This question was considered in the matter of Peterson & Another NNO v Absa Bank Limited. One of the issues which the court had to determine was whether a bank owed its client a duty of care, when accounts were opened, to adequately monitor and manage the account, to avoid the client suffering financial loss.

In this matter two companies received millions of rands from investors into a bank account opened at Bank A, for the purpose of later investing such investors’ funds. The sole shareholder of these companies then transferred such funds into his own bank account held with Bank B. From here he siphoned off a substantial part of the funds by drawing large amounts of cash and writing cheques against the funds held in his account, resulting in huge losses to the investors.

The Plaintiffs, who were the curators of two companies under curatorship, instituted action against Bank B to recover the balance of almost R130 million which had been so transferred by the shareholder from the companies’ account held at Bank A.

During an interlocutory application heard, prior to the trial, the court held that:

1. The case of the curators was founded on the fact that Bank A negligently opened and maintained banking accounts, thereby causing pure economic loss to the curators and/or their investors; and

2. When the shareholder transferred large sums of money from the companies’ account to another account, such transfers necessitated reporting thereof in terms of the Financial Intelligence Centre Act (“FICA”).

Had Bank A complied with this duty of care when the account was opened and had the account been properly managed and monitored, Bank A would have established that the activity on the account and the volume of funds flowing there from constituted a risk which should have been reported.

Banks need to be on the lookout where transactions such as this take place, bearing in mind the increasing occurrence of money laundering in South Africa.

Although the matter has not yet been finally decided on trial, this judgement seems to indicate that our courts will not turn a blind eye to banks which do not comply with the duty of care to monitor and manage their clients’ bank accounts. It may well be that a court will, in future, order a bank breaching such a duty of care, to compensate its clients who have suffered a financial loss as a result thereof.

Written by Leander Opperman – Partner – Adams & Adams