E-Trans International Finance Ltd v Kiwibank Ltd

• Jurisdiction: New Zealand
• Judge: Heath
• Judgment Date: 19 May 2016
• Neutral Citation: [2016] NZHC 1031
• Docket Number: CIV 2015-404-694
• Court: High Court
• Date: 19 May 2016

Between

E-Trans International Finance

Plaintiff

And

and

KiwiBank Ltd

Defendant

[2016] NZHC 1031

court:

Heath J Professor Martin Richardson, Lay Member

CIV 2015-404-694

IN THE HIGH COURTOF NEW ZEALAND AUCKLAND REGISTRY

Application for a permanent injunction prohibiting the defendant from closing the plaintiff's accounts and for a declaration that the defendant breached its obligations cast under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AMLCFTA) and the Reserve Bank of New Zealand Act 1989 and was not entitled to avoid those obligations by closing its accounts — the plaintiff carried on business as a currency exchanger and remitter of funds to and from New Zealand — the nature of its business made it particularly vulnerable to attempts by third parties to channel money through its accounts — the defendant gave the plaintiff notice it was going to close its accounts following a review by its Financial Crime Team — the contract enabled the defendant to terminate the relationship on 14 days’ notice without the need to give reasons — whether the defendant breached an implied term from the Code of Banking Practice to act fairly and reasonably in exercising its power to terminate the contract — whether the defendant had a contractual right to terminate the contract on giving 14 days’ notice without reasons — whether the exercise of the termination clause came within s27(2) Commerce Act 1986 (contracts substantially lessening competition prohibited) — whether the AMLCFTA imposed any statutory duties, enforceable by the plaintiff as a matter of private law — whether s9 Fair Trading Act 1986 (misleading and deceptive conduct in trade) applied to allegedly false reasons given by the defendant for terminating the contract.

Counsel:

J A Farmer QC, Auckland H M Lim and M Moon for Plaintiff

T C Weston QC, Christchurch A S Butler, S C Keene and E M Watt for Defendant

This judgment was delivered by me on 19 May 2016 at 2.00pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

JUDGMENT OF THE COURT

Contents

Introduction	[1]
The Anti-Money Laundering Act
(a) Introductory comments	[9]
(b) The purposes of the Anti-Money Laundering Act	[11]
(c) The reporting regime	[15]
(d) The enforcement regime	[26]
(e) Exemptions	[33]
Context
(a) The nature of E-Trans’ business	[37]
(b) The nature of Kiwibank's business	[46]
(c) E-Trans’ banking arrangements	[49]
(d) The criminal prosecution	[67]
(e) Anti-money laundering procedures and money remitters
(i) E-Trans	[71]
(ii) Kiwibank	[74]
The contractual issue	[83]
The competition issue
(a) E-Trans’ claims	[98]
(b) Legal analysis	[113]
(c) Substantial lessening of competition	[126]
The statutory duty issue
(a) Policy problems	[141]
(b) The allegations	[153]
(c) Is there an enforceable private law duty?	[155]
The Fair Trading Act issue	[162]
Result	[166]

Introduction

1 The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the Anti-Money Laundering Act) came into force fully on 30 June 2013. Based on a number of international reports prepared in the wake of terrorist attacks over the preceding decade, 1 it establishes robust procedures for the reporting of transactions to the police that are reasonably suspected to involve money laundering, or the financing of terrorism. The new procedures cast more onerous obligations on reporting entities than was previously the case. 2 The low threshold for reporting (reasonable suspicion) reflects the public interest in a prompt and proper investigation into the source of the funds and the purpose for which such moneys are to be applied, whenever there is a credible basis to believe that money obtained from

serious criminal activity is in the process of being laundered, or is linked to intended terrorist activity. 3

2 E-Trans International Finance Ltd (E-Trans) carries on business as a currency exchanger and remitter of funds to and from New Zealand. We shall use the term “money remitter” as a generic description of its business activities. The nature of its business (the cross-border remittance of funds) makes E-Trans particularly vulnerable to attempts by third parties to channel money through its accounts; for example, to disguise the proceeds of crime, or to avoid detection of the source of financing of terrorism.

3 To carry on business as a money remitter from New Zealand, E-Trans needs a domestic bank account. 4 From January 2014, E-Trans operated through an account with Kiwibank. On 26 March 2015, Kiwibank gave notice of its intention to close E-Trans' accounts on 10 April 2015. 5 That decision was taken on the basis of a policy decision made by Kiwibank in March 2014. Following a review by its Financial Crime Team, the Executive Risk Committee initiated a policy by which the bank would progressively “off board” all money remittance providers whose business models were not consistent with Kiwibank's “risk appetite”, and not enter into banking relationships with new customers that fell into that category. 6 Kiwibank's strategy was to undertake a staged process of terminating the contracts of relevant remitters. That is the reason why its banking relationship with E-Trans was not terminated until the following year.

4 This proceeding raises questions about:

• (a) The scope of the termination provision in the relevant contract. 7

• (b) The effect of termination (if otherwise valid) from a competition law perspective. It is alleged that the exercise of the termination clause

  has, or is likely to have the effect of substantially lessening competition in the relevant market.

• (c) Whether the Anti-Money Laundering Act imposes any statutory duties, enforceable by E-Trans as a matter of private law, which affect the validity of Kiwibank's decision to terminate, and

• (d) The applicability of s 9 of the Fair Trading Act 1986 (misleading and deceptive conduct in trade) to reasons given by Kiwibank for terminating the contract.

5 On 23 June 2015, Peters J issued an interim injunction 8 to restrain Kiwibank from acting on its termination notice. Pending further order of the Court, she restrained Kiwibank from closing any and “all existing bank accounts and banking facilities” that E-Trans had with it. The continued operation of such accounts and facilities was to be governed by the pre-termination notice terms and conditions. 9 The practical effect of that order has been to require continuation of the banking relationship, until this proceeding has been determined.

6 In summary:

• (a) Kiwibank asserts that it had a contractual right to terminate the contract on giving 14 days' notice, without reasons. If Kiwibank's approach is correct, the contract is at an end.

• (b) E-Trans contends that:

  • (i) Kiwibank breached an implied term to act fairly and reasonably in exercising its power to terminate the contract. It says that a term to that effect was implied by Kiwibank's adoption of the Code of Banking Practice (the Code). Kiwibank embraced the Code when it became a member of the New Zealand Bankers' Association (the Association). This

    point is inextricably linked to Kiwibank's claim that it is entitled to terminate the contract, as of right. We call this the “contractual issue”.

  • (ii) If termination were validly effected, Kiwibank's exercise of that contractual power, in the circumstances of this particular case, had, or may have had, the effect of substantially lessening competition in the funds remittance and money changing market. If so, its conduct contravenes s 27(2) of the Commerce Act 1986. We call this the “competition issue”.

  • (iii) Kiwibank has breached a statutory duty (arising out of the provisions of the Anti-Money Laundering Act) to supply banking services to E-Trans. We call this the “statutory duty issue”.

  • (iv) Kiwibank breached s 9 of the Fair Trading Act 1986, by giving (what E-Trans contends were) false reasons for its decision to terminate. We call this the “Fair Trading Act issue”.

7 In its most recent Statement of Claim, E-Trans seeks the following relief:

• (a) A permanent injunction prohibiting Kiwibank from closing E-Trans' accounts, so long as E-Trans observes its contractual obligations to Kiwibank.

• (b) A declaration that Kiwibank is in breach of obligations cast upon it under the Anti-Money Laundering Act and the Reserve Bank of New Zealand Act 1989 (the Reserve Bank Act), and is not entitled to avoid those obligations by closing the accounts of E-Trans with it.

• (c) An inquiry into damages.

• (d) Costs.

8 Because of the argument based on s 27(2) of the Commerce Act, Professor Richardson was appointed as a Lay Member to participate in the hearing as a member of the Court. 10 This is the judgment of the Court, reflecting the unanimous decision of Heath J and Professor Richardson.

The Anti-Money Laundering Act

(a) Introductory comments

9 The problems that have arisen in this case stem from the need for Kiwibank to fulfil onerous reporting duties cast upon it by the Anti-Money Laundering Act. To some extent, any financial institution which receives money from third parties is at risk of its own processes being used to launder the proceeds of crime. Kiwibank wishes to minimise any risk of reputational damage, for example by being perceived to be involved (albeit inadvertently) in money laundering. As Kiwibank regarded money remitters as being within a class of business that carries a heightened risk, it decided...