07.12.2023

Gloriavale and BNZ – where is the line on the right of accessibility to services?

Whether accessibility to banking services is a fundamental right is an issue that is currently before the High Court in the dispute between Bank of New Zealand (BNZ) and the Christian Church Community Trust, more commonly known as the Gloriavale Christian Community (Gloriavale).  So far, the Court has only issued decisions relating to interim measures.  We consider the substantive decision – which may yet be some time away – has the potential for wider application than just the banking industry.  In particular, insurers should pay attention given the potential for similar arguments to arise in the context of insurance. 

This case note explains the recent decision in which the Court granted an order continuing the interim injunction preventing BNZ from closing Gloriavale’s accounts.

Christian Church Community Trust v Bank of New Zealand [2023] NZHC 2523

Background

In July 2022, Bank of New Zealand (BNZ) gave notice of its intention to terminate its banking relationship with 16 entities associated with Gloriavale, which impacted all of Gloriavale’s 83 accounts.  BNZ took this action following a decision of the Employment Court that three members of Gloriavale had been employees from the age of six until they left, in breach of BNZ’s Group Human Rights Policy.  Our employment team wrote about that Employment Court’s decision here; since then, there has been a further decision finding more Gloriavale members were employees (which we discuss here).

Gloriavale had been a customer of BNZ for 40 years.  Following BNZ’s notice, Gloriavale unsuccessfully applied to open accounts with other banks. 

Gloriavale applied to the High Court pleading three causes of action: breach of contract, breach of fiduciary duty, and estoppel by convention.  In doing so, it sought an interim injunction – a protective order that, essentially, preserves the status quo – to prevent BNZ from terminating its relationship with them.  This case considered whether or not to continue the injunction.

The Court heard submissions from counsel on the common law principles applying to the exercise of absolute contractual discretion.  The default rule provides that, where a contract confers a discretionary power on one party, that party must not exercise the discretion arbitrarily, capriciously, in bad faith, or unreasonably in the sense that no reasonable contracting party could have so acted.  After the hearing, the Court of Appeal delivered its judgment in the separate case Woolley v Fonterra Co-Operative Group Ltd [2023] NZCA 266.  In that decision, the Court assumed the default rule was applicable in New Zealand without expressly deciding the point. 

BNZ argued that there was no restriction on the nature or quality of the reason for closing a customer’s bank accounts, only that it had to give reasonable notice.  Gloriavale argued that BNZ’s power was constrained by the default rule.

The Decision

There are three questions the Court must consider when deciding whether to grant (or to continue) an interim injunction:

  • whether there is a serious question to be tried;
  • where the balance of convenience lies; and
  • the overall interest of justice.

This decision turned largely on whether there was a serious question to be tried with regard to the breach of contract claim – which the Court held there was.

The Court noted that while BNZ’s power to close accounts appears absolute, the courts have developed a default rule to control the unreasonable exercise of unilateral contractual powers. 

The Court considered it was seriously arguable that BNZ had exercised its discretion unreasonably.  Procedurally, BNZ did not engage with Gloriavale, did not fully disclose its policies, and did not consider the length of the relationship in exercising its discretion to terminate. 

When assessing the BNZ’s substantive decision-making, the Court considered there were three factors relevant to the question of whether BNZ’s discretion had been exercised reasonably. 

First, whether BNZ was managing a real risk to its banking operations.  On this point, the Court observed that, while the Employment Court had condemned Gloriavale’s use of child labour, it was not criminal behaviour (such as trafficking) for which substantial penalties are imposed.  Further, BNZ’s decision could be distinguished from cases involving a bank taking steps to avoid anti-money laundering requirements, economic trade sanctions, or breach of a Court order. 

Second, whether unilateral termination of a banking contract and the customer relationship is reasonable when there are no other banking services available.  On this point, the Court held it is seriously arguable that BNZ does not have an express unilateral power of termination and either the default rule applies or there is an implied term in the contract to act reasonably.

Third, whether banking services are an essential service, importing public interest obligations on BNZ arising from its contractual relationships.  In relation to this point, the Court referred to the doctrine of prime necessities (which provides for a form of price regulation application to essential services such as the supply of water, electricity, and the removal of sewerage) and identified that there is a serious question as to whether there is a public interest obligation on BNZ as an essential service to provide a minimal or transaction banking facility to customers without alternative banking options.

In finding that the balance of convenience and overall interests of justice lay in continuing the injunction, the Court noted that damages would not be an appropriate remedy.

Therefore, the order was granted, continuing the interim injunction to prevent BNZ from terminating Gloriavale’s accounts until the determination of the substantive claims.

If you have any questions about this recent decision, and its potential application to wider industries, please get in touch with our Disputes Team or your usual contact at Hesketh Henry.

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

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Kerry
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

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