Bills of Exchange Amendment Bill; SA Reserve Bank Amendment Bill: discussion

Meeting report

FINANCE PORTFOLIO COMMITTEE
3 October 2000
BILLS OF EXCHANGE AMENDMENT BILL; SOUTH AFRICAN RESERVE BANK AMENDMENT BILL: FORMAL CONSIDERATION

Relevant documents
Bills of Exchange Amendment Bill [B47 - 2000]
Schedule of proposed amendments to Bills of Exchange Amendment Bill
Memorandum by Prof Gering on "Schedule of proposed modifications to Amendment BILL 2000" [see Appendix 1]
South African Reserve Bank Amendment Bill [B62 - 2000]

SUMMARY
The changes to the Bills of Exchange Amendment Bill as proposed by Judge Malan were explained. There was lengthy discussion on the clauses pertaining to signing a cheque on behalf of someone else (Judge Malan removed the requirement of a pre-printed cheque), electronic presentment (Judge Malan had created a general rather than specific duty on banks), duty of care in keeping cheques (with discussions of the fairness of the provisions), and non-transferability (Judge Malan had made some small changes to this clause). The Committee accepted the amended Bill.

The Chair reported on the findings of the independent expert to whom the South African Reserve Bank Amendment Bill had been referred. There was discussion on a DP proposal to entrench the duty of the Reserve Bank to consult with the banking sector before changing the percentage of vault cash deductible from a bank's reserve requirements. The Committee accepted the Bill with no amendments.

MINUTES
Formal consideration of Bills of Exchange Amendment Bill
The Chair explained that the meeting was largely about the Schedule of changes that the Reserve Bank and others had agreed to in consultation with Judge Malan after the Committee referred the Bill to him.

There was a delay in the meeting to ensure that members of the media had a copy of the Schedule The Chair stated that the media were the Committee's voice to the community on this Bill and were an important part of the education campaign that would have to occur.

Adv de Jager, Head of Legal Services: South African Reserve Bank, assisted by Mr Kevin Daly from the Banking Council, went through these changes:

Clause 1 - Section 1(b) - Business of banking
Changes would remove the proposed amendment in order to retain the existing phrase "the business of banking", which has been subject to much judicial interpretation.

Clause 1 - Sections 1(c) and 71 - Cheque drawn on bank itself
Changes would deal with the problem of a cheque drawn by a bank on itself more clearly.

Mr Andrew (DP) asked how the changed version was an improvement, stating that the change seemed more complicated. Adv de Jager replied that it was necessary to refer to sections 71(2) and (3) for full clarity. Mr Daly added that section 3 of the Act currently does not recognise a Bill where the drawer and the drawee are the same person. Judge Malan's reformulation would exclude section 3(2) so that the section could apply to a bill that a bank had drawn on itself.

Clause 1 - Section 1(d) - Minor correction
The reference to section 82 had been corrected to refer to section 83.

Clause 3 - Section 6 - Cheque payable to cash
Judge Malan had simply improved the wording here to make it more eloquent. The intent of the section was to ensure that a cheque payable to "cash" or to "cash or order" would be covered.

Clause 6 - Section 19 - Aval
This section was intended to make clear the position of an aval. The notion of an aval had in the past been clouded in uncertainty. The altered text would make an aval's signature irrevocable once a document had been handed over with the signature or when the aval gives notice toward a particular person.

Clause 8 - Section 24 - Signing on behalf of someone else
This clause was designed to deal with uncertainty arising in connection with a person signing on behalf of someone else. The original form of the Bill would have made the person signing free of liability in a case where he or she signed on a cheque pre-printed with a company name. After discussions with Judge Malan, it was decided that this would be too limiting and that the clause must allow for a situation where an individual writes on the cheque that he or she is signing in a representative capacity.

Prof Turok (ANC) asked if the term "name" in the section refers to the name of the person signing or the name of the company. Adv de Jager explained that it is necessary simply to print the name of the legal persona one is representing.

Prof Turok was unclear why the section was necessary. For example, surely it is clear when the president and treasurer of a football club sign a cheque that they are signing in their official capacities. Adv de Jager explained that the section creates clear rules whereby if they have signing authority, then they sign their names along with an indication that they are not signing personally. Prof Turok (ANC) said that the constitution of the football club will already make clear that they sign in an official capacity. Adv de Jager stated that in positive law, there is uncertainty about whether a person signing is accepting personal responsibility. For example, if someone signs for a football club that has no money, that person may well be liable. The proposed amendments would clarify that only the football club is liable when there is a pre-printed name on the cheque and, since academics worried this was too limiting, that it is also possible to sign "p.p." or "on behalf of" the club and thus make the club solely liable.

Mr Mofokeng (ANC) asked if banks will still need the submission of signatures for the people who will have signing authority for a club. Adv de Jager stated that this would remain a requirement when setting up a club. He stated that a person dealing with a football club from outside should not have to investigate these. In the past, there had been problems in looking to the person who had signed a cheque. The Bill would rectify this situation so that if one is not dealing with someone in person, one will know it. Mr Daly stated that the law is that if one signs a cheque, then one is liable on it. The present commercial reality is that an accounting clerk who signs a company's pre-printed cheque does not intend to be liable on it. Thus, the changes allow for this commercial reality.

Prof Turok (ANC) expressed his amazement that any shop would not realise that it was dealing with a football club and would try to hold the individuals signing the cheque liable. Mr Andrew stated that the critical point is that the shop does not know if those signing have authorisation to do so. Prof Turok (ANC) expressed his view that if they did not, the shop could sue the club for allowing others to have access to its cheques. Mr Andrew stated that this was not what the section was about.

Mr Leeuw (ANC) stated that he did not understand who the section was trying to protect here. Adv de Jager stated that he was talking about a legal matter and that the amendment would protect the person working for the football club or other organisation.

Ms Joemat (ANC) stated that she understood that any treasurer of an organisation would not want to be liable on its cheques.

An ANC member asked for confirmation that the pre-printed requirement was removed in the amendment. It was confirmed that the pre-printed requirement was too limiting so would not be the only way of signing for someone else.

Clause 13 - Section 43A - Electronic presentment
This clause attempts to provide for electronic presentment and there had been some changes in the wording.

Mr Andrew noted that, judging from the document from Prof Gering that had just been distributed, Prof Gering seemed to disagree with part of what was intended in this clause. He noted the difficulty of now reading three documents at once, with the Bill, the Schedule, and Prof Gering's concerns on each clause.

Concerning Prof Gering's comments on section 43A, Mr Daly stated that this version of section 43A had come out of the South African Law Commission's Report. Their concern had been to allow banks an easier method of presenting cheques but to ensure that they are still responsible in situations where problems arise. The earlier version of section 43A had allowed for flaws to be detected through the retention of the paper cheque. Judge Malan had considered that this obligation to keep the paper cheque already exists in the common law and does not need to be codified. Thus, he suggested simply changing the bank's duty to a general obligation that would make the bank liable in more circumstances.

The Chair indicated that she tended to agree with this approach. Mr Leeuw (ANC) stated that he had concerns and that he thought Prof Gering would too if he understood matters in the same way. Adv de Jager commented that this is simply part of the process of allowing for electronic presentment.

Mr Mofokeng (ANC) asked why it was that Adv de Jager disagreed with Prof Gering and what the policy implications were on each side. Adv de Jager stated that the question is whether we are to go forward with new methods or stick with old methods. In today's world, electronic presentment offers all the advantages. He added that it is impossible to look at all the cheques anyway.

The Chair stated that the dispute is not about electronic presentment but about whether the original clause should be removed. Mr Daly explained that Prof Gering and Judge Malan differ here. Judge Malan says that under the common law, there is an obligation on the bank to keep the cheques and that the attempt to codify this was clumsy. The banking industry had not requested an amendment here, so Prof Gering's insinuations against the banking industry were baseless and unfair. Mr Daly stated that the industry did now agree with Judge Malan, but that it had been Judge Malan who insisted on the change.

Mr Andrew expressed that he was struggling to reconcile the interests of Adv de Jager and Mr Daly and the banks not escaping responsibility. He expressed confusion about Prof Gering's motivation for saying that the changes did not take account of the public. He said that he was struggling with the nuanced differences on these issues.

The Chair commented that the amendment before the Committee was quite clear.

Mr Leeuw (ANC) asked if there will not be a problem if liability on the part of the banks is not engraved somewhere. The Chair explained that liability is engraved clearly in the section.

Mr Andrew noted that Prof Gering suggested including both versions of subsection (3). He asked if there was a problem with this. The Chair noted Judge Malan's opinion that the first subsection (3) was clumsily worded and her concerns about the two clauses contradicting each other if both were included. Adv de Jager explained that though they might not contradict each other, there would be a double repetition. The Chair stated that (3) as amended is very clear and should be retained.

Mr Andrew stated that the clause's use of the term "relieved from" should read "relieved of" and that this would be proper English. This was accepted.

Clause 18 - Section 55(3) - Minor amendment
As section 55(3) in the original Act does nothing different than the common law and thus serves no point, it would be removed.

Clause 24 - Section 67 - Provision for promissory notes
The old Act had never made any provision for a promissory note and this is now being properly included.

Clause 24A - Section 68 - Ditto
This new section allows for action on a lost promissory note.

Clause 27B - Section 72B - Duty of care regarding cheques
Adv de Jager mentioned that this is a tricky section and that the big question is if Parliament is constitutionally justified in differentiating a private person, a closed corporation, and a company. The section provides for a requirement of due care.

Prof Turok (ANC) stated that everyone would favour an additional burden on companies but asked if this would create a loophole for banks. Adv de Jager explained that the section would simply enable banks to look to customers who do not exercise due care to take some responsibility and asked why banks should be responsible for companies that do not exercise due care.

Mr Daly explained that there are three situations where a loss arises: where a bank is negligent, in which case it shall remain liable; where neither party is negligent, in which case the bank shall remain liable as a party that spreads this risk even though this is not the system in France or America; and where the behaviour of the client has given rise to the loss, in which case the client will and should bear the loss.

Prof Turok (ANC) noted the example of a football club in a township with no safe, and the treasurer keeps the chequebook at home in a drawer. He asked if the club will now be responsible if someone manages to steal the chequebook and forge cheques. Adv de Jager stated that the club would not be in the scope of the clause as it would not be big enough to require an audit.

Prof Turok said that it could be a closed corporation or small private company which was a reality. Adv de Jager agreed that it would then be subject to the law. Mr Daly explained, however, that due care depends on the ability of the person and that not everyone can be expected to have a safe. The Chair stated that the other side of the coin is certain government departments that have been grossly negligent and that the amendment seems reasonable. Prof Turok reiterated that he has sympathy for people in small closed corporations and that he wants the courts to understand this and for the banks not to have excuses.

The Chair noted that Prof Gering suggested excluding closed corporations. Adv de Jager explained that it is quite possible to have a large closed corporation and that there is no reason why it should be excluded. Judge Malan had raised the point and suggested that they be included. This discussion had already occurred and there is as much ground for keeping them in as removing them.

The Chair suggested that this clause had already been debated in detail and that it was time to move forward. She noted that the changes included the removal of subsection (2), which had been the truly problematic one.

Clause 31 - Section 75A - Non-transferability
Banks had wanted cheques uniformly marked "not transferable". Judge Malan had considered this somewhat too limiting and had rephrased it. Section 75A now caters for marking a cheque "not transferable" or "non transferable". Any indication that the cheque is for a certain person "only" does not affect this as it applies to the bank but may still apply between the parties.

The Chair asked then if the point is to implement two mechanisms as the only mechanisms by which a drawer can make the bank liable if it allows transfer of the cheque. Adv de Jager stated that this was so and that it makes it easy for the bank to see the intention. If the cheque is marked uniformly, the bank can be liable. Otherwise, it is a matter between the parties.

Dr Woods (IFP) asked about the implication of writing on the cheque "account payee only". Adv de Jager answered that it is necessary to mark the cheque in the uniform fashion if the bank is to be liable. Any use of the word "only" may apply between the parties but the bank cannot be liable.

Dr Koornhof (UDM) asked about the implications of this for the rural poor without access to bank accounts. The Chair interjected that this had been the subject of extensive discussions at the previous meeting and that the Committee had come to a satisfactory conclusion.

A member asked about why the section even included a reference to the use of the term "only". Adv de Jager explained that many people draw lines and write "only" and that there is an intent to clarify the rules.

Mr Nair (ANC) asked why the provision could not be extended to cover the term "account payee only". Adv de Jager explained that the whole point of the amendments is to limit the ways of making a cheque non-transferable and ensure that a cheque is not like an open letter. The Chair reminded the Committee that the Consumer Council had expressed its willingness to support the legislation subject to there being a major consumer education campaign, especially on this clause.

Prof Turok stated that he had just noticed (c) about not being able to cancel a non-transferability instruction and that he could not understand the language of (d). Adv de Jager explained that the intent of (d) is to implement a rule whereby if an individual does not use the form in (a) to render a cheque non-transferable, the bank will not be liable because it disregarded an instruction not in this form.

Mr Andrew stated that (d) was not very clear on what it was trying to encompass and that there should be an attempt to write it in less contorted English. An ANC member asked why it could not be deleted. The Chair suggested rewording it in plain language.

Mr Andrew stated that there had been no comment on Prof Gering's suggestion of implementing a prima facie negligence on the bank if it pays to the wrong name and asked why this should not be incorporated in order to have a clear onus of proof. Adv de Jager asserted that if a cheque is written as envisaged, there will not be much need for complicated proof and the bank will be liable in any event.

Mr Andrew was confused by the phrase "bears boldly". He asked why the term " appears clearly" could not be in place of "boldly", suggesting that the opposite of "boldly" is "timidly". The Chair interjected with the suggestion that it could also be opposed to "faintly".

Adv de Jager stated that there had been discussion at length about this terminology and that it came from a decision of then Supreme Court, in which Judge Holmes had used the term "bears boldly". The Chair stated that she found this to be clear.

Ms Joemat (ANC) asked whether the marking had to be across the face of the cheque or simply on the cheque. Adv de Jager stated that the plain wording was "across the face". The Chair stated that this was an important question because many people cross their cheques on a corner and she wondered if this would count. Adv de Jager stated that this would not be a problem so long as the bank could see the crossing. Mr Daly stated that a bank has never tried to escape liability on this basis and that there merely needs to be a clear intent. Ms Joemat (ANC) explained that she had problems with using the words "across the face" if they were to mean simply anywhere on the cheque. Adv de Jager stated that they would not cause a problem.

Mr Leeuw (ANC) wanted to know if the word "bold" referred to a particular ink or typeface. The Chair expressed that it must mean simply something that could be noticed with a quick look.

Mr Fankomo (ANC) asked if there would be any problem with replacing the word "across" with simply "on the face of". The Chair said that members were taking the term "across" too literally and that everyone with any literacy with cheques would understand what "across" means. Ms Joemat (ANC) said she wanted the ordinary person to be able to understand the legislation.

In answer to the Chair's question about lines as part of the instruction, Mr Daly stated that lines are not even needed, as a non-transferable cheque is deemed crossed. The courts had accepted a crossing in the corner as being across the cheque. He said that in this case, he could go along with "on".

The Chair asked that (d) be drafted in simpler language. This was redrafted by Adv de Jager during the course of the meeting. In the modified form:
A subsection (2) would replace paragraph (d) and the wording would be: "A bank shall not be negligent by reason only of its failure to concern itself with: (a) an endorsement intended to prevent transfer of the cheque; or (b) with words prohibiting transfer, or indicating an intention that it shall not be transferable other than in the manner provided for in this section."

Clause 30 - Section 75 - General and special crossings
The change here was an attempt here to get rid of extra language.

Clause 37 - Section 81(2) - Consistency on term "banker"
This change was necessary for consistency.

Clause 39 - Section 84 - Deemed pledge
A new subsection (2) has been added by Judge Malan to protect a bank in a situation where it needed some form of security. It would allow the bank to hold a non-transferable cheque as a pledge. To clarify this, Mr Daly used the analogy of a pawn shop that gives someone money for goods handed in and keeps those goods if the money is not repaid. This is the position of a bank that clears a cheque. On an ordinary cheque, the bank is the holder of the cheque. On a non-transferable cheque, this technically cannot be the case, as academics consider that the bank cannot ever be the holder. Thus, on a strict interpretation, it is necessary to create the fiction of a pledge.

Ms Joemat (ANC) asked if this clause would enable a bank to garnish someone's salary when that person owes the bank money on a loan. Mr Daly said that the clause did not change the rules on this and that it would depend on the circumstances of the cheques.

Voting on the Bill
Prior to the motion of desirability, the Chair noted the further amendments made during the course of the meeting to clause 13 [section 43A] and clause 31 [section 75A(d)]. The committee accepted the motion of desirability.

Mr Leeuw (ANC) noted that the gender-sensitivity issue on the Bill must be taken note of. The Chair stated that the Bill had originally been drafted in a gender-sensitive form but the state law advisors had had a problem with this and had changed it. Since then, there had been legal opinions that did not agree with this. The Committee was seeking a ruling from the Speaker as to how Parliament would proceed on these issues but did not want to hold back the Bill in the meantime.

Dr Koornhof (UDM) asked if the issue had been resolved as to this being a Reserve Bank Bill or whether it was a Ministry of Finance Bill. The Chair explained that only the Minister of Finance can table a Bill before Parliament and that the Reserve Bank is fielding it through the Ministry of Finance and that this is why there was a representative present from the Ministry of Finance.

Before the vote, the Chair raised again Judge Malan's concern on the constitutionality of separating individuals from companies. Adv de Jager stated that he was sure there was no problem and that he was satisfied that this was a legitimate differentiation. The Companies Act itself differentiates companies from individuals in, for example, requiring companies to be subject to an audit.

The Committee voted on the amended Bill as a whole rather than clause by clause as nobody objected to particular clauses. The Committee unanimously supported the Bill with amendments.

The Chair indicated that the debate was presently scheduled for October 5. However as the state law advisors had complained that this gave too little time to incorporate the changes of the Schedule which they had only received the previous day, she would speak to the House Whip about delaying this. The debate would be sixty seven minutes: fifteen minutes for the Minister, fifteen for the ANC, five for the DP, four for the IFP, four for the NNP, three for the UDM, and two for each other party.

South African Reserve Bank Amendment Bill
The Chair indicated that the Bill had now been tabled although not yet tagged. The Ministry of Finance identified it as a section 75 Bill and as she did not see any other possible classification, she suggested proceeding on that basis.

An opinion from an independent expert had been solicited on the matter of allowing the Reserve Bank governor the discretion to set the percentage of vault cash that can be deducted from a bank's reserve requirements . This independent expert had considered that Deputy Governor Cross's briefing document (see meeting of 30/08/00) did not properly motivate why the Reserve Bank should be empowered to set the percentage. However, after further briefing, the expert was content with the motivations and felt the Bill could go ahead. The Minister of Finance did not want to make any comment, as he did not want to become involved in a debate on an instrument of monetary policy.

Mr Andrew asked if the Banking Council had withdrawn its objections to the Bill. The Chair stated that it had withdrawn its request for a hearing and that it was not formally opposing the Bill but simply wanted members to be aware of consequences of the Bill as outlined in its written submission (see meeting of 30/08/00).

Mr Andrew wanted to know more about the undertaking of the Governor to consult with the banking sector before altering the percentage of vault cash that could be used. He stated that in fifteen or twenty years time, this undertaking might be forgotten and asked whether it would not be better to put something in the Bill about consultation.

The Chair expressed concern about the precedent this could set when one monetary policy clause would be subject to consultation and the others not. She suggested that the Banking Council could keep copies of the agreement. She stated that there might be an impact on all other clauses would be read.

Adv de Jager added that there is a constitutional obligation to consult with parties upon whom an action impacts. He expressed his concerns about bringing other parties into the Act whom it does not already mention. The Chair agreed that this would be cumbersome. She suggested that good faith should be enough and that it should not be necessary to insert a long list of people to consult.

Mr Ramgobin (ANC) stated that the Act already allows for wide consultation, especially with the banking sector and that there should not be a precise embodiment in legislation of with whom there should be consultations.

Mr Andrew stated that three quarters of what was being said was irrelevant or wrong. Requiring consultation in one section did not imply elsewhere that the Governor could not consult. It just meant that it would remain discretionary elsewhere. He stated, however, that he would not make a big deal about this.

The Chair expressed her concerns that requiring consultation here would lead to people starting to say that we need to have consultations elsewhere.

Mr Andrew asked where on the record the undertaking would be. The Chair stated that it would be on record as part of the formal considerations.

The Committee agreed to the general motion of desirability. The Chair put the motion to report the Bill without amendments and this was agreed to by the Committee

The Chair explained that the discussion of the Revenue Laws Amendment Bill originally scheduled for that afternoon would be delayed until 6 October.

Mr Andrew objected to the scrapping of the debate of the Adjustment Appropriations Bill that afternoon in Parliament and stated that the debate was listed on the order paper. The Chair accepted this but asked if sixty-seven minutes was really necessary, given how summary the debate had been within the Committee itself.

Mr Andrew noted that a sixty-seven minute debated translated to just four minutes for the NNP. Reducing the amount of time for a debate would reduce the input of the smaller parties to just a minute or two. The Chair stated that Mr Andrew could not speak on behalf of the smaller parties. Mr Andrew stated that when one party wants a debate, there has to be a debate.

The Chair asked that the opposition parties meet to discuss the length of the debate. Mr Andrew stated that sixty-seven minutes translates to thirty minutes for the ANC and a number of very small chunks for the opposition parties. He stated that he did not object to the fairness of this, as it reflected the numbers in Parliament. It However if the ANC does not have thirty minutes worth of things to say that was up to the ANC. The Chair asked the opposition parties to meet and discuss the sixty-seven minutes and indicated that the ANC might agree to a lesser length for the debate if opposition parties agreed.

[Only nine members were present at the beginning of the meeting. Others arrived over the next half hour].

Appendix 1:
[AMBILL2000TABLE]
MEMORANDUM
From Professor Leonard Gering
On "Schedule of proposed modifications to Amendment BILL 2000"


[A] INTRODUCTORY
This Memorandum is submitted in response to the "Schedule of
proposed modifications" (hereinafter referred to as the "TABLE"), received by me today (Wednesday 27 September) from Kevin Daly.

In this Memorandum the following abbreviations are used:

"Comments by LG" refers to the written submission dated 21 August, submitted by me in response to Government Notice 2315, dated 23 June 2000;

"BILL 2000" refers to the Bills of Exchange Amendment Bill 2000 [ISBN 0 621 29561 2];

"Comments on Non-transferable cheques" refers to my Further Comments dated 17 September, sent by e-mail to Kevin Daly, Justice Malan, and Professor J.T. Pretorius for their comments.

"The Principal Act" refers to the Bills of Exchange Act 1964; and "Section" refers to Sections of the Principal Act as contained in BILL 2000.

[B] COMMENTS ON SPECIFIC SECTIONS OF BILL 2000, as affected by the proposed modifications in the TABLE.

SECTION 1 / Clause 1(b) of BILL 2000
Definition of "bank" :
I am pleased to see that the existing phrase "business of banking" is to be retained, as recommended by me in "Comments by LG", pages 3-4.

SECTION 1 / Clause 1(c) of BILL 2000
Definition of "cheque" :
With respect I do not agree with the proposal in the TABLE.
I would suggest that to make it clear that the definition in BILL 2000 -- which extends the definition of "cheque" to a bill drawn by a bank on itself -- applies to a bill payable on demand, it would be sufficient -- and indeed preferable and neater -- simply to insert the words "payable on demand" into the definition in Section 1, without having to amend Section 71, as proposed in the TABLE.

Accordingly I recommend that the words to be added to the definition of "cheque" as it appears in the Principal Act, should read as follows:

"and includes a bill payable on demand drawn by a bank upon itself".

SECTION 1 / Clause 1(d) of BILL 2000
Definition of "collecting bank"
With respect I suggest that instead of changing "82" to "83" -- as proposed in the TABLE -- it would be better to add the words "or Section 83" at the end of the definition of "collecting bank". It is not easy to reconcile the different wordings of Sections 82 and 83 of the Principal Act.

I accordingly recommend that the new definition of "collecting bank" should end with the words :
"or other document contemplated in Sections 82 or 83".

SECTION 6 / Clause 3 of BILL 2000
"Bills payable to 'cash'
I am pleased to see that the erroneous wording in BILL 2000 -- criticized by me in "Comments by LG", page 4, has been rectified in the TABLE, but, with respect I prefer the wording in Amendment Bill 1998, which refers specifically to bills "payable to cash" -- the usual case, rather than bills "payable to the order of cash", which I would submit is a much less usual occurrence. In any event, the usual situation should be specifically covered, namely, where the drawer, after striking out the two words "or bearer" appearing on the printed cheque form as supplied by the banks in South Africa, writes the word "CASH".

I accordingly recommend that the wording to be added to the end of Section 6 should read:
" or if it is expressed to be payable to 'cash', or to 'cash or order', or to the order of 'cash' ".

SECTION 19(1) / Clause 6 of BILL 2000
I agree to the proposed amendment relating to the Proviso in Section 19(1), as set out in the TABLE.

SECTION 24(1) / Clause 8 of BILL 2000
I agree with the proposed amendment relating to the deletion of the word "pre-printed" in Section 24(1), as set out in the TABLE.

SECTION 43A / Clause 13 of BILL 2000
I agree with the modification of using the term "drawee" in place of "drawee bank", as also the other modifications relating to Section 43A(1), as set out in the TABLE. The TABLE is however incorrect in stating that "place of payment" was in sub-section (2)(b) -- in fact it is in (1)(b), but I agree with the correction relating thereto.

However I respectfully disagree with the deletion of Section 43A (3) as it now appears in BILL 2000. As stated in the "Memorandum of the Objects of BILL 2000" (hereinafter referred to as the "Memo of Objects"), page 18, this new sub-section imposes a duty on the collecting bank, where under the common law there is no duty. Surprisingly there is no reference in the "Explanation" in the TABLE to the "Memo of Objects" on this point.

I can understand why the banks are eager to delete this duty, but I respectfully submit that the Portfolio Committee should NOT agree to this proposed modification. It would be harmful and wrong if the impression were to be created that BILL 2000 is largely in favour of banks, and does not take into account the interests of the South African public.

I would accordingly recommend that Section 43A should include BOTH sub-section (3) as it appears in BILL 2000 / Clause 13, PLUS the provision included in the TABLE. As stated in page 4 thereof, a similar provision is contained in the English Act.

SECTION 55(3) / Clause 18, and SECTION 67 / Clause 24
I agree with the modifications in the TABLE. I would compliment Justice Malan for suggesting the rectification of the lacuna in Section 67 in regard to promissory notes.

SECTION 72B / Clause 27 of BILL 2000
I am pleased to note the deletion of Section 72B(2), which I strongly criticized in "Comments by LG", page 5, and also in my oral submission on 29 August.

I respectfully repeat my appeal to the Portfolio Committee NOT to extend the new and onerous duty to Close Corporations. Our Government has frequently emphasized its desire to encourage Small Business. The Close Corporations Act was intended to introduce a much simplified procedure to assist Small Business, and the extension of this new and onerous duty to close corporations will, I submit, be contrary to our Government's declared policy. The vast socio-economic need to encourage real economic growth in our country will, I respectfully submit, be undermined by the proposed amendment.

I accordingly urge a re-think on this provision.

SECTION 75A / Clause 31 of BILL 2000.
In general I agree with the wording in the TABLE, which largely follows the New Zealand legislation.

I am pleased to note that my view as stated in my oral submission when I advocated the deletion of the requirement that words "NOT TRANSFERABLE" be added by the drawer, has been accepted in the TABLE. See also my "Comment on Non-transferable cheques" dated 17 August, sent by e-mail to the Chairperson of the Portfolio Committee.

I would point out that the words "either with or without the word 'only'" appear in the English Act because there the words of non-transfer are "a/c payee" or "account payee", where such wording is appropriate. With great respect, the mention of "only" is not appropriate in our draft legislation.

Furthermore -- and much more fundamentally -- I suggested in my "Comments on Non-transferable cheques" page 2, the inclusion in BILL 2000 of a further sub-section -- designed to protect the interests of members of the South African public who use cheques to pay their debts, and who want to ensure, as far as reasonably feasible, that the proceeds of the cheque will reach the designated payee only -- a result that the bank collecting the cheque is responsible for.

The wording is based on the unanimous resolution of the clearing house banks a week after the decision in Standard Bank of SA vs Sham Magazine Centre. I was present at that meeting, and helped in the drafting of that resolution. The implementation of that resolution would go a long way in the "prevention of fraud" -- the object of the new Section 72B. Indeed the wording of the marginal note to Section 72B was based on my suggestion when the members of the Academic Link Program met the Council of South African Bankers in Johannesburg in March 1996.

I accordingly recommend an additional sub-section in Section 75A, reading as set out in my "Comments on Non-transferable cheques", page 3 :

"Where a bank, without the consent or authority of the drawer, places a non-transferable cheque as defined in Section 75A to the credit of an account not having the same name as that of the named payee on the cheque, it shall prima facie be regarded as having been negligent".

The non-inclusion of a sub-section on the lines suggested by me will give the South African public the impression that BILL 2000 is designed largely in the interests of banks. I respectfully suggest that it is very important indeed for BILL 2000 to be shown to have provisions, such as this one and the sub-section (3) of Section 43 A referred to above, which are designed to advance the legitimate interests of the men and women in our beloved country who use cheques as a convenient method of paying monetary debts.

SECTION 75 / Clause 30 of BILL 2000
Although I doubt whether the wording in the TABLE is an improvement on Section 75 of the Principal Act, as at present advised I do not offer any opposition to the TABLE in this regard.

SECTION 81(2) / Clause 36 (NOT 37) of BILL 2000
I agree with the TABLE on this point.

SECTION 84 / Clause 39 of BILL 2000
I respectfully suggest that the modifcation contained on page 9 of the TABLE is clumsy, and unnecessarily introduces the fiction of a pledge, which in principle should only arise ex contractu. In principle, fictions should be resorted to only as a last resort, and only to the extent actually necessary.

Instead of the modification proposed in the TABLE, I would respectfully suggest the following wording :

"Where a non-transferable cheque as defined in Section 75A is delivered by the holder thereof to a bank for collection, such bank shall be regarded as the holder thereof while in possession of the cheque, provided that nothing herein contained shall confer on the bank any stronger or better right against the drawer than the payee had."

SECTION 77 / Clause 33 of BILL 2000
I note that the TABLE is silent on Clause 33 of BILL 2000. If this means that the proposed inclusion of the word "cancel" in Section 77 of the Principal Act is not being proceeded with, I would welcome such a development. See "Comments by LG", page 6.

In view of the large numbers of South Africans who at present do not have current (or cheque) accounts, I would urge that the prohibition in Section 75A(3) / Clause 31 of BILL 2000 / against deleting the words "Not Transferable" should be re-considered. In this regard it is important - nay vital - that there should be a concrete analysis of the concrete situation in present day South Africa. With the increased use of non-transferable cheques, which BILL 2000 (if enacted) will encourage, members of the public who receive such cheques in payment of moneys due to them, will -- if they do not have access to a bank account, be severely prejudiced. There will be delays caused by efforts to obtain another, transferable, cheque in replacement of the non-transferable one, which to the recipient, often a person desperately needing the money owing to him or her, is of no real practical use.

As stated in Chalmers & Guest (15 th edition 1998) page 662, para 2069, with reference to Section 81A dealing with Non-transferable cheques:

"Although Section 81A performs a useful function in reducing fraud, it gives rise to particular problems for the 'unbanked payee', that is to say, a payee who does not have a bank account into which the cheque may be paid."

According to this authoritative work of reference, it is open to the drawer, before or at the time of issuing the cheque, to delete, and so cancel, the words "account payee" written on the cheque. He will normally do this by striking through the words of non-transfer, and signing his name or placing his initials next to the deletion. The cheque then becomes transferable. See page 660, para 2062.

Just as banks allow the cancellation of a crossing -- see "Comment by LG", page 6 -- I would urge the Committee, as well as the Banking Council -- to re-think this matter.

This memorandum is being sent by e-mail to:
The Chairperson of the Portfolio Committee on Finance; and to Kevin Daly. I would request the latter to transmit copies to each of the persons to whom the TABLE was sent, for any comments they might have.

Professor Leonard Gering
Advocate of the High Court
27 September 2000