Bills of Exchange Amendment Bill: briefing

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Finance Standing Committee

23 August 2000
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Meeting report

 

FINANCE PORTFOLIO COMMITTEE
24 August 2000
BILLS OF EXCHANGE AMENDMENT BILL: BRIEFING

Document handed out:
Bills of Exchange Amendment Bill

SUMMARY
The Bills of Exchange Amendment Bill consists of a series of amendments to existing legislation on bills of exchange (with cheques the best known example) principally to simplify certain provisions of the Bills of Exchange Act, 1964 and to strengthen that Act's protections against fraud. The South African Law Commission had published its Report on the Investigation into the Payment System in South African Law in 1995. Although this Report urged major overhauls, the Department of Finance thought it more prudent to address only some of the more important reforms urged in that Report.

The Banking Council of South Africa provided background and context for the discussion of frequently technical issues on bills of exchange. The two representatives had opposing views on the Bill. A South African Reserve Bank official explained the purpose of each clause of the Bill. He confirmed that the South African Reserve Bank was to be responsible for the Bill’s passage through Parliament. The Committee found it difficult for the South African Reserve Bank to accept responsibility for a Bill tabled by the Finance Department. The Democratic Party raised concerns about the independence of the Reserve Bank as a matter of principle.

By permission, Prof J Pretorius of the Banking Council made a submission against the Bill immediately following the briefing. He expressed concerns based on the fact that the Bills of Exchange Act is an intricate piece of legislation and that piecemeal tinkering could lead to major problems. He was also concerned that the amendments were motivated by the banks and would be shifting liability onto consumers. The Bill ignored and even complicated the issue that a cheque marked "not negotiable" was nonetheless negotiable – something which the man in the street certainly would not understand.

MINUTES
Background briefing by Banking Council of South Africa
Mr Kevin Daly, General Manager, and Prof J Pretorius of the Banking Council of South Africa, gave context and background on bills of exchange for members not fully familiar with them.

Mr Daly explained a cheque, the best-known type of bill of exchange, as being an unconditional instruction to a bank by its client, in writing, signed by the person giving the instruction, with a certain amount and date. He stated that the vast majority of cheques today are not negotiated but that endorsement of a cheque can still generally effect its transfer, as it remains a negotiable instrument.

Mr Daly explained the concepts of bearer and order cheques and the default position that a cheque, without indication otherwise, is an order cheque. He also explained the notion of a non-transferable cheque, which would be payable to the named payee only, and the fact that the proposed amendments would create a conspicuous, standardised method of making a cheque non-transferable. He also explained that "crossing" a cheque (shown in a diagram as drawing two diagonal lines across the cheque) was an instruction that the cheque should be paid only into a bank account.

Mr Andrew (DP) asked for clarification on this diagram and the effect of the words "or bearer" appearing on the cheque at the same time that it was crossed. Mr Daly stated that the two concepts were not related and that the effect of the crossing still meant that the bearer who eventually tried to deposit the cheque could do so only into a bank account.

Mr Daly went on to explain the effects of crossing a cheque with the words "not negotiable". These words would not make a cheque non-negotiable. They would not prohibit transfer of the instrument but only protect against the claim of a thief or anyone deriving title from a thief. In other words, Mr Daly stated, these words made liability on the cheque subject to equities.

The Chair asked Mr Daly to repeat this explanation and an ANC member asked if this system was weighted in favour of the bank.

Prof Pretorius interjected to explain that the English system of conversion works differently. The inclusion of the words "not negotiable" is designed to protect the true owner, whether that is the drawer or the payee. Thus, he stated that this crossing generally protects the consumer, subject to certain rights accruing to the bank under s. 81(5).

Mr Daly continued by explaining the technical terms "drawer", "drawee bank", "payee", "holder", and "collecting bank".

There was some discussion about the words "not negotiable" appearing on a negotiable instrument. Prof Pretorius made clear that Section 80 stated that a cheque was negotiable notwithstanding that the words "not negotiable" were written on it.

Mr Andrew asked about the effect of a crossing with the notation "& Co". Prof Pretorius explained that this crossing now had no effect.

Mr Feinstein (ANC) asked how many cheques are used in South Africa each year. Prof Pretorius replied that South Africans use 360 million cheques each year, or about two million each working day and that despite the introduction of electronic payment systems, this is increasing by two or three percent each year. He noted that cheques are usually for larger sums, and this is even more so with non-transferable cheques. Non-transferable cheques make up only sixteen percent of the number of cheques, but they make up thirty-four percent of the value of cheques. The total value of cheques used in South Africa each year is in the order of R22 billion. Mr Daly noted that there has been an actual decline in the number and value of cheques used in more sophisticated economies.

Dr Woods (IFP) asked if banks are discouraging the crossing "account payee only" and why.
Prof Pretorius stated that this crossing was widely used in the UK but that a 1977 court ruling in South Africa had struck down the words as confusing and they had thus been of no significance after that ruling.

The Chair joked that she wondered what a court would have to say about the words "not negotiable" on a negotiable instrument.

In answer to Mr Joemat (ANC) asking if a non-transferable cheque can be cashed over the counter, Mr Daly stated that banks do not like this but they do permit it. One of the amendments would end this practice and make it impossible to cancel a crossing of a cheque.

Mr Andrew asked how many individuals use cheques and how many corporations or other juristic persons use cheques.

Prof Pretorius stated that any individual or juristic person with a current bank account can use cheques. There are 4,5 to 5 million current accounts in South Africa which would be a good estimate for the number of natural and juristic persons using cheques.

Mr Andrew asked if people were moving to the use of cheques as they got better jobs and if people who move up from subsistence levels to jobs begin to use cheques. Mr Daly answered that there was a levelling out in the use of cheques. Banks' energies are directed more toward multiple functionality on ATM cards and that point of sale use is emerging, so it is more common for such people to move to a debit card environment.

Ms Taljaard (DP) asked if the declining use of cheques in Europe is linked to the use of debit cards. Mr Daly stated that it is.

In answer to Dr Koornhof (UDM), Mr Daly stated that R160 million is lost to forged cheques.

Ms Joemat (ANC) asked how people without bank accounts cash non-transferable cheques.
Prof Pretorius stated that they generally need a savings account but that the cancellation of crossings is an everyday occurrence in some places, even though it is problematic because one does not always know who has cancelled the crossing. He stated that with the amendments, it will become impossible to cancel a crossing, so people wishing to cash non-transferable cheques will need bank accounts.

The Chair queried the effect of this on people in rural areas not being able to cash cheques. Mr Ramgobin (ANC) also expressed concerns about it becoming more difficult to cash a cheque. Ms Joemat (ANC) commented that shopkeepers in some areas often cash cheques for people. The Chair added that there are problems with microlenders cashing cheques. Dr Woods (IFP) asked about the effect of a company's pre-printed crossings if banks are reluctant to accept cancelled crossings.

In reply to these comments, Mr Daly stated that it will not be possible to alter the markings on a cheque and that this will help to prevent fraud. He stated that the Bill will make the rule the same for everyone and that any purported cancellation of markings will be ineffective.

An ANC member asked the percentage of fraud in relation to the total clearings on banks. Mr Daly stated that he would make a calculation and report back on the following Tuesday.

Mr Andrew asked what minimum deposit a bank requires for the establishment of an account by someone without a regular income. Mr Daly stated that there are two kinds of accounts and that for a savings account, the rule is a R 50 minimum deposit.

Mr Andrew asked if it is really possible to open an account with R 100 and no regular income. Mr Daly stated that it was, although it would be impossible to get all the money out since R 50 would always have to remain as a minimum deposit.

Briefing on Bill by South African Reserve Bank
Adv J de Jager, Head of Legal Services and General Counsel of the South African Reserve Bank, briefed the committee on the Bill. He stated that the South African Reserve Bank was taking no position on the merits of the Bill and that he had brought with him Mr Daly, who supported the Bill, and Prof Pretorius, who opposed it, in order to maintain a balance.

Mr Andrew stated that it was usual for Parliament to receive some kind of recommendation and not simply someone bringing in a proposal and saying that it was an interesting idea. He asked why the Department of Finance was not represented and why the Reserve Bank was neutral.
Adv de Jager stated that the Reserve Bank was a creature of statute and simply assisting the Department of Finance in putting forth the Bill. The Chair indicated that officials from the Department of Finance should appear at future sessions on the Bill.

Adv de Jager began his briefing by stating that the Bill would simplify the legislation and make it more useful for consumers.

Amendments for the Purposes of Simplification and Clarification
Clause 1
"bank"
The outdated term "banker" would be changed to the more appropriate term "bank".

The Chair asked if this change was really that significant. Adv de Jager stated his impression that there was a feeling out in the market that the Act would be clearer if it said "bank".

Mr Feinstein asked if there would be legal implications from such a change. He suggested that Parliament could not simply change it in order to modernise the word. Adv de Jager stated that the Department of Finance had gone through the Act very carefully to ensure that there would be no legal effect.

The Chair asked if he was confident about this. Adv de Jager stated that the effect could be checked before the change was implemented and that the Department could be sure. Mr Feinstein stated that some commentary has suggested otherwise.

Mr Ramgobin asked if the change in terminology was because the nature of the industry had changed. Adv de Jager stated that this was so and that the term "banker" did not communicate well anymore.

Mr Andrew read out the definition of "bank" from Clause 1(b) and asked why the Bill used the term "includes" when the list following seemed to include every possible kind of bank.

Mr Daly interjected to explain that an institution cannot legally do the business of a bank unless on the list. If a bank were doing business illegally (for example, after the loss of its license), we would not want this to affect the rights of the other parties just because the bank had technically become illegal - cheques drawn on that bank should still be regarded as cheques.

"collecting bank"
Adv de Jager said that this definition had been added as it had been lacking from the Act.

Mr Andrew queried Clause 1(c)'s words "payable on demand" and their implication for the status of a post-dated cheque.

Prof Pretorius stated that there were three views on this. It was generally accepted that a post-dated cheque became a cheque on the date printed on it and stale-dated six months after this point. There were three views on what it was before it became a cheque: a mere piece of paper, some other kind of bill of exchange, or a cheque on which one could not demand payment.

An ANC member asked if it was near to a promissory note. Prof Pretorius stated that it would be another kind of acknowledgement of debt but that it would not meet the definition of a promissory note.

Clause 2 (non-existing payee)
Adv de Jager explained that this clause would protect a purchaser of a cheque when there was an endorsement by a "non-existing person", in addition to the current protection in the case of a "fictitious person".

Mr Andrew asked the difference between the words "non-existing" and "non-existent", stating that only the latter appeared in a proper English dictionary. Prof Pretorius stated that the amendment would bring South African legislation in line with the English Act promulgated in 1882, which used the term "non-existing", which an oversight had led the South African Parliament to fail to do so in 1964.

Dr Woods (IFP) stated that on his understanding, a fictitious person was fictitious in the mind of the drawee. Seeing motion on the government benches, he suggested that Mr Feinstein might be able to help answer this. Mr Feinstein (ANC) joked that it was purely an existential issue. Prof Pretorius stated that as long ago as 1881, a commentator had noted that the terms "fictitious" and "non-existing" seemed more appropriate to philosophic discussions. The Chair joked that people had a lot of wisdom back then.

The Chair asked what cl. 2 means by "a person not having capacity to contract". Adv de Jager stated that this refers to a minor, a disabled person, or any other person without the legal capacity to enter into contracts.

The Chair asked in what circumstances a drawer would actually make a cheque out to a fictitious person. Prof Pretorius explained that in the 17th Century, certain kinds of speculative deals actually used the mechanism of cheques made out to fictitious persons and that Chalmers had hoped to get rid of these.

Mr Ramgobin (ANC) asked if just anyone can present a cash cheque for payment. Prof Pretorius stated that this concerned a different situation on which volumes had been written. He stated that an instruction of "pay cash" was just a question of withdrawing money.

Mr Ramgobin (ANC) asked if a cheque made out to "cash" was equivalent to a cheque made out to "bearer" and whether banks recognise cheques made out to "cash" in this way. Prof Pretorius stated that one cannot leave a pre-printed order cheque blank and that with it, one might write "cash or order". However, he stated that the question of a fictitious person came from a speculative situation.

Mr Andrew asked if there are any fictitious persons that are not non-existing. Thus, he asked why the Bill needed to mention fictitious persons separately and if this was because there were hopes of using UK case law. Adv de Jager stated that the additional words were an attempt to differentiate the subjective test and the objective test, the latter of which is easier.

Mr Andrew and the Chair asked why it was necessary to say "fictitious" in addition to "non-existing". Adv de Jager stated that the question of fictitiousness is in the drawer's mind whereas the question of non-existence is objective.

Mr Andrew asked if they are separate categories. Adv de Jager stated that they are.
Mr Andrew asked why the legislation needed the word "fictitious". Mr Daly interjected with a practical example: there might be many John Andersons in the phone book, but if a drawer did not know any John Andersons, such a payee might be fictitious even though existing.

Clauses 4, 20-23, 25 (acceptance and payment for honour)
Adv de Jager stated that these were about concepts of acceptance and payment for honour that nobody used or understood anymore and were to be removed because they are outdated.

Clause 5 (stamps on cheques)
Adv de Jager stated that cl. 5 was to get rid of references to stamps on cheques, as this duty has been abolished.

Clause 7 (signatures by procuration)
Adv de Jager stated that cl. 7 is to get rid of references to signature by procuration, which is now outmoded.

Clauses 9 and 10 (doctrine of valuable consideration) & Other discussion
Adv de Jager stated that cls. 9 and 10 are to get rid of references to the doctrine of valuable consideration, which is not part of South African law.

Mr Andrew asked about the use of the word "indorsing", rather than "endorsing", in cl. 10. Prof Pretorius stated that in old English, these were alternative spellings and that Parliament was basically dealing with an 1882 Act.

Mr Andrew asked why the Parliament could not change "indorse" to "endorse". The Chair noted that Prof Pretorius was shaking his head in dismay. Prof Pretorius stated his view that changes like "banker"/"bank" and "indorse"/"endorse" contributed nothing to the clarity of the Act. He stated that such words already had a clear historical meaning and that Parliament should leave well enough alone. The Chair suggested coming back to this matter at a later stage.

Dr Koornhof (UDM) asked why the clause used the word "he" and whether this did not raise issues of gender sensitivity. Prof Pretorius stated that there had been a previous attempt to make the Act gender-sensitive but that it had been half-hearted. He stated that the whole Act remained riddled with the word "he" and that it would have to be changed throughout the Act if members wanted to change it. The Chair suggested flagging the issues of the word "indorse" and the issue of gender sensitivity for a later stage.

Clause 12 (contract by bill)
Adv de Jager stated that nobody had ever understood the words "contract by bill", so the extra words should be cut.

Clauses 14, 18, 29, 43, and 44 (protest voluntary)
Adv de Jager explained that these clauses are designed to make protest always voluntary. The Chair asked for an explanation of the concept of protest. Prof Pretorius stated that it was the old method of proving non-payment before a court. He stated that it had been outdated for a long time and that after 1949 it had no longer been required on promissory notes. He stated that it was never applied with respect to cheques, although certain foreign countries sometimes insisted on it.

Mr Andrew asked if it amounted to having a notary present a cheque to a bank to get payment refused. Prof Pretorius stated that this was what it amounted to - the protest of a bill or promissory note took place through a notary.

[Later Mr Andrew asked if the presentation had dealt with cls. 41 and 42 in the Bill. Adv de Jager stated that cl. 41 was on the concept of protest, which he had dealt with.]

Clauses 16 and 17 (avals)
Adv de Jager explained the concept of an "aval" in Roman-Dutch law. Signing other than as the drawer generally amounts to signing as an endorser, but signing as an aval is much like signing as a guarantor. These clauses would make clear the difference between signing as an endorser and signing as a guarantor.

Dr Woods (IFP) asked what more certainty is needed given that guarantors already know that they are guaranteeing. He asked if the amendments were necessary, and he asked for an explanation of the current status of a guarantor. Prof Pretorius said that there was no uncertainty at common law and that the amendment was for the sake of clarity. He said that he would have more to say about it later. Interpreting the Act as South African legislation, an aval is essentially a common law surety.

Mr Andrew asked for an explanation of the differences in the notions of an aval, a surety and a guarantor. Prof Pretorius stated that there is much confusion about the words "guarantee", "surety", and "indemnity". The term "aval" is the Roman-Dutch term for a surety. He noted that there would be a chance to discuss the notion of a guarantee later.

Mr Ramgobin (ANC) asked whether this was consistent in an international trade environment. There was no direct answer to this question but simply another explanation that an aval is like a surety.

Clause 24 (destroyed cheques)
This clause will amend s. 67 in the current Bills of Exchange Act to provide the same protection to someone whose cheque is destroyed as to someone whose cheque is lost.

Clauses 19, 26, 28, 32, 34-40 (consequential amendments)
The amendments in all these clauses were consequential changes resulting from the change in the word "banker" to "bank".

Amendments to Help Consumers
Clause 1 (bank cheques)
Clause 1 was to recognise the common mechanism of bank cheques as cheques.

Clause 3 (cash cheques)
Adv de Jager stated that cl. 3 would recognise cheques payable to "cash or order" or to "cash" as cheques. (He noted that one of the references in cl. 3 presently mistakenly read "order" and that it should read "cash".)

Dr Woods (IFP) asked if one could presently have a "cash or order" cheque. Adv de Jager stated that it will become possible to have one.

Dr Woods pointed out that "cash" is not a specified person. Prof Pretorius stated that it would now become possible to change a pre-printed "or order" cheque into a cash or bearer cheque. Dr Woods noted that this meant that one would no longer have to draw a line through "or order" to keep the cheque valid.

Mr Ramgobin (ANC) noted that this might conflict with the goals of the legislation in reducing fraud given that anyone could cash such a cheque.

Clause 8 (personal liabiility on cheque signed for corporation)
This clause clarifies that a person who signs a pre-printed corporate cheque will not need to add anything to his or her signature to avoid personal liability.

Dr Woods asked if this presupposed that the individual had a valid signing authority. Prof Pretorius stated that the proviso of s. 24 would still apply - that the individual had to have a valid signing authority or else he or she would risk personal liability.

Clause 11 (misspelled names)
This clause deals with the situation of a misspelled name on a cheque. He indicated that it is currently necessary to sign with the misspelled name and then again with a proper signature. Under the amendments, for the sake of simplicity, it will become optional to sign with the misspelled name.

Dr Woods asked what motivated this and suggested that in the case of a badly misspelled name, having a clear affirmation by the person signing that he or she was the proper person could help eliminate negligence factors from future decisions on liability. Prof Pretorius stated that the United Kingdom 1964 Act says "may" and for no apparent reason the legislation had come through the South African Parliament as "must", so making this change would harmonise South Africa with the UK.

Dr Woods stated that there were merits in the present system. The Chair asked why there should not be some kind of extra check in the case of a badly misspelt name.

Prof Pretorius stated that there was a logic to the UK legislation and that technical difficulties arose for South African banks because of the South African system. The South African system had come about by accident, and there had already been at least nine South African cases trying to reconcile the wording.

Mr Andrew suggested that the double signature could serve as a further confirmation that the endorser could not plead that he did not realise that a cheque was not for him and asked for the presenters' comments on this. He also asked what the relation was between this amendment and the trend in the legislation toward encouraging individuals to use non-transferable cheques. Mr Daly stated that there was no way to compare a misspelt and a correctly spelt signature. He stated that there could be no misspelling issues on non-transferable cheques because a non-transferable cheque with a misspelt name could not be transferred to the correct name.

Mr Andrew asked if this meant that he could not cash a non-transferable cheque with his name mistakenly written "Andrews". Mr Daly stated that a bank's liability is based on negligence and that it arguably would not act negligently in such circumstances by allowing Mr Andrew to cash the cheque, especially when it was foreseeably a reasonably common error. Prof Pretorius stated that it was usually possible to collect payment on such a cheque.

Clause 27 (certified cheques)
This clause was to codify the situation on certification.

Dr Woods stated that he was aghast that there was no certainty about the certification of cheques and asked how often it had been a problem. Adv de Jager stated that it never had. Dr Woods then asked why the presenter was wasting Parliament's time.

Mr Andrew asked again about the nature of uncertainty here. Prof Pretorius stated his view that there was not much uncertainty given that banks always pay.

Mr Andrew pointed out that the second part of cl. 27, numbered as 72B, did not seem to be on the same subject as the first part, numbered as 72A. Adv de Jager stated that it was still part of clause 27, even if not on the same subject, and that Parliament is free to renumber it.

Mr Andrew asked what the legal status of bank guarantees printed on cheques up to R 1000 was. Prof Pretorius stated that these were contractual matters between bank and client. He noted that one court had upheld a R 100 guarantee but that it had done so on only one of the four hundred R 100 cheques that the individual had written.

Clause 39 (bank’s rights to claim on non-transferable cheque)
Adv de Jager stated that this clause will extend a bank's rights to claim against a drawer to non-transferable cheques, where it is currently impossible for banks to do so in the case where the depositor is absent or incapacitated.

Mr Feinstein (ANC) asked whether this is desirable. Prof Pretorius stated that he would be explaining in his memo why it is not and that he had written three pages on it.

Amendments for Technological Changes
Clauses 13 and 15
Adv de Jager stated that these clauses take account of technological advancements and that they allow essentially for the presentation of a cheque other than by physical presentation. He noted, however, that the amendment needed to be changed in that cl. 13 had to refer to s. 43 excluding s. 43(4).

Dr Woods stated that he found it difficult to understand the need for this amendment if banks had managed without it in the past when they used to meet and exchange bags of cheques.

Adv de Jager reiterated that the amendment would make electronic presentment possible.

Mr Daly stated that carting around large quantities of paper always gave rise to risks of fraud. He stated that allowing for the electronic transfer of the essential details of cheques would get rid of the need to cart around this paper.

Amendments for the Reduction of Fraud
Clause 31 - introduction
Adv de Jager explained the clause as ensuring that a non-transferable cheque can be easily recognized. He indicated that it would reduce the duty on a bank to look at cheques so carefully because it would implement a uniform marking.

An ANC member asked why a non-transferable cheque cannot be cashed across the counter, especially in rural areas where this might be very useful. Mr Daly stated that this was because a bank needed to be able to prove that it had paid the right person by having a record of the money going into an account.

Ms Joemat (ANC) indicated that the payment of unemployment insurance by cheque creates problems of access to the money, especially in areas without banking or for people not eligible for a bank account. Prof Pretorius stated that he agreed with this from a policy point of view and that he would express other more far-reaching concerns about it later when it came time to debate the merits of the amendments. He indicated that banks had stopped paying non-transferable cheques over the counter in 1987.

Mr Andrew (DP) asked about the meaning of the last part of clause 31, which refers to a non-transferable cheque being deemed crossed generally. Mr Daly stated that this meant that it would be deemed crossed generally unless it was crossed specially. The effect was that a non-transferable cheque had to be paid into a bank account.

Mr Andrew (DP) asked if the effect was that it would be deemed crossed. Mr Daly replied that a non-transferable cheque would be deemed crossed whether it was crossed or not.

The Chair stated that she was hearing concerns about government cheques such as unemployment cheques, pension cheques, and the like. She asked how these would be dealt with. She asked if they would be left to microlenders or if there could be facilitation of arrangements like those existing with some shopkeepers. Mr Daly stated that the cause of the problem was crossing and that a non-transferable cheque must be taken to the bank. Mr Daly stated that the Department of Welfare has made special arrangements with particular banks in particular areas but that there cannot be general loopholes in an instrument meant to be non-negotiable.

The Chair expressed her concerns that these agreements could be nullified by the amendments. Mr Mofokeng (ANC) asked why banks cannot check that they are paying to the right people. The Chair stated that banks and recipients need to be protected against fraud but that those who are beneficiaries of social welfare payments need to be able to get their money. Adv de Jager stated that the simple answer is to make out cheques in the name of a person without any crossing and that so long as one does not make the cheques non-transferable, there should be no problem.

Mr Andrew commented that this is all about the issue of who bears costs and risks and asked why there could not be an exception for social welfare cheques. He noted that he thought old age pensions were available in cash and suggested that officials should come in from the Department of Welfare to explain their methods.

Clause 27 – second part (spreading of responsibility)
Adv de Jager stated that this clause includes two amendments, the first on liability on certified cheques already discussed, and the second on spreading of responsibility to help prevent fraud. He stated that 72B will impose a duty of care on institutions and that (2) will allow banks time to get a court order to protect themselves.

Dr Woods stated that the Explanatory Memorandum is confusing on these different parts. Adv de Jager suggested that the Bill might be renumbered so that 72B becomes separated from 72A as cl. 28, with subsequent clauses consequentially renumbered. Mr Andrew suggested dividing cl. 27 into cl. 27A and cl. 27B so as to avoid renumbering the other clauses.

Dr Woods referring to the Memorandum, commented that words like "fault" and "reasonable care" seemed rather subjective. Mr Daly stated that a cheque is an instruction to pay that is dependent on the authenticity of the signature. The problem is that the bank has to determine if the signature is regular or not. Where banks pay on a cheque that is totally regular and where the forged signature cannot be distinguished from a real one, they have always been held liable. He stated that this is not correct when all the bank can do is compare signatures. It encourages negligence when people know that the bank will be liable. If the bank allows a bad forgery, it should be liable and will remain so under the amendment. If it allows a good forgery but the drawer has not been at fault, the bank will take the loss because this is its business. But where a drawer has facilitated a good forgery by not reconciling statements or not looking after forms, then the drawer should bear the loss. This will promote efficiency in the economy because the person who can prevent a loss will bear the loss. Mr Daly added that a compromise has been struck because the problem is not so much the man in the street as corporations that do not take care.

An ANC member asked why the common law was not adequate. Prof Pretorius said that banks never like common law.

The Chair noted that the amendment did not apply to a natural person. Prof Pretorius raised the issue of it being discriminatory against companies, who also have constitutional rights. The Chair said that members could chew on the issue.

Dr Woods had a process issue concerning the long and enduring definition of a bill of exchange. He wanted to know if cls. 1, 3, 16, and 17 would affect this definition. The Chair indicated that Prof Pretorius could reply to that in writing at a later date.

Concluding comments
The Chair said that the Committee would want comments from consumer organisations.

Adv de Jager communicated to the Committee that he had confirmed the instructions that the South African Reserve Bank was to be responsible for the Bill’s passage through Parliament.

The Chair said that it was difficult for the South African Reserve Bank to accept responsibility for a Bill tabled by the Finance Department. Mr Feinstein (ANC) said that there needed to be some kind of motivation for the Bill and that the Reserve Bank's neutrality on most of the issues was not making Parliament's job any easier. The Chair stated that the clerk of the Committee needed to seek further clarification on whether the Reserve Bank could now be responsible for the Finance Department's Bill.

Mr Andrew stated that there was also an issue of the constitutional position of the Reserve Bank. He stated that he needed to check the South African Reserve Bank Act but that he had concerns about whether the Finance Department could tell it to fight for the Bill. He stated that this raised concerns about the independence of the Reserve Bank as a matter of principle.

Prof Pretorius indicated that he would not be available the following week but wished to speak for ten minutes on the Bill. The Chair indicated that this was not normal procedure but that she was prepared to allow it.

Prof J Pretorius submission
Prof J Pretorius of the Banking Council has taught on bills of exchange for twenty-five years and is co-author along with Judge Malan of South Africa's leading text. He stated that the process of amending the Bills of Exchange Act had begun in 1982. He had personally been involved with a 1994 report to the Minister of Justice. Parliament had to look at the broad picture where these amendments had been brought about by pressure from the banks. The banks had disliked the 1994 report and had argued against it.

Prof Pretorius had long urged liability for banks paying to another when a cheque was made out "pay C only". This had been revolutionary when he had proposed it, as banks had in the past not been liable even if negligent. However in 1992 the Appellate Division adopted this proposal in a judgment and held that the collecting bank was liable if negligent.

Prof Pretorius stated that the Bills of Exchange Act was a very intricate piece of legislation and that it was not possible to tinker with just one section without causing problems elsewhere. Despite this basic principle, the government was introducing piecemeal legislation. Prof Pretorius, with support on this from Judge Malan, felt that these amendments were deeply flawed. He stated that the amendments should be referred to Judge Malan or another judge to be sorted out.

Prof Pretorius also expressed concerns that there had not been an appropriate process for consumer groups to comment on aspects affecting consumers such as the shifting of liability.

Finally, Prof Pretorius noted that everyone in the Parliament was surprised to hear that a cheque marked "not negotiable" was nonetheless negotiable and that the man on the street certainly would not understand this. However, he noted that the Bill did not deal with this problem and actually even complicated the matter.

Prof Pretorius concluded by stating that the Bill could easily cause chaos and that it should be referred to an objective expert.

The Chair deferred questions to a later opportunity and adjourned the briefing.

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