Bank held liable for the fraudulent conduct of a former director of its customer

Aslam Moosajee from Norton Rose Fulbright.

A bank needs to ensure that a company has authorised its director to allow the company’s bank account to be debited each month, if the payments settle the director’s personal obligations.

This much is clear from the recent SCA judgment in First National Bank and Another v Scenematic One (Pty) Ltd.

Mr Naude, a former director of Scenematic, entered into an instalment sale agreement with Wesbank. Mr Naude’s purchase of a vehicle was going to be paid off in 46 monthly instalments, commencing in July 2007 and ending in May 2011.

Mr Naude’s personal cheque account was initially stipulated on the agreement as the account that would be debited each month for the purpose of paying the monthly instalments. Prior to signature of the agreement, Mr Naude changed the account number that was to be debited to that of his employer (Scenematic).

Consequently Scenematic’s bank account was debited each month with the value of the monthly instalment. During August 2008, Scenematic’s auditors requested substantiating documents for this specific monthly debit order. Since Scenematic staff could not locate the documents to support the debit order, it requested this information from the bank. In March 2011, the bank provided Scenematic with a copy of the agreement that Mr Naude signed. Scenematic contended that it only became aware that Mr Naude had used the company account to pay off his personal vehicle in March 2011. It sued both the bank and Mr Naude in May 2011. Both the bank and Mr Naude raised the defence of prescription.

“In order to rely on prescription, a court still needs to ascertain when the plaintiff first became aware of the claim.”

Even though the court concluded that Scenematic’s staff was not entirely blameless in not timeously identifying the unauthorised debits, the court concluded that the failure to investigate the debits was not so unreasonable that it could be said that Scenematic had not exercised reasonable care. The court concluded that Scenematic only first became aware of the unauthorised debits, when its auditors requested the documents during August 2008. Therefore prescription did not run from 2007, when the debit was first effected, but rather from August 2008 when Scenematic became aware of the debt. Summons had been issued within three years of August 2008 and therefore the claim had not prescribed.

The court criticised the bank for not insisting on a resolution from Scenematic to satisfy itself that Mr Naude’s personal obligations were going to be settled by the company.

The court had no sympathy for the bank’s argument that, like Scenematic, it too was a victim of Mr Naude’s fraud. Instead the court held that Mr Naude and the bank were jointly and severely liable to Scenematic for the amount of R195 661.94, being the aggregate of the amounts debited against Scenematic’s account, for the personal obligations of Mr Naude.

This case again highlights that in order to rely on prescription, it is not sufficient to prove that the cause of action arose more than three years before the summons was issued. A court still needs to ascertain when the plaintiff first became aware of the claim and whether by the exercise of reasonable care, the plaintiff could have become aware of the claim earlier.

First published by Financial Institutions Legal Snapshot.