Commonwealth Bank of Australia v Kojic [2016] FCAFC 186 considered whether the conduct of two bank employees could be ‘aggregated’ to bring a finding of unconscionable conduct on the part of the bank under the (previous) Trade Practices Act 1974.
The facts
Mr and Mrs Kojic and Mr Blanusa were customers of Commonwealth Bank of Australia (CBA). The Kojics and Mr Blanusa had been acquainted for several years, having been involved in many property ventures together.
Mr Coombe was the relationship manager at CBA for Mr and Mrs Kojic.
Mr Barnden was the relationship manager at CBA for Mr Blanusa.
In October 2008, Southern Construction Services Pty Ltd (SCS), a corporation associated with Mr Blanusa, had entered a contract to purchase property in Adelaide. CBA agreed to provide a portion of the funds via a refinance of SCS’s existing facilities and on the basis that it would take a mortgage over the property. The mortgage was an “all monies” mortgage that secured other facilities that CBA had granted to SCS.
As SCS was unable to raise all funds required to complete the purchase of the property, Mr Blanusa approached the Kojics who agreed to contribute $436,161.97 for a one-half share.
The Kojics informed Mr Coombe that they would be investing in the property and would require access to their funds to complete the purchase. They did not request, nor were they provided with, any advice regarding the proposed investment. They simply requested the funds be made available for the investment and Mr Coombe therefore arranged a bank cheque for settlement. As a result of the urgency of settlement, the Kojics 50% interest in the property was not registered on title, a fact to which the Kojics consented.
Both CBA employees, Mr Coombes and Mr Barnden, knew of the respective parties’ relationship with the bank and the pending transaction. Neither however discussed the transaction with the other.
In March 2011, after the collapse of SCS, CBA took possession of and sold the property in exercise of its rights as mortgagee. The result of foreclosure was that the entire proceeds of sale of the property ($975,000 less costs) were applied in satisfaction of SCS’ debts.
The claim
The Kojics sued CBA on the basis that, through the collective knowledge of its two employees (Coombe and Barnden), the bank had engaged in conduct that was, in all the circumstances, unconscionable and contrary therefore to the provisions of ss 51AB and 51AC of the Trade Practices Act 1974 (Cth).
The decision
The Kojics were successful in the first instance – the Court finding that, when the knowledge of the 2 employees was aggregated, CBA’s conduct was unconscionable; this despite the fact that neither employee, when their actions were viewed individually, had acted unconscionably.
CBA appealed and the decision was overturned, primarily on the basis that the knowledge of the 2 employees should not have been aggregated and attributed to CBA.
Justice Edelman examined the rules of corporate attribution (attributing the knowledge of a corporations’ officers and employees to that corporation), finding that:
· There is no general doctrine in Australia that permits attribution to a corporation of an aggregate of the knowledge of various different agents;
· To accept such a doctrine would impose upon corporations a requirement to speak with each and every employee and former employee to ensure that no-one possesses any knowledge of any wrongdoing.
Conclusion
This case is important in examining the scope for aggregation of knowledge within financial and other corporations.
The attribution of knowledge of officers and employees is of particular relevance in the context of mergers and acquisitions where it is usual for vendor corporations to provide certain warranties and representations in share sale and purchase agreements, and to qualify those warranties and representations by reference to the phrase ‘to the best of the vendor’s knowledge’, or `so far as the vendor is aware’.
Without specifically identifying particular individuals (or categories of individuals) whose knowledge will be taken into account in assessing whether the vendor corporation has “knowledge” of or “is aware” of particular facts or circumstances, the assessment of whether the vendor corporation had the relevant knowledge is far from precise.
By specifically identifying individuals whose knowledge will be taken into account in assessing whether the vendor corporation has “knowledge” of or “is aware” of particular facts or circumstances. the parties contractually agree whose knowledge will be attributed to the corporation. This provides a reasonable degree of certainty in commercial transactions.