Next September, the Zambian business community and potential investors will know what happens when a bank negligently blacklists a client and unreasonably declines to remove that client from the Credit Reference Bureau (CRB), leading to that client losing existing and potential contracts in addition to suffering reputational damage.
On 4 May 2017 (last Thursday), the Zambian Court of Appeal sat to hear Stanbic Bank Zambia’s appeal against a High Court judgment which in 2016 ordered Stanbic to pay K192.5 million damages to Savenda Management Services Limited for negligently reporting it to the Credit Reference Bureau (CRB).
The Court of Appeal bench comprising Judge Fulgence Chisanga, Judge Chalwe Mchenga and Judge Flavier Chishimba will issue its judgement in September 2017.
The business community in Zambia and investors will be eagerly awaiting this judgement because reliable banks and courts are a prerequisite to the harmonization of trade and investment laws. In the final analyse, the Court of Appeal judgment will either encourage banks to destroy local businesses with impunity or that the courts are willing to protect local initiatives.
It is very difficult for anyone to question Judge Justin Chashi’s landmark judgment which awarded damages to Savenda after finding Stanbic culpably careless for reporting the global supply chain management company to the CRB.
This is why Judge Chashi’s judgement has been praised across the Southern African region as it gives hope to many companies that have suffered at the hands of banks whose aim is to destroy instead of building.
In case you did not know the consequences of reporting a company to a CRB, just imagine you were accused of a murder charge which carries a death sentence.
The judge in such a matter would have to be as sober as possible and ensure that it is proven beyond reasonable doubt that the accused committed murder.
Otherwise, the accused may be sentenced to death and it is later discovered that the judge erred in the delivery of the judgment. Life will already have been lost.
This is also what happens when a client is reported to a CRB, which is a blacklisting mechanism.
When a client is reported to a CRB, it means that company or individual will be blacklisted for seven years during which period they will have no access to sources of funding. This is similar to a death sentence.
That is why all avenues must be pursued and exhausted, and proven beyond reasonable doubt that a company is a CRB candidate before it is reported to the bureau.
Reporting a client negligently and maliciously can have dire consequences.
As we wait for the Court of Appeal hearing, which is four months away, we now reproduce an article published in the Financial Mail on 25th August 2016 following High Court Judge Justin Chashi’s landmark ruling which Stanbic Bank has now taken to the Court of Appeal.
Please take note that the Financial Mail is based in South Africa where Stanbic Bank is also headquartered.
Below is the article:
POTENTIAL investors in Zambia should be enthralled by a new decision of the high court in Lusaka.
Judge Justin Chashi, of the court’s commercial division, awarded damages to a company that lost significant contracts after being reported by its bankers to a credit bureau for defaulting on instalments.
Chashi found the non-payments were the bank’s fault and made other findings that will affect relations between other businesses and their bankers.
Savenda Management Services, a global supply chain management company, claimed ZK192.5 million in damages from Stanbic Zambia for loss of business resulting from its negative credit agency listing.
In 2007 it arranged a Stanbic lease buy-back facility for a US$540,000 printing machine, with payment to be made via an overdraft facility.
Savenda said the balance on its loan facility did not reduce despite lease payments and asked Stanbic to explain.
According to Savenda, during discussions Stanbic officials “acknowledged” the apparent default on the account was caused by a bank problem.
Savenda’s case was that even though the bank conceded the error, it negligently listed the company with the credit agency.
That listing resulted in several missed funding opportunities and harm to the company’s reputation.
An arbitral award was made in favour of Stanbic and the company’s property was foreclosed by the bank.
In the court the bank denied any fault, saying when the company did not pay installments, Stanbic was justified in reporting it, thus no negligence was involved.
After hearing detailed financial evidence from both sides, Chashi found the problem lay with a bank glitch that led to the account defaulting and then being classified delinquent.
While the bank continued to deny any problems on its side, the court quoted a Stanbic letter saying Savenda’s debit had defaulted to an internal suspense account and this “anomaly” had since been rectified.
Chashi said that if the bank had properly investigated, it would have found the apparent default was caused by a failure of its own system rather than by Savenda’s non-payment.
The judge found the bank “culpably careless” for reporting the client without properly investigating.
But there was another problem, he said: breach of confidentiality. While the parties agreed the bank owed Savenda a duty of care, that duty included keeping customers’ affairs confidential.
The Banking and Financial Services Act provides that, in the absence of a court order or client consent, banks should maintain customer confidentiality.
The bank had not asked for the company’s consent to give its information to the credit agency, nor was such reporting provided for in the bank’s contract with Savenda.
Even though the consent issue was not raised by the parties, “it is the duty of the court when breaches of the law arise to step in” to deal with such infringements even if they were not raised in hearings.
The court also had harsh words for the bank’s failure to observe proper process, for example the stipulated notice period when the company was reported to the bureau.
Chashi said credit agencies obtain their information from banks and this is used by lending agencies to decide individual applications.
It is inevitably used as a blacklisting mechanism, with lenders not being keen to advance monies to reported companies.
In this case, the bank’s negligent listing had an adverse impact on the company, with funding for important projects being declined.
Finding the company had proved its case and was entitled to relief plus legal costs, Chashi referred the matter to the deputy registrar for assessment of the damages due.
The Savenda decision was delivered while delegates to the Southern African Development Community Lawyers Association in Cape Town last week focused on how to harmonise regional trade and investment laws.