High Court finds incorrectly bounced cheques can be defamation
The customer of the bank was a real estate agent who was the subject of a garnishee order in a separate and unrelated matter. The garnishee order applied to a number of accounts the real estate agent held at the bank but not to his trust account. However, due to a bank error, the bank had changed the account status of the trust account to prevent the agent from drawing on it.
In 1997, the real estate agent drew a number of cheques on his trust account. However, when the payees attempted to bank the cheques they were dishonoured.
At the trial of the matter in the Supreme Court of New South Wales, a jury found that the bank had defamed the agent. However, in the peculiar style of defamation matters where a jury can decide upon defamation but a judge must determine defences to that defamation, the trial judge found that bank was able to rely upon the defence of qualified privilege.
Qualified privilege is a defence available in an action for defamation where the defamatory publication lacks malice and is made on an occasion where the publisher has a duty or interest to make the publication and the recipient has a corresponding duty or interest to receive it.
The Court of Appeal of New South Wales agreed with the trial judge and concluded that qualified privilege defence applied due to “the importance of efficient and effective communication of a bank’s dealing with a cheque, even if it has made an error”.
High Court decision
On appeal to the High Court, the decision of the Court of Appeal was overturned, the majority stating:
“To hold that giving notice of dishonour of a cheque is an occasion of qualified privilege is not conducive to accuracy on the part of banks faced with the decision to pay or dishonour a cheque as soon as reasonably practicable. To hold banks responsible to their customers not only in contract, but also for damage to reputation, is conducive to maintaining a high degree of accuracy in the decisions that banks must make about paying cheques.”
For more information on this decision and how it may affect your business, please contact Certus Legal Group.