THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Case No: 31/2010

In the matter between:

ABSA BANK LIMITED
Appellant

and

INTENSIVE AIR (PTY) LIMITED (IN LIQUIDATION)
First Respondent
GEOFF FERREIRA NO
Second Respondent
LESLIE MATUSON NO
Third Respondent
RISCHARD CASSIM NO
Fourth Respondent

Neutral citation:
ABSA Bank v Intensive Air (31/2010) [2010] ZASCA 171
(1 DECEMBER 2010)

Coram:
HARMS DP, CACHALIA, SNYDERS and SHONGWE JJA
and BERTELSMANN AJA

Heard:
2 NOVEMBER 2010

Delivered:
1 DECEMBER 2010

Summary:
Banking – banker and customer relationship – company
income paid into sole director’s and shareholder’s personal
account – credit in director’s account appropriated by bank
setting it off against director’s debts owing to bank – no
agreement with bank to hold funds credited to director’s
account as those of the company – absence of ius in re.

______________________________________________________________

ORDER
______________________________________________________________

On appeal from: North Gauteng High Court, Pretoria (Hartzenberg and
Claassen JJ and Mabuse AJ sitting as full court).

The following order is made:

1.
The appeal is upheld with costs, including the costs of two counsel.
2.
The order of the full court is set aside and the following order is
substituted therefore:

‘The appeal is dismissed with costs, including the costs of two counsel.’
______________________________________________________________

JUDGMENT
______________________________________________________________

BERTELSMANN
AJA
(HARMS
DP,
CACHALIA,
SNYDERS
and
SHONGWE JJA concurring).

[1] Dr J W K Louw (‘Louw’), a Johannesburg heart surgeon, had a passion
for flying. He established an air ambulance service in the eighties, first under
the name ‘Care Air’ and then ‘Intensive Air’ of which he was the sole
proprietor. He expanded the air ambulance into a full air travel operation
during about 2001.

[2] A licence to conduct air passenger travel services was issued to the
first respondent, Intensive Air (Pty) Ltd, a company (‘the company’) with
limited liability duly incorporated in terms of the Companies Act 61 of 1973.
The company is in liquidation. Louw was the sole shareholder and director of
the company. Louw opened several bank accounts with the appellant, Absa
Bank Ltd, at the latter’s Private Bank Division.

[3] One of the accounts opened by Louw was a cheque account with
account number 4061777725, conducted in his personal name trading as
‘Intensive Air’. Louw identified himself as the sole proprietor of this business
when the bank opened the account in his name. This account was described
in the proceedings in the court of first instance as the ‘ticket account’ because
all the proceeds of tickets sold by the company to its passengers on its
regular flights, and no other funds, were deposited into this account. This
account was opened in May 2000, some time before the air transport services
commenced.

[4] Other accounts opened by Louw with the bank in his own name
included one called the ‘aircraft lease account’, upon which Louw obtained an
overdraft of R25m. This sum Louw devoted to the purchase of several
passenger aircraft in his personal capacity that he leased to the company.

[5] Another account was conducted as Louw’s personal and practice
account, while the company also conducted an account with the bank into
which speed point payments were received. Further accounts in the name of
both Louw and the company were opened at Standard Bank.

[6] Louw was obliged to pay the interest to the bank on the overdraft of
R25m on a monthly basis. The funds required for this purpose were
transferred from the ticket account to the aircraft lease account. These
interest payments were in turn credited as aircraft rental payments to Louw’s
loan account in the company, which reflected a debt of R5m to Louw, arising
from rentals and money lent and advanced when the company was liquidated.
It is important to note that the loan account represented a reconstruction of
these transactions by the company’s auditors as these were not properly
recorded by Louw.

[7] The funds in the ticket account were also used to pay other company
expenses such as the fuel and the aircraft maintenance accounts. Some
transfers were also made to Louw’s personal account.

[8] Louw provided security for the bank’s claims against the company and
himself in the form of a suretyship for the company’s liabilities, a cession of
his loan account in the company, a cession of his policies, by registering
bonds over his immovable properties and executing a cession of all sums
standing to his credit in any account conducted with the bank.

[9] The air passenger service ran into financial difficulties and the
company was liquidated during the first half of 2002, the liquidation application
having been lodged on 10 April 2002. At that date a credit balance of
R293 656.56 was shown in the ticket account, which the bank appropriated by
claiming that it was automatically set-off against Louw’s indebtedness to it.

[10] The second to fourth respondents were appointed as the first
respondent’s final liquidators. They regarded the payment of funds earned by
the company into the ticket account as dispositions to the bank without value,
liable to be set aside in accordance with s 26 of the Insolvency Act 24 of 1936
read with the provisions of s 340 of the Companies Act. They also claimed the
credit balance in the ticket account, on the date of insolvency, as moneys
earned by the company to which the latter was entitled. The bank disputed
these assertions. Summons was issued. Respondents’ first claim was for
payment of R7 387 957.34 as the total of all dispositions without value, while
payment of the amount of R293 656.56 was demanded on the grounds that it
‘belonged’ to the company. The bank pleaded specifically that the ticket
account was opened in Louw’s name as sole proprietor of ‘Intensive Air’. The
respondents therefore had to prove that it was the company, and not Louw in
his personal capacity, that was entitled to claim the credit balance in this
account.

[11] The respondents called the company’s financial manager, Mr Gerhard
Louw (not related to Louw), as their first witness. He confirmed that the ticket
account, on which he had signing powers, had been opened in Louw’s
personal name and that the latter was the account holder. He explained that
funds were channelled from this account to the aircraft lease account – which

was also held in Louw’s name - and were further used to pay the company’s
liabilities.

[12] He testified that he had recommended that the company’s finances
should be dealt with separately from the director’s affairs, but that his advice
was not implemented.

[13] The evidence of Mr Richard Evans, the company’s accountant, was
also that the relevant accounts were held in Louw’s name and that the funds
deposited into them were used to defray the company’s expenses. Evans
regarded the book-keeping practices he found when he joined the company
as unsatisfactory, but could not effect a change before the company was
liquidated.

[14] This was the sum total of the evidence presented to support the
respondent’s claims. The other witnesses called by the respondents did not
give any evidence that had a bearing on the issues in dispute between them
and the bank. For reasons that remained unexplained Louw was not called to
testify. The bank closed it case without calling witnesses.

[15] The trial court dismissed both claims. It found that the ticket account
was held by Louw personally. Money deposited into that account did not
constitute a disposition to the bank. The first claim was dismissed on this
ground. By the same token, the credit balance appropriated by set-off was
held to have been Louw’s asset and not that of the company, rendering the
second claim unenforceable. Leave to appeal to the full court was granted in
respect of the second claim only. A petition to this court for leave to appeal
against the dismissal of the first claim failed.

[16] The full court upheld the appeal against the dismissal of the second
claim. Relying upon this court’s judgment in Joint Stock Co Varvarinskoye v
Absa Bank Ltd & others 2008 (4) SA 287 (SCA), it held that the liquidators
had established that Louw had conducted the air service venture through the
company and not in his own name. The funds deposited into the ticket

account were thus those of the company and ‘belonged’ to the company. As a
result the bank was not entitled to set-off any credit in the ticket account
against any claim it might have against Louw personally.

[17] The full court found support for this conclusion in the fact that Louw
held a loan account in the company. The existence of this account, the full
court reasoned, was proof that the affairs of the company were conducted
separately from Louw’s financial dealings. It adopted the view that, had
Louw’s funds been intermingled with those of the company, it would have
been nonsensical to conduct the loan account at all.  This finding is not
supported by the evidence.

[18] Special leave to appeal to this court having been granted, the bank
argued that the full court erred in regarding funds deposited into the ticket
account as those of the company. They ‘belonged’ to Louw as the latter had
agreed with the company, whose sole shareholder, director and guiding mind
he was, to deposit the income from the ticket sales into this account of which
he was the holder. The respondents supported the full court’s reasoning.

[19] Before further considering the judgment of the full court, it is useful to
recall some basic principles in this area of the law.

[20] The relationship between banker and client is one of debtor and
creditor. ‘...it has long been judicially recognised in this country that the
relationship between bank and customer is one of debtor and creditor. When
a customer deposits money it becomes that of the bank, subject to the bank’s
obligation to honour cheques validly drawn by the customer...’ per Holmes JA
in S v Kearney 1964 (2) SA 495 (A) at 502-503. Although the liquidators
proceeded from the assumption that the funds in Louw’s account ‘belonged’ to
the company, their case clearly was not vindicatory or quasi-vindicatory, but
contractual. Their case had to be that the company (and not Louw)
represented by its sole director had opened the account with the bank and
that it was the bank’s creditor, in spite of the fact that the bank’s Private Bank

Division does not deal with corporate accounts and that the account was
conducted in Louw’s name.

[21] The respondents therefore had to prove that Louw was a disclosed
agent of the company. The bank must have agreed to conduct the account on
this basis: Dantex Investment Holdings (Pty) Ltd v National Explosives (Pty)
Ltd (in liquidation)1990 (1) SA 736 (A) at 748E-749. Milne JA says at 749D-E:
‘…in our law, money held by virtue of a fiduciary relationship in which the
holder stands to another is, unlike the position in English law, not deemed to be
earmarked and is not charged with the fiduciary obligation.’
And at 749I
‘There is no evidence to suggest that the Bank agreed to hold the funds in respect of
those cheques as agent for Dantex.’
Van den Heever J in Ex parte Estate Kelly 1942 OPD 265 at 272, states:
‘[b]y paying these monies into the bank, Kelly acquired a personal claim
against the bank and his creditors have nothing but personal claims against him.’

[22] Had Louw been an undisclosed agent, the liquidators would have had
no claim against the bank: Symon v Brecker 1904 TS 745. Had the
company’s money been stolen, and had the thief paid off his overdraft with the
stolen money, the company would have had no claim for repayment thereof
against the bank, (First National Bank of Southern Africa Ltd v Perry NO &
others 2001 (3) SA 960 (SCA) para 16) but would, of course, have had a
claim against the thief and a possible enrichment action against anyone who
knowingly received or retained the stolen money. Had the thief, however,
deposited the stolen money into an account where it was still identifiable as
the fruit of the misdeed, the company would have had a quasi-vindicatory
claim to it : Nissan South Africa (Pty) Ltd v Marnitz NO & others (Stand 186
Aeroport (Pty) Ltd intervening) 2005 (1) SA 441 (SCA). The liquidators may
also have shown that the rights of the account holder to operate upon the
account had been limited in terms of an agreement between the company and
the bank, as was the case in Varvarinskoye.

[23] Turning then to the judgment appealed against, the full court appears
to have overlooked the specific circumstances that prevailed in the
Varvarinskoye matter. There, Absa Bank had been expressly informed that
the moneys standing to the credit of an account conducted in the name of its
client, MDM, were held specifically to provide a fund from which sub-
contractors of the appellant joint stock company would be paid. Funds could
only be withdrawn from this account for the purpose of effecting payment of
approved sums to clearly identified sub-contractors. Every withdrawal had to
be expressly authorised by the appellant. Absa Bank was fully aware of these
facts and knew that MDM had no claim to the money deposited in the account
in its name. MDM had signed cross-suretyships with and in favour of two
associated companies that were clients of Absa Bank. When MDM and its
associated companies experienced financial hardship and the associated
companies were unable to meet their commitments to Absa Bank, the latter
purported to appropriate the funds in the MDM account, claiming that the
money deposited into the dedicated account became the property of the bank,
as if the account had been opened by a client in the ordinary course of
banking business. Only the account holder, it was argued, could claim the
money standing to the credit of an account, and MDM’s claim had been
extinguished by the set-off effected by enforcing the cross-suretyships.

[24] On appeal in Varvarinskoye this court confirmed that if funds held in an
account can be identified as having been reserved for or ‘belonging’ to
another by agreement with the bank, the account holder is not entitled to deal
with those funds. The person actually entitled thereto has a quasi-vindicatory
claim to demand payment of such funds from the bank: Fedsure Life
Assurance Co Ltd v Worldwide African Investment Holdings (Pty) Ltd & others
2003 (3) SA 268 (W). Should they become intermingled with other moneys in
an account held by a person not entitled thereto, they can no longer be
identified as funds to which a non-account holder has a better claim than the
holder and the money becomes the property of the bank. The claimant is then
left with only a personal claim against the holder of the account: Dantex
Investment Holdings (Pty) Ltd supra.

[25] By agreeing to the specific terms under which the MDM-account was
conducted in Varvarinskoye, Absa Bank was placed in the position of the joint
stock company’s agent holding the latter’s money as a separate fund reserved
for a specific purpose. Absa Bank was therefore not entitled to appropriate the
credit balance in MDM’s account to itself. To Absa Bank’s knowledge, the
funds ‘belonged’ to the appellant and could not be set-off against MDM’s
liabilities to Absa Bank. The appeal was upheld in accordance with basic
principles and without purporting to create new ones.

[26] The facts in this case differ significantly from those in Varvarinskoye. It
is clear that the bank was not party to any agreement to treat the funds in
Louw’s ticket account in any way other than those of the account holder.
There is no evidence of any agreement other than that of client and banker
entered into by Louw and the bank. While the bank was certainly aware of the
fact that Louw was director and shareholder of the company, there was no
suggestion made to it at any stage that Louw was not entitled in his personal
capacity to the proceeds of the company’s ticket sales – which funds were in
turn devoted in large measure to the payment of company expenses. The
financial arrangements made by Louw in respect of his own and the
company’s funds may have been unorthodox, imprecise and even chaotic,
while the recordal of the various transactions in his and the company’s books
of account may have been, as counsel for the bank put it during the hearing in
the court of first instance ‘ an auditor’s nightmare’. It does not follow that he
therefore did not conduct the ticket account in his personal capacity.

[27] The existence of the loan account in the company does not contradict
this conclusion. It does not, as the full court held, prove that the company and
Louw conducted separate books and drew clear distinctions between
transactions performed by the one or the other. The evidence of the financial
director and the accountant emphasises that Louw transferred company
earnings into accounts he held with the bank, intermingled them with his own
funds and used the available financial resources to pay company and
personal expenses. They confirmed that the loan account was basically
created by the company’s auditors in an effort to untangle Louw’s various

transactions in the company’s books. In any event the existence of its loan
account did not establish that the bank had a contract with the company.

[28] Louw clearly regarded the company and its business as his personal
fiefdom which he could control as he pleased. His own financial fortunes were
intertwined with those of the business. From the bank’s perspective there was
no reason to suspect that the agreement between Louw and the company to
transfer the proceeds of ticket sales into Louw’s personal account was
anything but bona fide and untainted by any illegality. Unlawful conduct in
respect of any arrangement between Louw and the company cannot be
presumed: ‘[t]here exists a presumption in law that parties intend to perform
agreements in a lawful manner’ per Snyders AJA in Wypkema v Lubbe 2007
(5) SA 138 (SCA) para 17 and Juglal NO & another v Shoprite Checkers (Pty)
Ltd t/a OK Franchise Division 2004 (5) SA 248 (SCA).

[29] The onus was on the respondents throughout to establish that the
funds in the ticket account ‘belonged’ to the company. They failed to present
any evidence that would justify this conclusion. The witnesses called in
support of the respondents’ case had no knowledge of the agreements
between Louw and the company and Louw and the bank. They could not
gainsay that Louw was the contracting party who agreed with the bank to
open the ticket account. Louw was the bank’s debtor and the set-off against
the credit balance of this account was effective.

[30] The appeal must succeed. The following order is made:

1.
The appeal is upheld with costs, including the costs of two counsel.
2.
The order of the full court is set aside and the following order is
substituted therefore:
‘The appeal is dismissed with costs, including the costs of two counsel.’

______________________
E BERTELSMANN
Acting Judge of Appeal

APPEARANCES:

For appellant:
F H Terblanche SC

J E Smit

Instructed by:

Tim du Toit & Co Inc, Westcliff, Johannesburg

Naudes Inc, Bloemfontein

For respondent:
F Snyckers

Instructed by:

Postma Attorneys c/o VFV Mseluku Attorneys, Pretoria

Symington & De Kok, Bloemfontein
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL

From:
The Registrar, Supreme Court of Appeal
Date:
1 December 2010
Status:
Immediate

Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal.
* * *

ABSA BANK LTD v INTENSIVE AIR (PTY) LTD (IN LIQUIDATION) & OTHERS

The Supreme Court of Appeal today overruled a decision of the full court of the
Gauteng North (Pretoria) Division.

The full court had held that the liquidators of the insolvent company Intensive Air
(Pty) Ltd were entitled to claim a sum of R293 656.56 which had stood to the
credit of an account held in the name of the company’s sole director.

The account was opened before the company started its air passenger service
operations. All moneys earned from ticket sales were paid into the director’s
personal account, who devoted the funds to the payment of company and
personal expenses. The director was indebted to the bank ia for the sum of

R25m he had borrowed to purchase aircraft in his personal name, which aircraft
he leased to the company.

When the company was liquidated, the bank appropriated the money in the
director’s account by set-off against the debts he owed to the bank taking place.

The full court was of the view that the money, having been earned by the
company, should accrue to the company as it represented a company asset.

On appeal this finding was overruled. The general rule of banking law provides
that money paid into a client’s account becomes the property of the bank, subject
to the client’s claim to any credit in the account. Normally only the account holder
is entitled to claim money in an account held in his or her personal capacity. A
third party is only entitled to such funds if a special arrangement has been made
with the bank that the money will be held on behalf of such third party; or in
cases where the third party is able to show that money credited to another’s
account ‘belongs’ to the third party, for instance in cases where stolen funds can
be traced to a credit in another’s bank account. In the present instance no special
arrangements had been made with the bank and there was no suggestion that
the director’s arrangements in respect of the company finances were in any way
untoward. There was no evidence that the director’s agreement with the bank
was anything other than an ordinary banker-client relationship, with the result that
the liquidator’s claim had to be dismissed.