Fairness not a factor in ending contract
Supreme Court rules that Standard Bank’s decision to close a customer’s accounts was not unconstitutional
AMAN who held a number of accounts at the Standard Bank — both personal accounts and accounts held in the name of various entities controlled by him — should have been more careful of the company he was said to be keeping.
On November 25 2008 the US Department of Treasury listed a Mr Bredenkamp as a “specially designated national” because of his association with President Mugabe, and because Bredenkamp was said to have provided financial and logistical support to Mugabe’s regime.
The truth or otherwise of the relationship and allegations relied upon by the US Department of Treasury is unknown and was not an issue for determination in the matter before the Supreme Court of Appeal in the recently reported judgment of Bredenkamp vs Standard Bank.
The purpose of listing anyone as a specially designated national is to enable the US Treasury Department to enforce economic and trade sanctions based on the country’s foreign policy and security objectives.
Many of the financial institutions with which Standard Bank conducts its business internationally are bound to comply with any specially designated national listing. A continued relationship with Bredenkamp, therefore placed not only the bank’s reputation, but also certain material business interests, at risk. After properly con- sidering the matter, Standard Bank notified Bredenkamp that it had decided to suspend his banking facilities, which would be withdrawn.
Bredenkamp approached the court for urgent relief, contending that the bank’s decision to cancel his facilities was unfair and therefore invalid, being unconstitutional.
Bredenkamp contended the bank should at least have discussed the matter with him before closing the accounts and the decision to terminate the banking relationship was procedurally and administratively unfair.
Standard Bank, in terminating the banking relationship, was in a position to rely not only on an express term of its contracts permitting it to close accounts on reasonable notice, but also on an implied term to the same effect, namely, that any indefinite contractual relationship may be terminated on reasonable notice.
Bredenkamp sought to suggest that those contractual terms could not be relied upon unless exercised fairly and reasonably. The consequences of Standard Bank’s decision, so Bredenkamp argued, were not fair to him, as he could not, following Standard Bank’s decision, establish alternative facilities with other bankers.
The Supreme Court of Appeal concluded that fairness is not a freestanding requirement for the exercise by any party of a contractual right.
There was no obligation on the bank to afford Bredenkamp a hearing before electing to terminate its banking relationship with the client.
The bank’s cancellation was not premised on the truth of the allegations underlying the specially designated national listing, but rather on the fact of the listing itself and the possible reputational and commercial consequences of the listing for the bank. The bank had a contract that gave it the right to cancel. The bank had exercised its right to termination in a bona fide manner. The termination, therefore, did not offend any identifiable constitutional value and was not contrary to any other public-policy consideration.
The approach of the appeal court is to be welcomed. The introduction of any requirement for fairness in relation to a contract would only serve to create an opportunity for commercial uncertainty, no doubt prejudicial to good business practice.