There are circumstances where a bank may use its discretion to terminate contractual relationship with the customer and close the customer’s account without disclosing any reasons for such termination. Reasons may include commercial viability for the bank, potential association with criminal activities such as tax evasion, money laundering, terrorism financing, ties with criminal syndicates amongst other reasons.
The bank’s legal basis for such termination is typically prescribed in the agreement or contract between the customer and the bank (agreement signed upon the opening of the bank account). In this situation, the customer will be left without a bank account and his/her account may be flagged for suspicious activities and such action may deter other banks from doing business with the customer i.e. opening of a new personal or business bank account.
In Aura Indah Jaya Sdn Bhd v OCBC Bank (M) Bhd[1], the court held that the bank was entitled to close the bank accounts without giving any reason in the termination notice. In the case, clause 12 of the General T&C provides that the bank may close any of the account or terminate the services under any of the circumstances in clause 12.2. Further, there was sufficient notice given by the bank whereby the accounts were closed after 14 days of the issuance of the notice. The court also held that the defendant’s right to close the impugned bank is unarguable and it can be decided once and for all without going to trial.
Whether the bank who intends to terminate the customer’s account shall give reasons of termination? Federal Court in SPM Membrane Switch Sdn Bhd v Kerajaan Negeri Selangor[2] held that there is no duty under general law to give reasons when terminating a contract unless the contract itself stipulates the grounds for valid termination:
[115] … Insofar as the appellant contends that the respondent, when terminating the contract, has a duty to give reasons in accordance with general law, that contention is false and without authority. Nonetheless, such a duty may be imposed by proper construction of the contract.
Aura Indah Jaya had referred to English case of Prosperity Ltd v Lloyds Bank Ltd[3] which illustrates the adequate period of time to issue notice to customers. The Plaintiffs claimed for a declaration that the Defendants were not entitled to close their banking account without giving the Plaintiffs reasonable notice and for an injunction restraining the defendants from closing the account. Justice McCardie held that a banker had a right to close the account at any time and there might be special arrangements between the banker and the customer as to what notice would be required. However, the judge held that a month notice to close the account was not adequate as it did not give the Plaintiffs sufficient opportunity to make fresh arrangements. The judge also held that the Plaintiffs were not entitled for the prayed injunction. As such, the termination of Plaintiffs’ account was allowed by the court under which the Defendants had generously agreed to act as bankers to the Plaintiffs for a further limited period.
Privy Council in Jamaican case of National Commercial Bank Jamaica Ltd v. Olint Corp Ltd (Jamaica)[4] held that in the absence of express contrary agreement or statutory impediment, a contract by a bank to provide banking services to a customer is terminable upon reasonable notice. The judge also held that sufficient notice has been given that would enable the defendant to take steps to defeat the purpose of the ex-parte injunction. In this case, the applicants were informed on 22.11.2007 that their accounts would be closed on 14.1.2008, approximately two months from the date of notice.
Upon considering the above cited cases, it is important to note that there is no statutory provision that states that all citizens are fundamentally entitled to banking services. Whether an individual has access to banking services is subject to the bank’s freewill and discretion.
Further, the courts have shown the inclination to allow the account to be closed by the bank and there are no precedents relating to remedies available to affected customers. Aura Indah Jaya case clearly illustrates that the bank has the right to close and terminate the account without giving any reasons to the customer. By observing all of the cases, the only possible remedy that is available to the customer is to apply for an adequate and reasonable extension of time from the bank. Reference was made to Prosperity Ltd case whereby the court has the discretion to allow further reasonable period of time to close the account.
As the cases in Malaysia are limited, there are no legal remedies available for the affected customers. The practical remedies for any affected customer is that the customer could privately resolve with the concerned bank (i.e. written correspondences, obtain clearance letters from relevant government authorities), write to Bank Negara Malaysia (BNM) for mutual resolution, potential lobbying issues to the Member of Parliament to be tabled in the Dewan Rakyat meeting.
[1] [2021] 10 MLJ 21
[2] [2016] 1 MLJ 464
[3] (1923) 3 LDAB 287, 39 TLR 372
[4] [2009] UKPC 16
Authored by Hussaini Rozi
Edited by Kevin Wu
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