CAPE TOWN – While South Africa’s commercial banks are heavily reliant on the judgment by the Supreme Court of Appeal (SCA) of Bredenkamp & Others vs Standard Bank, 2010 case, the court held during an interdict brought by Bredenkamp, that banks had too much power.
South Africa’s commercial banks are liberally citing the verdict in this case, as a loophole to evade accountability, in their closure of company bank accounts across the land.
The SCA stated: “This power is exploited by banks to impose standard-form contracts on their customers and that such powers would be exercised oppressively, and there was undeniably an element of oppression when a bank decided to terminate the contract without good cause.”
The most notable and current usage of this blanket fall-back is in relation to the termination of banking facilities for Sekunjalo Investment Holdings (SIH) and other associated companies, which have become collectively known as the Sekunjalo Group (Sekunjalo).
The case has set a dangerous precedent and one that Sekunjalo is challenging at varying levels of South Africa’s legal system, including the Equality Court and the Competition Commission.
For in applying the Bredenkamp ruling, it is tantamount to saying that Sekunjalo, its companies, their executives and even their shareholders, are of a similar character.
Who is John Bredenkamp?
John Bredenkamp, a South African-born businessman who had both South African and Zimbabwean citizenship, was an influential business tycoon suspected of being involved in illicit business activities including tobacco trading, arms trafficking, oil distribution, diamond extraction, and being a confidante and financial backer of Zimbabwean former president, Robert Mugabe.
Why was he listed, and his bank account closed?
In 2008, the American Department of Treasury’s Office of Foreign Assets Control (OFAC), listed Bredenkamp and the other applicants (businesses and a Trust owned by him), as “specially designated foreign nationals” (SFNs). The listing resulted from the ‘suspected illicit businesses.’
Bredenkamp vs Standard Bank
Following the listing, Standard Bank moved to terminate the relationship between it and Bredenkamp, which he naturally challenged. However, Standard Bank argued that “the bank’s reputation may negatively be affected should it continue to have Bredenkamp as a customer, and there were certain unclear business risks for the bank should it carry on granting banking facilities to Bredenkamp and the business entities under his control because of his listing as an SDN.”
Standard Bank also noted that Mastercard, being a US entity, also prohibited the bank from dealing with an SDN, and the bank was obliged to cancel this facility.
The matter ended with the court ruling in the main application that the banks had a right to terminate the relationship between it and its customers unilaterally, resulting in Bredenkamp losing the case.
Paramount to note, is that without any test of merits nor application of the Constitutional principle of “innocent until proven guilty,” Standard Bank had relied on the so-called “reputational risk” clause, to justify its termination of the contract with Bredenkamp.
It is also worth noting that Bredenkamp had a laundry list of allegations against him – locally and internationally. In its investigation, the bank found suspicion that he was a sanctions buster not only of US but also of UN arms embargoes; he smuggled cigarettes and thereby circumvented customs and tax laws; he benefitted from the war in the Congo; he was the subject of serious fraud investigations in the UK and of police raids and tax evasion investigations in South Africa; his Dutch citizenship had been withdrawn; and that he was a “paymaster of irregular commissions to SA government officials”.
Sekunjalo vs the Banks
No such allegations have been made or found against Dr Iqbal Survé, or any of the companies currently embroiled in what is being referred to as a “David vs Goliath” battle.
However, the oppressive power the banks wield, continues to wage war on citizens and much like the Bredenkamp case, the banks are basing their reasons for terminating Sekunjalo-related company bank accounts on so-called “reputational risk, claiming their reputations and international standing will suffer irreparable harm if they continue to trade with the group.
Instead of hard fact, they have cited negative media reports – allied to the Mpati Commission of Inquiry Report – as their excuse for disassociating themselves and have used contractual law as their reason to summarily terminate the group’s ability to trade.
Sekunjalo and some 43 companies have opened a case before the Equality Court, and several of the companies approached the Competition Commission and the Competition Tribunal among other legal interventions.
In an article titled: “The sources of South African Law,” penned by Professor Wilhelm Georg Schulze from the University of South Africa, Schulze argued that: “The contract between a bank and its customers must satisfy all the general requirements for the validity, enforcement, and termination of a contract.”
He further argued that: “The duties of a party to the contract of mandate include the duty not to cause damage to the other party, and that should one party’s conduct satisfy the test of the seriousness of any harm, the contract can be cancelled unilaterally with reasons provided. An absence of such communication could easily be construed as an absence of bona fides, or even worse, as a possible abuse of contractual rights by the bank.”
However, In the case between Sekunjalo and the banks, no substantive reasons were provided other than citing the untested and often exaggerated, “reputational risk” for closing the accounts.
Schulze also argued that: “The termination of accounts should not offend any identifiable constitutional value, and the decision to terminate the agreement must not be contrary to any other public-policy consideration. For example, the reason to terminate the contract must not constitute an act of discrimination based on grounds of gender, race, and culture.”
However, Survé was of the view that banks had jumped the gun as there was no evidence of illicit dealings by Sekunjalo and its related entities. “Bredenkamp and his colleagues had already been flagged by the US treasury’s office of foreign assets control as specially designated foreign nationals. There were thus grounds to reasonably suspect that Bredenkamp was involved in illicit dealings.”
Echoing other voices that spoke out against the conduct of the banks, Ambassador Bheki Gila who is a Barrister-at-Law, wrote a piece titled: “Iniquities of bankers and the ruth of Portia while Sekunjalo pleads its case”.
He argued that the Equality Court must hold the scales of justice in sturdy balance and set a new equitable standard regulating the contractual relationship between the banks and their customers.
He said: “The banks have always wriggled and squirmed, attempting in earnest to escape from this oversight. To their collective sigh of relief, in 2010 the Supreme Court of Appeal handed them with the “Bredenkamp” exception, which they had been seeking to do as they please with clients’ contracts without accountability or so it seems”.
On the argument about reputational risk, he said: “With the explosion of narratives about individuals and corporations arising from the vortex of the social media universe, everybody is vulnerable to having their reputation impugned, especially by the malice of a faceless lynch mob. It would be absurd to the extreme that the bank would always act unilaterally to terminate vested rights at the whiff of contention on the righteousness or otherwise, of the character of one of its clients”.
He concluded by stating that “unaccountable banks may tend to permanently disrupt the ordering of lives of the less powerful”.