Summary
The Court of Appeal overturned an injunction, allowing a bank to close a client's account due to human rights abuse concerns, ruling there was no arguable case that the account closure breached the client’s rights.
Background
The Bank of New Zealand (“BNZ”) had a long-standing banking relationship (since 1999) with the Gloriavale Christian Community and associated entities (“Gloriavale”). BNZ provided transactional banking and relationship management services.
The relationship between Gloriavale and BNZ prior to the termination was generally positive.
On 10 May 2022, the Employment Court issued its judgment in Courage v Attorney-General. The court made adverse findings against Gloriavale regarding coercion, violence, and use of child labour. The court also noted serious concerns regarding sexual abuse within the Gloriavale community. Following the decision, Gloriavale made a public apology.
BNZ viewed these findings as establishing that Gloriavale’s conduct amounted to, or was likely to amount to, human rights abuses. They concluded that Gloriavale had breached the bank’s internal human rights policy, and that the banking relationship could not continue.
In July 2022, BNZ gave notice to terminate its banking services to the Gloriavale entities (“Termination Decision”). BNZ did not engage with Gloriavale to seek further information or assurances before making its decision, acting unilaterally based on their interpretation of the Courage decision and their own internal policies.
Following receipt of the notice, Gloriavale tried to find alternative banking arrangements but were unsuccessful. When BNZ was informed of this, they offered assistance in transiting to a new bank, but refused to alter their decision to terminate the banking relationship.
In December 2022,Gloriavale filed civil proceedings in the High Court alleging the Termination Decision was a breach of contract, breach of fiduciary duty, and estoppel by representation.
The High Court granted an interim injunction preventing BNZ from terminating the banking relationship pending trial.
BNZ appealed to the Court of Appeal.
The Case
The sole issue on appeal was whether any of Gloriavale’s causes of action were viable enough to meet the minimum standard for the court to issue an interim injunction (a ‘serious issue to be tried’).
Breach of contract
The Termination Decision relied on clause 8.2 of BNZ’s standard terms and conditions, which stated that BNZ could close a customer’s account “for any reason”. The contract listed examples of cases where accounts might be terminated but explicitly stated that the examples were not exhaustive.
The parties accepted the ‘reason’ for the Termination Decision was that BNZ had concluded Gloriavale had breached BNZ’s internal human rights policy.
Interpretation of clause 8.2
Gloriavale argued that clause 8.2 should be interpreted more broadly than its ordinary language suggested, that BNZ was required to have a reason to close their accounts, it must not be based on factual errors or be unreasonable.
The court rejected this broad interpretation.
The ordinary languageof cl 8.2 was clear – accounts could be terminated for ‘any reason’. While not determinative, the plain language gave a strong clue as to what the parties intended.
The background context supported the plain meaning. The clause reflected the default common law rule that the banking relationship was terminable on reasonable notice – had the parties intended to change this rule, clearer language would be expected. Other contextual clues were that the terms were uniformly applicable to BNZ customers (meaning a greater emphasis on certainty was expected), and that the customer was protected by being able to also terminate the banking relationship at notice and find a new bank.
In light of this, the court held that a reasonable observer would conclude that the contract meant exactly what it said. BNZ had an unqualified power to terminate the contract for ‘any reason’. Gloriavale’s interpretation would amount to rewriting the contract.
Implied term
Gloriavale made a related argument that clause 8.2 was subject to an implied term that the discretion to terminate the banking relationship must not be exercised arbitrarily, capriciously, or in bad faith. This argument was founded on a ‘default rule’, derived from UK case law that applied to all contracts unless excluded by the parties.
The court declined to rule on whether the default rule was recognised in New Zealand law, holding that this was more appropriately assessed in a full trial. They instead decided the case on a narrower implied term that had been previously recognised in NewZealand – that all contractual discretions must be exercised in good faith and for a proper purpose.
Applying the narrower ‘proper purpose’ test, the court held that Gloriavale had failed to establish an arguable case that the term had been breached. Gloriavale had not contended that the discretion had been exercised in bad faith, and it was clear that the discretion had been exercised for the purpose for which it was granted – namely to terminate the banking relationship for any reason. There was no question that BNZ had acted for a reason other than a genuine desire to terminate its relationship with Gloriavale.
Outcome
Because the court had rejected Gloriavale’s arguments on interpretation and implication of terms, there was no serious issue to be tried that BNZ had breached the contract. However, the court went on to hold that, if the default rule were adopted, Gloriavale would have had an arguable (but weak) case on whether the Termination Decision breached an implied term of the contract.
Other causes of action
The court rejected Gloriavale’s claims based on breach of fiduciary duty and estoppel. In the case of the former, legal precedent clearly established that the banker/customer relationship was not fiduciary in nature. Regarding the latter, the court found the claim to be completely unsubstantiated.
Result
The Court held that there was no serious issue to be tried on any of the causes of action pleaded by Gloriavale. Accordingly, the High Court did not have jurisdiction to grant the injunction, and the Court of Appeal quashed the orders it had made.
The legal reasoning and commercial sense of the judgment are sound. The court was correct to note that reading any protection into clause 8.2 would have amounted to a judicial rewrite of the contract.
However, the breadth of the discretion recognised by the Court of Appeal is concerning from a freedom of expression standpoint. Controversial or unpopular bank customers now face the risk of losing banking services without good reason and without the chance to be heard. As the court recognised, there is no obligation for other banks to take on clients that have been terminated by their competitors.
It remains to be seen whether Gloriavale will appeal the case to the Supreme Court or pursue the case to trial.
For more information on this case or related issues please contact Director Brigitte Morten
