Judgment day for bank

A Zambian judge, commenting on a confidentiality issue, says it is the duty of the court to step in when breaches of the law arise

Potential investors in Zambia should be enthralled by a new decision of the high court in Lusaka. Judge Justin Chashi, of the court’s commercial division, awarded damages to a company that lost significant contracts after being reported by its bankers to a credit bureau for defaulting on instalments.

Chashi found the non-payments were the bank’s fault and made other findings that will affect relations between other businesses and their bankers.

Savenda Management Services, a global supply chain management company, claimed ZK192.5m in damages from Stanbic Zambia for loss of business resulting from its negative credit agency listing. In 2007 it arranged a Stanbic lease buyback facility for a US$540,000 printing machine, with payment to be made via an overdraft facility. Savenda said the balance on its loan facility did not reduce despite lease payments, and asked Stanbic to explain. According to Savenda, during discussions Stanbic officials “acknowledged” the apparent default on the account was caused by a bank problem.

Savenda’s case was that even though the bank conceded the error, it negligently listed the company with the credit agency. That listing resulted in several missed funding opportunities and harm to the company’s reputation. An arbitral award was made in favour of Stanbic and the company’s property was foreclosed by the bank.

In court the bank denied any fault, saying when the company did not pay instalments Stanbic was justified in reporting it, thus no negligence was involved.

After hearing detailed financial evidence from both sides, Chashi found the problem lay with a bank glitch that led to the account defaulting and then being classified delinquent.

While the bank continued to deny any problems on its side, the court quoted a Stanbic letter saying Savenda’s debit had defaulted to an internal suspense account and this “anomaly” had since been rectified. Chashi said if the bank had properly investigated it would have found the apparent default was caused by a failure of its own system rather than by Savenda’s nonpayment. The judge found the bank “culpably careless” for reporting the client without properly investigating.

But there was another problem, he said: breach of confidentiality. While the parties agreed the bank owed Savenda a duty of care, that duty included keeping customers’ affairs confidential. The Banking & Financial Services Act provides that, in the absence of a court order or client consent, banks should maintain customer confidentiality. The bank had not asked for the company’s consent to give its information to the credit agency, nor was such reporting provided for in the bank’s contract with Savenda. Even though the consent issue was not raised by the parties, “it is the duty of the court when breaches of the law arise to step in” to deal with such infringements even if they were not raised in hearings.

The court also had harsh words for the bank’s failure to observe proper process, for example the stipulated notice period when the company was reported to the bureau.

Chashi said credit agencies obtain their information from banks and this is used by lending agencies to decide individual applications. It is inevitably used as a blacklisting mechanism, with lenders not being keen to advance monies to reported companies. In this case, the bank’s negligent listing had an adverse impact on the company, with funding for important projects being declined.

Finding the company had proved its case and was entitled to relief plus legal costs, Chashi referred the matter to the deputy registrar for assessment of the damages due.

The Savenda decision was delivered while delegates to the Southern African Development Community Lawyers’ Association conference in Cape Town last week focused on how to harmonise regional trade and investment laws. Reliable banks and courts are a good start.