CBA/BankWest unconscionability and the courts

Summary judgments or 'strike outs' refer to judgments which are given purely upon the pleadings which have been filed by the parties and before either party has had the opportunity to test the evidence which has been filed in the proceedings. From a financier's perspective, a summary judgment (in appropriate circumstances) can be a very effective tool for obtaining judgment quickly and efficiently against a customer or a guarantor for an outstanding loan.

Excellent – we can win the day with no evidence being heard. Ashurt concludes its missive:

The judgment given in O'Brien has important consequences for financiers and the way in which debts can be recovered from borrowers and guarantors. … we anticipate that borrowers and guarantors will now ensure that they plead defences which seek to challenge and attack the underlying debt said to be owing to the financier.

There is something rather hysterical about the Ashurst document. Ashurst can't grasp that unconscionable conduct might exist or be relevant in a court proceedings brought by a bank against its hapless customer.

O'Brien's legal team intends to sue the bank for breach of contract and to seek document discovery regarding the possible existence of a 'claw back' arrangement – any deal that linked the purchase price of BankWest to the quantum of bad debt loans that CBA subsequently 'found' on BankWest books.

It is evident that there will be no one-liner smoking gun. A document submitted to the Senate Estimates Committee on 4 June analyses the fragmentary information publically available from financial reports of the CBA, BankWest and HBOS. The paper estimates (from the HBOS reported loss of £845 million) that the book value of BankWest at time of acquisition was $4.25 billion. The CBA reports BankWest's 'provisional fair value' in its 2009 report as $3.7 billion. The agreed price was $2.428 billion and the price paid $2.1 billion (the residual remained unpaid). The paper estimates that the CBA planned for $2.15 billion in loan impairments, of which $1.28 billion were designated as pre-acquisition impairments, and $867 million in post-acquisition impairments (i.e. between 19 December 2008 and 30 June 2010). Impairment totals were deducted from BankWest's profits, generating a reduced tax bill, even though the impairments had contributed to the discounted price.

In essence, the so-called 'clawback' had already been achieved in the heavily discounted purchase price, with an insignificant (publicised) post-purchase adjustment. The massive impairments were manufactured to legitimise the purchase price, and perhaps to keep the bank's capital adequacy ratio (capital to risk weighted assets) under the regulatory radar.

More, the CBA gouged revenue by manufacturing debt in the form of penalty interest rates, from fraudulently appropriating customer assets that secured bank debt, from corruptly appropriating customers' other financial assets, from illegitimately claiming tax deductions on manufactured impairments, and by suing guarantors. In the long run it is not improbable that the CBA will have acquired BankWest for effectively close to nothing.

Disclosure of the bank's procedures would impale CBA Head Office, and clear the way for restitution and compensation for the estimated 1000 victims, but O'Brien's case doesn't depend on the bank's motives in this case. The unconscionability is transparent.

The CBA is refusing to pay O'Brien's costs, dictated by the Appeal judgement. The CBA evidently sees itself as above the law, a reasonable presumption to date.

The CBA is currently embroiled in a scandal over pervasive corruption in its financial advisory subsidiary CFPL. The Storm Financial scandal, with the CBA at its centre, retains a bad odour. It is long overdue that the CBA's Board and major shareholders paid attention to the dysfunctional culture that prevails amongst the bank's senior management. What happened to the People's Bank?