anyone possessing it to release of the goods, Primalani instructed Ishmael to be
certain not to hand over the documents without first faxing him a copy of the drafts
so that he could satisfy himself that they were in order.   If so satisfied, he would

authorise Ishmael to release the bill of lading and to send him the drafts by courier.
[4] In due course Primalani received from Ishmael two faxes purporting to be
copies of bank drafts.   They bore the date 3 May 1996 and were drawn on
Barclays Bank PLC, 75 Wall Street, New York.   He checked that the names of the
payees and the amounts payable were correct and noted that the drawer was First
National Bank of Southern Africa Limited.   He testified that when he had done
business with South African purchasers in the past, first plaintiff’s bankers in
Singapore had told him that the defendant was one of a number of South African
banks with which it would be safe to deal.   Relying on that earlier assurance and
also on the contents of the faxes, he was satisfied that the drafts received by
Ishmael were in order and that the plaintiff would be paid in terms of them.   He
therefore telephoned Ishmael and told him to exchange the bill of lading for the
drafts.   When the drafts later reached Singapore they were deposited at the
plaintiffs’ respective banks but subsequently dishonoured.   Primalani telephoned

Mynhardt who said he had obtained the goods and sold them all.   He could not
explain the non-payment of the drafts and promised to investigate.   In a later call
Mynhardt professed that he could not himself pay as he had exhausted his
resources in paying for the drafts.  In the result the plaintiffs were unable to exact
payment from Mynhardt and turned their attention to the defendant.   They were
met with the response that the drafts were forgeries and that the defendant denied
all liability.   Hence the present litigation.
[5] The thrust of the plaintiffs’ case is that Wildig, acting in the course of his
employment with the defendant, forged the drafts knowing that they would be
presented to the plaintiffs as payment for the goods in question and that upon the
drafts being dishonoured the plaintiffs would suffer damages by reason of non-
payment.   By causing the drafts to be presented to the plaintiffs Wildig falsely
represented that the drafts were regular, had been issued by the defendant and
would be honoured on presentation for payment.   Acting on this misrepresentation,

the plaintiffs caused the goods to be delivered to their customer, who had failed to
pay for them.   Accordingly, the respective sums claimed as damages correspond
to the unpaid purchase prices.
[6] It is not disputable on the evidence in this case that the plaintiffs were indeed
defrauded, that Wildig was a party to the fraud and that they have suffered the
damages claimed.   Wildig, in fact, was the person responsible for the making of
the forged drafts.   The crucial issue is whether his actions render the defendant
liable as alleged.
[7] Vicarious liability is imposed on innocent employers by a rule of delictual
law.   The rule in its most simple form is that the liability arises when an employee
commits a delict within the course of such employee’s employment.   The
foundational formulation of the rule is to be found in Mkize v Martens 1914 AD 382
at 390.   The dictum in question goes on to warn that an act done solely for the
employee’s own interests and purposes,   and outside the employee’s authority, is

not done in the course of employment even if done during such employment.
Uncertainty created by later judicial pronouncements as to the content and ambit
of the rule was removed by the decision in Minister of Law and Order v Ngobo
1992 (4) SA 822 (A).
[8] The reason for the rule is often stated to be public policy.   See for example,
Salmond and Heuston on the Law of Torts 19th ed, 507.  And an underlying reason
for that policy has been held in Feldman (Pty) Ltd v Mall 1945 AD 733, in a
passage at 741, to be the consideration that because an employer’s work is done
“by the hand” of an employee, the employer creates a risk of harm to others should
the employee prove to be negligent , inefficient or untrustworthy.  The employer is
therefore under a duty to ensure that no injury befalls others as a result of the
employee’s improper or negligent conduct “in carrying on his work”.   (Of course
“the work” referred to in that passage is either that of the employer or the employee.
It makes no difference.   It the employee’s wrong is done within the course of the

employment it will be also within the course of the employer’s business.)
[9] The statement in Feldman of what one might term the “risk theory” was, in
the majority judgment in Minister of Police v Rabie 1986 (1) SA 117 (A), taken not
as a reason for the rule, but as another way of stating the rule itself.   This mistaken
view of the legal position was set right in Ngobo.   In particular at 831 F - G   (with
reference to dicta in Carter & Co (Pty) Ltd  v McDonald 1955 (1) SA 202 (A) )
it was pointed out that the reason for the rule - whatever the reason may be - is not
the same as the rule.
[10] What seems to require continual emphasis, therefore, is that the rule and the
reason for its existence must not be confused.   The risk referred to, and
considerations of public policy, have to do with the reason for the rule.   They are
not elements of the rule and they do not inform its content.   It follows that unless
the requirements of the rule are met, it cannot matter that it is the employee’s
appointment and work circumstances that place the employee in a position to

commit the wrong.   It also cannot carry the day for a plaintiff that, without more,
the employee’s acts involved in perpetrating the wrong are acts of a kind which the
employee is normally authorised to perform and which, superficially, appear to
forge a close link between the wrong and the employee’s duties.   The question is
always : were the acts in the case under consideration in fact authorised; were they
in fact performed in the course of the employee’s employment?
[11] Reverting to the present case, Wildig’s conduct and the nature of his duties
and authorisation emerge from his evidence.   He entered the defendant’s employ
in 1981.   By March 1996 he was the head of various departments at the Life Centre
branch, Commissioner Street, Johannesburg.   One of them was the foreign
exchange department where his work included the issue to customers of bankers’
drafts payable in foreign currency to their creditors abroad.   Because blank drafts
were susceptible to ill-gotten advantage in the wrong hands they were strictly stored
under lock and key.   A bulk supply was held in a basement strongroom and a small

stock kept in a locked container fixed to a desk in the foreign exchange department.
There were two keys to the container.   Wildig had one and the other was in the
strongroom.   When he needed to replenish the stock in the container, draft forms
were drawn from the strongroom.   He had to sign an acknowledgment that he had
received them and their details were entered in a register in the department.   Every
issue of a draft, and all its details, were recorded in the register.   Drafts in excess
of US $1 500 required two authorised signatories, of which he was one.   Drafts
were issued only to customers who presented original proof of the need to pay their
debts in foreign currency.   Proof included production of invoices and bills of
lading.   Drafts had to be paid for in the rand equivalent of the foreign currency
amounts required.   If payment was to be by way of debiting a customer’s account,
the latter was required to authorise the debit by completing and signing what was
referred to as a Form A.
[12] What happened in the present case was that between March 1996 and 3 May

1996 Wildig received several approaches from an acquaintance named Jerome
Clack.   What the latter said made it clear that he wished to obtain drafts or draft
forms to use for fraudulent purposes.   Wildig testified that he was initially reluctant
to co-operate but eventually relented when Clack undertook to pay him R10 000 for
his efforts.   Accordingly, it was agreed that in return for that sum Wildig would
prepare  two drafts.   They were to reflect the respective plaintiffs’ names and the
US dollar amounts payable to each, all of these details being supplied by Clack.
On 3 May 1996 Wildig unlocked the container with his key and removed two blank
draft forms.   Because he had neither the need nor the wish to make any entry in the
register, he effected the removal towards the end of business hours in order to
minimise the chance of a co-employee discovering the removal and the lack of any
record.   There was, of course, also no resort to any Form A.   He then took the
form to his wife’s place of employment in a nearby building in the city.   She had
typed bank documents for him before, so he said, when the typewriter in the

foreign exchange department was out of order.   In her office the drafts were
completed as required by Clack.   Wildig then forged two signatures on each draft.
He later handed them to Clack and received the promised payment.   Some days
afterwards he contrived the “discovery” that the two draft forms were missing and
alerted his staff accordingly.   This, he knew, would ensure a “payment stopped”
response if ever the drafts were presented for payment.
[13] It remains to add that nothing on record shows how the drafts got to
Mynhardt, whether that was his true name or whether there was ever a genuine
buyer at all.   For present purposes, however, none of that matters.
[14] In advancing the plaintiffs’ case on appeal, their counsel urged that
application of the vicarious liability rule to these facts required placing in one scale
all those facts which were consistent with Wildig’s having been occupied with
carrying out his appointed and authorised duties and, in the other scale, all those
which indicated his having been solely about his own affairs.   This process, said

counsel, clearly showed that the former substantially outweighed the latter and
thereby established, employing the language in Rabie’s case at 134 D - E, “a
sufficiently close link between (Wildig’s) acts for his own interests and purposes
and the business of (the defendant)” to render the defendant liable.
[15] It is plain, in my view, that scoring the various facts “for and against” in that
fashion cannot supply the answer to the crucial question.   The more a dishonest
employee  makes use, in committing a wrong during employment, of the trappings
of appointment, the facilities of the job and the tools of the trade, the more a
unauthorised conduct is going to appear authorised.   The essential enquiry is: what
shows whether Wildig was acting within or without what was authorised and
required by his duties as employee?
[16] Clearly, Wildig was only authorised to take draft forms from the container
and to complete and issue them to a customer who presented the necessary proof
of indebtedness requiring payment in foreign currency.   And a customer,

moreover, who either paid for the drafts or the debiting of whose account was
authorised by way of a signed Form A.   Clack met none of these requirements.
It follows that everything Wildig did relative to the drafts which deceived the
plaintiffs was outside the scope of his actual authority and the course of his
employment.   (Implied authority was not raised in this case but manifestly none
existed.)
[17] Counsel for the plaintiffs nonetheless submitted that the reasonable
international trader’s sense of fairness would be offended by the fact that the
wrongdoer in this case was the very person whom his employer had authorised  to
effect or oversee the issue of drafts.   In the circumstances, said counsel, fairness
tended to require that the defendant should be liable.   There are two answers to this
submission.   The first is based on the facts.   When the plaintiffs decided to accept
the drafts and to release the goods they relied on nothing at all conveyed to them
or held out generally by the defendant.   What instilled in them the impression that

the drafts received by Ishmael from Mynhardt were genuine and formally in order,
was founded  purely on Primalani’s examination of the faxes and his banker’s
comments on the defendant’s good standing.   The plaintiffs would have been as
easily prejudiced had the wrongdoer been an employee with no authority even to
deal with banker’s drafts.   Primalani could have delayed releasing the goods until
the simple expedient had been employed of Ishmael’s making the necessary
enquiries of the defendant, or until the drawer’s reaction had been obtained.   Such
precautions in the case of a new business contact would be entirely reasonable and
would not unduly hamper the process of international trade.
[18] The second answer is this.   Considerations of fairness and reasonableness
no doubt do play a role in regard to vicarious liability but, for reasons  stated
above, that role is played in shaping public policy which, arguably is the reason
underlying the rule.   Fairness and reasonableness do not require, in my view, that
an employer should, in effect,  be an insurer for the employee’s wrongs in a

situation such as the present.
[19] Wildig’s having acted outside the scope of his actual authority  and outside
the course of his employment would, on the basis of existing South African law,
be quite sufficient to warrant dismissal of the plaintiffs’ claims.
[20] It remains, however, to give brief consideration to the matter of ostensible
authority.   This aspect was not raised by counsel in argument but it must be
mentioned that in England the course of an employee’s employment is determined
in the case of vicarious liability for fraud, by such employee’s authority: see Lloyd
v Grace Smith & Co [1912] AC 716 and Armagas Ltd v Mundogas SA [1986] AC
717 (H.L. (E.) ), both being decisions of the House of Lords.
[21] Notionally, because ostensible authority may exceed the scope of actual or
implied authority, and thus  the course of employment, this approach in the case of
fraud is logical. In Clerk & Lindsell on Torts, 17th ed, the following is said at 188
(para 5 - 38):

“ Of its very nature fraud involves the deception of the victim and by that deception his
persuasion to part with his property or do some other act to his own detriment and to the
benefit of the person practising the fraud, and for this reason the decision whether an
employee committed fraud in the course of his employment can only be made after the
authority, actual and ostensible, with which the employee is clothed, has been
ascertained.”
For there to be ostensible authority the employer must, by words or conduct,
induce the victim’s belief that the employee was acting within the latter’s authority
: Clerk and Lindsell, in the work cited, 189 (par 5 - 40).
[22] For present purposes one may assume that South African law is no different
in the present respect.   However, as indicated already, the plaintiffs, represented
by Primalani, relied on nothing but the faxes and the reputation of the defendant.
There was no dealing between the plaintiffs and Wildig (not that he could have
conferred authority on himself) and nothing about him or his authority was
conveyed to them by the defendant.   Consequently, Wildig had no ostensible
authority.
[23] For all these reasons the conclusion and order of the trial court was correct.

The appeal is dismissed, with costs.

CT  HOWIE
CONCURRED:
VAN HEERDEN   ACJ
GROSSKOPF   JA
STREICHER   JA
MTHIYANE   AJA