Zimbabwe Banking Corporation v Chibune & Anor (HH 67 of 2004) [2004] ZWHHC 67 (23 March 2004)

HH 67/04 HC 1989/99 ZIMBABWE BANKING CORPORATION versus STEPHEN CHIBUNE and TOINDEPI MAHASO HIGH COURT OF ZIMBABWE HUNGWE J HARARE, 23 January 2002 and 24 March 2004 Advocate A. P. De Bourbon, for the plaintiff Advocate E. Morris, for the defendants TRIAL CAUSE HUNGWE J: This matter was called up for trial in the first term of 2002. Evidence was led and judgement was reserved. Before I could write that judgement the record of proceedings could not be located after diligent search. Thereafter the Registrar caused a transcript of the mechanically recorded proceedings. Unfortunately all this took time thereby delaying a resolution of the matter. In this matter the plaintiff bank sued its customer, a firm of legal practitioners, for the sum of $224 362.99 being amount due and owing by the defendants to plaintiff in terms of an unauthorised overdraft in defendants bank account with its First Street, Harare, Branch which occurred in May 1998, together with interest and costs. The defendants deny that they owe plaintiff the sum claimed and have counter-claimed for $107 760.58 which amount was the credit balance held in their account, which amount they claim was unlawfully debited in their account. Most of the facts in this matter are common cause. These were summarised by Joshua Manyere plaintiff's witness as follows: On May 9 1998 Mr Chibune of the telephoned the plaintiff's First Street Branch and spoke to Mr Joshua Manyere. He inquired if funds have been transferred into the defendant's account as some people would come to cash cheques. On checking the account he noted that no funds had been credited to defendant's account and advised Chibune accordingly. This HH 67/04 HC 1989/99 was around 0830 hours on a Saturday. Three hours later a gentleman approached Manyere with a cheque for cashing drawn on defendant's account. Manyere telephoned Chibune advising him of this presentation. Chibune advised that the signatures on that cheque were in order but should there be no sufficient funds on the account, he was to advise the bearer of that cheque of the position. He could only be able to meet the cheque on Monday if funds were then available. When he went downstairs to physically check, he met a teller who advised that a clearance voucher in respect of a transfer of funds had already been processed and sent for clearance. The waste section of the bank confirmed this. The amount of the clearance voucher had then been credited to the defendant's account. On that basis he had then authorised the teller dealing with the cheque written on defendant's account to cash it. He trusted Chibune as he knew him to be a legal practitioner. On 13 May 1998 Barclays Bank returned the clearance voucher with the endorsement. "signature differ from specimen held." Barclays advised that the document had been stolen and the signature on it forged. By then a withdrawal of $370 000.00 had been made. The issue is whether the defendants are liable for the debit balance created by a reversal of the entries by the plaintiff. Plaintiff urged the court to hold defendants liable. Defendants, on the other hand deny all liability. Both parties called one witness each. Mr Manyere testified for Plaintiff. Mr Chibune testified for the defendants. Manyere's evidence amounted to this: defendant operated a trust account held by a law firm. They are familiar with banking practice prevailing at the time whereby should a client run up an unauthorised overdraft, that client was liable notwithstanding the fact that the bank could have prevented this. This could arise in a variety of ways. For example upon receipt of a cheque to be deposited to the client's credit, a credit may appear on the clients' account although the clearing HH 67/04 HC1989/99 bank would not at that time have cleared the cheque. Should the cheque turn out to be a bad cheque, the bank automatically reversed the credit entry. In the instant case, according to Manyere, the debit entries were occasioned by defendant who passed off a clearance voucher for value when it was a bad instrument. Chibune knew the true nature of the parties to the transaction. The bank did not. Chibune acted as a conduit for these parties, one of who accessed dishonestly the plaintiff's money. If Chibune believes he was led up a garden path he knows who to sue. On the other hand Chibune relied on the bank's systems to avoid the occurrence that resulted in the loss suffered. He said he had expressly asked Manyere to send away the cheque bearers should there be no sufficient funds held in that account. Yet Manyere, authorised cashing of the cheque without ensuring that the necessary clearances from the other bank had been obtained. He claimed that being a lawyer he had the responsibility of ensuring that his trust account was not abused by third parties. He disputed the banking practice spelt out by Manyere. As for credibility, Mr Manyere impressed as a better witness than Mr Chibune. Mr Chibune did not impress as a truthful witness in the witnesses stand. For instance he could not give the full names of the person in whose name he had written the cheque. He could not tell the court this person's address or other particulars. All this in spite of the fact that he had in his pleadings described the firm from which this Patrick came as a reputable client. If this was indeed so, he would have easily established the elusive Patrick's particulars. It would appear that Chibune was intentionally withholding evidence from the court for his own purposes. Secondly, as a legal practitioner, Chibune displayed either an unfathomable abuse of a trust account or total diligence in ignorance of his obligations towards a bank that holds his firm's trust funds. In view of the paucity of case authority on this subject, (I have researched the subject of clearance vouchers to no avail as did both counsel), I have decided to approach the subject on the basis that a clearance voucher is as good as what is commonly referred to as a bank cheque. This is a bank HH 67/04 HC 1989/99 certified cheque issued by the bank holding the account upon which it is drawn. If a person deposits in his account a bank certified cheque and proceeds to draw cheques against the credit created by that deposit but the bank cheque turns out to be forged who should bear the loss? Writing on this subject in Paget Law of Banking 3rd Edition at page 361 Megrah and Ryder point out; "The right to debit the customer with a returned cheque, notwithstanding that is has been credited as cash, was recognised by Lord Lindley when he said in Gordon's case: 'It is no doubt true that if the cheque had been dishonored, Jones (the customer) would have become liable to reimburse the bank the amount advanced by it to him when it placed the amount to his credit. This he would have to do where any cheque, crossed or not, was placed to his credit and was afterwards dishonored.' See Capital and Counties Bank v Gordon [1903] AC 240 at 248 per Lord Lindley. At issue is the bank's entitlement to reverse a credit it has entered on a customer's account in respect of a negotiable instrument or cheque deposit when the instrument in question is later dishonored. The defendant does not dispute that in the normal course of banking practice a bank may reverse such a credit. His dispute with the plaintiff turns on the situation where the bank informs the customer that a deposit has been made and the bank allows the customer to draw on the strength of, and in reliance on, the credit. On who should the loss occasioned by the dishonored cheque deposit fall - the bank or the customer? It is necessary to go into detail on the evidence of Mr Chibune so as to put my findings in their proper perspective. Mr Chibune had two clients; Texdale Consultancy and Rainbow Holdings. These two entered into an agreement. Rainbow Holdings was to receive goods from Texdale Consultancy. There was dispute as to how payment was to be effected. It was agreed that Rainbow Holdings would transfer money from their Barclays Bank account into defendants' trust account with the plaintiff. Once a representative of Rainbow Holdings confirmed receipt of goods Chibune was to pay from the deposit in his trust HH 67/04 HC1989/99 account to Texdale consultancy. Rainbow telephoned Chibune indicating that a transfer would be made the following day. This was on 8 May. On 9 May a Texdale Consultancy representative approached Chibune. He did not have proof of transfer as it was assumed Rainbow Holdings had forwarded such proof to Chibune. It was then that he telephoned Manyere who indicated that no credit transfer reflected in the defendants' account. Chibune's client then telephoned Chibune giving him a reference with which to confirm the transfer. When he contacted Barclays Bank Chibune says that that bank confirmed having effected transfer to defendants' account with plaintiff. He then advised his client to go and sort the issue between the respective banks. He wrote a cheque for $370 000.00 on the defendants' account with plaintiff payable to his client. Later that morning Manyere of the plaintiff telephoned Chibune in order to verify the authenticity of the signatures on the $370 000.00 cheque. In that conversation Mr Manyere confirmed to Chibune that indeed a voucher for transfer was being held by the bank. The effects had not however cleared but would clear on Monday or Tuesday. He asked Manyere to explain this to the bearer of that cheque. He learnt on Monday that the plaintiff had been paid when the same Textile representative came and demanded another cheque in payment of the transferred funds. He wrote another cheque. Later, to his dismay, he learnt that the plaintiff had debited to his account the sum claimed together with interest. In their plea the defendants did not allege estoppel. Even if it were held that by implication such a plea might have been investigated during trial, I am unable to say that on the evidence, the defendants have met the requirements of estoppel. The defendants seem to rely on the fact that as the loss was due to plaintiff's failure to satisfy itself that the clearance voucher was genuine, they cannot be held liable. I cannot agree. The fact is that the bank, by paying Nyanyiwa on behalf of the defendants, was entitled to look to the defendants for that value. This basic accounting relationship created by debit and credit HH 67/04 HC 1989/99 entries in the account held by the bank was not disputed by the defendants. The law treats the relationship between banker and customer as a contractual one. The reciprocal rights and duties included in the contract are to a great extent based upon custom and usage . It is now accepted that the basic, albeit not the sole, relationship between the banker and customer in respect of a current account is one of debtor and creditor. See Joachimson v Swiss Bank Corporation [1921] All ER 92 ([1921] 3KB 110 (CA)). Willis' Banking in South African Law at pg 37 states:- "Current practice in banking operations is for a bank to credit a customer's account immediately upon deposit of funds, even though the payment of cheques in that deposit (has) not yet (been) collected. The bank will then debit the account of the customer in the event of any cheques being dishonored when sent for collection." ZULMAN JA in ABSA Bank Limited v I. W. Blumberg and Wilkinson 1997(3) SA 669 at pg 675 stated, "The fact that the appellant might have permitted the respondent to draw cheques against uncleared effect, despite there being no agreement in this regard, would not excuse the respondent in law from liability to make payment to the appellant. The appellant was perfectly entitled to choose to honour such cheques, notwithstanding the fact that the effects earlier deposited had not been cleared, and to waive any benefit afforded to it in this regard by its agreement with the respondent. It would be strange indeed if it were permissible for a customer of a bank to draw a cheque on a bank requesting the bank to honour the cheque and thereafter, when the bank honoured the cheque despite the absence of an overdraft facility, to then plead that this could have resulted in an overdraft which had not been agreed upon. In essence this is precisely what the respondent is contenting for. It hardly lies in the mouth of the respondent who drew the two cheques in question against uncleared effects, albeit contrary to the agreement between the parties, to be heard to complain that the bank should not have honoured the cheques and debited its account. Put differently, it is the appellant, so it is suggested, who must bear the loss if the uncleared effects were not met. This cannot be so." In Cuthbert v Robarts Lubbock & Co [1909] 2 Ch 226 at 233 Cozans- Hardy MR put it this way, "If a customer draws a cheque for a sum in excess of the amount HH 67/04 HC1989/99 standing to the credit of his current account, it is really a request for a loan, and if the cheque is honoured the customer has borrowed money." The ABSA case is on all fours with the present case. In that case a law firm in which Blumbeg was practising for his own account drew cheques on his bank account held by the Appellant on the understanding that a foreign bank deposit to his account would be good. It turned out that the deposits had not been genuine. The bank sued. A quo, respondent pleaded negligence on the bank's part. He won. On appeal he lost. I find myself in respectful agreement with his lordship's remarks. They are applicable in the present case. As Zulman held in the ABSA case, the fact that the defendants account was "a trust banking account" is irrelevant for the purpose. In the result I dismiss the defendants counter claim with costs and grant judgement for plaintiff with costs as prayed with the summons. Gill, Godlonton and Gerran, plaintiffs legal practitioners Honey & Blanckenberg, defendant legal practitioners