Commonwealth Bank of Australia v Kojic  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 case was an appeal from the earlier decision (Kojic v Commonwealth Bank of Australia  FCA 368) when the Court determined the bank’s conduct unconscionable due to the combined knowledge of employees engaged in separate but related transactions.
The case is important in terms of determining the accountability of a corporation through the collective knowledge of its officers, although this knowledge may not be shared between the employees.
Mr and Mrs Kojic and Mr Blanusa, through the corporate entity Southern Construction Services Pty Ltd (SCS), 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 for Mr and Mrs Kojic who had banked with CBA for several years.
Mr Barnden was the relationship manager for Mr Blanusa who, at the relevant time, had approached CBA seeking the refinance of several loans.
In October 2008 SCS had entered a contract to purchase property in Adelaide for a commercial development and it was intended that part of the refinance would go towards its purchase.
Mr Barnden assisted Mr Blanusa in securing a facility for $2,796,297 to refinance various business and personal loans. An amount of $480,000 was available from the loan to purchase the Adelaide property, which was about half of the total required.
As Mr Blanusa was unable to raise all funds required to complete the purchase of the property he 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. Mr Coombe arranged a bank cheque for settlement.
Enquiries were made with respect to having Mr and Mrs Kojic’s 50% interest in the property noted on title. This however would require changes to the security structure as well as them giving personal guarantees. As completion was imminent, it was determined to proceed to settlement using the existing arrangements with the intention that the Kojics would register their interest in the property sometime afterwards.
The 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.
Mr Blanusa’s full loan facility was secured by a first registered mortgage over the entire holding of the Adelaide property.
In March 2011, after the collapse of SCS, CBA took possession of and sold the Adelaide 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 to the debt.
The Kojics sued CBA on the basis that, through the collective knowledge of its two employees (Coombe and Barnden), the bank ‘knew of the nature of the transaction leading to the settlement’. The Kojics were advancing a significant sum for an interest in property that would not be registered. Consequently, the Kojics were an unsecured lender to their detriment but to CBA’s betterment of its security over the entire property.
It was argued that CBA breached its fiduciary duty to its customers and acted unconscionably. Had the employees turned their mind to the entirety of the transaction and exchanged their combined knowledge, the transaction would not have proceeded.
‘…CBA took its mortgage over the property at settlement, other than as an acquirer in good faith for value and without notice of any “prior equitable interest” of the Kojics as half owners. The CBA therefore held that half interest under a resulting or constructive trust for the Kojics, and breached that trust by applying all the proceeds of sale of the property in discharge of the indebtedness of the Blanusa interests.’
The Kojics were successful in the first instance – the Court considered it ‘against good conscience’ for the bank to accept the Kojic’s settlement funds in circumstances where their interest would not be registered.
The bank appealed and the decision was overturned on the basis that:
This case is important in examining the scope for aggregation of knowledge within financial and other corporations. In the absence of unconscionable conduct on the part of an employee, a Court will not readily aggregate the knowledge of a company’s officers in finding culpability on the part of the corporation.
Corporations should be clear when determining the role employees take in dealing with customers. Whilst routine transactional matters are likely to require less scrutiny, acting in an advisory capacity may warrant extensive enquiry and investigation.
Each matter will turn on its own facts and in consideration of the sophistication of the customer and the instructions provided to the employee. Companies should ensure that policies are in place so employees recognise the potential implications of aggregated knowledge and understand the extent of enquiries that may be required for each transaction.
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