Critical issues in banking dispute resolution—21

Saturday January 12 2019



As banks and financial institutions in Tanzania remain in the crosshairs of the country’s central bank, the Bank of Tanzania, and enlightened bank customers, the need for a sufficiently comprehensive and robust policies-and-procedures practice to help minimize the risk of litigation against banks has never been more important than today.

Banking litigation in Tanzania typically concerns credit 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. This is why it’s very important 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.

In today’s era of risk-based approach to regulatory compliance in the banking sector, 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 concepts.

That’s why the best that legal counsel and judges 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 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 and seminars.

Well-documented policies and procedures are a good starting defence when a bank’s actions are called into question.

The cost of banking litigation can be reduced by providing the bank’s 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.

The Tanzanian banking sector 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 has been toward a wide interpretation.

It’s therefore crucial for banks to obtain expert advice and opinion on whether the bank is complying with its own policies and procedures.

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 often 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 critical for banks because their customers may be called upon to interpret specific written policies and procedures in a court case.

Hence, 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.

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.

It helps to keep on file – and to share with legal counsel – a document showing the justification and intent of the policies 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.

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 legal counsel to show opposing counsel evidence of the bank’s position and ultimately impress upon him or her that pursuing a court case against the bank may not be a good reason for the time, effort and monetary cost.