Fair­ness not a fac­tor in end­ing con­tract

Supreme Court rules that Stan­dard Bank’s de­ci­sion to close a cus­tomer’s ac­counts was not un­con­sti­tu­tional

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - JONATHAN WITTS-HEWIN­SON

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.

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