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Inscrutable concept of Bredenkamp’s reputational risk

Businessman John Bredenkamp. File photo

Businessman John Bredenkamp. File photo

Published May 5, 2023


By Bheki Gila

There is a certain allure about revisiting a judgement that has created an opportunity for a violent interruption of the constitutional expectations of the citizens in their contractual relationships with financial institutions.

For, Bredenkamp, in any language, is a rampaging injustice on steroids.

There is no doubt that there are so many complex layers that attend to the Bredenkamp case.

None of them are more compelling than the quintessential task of the courts to hold the scales of justice and achieve a state of balance, however fragile, among the contending parties.

First, these are the litigants themselves, next are the public policy considerations and lastly the interest of the public at large. It behoves enquiry whether or not the justices of the last court of appeal on legal questions acquitted themselves admirably on this mean test.

First, qua the litigants, it is worth noting that the court was not impervious to the famous dictum of Lord Denning herein paraphrased that there is nothing more unjust than treating unequal things equally.

It just so happens that the learned law lords in their wisdom, placing Mr Bredenkamp in the rank of the seventy sixth richest man in England, believed that his wherewithal and, therefore, reach into the amelioratory tools of a developed legal system, stood him pari passu with the powerful banking institutions, notwithstanding the untested basis of such equation.

His, was not a plight between an aggrieved individual against the bank.

This was monolith against monolith. Put differently, the blindfolded lady of justice lost her blindfold.

Second, could it be said with good conscience that the requirement to take account of the broader public policy implications were considered? They could have been, at least different ones at different stages of the litigating process. Judge Jabjhay set the scene rather sensitively.

He framed the sensitivity through an enquiry whether or not it is possible to unilaterally terminate the contractual rights of a client in a banking relationship based on an exuberant yet untested perception or assertion. And extending this question dialectically, is a reputational risk, a risk exempted from reportable risks in law as required by the pertinent provisions of the Financial Intelligence Centre Act (Fica).

After all, banking as a highly regulated commercial activity, is not a normal contractual enterprise, but rather a mercantile sub species of a higher order.

The Court of appeal had other urgent priorities. They sought to lay down the law once and for all that notwithstanding any provisions of a statute, regulation or gazetted proclamation, once a banking contract contains a lex commissoria clause, their actions done pursuant to such clause shall not be affected by nought. In other words, thitherto, Bredenkamp has effectively amended sections 29 and 42 of the Fica, or so it seems.

The other ranking priority of the Law Lords was to prove that the Constitutional Court judgement of Barkhuizen and Napier is no authority for the proposition that the enforcement of valid contractual terms had to be fair and reasonable.

It further held that Barkhuizen did not lay down an overarching requirement of fairness in contracts. Neither did the court of Appeal lean towards this fairness requirement. Rather, they preferred the Roman Law concept of lex commissoria which Constantine found unjust and oppressive and accordingly abolished in 320 AD.

The third test, which measures the effect of the judgement in society, is the golden standard of justice. In Jeremy Bentham’s parlance, this would be its utilitarianism. Members of the public, or that section of it that holds banking accounts are importunately reminded that thenceforth, not unlike Bredenkamp, they must hail the ushering of the new era, the dictatorship of the unregulated banks..!

The eloquent wigs whose business it is to convince the courts to even their balancing scales, are called upon to persuade the appeal lords that even if they were right, there must be a procedure in place to terminate the banking accounts of clients who arguably have their rights emanating from the empowering provisions of banking legislation.

The instinct of terminating the citizen’s banking account without accountability must be attenuated with haste. This proclivity to suppress the rights of citizens, it turns out, is not exclusive to political administrations only. Any organisation in society that has power over citizens can help spread the growth of an unusual brand of fascism.

Yet in all these considerations, it must not be lost that the gravamen of Bredenkamp’s contention is reputational risk, that one thing which the court was not addressed on, nor did it have any obligation to pronounce upon. Reputational risk is always associated with operational risk.

Although the Basel II statute does not define reputational risk, it defines operational risk at length. If the bank defined its reputational risk horizons to be outside the ambit of operational risk, they would have created a new class of risk. In that situation, only the legislature could definitively weigh in on its propriety. However, if they defined their reputational risk to be within their operational risk, especially as defined by the Basel II statute, it is common cause that the Basel II falls within the regulatory ambit of the Prudential Authority which is also managed by the Financial Intelligence Centre.

The question therefore becomes, at what point can the bank invoke the lex commissoria as an exemption from being regulated by the banking agencies established for the purpose?

Ambassador Bheki Gila. Photo: Supplied

Ambassador Bheki Gila is a Barrister-at-Law.