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[2009] ZAGPJHC 4
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Breedenkamp and Others v Standard Bank of South Africa Ltd and Another (2009/7907) [2009] ZAGPJHC 4; 2009 (5) SA 304 (GSJ) ; [2009] 3 All SA 339 (GSJ) (30 March 2009)
Links to summary
SOUTH GAUTENG
HIGH COURT
(HELD AT
JOHANNESBURG)
Case no.
2009/7907
In the matter
between:
JOHN ARNOLD
BREEDENKAMP
First
Applicant
BRECO
INTERNATIONAL LTD
Second
Applicant
HAMILTON PLACE
TRUST
Third
Applicant
INTERNATIONAL
CIGARETTE
MANUFACTURERS
(PTY) LTD
Fourth
Applicant
and
STANDARD BANK OF
SOUTH AFRICA LTD
First
Respondent
MINISTER OF
FINANCE
Second
Respondent
Judgment
Jajbhay J
PARTIES
[1] First
applicant (
“Breedenkamp”
)
is a businessman of substantial means. Second applicant (
“Breco”
)
is a company registered in the British Virgin Islands of which
Breedenkamp appears to be the sole director. Third applicant
(
“Hamilton”
)
is a property-owning trust registered in the British Virgin Islands
of which Breedenkamp appears to be the sole trustee. Fourth
applicant
(
“ICM”
) is
a company registered in South Africa of which Breedenkamp is a
shareholder. Breedenkamp, Breco and ICM are described as
international
commodities traders. The names of Breedenkamp, Breco
and a host of associated entities appear on the international
sanctions lists
of the USA, the EU and the UK.
[2] First
respondent (
“Standard Bank”
or
“the bank”
)
is the largest of the four full-service South African banks. Public
confidence in the bank’s integrity is of paramount
importance.
The second respondent neither supports nor opposes the application.
RELATIONSHIP
BETWEEN APPLICANTS AND STANDARD BANK
[3] The
applicants hold bank accounts of various kinds at Standard Bank (
“the
Breedenkamp accounts”
). At the heart of
the application lies a decision (
“the
Standard Bank decision”
) to close the
Breedenkamp accounts and to terminate the underlying agreements (
“the
Breedenkamp agreements”
) on notice in
compliance with the bank’s General Terms. The applicants
assert that the bank has no entitlement to do so.
Standard Bank
disagrees.
SUBSTANTIAL
FACTS
Applicants
subject to US sanctions
[4] On
25 November 2008 the US Department of Treasury’s Office of
Foreign Assets Control (
“OFAC”
)
listed Breedenkamp, Breco and certain associated entities as
“specially designated nationals” (
“SDNs”
).
This meant that they became subject to the sanctions imposed and
enforced by OFAC. On the following day Standard Bank became
aware of
their listing and that OFAC suspected Breedenkamp of “being
involved in illicit business activities including tobacco
trading,
arms trafficking, oil distribution and diamond extraction and of
being a confidant and financial backer of Zimbabwe’s
President
Robert Mugabe”. Reports in publications in a number of
countries during the period September 1996 to March 2009
indicate
Breedenkamp’s purported notoriety at the time of the OFAC
listing.
Standard
Bank’s decision based on serious reputation and business risks
[5] On
26 November 2008 Standard Bank initiated internal enquiries as to the
nature and extent of its relationship with the applicants.
On 3
December 2008 senior executives and managers of Standard Bank met to
discuss the issue. Of particular concern to them were:
“
the
likely serious implications for Standard Bank, its investors and its
customers of maintaining a relationship with the applicants
in
circumstances where domestic and foreign onlookers might reasonably
believe or suspect that accounts held at Standard Bank would
or could
be used to facilitate unlawful and/or unethical acts. An association
with a conductor and/or financier of allegedly illegal
and/or
improper transactions might well undermine a bank’s hard-won
and fragile national and international reputation in
the eyes
inter
alia
of regulatory bodies, financial
institutions, media organisations and members of the public
worldwide.”
[6] According
to the bank, its concerns were not idle. In not dissimilar
circumstances other blue-chip financial institutions such
as
Barclays, Standard Chartered and Old Mutual had come in for scathing
criticism in influential international publications.
[7] In
addition to the risk of harm to its reputation Standard Bank faced
material business risks to its relationships with foreign
banks:
Standard Bank holds correspondent “nostro” accounts at
financial institutions across the world; US persons –
including
financial institutions – are precluded from dealing with SDNs.
These “covered” financial institutions
have legal
obligations in respect of their nostro accounts. For example they
must
scrutinise every payment
instruction and maintain and disclose bank records to law enforcement
agencies.
Standard Bank funds its nostro
clearing accounts with bulk funds including its own and those of
multiple customers; each such
account and all funds in it would or
could be seized to the prejudice of Standard Bank and its non-SDN
customers. Covered financial
institutions may also request
information from the instructing bank which, if not provided, may
lead to closure of the nostro accounts.
Obviously, any such loss of
reputation or closure of accounts would or could have catastrophic
consequences for Standard Bank’s
ability to conduct its
business in the global economy; and given the gravity of the
potential harm to Standard Bank, its investors
and its customers of a
seizure of funds and/or an adverse report to OFAC, Standard Bank
could not send instructions to any covered
financial institution
anywhere in the world in any currency regarding the payment or
transfer of any funds including any funds
of an SDN either as
remitter or beneficiary.
[8] The
applicants purported to allay these concerns by tendering not to
transact through Standard Bank with any person bound by
OFAC rulings
or EU rules. According to Breedenkamp “the applicants will not
send money to the US or EU or use Standard Bank’s
banking
facilities to receive funds into its EU and US nostro accounts”.
[9] After
deliberation regarding the OFAC-designation and the reputation and
business risks it posed, Standard Bank decided at the
meeting on 3
December 2008 that it would end its relationship with the applicants.
Notice
of Standard Bank decision
[10] The
Standard Bank decision was communicated to Breedenkamp verbally and
in writing on 8 December 2008. The applicants were
in each instance
afforded a period of at least 30 days to make alternative banking
arrangements. After four consensual extensions
of the notice period
the applicants’ accounts will be closed by the end of March
2009.
Applicants
subject to EU and UK sanctions
[11] On
19 January 2009, Breedenkamp, Breco, ICM and 16 associated entities
were added to “the list of persons referred to
in Articles 4
and 5 of Common Position 2004/161/CFSP” which served to renew
restrictive measures against Zimbabwe (
“the
EU list”
). The same names were added to
HM Treasury’s “consolidated list of financial sanctions
targets in the UK” (
“the UK list”
)
on 27 January 2009.
RELIEF
[12] In
the present application, Breedenkamp together with the other
applicants, seek an interim interdict that would restrain the
Standard Bank from cancelling the contracts between them that
underlie the accounts listed in the Notice of Motion, pending the
finalisation of the application for the relief to be granted that is
referred to in part B of the Notice of Motion.
Certain
accounts not in issue
[13] Applicants
intended to interdict closure of nine accounts. Breedenkamp’s
credit card account has however been closed.
It appears that
Breedenkamp has no entitlement to insist on any continued use of a
MasterCard credit card account. Standard Bank
does not propose to
close Hamilton’s bond account until the loan has been repaid.
The remaining seven accounts require consideration.
Conduct of
accounts
[14] The
applicants conducted their accounts within the agreed credit limits,
where those were applicable and strictly in accordance
with their
contracts. The founding affidavit of the deponent (Mr Jackson, the
General Manager of the business affairs of Mr Breedenkamp
and the
other applicants) stated:
'The
applicants at all times conducted the account strictly in accordance
with their agreements with the first respondent and within
the
overdraft or other credit arrangements that were from time to time
put in place on the accounts.'
Standard Bank’s
response to this allegation is:
‘
It is an
overstatement to say that the accounts have at all times been
conducted ‘strictly in accordance with their agreements.’
[15] Standard
Bank does, however, not state any instance in which any of the
accounts were not conducted strictly in accordance
with the terms of
the agreements between the relevant applicants and Standard Bank
underlying the accounts.
Closure of
accounts
[16] On
8 December 2008, an official of Standard Bank, Seedat, telephoned
Breedenkamp and informed him that Standard Bank had decided
to close
all the accounts existing between the applicants and Standard Bank.
Seedat did not give any reason for the closures but
said that formal
letters initiating the closures would be sent to the applicants. On
the same day, Standard Bank sent four letters
of cancellation to each
of the four applicants. The one that was sent to Mr Breedenkamp was
signed by Seedat. Each of the letters
advised the applicants that:
‘…
After
careful consideration the bank is no longer able to continue its
relationship with… The bank is closing the above-
mentioned
accounts to protect its interests, in line with the bank’s
terms and conditions and with a Code of Banking Practice.
The
arrangements relating to the closure of these accounts are set out
more fully hereunder.’
[17] The
‘arrangements’ that Standard Bank determined were the
following: Breedenkamp’s credit
card account was
immediately suspended and was to be closed on 6 January 2009. All
Breedenkamp’s other accounts were to
be closed on 19 January
2009 but, after exchange of correspondence, Standard Bank extended
the period to 30 March 2009. The overdraft
facility on Breedenkamp’s
current account (with account number 420946373) was suspended as from
the date of the letter, 8 December
2008, and that the credit
facility would be withdrawn on 6 January 2009 and the account would
be closed, as mentioned above, on
19 January 2009.
[18] The
current account of Breco International would also be closed on 19
January 2009. The access bond facility on the Hamilton
Trust bond was
immediately suspended (that is on 8 December 2008) and would be
closed on 6 January 2009. The ICM money market account
would be
closed on 19 January 2009. Breedenkamp and the applicants did not
accept the closure of their accounts.
Reason given
for closure
[19] The
letters informing the applicants that the accounts would be closed
stated that they would be closed to protect the interests
of Standard
Bank without informing the applicants what those interests were. The
letters also stated that Standard Bank was acting
in terms of its
communicated terms and conditions without identifying what those
terms and conditions could be. They also made
specific reference to
a code of banking practice.
[20] After
an exchange of correspondence, on 15 January 2009, Standard Bank in a
letter to Breedenkamp emphasised that it had the
right, unilaterally,
to cancel a contract with a client. The first paragraph of the
letter reads:
‘
In terms
of our general terms and conditions for all accounts, we may
terminate any account or facility, which may have been extended
to
International Cigarette Manufacturing (Pty) Ltd for any reason by
giving the company written notice. As mentioned in our letter
of 8
December 2008, the decision to close the company’s account was
taken after careful consideration and remains the bank’s
position. Furthermore, we have given the company… requisite
notice of closure.’
[21] By
the middle of January 2009 it appeared that Standard Bank contended
that in terms of its ‘general terms and conditions
for all
accounts’ it may terminate any account, for any reason, by
giving written notice. It is significant that the author
of the
letter of 15 January 2009 did not refer to the ‘protection of
interests’ or to the ‘Code of Banking Practice’
as
support for the bank exercising the right that it contended it had,
as was done in the letters of 8 December 2008.
[22] It
is also of significance that the bank officials did not assert the
right to cancel in terms of common law. According to
the bank
officials in terms of its terms and conditions, general terms and
conditions for all accounts and the Code of Banking
Practice it was
entitled to cancel. This would appear to indicate that the right to
act as it did was, in the view of Standard
Bank, a contractual right
that is only to be found in writing.
Wertheim
Becker Attorneys.
[23] Messrs
Wertheim Becker Attorneys placed themselves on record on behalf of
the applicants. Their first order of business was
to agree to an
extension of the time periods stated in the various letters of 8
December 2008. Extensions were eventually granted
until 30 March
2009. The second order of business was to obtain copies of various
account opening documents, the so-called General
Terms and the Code
of Banking Practice. The reason why these documents were required
was to search through them and to locate
the contractual right
asserted by the authors of the letters of 8 December 2008 and
Engelberg, the author of the letter of 15 January
2009.
The Code of
Banking Practice
[24] The
Code of Banking Practice that was referred to in the letters of
8 December 2008 contains a
caveat
to the effect that none of the provisions are legally binding in any
court of law, or may be used to influence the interpretation
of the
legal relationship between a client and a bank; or will give rise to
a trade custom or tacit contract or otherwise between
a client and a
bank. Notwithstanding this, the authors of the letters of 8 December
2008 clearly relied on the terms of the Code
as if it does constitute
part of a written contract between Standard Bank and each of the
applicants.
[25] Clause
4.10 of the Code deals with
closure
of account
.
It reads as follows:
'We
will not close your account without giving you reasonable prior
notice at the last address that you gave us.
We reserve the
right, however, to protect our interests in our discretion, which
might include summarily closing your account:
If we are
compelled by law;
If you have not
used your account for a significant period of time;
If we have
reason to believe that your account is being used for fraudulent
purposes.’
The Code does
not in so many words or by implication state that:
a
bank may not or will not invite the customer to consult with it
before making a decision to cancel an account;
a
bank may unilaterally cancel an account; or
a bank may do
so for no reason, for a bad reason or for a good reason.
In fact, the
Code does not deal, at all, with the reasons, if any, that may lead
the bank to close an account on notice.
The General
Terms
[26] Standard
Bank also gave copies of its General Terms to the attorneys of record
of the applicants. It is the applicants’
case that they never
saw this document. The answering affidavit on behalf of Standard
Bank says that the General Terms were adopted
only in August 2005. By
this time, most of the accounts were already opened. The deponent
also submits that copies of the General
Terms should have been
brought to the attention of the various applicants. But no facts in
this regard are stated and the deponent
merely surmises that the
provisions of the General Terms should have been brought to the
attention of the applicants. The applicants
deny that they received
the General Terms or that they were aware of its contents and the
denials cannot be questioned against
the idle speculation of the
deponent to the answering affidavit.
[27] Under
the heading ’Repayable on Demand’ the following is
stated:
‘
We may
terminate any account or facility, which may have been extended to
you for any reason and claim repayment of any outstanding
balance by
giving you written notice. Termination may be effective immediately
or from a date stated in the notice. Any amounts
owing to us become
payable on the date stated in the notice.’
[28] None
of the other account opening documents contain a similar provision.
LAUNCH OF
APPLICATION
[29] After
receipt of the documents containing the terms of the agreements
between Standard Bank and the various applicants, the
present
application was launched. Insofar as the factual reasons for the
cancellation of the contracts is concerned, the deponent
to the
founding affidavit (and later Breedenkamp in his supplementary
founding affidavit) could say no more than that they were
not aware
of what underlies the decision of Standard Bank.
Answering
affidavit: Reasons given
[30] Standard
Bank filed an answering affidavit in which it deals extensively with
its reasons for cancelling the contracts. It
appears that Standard
Bank learnt that the names of Breedenkamp, Breco and ICM but not the
Hamilton Trust - were placed on a sanctions
list that was compiled by
the United States Department of Treasury’s Office of Foreign
Assets Control as ‘specially
designated nationals’. OFAC
administers and enforces economic and trading sanctions based on the
foreign policy of the United
States and its national security goals.
The listing appeared on 25 November 2008. On 26 November 2008 a
number of Standard Bank’s
divisions commenced internal
enquiries regarding the nature and extent of the relationship with
the applicants and on 3 December
2008 senior executives and managers
of Standard Bank met to discuss what to do with the accounts.
[31] In
paragraph 20.5 of the answering affidavit the following is stated in
order to motivate the reasons for closing the accounts:
‘
Of
particular concern to them were and remain the likely serious
implications for Standard Bank, its investors and its customers
of
maintaining a relationship with the applicants in circumstances where
domestic and foreign onlookers might reasonably believe
or suspect
that accounts held at Standard Bank would or could be used to
facilitate unlawful and/or unethical acts. An association
with a
conductor and/or financier of allegedly illegal and/or improper
transactions might well undermine a bank’s hard-won
and fragile
national and international reputation in the eyes
inter
alia
of regulatory bodies, financial institutions, media organisations and
members of the public worldwide.’
[32] It
must be emphasised that no objective proof for these allegations is
contained in the answering affidavit. Nevertheless,
the decision to
terminate seems to be based squarely on perceptions and not facts.
[33] There
are essentially three reasons put forward by Standard Bank why the
accounts were closed. The first is the mere fact of
the OFAC
designation. The second is that there is a risk that Standard Bank’s
reputation may negatively be affected. The
third is that there are
certain business risks for Standard Bank should it carry on granting
banking facilities to Breedenkamp
and the other applicants.
[34]
From the answering affidavit it appears that after Standard Bank
became aware of the OFAC designation, it consulted newspapers
and
other media reports contained in the public media that are critical
of Breedenkamp and his businesses and paint him as a ‘Mugabe
crony’. Mention is also made of the fact that the European
Union issued a similar sanctions list, but that happened only
after
the decision had been made to cancel the accounts and it could thus
not have played any role in the decision to cancel the
accounts.
[35] In
the answering affidavit Standard Bank, for the first time, informed
the applicants why it had decided to cancel the accounts.
It was the
first time that the applicants could deal with the allegations.
The replying
affidavit
[36] In
his replying affidavit, Breedenkamp makes the following important
points:
'He
is not a Mugabe crony and has in fact been imprisoned by the Mugabe
regime – the regime has also revoked his Zimbabwe
passport
which caused him to launch an application in the High Court of
Zimbabwe which he eventually won.'
[37]
Breedenkamp and the other Breco companies should never have been
placed on any sanctions list, taking into account the criteria
upon
which those lists are compiled. Breedenkamp and the Breco companies
have taken steps to have their names expunged from the
various
sanctions lists and these procedures have not yet been completed.
Perceptions
may possibly be wrong
[38] Breedenkamp
also explains why the press has been hostile to him. It effectively
all reduces to the simple point that he is
perceived to be assisting
the Zimbabwe Government – popularly called the Mugabe regime.
He explains why this perception
is wrong.
Policy of
South Africa towards Zimbabwe
[39] Another
theme that arises from the replying affidavit is that it is not
against the expressed policy of the Government of the
Republic of
South Africa to have friendly relationships with Mr Mugabe and his
government. An expert on international affairs,
Professor Strydom,
expresses the opinion that it is the policy of our government to
support and promote trade with the
de
facto
and
de
jure
present government of the Republic of Zimbabwe.
Consequences
of closing account
[40] A
further point of contention between the parties concerns the
consequences of Standard Bank closing the accounts. In the
founding
affidavit it is stated that once a bank closes the account of a
client, thereby severing the contractual relationship
between them,
no other first tier bank in South Africa will accept the erstwhile
client as a client of the new bank. There are
only four first tier
banks in South Africa. An expert banker, Nel, deposed that such is
the case. His evidence is to the effect
that banks will for reasons
of perception refuse to open accounts whilst, in the normal course,
they will not for reasons of perception
close accounts.
The General
Terms
[41] I
believe that the general terms and conditions appearing as annexe B
to the founding affidavit (
“the general
terms”
) are applicable for the purposes
of the present enquiry. This is so for the following reasons: the
applicants agreed to be bound
by Standard Bank’s standard terms
and conditions as amended from time to time; it is Standard Bank’s
submission that
the applicants were furnished with the general terms,
if not before then at least at the time of opening Breedenkamp’s
foreign
currency account (March 2006) and/or ICM’s money market
account (September 2008), when annexe B would in all likelihood have
been among the pack of documents provided by Standard Bank to
Breedenkamp and further, ICM, and Breedenkamp merely “notes”
these allegations.
Plascon- Evans Paints Ltd v
Van Riebeeck Paints (Pty) Ltd 1984 (3) 623 A.
REQUIREMENTS
FOR AN INTERIM INTERDICT
[42] An
interim
interdict
is by definition a court order preserving or restoring the
status
quo
pending the final determination of the rights of the parties. It does
not involve a final determination of these rights and does
not affect
their final determination.
The
dispute in an application for an
interim
interdict
is
therefore not the same as that in the main application to which the
interim
interdict
relates.
In an application for an
interim
interdict
the
dispute is whether, applying the relevant legal requirements, the
status
quo
should be preserved or restored pending the decision of the main
dispute. At common law, a court’s jurisdiction to entertain
an
application
for an
interim
interdict
depends
on whether it has jurisdiction to preserve or restore the
status
quo
.
It does not depend on whether it has the jurisdiction to decide the
main dispute.
[43] That
the test is a nuanced one as appears from the judgment of Holmes, J
in
Olympic Passenger Service
(Pty) Ltd v Ramlagan
1957 (2) SA 382
D
in
which he held:
˜It
thus appears that where the applicant's right is clear, and the other
requisites are present, no difficulty presents itself
about granting
an interdict. At the other end of the scale, where his prospects of
ultimate success are nil, obviously the Court
will refuse an
interdict. Between those two extremes fall the intermediate cases in
which, on the papers as a whole, the applicants'
prospects of
ultimate success may range all the way from strong to weak. The
expression
prima
facie
established though open to some doubt seems to me a brilliantly apt
classification of these cases. In such cases, upon proof of
a well
grounded apprehension of irreparable harm, and there being no
adequate ordinary remedy, the Court may grant an interdict
-- it has
a discretion, to be exercised judicially upon a consideration of all
the facts. Usually this will resolve itself into
a nice consideration
of the prospects of success and the balance of convenience -- the
stronger the prospects of success, the less
need for such balance to
favour the applicant: the weaker the prospects of success, the
greater the need for the balance of convenience
to favour him. I need
hardly add that by balance of convenience is meant the prejudice to
the applicant if the interdict be refused,
weighed against the
prejudice to the respondent if it be granted.
[44]
In
Fedsure
Life Assurance v Worldwide African Investment Holdings (Pty) Ltd and
Others
2003 (3) SA 268
(W) Cloete J stated the requirements for an
interim
interdict
:
‘
Where
the right asserted on the strength of which an
interim
interdict
is sought is not
clear, the position is as follows according to
Eriksen
Motors (Welkom) Ltd v Protea Motors, Warrenton, and Another
1973 (3) SA 685
(A) at 691C-G:
“
The
granting of an
interim
interdict
pending an action is
an extraordinary remedy within the discretion of the Court. Where the
right which it is sought to protect
is not clear, the Court’s
approach in the matter of an
interim
interdict
was lucidly laid down
by Innes JA in
Setlogelo v
Setlogelo
1914 AD 221
at
227. In general the requisites are –
a clear right
which, ‘though prima facie established, is open to some
doubt’;
a well grounded
apprehension of irreparable injury;
the absence of
ordinary remedy.
In
exercising its discretion the Court weighs, inter alia, the prejudice
to the applicant, if the interdict is withheld, against
the prejudice
to the respondent if it is granted. This is sometimes called the
balance of convenience.”
[45] The
foregoing considerations are not individually decisive, but are
interrelated, for example, the stronger the applicant’s
prospects of success the less his need to rely on prejudice to
himself. Conversely, the greater the element of ‘some doubt’,
the greater the need for the other factors to favour him. The Court
considers the affidavits as a whole, and the interrelation
of the
foregoing considerations, according to the facts and probabilities
DEVELOPMENT
OF THE COMMON LAW THROUGH THE CONSTITUTION
[46] The
applicants’ prima facie right may be developed along the
following lines. The contract contains a clause, express
or tacit,
that gives the bank the right to terminate the contract for good
cause, bad cause or no cause at all. In making this
assumption I have
accepted for the purpose of the present application that the clauses
are embodied in the contract between the
parties. The basis for this
contention is premised in the constitutional injunction requiring a
court to develop the common law
in accordance with constitutional
values.
Application
of the Constitution
[47] Contractual
relations, because they are regulated by the common law, are not
immune from constitutional control and scrutiny.
It is now accepted
that all law (including the common law regulating contracts) derives
its force from the Constitution and is
thus subject to constitutional
control,
Brisley
v Drotsky
2002 (4) SA 1
SCA. Any law that is inconsistent with the Constitution
is invalid and, if that law is grounded in the common law, then it
must
be developed so as to bring it in line with the Constitution.
All courts have a constitutional obligation to develop the common
law
so as to bring it in line with the values that underlie the
Constitution. This is the constitutional imperative contained in
section 39(2), which states that:
‘
When
interpreting any legislation, and when developing the common law, or
customary law, every court, tribunal or forum must promote
the
spirit, purport and objects of the Bill of Rights.’
THE DUTY TO
ACT FAIRLY
[48]
Barkhuizen
v Napier
[2007] ZACC 5
;
2007 (5) SA 323
(CC) is authority for the proposition that a party
to the contract cannot, first, impose a term on another party if it
would,
if applied, operate unfairly and, secondly, cannot enforce a
term in a manner that is unfair. In the present case the applicants
say that the provision in the contract that gives the bank a
discretion to close the accounts is unfair to the extent that it is
unfettered by considerations of reasonableness or, at the very least,
rationality and must be read down to permit only a termination
on
good cause; and in consequence or in any event, the exercise of the
discretion is unfair in the circumstances of this case since
it is
without good cause.
The
Barkhuizen
case
[49] The
contract in
Barkhuizen
was
one of short-term insurance. The policy
contained a
clause (referred to as a time-bar clause) which provided:
‘
If we
[the insurance company] reject liability for any claim made under
this policy we will be released from liability unless summons
is
served within 90 days of repudiation.’
The
facts of the case are the following: The claimant’s motor
vehicle suffered damage on 24 November 1999 amounting to R181
000. He
notified his insurance company on 2 December 1999 and claimed the
R181 000. The insurance company repudiated the claim
on 7 January
2000. On 8 January 2002 (two years later) the applicant instituted
action against his insurance company. This was
met with a special
plea that the respondent should be released from liability because
the applicant had failed to serve the summons
within 90 days of the
repudiation. In his replication the applicant conceded
non-compliance with the time-bar clause but alleged
that the clause
was contrary to public policy for reasons grounded in the
Constitution. The applicant invoked section 34 in the
Bill of Rights
which provides that ‘everyone has the right to have any dispute
that can be resolved by the application of
law decided in a fair
public hearing before a court...’
In
the majority judgment, Ngcobo J commenced by recording the following
at paragraph 15:
‘
I
do not understand ... that the principle of contract
pacta
servanda sunt
is a sacred cow that should trump all other considerations. ... [In
the judgment a quo] the Supreme Court of Appeal accepted that
the
constitutional values of equality and dignity may, however, prove to
be decisive when the issue of the parties’ relative
bargaining
positions is an issue. All law, including the common law of contract,
is now subject to constitutional control. The
validity of all law
depends on their consistency with the provisions of the constitution
and the values that underlie our Constitution.
The application of the
principle
pacta
servanda sunt
is, therefore, subject to constitutional control.’
[50] The
Constitutional Court recognised that the Bill of Rights represents a
reliable statement of public policy. Thus, what public
policy is and
whether a term in a contract is contrary to public policy needs to be
determined by having regard to the Bill of
Rights and the values that
underlie our constitutional democracy (as expressed in the
Constitution). In paragraph 29 the majority
held that ‘a term
in a contract that is inimical to the values enshrined in our
Constitution is contrary to public policy
and is, therefore,
unenforceable.’
[51] At
paragraph 30 the majority stated that:
‘
The
proper approach to the constitutional challenge to contractual terms
is to determine whether the term challenged is contrary
to public
policy as evidenced by constitutional values, in particular, those
found in the Bill of Rights. This approach leaves
space for the
doctrine of
pacta
servanda sunt
to operate, but at the same time allows courts to decline to enforce
contractual terms that are in conflict with constitutional
values
even though the parties may have consented to them.’
[52] In
paragraph 35, the majority continued as follows:
‘
Any law
that is inconsistent with the Constitution is invalid. No law is
immune from constitutional control. The common law of contract
is no
exception. And courts have a constitutional obligation to develop the
common law, including the principles of the law of
contract, so as to
bring it in line with values that underlie our Constitution. When
developing the common law of contract, courts
are required to do so
in a manner that promotes the spirit, purport and objects of the Bill
of Rights.’
[53] In
paragraph 51 of the majority judgment the Constitutional Court held
as follows:
‘
In
general the enforcement of an unreasonable or unfair time limitation
clause will be contrary to public policy... Notions of fairness,
justice and equity, and reasonableness cannot be separated from
public policy. Public policy takes into account the necessity to
do
simple justice between individuals. Public policy is informed by the
concept of
ubuntu
.
It would be contrary to public policy to enforce a time limitation
clause that does not afford the person bound by it an adequate
and
fair opportunity to seek judicial redress.’
[54] In
paragraph 57 the majority said the following:
‘
The
first question involves the weighing up of two considerations. On the
one hand public policy, as informed by the Constitution,
requires in
general that parties should comply with contractual obligations that
have been freely and voluntarily undertaken. This
consideration is
expressed in the maxim
pacta
servanda sunt
,
which, as the Supreme Court of Appeal has repeatedly noted, gives
effect to the central constitutional values of freedom and dignity.
Self-autonomy, with the ability to regulate one’s own affairs,
even to one’s own detriment, is the very essence of
freedom and
a vital part of dignity. The extent to which the contract was freely
and voluntarily concluded is clearly a vital factor
as it would
determine the weight that should be afforded to the values of freedom
and dignity. The other consideration is that
all persons have a right
to seek judicial redress. These considerations express the
constitutional values that must now inform
all laws, including the
common law principles of contract.’
[55] In
Barkuizen
there were powerful minority decisions by Moseneke DCJ (in which
Mokgoro J concurred) and Sachs J. They pursued much the same theme
as
the majority, but took a stronger line on the validity per se of the
time-bar.
[56] Sachs
J was particularly concerned with the manner in which large powerful
organisations wield oppressive contractual power
in a way that allows
them to impose onerous and unfair contractual terms on subordinate
contractual parties. He held that the particular
contractual
circumstances of the case should render the time-bar clause
unenforceable. At paragraph 185 the learned judge left
open ‘for
future consideration where the onerous and unilaterally imposed terms
and standard-form contracts of adhesion should
in general be regarded
as offensive to public policy in our new constitutional
dispensation’.
[57] That
the arbitrary exercise of a power reserved to one party who contracts
from a position of strength can be oppressive and
unfair is also
recognised in the judgment of the majority. In paragraph 59, the
majority commenced by making the following point:
‘
It
follows in my judgment that the first enquiry must be directed at the
objective terms of the contract. If it is found that the
objective
terms are not inconsistent with public policy on their face, the
further question will then arise which is whether the
terms are
contrary to public policy in the light of the relative situation of
the contracting parties.
………………
‘
In
Afrox
Healthcare Bpk v Strydom
2002 (6) SA 21
(SCA) the Supreme Court of Appeal recognised that
unequal bargaining power is indeed a factor that together with other
factors
plays a role in the consideration of public policy. This is a
recognition of the potential injustice that may be caused by
inequality
of bargaining powers. Although the court found ultimately
that on the facts there was no evidence of an inequality of
bargaining
power, this does not detract from the principle enunciated
in that case, namely that the relative situation of the contracting
parties is a relevant consideration in determining whether a
contractual term is contrary to public policy. I endorse this
principle.’
[58] On
the facts of
Barkhuizen
,
the Constitutional Court was unable to find that the enforcement of
the time-bar had been unfair. The reason was that the stated
case
was so terse that it was impossible to see whether it was unfair to
expect the claimant to comply with the clause. The case
was, in
consequence, dismissed. Throughout the judgments (ie. in both the
majority and minority opinions) one finds references
to the words
‘fair’ and ’fairness’ and ‘unfair’
and ‘unfairness’. This has prompted
Professor AJ Kerr to
suggest that this case (and by implication other similar cases under
the development of the Constitution)
be resolved according to the
central concept of fairness.
APPLICATION
OF
BARKHUIZEN
TO THE PRESENT CASE
[59] In
the present case, the central question is whether it is fair in the
circumstances to allow the first respondent to terminate
its
contracts with the applicants. In determining this question, the
court will, take into account the following factors: A business
entity must, in order to carry out its objects, have one or more bank
accounts. This is not simply because transactions through
a bank are
convenient and customary; in addition, it is because the banks
operate an inter-change system that makes it all but
impossible for a
person to do business without operating through a bank.
[60] The
bank operates within the framework of an oligopoly in which the four
large banks dominate the market for banking services.
It is created
by statutory regulation and socio-economic factors that create
barriers to entry to the market for the provision
of these services.
In consequence, a prospective customer has few alternatives but to
bank with one of the big four banks.
[61] In
their dealings with customers, the behaviour of one bank tends,
understandably enough, to track the conduct of the others.
As a
result, the offerings of each tend to be very similar. The result is
that a prospective customer has little choice on the
contracts he or
she must conclude in order to become a bank customer. As a result, if
one bank imposes a term in the contract sanctioning
termination
without cause, the customer can expect the other banks to do so too.
[62] This
power is exploited to impose standard form contracts on customers,
the present applicants included. In the present case
the contract
supposedly goes so far as to permit the bank to unilaterally amend
terms and conditions in the exercise of its discretion.
Such powers
can be exercised oppressively, and there is undeniably an element of
oppression when the bank decides to terminate
the contract without
good cause.
[63] Banks
have the capacity to make reasonable decisions and to put them into
effect, if necessary, after first entertaining representations
from
the customer in question. Standard Bank makes something of the fact
that it has an enormous customer base but this, far from
making
rational decision-making impossible, actually permits the bank to
create an infrastructure that enables it to operate cautiously
and
sensibly. In the present case, the evidence shows that senior
executives of the bank met twice in order to decide how to treat
the
applicants following their listing by the foreign state
jurisdictions.
[64] In
the present case, the bank had a range of options available to it and
could have been expected to utilise them before resorting
them to the
drastic expedient of closing the accounts. These included a request
for an undertaking, of the sort given by the applicants
in the course
of these proceedings, not to deal with nationals of the foreign
jurisdictions; effective reporting on transactions
that might be
deemed controversial; special monitoring of the account pending the
appeals; and so on.
[65] Termination
by a bank of an account for whatever reason creates a black mark
against the customer’s name. The effect
is drastic, since it
makes it very difficult for the customer to acquire another bank
account. A bank approached by a prospective
customer will naturally
want an explanation for why the account was closed and, in the light
of the explanation; will almost certainly
refuse to grant the
customer the facilities requested. This is particularly so if
‘reputational risk’ is the reason
the previous bank
closed the account. In effect, therefore, the closure of an account
operates to put the customer on an informal
“blacklist”.
[66] The
bank, in its answering affidavit, accepts that the closure of an
account on these grounds has the effect of “blacklisting”
a customer, but argues that the applicants in this case were authors
of their own misfortune since they brought themselves into
disrepute.
This response, needless to say, makes precisely the point that the
applicants seek to make: namely, that they may
be authors of their
own misfortune if, as a fact, they have brought themselves into
disrepute but that the question whether they
are or not is precisely
the matter that has to be tested by reference to the principle of
reasonableness; the OFAC and EU listings
are, in any event, the
subject of pending appeals and until they are decided, the
stigmatisation of the applicants by their ‘blacklisting”
is, to say the very least, premature.
[67] The
termination by the bank of the applicants’ accounts is
oppressive because, in the circumstances, the applicants are
unable
to find alternative banking facilities.
[68] A
clause which purportedly gives a powerful bank the right to simply
close a bank account (and in the process destroy that
party’s
prospects of participating in the modern commercial world) without
either showing that there is good cause for doing
so or giving the
party a hearing if it seems as though it might be unfair, unjust and
oppressive. For that reason, and under the
guise of the Constitution,
the common law must be developed in a manner which would prevent
large commercial undertakings, such
as the first applicant in this
matter, from behaving as it has.
FACTUAL
MATRIX
[69] In
the present case, it is clear; the bank’s decision to close the
accounts was prompted by the OFAC listing. At the
time, the EU had
yet to list the applicants and so this listing cannot, as far as the
bank is concerned, do more than simply confirm
the bank in its
initial resolve. The two sets of listings are currently the subject
of an appeal lodged on behalf of the applicants
and other companies
in the group. The outcome of these appeals cannot be predicted in
these proceedings.
[70] There
exists no doubt that until the appeals have been determined; the bank
can be expected to have some concern that its own
supplier and
customer network might in measure be compromised if the applicants
trade without the applicable nationals through
its agency. But the
concern must be placed in context: the bank, in its dealings in South
Africa, is not itself obliged to observe
the OFAC or EU listing
requirements. Nor, for that matter, are the applicants, since they
too fall outside the jurisdiction of
the regulatory bodies. The
people who are liable to be sanctioned are those nationals of the
jurisdiction who deal with the applicants
in breach of the listing
requirements. If they deal knowingly with the applicants, they must
bear the consequences; and if they
deal unwittingly with them, then
the bank’s solution is simply to notify them that the
transaction constitutes a regulatory
contravention.
[71] In
the present case, therefore, the facts show that the bank’s
decision to close the accounts was anything but reasonable;
that it
operates unfairly towards the applicants for all the reasons stated
above; and that the exercise of power that it entails
is one that, is
consistent with the constitutional mandate recognised in
Barkhuizen
,
cannot and should not be permitted. In these circumstances, I am
satisfied that it would be right to grant an interim interdict
to
restrain the bank from terminating the accounts pending the
determination of the main case.
THE
ADMINISTRATIVE LAW CHALLENGE
[72] I
was informed at the commencement of the hearing that the applicants
did not wish to pursue this challenge at this enquiry.
They may well
make submissions in this regard at the next enquiry when they will
pursue a final order. Therefore, nothing more
needs to be said
concerning this part of the enquiry.
THE BALANCE
OF CONVENIENCE
[73] The
balances of convenience clearly favours the applicants and, as the
facts demonstrate, if the bank is allowed to terminate
the contracts
then the applicants will suffer irreparable harm. The practise in the
industry indicates that the applicants may
not enjoy this facility
with any of the major banks. This will inevitably have devastating
consequences on the economic future
of the applicants.
[74] I
do not believe that there is serious doubt that the applicants do not
have an alternate remedy within the context of the
present matter
.
APPLICATION
TO STRIKE OUT
[75] Notice
was given at the hearing of the application that Standard Bank would
apply for the striking out of certain allegations
and annexes on the
basis that they constitute impermissible new matter in reply. It was
contended that they constitute vexatious
and/or irrelevant matter.
These allegations were set out in paragraphs 13, 14, 15, 20.4, 20.5,
57, 58, 60 and 61 of the replying
affidavit and the documents that
comprised annexe RA13 to the replying affidavit. In terms of the
Rule 6(15) of the Uniform Rules
of Court a court has discretion in an
application by any party to strike out from any affidavit any matter
which is:
a)
scandalous;
b) vexatious;
or
c) irrelevant.
[76]
A court may entertain an application to strike out material from
affidavits
on grounds other than those in Rule 6(15). See
Titty’s
Bar and Bottle Store v ABC Garage and Others
1974 (4) SA 342
(W) at 368F-G.
[77]
Irrelevant
with regard to the contents of an affidavit refers to allegations
which do not apply to the matter in hand and do not contribute
one
way or another to a decision of such matter.
Vexatious
in respect of an affidavit refers to allegations which may or may not
be relevant but are so worded as to convey an intention to
harass or
annoy.
Scandalous
matter
is allegations or matters which may or may not be relevant but which
are so worded as to be abusive or defamatory. For
an application to
strike out allegations from an affidavit to succeed two important
requirements must be satisfied:
The
matter sought to be struck out must be scandalous, vexatious or
irrelevant or be of a kind envisaged for example in the
Titty’s
Bar
case;
The court must
be satisfied that if the matter is not struck out the parties
seeking to have the matter struck out would be prejudiced.
[78] It
was contended on behalf of Standard Bank that the allegations
contained in the above paragraphs and annexes were vexatious.
It is
correct that there are serious allegations made out by the
applicants. However within the context of the present matter
I
believe that in the ultimate determination, all of these facts have
to be considered in their totality. In any event, the allegations
set
out in these paragraphs are already in the public domain. I do not
deem these allegations to be vexatious. Therefore the application
to
have these paragraphs and annexure to be struck out is misplaced
.
ORDER
1. In
all of the above circumstances, I am satisfied that a proper case has
been made out for an interim interdict. The first respondent
is
interdicted and restrained from cancelling the contracts between the
applicants and the first respondent that underlie the accounts
listed
below or from closing the accounts, pending the finalisation of the
application for relief to be granted that is referred
to in part B of
the applicants’ notice of motion, the accounts being:
1.1
a current account under account number 421016906;
1.2
a current account under account number 421036559;
1.3 a current account under number 420946373;
1.4
a foreign currency account conducted under account
number
090426509;
a foreign
currency account conducted under account
number
090369297;
1.6
a current account conducted under account number
233595790;
1.7
a current account under account number 728599422001
2. The first
respondent is ordered to pay the costs of this application which
should include the costs of the employment of two
counsel.
3. Part B of
this application is postponed sine die.
---------------------------------------------
Jajbhay J
Judge of the High
Court.
Date
of Hearing: 25 March 2009
Date
of Judgment: 30 March 2009
On
behalf of the Applicants: Adv M Brassey SC, P Louw SC, K Hopkins,
instructed by Wertheim Becker Inc.
On
behalf of the First Respondent: Adv JJ Gauntlett SC, AE Bham SC, RM
Pierce, instructed by Deneys Reitz.