The recent judgment of the Johannesburg High Court in Dissilio Investments (Pty) Ltd v Nedbank Limited, handed down on 22 June 2022, could raise concern in the banking industry if read as preventing banks from recovering breakage costs. Some media coverage has implied that the effect of the judgment is to preclude the recovery of breakage costs by banks who suffer these costs in instances where customers terminate fixed period instruments early and to prohibit the levying of early repayment fees. While this is an important judgment for the banking industry to be aware of, in our view, coverage to date has been misdirected and has not distilled the true issue.
Upon considering the Dissilio case our main observations are:
- The judgment was given on specific facts and does not set out general principles of law which will be applicable to all banking relationships with customers.
- The effect of the judgment is not then to stop banks from charging customers breakage costs incurred in instances where a customer has contractually undertaken to pay those costs or early termination penalties when these have been agreed with the client.
- In order to achieve treating customers fairly ("TCF") outcomes, banks must ensure that all applicable staff members are well-trained in the banking products in respect of which financial services are rendered. Customer-facing staff must be able to adequately explain the features of products to customers, especially if a customer will incur liability in accordance with the terms of those products.
- It is not sufficient to refer to policies in a general sense as the reason for a liability being incurred, rather customers should understand the contractual terms of the arrangements that they conclude.
- Failure by staff members to ensure that a customer understands the liabilities that they could incur when entering into or purchasing a financial product offered by a bank creates conduct risk for the bank (and indeed, once the Conduct of Financial Institutions Bill has been enacted, for any financial institution).
- TCF outcomes are equally applicable at the time that a customer varies a financial product.
- Legal agreements should be drafted in simple language to reduce the risk of an unforeseen interpretation of a clause. In this case, an addendum to an existing agreement was found by the court to replace the existing agreement, despite the fact that the addendum contained a clause recording that the existing agreement should continue to have full force and effect.
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