In this final Financial Services Insight in the series, we examine the decision in Human Appeal International Australia v Beyond Bank (De-banking Case) to highlight one aspect which was raised by Parker J but which was not dealt with in any detail and relates to the special circumstances of a mutual bank and its legal relationship with its customer.

In this regard, the De-banking Case raises a further legal consideration in a bank's decision to terminate banking services which arises from a mutual bank's separate relationship with a customer in their capacity as a member of the mutual entity.

As concluded in our previous Financial Services Insight "Why was I de-banked?" [10 November 2023] the De-banking Case highlighted that:

• The banker and customer relationship is a relationship based on contract, but, as reinforced by the Code of Banking Practice, it is founded on trust and good faith in a commercial sense; and

• In making a decision to close a customer’s account, the interpretation of a Bank's trading terms and conditions was affected by the Code.

However, an unanswered question which was raised by Parker J but not dealt with in any detail in the judgment involved the special nature of the customer relationship in the case of a mutual bank. 
In this regard, the judgment provides:

"In the argument before Slattery J, one of the foreshadowed arguments in support of this contention had been based on the terms of the Bank’s constitution: see J1 [58]–[67]. But this argument was not pursued at the hearing before me. Instead, the focus was on the Bank’s contractual obligations to Human Appeal as customer. Reliance was placed, in particular, on the duty of cooperation and good faith generally implied in commercial contracts."

That is, in the circumstances of a mutual banking entity, in addition to the contractual terms and conditions applying to an account or other banking services, the customer is likely to be a member of the company and will hold a member share. 

Therefore, when making a decision to de-bank, further consideration needs to be given to the terms of and the legal principles applying to, the customer in their capacity as a mutual member under the constitution of the mutual banking entity.

• It is accepted at law, that in the case of a mutual entity there is a statutory contract between the bank and the customer in their capacity as a member holding a member share.

• A mutual company and its members have mutually enforceable rights and obligations under the constitution and even in the absence of a 'statutory contract', members could be regarded as being parties to a contract at common law.

Parker J raised this consideration on the following basis:

"Under the Bank’s constitution, a customer’s member share is potentially valuable property which can only be taken away by the Bank in defined circumstances. Being able to maintain an account with the Bank is, in itself, a valuable right because it makes it harder for the share to be taken away. 

Furthermore, the provisions of rule 4.4, in particular sub-rules (2), (3) and (5), appear to have the effect that a member’s bank account cannot be closed without the member’s consent, even if the account is not being used. All of this seems difficult to reconcile with the Bank having a discretion to close any customer’s account merely upon giving notice, and without cause."

This contention was not explored in the judgment however, it raises a legal complexity that, in the circumstances of a mutual bank, a customer is also a member and has rights and obligations under the bank's constitution. 

Therefore, in considering the relevant contractual terms in the circumstances of a decision by a mutual bank to close a customer account, the provisions of the constitution may also need to be considered in the context of the account closure, particularly given the collateral rights and obligations connected with the member contract and termination of member rights under the constitution. 

At law, even though not all provisions of a company's constitution may be enforced as membership rights, it remains open for a customer to assert those member rights in a de-banking situation, and as described by Parker J:

"It may therefore be that a customer of the Bank is in a stronger position to resist de-banking than the customer of a commercial bank."

That is, the Court suggested that the constitution of the Bank itself may prevent the Bank from terminating the banking facilities of the Customer in its capacity as a 'member', without cause. 

Whilst the Court did not deal with this specific issue as it was not pursued by Human Appeal, it is to be noted that the Bank's constitution in that case, provided a contractual framework and hence, introduced rights and obligations and associated notification procedures in relation to:

• termination of membership

• a member's right to require the Bank to redeem the member's share

• the Bank's right to redeem member's shares in various specified circumstances.

It follows that, in the circumstances of a decision to de-bank a customer of a mutual bank, in addition to an assessment of the trading or account terms and conditions, the constitution also forms part of the broader contractual context between a mutual bank and its customer which must be factored into the decision-making. 

In summary, in the circumstances of a mutual bank, there are additional legal complexities introduced by reason of the customer being a member of the banking entity under the company's constitution which:

• constitutes a statutory contract between the member and the bank; and

• governs the rights and obligations of the parties as between the bank and its customer/member and may impact on the process of de-banking.

Accordingly, the De-banking Case raises the prospect (but does not fully address) whether the rights and obligations associated with membership under the constitution may also need to be considered in a decision by a bank to close a customer's account. On this question, the jury is still out however it would difficult to assert that it is not a material consideration given that membership is the legal foundation upon which the banking services are likely to be provided to the customer of a mutual bank.