CIV/APN/249/95
IN THE HIGH COURT OF LESOTHO

In the matter between:

LESOTHO HOTELS INTERNATIONAL
(PROPRIETARY)
LIMITED
(IN JUDICIAL MANAGEMENT) APPELLANT

And
STANDARD CHARTERED BANK LESOTHO LIMITED
RESPONDENT

JUDGMENT

Delivered by the Honourable Mr Justice WCM Maqutu on the
10^th day of April 2000

The issue before court is one of costs only.

On the 19^th July 1995 applicant brought an
application in which it was claiming from respondent payment of the
sum of M71 207-14, interest at
the legal rate calculated from January
1992 and costs.

After the respondent had filed answering papers,
applicant could not pursue its application, blaming respondent for
creating a situation
in which applicant found itself obliged to bring
this application unnecessarily.

2

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 3^rd
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 23^rd 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

3 required.

For convenience I will henceforth call applicant (as
complainant) the "judicial manager" (because that is the
real litigant)
and the respondent will be simply referred to as "the
bank". I will continue to refer to Lesotho Hotels International
(Pty)
Ltd. as "applicant" where I refer to it in its
operations in its business activities.

The judicial manager virtually based his claim on the
fact that he had said in an earlier letter that his investigations
seemed to
reveal that applicant had not been credited with deposits
amounting to M71 207-14, and in reply the bank had said:

"Please note that whilst our Internal Auditor
agreed that the amounts involved have not been credited, he has not
agreed that
the bank has any liability to the amount claimed.
Statements were sent to the hotel on a regular basis and our client
appears to
be negligent in not following up the-missin^credits. In
addition although we have accepted the deposit of vouchers from the
hotel,
this in itself does not create a debtor/creditor relationship
between ourselves and the hotel."

There can be no doubt that the bank in this portion of
the letter implies that it has indeed not credited the applicant with
the amount
of M71 207-14 as alleged. This passage appears to confirm
that the bank's auditors confirm this, but say the bank is under no
obligation
to rectify this error, because applicant did not query its
bank statements timeously. I am not sure of what the term "our
client"
in the above passage means, because applicant is
referred to as the hotel. I underlined these words "our client"
because
they have introduced an element of ambiguity. However, it
would seem those

4 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

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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 2^nd
Ed paras 64 and 207-209; Cowen op cit at 374); Standard Bank v Kaplan
1922 CPD 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.

6

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 GH:

"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 10^th March 1995 and 23^rd 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

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with the bank auditors that the deposits amount to M71
207.14 as more fully appears in paragraphs 18 and 19 of applicant's
founding
affidavit and the bank's letter of 10^th March
1995. Indeed the bank's letter of 10^th 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 M71 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 10^th March 1995 that the amount
claimed had never been

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credited, suddenly vaguely stated in its letter of 23rd
April 1995 that the amounts were credited to applicant and that
information
conveyed to applicant's auditors in January 1992. The
bank does not provide the judicial manager with the relevant
information. The
bank merely dares the judicial manager to institute
legal proceedings as he has been threatening to do to claim the
amount that the
bank had in fact admitted was not credited.

If the information was all along in bank statements that
had subsequently been attached to the bank's answering affidavit, how
did
the bank's auditor and applicant's auditor agree that the amount
was not credited? Why did the bank claim it was still locating the
amounts and that it was enlisting the services of Barclays Bank?
There is an element of mystery. The mystery is deepened by the fact
that from applicant's records at least M27 000.00 of the amounts
deposited by applicant was in cash or a specially cleared cheque.
Therefore no collection or clearance should have posed any problems.
In the bank's deposit slips which include a few more that applicant
has not annexed the amount of cash deposits including a specially
cleared cheque is over M35000.00. I do not understand why these
amounts were ever found not to have been credited to applicant. Is it
a comedy of errors. I therefore do not understand why on the
10th
March 1995 the bank wrote to the liquidator a letter whose paragraph
2 stated:

"Investigations in respect of the missing credits
have continued and it has been established that the bulk of the
credits related
to items sent on collection to Barclays International
Ltd in Maseru. These were mainly credit cards debits. Barclays Bank
were requested
to assist us in tracing the proceeds of these items,
but due to the fact that between 3 and 6 years have elapsed since
those items
were processed, Barclays Bank has been

9

unable to assist."

It is hard to reconcile the bank's letter of the 23rd
April 1995 with that of the 10th march 1995. The problem is
compounded by the
failure of the bank to give any explanation or
admit any mistake if there had been any. Could it be that the Bank's
Managing Director
had and the auditors of both sides had an
inadequate knowledge of banking practice? Such a conclusion cannot be
correct.

It was argued on behalf of the bank that the judicial
manager proceeded by way of application at his own risk, knowing this
matter
would be contested and a serious dispute of fact had already
arisen even before this application was brought. The judicial manager
says in the absence of any information he did not (at the time he
instituted legal proceedings) believe the dispute was genuine,
in
view of the bank's admission of failure to credit applicant for those
deposits. Once the information that could have resolved
the dispute
was supplied together with the bank's answering affidavit, it became
unnecessary to proceed Rusher.

The bank wants to be awarded costs because it has
succeeded and costs must follow the event. The judicial manger of
applicant says
he is entitled to costs because he was pushed into
this litigation by the bank's conduct and unco-operative behaviour in
concealing
vital information. This is what I must decide.

It seems to me that the judicial manager could not be
visited with the faults of applicant in not keeping its financial
records and
bank statements properly. Even if applicant had kept its
records badly, the bank was obliged to deal with its queries and
disabuse
him of whatever misconceptions that it had been shortchanged
by the bank.

10

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 10^th 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 4^th
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:-

11

"Questions of costs are always important and
sometimes complex and difficult to determine, and in leaving the
magistrate the
discretion, the law contemplates that he should take
into consideration the circumstances of each case, the conduct of the
parties
and any other circumstance of the case, carefully weighing
the various issues in the case, the conduct of the parties and any
other
circumstance which may have a bearing upon the question of
costs and then make such order as to costs as would be fair and just
between
the parties. And if he does this, and brings his unbiased
judgment to bear upon the matter and does not act capriciously or
upon
the wrong principle, I know of no right on the part of the court
of appeal to interfere with the honest exercise of his discretion."

As a trial court I have to exercise my discretion
judicially after weighing all relevant facts. In the light of what I
have said above,
I have come to the conclusion that although the bank
can so to speak have ground for saying it has been successful, but
its conduct
and the circumstances surrounding this case oblige me to
deny it costs. A judicial manager who is doing his best to bona fide
recover
monies for the company he is managing for creditors and the
shareholders may sometimes be ordered to pay costs personally if he
deliberately
acts in an ill-advised manner. In this case I believe he
has reasonable grounds for blaming the bank for pushing him into
litigation,
although he should not have immediately claimed the
amount of the deposits.

The judicial manager claims costs on the very grounds
that I have decided to deny the bank costs that would have been
automatically
awarded when the judicial manager decided not to
proceed with his application. In the first place, I am of the view
that the judicial
manager should not have rushed to court like bull
in Spain does when a matador waves a red cloak before it, as the bank
did (by word
and conduct). The judicial manager should have stopped
to reflect. It now transpires that what he really wanted was the
information
that the bank claimed was available, but which the bank
was withholding from him. If applicant had made a formal demand for
the information

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before instituting legal proceedings, his legal position
would have been considerably enhanced. What the judicial manager
demanded
in his letter of 4^th 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 23^rd 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

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application, which was risky from the start. He had been
warned by the bank that it was based on the wrong grounds, there was
information
which should have been in his hands but might still be
with applicant's former auditors. This information the bank could
have been
forced to divulge.

The only appropriate order is for this court to order
that each party pay its own costs. It is so ordered.

WCM MAQUTU

For the applicant :
For the respondent :