Lee v Westpac Banking Corporation

THE PROCEEDINGS 2 I am presently considering an application for leave to file a second amended statement of claim. The applicants' claims arise out of dealings between them and Storm, and associated dealings between them and Westpac. Storm is presently in liquidation. It previously carried on a business which allegedly included the provision of financial advice. It also operated a number of investment funds (the "special funds") in which its clients might participate. The applicants allege that Storm operated its business by giving advice in "a standard format". That format was described as the "Storm Model" or "Storm System of Advice" (the "Storm Model"). Westpac was, and is a major Australian bank. The applicants allege that Westpac lent funds to them, repayment of which was secured by mortgages over real property. Paragraph 4B of the proposed pleading asserts that: 4B. By the Storm Model: (a) a client was advised to borrow money by way of a home loan (or in some cases a business loan) using real property (normally the family home) as security. The borrowed money was then: (i) used to purchase units in Storm index share funds called the Special Funds (which are defined in paragraph 6); (ii) used to pay Storm's fees for providing financial advice to the client (which is sometimes called "commission"); (iii) deposited into an interest bearing account called the dam account (dam account); and (iv) on occasions used to refinance existing debt; (b) the purpose of the dam account was to enable a client to have sufficient reserves of money to pay interest on the loan, fees associated with the loan, living expenses, possible margin calls, as well as being a source of funds for the purchase of additional units in the Special Funds should the value of the units rise or fall. Sometimes the dam account was also used as a conduit for the purchase of units in the Special Fund and for the payment of Storm's fees. The amount of money deposited into the dam account varied according to the amount needed to cover those expenses; (c) the client could also purchase additional units in the Special Funds using personal assets; (d) having purchased units in the Special Funds, the client was then advised to borrow additional money by way of a margin loan from a margin lender using the units purchased in the Special Funds as security; (e) with this additional borrowed money, further units in the Special Funds were purchased; (f) if the Special Funds increased in value, the client was advised to purchase additional units in the Special Funds using (if necessary) the increased value of the existing units in the Special Funds as security for an additional loan, or by using money from the dam account; (g) if the Special Funds decreased in value, the client was advised to purchased [sic] additional units in the Special Funds using money set aside for that purpose in the dam account and/or drawn down from an existing margin loan, in order to take advantage of the lower prices; (h) the purchase of additional units in the Special Funds when the market rose or fell as set out in subparagraphs (f) and (g) above was called "Storm's Step Investment Strategy" (Storm's Step Investment Strategy). 3 Proposed para 6 pleads that: At all material times prior to October 2008, in accordance with the Storm Model, Storm: (a) advised the Applicants and the Group Members to obtain home loans from Westpac ("Westpac Home Loans") and in addition, in some cases, business loans; and, or alternatively (b) advised some or all of the Group Members to increase their borrowings from Westpac pursuant to existing loans, and advised them to invest the money so borrowed together with their own equity to acquire units in one or more of the following [special funds] … . A list of special fund names follows. For present purposes, I accept that the applicants paid money to Storm for investment in the special funds, and that they have lost all, or substantial parts of their investments. 4 The applicants claim to have borrowed a total of $1,210,000 from Westpac, the repayment of which was secured by mortgages over real property. They allege that of that sum: $126,703 was paid to Storm as fees; $925,000 was applied to the purchase of units in the special funds; and the balance was applied in discharge of an earlier loan from Westpac. The applicants claim also to have borrowed funds from Macquarie Bank Ltd ("Macquarie"), it being a "margin lender" as explained in para 4B of the proposed pleading. They allege that from such borrowing, they invested substantial amounts in the Storm special funds, paid interest and met personal expenses. They may also have invested other moneys in those funds. 5 At para 32 of the proposed pleading, the applicants plead that, having invested $4.8 m in the special funds, following the ultimate realization of their investments in those funds they: (a) had $167,001.55 in their [Macquarie] Account … ; (b) had paid to Storm fees totalling $340,973 … including $95,000 from the … Westpac Loans; (c) had serviced the Applicants' Westpac Loans and the Applicants' Margin Loan; (d) had, during the period of the Applicants' Margin Loan, withdrawn only $50,000 … ; and (e) continued to owe Westpac the sum of $1,210,000 … which [debt was] secured by mortgages over the Applicants' home and business property … and on which interest continued to accrue … .

COMPLAINTS CONCERNING STORM'S CONDUCT 6 As I have said, Storm is now in liquidation. I infer, for present purposes, that it is unlikely that the applicants will recover any significant amount in the liquidation. The thrust of their case is that the so-called "Storm Model" was not suitable for them, given their circumstances. The applicants allege that Storm: breached its contractual obligations; and made actionable misrepresentations.

CAUSES OF ACTION AGAINST WESTPAC 7 The applicants plead four distinct causes of action against Westpac, namely: breach of contract; unconscionable conduct; as a "linked credit provider" pursuant to s 73 of the Trade Practices Act 1974 (Cth) ("the TP Act"), for breach of contract and misrepresentation by Storm; and negligence. 8 The claim in negligence is made by the applicants on their own behalf and not on behalf of other group members. That claim was not made in the originating application. At the time of oral submissions concerning the present interlocutory application, I granted leave to amend the originating application by adding the claim in negligence with effect from 10 July 2014. Westpac may submit that the claim is statute-barred. The applicants' case, in respect of each cause of action, depends upon the allegation that Westpac had (or perhaps ought to have had) knowledge of the Storm Model and how Storm operated that model. The question of knowledge is primarily dealt with, in the context of the cause of action in contract, at paras 36, 36A and 36B of the proposed pleading. Paragraphs 37, 38A, 38B, 39, 39A and 39B deal with Westpac's alleged breaches of contract but also assume certain other knowledge. The pleadings as to knowledge are also relied upon for the purposes of the other causes of action. There is no proposed para 38. 9 Rule 16.43 of the Federal Court Rules 2011 (Cth) (the "Rules") provides: Conditions of mind (1) A party who pleads a condition of mind must state in the pleading particulars of the facts on which the party relies. (2) If a party pleads that another party ought to have known something, the party must give particulars of the facts and circumstances from which the other party ought to have acquired the knowledge. (3) In this rule: condition of mind, for a party, means: (a) knowledge; and (b) any disorder or disability of the party's mind; and (c) any fraudulent intention of the party.

Contract 10 The claim in contract appears at paras 33 - 42 of the proposed pleading. It depends upon the assertion that because of the risks involved, investment in the Storm Model was not suitable for persons in the position of the respondents. Westpac is said to have known about the Storm Model and how it was operated by Storm. The applicants propose to plead that the terms of the 2004 Code of Banking Practice and certain Westpac documents were, in effect, incorporated as terms of their loan agreement with Westpac, and that Westpac breached some of those terms. In particular they allege that it failed to exercise the care and skill of a diligent and prudent banker in considering various matters relating to the financial and personal positions of the applicants and the nature of the Storm Model, and in assessing their credit application.

Unconscionable Conduct 11 The unconscionable conduct claim is made pursuant to the Australian Securities and Investments Commission Act 2001 (Cth) (the "ASIC Act"). It is based upon substantially the same facts as is the claim in contract, including Westpac's alleged knowledge of the Storm Model and the allegation that: Westpac knew that the advice given by Storm to the Applicants and the Group Members was unlikely to be suited to their specific circumstances and financial goals and was likely to have been provided … in contravention of Storm's obligations pursuant to Part 7 of the Corporations Act … . The applicants propose to allege that Westpac knew that there was a risk that Storm would not give independent or adequate advice, and that the Storm Model was likely to result in highly leveraged borrowing. The applicants also allege: disadvantage; that Westpac lent with regard only to its own security; that Westpac lent without addressing the risks to which the applicants were exposed; and that Westpac failed appropriately to advise or warn.

Linked Credit Provider 12 The "linked credit provider" claim arises out of the operation of s 73 of the TP Act which provides that: (1) Where: (a) a corporation (in this section referred to as the supplier) supplies goods, or causes goods to be supplied, to a linked credit provider of the supplier and a consumer enters into a contract with the linked credit provider for the provision of credit in respect of the supply by way of sale, lease, hire or hire-purchase of the goods to the consumer; or (b) a consumer enters into a contract with a linked credit provider of a corporation (in this section also referred to as the supplier) for the provision of credit in respect of the supply by the supplier of goods or services or goods and services, to the consumer, and the consumer suffers loss or damage as a result of misrepresentation, breach of contract, or failure of consideration in relation to the contract, or as a result of a breach of a condition that is implied in the contract by virtue of section 70, 71 or 72 or of a warranty that is implied in the contract by virtue of section 74 of this Act or section 12ED of the Australian Securities and Investments Commission Act 2001, the supplier and the linked credit provider are, subject to this section, jointly and severally liable to the consumer for the amount of the loss or damage, and the consumer may recover that amount by action in accordance with this section in a court of competent jurisdiction. … The term "linked credit provider" is defined in s 73(14) as follows: … linked credit provider, in relation to a supplier, means a credit provider: (a) with whom the supplier has a contract, arrangement or understanding relating to: (i) the supply to the supplier of goods in which the supplier deals; (ii) the business carried on by the supplier of supplying goods or services; or (iii) the provision to persons to whom goods or services are supplied by the supplier of credit in respect of payment for those goods or services; (b) to whom the supplier, by arrangement with the credit provider, regularly refers persons for the purpose of obtaining credit; (c) whose forms of contract or forms of application or offers for credit are, by arrangement with the credit provider, made available to persons by the supplier; or (d) with whom the supplier has a contract, arrangement or understanding under which contracts or applications or offers for credit from the credit provider may be signed by persons at premises of the supplier; … 13 The applicants claim that as a linked credit provider, Westpac is liable for Storm's breach of contract and misrepresentations.

Negligence 14 The negligence claim is for negligent advice, effectively concerning the applicants' proposed investment in the special funds.

WESTPAC'S ATTITUDE TO THE PROPOSED AMENDMENTS 15 Westpac opposes the grant of leave to file the proposed second amended statement of claim. The matter was argued on 15 August 2014. The applicants submitted written submissions dated 11 August 2014. The respondent submitted "reply submissions" dated 13 August 2014. Those submissions seem to have largely superseded the respondent's earlier submissions dated 28 July 2014. The parties also made oral submissions and, at my request, filed short summaries of their submissions. The proposed second amended statement of claim, in its final form, was supplied to the Court and to the respondent after the hearing, on or about 4 September 2014. 16 Westpac's criticism of the proposed pleading focusses primarily upon allegations as to its knowledge. In that regard, it submits that the applicants plead no basis for: inferring that the persons through whom Westpac is said to have had knowledge of the Storm Model and Storm's methods of operation played any part in assessing and approving the applicants' loan applications; the assertion that those persons knew of any of the alleged risks said to have been inherent in the Storm Model and in Storm's operational methods; and the assertion that such persons ought to have known of such risks. Westpac makes a number of other criticisms of the proposed pleading, including that: paras 36 and 36A are impermissibly general; the case in contract does not identify Westpac's alleged failure to assess the applicants' loan application in the manner of a diligent and prudent banker; in the case in contract, and that alleging unconscionable conduct, the applicants do not plead the alternative advice which they would have obtained had they sought it, or whether they would have acted on such alternative advice; the allegation that Westpac was a linked credit provider depends upon alleged arrangements between Westpac and Storm, but the only factual basis for that allegation is that Storm and Westpac are said to have acted in accordance with the pleaded arrangements; and the negligence claim is based on Westpac's alleged knowledge, the pleading of which is said to be deficient. Westpac also submits that the applicants' pleading concerning Storm Liaison Officers lacks a factual basis and is inconsistent.

THE BASIS OF THE APPLICANTS' CASE 17 The applicants' case depends substantially upon the following propositions: that Westpac was (or perhaps should have been) aware of the content of the Storm Model, and the way in which Storm operated that model; that Westpac had knowledge of the applicants' financial and other relevant circumstances; that on the basis of such knowledge, Westpac ought to have concluded that the Storm Model involved risks which made it unsuitable for the applicants; that in those circumstances, Westpac ought not to have made the loan to the applicants; and that the applicants' losses were caused by Westpac's breach of contract, unconscionable conduct or negligence and/or by Storm's conduct for which Westpac, as a linked credit provider, is liable.

IMPUTATION OF KNOWLEDGE 18 Concerning Westpac's knowledge, the applicants rely primarily upon the knowledge of certain employees, such knowledge having allegedly been derived at meetings with Storm personnel and seminars conducted by Storm. The alleged knowledge is both as to facts, and as to risk said to emerge from those facts. Westpac complains of the absence of any pleaded factual basis for imputing such knowledge to it. The proposed pleading identifies 11 employees who attended Storm meetings and/or seminars. The applicants have taken a somewhat equivocal approach to the relevance of the knowledge of these employees. At para 3 of their summary of submissions they submitted that the relevant knowledge was that of three employees, each of whom had dealings with the applicants. They were Ms Barrie, Mr MacDonald and Mr Kelk. However, in subsequent paragraphs, the applicants clearly indicate reliance on the fact that other employees attended the meetings and seminars. Similar equivocation appears at ts 43. For present purposes it may not matter. Westpac's criticisms of the proposed pleading are applicable to the larger group as well as to the three named employees. 19 Concerning the imputation to a company of knowledge, or means of knowledge, the majority of the High Court said in Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 582-3: As Bright J said in Brambles Holdings Ltd v Carey: "Always, when beliefs or opinions or states of mind are attributed to a company it is necessary to specify some person or persons so closely and relevantly connected with the company that the state of mind of that person or those persons can be treated as being identified with the company so that their state of mind can be treated as being the state of mind of the company. This process is often necessary in cases in which companies are charged with offences such as conspiracy to defraud." A division of function among officers of a corporation responsible for different aspects of the one transaction does not relieve the corporation from responsibility determined by reference to the knowledge possessed by each of them. (Footnote references have been omitted.) 20 In Australian Competition and Consumer Commission v Radio Rentals Ltd (2005) 146 FCR 292 Finn J said at [176]: … The [ACCC's] submission does not suggest that any individual operator had or ought to have had the knowledge that the ACCC ascribes to Radio Rentals, although that operator did have at least the knowledge of what was entered at the time of its entry. Rather it seems to be based on an aggregation of what was so known by each individual call centre operator, with Radio Rentals being ascribed such knowledge about Mr Groth as that aggregated information might reveal. In support of this somewhat startling proposition, the ACCC relies upon the observation made in the joint judgment of the High Court in Krakowski … . 21 His Honour then cited the passage in Krakowski which is set out above, and continued at [178] and [179]: 178 I would note a like submission in the Victorian Court of Appeal in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 in reliance on the above passage to aggregate certain facts known to various company servants and agents so as to give rise to a factual totality from which a dishonest intent, held by none of the individuals, might be inferred. The submission was rejected. In the words of Tadgell JA (at 145); see also Ashley AJA (at 160-161): Neither that passage in Krakowski nor any other principle justifies the simple aggregation of the knowledge of a number of persons individually unaware of fraud, or facts which ought to disclose it, to create a notional person with a dishonest intent. The High Court in Krakowski was not purporting in the passage relied on to lay down any such principle but to authorise a consideration of the knowledge and circumstances of all relevant persons - including what may properly be inferred - in order to ascertain the mind of the corporation. 179 In my view the situation is no different where the aggregated knowledge to be attributed to a company is a prerequisite to a finding that it engaged in unconscionable conduct (or an equitable fraud). The present submission cannot properly be characterised as one in which the individual operators who recorded entries etc were involved in "different aspects of one transaction". 22 The reference to "different aspects of one transaction" reflects the final paragraph of the above extract from Krakowski. That paragraph deals with the circumstances in which the combined knowledge of more than one employee may be imputed to the employer company. That process is commonly described as "aggregation" of knowledge. Finn J then discussed the evidence in the case under consideration, in my view demonstrating the proper approach to be adopted in giving effect to the principles which his Honour had previously identified. Finn J then continued: 181 If the ACCC's submission were to be accepted to its full extent as put, it would have potentially alarming consequences for large, multi-function, corporations. It could also raise, potentially, rather significant privacy issues. 182 In rejecting the submission in the circumstances of this matter I am not suggesting that in no circumstances can or should disaggregated information be aggregated. While I express no concluded view on this matter, I incline as have others to the view that separate information held by an officer or agent of a corporation can be aggregated with information held by another at least where the first such person has "the duty and the opportunity to communicate it to the other": Re Chisum Services Pty Ltd (1982) 7 ACLR 641 at 649-650; see also Macquarie Bank Ltd at 161-162. 183 The final comment I would make is this. The contexts can vary widely in which the question of attribution of knowledge to a corporation can arise in virtue of knowledge possessed by one or more of its officers and agents: cf eg Beach Petroleum NL v Johnson (1993) 43 FCR 1 at 22-23; Dunlop v Woollahra Municipal Council [1975] 2 NSWLR 446 at 484-485; Elliott v Nanda (2001) 111 FCR 240. Here I confine myself to circumstances in which what is sought by the aggregation of the knowledge is to alter the character of that knowledge when it is attributed to the employer corporation where no justification for the aggregation (eg participation by several employees in the same transaction) has been made out. 23 The decision in Krakowski effectively provides that, in considering whether a person's state of mind may be attributed to a company, reference must be had to the connection between them. Such connection must be so "close" and "relevant" that the person can be treated as being "identified with the company", so that his or her state of mind may be treated as "the state of mind of the company". The words "close" and "relevant" no doubt involve questions of degree, but those circumstances must be proven if a particular state of mind is to be imputed to the company. It follows that a party seeking to assert such imputation must plead the factual basis upon which it seeks so to do, but not the evidence which it proposes to lead in order to establish those facts. "Closeness" is presumably to be measured by reference to the relevant decision-making process and/or functional unit of the company. "Relevance" is presumably to be measured by reference to the transaction or conduct in issue in the proceedings. No doubt the two concepts will frequently overlap. 24 In Radio Rentals, Finn J accepted that the relevant enquiry was as to the knowledge and circumstances of all relevant persons. By reference to Krakowski, his Honour proceeded on the basis that in order to aggregate knowledge, the relevant persons must be involved in "different aspects of one transaction". Presumably, the transaction must be that in issue in the relevant proceedings. It may be, however, that the word "transaction" should be given a fairly broad, and protean meaning. 25 It follows that a party pleading the imputed knowledge of a company must identify in its pleadings: any agent, officer, employee or other person whose relevant knowledge the pleader seeks to attribute to the company, identifying such knowledge and otherwise complying with the requirements of r 16.43 of the Rules; the basis for imputing such knowledge to the company by reference to each person's "closeness" and "relevance" to the company in question, again complying with r 16.43; and if the party seeks to aggregate the knowledge of two or more employees, the basis for so doing. 26 The questions of closeness and relevance will frequently involve an examination of the relevant person's duties and functions within and/or on behalf of the company, including reporting and supervisory responsibilities and inter-relationships with other agents, officers or employees and, possibly, with external persons or entities. Such an enquiry may be further complicated by informal variations of formal arrangements. 27 As I have observed, the applicants propose to plead, not only that factual knowledge of certain employees should be imputed to Westpac, but also that Westpac should be treated as knowing of any transactional risk which those facts may demonstrate, at least to people with relevant expertise. However the duty to report information may arise out of an appreciation of a risk which emerges from that information. In the absence of such an appreciation of the risk, there may be no reason to report the information, it being, in the relevant employee's view, quite innocuous. 28 Clearly, a party who seeks to plead imputed knowledge undertakes a substantial task. In this case the task is further complicated by the very large number of factual matters including risk of which, as the applicants plead, Westpac was, or should have been aware. Further, Westpac's knowledge is said to be attributable to the knowledge of Ms Barrie and Mr MacDonald, and that of at least one other Westpac employee, Mr Kelk, the business manager at Westpac's Lutwyche branch. There is also the alleged knowledge of other employees who attended the Storm meetings and seminars. 29 The applicants respond to criticism of their proposed pleadings as to knowledge by reference to generalized statements in relatively recent cases which suggest a "more robust approach" to pleadings. They submit that deficiencies, according to established pleading rules, may be overlooked if such deficiencies can be remedied in the course of case management. Reference is also made to statements to the effect that pleadings should not become burdensome. I accept that such sentiments are widely held and have merit. However it does not follow that where a party has elected to pursue a cause of action which necessarily involves a careful analysis of the facts, the Court may abandon the requirement that the other party be given adequate notice of the case to be met. The applicants seek to impute to Westpac, knowledge obtained by Ms Barrie and Mr MacDonald (and perhaps other employees) at numerous meetings and seminars, without identifying any particular aspect of such knowledge which is attributable to each such person, or the occasion or occasions on which such knowledge was acquired. Quite apart from anything else, Westpac is entitled to know these matters in order to respond to any request for discovery, and in order to proof its own witnesses. Further, the applicants assert the aggregation of the knowledge of numerous employees, but plead no express basis for such aggregation. 30 The applicants also seek to avoid the pleading complications inherent in their case by reference to three decisions. In Three Rivers District Council v Bank of England (No 3) [2001] 2 All ER 513 Lord Hutton said, at [126]: Mr Stadlen QC, for the Bank, submitted that the pleadings were defective because they did not allege that identified or identifiable bank officials took conscious decisions to do acts or to refrain from doing acts with the requisite guilty state of mind. I do not accept that submission. It is clear from the authorities that a plaintiff can allege misfeasance in public office against a body such as a local authority or a government ministry (see Dunlop v Woollahra Municipal Council [1981] 1 All ER 1202, [1982] AC 158 and Bourgoin SA v Ministry of Agriculture Fisheries and Food [1985] 3 All ER 585, [1986] QB 716). Therefore I consider that the plaintiffs are entitled in their pleadings to allege in the manner they have done misfeasance in public office against the Bank without having to give particulars of the individual officials whose decisions and actions they claim combined to bring about the misfeasance alleged. 31 The point under consideration was whether, in order to establish misfeasance in office against a public body (the Bank of England), it was necessary to identify a particular official who, took a conscious decision to do acts or refrain from doing acts with the requisite guilty state of mind. As I understand it, his Lordship was simply pointing out that the plaintiff had not sought to establish a case against the relevant corporation upon the basis of the actions and knowledge of any particular officer. In the present case, the applicants expressly base their case upon the knowledge of Westpac's employees and their actions. 32 The applicants also refer to Leinenga v Logan City Council [2006] QSC 294. In that case, the plaintiff sought to establish a cause of action against a local authority by virtue of the actions and states of mind of its officers. The relevant vice in the pleading was a failure to plead a basis for aggregation of such states of mind. The applicants then refer to Australia Competition and Consumer Commission v April International Marketing Services Australia Pty Ltd [2007] ATPR ¶42-210. In that case Bennett J was concerned with proceedings in which it was alleged that four corporations had, as part of a larger group, contravened the relevant legislation. The other members of the group were not identified by name, but by reference to their participation in its activities. Her Honour held that the pleading need only link the relevant conduct to the named respondents. Provided that the pleading alleged material facts which identified the conduct of the unnamed parties, it would not be deficient in that regard. These cases have no relevance for present purposes. 33 The applicants seem to submit that there are circumstances in which an employee's knowledge may be imputed to a company other than those identified in Krakowski and Radio Rentals. In my view Krakowski prescribes the basis upon which such imputation may occur. The word "necessary", in the extract from the judgment of Bright J, leaves no room for any other approach. The various means of knowledge identified by the applicants are merely examples of the general principle expressed in those cases. The applicants also submit that references by Westpac's counsel in its submissions to s 84(1) of the TP Act and s 12GH(1) of the ASIC Act are in some way misconceived. Broadly speaking, those provisions deal with statutory bases for attribution of knowledge. As I understand Westpac's submissions, these provisions are referred to only in the course of discussing the attribution of knowledge as discussed in Krakowski and Radio Rentals. In oral submissions the applicants referred to the same provisions (ts 47 - 48). I do not understand the point which the applicants make. 34 In my view, the efficient conduct of this case will depend heavily upon precise pleading of all matters relating to the imputation of knowledge to Westpac.

STORM LIAISON OFFICERS 35 I turn to the specific issues raised by Westpac concerning the imputation to it of its employees' alleged knowledge. The proposed pleading identifies certain of Westpac's employees as "Storm Liaison Officers". As I understand it, the term was not used in the original statement of claim and, since its initial appearance in the pleadings, the allegations concerning such persons have changed. Although the title might suggest that the term describes particular office-holders within the Westpac organization, that is not the case. The applicants do not plead that the title was ever used by either Storm or Westpac to describe any officer of the latter, or that it describes a recognized category of office-holder within Westpac. Rather, the applicants seek to adopt the term in their proposed pleading in order to describe three named employees. Proposed para 6A states: During the Relevant Period: (a) a single individual was appointed by Westpac, at Storm's request, to be a single point of contact with Westpac and to liaise with Storm and to process applications for loan quotations and applications for loans by Storm clients to invest through Storm in accordance with the Storm Model (the "Storm Liaison Officer"); Particulars The following persons were appointed by Westpac as Storm Liaison Officers: (i) Michael MacDonald, Home Finance Manager, from 1999 to 19 October 2004; (ii) Alba Barrie, Home Finance Manager, from 20 October 2004 until 31 March 2005; (iii) Sandra Kennedy, Home Finance Manager, from 1 April 2005 until 9 October 2005; (iv) Alba Barrie, Home Finance Manager, from 10 October 2005 until 31 October 2008. (b) the loans made by Westpac to Storm clients were normally managed and co-ordinated through the Storm Liaison Officer irrespective of the branch through which the loan application was made; (c) Storm sent applications for loan quotations, together with a client's financial profile, prepared by Storm, to a Storm Liaison Officer at the same time that Storm sent the application to other banks, and the Storm Liaison Officer arranged for the application to be expeditiously sent to Westpac's credit assessment department and assessed expeditiously; (d) When a Storm client chose to borrow from Westpac (usually on Storm's advice), Storm prepared the client's loan application and sent it to a Storm Liaison Officer who arranged for the application to be sent to Westpac's credit assessment department and assessed; 36 The word "process" in para 6A(a) may be misleading. The pleading otherwise discloses only that Ms Barrie received a letter from Storm seeking a quotation for a loan to the applicants and passed it on to other officers for consideration. Mr MacDonald assessed that application for a quotation. For reasons which I shall presently give, it is important to distinguish between that application (for a quotation) and the applicants' subsequent loan application. 37 Curiously, the applicants seek to defend a form of para 6A which they have abandoned, asserting that notwithstanding their submission that the paragraph was, in its earlier proposed form, permissible, they have nonetheless sought to accommodate Westpac's criticism of it. Obviously enough, the earlier form is no longer relevant. Westpac submits that the proposed para 6A fails to identify the factual basis for the allegation that Storm "requested" appointment of the Storm Liaison Officers. Given the fact that their adoption of such description is entirely arbitrary, it is only reasonable that the applicants be expected to plead the factual basis for the alleged status of these employees, including the dates and circumstances of their appointments, their duties and other functions. However Westpac also raises other concerns regarding this aspect of the pleading. 38 The allegation that Storm Liaison Officers performed certain functions is couched in language which is quite imprecise. I have in mind the terms "process applications", "managed and coordinated" and "arranged for". This problem appears again in paras 36(5A) and 36A(b) which state: 36(5A) In addition, each attendee of the Westpac meetings who was a Storm Liaison Officer was required to fully understand and explain the Storm Model in order to assist with the credit assessment of loan applications by Storm clients, who were seeking loans from Westpac. 36A(b) the operation and role of the Storm Liaison Officers whose duty was to facilitate loan applications by Storm clients and who would in practice liaise with Westpac's credit assessment department in order to explain the Storm Model and the likely return from investment through Storm, in order for the credit assessment department to assess the serviceability of a loan; Westpac submits that the applicants plead no factual basis for the assertion that the employees described as Storm Liaison Officers had such functions or duties. 39 Paragraphs 36(5A) and 36A(b) are not entirely consistent with para 6A. There is no suggestion in para 6A that the Storm Liaison Officers were to assist in credit assessment, or to understand and explain the Storm Model. Paragraph 36A(b) seems to distinguish, in an unexplained way, between "operations and roles" and "practice". In any event, no factual basis is alleged for any of these matters. 40 To the extent that the pleading refers to Storm Liaison Officers, it is embarrassing. The title, itself, is misleading. The pleading is inconsistent in its description of their duties and lacks any factual basis for the allegations. The pleading, as it concerns the Storm Liaison Officers, is part of the applicants' case concerning Westpac's knowledge. Given the requirements of r 16.43, the shortcomings in the pleading are obvious. I will not allow the proposed pleading to the extent that it deals with, or mentions Storm Liaison Officers. The applicants may wish to consider whether they wish to raise the relevant issues in a more appropriate way.

AGGREGATION 41 Westpac submits that to the extent that the applicants seek to aggregate the knowledge of Mr Kelk, on the one hand, and Ms Barrie and Mr MacDonald, on the other, the basis for aggregation identified in Krakowski and Radio Rentals cannot be established. It submits that Mr Kelk was involved in a different transaction from that in which Ms Barrie and Mr MacDonald were engaged. In other words, Westpac asserts that the application for a quotation (which was made through Ms Barrie and dealt with by Mr MacDonald) and the application for a loan (which was made through Mr Kelk) were separate transactions. There may also be questions as to: whether Ms Barrie and Mr MacDonald's knowledge should be aggregated; and the relevance of the knowledge of the other employees who attended the Storm meetings and seminars. 42 Although the pleading makes no direct reference to aggregation, the applicants make it clear in their submissions that they seek to aggregate the knowledge of Mr Kelk, Ms Barrie and Mr MacDonald (and perhaps other employees), and to show that such aggregated knowledge should be attributed to Westpac. The proposed pleading asserts that: Ms Barrie, Mr MacDonald and Mr Kelk (and others) were employees of Westpac; Ms Barrie and Mr MacDonald were engaged in obtaining a quotation for a loan to facilitate the applicants' proposed investment in Storm's special funds; Mr Kelk dealt with the applicants in connection with a subsequent application for loan for that purpose; Mr Barrie and Mr MacDonald (and others) possessed knowledge concerning the Storm Model and Storm's conduct of it; Mr Kelk had knowledge of the purpose of the loan, some knowledge concerning the Storm Model, and knowledge of the applicants' financial position; and Mr Kelk, Ms Barrie and Mr MacDonald (and others) had broadly stated duties to inform Westpac of their knowledge of the Storm Model and Storm's conduct of it. 43 Although the applicants do not put it this way, their case is really that Ms Barrie and Mr MacDonald (and others), who attended the Storm meetings and seminars, ought to have reported to Westpac the deficiencies in the scheme and, perhaps, recommended that Westpac not lend for the purpose of investment in Storm special funds. Concerning Mr Kelk, the applicants say that he knew, or ought to have known that if the applicants invested in the Storm special funds, they would be exposed to the risk of substantial loss. None of these employees is said to have been involved in the actual decision to grant the loan. However the applicants plead that Westpac should not have approved the loan because it had: Mr Kelk's knowledge of the Storm Model and of the applicants' financial affairs; and Ms Barrie and Mr MacDonald's (and others') knowledge of the Storm Model and Storm's conduct of it. I am not sure whether the applicants also rely on any knowledge which Ms Barrie or Mr MacDonald had of their financial affairs, but that does not matter for present purposes. 44 There can be little doubt that Mr Kelk's knowledge of the applicants' financial affairs, to the extent that it was derived in the course of his employment, should be imputed to Westpac. It is not so clear that his knowledge of the Storm Model should be so imputed. Resolution of that question would involve consideration of the extent of that knowledge and of his duties as a Westpac employee. Imputation of Ms Barrie and Mr MacDonald's knowledge to Westpac is more problematic. Prima facie, one might infer that if they attended the meetings and seminars as part of their employment, then they may well have been obliged to make reports of some kind to Westpac. However the extent of any duty to report would depend on a number of factors, in particular, the nature of their duties as employees and Westpac's reasons for having them attend the meetings and seminars. Liaison duties, of the kind attributed to the so-called Storm Liaison Officers, might not include understanding financial risk or the significance of information going to risk. There is no suggestion that either Ms Barrie or Mr MacDonald had any role in formulating Westpac's lending policy, or applying it in considering loan applications. Apart from these problems, there is also the question of whether Ms Barrie and Mr MacDonald were sufficiently closely and relevantly associated with the ultimate loan transaction. Similar comments apply to the other employees who attended the meetings and seminars. 45 These significant problems do not necessarily lead to the conclusion that the facts cannot justify aggregation. However, as appears below, there are deficiencies in the pleading insofar as it addresses many of the factual matters which arguably support such aggregation. Subject to such deficiencies, I am not persuaded that any attempt to establish attribution of such knowledge to Westpac, and aggregation on the basis outlined above, would inevitably fail. However the applicants have not, in the proposed pleading, addressed the aggregation question as a discrete issue. They should do so.

THE PLEADING CONCERNING THE KNOWLEDGE OF MS BARRIE, MR MACDONALD AND OTHER EMPLOYEES 46 Westpac submits that the applicants do not plead the facts upon which they seek to attribute to Westpac the knowledge of its relevant employees. However it also makes a number of more specific criticisms. First, it submits that the proposed pleading does not identify a factual basis for the assertion that such employees knew of the risk allegedly inherent in the Storm Model. It is said that there is no pleading of any basis for the proposition that an ordinary person would infer such risk from the information allegedly supplied at the meetings and seminars. Nor is it pleaded that any of the employees had special skills and knowledge which would have enabled them to identify the risk in question. There is substance in this submission. 47 The relevant risk is identified in paras 35, 35A and 35B. Westpac's alleged knowledge is pleaded in particulars (1) - (13) of para 36, and paras 36A and 36B. The risk appears to have been the possibility of financial loss (para 35A). It is said to emerge from aspects of the Storm Model (para 35B). Westpac's alleged knowledge of the Storm Model appears at particular (7) of para 36. That particular contains 28 items of information said to have been communicated at the meetings. At particular (8) of para 36 it is alleged that other information was provided in various forms. At particular (12) of para 36 it is alleged that information as pleaded in particular (7) of that paragraph was also communicated at the seminars, together with assurances that the Storm Model involved no risk to investors. 48 The pleading does not reveal the basis upon which it is alleged that any employee should have identified the relevant risk. It does not disclose any theory linking the pleaded knowledge to the claimed loss. It cannot sensibly be submitted that any borrower could believe that in any investment, there was no risk. The applicants must identify the matters upon which they relied in deciding to take the loan and invest in the special funds. A list of all possible risks which might arise in any similar financial transaction is unlikely to say much about such decision, or about the reasons for its result being unfavourable to them. 49 I make the following further observations concerning the applicants' proposed pleading as to Westpac's knowledge. 50 In para 35B, the applicants seek to identify characteristics of the Storm Model which allegedly made investment pursuant to it unsuitable for persons such as the applicants. Many of the characteristics are identified in para 35B(a). To some extent these characteristics reflect aspects of the Storm Model as pleaded in paras 4B, 5 and 6. In general, the applicants do not explain the factual basis for alleging that such characteristics, either individually or collectively, posed a risk. For example, para 35B(a)(i) pleads that the risk arose out of the fact that investments in the special funds were "double geared", and "involved raising Equity Contributions from loans secured against real property, including clients' homes". The terms "Double Geared Investment" and "Equity Contribution" are defined in cl 5. The former definition requires that such an investment involve decisions by the investor: to invest borrowed money in the special funds; possibly, to invest more of his or her own money in the special funds; to borrow further money by way of margin loan, secured upon the investor's interests in the special funds; to use that money to purchase additional units in the special funds; and to make those additional units available to the margin lender by way of further security for the margin loan. 51 Thus the apparently simple fact alleged in para 35A(a)(i) involves allegations that the applicants made up to six different decisions in investing in the special funds. If it is to be alleged that the applicants lost money as the result of making such decisions, based upon Storm's conduct and/or that of Westpac, then as much should be pleaded with precision. The applicants do not plead that the Storm Model was unsuitable for any investor, but that it was unsuitable for some investors, including the applicants. They must plead the facts constituting their conduct in connection with the Storm Model, and the connection between such conduct and their loss. Similar comments apply to para 35A(a)(ii). 52 Paragraph 35A(iii) asserts that the special funds might become illiquid if all Storm clients were advised to sell at the same time. Such a comment may be made about any substantial shareholding in a company. It would be a factor to be considered by Storm in giving any advice to sell. However it is not alleged that the applicants suffered detriment as a result of acting on such advice. Similar comments may be made concerning paras 35B(a)(iv), (v) and (vi). 53 Paragraph 36 sets out the basis upon which the applicants plead that Westpac had knowledge of the Storm Model. One might reasonably expect that the applicants would identify the meetings and/or seminars attended by each, and the information imparted at those activities. One might also reasonably expect that the applicants would disclose the factual basis underlying their pleading of each person's authority and duties, especially as they concerned their attendance at the meetings and seminars, the alleged duty to report and their involvement in the applicants' transactions. Finally, one might reasonably expect that there would be some attempt to identify Mr Kelk's "knowledge" referred to in particular (14) of para 36. 54 I have already dealt with paras 36A and 36B to the extent that they deal with Storm Liaison Officers. Paragraph 36B(a) otherwise pleads matters which Westpac employees, "knew or ought to have known", identifying 16 specific matters. They all involve assumed or inferred views as to the knowledge and affairs of a notional Storm client. Such a pleading has no apparent relevance to the applicants' case. In para 36B(b), the applicants plead every risk to which they say Storm clients were exposed. Again, such a general allegation says nothing about the applicants' case. At para 36B(c) the applicants allege that because the Westpac loan was to be used to invest in the Storm special funds, they were exposed to the risk of loss. In both paras 36B(a) and 36B(b), the matters pleaded are largely unexplained, there being little or no reference to the facts upon which they might be based. Paragraph 36B(d) pleads that the risks to the applicants and other Storm clients, "posed both credit and compliance risks to Westpac". I am unable to see how para 36B(c) adds anything to the proposed pleading. I do not understand para 36B(d). 55 I consider that the applicants' proposed pleading concerning Westpac's knowledge is unduly prolix and makes assumptions and assertions for which no factual basis is offered. Given that the question of knowledge is fundamental to the applicants' case, the proposed amendments should not be allowed.

THE DUTY OF THE DILIGENT AND PRUDENT BANKER 56 In paras 37 to 41, the applicants plead the alleged contractual breaches by Westpac, in particular its alleged failure to exercise the care and skill of a diligent and prudent banker. The applicants plead various matters which, it is said, Westpac did not take into account or did not adequately take into account. However there is no attempt to identify the approach which the diligent and prudent banker would have taken. The pleading effectively asserts that whatever Westpac did, it was not consistent with the way in which a diligent and prudent banker would have acted, without identifying the content of that standard. Thus Westpac is uninformed as to the duty which the applicants will seek to establish. The pleading is defective in this respect.

ALTERNATIVE ADVICE 57 In the contract case the applicants plead (at para 39B) that had Westpac declined to grant the loan, they would: not have invested upon the basis of Storm's advice; have obtained independent financial advice appropriate to their circumstances; and have acted on that advice. 58 Westpac submits that the unconscionable conduct case also involves such assertions. This appears to be a reference to paras 43A - 48. In any event, Westpac submits that to the extent that the applicants assert that they were deprived of the opportunity to obtain independent advice, they should identify the advice which they would have obtained, and the extent to which they would have acted upon it. I agree.

THE LINKED CREDIT PROVIDER CLAIM AND THE CLAIM IN NEGLIGENCE 59 As to the linked credit provider claim, the applicants should identify the facts upon which they rely to prove any alleged arrangement or understanding between Storm and Westpac. If the only basis is the conduct of those companies, the applicants should say so. The claim in negligence is undermined by its dependence on the defective pleading concerning Westpac's knowledge. I need not say any more about that subject.

CLAIMS BY OTHER GROUP MEMBERS 60 I appreciate that these proceedings are constituted as a so-called class action, and that the applicants seek to establish matters which may be relevant to the claims of other group members. For the purposes of s 33C of the Federal Court of Australia Act 1976 (Cth) the common questions include the state of Westpac's knowledge of Storm's operation but, as far as I can see, only in connection with the unconscionable conduct claim. In any event, to the extent that the applicants propose to rely, for any purpose, only upon the knowledge of Ms Barrie, Mr MacDonald and Mr Kelk, it seems probable that a finding as to Westpac's knowledge will be of limited, if any, value in the prosecution of claims by other group members. It may be that the pleading of the applicants' case could be simplified if the common questions were reconsidered.

ORDERS 61 In my view the proposed second amended statement of claim is defective in the ways which I have indicated. In those circumstances, I exercise my discretion against allowing the proposed amendments. 62 I shall hear submissions as to appropriate orders, including orders as to costs. I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.