Human Appeal International Australia v Beyond Bank Australia Limited

[2023] NSWSC 382

Supreme Court

New South Wales

Medium Neutral Citation:

Human Appeal International Australia v Beyond Bank Australia Limited [2023] NSWSC 382

Hearing dates:

23 February 2023

Date of orders:

18 April 2023

Decision date:

18 April 2023

Jurisdiction:

Equity

Before:

Slattery J

Decision:

Proceedings not dismissed. Plaintiff granted leave to file Statement of Claim. Directions made for the further conduct of the proceedings. Parties invited to bear their own costs of the applications.

Catchwords:

CIVIL PROCEDURE – Pleadings – striking out – no reasonable cause of action – Uniform Civil Procedure Rules 2005, rr 12.7 and 13.4 – the plaintiff is a customer of the defendant bank – the plaintiff is a charity – the defendant is a community bank and an authorised deposit taking institution – in August 2021 the defendant gave notice of termination of the plaintiff’s banking facilities with the defendant – the plaintiff obtained interlocutory injunctive relief to allow it to maintain banking facilities with the defendant – procedural delays occurred – the defendant brought a motion to strike out the proceedings for want of due dispatch and because the current pleading is said to not disclose a maintainable cause of action – the plaintiff now seeks to file an amended statement of claim – the defendant says the amended statement of claim also does not disclose a maintainable cause of action – whether the proceedings could be struck out for want of dispatch – whether the plaintiff should be permitted to file the amended statement of claim – if the proceedings are not to be struck out, what further procedural directions should be made to bring the proceedings to an expeditious conclusion.

Legislation Cited:

Anti-Money Laundering and Counterterrorism Financing Act 2006 (Cth)

Australian Securities and Investment Commission Act 2001, s 12CB

Banking Act1959 (Cth)

Civil Procedure Act2005, ss 56, 57, 58, 59 and 60

Corporations Act 2001, s 912A

Uniform Civil Procedure Rules2005, rr 12.7, 13.4

Cases Cited:

A & N Holding NSW Pty Ltd v Andel Pty Ltd & Ors [2006] NSWSC 55

Bott v Carter [2012] NSWCA 89

Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd (2019) 373 ALR 591; [2019] NSWCA 87

NA Retail Solutions Pty Ltd v St George Bank [2010] FCA 259

Oliver v Commonwealth Bank of Australia (No. 1) [2011] FCA 1440

Spencer v Commonwealth (2010) 241 CLR 118

Stollznow v Calvert [1980] 2 NSWLR 749

TWT Property Group Pty Ltd v Same (2019) 373 ALR

591

Walker & Anor v VA & Z (No. 2) (2001) 39 ACSR 557

Webster v Lampard (1993) 177 CLR 598.

Whitton v Lombard Australia Limited [1968] 2 NSWR 529

Category:

Procedural rulings

Parties:

Plaintiff: Human Appeal International Australia
Defendant: Beyond Bank Australia Limited

Representation:

Counsel:
Plaintiff/Respondent: F. Corsaro SC
Defendant/Applicant: G.K. Burton SC

Solicitors:
Plaintiff/Respondent: Mr Osman Khanji, Darby Jones Lawyers
Defendant/Applicant: Mr Shane Shankey, Wallmans Lawyers

File Number(s):

2021/266294

Publication restriction:

No

Judgment

1. Each of the plaintiff, Human Appeal International Australia (“Human Appeal”), a charity, and the defendant, Beyond Bank Australia Ltd (“Beyond Bank” or “the Bank”), a customer owned bank, is dedicated to aspects of the public interest. But they are in conflict about the continuation of their banking relationship. Beyond Bank seeks to terminate the banking services it presently provides to Human Appeal, which resists that outcome.

2. This judgment determines two interlocutory contests. Beyond Bank seeks to dismiss these proceedings on the grounds of alleged want of due dispatch under Uniform Civil Procedure Rules2005, r 12.7 (“UCPR”) and on the ground that Human Appeal’s claim for relief does not disclose a maintainable cause of action under UCPR r 13.4(1)(b). Human Appeal denies any lack of diligence in the conduct of the proceedings, resists dismissal and seeks to file an Amended Statement of Claim.

3. These issues were argued between experienced senior counsel for each of Beyond Bank and Human Appeal on the afternoon of 23 February 2023. Mr F Corsaro SC appeared for Human Appeal instructed by Darby Jones Lawyers. And Mr G Burton SC, instructed by Wallmans Lawyers appeared for Beyond Bank.

4. The present contest is the latest skirmish in proceedings that were commenced in the Equity Division duty list in September 2021. It has now taken more than 18 months to resolve an issue of the termination of a bank account.

Beyond Bank and Human Appeal

5. Human Appeal is registered as a charity with the Australian Charities and Not for Profits Commission. It is an endorsed tax deductible, public benevolent institution. Its objects are to improve and relieve the effects of poverty and social injustice. It performs a wide range of charitable works both within Australia and overseas in developing countries. Its Australian charitable work has included drought relief, bushfire disaster relief, help for the elderly during the COVID-19 pandemic and educational assistance to high achievers at Muslim schools.

6. Human Appeal had 24 full-time employees, 6 part-time employees and 1 casual employee at the time proceedings were commenced. It receives and holds funds from donors and from campaign fundraising drives in two transaction accounts with Beyond Bank, which are the subject of the proceedings (referred to collectively in these reasons as “the accounts”).

7. Beyond Bank is a publicly listed, customer-owned mutual bank, providing personal, business and community banking services (to not-for-profit and community organisations) as well as providing wealth management and financial planning. Beyond Bank is registered with the Australian Prudential Regulation Authority (APRA) as an Authorised Deposit-taking Institution (ADI). Its accountability, transparency, social performance and environmental performance permit it to be rated and certified as a “B Corporation”, by B Lab, a not-for-profit organisation that superintends the “B Corp movement”.

8. Beyond Bank provides fundraising capacity for community organisations through Community Reward Accounts, through which customers can raise and save money for charitable purposes. Beyond Bank also operates the Beyond Bank Foundation, which provides disaster relief for customers affected by bushfire, floods and other natural disasters.

9. During the 2021/22 financial year, Beyond Bank contributed over $630,000.00 through its Community Reward program, raised over $278,000.00 for 16 nominated charities, invested $1,322,446.00 in local communities via the Beyond Bank Foundation and Community Development Investments Program, and earned net profit after tax of $35.5m. Beyond Bank’s earnings are re-invested into its business, supporting investments in services, products and technology and consolidating its capital position, as is further explained below.

10. Human Appeal opened the accounts with the Bank on 9 March 2021 through its nominee account holder, Mr Mohamed Razeen. Human Appeal has generally used the accounts since that time to fund its charitable works, pay for its staff and to meet its day-to-day business operations. By 7 June 2021, Human Appeal and Beyond Bank had agreed on a regime to facilitate cash collections and deposits through the accounts.

11. By 11 August 2021, Human Appeal held about $6.1 million on deposit with Beyond Bank. It claims that it operated its accounts in the ordinary course of its charitable operations and followed the plan agreed in June 2021 with Beyond Bank in relation to its cash deposits.

12. On 11 August 2021, Beyond Bank’s Senior Community Development Manager, Ms Kylie Daniels, emailed Human Appeal informing it that the Bank had decided to exercise rights to close Human Appeal’s banking facilities. Ms Daniels’ email stated that the Bank’s banking business “was not suited to the defendant”. Her email declined to give further reasons, stating somewhat delphically, “I am not in a position to provide further information as to why your banking business is not suited to Beyond Bank”.

13. Human Appeal commenced these proceedings by Summons dated 17 September 2021, seeking declaratory and other relief, including an order that Beyond Bank be restrained from terminating the accounts and that the Bank continue to provide those facilities on the terms set out in Human Appeal’s agreements with the Bank.

14. On 27 September 2021 upon Human Appeal’s undertaking as to damages, orders were made restraining the Bank from terminating Human Appeal’s banking facilities until further order. In September 2021 both sides appeared to contemplate that these orders would only be in place for a few months, whilst Human Appeal arranged alternative facilities. These orders were extended on 29 October 2021. Mr Razeen’s evidence filed on behalf of Human Appeal at the time estimated that it would take 6 to 8 months to arrange new banking facilities.

15. New banking arrangements for Human Appeal are still not in place, long after this estimate has expired. And the interlocutory injunction still operates. Human Appeal still maintains the accounts with Beyond Bank. Its evidence does not yet predict when alternative banking facilities are likely to be found.

A Preliminary Issue – the Cost of Conducting Human Appeal’s Account

16. Beyond Bank’s evidence, through its Chief Risk Officer, Mr Raymond O’Brien established aspects of its financial burden in maintaining Human Appeal’s accounts. The Court accepts that evidence and bases the following findings on it.

17. Beyond Bank is a mutual ADI. But it cannot be described as a wholly “not-for-profit” enterprise. Mutual ADI’s like Beyond Bank must generate profits to meet their working capital requirements and to meet the prudential capital requirements imposed by the Australian Prudential Regulation Authority (APRA) under the Banking Act1959 (Cth). Like other ADIs Beyond Bank must maintain minimum levels of prudential capital up to a mandated percentage of its risk-weighted assets, principally bank loans.

18. Whereas listed banks can use both ordinary share capital and retained earnings to meet prudential capital requirements, only the retained earnings of mutual ADIs, who are mostly customer owned banks, will qualify as prudential capital. Shares owned by members of mutual ADIs are generally redeemable preference shares, which are accounted for as debt and are not counted towards meeting prudential capital requirements.

19. Consequently, unnecessary or excessive costs incurred by a mutual ADI may have an impact on the ability of the mutual ADI to service current and future members due to the immediate effect of these costs on current earnings, and therefore over time retained earnings and levels of prudential capital. This means that mutual ADIs must be vigilant to constrain the costs of providing banking services to members. If one member causes a mutual ADI to incur a disproportionate amount of costs for the same service being provided to all members, then cost pressures may arise in the delivery of banking services to other members.

20. Beyond Bank’s provision of financial services to Human Appeal since 27 September 2021 has attracted a substantially higher burden of costs than it bears for other customers. Human Appeal’s accounts incur a high volume of transactions and include many cash transactions, which can attract greater external regulatory scrutiny. Beyond Bank has a range of obligations under the Anti-Money Laundering and Counterterrorism Financing Act 2006 (Cth) which includes reporting to supervisory authorities on the activities of customers. Since the making of the Court’s interlocutory orders the Bank’s staff have been required to compile management reports on Human Appeal‘s transaction activity to the Chief Risk Officer and the Board, by extracting data from the Bank’s systems and providing commentary on the data.

21. Mr O’Brien estimates that over the past two years some 20 weeks has been occupied by Beyond Bank’s financial crimes team actively reviewing and managing Human Appeal’s accounts. This daily work has diverted resources from other important monitoring activities conducted by Beyond Bank for other customers, including responding to police requests and fraud and scam mitigation work.

22. Mr O’Brien estimates that the internal cost incurred by Beyond Bank up to 20 February 2023 for monitoring Human Appeal’s accounts was $51,200, with a projected yearly cost of continued monitoring of $28,160.

23. These ongoing costs had not been brought to account as part of the interlocutory orders made by the Court. During argument on the motions, on 23 February the Court raised with the parties the need to deal with the issue of the Bank’s costs of maintaining the accounts, if the proceedings were to continue. Human Appeal did not resist an order that it pay into Court within seven days the sum of $51,200. Human Appeal also undertook to pay $7,040 each quarter commencing on 31 March 2023, whilst Beyond Bank was providing banking facilities to Human Appeal pursuant to the Court’s orders. These orders reduced some of Beyond Bank’s burden from the interlocutory regime.

24. Beyond Bank’s Amended Notice of Motion dated 17 February 2023 seeks dismissal of these proceedings for want of dispatch and on the basis that it does not disclose a maintainable cause of action. Each of these matters is dealt with below in turn.

The Bank’s Motion to Dismiss for Want of Dispatch

25. A Procedural Chronology. The chronology relevant to Beyond Bank’s motion for dismissal for want of dispatch under UCPR, r 12.7, is short. In the relevant correspondence Darby Jones Lawyers represents Human Appeal. Wallmans Lawyers represents Beyond Bank.

26. The starting point is Human Appeal’s Summons. Prayer for relief (3) of that Summons sought leave to file a statement of claim within 28 days. Human Appeal did not press prayer for relief (3) at the interlocutory hearing before Rein J.

27. On 11 November 2020 Darby Jones Lawyers wrote on behalf of Human Appeal to Wallmans Lawyers noting that the proceedings had been listed for directions before the Equity Registrar on 15 November 2021 and further noted that “on this occasion the plaintiff expects to progress the matter by way of pleadings”. The email enclosed a form of orders which Human Appeal was seeking to have made by consent. The proposed orders included an order that Human Appeal file a statement of claim by 8 December 2021 and Beyond Bank file a defence by 5 January 2022. It was reasonable to suggest even at this early stage that the issues in the proceedings be pleaded.

28. But these consent orders requiring pleadings were neither pressed nor made. And Human Appeal did not later press for orders for pleadings. Instead, the correspondence and the parties’ attention drifted away from this proposal. The Bank says that it understood from Human Appeal’s early correspondence that pleadings would still be required. But in the normal course pleadings define the evidence and are required before evidence is put on. If that is what Beyond Bank really thought, it is odd that it did not join in making of consent orders for pleadings. Curiously there was no insistence on either side that pleadings be advanced before the evidence was filed.

29. On 24 February 2020 Darby Jones Lawyers re-served affidavits that had been served before the interlocutory hearing, apparently on the basis that this would complete its evidence for a final hearing. On 2 March 2022 Darby Jones Lawyers proposed orders that Beyond Bank serve its evidence by 11 March 2022 and that discovery by categories of documents take place by 18 March 2022. Eventually by consent on 3 March 2022 the parties agreed that Beyond Bank would serve its evidence on 25 March 2022 and would exchange categories for discovery on 8 April 2022.

30. By 19 April 2022 Darby Jones Lawyers perceived that Beyond Bank was in default of the 3 March 2022 orders for the filing of evidence. The contemporaneous evidence suggests that Covid 19 pandemic restrictions were impairing Beyond Bank’s access to documents, causing this delay.

31. On 20 April 2020 Darby Jones Lawyers emailed Wallmans Lawyers confirming that the relief was sought as contained in prayers for relief (1) and (2) of the Summons and declared that “we do not consider it necessary for the matter to proceed by way of pleadings, unless you have a different view for us to consider.” The email then offered a further time for Beyond Bank to file its evidence and raised the question of alternative dispute resolution.

32. Then the parties flipped positions on pleadings. Beyond Bank became a believer. Human Appeal became a sceptic. Wallmans Lawyers emailed Darby Jones Lawyers the same day stating:

“Your summons seeks leave to file a statement of claim. It is not clear why those orders were not pressed at the ex parte hearing on 24 September 2021.

Clearly, it was contemplated at that point that pleadings would be required. Pleadings will assist our client in better understanding the case it is required to meet a trial.”

33. This was unfair. Criticism of Human Appeal for not pressing orders for pleadings, when Beyond Bank had neither encouraged nor offered to consent to such orders in September 2021 is somewhat hollow.

34. Darby Jones Lawyers replied with a request for a two-week adjournment, and disclaiming the need for pleadings:

“At this stage we maintain our position that the matter does not need to proceed by way of pleadings. Given that this issue was brought up at such a late stage prior to today’s listing, we will need further time to consider your position and provide a response setting out our position.”

35. This was surprising. Human Appeal was abandoning its early sensible position that a matter such as this should be pleaded. On 21 April 2020 Darby Jones Lawyers proposed short minutes of order that did not require pleadings.

36. Then consensus emerged. On 3 May 2022 Human Appeal proposed consent orders that the matter proceed by way of pleadings. On 4 May 2022, the Court made those consent orders, requiring Human Appeal to file and serve a Statement of Claim by 7 June 2022. On 7 June 2022 Human Appeal sought an extension of time for filing of this pleading to 15 June 2022, as one of its directors was overseas.

37. On 11 July 2022, Human Appeal sought an extension of time to 15 July 2022 to file its Statement of Claim. Beyond Bank opposed the extension of time and foreshadowed filing a Motion seeking that the proceedings be dismissed for want of due despatch.

38. On 13 July 2022, Human Appeal sent an unsealed copy of a proposed Statement of Claim to Beyond Bank, in a form that was later exhibited to its solicitor’s affidavit of 18 August 2022.

39. And then remarkably on 15 July 2022, Beyond Bank filed a Notice of Motion seeking, inter alia, that the proceedings be dismissed for want of due despatch pursuant to UCPR, r 12.7 and that Human Appeal’s undertaking as to damages be discharged forthwith. Just why it was that Beyond Bank needed to file a motion for dismissal for want of dispatch, when it already had a draft pleading for filing in its hands has not been explained to the Court’s satisfaction.

40. Nothing happened to end this regrettable stand-off for seven months until the Bank amended its motion on 17 February 2023, which was heard on 23 February 2023.

41. The applicable legal principles are well established. Proceedings may be dismissed for want of due dispatch under UCPR, r 12.7. In considering the course to be taken the Court must “decide whether or not on balance justice demands the action should be dismissed”: Whitton v Lombard Australia Limited [1968] 2 NSWR 529; (1968) 88 WN (Pt 1) (NSW) 405, at 412 and Stollznow v Calvert [1980] 2 NSWLR 749 at 751. The passing of the Civil Procedure Act 2005 has widened the matters the Court may take into account in considering whether dismissal should take place in accordance with the dictates of justice: A & N Holding NSW Pty Ltd v Andel Pty Ltd & Ors [2006] NSWSC 55.

42. Analysis. This unfortunate procedural history leaves many unanswered questions. Why did Human Appeal file a summons in September 2021 seeking leave to file a statement of claim and disclaim the need for pleadings six months later? Why did Beyond Bank not actively consent in September 2021 to the pleadings that it suggested were beneficial in April 2022? Why did Beyond Bank file a motion for dismissal when it had a draft Statement of Claim?

35. Neither side holds any procedural high ground here. Both parties should have cooperated and worked out by October – November 2021 that pleadings were the best way to define the issues in this case and then agreed to a simple timetable for pleadings in a spirit of cooperation. Neither side did so. Such want of dispatch has occurred since September 2021 may best be described as a mutual muddle. The circumstances do not warrant dismissal.

Should the Amended Statement of Claim Be Filed or the Proceedings Dismissed

44. Beyond Bank says that the existing proceedings can be dismissed and an Amended Statement of Claim should not be filed because the existing and proposed pleadings do not disclose a reasonable cause of action, warranting dismissal under provisions such as UCPR, r 13.4. Strictly an “amended” Statement of Claim is not required here, because a “Statement of Claim” has not yet been filed, only served. Beyond Bank also submits that the existing interlocutory regime can be dissolved as Human Appeal has not demonstrated a serious question to be tried. The arguments on these matters are best analysed by reference to the two main limbs of Human Appeal’s case: its allegation of a breach of Beyond Bank’s bankers’ obligations upon termination of the accounts and its allegation of a breach of Beyond Bank’s Constitution. These are dealt with briefly in turn below.

45. The applicable legal principles are not in dispute. Exceptional caution is necessary in exercising the power of dismissal where it is apparent that the ultimate outcome of the proceedings will turn upon the resolution of some disputed issue or issues of fact: Webster v Lampard (1993) 177 CLR 598; 116 ALR 545; 67 ALJR 886; [1993] HCA 57. A proceeding does not need to be “hopeless” or “bound to fail” for it to have no reasonable prospects of success under UCPR, r 13.4: Spencer v Commonwealth (2010) 241 CLR 118; 269 ALR 233; 84 ALJR 612; [2010] HCA 28. The passing of the Civil Procedure Act 2005 has arguably made the test under UCPR, r 13.4 less strict than previously: Bott v Carter [2012] NSWCA 89 at [13] - [14].

46. The Allegation of Breach of Banker’s Obligations on Termination. The Statement of Claim pleads that Beyond Bank is bound by several relevant obligations arising in the banker/customer relationship: namely, Corporations Act 2001, s 912A, an obligation not to act unconscionably under Corporations Act 2001 and the Australian Securities and Investment Commission Act 2001 (“ASIC Act”), s 12CB and at general law and obligations arising by reason of the terms of Beyond Bank’s own Product Guide. Both the Bank and Human Appeal acknowledge that the Bank as a customer owned bank should observe the Customer Owned Banking Code of Practice (“COBCOP”).

47. Human Appeal argues that it is well accepted that where a contractual power is given to one party for a purpose but in terms that are wider than are necessary for the protection of its legitimate interests, the exercise of the power may be constrained by implied obligations of reasonableness and good faith: Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd (2019) 373 ALR 591; [2019] NSWCA 87; TWT Property Group Pty Ltd v Same (2019) 373 ALR 591 at 154.

48. Human Appeal argues that the maintenance of various forms of financial accommodation such as those provided by Beyond Bank to Human Appeal give rise to implied terms arising from the bank/customer relationship that the Bank will not terminate the facilities except on reasonable notice, and that the right of termination will not be exercised unconscionably or contrary to good faith: see for example cases such as Walker & Anor v VA & Z (No. 2) (2001) 39 ACSR 557; [2001] NSWSC 806 (“Walker”), NA Retail Solutions Pty Ltd v St George Bank [2010] FCA 259 (“NA Retail Solutions”) and Oliver v Commonwealth Bank of Australia (No. 1) [2011] FCA 1440 (“Oliver”).

49. Human Appeal argues that the Bank breached an implied term of good faith and fair dealing by terminating the accounts on the basis that Human Appeal’s business as a charity was not suited to the Bank for reasons that the Bank did not expose or explain. Human Appeal further contends that a finding that the decision to terminate the accounts was unreasonable would also lead to a co-ordinate finding that the termination was unconscionable, either under the ASIC Act, s 12CB or in equity.

50. Human Appeal also argues that its financial accommodation from the Bank was provided to pursue a standard form of contract which placed Human Appeal at a bargaining disadvantage with the Bank, potentially in breach of codes of practice applicable to the Bank.

51. Finally, Human Appeal argues that the Bank is in breach of its duties under Corporations Act, s 912A. Human Appeal says the accounts were “financial products” and that the Bank’s dealings in those products constituted the provision of “financial services” under Corporation Act, s 912A. Human Appeal argues that the Bank’s conduct leading to termination of the accounts also constituted a breach of the Bank’s obligation under s 912A(1)(a) to provide financial services covered by its licence “efficiently, honestly and fairly”.

52. The Bank fields a range of responses to these contentions. It points to the terms of the COBCOP which provide that unless there are exceptional circumstances “we [the Bank] will give you at least 14 days advance notice before closing your account when the standard terms and conditions permit us to do so”.

53. The Bank also points to its standard terms and conditions for the financial accommodation with Human Appeal, which provides the following in relation to account closure:

“We may at any time, close any of your accounts by giving you twenty days written notice. The notice does not have to specify the reasons for the closure.”

54. The Bank says that Human Appeal’s case cannot stand in light of these express provisions, which give it the capacity to terminate within a short period without giving reasons.

55. Finally, the Bank submits that cases such as Oliver, NA Retail Solutions and Walker all turn on their own facts and do not provide any foundation for inferences of unconscionable or unfair conduct against the Bank in this case. The Bank concludes by saying that Human Appeal has not provided any evidentiary basis to support its contention that the Bank has acted unfairly or unconscionably.

56. Human Appeal’s case is arguable. A plaintiff’s case for breach of contract, unconscionable conduct at general law or under ASIC Act, s 12CB or under Corporations Act, s 912A are claims that could rarely be dismissed as not raising a triable issue. Their resolution invites an examination of all the surrounding circumstances, including likely contested matters of fact. And here, Human Appeal says that all those surrounding circumstances are not yet known to it, because the Bank has not yet given the actual reasons for termination of this financial accommodation. That is a phase of the proceedings which is to come.

57. Accepting a contention that a Statement of Claim should not be permitted to be filed and proceedings be dismissed because no reasonable cause of action is disclosed is a serious step, denying a plaintiff the procedural fairness of an opportunity to put its case at final hearing. Whatever the apparent strengths of Beyond Bank’s case at this stage, they are not so great as to warrant the taking of this step. It would be unfair to do so in circumstances where Human Appeal has yet to supplement its evidence in the case by seeking discovery or production of documents from the Bank to reveal its full reasons for terminating this financial accommodation. Although some of the Bank’s reasons seem to have emerged on the present application.

58. The Argument from Beyond Bank’s Constitution. Human Appeal bases one of its contentions on rights to financial accommodation that it says arise out of Beyond Bank’s Constitution (“the Constitution”). Human Appeal contends that on a proper construction of the Constitution, Beyond Bank has an obligation to provide Human Appeal, as a member of the Bank, with the financial accommodation that the Bank provides to all other members, subject only to the Bank’s right to terminate Human Appeal’s membership of the Bank under the Constitution.

59. Several provisions of the Constitution are said to be relevant to this contention. Human Appeal points to Appendix 1 of the Constitution which it submits profiles a close relationship between membership of the Bank and members receiving financial services from the Bank. Appendix 1 of the Constitution defines Beyond Bank’s objects which include raising funds, applying those funds “in providing financial accommodation”, providing “services to members to assist them to meet their financial, economic and social needs” and to “further the interests of members”.

60. In the Constitution, Rule 1.1, Definitions, “financial accommodation” refers to advances “that the company [Beyond Bank] provides or enters in the ordinary course of its banking business”. And “member share” is defined in Rule 1.1 to mean a member share described in Appendix 2, Division 1 of the Constitution.

61. The Constitution, Division 2 - Objects & Limits on Powers in Rule 2.2 deals the requirement that customers must be members as follows:

“2.2

(1)   Subject to Subrule (2) the company may only accept deposits from, or provide financial accommodation to, its members unless the deposits are made by or on behalf of former members prior to the cancellation of all authorities in relation to that membership.”

62. Subrule (2) of Rule 2.2 has no relevance to the present argument.

63. Membership of Beyond Bank is controlled by the Constitution, Division 3, Rule 3.1, which provides as follows:

“3.1 Admission to Membership

(1)   Subject to any other Rule allowing admission of members, the company may admit a person as a member only if:

(a)   the person applies for membership of the company;

(b)   the person applies for a member share; and

(c)   the person pays the subscription price (if any) for the member share.

Note:   The company may also admit a person as a member by registering a transfer or transmission of a member share to the person under Rule 9.3, Rule 10.1, Rule 10.2 or Rule 10.3.

(2)   The board has an absolute discretion in exercising the company’s power to admit a person as a member without any obligation to give a reason for not accepting an application for membership and not admitting a person as a member.

(3)   When the company admits a person as a member, the company must:

(a)   issue the member share to the person;

(b) enter the person’s particulars in the Register of Members as required by the Corporations Act; and

(c)   give the person notice that it has admitted the person as a member.

(4)   An MCI holder is not a member merely by virtue of holding an MCI.”

64. Division 4 – Termination of Membership, Rule 4.3 provides for termination of membership by the Bank [the Company] as follows:

“4.3 Termination by the Company

(1)   The board may redeem a member’s member share if:

(a)   the member fails to discharge the member’s obligations to the company;

(b)   the member is guilty or suspected of conduct that could reasonably be considered to be detrimental to the company;

(c)   the member obtains membership by misrepresentation or mistake; or

(d)   the member has more than one member share (and if so, the board may determine which additional member shares to redeem to ensure that the member has only one member share).”

65. The Constitution, Appendix 2 – Shares, covers the various rights, obligations and restrictions attaching to member shares, including voting rights, dividend entitlements, distribution on winding up, and the redemption and transfer of member shares. Appendix 2, Division 1, Rule A2-D1-2 specifies the rights, obligations and restrictions attaching to member shares as follows:

“A2-D1-2 Rights, Obligations and Restrictions Attaching Member Shares

(1)   The following rights attach to each member share:

(a)   the right to vote on the terms set out in clause A2-D1-3;

(b)   the right to participate in dividends on the terms set out in clause A2-D1-4;

(c)   the right to participate in the distribution of profits or assets on a winding up on the terms set out in clause A2-D1-5; and

(d)   the right to redeem the member shares on the terms set out in clause A2-D1-6.

(2)    The restriction on transfer of member shares in clause A2-D1-7 attaches to each member share.

(3)   The company may issue more member shares at any time. The issue of more member shares does not vary the rights attached to member shares that the company has already issued.

Note: For the holder of a member share’s entitlements to make deposits with, and receive financial accommodation from, the company, see Rule 2.2 and Subrule 3.1(3).”

66. Human Appeal argues this structure of the Constitution is part of a wider contract between Human Appeal and the Bank for the provision of financial accommodation to it. Human Appeal says that the Bank has not redeemed Human Appeal’s member’s share of the Bank and the Bank has no entitlement to do so, as Human Appeal has not failed to discharge any obligations to the Bank, has not been accused of any conduct detrimental to the Bank, or any of the other conduct which would allow the Bank to exercise a right of termination under Constitution, Rule 4.3.

67. Human Appeal says that on a proper reading of Constitution, Rule 2.2 and Subrule 3.1(3), it has an entitlement as a member to financial accommodation from the Bank. It says this flows from a proper reading of these two provisions, together with the Note to Appendix 2, Division 1, Rule A2-D1-2, which shows that a member’s share brings with it an “entitlement to make deposits with and receive financial accommodation from” the Bank, showing how the drafters of the Constitution thought Rule 2.2 and Subrule 3.1(3) should be interpreted together.

68. It might be observed at this point that, as Mr Burton SC submits for Beyond Bank, that Rule 2.2(1) strictly says that the Bank “may only accept deposits from or provide financial accommodation to” members. Mr Burton SC said that this wording does not imply the converse: that membership gives a right to financial accommodation from the Bank. But in answer to that Mr Corsaro SC calls in aid the Note to Appendix 2, clause A2-D1-2.

69. Beyond Bank’s rejoinder in turn is based on Constitution, Rule 1.2 Interpretation, which reduces the interpretative power of notes inserted into the Constitution, as follows:

“(2) The notes to Constitution are for purposes of convenience only and do not affect the interpretation of this Constitution. The notes do not form part of this Constitution and may be removed or modified without the company complying with the Corporations Act requirements that apply to removal or modification of constitutional provisions.”

70. Mr Burton SC’s contention based on Rule 1.2 Interpretation seriously undermines the strength of Human Appeal’s contention based upon the Constitution.

71. But Human Appeal’s position is nevertheless arguable. It can be expected that at a final hearing there would be a wider survey of the provisions of the Constitution and the circumstances of Human Appeal’s acquisition and retention of membership and conduct of the accounts.

72. It is a serious step for a Court to deny a plaintiff the full procedural fairness of a final hearing on the basis that a contention such as this is unarguable and able to be struck out on the basis that no reasonable cause of action is disclosed under UCPR, r 13.4. And for the purposes of maintaining the existing interlocutory relief there is a serious question to be tried based on these arguments.

Preparing for Hearing

73. In the result, these proceedings will continue. But they must not be permitted to meander through the Court’s lists, as they have to date. There is a public interest in these proceedings being expedited and resolved quickly. Beyond Bank’s case, which is well arguable, if successful, means that it would have been required by Court order for well over 18 months and possibly over two years (depending on when the hearing takes place) to provide banking facilities to a customer, who cannot secure banking facilities elsewhere. And this will be in circumstances where the Court can infer that Beyond Bank’s need to comply with the Anti-Money Laundering and Counterterrorism Financing Act with respect to Human Appeal’s accounts is creating a continuing financial burden on the Bank.

74. This is not how litigation in this Court should run. To put these proceedings in order several steps should be taken. First, despite the delay which has occurred so far and perhaps because of it there is a basis for some measure of expedition to be given to these proceedings. After some further steps are taken the matter will be adjourned into the expedition list for consideration of the expedition judge.

75. Second, between now and the hearing it is foreseeable that the cost burden and financial risk associated with Beyond Bank maintaining Human Appeal’s banking facilities will increase above the costs which were reflected in the Court’s orders made on 23 February 2023. Beyond Bank should be given general liberty to apply to vary the orders made on 23 February 2023 to reflect any burden of increased cost or increased financial risk that arises before the hearing. In a mutual ADI bank such as Beyond Bank, an increase in these financial burdens can affect service to other customers.

76. And to further reduce financial risk to Beyond Bank from the Court’s intervention there is a case for restraining Human Appeal from reducing the balance in its accounts with the Bank below an amount which would cover the Bank’s legal costs of these proceedings, if it is successful. The Court will make such orders as a condition of continuing relief, if an appropriate form of draft orders is provided by the parties to the Court. If the parties cannot agree on a form of orders then the Court will settle them.

77. Third, Human Appeal says it needs disclosure from Beyond Bank. In order to examine, and if necessary deploy in argument, Beyond Bank’s reasons for terminating the account banking facilities. Human Appeal says it will require discovery from the Bank. In response the Bank says it does not yet have adequate particulars of Human Appeal’s claim to allow it to plead its defence.

78. This stand-off needs to end. Human Appeal must already have some sense of the categories of documents that it wants from Beyond Bank. Unconventional as it may seem the Court will deal with this odd situation by allowing Human Appeal to issue a notice to produce, which may be made returnable before the Registrar in Equity in sufficient time for Human Appeal to provide any additional particulars before Beyond Bank will be required to file its Defence to the Statement of Claim.

Costs

79. The Court must also resolve questions of costs. The Court indicated it would give the parties an opportunity to put on written submissions about that issue once these reasons were published. Rather than have the parties incur unnecessary expense and delay in advancing written submissions about costs, it is better for the Court to give an indication as to an appropriate cost order which is suggested by the Court’s findings. If the parties disagree with that indication of a possible outcome they are at liberty to put on submissions. But putting on further submissions invites further delay and will be at each party’s risk as to costs.

80. Human Appeal has been successful in resisting the motion to strike out its pleadings for want of dispatch. But its own conduct has contributed to the unnecessary delay of over 12 months. These proceedings should have been prepared for hearing in late 2021 in early 2022 and heard in mid-2022. As the plaintiff, Human Appeal should have been more proactive in moving them along.

81. Human Appeal will be allowed to file a Statement of Claim substantially in the form of its Amended Statement of Claim. But the production of a further pleading shortly before the hearing has helped Human Appeal to resist the Beyond Bank’s application for dismissal. This was itself an indulgence by the Court, which would ordinarily only occur at Human Appeal’s cost.

79. In the Court’s view in application of the powers and principles embodied in Civil Procedure Act2005, ss 56, 57, 58, 59 and 60 an appropriate costs order that reflects the present circumstances, the Court’s reasons and the outcome of these motions would be for each party to bear its own costs of these various applications. In the Court’s view the conclusion is open they should not be recovered upon a party’s later success in the proceedings. If the Court does not hear from the parties within seven days that either of them wishes to seek a different order, then the Court will make that order in chambers.

Conclusions and Orders

83. For these reasons the court makes the following orders and directions:

1. Grant liberty to the defendant up to the hearing of these proceedings to apply in the event that it incurs or it can establish it is likely to incur costs or incur financial risks associated with these proceedings in providing banking facilities to the plaintiff beyond the costs which were reflected in the Court’s orders made on 23 February 2023;

2. Adjourn the proceedings into the expedition list on Friday, 19 May 2023 for the expedition judge’s consideration;

3. Grant leave to the plaintiff to file by Friday, 21 April 2023 a Statement of Claim substantially in the form of the Amended Statement of Claim before the Court;

4. Grant leave to the plaintiff to make subpoenas and notices to produce returnable before the Registrar in Equity on Monday, 1 May 2023;

5. Direct the plaintiff to respond by Friday, 12 May 2023 to any request for particulars of the Amended Statement of Claim served by the defendant on the plaintiff on all before Friday, 28 April 2023;

6. Direct the defendant to file its defence to the Amended Statement of Claim by Thursday, 18 May 2023;

7. Order the plaintiff to pay any costs thrown away by reason of the Court’s grant of leave to file the Amended Statement of Claim; and

8. Note that the Court will make orders for costs in chambers in accordance with the Court’s reasons published today, if no application is made by any party for a different cost order.

9. Further note if an application for different cost order is made the Court will make directions in chambers and deal with the matter in chambers.

10. Direct the parties by 24 April 2023 to submit agreed (or competing versions) of orders providing as a condition of the continuation of interlocutory relief, for the retention of moneys in the plaintiff’s accounts with the defendant to cover the defendant’s costs of these proceedings.

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Decision last updated: 18 April 2023