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Vereins-Und Westbank AG v Veren Investments and thers (1) (433/2000) [2002] ZASCA 36 (2 April 2002)

.RTF of original document

THE SUPREME COURT OF APPEAL

OF SOUTH AFRICA

Case no: 433/2000

REPORTABLE

In the matter between:

VEREINS-UND WESTBANK AG Appellant

and

VEREN INVESTMENTS First respondent

IRVINE INTERNATIONAL TRADE

FINANCE (PTY) LTD Second respondent

LESLIE COHEN NO Third respondent

Before: Nienaber, Streicher, Cameron and Mthiyane JJA and Heher AJA

Appeal heard: 5 March 2002

Judgment: 2 April 2002

Payment – Method of discharging debt – Subsequent approval of creditor critical in validating even a method of payment that debtor may unilaterally have chosen

JUDGMENT

_____________________________________________________

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CAMERON JA:

[1] On 27 February 1991 Nedcor Bank Ltd (as it is now known) (‘the local bank’) issued a letter of credit for $434 782,61 in United States currency in favour of a German supplier in Hamburg, Boli GMBH (‘the German supplier’). The letter of credit stated that it was available after 360 days with a German bank, which is the present appellant (‘the German bank’). The local bank issued the letter of credit on the application of South African buyers, whose ultimate interests are represented in this appeal by the three respondents. It is unnecessary to detail their involvement, and for convenience I refer to all of them as ‘the South African buyers’. The South African buyers supplied, and the local bank still holds, the then Rand equivalent of the dollar drawing (R1 119 356,60).

[2] In March 1991, shortly after the letter of credit was issued, the German supplier entered into a transaction with the German bank in terms of which the latter paid it a discounted amount on the letter of credit. The German bank did so on the basis of commercial invoices and a forwarder’s bill of lading that purported to conform with the documentation itemised in the letter of credit. These documents it forwarded to the local bank. Later it placed on record with the local bank that it expected payment of $434 782,61 on 22 February 1992 (the due date for payment).

[3] By the time the due date arose, however, a dispute had arisen about the shipment of the goods. The South African buyers contended that the documentation was forged, that the goods had never been shipped, and that the local bank was neither entitled nor obliged to pay out on the letter of credit. The German bank contended that despite these assertions it was entitled to payment. The local bank sought a direction from the South African Reserve Bank (SARB), which ruled that the funds ‘must be paid into an account blocked in terms of

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Regulation 4(2) of the Exchange Control Regulations¹ until such time as the matter has been clarified satisfactorily’.

[4] This the local bank did. On 24 February 1992 it informed the German bank that ‘We have credited the amount of USD 434 782,61 into a blocked account in your good bank’s name being in terms of the SA Reserve Bank directives and in settlement of our obligation under this letter of credit. Please be guided accordingly.’ The local bank also sent the German bank a ‘credit transaction advice’ notifying it that ‘We have credited your currency account as follows: Drawing under letter of credit 862241/08/91 Value ben[eficiary]: Boli GMBH. USD 434 782,61’.

5] There matters remained for some eight weeks, until the SARB informed the local bank that the funds had been unblocked. On 28 April, the local bank advised the German bank of this, but also informed it that a High Court application was pending to prevent it from releasing the funds. Within hours of the account being unblocked, the South African buyers obtained before Schutz J in the Johannesburg High Court an interim order attaching the sum of R1 119 356,80 plus interest in the hands of the local bank. The order interdicted the local bank from dealing with the amount and directed that it be paid into a special interest-bearing account pending an action by the South African buyers against the German supplier, the German bank and the local bank. The local bank thereupon transferred the amount into an account in the name of the Sheriff of the Court. The trial action envisaged before Schutz J was launched; its outcome is still pending. The local bank at a later stage closed the Sheriff’s account and

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transferred the money into an ‘interdicted’ account in the German bank’s name. That is still the position.

[6] On the extended return day of the rule nisi, in November 1992, Goldblatt J after hearing argument discharged the orders Schutz J had granted, but substituted in their place the following:

‘In the event and to the extent that [the local bank] has not yet discharged all of its obligations in terms of the letter of credit 862241/08/91 it is hereby interdicted from discharging such obligations pending the final determination of the action [by the South African buyers].’

[7] The German bank thereupon instituted the present proceedings. In them, it seeks to isolate from the outcome of the pending trial action the fate of the money the local bank paid into the account in its name on 24 February 1992. It does so by claiming a declaratory order based on what it contends is the proper interpretation of Goldblatt J’s order. It seeks a declaration that the local bank ‘has discharged its obligations in terms of the letter of credit’, and an order that it pay the sum of US $434 782,61 to it. The local bank, though cited as first respondent in the proceedings, did not defend them and was not a party to the appeal either to the Full Court or to this Court.

[8] Marais J heard the German bank’s application in October 1993. He dismissed it. He held that while the local bank’s intention had been to effect payment to the German bank and to discharge its obligations in terms of the letter of credit, it was necessary for the German bank expressly or tacitly to accept the unilateral payment into the account created in its name, and to communicate this to the local bank. This had not been properly established on the affidavits. In granting leave to appeal to the Full Court in February 1994, however, Marais J noted that affidavit evidence in the interim proceedings before Goldblatt J purporting to establish such acceptance, which the parties had agreed could be treated as evidence before him, had not been relied on nor drawn to his attention.

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[9] The matter first came on appeal before the Full Court in April 1997, and was eventually disposed of in May 2000, when the German bank’s appeal was dismissed. Stegmann J (Schabort and Labuschagne JJ concurring) held that anterior to the question whether the local bank had discharged its obligations under the letter of credit was the question whether it had any such obligations. The Full Court therefore focussed on the local bank’s liability under the letter of credit in terms of international trade law. It held that fraud on the part of the German supplier had been sufficiently established so as to exonerate the local bank from any liability under the letter of credit. There could therefore be no question of its having ‘discharged’ any obligation on 22 February 1992, and consequently no payment had been effected. The letter of credit was moreover not intended to be negotiable in the sense of conferring on the German bank a better title than the party to the alleged fraud, the German supplier. The appeal was therefore dismissed. In September 2000 this Court granted the German bank’s petition for special leave for a further appeal.²

[10] Before this Court the German bank’s principal argument was that the local bank had made an effective payment by depositing the funds into an account in its name. Mr Wallis, who appeared at the hearing, sought to locate this argument in a reading of the Exchange Control Regulations (‘the regulations’). I have some doubt whether the solution lies in their application, but on the view I take it is not necessary to decide the effect of the regulations. Mr Wallis also did not persist in seeking a declaration that the local bank had discharged its obligations under the letter of credit, conceding that it was unnecessary to the main thrust of the relief the German bank sought. For reasons that will appear, this course was in my view wise, since the local bank’s obligations, and the German bank’s entitlements, under the letter of

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credit are best decided in conjunction with the other matters to be determined at the trial action pending between the parties. What is at issue before this Court therefore is solely the German bank’s entitlement, as between it and the local bank, to the money credited to an account in its name in February 1992.

[11] The local bank’s act, at the behest of the SARB, in unilaterally creating an account in the name of the German bank, and crediting it with the dollar amount at issue, clearly did not by itself effect payment to the German bank. This is for two reasons. First, the established view is that payment is a bilateral act which, in the absence of contrary agreement, requires the cooperation of debtor and creditor.³ The second is that the account was blocked under the regulations. The payment accordingly did not place the dollar amount at the disposal of the German bank. In other words, the German bank did not gain the untrammelled power to dispose immediately, as cash in its hands, of the funds transferred. There is no specifically South African authority for this second proposition, but it accords with common sense that for effective payment to occur the payee must in the absence of contrary agreement acquire ‘the unfettered or unrestricted right to the immediate use of the funds in question’;⁴ otherwise the payment is inchoate.

[12] Did these two features of the local bank’s conduct, in unilaterally creating an account to which the German bank did not have access, prevent its actions from constituting a payment to the German bank? The answer depends on whether the German bank’s response was sufficient to convert a unilateral and inchoate payment into effective payment. Though the general rule is that the means of payment must be determined by agreement between the payer and payee, it is clear that unilateral conduct on the part of the debtor in purporting to effect

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payment, if subsequently accepted by the creditor, is effective to discharge the debt. Thus should the debtor unilaterally pay a stranger to the contract, if the creditor later ratifies and approves the action, this constitutes a valid payment, and is considered valid from the moment of payment (and not from the moment of ratification and approval).⁵

[13] It follows that the unilateral nature of the local bank’s conduct cannot thwart its payment to the German bank, provided that the German bank subsequently approved that conduct. The same principle must apply, in my view, to the fact that the account was blocked. If the German bank accepted the credit to the account opened in its name as a payment to it, the fact that the funds were not placed at its disposal cannot prevent a payment from being effected. The principle already cited applies equally: subsequent approval is effective to validate the payment from the time when it was originally made, even though the payee did not have access to it.

[14] But there is a third aspect. The local bank did not divest itself of the dollars in question. It did not pay a third party. What it did was to make an entry in its own books in favour of the German bank. It is well established that in our law, apart from statute, a solitary act by

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someone in opening a separate bank account in the name of another and depositing money in it does not confer any special title on the person named.⁶ This is because the person opening the account cannot by unilateral act deprive him- or herself of title to the money. The application of the principle is even more evident when a bank opens a separate account in another’s name, not with another bank, but with itself. It was as if the local bank had a separate safe – the very circumstance van den Heever envisaged in ex parte Kelly⁷– and placed in it a package containing the dollars and marked with the name of the German bank. Its solitary act in so sequestering a portion of its property was ineffective to confer any title on the German bank. To this extent the South African buyers are correct in contending that the mere fact that the local bank earmarked funds in an account specially designated for the German bank did not constitute an effective payment to it.

[15] The question this appeal raises, however, is whether the German bank’s subsequent acceptance of the local bank’s actions changes the position also in this respect. The evidence is the following. The local bank created the account in the German bank’s name in February. In April, the order of Schutz J interdicted it from paying out the money. In resisting the confirmation of that order, the German bank in June 1992 lodged affidavits answering those filed by the South African buyers. In them, its vice-president and assistant general counsel made the following averments. (a) He denied the South African buyers’ assertion that because the funds had been blocked under the regulations the local bank had made no payment to it. (b) He endorsed the local bank’s attitude, namely that it was obliged to make payment to the German bank of the funds credited to the account in question. (c) He asserted that the South African buyers had

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no title to the money credited to the account. (d) He stated that the local bank had ‘paid out’ the moneys in question to the German bank ‘by depositing them into an account created’ in its name.

[16] After the South African buyers filed their replying affidavits, the German bank in August 1992 filed supplementary affidavits. Its vice-president again deposed to an affidavit. He asserted that the local bank’s conduct ‘quite clearly constituted a payment’ to the German bank in terms of the letter of credit and that the local bank had complied with its obligations under the letter of credit. The South African buyers filed further affidavits in reply. Thereafter, the German bank’s South African attorney filed an affidavit attaching a deposition from one of the local bank’s senior managers. This affidavit described the general procedure of the local bank in dealing with letters of credit. Regarding its actions in February, the senior manager testified as follows:

‘When the letter of credit was … submitted to [the local bank], it recognised its obligation to pay out in terms thereof. It performed such obligation by purchasing foreign currency (US dollars) in the required amount and by depositing such foreign currency into a blocked account in the name of the [German bank].’

[17] The order of Goldblatt J followed, and thereupon the present proceedings. In them, as already indicated, the German bank (through the same official) asserts not only its entitlement to the money the local bank paid into an account in its name, but claims that the local bank is ‘obliged to pay such moneys to [the German bank] who is its customer’. It further claims that it was ‘entitled to draw upon that account, in accordance with the normal relationship between the banker and its customer’. It asserted that the local bank’s documents relating to the creation of the account ‘indicate a clear intention on the part of [the local bank] to discharge its obligations under the letter of credit in that manner, and that has been accepted by (the German

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bank) as performance by [the local bank] of its obligations under the letter of credit’. It goes on to state:

‘Once [the German bank’s] account was credited, the normal relationship of banker and customer arose between [the local bank] and [the German bank] respectively in relation to those funds, and [the local bank] was obliged to deal with those funds in accordance with [the German bank’s] instructions (subject only to such restrictions as may have been imposed by exchange control regulations).’

[18] In answer, the South African buyers’ affidavits stated ‘that these submissions are not supported by the facts when one has regard to the totality of the circumstances’, and asserted that ‘the mere fact that an account is opened and credited does not … indicate the creation of a normal relationship of banker and customer’ as contended. They also denied ‘the arrangement as alleged’ by the German bank, and disputed that it was ‘entitled to accept what really amounts to a self-serving interpretation of a series of transactions where its own version is that it was not fully aware of all the material facts and particularly of the fraud’.

[19] Whatever the parties’ differing contentions about the legal position, the South African buyers’ averments clearly contain no denial that as a matter of fact the German bank accepted what the local bank had done as payment to it of the sum it claimed and that it did so before the order of Goldblatt J. There was indeed no reason for the South African buyers to deny that fact. A senior official, duly authorised to depose on its behalf, had conveyed the German bank’s stance, which was that it accepted what the local bank had done as a payment to it. This was authoritatively established before the interdict of Goldblatt J. At no time before or since then has the local bank disputed that it made payment to the German bank or that the German bank was entitled to accept what it had done as payment. Any attempt by the South African buyers to dispute these facts would have lacked a plausible foundation. Marais J in my respectful view therefore erred at first instance in considering that the German bank’s acceptance of the

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local bank’s payment had been insufficiently established on the affidavits.

[20] What is the resulting position in law? It seems to me that the answer has been clouded by the South African buyers’ determination these long years to thwart the local bank’s consistent assertion that it has in fact paid the German bank. It deseves emphasis, again, that the local bank has never retracted the clear statements in its communications of 24 February 1992 that it had made a payment to the German bank in discharge of the letter of credit. A further portion of the affidavit of the local bank’s senior manager ( referred to in para 16 above) was later retracted, but not so as to put in issue the local bank’s claim that it had performed its obligation to the German bank by crediting the blocked account. Of course the local bank had its own reasons for wishing to pay the German bank on the date the letter of credit specified. These emerge from its correspondence with the SARB, where it recorded that it was –

‘in a precarious situation in that it would appear that we are legally obliged to make payment on 22 February 1992 in terms of the letter of credit. In addition, non-payment would seriously affect this Bank’s long term relationship with the correspondent bank in Germany.’

[21] The local bank’s view of its legal obligations was of concern to the South African buyers only insofar as that might have led it to try to debit their account. But its commercial interest in maintaining a good relationship with the German bank, long-term or otherwise, was emphatically no concern of theirs at all.

[22] It is correct that in claiming payment the German bank, echoing the formulation of Goldblatt J, sought also a declaration that the local bank had discharged its obligations under the letter of credit. To the extent that the grant of such a declarator may have implied or entailed that the local bank was in consequence entitled to debit the funds the South African buyers had provided, their anxiety may have been

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understandable. But the German bank sought no relief directly against the South African buyers, while against the local bank it quite clearly sought no relief in relation to the source of the funds it claimed. So long as it receives payment, it is indifferent as to whether the local bank is entitled to debit the South African buyers. That issue stands for determination at the trial, and as mentioned, the German bank did not in this Court persist in seeking the declarator. Its object was to secure payment of the dollars from the local bank, which does not oppose its attaining that object. And given the attitudes that both payer and payee have adopted, that object does not depend on establishing as between them the validity of the causa underlying the payment.

[23] Indeed, the local bank has conspicuously refrained from defending or participating in the proceedings despite the German bank’s assertion both that it has discharged its obligations under the letter of credit and that it has thereby made an effective payment to it. The local bank can therefore hardly complain if the German bank receives an order only for payment, which is less than the sum of the relief whose grant it did not oppose at all.

[24] All this in my view enables one to see without intervening obstruction that nothing precluded the local bank, as between it and the German bank, from effecting a valid payment on 22 February 1992 of the dollars credited to the blocked account in the name of the latter. The proposition this case illustrates is that parties to a debt-discharging transaction may agree to any means of discharge. The proposition it establishes is that subsequent ratification approval by the creditor validates any method the debtor may unilaterally have chosen to effect the discharge, even if that method fails to place the performance at the immediate disposal of the creditor, and even if that method fails to sequester the performance effectively from the debtor’s own assets. The proposition it underscores is that the creditor’s subsequent approval should always be decisive.

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[25] The parties to the debt-discharging transaction at issue here agreed, albeit by the subsequent approval of the creditor, to the manner and means of payment. The manner was by payment into an account held by the debtor in the creditor’s name. The means was by the creditor becoming a customer of the local bank for the limited purpose of the account the debtor specified by name and number. The local bank’s unilateral conduct in opening the account in the German bank’s name constituted at the very least an offer to the German bank to become its customer for the similarly limited purpose of dealing with the amount credited to the account, once the obstruction to such dealing had been removed. That offer the German bank clearly accepted before the order of Goldblatt J.Its contention, in opposing the confirmation of the interim order Schutz J had granted, that the local bank had ‘paid out’ the moneys to it ‘by depositing them into an account created’ in its name was therefore correct, since that very contention formally (albeit subsequently) approved the local bank’s conduct, and hence sealed the debt-discharging agreement.

[26] The Full Court in my respectful view consequently erred in not concentrating on the issue of payment as between the only parties to that transaction, namely the two banks. The issue it focussed on, wrongly in my view, namely the local bank’s obligation under the letter of credit, and its attendant entitlement or otherwise to debit the South African buyers’ account, remains for determination at the pending trial. For the present the German bank’s claim to the moneys deposited in its name must, for the reasons I have set out, be vindicated.

[27] In the court of first instance, Marais J reserved all the costs for the pending trial. That costs order must in my view yield to the conclusion here reached.

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1. The appeal therefore succeeds with costs, including the costs of two counsel.

2. The order of the Full Court is set aside.

3. In its place, there is substituted:

‘The appeal succeeds with costs, including the costs of two counsel. The order of Marais J is set aside. In its place there is substituted:

(a) The first respondent is directed to pay the applicant the sum of US $ 434 782,61 together with such interest as has accrued thereon from 24 February 1992 to date of payment.

(b) The second, third and sixth respondents, jointly and severally, are ordered to pay the costs of the application, such costs to include the costs of two counsel.’

E CAMERON

JUDGE OF APPEAL

STREICHER JA)

MTHIYANE JA ) CONCUR

HEHER AJA )