Lesotho Hotels International (Proprietary) Limited (In Judicial Management) v Standard Chartered Bank lesotho Limited (CIV/APN 249 of 95) [2000] LSCA 5 (10 April 2000)

IN T HE H I GH C O U RT OF L E S O T HO CIV/APN/249/95 In the matter between: L E S O T HO H O T E LS I N T E R N A T I O N AL ( P R O P R I E T A R Y) L I M I T ED (IN J U D I C I AL M A N A G E M E N T) A nd A P P E L L A NT S T A N D A RD C H A R T E R ED B A NK L E S O T HO L I M I T ED R E S P O N D E NT J U D G M E NT Delivered by the Honourable Mr Justice W CM M a q u tu on the 10th d ay of April 2 0 00 T he issue before court is o ne of costs only. On the 19th July 1 9 95 applicant b r o u g ht an application in w h i ch it w as claiming f r om r e s p o n d e nt p a y m e nt of the s um of M 71 2 0 7 - 1 4, interest at the legal rate calculated f r om J a n u a ry 1 9 92 a nd costs. After the respondent h ad filed a n s w e r i ng papers, applicant could not p u r s ue its application, b l a m i ng respondent for creating a situation in w h i ch applicant f o u nd itself obliged to bring this application unnecessarily. This court is being asked to depart from the normal rule that a party who brings an unsuccessful application must pay the costs at the end of the day. This is an unsuccessful application because applicant has found it cannot be awarded the sum of M71207-14 because of the facts supplied in respondent's answering papers. In order to determine whether applicant is right or wrong, I am obliged to go into the merits and history of this dispute. Applicant is a company that ran into problems because of bad management. It had been placed under judicial management because of the reasonable probability that it was not going to meet its obligations to its creditors. It might not be surprising to find that it did not keep its financial records properly. This therefore obliged the judicial manager to resort to the respondent (the applicant's banker) for bank statements and other information in order to work out what the real state of applicant's financial position ought to be-See David Shrand The Law and Practice of Insolvency Winding Up of Companies and Judicial Management 3rd Edition at page 340. Mr Buys an attorney of this court is the judicial manger of applicant. Consequently he was the real applicant. He therefore could not be emotionally uninvolved as he had written all the letters in applicant's name. Naturally (as he appeared personally) he felt respondent had badly treated him by not supplying the information he sought. The respondent also personalised the matter because as more fully appears in respondent's letter dated 23rd April, 1993: "over the past year, considerable unremunerative management time has been spent in endeavouring to locate allegedly missing credits to the above account"—ie. applicant's bank account. Respondent was not willing to oblige the judicial manager with the information he required. F or c o n v e n i e n ce I will henceforth call applicant (as c o m p l a i n a n t) the "judicial m a n a g e r" (because that is the real litigant) a nd the r e s p o n d e nt will be simply referred to as "the b a n k ". I will continue to refer to L e s o t ho Hotels International (Pty) L t d. as "applicant" w h e re I refer to it in its operations in its business activities. T he judicial m a n a g er virtually based his c l a im on the fact that he h ad said in an earlier letter that his investigations s e e m ed to reveal that applicant h ad not b e en credited with deposits a m o u n t i ng to M 71 2 0 7 - 1 4, a nd in reply the b a nk h ad said: "Please note that whilst o ur Internal A u d i t or a g r e ed that the a m o u n ts involved h a ve not b e en credited, he h as not a g r e ed that the b a nk h as a ny liability to the a m o u nt claimed. Statements w e re sent to the hotel on a regular basis a nd o ur client appears to be negligent in not following up the- missin^credits. In addition although we h a ve accepted the deposit of v o u c h e rs f r om the hotel, this in itself d o es not create a debtor/creditor relationship b e t w e en ourselves a nd the hotel." T h e re c an be no d o u bt that the b a nk in this portion of the letter implies that it h as indeed not credited the applicant with the a m o u nt of M 71 2 0 7 - 14 as alleged. T h is p a s s a ge appears to c o n f i rm that the bank's auditors c o n f i rm this, but say the b a nk is u n d er no obligation to rectify this error, because applicant did not q u e ry its b a nk statements t i m e o u s l y. I am not sure of w h at the t e rm "our client" in the a b o ve p a s s a ge m e a n s, b e c a u se applicant is referred to as the hotel. I underlined these w o r ds "our client" b e c a u se they h a ve introduced an element of ambiguity. H o w e v e r, it w o u ld s e em those words refer to applicant,—that is how they were interpreted by both sides. Mr Malebanye argued that applicant in not checking its statements was negligent because the bank's deposit slips exonerate the bank from all liability because they have the following words in small print:- "Cheques, etc handed in for collection will only be available as cash when paid. While acting in good faith and exercising reasonable care the bank cannot accept responsibility for ensuring that depositors/account-holders have lawful title to cheques etc collected. In even smaller print which is virtually hard to read, the following words appear on the bank statements that the bank used to send to applicant:- "Please examine this statement at once, if no error is reported to us within 15 days after receipt, the statement'will be considered as correct. Mr Malebanye argued that what appears in the bank statements exonerates the bank from liability 15 days after the account holders of receipt of the bank statements. When I tried to find out whether the bank were entitled to be unjustly enriched by errors that it commits in posting monies in the bank statements, Mr Malebanye conceded that this could not be correct. It could not be otherwise because in Big Dutchman (SA) (Pty) Ltd v Barclays National Bank Ltd 1979(3) SA 267 at page 283A "A customer's duty to his banker is a limited one. Save in respect of drawing documents to be presented to the bank and in warning of known or suspected forgeries—he has no duty to the bank to supervise his employees, to run his business carefully or detect frauds. (Spenser-Bower and Turner Estoppel by Representation 2nd Ed paras 64 and 207-209; Cowen op cit at 374); Standard Bank v Kaplan 1922 C PD 214 at 222, 223 and 224-225: "The same authorities make it clear that the customer has no duties to the bank to check his bank statements." The customer owes himself a duty to be careful in the way he manages his financial affairs. He also owes his bank a duty of care in the way he uses his banking cheque facilities to avoid forgeries and frauds, but the bank will not avoid liability merely because the conduct of the customer enabled fraud to be committed. See Holzman v Standard Bank Ltd 1985(1)SA 361. In other words it was a gross over simplification of the legal position to suggest that the bank could get away with not crediting application with the M71 207-14 where it was clear that it had been deposited into the bank and not credited to the customer. This bad advice from the auditors of the bank triggered a belief in the judicial manager that the bank was swindling applicant and the creditors for whose benefit he was acting. There was a smouldering resentment against the bad customer service that he bank had exhibited against him as he was trying to discharge his judiciary duties as judicial manager. This bad customer service is exhibited in the bank's letters to applicant which show what cannot be proper customer service. The relationship between the bank and a customer was neatly summarised by Selkowitz J in Standard Bank SA v Oneanate Investment (Pty) Ltd 1995(4) SA 510 at pages 530 and 531 G H: "The law treats the relationship of banker and customer as a contractual one. The reciprocal rights and duties included in the contract are to be great extent based upon custom and usage. Although historically the original objective of a depositor was to ensure the safe keeping of his money,—over time jurists have considered to characterising and explaining the relationship as one of deposition mutuum or agency. All these approaches have proved to be inadequate... "As between the bank and its customer a payment by cheque is governed primarily by the law of agency. Thus even in normal and every day activity the relationship described as one between debtor and creditor includes aspects - often described as 'superadded obligations'—which are regulated by the law of agency." From the aforegoing, it is clear that the bank and its internal auditors were wrong in saying the deposits in themselves "did not create a debtor/creditor relationships between the bank and applicant. The bank acted as applicant agent in collecting the money that applicant had deposited as cheques. It had to account to applicant who wasits principal The fact that problems arose was not a ground for the bank's excessive irritation which is displayed in its letters of 10th March 1995 and 23rd April 1995. This was particularly so where (due to mismanagement or exigencies of business) applicant's business had been failing and had consequently to be put under a judicial manager who is a sort of trustee. Queries that implied the bank had shortchanged applicant unless satisfactorily explained were justified. The bank ought to have been dealt fully to the satisfaction of the judicial manager. The bank itself initially agreed that it had not credited applicant with sums that are now claimed. I find it curious that the applicant's auditors in 1992 should have shared the belief with the bank auditors that the deposits amount to M 71 207.14 as more fully appears in paragraphs 18 and 19 of applicant's founding affidavit and the bank's letter of 10th March 1995. Indeed the bank's letter of 10th March in its tone and contents reflect an incompetence in the handling of applicant's banking account that in my view is unheard of, if it had in fact taken place. The banker's subsequent answering affidavit together with the bank statements show clearly that it was simply untrue that applicant was never credited with the M 71 207.14 as the bank itself and auditors of both parties had alleged. The bank statements show clearly that each deposit was duly credited by the bank to applicant on the very day it was made. The normal banking practice was in fact adhered to. In Absa Bank Ltd v Blumberg and Wilson 1995(4) SA 403—Cameron J outlined the procedure ordinarily followed by banks and customers in the operation of customers bank accounts. It is simply that all deposits are credited to the customer as soon as they are deposited. Nevertheless,ihe customer may not draw cheques against deposited cheques which have not been cleared. If he does so, he runs the risk of the cheques being dishonoured. Indeed the applicant's deposit slips clearly state that, "cheques, etc handed in for collection will only be available as cash when paid". Therefore in the normal course of banking practice, the bank reverses such a credit when the cheque is dishonoured. This was common cause in Absa Bank Ltd v Blumberg and Wilkinson as it is in fact common cause in this case. The amounts credited to applicant in the bank statements were never reversed. I am therefore puzzled as to how the commonly shared belief between applicant and the bank that it was never credited with the amount it claimed gained ground. The bank, after having admitted on the 10th March 1995 that the amount claimed had never been credited, suddenly vaguely stated in its letter of 23rd April 1995 that the a m o u n ts w e re credited to applicant a nd that information c o n v e y ed to applicant's auditors in January 1992. T he b a nk does not provide the judicial m a n a g er with the relevant information. T he b a nk merely dares the judicial m a n a g er to institute legal proceedings as he has b e en threatening to do to claim the a m o u nt that the b a nk h ad in fact admitted w as not credited. If the information w as all along in b a nk statements that h ad subsequently b e en attached to the bank's answering affidavit, h ow did the bank's auditor a nd applicant's auditor agree that the a m o u nt w as not credited? W hy did the b a nk claim it w as still locating the a m o u n ts and that it w as enlisting the services of Barclays B a n k? T h e re is an element of mystery. T he mystery is deepened by the fact that f r om applicant's records at least M 27 0 0 0 . 00 of the a m o u n ts deposited by applicant w as in cash or a specially cleared cheque. Therefore no collection or clearance should h a ve posed any problems. In the bank's deposit slips w h i ch include a f ew m o re that applicant has not annexed the a m o u nt of cash deposits including a specially cleared c h e q ue is over M 3 5 0 0 0 . 0 0. I do not understand w hy these a m o u n ts w e re ever found not to h a ve b e en credited to applicant. Is it a c o m e dy of errors. I therefore do not understand w hy on the 10th M a r ch 1995 the b a nk wrote to the liquidator a letter w h o se paragraph 2 stated: "Investigations in respect of the missing credits h a ve continued a nd it has b e en established that the bulk of the credits related to items sent on collection to Barclays International Ltd in M a s e r u. T h e se w e re mainly credit cards debits. Barclays B a nk w e re requested to assist us in tracing the proceeds of these items, but d ue to the fact that b e t w e en 3 a nd 6 years h a ve elapsed since those items w e re processed, Barclays B a nk has b e en unable to assist." It is h a rd to reconcile the b a n k 's letter of the 23rd April 1 9 95 w i th that of the 10th m a r ch 1 9 9 5. T he p r o b l em is c o m p o u n d ed by the failure of the b a nk to give a ny explanation or a d m it a ny mistake if there h ad b e en a n y. C o u ld it be that the B a n k 's M a n a g i ng Director h ad a nd the auditors of b o th sides h ad an inadequate k n o w l e d ge of b a n k i ng practice? S u ch a conclusion cannot be correct. It w as a r g u ed on behalf of the b a nk that the judicial m a n a g er p r o c e e d ed by w ay of application at his o wn risk, k n o w i ng this matter w o u ld be contested a nd a serious dispute of fact h ad already arisen e v en before this application w as b r o u g h t. T he judicial m a n a g er says in the absence of a ny information he did not (at the time he instituted legal proceedings) believe the dispute w as g e n u i n e, in v i ew of the b a n k 's a d m i s s i on of failure to credit applicant for those deposits. O n ce the information that c o u ld h a ve resolved the dispute w as supplied together with the b a n k 's a n s w e r i ng affidavit, it b e c a me unnecessary to p r o c e ed Rusher. T he b a nk w a n ts to be a w a r d ed costs b e c a u se it h as s u c c e e d ed a nd costs m u st follow the event. T he judicial m a n g er of applicant says he is entitled to costs b e c a u se he w as p u s h ed into this litigation by the b a n k 's c o n d u ct a nd unco-operative b e h a v i o ur in concealing vital information. This is w h at I m u st decide. It s e e ms to me that the judicial m a n a g er could not be visited with the faults of applicant in not k e e p i ng its financial records a nd b a nk statements properly. E v en if applicant h ad kept its records badly, the b a nk w as obliged to deal with its queries a nd disabuse h im of w h a t e v er misconceptions that it h ad b e en s h o r t c h a n g ed by the b a n k. This is standard practice not only in banking transactions involving cheques where there is element of agency, but all business transactions in which financial statements have to be given from time to time. There has to be exchange of information so that both participants can adjust their records to their mutual benefit in order to keep the wheels of commerce going. If the bank had apologised for its error of the 10th march 1995 and supplied the judicial manager with the relevant records and bank statements, this case would not be before the courts to-day. In order to resolve this issue of costs in this case, we must resort to general principles. Herbstein & Van Winsen The Civil Practice of the Superior Courts in South Africa 4th Edition at page 701 says this about costs: "The purpose of an award of costs to a successful litigant is to indemnify him for the expense to which he has been put through having been unjustly compelled to initiate or defend litigation as the case may be." I have underlined the words "unjustly compelled to initiate or defend litigation because this is the real issue before me in this case. These words are virtually a quotation from Innes CJ's judgment in Texas Co SA Ltd v Cape Town Municipality 1926 AD 467 at page 488. I think Herbstein and Van Winsen The Civil Practice of the Supreme Court of South Africa have overstated the position at page 703 where they say "The award of costs is a matter wholly within the discretion of the court. What they are distilling from many authorities on the question is that although costs should follow the event, the trial court has a discretion which must be judicially exercised and must be conditioned by the circumstances of the case. Therefore De Villiers JP dealing with a trial court's discretion on costs in Fripp v Gibbon & Co 191 AD 354 at 363 said:- "Questions of costs are a l w a ys important a nd s o m e t i m es c o m p l ex a nd difficult to d e t e r m i n e, a nd in leaving the magistrate the discretion, the l aw contemplates that he should take into consideration the circumstances of each case, the c o n d u ct of the parties a nd a ny other c i r c u m s t a n ce of the case, carefully w e i g h i ng the various issues in the case, the c o n d u ct of the parties a nd a ny other circumstance w h i ch m ay h a ve a bearing u p on the question of costs a nd then m a ke s u ch order as to costs as w o u ld be fair a nd just b e t w e en the parties. A nd if he d o es this, a nd brings his unbiased j u d g m e nt to b e ar u p on the matter a nd d o es n ot act capriciously or u p on the w r o ng principle, I k n ow of no right on the part of the court of appeal to interfere w i th the honest exercise of his discretion." As a trial court I h a ve to exercise my discretion judicially after w e i g h i ng all relevant facts. In the light of w h at I h a ve said a b o v e, I h a ve c o me to the conclusion that although the b a nk c an so to speak h a ve g r o u nd for saying it h as b e en successful, b ut its c o n d u ct a nd the circumstances surrounding this case oblige me to d e ny it costs. A judicial m a n a g er w ho is d o i ng his best to bona fide recover m o n i es for the c o m p a ny he is m a n a g i ng for creditors a nd the shareholders m ay s o m e t i m es be ordered to p ay costs personally if he deliberately acts in an ill-advised m a n n e r. In this case I believe he h as reasonable g r o u n ds for b l a m i ng the b a nk for p u s h i ng h im into litigation, although he should not h a ve i m m e d i a t e ly claimed the a m o u nt of the deposits. T he judicial m a n a g er claims costs on the v e ry g r o u n ds that I h a ve d e c i d ed to d e ny the b a nk costs that w o u ld h a ve b e en automatically a w a r d ed w h en the judicial m a n a g er decided not to p r o c e ed with his application. In the first place, I am of the v i ew that the judicial m a n a g er should not h a ve rushed to court like bull in S p a in d o es w h en a m a t a d or w a v es a red cloak before it, as the b a nk did (by w o rd a nd conduct). T he judicial m a n a g er should h a ve stopped to reflect. It n ow transpires that w h at he really w a n t ed w as the information that the b a nk claimed w as available, but w h i ch the b a nk w as withholding f r om h i m. If applicant h ad m a de a f o r m al d e m a nd for the information before instituting legal proceedings, his legal position would have been considerably enhanced. What the judicial manager demanded in his letter of 4th April 1995 was the money which is the subject of this litigation. In reply he was told by the bank in the letter of the 23rd April 1995 that the information showing the deposits were in fact credited to applicant's bank account had been available since January 1992. That is the information the judicial manager should have demanded. Indeed if this application had been made to obtain the information that the bank now said it had, the judicial manager would have been within his rights and his application would have been unassailable. The other reason the judicial manager has a problem in his application for costs is that he came to court by way of application fully aware that the bank claimed the said sums had been credited. He knew the matter would be contested, but nevertheless took a risk. The judicial manager should have been aware that his application may be dismissed if turned out that the bank was right, the deposit had in fact been credited. Even if there was a realization at the launching of the application that a serious dispute of fact was. likely to develop,—for that reason, if it in fact developed, the application could be dismissed (Room Hire Co (Pty) Ltd v Jeppe Street Mansions (Pty) Ltd 1949(3) SA 115 at 1162. Yet applicant persisted with the launching of this application. Awarding him costs might be rewarding the judicial manager for an error of judgment. He believed the bank had no genuine defence. It turns out that it had a good defence. It is neither liable for payment of the said sum or interest. I am saying this although both the internal auditors of the bank and those of the applicant say the said amount is owing. This fact that the money is not owing, the judicial manager now accepts and that should be the end of the matter. It would not be right for the judicial manager to get costs for bringing a futile application, w h i ch w as risky f r om the start. He h ad b e en w a r n ed by the b a nk that it w as based on the w r o ng g r o u n d s, there w as information w h i ch should h a ve b e en in his h a n ds but m i g ht still be with applicant's f o r m er auditors. T h is information the b a nk could h a ve b e en forced to divulge. T he only appropriate order is for this court to order that e a ch party p ay its o wn costs. It is so ordered. W CM M A Q U TU F or the applicant : F or the respondent :