A judgment handed down by the Supreme Court of New South Wales last month could provide a foundation for those seeking to argue that they have been wrongfully de-banked. The decision of Parker J in Human Appeal International Australia v Beyond Bank Australia Ltd (No 2) [2023] NSWSC 1161 (Human Appeal v Beyond Bank) held that Beyond Bank had failed to provide a proper commercial basis for de-banking Human Appeal in accordance with the bank's terms and conditions and to comply with applicable industry codes.
Background
The case centered on Beyond Bank's terms and conditions which state that the bank did not need to provide a reason for its decision to de-bank Human Appeal. The validity of this termination was questioned by Human Appeal who argued that Beyond Bank's right to terminate was subject to an obligation of good faith and reasonableness, among others.
This obligation, Human Appeal argued, arose from Beyond Bank's adoption of and voluntary subscription to the Customer Owned Banking Code of Practice (the Code). In his decision, Parker J considered Beyond Bank's incorporation of the Code, specifically the requirement that Beyond Bank's terms and conditions will strike a 'fair balance' between:
Client's legitimate needs and interests; and
Beyond Bank's interests and obligations, including their prudential obligations.
According to Parker J, Beyond Bank being able to terminate without reason did not strike a 'fair balance' between the parties. The Court also left open the possibility that an 'express' obligation of good faith and reasonableness arose based on Beyond Bank's obligations under the Code.
Web3 implications
While Human Appeal is a charity, its de-banking experience is common to many Web3 companies. Digital currency exchange operator Allen Flynn was de-banked by ANZ because he used his accounts to engage in cryptocurrency trading. Binance, one of the largest crypto exchanges, faced a de-banking event impacting fiat withdrawals earlier this year.
Web3 companies in the United States have also faced banking issues, with the US government accused of conducting a campaign to de-bank the whole crypto industry, and renewed concern this year over targeted de-banking of lawful crypto firms.
The issue of debanking was considered by the Senate Select Committee into Australia as a Technology and Financial Centre who, in their final report, recommended that the Government develop a clear process for businesses that have been debanked. The current Government has also weighed into support certain recommendations by the Council of Financial Regulators to address this issue.
AUSTRAC has cautioned against the practice of widespread debanking of certain industries which they see as counterproductive to implementing effective risk based measures to address anti-money laundering and counter-terrorism financing risks.
The Future
Parker J's decision in Human Appeal v Beyond Bank centered on specific terms and conditions adopted by Beyond Bank, but left open the question of whether a bank's right to terminate is always subject to the implied obligation of good faith or reasonableness.
The question of whether a bank owes such a duty remains ripe for further argument depending on the case and any applicable terms and conditions and industry codes. Changes to the unfair contract terms regime due to come into effect in early November could also give a boost to potential claimants.
By Michael Bacina, Steven Pettigrove and Luke Misthos
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