Westpac defamed customer when it dishonoured cheques

The High Court has ruled that a bank could not claim qualified privilege against a defamation claim when it sent dishonoured cheques back to payees, based on a clerical error.

In December 1997 Westpac dishonoured 30 cheques drawn by Homewise Realty, a real estate agency run by Paul Aktas. The cheques were returned to the payees or collecting banks marked "refer to drawer".

The term "refer to drawer" is widely understood to mean that there were insufficient funds to meet the cheque. According to the court record, some members of the Turkish community in the Sydney suburb of Auburn, where Aktas ran his business, "reacted adversely and with some hostility to Mr Aktas after it became known that trust account cheques had bounced."

Westpac made a mistake in dishonouring the cheques. Earlier in 1997, default judgement was entered against Homewise in respect of a money claim. Westpac was issued with a garnishee order.

Homewise had three accounts with Westpac, including two trust accounts. The law did not allow the garnishee order to apply to the trust accounts but a Westpac employee mistakenly changed the status of all three accounts with the effect that debits could not be honoured. The 30 cheques were drawn the same day.

The bank fixed the error but too late to stop the cheques being returned.

A jury in the Supreme Court of New South Wales found that Westpac had published defamatory imputations in respect of Aktas and Homewise.

However, the trial judge ruled that Westpac had qualified privilege in the defamation matter. The judge said the relationship Westpac had with each of the payees justified the communication of information about its attitude to the presentation of the cheques, even though that information was based on a mistake.

Aktas appealed to the Court of Appeal of the Supreme Court of NSW, where the defamation claim was dismissed.

Aktas was granted leave to appeal to the High Court in December last year. He argued that the Court of Appeal was wrong in holding that the defamatory material was published on an occasion of qualified privilege.

A majority of judges on the High Court agreed with Aktas. The ruling said the advice in question, "refer to drawer", was an ordinary business communication but one which carried with it defamatory imputation.

The law recognises that there is public interest in such communications being made freely, without fear of being sued for defamation. The interests which give rise to the occasion to make such a statement are, respectively, the interest of a bank in communicating its decision not to honour the cheque and that of a holder of a cheque or collecting bank in knowing of that decision. A community of interest, or reciprocity of interest, must be evident.

The court found there was no reciprocity of interest. The majority ruling said: "The bank has an interest in communicating because it refuses to pay. But the payee has no interest in receiving a communication of refusal to pay a cheque that is regular on its face in a case where the drawer of the cheque has funds sufficient to meet its payment."

The court awarded Aktas damages of $50,000 with interest.