How Sars can take money out of your bank account
When is a bank allowed to reverse a transaction previously entered against an account? Once your account has been credited, unless there is something wrong with the underlying funds, do you have an unconditional and inviolate right to such funds? And if the answer is "yes" and the bank reverses the transaction regardless, can you lay a claim against the bank?
The dispute in this particular case originally took place between one José Manuel Pestana and the Carletonville branch of Nedbank. Pestana had conducted a current account at this branch of Nedbank since 1969. However, another person with the same name, who owed a substantial amount of money to the South African Revenue Service (Sars), also happened to have a current account with the same branch.
For ease of reading, I'm going to refer to Pestana as "the plaintiff", to his namesake who owed Sars money as "the taxpayer", and to Nedbank as "the bank". The Appeal Court case in question is Nedbank v Pestana (142/08) [2008] ZASCA 140.
On February 4 2004, the taxpayer's current account was in credit to the tune of R496 546, and he requested that an amount of R480 000 be transferred to the account of the plaintiff. This transaction was processed at 11h33 that morning. However, unbeknown to the person processing the transaction, the bank had received a faxed instruction from Sars to its head office in Rivonia at 08h44. This instruction appointed the bank as Sars' agent in terms of Section 99 of the Income Tax Act.
When Sars appoints a third party as its agent under Section 99, such third party is legally obliged to pay any money it may hold on behalf of a taxpayer, over to Sars. It applies to banks holding deposits on behalf of the taxpayer concerned, as well as to employers, who would be required to withhold the amount stated on the Section 99 notice from their employee's remuneration, and pay same over to Sars.
Section 99 is normally only invoked when a taxpayer owes fairly substantial amounts to Sars. In this particular case, the taxpayer was indebted to Sars to the tune of R340m.
As a result of the Section 99 notice, the bank reversed the R480 000 transferred from the taxpayer's account to that of the plaintiff. No notice was given to the plaintiff, nor was the plaintiff's authority obtained prior to the reversal.
The matter that went before the trial court was whether the bank was entitled to reverse this transaction without authority from the plaintiff, in order to comply with the Section 99 notice. If the answer was determined to be in the negative, the plaintiff would be entitled to obtain a judgement against the bank. The plaintiff contended that the bank had received the Section 99 notice after the taxpayer had given instruction to transfer the funds to the plaintiff. The bank, in its defence, contended that the Section 99 notice had in fact been received first, and its original carrying-out of the taxpayer's transfer instruction was in error.
The trial court had originally found in favour of the bank, stating that the bank was entitled to reverse the transfer. However, the full bench overturned this decision, stating that "a completed and unconditional payment had been effected when the bank credited the plaintiff's account, with the result that the bank could not unilaterally reverse the credit".
In making his judgement, Appellate Judge BM Griesel referred to the legal principle outlined in Standard Bank of South Africa v Oneanate Investments (in Liquidation) 1998 (1) SA 811 (SCA), where the court held that a transaction can be validly reversed under the following circumstances:
"... [I]f a customer deposits a cheque into its bank account, the bank would upon receiving the deposit pass a credit entry to that customer's account. If it is established that the drawer's signature has been forged, it cannot be suggested that the bank would be precluded from reversing the credit entry previously made. So, too, if a customer deposits bank notes into its account, the bank would similarly pass a credit entry in respect thereof. If it subsequently transpires that the bank notes were forgeries, it can again not be successfully contended that the bank would be precluded from reversing the credit entry.'
Griesel cited further examples where a credit may be validly reversed, including "cases where a cheque has been deposited into a client's account and the resultant credit entry is treated as provisional (or conditional), subject to a hold period in terms of ‘standard banking practice'; or where the client came by the money by way of fraud or theft; or where a wrong account was erroneously credited. Absent some legitimate reason for reversal, however, the general principle is that once an amount has been validly transferred by A to the credit of B's bank account, the credit belongs to B and the bank has to keep it at B's disposal; it cannot simply retransfer the money back into the account of A without the concurrence of B" (My emphasis).
So how was this particular case impacted by these principles? The bank's counsel argued that the appointment of the bank by Sars as agent in terms of Section 99 was a form of garnishment, such as is available in regard to ordinary civil judgements; and that it "has an effect similar to a seizure of the funds".
The court disagreed with this argument.
Firstly, the Section 99 notice was aimed at getting the bank to pay over funds, held on behalf of the taxpayer, over to Sars. It had nothing to do with the plaintiff, and its effect was not aimed at freezing the plaintiff's accounts. The liability to Sars was that of the taxpayer, not of the plaintiff.
Secondly, while Sars' submission of the Section 99 notice to the bank' head office may be "regarded as effective notice by Sars to the bank as a single legal entity", such notice could not be regarded as constructive notice to each and every branch of Nedbank. The responsibility of informing each branch timeously concerning the Section 99 notice therefore lay with the bank.
The court held further that until such time as the branch had been informed by the bank's head office that such a notice had been received by Sars, it was entitled to conduct its business as per normal. Under such circumstances, the branch was entitled to act in good faith on the instruction from the taxpayer to transfer the funds to the plaintiff. Since there was a clear instruction to this effect, which the branch had carried out accordingly, the bank could not later claim that the transaction in question was "erroneous".
The appeal was therefore dismissed with costs, and the bank remained liable to the plaintiff for the amount reversed.
Comments
and Gordhan & Manuel getting the bloody noeses their aggession derserves.
Pity that they will not be held liable for the fruitless and wasteful expenditure on legal costs.
by CJB on December 08 2008, 09:07
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Where the two Jose Pestana's (the "plaintiff" and the "taxpayer") related (eg father and son)? Why did the one Pestana transfer almost all the money in his account to the other Pestana? Was he on to the fact that SARS was about to hit his account and he . .more
by Curious on December 08 2008, 09:55
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If not, then SARS has once again made an innocent third party reponsible for the taxes of another party. Nedbank was simply the unfortunate meat in a sandwich....
by Taxpayer on December 08 2008, 11:48
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However the salient legal principal iro what a bank can and cannot do stays the same.
However, if these are related parties and SARS sequestrates the "taxpayer" they can attempt to prove that assetts were being hidden and claim the funds.
by Umfiki on December 08 2008, 11:50
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Ditto Curious. does sound a little convenient. Still, I'm glad that the bank did not get away with this. If there is some irregularity between the two Pestana's then that should be investigated as a seperate case. It could be that someone who owes you or . .more
by John on December 08 2008, 12:20
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If Nedbank had advised SARS that there was no money to transfer then SARS would have had to find another way to recover the funds from the taxpayer. Through their own incompetence they had made themselves a victim.
by Brenton on December 08 2008, 13:21
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This is an interesting article but the extremely troubling issue is sars almost limitless power. While most would say give sars the tools they need to fulfill their mandate, what happens when the authority is misused through incompetence (very likely . .more
by taxpayer on December 08 2008, 18:26
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They are related, they ran a string of third rate illegal casinos in North west. Glen
Agliotti appears like a choir boy compared to this lot
by snoop on December 08 2008, 22:08
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I unfortunately cannot shed any light on any of the above questions, since I only had the case transcript to go on. It did not mention any connection between the two Pestanas.
by Steven Jones on December 09 2008, 08:31
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Thank you Angel of Revenge
by JFM SARS on November 25 2009, 23:02
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