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Mineral Resources Engineering Services Pty Ltd v Commonwealth Bank of Australia[2015] QSC 288

Mineral Resources Engineering Services Pty Ltd v Commonwealth Bank of Australia[2015] QSC 288

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Mineral Resources Engineering Services Pty Ltd as T’ee for Meakin Investment Trust v Commonwealth Bank of Australia; Hay v Commonwealth Bank of Australia (No 2) [2015] QSC 288

PARTIES:

In SC No 6906 of 2010:

MINERAL RESOURCES ENGINEERING SERVICES PTY LTD as trustee for MEAKIN INVESTMENT TRUST

(plaintiff/respondent)

v

COMMONWEALTH BANK OF AUSTRALIA
ACN 123 123 124

(defendant/applicant)

In SC No 6907 of 2010:

PETER ALEXANDER HAY

(plaintiff/respondent)

v

COMMONWEALTH BANK OF AUSTRALIA
ACN 123 123 124

(defendant/applicant)

FILE NO/S:

SC No 6906 of 2010

SC No 6907 of 2010

DIVISION:

Trial Division

PROCEEDING:

Application to strike out pleadings

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

19 October 2015

DELIVERED AT:

Brisbane

HEARING DATE:

7 August 2015

JUDGE:

Philip McMurdo J

ORDER:

In SC No 6906 of 2010:

  1. Paragraphs 77, 77A, 78, 79, 86 87(cf), 88, 89 and any references to those paragraphs within the Further Amended Statement of Claim filed on 26 May 2015 be struck out.

In SC No 6907 of 2010:

  1. Paragraphs 81, 81A, 82, 83, 84(cd) 85, 86 and any references to those paragraphs within the Further Amended Statement of Claim filed on 27 May 2015 be struck out.

CATCHWORDS:

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER UNIFORM CIVIL PROCEDURE RULES AND PREDECESSORS – PLEADING – STATEMENT OF CLAIM – where the defendant applied to strike out parts of the statement of claim relating to the plaintiffs’ claims of unconscionable conduct in equity and in contravention of ss 12CA or 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) or alternatively ss 51AA, 51AB, or 51AC of the Trade Practices Act 1974 (Cth) – plaintiffs alleged that the defendant’s prioritisation of its relationship with another company was unconscionable – where the statements of claim failed to explain why the defendant’s concern to maintain its relationship with another company, of which the plaintiffs were clients, was unconscionable or how that relationship motivated the defendant to maintain rather than decrease borrowing limits – where the pleadings failed to inform the defendant of the plaintiffs’ case and parts of the statement of claim were struck out – where the plaintiffs alleged an “imbalance of knowledge” which was relevant to characterisation of the defendant’s conduct as unconscionable but failed to identify how the defendant exploited its superior position to engage in certain conduct – where those parts of the pleadings were struck out

Attorney-General of New South Wales v World Best Holdings Ltd & Ors (2005) 63 NSWLR 557, cited

Mineral Resources Engineering Services Pty Ltd as Trustee for the Meakin Investment Trust v Commonwealth Bank of Australia; Hay v Commonwealth Bank of Australia [2015] QSC 62, discussed

Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, cited

COUNSEL:

In SC No 6906 of 2010 and SC No 6907 of 2010:

D O'Brien QC, with P Somers for the plaintiff/respondent

R S Hollo SC, with P O'Higgins for the defendant/applicant

SOLICITORS:

In SC No 6906 of 2010 and SC No 6907 of 2010:

Russells for the plaintiff/respondent

Clayton Utz for the defendant/applicant

  1. In a previous judgment,[1] I struck out parts of the statement of claim in each of these proceedings and allowed certain other parts to stand but, for the purposes of a limitation period, to take effect from 3 October 2014.  It is unnecessary to repeat here the summary in that judgment of the plaintiffs’ cases. 
  2. This judgment deals with more recent versions of the statements of claim.  The defendant applies to strike out some parts of the pleadings, in relevantly identical terms between the two cases, which relate to the plaintiffs’ complaints that the defendant engaged in unconscionable conduct in equity and in contravention of sections 12CA or 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) or alternatively sections 51AA, 51AB, or 51AC of the Trade Practices Act 1974 (Cth).
  3. The issues are identical between the two cases and it is sufficient to discuss them by reference to SC No 6906 of 2010, which I will call the Meakin case. 
  4. Ultimately the arguments addressed the draft statements of claim which were provided to the defendant only on the morning of the hearing of these applications.  The application as filed related to statements of claim filed in May 2015.
  5. The unconscionable conduct case is pleaded by reference to certain so-called elements.  In previous versions of the statement of claim in the Meakin case, there were some nine elements which were pleaded, and some seven elements pleaded in Mr Hay’s case.  In the most recent drafts, there are five such elements in Mr Meakin’s case and four in Mr Hay’s case.  (The fifth element in Mr Meakin’s case, which is pleaded in paragraphs 80-85 of the current draft, complains of a specific conversation between him and an officer of the defendant on 2 December 2008 in which he says he was misled as to the state of his loan.) 
  6. The first of these elements of unconscionable conduct is, in summary, that the defendant took no proper steps to provide accurate and current information to its customers or to warn them of the inaccuracy of the information which it did provide to them as to the state of the customer’s margin loan.  That allegation is not limited to what was done or not done by the defendant in respect of the loans to customers who were clients of Storm Financial Limited (“Storm”). 
  7. The second element (still described as Element 3) is pleaded under the heading “Continued Approval of High Gearing Against Funds”.  The plaintiff pleads that the borrowing limit or limits, defined by a ratio of the loan amount to the value of security in index funds in the name of Storm, were increased by the defendant in May 2007.  There is no complaint about that conduct.  The complaint is that the defendant did not decrease the borrowing limits subsequently when relevant circumstances in the Australian economy and the ASX made it appropriate to do so.  More specifically, it is alleged that at the end of each of the months commencing December 2007 and ending August 2008, “the Defendant acting reasonably, and knowing the matters which were known or ought to have been known to the defendant, would have decreased the borrowing limits on the Funds to not more than the Original Borrowing Limits …”.[2] 
  8. The third element (still described as Element 5) complains that the defendant did not follow what is alleged to have been a standard practice of not exercising its power of sale without giving the borrower a written notice that the loan was in margin call, ensuring that this notice came to the borrower’s attention and giving the borrower an opportunity to remedy the state of the account.  It is alleged that in the six months from 1 July 2008, the defendant followed that standard practice with borrowers who were not clients of Storm.  (It is not alleged that the defendant departed from that practice with every borrower who was a client of Storm.)  The complaint in each of these cases is that the practice was not followed for the plaintiff’s loan.  It is pleaded that this departure from the practice “exposed the plaintiff to plaintiff to further risk of financial loss” and was unreasonable.[3]
  9. The next element (still described as Element 7) is headed “Defendant’s Actions Affected by Commercial Relationship with Storm”.  The relationship with Storm is pleaded to this effect:[4]
  1. Storm recommended to its clients that the defendant was a “preferred provider of margin lending facilities” for the purpose of investing in funds managed by Storm;
  2. the defendant, through a subsidiary, was the responsible entity of certain “Storm Financial” investment funds;
  3. from December 2007, there were loans by the defendant to Storm clients totalling in excess of $1 billion, secured by investments in Storm funds worth more than $1.5 billion and including 19 Storm clients each with a loan in excess of $5 million;
  4. the defendant had established with Storm certain lending terms specifically for margin lending to Storm clients;
  5. Storm was “a substantial and valued source of business for the Defendants’ margin loan business”.
  1. The relationship with Storm is alleged to have affected the defendant in its dealings with the plaintiff as follows:[5]

“77A.The:

(a)total sum of money the Defendant had lent to clients of Storm, as pleaded in paragraph 77(c)(i) hereof;

(b)total sum Storm clients has invested in the CFS Storm badges funds;

(c)value of the security Storm held for such loans, as pleaded in paragraph 77(c)(ii);

(d)fact that Storm was a substantial and valued source of business for the Defendant’s margin loan business,

caused the Defendant to make the maintaining of its business relationship with Storm, as pleaded in paragraph 77 hereof, a priority over its dealings with the Plaintiff and its Margin Loan.”

  1. In paragraph 78, it is alleged that the conduct constituted by so-called third and fifth elements:[6]

“(a)was a consequence of the Defendant’s priority pleaded in paragraph 77A hereof;

(b)was in pursuit of maintaining its business relationship with Storm, particulars of which are pleaded in paragraph 77 hereof.”

  1. In paragraph 87,[7] the plaintiff alleges that each of the so-called elements of unconscionable conduct, with the exception of the so-called element 7, was conduct which was unconscionable in the equitable and statutory senses.  The seventh element, the defendant’s prioritisation of its relationship with Storm, is not conduct which itself is said to have been unconscionable.  Rather, it is said to have been a cause of the conduct of allowing excessive credit limits (element 3) and of not giving the plaintiff a notice that the loan was in margin call and an opportunity to remedy that position before the defendant exercises its power of sale (element 5).  Now on one view of paragraph 87, element 7 is also pleaded as a relevant circumstance for element 1.  But I would not read it in that way because that would be inconsistent with paragraph 78.
  2. The defendant argues that the pleading of this element 7 should be struck out because it is unacceptably vague and obscure. 
  3. I accept that this pleading, unlike that which was the subject of my previous judgment, sufficiently describes the alleged “relationship” between the defendant and Storm.  The difficulty in understanding this part of the pleading is encountered in paragraph 77A and the allegation that the defendant prioritised the maintenance of its relationship with Storm “over its dealings with the Plaintiff and its Margin Loan”.  The allegation implies a tension between the relationship and the dealings with the plaintiff which is not explained.  Why did the defendant have to choose between the two?  How would the relationship have been affected by the defendant acting differently towards the plaintiff?  And why was the defendant’s concern to maintain its relationship with Storm a motivation which made its conduct towards the plaintiff unconscionable?
  4. The pleading does not reveal how the defendant was motivated to maintain, rather than to decrease, the loan to security ratios by its relationship with Storm.  It is possible to imagine ways in which the defendant could have been concerned about the relationship by its unilaterally imposing more onerous terms upon a client or clients of Storm.  But the defendant should not have to speculate about the content of the plaintiff’s case.  The plaintiff should plead the way or ways in which the defendant believed that returning to the previous credit limits might have led to less business being sourced from Storm.  And the defendant’s state of mind almost inevitably would have to be proved by drawing inferences from other facts, rather than by direct evidence.  Any fact from which the defendant’s state of mind is to be inferred must be specifically pleaded, according to r 150(2) of the UCPR. 
  5. Similarly, the pleading does not reveal how the defendant was motivated by its concern for the relationship with Storm when engaging in the conduct constituted by the fifth element.  Just how the relationship with Storm would be promoted by exercising the defendant’s power of sale over the property of a Storm client, without giving the client an opportunity to remedy its default, is not at all apparent. 
  6. More generally, the difficulty in understanding the plaintiff’s case about element 7 is the suggested tension between promoting or maintaining the defendant’s goodwill with Storm and acting towards clients of Storm in ways which were favourable to their interests.  The complaint here is that the defendant sought to maintain its goodwill with Storm by acting adversely to the client’s interest.  That curious feature makes the plaintiff’s case in this respect yet more difficult to discern. 
  7. It is no light matter to allege that a party’s conduct was unconscionable.  It is, as the defendant submits, an allegation of a most serious kind.  In Attorney-General of New South Wales v World Best Holdings Ltd,[8] Spigelman CJ said:[9]

“Unconscionability is a concept which requires a high level of moral obloquy.”

Citing that comment, in Tonto Home Loans Australia Pty Ltd v Tavares,[10] Allsop P (as he then was) said:[11]

“It is neither possible nor desirable to provide a comprehensive definition [of unconscionability].  The range of conduct is wide and can include bullying and thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct.”

The serious nature of this allegation supports the defendant’s present argument.  But more fundamentally, the pleadings in this respect fail to inform the defendant of whatever it is which is the plaintiffs’ case.  It follows that the plaintiffs ought not to be able to plead element 7 and the references to it elsewhere in the statement of claim.  In the Meakin case, the relevant paragraphs of the Further Amended Statement of Claim filed 26 May 2015 are 77, 77A, 78, 79 and 87(cf).  In the Hay case, the relevant paragraphs in the Further Amended Statement of Claim filed on 27 May 2015 are 81, 81A, 82, 83 and 84(cd).  Those paragraphs in the respective pleadings will be struck out.

  1. That it makes it unnecessary to consider the defendant’s alternative arguments about this part of the pleadings.  The defendant argued that these parts introduced a new cause of action which was time barred and should be struck out also upon that basis.  Alternatively again, it was submitted that if those parts were to be allowed to remain in the pleading, it should be ordered that the amendments take effect only from 26 or 27 May 2015 (as the case may be). 
  2. In case it should become relevant, in my opinion the amendments in this respect in the May pleadings did plead a distinct cause of action, in that the so-called seventh element was pleaded as a distinct contravention of the relevant statutory provisions.  However, in the subsequent draft pleadings, delivered on the morning of the hearing, the seventh element was no longer pleaded as a distinct contravention.  As I have said, it was pleaded as a motivating circumstance for the conduct pleaded as elements 3 and 5.  My view is that the introduction of the seventh element in that way would not involve the addition of a new cause of action.  Consequently, there would have been no need to consider arguments by reference to r 376(4) of the UCPR.  Still, had I been persuaded to allow amendments according to the most recent drafts, I would have ordered that the amendments take effect only from 26 May 2015, in case the view was ultimately taken that they did add a new cause of action. 
  3. The other part of the pleadings which is presently challenged could be described as the plaintiffs’ “imbalance in knowledge” case.  In the Meakin case, paragraph 88 of the statement of claim alleges that the defendant had knowledge of certain matters which were unknown to the plaintiff.  Those matters included the unreliability of the defendant’s own data at any time as to the amount owing under a margin loan agreement, the market value of the securities for the loan and thereby the loan to security ratio.  They included certain facts about the defendant’s decision to increase the loan to security ratio in relation to Storm Funds in May 2007, such as the (alleged) facts that the defendant had increased that ratio only upon conditions contained in the defendant’s letter of 18 May 2007 and that those conditions were not observed.  Further, they included the fact that the increase in the loan to security ratio substantially increased the risk of “partial or complete loss of the Plaintiff’s net equity in their (sic) margin loan account”. 
  4. Paragraph 89 of the Meakin pleading is as follows:

“89.In the premises of the matters pleaded in paragraphs 88 hereof, the Defendant knew or ought to have known:

(a)of the imbalance in knowledge between the Defendant and its customers, including the Plaintiff, in respect of the allegations pleaded at paragraph 88 hereof; and

(b)that the said imbalance in knowledge:

(i)would or may adversely affect the Plaintiff in dealing with or making decisions in respect of his margin loan;

(ii)would or may lead to losses of the nature alleged in paragraphs 43 to 45 and 92 to 94 hereof.”

The equivalent paragraphs in the Hay pleading are 85 and 86. 

  1. This alleged imbalance in knowledge is pleaded as a circumstance which is relevant to the characterisation of the defendant’s conduct, constituted by one or more of the so-called elements (apart from element 7), as unconscionable.[12] 
  2. Accepting, of course, for present purposes the factual accuracy of what is pleaded in paragraphs 88 and 89, the relevance of those matters to the unconscionability case is not apparent.  There is no pleading as to how the defendant exploited any advantage from that imbalance of knowledge.  The connection between the plaintiff’s lack of knowledge of these matters and the plaintiff’s ability to make decisions about its loan account is clear enough, and is the subject of other parts of the pleading.  But here the complaint is one which involves a comparison between the knowledge of one party and the ignorance of the other and it is not revealed how the defendant was able to and did use that difference to benefit its position to the detriment of the plaintiff. 
  3. That deficiency in the pleading is apparently recognised in the written submissions for the plaintiffs, where their case in this respect is summarised by the submission that the defendant exploited its “superior position” by the conduct which is pleaded as element 5, the conduct of a specific representation on 2 December 2008 which induced Mr Meakin to believe that the defendant would not exercise its power of sale without giving him notice of a margin call[13] and by the defendant continuing the “margin loan relationship with [the plaintiffs]”.[14]  Nevertheless, the relevance of this imbalance of knowledge or “superior position” enjoyed by the defendant is still not revealed.  The submissions perhaps go further than the plaintiffs’ pleadings by alleging that there was an exploitation of the defendant’s superior position in this respect by (some of) the conduct which is alleged to have been unconscionable.  But the problem remains that the plaintiffs have not identified how the defendant did exploit that superior position to engage in that conduct. 
  4. Therefore, I am persuaded that the case pleaded in paragraphs 88 and 89 of the Meakin pleading and paragraphs 85 and 86 of the Hay pleading should be struck out.  Further, the references to those paragraphs in the pleadings of May 2015, within paragraph 87(d) of the Meakin pleading and paragraph 84(d) and (db) of the Hay pleading should be struck out. 
  5. It follows that in the current draft of the Meakin pleading, paragraphs 77, 77A, 78, 88, 89 and any references to those paragraphs should be deleted and that the same applies to paragraphs 81, 81A, 82, 85 and 86 of the current draft of the Hay pleading.
  6. The defendant’s application also sought to strike out paragraph 86 of the Meakin pleading which was filed in May 2015, which was the so-called element 9 of unconscionable conduct.  That application was conceded by the plaintiff.  In the draft pleading provided at the hearing, paragraph 86 and references to it were deleted.  Nevertheless, an order is necessary in relation to the current pleading.  It will be ordered in the Meakin case that paragraph 86 and any references to that paragraph within the statement of claim filed on 26 May 2015 be struck out.

Footnotes

[1] Mineral Resources Engineering Services Pty Ltd as Trustee for the Meakin Investment Trust v Commonwealth Bank of Australia; Hay v Commonwealth Bank of Australia [2015] QSC 62.

[2] Meakin pleading [63]; Hay pleading [67].

[3] Meakin pleading [72]; Hay pleading [76].

[4] Meakin draft [77]; Hay draft [81].

[5] The identical pleading is in para [81A] of the Hay draft.

[6] The identical pleading is in para [82] of the Hay draft.

[7] Hay draft [84].

[8] (2005) 63 NSWLR 557; [2005] NSWCA 261.

[9] Ibid 583 [121].

[10] [2011] NSWCA 389.

[11] Ibid [291].

[12] Meakin draft [87(d)], [87(db)], [87(e)]; Hay pleading [84(d)], [84(db)], [84(e)].

[13] So-called element 8 in the Meakin case [80]-[85].

[14] Plaintiffs’ outline of submissions [19(f)].

Close

Editorial Notes

  • Published Case Name:

    Mineral Resources Engineering Services Pty Ltd as T'ee for Meakin Investment Trust v Commonwealth Bank of Australia; Hay v Commonwealth Bank of Australia (No 2)

  • Shortened Case Name:

    Mineral Resources Engineering Services Pty Ltd v Commonwealth Bank of Australia

  • MNC:

    [2015] QSC 288

  • Court:

    QSC

  • Judge(s):

    McMurdo J

  • Date:

    19 Oct 2015

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited

Case NameFull CitationFrequency
Attorney-General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557
2 citations
Jump To
Cite 1 - (2005) 63 NSWLR 557
Cite 2 - (2005) 63 NSWLR 557
Attorney-General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261
1 citation
Jump To
Cite 1 - [2005] NSWCA 261
Mineral Resources Engineering Services Pty Ltd v Commonwealth Bank of Australia [2015] QSC 62
2 citations
Jump To
Cite 1 - [2015] QSC 62
Cite 2 - [2015] QSC 62
Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389
2 citations
Jump To
Cite 1 - [2011] NSWCA 389
Cite 2 - [2011] NSWCA 389

Cases Citing

Case NameFull CitationFrequency
Mineral Resources Engineering Services Pty Ltd v Commonwealth Bank of Australia; Hay v Commonwealth Bank of Australia (No 3) [2016] QSC 2323 citations
1

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