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Bluebook 21st ed.

Benjamin Geva, The Beneficiary's Bank and Beneficiary Described by Name and Number:
Liability Chain and Liability Standard in Wire Transfers (Part I), 2004 J. S. AFR. L.
1 (2004).

ALWD 7th ed.

Benjamin Geva, The Beneficiary's Bank and Beneficiary Described by Name and Number:
Liability Chain and Liability Standard in Wire Transfers (Part I), 2004 J. S. Afr. L.
1 (2004).

APA 7th ed.

Geva, Benjamin. (2004). The beneficiary's bank and beneficiary described by name and
number: liability chain and liability standard in wire transfers (part i). Journal of
South African Law , 2004(1), 1-19.

Chicago 17th ed.

Benjamin Geva, "The Beneficiary's Bank and Beneficiary Described by Name and Number:
Liability Chain and Liability Standard in Wire Transfers (Part I)," Journal of South
African Law 2004, no. 1 (2004): 1-19

McGill Guide 9th ed.

Benjamin Geva, "The Beneficiary's Bank and Beneficiary Described by Name and Number:
Liability Chain and Liability Standard in Wire Transfers (Part I)" [2004] 2004:1 J S
Afr L 1.

AGLC 4th ed.

Benjamin Geva, 'The Beneficiary's Bank and Beneficiary Described by Name and Number:
Liability Chain and Liability Standard in Wire Transfers (Part I)' [2004] 2004(1)
Journal of South African Law 1

MLA 9th ed.

Geva, Benjamin. "The Beneficiary's Bank and Beneficiary Described by Name and Number:
Liability Chain and Liability Standard in Wire Transfers (Part I)." Journal of South
African Law , vol. 2004, no. 1, 2004, pp. 1-19. HeinOnline.

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Liability Chain and Liability Standard in Wire Transfers (Part I)' (2004) 2004 J S
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The beneficiary's bank and beneficiary
described by name and number: liability
chain and liability standard in wire transfers
(part 1)
BENJAMIN GEVA*

I Introduction
The wire transfer is a species of a credit transfer, or in the American terminol-
ogy, funds transfer. A credit (or funds) transfer is a payment transaction under
which the payor "pushes" funds from the payor's account to that of the payee.
It is to be contrasted with the debit transfer, such as the cheque collection, in
which the payee, acting under the payor's authority, collects or "pulls" funds
to the payee's account, from that of the "payor". While a credit transfer is
initiated by the payor's instructions to the payor's bank, a debit transfer is
initiated by the payee's instructions, acting under the payor's authority, to the
payee's bank. So far as entries are posted to accounts of parties, a credit
transfer (or "credit push") commences with a debit to the payor's account
and concludes with a credit to the payee's account. This is the reverse of the
banking operation in a debit transfer (or "debit pull") where the process com-
mences with a credit (albeit provisional) to the payee's account and concludes
with a debit to the payor's account.
In a credit transfer, the payor is the "originator" and the payee is the
"beneficiary". Their respective banks are the "originator's bank" and the
"beneficiary's bank". A credit transfer from the originator's account in one
bank to the beneficiary's account in another bank is an interbank transfer. In
an interbank transfer, having debited the originator's account, the originator's
bank carries out the originator's instructions by issuing its own instructions
either to its correspondent, acting as an intermediary bank, or directly to the
beneficiary's bank. Each set of instructions in the performance of a credit
transfer is a "payment order". A payment order may be communicated in
writing, electronically, and under some conditions, even orally. Ultimately,
the credit transfer is carried out by one or more payment orders, each from
a sender to a receiving bank, and each moving funds from the sender to the
receiving bank. Movement of funds could be by means of a debit or credit
posted to an account one has with the other. Where the sender is a bank,
movement of funds could also be by means of entries to accounts both sending

* Professor of Law, Osgoode Hall Law School of York University, Toronto, Canada. An earlier
draft of this article was presented and circulated as part of the programme papers at the Annual
Banking Law Update, 23 April 2003, in Johannesburg, and subsequently on 30 April 2003 at the
Law and E-Commerce Conference in Stellenbosch. Research assistance provided by Oby Agu of
Osgoode Hall Law School is acknowledged with gratitude. For insightful comments provided on
a previous draft, I am mostly grateful to Rob Petersen SC, who was one of the defendant's
counsel in the principal case that precipitated this article. Any remaining error or misinterpreta-
tion is entirely mine.

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2 GEVA

and receiving banks hold with another bank, which may act as a central coun-
terparty.
The wire transfer is a credit transfer, in which interbank payment orders are
processed individually or in small batches. It is characterised by a single trans-
action focus, speed and high security. In the past, before the advent of SWIFT,
an interbank payment order in a wire transfer was typically communicated by
wire or cable; that gave the payment transaction the name "wire transfer".
However, as indicated, from a strictly legal perspective, there are no media or
form requirements for a "payment
1 order" on which instructions are commu-
nicated in a wire transfer.
This article deals with issues evolving around the identification of the ben-
eficiary in the last payment order in the credit transfer received by the last bank
in the transfer chain ("beneficiary's bank"), the duties of the beneficiary's bank
in the case of an ambiguous description of the beneficiary in the payment
order, and the liability of the beneficiary's bank in case it broke such duties.
A beneficiary may be described in a payment order by name, account number,
or both. Identification is per the description of the beneficiary in the payment
order received by the beneficiary's bank; unless a communication error oc-
curred, this is the same description as in the originator's one. 2 A beneficiary
may be identified erroneously in a payment order when it is identified by both
name and account number, and the account number does not belong to that
named beneficiary. The ambiguity in the instructions
3
may have been generated
either by mistake or by fraudulent design.
A mistake in the originator's organization could be caused by human error
or due to malfunction in internal automated systems. An example of a frau-
dulent design is where a dishonest insider in the originator's organization
manages to generate a payment order from the originator that appears to
instruct payment, out of the originator's account, into an account of a genuine
creditor of the originator, or even into another account of the originator itself,
at the beneficiary's bank. The payment order identifies the beneficiary by name
and account number. In effect, the named beneficiary is not the account
holder.4
The fraudulent insider may be an employee or agent with authority to issue a
binding payment order on behalf of the originator. Alternatively, the fraudu-
lent insider is one in a position to provide those with authority to bind the
originator with incorrect beneficiary information. The destination account
identified by number belongs to the insider, an accomplice of the insider, the
mastermind of the fraud for whom the insider is the accomplice, or even to a

1For an overview (regarding the first three paragraphs of this article), see eg, Geva "International
funds transfers: mechanisms and laws" in Reed, Waldren and Edgar (eds) Cross-Border Electronic
Banking Challenges and Opportunities (2000) 1.
2 This article supposes that the beneficiary's description in the payment order received by the
beneficiary's bank conforms to that in the originator's payment order. The article will not deal
with issues arising when the payment order received by the beneficiary's bank differs in content
(such as, in beneficiary's description) from that of the originator. Errors in transmission and
execution are respectively dealt with in the US by s 4A-206 and -303 of the Uniform Commercial
Code ("UCC").
3 See Official Comment 2 to UCC par 4A-207.
4 An example is where the payment order instructs payment to account no 12345 of X. In fact, the
account holder of account no 12345 is Y and not X.

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THE BENEFICIARY'S BANK AND BENEFICIARY DESCRIBED BY NAME AND NUMBER J

genuine but unsuspecting bona fide creditor of the defrauder.5 Through the use
of either the originator itself or one of its creditors as named beneficiary, the
fraudulent payment order does not raise any suspicion in the originator's
organization. In devising the fraudulent scheme, the perpetrator counts on
processing at the beneficiary's bank on the number alone.
Indeed, in an automated processing environment, the beneficiary's bank is
bound to overlook the named beneficiary, so as to misdirect the funds into the
destination account, identified in the payment order by number. In a fraudu-
lent design, this implements the perpetrator's scheme.
A case involving a payment order instructing payment to a beneficiary iden-
tified by name and number, in which the destination account does not belong
to the named beneficiary, whether generated by mistake or fraud, may be
referred to as a case of inconsistent beneficiary information; a case of incon-
sistency, incompatibility, or discrepancy between beneficiary's name and num-
ber; or a case where name and number do not match. In such a case, recourse is
available against the holder of the destination account, the innocent actual
recipient of payment. Recovery is also available against any defrauder, where
there is one. The remedy is in restitution; against a defrauder, it is also in fraud.
Only too often, however, absconding defrauders and innocent recipients are
not promising defendants; each may be far away, impecunious, or even insol-
vent. As well, an innocent recipient may successfully raise a defence under the
law governing mistake and restitution, such as change of position or discharge
for value. 6 Loss is then initially allocated to the originator, whose account was
debited; whether the payment order was fraudulent or not, it was an authorized
payment order on behalf the originator, so that the originator's bank was
justified in debiting the originator's account. The question is then whether
the originator may pass the loss onto the beneficiary's bank that did not verify
consistency between name and number and acted on the number. Two issues
come up: first, that of breach of duty by the beneficiary's bank, and second,
chain of liability, that is, who can sue whom.
Gilbey Distillers and Vintners (Pty) Ltd v Absa Bank Limited involved a
payment order instructing payment to a beneficiary identified by name and
account number. 7 The account number did not belong to the beneficiary as
named in the payment order. In its action, the originator attempted to recover
from the beneficiary's bank amounts that could not be recovered from the
recipient to whose account funds were paid. The judgment does not tell us
whether this was a case of an internal error or fraud; nevertheless, nothing
would have turned on it. The court held that the beneficiary's bank was not
liable to the originator in either contract or delict. The issue of the duties of the
beneficiary's bank in matching between name and number for a beneficiary
was not dealt with in the judgment.

5 See eg, Securities Fund Services, Inc v American National Bank and Trust Co of Chicago 542 F
Supp 323 (ND 111 1982).
6 A leading authority in the US for the discharge for value defence, dispensing with the good faith
change of position, and being satisfied with the good faith application of the payment to the
discharge of a debt owed to the recipient, see Banque Worms v Bank America International77 NY
2d 362, 568 NYS 2d 541 (NY CA 1991), applied 928 F 2d 538 (2d Cir NY 1991).
7 Case 12698/94 (unreported 4 Dec 1998 (C)), per Brand et Traverso JJ. I provided expert assistance
to the defendant. Throughout this article, I endeavoured to restrict myself to the facts of the case
only as in the judgment.

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This article will examine both issues, that of chain of liability, and that of
breach of duty by the beneficiary's bank. Stated otherwise, both the origina-
tor's cause of action against the beneficiary's bank, and duties fastened on
beneficiary's bank in matching name and number, are covered. The article
will present an outsider's view of the determination of pertinent issues under
South African law in a broader comparative context. I will be using some of my
published research,8 but will also be seizing on the opportunity to build and
expand on it.
Following the introduction in part 1, part 2 presents the facts of the case and
the principal issues. Part 3 discusses the resolution of these issues under article
4A of the American Uniform Commercial Code which is a most comprehen-
sive statute dealing with rights and obligations of participants in a credit
transfers. In the absence of such a statute in South Africa, the issues are to
be determined under general principles of law. Part 4 presents the treatment of
the issues by the court. Part 5 is a critical evaluation of this treatment. Part 6
deals with the issue not covered by the judgment, that of the obligations of the
beneficiary's bank to match name and number for a beneficiary of a payment
order. The conclusion of part 6 favours the passage of legislation; it is however
argued that principles derived from article 4A may be adopted by case law to
govern a situation such as in Gilbey.

2 Gilbey v Absa Bank: Facts and issues

Gilbey 9 was an action by Gilbey Distillers and Vintners (Pty) Ltd, carrying on
business in the production, distribution and marketing of alcoholic beverages
under the trade name Gilbeys ("Gilbeys") against Absa Bank Limited, a de-
posit-taking institution, successor in interest of Bankorp, whose trading name
was Trust Bank.10 The matter came before the court by way of an exception to
the plaintiffs particulars of claim. Subsequent to the judgment in the matter,
the parties settled. As a result, no final word was pronounced on any of the
issues. Furthermore, in the particular context of an exception to the particular
of claims, not all issues required a determination or even a discussion. Yet,
some points were exhaustively dealt with. In the final analysis, the case gives a
good opportunity to address fundamental issues in the law of wire transfers,
particularly as they pertain to the position of the beneficiary's bank, and thus
merits an exhaustive discussion.
The facts that gave rise to the action are set out as follows. During Septem-
ber and October 1991 eight transfers, totalling R103 million, were effected by
the Cape Town corporate branch of First National Bank of Southern Africa
("FNB") to the Heerengracht Branch of Trust Bank in Cape Town. In each
instance the transfer was effected pursuant to delivery by FNB to Trust Bank

Particularly, Geva Bank Collections and Payment Transactions: Comparative Study o1 Legal
Aspects (2001) (hereafter: "Bank Collections"). See also Geva La of Electronic Funds Tranfetrs
(1992-2002) ch 2; as well as Geva "Allocation of sender risks in wire transfers the common law
and UCC Article 4A" 1997 TSAR 15 and 198.
9 (n 7).
10The corporate history is set out in n 4 at 14 of the judgment. According to the particulars of the
claim, Bankorp traded under the names of Trust Bank, Senbank and Bankorp. See n 6 at 14 of
the judgment.

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THE BENEFICIARY'S BANK AND BENEFICIARY DESCRIBED BY NAME AND NUMBER )

of a "clearance voucher" and a "credit transfer form". Each transfer was

effected from funds held by FNB for Gilbeys and in each instance FNB acted
upon a written telefax instruction from Gilbeys.
Each of Gilbeys' written telefaxes instructed FNB to make payment out of
Gilbeys' account at an account maintained at Trust Bank Heerengracht. The
telefax that is part of one set of documents reproduced in the judgmentli
instructed the transfer of a specified sum from Gilbeys' account 500/233084
with FNB to account 01238320603 of "Trust Bank (Gilbeys)" at Trust Bank
Heerengracht and was properly signed. The judgment does not provide any
information on variations in the language of each telefax instruction. It was
however pleaded that in each case FNB properly
12 acted as an agent for Gilbeys,
pursuant to Gilbeys' telefax instruction.
In executing each of Gilbeys' telefaxed instructions, FNB issued to Trust
Bank a credit transfer form and a clearance voucher. Each credit transfer form
was issued by FNB, 13 and instructed the beneficiary's bank to credit a bene-
ficiary's account. It was addressed to Trust Bank, Heerengracht Branch (as the
beneficiary's bank), identified Gilbeys as the remitter, and following Gilbeys'
telefaxed instructions, identified the destination account as 01238320603. Five
credit transfer forms identified the beneficiary as "Trust Bank (Gilbeys)". The
three remaining credit transfer forms identified the beneficiary as "Trust
Bank," that is, with no reference, in brackets or otherwise, to Gilbeys (other
than as the remitter).
Each clearance voucher was issued by the FNB corporate branch in Cape
Town and was properly signed. It acknowledged that FNB holds at the dis-
posal of Trust Bank, Heerengracht, a specified sum of money, "to be ac-
counted for in the next settlement". On six clearance vouchers the specified
sum so held was described as "Being: Trust Bank (Gilbeys) B/O Gilbeys". 14 On
two clearance vouchers, the sum so held was described as "Being: Trust Bank
B/O Gilbeys", that is, without the name "Gilbeys" following, in brackets or
otherwise, the name of "Trust Bank", other than as the remitter of the pay-
ment. 15 Stated otherwise, six clearance vouchers referred to funds transfers
from Gilbeys to Trust Bank (Gilbeys) while two clearance vouchers referred
to transfers from Gilbeys to Trust Bank. No beneficiary's account number was
specified in any of the credit vouchers.
Altogether then, eight payments were instructed and carried out. For five
payments, the beneficiary was effectively identified as "Trust Bank (Gilbeys)"
on both the credit transfer form and the clearance voucher. For two other
payments the beneficiary was identified on both the credit transfer form and
the clearance voucher as "Trust Bank". For one payment, the beneficiary was
identified as "Trust Bank" on the credit transfer form and "Trust Bank

11(n 7) 6. The factual background is set out by the court on 4-13. On occasion, it has to be
supplemented from the particulars of the claim set out on 14 of the judgment.
12 (n 7) 14; par 7.2 of the particulars of the claim.
13 The standard form reproduced in the judgment did not identify the particular FNB branch. Nor
did it seem to bear FNB's signature(s). Yet, nothing turned on these two facts.
14 B!O stands for "by order of'; hence it identifies the remitter indicated on the credit transfer
form.
15 This variation, while not spelled out clearly in the judgment emerges from par 7.4 and 7.5 of the
particulars of claim as reproduced on 14 of the judgment.

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0 GEVA

(Gilbeys)" on the clearance voucher. 16 Each credit transfer form and clearance
voucher identified Gilbeys as the remitter. Beneficiary's account was desig-
nated as 01238320603 in each credit transfer form but was not specified at
all on any clearance voucher. It can be assumed that for each transfer, the
three operative documents, namely, Gilbeys' telefaxed instructions, FNB's
credit transfer form, and FNB's clearance voucher, were issued on the same
date. It can further be assumed that for each such set of documents there was
no internal discrepancy in the amount and that particularly, the credit transfer
form and the clearance voucher were properly paired. 17 The omission of "(Gil-
beys)" from the credit transfer form, but not from the clearance voucher, was
thus the only evident internal discrepancy within a set of document relating to
one payment.
In each instance, FNB debited Gilbeys' account with the amount of the
transfer. On its part, purporting to carry out FNB's instructions pursuant to
the clearance voucher and credit transfer form," Trust Bank Heerengracht
credited the destination account, 01238320603, identified for each transfer on
FNB's credit transfer form (but not clearance voucher). In fact, this account
belonged to Fundstrust (Proprietary) Limited ("Fundstrust"), that carried on
business as funds managers in the capital and money markets. Not being
registered as a deposit-taking institution, 19 Fundstrust was prohibited from
receiving deposits from the general pubic. In the circumstances, there was no
payment owed by Gilbeys to Fundstrust. Fundstrust was liquidated on 22
November 1991, by which date all but R45 million of the R103 million had
been refunded to Gilbeys by Fundstrust. Gilbeys had received from Fund-
strust's liquidators dividends totalling R12 036 144. The claim by Gilbeys
against Trust Bank was essentially for R32 963 856, namely, for the amount
of R45 million that had not been refunded, less the R12 036 144 dividend on it,
plus interest.
The particulars of claim did not elaborate as to whether Gilbeys' instructions
to FNB were induced by fraud or honest error. Claim was for funds that could
not be recovered from the insolvent recipient, and there is no reference to any
defrauder, not to mention any recovery from a defrauder. Rather, Gilbey was
an action by the originator against the beneficiary's bank for misdirecting
funds in breach of duty.

16This is so since there were six clearance vouchers but only five credit transfer forms with the
"Trust Bank (Gilbeys)" identification. There is no explanation in the judgment as to this internal
inconsistency in that one set and nothing turned on the fact that one such a document in the set
must not have followed the designation of the beneficiary in the telefaxed instructions that
triggered that transfer.
17The judgment reproduces (6) only one set of documents, from which, and in conjunction with the
discussion that follows, these conclusions may be drawn. In fact, it is not obvious how each
credit transfer form and clearance voucher pertaining to the same payment cross-referenced each
other, other than by transaction details (such as names of parties and sums of money). Yet,
nothing turned on this, from which one could surmise adequate cross-referencing.
18 The judgment specifically states (4) that "[i]n each instance the transfer was effected pursuant to
delivery by FNB to Trust Bank of a 'clearance voucher' and a 'credit transfer form' ". As to
which between the two is the effective payment order containing the instructions on which Trust
Bank was to act on, will be touched on in text at n 135-136 below.
19Relevant legislation cited by the court in n 5 at 14 is the Deposit Taking Institutions Act, 94 or
[sic] 1990.

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THE BENEFICIARY'S BANK AND BENEFICIARY DESCRIBED BY NAME AND NUMBER /

The issue dealt by the court is that of the availability to Gilbeys of a cause of
action against Trust Bank. The court held that no such cause of action existed,
which in the circumstances, precluded further discussion as to obligations of
Trust Bank as the beneficiary's bank in the credit transfer. This article will
examine the disposition of the privity issue and will further discuss the obliga-
tions of a beneficiary's bank. In the absence of a specific statute in South
Africa, the issue is governed by general principles of law. To that end, the
issues will be examined in a broader comparative context. Particularly, article
4A of the American Uniform Commercial Code is a most detailed statute
specifically governing rights and obligations of participants in a credit transfer.
To highlight the relative advantage of specific legislation, the discussion will
commence by examining how the case would have been resolved under UCC
article 4A.

overview 2
0
3 UCC Article 4A
In the United States, the situation dealt with in this case would have been
governed by article 4A of the Uniform Commercial Code. In the Prefatory
Note to UCC article 4A, the drafters explained the need for article 4A on the
basis of the absence of a "comprehensive body of law that defines the rights
and obligations that arise from wire transfers". They recognized that rules
based on contract and funds transfer system rules may not reach parties not
in privity of contract and that analogy with laws governing other payment
mechanisms is of limited value. They thus concluded that in the absence of a
specific statute "[t]he result is a great deal of uncertainty. There is no consensus
about the juridical nature of the wire transfer and consequently of the rights
and obligations that are created". Hence, Article 4A was intended to fill the
gap and "provide the comprehensive body of law that we do not have today".
Under the terminology of article 4A, Gilbeys' payments were carried out as 22
"funds transfers".-2 In each funds transfer, Gilbeys was the "originator,,
FNB was the "originator's bank,"'23 and Trust Bank was the "beneficiary's
bank". 24 Apparently, no "intermediary bank" was involved.25 The "benefi-
ciary" was identified by name as either "Trust Bank (Gilbeys)" or "Trust
Bank" as well as by Fundstrust's account number. 26 Gilbeys' instruction to

20 Some aspects of the position of the beneficiary's bank under UCC a 4A, particularly in the
context of s 4A-207(b) and (c) in relation to s 4A-207(a), are more extensively discussed below in
part 4.
21 See definition in UCC par 4A-104(a).
22See definition in UCC par 4A-104(c).
23 See definition in UCC par 4A-104(d).
24See definition in UCC par 4A-103(a)(3).
25"Intermediary bank" is defined in UCC par 4A-104(b) as a receiving bank other than that of the
originator or the beneficiary. "Bank" is defined in s 4A-105(a)(2) to include a branch or separate
office of a bank so that if the transfer between the respective branches of FNB and Trust Bank
was intermediated by any separate office of either of these two banks, such separate office would
be considered an "interrnediary bank" under a 4A. There is nothing in the judgment to suggest
the involvement of such separate office of either bank, and anyway, in the final analysis, nothing
would have turned on this.
26"Beneficiary" is defined in UCC par 4A-103(a)(3). S 4A-207)(b) envisages both name and
account number as methods for the description of the beneficiary.

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6 GEVA

FNB was a "payment order", 2 7 that was "executed ' 28 by FNB's own payment
order to Trust Bank. Under article 4A, parties to each payment order, of which
a funds transfer consists, are the "sender" and "receiving bank". 29 Accordingly
in the case at bar, in each funds transfer, Gilbeys was the "sender" and FNB
was the "receiving bank" of the first payment order. In turn, FNB was the
"sender" of the second payment order and Trust Bank was its "receiving
bank".
The following provisions would have governed Gilbey under UCC article
4A:
1. In principle, liability under UCC article 4A is premised on strict privity as
well as personal liability requirements. Under section 4A-212, "A receiving
bank is not the agent of the sender or beneficiary of the payment order it
accepts, or if any other party to the funds transfer" so that "the bank owes
no duty to any party to the funds transfer except as provided by this
Article or by express agreement". No vicarious liability is fastened by
article 4A on one bank for an action or default by another bank.
2. However, under UCC paragraph 4A-402(c) and (d), when a funds transfer is
not completed by acceptance of the beneficiary's bank of a payment order
instructing payment to the beneficiary of the originator's payment order, the
originator is excused from paying the originator's bank or is entitled to a
refund from the originator's bank if payment has already been made. This is
known as the "money-back guarantee rule"30 that operates as an exception
to the general rule of section 4A-402 under which a sender incurs liability to a
receiving bank that accepted the sender's payment order.
3. Acceptance is governed by UCC paragraph 4A-209; acceptance by a
receiving bank other than the beneficiary's bank is by the execution of a
conforming payment order. Acceptance by the beneficiary's bank is either
by receiving payment or making payment to the beneficiary. Under section
4A-402(b), it is upon acceptance of the payment order sent to it, that the
beneficiary's bank is entitled to payment from its own sender. At the same
time, it is in the absence of an effective acceptance by the beneficiary's
bank, that the originator may invoke the "money-back guarantee rule" of
section 4A-402.
4. The effectiveness of acceptance in the case of misdescription of the
beneficiary is governed by section 4A-207 (a) and (b). The general
principle, codified in section 4A-207(a), is that no acceptance by a
beneficiary's bank could occur for a payment order directing payment to a
beneficiary who is nonexistent or unidentifiable. Surely, a beneficiary
identified by name and account number that identify different persons
would have fallen under the latter provision. Yet, UCC paragraph 4A-
207(a) is stated to be superceded by section 4A-207(b); the latter applies to

27 See definition in UCC par 4A-103(a)(1).

28 Under UCC par 4A-301 (a), "A payment order is 'executed' by the receiving bank when it issues
a payment order intended to carry out the payment order received by the bank. A payment order
received by the beneficiary's bank cannot be executed."
29 See definitions in UCC par 4A-103(a)(5) and (4) respectively.
30 See Official Comment 2 to s 4A-402. In fact, the "money-back guarantee rule" benefits each
sender in the funds transfer and not only the originator.

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THE BENEFICIARY'S BANK AND BENEFICIARY DESCRIBED BY NAME AND NUMBER Y)

the case in which a payment order received by the beneficiary's bank

identifies the beneficiary both by name and by an identifying or bank
account number, and the name and the number identify different persons.
5. In such a case of inconsistency between a beneficiary's name and account
number, under section 4A-207(b)(1), a beneficiary's bank which does not
know that the name and number identify different persons, need not
determine the consistency between name and number and may rely solely
on the number as the proper identification of the beneficiary. Acceptance
by it on the basis of the number alone is thus valid, and hence deemed to be
of a payment order instructing payment to he beneficiary of the
originator's payment order.
6. Conversely, under section 4A-207(b)(2), other than in the unusual case of
payment to a named beneficiary who was anyway entitled to receive
payment from the originator of the funds transfer, no protection is
accorded to the beneficiary's bank, that in case of name and number
identifying different persons, either pays the named beneficiary, or pays
into the account with knowledge that the named beneficiary and the holder
of the account identified by number are different persons. Under such
circumstances, acceptance by the beneficiary's bank of the payment order
addressed to it "cannot occur", and hence the funds transfer has not been
completed. In such a case, the originator may invoke against the
originator's bank the "money-back guarantee rule" of section 4A-402.
As well, in the absence of effective acceptance, the beneficiary's bank is not
entitled to receive payment from its won sender.
7. In any event, under section 4A-207(c), acceptance by the beneficiary's
bank on the basis of number alone without knowledge of the inconsistency
between name and number, while in itself valid, so as to entitle the
beneficiary's bank to payment from its own sender under section 4A-
402(b), may not always bind a non-bank originator as against the
originator's bank. To be bound, a non-bank originator must have been
advised by the originator's bank of the possibility that payment might be
made by the beneficiary's bank on the basis of an identifying or bank
account number even if it belongs to a person different from the named
beneficiary. 31 Where notice was not properly given by the originator's
bank to the non-bank originator, loss is allocated to the originator's bank.
8. Recovery from the account holder properly paid by the beneficiary's bank
(under subsection (b)(1)) but with no right to receive payment from the
originator is governed by section 4A-207(d). There, "where the bene-
ficiary's bank rightfully pays the person identified by number and that
person was not entitled to receive payment from the originator, the
amount paid may be recovered from that person, to the extent allowed by
the law governing mistake and restitution". Recovery under section 4A-
207(d) may be made by the one on whom loss is allocated under section

31 Where payment by the beneficiary's bank was not made to "the beneficiary of the originator's
payment order" within the meaning of s 4A-406(a), the originator is not discharged from its debt
to the intended beneficiary, and thus, other than for sums recovered from the unintended
recipient under s 4A-207(d), as discussed immediately below, the originator who is bound under s
4A-207(c) ends up paying both to the originating bank (under s 4A-207(c)) and the intended
beneficiary (for the original debt still to be paid).

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4A-207(c). The latter is either the non-bank originator who was advised of
the possibility of action on the basis of number alone, or the originator's
bank that failed to give the notice. But there is no action against the
beneficiary's bank that acted on the number without knowledge that it
referred to a person other than the named beneficiary.
On the facts of Gilbey, section 4A-212 would have precluded Gilbeys from
suing both Trust Bank directly as well as FNB. This is so since Trust Bank
was the beneficiary's bank with which Gilbeys (as the originator) was not in
privity, and FNB, the originator's bank in privity with the originator Gilbeys,
could not be held liable for the alleged breach or default of Trust Bank.
However, in the absence of acceptance by Trust Bank of a payment order
instructing payment to a beneficiary of Gilbeys' payment order as issued to
FNB, Gilbeys would have been entitled to a refund from FNB under the
"money-back guarantee rule" of section 4A-402(c) and (d). Per section 4A-
402(b), in the absence of acceptance by Trust Bank, FNB would not have been
obliged to pay Trust Bank. Thus, in the absence of acceptance by Trust Bank,
Gilbeys would not have been able to recover directly from Trust Bank, though
it might have been able to pass on the loss to Trust Bank through FNB.
Presumably, per general principles of law, Trust Bank would have then been
left with a claim in restitution against Fundstrust.
Conversely, upon valid acceptance, Trust Bank would have been fully pro-
tected. In such a case, per section 4A-207(c), Gilbeys would have been entitled
to recover from FNB only if Gilbeys had not been properly advised of the
possibility of processing at Trust Bank solely on the basis of number. Had
Gilbeys been advised, it would not have been able to recover from FNB.
Between Gilbeys and FNB, whoever would have borne the loss towards Trust
Bank under section 4A-207(c), would have been left, under section 4A-207(d),
with an action in restitution against Fundstrust.
In sum, unless advised of the possibility of processing solely by number at
Trust Bank, Gilbeys would have been entitled to recovery, though from FNB
and not Trust Bank, only in the absence of valid acceptance of Trust Bank. As
well, on its part, and regardless of any notification to Gilbeys, Trust Bank
would have been exposed to liability, though to FNB, and would become
the one left with the action in restitution against Fundstrust, only where no
valid acceptance had taken place.
The occurrence of acceptance, which is then the crux of the matter, would
have been determined by section 4A-207(a) and (b). Regarding subsection (a),
the question would have been whether in the payment order received by Trust
Bank "the name, bank account number, or other identification of the bene-
ficiary refers to a nonexistent or unidentifiable beneficiary", in which case,
"acceptance of the order cannot occur". In the facts of the case, the designa-
tion of "Trust Bank" as the beneficiary of the funds transfer, cannot be said to
be a designation of "a nonexistent or unidentifiable beneficiary".
At the same time, the designation of "Trust Bank (Gilbeys)" is certainly that
of a nonexistent or unidentifiable beneficiary. 32 Indeed, one may argue that a

32 For the distinction between "nonexistent" and "unidentifiable", see eg, Geva Bank Collections (n
8) 529-536.

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payment order received by Trust Bank instructing payment to, what is in effect,
Fundstrust's account for either "Trust Bank (Gilbeys)", or "Trust Bank",
identifies the beneficiary (by account number) as Fundstrust. It also contains
further instructions to the beneficiary, as to how to distribute the funds, 33 so as
to be capable of being properly accepted in favour of Fundstrust as the ben-
eficiary. Nonetheless, this analysis became moot in light of the fact that Gilbey
would have fallen under subsection (b), which is stated, in subsection (a), to
supercede subsection (a).
As indicated, subsection (b) governs the case of "a payment order received
by the beneficiary's bank [that] identifies the beneficiary both by name and by
an identifying or bank account number" in circumstances where "the name
and the number identify different persons". Certainly, a payment order that
identifies the beneficiary by (what is effectively) Fundstrust's account number
and by "Trust Bank" name is a payment order in which "the name and the
number identify different persons". It however appears that this is equally true
for a payment order that identifies the beneficiary by (what is effectively)
Fundstrust's account number and "Trust Bank (Gilbeys)" name. Stated other-
wise, subsection (b) does not require both "different persons", one identified
by name and the other by account number, to be existing and identifiable; for a
payment order identifying a beneficiary by name and number, there is nothing
to preclude subsection (b) from applying to the situation when the named
beneficiary is "nonexistent or unidentifiable" in the sense of subsection (a).
This interpretation is supported by case law, and is also logical. As will be
discussed further below," subsection (b) was designed to protect a benefi-
ciary's bank processing a payment order exclusively on the basis of the number
identification, and allow that bank to disregard the name identification; to that
end, it would not have mattered if the name itself is or is not of an existing or
identifiable person.
In the facts of the case, according to subsection (b)(1) and (2), where Funds-
trust was not entitled to receive payment from Gilbeys, the effectiveness of
Trust Bank's acceptance on the basis of the number alone would thus have
been dependent on whether Trust Bank had known that name and number
referred to different persons, that is, per above, whether Trust Bank had known
that the account identified by number (belonging to Fundstrust) did not belong
to the named beneficiary (either "Trust Bank" or "Trust Bank (Gilbeys)"); this
is so regardless of whether by itself the name (either "Trust Bank" or "Trust
Bank (Gilbeys)") was of an existing or identifiable beneficiary. Acceptance
would have been effective only if made on the basis of the number alone
without such knowledge.

33 Cf Tzaras r Evergreen InternationalSpot Trading 2003 WL 470611 (SDNY), in which payment

orders instructed payment to a beneficiary, properly identified by name and account number,
"for further credit" to the originator into sub-accounts. In fact, no such sub-accounts existed,
and the beneficiary's bank did not act beyond crediting the beneficiary's account. It was held
that effective acceptance by the beneficiary's bank had taken place, irrespective of whether the
beneficiary itself complied with the "further credit" instructions of the originator.
34 For both points, that is, case law and rationale, see part 7 below.

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4 Particularsof claim and their disposition by the court

On the basis of the conclusive academic position to that end,35 Gilbey held that
in a credit transfer, "the relationship between [an originator] and [the origina-
tor's bank] which result[s] from the transfer instructions to the latter [is] one of
mandate". 3 6 Mandate is governed in South Africa by Roman-Dutch law.37
Gilbey however further acknowledged that, "The South African banking law
most notably in regard to the relationship between banker and customer
is largely derived from English law." 38 Yet, on the particular issues, funda-
mentals of both legal systems are substantially identical.
Neither creating a trust nor initiating an assignment of a debt (that is, ces-
sion in the terminology used in South Africa) 3 but rather being "simply an
authority and instruction, from a customer to its bank, to transfer an amount
standing to the credit of that customer with that bank to the credit of [another]
account", 40 the originator's payment order is regarded in the common law as a
mandate. Where the account to be credited is with another bank, the origina-
tor's payment order generates a string of banking operations, commencing
with the debit to the originator's account and culminating with a credit to
the beneficiary's account. In each banking operation of which the credit trans-
fer consists, a bank carries out the mandate contained in the payment order it
received in performance of the originator's mandate. In this string of banking
operations or successive mandates, an intermediary bank, where needed,4 1 is a
sub-agent in English law, and sub-mandatory in South Africa, who, so far as
the orthodox position goes, 4 2 is liable to its own sender alone. It is the origi-
nator's bank, as the agent or mandatory, that is vicariously liable to its cus-
tomer, the originator, as principal or mandator, for any default by an
intermediary bank, as a sub-agent or sub-mandatory. As sub-agent or sub-
mandatory, an intermediary bank that received a payment order from the
originator's bank is answerable for its own breach to the originator's bank,
the mandatory, but not to the originator-principal-mandator. 4 3 Gilbey dealt
however with the position of the beneficiary's bank, where the law applicable is
less clear.

35 The leading academic authority cited (58 n 29) is Malan and Pretorius, Malan on Bills of
Exchange, Cheques and Promissory Notes in South African Lair (1997) 330. For the current
edition by Malan and Pretorius assisted by Du Toit (2002) see 332-333. Another academic
authority (not cited by the court) is Meiring "The South African payment system" at the 1996
Annual Banking Law Update 4.
36 (n 7) 58.
37See in general, Joubert and Van Zyl "Mandate and negotiorum gestio" in Joubert (ed) LA WSA
vol 17 (1999).
38 (n 7) 59. For the broader proposition as to the application of English law to the relationship
between banker and customer in South Africa, the court cited (59 n 31) Rosen v Barclays
NationalBank Ltd 1984 3 SA 974 (W) in fine; Standard Bank of SA Ltd v Oneanate Investments
(Pry) Ltd 1995 4 SA 510 (C) 566A-D.
39The assignment theory was specifically rejected in Libyan Arab Foreign Bank vBanker's Trust Co
[1988] 1 Lloyd's LR 259 (QB) 273, per Staughton J.
40 Royal Products v Midland Bank Ltd [1981] 2 Lloyd's LR 194 (QB) 198, per Webster J.
41 that is, whenever the originator's and the beneficiary's banks are not correspondent nor do they
settle on the books of a central counterparty.
42But cf text at n 95-101 below, as to possible inroads into this orthodoxy.
43See the Royal Products case (n 40) 198 (under English law) and Joubert and Van Zyl (n 37) 9-10
(under South African law).

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THE BENEFICIARY'S BANK AND BENEFICIARY DESCRIBED BY NAME AND NUMBER 1J

Altogether, Gilbeys' particulars of claims stated six alternative causes of

action, three in contract and three in delict. 44 Two alternative claims pre-sup-
posed that instructions received by Trust Bank were clear and unambiguous
while the other four pre-supposed that they were ambiguous. Each of the six
causes of action alleged a breach of duty in crediting Fundstrust's account.
Gilbeys' contract claims were of breach of contract established between it and
Trust Bank on the basis of the instructions contained in the clearance vouchers
and credit transfers. Under the first two contract alternatives, the instructions
were alleged to be clear and unambiguous. Under the first alternative, the
contract was alleged to be between Gilbeys, as the originator, and Trust
Bank, as the beneficiary's bank, in a credit transfer. Under the second alter-
native, the alleged contract was between Gilbeys as a customer and Trust Bank
as a bank.
As indicated, the first two contract alternative claims were premised on the
alleged proper construction of clear and unambiguous instructions. Conver-
sely, Gilbeys' third alternative claim in contract alleged that transaction docu-
ments were ambiguous. Three alternative delictual claims were equally
premised on the ambiguity of the documents. They alleged negligence in cre-
diting Fundstrust's account in breach of, first, a fiduciary obligation, second, a
duty to respect "proprietary interests" in money placed for deposit, and third,
a duty in relation to statutory prohibitions on a non-deposit taking institution
(Fundstrust) to take deposits from the public.
The court upheld Trust Bank's exceptions directed against all six alternative
causes of action. Briefly stated, the court rejected any notion that the instruc-
tions were clear and unambiguous, thereby upholding the exceptions directed
against the first two contract alternatives. With regard to the second alterna-
tive, the court also dismissed the existence between Trust Bank and Gilbeys of
a relationship of bank and customer. As against the third alternative in con-
tract, based on the ambiguity of the instructions, the exception was upheld for
lack of privity of contract between Gilbeys and Trust Bank. In fact, this rea-
soning applies to all three claims in contract. The dismissal of all three claims in
delict was premised on a conscientious refusal by the court to further extend
Aquilian liability covering pure economic losses. As well, so far as specific
claims in delict were concerned, the court rejected the existence of a fiduciary
obligation (for the first claim), proprietary interests in sums deposited with a
bank (for both first and second claims), as well as, in the facts of the case, of
any violation in connection with the prohibition against unlawful deposit tak-
ing. The following is a detailed discussion of all six causes of action and their
disposition by the court.
Gilbeys' first alternative claim in contract was premised on what was alleged
to be the "proper construction" of the instructions contained in the clearance
vouchers and credit transfers, as establishing a direct contractual relationship
between it, as the originator of the funds transfer, and Trust Bank, as the
beneficiary's bank.45 In this context, Gilbeys particularly argued that in each
case, the meaning of these instructions, and hence the contents of the contract,

44 Relevant parts of particulars of claim are reproduced on 14 of the judgment.

45 The first alternative claim was formulated in par 8-15 of the particulars of the claim, set out on
14 of the judgment and discussed by the court on 20-40.

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was clear and unambiguous. Alternatively, Gilbeys argued that the same con-
struction of the written instructions, and hence the same contract terms, could
be established with the support of evidence relating to background and sur-
rounding circumstances. For each set of instructions, the court understood the
contract pleaded to be not of a mandate or agency,46 but rather, a contract of
deposit, establishing a debtor and creditor relationship between Gilbeys and
Trust Bank. Under this analysis, such a contract was allegedly concluded by
the acceptance by Trust Bank of Gilbeys' written offer communicated to Trust
Bank, through the agency of FNB, over each set of a credit transfer form and a
clearance voucher. Under each such an alleged contract, "Trust Bank agreed to
hold the amount in question for the benefit or in the account of Gilbeys
and not to credit the Fundstrust
47
account bearing the number indicated in the
credit transfer form".
In upholding the exception directed against this first alternative in contract,
so far as it pertains to the alleged clear meaning of the documents, the court
dealt separately with the first five transfers and the last three ones. With respect
to the last three the court noted that in each case FNB's credit transfer form
identified Gilbeys as the remitter and gave the number of the account into
which payment was to be made. Each such form further instructed payment
to the credit of Trust Bank without mentioning Gilbeys, in brackets or other-
wise, as the destination party. Under such circumstances, the court accepted
Trust Bank's submission that "any suggestion to the effect that according to
their clear meaning these three documents indicated that Trust Bank is to credit
an unknown account of the remitter and not the account number specifically
stated, borders on the ludicrous". 48 But also with respect to the first five
transfers, in which each credit transfer form instructed payment to "Trust
Bank (Gilbeys)", the court agreed with Trust Bank's submission that "any
interpretation which simply ignored the specific reference to the account 49 num-
ber of [Fundstrust], cannot be described as "clear and unambiguous".
Nor did the court find alleged background and surrounding circumstances to
support contractual terms sought to be established by Gilbeys. Rather, it
agreed with Trust Bank "that such background and /or surrounding circum-
stances that are in fact pleaded by Gilbeys, do not support the interpretation of
the contract contended for by Gilbeys, but that they in fact support the oppo-
site construction, namely that Gilbeys intended that the account of Fundstrust
should be credited". 50 Such intention was attributed to the instructions them-
selves, coupled with the indication that Gilbeys knew that the account bearing
the number was in the name of Fundstrust. It was also evidenced by the fact
that Gilbeys proceeded to recover from Fundstrust, which appeared to be

46 Therefore, in this context, the court avoided discussing the issue as to whether the beneficiary's
bank is to be regarded a mandatary, sub-mandatary, or substitute mandatary for the originator
or originator's bank. But regarding the court's analysis of the third alternative claim in contract,
see text at n 55-63, below.
41 (n 7) 26.
48 (n 7) 30, emphasis in the original.
49 (n 7) 32.
'0 (n 7) 39.

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inconsistent with the position of a debtor-creditor relationship with Trust

Bank.5 '
Presumably, the intention to transfer funds to Fundstrust was derived by the
court from the interpretation of the instructions as requiring the transfer of
funds to Fundstrust to be invested for Gilbeys. Arguably, however, such inter-
pretation is possible with respect to the first five transfers, but not the three last
ones, as it is only in the first five that Gilbeys was identified in connection with
the destination party. Under this logic, in the absence of reference to Gilbeys
(other than as the remitter) in the last three transfers, funds transferred to
Fundstrust must have been viewed as earmarked for some investment involving
Trust Bank.
In upholding the exception directed against the first alternative in contract,
the court appears to suppose that the contents of the instructions communi-
cated to the beneficiary's bank are to be determined by the construction of
both the credit transfer form and the clearance voucher. Yet, it appears that the
focus of the court was on the former not the latter. 52 Regardless, the exception
was upheld on the basis of the interpretation of the particular documents, with
as well as without background and/or surrounding circumstances, as pleaded.
But in the final analysis, the court did not reject the theoretical possibility of
finding a direct contract between the originator and the beneficiary's bank, and
viewing it as a contract of deposit establishing a debtor and creditor relation-
ship. Strictly speaking, this view appears to be feasible only where the origi-
nator is also the beneficiary. Nevertheless, the view can be broadened so as to
allow in any transfer of funds, the possibility of finding a direct contract
established between the originator and the beneficiary's bank, for the deposit
of funds to the beneficiary's account. Such contract is formed by the accep-
tance by the beneficiary's bank of the originator's offer, embodied in the in-
structions communicated to the beneficiary's bank by its sending bank, acting
as the originator's agent or sub-agent.
Gilbeys' second alternative claim in contract, very much like the first one,
was premised on what was alleged to be the "proper construction" of the
instructions contained in the clearance vouchers and credit transfers. However,
in the context of the second alternative claim, the instructions embodied in
each set of a credit transfer form and clearance voucher, were alleged to estab-
lish a contractual duty towards Gilbeys by Trust Bank, not as that of the
beneficiary's bank towards the originator, but rather that of a bank to its
pre-existing customer.5 3 The exception against this theory of liability succeeded
for the same reasons underlying the success of the exception against the first
alternative claim, namely, on the basis of the failure of Gilbeys to convince the
court as to the interpretation of the instructions received by Trust Bank. Yet,

51 On this point, the court accepted Trust Bank's contention that "if the contract that Gilbeys
intended to create with Trust Bank was simply a contract between banker and customer or
debtor and creditor, there would be no basis upon which Gilbeys would have a claim against
Fundstrust". That is, "if the relationship between Gilbeys and Trust Bank was purely one of
debtor and creditor as contended by [Gilbeys] Trust Bank simply paid its own money to
Fundstrust", so that "[i]n such circumstances it would be Trust Bank and not Gilbeys who would
have claim against Fundstrust" (n 7) 38(t).
52 As explained below, in text at n 135-136, this is quite justified.
53 The second contract alternative claim was formulated in par 16-20 of the particulars of the claim,
set out on 14 of the judgment and discussed by the court on 41-49.

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the court went on to specifically reject, as a matter of fact, the existence of an

outstanding bank and customer relationship between Gilbeys and Trust Bank.
Indeed, as it happened, there had been some history, as well as expectations, of
investments by Gilbeys through Trust Bank, with past "call accounts" opened
for Gilbeys in Trust Bank to that end. Yet, there was nothing to suggest that
these accounts were still extant in September/October 1991. More generally,
Gilbeys was "unable to allege that it had any extant account with Trust Bank
at the time of the transfers or that Trust Bank had been instructed to open an
account for Gilbeys in connection with any of all the transfers". 54 Under such
circumstances, facts pleaded were held as not reasonably sustaining the infer-
ence that Gilbeys was at all material times a customer of Trust Bank.
Gilbeys' third alternative claim in contract alleged that transaction docu-
ments were ambiguous. The ambiguity envisaged arose from the fact that it
was not clear from the documents whether funds should have been held for the
benefit of Gilbeys or credited to the account identified by number, namely the
one that in fact belonged to Fundstrust. 55 Obviously, though the court did not
address the issue, it is only with respect to transaction documents naming
Gilbeys in conjunction with the beneficiary, that it could have been argued
that funds were to be held for Gilbeys. Yet, ambiguity could have existed also
as to transaction documents identifying Trust Bank as the beneficiary (with no
mention of Gilbeys) while designating (by number only) Fundstrust's account
as the destination account. Presumably, in the facts of the case, for five pay-
ments, the beneficiary was named "Trust Bank (Gilbeys)" on both the credit
transfer form and the clearance voucher; for two payments, the beneficiary was
named "Trust Bank"; and for one payment, the beneficiary was named "Trust
Bank" on5 6the credit transfer form and "Trust Bank (Gilbeys)" on the clearance
voucher.
In upholding the exception directed against this third contract alternative,
the court addressed neither the alleged existence of ambiguity in the transaction
documents nor Trust Bank's alleged duties in relation to such ambiguity.
Rather, the court disposed of the issue on the basis of privity. Having char-
acterized, for the purpose of this third contract alternative, the transaction
documents as "instructions", the court concluded that "the contract relied
upon under [that heading] is ,57
capable of only one construction, namely, that
it is a contract of mandate . The court however added, "as a matter of
banking law", that taking into account the role of Trust Bank in the transac-
tion as the beneficiary's bank, "there was no privity of contract58 between Trust
Bank and Gilbeys as originator of the payment instructions".
In the court's view, as a matter of ordinary principles of banking law, the
relationship between Gilbeys and FNB resulting from the telefaxed transfer
instructions, was one of mandate. "FNB did not become the representative of
Gilbeys. When FNB executed the instruction to transfer it functioned as a mere

14 (n 7) 46.
55 The third contract alternative was formulated in par 21-29 of the particulars of the claim (with
particulars 21-23 relating also to the alternative claims in delict discussed further below in text at
n 64-72), set out on 14 of the judgment and discussed by the court on 50-65.
56 For the facts, see text around n 12-18 above.
51(n 7) 55.
" (n 7) 56.

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THE BENEFICIARY'S BANK AND BENEFICIARY DESCRIBED BY NAME AND NUMBER I/

mandatary." 59 In this context, the court noted the absence of any local author-
ity directly in point. It specifically recognized "that the South African banking
law most notably in regard to the relationship between banker and customer
is largely derived from English law". The court thus went on to hold on the
basis of English law that "[w]here a sequence of mandates is necessary in order
to give effect to a payment instruction", namely, "where the first mandatary
has to engage a second mandatary or sub-mandatary for the purpose there
is no direct nexus between the first principal and the sub-mandatary or for that
matter further sub-mandataries that may be required". In the court's view,
"[t]he creation of such nexus between the principal and the sub-mandatary
and for that matter all sub-mandatatries all the way down the line would
60
only tend to complicate banking transactions unnecessarily".
In the course of its analysis, the court recognized that upon receiving funds
by transfer, "which are identified as being for a credit for a customer's ac-
count," a "bank has a contractual duty to that customer to credit that account
accordingly". 61 Stated otherwise, privity of contract exists between the bene-
ficiary's bank and the beneficiary. The court was further prepared to treat
"Trust Bank as sub-mandatary of FNB", 62 namely, to see the beneficiary's
bank as a sub-mandatary of the originator's bank. All this however, was of no
avail to Gilbeys. Not being a customer of Trust Bank,63 in the facts of the case,
no contractual relationship could be said to exist between them. Likewise,
being a sub-mandatary of Gilbeys, Trust Bank was exonerated from direct
liability to it for any alleged breach of the mandate.
In addition to the three alternative claims in contract, Gilbeys had three
alternative delictual claims. 64 As the third claim in contract, they were all
premised on the existence of ambiguity in the transaction documents. Gilbeys
alleged that Trust Bank did not address that ambiguity properly. More speci-
fically, the allegation was that Trust Bank addressed the ambiguity in the
transaction documents in breach of duty towards Gilbeys. Specifically, the
particulars of claim alleged the following:
1 In negligently crediting Fundstrust's account, Trust Bank broke a legal or
fiduciary obligation,65 it owed Gilbeys, to hold the money for the benefit
of Gilbeys and to protect Gilbeys proprietary interest in the clearance
vouchers and credit transfer forms and/or their proceeds.
2 In crediting Fundstrust's account, rather than placing funds to the credit of
Gilbeys, Trust Bank acted with a reckless disregard of Gilbeys' proprietary

59 (n 7) 58.
60 (n 7) 60; emphasis in the original.
61 (n 7) 57; emphasis added.
62 (n 7) 60. This, however, ought to be taken to mean mandatary for FNB, and sub-mandatary for
Gilbeys.
63 See text at n 53-54 above.
64 Delictual causes in action are dealt with in particulars 21-23 (relating to all alternative claims
based on the ambiguity of the documents, including the third alternative claim in contract) and
30-43 (14 of the judgment).
65In fact, the interchangeability between "legal" and "fiduciary" obligations, noted by the court at
71 n 38, and reflected in the court's summary of this alternative claim at 66(a), is derived from
particular 17.1 and does not appear in particular 31, which sets out this alternative claim, and
which refers only to "a legal duty".

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interest in the clearance vouchers and credit transfer forms and their
proceeds, intentionally damaged Gilbeys property, and wrongfully caused
it loss, in breach of a legal duty to Gilbeys to exercise reasonable care and
skill with regard to money placed with Trust Bank by, or on behalf of
Gilbeys and/or with respect to Gilbeys' "proprietary interests" in such
money.
3 In crediting Fundstrust's account with the proceeds of the transaction
documents, without satisfying itself by means of a due and proper
investigation that such proceeds were not being received illegally by
Fundstrust, Trust Bank was in breach of a legal duty to Gilbeys. Allegedly
in this context, proceeds were illegally received by Fundstrust, in itself a
non-deposit-taking institution, in breach of statutory prohibitions on a
non-deposit-taking institution to take deposits from the public, 66 breach of
which Trust Bank ought to have suspected.
The court discussed all these claims jointly and upheld the exceptions directed
against them. 67 Highlighting the nature of the banker and customer relation-
ship as fundamentally that of a debtor and creditor, with super-added obliga-
tions mainly pertaining to mandates, the court rejected, in the context of a
funds transfer, any notion of "property" held by the beneficiary's bank which
belongs to the originator, as well as the existence of a fiduciary duty. On these
grounds, the court rather summarily upheld the exceptions directed against the
first two alternative claims in delict.
Gilbeys' third alternative claim in delict was based on Trust Bank's alleged
duty of care to ensure that it did not make any deposits with Fundstrust in
contravention of the DTI Act. The court dismissed this ground almost in
passing, noting lack of any allegation as to actual knowledge or suspicion by
Trust Bank, and stressing that as a matter of statutory interpretation of the
DTI Act, "acceptance of deposit" by Fundstrust would have required an
agreement between Gilbeys and Fundstrust, which was not even alleged.
Finally, the court elaborated on a fundamental reason as to why any of the
Gilbeys' claims in delict cannot succeed. As explained by the court, "all Gil-
beys' claims in delict are claims in respect of pure economic loss and such
would require an extension of the Aquilian liability in order to sustained
them". Yet, the court went on, "[o]ur courts have over the years adopted a
fairly conservative approach to the extension of remedies under the lex Aqui-
lia". For the Aquilian liability to exist, "at the very least there must be some 6
relationship of proximity between the parties before a duty of care will arise". 8
In South African law, in the context of such proximity, "outside of cases
relating to negligent statements, claims for pure economic loss in the context
of a banker's liability have not been extended beyond the liability of a collect-
ing banker to the true owner of a cheque for economic 69
loss caused by the
bankers' [sic] negligence in dealing with the cheque".

66 The provision cited in par 38 of the particulars of the claim, reproduced on 14 of the judgment,
was s 11 of the DTI Act.
61 (n 7) 66-86.
68 (n 7) 78; emphasis in the original.
69 (n 7) 81. The leading case cited (in n 48) in support of this proposition is Induc Electronics (Pty)
Ltd v Volkskas Bank Ltd 1992 1 SA 783 (A).

TSAR 2004.1 [ISSN 0257-7717]

THE BENEFICIARY'S BANK AND BENEFICIARY DESCRIBED BY NAME AND NUMBER 1)

Indeed, in the court's view, the case at bar did not fall into the category of
such cases and was quite distinguishable.
"As originator of a credit transfer which is effected in terms of a transaction between banks,
Gilbeys is not in a position comparable to the of[a true owner of a cheque]. Nor was Trust Bank
in the position of a collecting bank which intrudes itself7 into the process at the instance of its
own customer for whose identity it effectively vouches.", 0

In short, respective obligations of participants in a credit transfer are ade-

quately covered by contract, which is not the case of the misappropriation of
a cheque from the true owner and its collection by a banker acting for either
the wrongdoer or someone deriving title from the wrongdoer. Thus, in the case
at bar, the court noted the "sequence of contracts" 71 initiated by Gilbeys and
consisting of Gilbeys' mandate to FNB and the follow-up FNB's mandate to
Trust Bank. In this context, the court did not see a justification for giving a
remedy to the originator for an alleged breach by the beneficiary's bank of its
contract with the originator's bank (that is, it own sender). Specifically, the
court could not accept the existence of a duty of care requiring the beneficiary's
bank to protect the originator "outside the framework of the contracts delib-
erately entered into against the consequences of the originator himself having
caused the insertion in the payment instructions of the account number to be
credited". 7 2
(to be continued)

70 (n 7) 82.
71 (n 7) 84.
72 (n 7) 86.

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