Maurice Blackburn scores partial win in CBA appeal

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Background

In 2012, the Commonwealth Bank of Australia (the Bank) rolled out ‘intelligent deposit machines’ which allowed customers to anonymously deposit cash or cheques with funds instantly credited to the nominated recipient account. This gave rise to several regulatory issues regarding the Bank’s compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). In particular:

• Late TTRs: the Bank was required to submit a threshold transaction report (TTR) to AUSTRAC for each transaction with a cash component of not less than $10,000. Due to a coding error, over 50,000 TTRs were not reported;
• Risk Assessment: the Bank did not carry out an assessment of the risks associated with the machines before the roll out; and
• Account Monitoring: the Bank failed to conduct account-level monitoring on almost 780,000 employee related accounts.

On 3 August 2017, AUSTRAC announced that it had commenced civil penalty proceedings against the Bank for serious and systemic non-compliance in relation to the above issues. Following that announcement, the Bank’s share price fell by 5.4%.  Ultimately the Bank admitted certain contraventions and in June 2018, a $700 million penalty was imposed.

The proceedings 

In October 2017, two shareholder class actions were brought, one commenced by Zonia Holdings Pty Ltd, and the other by Philip Baron and Joanne Baron. The two proceedings were not consolidated but were case managed together. 

In both proceedings, shareholders alleged that the Bank contravened its continuous disclosure obligations under s 647 of the Corporations Act 2001 (Cth) and rule 3.1 of the Australian Securities Exchange Listing, by not disclosing material information to the market (thereby artificially inflating its share price).

Decision at first instance

Justice Yates dismissed the proceedings on the basis that:

1. the Bank was not aware of all the information pleaded and therefore the case failed before one even considered the ‘materiality’ of the pleaded information;

2. there was no breach of continuous disclosure laws; the information was not information that would have a material effect on the price or value of the Bank’s shares; and

3. in any event, the shareholders did not establish loss resulting from the alleged non-disclosures as they did not prove that the market price of the shares was inflated or that they suffered any detriment.

His Honour clarified the previous Full Court decision Crowley v Worley Ltd (2022) 293 FCR 438; [2022] FCAFC 33 (Worley), as to when a company is ‘aware’ of information, stating (at [444]) that the correct starting point is:

..the fact or facts known to the relevant person, or the facts on which a relevant person ought to have formed an opinion or drawn an inference from other known facts’.  

The shareholders contended that constructive awareness of the Bank could be established because:

• the contraventions had in fact occurred by the commencement of the relevant period;
• the contraventions were discoverable through reasonable diligence; and
• once discovered, the information ought to have been escalated to the officer level.

His Honour held however, that the principle in Worley was not engaged, unless the information in question existed in a form that was ‘fixed and comprehensible as a matter of ordinary perception’ (at [396]).  It was not sufficient that the information could have been derived or inferred from data stored in a database; rather, the information must have existed in a collated or reportable form or have been subjectively known by a relevant officer, without the benefit of hindsight.

Yates J found that the Bank was not aware of the entirety of the information pleaded (which the shareholders claimed ought to have been disclosed), though it was constructively aware of some of it, and the pleaded information was not material to investors.  His Honour held (at [1030]):

More generally, I am not satisfied that the Information, in any of its pleaded forms, was information that a reasonable person would expect, if the information were generally available at the relevantly pleaded times, to have a material effect on the price or value of CBA shares.

His Honour held that even if the shareholders had established the alleged contraventions by the Bank, they had failed to establish that those contraventions inflated the share price.

Full Court appeal

The Full Court (Justices Murphy, Moshinsky and Button) partly overturned the decision of Yates J and found that the Bank had contravened its continuous disclosure obligations.  However, the court ultimately dismissed the appeal, as the appellants failed to establish loss.  

The Full Court upheld Yates J’s position on awareness and held that (at [285]) that the Worley principle:

‘does not extend the notion of “awareness” to an awareness of unknown facts that are merely capable of discovery through a process of further investigation into their existence, still less to facts that are capable of discovery with the benefit of hindsight’   

The Full Court noted (at [275]) that:

The continuous disclosure regime does not impose a wide-ranging obligation on listed entities to scrutinise their data just because if they did so, and drew out certain data, someone could then derive a market-sensitive piece of information from that data. 

In many circumstances such an obligation would be all but impossible to fulfill (including having regard to the obligation to disclose market sensitive information “immediately”). It would also tend to support the imposition of continuous disclosure obligations by retrospective, post hoc analysis because the potential to extract data and then make calculations or draw inferences from it would often only be apparent with hindsight, once a particular issue has emerged.

The Full Court did however reject Yates J’s finding that the information known to the Bank was not material. The Full Court disagreed with Yates J’s narrow focus on financial performance, as the test for materiality and found that his Honour had improperly discounted the seriousness of the breaches and the regulatory risk they posed. Their Honours observed (at [517]) that a ‘reasonable investor would infer that the failure deprived Australian law enforcement, including AUSTRAC, of significant amounts of intelligence, and that AUSTRAC was likely to take this seriously’ and that the regulatory, financial and reputational consequences could be significant. 

Their Honours held that Yates J erred in failing to conclude that the scale of the contraventions and the magnitude of the failures were highly relevant in considering materiality and in not finding that the information known to the Bank was material.

As such, the Full Court found that the Bank had breached its continuous disclosure obligations.

Causation and loss

Despite finding that the Bank breached its disclosure obligations, the Full Court held that the appellants failed to establish loss.  In both the decision at first instance and on appeal, the shareholders’ case was based on the ‘economic equivalence’ between the AUSTRAC announcement which triggered the share price drop, and the information which the shareholders allege should have been disclosed.  But the Full Court agreed with Yates J that there was no ‘economic equivalence’ and therefore causation, nor quantifiable loss had been established.

Zonia Holdings Pty Ltd v Commonwealth Bank of Australia Limited [2025] FCAFC 63

Full Court of the Federal Court of Australia | Murphy, Moshinsky and Button JJ | 7 May 2025
Appellants’ Solicitors: Maurice Blackburn and Phi Finney McDonald
Respondent’s Solicitors: Herbert Smith Freehills

AustLII Link

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