COMMENTS ON THE BILLS OF EXCHANGE AMENDMENT BILL 2000

Submitted by : Professor Leonard Gering

[A] GENERAL :
1. I wish to express my thanks to Mr Hermans for sending me by speed mail a copy of the above-mentioned Bill, which reached me on 16 August. He also told me that I could fax my Comments and Suggestions by 22 August.

2. These Comments and Suggestions are submitted in response to Notice 2315 of 2000, published in Government Gazette 21316, dated 23 June 2000.

3. On 3 August 1998, I submitted Comments on the "Bills of Exchange Amendment Bill, 1998", and for convenience of reference I enclose a copy thereof.

4. In my respectful view, the Amendment Bill 2000 constitutes a substantial improvement in draftsmanship on the 1998 draft. I am pleased to note that many of the suggestions made in my earlier submission have been incorporated into the present Bill.

5. My earlier submission was itself largely based on the "Report on the Negotiable Instruments Project", which resulted from the Academic Links Program, which was established between the Law Faculties of the University of Edinburgh, the University of Cape Town, and the University of Durban-Westville, and which existed from August 1994 until August 1997.

6. I may, I hope, be permitted to mention that I have been lecturing, writing, and giving opinions and advice on the subject of Negotiable Instruments - cheques being the most commonly known example - for more than forty years; and that I am the author of writings on the subject.

7. I am pleased to record that the following amendments to the Principal Act, contained in the present Bill, are in conformity which suggestions which I had previously put forward, namely:

Section 5 / Clause 2 of the Bill;
Section 30 / Clause 11 of the Bill.

These two amendments restore the wording which had been unjustifiably altered by the Parliamentary drafstman and the legislature which existed under the apartheid regime. The amendment to Section 5, made in 1964, clearly illustrates the dangers involved in making changes to the wording of the Act, without a full realization of the consequences of such amendment. Fortunately the present Bill will now rectify the legal position.

Section 19 / Clause 6 of the Bill;
Section 29 / Clause 10 of the Bill;
Section 50 / Clause 15 of the Bill;
Section 54A / Clause 17 of the Bill;
Section 67 / Clause 24 of the Bill;
Section 70 / Clause 25 of the Bill;
Section 43A in so far as it is now confined to cheques / Clause 13 of the Bill;
Section 77 (except in relation to the proposed inclusion of the word "cancel") / Clause 34 of the Bill.

8. There are, however, in my respectful, submission, certain defects in the wording of other proposed Amendments contained in the present Bill, in regard to which I would like to comment and to suggest alternative forms of wording.

9. In particular, I wish to refer to the following clauses in the Bill :

Section 1 : the definition of "bank" : the phrase "business of banking" being altered to: "business of a bank";

Section 6 : the proposed addition of the words: "or if it is expressed to be payable to ‘order’ or ‘cash or order’ "

Section 72B (1) : the reference to Close Corporations; and Section 72 B (2) -- a completely new and unmotivated provision;

Section 77: the proposed inclusion of the word "cancel".

10. I respectfully suggest that the considerations which should govern the wording of proposed amendments to the Bills of Exchange Act, 34 of 1964 (the Principal Act), which was in the main based on the United Kingdom Bills of Exchange Act of 1882 - described in the Court of Appeal as "the best drafted Act of Parliament which was ever passed" - are set out on page l of my earlier Submission dated 3 August 1998. As this is annexed to the present Memorandum, it is unnecessary to repeat these considerations here.

[B] COMMENTS ON SPECIFIC SECTIONS
I turn now to comment on the Sections referred to in paragraph 9 above, and to suggest alternative forms of wording.

Section 1 / Clause 1 (b) of the Bill :

The proposed amendment in the definition of "bank", in which the phrase "business of banking" is to be replaced with the words "business of a bank"
,
was not in the draft submitted by the Council of South African Bankers, nor in the 1998 Amendment Bill. There is no motivation for this change in the "Memorandum on the Objects of the Bill" (hereinafter referred to as "Memorandum of Objects").

The phrase "business of banking" appeared in the 1882 Act, and in all subsequent legislation based on that Act. It is a phrase that has often been the subject of judicial interpretation. I respectfully submit that the onus should rest on the proposer of this amendment to show, clearly and convincingly, why the proposed amendment is necessary or desirable, and this should be based on relevant judicial decisions as well as practical experience in relation to banking.

I submit that this change is unnecessary, and is likely to provide scope for costly litigation, in order to decide whether the two phrases are identical in meaning, or whether they differ, in which case it will be necessary to determine the extent and effect of such difference. I submit that this will not "promote the interests of consumers" - an objective set out in the "Memorandum of Objects", (page 1).

Section 6 / Clause 3 of the Bill:
It is correct that an instrument in the form of a cheque which is payable to "cash" or to "cash or order" is not a valid cheque (or bill of exchange), and this is accordingly a matter which, in the interests of consumers and the users of cheques, should be rectified. But I suggest that the proposed amendment, by using the words "payable to order", will not achieve this desired result. The phrase "payable to order" is used in several places in the Act, and has a definite meaning which is not appropriate in dealing
with instruments payable to bearer.

I respectfully submit that the wording that should be added to the end of Section 6 of the Principal Act should read:

"or if it is expressed to be payable to ‘cash’ or to ‘cash or order’."

Section 72 B / Clause 28 of the Bill :
This Section constitutes a far-reaching departure from the existing law. It seeks to protect banks, whose financial results do not indicate a need for special protection, by placing a new, and indeed onerous, obligation on certain drawers of cheques. The "Memorandum of Objects" correctly states that "this obligation does not extend to natural persons"; and I submit it is right that this new obligation should not apply to natural persons.

While a case can be made for imposing this new and onerous obligation on companies which are required under the Companies Act to have their financial statements audited by a person registered in terms of the Public Accountants and Auditors Act, I respectfully submit this should not be extended to Close Corporations. The Close Corporations Act was intended to provide a much simplified procedure to assist small businesses, making it unnecessary for them to comply with the more stringent requirements of the Companies Act. As it has often been stated that the Government wishes to encourage small businesses, and as promoting the interests of consumers is stated to be an objective of the Bill, I suggest that the reference to Close Corporations should be deleted from the Bill.

Furthermore, as was stated in my earlier submission, as the proposed change in the law may cause serious problems to small businesses, as well as other "entities" (as mentioned in the "Memorandum of Objects", page 9), the terms of the new Section 72B should be widely drawn to the attention of the public. Indeed, I would recommend that the Amendment Bill should be published in the Government Gazette in the same way that the 1998 Amendment Bill was published, and that the attention of the public should be clearly drawn to the proposed imposition of new and onerous obligations on users of
cheques.

Section 72 B (2), is a completely new provision, and there is no motivation in support thereof in the Memorandum of Objects. It is not clear to me on what principle the right now suggested to be given to a collecting bank, without having to satisfy the requirements for an interdict in an application to Court, can be justified. I respectfully suggest that further evidence is needed to justify this remarkable new provision in favour of collecting banks. It was not included in the draft submitted by the Council of South African Bankers (Cosab), which was considered at the joint meeting between Cosab and the academics involved in the Academic Links Program referred to above.

Section 77 / Clause 34 of the Bill :
This amendment seeks to prevent the cancellation of a crossing. There is a similar prohibition in Section 75A. (3). As it frequently happens that the payee of a cheque does not have a bank account, and has difficulty therefore in cashing a crossed cheque, it often happens at present that the drawer at the request of the payee cancels the crossing, signing his name in authentication of such cancellation. This is a very convenient procedure for ordinary members of the public, has existed in England since 1882, and in subsequent legislation based on the English Act. As stated in Chalmers
& Guest, authors of a leading textbook on the Act:

"The drawer of a cheque sometimes strikes out a crossing and writes "Pay cash" on it, adding his signature or initials. This practice of ‘opening the crossing’ is sanctioned by bankers."

I respectfully submit that the proposed prohibition of this useful, convenient and long-established practice, sanctioned by bankers, should not now be abolished. I may add that similar considerations should apply to Section 75A. (3).

This Memoradum is submitted by :

Professor Leonard Gering
Advocate of the High Court of South Africa
21 August 2000.