Customer and banker relationship

fica
05 Dec 2022

In 2016, Nedbank requested certain information in respect of Houtbosplaas and TBS Alpha (its customers at the time) ostensibly pursuant to the provisions of the Financial Intelligence Centre Act 38 of 2001 (FICA). The bank sought to be provided with copies of the trust deeds of four trusts, each holding one preference and ordinary shares in the companies. The companies’ reluctance to provide one of the trust deeds on grounds of invasion of privacy led to an impasse causing the companies to instruct Nedbank to close the accounts and transfer all funds held therein to another bank. Nedbank refused and froze the accounts until the trust deed was furnished, and only closed the accounts in July 2017. The companies then successfully sued Nedbank for damages (ie, mora interest) for failing to give immediate effect to their instructions.

The High Court held that Nedbank was not justified in law to require a copy of the withheld trust deed, as none of the trusts exercised 25% voting rights at the companies’ general meetings. The court held that nowhere does the Act require bank clients to provide verification documents to a bank when requested to do so.

In Nedbank Limited v Houtbosplaas (Pty) Ltd and Another [2022] 3 All SA 361 (SCA), the issue revolved around the sole question of whether Nedbank was entitled, under FICA, to certified copies of the trust deeds of the four trusts, which were not customers of Nedbank. If that question was answered in the negative, a secondary issue would be whether Houtbosplaas and TBS Alpha were entitled to damages by way of mora interest because they were deprived of the use of their funds, withheld by Nedbank in the face of unequivocal instructions by the two companies to release the funds, for some five months.

The outcome of the appeal hinged on the proper interpretation of section 21(2) of FICA, which states that: ‘If an accountable institution had established a business relationship with a client before this Act took effect, the accountable institution may not conclude a transaction in the course of that business relationship, unless the accountable institution has taken the prescribed steps –

(a) to establish and verify the identity of the client’.

The court found that section 21(2), properly construed consistently with its manifest purpose, did not, on the facts of this case, apply at the time when Nedbank sought to invoke it.

The sole question to decide insofar as the respondents’ claim for mora interest was concerned was whether there was any lawful justification for Nedbank to restrict the accounts. Nedbank was shown to have been wrong in its reasons for restricting the accounts, and the respondents were entitled to mora interest. The appeal was dismissed.

See also:

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
Merilyn Kader

Merilyn Kader joined LexisNexis from practice as an attorney and has a Compliance Management certification. She manages the All South African Reports and the Constitutional Law Reports. Read more about Merilyn Kader

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