Your Bank Wrongly Bounces Your Cheque. Can You Sue?

The High Court of Australia recently found Westpac liable for defamation for dishonouring 30 cheques when there were sufficient funds to cover them.

However, the Court divided 3-2 over whether the defence of qualified privilege applied, with the majority holding that it did not.

This Brief Counsel analyses the Australian decision and its potential impact on New Zealand law.

The facts

Aktas v Westpac Banking Corporation Ltd [2010] HCA 25 (4 August 2010) concerned the sole shareholder of a real estate agency business ("Homewise") under a franchising agreement with Century 21 Australia Pty Ltd. Among other services, the plaintiff's business collected rental payments from clients' properties. Rent was paid into the business's trust account, held at the bank, and clients were subsequently paid their rental income out of this account. After a disagreement with the franchisor, Homewise had had a default judgment entered against it, and a garnishee order was made attaching to all debts due to Homewise from the bank.

Once it was notified of the garnishee order, the bank changed the status of Homewise's accounts with it, including the trust account, to prevent any money being paid out of them. In doing that to the trust account, it unknowingly breached section 36(2) of the Property, Stock and Business Agents Act 1941 (NSW), which protects trust accounts from garnishee orders. As a consequence, 30 cheques drawn against that account were marked "Refer to Drawer" and returned to the payees, even though there were sufficient funds in the trust account to pay them and the cheques should have been honoured.

At trial the jury held that the bank, by notifying the payees of why the cheques had not been honoured, had published defamatory imputations in respect of the plaintiff and Homewise. That finding was not challenged on appeal. But the trial judge and the Court of Appeal held that the defamatory statements were covered by the defence of qualified privilege and it was this decision that was, by a bare majority, overturned by the High Court.

In the High Court, all the Judges accepted that, for the defence of qualified privilege to apply, there must be evidence that both the giver and the receiver of the communication in question had a special and reciprocal interest in the subject matter, such that it was desirable as a matter of public policy that the communication should be protected, even though it was defamatory. However, the Judges' opinions divided on...