TARGA CAPITAL LIMITED v WESTPAC NEW ZEALAND LIMITED [2023] NZHC 230

TARGA CAPITAL LIMITED v WESTPAC NEW ZEALAND LIMITED [2023] NZHC 230 [17 February 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV 2023-404-98[2023] NZHC 230BETWEEN TARGA CAPITAL LIMITEDPlaintiffAND WESTPAC NEW ZEALAND LIMITEDDefendantHearing: 8 February 2023Appearances: D H McLellan KC, J W Little and J Morton for the plaintiffS M Hunter KC, S C Gollin and A F Church for the defendantJudgment: 17 February 2023JUDGMENT OF CAMPBELL JThis judgment was delivered by me on 17 February 2023 at 3.00 pm pursuant to Rule 11.5of the High Court RulesRegistrar/Deputy Registrar[1] Targa Capital Ltd (Targa) banks with Westpac New Zealand Ltd (Westpac).Westpac has given notice to Targa that it will be withdrawing from providing bankingservices to Targa and will be closing Targa's bank accounts. Targa disputes Westpac'sentitlement to do so. Pending resolution of that dispute, Targa applies for an interiminjunction prohibiting Westpac from terminating its banking relationship with Targaand from closing Targa's bank accounts.[2] Westpac opposes Targa's application, though it has agreed not to terminate thebanking relationship or close the bank accounts pending judgment on the application.[3] To succeed on its application, Targa must first show that there is a seriousquestion to be tried. If that is shown, the Court will then consider the balanceof convenience and where the overall justice lies.1BackgroundTarga, HBHL and Endurance[4] Targa is a New Zealand company. It was formed in 2016 for the purposeof funding Helena Bay Holdings Ltd (HBHL). HBHL owns and operates Helena BayLodge, a luxury lodge in Northland.[5] HBHL is loss-making and depends on Targa. It employs around 25 staffin Northland. For ten years it has worked to eradicate predators from the 340-hectareproperty around Helena Bay Lodge. Its work has seen kiwi return after 100 years.[6] Targa is now an active investor in the New Zealand property and fundingsector, including investing with Ockham Group Ltd (Ockham) and through a lendingsyndicate. Targa is currently involved in development projects with an estimatedcompletion value of approximately $750 million which, in turn, employ an estimated200 workers.[7] The sole shareholder of both Targa and HBHL is Endurance Capital Ltd(Endurance). Targa and Endurance have the same three directors: Christopher Seel,1 Intellihub Ltd v Genesis Energy Ltd [2020] NZCA 344 at [23]–[24].a New Zealand businessperson and investor who lives in Auckland; Geoffrey Hosking,a New Zealand solicitor and partner at Anthony Harper; and Ian Cochrane, a NewZealand citizen who lives in Moscow. Mr Seel owns all the shares in Endurance.The Raglan Trust[8] Endurance holds it shares in Targa and HBHL on trust under the terms of theRaglan Trust, of which it is the sole trustee. The Raglan Trust was settled in 2009to benefit Alexander Abramov and his family. Mr Abramov is the co-founderof Russia's largest steel company. The discretionary beneficiaries of the Trustincluded, until recently, Mr Abramov, his wife and children.[9] Mr Abramov has, over several years, gifted approximately $260 million to theRaglan Trust (or to HBHL).[10] In October 2018, the terms of the Raglan Trust were amended. Among otherthings, the definitions of the Trust's discretionary and final beneficiaries wereamended so that any individual who suffered an "Emergency Event" would be"deemed not to be a beneficiary of this Trust" for the period of the Emergency Event.An "Emergency Event" was defined as, among other things, the individual beingincluded on a list of restrictive measures issued by the United Kingdom, France,Germany, Italy, Japan, Canada or the United States of America.[11] The trustee was also empowered, in its absolute discretion, to determine thata "Deemed Emergency Event" had arisen in respect of an individual, in which casethat individual was deemed to have suffered an Emergency Event for the period thatthe Deemed Emergency Event continued to apply (as determined by the trustee).[12] In short, if a beneficiary of the Raglan Trust suffered an Emergency Eventor was deemed by the trustee (Endurance) to have suffered an Emergency Event, thatindividual was deemed not to be a beneficiary for the period of the Event. Effectively,that individual was deemed to be suspended as a beneficiary.Mr Abramov is deemed to be suspended as a beneficiary[13] On 24 February 2022, Russia invaded Ukraine. The invasion was condemnedby many Western nations.[14] On 11 March 2022, Endurance passed a resolution as trustee of the RaglanTrust. Endurance noted that recent international events had the potential to resultin New Zealand-based sanctions against wealthy Russians with investment interestsin New Zealand and that this had caused Endurance to consider the DeemedEmergency Events provisions of the trust deed. Endurance determined that anEmergency Event had arisen in respect of Mr Abramov.[15] The effect of that resolution was that Mr Abramov was deemed to besuspended as a beneficiary of the Raglan Trust.2 That deemed suspension remainsin effect. Mr Abramov's wife and children have not been deemed to be suspended asbeneficiaries.Sanctions are imposed on Mr Abramov[16] Western nations have identified Mr Abramov as being one of a small numberof "oligarchs" with close ties to Russia's president. Some of those nations haveimposed sanctions on Mr Abramov.[17] On 7 April 2022, Mr Abramov was designated in Australia as being subjectto targeted financial sanctions and a travel ban. Australia revoked that designationon 16 September 2022 but redesignated him the same day. At the time, Mr Abramovwas seeking a judicial review of his designation.[18] The United Kingdom imposed financial sanctions on Mr Abramovon 2 November 2022. New Zealand chose not to impose financial sanctionson Mr Abramov but on 11 October 2022 imposed travel-related sanctions on him andhis immediate family.2 Targa says the deemed suspension became effective on 24 March 2022. Although Targa does notsay, I presume that was the date on which Endurance gave notice of its determination toMr Abramov. The precise date is of no moment for this judgment.Targa's banking facilities with Westpac, and Westpac's notice terminating the facilities[19] Westpac is a wholly owned subsidiary of an Australian bank, Westpac BankingCorporation (WBC). With WBC and other related companies, Westpac is part of thewider Westpac group of companies (Westpac Group).[20] WBC has a branch in New Zealand (WBC NZ Branch). Westpac uses theWBC NZ Branch to provide its customers with certain services, includinginternational payment services and same day cleared payment services.[21] Targa opened business bank accounts with Westpac in 2017. It has twoaccounts, a transactional account and a savings account. Both are in credit. Targadoes not have an overdraft or any other debt facility with Westpac.[22] The terms and conditions governing Targa's banking relationship withWestpac entitle Westpac to terminate the relationship "if Westpac believes it hasreasonable grounds for doing so", provided Westpac gives 14 days' notice.[23] From April to September 2022 (after Mr Abramov was sanctionedin Australia), Westpac undertook an internal review to ascertain whether there wereany connections between Mr Abramov and any Westpac customers. It identified a linkbetween Targa and Mr Abramov. Westpac became concerned about the risk providingbanking services to Mr Abramov posed to Westpac and the Westpac Group. Westpacperceived this risk as arising notwithstanding that Mr Abramov had not beensanctioned in New Zealand. This was because of the perceived implications for WBCand for Australian resident directors of Westpac. Both WBC and the Australianresident directors are bound by Australia's sanctions regime.[24] New Zealand imposed travel-related sanctions on Mr Abramov on 11 October2022. Soon thereafter, Westpac introduced measures that it considered would mitigatethe risk of WBC or Westpac's Australian resident directors breaching Australiansanctions, while allowing Westpac to continue to provide Targa with domesticbanking services pending further investigation into Targa's relationship with MrAbramov. WBC and the Australian resident directors were recused from decision-making regarding Targa's accounts, and Westpac ceased providing Targa with theservices (such as international payment services and same day cleared paymentservices) that were provided through the WBC NZ Branch.[25] Westpac wrote to Targa on 14 October 2022. It advised that it was no longerable to provide certain services to Targa. Westpac also requested information fromTarga on its relationship with Mr Abramov. Targa responded on 2 November 2022.Westpac wrote again to Targa on 22 November 2022, requesting further informationand documents. Targa responded on 28 November 2022.[26] Targa considered that its responses provided Westpac with a significantvolume of evidence, all to the effect that Targa, and related entities includingEndurance, HBHL and the Raglan Trust, were governed independently ofMr Abramov and were not within his control.[27] Westpac was not satisfied that was the case. By letter dated 7 December 2022,Westpac gave notice to Targa that, as from 21 December 2022, it would withdrawfrom providing banking services to Targa and would close Targa's bank accounts.[28] Further correspondence ensued. Initially, Targa sought, and Westpac granted,an extension of the date on which Targa's accounts would be closed. On 9 January2023, Targa disputed Westpac's entitlement to close Targa's accounts. Westpacresponded on 10 January 2023, for the first time identifying the reasons for itsdecision. Westpac said it was not satisfied that Mr Abramov did not retain ultimatecontrol of Targa. As such, Westpac believed that continuing to provide bankingservices to Targa put Westpac entities and personnel at risk of breaching UnitedKingdom and Australian sanctions and of breaching contractual obligations to thirdparties in the United Kingdom and Australia, that expressly required Westpacto comply with those countries' sanctions regimes. Westpac said it therefore believedit had reasonable grounds for withdrawing banking services from Targa.The contract between Westpac and Targa[29] The contract under which Westpac provides banking services to Targa includesa term addressing Westpac's right to close accounts and withdraw products andservices (the termination clause):Closing accounts and withdrawing products and services.Westpac may close your account or withdraw a product or service if Westpacbelieves it has reasonable grounds for doing so provided you will be givenat least 14 days' notice in accordance with the Notifications section of theseGeneral Terms and Conditions. Westpac may close your account or withdrawa product or service immediately and without prior notice if:- Westpac learns of your or any guarantor's death, lack of legal capacity, orthat you or any guarantor has suffered a Bankruptcy Event or an InsolvencyEvent;- any third party claims an interest in any of your accounts;- there is not enough money to cover payment instructions or other obligations(including obligations which will or may arise later and Westpac bankcharges);- Westpac is required to by a court order or any law or regulation;- Westpac determines that you are a "politically exposed person" (as definedin the Anti-Money Laundering and Countering Financing of Terrorism Act2009);- you have acted unlawfully;- you have breached these General Terms and Conditions or any otherapplicable terms and conditions; or- you have acted abusively to Westpac's staff.[30] An additional clause deals with anti-money laundering and sanctions:Anti-money laundering and sanctions.You agree to provide all information to Westpac which Westpac requires inorder to manage its anti money-laundering and countering terrorism-financingobligations, to manage its economic trade sanctions risks, or to comply withany laws, rules or regulations in New Zealand or any other country. You agreethat Westpac may refuse to establish a business relationship with you, may berequired to delay, defer, stop or refuse to process any transaction, or mayterminate its business relationship with you at any time without notice, if youfail to provide this information to Westpac in the manner and timeframespecified by Westpac.You agree that Westpac may delay, defer, stop, or refuse to process anytransaction without incurring any liability if Westpac knows or suspects that:- the transaction will or may breach any laws or regulations in New Zealandor any other country; or- the transaction involves any person (natural, corporate or governmental) whois itself sanctioned, or is connected directly or indirectly, to any person(natural, corporate or governmental) who is sanctioned, under economic andtrade sanctions imposed by any country.You agree that, unless you have disclosed to Westpac that you are actingin a trustee capacity or on behalf of another party, you are taken to havewarranted to Westpac that you are acting solely on your own behalf whenopening or operating an account or service or undertaking any transaction withWestpac.[31] Westpac's exercise of any discretion under the banking contract is controlledby the following (the discretion clause):Exercise of Westpac's discretion.When we exercise discretion under these General Terms and Conditions orany other applicable terms and conditions, we will do so in a reasonable andconsistent way. We have provided some examples in this document of whenwe may exercise a discretion.Targa's substantive claims[32] Targa advances two substantive claims against Westpac. First, it says Westpacwould be acting in breach of contract were it to close Targa's accounts and withdrawbanking services. There are two aspects to its breach of contract claim:(a) Targa says that the termination clause, properly construed, requiresWestpac to have a reasonable belief it has reasonable grounds to closeTarga's accounts. Targa says Westpac has no such reasonable belief,and so is not entitled to close Targa's accounts.(b) Alternatively, if Westpac is entitled under the termination clauseto close Targa's accounts, to do so would be an exercise of a discretion.Targa says that Westpac's exercise of that discretion to close theaccounts would be unreasonable and therefore would be in breachof the discretion clause.[33] Secondly, Targa says that the closure of its accounts and withdrawal of bankingservices would be unconscionable conduct in breach of s 7 of the Fair Trading Act1986 (the FTA).Is there a serious issue to be tried on Targa's breach of contract claim?[34] I will deal separately with the two aspects of Targa's breach of contract claim.The termination clause[35] The position at common law is that, absent an agreement to the contrary orstatutory impediment, a contract by a bank to provide banking services to a customeris terminable by the bank upon reasonable notice.3[36] Mr McLellan KC, counsel for Targa, submitted that the termination clausemodified this common law default position. He said that the clause's requirement thatWestpac believe it has "reasonable grounds" would be redundant if it did not modifythe default position. Properly construed, including in view of the critical importanceof banking facilities to operate in modern society, he submitted the clause requiresWestpac to have a reasonable basis of objective fact for believing it has reasonablegrounds to terminate. He said this interpretation was supported by the recent finding,in The Christian Church Community Trust v Bank of New Zealand that it was seriouslyarguable that "there must be reasonable cause to terminate a banking relationship".4[37] In essence, Targa asks that the words in the termination clause "if Westpacbelieves it has reasonable grounds for [terminating]" be interpreted to mean"if Westpac reasonably believes it has reasonable grounds for [terminating]".[38] The plain language of the termination clause requires an inquiry into Westpac'ssubjective belief as to whether it has reasonable grounds to terminate. Targa'sinterpretation would flip a subjective inquiry to an objective inquiry. It wouldintroduce an objective qualifier to Westpac's belief that the contract did not include.Such objective qualifiers are found elsewhere in the contract:(a) Westpac may immediately suspend the operation of an account "whereWestpac reasonably believes you [are] using a service illegally".3 Joachimson v Swiss Bank Corporation [1921] 3 KB 110 at 127; Prosperity Ltd v Lloyds Bank Ltd(1923) 39 TLR 372; Hill v National Bank of New Zealand [1985] 1 NZLR 736 (HC) at 744; andNational Commercial Bank of Jamaica Ltd v Olint Corporation Ltd [2009] UKPC 16 at [1].4 The Christian Church Community Trust v Bank of New Zealand [2022] NZHC 3271at [28].(b) "Westpac may impose such restrictions as it reasonably thinks fit forthe efficient processing of transactions ".(c) "Where Westpac reasonably believes that you have used or allowedyour account to be used to process fraudulent or unauthorisedtransactions you may be liable for some or all of the loss suffered".(d) "In addition to Westpac's rights to close your accounts and withdrawany product or service set out in these General Terms andConditions, Westpac can also suspend or cancel your access toa Westpac Electronic Banking Service without prior notice on anyreasonable grounds, including where, in Westpac's reasonableopinion, you have misused any Westpac Electronic Banking Service".[39] Given those repeated uses of an objective qualifier, and the absence of sucha qualifier on Westpac's belief in the termination clause, Targa's interpretation is nottenable. It would involve an illegitimate re-writing of the clause.[40] As noted, Targa sought support for its interpretation in The Christian ChurchCommunity Trust v Bank of New Zealand.5 There, the contract stated that "We [thebank] can close your account for any reason." A non-exhaustive list of possiblereasons followed. Dunningham J noted that there were not even draft pleadings fromthe plaintiff and that it was therefore difficult to assess the merits of the plaintiffs'claims. Her Honour continued:6That said, I accept that the assertion on behalf of the applicants that it isseriously arguable that there are constraints on the exercise of the power toterminate a contract, particularly given the importance of banking facilities tofunction in today's society. In other words, there must be reasonable cause toterminate a banking relationship [41] The first sentence in that passage does not assist Targa. It is concerned withconstraints on the exercise of a power to terminate. It is well-established, and notdisputed by Westpac, that there are constraints on the exercise of contractual5 The Christian Church Community Trust v Bank of New Zealand [2022] NZHC 3271.6 At [28].discretions such as an express power to terminate. In this case, there are expressconstraints in the discretion clause (which is the basis of the second aspect of Targa'sbreach of contract claim, considered next). The current interpretative issue,by contrast, is concerned with when the power to terminate arises.[42] The second sentence, standing alone, does assist Targa, in that it suggests thata bank has no power to terminate in the absence of reasonable cause. But, readin context, I consider that Dunningham J was merely expressing, in different words,the view that there are constraints on the exercise of a power to terminate a bankingcontract. It is most unlikely that her Honour was expressing a departure from thesettled principle that a bank may terminate a banking relationship merely by givingreasonable notice. Her Honour did not refer to any of the authorities that establishedthat principle, nor indicate that she thought she was departing from a settled principle.7[43] For these reasons, I consider that Targa's interpretation of the terminationclause, and therefore the first aspect of Targa's breach of contract claim, is notseriously arguable.The discretion clause[44] Mr McLellan submitted that where a contract confers a discretionary power onone party, the default rule is that the discretion must not be exercised arbitrarily,capriciously or in bad faith, or unreasonably in the sense that no reasonable contractingparty could have so acted.8 He said the discretion clause modified that default rule,by requiring "reasonableness simpliciter" as opposed to the more forgivingWednesbury standard applicable under the default rule.9 Given the discretion clauseis in a set of general terms and conditions directed at banking customers generally, hesubmitted there could be no basis for reading the "reasonable" requirement asreflecting the lower Wednesbury standard. It was seriously arguable that Westpac'sexercise of its discretion to terminate was unreasonable in this sense.7 See the authorities above n 3.8 Relying on Woolley v Fonterra Co-operative Group Ltd [2021] NZHC 2690 at [411].9 A reference to Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB223.[45] Mr Hunter KC, counsel for Westpac, accepted that Westpac must not exerciseits discretion to terminate capriciously, arbitrarily, or unreasonably in the sense that noreasonable contracting party could have so acted. He said that this was embodied bythe requirement in the discretion clause that Westpac exercise any discretion under thecontract "in a reasonable and consistent way". He submitted the discretion clauseincorporated (but did not modify) the default rule, albeit expressing it more succinctly.Regardless of whether it modified the default rule, Westpac was entitled, whenexercising the discretion, to give due consideration to its legitimate commercialinterests and the purpose for which the discretion was exercised.10 Understood in thatway, it was not seriously arguable that Westpac had exercised its discretionunreasonably.[46] It is not in dispute that the discretion clause controls the exercise of Westpac'spower under the termination clause.11 I do not have to decide whether the discretionclause has modified the default rule. That is because I have reached the clear viewthat, even if the discretion clause requires "reasonableness simpliciter", it is notseriously arguable that Westpac has exercised its discretion in an unreasonable way.[47] I assume, for Targa's benefit, that the discretion clause, when requiring that adiscretion be exercised in a reasonable and consistent "way", is concerned with bothprocess and substance.12[48] As to process, it cannot seriously be argued that Westpac acted unreasonably.It did not rush to terminate. It sought information from Targa. It made other inquiries.The decision was made at a high level within Westpac. Westpac engaged incorrespondence with Targa once the decision was made and provided extensions to thetermination date.10 Relying on Property Alliance Group Ltd v Royal Bank of Scotland plc [2018] 1 WLR 3529 (CA)at [169]; and C & S Kelly Properties Ltd v Earthquake Commission [2015] NZHC 1690 at [73].11 Were it not for the discretion clause, it would be an open question whether Westpac's power underthe termination clause was subject to the default rule. It is difficult to see why the default ruleshould apply to the exercise of a power to terminate a contract for breach (a matter that Isac Jtouched on in Woolley v Fonterra Co-operative Group Ltd [2021] NZHC 2690 at [439]). Theposition is less clear for express powers to terminate.12 Mr Hunter suggested, without pressing the point, that "way" indicated a concern with the manner(process) in which the discretion was exercised.[49] Targa submitted that the time that Westpac took to make its decision showedthat the decision was unreasonable,13 saying that Westpac's preparedness to deal withTarga while it made its decision showed that Westpac could not reasonably believethat it faced any sanctions risks. I reject that submission. Westpac's consideredapproach meant it adopted a reasonable process (and a reasonable process increasesthe likelihood of a substantively reasonable outcome).[50] As to substance, in assessing the reasonableness of Westpac's exercise of itsdiscretion, I accept Mr Hunter's submission that Westpac is entitled to have regard toits own legitimate commercial interests. The primary purpose of any clause in arelational commercial contract allowing a party to terminate without cause (or, in thiscase, on what the party believes are reasonable grounds) is to allow that party, for itsown commercial interests, to end its contractual relationship with the other party. Thisinforms the Court's assessment of whether such a discretion has been exercisedreasonably. A court should be reluctant to find that a party has unreasonably assessedits own commercial interests.[51] One of the commercial interests that Westpac, or any bank, has in a bankingrelationship is the management of risks that may arise from dealing with a particularcustomer. These include risks relating to sanctions. In the present contract, Westpac'sinterest in managing its sanctions risks is expressly recognised in the anti-moneylaundering and sanctions clause, which refers to Westpac's management of its"economic trade sanctions risks".14 The scope of its interest in those risks is apparentfrom this part of that clause:Westpac may refuse to process any transaction if Westpac knows orsuspects that the transaction involves any person (natural, corporate orgovernmental) who is itself sanctioned, or is connected directly or indirectly,to any person (natural, corporate or governmental) who is sanctioned, undereconomic and trade sanctions imposed by any country.[emphasis added][52] Affidavits from several senior Westpac employees describe the sanctions risksto which Westpac believes it may be exposed if it continues its relationship with Targa.13 Targa did not draw any distinction in is submissions between process and substance.14 Set out at [30] above.Three risks are identified. There is a risk of other Westpac Group entities, WestpacGroup's employees in the United Kingdom or Australia, and Westpac's or WestpacGroup's employees that are United Kingdom or Australian citizens, breaching theUnited Kingdom or Australian sanctions regimes (the regulatory risk). There is arisk of Westpac breaching, or being alleged to have breached, contractual undertakingsregarding Westpac's compliance with sanctions regimes given to third parties (such ascorrespondent banks and credit card companies) that are critical to Westpac providinga full range of banking services to its customers (the contract risk). There is a riskthat Westpac's ability to access offshore capital markets will be impaired because thirdparty financial institutions may perceive there is a risk that Westpac is breachingsanctions regimes, in which case those third parties may (depending on their ownsanctions risk appetite) decline to deal with Westpac (the capital markets risk). Theaffidavits say that Westpac believes these three risks arise because Westpac believesthat Mr Abramov likely retains ultimate control of Targa.[53] These three risks are of a type that provide a reasonable basis for Westpacdeciding to terminate its banking relationship with Targa. Targa did not suggestotherwise. Rather, Targa submitted it was seriously arguable that these risks were notreal or substantial and therefore that it was unreasonable for Westpac to make itsdecision in reliance on them.[54] In this respect, Targa's primary submission was that "it was overwhelminglyclear on the evidence" that Mr Abramov does not and cannot exercise ultimate controlof Targa. Targa relied on the following:(a) Targa and Endurance are controlled by its three directors, including MrSeel, not by Mr Abramov.(b) Endurance is the trustee of the Raglan Trust. Since March 2022, MrAbramov has not been a beneficiary of the Trust. Mr Abramov has noability to have himself reinstated as a beneficiary, to add or removetrustees, to vary the Trust, or to do anything else that might affectcontrol of the Trust.(c) Endurance cannot be removed as trustee without its consent. Nor canany trustee be added without its consent.(d) Mr Abramov is not a creditor of Targa or its related entities, includingEndurance.[55] Targa also noted that Endurance's directors are prepared to undertake toWestpac and the Court that the current structure of the Raglan Trust (includingEndurance's status as sole trustee and Mr Abramov's "exclusion" as a beneficiary) willnot be changed without giving Westpac at least three months' notice.[56] The Court does not have to decide (either now or at trial) whether Mr Abramovcontrols Targa or whether any of the three risks identified by Westpac will eventuateif Westpac does not terminate its relationship with Targa. The issue is whether it isseriously arguable that Westpac has exercised its termination discretion in anunreasonable way. This depends on whether it is seriously arguable that Westpac has,on the information available, unreasonably formed the view that it will be exposed tothe three identified risks if it continues its relationship with Targa. I consider that isnot seriously arguable, because:(a) The sanctions regimes are broad in scope.(b) There are circumstances that reasonably indicate that Westpac will beexposed to regulatory risk.(c) The contract risk and the capital markets risk depend on third parties'perceptions.(d) Other banks have acted similarly to Westpac.[57] I expand on these points.The sanctions regimes are broad in scope[58] There are some disputes as to the scope and effect of the Australian and UnitedKingdom sanctions regimes. Counsel did not suggest I had to resolve those disputes.It will suffice to refer to matters that I understood to be common ground.[59] The United Kingdom regime is in the Russia (Sanctions) (EU Exit)Regulations 2019 (UK).15 The Australian regime is in the Autonomous SanctionsRegulations 2011 (Cth).16 Both regimes apply to sanctioned conduct within thosejurisdictions, regardless of who undertakes them. They also have some extra-territorial effect. They apply to sanctioned conduct by citizens of those jurisdictionsand by corporations incorporated in those jurisdictions, whether the conduct occursinside or outside the jurisdiction.[60] A breach of the sanctions regimes attracts criminal liability.[61] In the United Kingdom regime, the sanctioned conduct includes, in reg 12:(1) A person ("P") must not make funds available directly or indirectly to adesignated person if P knows, or has reasonable cause to suspect, that P ismaking the funds so available.(4) The reference in paragraph (1) to making funds available indirectly to adesignated person includes, in particular, a reference to making them availableto a person who is owned or controlled directly or indirectly (within themeaning of regulation 7) by the designated person.[62] The breadth of reg 12(4) is revealed by reg 7, which provides that a person whois not an individual ("C") is "owned or controlled directly or indirectly" by anotherperson ("P") if either or both of two conditions are met. The second condition is verywide, and was aptly described by Mr Hunter as a "real-world" test for ownership orcontrol:[I]t is reasonable, having regard to all the circumstances, to expect that Pwould (if P chose to) be able, in most cases or in significant respects, bywhatever means and whether directly or indirectly, to achieve the result thataffairs of C are conducted in accordance with P's wishes.15 These regulations are made under the Sanctions and Anti-Money Laundering Act 2018 (UK).16 These regulations are made under the Autonomous Sanctions Act 2011 (Cth).[63] For example, a person subject to the United Kingdom regime (which includesUnited Kingdom nationals working for Westpac) would breach reg 12 if they hadreasonable cause to suspect that they were making funds available to a person (suchas Targa) who is (in terms of the real-world test in reg 7) owned or controlled directlyor indirectly by Mr Abramov.[64] The sanctions in the Australian regime include, in reg 12, "directly or indirectlymak[ing] an asset available to, or for the benefit of, a designated person". Given theextra-territorial effect of the regime, this prohibition applies to conduct in NewZealand by the WBC NZ Branch and by Australian nationals working for Westpac.17However, the Australian regime does not have an equivalent to the United Kingdom"real-world" test.There are circumstances that reasonably indicate that Westpac will be exposed toregulatory risk[65] Given the broad scope of the above regimes, it is reasonable for Westpac tolook closely at, and beyond, the legal structures of Targa and the Raglan Trust.Westpac's reasonable concerns are not simply with, for example, the identity of thedirectors of Targa and Endurance. In respect of the United Kingdom regime, forexample, it is reasonable for it to be concerned with whether, having regard to all thecircumstances, it is reasonable to expect that Mr Abramov would be able, in significantrespects and by whatever means, to achieve the result that Targa's affairs wereconducted in accordance with his wishes.[66] In that light, a combination of the following circumstances means that it is notseriously arguable that Westpac unreasonably formed the view that it will be exposedto regulatory risk if it continues its relationship with Targa:(a) Targa is an asset of the Raglan Trust, which was originally establishedto benefit Mr Abramov and his family.17 There is a dispute as to whether WBC could be derivatively liable for conduct by Westpac thatbreached this prohibition. For the purposes of this judgment, I assume WBC could not be.(b) Targa has benefited from gifts made by Mr Abramov of $260 million.The most recent was a $30 million gift (via HBHL) in January 2022.(c) Mr Abramov was originally the appointor under the Raglan Trust,having the power to remove and appoint trustees. Since the October2018 amendment to the trust deed, Mr Abramov is no longer theappointor and no longer has this power. However, that amendmentmade provision for a "protector". The protector has a degree ofnegative control over the Raglan Trust (because the appointor is definedas the protector and the trustee acting together). It is also an availableinterpretation of the amended trust deed that the protector has the powerto remove the existing trustee and appoint a new trustee. Clause 29.11provides that the protector may remove all of the trustees provided thiswill not leave fewer than two individual or one corporate trustee"whether by virtue of a contemporaneous appointment of any newtrustee or otherwise". It is arguably implicit in this provision that theprotector has the power to make that contemporaneous appointment.Targa submitted that the power to appoint new trustees was bestowedsolely on the appointor, under cl 13.1. However, cl 29.11 bestowspowers on the protector that are additional to those in cl 13.18 For thatreason, I consider it an available (and reasonable) interpretation that theprotector can remove all trustees and appoint a new trustee.(d) The protector is a Swiss banker, Nicola Maurice. There is anassociation between Mr Maurice and Mr Abramov. The UnitedKingdom Companies House records Mr Maurice as being a person with"significant control" in respect of several United Kingdom entitieslinked to Mr Abramov.(e) Endurance's decision to determine that an Emergency Event had arisenin respect of Mr Abramov expressly records that it was made againstthe background that recent events had the potential to result in New18 Compare, for example, cl 29.11 with cl 13.4.Zealand sanctions against "wealthy Russians with investment interestsin New Zealand".(f) The result of Endurance's determination was that Mr Abramov wasmerely deemed not to be a beneficiary of the Raglan Trust. He has been(temporarily) suspended, not removed, as a beneficiary.(g) The Overseas Investment Office (OIO) made decisions on applicationsby Targa in January 2020 and August 2021. In both instances the OIOsaid that Targa was "ultimately controlled" by Mr Abramov. Mr Seeldeposes that the OIO was "simply wrong". But that does not mean itwas or is unreasonable for Westpac to rely on the OIO'scharacterisation. Further, Targa's applications to the OIO described MrAbramov (and Mr Maurice) as one of the "individuals with control" ofTarga.(h) On 10 October 2022, the New Zealand Foreign Minister, the HonNanaia Mahuta, issued a press release in relation to the decision toimpose a travel ban (but not full economic sanctions) on Mr Abramov.She said that, after taking extensive advice, she had decided not toimpose full sanctions because of the impact that would have on smallbusinesses and livelihoods connected with Mr Abramov's businessinterests. A reasonable interpretation of the Minister's comments is thatshe was of the view that Mr Abramov owned or controlled businessinterests in New Zealand. There is nothing to suggest that could beanything other than Endurance, Targa, and their subsidiaries.The contract risk and the capital markets risk depend on third parties' perceptions[67] Westpac's assessment of its exposure to contract risk and capital markets riskrequires an assessment of whether third parties perceive that Westpac may bebreaching sanctions. Those perceptions are to a certain extent outside Westpac'scontrol, as are the third parties' responses to such perceptions.[68] Targa submitted that Westpac did not suggest in its evidence that there was anyreasonable likelihood of third parties declining to provide funding to or otherwise dealwith Westpac if Westpac did not terminate its relationship with Targa. I disagree. Theaffidavits filed on behalf of Westpac provide detailed and cogent explanations ofbanking practices and of Westpac's dealings with third parties. Targa did not dispute,either in evidence or submissions, these explanations. Further, Westpac providedevidence that its relationship with Targa had already caused delays to one fundingprogramme, resolved only once Westpac had begun steps to terminate thatrelationship.[69] Given the circumstances that I addressed in the preceding section, and thatWestpac has limited control on how third parties perceive the risk of sanctionsbreaches or react to that perception, I consider it is not seriously arguable that Westpacunreasonably assessed its exposure to contract risk and capital markets risk fromcontinuing its relationship with Targa.Other banks have acted similarly to Westpac[70] Westpac's decision not to have a continuing relationship with Targa aligns withdecisions made by other New Zealand banks. The ASB Bank has closed accounts heldby Targa and by HBHL. Mr Seel deposes that he has made enquiries with severalother New Zealand banks, none of which is prepared to provide banking facilities toTarga. I acknowledge that declining to accept a new customer is not the same asdeciding to terminate an existing customer. Nonetheless, the decisions by the ASBBank to close accounts and the decision by other banks not to open accounts suggestthat Westpac's approach to its sanctions risk is not unreasonable when compared tobanking practice in this country.Conclusion[71] I conclude that there is no serious issue to be tried on Targa's breach of contractclaim.Is there a serious issue to be tried on Targa's FTA claim?[72] Section 7 of the FTA prohibits a person, in trade, from engaging in conductthat is unconscionable. Section 8 sets out matters to which the Court may have regardin determining whether conduct is unconscionable.[73] Targa submitted that Westpac's closure of Targa's accounts would beunconscionable on essentially the same grounds it put forward in respect of its breachof contract claim.[74] Section 7 is relatively new and is untested. It is unnecessary for me to embarkupon a detailed examination of its provenance. It suffices to observe that theExplanatory Note to the Fair Trading Amendment Bill 2019 (which introduced s 7)described unconscionable conduct as "serious misconduct that goes far beyond beingcommercially necessary or appropriate". This indicates what was intended.[75] For the reasons I have given in finding that Targa's breach of contract claimdoes not raise a serious issue, I find there is no serious issue to be tried that Westpacwould be acting unconscionably in closing Targa's accounts.Balance of convenience and overall justice[76] Given my conclusion that there is no serious issue to be tried, it is not necessaryfor me to address the balance of convenience or overall justice.Result[77] I decline Targa's application.[78] Westpac is entitled to costs on the application. I expect the parties will be ableto agree costs. If not, Westpac is to file a memorandum (no more than two pages,together with relevant schedules and annexures) by 3 March 2023, Targa to follow suitby 10 March 2023. I would then determine costs on the papers.______________________Campbell J