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Implications for banks in Sekunjalo court victory

Members of civil society as well as political parties joined the march in support of the Sekunjalo Group against South African banks closing the bank accounts of black-owned companies. Picture: Phando Jikelo/African News Agency (ANA) Archives

Members of civil society as well as political parties joined the march in support of the Sekunjalo Group against South African banks closing the bank accounts of black-owned companies. Picture: Phando Jikelo/African News Agency (ANA) Archives

Published Jun 26, 2022


The Equality Court handed down judgment in Sekunjalo and others v Nedbank on June 17. The court found in favour of Sekunjalo and ordered that Nedbank reinstate the bank accounts of all listed entities in the Sekunjalo Group.

In making its decision on whether to grant the interim relief, the court answered four questions: whether the applicant had a prima facie case, even if it were still “open to doubt”; whether there was a threat of irreparable harm; whether a balance of convenience favoured the granting of the interim relief; and whether there was another remedy available to help the applicant.

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Prima facie case ‘with doubt’ Nedbank relied heavily on the superiority of a contractual agreement. In terms of this agreement, a bank can terminate a contract if a client poses a reputational risk to it.

The freedom to contract is a constitutional freedom that aligns with the principle that contracts freely and seriously entered should be judicially enforced. South African law is based on the Roman-Dutch law, particularly as it relates to security over property.

Banking law is therefore subject to this law, and South African courts will interpret contractual, corporate, and commercial issues based on this law. The courts should therefore be cautious in striking down a clause or a contract in its entirety. Judge Mokgoatji Dolamo noted this but pointed out that Sekunjalo’s complaint is about a violation of its rights as enshrined in the Constitution.

Sekunjalo, therefore, only needed to show that Nedbank treated it differentially, to which Nedbank admitted. Nedbank did emphasise that the differentiation was not based on race but on the reputational risk associated with Sekunjalo.

On the issue of why it did not act in the same manner towards similar compromised clients such as Tongaat Hulett, EOH and Steinhoff, Nedbank asserted that these companies had transformed. Tongaat Hulett was fined about R118 million for misrepresenting its performance in its annual financial statements.

Justice Dolamu highlighted that both scandals regarding Steinhoff and Sekunjalo were raised in the media at the same time. Steinhoff was already immersed in controversy and in a series of litigation, nationally and internationally.

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However, from its arguments, Nedbank never sought to cancel its contract with Steinhoff nor unbank them. If Nedbank had engaged in similar discussions with Steinhoff about unbanking it, it would have admitted and raised it in court arguments. But they did not, and the court, therefore, found that there was discrimination.

Threat of irreparable harm Nedbank argued that Sekunjalo could have obtained the services of 70 of the other banks in South Africa. The court, however, stated that once a client is unbanked, it will make it difficult for such a client to obtain another banker. This was further illustrated by using the example of Puleng Technologies.

FNB closed its bank accounts. As result, the majority of its employees resigned. Its revenue declined from R300m to R10m. It eventually lost its clients, and the cybersecurity industry lost a competitor.

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Unbanking a client, therefore, poses a severe risk of irreparable harm to the integrity and dignity of a company. Balance of convenience The court also found that on the balance of convenience, it would be favourable to grant Sekunjalo the relief requested as it had no other alternative remedy.

Nedbank put forward that Sekunjalo could have used its attorney trust accounts and third-party payments, but the court was not persuaded.

Third-party payments will not work if the subsidiary accounts are also closed, and trust accounts are meant for attorneys to keep clients’ money and not purposed to do business transactions.

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A few issues that stand out from this preliminary court order is that a potential reputational risk has been created for Nedbank. The question that hangs over Nedbank’s head is why was there differential treatment levied at Sekunjalo as opposed to the approach it undertook with Steinhoff and Tongaat Hulett?

The court was not happy with the explanations they gave. Nedbank would, therefore, in the final application, show it treated Tongaat Hulett and Steinhoff with the same gravity as they did Sekunjalo.

If not, Nedbank will be perceived as a company that racially discriminates against its clients. Sekunjalo, on the other hand, would have to prove why it made the statement that Tongaat Hulett and Steinhoff are white-owned.

Although it is only a preliminary court order, it acts as a signal as to how this matter will be resolved in the final application. It is also silently sending a message as to how businesses, whether finance institutions or other, conduct their activities.

In this instance, closing the bank accounts of Sekunjalo would have affected its 8 500 employees and their dependants, and therefore, Nedbank should have acted with more caution. Even though Nedbank is a private company, its actions impact society.

It must therefore act in a manner that will be sustainable not only for itself but everyone else as well. An epic illustration of the influence of transformative constitutionalism.

* Jansen is a lawyer and CEO of Zelna Jansen Consultancy.