GIVEN that these days it’s only a matter of time before banks become embroiled in litigation, there’s a growing need for a sufficiently comprehensive and robust policies-and-procedures practice to help minimize the risk of bank customers (and third parties) filing court cases against banks.
Almost all the time, banking litigation in Tanzania, as elsewhere in the world, concerns term loans, overdrafts, revolving lines of credit, guarantee and other facility payment and related issues raised by bank customers alleging that their banks acted in a certain manner, or neglected and/or refused to do something, which caused loss, injury or damage.
Owing to the foregoing circumstances, it is of the utmost importance to analyse the facts of the case with a view to determining if the bank adhered to commercially reasonable standards of fair dealing in its transactions; discuss options available; and develop a strategy that covers all the angles and puts the bank in control.
But, firstly, what constitutes a “commercially reasonable” standard for banks in the present-day competitive and overly regulated banking environment? Secondly, how can banks show that they were taking all reasonable steps to comply with such standards?
In the initial years after retired third president of Tanzania, Mr. Benjamin W. Mkapa, urged the Tanzanian Parliament (Swahili: Bunge la Tanzania) to ratify the legislation providing for the privatisation and sale of the country’s biggest state-owned bank, the National Bank of Commerce, to ABSA Group Ltd (now called Barclays Africa Group Ltd) of South Africa, in the year 2000, banks were concordantly regulated and supervised in that they operated in a substantially similar manner.
Nowadays, however, in the epoch of risk-based approach to regulatory compliance in Tanzania’s banking industry, there are hardly any immutable industry standards and guidelines; most banks are, by and large, offering very similar products and services with a technological twist here and technological twist there on product and service concepts.
That’s why, in the end, when it comes down to banking litigation the best that external legal counsels and judges and magistrates can do is to make an effort to understand and appreciate if a bank’s actions belong to good judgment, good faith and fair dealing by weighing them against those of other banks in remarkably similar situations.
The bank can assert, in particular, that its actions were consistent with the known actions of other banks; and thus, should be adjudged as “commercially reasonable.” One way banks can compare and discuss their policies and procedures is by actively participating in conferences, forums, workshops and seminars; such as, where applicable, those organized by or under the auspices of the Bank of Tanzania Training Institute, the Tanzania Institute of Bankers and the Tanzania Bankers Association, the Institute of Directors – Tanzania, the National Board of Auditors and Accountants, and the Tanganyika Law Society.
Well-documented policies and procedures are a good starting defense when a bank’s actions are called into question. The cost of banking litigation can be reduced by providing the bank’s external legal counsel with documents and information that clearly show that the bank’s actions were consistent with commercially reasonable standards and practices. The raison d’être here is to endeavour to settle the matter at the mediation stage, which can be a challenge.
In the past one-and-half decades, the Tanzanian banking industry has witnessed a number of changes and developments and the enacted legislation has had difficulty in coping with the country’s ever-changing market conditions and economic trends. Even when legislation has been revised, updated, and in-tune-with-the-time, the application of certain banking regulations and guidelines has been toward a wide interpretation.
It’s therefore important for banks to obtain the advice and opinion of external legal counsel on whether the bank is complying with its own policies and procedures. The reason for this is not far to seek: there are legal scenarios where banks could lose cases if the opposing counsel is able to provide evidence that the bank did not follow its own policies and procedures.
In brief, some of the critical issues that every now and then arise for banks include: (a) whether or not the bank had policies and procedures for the operation, function, product, service in question (b) whether or not the policies and procedures were up-to-date and in consonance with the bank’s anticipated actions (c) whether or not the bank’s staff and managers in fact executed the roles and functions as stipulated in the procedures (d) whether or not there were policy or procedural exclusions and (e) whether or not the bank’s policies and procedures are written in a clear, simple, and easy-to-understand language.
These issues are extremely crucial for banks because their customers may, in future, be called upon to interpret specific written policies and procedures in a court case. That’s all the more reason banks should help their customers understand the policies and procedures. Contrarily, the use of banking jargon deters customers and third parties from understanding the true intention of the bank’s policies and procedures.
As plaintiff, or defendant, when it becomes clear that the bank may need external legal counsel, it’s worthy engaging them as early as possible. A good, proactive external legal counsel can help the bank appreciate the issues in a more objective way from both sides, help spot the most relevant questions to ask witnesses at the court trial; and generally move the case to resolution much faster.
Of course, it is not unusual for the bank’s staff and managers who created the policies and procedures that are called into question to have left the bank by the time the case is filed. Therefore, it is advisable for the bank to keep on file – and to share with external legal counsel – a document showing the justification, intent and purpose of the policies and procedures at the time they were created; so that, if a bank customer or third party raises questions the bank’s position will be unambiguous through this document.
From the bank’s perspective, early demonstration of a sound decision-making process and release of unmistakably written policies and procedures in operation at the time of the bank’s actions in question can immensely help the external legal counsel to show opposing counsel evidence of the bank’s position – and ultimately impress upon him or her that the likelihood of winning may not be a good reason for the time, effort and monetary cost of pursuing a court case against the bank.