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[2009] ZAGPJHC 30
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Bredenkamp and Others v Standard Bank of South Africa Ltd and Another (09/7907) [2009] ZAGPJHC 30; 2009 (6) SA 277 (GSJ) (31 July 2009)
IN THE SOUTH GAUTENG HIGH COURT
(JOHANNESBURG)
CASE NO 09/7907
DATE 2009-07-31
In the matter between:
JOHN ARNOLD
BREDENKAMP
1
st
Applicant
BRECO
INTERNATIONAL LIMITED
2
nd
Applicant
HAMI
LTON
PLACE TRUST
3
rd
Applicant
INTERNATIONAL
CIGARETTE MANUFACTURE
R
(PTY) LTD
4
th
Applicant
and
STANDARD BANK
OF SOUTH AFRICA LTD
1
st
Respondent
THE MINISTER
OF FINANCE
2
nd
Respondent
JUDGMENT
LAMONT
:
J
[1]
The
four applicants brought an urgent application against the two
respondents. The second respondent played no role in the procedure
and can for purposes of this matter be ignored. For the sake of
convenience the first respondent is referred to as the bank.
[2] Each
applicant has the same banker
-customer
relationship with the bank pursuant to contracts which for present
purposes can be treated as being identical. There is
an identity of
interest amongst all the applicants, (except the 3
rd
applicant).
[3] It is not
necessary to distinguish the position of the third applicant a
property owning trust which owns a property in Johannesburg
by reason
of the fact that the bank does not propose closing the bond account
until the loan has been repaid. The facts affecting
one applicant
affect all identically. It is convenient to refer to all in exactly
the same way as “the applicant”.
[4] The applicant
conducts business as an International Commodities Trader. In the
course of its business it uses its bank facilities
pursuant to a
contract concluded with the bank.
[5]
On
25 November 2008, the US Department of Treasury’s Office of
Foreign Assets Control (“OFAC“) listed the applicant
as a
Specially Designated National (“SDN”). In consequence of
the listing the SDN became subject to economic and trade
sanctions
based on US foreign policy. Accompanying the listing is a statement
setting out:
“
Department
of Treasury Office of Foreign Assets Control (OFAC
)
today
designated four Mugabe regime cronies and a number of entities owned
or controlled by two of them (see list). The financial
and
logistical support they have provided to the regime has enabled
Robert Mugabe to pursue policies that seriously undermine democratic
processes and institutions in Zimbabwe. Today’s designations
include John Bredenkamp a well-known Mugabe insider involved
in
various business activities, including tobacco trading, grey market
arms trading and trafficking, equity investments, oil distribution,
tourism, sport management and diamond extraction. Through a
sophisticated web of companies,
Bredenkamp financially propped up
the regime and provided other support to a number of its high-ranking
officials. He also has
financed and provided logistical support to a
number of Zimbabwean state or entities.
Today’s
action was taken pursuant to executive order
13469
which targets, among others, individuals and entities who provide
financial and other support to the government of Zimbabwe
and
Zimbabwean SDN’s. As a result of Treasury’s action any
assets of the individuals and entities designated today
that are
within US jurisdiction must be frozen. Additionally, US persons are
prohibited from conducting financial or commercial
transactions with
these individuals or entities.
”
[6] The bank
became aware of the
OFAC listing the next day. It also became aware pursuant to enquiries
subsequently conducted that the applicant was suspected
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”
as also of a notoriety which attaches to the applicant in that he had
been reported as having been involved in a variety of activities
including “busting” sanctions during the Smith regime in
Rhodesia; the apartheid regime in South Africa and the Mugabe
regime
in Zimbabwe; of financially assisting the Mugabe regime; of dealing
in arms in Rhodesia, Iran, Iraq, the DRC, Zimbabwe and
South Africa;
of trafficking cigarettes in Zimbabwe and South Africa; of flouting
exchange control laws; evading taxes in Zimbabwe
and evading customs
and excise duties and defrauding SARS in the Republic South Africa.
[7]
In
consequence of the information known to the bank, on 3 December 2008
the relevant personnel met to discuss the implications for
the bank.
The bank was concerned of the
“likely
serious implications for Standard Bank, its investors and 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 a 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 world
wide”.
Not
only was the reputation of the bank thought to be at risk but the
bank also believed that it faced material risks to business
relationships with foreign banks as it held “Nostro”
accounts at financial institutions across the world. American
citizens including financial institutions are precluded from dealing
with SDN’s. Dealings are widely enough defined to include
the
financial institutions obligations in respect of Nostro accounts.
Nostro accounts are accounts where settling up between institutions
which operate internationally takes place. The process is similar to
the process by which settling up takes place in an automated
clearing
bureau nationally. The bank believed itself to possibly be at risk as
financial institutions affected by the OFAC ruling
were entitled to
request information from it which, if not provided, could result in
closure of the “nostro” accounts.
A further consequence
of dealing with a SDN was that such dealing might result in closure
of accounts and/or seizure of the amounts
standing to the credit of
such accounts. Such action could result in the closure/seizer of the
entire amount standing to the bank’s
credit in the Nostro
account.
[8] The bank
decided that it would not continue with the banker customer
relationship with the applicant and decided to cancel the
contract
with the applicant. The bank communicated its decision to the
applicant verbally and in writing on 08 December 2008. The
bank
allowed the applicant a period of at least 30 days to make
alternative banking arrangements. This period was extended from
time
to time. Prior to the expiry of the extended period the bank
discovered that the European Union (“EU”) had listed
the
applicant. The listing of the applicant by the EU was in similar
terms to the OFAC listing. The applicant on its web site
stated that
it was disappointed that the EU had imitated the OFAC ruling without
any independent attempt to establish the correct
facts. The applicant
since the listing by OFAC and EU has taken steps to have the listings
reversed. There is some dispute as to
whether or not the steps are
effective and/or ultimately will result in any reversal.
[
9] It
was a term of the contract pursuant to which the banker/customer
relationship was established that the bank was entitled to
terminate
any account or facility which may have been extended to the applicant
for any reason on reasonable notice. Under and
in terms of the
contractual term the bank needed no reason to exercise the right of
termination other that its own desire to terminate.
[
10] It
was common cause that a reasonable time has been allowed.
[
11] Accordingly
the contract looked at from the perspective of the contractual terms
alone could be and was lawfully cancelled at
the volition of the
bank.
[1
2] The
immediate question which arises is whether or not there was any
limitation on the right of the bank to exercise its volition.
The
parties were in agreement that there was no common law limitation.
There is no need to consider the term in this context.
[1
3]
The parties were in agreement that if the exercise of the volition
offended constitutional principles then it could not be
exercised.
The limitation of the right to exercise the volition could
be limited in two possible ways:
B
y
the clause itself offending the constitution;
By the manner in
which the clause in the particular circumstances was implemented
offending the constitution.
[1
4] It
was common cause that the clause itself did not offend constitutional
values. The issue to be decided became identified as
being whether or
not in the particular circumstances the manner in which the bank had
implemented the clause entitling it to cancel
the contract offended
constitutional values.
[1
5] The
mechanism by which the constitutional values are to be determined can
be by the direct or indirect approach. The parties
accepted that the
relevant values were to be determined by application of the process
known as the indirect method.
[1
6] This
approach is in accordance with principles set out in
Barkhuizen
v Napier
[2007] ZACC 5
;
2007 (5) SA 323
CC (hereafter referred to as Barkhuizen’s
case). The paragraphs in Barkhuizen’s case which in my view are
the authority
for this approach are set out below.
“
[56]
There are two questions to be asked in determining fairness. The
first is whether the clause itself is unreasonable. Secondly,
if the
clause is reasonable, whether it should be enforced in the light of
the circumstances which prevented compliance with the
time limitation
clause.
[57] 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 sunt servanda, which,
as the Supreme Court of Appeal has repeatedly
noted, gives effect to
the central constitutional values of freedom and dignity. Self
autonomy, or 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 will 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.
[
58] The
second question involves an enquiry into the circumstances that
prevented compliance with the clause. It was unreasonable
to insist
on compliance with the clause or impossible for the person to comply
with the time limitation clause. Naturally, the
onus is upon the
party seeking to avoid the enforcement of the time limitation clause.
What this means in practical terms is that
once it is accepted that
the clause does not violate public policy and non-compliance with it
is established, the claimant is required
to show that in the
circumstances of the case there was a good reason why there was a
failure to comply.
[
59] It
follows in my judgement 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 relevant situation
of the contracting parties.”
”
[
35]
Under our legal order all law derives its force from the Constitution
and is thus subject to constitutional control. 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 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, purpose and objects of the Bill of
Rights”. Section 39 (2) of the Constitution
says so. All this
is, by now, axiomatic. Courts are equally empowered to develop
the rules of the
common law to limit a
right in the Bill of Rights “provided that the limitation is in
accordance with Section 36 (1)”
“
[28]
Ordinarily constitutional challenges to contractual terms will give
rise to the question of whether the disputed provision
is contrary to
public policy. Public policy represents the legal convictions of the
community
;
it represents those values that are held most dear by the society.
Determining the content of public policy was once fraught with
difficulties. This is no longer the case. Since the advent of our
Constitutional democracy, public policy is now deeply rooted
in our
Constitution and the values that underlie it. Indeed the founding
provisions of our Constitution make it plain: our constitutional
democracy is founded on, among other values, the values of human
dignity, the achievement of equality and the advancement of human
rights and freedoms, and the rule of law. And the Bill of Rights as
the Constitution proclaims, “Is a cornerstone”
of that
democracy: it enshrines the rights of all people in our country and
affirms the [founding] democratic values of human dignity,
equality
and freedom”.
[
29] What
public policy is and whether a term in a contract is contrary to
public policy must now be determined by reference to the
values that
underlie our constitutional democracy as given expression by the
provisions of the Bill of Rights. Thus a term in a
contract that is
inimical to the values enshrined in our constitution is contrary to
public policy and is, therefore, unenforceable.
[
30]
In my view the proper approach to the constitutional challenges to
contractual terms is to determine whether the term challenged
is
contrary to public policy as evidenced by the constitutional values,
in particular, those found in the Bill of Rights. This
approach
leaves space for the doctrine of
pacta
sunt servanda
to operate, but at the same time allows courts to decline to enforce
contractual terms that are in conflict with
the
constitutional
values even though the parties may have consented to them.”
”
[15]…..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
sunt servanda
is therefore subject to constitutional control.”
“
[73]
Public policy imports the notions of fairness, justice and
reasonableness. Public policy would preclude the enforcement of
a
contractual term if its enforcement would be unjust or unfair. Public
policy it should be recalled, “is the general sense
of justice
of the community,” the
boni
mores
,
manifested in public opinion.” Thus where a claimant seeks to
avoid the enforcement of a time limitation clause on the basis
that
non-compliance with it was caused by factors beyond his or her
control it is inconceivable that a court would hold the complainant
to such a clause. The enforcement of the time limitation clause in
such circumstances would result in an injustice and would no
doubt be
contrary to public policy. As has been observed, while public policy
endorses the freedom of contract, it nevertheless
recognises the need
to do simple justice between the contracting parties.”
[17] It was in
this form and with these issues that this matter came before me. It
required me to apply the facts to established
law and determine
whether or not in the particular set of circumstances there was a
limitation on the right of the bank to exercise
its right of
cancellation by reason of a set of values established by the
constitution. Values are to be identified and applied
using the
indirect method.
[1
8] This
case is different from the case which served at the time that the
urgent application was heard. It is not necessary to canvas
the
extent to which there are differences suffice it to say that the
evidence and issues are no longer the same as they were at
the time
the interim interdict was considered and granted. After the hearing
of the urgent application an interim interdict was
granted in the
following terms
“
1….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 :-…..”
[
19] Before
me relief was sought in the form of a draft order which contains the
following prayers.
“
1
. It
is declared that the first respondent is prohibited from
cancelling the account contracts between itself and the applicants
in
the absence of good cause.
2
. The
first respondent is interdicted and
restrained from cancelling the
account contracts unless and until good cause arises.
3
.
The first respondent is ordered to pay the costs of this application
which include the costs of two counsel.”
[
20] Originally
in the notice of motion the applicants sought in part B the following
relief.
”
9 An order
reviewing and setting aside the decision of the first respondent
reflected in the first respondent’s letter dated
08 December
2008 whereby the first respondent purported to cancel the contracts….
10 An order that
the first respondent shall maintain the accounts”
11 Declaratory
orders to the effect that;
11.1
. The
first respondent does not have the right at common law or in terms of
the agreements between the parties to cancel the contracts….
11.2
.
Such provision of law is
contra
bonos mores
and in particular in breach of one or more or all of the following
rights contained…..[in the Costitution]
11.3
Such
provision of law is
contra
bonos mores
unconstitutional and of no force and effect.
12…costs…”
[21] The proper
place to commence the investigation is to examine the contract and
the circumstances including in particular the
relationship between
the parties at the time the contract was concluded. If the parties
had equal bargaining power and freely and
voluntary negotiated and
concluded its term this will assist in the determining of weight to
give to the term and the extent to
which each party was able to act
with dignity and freely. This in turn impacts on how the party when
it contracted expected the
other party to implement any particular
clause.
[
22] The
applicant and the bank entered into a contract which is the bank’s
standard form contract. On the face of it, it might
seem that this
indicates that the parties were not in an equal bargaining position
at the time of the conclusion of the contract.
Equally it might seem
if the terms of the contract contain provisions that allow amendment
at the bank’s volition that the
parties did not stand equally
when they contracted. The contract does contain such a term. There is
a term within the general terms
and conditions allowing the bank to
at any time “amend all the terms and conditions by giving you
written notice. Any amendment
will not cancel this agreement.”
The party receiving the notice if it does not agree to that new term
will only have the
remedy of itself cancelling the contract or
seeking to negotiate the term afresh.
[
23] The
applicant submitted that the bank’s bargaining position prior
to the contract being concluded was such that the bank
had the power
to impose terms upon it. The submission is dependant upon a series of
interlinked premises.
1 T
he
manner in which the Banks Act no 94 of 1990 is structured as a fact
creates a position were there are only a limited number of
persons
which are able to comply with the strict dictates of the Act.
2
Hence
there are a limited number of banks in the market. They, by reason of
their position are privileged and command power.
3
Hence
the banks are able to impose terms.
[24]
There
is no evidence before me that in consequence of the “privileged
position” created for them by the Banks Act no
94 of 1990 that
banks in fact are either able to or do impose terms. There may be
standard terms which are generally of application
in the market but
there is no evidence that these terms are invariably of application.
Neither is there evidence that banks refuse
to consider the
particular circumstances, needs, requirements of particular
individuals with whom they deal. Assuming the privileged
position
contended for, the premise unproven is that banks as a fact do impose
terms. It is common knowledge that different customers
present
different profiles and risks. It is also common knowledge that
different customers are treated differently e.g. as to rates
of
interest charged, fees charged, facilities allowed, securities
required. In the normal course persons who allow different terms
to
different people do not readily disclose what the differences are.
One would not expect publication of the extent to which
different
customers are treated differently. In my view, the inference cannot
be drawn from the mere fact of silence on the issue
that there are no
variations and distinctions made between customers. In addition the
banks compete with one another. That sets
out the position of the
bank.
[2
5] The
position of the applicant in relation to the
bank needs to be considered. On the face of it, it is a
desirable
entity to have as a customer. The applicant is an international
commodities trader who is reputed to be of great wealth.
It is a
person that does not claim in the affidavits to have been browbeaten
into concluding any of the contracts. There is no
claim that terms
different than those which were of application and which found their
way into the contracts was imposed upon the
applicant. It is silent
on these issues. The applicant is a multinational entity who is
reputed to have the capacity of performing
the acts listed by OFAC
and in the publications made of and concerning the applicant from
time to time. The reputation of the applicant
as it appears from
these sources discloses:-
1
a
person of great wealth, (the applicant is reputed to have a US $350
million fortune and was stated to be the 76
th
richest man in England in 1996);
2
a
person of great skill and insight;
3
a
person operating internationally;
4
a
person able to manipulate affairs;
5
a
person both able and prepared so to structure its affairs as to
present them to be as wished them to appear i.e. to create simulated
transactions;
6 a person who is
not afraid to be someone’s enemy (persons who supply arms to
the opponents of others are quickly seen to
be an opponent of those
others);
7 a person who
moves amongst head of state and persons of power; and
8 a person who
has committed offences in the course of its trading.
The applicant is
no shrinking lily. It is a strong entity prepared to stand its ground
and trade as it feels it should.
The
applicant chose the bank with whom it wished to contract and
contracted with it on the terms appearing in the contract. The
fact
that there are only a limited number of banks with whom the applicant
could contract in my view has no bearing on the matter
as there is no
evidence establishing that the bank with which the applicant
contracted was the only one with which it could contract
or that it
wished to contract with another bank. There is in addition no
evidence that the applicant sought to contract with any
different or
other bank.
[2
6] These
facts do not show that the applicant was at a bargaining disadvantage
or in a position of inequality.
[2
7] This
being so, the applicant must be treated as if it was a person of
equal bargaining capacity at the time the contract was
concluded. The
contract must accordingly be treated as if it was concluded by
contracting equals each able to require terms each
required to be
inserted. Each party was free to negotiate and conclude the terms
ultimately agreed. It follows then that the terms
within the contract
must be treated on the basis they were terms agreed to and intended
to be agreed to by the contracting parties.
Terms which are perceived
as being against the interests or limiting the rights of the
applicant must be treated as if those terms
were, after careful
consideration agreed to by parties who were equals. Each exercised
its rights of freedom and dignity to conclude
a relationship governed
by terms each found appropriate to govern the relationship.
[28] From the
point of view of the values within the Constitution, the conduct of
the applicant and the bank in concluding the contract
in my view is
innocuous both as to the position of the parties at the
time the contract
was concluded and as to the content of the contract.
The terms contained within the contract represent the product of
persons who were skilled enough to know what they were doing and
who
were able to implement their knowledge freely. The constitutional
validity of the term in question as also its implementation
must be
considered in this context.
[2
9] The
contract itself established a banker customer relationship between
the applicant and the bank. The term within the contract
allows the bank
at will, subject only to giving reasonable notice, to terminate the
contract. The customer in the ordinary course
may summarily terminate
the contract (subject to paying the outstanding debt). The contract
provides the necessary framework to
meet the exigencies of particular
sets of facts relevant to termination by allowing the notice period
to vary.
[30] The
cancellation clause is a clause generally found to be acceptable.
See:
F
R Malan et al
Malan
on Bills of Exchange Cheques and Promissory notes in South African
Law (4
th
edition) page 386
Joachimson v
Swiss
Bank Corp
[1921] 3 KB 110
(CA) at 125 to 127
National
Westminster Bank Limited
v
Halesowen
Presswork
and
A
ssemblies
Limited
[1972] (1) All ER 641
(HL) 652:662
P
rosperity
Limited v Lloyds Bank Limited
(1923) 39 TLR 372
[
31] The
constitutional attack was directed to the issue of fairness. The
submission was made that the bank’s implementation
violated the
standard of fairness set by the constitution.
[32] The nature
of the contract between the applicant and the bank is one in which
contractual bonds of a personal nature are created.
A bank relies on
the integrity of its customer to conduct its activities in accordance
with the parameters created by the contract
and set by society,
nationally and internationally. A bank is required to ensure that it
so contracts as to meet the requirements
set by the regulatory
authorities of the state within which it operates. It must have
regard to its international position as even
if international
principles are not incorporated into national law by the state it
deals with international entities and may face
sanction in
consequence of what is perceived to be misconduct. The sanction may
be commercial (freezing assets, refusing to allow
it to trade in a
particular state) or social (labelling it as a person with which it
is undesirable to deal, for example) The customer’s
morality
and integrity are accordingly characteristics which impact on the
customer/banker relationship.
[
33] The
applicant submits that it is fair that it has a bank account. If the
account is terminated at the will of the bank no other
bank will take
the applicant as a customer, it was submitted. The contract itself in
the cancellation clause contains provision
for seamless transfer to a
new bank by requiring reasonable notice to be given. The contract
itself contemplates that the applicant
may require a new banker at
some point. The contract legislates for the expectation of a new
banker being required. The probability
is that it does so as the
parties accept that it is necessary for the applicant to have a bank
account. If the applicant does not
have a bank account it is
seriously hampered in its right to trade and carry on its activities.
The very foundation of transactions
involving transfers of money from
one person to another require that the person depositing or receiving
such money is able to do
so through the mechanism of a bank. The
inability to implement transactions to pay or receive monies in a
bank account effectively
excludes a person from participating in
modern commercial activities. It is in my view in general an
impairment of the dignity
of a respectable proper member of society,
a man of integrity, to be unable to obtain banking facilities.
[
34] There
are a limited number of banks in the society in which we live (4
major banks). If one bank eliminates a customer that
customer
accordingly has limited options available to seek services of another
bank to meet its commercial needs.
[
35] It
was submitted that the evidence establishes that in the event of one
bank at will terminating the account of a customer that
for that
reason alone no other bank would accept the customer as a client. The
bank approached by the customer, it was submitted,
would refuse to
contract notwithstanding the rationality or otherwise of the reason
for termination.
[36] The evidence
established rather that each bank will independently consider the
proposed customer’s data including the
fact that one of the
banks declined to continue the banker/customer relationship with that
client and will then make a decision.
The evidence of the applicant
is that of Mr. Nel.
Affidavit of
Mr.
Nel: “9.
Banks,
when they take on new customers, are concerned with that individual’s
banking history. If a bank unilaterally terminates
its agreement with
a customer there is very little information available to other banks
about why this had happened. The result
of this is when banks
discover that a customer’s account has been unilaterally
terminated it reflects badly on the customer,
raises suspicion and
places all other banks on enquiry. The difficulty is that banks are
unable to verify the reasons for the unilateral
termination. For that
reason banks are extremely reluctant and cautious to grant a new
facility to a customer were it has knowledge
that a previous banks
has terminated that customers account…
11
.
The
result is that banks are loath to accept as new customer’s
entities that were determined to be unacceptable customers
by other
banks.
12
.
Whilst there is no formal blacklist, the effect of being rejected by
one bank is I would submit akin to a blacklisting.”
[
37] This
evidence establishes only that the fact that there has been a
termination by one banker results in the other bank making
enquiries.
The reason enquiries are made is presumably that if the answers are
satisfactory the banker will take on the customer.
Why
else make
enquiries?
The evidence itself establishes that it is not an automatic
disqualification for a customer to have had his account terminated
by
a bank’s unilateral conduct motivated by its volition. The
facts upon which the witness relies for his inference are not
established. Hence the inference cannot be drawn.
[
38] Affidavit
of Nel: page 527 paragraph 11:-
“
1
1
My
opinion is that a responsible banker would not have cancelled banking
facilities extended to the applicants on the basis of the
allegations
contained in the answering affidavit read with those contained in the
representations made to the various foreign government
agencies.”
[3
9] This
opinion suggests that the banks conduct is unfounded and irrational.
Based on the earlier evidence of Nel it follows that
an application
for a new account at a different bank would succeed, everything else
being equal. (If the bank acted for a reason
which does not warrant
the action then that reason will be seen by the new bank to be such
and not to be an impediment to its concluding
the contract)
[
40] Affidavit
of Nel page 529 paragraph 14.4 and 14.5
“
14
.4 The
mere fact that one bank has cancelled its relationship with one
client especially if it is a business client would make all
other
banks extremely weary [sic] to enter into any relationship with such
person. The chances of a bank opening a new bank account
for an
applicant against the backdrop of another bank having cancelled its
contractual relationships with that applicant seem to
me to be
relatively remote. It is not the information contained in the
answering affidavit that brings me to this view, but the
hypothesis
of the closure of an account by a bank.
14.5 My answer
is thus that in my view a reasonable bank would maintain a banking
relationship with the applicants in the circumstance…and
that
a reasonable banker would in all probability not enter into a banking
relationship with someone whose contract has been terminated
by
another bank.”
[
41] As
appears from what I have set out above there is an inherent conflict
within the evidence provided by Nel. The earlier evidence
of Nel
establishes that all data concerning the proposed customer are
considered by the new bank. Those facts do not found Nel’s
opinion set out here that the reasons why the bank sought to exercise
its right to terminate the customer contract would play no
role in
the consideration given by the new bank of whether or not to take on
the customer.
[
42] The
additional difficulty with the evidence of Nel is that it does not
establish that the consequence of cancellation is any
more than a
factor probably considered by a reasonable banker proposing to
conclude the relationship.
[
43] There
is no evidence that the applicant has sought a banking account with
any other bank and been refused same.
[44] I have in
the proceeding paragraphs considered Nel’s evidence in
isolation. There is evidence to the contrary provided
by the bank.
One of the banks (ABSA) states that
“
13.2….
the reason for closure
-rather
than the mere factor of closure– would be of concern to ABSA.”
The bank itself
has provided evidence to the effect
that
the statements by Nel constitute a overstatement of the position and
that a bank would take care to ensure compliance with
its statutory
and common law obligations, its duties to investors and other
customers and its internal processes applicable to
the opening of
accounts when considering whether or not to contract. The bank’s
evidence is that it is the standing of the
applicant which, if the
applicant is unable to obtain alternative banking facilities, will be
the cause of such failure.
[
45]
The onus rests on the applicant to establish the fact that the
unilateral cancellation of the contract alone results in the
applicant being unable to obtain alternative banking facilities and
it has failed to do so.
[
46] I
find accordingly that the unilateral termination of the facilities
does not result in the applicant being “unbanked”.
It was
accepted that if the applicant is not unbanked by the bank exercising
its volition to cancel, then the Constitution does
not in the present
circumstances limit the bank’s right to cancel the contract.
This finding disposes of the matter. I will
however deal with the
other matters raised by the applicant.
[47] The other
submissions of the applicant were directed to demonstrate procedural
unfairness and that the bank’s reliance
on the reasons it gave
for making the decision to terminate the contract were unfounded.
[
48] Fairness
judged from the bank’s perspective dictates that proper weight
be given to the right of a person to contract
with, and remain in
contract with persons of its choice. These are personal
considerations of a contracting party. These personal
considerations
exist in a matrix of morality set by society in the form of its laws
and the Constitution. These laws may provide
not only the morality
but also a sanction for breach of the standards of morality so set.
[4
9] The
bank is obliged by the provisions of the Banks Act to submit to the
supervision and control of the Registrar of Banks. The
Registrar of
Banks has wide ranging powers of inspection supervision and control.
The bank must meet and maintain various standards
imposed upon it by
the Banks Act relating to its structure, manner of operation, funds
held and business practices.
[
50] Other
statutes impact on the bank’s conduct in its dealings with its
customers. Banks must inter alia comply with The
Prevention of
Organised Crime Act No. 121 of 1998
and
Financial Intelligence Centre
Act No. 38 of 2001
. These acts require banks to take a variety of
steps to observe and report on conduct of their customers. There are
sanctions for
failure to comply.
[
51] Banks
are put on enquiry in respect of existing and future customers. Banks
are required to be aware of the possibility of a
bank account being
used with impunity to commit fraud or launder monies. This enquiry
differs depending on the knowledge the bank
has in respect of the
customer. Banks in their dealings with customers must be alert for
the possibility of fraudulent conduct
on their part.
See
:
Columbus
Joint
Venture v Absa Bank Limited
2002 (1) SA 90
(SCA) at 97
Commissioner
South
African Revenue Service & Another v Absa Bank Limited &
Another
2003 (2) SA 96
(W)
[52] Failure on
the part of a bank to meet the standards of control may result in a
bank being liable for losses and even criminal
sanction.
[
53] The
banker/customer relationship should not be seen in isolation in
relation only its impact upon persons within the country
in which the
bank operates. This is particularly so when the customer is an
international entity. The bank inevitably, if it deals
with an
international entity, will be dealing with other international
entities at the
request of the customer
.
The bank in its dealings in the international world on behalf of the
customer becomes obliged to, in my view, have regard to the
impact of
its actions in the international world. The need for dishonest people
to set up international structures, to make use
of a variety of banks
internationally for the process of laundering monies and implementing
fraudulent conduct are widely known.
Steps are taken
on an
international basis to limit the activities of such person
s.
In my view, even if the foreign legislation does not have the effect
of law nationally, to the extent that it has an impact on
the
relationship between the bank and external bodies, the bank is
entitled to have regard thereto. The bank is an entity which
on
behalf of all of its customers performs acts for them throughout
the world. These acts may be compromised if other persons
in other
jurisdictions take steps against them.
[5
4] The
international effect of the listing is dependant upon the listing
alone and not its validity. That fact alone puts the bank
at risk.
The additional data supplied as part of the listing puts the bank on
enquiry and creates an obligation on the bank to
monitor that
particular customer’s account. The bank is hampered in its
ability to monitor the customer’s account
inter
alia
by the fact that the transactions which underlie the movement of
funds and the directions of the applicant are unknown to the bank
except perhaps coincidentally in the form of documents accompanying
bills of exchange or invoices or requests for foreign currency.
Even
then, the validity of invoices in question is unknown to the bank.
[
55] The
motivation of the bank to terminate the contract was the OFAC listing
and its discovery of the nature of the applicant’s
reputation.
Subsequent to the cancellation notice, the EU listed the applicant.
The applicant is taking steps to reverse the listings.
The
consequence of the listings remain even though these steps have been
taken. The listings presently exist and are being enforced.
The
effect of the listings is so wide ranging that it includes an
obligation on affected banks to not even deal with their own
customers hence the reference to the frozen bank account. By reason
of the international relationship and the existence of activities
and
accounts in affected jurisdictions the bank is at risk not only of
direct sanctions and their consequences but of losing relationships
it has. This can happen irrespective of the rights and wrongs of the
listings and irrespective of the appeals made by the applicant.
[
56] The
OFAC and newspaper reports painted pictures of the character of the
applicant. The OFAC reasons were set out earlier. The
newspaper
reports set out a variety of data establishing, in the reader’s
eyes, the notoriety of the applicant. It is apparent
from the
wide-ranging set of information which the bank obtained from public
documents that the applicant was allegedly involved
in a number of,
what one would colloquially
call,
controversial activities. T
he
applicant at times indicated that he challenged various facts
published about him. The picture painted in abroad brush stroke
is of
an extremely wealthy applicant who dealt in arms, landmines,
aircraft, guns and tobacco; a person prepared to “bust”
sanctions; whose properties had been raided by various fraud offices
in England; about whom investigations had been made concerning
an
aircraft sale and bribery; a person who had been given a diamond mine
as “
the
spoils of war
”;
a person who has amassed a R350 million dollar fortune and who was
the 76 ranked richest man in England in 1996.
[57] A bank
provided with this information is immediately put on guard and
required to pay particular attention to the customer’s
account
guard against potentially unlawful activities. This creates both a
burden and a risk for the bank.
[
58] To
the extent that the bank relied on the information which it had
received concerning the listings and the given reason for
the
listings, the submission was that the bank was required to go further
and make its own investigation and discover the actual
facts as
to
the relayed facts.
[
59] It
is unclear to me how a bank would make such investigations. It
appears to me it is virtually impossible to make such investigations.
The bank does not have persons at its disposal who are able to make
such investigations. The investigations are wide ranging; they
involve the activities of the applicant in a variety of international
domains. The investigations would require skill and expertise
by a
large number of people over a long time. Who would pay these costs?
Would the investigations be made according to some code
of
investigations? Would the applicant participate? It appears to me
that the bank is not required to undertake such a wide ranging
investigation. It would be impractical to require it to do so.
[60] Should the
bank be obliged to undertake an informal investigation? It appears
to me that it is extremely difficult for the
bank to undertake even
an informal investigation particularly where its customer is an
international one. The bank is largely
in the hands of the customer
to explain the transactions. Such explanations as may be given may be
false. The underlying documentation
which is produced as
substantiating the grounds for any particular movement of monies on
the account may be fraudulently created.
The bank, in my view, is
expected neither to undertake an investigation to establish the truth
nor is it required to judge the
customer on that basis.
[61] The bank is
in my view entitled to rely on information which it receives to judge
the calibre of its customer and make a decision
whether or not the
customer’s character as it perceives it to be is such that it
wishes to continue to pursue the banker-customer
relationship.
[62] It was
submitted that the bank was to be criticised for not approaching the
applicant and obtaining the applicant’s version
of the events.
The first solution to this problem is that the applicant factually
denied those things in the report which it wished
to deny. These
denials did not deny the general character of the applicant as a
person who had participated in arms deals, sanctions
busting and
which had received rewards including a mine arising out of those
activities. The applicant also did not deny that a
variety of
investigations had been conducted into the propriety and lawfulness
of certain of its actions.
[
63] The
published facts surrounding the applicant suggest its character,
integrity and morality. It allegedly is a person involved
in the
business of avoiding legislation prohibiting arms deals.
The very mechanism by which this happens
is by creating
simulated transactions which make such dealings appear legitimate.
An approach to the applicant to establish his
version of the events
is in my view not required for two reasons. The applicant if the
reports are true is a wily person which
would produce a plausible
reason for the conduct. The bank is entitled to rely on the facts
published whether they are true or
not. The notoriety of the
applicant has been established over a long period concerning a
variety of conduct not largely denied.
[64] It is my
view that the bank is entitled to take up what it believes to be a
morally correct stance. Part of having the freedom
to contract and
maintain dignity, within the parameters avoiding discrimination is
the right to choose customers based on a morality
you choose to
apply.
[
65] The
process was procedurally fair. Substantively there was a proper
rationale for the decision to terminate.
[66] I find the
following:-
The bank
perceived the applicant to be a person with which it did not wish to
pursue a banker-customer relationship.
T
he
bank was without more, entitled to rely on the data available to it,
the OFAC listing and the publication of matters concerning
the
applicant and the later EU listing.
T
he
bank was entitled to form the view it did:-
concerning the
applicants character, morality and integrity
;
that its
dealings with the applicant could cause it economic harm nationally
and internationally;
That its public
image coul
d
be affected.
T
he
evidence does not establish that the applicant will be
unable to obtain other banking
facilities.
[67] I must
finally consider constitutional fairness by comparing the impact of
the bank’s conduct upon the applicant with
the impact of the
continued relationship on the bank if the bank is not entitled to
cancel. If the bank is allowed to cancel then
the applicant can seek
banking facilities elsewhere. If the bank is not allowed to cancel
the bank is compelled to continue a relationship
with a person with
whom it does not wish to remain in contact, which continued
relationship places it at risk financially, locally
and
internationally. In my view this would be unfair to the bank. It
would significantly invade its right of freedom to contract.
It would
cause it an indignity in that it would be forced to accept a position
it finds repugnant.
[68] The bank’s
conduct in exercising its right of cancellation of the contract was
constitutionally fair. It follows that
the interlocutory orders fall
to be set aside and the application be dismissed with costs.
[
69] It
is not necessary for me to deal with the other matters such as
whether the orders for specific performance are sufficiently
long
term to represent “perpetuity” nor whether such orders
could properly be made. See for example
Golden
Lions Rugby Union and
another v
First National Bank of SA Limited
1999 (3) SA 576
(SCA) at 584 G to A.
[70] The costs of
consequent upon the employ of senior and junior counsel were
warranted having regard to the complexity, size and
importance of the
matter.
[71] The order
which I make is:
Application
dismissed with costs.
C
osts
are to include all costs consequent upon the employ of both senior
and junior counsel. The applicants are to jointly and
severally pay
such costs.
All interlocutory orders are set
aside.
No order is made
concerning the 2
nd
Respondent.