CBA's $700 million fine might be just the start of the pain

Australian Financial Review Jun 4 2018 6:27 PM

Michael Pelly

There is more pain to come for the Commonwealth Bank, with the $700 million finefor reporting failures leaving it vulnerable in the face of a pending class action by shareholders.

The action, launched by Maurice Blackburn Lawyers in October 2017 with backing from litigation funder IMF Bentham, was already being touted as one of the biggest and most lucrative in Australian history.

Now it  could surpass the $200 million deal for Centro shareholders in 2012. A sticking point will be whether Maurice Blackburn can make the case that the scandal had a "material effect" on the shares, which fell 5.4 per cent in four days.

The National Head of Class Actions at Maurice Blackburn, Andrew Watson, conceded the news was a boon for the firm's claim.

"The size of the AUSTRAC fine  - $700m is, in any one's view, a material sum - and the scale of the wrongdoing puts paid to any suggestion that these issues were not material to shareholders and should not have been revealed earlier than they were," Mr Watson said.

"Our view is that it clearly strengthens our claim, so it's a positive development for all of our claimants involved in the class action we have on foot in the Federal Court.

The firm says it has already signed up "many thousands" for its group. The CBA may yet face another claim, with law firm Phi Finney McDonald said to be circling. 

The damning admissions contained in the agreed set of facts could give the bank less room to move when it come to a final payout. Negotiations will cover the impact on the bank's share price after the scandal was revealed. It fell from an intra-day high of $84.69 on 3 August 2017 to an opening price of $80.11 on 7 August 2017.

Mr Watson is arguing that the fall of 5.4 per cent was "a significant movement for an otherwise stable stock ... it is in the top 1 per cent of price movements for CBA shares in the past five years."

Maurice Blackburn has alleged that CBA  had "a disregard" for its continuous disclosure obligations. "The CBA has said that its board was aware of the breaches in the second half of 2015 but chose to say nothing to the ASX until 4 August 2017," Mr Watson said.

"Materiality is judged as being something that would influence someone to consider either selling or acquiring shares. Can it be contested that had CBA disclosed in 2015 that it had been engaged in systematic failures ... and that it was exposed to potential for significant penalties, that that would not have been material?"

Mr Watson does not expect a settlement any time soon: "Experience tells us that even when corporations have made admissions in proceedings, they will fight long and hard. I am not expecting that to change."

A report by the Australian Law Reform commission last week noted that since 2002 - when the continuous disclosure and misleading and deceptive conduct provisions of the Corporations Act introduced - 66 shareholder class actions have been filed in the Federal Court. None has proceeded to judgment.

In the Centro settlement, Maurice Blackburn recovered $150million for its clients and Slater and Gordon collected $50 million. The current top three settlements is rounded out by Aristocrat ($144.5) in 2008 and QBE ($132.5 million)in 2017.