The High Court of Australia has decided that (by a majority of 3 to 2) Westpac’s return of 30 cheques marked “Refer to Drawer” was defamatory of its customer’s principal. It awarded the plaintiff damages of $50,000 plus interest.

In Aktas v Westpac Banking Corporation Limited [2010] HCA 25 the High Court rejected Westpac’s claim of qualified privilege.

In earlier proceedings a jury found proved defamatory imputations including those that a rental agency (Homewise) had passed valueless trust account cheques and that Mr Aktas had caused this to happen.

The High Court decided that while notice of dishonour had to be given by the bank within a reasonable time it was the reason given by Westpac for the notice of dishonour which was the basis of the action by Mr Aktas against Westpac.

At no time were there insufficient funds in the trust account to meet the cheques. The failure to honour the cheques was in breach of the term in the contract of banker and customer between Westpac and Homewise that the customer’s cheques be honoured to the extent of its credit. It is well accepted in Australia that the circumstances attending wrongful dishonouring may also support a defamation action.

There was no express malice on the part of Westpac. Westpac acted as it did by reason of the erroneous operation of its internal procedures.

The Financial Ombudsman Service has published an Operational Guideline discussing its prohibition on the pursuit of legal proceedings related to debt recovery instituted prior to the lodging of a dispute with FOS.

In FOS’s opinion, “upon receiving notification of the Dispute, the Financial Services Provider should have a process in place which ensures that no further steps are taken as soon as possible (with time being of the essence)….

As the critical date is the date of lodgement of the Dispute with FOS, any judgment obtained after that date must be set aside by the FSP at no cost to the Applicant. Within 14 days of the referral of the Dispute, the FSP must apply to set aside the judgment.”

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