Gloriavale is a controversial and reclusive Christian community which also operates a number of commercial enterprises. In 2022, three ex-members obtained a declaration from the Employment Court that they were legally employees when they worked in those enterprises as children. The judge found that “the ready access to child labour (children of adult residents) constitutes a significant factor in the success of the Gloriavale business model”, and that children were if necessary coerced to work in conditions that were “often dangerous [and] required physical exertion over extended periods of time”. Consequences for non-compliance with the direction of Gloriavale’s leadership included “physical and psychological punishment”.
Gloriavale has banked with BNZ since 1999, but after the Employment Court’s decision BNZ decided to terminate all the accounts held by Gloriavale and its entities. BNZ relied on its standard terms and conditions, which said that it could close a customer’s account “for any reason,” and on its internal human rights policy which committed it to avoid complicity in human rights abuses including “forced labour, or child exploitation”. Gloriavale contested BNZ’s interpretation of events and of the terms and conditions, and obtained an interim injunction in the High Court that prevented BNZ from closing the accounts pending a full hearing of the dispute. This was significant as Gloriavale had been unable to find another bank willing to provide services.
BNZ appealed against the interim injunction, and won.
Issues
The key issue for the Court of Appeal concerned the contract between BNZ and Gloriavale, and whether “any reason” should be interpreted literally and without qualification. The Court also had to consider whether this kind of contractual discretion should be qualified by an implied term that required BNZ not to act arbitrarily, capriciously or unreasonably.
Gloriavale also submitted that BNZ owed it fiduciary duties and should be estopped from closing the accounts, but the Court gave these arguments short shrift, saying they were not established by the evidence.
In the High Court, Gloriavale had argued that there was “a public interest obligation on BNZ ‘as an essential service to provide a minimal or transactional banking facility to customers without alternative banking options.’” However, it abandoned this argument on appeal. In any case, the Court noted that while the law in some other jurisdictions creates a right to basic banking facilities, this obligation does not exist in our law and it was not open to the courts to create it.
The meaning of the terms and conditions
Contracts, said the Court, must be interpreted objectively to establish “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”
Gloriavale argued that the relevant background knowledge and context included the fact that the terms and conditions were “not a negotiated outcome arrived at by legally advised parties” but were “unilaterally imposed by BNZ”. It also argued that BNZ had failed to show good faith by giving no warning of its intention to close the accounts, failing to provide the human rights policy used to assess Gloriavale’s conduct (a copy was only provided in evidence at trial), giving Gloriavale no opportunity to correct what it said were errors of fact, “no opportunity to provide reassurance about future conduct,” and being unwilling to reconsider its decision when Gloriavale approached them with more information and advised that they could not find an alternative bank.
However, the Court said that the point of standard terms is to apply in the same way to all customers, without consideration of individual circumstances, in order to “create certainty for the parties.” In any case, the events relied on by Gloriavale were all subsequent to entering into the contract with BNZ and could not change its meaning. And, said the Court, BNZ is one bank among many and customers’ real protection against unreasonable treatment “is not found in the contract—rather, it lies in their ability … to move their funds (or overdraft) to another bank”.
So, the Court said, “‘any reason’ means what it says, as the language in a commercial contract usually will.” Gloriavale had argued that BNZ needed a “qualifying reason” by reference to a list of examples in the terms that illustrated when BNZ might close an account. The Court disagreed, noting that these examples were expressed “without limiting” the reasons the bank might invoke. The most that could be said was that “a contractual power – including a termination power – must be exercised only for the purpose for which it is conferred.”
As the terms and conditions also allow customers to terminate their accounts at any time and for any reason, the Court considered there was no “lack of balance in the contract”.
Was there an implied term in the contract?
Gloriavale argued that BNZ’s power of termination should be subject to an implied term that it would not be used in an “arbitrary, capricious, or unreasonable” way. The High Court accepted this was arguable when it granted the interim injunction, based on authorities upholding this “default rule” when contracts contain discretionary powers. The High Court also noted a recent decision of the UK Supreme Court, Braganza v BP Shipping, that contractual discretions cannot be exercised “irrationally” in a public law sense.
However, the Court of Appeal declined to follow Braganza, saying that “public powers are conferred for the public good, and a public authority may not pursue its own self-interest when exercising discretion.” By contrast, contracting parties are entitled to pursue their own self-interest.
It also noted the unsettled state of the authorities on whether a “default rule” should be implied, and preferred an approach that asked whether any terms needed to be implied “in fact”, that is, to make the contract effective in the way the parties intended. It concluded that BNZ’s terms and conditions were clear and were being used for the purpose for which they were created. This was consistent with the Court’s observation that even where default terms are possible, they can be displaced by express terms.
But because this was an interim hearing, the Court didn’t decide definitively against the possible existence of the default rule or application of the Braganza approach. Instead, it considered whether Gloriavale would have a “seriously arguable” case justifying an interim injunction if that rule or approach was applied. The Court did not consider that BNZ acted “arbitrarily or capriciously”, saying that it “identified reasons” for its decision based on its human rights policy and the Employment Court decision, and that it “made a considered decision at a senior level.” It went on to say:
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. So, for example, it would not be arbitrary or capricious or irrational for a bank to adopt an environmental responsibility policy, and to decide not to provide banking facilities for a major polluter pursuant to that policy, however regular the conduct of that entity’s accounts and however good that banking relationship may have been.
Although it reiterated its view that the plain meaning of the terms and conditions did not allow any qualifying terms to be implied, the Court accepted that BNZ had not “engage[d] with the Gloriavale entities in any way before it made its decision.” If it had been possible to imply a term like the default rule, this would have created a “serious question to be tried”. However, even this would not have justified an interim injunction; the Court considered that Gloriavale’s argument at trial would have been “very weak” given the clear meaning of the termination clause and of the overall scheme of the terms and conditions.
Conclusion
The Court of Appeal said that if the injunction was continued, BNZ would be forced to bank Gloriavale against its will and its good faith judgment “that doing so is inconsistent with its internal policies.” By contrast, discharging the injunction “would simply remove one provider as an option” for Gloriavale “in a market where there are multiple providers”. Moving accounts would be inconvenient, but not the kind of “serious or irremediable prejudice … that would justify granting an injunction.”
Against Gloriavale’s pleading that it could not find another bank willing to accept it, the Court said, “that reluctance cannot be laid at the door of BNZ.” Instead, it reflected “the characteristics of those [Gloriavale] entities that are perceived by other bankers as relevant to the costs and risks of dealing with them – matters that are within those entities’ control.” In fact, said the Court:
it would be in precisely those circumstances that the prejudice to BNZ of being required to provide services to customers that no other bank wishes to deal with would be most apparent, and would weigh most strongly against granting an injunction.
BNZ had given an undertaking that, if the injunction was removed, it would continue to bank Gloriavale for another three months to allow them make other arrangements. The Court of Appeal therefore set aside the injunction with immediate effect, leaving the bank free to proceed with the termination of Gloriavale’s accounts.
