What To Do If A Bank Decides To Terminate Its Relationship With Customers And Remedies Available For

• Published date: 01 May 2023
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, Corporate and Company Law, Contracts and Commercial Law
• Law Firm: Kevin Wu & Associates
• Author: Hussaini Rozi and Kevin Wu

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) Bhd¹, 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 Selangor² 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 ofProsperity Ltd v Lloyds Bank Ltd³ 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...