International expert in the law of agency, Peter Watts KC, explores two key points beyond the Court of Appeal’s recent decision in Bank of New Zealand v Christian Community Trust [2024] NZCA 645: the role of statutory privileges like banking licences, and the issue of managers in large organisations imposing their own beliefs under the guise of 'commercial risk.'

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On 9 December 2024 The Court of Appeal in Bank of New Zealand v Christian Community Trust [2024] NZCA 645 held that the eponymous Bank was free to withdraw banking services from the respondent religious community or organisation, known as “Gloriavale”. The Bank told the relevant entities and individuals that it was withdrawing services following ground-breaking Employment Court findings that some trustees of, and one entity in, the organisation had engaged in the use of child labour. Gloriavale’s attempt to stop the Bank from withdrawing banking services from its entities was argued on the basis of the common law. Gloriavale did not attempt to base any argument on the Human Rights Act 1993. 

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In concluding that the Bank’s contractual discretion to terminate services was largely unreviewable, the Court of Appeal strongly distanced itself from the approach to  contractual discretions taken by the Supreme Court of the United Kingdom in Braganza v BP Shipping Ltd [2015] UKSC 17. In that case, the Supreme Court held, at least in respect  of discretions in an employment contract, that a contractual discretion could be reviewed by a court if the party with the discretion had acted as no reasonable person would have. The Court went on to state that such unreasonableness can arise if the decision-maker has failed to take into account a relevant consideration or has taken into  account an irrelevant consideration. For this approach the Supreme Court relied on the  famous Wednesbury test in public law.  

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The trouble with the relevant/irrelevant considerations limb of the Wednesbury test (“limb A”) is that a decision can be perfectly reasonable despite the decision maker taking into account an irrelevant consideration or failing to consider a relevant one. In those, perhaps rare, situations where unreasonableness is the only ground for reviewing the decision of a public official, limb A is a nonsense, even in public law. Greene MR simply  slipped up in Wednesbury. Limb A is even more inappropriate in the context of contracts between private parties. In that respect the Court of Appeal’s decision in the Gloriavale Case is most welcome. See my strong criticism of Braganza in P Watts “Trustees with  Absolute Discretions” (2022) 36 Trust Law International 3. 

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But in fact the Gloriavale Case is not that simple. First, the Bank is the holder of a state privilege, namely a banking licence, which licensing regime limits the options of parties such as Gloriavale to find an alternative banker. There are in fact 27 licensed banks in New Zealand currently, but only a handful are engaged in retail banking. Another Court of  Appeal case, Sky City Auckland Ltd v Wu [2002] 3 NZLR 621, suggests that businesses that operate with the benefit of a state licence, in that case a casino licence, may not be able freely to turn away customers. There is an old common law doctrine that provides oversight of exclusionary conduct by businesses “affected with a public interest”. The basis of the doctrine is not fully developed by the Court in Sky City. But the best explanation is that the doctrine founds itself on a term implied in law as the price of the benefit of the state-granted privilege. On the facts of Sky City the Court ruled that the particular statute in question had made the doctrine inapplicable. 

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It is often said that the privilege must result in the benefiting party having a monopoly, but the leading case of Allnutt v Inglis (1810) 12 East 527; 104 ER 206 suggests otherwise, as  the Court noted in Sky City at [22]. In that case the defendant warehouse had a statutory privilege to store wine without having to pay the customs duty that normally applied from the moment of importation. It was the only such warehouse in the Port of London, but Lord Ellenborough CJ thought it would make no difference to the application of the doctrine if there were other warehouses with the statutory privilege. The Judge did go on to say that if licences were relatively freely available then the doctrine might not apply. 

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I pause to note that Chambers J at first instance in Sky City [2002] NZAR 441 thought that at common law all businesses were prima facie required to take all customers unless they could show good grounds for refusing to do so. A statutory privilege was not necessary. This was an horrific idea, as I explained in P Watts “The Forging of Public Claims on Private Businesses” (2003) 119 LQR 380. It is regrettable that the Court of  Appeal in Sky City did not expressly scotch it, but the idea can scarcely stand with the Court’s decision in the Gloriavale Case. 

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My second point is this. It is not directly a legal point. The Bank in the Gloriavale Case  applied its internal human rights policy-document in deciding to de-bank Gloriavale. But where did that document come from? Has it ever been approved by the Bank’s ultimate owners (probably in this case the shareholders in National Australia Bank)? And did the personnel applying that policy consider whether those ultimate owners would want the Bank turning business away such as Gloriavale was offering, as a customer of some 40 years standing? I don’t know the answers to these questions, of course. 

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This is far from saying that there is never commercial risk to a business from the public taking a dim view of its trading with dodgy customers, especially if on-going illegal activity is part of the picture. Nor even am I arguing that there was not commercial risk for the Bank from the factual findings of the Employment Court as to the conduct of Gloriavale. But, with large organisations it can happen, and did happen in the UK with the well-known and unjustifiable de-banking of Nigel Farage MP, that senior and junior employees indulge their political tenets without risking any capital of their own and without considering whether the shareholders, or at least a majority of them, are really interested in the moral defects of the counter-parties that are being cancelled. 

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This is an agency problem in large companies where directors and employees have no close connection with the ultimate owners of the company. It is hard to solve. A statutory privilege, such as licensed banks have, can exacerbate the problem. Ideally, managers should always check whether there really is commercial risk without the company shunning the would-be counterparty, and ask themselves whether they are not confusing their personal dispositions with those of  the ultimate owners of the business. Shareholders who have the energy should not  hesitate to ensure that managers do ask these questions.

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Peter Watts KC is an internationally renowned expert in the law of agency, advising on the common law of agency in court proceedings and arbitrations (including ICSID) in many jurisdictions, including England and Wales, New York, Australia, and Denmark. He also has a broad domestic practice in New Zealand in banking law, insolvency law, company law, equity and trusts, the law of restitution, and the law of contract. See Peter's profile and get in touch.