Navigating Reputational Risks: Cautionary Considerations for South African Banks in the Unilateral Termination of Bank-Customer Relationships

Abstract

Bredenkamp v Standard Bank of South Africa Ltd (SCA) and subsequent cases that followed this precedent exhibit that banks have the right to terminate the bank-customer relationship unilaterally. This right is usually entrenched in the contract between the bank and its customer and may also have its origin in an implied term of the contract. Some major banks in the Republic of South Africa have recently been under the spotlight for unilaterally terminating the bank-customer relationship with their customers (the Sekunjalo Group) based on reputational risks. It is alleged that in terminating the relationship, these banks unfairly discriminated against Sekunjalo Group, therefore asserting that the principle of reputational risk is not attributed similarly across customers of different racial groups. Whereas the paper does not intend to decide on such allegations of racial discrimination, the paper asserts that the unilateral termination of a bank-customer relationship is both a right and an obligation. The paper adopts a qualitative research approach in analysing the contractual nature of a bank-customer relationship, the common-law principles regarding the termination of the bank-customer relationship, and the developments in the application of the principle of reputational risk by South African banks and courts in the wake of the applications lodged by members of the Sekunjalo Group.