Court dismisses longstanding CBA class actions over continuous disclosure

Court dismisses longstanding CBA class actions over continuous disclosure

After more than six years of legal proceedings alleging Australia's largest bank breached listing requirements and misled investors by not revealing its known lack of compliance with anti-money laundering and terrorism financing rules, two class actions against the Commonwealth Bank (ASX: CBA) have been dismissed by a Federal Court. 

The class actions centred around an announcement from Australia's anti-money laundering authority on 3 August 2017 that it had filed proceedings against CBA alleging "serious and systemic non-compliance" with the Anti-Money Laundering and Counter-Terrorism Financing Act.

CBA refuted the allegations, which included non-compliance with the rules in how it monitored hundreds of thousands of transactions over three years, failed to provide the regulator with more than 50,000 reports on transactions of $10,000 made through intelligent deposit machines.

The revelation of these proceedings from the the Australian Transaction Reports and Analysis Centre (AUSTRAC) forced CBA to make its own announcement, and its shares fell by 5.4 per cent to $80.11 between 4-7 August of that year.

Eventually CBA agreed to pay $700 million in civil penalties to the regulator over the matter.

According to Justice David Yates from the Federal Court of NSW, whilst the class actions dismissed today concern events and circumstances that, in part, gave rise to the civil penalty proceeding, they involve "markedly different questions of legal liability".

The class actions, filed separately by Maurice Blackburn Lawyers in October 2017 and Phi Finney McDonald in July 2018 before a joint litigation approach was approved the following year, were made on behalf of aggrieved shareholders who had purchased CBA shares mid-2014 and the day of the AUSTRAC announcement. 

The applicants alleged CBA breached its obligations of continuous disclosure under the Corporations Act as it was aware or should have been aware of the regulator's non-compliance concerns much earlier.

"They allege, further, that, had this information (or a combination of it) been disclosed, it would have had a material effect on the market price of CBA shares," Justice Yates said in the judgment.

"Relatedly, the applicants allege that, throughout the relevant period, the bank engaged in misleading or deceptive conduct on a continuous basis by publishing, and failing to correct or modify, various representations."

The applicants contended that the bank misrepresented itself by giving the impression it had effective policies, procedures and systems in place to ensure compliance, when in fact it did not.

They also alleged a defective cleansing notice was issued without the appropriate corrections when the bank made a pro-rata renounceable entitlement offer of new CBA shares in September and October 2015 to raise $5 billion in capital.

"The applicants allege that, because the Bank did not comply with its continuous disclosure obligations as it should have done, or because the Bank engaged in misleading or deceptive conduct, or because the Bank issued and did not correct the allegedly defective cleansing notice, CBA shares traded on the ASX at an artificially inflated price," Justice Yates said.

"They contend that they acquired CBA shares in that inflated market and, as a consequence, paid too much for them. They seek to recover, by way of damages, the amount of that inflation or an amount referable to that inflation."

The judge said he was satisfied that CBA was aware of some of the non-compliance information that the class action relates to, but found "a number of deficiencies in the pleaded expression" of some information.

"Those deficiencies are such that I am not satisfied that r 3.1 of the ASX Listing Rules required the Bank to disclose that information to the ASX in any of its pleaded forms," he said.

This section is in reference to the rule dictating a listed company must immediately tell the market operator of information "that a reasonable person would expect to have a material effect on the price or value" of securities, provided that disclosure does not breach the law, is not incomplete, or relates to matters of supposition or is insufficiently definite to warrant disclosure.

"Furthermore, and in any event, I am not satisfied that the information, in any of its pleaded forms, was information that, if disclosed at the relevantly pleaded times, would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of CBA shares. "

The judge said these conclusions meant the litigators have not established that CBA contravened the Corporations Act, and the same goes in relation to allegations of misrepresentations.

"Even if the applicants had established their various allegations of statutory contravention by the bank, I would not have found that they had established their case on the causation of loss arising from those contraventions, or the quantification of that loss.

"It follows that the proceedings will be dismissed."

A spokesperson for Maurice Blackburn said the "legal team will take time to consider the decision carefully, with a view to an appeal".

Omni Bridgeway (ASX: OBL), formerly known as IMF Bentham and the funder of Maurice Blackburn's class action against the bank, said in an announcement that there was no cash impact from any adverse costs arising from the judgment which are subject to the portfolio adverse costs insurance policy carried by the funds concerned.

The $7.5 million deductible under the policy has previously been paid.

The funds it represented invested $9.6 million in CBA and sold a 20 per cent interest in June 2022 for $7.5 million, resulting in a $2.1 net cash loss from the investment.

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