The Christian Church Community Trust v Bank of New Zealand
[2023] NZHC 2523
•8 September 2023
IN THE HIGH COURT OF NEW ZEALAND GREYMOUTH REGISTRY
I TE KŌTI MATUA O AOTEAROA MĀWHERA ROHE
CIV-2022-418-16
[2023] NZHC 2523
UNDER The High Court Rules 2016 IN THE MATTER OF
An interlocutory application for interim injunction
BETWEEN
THE CHRISTIAN CHURCH COMMUNITY TRUST AND OTHERS
Plaintiffs
AND
BANK OF NEW ZEALAND
Defendant
Hearing: 30 May 2023 Appearances:
R W Raymond KC, A V Foote and C M G Sykes for Plaintiffs W M Irving and L M Dick for Respondent
Judgment:
8 September 2023
JUDGMENT OF CULL J
[1] In July 2022, the Bank of New Zealand (BNZ) gave notice of its intention to terminate its banking relationship with the companies and entities associated with the Christian Church Community Trust, more commonly known as the Gloriavale Christian community (Gloriavale).
[2] Gloriavale has, almost exclusively, used BNZ as its bank of choice for the past 40 years and seeks to continue to do so. It says that BNZ decided to terminate its banking relationship in reliance on internal reports that are factually inaccurate and were never put to Gloriavale for comment. Gloriavale argues that BNZ was measuring them against an internal “Group Human Rights Policy,” which was not provided to
THE CHRISTIAN CHURCH COMMUNITY TRUST AND OTHERS v BANK OF NEW ZEALAND [2023]
NZHC 2523 [8 September 2023]
Gloriavale when requested. BNZ relied on an Employment Court decision, which was retrospective, to terminate all its accounts.1
[3] Despite making attempts to find alternative banking arrangements, Gloriavale reports that it has been turned away from every bank and seeks the Court’s protection to enable its businesses to continue to operate. Without the Court’s protection, Gloriavale says that payment toward the community’s most basic functions— including medical care, rates, food and clothing—may be jeopardised.
[4] The relationship between BNZ and Gloriavale is governed by the Standard Terms and Conditions of BNZ (the contract). It is accepted by both parties that there has been no breach of the contract terms by Gloriavale. The claim to be advanced by Gloriavale at trial will be for breach of contract, breach of fiduciary duty and estoppel by convention.
[5] A without-notice application for an interim injunction was granted by Dunningham J after an urgent teleconference on 29 November 2022 restraining BNZ from closing the relevant accounts.2 The matter was set down for this hearing to determine whether the interim injunction order should continue, pending resolution of the claims at trial.
Factual background
[6] Gloriavale is comprised of 16 entities and has a total of 83 accounts across its businesses and entities with BNZ. BNZ is the sole bank used not only by the businesses and entities within the Gloriavale community, but also with most individual members of Gloriavale. BNZ terminated this relationship on 6 July 2022, in reliance on cl 8.2 of the contract because of human rights breaches. BNZ gave Gloriavale three months to find alternative banking arrangements. A letter formally recording the decision was sent to Gloriavale on 8 July 2022, attaching the list of all accounts to be
1 Courage v Attorney-General and ors [2022] NZEmpC 77, (2022) 18 NZELR 746 [Courage].
2 Christian Church Community Trust v Bank of New Zealand [2022] NZHC 3271 [Decision of Dunningham J].
closed (which included accounts for the charitable trust, the school, the pre-school, all businesses, the midwifery service and accounts used for medical and laundry costs).3
[7] Gloriavale attempted to engage with BNZ to seek to find a resolution, giving assurances that steps were being taken within the Community to remedy the practices of concern to BNZ.4 Gloriavale asserts that BNZ did not raise its concerns with the Community until 6 July 2022.5
[8] The parties’ contractual relationship is governed by the contract terms, which are imposed on Gloriavale and can be changed by BNZ at any time. BNZ relies on cl 8.2 of the terms, which states in broad terms that:
We can close your account or end any other product or service, or immediately suspend or restrict the operation of your account or the provision of any other product or service, for any reason…
Clause 8.2 then goes on to give examples of conduct that may give rise to a reason for BNZ to terminate an account, but the terms also state that these examples are given “without limiting the reasons why [BNZ] might close or suspend [an] account”.
[9] BNZ relied on the decision of the Employment Court in Courage v Attorney- General (Courage),6 which was released on 10 May 2022, to justify the invocation of cl 8.2 and termination of its relationship with the Gloriavale entities on the basis of BNZ’s Group Human Rights Policy.
[10] In Courage, the Employment Court considered the employment status of members within the Gloriavale Community. The decision found that three members of the Gloriavale community were employees from the age of six until they left, opening the way for those claimants to pursue a breach of duty claim against Labour Inspectors, who said that those working within Gloriavale were not employees and therefore not within their jurisdiction.
3 At [5].
4 A full account of the communications between Gloriavale and BNZ is summarised in the Decision of Dunningham J, above n 2, at [3]-[14].
5 It was accepted by Ms Rebekah Cain, BNZ’s Chief Sustainability Officer, that internal conversations about the Community within BNZ occurred from time to time.
6 Courage, above n 1.
[11] Gloriavale challenges BNZ’s reliance on this decision on the basis that it was interim, “naturally retrospective,” and concerned only one of Gloriavale’s entities. It says that BNZ’s decision has caused immense pressure for the community and its members, who are presently under unprecedented scrutiny from multiple sources. Gloriavale emphasises its “total reliance” on BNZ’s services for its day-to-day functioning of its entities for those living in the community.
Interim injunction decision
[12] The initial without-notice application came before Dunningham J in an urgent teleconference on a Pickwick basis. There were no draft pleadings but Gloriavale made application on the basis of a breach of contract and breach of fiduciary duty.7
[13] In her written reasons of 7 December 2022, Dunningham J accepted that it was seriously arguable that there are constraints on the exercise of power to terminate a contract, particularly given the importance of banking facilities in today’s society. The Judge considered it was unclear from the Courage decision whether it was applicable to all the Gloriavale entities, with which BNZ has sought to terminate its banking relationship.8
[14] The Judge was satisfied that the balance of convenience lay with Gloriavale, as the closure of accounts meant that the community could not make alternative arrangements. The Judge concluded it was “appropriate that those are sustained while the applicants’ claim is determined”9 and granted an interim injunction, to prevent the closure of the relevant accounts.10
Legal principles of interim injunctions
[15] Interim injunctions are protective orders that are ancillary to the final claim. An application for an interim injunction is made pursuant to r 7.53 of the High Court Rules 2016 (the Rules). An undertaking as to damages has been given by an entity related to Gloriavale (Alpine Health Manufacturing New Zealand Ltd), as required,
7 Decision of Dunningham J, above n 2, at [28].
8 At [28].
9 At [29].
10 At [33].
and it is my understanding that a G32 Form has also been filed in accordance with the Rules.
[16] The threshold test for an interim injunction and the application of the principles are well established in New Zealand. There are three questions that the Court must consider when evaluating an application for an interim injunction:11
(a)whether there is a serious question to be tried;
(b)where the balance of convenience lies (in granting versus not granting the order); and
(c)the overall interests of justice.
[17] At this stage of the proceeding, it is not the Court’s function to attempt to resolve any conflicts of evidence on which the claims of the parties rely, nor is it for the Court to determine any difficult questions of law which may require more detailed consideration.12
[18] Before addressing the three questions above, I address the issue of whether this is a mandatory injunction.
Mandatory injunction?
[19] BNZ submit that this application is properly construed as one requiring BNZ to provide banking services to Gloriavale, and so is an application for a mandatory (as opposed to a prohibitory) injunction. BNZ argue that mandatory injunctions are granted rarely, and the applicant is required to establish a “powerfully arguable or strong case to sustain a mandatory injunction”.13 BNZ relies on Acernus Aero Ltd v Vincent Aviation Ltd for the proposition that mandatory injunctions require a higher
11 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (HC) at 133, (CA) at [142]; Intellihub Ltd v Genesis Energy Ltd [2020] NZCA 344 at [22]–[24]; and Mad Butcher Holdings Ltd v Standard 730 Ltd [2019] NZHC 589 at [14].
12 Mad Butcher Holdings Ltd, above n 11, at [15] following American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL) at 407; Villa Maria Wines Ltd v Montana Wines Ltd [1984] NZLR 422 (CA) at 425; and Health Club Brands Ltd v Colven [2013] NZHC 428 at [9].
13 Relying on Croser v Focus Genetics Ltd Partnership [2019] NZHC 627 and Acernus Aero Ltd v Vincent Aviation Ltd [2012] NZHC 295.
standard namely that they require the applicant to show a “powerfully arguable or strong case.”14
[20] There are two reasons why I do not accept BNZ’s submission. The first is that in deciding whether to grant or withhold an injunction, the first principle is that the Court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other. That applies, whether the injunction is prohibitory or mandatory.15 This principle was confirmed by the Court of Appeal in Commerce Commission v Viagogo AG where the Court observed that attempting to classify injunctions as either mandatory or prohibitory can be a “barren” exercise.16 What ultimately matters is the practical implications of ordering the injunction sought.17
[21] The second reason is that the interim injunction was ordered to prevent BNZ terminating the Gloriavale accounts. Although BNZ submits that the injunction requires the bank to continue to do business with the customer against the bank’s will as the Canadian authorities frame it,18 the current interim injunction prohibited BNZ from terminating the Gloriavale accounts and to that extent, is a prohibitory injunction.
[22] In any event, the orthodox test for an interim injunction should be applied to the facts of this case and is appropriate here. I deal then with each of the threshold steps.
Is there a serious question to be tried?
[23] Gloriavale has filed its statement of claim pleading three causes of action, which are breach of contract, breach of fiduciary duty and estoppel by convention.
[24] The principal focus of the hearing before me was on whether BNZ was in breach of its contract by unilaterally terminating the Gloriavale accounts. The other two causes of action were also canvassed, and I deal with each below.
14 Acernus Aero Ltd v Vincent Aviation Ltd [2012] NZHC 295 at [9] (footnotes omitted).
15 National Commercial Bank Jamaica Ltd v Olint Corp Ltd [2009] UKPC 16, [2009] 1 WLR 1405.
16 Commerce Commission v Viagogo AG [2019] NZCA 472; [2019] 3 NZLR 559 at [90] (footnotes omitted).
17 At [90].
18 RCG Forex Service Corp v HSBC Bank Canada [2011] BCSC 315 at [8].
Has BNZ breached its contract with Gloriavale?
[25] The contractual relationship between Gloriavale (including all of Gloriavale’s entities) and BNZ is governed by the contract, which applies to all BNZ transaction and savings accounts together with account related products and services.
[26] The terms of the contract are imposed unilaterally by BNZ on its customers and cl 1.7 states clearly that BNZ “can change these Terms at any time” and cl 2.1 provides that BNZ can decline an application to open an account or other product or service and “we do not need to give you a reason for doing so”.
[27] This proceeding concerns the termination clause, cl 8.2, governing BNZ’s suspension or closure of accounts or services. Clause 8.2 provides that BNZ can close a customer’s account or end any other product or service for any reason. It lists examples of such reasons without limiting the reasons why the bank might close an account. Clause 8.2 provides:
8.2 When we can close or suspend your account or end or suspend any other product or service: We can close your account or end any other product or service, or immediately suspend or restrict the operation of your account or the provision of any other product or service, for any reason. For example (but without limiting the reasons why we might close or suspend your account), we may close or suspend your account where:
(a)we learn of your, or your guarantor’s death or any other lack of legal capacity;
(b)we learn that you, or your guarantor have suffered a Bankruptcy Event or an Insolvency Event;
(c)there are insufficient available funds (including funds available under any overdraft, or other loan facility on that account) to meet payment instructions or other obligations from that account (including obligations that might arise later and our fees and charges);
(d)we learn of a dispute over the ownership of funds or the operation of your account;
(e)we learn that a party has reasonably claimed an interest in your account;
(f)we reasonably believe that you or someone else has used or is using your account or has (or has attempted to use your account), illegally
or fraudulently, or behaving improperly (for example, in a threatening or aggressive manner to our staff);
(g)for organisation accounts (including those of trusts, companies, incorporated societies and other businesses), while the authority of the person representing the organisation is unclear;
(h)we reasonably believe that there is a legal requirement to do so, including to comply with Sanctions, or as required by a Court or other authority;
(i)you have breached these Terms or any relevant Product Terms;
(j)we reasonably believe that you, or payments in or out of your account, are subject to Sanctions;
(k)your account has never bene used, or has not been used for an extended period; or
(l)you refuse to provide information that we ask for or we learn that information we have been provided in relation to you or in relation to the operation of your account, is incorrect or misleading or incomplete.
[28] Mr Raymond KC for Gloriavale submits that BNZ’s exercise of power under cl 8.2 is an exercise of contractual discretion, and that “absolute” contractual discretions cannot be exercised in a way that is “arbitrary, capricious, or unreasonable, having regard to the provisions of the contract”,19 as Doogue J found in Canaan Farming Dairy Ltd v Westland Dairy Company Ltd, a comparable case involving a contract termination with Gloriavale.
[29] Gloriavale contends that it has complied with the bank’s terms and relies on BNZ to provide continuity of services.
[30] Gloriavale notes that access to banking facilities is an actively protected right in a number of jurisdictions,20 but accepts that in the absence of an express contrary agreement, a bank may terminate a relationship with its customer on reasonable notice. However, Mr Raymond says that this common law principle does not assist BNZ because cl 8.2 provides an express, contractual requirement that BNZ must have a qualifying reason for closing the affected accounts.
19 Canaan Farming Dairy Ltd v Westland Dairy Company Ltd [2022] NZHC 2524 at [115]–[122].
20 The World Bank “Financial Inclusion” (29 March 2022) <Financial Inclusion Overview (worldbank.org)>; The World Bank “UFA2020 Overview: Universal Financial Access by 2020” (1 October 2018) <UFA2020 Overview: Universal Financial Access by 2020 (worldbank.org)>.
[31] In opposition, BNZ argue that cl 8.2 expressly provides that the identified examples do not limit the reasons as to why BNZ may close a customer’s account. BNZ refers to cl 2.1 of the contract, which provides that BNZ has the sole discretion as to whether to open an account for a prospective customer, and cl 8.1, which provides that a customer can unilaterally close their account at any time. BNZ says that cl 8.2 should be read consistently with these other terms.
[32] BNZ submits that cl 8.2 sets out in clear terms an absolute termination right as distinct from a contractual discretion. It rejects any suggestion that there is an implied term of reasonableness, saying that it would contradict the Bank’s unfettered right to terminate. BNZ drew the Court’s attention to the recent case of Targa Capital Ltd v Westpac New Zealand Ltd, 21 where the applicant was unsuccessful in obtaining an injunction requiring Westpac to continue operating its accounts, even where Westpac’s termination clause contemplated ‘reasonable grounds’ to terminate. Mr Irving for BNZ says that even where the customer’s contractual position was stronger in Targa, the injunction was not granted, and a similar result should follow here.
[33] The question then is whether BNZ can unilaterally terminate a customer’s account for any reason as it claims, or are there constraints on that power as the applicants contend? If BNZ’s submission is correct, it submits there is no serious question to be tried and the injunction should be set aside.
Is it seriously arguable that there are constraints on the contractual termination power?
[34]Each of the parties rely on common law rules and principles.
[35] The principal submission of BNZ is that the common law position on the bank’s ability to terminate bank accounts is well settled. In Targa this Court upheld the common law principle that banks may terminate a customer’s account on reasonable notice. The only requirement, therefore, is that banks must give a customer a reasonable notice of time before the accounts are terminated. Relying on Targa and the authorities cited in it, 22 BNZ relied on its ability to close accounts for “any reason”,
21 Targa Capital Ltd v Westpac New Zealand Ltd [2023] NZHC 230 [Targa].
22 At [35] and [42].
by pleading that there is no restriction on the nature or quality of the reason for which it may close a customer’s bank accounts.
[36] Mr Raymond relied on the common law principles applying to an exercise of an absolute contractual discretion, which requires that it may not be exercised in a way that is arbitrary, capricious or unreasonable having regard to the provisions of the contract.23
[37] The latter principle is called the default rule. Since the hearing before me, the Court of Appeal has recently considered this issue in Woolley v Fonterra Co-operative Group Ltd (Woolley).24 The Court of Appeal reviewed what approach should be applied to the exercise of a contractual discretion and any implied term to act “reasonably”. The Woolley judgment raises the very question in these proceedings as to whether there is an absolute contractual right without constriction or whether there are constraints on contractual discretions.
The default rule
[38] The common law has developed a default rule controlling the exercise of unilateral contractual powers or discretion. The rule is that a party, on whom a contract confers a discretionary power, must not exercise the discretion arbitrarily, capriciously or in bad faith, or unreasonably in the sense that no reasonable contracting party could have so acted.
[39] This rule was defined by Leggatt LJ in Abu Dhabi National Tanker Co v Product Star Shipping Co Ltd (No.2), where the assessment of reasonableness of a contractual exercise of discretion was compared with judicial review.25 The rule was articulated as follows:
For purposes of judicial review the Court is concerned to judge whether a decision-making body has exceeded its powers, and in this context whether a particular decision is so perverse that no reasonable body, properly directing itself to the applicable law, could have reached such a decision. But the exercise of judicial control of administrative action is an analogy which must
23 Canaan Farming Dairy Ltd v Westland Dairy Ltd, above n 19, at [115]–[122].
24 Woolley v Fonterra Co-operative Group Ltd [2023] NZCA 266.
25 Abu Dhabi National Tanker Co v Product Star Shipping Co Ltd (No.2) [1993] 1 Lloyd’s Rep 397 (CA) at 404.
be applied with caution to the assessment of whether a contractual discretion has been properly exercised. The essential question always is whether the relevant power has been abused. Where A and B contract with one another to confer a discretion on A, that does not render B subject to A’s uninhibited whim. In my judgment, the authorities show that not only must the discretion be exercised honestly and in good faith, but, having regard to the provisions of the contract by which must be conferred, it must not be exercised arbitrarily, capriciously, or unreasonably. That entails a proper consideration of the matter after making any necessary inquiries. To these principles, little is added by the concept of fairness: it does no more than describe the result achieved by their application.
[40] The Court of Appeal, in traversing the authorities in other jurisdictions, observed that little had been published in New Zealand on the default rule, apart from one article by Stephen Kós,26 but was referred to in a number of High Court decisions.
In C & S Kelly Properties Ltd v Earthquake Commission, Mander J observed:27
[73] To summarise, Commonwealth Courts are willing to intervene in the exercise of a prima facie unfettered discretion. Such intervention will ordinarily be premised on an implied term to constrain the exercise of the discretion so as to give effect to the reasonable expectations of the parties. The exercise of contractual discretion will be open to challenge where it can be established that it was not exercised honestly in good faith; or not exercised for the purpose(s) for which it was conferred; or when exercised in a capricious or arbitrary manner; or otherwise falls into the category of what would be considered Wednesbury unreasonableness.
[41] The Court also described the expanded default rule, as a result of the decision in Braganza v BP Shipping Ltd in which Lady Hale observed the “obvious parallel between cases where a contract assigns a decision-making function to one of the parties and cases where a statute … assigns a decision-making function to a public authority.”28
[42] The Court of Appeal in Woolley assumed that the default rule applies in New Zealand (without expressly deciding the point) and did not view the case as an appropriate vehicle for either general endorsement or rejection of the Braganza approach.29 The Court dismissed Mr Woolley’s application for leave to appeal, finding that although it was common ground in exercising a discretionary power to suspend
26 Stephen Kós “Constraints on the Exercise of Contractual Powers” (2011) 42 VUWLR 17 at 22- 21.
27 C & S Kelly Properties Ltd v Earthquake Commission [2015] NZHC 1690 at [73].
28 Braganza v BP Shipping Ltd and another [2015] UKSC 17, [2015] 1 WLR 1661 at [19]
29 Woolley v Fonterra Co-operative Group Ltd, above n 24, at [103] and [112]–115].
milk collection under its contract, Fonterra was obliged to comply with the default rule.30 Fonterra’s decision did not offend against the default rule because it was reasonable for Fonterra to manage its risk of being in breach of an Environment Court order.
The banking authorities
[43] In contrast to the above authorities, Mr Irving draws a distinction between the exercise of an absolute termination right and the exercise of a contractual discretion with an implied term of reasonableness in the provisions of the contract. He submits the exercise of an absolute termination right does not attract the courts’ intervention in the same manner.31 BNZ maintains there is no authority in New Zealand or elsewhere to the effect that banks require a reasonable justification to terminate customer accounts.
[44] Citing the Supreme Court of British Columbia, Mr Irving submits that if banks required a reasonable justification to terminate customer accounts it:32
…would require the court to impose a hopelessly vague and uncertain term upon the parties. A judicial determination will be required in practically all cases. The court would effectively become the supervisor of the banking relationship.
[45] With the international imposition of anti-money laundering legislation, the banks have become more vigilant about their exposure to reputational risk, reflected in bank policies implemented as a result of legislation in order to mitigate the risks of money laundering.
[46] There are a number of authorities, where courts in other jurisdictions have held that banks were entitled to close a customer’s bank accounts and terminate its relationship with the customer provided adequate notice was given, where the bank was exposed to a commercial and reputational risk. 33
30 At [92].
31 Cathay Pacific Airways Ltd v Lufthansa Technik Ag [2020] EWHC 1789 (Ch) at [163]–[179].
32 RCG Forex Service Corp v HSBC Bank Canada, above n 18 at [33].
33 Hlongwane and Others v Absa Bank Ltd and Another (75782/13) [2016] ZAGPPHC 938 (10 November 2016). The High Court of South Africa held that Absa Bank was under no obligation to retain the customer or to expend time on monitoring the customer’s activities for money laundering. The customers were perceived by the bank as high profile and high-risk clients and it
[47] The same considerations were taken into account in Targa, where the Court upheld Westpac’s assessment of the three risks it identified in continuing its banking relationship with Targa.34 This included the regulatory risk of breaching United Kingdom or Australian sanction regimes, the contract risk of Westpac’s ability to access offshore capital markets because of perceived breaches of sanction regimes by third parties, and ultimately the capital markets risk, where third parties may decline to deal with Westpac. Campbell J held that these three risks were of a type that provided a reasonable basis for Westpac deciding to terminate its banking relationship with Targa.
[48] Similarly, in RCG Forex Service Corp v HSBC Bank Canada, HSBC Bank maintained that as part of its ongoing risk assessment, it considered RCG was a high money laundering risk and the bank was subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act SC 2000, which set out the bank’s duties with respect to prevention and detection of money laundering and terrorist financing.35
[49] The same applies to the United Kingdom Privy Council decision of National Commercial Bank of Jamaica Ltd v Olint Corp Ltd where the Court upheld the common law principle that in the absence of express contrary agreement or statutory impediment, a contract by a bank to provide banking services to a customer is terminable upon reasonable notice.36 In refusing to grant an injunction, the Court noted that the bank was concerned about the customer’s money laundering and terrorist financing risk and had asked for their audited accounts, which were refused.
[50] Although it is not as express as “the belief on reasonable grounds” term in the Westpac contract in Targa, I cannot overlook that cl 8.2, by giving the examples of reasons for BNZ to terminate a customer’s account, appears to imply either that there would be need to be a valid reason for termination, or that BNZ would act reasonably. As its alternative argument, BNZ says it had a reason to terminate if one was required,
believed its duty to comply with the Financial Intelligence Centre Act 38 of 2001 would be onerous. Bredenkamp v Standard Bank (599/09) ZASCA 75; 2010 (4) SA468 (SCA); 2010 (9)
BCLR 892 (SCA); [2010] 4 All SA 113 (SCA) (27 May 2010).
34 Targa, above n 21, at [52]–[53].
35 RCG Forex Service Corp v HSBC Bank Canada, above n 18, at [20].
36 National Commercial Bank of Jamaica Ltd v Olint Corp Ltd, above n 15.
and that was its reliance on the Courage decision to believe Gloriavale was in breach of its human rights policy. I deal with this alternative argument below.
[51] In light of the wording of cl 8.2, the Court of Appeal’s decision in Woolley (which was decided after the hearing before me), and the relevant principles that apply to an exercise of an absolute contractual discretion canvassed in the authorities, I am unable to accept BNZ’s position that BNZ had an absolute termination right and the injunction can be set aside on that basis.
[52] I consider it is reasonably arguable that the default rule or the Braganza approach may be applicable to the banking relationship, and to the exercise of BNZ’s discretion to terminate under cl 8.2.
[53] In the event that either the default rule applies or that there is an implied term to act reasonably, there is still the question whether BNZ acted reasonably in reliance on cl 8.2 to terminate Gloriavale’s accounts.
Is it seriously arguable that BNZ’s exercise of its discretion was unreasonable?
[54] The question remains, as framed in Targa, whether it is seriously arguable that BNZ had exercised its discretion unreasonably.37 There are two aspects to consider. The first is whether in reaching its decision BNZ was procedurally fair and reasonable. The second is one of substance, namely, whether its decision was substantively reasonable.
Was BNZ’s process procedurally fair and reasonable?
[55] Counsel for Gloriavale have raised three factors in relation to the process or procedure BNZ adopted to terminate its accounts and whether BNZ followed a fair process in giving Gloriavale an opportunity to respond to BNZ’s proposed action.
[56] The first, is that Mr Raymond contests BNZ’s reliance on other ‘credible accounts’ of conduct at Gloriavale, such as unverified Wikipedia pages and New
37 Targa, above n 21, at [45] and [48].
Zealand Herald Articles, submitting that they are unreliable and wrong, yet BNZ took no steps to check their veracity.
[57] BNZ responds to the allegation of a lack of engagement with Gloriavale by saying that an exemption to the Group Human Rights Policy is only granted in certain situations, and BNZ did not consider that the applicants would be in a position to meet the criteria for exemption.
[58] Secondly, BNZ did not engage with the Gloriavale leaders, before BNZ reached its decision and it never disclosed to Gloriavale the Group’s Human Rights Policy, despite being asked, until the Court proceedings. The meeting by BNZ with the Gloriavale community leaders on 6 July, following BNZ’s termination decision, was convened to inform them of BNZ’s decision. The reasonableness of the procedure BNZ adopted in reaching its decision to terminate, and whether enquiries were made of the Gloriavale representatives as to what steps they were taking following the Employment Court’s decision, or how widespread the use of child labour was within the Gloriavale entities as a whole, are matters for determination at a further hearing.
[59] The third factor is whether BNZ should have considered the asymmetry of power and the length of the banker/customer relationship in exercising its decision to terminate. Gloriavale points to its 40 year banking relationship with BNZ. This involved all entities of Gloriavale as well as the accounts held by the individual members of the community. As a result of their Christian beliefs, Gloriavale did not receive any interest on any of its investment or other accounts over those years. This gave a significant financial benefit to BNZ. Gloriavale submits that despite the mutually beneficial and significant relationship, BNZ gave no consideration to Gloriavale’s loyalty or its position.
[60] Gloriavale has no ability to reinstate its accounts with BNZ or any other banking facility in NZ to maintain its livelihood and continue its business and trading. Whether the length of the banking/customer relationship, the power imbalance between a Bank and a customer, and the lack of consideration to Glorivale’s solid banking history are arguably relevant to the exercise of BNZ’s discretion to terminate, in addition to the substantive inquiry of reasonableness.
Was BNZ’s exercise of discretion substantively reasonable?
[61] This inquiry addresses the issue of whether the BNZ decision was substantively reasonable, either by the application of the default rule or by an implied contractual term. If, at the substantive hearing, the Court considers that the default rule or its extension applies to a bank, the two-stage test articulated by Lady Hale in Braganza v BP Shipping Ltd may well be relevant to the Court’s consideration.38
[62] The Court of Appeal in Woolley addressed Lady Hale’s judgment in Braganza, in which she referred to the Wednesbury test of reasonableness of an administrative decision,39 by describing it thus:40
Lady Hale DP referred to the test of reasonableness of an administrative decision adopted by Lord Greene MR in Wednesbury Corporation, drawing attention to its two limbs: the first limb focuses on the decision-making process — whether the right matters have been taken into account in reaching the decision; the second focuses upon its outcome — whether, even though the right things have been taken into account, the result is so outrageous that no reasonable decision-maker could have reached it. She pointed out that the latter is often used as a shorthand for the Wednesbury principle, but without necessarily excluding the former.
Noting dicta to the effect that contractual discretions should not be exercised with reference to considerations wholly extraneous to the subject matter of the decision, Lady Hale DP reasoned that, if it is part of a rational decision- making process to exclude extraneous considerations, it is also part of a rational decision-making process to take into account those considerations which are obviously relevant to the decision in question. She stated that it is of the essence of “Wednesbury reasonableness” (or “GCHQ rationality”) review to consider the rationality of the decision-making process rather than to concentrate on the outcome, pointing out that concentrating on the outcome runs the risk that the court will substitute its own decision for that of the primary decision-maker.
[63] Although the Braganza decision involved an employment contract, the question remains whether the discretion exercised by BNZ has exercised reasonably. In Targa, the Court accepted that Westpac was entitled to have regard to its own legitimate commercial interests and in that case, Westpac’s interest in managing its
38 Braganza v BP Shipping Ltd, above n 28.
39 At [24], [28]–[29]; Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 (CA).
40 Woolley v Fonterra Co-operative Group Ltd, above n 24, at [99]–[100] (footnotes omitted).
economic trade sanctions risk was expressly recognised in the anti-money laundering and sanctions clause.
[64] On an assessment of BNZ’s substantive decision-making in this case, I consider there are at least three factors which are relevant to the question of whether BNZ’s discretion has been exercised reasonably.
[65] The first is whether BNZ was managing a real risk to its banking operation when it made its decision. BNZ submits that it was entitled to take into account its reputational, environmental, social and governance risks by reference to the wider National Australian Bank’s (NAB) Group Human Rights Policy. The risks identified in the NAB statement appear to raise concerns about financial crime management, referring to “human impact crimes… human trafficking and modern slavery practices such as servitude, forced labour, forced or servile marriage, debt bondage and the exploitation of children.”
[66] The Gloriavale community’s use of child labour, while condemned by the Employment Court, does not involve criminal behaviour such as trafficking, for which substantial penalties are imposed. The circumstances here are distinguishable from those in Targa where the Court accepted that Westpac was entitled to manage its risk and its own commercial interests, by taking steps to avoid anti-money laundering sanction or likely economic trade sanctions,41 or avoid breaching a Court order as in Woolley.42
[67] Was BNZ having to manage its actual risk and commercial interests in continuing the Gloriavale accounts or did BNZ simply no longer want to deal with Gloriavale and wished to distance itself from that community? There was no suggestion that NAB had raised any issue with BNZ over a continued relationship with Gloriavale. The connection, as in a likely sanction for any criminal activity as in Targa, between Gloriavale and any risk to BNZ was not apparent on the evidence before me.
41 Targa, above n 21, at [50] and [51].
42 Woolley v Fonterra Co-operative Group Ltd, above n 24.
[68] In BNZ’s decision, which is undated, but appears to have been reached in late May to June 2022, BNZ placed reliance on the Courage decision in the Employment Court which found there were child labour practices in Gloriavale and that “members were not to report concerns to external agencies”.43 The decision then lists a history of human rights violations in Gloriavale. This included a conviction in 1995 of a community member for sexual abuse charges and an investigation into sexual abuse in July 2020, together with reference to other inquiries and investigations into allegations of physical and sexual abuse from February 2021 to August 2021. BNZ believed that Gloriavale was breaching “our Group Human Rights Policy due to a number of Human Rights violations including the right not to be subject to torture or degrading treatment or punishment, slavery, rights of protection for the child and rights to enjoy just and favourable conditions of work.” BNZ’s decision notes that Worksafe New Zealand is sending inspectors to investigate, that Charities Services has commenced an investigation into Gloriavale’s trusts over allegations of unpaid child labour and noted that other companies in the Gloriavale enterprises’ value chain were discontinuing their relationships with the company, including Westland Dairy, which was the subject of the Canaan Farming Dairy Ltd decision.44
[69] Although BNZ does not accept that it has to provide a reason for terminating the accounts, it places reliance on the Group Human Rights Policy and in particular the Group’s intolerance for slavery, human trafficking, forced labour or child exploitation (including the worst forms of child labour) at cl 3.6.2. The policy provides however that the Group will engage with relevant customers, supplies and other stakeholders to encourage best practice in respecting other human rights of relevant local communities at cl 3.6.4. Clause 3.6.5 sets out actions to be taken where the Group discovers that actions of third parties or customers are associated with human rights violations. Those actions include notification to law enforcement agencies or regulators, engaging with the relevant parties to promote good practice and/or avoiding or exiting the business relationship.
[70] Mr Raymond submits that it is relevant that Worksafe has not prosecuted any of the applicants, that BNZ continued its relationship with the community despite the
43 Courage, above n 1, at [102].
44 Canaan Farming Dairy Ltd v Westland Dairy Company Ltd, above n 19.
conviction of the Gloriavale leader on sexual abuse charges in 1995, and that the Charities Services reviewed the Gloriavale trust in 2017 but decided not to conduct any further investigation since 2020. The Canaan Farming Ltd contract termination was resolved between the parties with Westland Dairy resuming milk collection, and Mr Raymond notes, a number of the matters listed by the Employment Court relate to historic matters.
[71] These matters give rise to the question as to whether there was a reasonable basis for BNZ to decide to terminate all 83 of Gloriavale’s accounts given that the leaders of Gloriavale say they gave assurances to BNZ that they were addressing the concerns arising from the Courage decision. It is uncertain whether every Gloriavale entity with which BNZ seeks to terminate its relationship, has breached its Group Human Rights Policy in such a manner that may invoke the application of cl 8.2. There needs to be an assessment, on all the evidence, as to whether it was reasonable for BNZ to have terminated its banking relationship with all of Gloriavale’s entities.
[72] Second, is unilateral termination of a banking contract and customer relationship reasonable when there are no other banking services available to Gloriavale? Although given three months’ notice to find alternative banking services, Gloriavale has no other banking options, having been turned down by the other banks approached. The result is that Gloriavale will effectively be unable to operate their businesses, their importing and exporting businesses, together with their midwifery and other related activities, and unable to pay staff or suppliers or wages to community members. It was accepted by all parties including BNZ that without access to banking services, businesses, apart from a very small operation, cannot operate in the market. In the current market, receipts of benefits, online payments and other such community accepted services require bank accounts.
[73] If termination can occur for any reason, this case demonstrates that it places a commercial body in a powerful position to determine whether a customer is acceptable to the bank or not. On the other hand, like Westpac in Targa, BNZ may be able to show that it was an appropriate and reasonable management of its Group Human Rights policy risks. That however will depend on a careful examination of the policy
and the NAB policy and whether it was reasonable for BNZ to apply those policies to the facts at issue here and across all of Gloriavale’s entities.
[74] Although BNZ pointed to the further inquiries taking place, the referral to the Solicitor-General, to which the Chief Employment Court Judge refers at the conclusion of the Courage decision, for a review of all of Gloriavale’s activities and companies in relation to child labour, has not occurred.45 Is it reasonable, therefore, for BNZ, in terminating its contract, to rely on a Court’s finding unrelated to the bank’s services, to effectively impose a sanction on a customer like Gloriavale, leaving it without an ability to access banking services?
[75] The third factor is whether a banking service is an essential service, importing public interest obligations on BNZ arising from its contractual relationships. Mr Raymond submits that access to banking facilities is a right that is actively protected in a number of jurisdictions. He produced a number of documents which record the World Bank Group’s initiative to “ensuring that people worldwide can have access to a transaction account.”46
[76] The Australian Banking Association has also recently made a commitment to ensuring accessibility to banking services. Of relevance, the introductory comment to a 2019 report on the Australian Banking Association’s commitment states: “accessibility to banking services is a fundamental right.”47 As Mr Raymond submits, that report acknowledges the importance of banking as an essential part of modern life.48
[77] The European Commission has made a similar observation. In 2011, with the use of cash rapidly decreasing, “access to a bank account has become a pre-condition for participating fully in the economic and social life of a modern society.”49 In
45 Courage, above n 1, at [205].
46 The World Bank “Financial Inclusion” (29 March 2022) <Financial Inclusion Overview(worldbank.org)>; and The World Bank “UFA2020 Overview: Universal Financial Access by 2020” (1 October 2018) <UFA2020 Overview: Universal Financial Access by 2020 (worldbank.org)>.
47 Australian Banking Association Every Customer Counts: Accessibility Principle for Banking Services (November 2018).
48 At [1.1].
49 European Commission Commission Recommendation of 18 July 2011 on Access to a Basic Payment Account 2011/442/EU, OJ L 190, 21 July 2011.
Canada and the UK, banks must open an account for eligible persons such as a transactional account, unless there are qualifying statutory grounds for refusal and a written statement confirming the bank’s decision is mandatory.50 Mr Raymond submits that New Zealand is heading in the same direction, with the importance of access to banking services being acknowledged in s 44 of the Human Rights Act 1993.
[78] Because of the potentially detrimental effect of unilateral termination, the question arises as to whether banking services be viewed as an essential service. Should something akin to the doctrine of prime necessities apply? As the authorities note,51 the doctrine of prime necessities remains part of the law of New Zealand requiring that the monopoly suppliers of essential services “must charge no more than a reasonable price”, which is relevant to the supplier/customer contractual relationship of domestic services.52
[79] The doctrine provided for a form of price regulation applicable to essential services such as the supply of water, electricity, removal of sewage and wharf services. Although the Court of Appeal in Vector Ltd (formerly Mercury Energy Ltd) v Transpower New Zealand Ltd held there was no room for the operation of the doctrine in relation to the transmission of bulk electricity by Transpower to Vector as the result of the Commerce Act 1986, regulatory protection has since developed, including measures to stop the unilateral termination of essential services to those receiving power for example, who are medically dependent on power.53
[80] Lord Woolf, speaking extra-judicially in 1986, posed a question about the impact on the public interest, where decisions made by powerful bodies are not subject to challenge. He said:54
50 See Bank Act SC 1991, c 46, s 627.17–627.19 and Payment Accounts Regulations 2015 (UK) reg 22, 23 and 26.
51 Chris Noonan Competition Law in New Zealand (Thomson Reuters, New Zealand, 2017) at [4.2.2].
52 Vector Ltd (formerly Mercury Energy Ltd) v Transpower New Zealand Ltd [1999] 3 NZLR 646 (CA) at [51]; Michael Taggart “Public Utilities and Public Law” in Philip A Joseph (ed) Essays on the Constitution (Brookers, Wellington, 1995) 214; Lyn Stevens “The Goals of the Commerce Act” in Mark Berry and Lewis Evans (eds) Competition Law at the Turn of the Century: A New Zealand Perspective (Victoria University Press, Wellington, 2000) 84.
53 The Electricity Authority Consumer Care Guidelines (July 2021).
54 Lord Woolf “Public Law – Private Law: why the Divide? A personal view” (1986) Public L 220 at 224–225.
The interests of the public are as capable of being adversely affected by the decisions of large corporations and large associations, be they of employers or employees, and should they not be subject to challenge on Wednesbury grounds if their decision relates to activities which can damage the public interest? ... Should it not be possible for the court to intervene if the decision has been reached without a relevant consideration being taken into account or if the decision has been taken on the basis of some irrelevant consideration in the same way as it does in the case of a public body? Powerful bodies, whether they are public bodies or not, because of their economic muscle may be in a position to take decisions which at the present time are not subject to scrutiny and which could be unfair or adversely affect the public interest…
[81] In a prescient dissertation on the application of administrative law principles in private law, one academic writer asked whether there is a need for the Goliaths exercising public functions to be reviewable by the courts to protect individuals against those entities wielding a “giant strength.”55
[82] Mr Irving reminded the Court that there is no legislation in New Zealand requiring the banks to provide transactional services to customers and in the absence of such regulatory obligation, BNZ is entitled to manage its risks as it sees fit. There is no obligation for a bank to continue with customers it no longer wishes to deal with and that, he says, permits BNZ to rely on the common law principle of express termination on reasonable notice.
[83] These submissions raise the question as to whether there should be protections for consumers of banking services by way of an analogous form of the doctrine or a requirement on the banks to provide transactional services as a minimum.
Conclusion
[84] I conclude that it is seriously arguable that BNZ does not have an express unilateral power of termination and that either the default rule (or the Braganza extension) applies or there is an implied term in the contract to act reasonably. I consider there is a serious question to be tried under the breach of contract claim, and that the following sub-issues arise:
55 Calvin Liang “The Application of Administrative Law Principles in Private Law: the case for convergence” (2020) SJLS 427 at 427.
(a)Does BNZ have an express right to terminate the banking relationship for any reason or is it required to act reasonably?
(b)If BNZ is required to act reasonably, was its termination decision reasonable, procedurally and/or substantively?
(c)Is there a public interest obligation on BNZ as an essential service to provide a minimal or transactional banking facility to customers without alternative banking options?
[85] Having found that the threshold has been met and there is a serious question to be tried on the first cause of action, I do not need to address the arguments relating to the other causes of action. I now consider the second and third threshold questions.56
Balance of convenience and overall interests of justice
[86] In the next stage of the inquiry, the Court must consider where the balance of convenience lies in granting (or not granting) the interim injunction, and what is required by the overall interests of justice. Although, strictly speaking, these are two separate questions, the reasoning of the two are similar in these circumstances and so can be dealt with together.
[87] Mr Raymond submits that there is no real issue with determining the balance of convenience and overall interests of justice, which both clearly lie in the favour of Gloriavale. He says that nothing has changed since the first hearing of this matter and the decision of Dunningham J granting the interim injunction. Gloriavale argues that BNZ’s decision to terminate comes at a time where Gloriavale is making significant changes in their practice, addressing the very issues that BNZ say they have concerns about.
56 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd, above n 11, at [142];
[88]In relation to these questions, BNZ submits that:
(a)It is not in the overall interests of justice for BNZ to continue to provide banking services for a community that has coerced school aged children to work for them.
(b)Individuals within Gloriavale continue to have access to banking services.
(c)BNZ’s closure of the accounts does not result in the applicant’s funds being forfeited or frozen. Individuals retain access to bank accounts and closure does not prevent the systematic transfer of income.
(d)The Court should not grant an injunction ‘purely to delay the inevitable’.
[89] I accept the submission of Gloriavale that the balance of convenience and overall interests of justice lie in its favour here.
[90] When considering the balance of convenience, the Court must pay particular attention to the question of whether damages would be an adequate remedy for the plaintiff. If it is likely that they would be, it generally follows that the balance of convenience does not require any interim intervention of the Court.57 I am satisfied that damages is not an appropriate remedy here. Gloriavale risks losing the provision of a banking service in New Zealand, which is vital to its day to day functioning and operation.
[91] More importantly, declining to continue the interim injunction in this case will have the effect of determining the final proceeding. The closing down of Gloriavale’s operational and commercial accounts will detrimentally affect Gloriavale’s position.
57 Cabco Group Ltd v Bartlett (2009) 6 NZELR 500 (HC) at [30].
[92] There is a serious question to be tried on at least the breach of contract cause of action and it is appropriate that the Gloriavale accounts remain functional pending final resolution of the claim. I endorse Dunningham J’s observation, that there is no obvious detriment to BNZ continuing to provide these services,58 and I consider the overall interests of justice require that the interim injunction continues.
Result
[93] There is a serious question to be tried. The balance of convenience and overall justice favours allowing an interim injunction to continue until determination of the substantive claims.
[94] I therefore grant an order continuing the interim injunction to prevent the respondent from terminating the applicants accounts, as listed in Sch B of the applicant’s statement of claim dated 2 December 2022.
Costs
[95] If the parties cannot agree on costs, then the applicant may file and serve memoranda (no more than five pages with a Schedule) within 15 working days of this judgment. The respondent may file a response within a further five working days. I will thereafter determine costs on the papers.
Cull J
Solicitors:
Duncan Cotterill, Christchurch, for Plaintiffs Russell McVeagh, Auckland, for Respondents
58 Decision of Dunningham J, above n 2, at [29].
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