Rare guidance from the NSW Supreme Court on when a bank can terminate a customer account

A decision upholding a bank's right to close a customer's account where it has an express termination right 8 min read

In a judgment delivered on 29 July 2025, the New South Wales Supreme Court (NSWSC) provided rare judicial guidance on when a bank may validly terminate a customer's banking relationship pursuant to the applicable T&Cs, in the context of managing its legal, regulatory, commercial and prudential risk. The court considered whether reasons are required to be given to a customer for closing their account (if the T&Cs do not expressly require them), and whether an injunction that would prevent a bank closing a customer's account is an appropriate remedy.

In this Insight, we unpack the court's reasoning and highlight key lessons for financial institutions managing reputational and regulatory risk arising from customer relationships.

Key takeaways 

The case provides much-needed judicial guidance for banks about the termination of a customer relationship where the customer's use of the bank's financial services gives rise to a level of risk that is outside the bank's acceptable risk tolerance or appetite. The court:

• found that the Bank had validly terminated the customer's account in reliance on its express discretionary termination right to protect its legitimate interests;
• refused to imply terms (including to give reasons) that were inconsistent with the express termination right; and
• provided guidance on when it may be appropriate to grant an injunction that prevents a bank from terminating a customer relationship, indicating that—while such relief is open—whether it is appropriate will depend on the circumstances, and it may not be appropriate where the bank has decided a customer is outside its risk appetite.

The decision highlights the importance of clear T&Cs that permit a bank to terminate a customer relationship where it has made a reasonable and bona fide decision that a customer's use of its financial services gives rise to an unacceptable level of risk.

Background: termination of banking relationship

Merciful Group Incorporated v Norfina Limited t/as Suncorp Bank [2025] NSWSC 841 concerned Suncorp Bank's decision to terminate its banking relationship with its customer, Merciful Group (the Customer). The Bank provided the Customer with written notice that its transaction account and related facilities would be closed. The Customer commenced proceedings in the NSWSC. The Customer obtained an interim injunction preventing the Bank from closing its account. The Customer claimed the Bank did not have a valid basis to terminate and that its attempt to terminate was ineffective because it breached the express and implied terms (including implied obligations of good faith and to provide reasons) in the applicable T&Cs. The Customer sought declarations that the termination was invalid and an injunction preventing the Bank from acting on the termination notice.

The proceeding was dismissed with costs. The court found the Bank had a valid basis to terminate its relationship with the Customer and close their account, that the alleged implied terms did not exist, and that the Bank acted reasonably, in good faith and for a proper purpose.

The Customer and applicable T&Cs

The Customer is a registered charity established to provide aid to various countries, including Lebanon, Yemen and the Syrian Arab Republic. In 2019, the Customer opened an account with the Bank, and it also opened a related merchant terminal (EFTPOS) facility. On 16 April 2025, the Bank notified the Customer in writing that it had decided to terminate its relationship with the Customer and would close its accounts on 8 May 2025. The Bank relied on its express contractual termination right under section 15.2 of the applicable account T&Cs, which permitted the Bank to close a customer's account immediately (among other things) to protect its 'Legitimate Interests.' The T&Cs did not require reasons to be given, but stated that unless exceptional circumstances applied, the Bank would provide at least 14 days' notice before closing the account.

'Legitimate Interests' was defined in the T&Cs as the Bank's 'legitimate business needs', 'prudential requirements and/or security requirements' and any requirements that are 'reasonably necessary to protect the Bank against a material risk' of (among other things) its financial detriment.

The Customer sought and obtained an interim injunction restraining the Bank from terminating its banking facilities. The Customer applied for expedition of the proceeding, which was heard by Justice Hammerschlag on an expedited basis.

Customer's submissions

The Customer's claim (as it was ultimately advanced at trial) was that:

1. the Bank did not have a valid reason to terminate the account under the T&Cs, so the termination was invalid, because:
   1. the T&Cs only permitted the Bank to terminate where it was 'necessary' to do so based on objectively established facts that there was an imminent threat that could not be reasonably mitigated other than by termination;
   2. 'Legitimate Interests' and 'legitimate business needs' did not extent to matters of 'risk appetite', 'reputational concerns' or 'subjective discomfort'; and
   3. the Bank's decision was based on 'factually inaccurate foundation' and speculative risks.
2. The Bank had breached an implied term in the T&Cs to act reasonably and for a proper purpose in the exercise of its termination right, because:
   1. it relied on transactional activity and public sources of information and did not interrogate its information with the Customer;
   2. it failed to consider an alternative course of action to termination; and
   3. investigations would have revealed innocent explanations for the Bank's information.

At trial, the Customer abandoned an unconscionable conduct claim (which his Honour described as 'untenable') and did not press its pleaded damages claim. At trial, the relief it sought was:

• a declaration that the T&Cs included implied terms that the Bank would act reasonably and in good faith in the exercise of any termination right; was required to provide reasons for termination; and would not exercise its contractual right in a manner that rendered the Customer incapable of performing the contract or undermined its commercial purpose;
• a declaration that the Bank's purported termination was in breach of the express and implied terms in the T&Cs, and was invalid and ineffective; and
• an injunction restraining the Bank from acting on the termination notice because it was invalid.  

The Bank's submissions

The Bank submitted that:

1. it has a legitimate interest in complying with its prudential requirements to put in place risk management frameworks, including the maintenance of a risk appetite statement, its obligations under the AML/CTF Act (to identify, mitigate and manage money laundering and terrorism financing risk), and general good banking practice. The Bank is exposed to reputational risk and material financial detriment (including through regulatory enforcement action) if it does not meet those requirements;
2. it is entitled to operate within its chosen risk tolerance and to allocate its resources to the risks it is willing to manage, and to discharge risks it is not willing to manage;
3. it is not required to 'prove' the truth of any concerns arising from patterns of transactional activity;
4. it made a commercial decision to close the Customer's account because the Customer's use of its accounts was outside its acceptable tolerance for risk (its 'risk appetite'), in protection of its legitimate interests; and
5. the asserted implied terms should not be implied because they were inconsistent with the express terms of the T&Cs and, in any case, it acted in good faith, for a proper purpose and reasonably.

The Bank also relied on the protection from liability under s235(1) of the AML/CTF Act, which provides that no civil action lies against a person in relation to anything done, or omitted to be done, in good faith in compliance or purported compliance with the AML/CTF Act, regulations or Rules.

Termination upheld: Bank had express termination right and no implied obligations

Justice Hammerschlag dismissed the proceeding with costs.

Legitimate interests 

His Honour held that the Bank had the express right to close the account to protect its Legitimate Interests, stating that:¹  

protecting against the risk of designated services being provided by the Bank being used for money laundering/terrorism financing and protecting against the risk of financial detriment from that being the case is, self-evidently, a legitimate business need and prudential requirement. That risk manifestly also entails a material risk of financial detriment not only from regulators but also of reputational harm.

His Honour held that the Bank's decision that doing business with the Customer was outside its risk appetite was informed by its legitimate business interests and prudential requirements:²  

The submission that the Bank's lack of risk appetite for doing business with [the Customer] or the Bank's reputation are not legitimate business interests or prudential requirements is without substance.

Enquiries 

His Honour rejected the Customer's submission that the Bank was required, before exercising its express contractual right, to:³  

• identify the facts it relied upon to justify closure of the account;
• engage with the Customer; 
• investigate the Customer's concerns; or 
• give the Customer an opportunity to respond to an enquiry. 

Further, his Honour held that the Bank was not required to accept the Customer's explanations. The T&Cs neither expressly nor impliedly require the Bank to make any definitive findings of fact or embark on a cooperative process with the Customer.⁴ 

Reasons

His Honour also rejected the Customer's submission that the Bank was required to give reasons to the Customer before exercising its express contractual right. His Honour held that the T&Cs contain no such obligation and the Customer's suggested implied term did not meet the requirements necessary for the implication of a term—including because they were inconsistent with the Bank's express immediate termination right.⁵

Certainty

His Honour held that cl 15.2 requires no more than that the Bank exercise a rational or bona fide judgment or reach a rational honest opinion or belief that the step to close the Customer's account should be taken.⁶ In this case, the Bank established that it acted rationally, honestly and in good faith, and also that its response was reasonable and for a proper purpose.⁷ The Bank was not required to 'prove' that the Customer had engaged in any breach of law or other misconduct.

Injunctions

His Honour discussed in obiter whether he would have granted the injunction that the Customer sought if the Customer had been successful. His Honour noted:

• there are authorities that indicate that an injunction requiring a bank to continue to provide banking services to a customer is not available or at least is an extraordinary remedy;⁸ but that
• an injunction that has the effect of requiring the parties to keep a relationship on foot is open in an appropriate case.⁹

In this case, however, his Honour would not have granted the injunction because:¹⁰

• the context in which the relationship had broken down involved the Bank having made a judgement that there was external risk to it in continuing the relationship and the Bank does not have the appetite for taking that risk;
• there was a breakdown in the trust upon which the relationship between a banker and their customer is founded;
• the same issues leading to the termination would continue to arise, so an injunction had no utility; and
• the Customer had opened a bank account with a new bank, so a significant element of the purported harm had been reduced.

It is worth noting the interim injunction preventing the Bank from closing the Customer's account was made for a two-month period only, despite the Customer seeking an injunction that would continue until the matter was determined. At an interlocutory hearing before Justice Parker, his Honour declined to provide an injunction until determination of the matter, concluding that was not appropriate in the circumstances.

Protection from liability under s235 of the AML/CTF Act

His Honour indicated that, while he was not required to deal with s235, he had 'significant doubts' that it would have provided protection against the claim because closing the account was the exercise of an independent contractual right under the T&Cs, rather than a step 'done in compliance, or purported compliance with the Act, the regulations or the AML/CTF Rules, in the sense contemplated by the section.'¹¹