Growing up, one has become used to the fact that an electronic funds transfer (hereinafter referred to as an EFT) is a rather basic concept. This however is not necessarily the case and gets much more complicated than the average person would expect. The reversal of an EFT is a topic that has been subject to debate for many years.
The article, “Countermanding an Electronic Funds Transfer: The Supreme Court of Appeals Takes a Second Bite of the Cherry” written by WG Schultze, raises the question as to the exact moment when an EFT takes place. Due to the fact that an EFT is a fast and effective method of payment, it could be said that payment is completed at the moment that the funds have been debited from the Payer’s account and have been credited into that of the Payee. The speed of an EFT has been described as its biggest downfall due to the fact that the EFT cannot be countermanded.
In the case of Take and Save Trading v Standard Bank; the bank claimed payment of R10 Million from Take and Save along with two further Defendants who were cited as sureties. One such person was Mansoor (M) who was the sole member of the Corporation. Both the Corporation and M were valued Clients of the bank and therefore had certain privileges. One such privilege was that the Bank allowed the Corporation to draw against uncleared funds.
M ran the electronic banking facility of the Corporation and was also in control of another account with Nedbank which was held by A Mohammed t/a Highway Distributors. M drew a substantial sum of money from Highway Distributors by way of a cheque, transferred it to the account of the Corporation and then paid a creditor, Metro, for the delivery of cigarettes. Upon receiving payment, Metro released the cigarettes.
Unbeknown to M, there were not sufficient funds in the account of Highway Distributors. The cheque drawn against Highway Distributors was subsequently dishonoured. Once M was made aware of the above, he instructed the bank to immediately reverse the transfer which the bank “arrogantly” did. As could be expected, Metro objected to this reversal and the bank then refused to comply with M’s instruction.
The Court held that in order to reverse a payment, the beneficiary of the funds must consent to the reversal. It has been said that this case is unfair as the law cannot expect someone to first obtain the consent of the beneficiary before being able to reverse a payment.
A more recent case is that of Nissan South Africa v Marnitz. Nissan, who was a client of FNB, instructed the bank to make certain payments to its creditors. During this process there was a clerical error, it is unknown if this error was due to Nissan or FNB, in which a creditor was not paid and the money was actually transferred to another account held by a Close Corporation named Maple.
Maple sought legal advice as to what it should do with this money and was oddly advised to invest the money into a call account in order to make interest on it and only pay the money back upon demand. Upon receiving this advice their Accountant was instructed to do this, however never did. The money was thus used in the normal day to day running of the Corporation. Once Nissan was aware of the mistake, they demanded the money back from Maple who had to draw three cheques in order to pay Nissan. Before these cheques were drawn, a Court Order was granted effectively freezing Maple’s accounts, a concursus creditorum was called, and the corporation was ultimately liquidated.
Thankfully in this case, the Court reached a more favourable conclusion in that there was never a meeting of the minds between Maple and Nissan. Maple was therefore ordered to pay back all the money to Nissan including any and all interest earned on it.
The final “big case” of authority when it comes to the reversal of an EFT is that of Pestana v Nedbank Ltd. In this case SARS contacted Nedbank’s Head Office in terms of the Income Tax Act which allows an agent to be appointed who may then transfer monies owed to SARS without having to consult with the person actually indebted to SARS.
On the same day that SARS phoned the head office, Pestana contacted Nedbank’s Carltonville Branch to transfer an amount of R480 000.00 into the account of someone else whose name was coincidentally also Pestana (the Plaintiff in the matter). The Carltonville Branch was, at this time, unaware of SARS’ instruction and effected the transfer.
Once Nedbank had discovered the mistake it had made, it reversed the payment and paid an amount of R490 000.00 to SARS without any authority from the Plaintiff. The Court held that the notice given to Nedbank’s Head Office was sufficient notice to the Carltonville Branch and it was therefore entitled to reverse the payment as the transaction was made erroneously and under the mistaken belief that there was no prior claim on the money.
From the above it can be seen that unfortunately, the argument as to whether or not an EFT may be transferred, and what circumstances have to be taken into account is still very much up in the air. Each case mentioned above has its own distinct set of facts, and each with its own unique decision. In terms of this topic there is no guaranteed general rule further than you should get the payee’s consent first. But is this reasonable? Would you give the money back if you received it by mistake? Is someone refusing to give you that consent? What can you do about it?
The issues raised above are still very widely open to interpretation, and a large topic of debate. Therefore, this topic is still subject to be challenged as it is still yet to be satisfactorily settled.