Judge orders Nedbank to return SARS intercept

2009-01-05 00:00

Under what circumstances can a bank reverse a transfer of funds made between bank accounts, without the client’s authority? Only if there is a legitimate reason for the reversal, 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 am on February 4, 2004, the Carletonville branch of the bank transferred R480 000 from a customer’s account on his instructions into the account of the plaintiff.

The branch did not know that at 8.44 am that morning the bank’s head office in Rivonia had received a telefaxed notice from the South African Revenue Service (SARS) that it was required to act as an agent under S99 of the Income Tax Act and to pay to SARS 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 R496 000 to SARS from its other customer’s account. The plaintiff sued the bank, contending that it was not entitled to reverse the transfer and that the R480 000 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. In certain circumstances you can look behind the record to the true state of affairs. For instance, if 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 conditional basis according to standard banking practice, pending information on 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 to reverse a transaction that has validly taken place. In the Pestana case, there was no evidence of an unlawful transaction or improper conductor, or any evidence that the transfer of the money into the plaintiff’s account was conditional.

Section 99 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 usual 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. Once the debit and credit occurred, they constituted a completed juristic act intentionally performed and could not be reversed.

The bank was obliged to treat the plaintiff’s account as credited with R480 000 from February 4, 2004. Presumably SARS would repay the bank. The bank would be out-of-pocket for interest and the costs of four years of legal proceedings.

Deborah Carmichael is a director at Deneys Reitz Inc.

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