Alan L Tyree

20+ Years of NZ and Australian Banking Law

Alan L Tyree1

3 August, 2003

The New Zealand law applicable to banking and banking transactions has diverged from Australian law over the past twenty years. In general terms, New Zealand has fewer regulatory laws and systems. In the area of consumer protection, New Zealand law has been, curiously, less insistent on providing basic consumer rights.

I will make a few comments about the general divergence of the two legal regimes, then look in more detail at the particular problem of electronic payment systems.

1  Banking law generally

New Zealand law has diverged noticeably from Australian law in the areas of ``lender liability'' and in the regulation and supervision of financial institutions. I will look briefly at each of these topics, then mention several other areas in which the laws of the two countries have drifted apart.

1.1  Undue influence/unconscionable conduct

New Zealand has rejected, rightly in my view, the notion that being a wife is automatically a ``disability''. The New Zealand courts have refused to follow the Australian High Court decision in Garcia v National Australia Bank Ltd,2 which held that the wife was under a special disability even though she was an experienced businesswoman.3

If, as seems likely, New Zealand follows the House of Lords decision in Royal Bank of Scotland v Etridge (No 2),4 then undue influence must always be proved. The former ``classes'' of relationships where influence was presumed will be abolished.5

Again, this seems to me to be a desirable development. The threshold of proof is still lowered in certain kinds of relationship.

1.2  Regulation

There are obvious and sharp differences in the regulatory regimes of the two countries. Most noticeable is the institutional structure. Prudential and supervisory regulation of the New Zealand industry is by the Reserve Bank of New Zealand. In Australia, prudential supervision has been removed from the Reserve Bank of Australia and handed to the Australian Prudential Regulatory Authority. Payment systems are supervised by the Payment Systems Board, a board of the RBA. The Australian Securities and Investment Commission has supervision of the EFT Code of Conduct as well as certain other licencing and consumer protection regimes.

The RBNZ has been said to

take a less interventionist approach to bank supervision than most other jurisdictions, relying primarily on market incentives such as private sector monitoring of extensive quarterly public disclosures, audit requirements and director attestations.6.

Similar differences in philosophy may be seen in the differing money laundering and transaction reporting schemes. Australia has established an active interventionist regime backed by the Australian Transaction Reports and Analysis Centre. Australia has a highly prescriptive identity verification procedure, New Zealand merely requires that it be verified. Australia has a highly prescriptive regime for reporting transactions, New Zealand requires only the reporting of suspicious transactions.

It is not easy to evaluate the effect of these differences. Recent failures in Australia have raised questions about the effectiveness of prudential supervision. The Payment Systems Board has ``designated'' the main credit systems and imposed conditions,7 but Australia has a much higher percentage of non-cash payments made by credit card than New Zealand. On the face of it, it would seem to be easier to launder money in New Zealand than in Australia, but I know of no hard evidence to support such a conclusion.

1.3  Other comparisons

Australia has overcome the problems posed by multiple jurisdictions to establish an effective Consumer Credit Code. In keeping with the above observations, the Code provides more protection for consumers than the New Zealand Credit Contracts Act 1981.

Jurisdiction problems have proved to be more intractable in reforming personal property security law. While New Zealand has implemented the PPSA, Australian jurisdictions are stuck firmly in the 19th century. Even worse, different jurisdictions are in different parts of the 19th century.

2  Electronic funds transfers

New Zealand has always been at the forefront of electronic banking. In 1978 as a student at Victoria University of Wellington I addressed EFT issues in a paper prepared for a course ``The Law of Banking'' taught by Professor Ellinger. The survey of American literature left me bemused since many of the articles addressed the problems of the ``Automated Clearing House''. New Zealand residents had enjoyed the benefits of automated cheque clearing for some time.

The adoption of electronic banking has continued. New Zealanders average 341 non-cash retail payment transactions each year. Of these, 225 are ``pure'' electronic transactions, 65 are cheques and 51 are credit card transactions.8 Corresponding figures for Australia are 172 transactions per person. Of these, 38 are cheques and 43 are credit cards.9

While raw statistics are interesting and certainly illustrate the remarkable growth of electronic payments, it is more interesting to look at the legal development that has accompanied the growth. In my view, the history of electronic banking is the history of consumer protection for banking customers.

The consumer protection advances have been in two areas, Codes of Practice and the establishment in both countries of an office of Banking Ombudsman.

2.1  EFT Codes

Electronic banking and consumer protection go hand-in-hand. It didn't need to be this way, but early terms and conditions for consumer EFT contained terribly unfair terms. It was not at all unusual to have conclusive evidence clauses that, in effect, made consumers responsible for the effects of poor system design.

This led to early and vocal calls for government intervention. Intervention was forthcoming, but not in the form of legislation. In Australia, the threat of legislation resulted in the establishment of an EFT Code of Practice. Both countries established Codes of Banking Practice. The latter Codes were ``private'' developments but in both cases the development was to ward off the threat of more formal intervention.

The result in both Australia and New Zealand was a ``voluntary'' Code of Practice. Australia has a ``stand alone'' Code while the New Zealand provisions are part of the Code of Banking Practice. The original Australian Code was revised in 2002 to include electronic transactions other than those initiated by a card and PIN. New Zealand consumers gain the benefits of the card/PIN provisions of the Code of Banking Practice.

2.1.1  Scope of protection

A quick comparison of the two protective regimes indicates that customers receive wider protection in Australia than in New Zealand although the ``default'' amount required to be paid is higher in Australia than in New Zealand (AU$150 vs NZ$50). The Australian Code covers a much wider class of transactions, but even when a transaction is within the scope of both Codes, the Australian protection may be greater.

Case 34 in the New Zealand Banking Ombudsman's Case Reports 2001-2002 will illustrate. From the report:

While Mr J was in Sydney, he paid his hotel account with a Visa credit card. The hotel's electronic funds transfer at point of sale (EFTPOS) terminal would not produce a transaction slip. The hotel receptionist then used another EFTPOS terminal to credit the amount to his account and re-debit it. The two debits appeared on Mr J's credit card statement for the same amount in New Zealand dollars (NZD) but the credit appeared as a lesser amount, a difference of some NZD50.00. The difference occurred because the credit from the hotel was processed using a different exchange rate from the debits. All three transactions appeared on the credit card statement with the same transaction and processing dates.
The bank argued that ``... the problem arose from an error on the part of the hotel for which, in terms of its Terms and Conditions of Use relating to credit cards, it was not liable.'' The argument was accepted by the Banking Ombudsman.

Of course, the error arose because of a fault in the EFTPOS equipment. Clause 8.2 of the EFT Code provides that an account institution may not avoid obligations by reason only that they are party to a shared EFT system and that another party has actually caused the failure. Although not wholly free from doubt, my own opinion is that the ABIO would apply these provisions to find for the consumer. The NZ result, in effect, rewards sloppy system maintenance. Mr J, not surprisingly, did not accept the result, perhaps feeling that there is something wrong with a system that throws the loss onto the only person who is completely incapable of avoiding the risk.10

2.1.2  Burden of proof

A further important difference is that the Australian Code specifically addresses the burden of proof problem. Clause 5E makes it clear that the ``account institution'' must prove ``on the balance of probability'' that the user has contributed to the loss if the user is to be held responsible for more than the default amount.11 All reasonable evidence must be considered, including all reasonable explanations for the transaction occurring.12

The fact that the account has been accessed with the correct access method, while significant, will not of itself constitute proof on the balance of probability that the user has contributed to losses.13

The ABIO has acknowledged that these provisions of the Code require a change in the way that information is assessed.14

The NZ approach is illustrated by Case 39 of the Ombudsman's Case Note Compendium 2001-2002. Miss K left her handbag locked in her car for about five minutes while she attended a garage sale. The bag together with her card were stolen. The theft was reported immediately to the police and then to the bank. NZ$1500 had been withdrawn. The card had last been used the day before at a local supermarket.

From the Ombudsman's case report:

I accepted Miss K's submission that she did not disclose her PIN. She had last used it at a supermarket the previous day and it was unlikely that the thief watched her using the card and then followed her until the next day, waiting for an opportunity to steal the card. I therefore came to the view, notwithstanding Miss K's strong assertion that she had not written the PIN down, that on the balance of probabilities the thief had found a written record of the PIN among the contents of the handbag in the half hour interval between the first unsuccessful attempt to access the account and the second successful attempt. There was simply no other credible explanation for the thief coming to know the PIN.

The case report contains no information about where the thief made the withdrawal. The half hour delay between attempts is puzzling if the PIN was written in ``clear''. It would be interesting to know if the first attempted PIN was ``close'' in any sense to the real PIN. I would expect these questions to be investigated under the Australian Code, particularly in view of the provisions explicitly permitting a disguised version of the PIN to be recorded.

The case shows that the NZ approach is to use the ``balance of probabilities'' but it does not address the question of burden of proof. This case would seem to suggest that the burden of proof was on the consumer.

My own view is that ordinary banking law principles show that the burden of proof is on the institution: see Tyree [2] at para 39.7.

2.2  Banking Codes

New Zealand was the first to have a Code of Banking Practice, first adopted in January 1992. The Australian Code was close behind, released in November, 1993 but not adopted until 1 January 1995.15

From a consumer protection point of view, there is little good to say about the Codes of Banking Practice. They seldom went beyond existing legal protection and sometimes reduced customer's rights below the existing level: see, for example, Tyree [1]. In both cases the Codes were drafted by the banks' lawyers with little input from consumer representatives.16

This has changed somewhat in recent years. The regular revision of the New Zealand Code now receives pubic input, but the results as measured by the third edition are disappointing.

The situation in Australia is more promising. The ABA commissioned Mr Richard Viney to make an independent review of the Code.17 His recommendations are due to be implemented in August of this year. The proposed Code is a substantial improvement on existing Codes, and the ABA is to be congratulated on this development.

2.3  Institutions

The Australian Banking Industry Ombudsman (ABIO) was established in 1989 and commenced operation in June 1990. The New Zealand Banking Ombudsman (NZBO) was established in July 1992.

The operation of both schemes is similar. Consumers are required to take complaints first to the bank in question. If the consumer is dissatisfied with the results of the bank investigation, or if the investigation takes too long, then the complaint may be taken to the Ombudsman.18

While it is always possible to disagree with certain details, my own opinion is that both schemes deserve the highest praise. They provide effective, affordable and fair dispute resolution. That doesn't happen very often in the real world.


Alan L Tyree. Banking code losers. Journal of Banking and Finance Law and Practice, 6:49 - 51, 1995.
Alan L Tyree. Banking Law in Australia. Butterworths, Sydney, fourth edition, 2002.
Alan L Tyree et al. Tyree's Banking Law in New Zealand. LexisNexis, 2003.
Duncan Webb. The last word on wives' guarantees-again. NZBLQ, 8:172, 2002.
W S Weerasooria. Banking Law and the Financial System in Australia. Butterworths, Sydney, 5th edition, 2000.


1Consultant; formerly Landerer Professor of Information Technology and Law, University of Sydney. The views expressed are my own and do not reflect the views of any other person or organisation.

2(1988) 155 ALR 614.

3See, for example Jenkins v NZI Finance (1991) 3 NZBLC 102.

4[2001] 3 WLR 1021.

5See Webb [4] and the discussion in Tyree, Kidd, Rickett and Webb [3].

6See Chapter 1 in Tyree, Kidd, Rickett and Webb [3]

7Which are currently being challenged in the Federal Court by the credit card schemes.

8Bank for International Settlements, Statistics on Payment and Settlement Systems in Selected Countries, April 2003.

9It is not clear why NZ should have almost twice as many non-cash transactions per person as Australia.

10I am not suggesting that the Ombudsman's decision was incorrect. I am criticising the inadequate protective provisions which led to it.

11Currently AU$150.

12Clause 5.5(c).

13Clause 5.5(c).

14Bulletin 37, ABIO.

15Even then, some of the most important parts of the Code, dealing with credit and lending, were not implemented until 1 November 1997. The delay was thought necessary to accommodate the commencement of the Uniform Consumer Credit Code.

16For a discussion of the NZ Code, see Tyree, Kidd, Rickett and Webb [3]; for a discussion of the Australian Code, Tyree [2]; for some detailed background to the Australian Code, see Weeerasooria [5] at Chapter 15.

17See R T Viney, Reviewing the Code of Banking Practice in the New Environment, paper presented to the 18th Annual Australia Banking Law and Practice Conference, 7-8 June, 2001.

18See Tyree, Kidd, Rickett and Webb [3] for a discussion of the New Zealand scheme; Tyree [2] and Weerasooria [5] for a discussion of the Australian scheme.