CBA/BankWest unconscionability and the courts

Rory O'Brien is one of hundreds of BankWest small business customers (mostly developers or hoteliers) foreclosed after the Commonwealth Bank of Australia bought BankWest from the failing HBOS in December 2008.

Public hearings in August 2012 during a Senate Economics Committee Inquiry brought statements from bank representatives and selected foreclosed customers, exposing the dissembling of the former and the extent of the suffering experienced by the latter.

The media have universally declined to probe the extent and character of the takedown – save for an ABC 4 Corners program on 9 April 2012.

The Senate Inquiry, initiated by National Party Senator John Williams following BankWest victims' pressure (and whose Terms of Reference was subsequently diluted), produced a hollow report in November 2012 that would have bank executives clinking their champagne glasses. Indeed, CBA Chief Counsel David Cohen is brandishing the Report as legitimising the bank's position.

Thus the foreclosed customers face litigation in the court system, a system long prejudiced against bank victims. Against this backdrop, BankWest took developer Rory O'Brien to court on 2 May 2012, seeking a summary judgement to reclaim a debt contracted at $176 million.

O'Brien had built a luxury resort development at Whisper Bay, Airlie Beach in Queensland, with its BankWest valuation at one stage conservatively placed at $250 million. The resort was close to completion, with over $100 million presales contracted, when BankWest declined to turn over the debt in January 2009. O'Brien was foreclosed in April 2009. KordaMentha was given the receivership (Mark Mentha fronted for the banks on the 4 Corners program).

KordaMentha sold the resort in August 2010 to bottom feeder David Marriner for a mere $56 million. The pre-arranged sales were discarded. In January 2011 BankWest sought payment from the guarantors of the residual debt, spawningthe bank-driven litigation of May 2012.

The judgement of McDougall J is dense with tortured minutiae on the law of contract. But the essence can be found buried in the dross.

The brutal contract that O'Brien signed in October 2006 includes the clause: 'All money payable by the Borrower under this document must be paid in cleared funds without set-off or counter-claim and free of all deductions as and where the Lender directs …'. For the benefit of us legal outsiders, the provision is termed a 'suspension' clause. Such are accompanied by 'preservation' clauses that preserve bank claims regardless of what other actions the bank takes.

McDougall had before him some counter claims, including:

(2) that the bank had made various representations to the borrower and the guarantors, the effect of which was that the bank would roll the debt over after 15 January 2009, on which representations the borrower and the guarantors relied, to their detriment, by not seeking alternative sources of funding

McDougall decided for the bank, with an extempore judgement. McDougall claimed that the suspension clause is a rock solid principle – citing himself as precedent. O'Brien's claims that 'the bank engaged in misleading or deceptive conduct, acted unconscionably … and acted in breach of contract' were thus irrelevant.