THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

Case no: 136/2003
REPORTABLE

In the appeal between:

STANDARD BANK OF SOUTH AFRICA LTD

Appellant

and

P W S PEENS (Senior)

First Respondent
P W S PEENS (Junior)

Second Respondent
J A PEENS

Third Respondent

Before:
Harms JA, Cameron JA, Conradie JA, Heher JA
and Comrie AJA
Appeal:

Monday 13 September 2004
Judgment:
Wednesday 29 September 2004

Bank – Fraudulent ‘cross-firing’ scheme – Bank’s attempt to
dishonour fraudulent cheques outside time allowed by clearing
house rules thwarted by objection from collecting bank – Customer
never countermanding original instructions – Bank entitled to revert
to original pre-dishonour debits

JUDGMENT
_____________________________________________________

CAMERON JA:

[1] Cheque ‘kiting’ or ‘cross-firing’ (also known as ‘round-tripping’)
takes place when customers of one or more banks draw
cheques in favour of one another on different banks or
branches of the same bank, depositing them to one another’s
accounts in order to draw against the deposits before the
proceeds of the cheques have been collected.  The object is to
trap the bank into paying out against the deposit in the
expectation that the cheque will be met. 1   The scheme
generally requires the collusion of two or more account holders.
It constitutes the criminal offence of fraud. 2  It exploits two
factors: (a) a current banking account in which drawings can be
made against cheques that have been deposited but have not
yet been cleared; and (b) delays that occur in clearing such
cheques that are drawn on other banks or other branches of
the same bank.3
[2] This application for leave to appeal concerns a massive cross-
firing operation perpetrated in 1998 and early 1999 by several
companies within a set called the ‘Weenen group’.  Each of the
three
respondents,
all
Peens
family
members
(‘the

1 Compare the explanation by Williamson J in Volkskas Bpk v Zagnoiev 1958 (2) SA 550 (W)
553A and 553H.
2 S v Judin 1969 (4) SA 425 (A) 430H-435H; S v MacDonald 1982 (3) SA 220 (A) 234E-243C.
3 S v MacDonald 1982 (3) SA 220 (A) 236B per Corbett JA.

defendants’), was a director of all or some of the Weenen
group companies.  They signed surety to the applicant bank
(‘the plaintiff’, as in the court below) for the companies’ debts.
The defendants’ liability to the plaintiff, which is at issue in this
matter, depends on whether the companies are indebted to it.
That in turn depends on how the plaintiff dealt with the cross-
firing operation when it got wind of it.
[3] The Peens companies’ cheque fraud involved also other
banks; but we are concerned only with the scheme as it
exploited the group’s accounts held at the plaintiff, together
with an account held by another company in the group, Price
Busters, at ABSA Bank Ltd (‘ABSA’).  Cheques in very
considerable amounts were drawn on the group’s accounts
with the plaintiff, and deposited with ABSA, and vice versa.
Round and round the false credits went.  None of the cheques
could be met.  But the ‘round-tripping’ for a while created a
giddy illusion of credit in the companies’ accounts at both
banks.  And while that illusion lasted, huge amounts of money
were fraudulently diverted to the companies and those
controlling them.
[4] In early 1999, when the plaintiff realised that it and ABSA and
other banks were being defrauded on an enormous scale, it

gave instructions that all cheques drawn on Weenen group
accounts held with it should forthwith be dishonoured.  The
instruction took effect on 6 January.  Cheques as far back as
28 December 1998 were returned to ABSA unpaid.  ABSA, as
the collecting bank, had presented the great majority of the
cheques thus dishonoured.  The result of the instruction was
that massive debit entries in Weenen group accounts held with
the plaintiff, as the drawee bank, were extinguished, since
cheques drawn on those accounts that had been deposited
with ABSA were now dishonoured.  In the case of one of the
companies, a credit balance was even created.
[5] Soon after, ABSA also gave instructions for cheques drawn on
it by Price Busters to be dishonoured.  But it was left in much
the worse position, and objected to the plaintiff’s dishonours.
As between it and the plaintiff, it had indisputably good reason
for doing so.  This was because the attempted dishonours took
place outside the time limits allowed by the Agency Agreement
between the South African Clearing Banks (commonly known
as the ‘clearing house rules’).  These rules stipulate that
generally a drawee bank must return cheques being
dishonoured ‘on the business day following the physical receipt
of the cheque, but not later than the closing time of either the

drawee bank or the collecting bank, whichever is the earlier’
(rule 14.3.1).  (There are concordant rules for Fridays and
public holidays.)
[6] After the period allowed for dishonour has elapsed, the
collecting bank is entitled to insist (though it may choose not to
do so) that the cheque be paid.4  ABSA’s objection was thus
well-founded, and led to negotiations between it and the
plaintiff.  On 10 February 1999 the two institutions concluded
an agreement (‘the 10 February agreement’).  Its main effect
was that the cheques each bank had dishonoured on group
accounts were now allocated as they would have been had
they been honoured at the time of presentation in the ordinary
course of business in terms of the clearing house rules.  In
other words, each bank rescinded the purported late
dishonours of cheques drawn on the other in the cross-firing
operation, and ‘honoured’ (or, rather, re-honoured) all cheques
not dishonoured timeously.  This meant that debits arising from
cheques originally honoured, but subsequently dishonoured
late, were reinstated.
[7] The effect, as between the two banks, was that ABSA received
a credit of over R31 million, while the plaintiff received a credit

4 Burg Trailers SA (Pty) Ltd v ABSA Bank Ltd 2004 (1) SA 284 (SCA), para 10, per Harms JA.

of just over R18 million, plus what the judge in the court below
called ‘some R17.5 million of worthless paper’.
[8] The Peens companies had in the meanwhile been placed in
liquidation.  When the plaintiff instituted action on the
suretyships, the defendants objected that the 10 February
agreement brought about a post-liquidation creation of credits
and debits in the companies’ various accounts, the plaintiff’s
mandate to honour the cheques having lapsed on liquidation:
section 73 of the Bills of Exchange Act 34 of 1964. 5  The
entries the plaintiff effected in pursuance of its agreement with
ABSA were unauthorised, the defence ran: so the sureties
could not be held liable for the amounts entered in the plaintiff’s
books as owing to it after liquidation and pursuant to the 10
February 1999 agreement.
[9] When the matter came to trial in the Pretoria high court, the
plaintiff closed its case after calling two witnesses – Papadakis,
a forensic and investigative accountant; and van Sittert, then
an inspector in its internal audit division.  The defendants

5 Section 73 of Act 34 of 1964: ‘Revocation of bank's authority
The duty and authority of a bank to pay a cheque drawn on it by its customer are terminated
by receipt of –
(a) countermand of payment;
(b) notice of the customer's death or incapacity;
(c) notice of the customer having been sequestrated or wound-up or placed under judicial
management or declared a prodigal:
Provided such countermand or notice identifies the cheque, in the case of countermand, and
the customer with reasonable particularity and gives the drawee a reasonable opportunity to
act on it.’

provisionally closed theirs, subject to questions about quantum.
The parties then argued the sureties’ liability in law.
Bertelsmann J upheld the defence, granting the defendants
absolution from the instance with costs.  He later refused leave
to appeal.
[10] After leave to appeal was refused, the plaintiff obtained
senior counsel’s advice
and
thereafter
deliberated its
implications before lodging a petition for leave to appeal.  A
rule-breaching delay of some four months occurred.  This court
ordered that the application for leave to appeal and for
condonation of the delays be set down for argument, and that
the parties be prepared to deal with the merits of the matter.
[11] Mr Wallis who appeared for the plaintiff (though not in the
court below) conceded that the delays are not entirely
satisfactorily explained.  But it was common cause that the
lapses were not egregious, that they caused no prejudice, and
that condonation should be granted if the plaintiff’s appeal was
good on the merits.
[12] The plaintiff, Bertelsmann J found, had not established its
cause of action:
‘The debits upon which it relies were not created by consensus between
banker and client but by an agreement between banks attempting to limit
damage inflicted upon them as a result of a blatant fraud which had been

perpetrated upon them.  It is obvious that such debts could not be created
after liquidation, quite apart from the fact that the cheques had been
dishonoured and were unilaterally reinstated and debited to the company
accounts after liquidation.
…
It is also clear that, once the cheques had been dishonoured, regardless
of whether the sureties or the principal debtors were aware of the
dishonour or not …, a banker cannot without either finding his client’s
account in credit or having an express instruction from the client, honour a
cheque which has previously been dishonoured without notice to the
client.’

[13] As can be seen, the learned judge considered that the
adjustments to the group’s various accounts pursuant to the 10
February agreement created new debts.  The corollary of his
approach is that the account entries effected when the cheques
were purportedly dishonoured in January were immutable for
purposes of the banker/customer relationship.  The late
dishonours, in other words, had to prevail over the pre-
dishonour position.  The subsequent agreement could not undo
their effect.
[14] In my view, this approach was not correct.  It wrongly
focuses on the effect of the agreement between the two banks.
The plaintiff’s claim is not based on any entitlement arising
from that agreement.  It is based on the debits in the group’s
accounts in January 1999.  These were created by the bank
honouring its customers’ mandates to pay – before it attempted
the unavailing dishonours.

[15] That this is so emerged clearly from the evidence.  What the
plaintiff did when it originally received the fraudulent cheques
was described in van Sittert’s testimony.  Counsel for the
defendants put to him that the 10 February agreement entailed
that the plaintiff and ABSA had decided, ‘just let us agree that
we undo [the dishonours] by honouring the cheques that were
dishonoured’.  To this, van Sittert pointed out:
‘Well, before we sent them back we actually had honoured them.’

The exchange proceeded:
‘On which date were they honoured?  -- Well, if you send a cheque back
late, if you return a cheque on 6 January and it has already been through
the client’s account on 28 December, then it is deemed that you have paid
the cheque.  There are many cheques that were sent back late which are
then deemed to actually be paid.  So in effect all we did was to reinstate
the account[s] to the effect of the fraud that was committed.  In actual fact
the uncleared effects [perpetrated through the round-tripping scheme] are
now reflected on the […] bank accounts. … We returned the accounts to
what they would have been had we not sent back cheques late.’

[16] Papadakis’s evidence was to the same effect.  Asked what
the effect was of the banks’ agreement, he stated:
‘The effect M’Lord would have been simply to reinstate the debits which
had originally been processed to these accounts ...  So the original
cheques that were drawn on these accounts and initially debited, were
simply reinstated.’

[17] This evidence was not disputed.  In my view it must form the
basis on which the matter is decided.  The fact is that the
plaintiff originally honoured the cheques drawn on accounts the
Peens companies held with it.  Later, when it discovered the

massive fraud, it tried to limit its losses by purporting to
dishonour those same cheques.  But the clearing house rules
that ABSA invoked precluded this expedient.  It then reverted
to its original stance, which was that it had honoured the
fraudulent cheques.
[18] Bertelsmann J, in refusing leave to appeal, was no doubt
right in observing that as between it and its account-holders the
plaintiff was entitled to dishonour the cheques.  Clearly so: they
were fraudulently made and fraudulently deposited; and in any
event the companies’ overdrafts far exceeded the limits the
bank set.  But focusing on the attempted dishonours overlooks
the fact that the account-holders never countermanded
payment of the cheques.  This distinguishes the matter from
those cases debated in argument that concern the effect of the
clearing house rules when a customer countermands payment
before the time for dishonour has expired (Volkskas Bank Bpk
v Bankorp Bpk (h/a Trust Bank));6 where a bank gives late
notice of dishonour to the detriment of the payee (Riedell v
Commercial Bank of Australia Ltd);7 or where the bank gives
late notice but the payee can prove no resultant damage

6  1991 (3) SA 605 (A).
7 (1931) VLR 382 (Supreme Court of Victoria).

(National Slag v Canadian Imperial Bank of Commerce);8 or
where,
within
the
time
for
dishonour,
payment
is
countermanded and an attachment in execution occurs (Burg
Trailers SA (Pty) Ltd v ABSA Bank Ltd).9
[19] The present case is concerned solely with the position
between banker and customer where the banker chooses to
disregard the customer’s fraud on it and, there being no
countermanding instructions, maintains the original debits
effected in accordance with the fraudulent cheques.   In my
view it is clear that the banker is entitled to correct the bank
statements by reinstating the original debits.10  The plaintiff’s
ineffective attempt to dishonour the cheques did not create
rights for the customers.  On the contrary, its reversion to
‘honouring’ the cheques was an acceptance that it had credited
ABSA according to its customers’ unrevoked instructions to pay
the cheques according to their tenor.
[20] The fact that as between itself and its customers the plaintiff
was entitled to dishonour the cheques does not mean that it
was obliged to do so.  Confronted with ABSA’s objection, it was
entitled to correct the book entries honouring its clients’

8 (1982) 140 DLR (3d) 473 (Ontario High Court).
9 2004 (1) SA 284 (SCA).
10 Standard Bank of South Africa Ltd v Oneanate Investments (Pty) Ltd (in liquidation) 1998
(1) SA 797 (SCA).

unrevoked instructions to debit their accounts.  That it chose to
overlook the fraud cannot avail the defendants.
[21] In effect the defence the trial judge upheld sought to limit the
plaintiff’s options to dishonouring the cheques because they
were fraudulent.  This was not only unfair to the plaintiff; in view
of the clearing house rules it was unrealistic; and it overlooked
the fact that the customers’ instructions to pay the fraudulent
cheques remained standing.
[22] The fact that the 10 February agreement was concluded
after the companies were liquidated is irrelevant to this
conclusion.  The fact is that the plaintiff was entitled assert the
debits it originally made to its customers’ accounts in the
amount of the cheques they drew.  It follows that the debts
were not created after the companies’ liquidation.
[23] In argument before us counsel for the defendants sought by
detailed reference to the schedules included in Papadakis’s
evidence to contend that the plaintiff’s claim included cheques
that were dishonoured timeously (and which could not
thereafter have been honoured), and that the 10 February
agreement
therefore
covered
more
than
merely
late
dishonours.  He also sought to establish that the plaintiff failed
in implementing its own decision timeously to dishonour certain

cheques that could have been dishonoured timeously after 6
January in terms of clearing house rules.  On this basis he
sought to contend that the plaintiff’s cause of action in fact
derived from debit entries created by the agreement between
the two banks.
[24] But this was not what was at issue in the trial, nor what was
debated with the plaintiff’s witnesses.  Papadakis’s evidence
that the cheques in question in issue were all dishonoured late
(and therefore ineffectively) after 6 January was never
challenged, and indeed the trial judge recorded it as common
cause – and counsel when pressed confirmed – that the
cheques in question were all dishonoured late.  What is more,
the customers gained no rights from the plaintiff’s decision to
dishonour cheques after 6 January.  Any failure on the
plaintiff’s part to give effect to its own decision cannot enure to
the customers’ (and therefore the defendants’) benefit.
[25] So counsel’s attempt to fashion a new case for the
defendants cannot be countenanced.  The plaintiff’s argument
must in these circumstances be upheld, and the relief it seeks
be granted.

ORDER:

1. Condonation is granted for the late application for leave to
appeal.

2. The application for leave to appeal is granted.

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

4. The order of the trial court granting absolution from the
instance is set aside.  In its place is substituted:

‘The application for absolution from the instance is
dismissed with costs, including the costs of two counsel.’

5. The case is referred back to the trial court to determine
quantum and to give judgment accordingly.

E CAMERON

JUDGE OF APPEAL

CONCUR:
HARMS JA
CONRADIE JA
HEHER JA
COMRIE AJA