Banks may terminate services to entities associated with sanctioned individuals

  • Legal update

    24 February 2023

Banks may terminate services to entities associated with sanctioned individuals Desktop Image Banks may terminate services to entities associated with sanctioned individuals Mobile Image

One year after Russia's invasion of Ukraine, the High Court has dismissed an injunction application brought by Targa Capital Limited (Targa) to force Westpac New Zealand Limited (Westpac) to continue providing banking services to Targa where Westpac was not satisfied that there was no risk that Targa was not ultimately controlled by a sanctioned individual, Mr Alexander Abramov (Mr Abramov). [1] The judgment confirms a bank’s right to terminate its relationship with a customer upon reasonable notice, subject to the terms of the contract between the parties. It also confirms that, when deciding whether to exit a customer, a bank is entitled to have regard to its own commercial interests and its desire to manage sanctions risks.

A link to the decision of Campbell J is available here

Who needs to read it?  

New Zealand corporates, banks and financial institutions who may be doing business with a Russian connection, or entities that may be ultimately owned or controlled by sanctioned individuals (anywhere in the world).   

Background to the decision 

Targa is a New Zealand company and claimed it was formed for the purposes of funding the operation of the luxury Helena Bay Lodge and investing in the New Zealand property market. Until March 2022, Targa’s ultimate owner held its shares on trust for the benefit of Mr Abramov, the co-founder of Russia’s largest steel company.  

Following Russia’s invasion of Ukraine, Mr Abramov was temporarily removed as a beneficiary of the trust that ultimately held shares in Targa. However, Mr Abramov’s wife and children remained discretionary beneficiaries. Mr Abramov was subsequently identified as one of a small number of “oligarchs” with close ties to Russia’s president. A number of countries, including Australia in April 2022 and the United Kingdom in November 2022, imposed financial sanctions on Mr Abramov. New Zealand imposed a travel ban on Mr Abramov and his immediate family in October 2022. 

After identifying the link between Targa and Mr Abramov, Westpac became concerned about the sanctions risks arising from providing banking services to Targa. Following requests for further information, Westpac was not satisfied that there was no risk that Mr Abramov did not retain ultimate control of Targa. Westpac advised Targa that it would cease providing banking services and would close Targa’s bank accounts. Targa filed an application for an injunction to prevent Westpac from doing so. 

Targa’s application for injunctive relief requiring Westpac to continue providing banking services

Westpac’s general terms and conditions included a term entitling Westpac to close Targa’s account or withdraw a product or service “if Westpac believes it has reasonable grounds for doing so provided you will be given at least 14 days’ notice…”. 

The Court accepted Westpac’s interpretation of this clause and in doing so, confirmed the common law position that absent agreement to the contrary or statutory impediment, a contract by a bank to provide banking services to a customer is terminable by the bank upon reasonable notice. [2] Campbell J rejected the interpretation advanced by Targa (that the clause required Westpac to have a reasonable belief that it had reasonable grounds to close Targa’s accounts).  His Honour considered that this interpretation would involve an “illegitimate re-writing of the clause” and would flip a subjective inquiry to an objective one by introducing an objective qualifier to Westpac’s belief that the contract did not include. [3]

Campbell J also rejected Targa’s argument that the exercise of Westpac’s discretion under the clause to close Targa’s accounts would be unreasonable and in breach of the clause, finding that it was not reasonably arguable that Westpac had exercised its discretion (both in relation to process and substance) in an unreasonable way. In reaching this conclusion, the court determined that: [4]

  • Westpac did not rush to terminate the relationship, having made enquiries and sought further information from Targa; 
  • the decision was made at a high level within Westpac;
  • Westpac corresponded with Targa and provided extensions to the termination date;
  • Westpac was entitled to have regard to its own legitimate commercial interests, including the management of three key risks relating to sanctions. These were:
    • regulatory risks: the risk of other Westpac Group entities, Westpac Group’s employees in the United Kingdom or Australia, and Westpac’s employees that are United Kingdom or Australian citizens, breaching the United Kingdom or Australian sanctions regimes; 
    • contract risks: the risk of Westpac breaching, or being alleged to have breached, contractual undertakings regarding Westpac’s compliance with sanctions regimes given to third parties that are critical to Westpac providing banking services to customers; and
    • capital markets risks: the risk that Westpac’s ability to access offshore capital markets would be impaired as third party financial institutions may perceive there is a risk that Westpac is breaching sanction regimes, in which case those third parties may decline to deal with Westpac. 

Campbell J concluded that there was no serious issue to be tried on Targa’s breach of contract claim as it was not seriously arguable that Westpac had unreasonably formed the view that it would be exposed to the identified risks if it continued its relationship with Targa. As there was no serious issue to be tried, it was unnecessary for the court to address the balance of convenience or overall justice.  Accordingly, the court declined Targa’s application. 

Targa also alleged that the closure of its accounts would be unconscionable, in breach of s 7 of the Fair Trading Act 1986. Noting that this section was relatively new and untested, the court referred to the Explanatory Note to the Fair Trading Amendment Bill 2017 which describes unconscionable conduct as “serious misconduct that goes far beyond being commercially necessary or appropriate”. The Court concluded that for the same reasons as the breach of contract claim, there was no serious issue to be tried that Westpac would be acting unconscionably in closing Targa’s accounts. [5]

Our view

This decision strongly reinforces a bank’s right to terminate a relationship with its customer, subject only to the requirements of its terms and conditions (or failing that providing reasonable notice). It also confirms that, when deciding whether to exit a customer, a bank is entitled to have regard to its own commercial interests and its desire to manage sanctions-related regulatory, contractual and capital market risks. MinterEllisonRuddWatts acted for the respondent, Westpac New Zealand Limited in the proceedings. 

What next?

If you have any questions in relation to the judgment or are considering how this decision affects your business, please contact one of our experts. 

How can we help?

We have extensive experience of advising on sanctions compliance and enforcement related matters, including in relation to Western governments’ recent sanctions targeting Russia. We routinely assist clients to: produce obligations registers; conduct compliance assessments; undertake customer and transaction due diligence and screening processes; structure low risk transactions; and develop or refine sanctions compliance programmes.
Members of our team have represented clients in sanctions investigations undertaken by the New Zealand Customs Service, the UN, and the UK and US governments. We have also represented clients in sanctions-related mediations and judicial proceedings in New Zealand and the UK.



[1] Targa Capital Limited v Westpac New Zealand Limited [2023] NZHC 230.

[2] At [35] and [42] - [43].

[3] At [38] - [39].

[4] At [48] - [71].

[5] At [74] - [75].