The applicants in a protracted class action against the Commonwealth Bank of Australia brought by borrowers who claim they were forced to default on their commercial loans have lost a bid to amend their pleadings, six years after the case was filed.
In a decision published on Friday, NSW Supreme Court Justice James Stevenson tossed the late stage bid to bring new claims against CBA because the pleadings were “bad in form” and “embarrassing” and would “open up a completely new area of inquiry” for the bank to deal with.
“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,” the judge said.
It would be “most unjust” to force CBA to embark on a “wholly new area of inquiry likely to be wide ranging in the extreme” at a time when discovery and evidence was mostly complete, Justice Stevenson said.
“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.”
The class action was filed by Sydney-based Hall Partners in March 2016. The case alleges that a review of almost 2,000 commercial loans, conducted by CBA after acquiring BankWest in December 2008, “hindered or prevented” group members from paying off their debts, which were transferred to the bank’s credit asset management division.
As a result of CBA’s alleged conduct, group members were unable to fulfil their loan obligations. The resultant defaults caused BankWest to write off the loans and appoint receivers to sell off any secured properties, the lawsuit claims.
The proposed amended pleadings aimed to bring new claims that BankWest engaged in a form of “non-prudential lending” by offering the loans to group members before the 2008 acquisition, and that CBA was responsible for loans which should not have been issued at all.
In its current form, the class action claims that the reason for transferring the loans to the CAM division was to remove them from BankWest’s loan book and to end the customer relationship between the bank and the borrowers.
CBA is accused of breaching the terms of the facility agreements and engaging in unconscionable conduct in breach of the ASIC Act.
“BankWest breached the terms of group members’ facility agreement, in particular paragraph 2.2 of the Banking Code, in that it did not act fairly and reasonably towards a group member in a consistent and ethical manner,” the statement of claim says.
Alternatively, the bank is accused of breaching a duty of care to customers under the Code of Banking Practice.
Applicants Australian Retirement Group Pty Limited and its director Peter Walsh took out a $9 million loan in October 2006 from BankWest for the development of 102 self-care dwellings in the NSW town of Bonny Hills.
While a further facility of over $23 million was taken out for the project in October 2009, BankWest is said to have placed ARG’s loans into its CAM division a few months later, valuing the land securing the commercial development at just over $4 million.
In its defence, CBA argues that ARG breached the facility agreement by failing to satisfy a condition that the amounts sought were enough to complete the commercial development. A contingency overrun had also been identified which had not been dealt with by ARG, the bank said.
The review was conducted so that all loans satisfied accounting and prudential standards and that “appropriate risk gradings and provisions” were applied, the bank said.
BankWest was entitled to clamp down on defaults and breaches of the facility agreements, CBA said.
“In respect of some loans, where it was entitled to do so under the terms of the facility agreement, BankWest charged default rates of interest, imposed fees and charges, issued payment demands, issued notices of default and/or terminated facility agreements,” it said.
ARG and Walsh are represented by Hall Partners. CBA is represented by Imtiaz Ahmed, instructed by Herbert Smith Freehills.
The case is Australian Retirement Group Pty Ltd & Anor v The Commonwealth Bank of Australia Ltd.
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