Case note: Aktas v Westpac Banking Corporation Limited
[2010] HCA 25
Introduction
A recent case handed down on 4 August 2010 by the High Court has
awarded a former real estate agent $50,000 in damages for
defamation arising from Westpac's mistaken dishonouring of his
company's cheques.
The decision has clarified the law of defamation in relation to
whether a bank may rely on the defence of qualified privilege when
it has mistakenly dishonoured cheques.
Facts
In 1997 Mr Aktas carried on the business of a suburban real
estate agency through Homewise Real Estate Agency
(Homewise) in Auburn, NSW.
Homewise managed properties for clients and collected rent on
behalf of the clients, which went into a trust account
(Homewise Rent Trust Account). Monies payable to
clients came out of that account also.
At the time, a garnishee order (to demand that an individual's
bank deduct money to repay a debt) was issued against Homewise in
relation to a dispute with its franchisor.
In an attempt to comply with that order, officers of Westpac
changed the status of the Homewise Rent Trust Account from 'normal'
to 'PCO' (ie, post credit only, signifying that only credits were
allowed on the account), effectively preventing any drawings.
Westpac erroneously changed the status of account to PCO since the
Homewise Rent Trust Account was protected from garnishee orders by
the law in effect at that time. In fact, there were at all times
sufficient funds in the Homewise Rent Trust Account to meet any
payments made to clients of Homewise.
Subsequently, Westpac dishonoured the cheques presented by
clients drawn from the Homewise Rent Trust Account. Westpac
returned the cheques and provided automatically generated
correspondence stating 'Refer to Drawer' as the answer.
In the first week of December 1997 and beyond, various people in
Auburn reacted adversely and with some hostility to Mr Aktas after
it became known that trust account cheques had 'bounced'.
Law
While the failure to honour the cheques was in breach of the
term in the contract of banker and customer between Westpac and
Homewise that the customer's cheques be honoured to the extent of
its credit, the circumstances attending wrongful dishonouring also
founded a defamation claim.
The court held that the act of dishonouring a cheque did not
give rise to the defamation claim. Rather, it was the notice of
dishonour that was defamatory, as a communication that went beyond
informing the recipient that the bank refused to pay the cheque. It
gave the bank's reason for refusal. The defamatory imputation was
found in that reason because the expression 'Refer to Drawer', when
used by a bank in the above circumstances, has long been widely
understood to mean there were insufficient funds to meet the
payment of the cheque.
Wider issues
In making its decision, the court considered the advantages to
society in providing for freedom of communication between bank and
payee on such an occasion, which outweigh the need for accuracy in
conveying a defamatory imputation, noting that considerations of
promptness in communication of notice of dishonour are not to the
point. The large public interest in the maintenance of an efficient
and stable banking system was also considered.
The court emphasised the 'very large and powerful interest in
maintaining observance by licensees of other statutory
requirements…and generally in the speed, accuracy and reliability
of transactions conducted within the banking system'.
Result
Westpac was ordered to pay Mr Aktas $50,000 with interest plus
costs.
Banks should ensure that all statutory requirements which may
affect its business are incorporated into its processes when it
comes to restricting the payment of cheques drawn from a customer's
account. The High Court has commented that banks must maintain a
'high degree of accuracy' in the decisions made about paying out
cheques. If not, banks will be exposed to claims not only in
contract, but also for damage to reputation.
(Authored by Tanya Nguyen, Cornwall Stodart)