Marundrury v Commonwealth Bank of Australia

Federal Court of Australia|2022-08-10|Before: Moshinsky J

The applicants' interlocutory application for leave to file the proposed second amended statement of claim dated 21 May 2022 be dismissed.
The whole of the amended statement of claim filed on 16 April 2021 be struck out.
The respondent's interlocutory application seeking summary dismissal or strike-out otherwise be dismissed.
Within two months, the applicants provide to the respondent any proposed second amended statement of claim.
The matter be listed for a case management hearing on a date to be fixed.
Subject to paragraph 7, the applicants pay the respondent's costs of the interlocutory applications.
If either party seeks a different costs order, it may file and serve a written submission (of no more than two pages) within seven days. In that event, the other party may file a responding submission within a further seven days, and the issue of costs will be determined on the papers. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 The first applicant, Ms Delania Marundrury (Delania), and the second applicant, Ms Widya Marundrury (Widya), held bank accounts with the respondent (the Bank) from February 2013 until September 2020. Widya is the mother of Delania. The fourth applicant, Mr Fona Marundrury (Fona), is the husband of Widya and the father of Delania. The third applicant, Mr Siga Marundrury (Siga), has been removed as a party to the proceeding. 2 The applicants allege that: in the period from April 2013 to October 2015, Fona caused money to be transferred from Indonesia to bank accounts held by Delania and Widya with the Bank in Australia; the amounts were not transferred using normal banking channels; rather, Fona engaged a money changer in Indonesia who charged a lower rate than that charged by banks. 3 The applicants allege that, unknown to the applicants, no funds were transferred directly from Indonesia into Delania's and Widya's accounts with the Bank; rather, funds equivalent to the amounts intended to be transferred were transferred by way of deposits into the accounts in multiple deposits of less than $10,000. At an earlier stage of this proceeding, senior counsel submitted that the applicants were victims of "cuckoo-smurfing". This refers to a method of money laundering used by criminals to make money generated by criminal activities appear to have come from a legitimate source. In particular, the practice involves organised criminals using professional money laundering syndicates to target the bank accounts of people receiving money transfers in Australia. 4 On 16 April 2021, the applicants filed an amended statement of claim (the ASOC). In that pleading, the applicants' case relied heavily on provisions of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the AML/CTF Act). In summary, the applicants alleged that: the Bank was under contractual and other duties to comply with the AML/CTF Act; the Bank breached its obligations under the AML/CTF Act by, among other things, failing to report suspicious activity on Delania's and Widya's accounts; the Bank thereby breached its contractual and other duties to the applicants; and, as a result, the applicants had suffered loss and damage. In relation to loss and damage, the applicants alleged that: substantial sums of money in the accounts had been forfeited pursuant to proceeds of crime legislation; had the Bank complied with its duties, steps to forfeit money in the accounts would have commenced at a much earlier point in time than they did; had this occurred, Fona would not have caused further money to be transferred from Indonesia to the relevant bank accounts, and any further transfers from Indonesia to Australia would have been made by electronic bank transfer. 5 On 26 May 2021, the Bank filed an interlocutory application seeking summary dismissal of the applicants' claims, or an order that the whole or certain parts of the ASOC be struck out. In support of the summary dismissal application, the Bank made two broad contentions: (a) First, the Bank contended that the applicants had no reasonable prospect of establishing a breach of s 41 of the AML/CTF Act as a result of the operation of s 124 of the AML/CTF Act, which has the effect that evidence pertaining to reporting obligations under s 41 is relevantly rendered inadmissible in this proceeding. (b) Secondly, the Bank contended that s 123 of the AML/CTF Act operates to prohibit the Bank from properly defending the allegations in respect of s 41, such that the case as put against it was manifestly unfair and constituted an abuse of process. 6 On 9 November 2021, I gave judgment on the Bank's interlocutory application dated 26 May 2021: Marundrury v Commonwealth Bank of Australia [2021] FCA 1379 (the November 2021 Judgment). In relation to the application for summary dismissal, I was not satisfied that it was appropriate to summarily dismiss the proceeding having regard, in particular, to the discretion conferred on the AUSTRAC CEO by s 248 of the AML/CTF Act, which could potentially address the Bank's contentions based on ss 123 and 124. I considered it appropriate to allow a period of time (approximately four months) to enable the parties to explore whether the AUSTRAC CEO would be prepared to exercise the discretion. In relation to the strike-out application, I was not satisfied that the whole of the ASOC should be struck out. However, I considered that certain paragraphs were not properly pleaded and should be struck out (with a right to re-plead) and that certain paragraphs needed to be supplemented by further and better particulars. 7 On 8 December 2021, the applicants provided to the Bank a proposed second amended statement of claim. This document was subsequently slightly revised to correct typographical or minor errors. The revised document is the applicants' proposed second amended statement of claim dated 21 May 2022 (the Proposed SASOC). 8 On 21 December 2021, Herbert Smith Freehills, the solicitors acting for the Bank, wrote to AUSTRAC seeking an exemption and modification of ss 123 and 124 of the AML/CTF Act under s 248 of the Act. 9 On 24 March 2022, the Deputy CEO, Regulation, Education and Policy of AUSTRAC (as delegate for the AUSTRAC CEO) decided not to modify s 124 of the AML/CTF Act and that, in light of this, it was unnecessary to determine the proposed exemption from s 123. 10 On 23 May 2022, a case management hearing in this proceeding took place. It was arranged that the following two interlocutory applications would be listed for hearing without the need for the parties to file formal interlocutory applications: (a) an application by the applicants for leave to file the Proposed SASOC; and (b) an application by the Bank for summary dismissal or strike-out of the applicants' claims. 11 The parties filed evidence and submissions in relation to these applications, and the hearing of the applications took place on 22 July 2022. 12 For the reasons that follow, I have concluded that: (a) the application for leave to file the Proposed SASOC should be dismissed; (b) the whole of the ASOC should be struck out with a right to re-plead; and (c) the Bank's interlocutory application should otherwise be dismissed.

The material before the Court 13 The applicants rely on an affidavit of Gabriel Kuek, the principal of Access Law, the solicitors acting for the applicants, dated 10 June 2022. 14 The Bank relies on an affidavit of Bryony Adams, a partner of Herbert Smith Freehills, dated 1 July 2022. The Bank also relies on an earlier affidavit of Ms Adams, dated 26 May 2021. That affidavit was filed in connection with the Bank's earlier application for summary dismissal. For present purposes, the Bank relies only on the body of that affidavit and not on the exhibit. 15 In the course of the Bank's oral submissions, reference was made to an affidavit of Gareth Reilly dated 14 March 2016, which was part of the material before me for the purposes of the Bank's earlier interlocutory application. I indicated that I would treat this document as before me for the purposes of the present applications.

Key legislative provisions 16 The key legislative provisions were set out in the November 2021 Judgment. For ease of reference, I set them out again in these reasons. 17 Consistently with the November 2021 Judgment, I will refer to ss 36, 41, 43, 81 and 82 of the AML/CTF Act as they stood at the time of the relevant transfers (using the version of the legislation dated 1 December 2014), and I will refer to ss 123, 124 and 248 as they currently stand (using the version of the legislation dated 17 June 2021). 18 Section 36 of the AML/CTF Act provides in part: 36 Ongoing customer due diligence (1) A reporting entity must: (a) monitor the reporting entity's customers in relation to the provision by the reporting entity of designated services at or through a permanent establishment of the reporting entity in Australia, with a view to: (i) identifying; and (ii) mitigating; and (iii) managing; the risk the reporting entity may reasonably face that the provision by the reporting entity of a designated service at or through a permanent establishment of the reporting entity in Australia might (whether inadvertently or otherwise) involve or facilitate: (iv) money laundering; or (v) financing of terrorism; and (b) do so in accordance with the AML/CTF Rules. Civil penalty (2) Subsection (1) is a civil penalty provision. 19 Sections 41 and 43 are located in Pt 3 of the AML/CTF Act, headed "Reporting obligations". Section 41 provides in part: 41 Reports of suspicious matters Suspicious matter reporting obligation (1) A suspicious matter reporting obligation arises for a reporting entity in relation to a person (the first person) if, at a particular time (the relevant time): (a) the reporting entity commences to provide, or proposes to provide, a designated service to the first person; or … and any of the following conditions is satisfied: … (f) at the relevant time or a later time, the reporting entity suspects on reasonable grounds that information that the reporting entity has concerning the provision, or prospective provision, of the service: … (iii) may be relevant to investigation of, or prosecution of a person for, an offence against a law of the Commonwealth or of a State or Territory; or … Report (2) If a suspicious matter reporting obligation arises for a reporting entity in relation to a person, the reporting entity must give the AUSTRAC CEO a report about the matter within: (a) if paragraph (1)(d), (e), (f), (i) or (j) applies - 3 business days after the day on which the reporting entity forms the relevant suspicion; or (b) if paragraph (1)(g) or (h) applies - 24 hours after the time when the reporting entity forms the relevant suspicion. (3) A report under subsection (2) must: (a) be in the approved form; and (b) contain such information relating to the matter as is specified in the AML/CTF Rules; and (c) contain a statement of the grounds on which the reporting entity holds the relevant suspicion. … Civil penalty (4) Subsection (2) is a civil penalty provision. 20 Section 43 deals with reports of "threshold transactions" (as defined in s 5). 21 Section 81 (in Pt 7) provides: 81 Reporting entity must have an anti-money laundering and counter-terrorism financing program (1) A reporting entity must not commence to provide a designated service to a customer if the reporting entity: (a) has not adopted; and (b) does not maintain; an anti-money laundering and counter-terrorism financing program that applies to the reporting entity. Civil penalty (2) Subsection (1) is a civil penalty provision. 22 Section 82 provides in part: 82 Compliance with Part A of an anti-money laundering and counter-terrorism financing program Compliance with program (1) If a reporting entity has adopted: (a) a standard anti-money laundering and counter-terrorism financing program; or (b) a joint anti-money laundering and counter-terrorism financing program; that applies to the reporting entity, the reporting entity must comply with: (c) Part A of the program; or (d) if the program has been varied on one or more occasions - Part A of the program as varied. Civil penalty (2) Subsection (1) is a civil penalty provision. 23 Sections 123 and 124 are located in Div 3 of Pt 11 of the AML/CTF Act. Part 11 deals with secrecy and access. Division 3 deals with protection of information given under Pt 3. Section 123 provides in part: 123 Offence of tipping off Prohibitions (1) A reporting entity must not disclose to a person other than an AUSTRAC entrusted person: (a) that the reporting entity has given, or is required to give, a report under subsection 41(2); or (b) any information from which it could reasonably be inferred that the reporting entity has given, or is required to give, that report. … Exception - legal advice (5) Subsection (1) does not apply to the disclosure of information by a reporting entity if the disclosure is to a legal practitioner (however described) for the purpose of obtaining legal advice. … Courts or tribunals (10) Except where it is necessary to do so for the purposes of giving effect to this Act or the Financial Transaction Reports Act 1988, a reporting entity is not to be required to disclose to a court or tribunal information mentioned in subsection (1) or (2). Offence (11) A person commits an offence if: (a) the person is subject to a requirement under subsection (1), (2), (5A), (5C), (7AA), (7AC), (7B) or (8A); and (b) the person engages in conduct; and (c) the person's conduct breaches the requirement. Penalty for contravention of this subsection: Imprisonment for 2 years or 120 penalty units, or both. (Emphasis added.) 24 Section 124 provides: 124 Report and information not admissible (1) In any court or tribunal proceedings: (a) none of the following is admissible in evidence: (i) a report given under, or prepared for the purposes of, subsection 41(2); (ii) a copy of such a report; (iii) a document purporting to set out information (including the formation or existence of a suspicion) contained in such a report; (iv) a document given or produced under subsection 49(1), in so far as that subsection relates to a communication under section 41; and (b) evidence is not admissible as to: (i) whether or not a report was prepared for the purposes of subsection 41(2); or (ii) whether or not a report prepared for the purposes of subsection 41(2), or a document purporting to set out information (including the formation or existence of a suspicion) contained in such a report, was given to, or received by, the AUSTRAC CEO; or (iii) whether or not particular information (including the formation or existence of a suspicion) was contained in a report prepared for the purposes of subsection 41(2); or (iv) whether or not particular information (including the formation or existence of a suspicion) was given under subsection 49(1), in so far as that subsection relates to a communication under section 41; or (v) whether or not a particular document was produced under subsection 49(1), in so far as that subsection relates to a communication under section 41. (2) Subsection (1) does not apply to the following proceedings: (a) criminal proceedings for an offence against section 121, 123, 126, 128, 129, 136, 137, 161, 162 or 165 of this Act; (b) criminal proceedings for an offence against section 29 or 30 of the Financial Transaction Reports Act 1988; (c) proceedings under section 175 of this Act. (Emphasis added.) 25 Section 248 (located in Pt 18 - Miscellaneous) provides in part: 248 Exemptions and modifications by the AUSTRAC CEO (1) The AUSTRAC CEO may, by written instrument: (a) exempt a specified person from one or more specified provisions of this Act; or (b) declare that this Act applies in relation to a specified person as if one or more specified provisions of this Act were modified as specified in the declaration. (2) An exemption may apply: (a) unconditionally; or (b) subject to specified conditions. (3) A person to whom a condition specified in an exemption applies must comply with the condition. (4) Subsection (3) is a civil penalty provision. (5) A copy of an exemption or declaration must be made available on AUSTRAC's website.

The November 2021 Judgment 26 In the November 2021 Judgment at [19]-[26] I provided an overview of the ASOC, which was the applicants' then pleading. 27 At [31]-[38] of the November 2021 Judgment, I summarised the applicable principles relating to summary dismissal (on the basis that a claim has no reasonable prospect of success) and abuse of process. I refer to that summary of the applicable principles, without setting it out in these reasons. 28 At [39] of the November 2021 Judgment, I set out the Bank's two key contentions. Although these have been set out above, I set them out again for ease of reference: (a) First, the Bank contended that the applicants had no reasonable prospect of establishing a breach of s 41 of the AML/CTF Act as a result of the operation of s 124 of the AML/CTF Act, which has the effect that evidence pertaining to reporting obligations under s 41 is relevantly rendered inadmissible in this proceeding. (b) Secondly, the Bank contended that s 123 of the AML/CTF Act operates to prohibit the Bank from properly defending the allegations in respect of s 41, such that the case as put against it was manifestly unfair and constituted an abuse of process. 29 I summarised the Bank's submissions in relation to those contentions at [41]-[48]. I then stated at [49]-[50]: 49 I accept the proposition that a central premise of the applicants' case is that the Bank breached its obligations under s 41 of the AML/CTF Act. However, I am not satisfied, at this stage, that the proceeding should be summarily dismissed by reason of s 123 or 124 of the AML/CTF Act. This is because, at this stage, there is the potential that the AUSTRAC CEO may be prepared to exercise the discretion in s 248 of the Act (set out at [18] above) and, if the discretion were exercised favourably, the issues raised by the Bank concerning ss 123 and 124 could be overcome. 50 In response to the proposition that the s 248 discretion may be available to overcome the issues that it raises, the Bank submits that s 248 confers on the AUSTRAC CEO a discretion over which neither the Bank nor the applicants would have any control. This may be accepted. However, in circumstances where there is the possibility of a favourable exercise of the discretion, it cannot be said, at this stage, that the applicants have no reasonable prospect of success because of s 124 or that the proceeding causes unfairness for the Bank by reason of s 123. An available approach would be to allow a period of time (say, four months) to enable the parties to explore whether the AUSTRAC CEO would be prepared to exercise the discretion. (Emphasis added.) 30 After considering some of the Bank's other submissions, I stated at [55]-[56]: 55 For the above reasons, I am not satisfied, at this stage, that the proceeding should be summarily dismissed on the basis that the applicants have no reasonable prospect of success (due to s 124) or because it causes unfairness for the Bank (due to s 123). Subject to consideration of the Bank's other contentions, I consider that it would be appropriate to allow a period of time (say, four months) to enable the parties to explore whether the AUSTRAC CEO would be prepared to exercise the discretion. 56 I note for completeness that it does seem that a central element of the applicants' case is the proposition that the Bank breached s 41 of the AML/CTF Act. Thus, unless a declaration were made under s 248 in respect of s 124, it is difficult to see how the applicants could establish their case. To the extent that the applicants suggested that they could rely on admissions made by the Bank in a different proceeding, namely a civil penalty proceeding brought by the AUSTRAC CEO against the Bank under the AML/CTF Act (referred to in paragraph 8(a) of Ms Adams's first affidavit), I do not see how this course is available. Any admissions were presumably made only for the purposes of that proceeding. Further and in any event, it would need to be shown that any admissions applied to the applicants' bank accounts. Further, unless an exemption were granted under s 248 in respect of s 123, it is difficult to see how the proceeding would not cause unfairness for the Bank. Accordingly, on the basis of the material and submissions presently before the Court, it is difficult to see how this proceeding can continue absent a favourable exercise of the discretion in s 248. (Emphasis added.) 31 I then considered other aspects of the Bank's application. It is not necessary to refer to these aspects of the November 2021 Judgment for present purposes.

The Proposed SASOC 32 In this section of these reasons, I provide an overview of the Proposed SASOC. I note at the outset that, although dated 21 May 2022, the Proposed SASOC was substantively prepared before the AUSTRAC Deputy CEO decided not to exercise the discretion in s 248 of the AML/CTF Act. The draft pleading was originally provided on 8 December 2021. The document dated 21 May 2022 merely corrects typographical and minor errors. 33 The parties are described in paragraphs 1 to 5. Certain background facts and bank accounts are pleaded at paragraphs 6 to 14. In paragraphs 14A to 14D, it is pleaded that the opening of each of the bank accounts constituted the making of a separate contract between the Bank and Delania. 34 Further background facts are pleaded at paragraphs 15 to 19, including the opening of other bank accounts. At paragraphs 19A to 19D, it is pleaded that the opening of each of these bank accounts constituted the making of a separate contract between: the Bank and Widya; the Bank and Widya and Siga; or the Bank and Widya and Delania. 35 At paragraphs 20 to 28, the proposed pleading sets out further background facts, including facts that relate to a claim that moneys in the bank accounts were held on trust for Fona, and facts relating to the manner in which the funds were transferred to the bank accounts. 36 At paragraph 29, the AML/CTF Act is introduced: 29. By reason of the manner of the payments so made into Delania's and Widya's accounts, those payments attracted the operation of s 142 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 ("the AML-CTF Act"). I note that s 142 of the AML/CTF Act is an offence provision relating to conducting transactions so as to avoid reporting requirements relating to threshold transactions. 37 At paragraphs 30 to 34, facts relating to an Australian Federal Police investigation and the forfeiture of the balances of Delania's and Widya's bank accounts are pleaded. 38 The alleged duties of the Bank are pleaded in paragraphs 35, 36, 37, 38, 39, 39A, 41A and 41B. As these paragraphs are important for present purposes, I set them out in full: DUTIES OF BANK The AML-CTF Act 35. CBA, as a provider of designated services to customers as defined in the Act, is, and was, pursuant to the provisions of the Act under the following duties: 35.1 a duty under s. 36 of the Act of "ongoing customer due diligence", which required CBA to monitor its customers with a view to mitigating and managing the risk that it might (inadvertently or otherwise) facilitate money laundering or financing of terrorism; 35.2 a duty under s. 41 of the Act, where CBA suspected on reasonable grounds that the information it held in relation to the provision of its banking services may be relevant to a money laundering offence to give a report to the AUSTRAC CEO in relation to the matter within (depending on the matter in question) three business days or 24 hours after forming a relevant suspicion; 35.3 a duty under s. 43 of the Act, to make a report of any threshold transaction (a transaction involving more than $10,000) within 10 business days after the date on which the transaction takes place; 35.4 a duty under ss. 81 and 82 of the Act, to have in place, and to comply with, an anti-money laundering and counter terrorism financing program; 35.5 a duty under s. 123 of the Act, not to disclose to anyone other than the AUSTRAC CEO or member of AUSTRAC staff that it has communicated information relating to a suspicious matter to the AUSTRAC CEO; 35.6 a duty under s. 123 of the Act, where CBA had formed a suspicion that it held information that might be relevant to a money laundering offence, not to disclose to a person other than the AUSTRAC CEO or a member of the AUSTRAC staff that it had formed the suspicion or any other information upon which the person could reasonably be expected to infer that the suspicion had been formed. 36. CBA was, consequently, under a duty to monitor its customers in respect of money laundering and to make a report of any threshold transaction within 10 business days and of any suspicion of money laundering within no more than three business days after forming the suspicion. Common Law 37. At common law, CBA owed a duty of care: 37.1 to take reasonable steps to protect the interests of its customers against foreseeable harm, including loss arising from doubtful or potentially illegal transactions occurring through their accounts; and - 37.2 to take reasonable steps to protect the interests of third parties, who deposited or transferred funds into its customers' accounts, against foreseeable harm, including loss caused by doubtful or potentially illegal transactions occurring through accounts administered by CBA. PARTICULARS OF DUTY TO CUSTOMERS CBA's duty to its customers arises by reason of the following: (a) CBA had a fiduciary relationship with, therefore owed fiduciary duties to, Delania and Widya; (b) in equity, it is the duty of banker and customer to deal fairly and in good faith with each other; (c) by clause 4.1 of the Banking Code of Practice 2013, CBA undertook to: "comply with all laws relating to banking services"; and - (d) Section 12ED of the Australian Securities and Investments Commission Act 2001, which provided that: "in every contract for the supply of financial services by a person to a consumer in the course of a business, there is an implied warranty that ….. the services will be rendered with due care and skill". PARTICULARS OF DUTY TO THIRD PARTIES CBA's duty to third parties arises by reason of the following: (e) one ordinary and common service a banking institution provides is the facilitation of transfers of funds by third parties into its customers' accounts; (f) where CBA receives deposits and/or transfers from a third party into an account which CBA controls, CBA is in a position reasonably proximate to the third party such as to give rise to a duty of care to the third party; (g) such a third party can reasonably act on the assumption that CBA, in receiving or dealing with money so deposited or transferred, will not act negligently, nor in breach of its statutory duties nor in breach of its duties to its customers; (h) that such a third party might suffer loss and damage, if CBA acted negligently or in breach of its statutory duties or in breach of any of its duties to its customers in dealing with money so deposited or transferred by the third party, was at all relevant times foreseeable. PARTICULARS OF REASONABLE STEPS 37.3 the reasonable steps CBA could have taken include: (i) it could have implemented programs to prevent, or halt, the doubtful or potentially illegal transactions continuing; (j) it could have closed or frozen Delania and Widya's accounts, as it did with Siga's account on 25 September 2018; (k) it could have ceased receiving doubtful or potentially illegal deposits into the accounts; (l) it could have conducted an investigation into the doubtful or potentially illegal transactions; (m) it could have taken acted to prevent its assets being, or continuing to be, used for the continuation of criminal activities; (n) it could have notified Delania and Widya that doubtful or potentially illegal transactions might be occurring through their accounts; (o) it could have reported the doubtful or potentially illegal transactions to law enforcement authorities; and - (p) it could have reported the doubtful or potentially illegal transactions to AUSTRAC. … 38. The duty mentioned in paragraph 36 is inhibited and restricted by the provisions of the Act but, save to the extent that the performance of that duty is inhibited or restricted by the provisions of the Act, the duty remains. PARTICULARS 38.1 Section 123 of the AML-CTF Act prohibits CBA from disclosing to a person other than an AUSTRAC entrusted person that CBA has given, or is required to give, a report under subsection 41(1) or any information from which it could reasonably be inferred that the reporting entity (CBA) has given, or is required to give, the report. 38.2 No prohibition arises unless and until CBA has given such a report or is aware of facts requiring CBA to give such a report. 38.3 Section 123 is directed at prohibiting disclosure of particular information. 38.4 Section 123 does not nullify CBA's contractual duties towards Delania, Widya and Siga or its common law duties towards Delania, Widya, Siga and Fona. 38.5 Section 123 does not negate CBA's duty to notify Delania, Widya and Siga that doubtful or potentially illegal transactions might be occurring through their accounts, even if, in some cases falling within s 123, CBA may be excused for non-performance of that duty. 38.6 CBA can apply to the CEO of AUSTRAC to exercise its discretion under s.248 of the AML-CTF Act to exempt it from the prohibition under s.123. 39. At common law, CBA owed a duty to its customers to comply with all legislation relating to banking transactions. PARTICULARS OF DUTY TO CUSTOMERS The applicants refer to and repeat the particulars set out at paragraph 37. 39A. The CBA's common law duty to its customers, to comply with all legislation relating to banking transactions, is an implied term in the contracts between CBA and Delania, Widya and Siga. PARTICULARS The applicants refer to and repeat the particulars set out at paragraphs 14D and 19D. … 41A. CBA was under a duty to take reasonable steps to prevent or stop the accounts under its control from being used in any illegal or criminal activities. PARTICULARS 41A.1 Between 2 April 2013 and March 2015, Delania's and Widya's accounts with CBA were used for the criminal conduct of money laundering. PARTICULARS The applicants refer to and repeat paragraphs 28 and 29. 41A.2 Such use of Delania and Widya's accounts amounted to the criminal offence of dealing with money or property that is the proceeds of crime or intended to become an instrument of crime contrary to: (a) sections 194, 195 and 195A of the Crimes Act 1958 (Vic); and - (b) sections 400.3 to 400.9 of the Criminal Code 1995 Cth. 41A.3 It was, and is, a criminal offence to aid and abet a crime: PARTICULARS (c) at common law; (d) Section 181 Crimes Act 1958 (Vic); and - (e) Section 11.2 Criminal Code 1995 (Cth). 41A.4 CBA could have taken the steps particularised at sub-paragraph 37.3.3 [sic]. 41A.5 CBA failed to take any of the steps particularised at sub-paragraph 37.3.3 [sic]. 41A.6 The applicants refer to, and repeat, paragraph 44 and the particulars thereto and paragraphs 44A and 44B hereinafter set out. 41B. CBA was under a duty under s.41 of the AML-CTF Act to make a report to the CEO of AUSTRAC within no less than 3 days, if it suspected on reasonable grounds that the information it held might be relevant to a money laundering offence. (Italics emphasis added.) 39 In paragraph 41 (on page 16), it is alleged that there was an implied warranty of due care and skill based on s 12ED of the Australian Securities and Investments Act 2001 (Cth) (the ASIC Act). 40 Paragraphs 41C to 41F contain allegations relating to the Bank's awareness of factual matters. 41 The alleged breaches of duty are set out in paragraphs 44 to 57. It is necessary to set out these proposed pleadings in some detail. This section of the Proposed SASOC provides in part: 44. Between 2 April 2013 and 22 July 2013 cash deposits, of a kind which, if CBA had monitored the account as required by s. 36 of the Act, would have aroused a suspicion within s. 41 of the Act, were paid into Delania's principal savings account. … 44B. The manner of payment of: 44B.1 the four cash deposits totalling $20,000 referred to at sub paragraphs 44.1 and 44.2 hereof, alternatively - 44B.2 the six cash deposits totalling $30,000 referred to at sub paragraphs 44.1, 44.2, and 44.3 hereof, alternatively - 44B.3 the 10 cash deposits totalling $50,000 referred to at sub paragraphs 44.1, 44.2, 44.3, 44.4, and 44.5 hereof, alternatively - 44B.4 the 11 cash deposits totalling $60,000 referred to at sub paragraphs 44.1, 44.2, 44.3, 44.4, 44.5 and 44.6 hereof: should have: (a) aroused in CBA a reasonable suspicion, within s. 41 of the Act, that the payments fell within s. 36 of the Act, and - (b) caused CBA immediately to take the steps set out at paragraph 37.3.3 [sic]. … 44D. Further, and alternatively to paragraphs 44B and 44C, many of the payments referred to in paragraphs 44 and 44A were payments which fell within s. 36 of the Act and should have aroused in CBA a reasonable suspicion within s. 41 of the Act. … 44F. The manner of payment of: - the four cash deposits totalling $25,500, referred to at sub paragraph 44E.1 hereof, alternatively - - the nine cash deposits totalling $62,500 referred to at sub paragraphs 44E.1 and 44E.2 hereof, alternatively - - the 12 cash deposits totalling $87,500 referred to at sub paragraphs 44E.1 44E.2 and 44E.3 hereof: should have: (a) aroused in CBA a reasonable suspicion, within s 41 of the Act, that the payments fell within s. 36 of the Act, and - (b) caused CBA immediately to take one or more of the steps set out at paragraph 37.3.3 [sic]. … 44I. Further, or alternatively, to paragraphs 44B, 44C, 44F, 44G and 44H, the amount of the payments set out in paragraphs 44, 44A and 44E, their form and their distribution, were such as to give rise to a suspicion under s. [41] of the Act requiring CBA to make a report to the AUSTRAC CEO within three business days or 24 hours of forming the relevant suspicion. 44J. In breach of its obligations under the Act, the CBA: (c) did not have in place an anti-money laundering and counter terrorism program as required by s. 81; (d) alternatively, did not comply with the anti-money laundering and counter terrorism program which it did have in place as required by s. 82; (e) did not monitor the applicants' accounts as required by s. 36 of the Act consequently: (f) failed to form a suspicion within s. 41 of the Act; and - (g) failed to notify the AUSTRAC CEO of the suspicious transactions. … 53. By reason of the failure of CBA to comply with its obligations under s. 36, s. 41, s. 81 and s. 82 of the Act, CBA: 53.1 has breached the warranty implied under s. 12ED of the ASIC Act; 53.2 has breached its common law duty to comply with all legislation relating to banking transactions; 53.3 has breached its common law duty to advise: (a) Delania; and - (b) Widya. doubtful or potentially illegal transactions occurring through their accounts. 55. Fona and Delania: 55.1 did not intend Delania to have unlimited control of the money which Fona placed in Delania's bank accounts; but - 55.2 intended that Delania should account to Fona in respect of all money received from Fona other than that expended by Delania in living a reasonable student life-style in Perth. 55A. Fona and Widya regarded the money transferred by Fona to Widya's bank accounts as family money to which Fona and Widya were both beneficially entitled. 56. CBA owed Fona a duty of care to deal lawfully and responsible with the funds credited to Delania's and Widya's accounts as a result of the arrangements initiated by Fona. PARTICULARS The applicants refer to and repeat paragraphs 25, 25A, 26A, 26B, 37.2 and 37A. 57. CBA breached its duty of care towards Fona, particulars of which are set out at paragraphs [44] to [53] hereof. (Emphasis added.) 42 In paragraph 58, it is alleged that the breaches set out in paragraphs 53 to 57 caused the applicants loss and damage.

The AUSTRAC decision 43 As noted above, on 21 December 2021 Herbert Smith Freehills, on behalf of the Bank, wrote to AUSTRAC seeking an exemption and modification of ss 123 and 124 of the AML/CTF Act under s 248 of the Act. 44 By letter dated 18 February 2022, AUSTRAC sought submissions from both the Bank and the applicants on whether the discretion in s 248 should be exercised. 45 On 25 February 2022, Herbert Smith Freehills responded to AUSTRAC's letter. In this letter, the Bank did not make a submission that the discretion should be exercised, but rather stated that it would abide by AUSTRAC's decision. On the same date, Access Law, on behalf of the applicants, responded to AUSTRAC's letter, making a submission in support of exercise of the discretion. 46 On 24 March 2022, the AUSTRAC Deputy CEO decided not to modify s 124 of the AML/CTF Act. In a letter of that date, addressed to Herbert Smith Freehills and copied to Access Law, he stated in part: I have considered the application for a modification and exemption under section 248 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) made by the Commonwealth Bank of Australia (CBA) in relation to proceedings (the Proceedings) commenced against it in the Federal Court of Australia by Delia Marundrury and Others (the Marundrurys). The application sought: a. a modification of section 124 of the AML/CTF Act in relation to the Proceedings to enable the parties to lead evidence as to whether or not CBA complied with its Suspicious Matter Reporting (SMR) obligations, and if the modification is granted; b. an exemption in relation to subsections 123(1), (2), and (5A) of the AML/CTF Act as may be necessary to allow CBA to disclose SMRs (if any) to the Court and the Marundrurys without breaching the tipping off prohibition set out in section 123 of the Act. The views of the Marundrurys and CBA were sought, and received, on whether the discretion to modify section 124 should be exercised. Policy I had regard to AUSTRAC's Exemption Policy, which lists the following factors that may be considered in deciding whether to grant an exemption: • the nature of the exemption, including the impact it will have on the market-place or the integrity of the AML/CTF and FTR Acts; • whether granting the exemption would be consistent with the intent and purpose of the Financial Transaction Reports Act 1988, AML/CTF Act and AML/CTF Rules; • the risk-profile of the applicant, the designated service, or the circumstances in which the designated service is provided; • issues of competitive neutrality (i.e. whether the exemption would create unfair advantage for the applicant or disadvantage to third parties); and • the level of regulatory burden to which the applicant is being subjected. Decision I have considered the application, the views provided by CBA and the Marundrurys on whether the discretion to modify section 124 should be exercised, the objects and purpose of the AML/CTF Act, the factors set out in AUSTRAC's Exemption Policy and the interlocutory judgment of the Federal Court in Marundrury v Commonwealth Bank of Australia [2021] FCA 1379 dated 9 November 2021. I have also considered whether the modification and exemption sought could reasonably be expected to have an impact on the risk associated with money laundering or the financing of terrorism as that risk applies to a designated service. I have decided not to modify section 124 for the reasons set out below as I am not satisfied that the risk associated with the proposed modification is low or that it is appropriate in all of the circumstances to modify section 124 as proposed. When considering the AML/CTF scheme as a whole, I consider that granting the modification risks undermining the integrity of the operation of the scheme, including by increasing the risk that reporting entities will be less forthcoming in reports submitted to AUSTRAC. This risk applies across designated services provided by reporting entities, especially banks. As I have decided not to modify section 124, it has not been necessary for me to consider the proposed exemption from subsections 123(1), (2) and (5A). As the Proceedings are for the purpose of one party obtaining a private remedy from the other party, they neither relate to, nor assist in giving effect to, the AML/CTF Act. Therefore, modifying section 124 will not advance the objects or purpose of the AML/CTF Act, or the AUSTRAC CEO's functions. AUSTRAC has a longstanding position that disclosing SMRs in court proceedings is incompatible with the integrity of the AML/CTF regime. By their nature, SMRs are hearsay and subjective evidence of the facts and opinions expressed therein, which makes them incompatible with the nature of legal proceedings and the evidence required for such proceedings. Disclosure of SMRs in one proceeding may reduce the future utility of those SMRs, including informing other law enforcement investigations. Additionally, permitting SMR material to be disclosed and admitted in evidence may infringe the privacy of third parties identifiable in any SMR material disclosed. Modifying section 124 is inconsistent with this position, would undermine the integrity of the AML/CTF regime, and may invite further requests to modify that position. Reporting entities may modify their reporting behaviour if they believe that AUSTRAC may permit the disclosure of SMR material in future legal proceedings. This is likely to result in a reduction in the quality of SMR information received, adversely affecting the quality of AUSTRAC's intelligence holdings and intelligence products. This would negatively affect the Commonwealth, State and Territory agencies, including law enforcement agencies that under the AML/CTF Act have access to, or use of, that information.

Consideration 47 I now turn to consider the two interlocutory applications that are before the Court, namely the applicants' application for leave to file the Proposed SASOC and the Bank's application for summary dismissal or strike-out of the applicants' claims. The two applications are connected in the sense that the Bank's application for summary dismissal or strike-out is to be assessed by reference to the Proposed SASOC. Further, if the Bank's submissions are accepted, it would follow that leave to file the Proposed SASOC would be refused. 48 In support of its application for summary dismissal, the Bank relies on essentially the same submissions as it made in support of its earlier application for summary dismissal. The Bank submits that the Proposed SASOC is relevantly similar to the ASOC and its previous submissions also apply to the Proposed SASOC. The Bank also submits that, unlike the position that existed when the November 2021 Judgment was given (namely, that there was the possibility that the AUSTRAC CEO may exercise the discretion under s 248 so as to overcome the difficulties raised based on ss 123 and 124), the AUSTRAC CEO (through his delegate, the Deputy CEO) has now determined not to exercise that discretion. Accordingly, the Bank submits, the reason why summary dismissal was refused in the November 2021 Judgment is no longer present. 49 The Bank relies on two principal contentions, as set out above. I will now briefly outline the Bank's submissions in support of each contention. 50 The Bank's first contention is that the applicants have no reasonable prospect of establishing a breach of s 41 of the AML/CTF Act as a result of the operation of s 124, which has the effect that evidence pertaining to reporting obligations under s 41 is relevantly rendered inadmissible. The Bank submits that a central premise of the applicants' case is that, had the Bank complied with its monitoring and compliance obligations under ss 36, 81 and 82, it would have given the AUSTRAC CEO a suspicious matter report under s 41 (which it allegedly failed to do). The Bank submits that the balance of the applicants' allegations (in both the ASOC and the Proposed SASOC) are founded on this premise, such that it is critical for the applicants to prove that the Bank breached s 41 in order to obtain relief. The Bank submits that s 124 of the AML/CTF Act precludes the applicants from adducing evidence that is critical to their case. The Bank relies, in particular, on s 124(1)(b). The Bank notes that it provides that evidence is not admissible as to whether or not a report was prepared or provided to AUSTRAC and whether or not information (such as the formation of a suspicion) was contained in any such report. The Bank submits that: irrespective of whether the Bank prepared and/or gave such a report, no evidence can be adduced to establish the position either way; this renders the applicants' claim unprovable. 51 The Bank's second contention is that s 123 of the AML/CTF Act operates to prohibit the Bank from properly defending the allegation in respect of s 41 such that the case as put against it (whether in the ASOC or the Proposed SASOC) is manifestly unfair and constitutes an abuse of process. The Bank submits that its alleged failure to form a suspicion and to provide a report to AUSTRAC under s 41 is put squarely in issue by the applicants and is the central plank of their case. The Bank submits that, by operation of s 123, the Bank is relevantly prohibited from disclosing to the applicants, the applicants' legal representatives or the Court: (a) that the Bank has given, or is required to give, a report under s 41(2) (s 123(1)(a)); or (b) any information from which it could reasonably be inferred that the Bank has given, or is required to give, a report under s 41(2) (s 123(1)(b)). 52 The Bank notes that a breach of these provisions is a criminal offence under s 123(11). The Bank submits that: the effect of s 123 is that the Bank is prevented from denying the allegation that it failed to form a relevant suspicion and file a report as required by s 41; a denial of that allegation would amount to a disclosure prohibited by s 123(1); the only response available to the Bank is to admit that it did not make a report (even if it did indeed make a report). The Bank submits that it is "cornered" into either admitting the allegations or risking criminal prosecution if it attempts to defend itself properly (for example, if a denial were available). 53 In response, the applicants submit that the Bank's submissions proceed on a misconception of the applicants' case. The applicants submit that, contrary to the Bank's submissions, their case does not turn on alleged breaches of the AML/CTF Act; rather, the applicants rely on alleged breaches of common law duties. In oral submissions, senior counsel for the applicants conceded that paragraph 37.3(p) of the Proposed SASOC depended on the AML/CTF Act, but contended that the other duties pleaded do not depend on the Act, and that the applicants have a viable action at common law. 54 In response to the Bank's submissions based on s 123, the applicants submit that (assuming the Bank did not provide a suspicious matter report) there is nothing to prevent the Bank admitting that it did not do so. The applicants submit that, if it be the case that the Bank did provide a suspicious matter report, the Bank could state in its defence that it "cannot plead" to the allegation. 55 The applicants further submit that the Bank deliberately failed to press a case to AUSTRAC for an exemption or modification of ss 123 and 124. The applicants submit that it is unclear what would have happened if the Bank had mounted an argument based on its inability to defend itself in the proceeding. The applicants submit that it is difficult for the Bank to complain that it is prejudiced in circumstances where it did not take the opportunity to seek to remove the prejudice (by pressing for an exemption or modification). 56 The principles applicable to summary dismissal, and abuse of process, are set out in the November 2021 Judgment at [32]-[38]. 57 In my view, whether one has regard to the ASOC or the Proposed SASOC, the applicants' claims are largely based on alleged breaches of s 41 of the AML/CTF Act. I refer to the extracts from the ASOC set out in the November 2021 Judgment and the extracts from the Proposed SASOC set out above. In particular, I note the following aspects of the Proposed SASOC: (a) Paragraph 35 of the Proposed SASOC expressly pleads that the Bank was under duties under the AML/CTF Act. The next paragraph - paragraph 36 - then alleges that the Bank was consequently under a duty to monitor its customers and "to make a report of … any suspicion of money laundering within no more than three business days after forming the suspicion". This allegation picks up the language in s 41 of the AML/CTF Act. (b) While paragraph 37 is couched in terms of a common law duty of care, paragraphs (o) and (p) of the particulars (which provide details of the reasonable steps that it is alleged the Bank was required to take) pick up breaches of the Bank's reporting obligations under s 41 of the AML/CTF Act. (c) Paragraph 39 contains an allegation that the common law duty required the Bank "to comply with all legislation" relating to banking transactions. The particulars refer back to the particulars set out at paragraph 37. This reinforces that the reasonable steps that it is alleged the Bank was required to take include compliance with the Bank's reporting obligations under s 41 of the AML/CTF Act. (d) Paragraph 41B contains an allegation that CBA was under a duty under s 41 of the AML/CTF Act to make a report to the AUSTRAC CEO in the circumstances there set out. (e) In the context of breach of duty, paragraph 44 contains a pleading that certain matters "would have aroused a suspicion within s.41 of the Act". (f) Paragraphs 44B, 44D, 44F, 44I and 44J, which also relate to breach of duty, allege that certain facts and matters should have aroused a reasonable suspicion within s 41. (g) Paragraph 53, which is the culmination of the paragraphs dealing with breach of duty, commences with the words: "By reason of the failure of CBA to comply with its obligations under s.36, s.41, s.81 and s.82 of the Act …". This is the basis upon which it is alleged that the Bank breached the various duties, including the common law duty, pleaded earlier in the Proposed SASOC. 58 Having regard to the above matters, I consider that the applicants' claims in the Proposed SASOC are largely based on alleged breaches of s 41 of the AML/CTF Act. This includes the applicants' claims based on breach of a common law duty of care. The same is true of the ASOC, for substantially the same reasons. 59 In these circumstances, s 124 of the AML/CTF Act presents a substantial obstacle to the applicants being able to successfully prosecute the proceeding. In particular, s 124(1)(b) provides that evidence is not admissible as to: (i) whether or not a report was prepared for the purposes of s 41(2); (ii) whether or not a report prepared for the purposes of s 41(2) was given to the AUSTRAC CEO; or (iii) whether or not particular information (including the formation or existence of a suspicion) was contained in a report prepared for the purposes of s 41(2). Establishing that the Bank breached its reporting obligations under s 41(2) is central to the applicants' case, but s 124(1)(b) has the effect that evidence is not admissible to prove that contention. 60 At the time the November 2021 Judgment was given, there was the possibility that these difficulties could be overcome by the AUSTRAC CEO exercising the discretion in s 248. However, the AUSTRAC CEO (through the Deputy CEO) has now decided not to exercise the discretion to modify the operation of s 124. 61 In light of the above, I am satisfied that the applicants have no reasonable prospect of successfully prosecuting the proceeding on the basis of the Proposed SASOC (or the ASOC). 62 Although it is not necessary to consider the Bank's submissions based on s 123 of the AML/CTF Act, had it been necessary to do so, I would have accepted those submissions. In circumstances where the applicants' claims (in the ASOC and the Proposed SASOC) are largely based on alleged breaches of s 41 of the AML/CTF Act, and s 123 prevents the Bank from disclosing (if it be the case) that it complied with its reporting obligations under that provision, the Bank is placed in a manifestly unfair position and the proceeding (as framed in the ASOC and the Proposed SASOC) constitutes an abuse of process. I note the applicants' submissions that, if it be the case that the Bank gave a report under s 41(2), the Bank could state in its defence that it "cannot plead" to the relevant allegations. However, this does not provide a solution to the problem posed by s 123 because there would be a risk that this type of pleading would contravene s 123(1)(b) on the basis that it was information from which it could reasonably be inferred that the Bank had given a report under s 41(2). 63 Insofar as the applicants submit that the Bank cannot complain of prejudice in circumstances where it did not press a case for an exemption or modification, I do not accept that submission. I consider that it was acceptable for the Bank to adopt the approach that it did, namely to abide by the decision of the AUSTRAC CEO. 64 It follows from the above that the applicants' application for leave to file the Proposed SASOC is to be refused. 65 While the Bank has sought summary dismissal of the applicants' claims, I consider it appropriate to give the applicants one more opportunity to attempt to plead a case that does not rely on alleged breaches of s 41 of the AML/CTF Act. The Proposed SASOC was substantively prepared before the decision of the Deputy CEO of AUSTRAC to refuse to exercise the discretion in s 248. It seems that, for whatever reason, the applicants have not attempted to reformulate the proposed pleading in a way that does not rely on alleged breaches of s 41. In the circumstances, I am not satisfied that the applicants cannot plead a case that does not rely on alleged breaches of s 41 (although, given the history, it is perhaps unlikely). 66 Accordingly, I will strike out the applicants' current pleading - the ASOC - and give the applicants a period of time in which to provide a proposed amended pleading. 67 In relation to costs, my provisional view is that the applicants should pay the Bank's costs of the interlocutory applications on a party-party basis. However, I will give the parties the opportunity to file a written submission if they contend for a different costs order. I certify that the preceding sixty-seven (67) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Moshinsky.

Australian Securities and Investments Act 2001(Cth)

At a glance

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Judgment (8 paragraphs)

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Legislation Cited (3)

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