“De-banking” involves a bank terminating a customer’s account and leaving them to find an alternative financial institution—if they can. Banks can close accounts for perfectly legitimate reasons, like bankruptcy, or where an account is used for criminal purposes, or there are insurmountable regulatory risks. But the cases that usually create headlines and attract the de-banking tag are those that suggest an account has been closed because the customer is unpopular or holds controversial beliefs.
Gloriavale banks with BNZ, and the bank is arguing it’s entitled to close Gloriavale’s accounts because of their history of illegally employing child labour; Gloriavale is contesting the closure through the courts. This case note doesn’t argue for or against Gloriavale; the sect is often in the news for the wrong reasons. But it’s important to look carefully at the principles involved in cases like these, which can set precedents with significant implications for a much wider range of individuals and organisations.
Gloriavale has 83 accounts with BNZ across 16 different businesses and entities. In July 2022, BNZ told Gloriavale it intended to close all these accounts after the Employment Court found that Gloriavale had been employing children as young as six. BNZ relied on a contractual provision that said it could close a customer’s account “for any reason”, and also argued that Gloriavale’s employment law breaches (and other issues) were contrary to BNZ’s Group Human Rights Policy, which prohibits involvement in “modern slavery practices such as servitude, forced labour, ... and the exploitation of children.”
Gloriavale tried and failed to find an alternative bank, and eventually went to court seeking an interim injunction to stop BNZ closing the accounts until there could be a full hearing of its claim that BNZ’s intended termination breached its banking contract. Gloriavale said, too, that some of the matters BNZ relied on were historic, that other allegations were unverified and hadn’t been discussed with it by BNZ, and that it was actively addressing the issues raised by the Employment Court decision which in any case only related to one of its entities.
An application for an interim injunction like this one isn’t designed to resolve the substance of disputes. Instead, an applicant asks a court to temporarily order the other party to take no action until the substance can be argued out properly. This is meant to preserve the parties’ position, for example if the action in question would have irreversible consequences. The court merely asks whether there’s a “serious question to be tried” at a substantive hearing, whether the “balance of convenience” works for or against granting an injunction, and where the “overall interests of justice” lie. That means the court only takes a preliminary look at the legal issues; full argument waits for another day.
In this case, the High Court granted Gloriavale’s application and temporarily restrained BNZ from closing the accounts because it said there were genuine legal and factual questions that needed full argument. One of these was whether a contract that contains a wide, “for any reason” discretion should actually be subject to a common law “default rule” that someone using the power must not act “arbitrarily, capriciously or in bad faith, or unreasonably in the sense that no reasonable contracting party could have so acted.” The High Court asked itself whether BNZ was “having to manage its actual risk and commercial interests” in seeking to close Gloriavale’s accounts or whether it “simply no longer want[ed] to deal with Gloriavale and wished to distance itself from that community”. At least at this interim stage, the judge said that BNZ had not provided sufficient evidence of risk. He also thought it significant that the employment law breaches, while illegal, were not criminal, and that closure of the accounts would prevent Gloriavale functioning commercially or paying its suppliers or employees. It would also effectively determine the final outcome with Gloriavale’s arguments unheard.
It almost goes without saying that Gloriavale is not a sympathetic plaintiff, and not only because of the Employment Court findings. The organisation is facing on-going litigation alleging multiple breaches, like the recent report that former members are suing Gloriavale claiming they were "deliberately entrapped into slavery".
But as noted earlier, there are issues of principle involved that could affect others including, as the High Court said, that “without access to banking services, businesses ... cannot operate in the market.” Indeed, “[i]f termination can occur for any reason, this case demonstrates that it places a commercial body in a powerful position to determine whether a customer is acceptable to the bank or not.” In fact, one reason the judge stayed BNZ’s hand pending a substantive hearing was the need for fuller argument on whether there is a “public interest” in banking, or at least “a minimal or transactional banking facility”, being treated as an essential service for “customers without alternative banking options”.
BNZ has recently won the ability to challenge the interim injunction in the Court of Appeal. If it wins and the injunction is removed, those questions about public interest may have to wait for another day for resolution.
The Christian Church Community Trust v BNZ [2023] NZHC 2523
