‘Beyond’ good faith: the difficulties of de-banking a customer

By Julian Hammond and Jonathon Brooking

The Supreme Court of New South Wales has found that Beyond Bank Australia Ltd (Bank) wrongfully de-banked Human Appeal International Australia (Human Appeal) when it unilaterally closed Human Appeal’s banking facilities without a valid reason.^[1]

What is de-banking?

De-banking refers to when a bank declines to provide banking services or withdraws banking services from an existing customer. It can be driven by several factors, including Anti-Money Laundering and Counter-Terrorism Financing laws, profitability and reputational concerns.

Background: Human Appeal and Beyond Bank

• Human Appeal, the largest Muslim charity in Australia, established banking facilities with the Bank in March 2021.
• In August 2021, the Bank notified Human Appeal that it was closing Human Appeal’s banking facilities (Termination).
• The Bank did not provide reasons for the Termination, and purported to rely on its terms and conditions that gave them the right to close any account by giving 20 days’ notice.
• Human Appeal asked the Court to find that the Termination was wrongful. It contended that the Bank was only entitled to terminate if it was acting in good faith and reasonably, and that no reasonable grounds existed for the Termination.
• Human Appeal also argued that, where the Bank’s terms and conditions did allow termination without justification or reasons, this would breach the requirements of the Code of Practice adopted by the Customer Owned Banking Association, which provides that trading terms should fairly balance the interests of the Bank and its customers.

AML/CTF Act

In his decision, Justice Parker considered the Bank’s obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) and its interrelation to de-banking.

In particular, sections 123 and 124 of the AML/CTF Act, which prohibit banks from ‘tipping off’ third parties about suspicious matters reports, were examined in the context of the documents produced by the Bank in the hearing.

Notice to produce

By notice to produce for inspection, Human Appeal sought production of documents underpinning the Bank’s decision to Terminate. In response, the Bank produced bank statements of the accounts held by Human Appeal, two template letters and correspondence with Human Appeal concerning the Termination.

Despite the Termination letter citing a prior ‘review’, no record of the review, or the decision, was produced. The Bank did not refer to any other documents being withheld from production (as would be the case with documents where a claim for privilege is being made).

The Bank drew attention to the AML/CTF Act and suggested that an inference could be drawn that it may have been prevented from disclosing its reasons to de-bank Human Appeal by virtue of sections 123 and 124.

As the adequacy of the Bank’s response to the notice was not formally raised as an issue in the proceedings, Justice Parker did not resolve this point. However, His Honour was ‘left with the impression that the Bank might unjustifiably have withheld’ documents caught by the notice and concluded that ‘it is hard to see how total non-disclosure by the Bank could have been justified’.^[2]

Grounds for Termination

Human Appeal submitted that the relationship between banker and customer was that of ‘good faith’, and the Bank did not have reasonable grounds for Termination.

At the hearing, the Bank conceded it was only entitled to terminate if it had a ‘valid commercial reason’.^[3] Justice Parker proceeded on the basis that this concession was factually specific to the matter and noted that this may not be the case for every bank and customer relationship.

In determining whether a valid commercial reason was given, Human Appeal pointed out that no evidence was before the Court in respect of the decision to terminate, and that even the identity of the decision-maker was not known.

The Bank referred to its secrecy obligations under the AML/CTF Act as ‘context’ for its decision to terminate and submitted that where the decision to terminate was associated with the Act, it would have been prevented from giving evidence about it under section 124.

Justice Parker rejected the Bank’s submissions and found that its decision to de-bank Human Appeal was invalid as the Bank did not have sufficient reasons to do so.

His Honour also held that the Bank’s terms and conditions did not comply with the Code of Practice, as it did not strike a ‘fair balance’ between the interests of the parties as required by clause 4.2 of the Code, as the terms and conditions did not require the Bank to specify reasons when de-banking.