IN THE HIGH COURT OF MALAWI
PRINCIPAL
REGISTRY
CIVIL
CAUSE NO. 145 OF 2002
BETWEEN:
- and -
CORAM: JUSTICE
W. M. HANJAHANJA
Kalima,
of Counsel for the Plaintiff
Bandawe, of Counsel for
the Defendant
Katunga
(Mrs), 0fficial Interpreter.
In this
action the plaintiff is claiming against the defendant the sum of K3,504,807.63
as damages for conversion, interest thereon and a sum of K282,173.08 under the
Legal Practitioners (Scale Minimum)(Amendment) Rules 2002.
The plaintiff, Gunvant
Haridas Majitha, is a trader in hardware goods and operates his business in the
City of Blantyre under the name of Hardeleq Supplies. He employed a Mr Ellisa Jackson Takomana (the Debt Collector) to
collect payment cheques from the plaintiffs customers. Unknown to the plaintiff, the Debt
Collector opened a current account with the Commercial Bank of Malawi at the
Ginnery Corner, Chichiri in the name of Hardeleq Merchants Supplies. As required by bank practice, the Debt
Collector produced to the bank a Certificate of Business Registration Exhibit
P1. The certificate showed that
Hardeleq Merchants Supplies was registered on 29th July 1998 under Registration
Certificate Number 43900, Exhibit P2. in the name of the Debt Collector.
Instead of handing over paid
up cheques to the plaintiff, in the name of the plaintiff, the Debt Collector
deposited the cheques into his own account with the Commercial Bank at
Chichiri. It is the evidence of the
plaintiff that he, the plaintiff, never had a current account, at all with the
bank at Chichiri. It was during the
auditing of the plaintiff's accounts that auditors queried why some debts were
long overdue. As a result an inquiry
was made on the outstanding accounts.
It was discovered that for over a period of three years between 14th
August 1998 and 18th October 2001 a substantial number of debtor companies had
drawn cheques in the name of the plaintiff but that the payment cheques had
been directed and deposited into the Debt Collector's current account at the
Commercial Bank, Chichiri. These
deposits came to K3, 504,807.63. The
whole amount was subsequently withdrawn by the Debt Collector.
In the premises on 6th
November 2001, the plaintiff addressed a letter to the bank's manager, Mrs
Thupa, Exhibit P3 complaining as follows: -
"I have discovered
after a detailed audit of our accounts that cheques payable to Hardeleq
Supplies from our debtors were being paid into an account held at your
branch. This was discovered after a
number of my debtors produced paid cheques, which bear the stamp of your
branch. This surprised me, as I do not
hold an account with the Commercial Bank of Malawi at your branch or at any
branch of your bank under the name of Hardeleq Supplies.
I would like to know how
Commercial Bank of Malawi opened an account under the name of Hardeleq Supplies
without my consent and how cheques payable to Hardeleq Supplies were being paid
into that account.
I have enclosed a copy of
our Business Registration Certificate, which clearly shows that I, Gunvat
Haridas Majitha, have been carrying on business as Hardeleq Supplies since 15th
October 1982.
Yours faithfully
G. H.
Majitha".
The bank replied on 19th
November 2001 – Exhibit P4 as follows:
"This is to confirm
that the matter is being investigated by the Bank's Security Services
Department".
Yours sincerely,
Roselyn
Thupa(Mrs)
Corporate Banking
Manager".
The outcome of the
investigation came out in a Memorandum Exhibit
P5 says:
"Mr Ellisa Jackson
Takomana opened an account on 13th August 1998 in the name of Hardleq Merchants
Supplies. On short name, he indicated
Hardleq Supplies of Hardleq Supplies (Suppliers). The Certificate of Registration, which he produced to the bank,
number 43900 reads Hardleq Merchants Supplies and Ellisa Jackson Takomana as
the sole proprietor. The account was
opened in our books on 13th August 1998 and the customer was handled by Mr
Vandika. The Manager by then, Mr J.V.
Likubwe authorised opening of the account.
The account was opened with an initial deposit of K500 cash. On opening the account, it was created as
Hardleq Supplies omitting Merchants.
Most deposits made to the
account were cheques. On CA 50 on some
deposits, the account was written as Hardeleq Supplies. Most deposits written Hardeleq were left in
the box by the customer. From the time
the account was opened up todate, all cheque deposits amount to
K3,497,145.53. It has been hard to prove
which of these cheques were paid in the
name of Hardeleq Supplies as all cheques deposited were cleared.
The account was wrongly
written as Hardleq Supplies instead of Hardleq Merchants Supplies. On short name the bank should have objected
to the use of two names i.e. Hardleq or Hardeleq because on the Registration
Certificate, the name is Hardleq Merchants Supplies. On all cheques drawn by the customer, the customer stamped all
his cheques as Haldeleq Supplies changing his business name. The bank should have obtained a proper
explanation from the customer why the customer opted the short name to read by
two different names.
G. S. Ziba
Branch Sport
Inspector
It was the evidence of the
plaintiff that cheques drawn by his debtors intended for payment for the
plaintiff were deposited by the Debt Collector into his own account. For example, a cheque dated 7th August 2001
drawn in the name of the plaintiff Hardeleq Supplies for K52,321.00 issued by
the Malital Limited was deposited into the Debt Collector's account and stamped
by the Chichiri Bank on 9th August 2001 Exhibit P7. The plaintiff then produced a bank statement
of withdrawals Exhibit P8 showing huge amounts of withdrawals from the
Debt Collector's account with the bank dating from 13th August 1998 to 11th
March 1999. Similarly, the plaintiff
produced a cheque Exhibit P IO issued by Carlsberg in favour of Hardeleq
Supplies for K1,905.00 which found its way into the Debt Collector's
account. Likewise a cheque issued by
MASAF Exhibit 11 for K12,375.00 dated 28th May 2001. Among the many other cheques was cheque Exhibit
12 issued by Manica for K6,130.00 dated 15th December 1999 and Transport
Equipment Manufacturers Exhibit P 13 cheque for K17,085.00 dated 26th
October 2001.
After these revelations, the
Bank ordered the closure of the Debt Collector's current account.
It was the evidence of the
plaintiff that the Debt Collector ran away from the country when he got wind of
the case. The plaintiff puts the blame
for the loss of his money squarely on the Bank. The Bank denies liability and accuses the plaintiff of negligence
by giving the Debt Collector an opportunity to create this fraud.
The central issue in this
case is upon whom the loss arising from the Debt Collector's fraud is to fall,
the plaintiff or the defendant Bank.
The plaintiff's case is that the Bank had no authority to accept and
deposit the cheques and pay out to the Debt Collector account cheques, which
were clearly issued for the use of the plaintiff and in his own business name. The loss, therefore, the argument is, falls
on the Bank. Meanwhile the Debt
Collector has fled the country to an unknown destination leaving the plaintiff
and the bank to fight out who between them is the innocent victim of his crime
and who is to bear the financial loss.
If the plaintiff succeeds,
there is an issue as to whether the Bank is liable to pay interest on the sums
wrongly paid to the fraudulent Debt Collector's account.
In cross examination, the
plaintiff testified that it took three years to discover this fraud because,
like the rest of his members of staff, he trusted the Debt Collector that he
would collect cheques from his customers and deposit them into the plaintiff's
current account. He did not detect
anything wrong because he trusted him until these fraudulent transactions were
exposed. This was because there were times he deposited the cheques into his
account personally and at times when either the account or the Debt Collector
made the deposits.
From time to time, he would
instruct the Debt Collector to push and chase out for outstanding accounts from
his debtors, particularly during the six months period before the discovery of
the fraud when he started to notice that he was in financial problems with his
creditors due to lack of funds. He then
instructed his Accountant to check with the debtors. It turned out that most of
the debtors had settled their accounts.
They produced paid up cheques as proof.
He testified that because he did not have an account with Bank, he was
therefore, in no position to detect the fraud.
The plaintiff summoned one
witness, an expert in banking business.
He is Galomako Munthali, the Investor Services Manager with the National
Bank. He condemned and criticised the
procedure followed by the defendant's Bank in processing the Debt Collector's
account with them. He felt the Bank
took no precaution to check that the names endorsed on the various cheques as
Hardeleq Supplies were the same as that of the Debt Collector's account name
which was Hardeleq Merchants Supplies.
A prudent banker would not have accepted these deposits given the
difference in names on the cheques and the account. His evidence was that when a customer comes to open a business
account the Bank asks for two things, a Certificate of Incorporation, a
Certificate of Business Registration and References. They key document is the Certificate of Registration. As the account is opened the name of the
account should be exactly the same as that reflected on the Certificate of
Registration tendered. The Bank should
not accept a different name from the customer and one appearing on the
Certificate of Registration.
As a collecting bank, he
said, the name appearing in the cheque "payee" should be the same as
the one on the cheque both personal and business. He said it was an error to accept a deposit of a cheque indorsed
HARDELEQ into an account named HARDLEQ.
He noticed that there was a difference in spelling. The former has an E between D and L whereas
the later has no E between D and L.
Further in HARDELEQ, there is an E between L and Q, making it to have
two Es whereas the later has only one E in the name. He testified that there was a problem or oversight in the opening
of the account. He would have expected
that the one opening the account would have recorded in what was in the
Certificate of Registration in this case HARDLEQ MERCHANTS SUPPLIES as opposed
to the name of HARDELEQ SUPPLIES. It
was his opinion as a banker that this account was opened without backing by the
Certificate of Registration which was against the normal banking practice. He concluded by saying that there was some
negligence on the part of the officer who opened the account and further by
accepting to deposit cheques for the credit of that account with different
names. This was very unprofessional.
The defendant also called
one witness. He is Gaver Chawanangwa
Ziba, the Bank's Internal Auditor. He
was informed by the Manager of the bank at Chichiri that cheques in the name of
HARDELEQ were deposited in the account of HARDLEQ. He then commenced his investigations. His main worry was in the
short name. There were two names on
short names HARDLEQ SUPPLIES and HARDELEQ with a difference on the placing of E
on both names. His main findings were
that the account opening was properly done but the creation of the name in the
computer was not properly done. He
confirmed that the account maintained by the bank was in the name of Elissa
Jackson Takomana.
In cross-examination, he
conceded that the account was wrongly created as HARDLEQ SUPPLIES instead of
HARDLEQ MERCHANTS SUPPLIES. On short
name, he should have objected to the use of two names, that of HARDLEQ and
HARDELEQ because on the Registration Certificate, the name is HARDLEQ MERCHANTS
SUPPLIES. His major concern was why the
bank accepted two names.
Counsel for the defendant,
Mr Bandawe, submits that the case for the plaintiff must fail because the
plaintiff has given evidence of acting in bad faith and with negligence. This, he submits, is procedurally wrong. His argument is that negligence has not been
pleaded. The plaintiff, therefore,
cannot allege negligence on the part of the bank. He argues that it was out of context for the plaintiff through
the evidence of PW2 to raise the issue of negligence by the bank in opening or
creating the account. He referred the
court to Lord Edmund Davies in FARRELL v SECRETARY OF STATE FOR DEFENCE
(1980) 1 WRL 172.
"failure to plead
negligence against a specified person precludes that court from finding that
person guilty of negligence."
Mr Bandawe further relies on
the defence of estoppel. He argues that
the plaintiff is estopped from claiming a refund because his inaction or action
encouraged or played a significant role in preventing the defendant from
detecting that the Debt Collector was stealing these cheques and depositing
them into his own account. Mr Bandawe
cited the case of Morison v London country (1914) 3 K.B. 356.
In the Morison case, the
plaintiff authorised one Harry Abott, his employee, to sign cheques on behalf
of the plaintiff's company. Abusing the
trust that the plaintiff had in him, Abbot opened an account with the
plaintiff's bank where he diverted some cheques for a period of five years. The plaintiff brought an action against the
bank for conversion. The court at
first, instance, ruled in favour of the plaintiff. On appeal, the Court of Appeal reversed the decision and ruled in
favour of the bank.
Mr Bandawe maintains that the plaintiff's conduct was similar to that
of Morison.
Mr Bandawe further submits
that the plaintiff had condoned whatever negligence the defendant had committed
and therefore is protected by Section 25 of the Bills of Exchange Act 1882
similar to Section 79 of the Malawi Bills of Exchange Act. It provides:-
"where a banker in good
faith and without negligence
(a)
receives payment for a customer of an instrument to
which this section applies; or
(b)
having credited a customer's account with the amount
of such an instrument, receives payment thereof for himself, and that the
customer has no title, or a defective title to the instrument, the banker does
not incur any liability to the true owner of the instrument by only having
received payment thereof".
In addition, Mr Bandawe
submits that interest is not payable.
He says damages for conversion are the face value of the instrument and
no more. He referred the court for this
proposition to the Morison's case, Capital and Countries Bank v Gordon
(1903) A.C. 240, and MacBeth v North and South Wales Bank (1908) A.C.
137.
Counsel for the Plaintiff,
Mr Kalima, submits that the case for conversion has been made out. He disagrees that the defence of estoppel,
and the protection under Section 79 of the Malawi Bills of Exchange Act is available
to the defendant. His argument is that
the plaintiff did not open any account with the Bank for the defence and
protection to apply. As the plaintiff
had no account with the bank, he could, therefore, be in no position to know
that cheques drawn in his name by his customers were being deposited into this
bank by the Debt Collector. The plaintiff never received statements from this
bank showing the movement of his customers' cheques deposited and withdrawn at
this Bank. The plaintiff should, therefore,
not be blamed for taking no action to stop the fraud for the period of the
three years in question. He referred
the court to the case of Lloyds Bank v Savory and Company (1933) A.C.201;
(1932) ALL E.R Rep100 in which the misappropriation of cheques took place
between 1924 and 1930, a period of six years and yet the respondent recovered
from the bank damages for conversion.
It is the argument of Mr Kalima that in that case, inability or failure
to discover fraud did not preclude the courts from awarding the plaintiff
damages for conversion. Simply put, he
says, the defence of estoppel must fail.
As for Section 79 of the
Bills of Exchange Act, Mr Kalima submits that the defendant enjoys no
protection provided by this section.
This is because the evidence has established that the defendant acted in
bad faith and with negligence. Even though, the evidence shows that the
defendant properly opened the account for the Debt Collector but the evidence
also establishes that the defendant wrongfully created this account. The bank allowed the Debt Collector to use
two short names reading differently without making proper inquiries. The bank created the account with a name
different from the name on the Certificate of Registration. The bank permitted cheques payable to the
plaintiff's "Hardeleq Supplies" to be deposited in an account for the
Debt Collector, "Hardleq Merchants Supplies". Mr Kalima argues that by receiving from the
Debt Collector cheques payable to the plaintiff's "Hardeleq Supplies"
and paying these into the account of the fraudulent Debt Collector, the
defendant converted the plaintiff's cheques in the sum of at K3,504,807.63 and
the plaintiff is entitled to the award of that sum as damages for conversion.
Mr Kalima feels it was not
necessary to plea negligence as alluded
to by Mr Bandawe. It is enough to
establish that the bank did not act in good faith and acted with
negligence. The bank acted carelessly
in that they ought to have noticed that the payee on the cheque "Hardeleq
Supplies" was different from the holder of the account "Hardleq
Supplies" into which the cheques were deposited. It was wrong for the bank to allow cheques payable to
"Hardeleq Supplies" to be paid into the account of "Hardleq
Supplies". This, he said, was a
clear case of conversion.
Mr Kalima referred to the
cases of Baker v Barclays Bank Ltd (1955) 2ALL E.R. 571, Motor Traders
Guarantee Corpn v Midland Bank (1937) 4 ALL E.R.90 Paget's Law of Banking page
419 which deal with collection of cheques to which a customer has no
title. Mr Kalima draws the court's
attention to the proposition that conversion is a wrongful interference with
goods, as by taking, using or destroying them, inconsistent with the owner's
right of possession. To constitute this
injury, there must be an act of the defendant repudiating the owner's right, or
some exercise of dominion inconsistent with it. Intention is no element of conversion. The plaintiff must have been entitled to immediate possession of
the chattel at the date of conversion Hollins v Fourler (1875) LR.7.HL 757
at 795; White v Teal (1840) 12 AD and
EL100 106 at 115; Paget's Law of Banking pages 418 and 419.
Mr Kalima submits that in
the present case the sum of K3,504,807.62 was payable to the plaintiff's
"Hardeleq Supplies" and not to "Hardleq Supplies" and that
the plaintiff was entitled to the immediate possession of the cheques.
He argues that by crediting
the money into the Debt Collector's account number 1404117, the bank dealt with
the cheques in a manner inconsistent with the plaintiff's ownership of
them. The bank, he submits is,
therefore, liable in conversion.
From the foregoing, I have
no doubt in my mind that beginning from the time the fraudulent Debt
Collector's account was opened throughout 1998 to 2001 the practice and
procedure followed by the defendant bank was grossly unprofessional. This is born out from the testimony of both
bankers, the National Bank Investment Service Manager and the defendant's Bank
Internal Auditor. There was gross
negligence in the opening of the account.
There was massive negligence in the execution and operation of the Debt
Collector's account. This negligence or omission facilitated the occurrence of
the fraud. The Bank exercised no
precaution. They, without this
precaution, let the fraudulent Debt Collector deposit into his account and withdraw therefrom K3,504,807.87 moneys from
cheques drawn for the use of the plaintiff.
This was an act of bad faith and act of negligence. I must, therefore, find them responsible for
the loss suffered by the plaintiff. I
hold the view therefore, in my judgement, that the protection given to a Bank
under Section 79 of the Bills Exchange Act is not available to the defendant in
the face of these glaring acts of bad faith and acts of negligence. The names "Hardeleq Supplies" and "Hardleq
Supplies are totally different. This
difference ought to have come out very clearly if the bank exercised some caution and precaution in the opening
of the account and maintenance of the account.
The defendant has
pleaded estoppel. There is no question
of estoppel in this case. There was no
relationship of a banker and a customer between the parties in this case in
order for estoppel to apply. The
conduct of the plaintiff, that being the position, is blameless. The defence is without merit. No bank statement passed between the
defendant and plaintiff to enable the plaintiff detect the fraud. He discovered the fraud when he inquired
with his customers why their accounts were long overdue after the auditors had
discovered that there were many 90 days overdue accounts.
Since the plaintiff had no
current account with the defendant, it was impossible for the plaintiff to know
fraud was in existence. He received no bank statements from the bank, as a
result the plaintiff owed the Bank no duty to take reasonable and ordinary
precaution to prevent the fraud from happening. The defence of estoppel
must, therefore, fail.
As for the claim
for interest, I have this to say:- The
plaintiff has lost his money which if
he had deposited in an interest earning account he would have the opportunity
to earn more than what he lost by this unauthorised credit and debt of his
cheques into the fraudulent
account. Interest, therefore, is
payable. For the purpose of this case,
interest should run from 18th October 2001 the date the fraud was detected and
exposed at a bank rate to the date of judgement. The parties shall agree what bank lending rate is payable, in
default an assessment shall be made by the Registrar of the High Court after
hearing both parties.
For being successful, I also
award the plaintiff collection charges at the rate of 15% in terms of Legal
Practitioners (Scale Minimum) Amendment Rules 2002 and 20% surtax and costs of
this action as prayed.
PRONOUNCED in open court on
the 20th day of November 2002.
W. M. Hanjahanja
JUDGE