Under what circumstances can a bank reverse a transfer of funds made between bank accounts, without the client’s authority? Only if there is some legitimate reason for the reversal of the transaction or if the transfer of money was in some way conditional.
The dispute in Nedbank v Pestana (now resolved by the Supreme Court of Appeal [2008 ZASCA 140 on 27 November 2008] has evoked much discussion in banking circles. At 11:33 on 4February 2004 the Carltonville branch of the bank transferred an amount of R480000 from the account of a customer on his instructions into the account of the plaintiff. The branch did not know at the time that at 08:44 that morning the banks head office in Rivonia had received a telefaxed notice from the South African Revenue Service that it was required to act as an agent under s99 of the Income Tax Act and to make payments to SARS of all the funds in the customer’s account to discharge a tax debt. When, later in the day, the branch heard of the SARS instruction it reversed the transfer to the plaintiff’s account and paid R496000 to SARS from its other customer’s account. The plaintiff sued the bank and contended that it was not entitled to reverse the transfer and that the R480000 should stay in his account.
The court explained the legal principles. Entries in a bank’s books constitute prima facie evidence of the recorded transactions. There may be circumstances when you can look behind the record to the true state of affairs. If for instance, a customer deposited a forged cheque or forged banknotes, nothing precludes the bank from reversing the credit entry. A cheque may be deposited into a client’s account on a provisional or conditional basis according to standard banking practice pending information whether the cheque will be met. A transaction may be reversed if the client came by the money by fraud or theft or where a wrong account was incorrectly debited. But the bank needs a legitimate reason for reversal of a transaction which has validly taken place.
In the Pestana case no evidence of an unlawful transaction or improper conduct nor any facts to suggest that the transfer of the money into the plaintiff’s account was in any way conditional.
The reliance placed by the bank on s99 of the Income Tax Act was misplaced. The section appoints the bank as an agent of SARS. It does not freeze the account or effect a transfer in its own right. Until the branch of the bank had actual notice of the bank’s appointment under s99 and the head office’s intention to act in terms of that instruction, the branch was entitled to continue its ordinary every day banking functions. This included accepting a valid and lawful mandate from its client to transfer the money to the plaintiff. It did so in the ordinary course of business. The branch intended to pay the amount out of the one account on behalf of its customer and to accept the payment on behalf of the plaintiff. Once the debit and credit occurred, they constituted a completed juristic act intentionally performed and could not be reversed.
The bank was therefore obliged to treat the plaintiff’s account as credited of R480000 from 4February 2004. Presumably SARS would do the right thing and repay the amount to the bank. The bank would nonetheless be out-of-pocket for interest and the costs of four years of legal proceedings.
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