Can banks terminate unpopular customers? 

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In a landmark decision, the High Court has granted an interim injunction preventing BNZ from closing accounts of customers it no longer wanted to deal with. The Court held that it was seriously arguable that BNZ had to act reasonably and with procedural fairness when terminating customers’ accounts. The Court went further however, finding that there may be a public interest obligation on BNZ to provide minimal or transactional banking facilities to customers without alternative banking options.

Banking relationships (specifically access to banking services by vulnerable groups) are under the spotlight by way of a Commerce Commission Review. That review raises the challenges some groups have in accessing banking services and asks for feedback. The decision in The Christian Church Community Trust and others v BNZ demonstrates the issue under consideration by the Commission and raises the question of whether New Zealand ought to protect the right to a bank account.

For 40 years, BNZ has provided services to the various entities and individuals who now form part of the Christian Community at Gloriavale. In July 2022 BNZ announced it was terminating community banking services, relying on standard terms that said it can close accounts for any reason and on an internal human rights policy which it said had been breached.

As part of its internal processes, BNZ relied on entries from Wikipedia pages and New Zealand Herald articles without checking their veracity and asserted that a lack of engagement with the Community did not matter as it would not have changed the outcome of its decision.

The Community was not able to secure new bank accounts so applied to the Court to keep their accounts open.

BNZ argued that its right to terminate a banking relationship was absolute. The Community argued BNZ was exercising a contractual discretion and that the so-called “default rule” that controls the exercise of unilateral contractual powers or discretions applied. The effect of that rule is that a discretion cannot be exercised arbitrarily, capriciously, or unreasonably. The Court held that whether a narrow or wide version of that rule was applied, it was reasonably arguable that the rule applied to BNZ when it exercised its discretion to terminate under its terms and conditions and that it was seriously arguable that it had not acted reasonably.

The Court went on to consider whether there were public interest obligations on BNZ. Many overseas jurisdictions recognise access to banking services as a fundamental right. The European Commission has referred to access to a bank account as a “pre-condition for participating fully in the economic and social life of a modern society”. New Zealand provides a nod to this in s44 of the Human Rights Act. The Court raised the question of whether it should intervene when there are the interests of large corporations on one hand and the interests of the public on the other. It referred to academic views that there may be a need for Courts to review the “Goliaths exercising public functions” to protect individuals against those with “giant strength”.

The Court distinguished the recent case of Targa v Westpac – a case where Westpac ran a real risk of being in breach of the sanctions regime.

This is an interim decision without the benefit of full evidence and argument. Despite that, the decision should sound a caution to industries seeking to be the moral arbiter of who participates fully in society and who does not. Those in the fossil fuel industry for example, as well as individuals with serious criminal convictions, or certain political or social views are increasingly on the radar of head offices around the Western world. As Coutts bank discovered in the UK with Nigel Farage, reliance on “reputational risk” based on a moral stance may be a dangerous basis on which to withdraw service. Those in dominant positions seeking to terminate contractual relationships with “unfashionable” industries or individuals should proceed with care.

Partner Ayleath Foote and Senior Solicitor Clare Sykes of our Christchurch office advised the applicants in this case. Special thanks to both for preparing this article. If you require further information on this decision, please contact Ayleath or a member of our litigation and dispute resolution team


Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

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