ABSA Bank Limited v Judy Ann Fouche Case Notes

ABSA Bank Limited v Judy Ann Fouche

Case Overview

• This is an appeal case from the Supreme Court of Appeal of South Africa.
• Case Number: 344/2001
• Parties: ABSA Bank Limited (Appellant) and Judy Ann Fouche (Respondent)
• Heard: 19 August 2002
• Delivered: 19 September 2002
• Judges: Nienaber, Schutz, Streicher, Mpati, and Conradie JJA
• Key Issue: Delict (wrongfulness) related to a banker's exemption from liability for the contents of a safety deposit box.
• The central question is whether the bank had a duty to disclose aspects of security (or lack thereof) to the client and whether its failure to do so constitutes a delict.

Facts

• The respondent, Judy Ann Fouche, hired safe deposit box number four at the appellant's (ABSA Bank) Voortrekker Street Branch, Pretoria.
• A written contract was concluded on 31 August 1986, which included an exemption clause:
  >"While the Bank will exercise every reasonable care for the security of the Locker Area, it is a special term and condition of the acceptance thereof that no responsibility for loss or damage of the contents of the Locker whether partial or total, from whatever cause, whether by theft, fire, water, explosion, war, riot or otherwise, is accepted and that the client himself shall be responsible to insure the contents of the locker."
• Between 2 and 3 February 1995, burglars broke into the branch and opened the safe deposit boxes, including the respondent's, using an angle grinder.
• The respondent lost valuable jewelry and sued the bank to recover its value.
• The lower court found the appellant liable in contract, citing a non-disclosure of relevant facts amounting to fraudulent misrepresentation.

Issues

• Whether the bank was liable for the loss of the contents of the safety deposit box.
• Whether the exemption clause in the contract protected the bank from liability.
• Whether the bank had a duty to disclose information about the security measures (or lack thereof) at the branch.
• Whether the bank's non-disclosure constituted a fraudulent or negligent misrepresentation.

Arguments

• The respondent initially claimed a cause of action in contract, which was later abandoned.
• The parties agreed that the contract exempted the appellant from loss arising from negligence.
• The respondent argued that the appellant was guilty of a fraudulent non-disclosure, inducing her to enter into the contract.
• The respondent also argued a right of action based on negligent non-disclosure.
• The respondent contended that the bank should have revealed shortcomings in the security system, specifically the absence of a peripheral or motion-detecting alarm and the lack of a night guard.

Legal Principles

• Wrongfulness in Pre-Contractual Setting: The test for establishing wrongfulness in a pre-contractual setting is the same as that applied in the case of a non-contractual non-disclosure. (Bayer South Africa (Pty) Ltd v Frost 1991 (4) SA 559 (A))
• Legal Convictions of the Community: The legal convictions of the community are the touchstone for determining wrongfulness. (Carmichele v Minister of Safety and Security and Another 2001 (1) SA 489 (SCA))
• Duty to Speak (Non-Disclosure): A party is expected to speak when the information falls within their exclusive knowledge, and the right to have it communicated would be mutually recognized by honest men in the circumstances. (Pretorius and Another v Natal South Sea Investment Trust Ltd (under judicial management) 1965 (3) SA 410 (W))
• Elements of Actionable Misrepresentation: Establish a duty to speak. The representation was material, and induced the defendant to enter into the contract.

Analysis and Reasoning (Conradie JA)

• The judge assumes (with hesitation) that information about the alarm and guards can be classed as falling within the exclusive knowledge of the branch officials.
• An honest person would only reveal details of the service quality (security measures) if it might influence the customer's decision.
• The assessment of security measures depends on the level of anxiety about break-ins at banks in 1986. The manager indicated that burglaries were less frequent than robberies.
• The sturdiness of the safe is crucial. An inviolable safe would negate the need for alarms or guards. The respondent did not present evidence on the safe's sturdiness.
• The judge considers the likelihood of burglars successfully attacking the safe, noting the noise and risk associated with using an angle grinder or explosives.
• The judge concludes that the risk of burglars opening the safe on the premises was too small to warrant concern.
• The judge acknowledges that security was not as tight as it could have been, but this doesn't mean the absence of supplementary measures was so alarming that the respondent should have been warned.
• The judge states, "the customer knows that she is not putting her safety deposit box into Fort Knox; she can see for herself that this is only a little branch without sophisticated services; if she wants anything more, she will ask for it".
• The contract made it clear that the bank was not offering an absolute level of security, and the respondent accepted the responsibility to insure the contents.
• The judge finds that the risk the respondent was taking was not unacceptably high, and therefore, there was no obligation to disclose the absence of additional security measures.
• The judge notes that the respondent did not indicate that security arrangements were pivotal to her decision to contract.
• The judge also mentions that, after contracting, the respondent became aware of the safe's location and the absence of a strongroom but expressed no disquiet.
• The judge rests their decision on the absence of a duty to disclose the absence of an alarm and a guard at night.

Order

1. The appeal is upheld with costs, including those for two counsel.
2. The order of the lower court is altered to dismiss the plaintiff's claim with costs.

Dissenting Opinion (Schutz JA)

• Justice Schutz dissents, arguing that a duty to warn the plaintiff was established, and negligence was also proven.
• He refers to Bayer South Africa (Pty) Ltd v Frost 1991 (4) SA 559(A) to support the view that a negligent misstatement inducing a contract can lead to liability for loss.
• He summarizes the principles applicable to the duty to speak from McCann v Goodall Group Operations (Pty) Ltd 1995 (2) SA 718(C) at 726A-G.

Key Principles from McCann v Goodall Group Operations (Pty) Ltd

• (a) A negligent misrepresentation may give rise to delictual liability and to a claim for damages, provided the prerequisites for such liability are complied with.

• (b) A negligent misrepresentation may be constituted by an omission, provided the defendant breaches a legal duty, established by policy considerations, to act positively in order to prevent the plaintiff’s suffering loss.

• (c) A negligent misrepresentation by way of an omission may occur in the form of a non-disclosure where there is a legal duty on the defendant to disclose some or other material fact to the plaintiff and he fails to do so.

• (d) Silence or inaction as such cannot constitute a misrepresentation of any kind unless there is a duty to speak or act as aforesaid. Examples of a duty of this nature include the following:

  • (i) A duty to disclose a material fact arises when the fact in question falls within the exclusive knowledge of the defendant and the plaintiff relies on the frank disclosure thereof in accordance with the legal convictions of the community.
  • (ii) Such duty likewise arises if the defendant has knowledge of certain unusual characteristics relating to or circumstances surrounding the transaction in question and policy considerations require that the plaintiff be apprised thereof.
  • (iii) Similarly, there is a duty to make a full disclosure if a previous statement or representation of the defendant constitutes an incomplete or vague disclosure which requires to be supplemented or elucidated.

• He evaluates the security system, noting the steel safe requiring two keys and burglar bars on the windows as positive features.

• He highlights negative factors: the safe was free-standing, there was no perimeter alarm system, no movement detector, no night guard, and breakable glass walls.

• He cites Brenkman's agreement that the system could hardly be described as a security system.

• He presents evidence from Ms. Loubser, a former employee, who stated that the bank took no visible safety measures for the lockers and that she had great concern about it.

• He refers to the testimony of Mr. Lubbe, a forensic investigator, who stated that there was basically no security system and that he had never encountered a bank with such an absence of security.

• He notes that Brenkman conceded the public perception that goods left for safekeeping would be safe and that the bank staff was aware of that perception.

• He argues that the exemption clause works against the bank, as the plaintiff did not have the means to know the risk was enhanced by a deficient security system, and the bank officials knew this.

• He emphasizes that the bank held out that it offered a safe deposit facility, which implies more than a simple lease or deposit contract.

• He argues that the opening words of the exemption clause, "While the bank will exercise every reasonable care for the security of the locker area…", constituted a pre-contractual representation that was untrue.

• He notes that reasonably practicable steps could have been taken to diminish the chances of a successful burglary.

• He concludes that the McCann's case checklist is met, requiring the bank officials to speak, but they did not to avoid discouraging the plaintiff and harming the bank's image.

• He believes that had the plaintiff known the true facts, she would not have entrusted her valuables to the bank, establishing causation.

• He believes negligence was established, as the loss was foreseeable, and a reasonable bank would have taken steps to prevent the loss.

• He argues that the exemption clause cannot stand because the plaintiff's subjection to it was caused by the misstatement.

• He would dismiss the appeal with costs.