Court of Appeal rules Gloriavale’s challenges to BNZ decision to close its account are not seriously arguable

| Hesketh Henry | Stephanie Corban |

Background

BNZ made the decision to close the accounts of 16 entities associated with the Gloriavale Christian Community following a decision by senior management that this action was appropriate given the BNZ’s internal human rights policy. BNZ gave notice to Gloriavale. The various entities attempted to establish alternative banking arrangements but were unsuccessful.  They obtained an interim injunction preventing BNZ terminating the accounts pending trial. 

In our article discussing the High Court decision, we noted a future substantive decision in the case might have wider application than just the banking industry and could be of interest to insurers. 

Our previous article focussed on the High Court’s view that it was reasonably arguable that the common law “default rule” controlling the exercise of unilateral contractual powers or discretions applied to the case.  The default rule provides for an implied term requiring a party exercising a contractual discretion to do so honestly and in good faith, and not arbitrarily or capriciously or unreasonably/irrationally.  The High Court also considered the “expanded default rule” (drawn from the UK Supreme Court decision in Braganza v BP Shipping Ltd) might be applicable to the banking relationship, with the effect that the decision-maker must take relevant matters into account and must not take irrelevant matters into account.  The High Court found that whether BNZ had acted reasonably was a seriously arguable issue.

The BNZ appealed and in December 2024 the Court of Appeal issued its decision.[1]  The Court of Appeal set aside the injunction and gave a withering assessment of Gloriavale’s arguments.  A substantive decision by the High Court is now unlikely.

In this article we highlight certain aspects of the decision insurers will find comfort in.

Clarity is key

At the heart of the case was BNZ’s terms and conditions – in particular clause 8.2 which provided: “We can close your account or end any other product or service … for any reason”.  Examples of when this might occur were then provided.  It was expressly stated that the examples did not limit the reasons why BNZ might close or suspend an account.  The Court found the meaning of the clause was clear and that BNZ could terminate an account for any reason.

The Court dismissed Gloriavale’s argument that the regulatory framework was relevant to the interpretation of clause 8.2.

Discretion exercised for a proper purpose

The Court then considered whether there was an implied term restricting the exercise of the power in clause 8.2.  The Court accepted that there may be cases where an implied term should constrain the exercise of the power of termination if the circumstances meant termination would defeat or undermine the purpose of the contract by denying the very benefit promised under it.  It referred to the UK Supreme Court’s decision in Tesco[2] as an example.  In that case Tesco was seeking to misuse a termination provision in employment contracts to remove a benefit for employees who had been offered continued employment on identical terms except for the particular benefit.  

The Court found an implied term to exercise the power for a “proper purpose” would add nothing because clause 8.2 was clear – BNZ could bring the banking relationship to an end if it wished to do so “for any reason”.  The Court observed that it was common ground BNZ genuinely wanted to terminate its relationship with Gloriavale.  Accordingly, taking a “proper purpose” approach, it was not seriously arguable that BNZ had breached any relevant implied term.

No seriously arguable issue even if default rule or Braganza approach applies

The Court acknowledged the law in relation to implied terms that limit the exercise of contractual powers and discretions is presently unsettled.  Nonetheless, it considered whether there would be a seriously arguable issue for trial if New Zealand was to adopt the default rule or the Braganza approach as terms implied in law.  On the facts, the Court found it was not seriously arguable that BNZ had acted dishonestly, in bad faith, arbitrarily, capriciously or irrationally. 

Moreover, the Court acknowledged a bank may have a legitimate commercial and reputational interest in adopting, and acting on, policies in relation to matters such as social and environmental responsibility and human rights.

Takeaways 

• Clear and unambiguous wording is critical, and the Court will give effect to it.
• The Court indicated it favours the “proper purpose” approach – so a power to terminate must be exercised for the purpose for which the power was conferred under the contract.
• When exercising a contractual discretion to terminate, if the decision maker has acted dishonestly, in bad faith, arbitrarily, capriciously or irrationally, the Court may give relief to the affected party, but the law in New Zealand is not settled.
• Other commercial operators, such as insurers, should be heartened by the Court’s acknowledgement that banks may have regard to legitimate commercial and reputational interests in implementing and enforcing policies relating to social and environmental responsibility and human rights. Large banks and insurers are obliged to make climate related disclosures and thus required to ensure the effects of climate change are routinely considered in business, investment, lending and insurance underwriting decisions.