Alan L Tyree

Qualified privilege – again

Alan L Tyree*

1  Background

In Aktas v Westpac Banking Corp Ltd [2007] NSWSC 1261, the New South Wales Supreme Court held that defamatory statements made by the defendant were uttered on an occasion of qualified privilege. The defamatory statements were, for the most part, the words “REFER TO DRAWER” written on dishonoured cheques. The case has now been considered by the Court of Appeal: Aktas v Westpac Banking Corp Ltd [2009] NSWCA 9

The original decision is discussed in Tyree (2008), a reference not mentioned by the Court of Appeal even though, curiously, the judgment refers to a paper by this author, Tyree (1980), which is nearly thirty years old. The judgment also notes that this author expresses his support for Davidson v Barclays Bank Limited [1940] 1 All ER 316 in Tyree and Weaver (2006). While that is correct, the section referred to is the original view of WS Weerasooria, expressed at least as early as 1996: Weerasooria (1996).

Davidson held that a bank could not claim qualified privilege by relying on circumstances which arose only due to its own mistake.

The relevant facts of Aktas are easy to outline:

The jury found that the words carried defamatory implications. The defendant bank pleaded qualified privilege. The Supreme Court agreed. The plaintiff appealed. The Court of Appeal upheld the decision of the Supreme Court.

2  The bank’s error

The account held by the bank was a trust account kept pursuant to the Property, Stock and Business Agents Act 1941 (NSW), since repealed. By s 36 of the Act, the plaintiffs were required to maintain the trust account. Section 36(2) of the Act provides:

The moneys shall not be available for the payment of the debts of the licensee to any other creditor of the licensee, or be liable to be attached or taken in execution under the order or process of any court at the instance of any such other creditor.

The bank was, therefore, clearly in error to freeze the account. It may also have committed an offence. Section 87(1) of the Act says:

Every person who commits any contravention of or fails to comply with any of the provisions of this Act shall be guilty of an offence against this Act.

As a result of the mistake, and possible offence, the bank dishonoured cheques drawn on the account. It returned the dishonoured cheques with the words “Refer to drawer” written on them, an answer known to be defamatory: see below. The bank pleaded qualified privilege as a defence.

3  Qualified privilege

The Court of Appeal adopted as its starting point the well known principle of reciprocal interests set out in Toogood v Spyring (1834) 1 Cr M & R 181; 149 ER 1044. In the words of the Court of Appeal (at para 38):

The necessary requirement for an occasion of qualified privilege is a reciprocity of duty and interest. Defendants must show that he or she published the defamatory matter pursuant to an interest or duty and that the recipient had a reciprocal interest in receiving the published matter [citations omitted].

To that need only be added that the “duty” may be either a public duty or a private one, so long as the interest is reciprocal.

The Court of Appeal decided that “the occasion” was the dishonouring of the cheques and that it was irrelevant that the only reason that the occasion arose was due to the bank’s own error. It was not discussed that the error may also have been an offence, but under the reasoning of the Court, that is probably also irrelevant.

Of course, the communication on the occasion of qualified privilege must be relevant to the occasion. The example given by the Court of Appeal illustrates (at para 75):

The issue can be readily understood by a variant of the present case. If a bank returned a cheque to the payee having correctly determined that there were insufficient funds with two endorsements, one being “Refer to Drawer” and the other, the “drawer is a thief”, the imputations arising from the publication of the first statement, made necessary by the bank’s decision to refuse payment, will be an occasion of qualified privilege. The publication of the second will not, there being no interest or duty on the part of the bank to publish that the drawer is a thief, with whatever defamatory imputation may be found to arise from the publication of that statement.

It will be argued below that “Refer to drawer” was in no way “made necessary” by the bank’s decision to dishonour. Further, it is not clear why the above statement is qualified by “correctly determined”. Part of the controversy of this case is that the bank’s determination was decidedly incorrect.

The Court of Appeal found no difficulty in finding the reciprocity of duty and interest. Section 67 of the Cheques Act 1986 (Cth) requires the bank to either pay or dishonour the cheque promptly. Section 69 of the Act effectively requires the bank to give notice of dishonour and the payee has an obvious interest in hearing of the dishonour.

Therefore, accepting that the bank’s mistake is irrelevant, the occasion is one of qualified privilege.

4  The bank’s communication

Section 69 of the Cheques Act 1986 (Cth) defines “dishonour”:

A cheque is dishonoured if the cheque is duly presented for payment and payment is refused by the drawee institution, being a refusal that is communicated by the drawee institution to the holder or the person who presented the cheque on the holder’s behalf.

It may therefore be readily accepted that the bank had a duty, private, to communicate to the payee or the payee’s agent that the bank had refused to pay. There is also a clear interest, again private, in the payee receiving the information that payment was refused by the drawee.

The clear way to communicate this would be to write on the cheque “Payment refused by the drawee”. The defendant bank did not do this. It instead chose to use a phrase known to carry defamatory implications, in particular, the imputation that there were insufficient funds in the account.

The current edition of Weaver and Craigie, Weaver et al. (2003), says (at para 9.2050):

Answers showing that there are insufficient funds are very damaging if untrue. In Australia the usual answers indicating this are “present again” and “refer to drawer”.

Just in case there is some misunderstanding about the present author’s guiding hand, the first edition, Weaver and Craigie (1975), says (at page 379):

The authors consider that in Australia the answer “Present again”, or the answer “Refer to drawer”, when written on a cheque which has been dishonoured, are very widely understood to mean that there are insufficient funds available to meet the cheque.

It is not just “academic” opinion. As long ago as Braidwood v Turner (1908) 10 WALR 105, Burnside J said, in relation to a cheque marked “Refer to drawer”, that “Everyone knows that that means there are no funds to meet it.”

In other words, the defendant bank may have had a duty to communicate the dishonour, but they had no reason or duty to communicate the reason for the dishonour. They chose to do so. In order to establish relevance, it must be shown that the defendant had a duty to inform the payee that there were insufficient funds and that the payee had a reciprocal interest in receiving such information.

The Court of Appeal said (at para 72):

Before the occasion on which a defamatory imputation is published will be protected by qualified privilege there must be a sufficient connection between the imputation and the privileged occasion. Accordingly, as Gummow J pointed out in Bashford (at [135]) [Bashford v Information Australia (Newsletters) Pty Limited [2004] HCA 5] it is first necessary to identify the particular imputation before determining whether it was published on a privileged occasion. Only then can the issue of relevance be resolved.

One of the imputations found by the jury in the present case was “[the plaintiff] was unable to pay its debts as they fell due”. Did the bank have a duty to convey this information? Did the payee have an interest in receiving it? More than the duty to convey and the interest in receiving “The drawer is a thief”?

This was not considered by the Court of Appeal except in passing (at para 86):

The endorsement “Refer to Drawer” was conventional advice using an expression common to banking arrangements. Its use by Westpac was relevant to the privileged occasion and accordingly the imputations which the jury found to arise were themselves privileged.

Just because it is “conventional” does not obviously make it relevant to the privileged occasion. It seems to this author more in keeping with the example the Court of Appeal mentioned at paragraph 75 of the judgment, that is, gratuitous additional information for which there was no reciprocal duty of disclosure and receipt.

It is also relevant to question why the bank uses “Refer to drawer”, known to be defamatory, rather than “Drawee refuses to pay”, contemplated by the Cheques Act. The answer seems obvious: the bank wishes to inform the payee that the dishonour is the fault of the drawer, not of the drawee bank.

5  The consequences

The plaintiffs in Aktas succeeded in their claim for breach of contract, but it is doubtful that they had much left after paying costs for the failed defamation action. The action for breach of contract succeeded because they lost substantial sums of money through the bank’s action.

If Aktas is followed, then the action for defamation on a dishonoured cheque virtually is eliminated. If we can assume that a bank does not dishonour a cheque without some reason, no matter how fanciful or mistaken, it can mount a complete defence by saying “Ho! Ho! Sorry about that! Our bad!”. The defence will succeed unless the bank writes something really silly on the cheque. “The drawer is a thief” might do it.

A plaintiff who is not in business, who does not suffer substantial monetary losses, but still suffers real humiliation and embarrassment by virtue of dishonoured cheques no longer has any redress in the normal case. Even a plaintiff in business who cannot prove monetary losses will lose out even though his or her real losses might be substantial. This was the situation in Baker v ANZ Bank Ltd [1958] NZLR 907 where the plaintiff succeeded in defamation even though unable to show any monetary losses in contract. She would lose under Aktas.

It might be hard to explain to a client who has suffered such a loss that there is no redress. But maybe such a client could be advised that the situation is not too bad. The Court of Appeal thought it little more than an inconvenience. At para 70:

Although the drawer’s reputation may suffer, in most cases of error this will be transitory. Greater damage may be done, including damage to the payee, by a delay in the payee being made aware that the cheque has not been honoured. Even if occasioned by the bank’s own mistake there are good reasons why the communication contemplated by the Cheques Act should be protected.

Bank customers who have been humiliated might not be as sanguine about their reputation. Let them seek redress elsewhere.

Further, as noted above, there is no reason for notice to the payee to defame the drawer. It is only necessary to advise that the drawee bank refused to pay, not the reason for the refusal. The “communication contemplated by the Cheques Act” is merely notice that the drawee bank has refused to pay. There is no contemplation of communicating reasons that defame the drawer.

It is hoped that Aktas will not be followed in any other jurisdiction.

References

Tyree (1980)
Alan L Tyree. Wrongful dishonour, defamation and qualified privilege. Australian Bus L Rev, 8: 220–231, 1980.
Tyree (2008)
Alan L Tyree. Mistake and qualified privilege. JBFLP, 19 (1): 71–74, Apr 2008.
Tyree and Weaver (2006)
Alan L Tyree and Prudence Weaver. Weerasooria’s Banking Law and the Financial System in Australia. LexisNexis Butterworths, Sydney, 6th edition, 2006.
Weaver and Craigie (1975)
George Weaver and CR Craigie. The Law Relating to Banker and Customer in Australia. Law Book Company, 1975.
Weaver et al. (2003)
George Weaver, C R Craigie, Gregory Burton, Prudence Weaver, Rena Sofroniou, and Alan L Tyree. The law relating to banker and customer in Australia. Thomson Lawbook Co, third edition, 2003.
Weerasooria (1996)
Wickrema S Weerasooria. Banking Law and the Financial System in Australia, 4th ed. Butterworths, Sydney, 1996.

*
Consultant; formerly Landerer Professor of Information Technology and Law, University of Sydney. The views expressed are those of the author and do not necessarily reflect the views of any other person or organisation.