Who is liable when a payment is made in terms of an invoice that has been intercepted and altered?

This is exactly what happened in the case of Galactic Auto (Pty) Ltd v Venter (4052/2017) [2019] ZALMPPHC 27. The plaintiff, a motor vehicle dealership, Galactic Auto (Pty) Ltd (dealership) entered into a sale agreement with the defendant, Mr Venter (Venter), in respect of a motor vehicle. Venter required a motor vehicle on an urgent basis for his business. Venter received the invoice for the motor vehicle via email and subsequently paid the purchase price by way of EFT and sent the proof of payment via email to the dealership.

Venter then contacted the dealership advising that he had made the payment. The dealership, however, advised that they had not received the proof of payment. Venter then resent the proof of payment via email to the dealership. Having received the proof of payment, the dealership allowed Venter to collect the motor vehicle.

During the entire process, neither Venter nor the dealership confirmed that the banking details on the invoice were in fact correct and neither of them confirmed that the EFT was made into the correct bank account. Only once payment did not reflect in the dealership’s bank account, a few days after Venter had already collected the motor vehicle did this fact come to light. Subsequent investigations revealed that the email had been intercepted and the details on the invoice were changed although it was not revealed as to how exactly the emails were intercepted. As a result, the dealership instituted legal proceedings against Venter for the purchase price of the motor vehicle.

The dealership argued that:

• there was no fault on the part of the dealership as they had conducted an investigation into their systems and found no security compromises;
• the invoice sent to Venter contained the correct banking details and was sent to Venter’s correct email address; and
  
  
• the only reason Venter was allowed to collect the motor vehicle prior to payment reflecting in its bank account was due to the fact that it had previously dealt with Venter without any issues and as such had acted out of goodwill.
  
  

Venter raised the defence of estoppel alleging that:

• the dealership’s standard protocol was to only release the motor vehicle to the purchaser upon receipt of the purchase price;
  
  
• one of the dealership’s employees was meant to look over the proof of payment to ensure that the payment was made to the correct banking details; and
  
  
• the dealership was under the impression that the payment was successful and made into the right bank account. In addition, Venter counterclaimed for the balance of the purchase price stating that he was unable to recover the full amount paid into the incorrect bank account as he was not timeously notified by the dealership that the payment was made in error.

The first issue the court dealt with was the differing versions put forward by the two parties. In order to determine which version was more probable, the court weighed up the evidence submitted by both parties. The court found that Venter’s witnesses were not as reliable as the dealership’s and that Venter’s version had inconsistencies. Accordingly, the court was inclined to favour the version put forward by the dealership.

The second issue the court dealt with was whether Venter could raise the defence of estoppel or not. In this regard, Venter bore the onus of proving the defence of estoppel and had to show that he had made the payment into the bank account of the dealership. The court referred to the version submitted by Venter and its inconsistencies as it pointed out that during cross examination, Venter admitted that there was no attributable fault to the dealership’s sales representative when Venter made the payment into the wrong bank account. Therefore, the court found that there was no misrepresentation made by the dealership – a requirement for a defence of estoppel to succeed.

Lastly the court had to decide the merits of Venter’s counterclaim. The court again had regard to the evidence presented by each party as well as the inconsistencies in Venter’s version. The court pointed out that if Venter had merely verified the banking details before making the payment, then such a loss would have been prevented.

The court ultimately decided that Venter was liable and that his defence and counterclaim both failed. The court further stated that Venter, as the debtor, bore the liability and risk in the situation where invoices were intercepted and fraudulently altered.

Our courts will treat such instances in the same vein as a cheque that has been intercepted and misappropriated by a thief stating that:

“When a debtor tenders payment by cheque, and the creditor accepts it, the payment remains conditional and is only finalised once the cheque is honoured…. that risk is the debtor’s since it is the debtor’s duty to seek out his creditor.”

As the use of electronic methods of invoicing and payments increase, it is clear as to why this case should be a clear warning for all. The court will not come to the aid of those that it deems to be negligent and it is therefore even more important to have a system of checks and balances when dealing with these methods of payment. Without these precautions, it is likely that by the time you realise that the invoice has been compromised, the money would have already disappeared.