IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2015-404-694 [2015] NZHC 1417 BETWEEN AND E-TRANS INTERNATIONAL FINANCE LIMITED Plaintiff KIWIBANK LIMITED Defendant Hearing: 23 April 2015 Appearances: J A Farmer QC and H M Lim for Plaintiff A S Butler and S C Keene for Defendant Judgment: 23 June 2015 JUDGMENT OF M PETERS J This judgment was delivered by Justice M Peters on 23 June 2015 at 11 am pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar Date:... Re-delivered at 11.30 am on 26 June 2015 as per minute of M Peters J of 26 June 2015 Solicitors: Counsel: Forrest Harrison, Auckland Russell McVeagh, Wellington J A Farmer QC, Auckland E-TRANS INTERNATIONAL FINANCE LTD v KIWIBANK LTD [2015] NZHC 1417 [23 June 2015]
[1] The Plaintiff ( E-Trans ) seeks an interim order restraining the Defendant ( Kiwibank ) from closing its accounts and facilities ( accounts ) pending further order of the Court. [2] Kiwibank opposes the application. There is no dispute that Kiwibank wishes to close the accounts. The issue is whether it should be restrained from doing so pending determination of E-Trans proceedings. [3] To succeed in its application, E-Trans must establish that the overall justice of the case lies in its favour, having regard to whether there is a serious issue to be tried and where the balance of convenience lies. 1 Background [4] E-Trans carries on business in Auckland as a foreign exchange dealer and as a remitter of foreign currency. It has banked with Kiwibank since 2004 and is said to have opened its most recent account in January 2014. 2 [5] On 10 March 2015 Kiwibank requested a meeting with E-Trans, the purpose of which was to inform E-Trans of the bank s decision to close the accounts because [E-Trans] was a money remitter. 3 The meeting took place on 23 March 2015 at which time Kiwibank s representative, Mr Britz, advised that it proposed to close the accounts, essentially because Kiwibank considered that E-Trans business posed too great a risk to and burden on the bank under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 ( Act ). [6] That meeting on 23 March 2015 was followed by an email the same day from E-Trans asking Kiwibank to reconsider, which Kiwibank declined to do. By letter dated 26 March 2015, Kiwibank advised: 4 Kiwibank is no longer able to offer you banking services. 1 2 3 4 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 140 (CA) at 142. Plaintiff s Bundle of Documents for Application for Interim Injunction at 105. Affirmation of X Sun affirmed 31 March 2015 at [9]. At Exhibit F.
This is due to the fact that there has been a change in bank policy regarding accounts associated with money remittance or money changing services. Your account(s) will be closed on April 10 th 2015. This gives you the opportunity to make alternative banking arrangements. Yours sincerely... [7] Despite further correspondence, Kiwibank s position remained unchanged and E-Trans commenced this proceeding on or about 31 March 2015. Kiwibank undertook not to close the accounts pending further orders. [8] As E-Trans understands it, the change in policy to which the letter of 26 March 2015 referred was to close the account of any customer carrying on business as a recipient or remitter of foreign exchange. [9] In any event, Kiwibank s suggestion that E-Trans might make alternative banking arrangements was and remains incorrect. Mr Sun s evidence is that all the major trading banks are taking similar action and, indeed, other accounts that E-Trans has held with other banks likewise have been closed. [10] Mr Sun s evidence for E-Trans is that, to the best of his knowledge, 8 of the 15 specialist money remittance and currency exchange providers trading in Auckland have had their bank accounts closed. To the extent that those providers have continued to operate, Mr Sun s evidence is that they have done so in a much reduced and/or limited manner. On the evidence before me there is no prospect of E-Trans opening an account or accounts with another major trading bank if Kiwibank closes the accounts. Accordingly, I proceed on the basis that, in the absence of an order, E-Trans will be required to cease trading. Serious issue to be tried [11] E-Trans case is that a serious issue to be tried arises on one or more of the following grounds:
(a) it is a term of the banking contract between the parties ( contract ) that Kiwibank will act reasonably, fairly, consistently and ethically, and Kiwibank will be in breach of this obligation if it closes the accounts; (b) in closing the accounts, Kiwibank would be giving effect to a provision of a contract (ie the contract) which has or is likely to have the effect of substantially lessening competition in a market, being the market in Auckland for the provision of currency exchange and money remittance services; 5 (c) that closing the accounts would constitute a breach by Kiwibank of its statutory duties under the Act. Breach of contract [12] E-Trans case as to breach of contract is based on the Code of Banking Practice ( Code ), this being a code of practice to which Kiwibank and all major trading banks subscribe. [13] E-Trans case is that the terms of the Code form part of the contract or otherwise affect its construction, that Kiwibank is required to act reasonably, fairly, etc and that Kiwibank will be in breach of this obligation if it closes the accounts as it proposes. Kiwibank disputes both of these matters. [14] Kiwibank s case is that the terms and conditions of the contract are set out in Kiwibank s General Terms and Conditions and do not include the terms of the Code. Clause 7 of the General Terms and Condition provides: 6 We [Kiwibank] may close your account at any time (and do not have to give you a reason why) but must give you notice at least 14 days before doing so. 5 6 Commerce Act 1986, s 27(2). Affidavit of H Rosemergy sworn 15 April 2015 at HR-6. These General Terms and Conditions are effective July 2014.
[15] On the face of this provision, Kiwibank submits that it gave the requisite 14 days notice and, accordingly, that it is entitled to close the accounts. [16] As I have said, E-Trans submits that the provisions of the Code are incorporated in the contract. [17] Counsel for E-Trans, Mr Farmer QC, referred me to the following provisions of the Code: 7 1.1 This Code (c) This Code records good banking practices. We agree to observe these practices as a minimum standard. This Code is not a complete record of our relationship with you, as specific products and services may have their own terms and conditions. These terms and conditions may include additional rights and obligations for both you and us. This Code does not alter or replace those terms in any way. 1.2 Governing Principles and Objectives of the Code (a) The purpose of the Code is to: (i) record and communicate to you the minimum standards of good banking practice that we will observe; (b) In order to achieve these objectives we will: (i) comply with the provisions of this Code; (iv) act fairly and reasonably towards you, in a consistent and ethical way. What may be fair and reasonable in any case will depend on the circumstances, including our conduct and yours. 3.1 Accounts, Products and Services... Closing of Accounts and the Withdrawing of Products and Services (i) Either you or we may end any banking relationship at any time, and we may withdraw any product or service, as long as any relevant terms and conditions are adhered to. We will not normally close your accounts or withdraw a product or service until we have given you at least 14 days notice setting out the relevant details. 7 Affidavit of H Rosemergy, above n 6, at HR-7.
However, there may be circumstances where we close your account or withdraw a product or service without prior notice. Examples are: (i) (ii) (iii) (iv) complying with a court order; if you have acted unlawfully; if you have breached our terms and conditions; or if you have acted abusively to our staff. [18] There is scant evidence before me as to the matters of fact likely to be relevant to the issue of whether the terms of the Code are incorporated in the contract, let alone their effect. Mr Farmer advised me that it was only on receipt of Kiwibank s evidence and submissions that E-Trans apprehended the factual background would be in issue, hence the omission in the evidence. Mr Farmer also advised, however, that if the injunction were granted, E-Trans would amend its statement of claim to allege that Kiwibank had provided a copy of the Code to E-Trans in or about 2007 and that E-Trans had retained the same throughout. [19] In disputing E-Trans submission as to incorporation, Mr Butler, counsel for Kiwibank, referred me to the Court of Appeal s decision in Forivermor v ANZ Bank New Zealand Limited as authority for the proposition that the Code does not form part of the contract between bank and customer. 8 In Forivermor, ANZ offered finance to Forivermor to assist with the purchase of a farm. In essence, the offer was conditional on Forivermor raising additional finance from the sale of another farm, which was expected to realise a particular price. Forivermor realised less than expected on the sale of that other farm and ANZ refused to provide the funding. [20] Forivermor commenced proceedings in the High Court on the grounds, inter alia, that the Code had been incorporated in the contract between the parties either by a reference to the ANZ website in its letterhead (the Code being found on the website) or by custom, and that ANZ had breached obligations imposed by the Code in refusing to provide finance. The High Court refused relief and Forivermor appealed. The Court of Appeal rejected Forivermor s submission that the Code had been incorporated into the contract between the parties as Forivermor alleged. 8 Forivermor Ltd v ANZ Bank New Zealand Ltd [2014] NZCA 129.
[21] However, a later Court of Appeal case, Gardiner v Westpac New Zealand Limited, is also relevant. The appellants in that case submitted that Westpac had breached terms of the Code by (imprudently) providing credit to them. Westpac submitted that the obligations imposed by the Code did not form any part of its contract with the appellants. The Court rejected the appellants argument but said: 9 [69] It is possible to envisage a situation in which a borrower enters into a loan agreement with a bank on the basis of assurances he or she has taken from reading the Code and perhaps discussing those assurances with the bank s representatives. In such a case it may be possible for the borrower to mount an argument that the terms of the Code formed part of the contractual arrangement with the bank. In the present case, however, there is no evidence that any of the appellants were ever aware of the Code, let alone that they borrowed monies from Westpac based on assurances contained within it. [22] It is apparent from this passage that the Court of Appeal has not ruled out an argument that the Code may be incorporated in the contract between bank and customer. Moreover, there are differences between E-Trans case and that of the appellants in the authorities to which I have referred. E-Trans is a substantial business seeking to resist action by Kiwibank, which action does not arise from any failure on the part of E-Trans. On the contrary, the action is attributed to a change in bank policy. [23] I accept that there is a serious issue to be tried as to whether, in all the circumstances to which I have referred, the terms of the Code are incorporated in the contract or otherwise affect its construction. [24] Kiwibank s alternative submission was that it had, in any event, acted reasonably, fairly, consistently and ethically as it had given E-Trans the required 14 days notice under the General Terms and Conditions and would, if pressed, be amenable to a longer period. Whether Kiwibank has acted reasonably, however, is in dispute. The period notified in the 26 March 2015 letter is only one aspect of the argument. I am not able to determine the issue on the evidence before me. 9 Gardiner v Westpac New Zealand Limited [2014] NZCA 537 at [69].
[25] Having decided that a serious issue arises on the first ground, it is unnecessary to address the parties contentions as to s 27(2) Commerce Act 1986 and the allegation of breach of statutory duty. Balance of convenience [26] I am satisfied the balance of convenience lies in E-Trans favour. [27] The principal argument for Kiwibank is that the burden and risk under the Act which arises from E-Trans business is disproportionate to Kiwibank s resources and the return on the accounts. [28] E-Trans disputes Kiwibank s analysis of its business, of the requirements of the Act and of the burden imposed on the bank. Moreover, E-Trans has previously expressed a willingness to compensate the bank for additional costs if needs be. [29] The compelling points for me are, first, that the Act was in effect at the time E-Trans opened its most recent account in January 2014. Counsel for Kiwibank advised that the bank did not then realise the burden the legislation would impose. That may be so. Regardless, Kiwibank was willing to open the account in the knowledge of the legislation and there is no suggestion that E-Trans has altered its operations so as to increase such risk as might arise. [30] The second matter is that to which I have already referred, namely that E-Trans business is likely to come to an end in the absence of an account with a major trading bank. That outcome should be avoided if E-Trans establishes a serious issue to be tried, as it has. I have considered whether damages would provide an adequate remedy to E-Trans. I am not satisfied that they would, given the consequences to which I have referred. Equally, however, the parties will need to get the case ready for hearing as soon as possible so that they know where they stand. [31] I record that Kiwibank drew to my attention 11 convictions entered against E-Trans in 2004 for offences under the Financial Transactions Reporting Act 1996.
[32] It is apparent from the relevant sentencing notes that the charges arose from five transactions. 10 Mr Sun s evidence was that the offences were the result of the actions of a single employee. 11 To the extent the convictions were not previously disclosed to Kiwibank, Mr Sun s evidence was that Kiwibank did not enquire as to prior convictions and, in any event, the matter was one of public record. [33] Whatever the position may be, the convictions are historic and there is no suggestion that Kiwibank s proposal to close the accounts arises from the fact of the prior offending. Result [34] Pending further order of the Court, I order that the Defendant be restrained and prohibited from closing any and all existing bank accounts and banking facilities that the Plaintiff has with the Defendant, with the operation of such accounts and facilities to be governed by their relevant terms and conditions. [35] Costs are reserved, as sought in the Application for Interim Injunction dated 31 March 2015. But for the terms of the application, costs and disbursements would have followed the event. [36] This matter is to be called in the Duty Judge List at 10 am, 1 July 2015. The parties are to file a consent memorandum, or memoranda in the absence of agreement, setting out the directions sought from the Court to progress the proceeding. Such memorandum/memoranda are to be filed and served by 2 pm, 29 June 2015.... M Peters J 10 11 Affidavit of H Rosemergy, above n 6, at HR-10. Affirmation of X Sun affirmed 17 April 2015 at [17].