CBA/BankWest unconscionability and the courts

McDougall is saying to O'Brien and his partners – pay back the contracted loan debt and pursue a counter claim later. Of course, O'Brien doesn't have a spare couple of hundred million because the bank has relieved him of his key asset and sold it under value. Moreover, there would be no counter claim by O'Brien because he would bankrupted by the bank post haste.

McDougall also claimed that most of what has come before him is irrelevant. The contract stipulates that the loan is due on 15 January 2009. That date passed, and the loan becomes due. End of story.

The McDougall judgement is a shocker – high farce in one act. Ironically, the hearing and judgement took place within the Equity Division of the NSW civil court system – a linguistic joke understood only by the legal profession.

O'Brien appealed, and his case came before Beazley, Macfarlan and Ward JJ on 31 January 2013. The judgement came down on 11 April. Lo and behold, the Appeal Judges decided for O'Brien.

This is a miracle. Generally judges decide for the bank as a matter of course. On my estimation, only two cases have been decided for the bank customer since four foreign currency loan cases were decided for the customer in 1990-91 (Quade v CBA; Chiarabaglio, Spice & Ferneyhough v Westpac). Not counted are 'disability' unconscionability cases (guarantor is non-English speaking or uninformed wife) – Garcia (1998), Petit-Breuilh (1999), Ashton (2001), all against the NAB – for which there is unshakeable legal precedent. And the two victorious cases were either partial (Kay v NAB, 2010) or ephemeral (NAB v McCall, 2011). That is 22 years of Buckley's chance for a bank victim seeking justice in the courts.

But here we have a unanimous decision against the bank, with costs. Some salient quotations from the judgement:

3(c) Powers to summarily terminate proceedings must be exercised with exceptional caution. …

68 The issue, therefore, in the present case is whether … there is an underlying defence that has a real (or more than a fanciful) prospect of success. If so, then summary judgment should not have been given in favour of the Bank.

38 The Guarantors contend that representations were made both to the borrower and to them (and both before and after 15 January 2009) that the Bank would roll-over the facility and would advance further funding to the borrower to allow the completion of the development. They contend that (to the Bank's knowledge) they (and the borrower) had relied to their detriment on those representations by not making arrangements to secure alternative funding. The Guarantors further allege unconscionable conduct on the part of the Bank, in taking the steps that it did in relation to the non-payment of moneys payable under the facility agreement, by reference to both equitable and statutory concepts of unconscionability …

112 In Bitannia Pty Ltd v Parkline Constructions Pty Ltd (2006) 67 NSWLR 9; [2006] NSWCA 238, Hodgson JA, at [8] noted that s 52 of the Trade Practices Act (Cth) disclosed a legislative intention that persons should have a remedy to protect them from (or to recover compensation for) damage from the misleading conduct of a corporation and it would not be in accordance with that intention to permit a corporation to obtain judgment on a cause of action one essential element of which had been created by the corporation's misleading conduct. …

The bench agrees with the victim appellants. There is the claimed promise of rollover, which must be tested. And there is the claimed unconscionability, which must be tested independently. The supposedly sacrosanct suspension/preservation clauses are overturned. More, the judges' authority is drawn from precedent and from the ASIC Act, an Act that ASIC itself declines to administer.

Yet all this weighty deliberation takes place in the abstract – the judgement is made on technicalities. But what do we have here?

122 … the Bank [is claimed to be] in breach of express or implied terms of the facility agreement precluding the Bank from exercising its powers contrary to good faith or for a collateral purpose. The allegation by the Guarantors is that the Bank took these steps at the direction of a third party (in order that there might be a reduction in the price to be paid for the acquisition of the Bank).

The judges acknowledge that something unusual might be afoot. The 'third party' is the CBA itself, the instigator of the takedown of the borrowers, via its placing of its man Jon Sutton to oversee the process at its subsidiary BankWest.

On 7 May, the law firm acting for the CBA, Ashurst Australia, issued a document titled 'The rise and fall of suspension clauses'. Notes the Ashurst Partners: