Alan L Tyree

Mistake and qualified privilege

Alan L Tyree*


Aktas v Westpac Banking Corporation Ltd [2007] NSWSC 1261 held that a bank could rely upon a defence of qualified privilege when faced with an action in defamation after wrongfully dishonouring cheques. It also held that the plaintiff failed to mitigate damages. This article takes exception to both findings.

1  Background

The first plaintiff was the sole shareholder and sometime director of the second plaintiff Homewise. Homewise, among other activities, acted as a property management agent. In that capacity, it was required by the Property, Stock and Business Agents Act 1941 (NSW) to maintain a trust account for the rents collected.

Homewise maintained three accounts with the defendant bank. In late November, 1997, the defendant bank received notice of a garnishee order against Homewise. The bank mistakenly applied the order to the trust account as well as to the other two accounts. As a result, the bank wrongfully dishonoured 30 cheques payable to property owners. The dishonoured cheques were marked “Refer to drawer” which was found to be defamatory of both the first plaintiff and Homewise.

The plaintiff sued the bank for defamation, and Homewise sued for both defamation and breach of contract. The defendant bank argued two main defences:

2  Qualified privilege

Qualified privilege is a partial defence to an action in defamation at common law. It is “partial” since its effect is to negate the inference of malice. If established, the plaintiff may still succeed by showing actual malice.

The classic statement of the defence is by Parke B in Toogood v Spyring (1834) 1 Cr M & R 181; 149 ER 1044:

In general, an action lies for the malicious publication of statements which are false in fact, and injurious to the character of another (within the well-known limits as to verbal slander), and the law considers such publication as malicious, unless it is fairly made by a person in the discharge of some public or private duty, whether legal or moral, or in the conduct of his own affairs, in matters where his interest is concerned. In such cases, the occasion prevents the inference of malice, which the law draws from unauthorized communications, and affords a qualified defence depending upon the absence of actual malice. If fairly warranted by any reasonable occasion or exigency, and honestly made, such communications are protected for the common convenience and welfare of society; and the law has not restricted the right to make them within any narrow limits.

Like most general statements of legal principle, it is not too helpful when it comes to resolving particular issues. In particular, it has offered little guidance in determining if a bank is entitled to qualified privilege when wrongly dishonouring a cheque.

The most well-known decision on the point is the English Court of Appeal decision in Davidson v Barclays Bank Ltd [1940] 1 All ER 316. The facts there were indistinguishable from those in Aktas. In Davidson, Hilbery J said:

…you cannot, by making a mistake, create the occasion for making the communication, and what the bank seeks to do here is to create an occasion of qualified privilege by making a mistake which called for a communication on their part.

3  Mistake

This focus on mistake has led to confusion.

Black J, in Pyke v The Hibernian Bank Limited [1950] IR 195, criticised the Davidson decision, saying that there were clearly cases where there would be no privileged occasion but for the mistake of the party seeking to rely on the privilege. He gave as examples the only two examples ever raised in this context:

In each case, it is well established that a communication from the mistaken person to an appropriate person is privileged. These cases, Black J said, show that the Davidson proposition cannot be sustained. From that, he seemed to draw the extraordinary conclusion that any mistake could be the foundation for an occasion of qualified privilege:

To make an arbitrary exception of cases where the relevant parties are bankers and payees of cheques would, in my view, be to make laws by introducing new exceptions to a settled principle, which is beyond the function of the Courts.

The court in Aktas adopted the Black J analysis fully (at para 79):

As Black J pointed out in Pyke, if a person who complains to the police about someone on the basis of an honest but mistaken belief as to what that person had done does so on an occasion of privilege, why does not a banker who mistakenly reports to his customer that there are funds lacking in an account also have the protection of the privilege?

There is an obvious answer to this question: there is a good public interest argument to protect those who reasonably but mistakenly report crimes to police or who report misconduct of public officials to the appropriate authority. We extend the defence of qualified privilege to such occasions so as to not discourage the obviously beneficial role of citizen watchdogs. We balance two interests:

We have concluded that, in these cases, the public interests outweigh those of the defamed individual.

The corresponding interests in Aktas and in Pyke are quite different. Here we are balancing the private interests of the person who made the mistake with the private interests of the person defamed. There is no public interest in the banks notifying each other of dishonoured cheques in a way that defames the customer.

Set out in its bare bones, the position advocated by Atkas and Pyke would be hard to explain to a non-lawyer:

According to Aktas and Pyke, its own mistake justifies the defamation.

A better analysis is that “mistake” has nothing at all to do with qualified privilege. In the two examples given, the occasion of qualified privilege arises not because of the mistake of the person reporting, but because the person has formed a bona fide suspicion and the public interest calls for such suspicions to be reported. The occasion is not one of qualified privilege because of the mistake but in spite of the mistake.

McHugh J in Bashford v Information Australia (Newsletters) Pty Ltd [2004] HCA 5 said:

[A plea of qualified privilege] confesses the publication of defamatory matter, but contends that the publication is immune from liability because the public interest requires that the duty and interest of the publisher and recipient should be preferred to the protection of the plaintiff’s reputation.

Although McHugh J was dissenting in Bashford, there is no doubt that the statement is correct. It would be nice to know what “public interest” is being served in Aktas and Pyke.

4  Damages

A plaintiff who sues in tort or for breach of contract has a duty to mitigate damages, but the burden of showing that the plaintiff has failed to do so is on the defendant: Watts v Rake [1960 108 CLR 158, quoted by the court in Aktas at para 114. The defendant must show that the plaintiff might have avoided or mitigated damages by adopting some course of action which it was reasonable to take.

4.1  Mitigation

Westpac argued that the plaintiff failed to mitigate damages and that as a result, it was not liable for any damages suffered after a certain time. The essential elements of the argument were:

No client information was ever provided to Westpac. The failure to provide client information will be discussed below.

The court also noted that:

[the court was] satisfied that there were any number of alternatives that could reasonably have been adopted by Mr Aktas with Westpac’s cooperation to overcome any concern with providing clients’ personal details. An obvious example would be to seek an open letter from Westpac which could have been sent by Homewise, under Mr Aktas’s direction, to its clients. Another would be an acknowledgement of error and retraction published in the local press.

Failure to provide client information or to take the steps outlined in the above quotation was found to be sufficient evidence that the plaintiff did not act in a reasonable fashion to mitigate damages.

Except for the failure to provide client information, the result is puzzling in the extreme. Westpac certainly did not need the plaintiff’s approval to write an open letter to Homewise, even less did it need approval to publish an acknowledgement of error in the local press.

Indeed, far from being evidence of mitigation, these facts might have been used to increase the damages suffered by the plaintiff. In Baker v ANZ Bank Ltd [1958] NZLR 907, the court held that by failing to apologise and by defending vigorously the damage caused by the defamation was exacerbated and damages were increased accordingly.

4.2  Privacy Act

Disclosing client information to Westpac would probably have been a breach of the Privacy Act 1988. This was evidently not seriously argued before the court since the Act is mentioned only in para 121, where Fullerton J refers to “unspecified provisions of the Privacy Act”.

The Privacy Act 1988 does not apply to “small business operators” unless the business in question chooses to have the Act apply. A “small business” is one with an annual turnover of $3,000,000 or less. It is not known if Homewise had a greater turnover.

However, Homewise was in the business of managing property. As such, it is not a “small business operator” since it “provides a benefit, service or advantage to collect personal information about another individual from anyone else”: s 6D(4)(d). It was at all material times required to observe the National Privacy Principles (“the NPPs”).

Use and disclosure of personal information is governed by NPP 2. The fundamental rule is that information is not to be disclosed or used other than for the purpose for which it was collected. There are exceptions, but disclosure of personal information to a bank for personal gain is not one of them.

In short, turning over client information to Westpac would have been a breach of the NPPs by Homewise which constituted an “interference with privacy”: see s 13A. An individual may complain to the Privacy Commissioner about an interference with the privacy of the individual: s 36. After investigation , the Commissioner may award damages to the complainant, including amounts which include injury to the complainant’s feelings or humiliation.

In view of the obligations under the Privacy Act 1988, it can hardly be argued the the plaintiffs failed to mitigate damages by not handing over client information.

5  Conclusion

Aktas should not be blindly followed on the question of qualified privilege. The entire notion that the bank’s interest should prevail over that of its customer cannot be accepted without a more serious analysis of the public interest.

It is disappointing that the Privacy Act was not seriously argued or examined in the Aktas case. The arguments on mitigation of damage are unsatisfactory.


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.