Summary
In Marundrury v Commonwealth Bank of Australia (No 2) [2022] FCA 916, a decision from August 2022, Justice Moshinksy accepted submissions made on behalf of the Commonwealth Bank of Australia (CBA) that the claims made against it (1) had no reasonable prospects of success and (2) were manifestly unfair, constituting an abuse of process. CBA’s submissions were based on the operation of s124 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the Act), which renders evidence pertaining to reporting obligations under s41 of the Act inadmissible, and s123 of the Act, which sets out the ‘Offence of Tipping Off’.
The acceptance of these submissions and the decision-making process undertaken by the Judge is significant for banks defending themselves against allegations relating to suspicious activity on customers’ accounts. However, as summary dismissal was not granted and the Applicants were given an opportunity to reframe their case, it remains to be seen how claims of this nature will be litigated.
Facts
The First and Second Applicants were customers of CBA (Customers). The Fourth Applicant was a relative of the Customers. The Third Applicant had been removed from the Proceeding at the time of Justice Moshinsky’s decision.
The Customers alleged that they arranged for money from their Indonesian bank account to be transferred to their CBA accounts. They alleged that, unknown to them, no funds were transferred directly into their CBA account. Instead, funds equivalent to the amounts intended to be transferred were deposited into their CBA accounts in multiple deposits of less than $10,000. This was described by counsel for the Applicants as ‘cuckoo-smurfing’, a method of money laundering used to make money generated by criminal activities appear to have come from a legitimate source.
The Applicants alleged that CBA breached its contractual and other duties to comply with the Act, including failing to report suspicious activity on the Customers’ accounts pursuant to s41 of the Act, resulting in loss and damage.
November 2021 judgment and decision of the AUSTRAC CEO
CBA filed an application in May 2021 seeking summary dismissal of the Applicants’ claim or that their Amended Statement of Claim (ASOC) be struck out. CBA made two broad contentions:
- the Applicants had no reasonable prospects of establishing a breach of s41 of the Act as a result of the operation of s124 of the Act, which rendered evidence pertaining to reporting obligations under s41 inadmissible; and
- s123 of the Act, which makes it a criminal offence to disclose that a reporting entity has given, or is required to give a report under s41(2) or to disclose information from which it could reasonably be inferred that such a report has been given or is required to be given, prohibited CBA from properly defending the allegations in respect of s41 such that the case as put was manifestly unfair and constituted an abuse of process.
On 9 November 2021 Justice Moshinsky gave judgment in Marundrury v Commonwealth Bank of Australia [2021] FCA 1379 (November Judgment).
Justice Moshinsky was not satisfied that it was appropriate to summarily dismiss the proceeding having regard to the discretion of the AUSTRAC CEO under s248 of the Act (to modify and/or exempt compliance with obligations under the Act) which could potentially address CBA’s contentions. Therefore, Justice Moshinsky allowed approximately four months for the parties to explore whether the AUSTRAC CEO would exercise that discretion.
On 21 December 2021, CBA’s solicitors wrote to AUSTRAC seeking an exemption and modification of ss123 and 124 of the Act.
In February 2022, AUSTRAC sought submissions from CBA and the Applicants on whether the discretion in s248 should be exercised.
In response CBA did not submit that the discretion should be exercised. Rather CBA stated it would abide by AUSTRAC’s decision. The Applicants supported the exercise of the discretion.
On 24 March 2022, the Deputy CEO of AUSTRAC (as delegate for the AUSTRAC CEO) decided not to modify s124 of the Act, and in light of this, that it was unnecessary to determine the proposed exemption from s123.
In their reasons for their decision the AUSTRAC Deputy CEO stated:
- ‘…I am not satisfied that the risk associated with the proposed modification is low or that it is appropriate in all the circumstances to modify section 124 as proposed.’
- ‘As the Proceedings are for the purpose of one party obtaining a private remedy from the other party, they neither relate to, nor assist in giving effect to, (the Act). Therefore, modifying section 124 will not advance the objects or purpose of (the Act), or the AUSTRAC CEO’s function.‘
- ‘Reporting entities may modify their reporting behaviour if they believe that AUSTRAC may permit the disclosure of SMR (Suspicious Matter Reporting) material in future legal proceedings. This is likely to result in a reduction in the quality of SMR information received, adversely affecting the quality of AUSTRAC’s intelligence holdings and intelligence products.’
August 2022 judgment
In light of the AUSTRAC Deputy CEO’s decision, Justice Moshinsky proceeded to determine CBA’s application for summary dismissal or alternatively, that the ASOC be struck out.
CBA submitted that s123 prohibited CBA from disclosing to the Applicants or their legal representatives or the Court:
- that CBA had given or was required to give a report under s41(2) of the Act (s123(1)(a) of the Act); or
- any information from which it could reasonably be inferred that CBA had given or was required to give a report under s41(2) of the Act (s123(1)(b) of the Act)).
Breach of s123(1)(a) or (b) is a criminal offence under s123(11) of the Act. CBA submitted that the effect of s123 was that CBA was prevented from denying the allegation that it failed to form a relevant suspicion and file a report as required by s41 of the Act as denial would amount to a disclosure prohibited by s123(1). CBA submitted it was ‘cornered’ into either admitting the allegations or risking criminal prosecution if it defended itself properly (if a denial were available).
In response the Applicants submitted that if CBA did provide a suspicious matter report, CBA could state in its defence that it ‘cannot plead’ to the allegation. Justice Moshinsky said this was not a solution ‘because there would be a risk that this type of pleading would contravene s123(1)(b) on the basis that it was information from which it could reasonably be inferred that (CBA) had given a report under s41(2) of the Act’ (62).
The Applicants also submitted that CBA deliberately did not press for an exemption or modification from AUSTRAC therefore CBA should not be able claim prejudice as a result.
Justice Moshinsky did not accept this and stated, ‘I consider that it was acceptable for (CBA) to adopt the approach that it did, namely to abide by the decision of the AUSTRAC CEO’ (63).
Justice Moshinsky found that the Applicants had no reasonable prospect of successfully prosecuting the Proceeding based on either the ASOC or their proposed further amended pleading (Further ASOC) and said:
- the Applicants’ claims were largely based on alleged breaches of s41 of the Act (58);
- in these circumstances, s124 of the Act presented a ‘substantial obstacle’ to the Applicants being able to successfully prosecute the proceeding. Establishing that CBA breached its reporting obligations under s41(2) of the Act is central to the Applicants’ case, but s124(1)(b) had the effect that evidence is not admissible to prove that contention (59); and
- at the time of the November 2021 Judgment, there was a possibility that the difficulties could be overcome via the discretion in s248 of the Act. However, the AUSTRAC Deputy CEO decided not to exercise that discretion (60).
Importantly for banks, Justice Moshinsky went on to note in obiter: ‘Although it is not necessary to consider (CBA’s) submissions based on s123 of the (Act), had it been necessary to do so, I would have accepted those submissions. In circumstances where the (A)pplicants’ claims…are largely based on alleged breaches of s41 of the Act, and s123 prevents (CBA) from disclosing (if that be the case) that it complied with its reporting obligations under that provision, (CBA) is placed in a manifestly unfair position and the Proceeding as framed in the ASOC (and the Further ASOC) constitutes an abuse of process’ (62).
Justice Moshinsky refused leave to file the Further ASOC. However, despite accepting CBA’s submissions, Justice Moshinsky did not grant summary dismissal. Rather, Justice Moshinsky gave the Applicants ‘one more opportunity’ to attempt to plead a case that does not rely on alleged breaches of s41 of the Act (65).
CBA was awarded costs on a party-party basis.
Given Justice Moshinksy’s emphasis on the fact that the pleadings expressly relied on breaches of s41, and the fact that he gave the Applicants another opportunity to frame their case, it appears Justice Moshinsky felt the problem CBA was facing could be dealt with by restructuring the Applicants’ case. However, even if the pleading is amended, if the same underlying conduct remains in issue, it seems likely the Applicants’ will face similar problems with evidence (as a result of s124) and importantly for banks, s123 will continue to inhibit CBA in its defence.
Takeaway
This case clearly enlivened the relevant provisions of the Act, including s123 of the Act, as a result of the Applicants expressly relying upon an alleged breach of s41 of the Act by CBA.
The Judge emphasised that the Applicants had framed their case in this way in accepting CBA’s submissions.
The decision is useful to banks as it establishes that:
- courts will likely take into account whether an exemption from the AUSTRAC CEO is available before determining whether a proceeding of this nature can continue;
- s124 is likely to mean that that a party alleging a breach of s41 has no reasonable prospects of success; and
- s123 is likely to render a claim based on an alleged breach of s41 of the Act an abuse of process.
However, what it is unknown is the impact of s124 and significantly for banks, s123, in cases where s41 is not expressly pleaded, but nonetheless the underlying facts on which the bank needs to rely to properly defend itself could be information from which it could ‘reasonably be inferred’ that a report under s41(2) of the Act has been made.
With the increased amount of scams and fraud impacting banks and their customers, we will follow developments in this area of law carefully and will be sure to publish further articles and case notes of interest.
This article was written by Simon Crawford, Partner and Jessica Cullin, Senior Associate.
