You walk into an official bank agency to open up an investment account – can you take it for granted that the bank is accountable to you for your investment if the agent “goes rogue” and steals it?
Generally the answer will be yes, because our law entitles you to assume that a bank’s branch manager or agent “is empowered to represent the bank in the sort of business (and transactions) that a branch of the bank and its manager [or agent] would ordinarily conduct”. Put differently, the bank will generally be bound by its agent’s “apparent authority” even if the agent is in secret acting fraudulently and in his/her own interests.
But of course you will have a problem if you knew (or should reasonably have known) that the manager or agent was acting beyond the scope of the bank’s “ordinary business”.
Tax evasion, collusion and the rogue agent
To take an extreme example, these were the facts in a case recently decided in the Supreme Court of Appeal –
- Two businessmen invested funds (some R7,5m between them) with an authorised bank agent,
- They concluded bank investment agreements and were issued with what appeared to be bank deposit receipts,
- The agent went “rogue”, stealing their R7,5m (and more from other clients),
- When the investors sued the bank for their losses, it emerged that their investment agreements had been put into fictitious names as part of a tax evasion scheme, the bank “deposit receipts” appeared to be forgeries, and the investments were not recorded in the bank’s systems,
The fact that the investors colluded with the bank agent to open the investment accounts for an unlawful purpose made it impossible for them to convince the Court that they could have believed the agent to be acting within his level of authority. The Court accordingly held the bank not liable for the agent’s theft.