Bank faces R100m claim for not reporting fraud
Grindrod Bank is facing a R100m lawsuit from a company that was defrauded by an entity called Nat Industries in a case a Business Day report says will go far in determining the legal liability of companies that become aware of fraudulent activities and fail to report them to law enforcement.
Nat Industries defrauded Grindrod Bank of R8.2m in 2017 after it sold its outstanding invoices to the bank in exchange for upfront cash.
The factoring contract was supposed to comprise claims held by Nat Industries against a third party, Southey Holdings, for services purportedly rendered to Southey in terms of a temporary employment services contract.
When Grindrod Bank followed up with Southey, it found it had been duped by Nat Industries.
The contract between Nat Industries and Southey had lapsed a year earlier and no invoices remained unpaid. Nat Industries admitted to the fraud and paid back the lender the R8.2m plus interest.
Grindrod Bank did not pursue criminal charges.
Unbeknown to Grindrod Bank, Nat Industries had months earlier used the same modus operandi and entered into a factoring contract with an entity called Finance Factors, using the terminated contract with Southey as the underlying contract to the deal.
Finance Factor said at the time that Grindrod Bank discovered the fraud, it had already lost R28m and it lost a further R100m in the following months – losses it said it could not have suffered had Grindrod Bank reported the matter to police.
Nat Industries was placed in liquidation in 2020, notes the Business Day report.
The liquidators of the company and Finance Factors have instituted a civil claim against Grindrod Bank, holding it responsible for losses. The liquidators claim that when Grindrod Bank received repayments totalling R8.5m from Nat Industries, it was already insolvent and the lender is liable to repay the liquidated estate.
They also claim that when Grindrod and Nat Industries met to discuss the repayment of the money, Nat Industries’ liabilities exceeded its assets by R44.2m and because of the bank’s failure to report the fraud, this difference had ballooned to R144m after it defrauded other entities.
The liquidators said by accepting the sums of money repaid to it and not reporting the matter in terms of the Financial Intelligence Centre Act and the Prevention of Organised Crime Act, Grindrod Bank breached its duty of care and the surge in the liabilities of Nat Industries was foreseeable due to the information it obtained from Southey.
Acting Judge Jabu Thobela-Mkhulisi last week gave the liquidators 10 days to amend their particulars of claim and decide which claims they wish to persist with and to ‘properly plead such claims’.
Article disclaimer: While we have made every effort to ensure the accuracy of this article, it is not intended to provide final legal advice as facts and situations will differ from case to case, and therefore specific legal advice should be sought with a lawyer.