Yesterday, the High Court publicly released an important judgment for banks and bank customers: E-Trans International Finance Ltd (E-Trans) v Kiwibank Ltd. It confirms that the bank was entitled to rely upon its general terms and conditions to close a customer’s accounts on 14 days notice, without reasons.
E-Trans is a money remittance provider, which held a number of accounts with Kiwibank. Kiwibank notified E-Trans that it was going to terminate its relationship with E-Trans and close all of its accounts. E-Trans successfully sought an interim injunction restraining Kiwibank from doing so, pending resolution of the substantive issues in the case. Those issues were:
- the scope of the bank’s contractual rights to terminate a customer relationship;
- whether the termination power in the contract had, or was likely to have, the effect of substantially lessening competition in breach of the provisions of the Commerce Act 1986;
- whether the Anti-Money Laundering and Countering the Financing of Terrorism Act 2009 (AML Act) imposes any statutory duty enforceable as a private law right on a bank which affects a bank’s ability to terminate a customer relationship; and
- whether s 9 of the Fair Trading Act 1986 (FTA) applied to the reasons given by Kiwibank for terminating the contract.
The contractual issues
Kiwibank asserted that its relationship with E-Trans was at an end as it had terminated its contract with E-Trans on 14 days notice, as permitted by its general terms of contract.
E-Trans contended, however, that Kiwibank had breached an implied term of the contract to act fairly and reasonably in exercising its power to terminate the contract. E-Trans said that that term was implied into the contract through the Code of Banking Practice (the Code).
The High Court dismissed E-Trans’ argument. In doing so, the Court noted the previous decisions of the Court of Appeal in Forivermor v ANZ Bank New Zealand Ltd, and Gardiner v Westpac New Zealand, which held that:
- the Code is not incorporated into a banker’s relationship with its customers by way of custom (Forivermor); but
- it was possible to envisage an argument that a borrower may enter into an agreement on the basis of assurances taken from reading the Code, if expressly incorporated (Gardiner).
In relation to the possibility of the Code being expressly incorporated into the contract, the Court stressed that this would require a variation of the contract which, to be effective, would require a person with actual or ostensible authority to commit the bank to qualifying its absolute right to terminate the contract on notice.
On the facts of the case, the Court held that there was no evidence that the Code was expressly incorporated into the contract. The director of E-Trans was simply given a copy of the Code at the counter of the bank. The Court found that it was “inherently implausible” that the director could have believed that someone at the counter would have had ostensible authority to bind Kiwibank to a variation to its contract with E-Trans.
The Commerce Act issue
The Court dismissed E-Trans’ arguments that Kiwibank’s exercise of its power of termination amounted to anti-competitive conduct. These arguments were made against the background of a global trend of banks terminating relationships with money remitters, which might mean that E-Trans has difficulty establishing a relationship with an alternative New Zealand bank.
E-Trans’ arguments in this respect were centred on s27(2) of the Commerce Act 1986 that provides that “No person shall give effect to a provision of a contract, arrangement, or understanding that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market.”
The Court accepted Kiwibank’s submission that a contractual right allowing a party to terminate on notice does not fall within the ambit of s27(2) of the Commerce Act. Further, the Court held that, when a party terminates a contract validly on agreed terms, that otherwise valid act cannot be converted into an invalid act by the operation of s 27(2).
Additionally, the Court held that, even if it was incorrect on that interpretation, E-Trans would still fail because the Court was not satisfied as a matter of fact that the termination of E-Trans banking contract by Kiwibank could have the effect of substantially lessening competition in the relevant market. The Court defined that market as the retail market in Auckland for the supply of international remittance services to and from Auckland (although said it was inclined to extend that to New Zealand as a whole).
The AML Act issue
The Court held that there was no legal basis for a statutory duty enforceable as a matter of private law under the AML Act, as the duty was not owed to a defined class, it was for a public purpose, and the remedies available were strong indicators that a private law duty was not intended to be created.
The Court did recognise, however, that there was some (non-justiciable) conflict within the public policy goals in the AML Act that impacted on market participants such as Kiwibank and E-Trans. In that respect, the judgment sets out a “non-exhaustive” list of policy choices that “could be given effect through exemptions, guidance from a supervisor, some other existing statutory mechanism or a specific amendment to the Anti-Money Laundering Act”.
The FTA issue
The Court found that E-Trans’ claim under s 9 of the FTA must fail, even if (which was not decided) Kiwibank had given misleading reasons for the termination of E-Trans’ accounts in trade. Such failure was inevitable as there was no causal link between the alleged misleading statements made by Kiwibank and any loss or damage suffered by E-Trans.
Russell McVeagh acted for Kiwibank in this proceeding. Counsel were Tom Weston QC, Andrew Butler (Partner) and Sarah Keene (Partner).
This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice.