Sherwood v Commonwealth Bank of Australia

JUDGE: REEVES J DATE: 22 OCTOBER 2012 PLACE: BRISBANE

Introduction 1 The applicants in these proceedings (the Sherwood applicants) have applied for leave to further amend their second further amended statement of claim to add some new factual allegations to expand their existing contract, misleading or deceptive conduct and unconscionable conduct claims (the proposed amendments). Ultimately, the Commonwealth Bank of Australia (CBA), the first respondent, elected not to oppose the proposed amendments to the contract claim in the interests of saving time. However, it strongly opposed the proposed amendments to the other two claims.

Application complicated by its timing and its revisions 2 This application was overshadowed by two complicating factors: its initial timing and its subsequent revisions. As to its timing, the application was first made on 30 July 2012, approximately six weeks before the trial of these proceedings was due to commence on 10 September 2012. This timing factor was compounded by the fact that the trial involved not only these proceedings, but two other related proceedings. One is a proceeding brought by Australian Securities and Investments Commission against three banks: the CBA, the Bank of Queensland and Macquarie Bank Limited (MBL). The other is a proceeding brought by another representative action applicant, Ms Richards, against MBL. 3 As to its revisions, the application was revised twice after it was originally filed. The first revision, on 20 August 2012 (just three weeks before the trial), made wholesale changes to the original set of proposed amendments and introduced a number of new concepts. The second revision, on 24 August 2012, made a much smaller number of changes to the first revision, but added a large quantity of particulars, including a description of the evidence upon which the Sherwood applicants intended to rely to prove the proposed new factual allegations. 4 Together, these factors had some particular consequences. From the Court's perspective, the consideration of these three versions of the Sherwood applicants' proposed amendments, relating as they did to two significant aspects of their claims, proved to be a time-consuming exercise. That was exacerbated by the need to hear some hours of oral submissions, to carefully consider many pages of detailed written submissions and to closely examine the various versions of the proposed amendments. As a result of the time that had to be devoted to the whole process, it was not possible to complete the submissions until 10 days before the trial was due to commence. Then, because of the imminence of the trial, I considered it necessary to deliver my decision orally and in summary form on 13 September 2012. I did so on the basis I would publish these more detailed written reasons in due course. 5 From the perspective of the Sherwood applicants, this lengthy exercise allowed them to consider the criticisms of their proposed amendments made by the CBA and to revise them on two occasions taking into account those criticisms. Thus, by the end of this relatively exhaustive process, it could not fairly be said that the Sherwood applicants did not have an ample opportunity to properly plead and fully particularise their proposed amended claims. Nonetheless, despite this ample opportunity, I concluded that the proposed amendments should not be allowed. I came to that conclusion essentially because I considered the Sherwood applicants had not properly pleaded, or not fully particularised, their proposed amended claims. I will return to this matter later in these reasons. 6 Before proceeding to set out my reasons for the above conclusions, it is necessary to provide some factual context to these proceedings.

The factual context 7 These proceedings are representative or class action proceedings brought by Mr and Mrs Sherwood and Mr and Mrs McArdle on their own behalf and on behalf of a number of group members under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (the FCA Act). For convenience, throughout these reasons I will continue to refer to Mr and Mrs Sherwood, Mr and Mrs McArdle and the group members in the class action, as the Sherwood applicants. 8 The Sherwood applicants claim that they suffered loss or damage from their involvement in an investment scheme that was operated jointly by a company called Storm Financial Limited (Storm) and the CBA, or alternatively, that was operated by Storm alone with the CBA's knowing involvement. The essence of that claim is that the investment scheme in question (the Storm Scheme) was a "managed investment scheme" as that expression is defined in s 9 of the Corporations Act 2001 (Cth) (the Act) and it therefore had to be registered as such under s 601ED(5) of the Act. Since the Storm Scheme was not so registered, the Sherwood applicants claim that they are entitled to be compensated by the CBA (and the other respondent - see below at [9]) under s 1325 of the Act for the loss and damage they suffered by investing in it. In addition to this managed investment scheme claim, the Sherwood applicants have made a number of other claims against the CBA, including (as mentioned above) claims for breach of contract, misleading or deceptive conduct, and unconscionable conduct. Since it is these three claims to which this amendment application is directed, it is necessary to briefly describe the factual context to those claims. 9 To invest in the Storm Scheme, the Sherwood applicants borrowed moneys from the CBA and its wholly owned subsidiary Colonial First State Investment Ltd, the second respondent. Henceforth in these reasons, I will refer to both respondents as the CBA. Those borrowings took the form of home loans and margin loans. The breach of contract claims are based upon alleged breaches of the express or implied terms of the various margin loan agreements that the Sherwood applicants entered into with the CBA. The misleading or deceptive conduct claims are based on a number of matters that the CBA allegedly failed to disclose to the Sherwood applicants about the operation and management of their margin loans, particularly relating to margin calls. Finally, the unconscionable conduct claims relate to the Loan to Security Ratios (LSRs), sometimes referred to as LVRs (V = Value), that the CBA applied to the Sherwood applicants' margin loans from about mid-2007 to about September 2008. Central to those claims is an allegation that, by adopting the LSRs the CBA did for those margin loans, it unfairly exposed the Sherwood applicants to significantly increased risks of default.

Aon considerations 10 Because of the filing of this amendment application so close to the trial, Mr Finch SC, for the CBA, not surprisingly, placed particular reliance on the remarks of the High Court in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27 (Aon). 11 In particular, Mr Finch submitted that: A party has no right to amend its pleadings to bring an arguable claim: Aon ... at 212, [96]. Where a party seeks leave to amend a pleading an explanation is required and the discretion of the court to grant or refuse leave to amend is to be exercised having regard to the cogency of that explanation weighed against the effect of the amendments (if allowed) measured in terms of delay, cost and other inconvenience occasioned to the other party, and, also, in terms of the wider considerations found expressed in the "overarching purpose" in sections 37M and 37N of the Federal Court of Australia Act 1976 (FC Act): Aon … at 214, [102] - [103]; Cement Australia Pty Limited v ACCC [2010] FCAFC 101; 187 FCR 261 at [38] - [46] per Keane CJ, Gilmour and Logan JJ; Dye v Commonwealth Securities (No 2) [2010] FCAFC 118 at [19] - [22] per Marshall, Rares and Flick JJ. (Emphasis in original.) 12 Mr Finch was correct in pointing out that, in the present circumstances, the Sherwood applicants had no right to amend to bring an arguable claim. As the plurality (Gummow, Hayne, Crennan, Kiefel and Bell JJ) made clear in Aon (at [96]): … It is more accurate to say that parties have the right to invoke the jurisdiction and the powers of the court in order to seek a resolution of their dispute. Subject to any rights to amend without leave given to the parties by the rules of court, the question of further amendment of a party's claim is dependent upon the exercise of the court's discretionary power. 13 Any right in the Sherwood applicants to amend without leave pursuant to rule 16.51 of the Federal Court Rules 2011 has long since expired. 14 The critical factors that influenced the decision in Aon were summarised by French CJ at [4] as: … an application which was made late in the day, was inadequately explained, necessitated the vacation or adjournment of the dates set down for trial, and raised new claims not previously agitated apparently because of a deliberate tactical decision not to do so. 15 Most of these factors are not present in this amendment application. First, in reverse order, there is no suggestion that the Sherwood applicants made a deliberate tactical decision not to raise the matters covered by the proposed amendments at an earlier stage in the proceedings. Secondly, whether the proposed amendments were to be allowed or disallowed, both counsel stated to the Court during the hearing of the application that they were not instructed to make an application for an adjournment of the trial, recognising the very significant consequences that such an adjournment would have for the parties in all the three proceedings and the waste of public resources that would thereby be occasioned. 16 Thirdly, contrary to Mr Finch's submissions, I consider the Sherwood applicants have given an explanation for their late application. That explanation was contained in two affidavits by Ms Carmichael, a solicitor employed at Levitt Robinson (the Sherwood applicants' solicitors). In those affidavits, Ms Carmichael deposed to the fact that between November 2011 and March 2012, in excess of 570,000 documents were provided to the Sherwood applicants by way of discovery in these proceedings. The task of reading and analysing those documents was allocated, in part, to Ms Sheppard of counsel. Because of the large quantity of documents involved, it was not until early July 2012 that Ms Sheppard first encountered the two CBA documents (dated 17 April 2007 and 29 May 2007) that were the catalyst for these proposed amendments. Ms Sheppard then prepared a draft of the proposed amendments and discussed that with her leader, Mr Morris QC. That eventually led to the filing of the present application. Given the vast quantity of the documents involved in these proceedings, I consider this explanation for the late application is reasonable in all the circumstances. 17 With the elimination of most of the Aon factors, the only considerations that remain are the lateness of the application and the consequential adverse effect that was likely to have on the CBA's preparations for trial and the efficient case management of these proceedings. By themselves, I do not consider that, in the circumstances of this application, those considerations would be significant enough to prevent the Sherwood applicants introducing the proposed amendments. However, that conclusion is subject to a number of important qualifications. The first is that, as with every application to amend, the applicant has to show that the proposed amendments disclose an arguable case, or to put it in negative terms, whether it is "so clearly untenable that it cannot possibly succeed": see General Steel Industry Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130. 18 Secondly, whether an application to amend is timely or late, the party wishing to make the amendment is required to properly plead all of the material facts necessary to establish each and every element of the new case that party wishes to make out. Furthermore, that party must ensure that those facts are concisely pleaded and fully particularised. In short, the proposed amended pleading must be concise, complete and fully particularised. Complying with these strictures is all the more important if a party is applying to amend shortly before the commencement of the trial of proceedings. Apart from other considerations, fairness to the opposite party dictates this. Put differently, a proposed amendment shortly before trial that is imprecise, vague and unparticularised is far more likely to exacerbate the unfairness that will probably occur to the opposite party. It is also very likely to compromise the efficient management of the trial of the proceedings. Thus, if these qualifications apply to a late application to amend, it is far more likely to be rejected on discretionary grounds. 19 It is now appropriate to turn to the Sherwood applicants' proposed amendments to demonstrate why they failed to meet these very important strictures.

Three issues arise 20 The parties structured their submissions to address the three claims to which the proposed amendments related separately. As noted above, the proposed amendments to the contract claim were not opposed, so it was unnecessary to consider them further. However, in addition to the proposed amendments to the second further amended statement of claim, the Sherwood applicants also sought to make amendments to the originating application to add further common issues (as "substantial common issues" under s 33C(1)(c) of the FCA Act) relating to the unconscionable conduct claim. In his written submissions in reply, Mr Morris proposed two new common issues, but then immediately abandoned the second. The sole remaining new common issue was as follows: "7A Did CBA engage in the 'LVR conduct' referred to in para 159A(b) of the third further amended statement of claim?" As with the form of the proposed amendments to their pleadings, the form of the new common issue was revised a number of times during the course of this application. 21 I will therefore address the following three issues in this order: (a) the proposed misleading or deceptive conduct amendments; (b) the proposed unconscionable conduct amendments; and (c) the proposed common issues amendment.

The proposed misleading or deceptive conduct amendments 22 The proposed misleading or deceptive conduct amendments sought to introduce five new paragraphs to the statement of claim: 104A to 104E inclusive. While they are quite lengthy, it is appropriate to set them out in full (excluding the particulars). The parts that are underlined are those changes to the first revision of the proposed amendments proposed by the second revision to the Sherwood applicants' proposed amendments. Those paragraphs are as follows: 104A As at 13 June 2007, CBA: (a) was aware that a loan-to-security ratio of 80% with a buffer of 10% would represent inadequate security in the event of asset price volatility exceeding levels which had been experienced over the preceding 40 years; (b) was aware that if, but only if, CBA was prepared to provide loans on the basis of a loan-to-security ratio of 80% and a buffer of 10% CBA would attract additional business from Storm; (c) considered it prudent to protect itself against the following risks (herein called "the Financial Crisis Risks"); namely that: (i) asset price volatility exceeded levels which had been experienced over the preceding 40 years; (ii) there was a consequent and significant fall in the value of shares quoted on the Australian Stock Exchange; and (iii) consequently, a loan-to-security ratio of 80%, with a buffer of 10%, ceased to represent adequate security; (d) regarded the Financial Crisis Risks as sufficiently serious to attempt to negotiate for Storm to accept terms and conditions which would give CBA more flexibility to alter its methodology with respect to the loan-to-security ratio in the event that the Financial Risks were to transpire; (e) in fact, had attempted to negotiate for Storm to accept terms and conditions which would give CBA more flexibility to alter its methodology with respect to the loan-to-security ratio in the event that the Financial Crisis Risks were to transpire; (f) had been unsuccessful in attempting to negotiate for Storm to accept terms and conditions which would give CBA more flexibility to alter its methodology with respect to the loan-to-security ratio in the event that the Financial Crisis Risks were to transpire; (g) decided not to continue with attempts to negotiate for Storm to accept terms and conditions which would give CBA more flexibility to alter its methodology with respect to the loan-to-security ratio in the event that the Financial Crisis Risks were to transpire; (h) decided, instead, to proceed on the basis that, in the event that the Financial Crisis Risks were to transpire, an alternative solution (herein called "the Ultimate Mitigant"), namely to terminate a client relationship under the terms and conditions applicable thereto, would be (i) available to CBA; and (ii) availed of by CBA. 104B. CBA did not disclose to the Applicants or Group Members the following matters (herein called "the Financial Crisis Risk Considerations"): (a) each of the matters pleaded in paragraph 104A hereof; or (b) CBA's decision to avail itself of the Ultimate Mitigant in the event that that the Financial Crisis Risks were to transpire; or (c) the logical consequences of CBA's said intention, being that: (i) with a loan-to-security ratio of 80%, and a buffer of 10%, investors would find themselves holding inadequate security in the event that the Financial Crisis Risks were to transpire; (ii) a prudent investor would protect himself or herself against such risks; (iii) investors were exposed to the likelihood of CBA's availing itself of the Ultimate Mitigant in the event that that the Financial Crisis Risks were to transpire; and (iv) were the Financial Crisis Risks to transpire, and if CBA then availed itself of the Ultimate Mitigant, that would occur at the worst possible time and place investors in the worst possible position to recover their financial positions, in that investors would have no practical alternative but to realize investments in shares quoted on the Australian Stock Exchange at a time when the value of such shares was at an historic low. 104C. CBA's failure to disclose the Financial Crisis Risk Considerations as pleaded in paragraph 104B hereof: (a) was calculated and intended by CBA to create the following impressions (herein called the "the Security Risk Impressions") on the part of Storm and persons receiving financial planning and investment advice from Storm; namely; (i) that CBA considered a loan-to-security ratio of 80%, with a buffer of 10%, would represent adequate security in all foreseeable circumstances; (ii) that CBA did not consider that prudence required it to protect itself against the Financial Crisis Risks; (iii) that prudence therefore did not require investors to protect themselves against such risks; (iv) that any risks facing each investor were equivalent in kind and coextensive in degree with the corresponding risks facing CBA; and (v) that, in the event that the Financial Crisis Risks were to transpire, CBA's security position in respect of each investor would be commensurable with the security position of that investor. (b) did in fact create the Security Risk Impressions on the part of: (i) Storm; and (ii) through Storm as their respective financial planning and investment advisers and agents, persons (including, relevantly, the Applicants and Group Members) receiving financial planning and investment advice from Storm. 104D. CBA's failure to disclose the Financial Crisis Risk Considerations was misleading or deceptive or likely to mislead or deceive, in circumstances where, following the receipt by Storm of the said letter dated 18 May 2007: (a) each of the Applicants and the Group Members either: (i) entered into margin lending arrangements with CBA; or (ii) entered into fresh margin lending arrangements with CBA; (b) each of the Applicants and the Group Members entered into those arrangements in circumstances where: (i) they were induced, by Storm's advice, recommendations and encouragement, to believe it was financially prudent to do so; (ii) Storm's advice, recommendations and encouragement were, in turn, based on the Security Risk Impressions as pleaded and particularised in subparagraph 104C(b) hereof; and (iii) specifically, Storm's advice, recommendations and encouragement were based on a belief on the part of Storm, induced by CBA's said letter of 18 May 2007 to Storm, that CBA would look after the interests of such persons; (c) each of the Applicants and the Group Members into margin lending arrangements (or as the case may be fresh margin lending arrangements) with CBA in circumstances where, and on the basis that, CBA ostensibly required a loan-to-security ratio of not less than 80%, with a buffer of 10%; (d) CBA did not, in fact, consider that a loan-to-security ratio of 80%, with a buffer of 10%, would represent adequate security in all foreseeable circumstances; (e) CBA did, in fact, consider that prudence required it to protect itself against the Financial Crisis Risks; (f) that, as a logical consequence of the matters mentioned in the preceding subparagraphs, such prudence therefore required investors to protect themselves against the Financial Crisis Risks; (g) that the risks facing each investor were not equivalent in kind or co-extensive in degree with the corresponding risks facing CBA; and (h) that, in the event that the Financial Crisis Risks were to transpire, CBA's security position in respect of each investor would not be commensurable with the security position of that investor. 104E. In the premises pleaded in paragraph 104A hereof: (a) the Security Risk Impressions were untrue in fact; and (b) the creation of the Security Risk Impressions, by CBA's failure to disclose the Financial Crisis Risk Considerations as pleaded in paragraph 104B hereof, therefore constituted conduct which was misleading or deceptive or likely to mislead or deceive. 23 It should be noted that, if they were allowed, these paragraphs would automatically be included among the matters that are later alleged (at paras 114 and possibly 124, if the reference to 104 was intended to extend to the new paras 104A-E) to have caused the loss and damage to the Sherwood applicants. It is that loss and damage they are seeking to recover in these proceedings. 24 Putting aside a number of more general criticisms, there were two particular parts of these proposed amendments to which Mr Finch objected. The first was in para 104C. Mr Finch's specific complaint related to the words in subpara 104C(a): "was calculated and intended by CBA to create …". In short, Mr Finch submitted that this was an allegation of fraud without it being properly particularised, or indeed, particularised at all. In his written submissions, Mr Morris did not specifically deny this was so, but in his oral submissions he submitted that was not what was intended by those words in the proposed amendments. 25 Whether it was intended or not, I consider those words are as plain an allegation of fraud as one could make. The thrust of the proposed amendments in paras 104A to 104E, combined with the existing allegations of loss and damage in paras 114 and 124 of the second further amended statement of claim, is that the CBA intentionally created a false impression in the minds of the Sherwood applicants about certain financial crisis risks (described in the proposed amendments as the security risk impressions) and thereby caused them loss and damage. Even accounting for the "infinite" nature of fraud in equity, this is plainly an allegation of fraud at both common law and in equity: see Meagher, Gummow and Lehane, Equity Doctrines and Remedies (4th ed, para [12-010]). 26 That being so, this allegation must be particularised in a precise and clear manner: see Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at 538, Bhagat v Global Custodians Ltd [2002] FCAFC 331 at [13] and Minister v Tweed Byron Aboriginal Land Council (1990) 71 LGRA 201 at 203-4. Rule 16.42 of the Federal Court Rules 2011 contains a similar, albeit more general, requirement. 27 The Sherwood applicants provided the following particulars of the allegation in subpara 104C(a): Particulars of, and evidence relied upon to make out, the allegations in subparagraph (a) The matters pleaded in subparagraph (a) are evidenced by or are to be inferred from the following matters; namely:- A. The entire content and context of the Grimshaw Memorandum; B. The entire content and context of the Parsons email; C. The entire content and context of the email from Mr Keary to Mr Grimshaw of 14.55 on 4 June 2007; D. The entire content and context of the email from Mr Keary to David Craig, Group Executive, Financial & Risk Management, CBA, of 5 June 2007; E. The entire content and context of the Parsons Memorandum; F. The fact that the memoranda and emails described above were created, and the deliberations evidenced thereby occurred, before 16.08pm on 13 June 2007, when CBA sent Storm a letter, dated 18 May 2007, setting out arrangements proposed between CBA and Storm; G. The entire content and context of the said letter dated 18 May 2007; and H. The fact the CBA did not disclose the Financial Crisis Risk Considerations to Storm, whether by the said letter dated 18 May 2007, or at all. 28 These particulars do not, in my view, provide precise and clear particulars of the allegation in subpara (a) that the CBA's conduct was "calculated and intended" to create the security risk impressions. Particulars A to E and G allege that the matters in subpara (a) can be inferred from "the entire content and context" of five internal CBA documents. None of those particulars specifies precisely what parts of those five documents support that inference. In this regard, it will be noted that subpara (a) also includes five further subparagraphs ((i) to (v)) that contain a wide range of allegations to which these particulars could also be directed. Further, particular H is not a particular at all, but instead a restatement of the factual allegation of which it is said to be a particular. As a consequence, the Sherwood applicants have not provided any particulars as to precisely who at the CBA calculated and intended to create the security risk impressions, what specific conduct of that person or persons did that, and how that conduct led to that outcome. This situation is the antithesis of the precise and clear particulars that are required of an allegation of fraud. 29 For these reasons, I did not allow the proposed amendments to introduce para 104C to the Sherwood applicants' further amended statement of claim. 30 The second part of the proposed amendments to which Mr Finch particularly objected was para 104D. This paragraph contains an allegation of misleading or deceptive conduct by silence, or non-disclosure. In Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357; [2010] HCA 31 (Miller), French CJ and Kiefel J approved the decision of the Full Court of this Court in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 (Demagogue) which upheld the decision of a primary judge that a vendor of land had created a clear but erroneous impression in the purchasers that there was nothing unusual concerning access to the land in question by remaining silent, when there was in fact a necessity to obtain a licence from a statutory authority to enable such access: see Miller at [17]. 31 In referring to Demagogue, their Honours specifically approved the limitation identified in Demagogue at 41 by Gummow J (who was then a judge of the Federal Court) that "unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist": see Miller at [18]. Of the expression "reasonable expectation" and the panoply of considerations bearing on the circumstances in which silence may give rise to such an expectation in commercial dealings between individuals, their Honours observed (at [20]-[22]): 20 In commercial dealings between individuals or individual entities, characterisation of conduct will be undertaken by reference to its circumstances and context. Silence may be a circumstance to be considered . The knowledge of the person to whom the conduct is directed may be relevant. Also relevant, as in the present case, may be the existence of common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business. The judgment which looks to a reasonable expectation of disclosure as an aid to characterising non-disclosure as misleading or deceptive is objective. It is a practical approach to the application of the prohibition in s 52. 21 To invoke the existence of a reasonable expectation that if a fact exists it will be disclosed is to do no more than direct attention to the effect or likely effect of non-disclosure unmediated by antecedent erroneous assumptions or beliefs or high moral expectations held by one person of another which exceed the requirements of the general law and the prohibition imposed by the statute … It would no doubt be regarded as an unrealistic expectation, inconsistent with the protection of that "superior smartness in dealing" of which Barton J wrote in W Scott, Fell & Co Ltd v Lloyd, that people who hold things back for their own profit are to be regarded as engaging in misleading or deceptive conduct. As Burchett J observed in Poseidon Ltd v Adelaide Petroleum NL, s 52 does not strike at the traditional secretiveness and obliquity of the bargaining process. But his Honour went on to remark that the bargaining process is not to be seen as a licence to deceive, and gave the example of a bargainer who had no intention of contracting on the terms discussed and whose silence was to achieve some undisclosed and ulterior purpose harmful to a competitor. 22 However, as a general proposition, s 52 does not require a party to commercial negotiations to volunteer information which will be of assistance to the decision-making of the other party. A fortiori it does not impose on a party an obligation to volunteer information in order to avoid the consequences of the careless disregard, for its own interests, of another party of equal bargaining power and competence. Yet that appears to have been, in practical effect, the character of the obligation said to have rested upon Miller in this case. (Footnotes omitted.) 32 Against this array of considerations, I consider it is of particular significance in the context of this application that, near the outset of Miller their Honours emphasised the necessity for clarity when pleading an allegation that silence constitutes misleading or deceptive conduct as follows (at [5]): The cause of action for contravention of statutory prohibitions against conduct in trade or commerce that is misleading or deceptive or is likely to mislead or deceive has become a staple of civil litigation in Australian courts at all levels . Its frequent invocation, in cases to which it is applicable, reflects its simplicity relative to the torts of negligence, deceit and passing off. Its pleading, however, requires consideration of the words of the relevant statute and their judicial exposition since the cause of action first entered Australian law in 1974. It requires a clear identification of the conduct said to be misleading or deceptive. Where silence or non-disclosure is relied upon, the pleading should identify whether it is alleged of itself to be, in the circumstances of the case, misleading or deceptive conduct or whether it is an element of conduct, including other acts or omissions, said to be misleading or deceptive. (Emphasis added.) 33 It is not entirely clear from the Sherwood applicants' proposed amendments which of these two situations is alleged: whether it was the CBA's silence itself that, in the circumstances of this case, was misleading or deceptive, or whether the CBA's silence was an element which, combined with other acts or omissions, constituted the misleading or deceptive conduct. Thus, while the chapeau to para 104D seems to suggest it was the former, viz the failure to disclose in particular circumstances, the allegations in para 104C that the silence was "calculated and intended" seems to suggest the latter, viz it was an element of the offending conduct. This lack of clarity in the proposed amendments runs contrary to the requirement of clear identification outlined in Miller and the need to concisely plead the proposed amended case, as outlined in [18] above. 34 Moreover, assuming para 104D is intended to plead the former situation, viz the failure to disclose in the particular circumstances gave rise to a reasonable expectation on the part of the Sherwood applicants, the facts pleaded in that paragraph do little, if anything, to define such a case. Subparagraphs (a) and (c) contain details of events that occurred after the alleged non-disclosure by the CBA. While events subsequent to the alleged conduct may be taken into account, the characterisation of the conduct as misleading or deceptive has to be undertaken as at the time it occurred, not subsequently with the benefit of hindsight: see Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242 at 249-250 per Lockhart J and McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230; [2008] FCAFC 2 at [146] and [198] per Allsop J. In this matter, I cannot see how the events pleaded in subparas (a) and (c) could possibly have any bearing on whether the CBA's earlier silence about the financial crisis risk considerations was misleading or deceptive. 35 Subparagraph (b) alleges that the Sherwood applicants entered into the arrangements described in subpara (a) essentially because they were advised by Storm to do so. The link with the CBA appears to be contained in subpara (b)(iii) where it is alleged: Specifically, Storm's advice, recommendations and encouragement were based on a belief on the part of Storm, induced by CBA's said letter of 18 May 2007 to Storm, that CBA would look after the interests of such persons; 36 The particulars of subpara (b) are as follows: Particulars of, and evidence relied upon to make out, the allegations in subparagraph (b) The matters pleaded in subparagraph (b) are to be inferred from the following matters; namely:- A. the conduct of Storm, following the receipt by Storm of the said letter dated 18 May 2007, set out in the particulars to subparagraph 104C(b) hereof; and B. the conduct of the Applicants and Group Members in entering into margin lending arrangements (or, as the case may be, fresh margin lending arrangements) with CBA following the receipt by Storm of the said letter dated 18 May 2007, and in the context of Storm's advice, recommendations and encouragement to do so. 37 Even if these particulars are to be construed as an allegation that Storm's belief that "the CBA would look after the interests of [the Sherwood applicants]" was reasonably engendered in Storm by the CBA's conduct, nowhere is it alleged that the Sherwood applicants themselves held this belief or expectation. To the contrary, the Sherwood applicants' belief is pleaded in subpara (b)(i) as "it [being] financially prudent to do so", viz enter into the margin lending arrangements described in (a). 38 The matters pleaded in the other subparagraphs of 104D are similarly inapt. The allegations contained in subparas (d) and (e) describe matters the CBA believed, rather than any beliefs or reasonable expectations held by the Sherwood applicants as a result of the CBA's conduct. Subparagraphs (f) to (h) describe how the financial crisis risks were to be dealt with, rather than describing the circumstances which lead to a belief or a reasonable expectation on the part of the Sherwood applicants that the CBA would disclose those risks. It is therefore apparent that para 104D does not describe the circumstances surrounding the silence, or non-disclosure, on the part of the CBA that gave rise to any reasonable expectation on the part of the Sherwood applicants. 39 For these reasons, I do not consider that para 104D pleads the necessary material facts to support either a case of silence circumstantially constituting misleading or deceptive conduct, or a case where the silence was an element of the misleading or deceptive conduct. In either event, para 104D does not comprise the kind of clear and concise pleading that is called for in a situation where the Sherwood applicants are attempting to make amendments to their statement of claim so close to the trial of these proceedings. Accordingly, I did not allow para 104D of the proposed amendments. 40 While paras 104C and 104D were fundamental to the proposed misleading or deceptive conduct claim that was pleaded in paras 104A to 104E, since one or more of the other paragraphs may have arguably had some utility by themselves, I allowed the Sherwood applicants time to consider whether they wished to rely upon the amendments proposed by those paragraphs, independently of paras 104C and 104D. I was subsequently informed that they did not wish to do so. As a consequence, the whole of paras 104A to 104E were then disallowed.

The proposed unconscionable conduct amendments 41 The second issue that arose in this application (see at [21] above) was the proposed unconscionable conduct amendments. As with the proposed misleading or deceptive conduct amendments, they involved a series of interconnected paragraphs. Those paragraphs were broadly structured as follows: (a) subparas 151(q)-(s); 158(cA); 158(cB) and 159A described conduct on the part of the CBA which is referred to as "the LVR conduct". In broad terms, that conduct involved the CBA agreeing to an LSR ratio of 80% with a buffer of 10% for the Sherwood applicants' margin loans in circumstances where the CBA recognised there was a higher risk of default occurring; (b) paras 159B-167 pleaded various matters related to the margin loan agreements entered into between the Sherwood applicants and the CBA; and (c) paras 169A-169D described the unconscionable conduct that was said to arise from the LVR conduct. 42 Since the latter paragraphs were crucial to the proposed unconscionable conduct amendments, it is appropriate to set them out in full. They are as follows: 169A. The LVR Conduct (a) occurred in circumstances where CBA's bargaining position was relatively stronger than that of the Applicants; (b) involved the use of unfair tactics against Applicants by CBA; (c) constituted conduct on the part of CBA towards the Applicants which was: (i) unique to CBA's dealings involved Storm; and (ii) entirely inconsistent with CBA's conduct in similar transactions between CBA and other recipients of advances pursuant to margin lending arrangements; (d) constituted an unreasonable failure on the part of CFA [sic] to disclose to the Applicants: (i) intended conduct of CBA which might affect the interests of the Applicants; and (ii) risks to the Applicants arising from the intended conduct of CFA [sic], being risks which CBA should have foreseen would not be apparent to the Applicants; (e) occurred in circumstances where CBA was not willing to negotiate the terms and conditions of the contracts with the individual Applicants in respect of margin lending arrangements; (f) conferred on CBA a contractual right unilaterally to vary a term or condition of a contract between CBA and the individual Applicants in respect of margin lending arrangements; and (g) occurred in circumstances where CBA was acting otherwise than in good faith. 109B. In the premises pleaded and particularised in the following paragraphs, the LVR Conduct was unconscionable within the meaning of: (a) sections 12CB and 12CC of the ASIC Act; or (b) alternatively, sections 51AB and 51AC of the TPA; namely:- (i) Paragraph 104A (ii) Paragraph 104b [sic] (iii) Paragraph 104C (iv) Paragraph 104D (v) Paragraph 104E (vi) Subparagraphs 151(r) and (s) (vii) Subparagraphs 158(cA) and 158(cB) (viii) Paragraph 159A; and (ix) Paragraph 169A 169C. Further or alternatively to paragraph 169B, in the premises pleaded and particularised in the following paragraphs, the LVR Conduct constituted a pattern of conduct or system of behaviour, adopted by CBA in relation to the Applicants and other clients of Storm, which was unconscionable within the meaning of: (a) sections 12CB and 12CC of the ASIC Act; or (b) alternatively, sections 51AB and 51AC of the TPA; namely:- (i) Paragraph 104A (ii) Paragraph 104b [sic] (iii) Paragraph 104C (iv) Paragraph 104D (v) Paragraph 104E (vi) Subparagraphs 151(r) and (s) (vii) Subparagraphs 158(cA) and 158(cB) (viii) Paragraph 159A; and (ix) Paragraph 169A 43 Mr Finch's submissions centred on para 169A. He submitted that paragraph contained a number of allegations that were so general and unparticularised as to be embarrassing, or it contained allegations that raised such wide areas of factual dispute, without giving proper particulars thereof, that they were oppressive. Having carefully examined that paragraph and Mr Finch's objections, I considered those that are set out hereunder were all valid objections for the reasons stated. In reaching these conclusions, I took into account the circumstances in which the proposed amendments were advanced, as outlined in paras [17]-[18] above. In particular, I had regard to the unfairness that was likely to be caused to the CBA by allowing the Sherwood applicants to introduce such general and unparticularised allegations at this very late stage of these proceedings. I also took into account the delays and inefficiencies that were likely to be caused if such general and unparticularised allegations were to be agitated at the trial of these proceedings. 44 The paragraphs concerned and the objections made by Mr Finch which I considered were valid are as follows: Paragraph number Part objected to Grounds of objection 169A(b) "unfair tactics against the Applicants by CBA" What precisely those tactics were and why they were unfair is not disclosed. 169A(c) (i) "unique to CBA's dealings involving Storm; and (a) the pleading raises an enormous scope for factual investigation and disputation. It potentially raises for consideration the circumstances of every other recipient of "advances pursuant to a margin lending arrangement by the CBA" over an unlimited period and requires CBA's conduct in these circumstances to be examined for the purposes of ascertaining whether it was consistent or inconsistent with CBA's alleged conduct "towards the Applicants"; (ii) entirely inconsistent with CBA's conduct in similar transactions between CBA and other recipients of advances pursuant to margin lending arrangements" (b) the precise respects in which CBA's conduct "towards the Applicants" was "entirely inconsistent" with CBA's conduct in "similar transactions" with "other recipients of advances pursuant to margin lending arrangements" is left totally vague by the pleading . (c) the particulars to paragraph 169A(c) do not provide any assistance in this connection. They merely refer to the "entire content and context" of six internal CBA documents without giving any clue as to how the content of that document discloses or evidences the inconsistency alleged and what "context" of the document is relied on and how that evidences the inconsistency alleged; 169A(d) "intended conduct" What that "intended conduct" was, how it "might affect their interests", what risks to the applicants arising from that conduct there were and why it should have been foreseen by CBA is not disclosed in the paragraph. The particulars do not assist, because they merely refer back to earlier paragraphs in the pleading. 169A(e) "not willing to negotiate" No facts disclosing any attempt by any of the individual applicants to negotiate their "margin lending arrangements" with CBA which CBA rebuffed have been pleaded. The particulars again refer only to the "entire content and context" of six internal CBA documents leaving CBA to guess as to how the documents disclose this unwillingness on the part of CBA, what part is relied on to show this and what the relevant "context" of the document is and how that is relied on to make out the allegation. 169A(f) "a contractual right unilaterally to vary a term or condition of a contract" The term and condition is identified in the particulars as the "Ultimate Mitigant" … on the applicants own pleading, the "Ultimate Mitigant" was a pre-existing term in their margin loan contract with CBA ... The "LVR Conduct" simply did not confer it on CBA. 169A(g) "otherwise than in good faith" How and why CBA was acting in bad faith is not disclosed. CBA is left to guess. Again, the particulars do not assist because they merely refer back to allegations in a number of earlier paragraphs in the proposed amendments.

45 Two of the remaining subparagraphs, viz 169B and 169C, contained other deficiencies. Both relied upon a series of paragraphs that, for the reasons expressed above, I had already decided to disallow, viz paras 104A to 104E (inclusive) and 169A. Since these paragraphs appeared to be relied upon in combination, ie there was no "all or some" qualification expressed in relation to them, those allegations would obviously fall if one or more was disallowed. In fact, for the reasons given above, I expressly rejected the vast majority of them. 46 For these reasons, I disallowed paras 169A to 169C (inclusive). As with paras 104A to 104E above, after I delivered my oral decision I allowed the Sherwood applicants to consider whether any of the other paragraphs in this series of paragraphs had any utility by themselves. I was subsequently informed that they did not, so I also disallowed all of the paragraphs referred to above (at [41]) as well as para 152. 47 The third issue (see at [21] above) involved the proposed amendments to the common issues defined in the originating application. This was capable of being dealt with briefly. Since the proposed new common question relied upon para 159A (see at [20] above) and I had disallowed the proposed amendments to introduce that paragraph, it necessarily followed that the proposed amendments to introduce this new common issue should be disallowed as well. 48 For these reasons, I ultimately disallowed each of the proposed amendments to the Sherwood applicants' misleading or deceptive conduct claim, and their unconscionable conduct claim, and the proposed amendments to their originating application to introduce a new common issue. However, I did allow the unopposed amendments to their contract claim. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves.