Commonwealth Bank of Australia v Rafidi

1. [1]

   In May 2006, Bank of Western Australia Ltd (“BankWest”) agreed to provide Brick & Block Company Pty Ltd (“BBC”) various financial facilities.

2. [2]

   At that time BankWest was owned by HBOS Australia Pty Ltd.

3. [3]

   By an agreement made on 8 October 2008 (the “Share Sale Agreement”) HBOS agreed to sell its shares in BankWest to the plaintiff, Commonwealth Bank of Australia Ltd (“CBA”).

4. [4]

   In the current iteration of its cross-claim, BBC alleges, amongst other things:

Applications to amend the cross-claim

1. [5]

   Since November 2015 BBC has made five applications to amend its cross-claim and has circulated a total of seven proposed forms of cross-claim.

2. [6]

   Each of those applications has been rejected, most recently by Hammerschlag J on 1 April 2016.

3. [7]

   Each of the proposed forms of cross-claim has sought to agitate claims arising from the alleged fact that the appointment by BankWest of the receivers on 4 November 2009 was motivated by a desire, on the part of CBA, to make a “warranty claim” against HBOS under the Share Sale Agreement and, to use a somewhat imprecise expression, to improve BankWest’s balance sheet.

4. [8]

   On 4 April 2016 I heard BBC’s most recent application to amend its cross-claim. On that application Mr Dubler SC appeared with Mr White for BBC, and Mr Leopold SC appeared for CBA. The proposed cross-claim is an annexure to an affidavit sworn by BBC’s solicitor, Mr Trevor Hall, on 4 April 2016.

5. [9]

   In the course of argument, the ambit of the dispute between the parties narrowed considerably.

6. [10]

   Mr Dubler abandoned the “improve the balance sheet” claim (in par 78A of the proposed cross-claim) and argument focused on the “existing warranty” claim.

7. [11]

   That claim is set out in pars 59B and 59C of the proposed cross-claim.

Paragraph 59B

1. [12]

   The proposed par 59B is in the following form:

2. [13]

   In that paragraph, BBC asserts that the decision to appoint the receiver was, a breach of the implied term referred to at [4] above.

3. [14]

   Presumably, what the pleader means to say is that, as the appointment was contrary to the Receiver Representation, it was made unreasonably, or in bad faith or for an extraneous or improper purpose, or in a capricious or arbitrary manner.

4. [15]

   Such a rolled up pleading is embarrassing.

5. [16]

   Following Mr Leopold’s criticism of it, Mr Dubler made no attempt to justify it.

6. [17]

   My opinion is that it should not be allowed.

Paragraph 59C

1. [18]

   The proposed par 59C is in the following terms:

2. [19]

   There follow a lengthy list of particulars. There was debate before me as to whether some or all of those particulars were relevant to the matters pleaded in par 59C.

3. [20]

   In view of the conclusion to which I have come concerning the pleading itself, it is not necessary for me to consider the particulars.

4. [21]

   Before considering the pleading itself, it is necessary to have regard to some background matters.

5. [22]

   Proposed par 59C speaks of CBA making a “warranty claim” under the Share Sale Agreement.

6. [23]

   The relevant clauses of the Share Sale Agreement are cll 15.1, 15.3, 16.1, 16.2 and 5.1 of Schedule 6.

7. [24]

   The effect of those clauses is that:

8. [25]

   In fact, CBA commenced proceedings against HBOS on 29 September 2009. CBA made no claim in those proceedings that BankWest’s financial records contained any material inaccuracy or discrepancy; let alone that any such inaccuracy or discrepancy arose by reason of its dealings with BBC.

9. [26]

   Proposed par 59C also refers to “the existing warranty claim made on 21 January 2009”.

10. [27]

    That is a reference to a letter sent by CBA’s solicitors, Freehills, to HBOS on 21 January 2009. I do not read that letter as itself being a warranty claim.

11. [28]

    In the letter, Freehills asserted that there “may” be inadequate “provisions” in BankWest’s accounts in relation to “impaired asset values”, that this “may” result in some of BankWest’s financial records containing “material inaccuracies or material discrepancies” and that this is a “potential warranty breach”.

12. [29]

    To return to the proposed pleading, par 59C is written in the passive voice and conceals more than it reveals.

13. [30]

    Thus, it alleges that BankWest’s decision to appoint receivers was taken in bad faith and for the extraneous or improper purpose of:

14. [31]

    The explanation the pleading gives as to why it is that BBC alleges that BankWest had such a purpose is to be found in proposed sub-pars 59C(1)-(7) (hence the words “in that” that precede those subparagraphs).

15. [32]

    Sub-paragraph (1) recites an abbreviated summary of the relevant provisions of the Share Sale Agreement.

16. [33]

    Sub-paragraph (2) asserts that BankWest’s “books and account made no provision for the BBC loans as being an impaired asset”.

17. [34]

    The first point is that this is not the language used in the Share Sale Agreement which speaks of “material inaccuracies or material discrepancies” in BankWest’s “financial records”.

18. [35]

    Second, it is not alleged:

19. [36]

    Indeed, the pleading makes a point of not making any such allegation. Thus, sub-par (3) states that “if a provision should have been made for the BBC loans” (without identifying what such provision might be or when it should have been made), then “a claim could have been made in that regard”.

20. [37]

    Sub-paragraph (4) asserts on or about 9 June 2009, following a meeting of BankWest’s Review Panel:

21. [38]

    Sub-paragraph (4) alleges that the Review Panel meeting was held “in order to identify warranty claims”. It might be thought odd that such matters would be considered at a BankWest Review Panel meeting, rather than at a CBA meeting. Mr Leopold tendered a minute of the BankWest Review Panel meeting of 11 June 2009, which contained no reference to warranty claims. That is no doubt a matter to be explored at the hearing (to take place over six weeks commencing on 11 October 2016), if it remains relevant.

22. [39]

    Sub-paragraph (4) goes on simply to assert that the matter at [37] above had the result that the BBC loan was “potentially eligible to be part of a warranty claim which CBA thereafter wished to pursue”.

23. [40]

    That allegation leaves two critical questions unanswered:

24. [41]

    If BBC is not able to make a properly particularised allegation to this effect, I find it hard to see how it can allege that BankWest’s purpose in appointing the receiver was to “enable” CBA to make a warranty claim or to “evidence and support” the claim allegedly foreshadowed in Freehills’ letter of 21 January 2009.

25. [42]

    Sub-paragraphs (5) and (6) assert that, in effect, BBC’s loan arrangements with BankWest were within “terms and arrangements” such that CBA could not have made a warranty claim in respect of them.

26. [43]

    Finally, sub-par (7) alleges that, as a matter of fact, BankWest decided to appoint the receiver “because such appointment then enabled CBA, in respect of the BBC loans, to make a warranty claim” (or to “evidence and support” the claim allegedly made in the Freehills’ letter of 21 January 2009).

27. [44]

    Again, this pleading leaves critical matters unstated:

28. [45]

    The proposed pleading asserts bad faith on the part of BankWest. That is a very serious allegation. The proposed pleading does not adequately reveal a basis, if indeed one exists, for BBC to make such an allegation.

29. [46]

    I find these shortcomings in the proposed pleadings to be fundamental.

30. [47]

    I am not prepared to grant BBC the leave it seeks.

31. [48]

    BBC’s motion of 4 April 2016 is dismissed with costs.