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This article briefly examines the decision handed down earlier this year by the Supreme Court of Appeal in FirstRand Bank Limited v The Spar Group Limited (1334/2019) [2021] ZASCA 20 (18 March 2021).

The case revolves around banks, their client’s and third parties. The Appeal Court identified two issues that needed to be addressed in the proceedings. Firstly, can a bank set off the customer’s debt to the credit of a customer in the event that the bank has knowledge that a third party has a claim to these funds? Secondly, does the bank owe a legal duty to the third party if the bank allows their client to utilise the money belonging to the third party, knowing their client has no valid claim to the funds?


The fact, briefly, were as follows: Spar conducts business as a wholesaler to the Spar group of independent retailers. In this case, however, Spar held a notarial bond over an independent retailer’s assets and proceeded to perfect the security when the retailer fell into default after failing to effect payment in terms of the franchise agreement and thus the Magistrates’ Court granted a provisional order in this instance. 


In anticipation of the return date for the provisional order, Spar offered the retailer an ultimatum, being allowing Spar to operate the outlets at its own cost and the income derived would be to the benefit of Spar, or completely closing the shop. The retailer agreed to Spar running the outlets. The retailer, however, refused to alter the receiving bank accounts linked to the speed-points operating in the outlets. This meant that funds generated by Spar fell into the retailer’s accounts.


Spar then approached the Bank, requesting that they alter the receiving bank accounts linked to the speed-points. The Bank refused such a request, indicating that only the retailer could make such a change, however, the retailer claimed it was the Bank which was refusing to make the change. The Bank proceeded to use funds in the accounts to set off credit debts owed by the retailer to the Bank, further, the retailer made disbursements from these accounts. The funds utilised where in actual fact, Spar’s and both the Bank and the retailer utilised the funds, which renders their conduct as theft.


In reaching its decision, the Court recognised that there were many cases where a Bank’s client is not entitled to the funds which are credited to that client’s account where such funds legitimately belong to a third party who is not the account holder. Such third party is entitled to claim payment from the Bank of the credit balance in the account. For example, this occurs when stolen money is deposited into an account or a deposit is made in error.


A Bank which is aware that a third party has deposited funds into its client’s bank account and is aware that the client has no legitimate claim to the funds is under a legal duty to take steps to prevent harm to the third party by way of the misappropriation of those funds by its client, the bank’s failure to prevent harm to the third party renders it a co-wrongdoer with the client for the theft.


As such, the bank owes a legal duty to the third party who was entitled to the moneys deposited and suffers loss as a result of the customer’s disbursements.


The Bank was held liable to Spar for using funds deposited by Spar from its own business as a set-off against the retailer’s debts, knowing full well that the retailer had no right to these funds. Further, through its conduct, the Bank facilitated the theft committed by the retailer, by allowing him to make disbursements of funds which the retailer was not entitled to. This conduct rendered the Bank as a joint wrongdoer, and liable to Spar for the funds utilised.


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Philip Da Silva

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