Australian Retirement Group Pty Ltd v The Commonwealth Bank of Australia Ltd (No 2) [2022] NSWSC 439

Supreme Court New South Wales

Medium Neutral Citation: Australian Retirement Group Pty Ltd v The Commonwealth Bank of Australia Ltd (No 2) [2022] NSWSC 439 Hearing dates: 8 April 2022 Date of orders: 8 April 2022 Decision date: 08 April 2022 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: Plaintiffs' Notice of Motion dismissed with costs Catchwords: PRACTICE AND PROCEDURE – amendment – where amended pleadings not properly formulated – where proceedings on foot for over six years – where amendments open up new inquiry at late stage – leave to amend refused Legislation Cited: Civil Procedure Act 2005 (NSW) Category: Procedural rulings Parties: Australian Retirement Group Pty Ltd (First Plaintiff/Applicant) Peter Gower Walsh (Second Plaintiff/Applicant) The Commonwealth Bank of Australia Limited (Defendant/Respondent) Representation: Counsel: I Ahmed (Defendant/Respondent)

Solicitors: Hall Partners Pty Ltd (Plaintiffs/Applicants) Herbert Smith Freehills (Defendant/Respondent) File Number(s): 2016/86790

EX TEMPORE Judgment (REVISED) 1. These proceedings were commenced on 20 March 2016 as representative proceedings under Pt 10 of the Civil Procedure Act 2005 (NSW). They have thus been on foot for over six years. 2. The proceedings have reached the stage where each party has given discovery and the evidence, including expert evidence, is almost complete. In substance, the allegations made by the plaintiff on behalf of the group members concerns the conduct of Bankwest, now owned by the defendant, the Commonwealth Bank of Australia ("CBA"), after the plaintiffs and group members entered into the relevant facility agreements. The allegations focus on a review that Bankwest did of the loans after they had been acquired by the CBA. 3. Now by Notice of Motion filed on 26 February 2022 the plaintiffs seek to amend their Second Further Amended Statement of Claim to add a further proposed common question: "Further and alternatively, whether BankWest engaged in a form of non prudential lending with the Group Members, and for which the CBA is responsible, and which upon the acquisition of Bankwest by the CBA, the CBA was required to review and for the purposes of bringing the Group Members loans to an end." 1. The proposed amendment is also to add a section Q, "Claim in the Alternative" as follows: "104. Further and alternatively to the above claim(s) and prior to the acquisition of BankWest by the CBA, BankWest entered into a Credit Facility Agreement(s) with the Group Members, and in the case of ARG, a Credit Facility Agreement entered into on 5 October 2006 (the Credit Facility Agreement). 105. In the circumstances in which the Credit Facility Agreements were entered into, they were a form non prudential lending and a form of lending of a kind that giving regard to the prevailing economic situation and the circumstances surrounding the global financial situation at the time, BankWest ought not have entered into. 106. Many of the Group Members loans that were entered into by BankWest prior to its acquisition by CBA were the subject of valuations that were unsatisfactory or where serviceability was not viable, and that were required to be reviewed following the acquisition of BankWest by CBA, and including by the engaging of qualified valuers for the said purposes or alternatively by a process of desk top valuations, and in which the underlying valuations of security properties proffered as security for loans that BankWest had entered into, had to be revalued. 107. In the case of ARG, BankWest had engaged the services of a Ms Patricia Forbes to value the ARG security property for the purpose of BankWest determining whether it should provide the credit necessary facility to ARG, to carry out the Carnegie Cove Development. 108. Following the acquisition of BankWest by CBA, it was realized by the CBA that: i. the valuation of Carnegie Cove and of the Group Members security properties was overvalued; and, ii. in the case of the valuation carried out by Patricia Forbes, that the valuation was outside the permissible range of valuation; iii. that the true valuation of the property was approximately 1/3 of the valuation amount as had been determined by Ms Forbes; and, iv. that the Group Members properties and securities and in the case of ARG, that the Carnegie Cove Property would have to be revalued, at a valuation amount that was well below the level at which an LVR default was triggered; and hence that as a consequence, the Group Members and including ARG's loan(s) facility was in default. 109. By overvaluing the security property known as Carnegie Cove and by overvaluing the Group Members securities outside the permissible range of valuation, and by engaging in a form of lending that was non prudent lending and that was not a form of lending that a competent and accomplished financial institution such as the Commonwealth Bank would have engaged in, BankWest: i. breached the provisions of the Banking Code of practice; and/or, ii. alternatively failed to provide a banking service with all due care and skill and diligence; and/or, iii. engaged in a form of lending that was unconscionable or that for the purposes of the ASIC Act, involved the provision of credit to borrowers who believed that they were a suitable customer to have received credit, whereas in point of fact they were not; iv. was required to bring the Group Members facilities to an end, and for the purposes of regularizing its commercial loan book, and bringing it into line with the Basal Banking Accord; following the circumstances in which the CBA had come to acquire BankWest. PARTICULARS (a). Paragraphs 2.2. and 25.1 of the Banking Code 110. Further and alternatively, BankWest's conduct in extending credit to the Group Members in the circumstances in which it ought never have properly done and then reviewed the facilities and defaulted them for the purposes of calling the loans in and determining the facilities, was unconscionable conduct for the purposes of the ASIC Act or the Australian Consumer Law, or the general law. 111. The CBA is liable for the conduct of BankWest in having engaged in the form of non prudential lending in which it had engaged prior to its acquisition by the CBA and which necessitated the review by CBA subsequence to the purchase of the CBA by BankWest, on account of the provisions of the Transfer Act. 112. ARG, Peter Walsh and the Group Members suffered loss and damage and including the loss of their security properties that they owned prior to the entry into of their facility agreements with BankWest suffered loss and damage and including a loss of credit worthiness, the loss of opportunity to have applied themselves to more appropriate commercial endeavours in the first place, the loss of all their security properties were sold by receivers. 113. ARG and PGW and the Group Members claim loss and damage, interest and costs." 1. There are a number of reasons why leave to amend must be refused. The first is that the pleading is bad in form and is, from a pleading point of view, embarrassing. No attempt is made to plead material facts. Rather, assertions of a broad and conclusionary nature are made. 2. For example, in par 105 it is alleged that the various "credit facility agreements" were "a form of non-prudential lending" and a "form of lending" that "Bankwest ought not to have entered into." Paragraph 106 speaks of valuations which were "unsatisfactory" in circumstances where "serviceability was not viable." Paragraph 108 refers to matters that were "realised" by CBA in selling various matters. Paragraph 109 refers in general terms to an "overvaluing" and of security property and the engagement "in a form of lending that was non-prudent lending" and of lending that a "competent and accomplished financial institution … would not have engaged in." Paragraph 110 makes the sweeping assertion that Bankwest's conduct in "extending credit" to Group Members was done in circumstances "in which it ought never have properly done" and was "unconscionable." 3. While the manner in which the pleading is formulated is itself a sufficient reason to deny the amendment, there are more substantial issues that arise. The first is that no explanation is given for the making of the amendment at this very late stage of the proceedings. 4. Finally, and perhaps most importantly, if the amendments were allowed it would open up a completely new area of inquiry, namely whether the loans should have been made at all. 5. That is made clear by the nature of the allegations proposed to be made but also by the evidence given by the plaintiffs' solicitor in support of the application. Paragraph 11 of Ms Lee's affidavit is as follows: "Subsequent to the service of the report of Mr Andersen, the plaintiffs served an amended statement of claim on the CBA and in which it is pleaded to the effect that if the review carried out by the CBA on the commercial loan book of Bankwest subsequent to its acquisition by CBA was appropriately conducted, then, given the results of the review in which many commercial loans were brought to an end, those loans were loans of a poor credit quality that Bankwest should not have written in the first place." (Emphasis added.) 1. It would be most unjust to impose upon the defendant bank, at this late stage of the proceedings, the need to embark on a wholly new area of inquiry likely to be wide ranging in the extreme. 2. Furthermore, it is very likely that the allegations, even if properly pleaded, would now be out of time. That alone might not be a reason to deny leave to amend at this stage but, when taken in combination with the matters to which I have referred, confirms to my mind that the correct conclusion is that leave to amend should be refused. 3. The plaintiffs' Notice of Motion of 26 February 2022 is dismissed with costs.