The contractual nature of the relationship between a bank and its client imposes a strict duty on the bank to operate solely within the authority and mandate provided by the client or the client’s lawful representative. Banks cannot deviate from this mandate, even if misled by fraudulent documents or third parties.
This one of the significant aspects of a High Court judgment in which Standard Bank was found to have unlawfully paid more than R2.1 million to a fake executor.
Background to the case
Constance Pamela Catherine Arnot died in August 2021. Her will, dated 16 November 2013, nominated her son-in-law, James Robert Taylor Turner, as executor. At the time of her death, she held two accounts with Standard Bank: a current account with R38 815.76 and a money market account with R2 152 850.48.
On 21 September 2021, Turner’s attorneys reported the estate to the Master, submitting the will, death certificate, death notice, and Acceptance of Trust as Executor, requesting letters of executorship.
On 17 February 2022, the Master issued letters of executorship to Johan Botha, who was not nominated in the will.
On 11 March 2022, Botha contacted Standard Bank’s deceased estate department, claiming to be the executor. Standard Bank initially rejected the documents submitted by Botha via email because they were not certified. On 24 March 2022, Botha provided certified copies, including a will naming him executor, stamped as accepted by the Master on 28 September 2021.
On 5 April 2022, Standard Bank transferred R2 191 666.24 in Arnot’s accounts to an account opened by Botha on 3 March 2022. All the funds in this account were withdrawn between 5 and 13 April 2022.
The Master issued letters of executorship to Turner on 2 September 2022, after delays and complaints from his attorneys.
On 13 October 2022, Turner demanded payment of the funds, but Standard Bank refused, stating it had already made payment into Botha’s account, and informed Turner to liaise with Botha for the funds.
Turner approached the High Court in Cape Town for declaratory orders that Standard Bank’s actions were unlawful, and the bank was liable for the amounts in the accounts at the time of Arnot’s death, with interest, and an order for payment to him. He alternatively requested delivery of a range of documents related to the transfer.
Turner asserted that Botha was not an executor and that any documents suggesting otherwise were fraudulent, a claim the bank did not dispute. Despite this, the bank transferred the deceased’s funds to Botha, contravening section 13(1) of the Administration of Estates Act, which requires actions under valid letters of executorship.
Standard Bank defended its actions, claiming it acted in good faith on letters issued to Botha, denying knowledge of fraud or Turner’s legitimacy as executor at the time of transfer.
Contractual relationship and executor’s authority
In a decision delivered in April, Judge Nobahle Mangcu-Lockwood determined that the relationship between Standard Bank and the deceased (and subsequently the executor) was a contractual debtor-creditor relationship. This established that the bank, as the debtor, had a duty to act strictly within the authority and mandate provided by its client (the creditor) or her lawful representative.
The court rejected Standard Bank’s attempts to avoid liability by blaming Botha or the Master’s office. It clarified that once funds are deposited into an account, they become the bank’s property, and the bank bears sole responsibility for ensuring they are disbursed correctly. The judgment emphasised that the money paid to Botha was the bank’s own funds – not the estate’s – meaning only the bank could seek recovery from Botha, not the executor.
The court affirmed that the executor, as the legal successor to the deceased accountholder, remained entitled to the credit balances in the deceased’s accounts, regardless of the bank’s erroneous payment to an unauthorised person.
Evidence of fraud and verification failures
Judge Mangcu-Lockwood rejected for several reasons Standard Bank’s version that Botha presented it with duly issued letters of executorship.
One reason was Standard Bank’s “opaqueness” about Botha, including whether he is or was its client. The bank had yet to show that it took any or adequate steps to ensure the probity of the transfers to Botha.
Second, the documents submitted by Botha could not be construed “as anything other than fraudulent”. There was no indication that Botha submitted certified copies. As a result, there was no evidence that the bank properly verified the documents when it opened Botha’s account.
Standard Bank denied it knew that Turner was the legitimate executor when it transferred the funds to Botha, or that Botha’s documents were fraudulent. This, however, did not change the legal duty to account to the lawful executor, whose authority the bank does not dispute, said Judge Mangcu-Lockwood.
Bank’s procedural shortcomings
The judgment detailed Standard Bank’s procedural shortcomings and negligence in verifying the documents submitted to it.
The bank asked Botha to provide certified copies twice, first on 15 March 2022, and after receipt of non-compliant documents, again on 23 March 2022. The only certified copies he submitted were police-certified copies of the Letters of Executorship, with no legible stamp for the Master’s Office, an illegible copy of the deceased’s identity card, and Botha’s identity card.
The bank neither requested nor received a certified copy of Arnot’s death certificate. It also did not require proof of address for Botha. It failed to ask for the BI 1663 Notice of Death form, which would have provided verification for the legitimacy of the application. It also failed to ask for proof of the estate bank account.
A Standard Bank said a deceased estates administration officer verified these documents on the Master’s portal website.
However, although the Master’s portal reflected Botha’s name as the executor, the contact and address details were Turner’s, Judge Mangcu-Lockwood said. In other words, if the administration officer had conducted a proper verification, she would have noticed that the contact number reflected for the executor was not the same as the one provided by Botha in his emails addressed to her.
Furthermore, Judge Mangcu-Lockwood said the executor’s address shown on the portal was that of Turner’s attorney, with her name indicated as attorney agent for the executor. If the administration officer had called the telephone number shown on the portal to confirm the details, she would have been in contact with Turner, “and the fraud may well have been exposed”.
The administration officer “would have had no reasonable or rational basis on which to regard Botha’s scant details as adequately verified by checking it against the information shown on the Master’s portal”, the judge said.
“Yet, immediately after this superficial verification process and without further ado, [the officer] transferred the funds from the deceased’s two accounts to Botha’s bank account and closed the deceased’s accounts.”
Furthermore, from Botha’s emails, it appeared he was aware of only Arnot’s money market account. The evidence indicated that the administration officer volunteered the funds in the current account. “In this regard, it is understandable that the applicant states that the bank’s employees were so grossly negligent as to appear complicit,” Judge Mangcu-Lockwood said.
She said although it was not necessary to establish that Standard Bank was negligent or guilty of wrongdoing, “it was, in fact, negligent and appeared to do nothing to guard or protect itself against the fraud that was committed”.
Orders
Judge Mangcu-Lockwood declared that Standard Bank acted without legal authority in closing the accounts and distributing their funds, and that the bank was liable to Turner for the amounts in the accounts at the time of Arnot’s death, plus interest.
She also ordered Standard Bank to pay the costs of the application and of the interlocutory application, including the costs of two counsel.
