CBA v Groves [2012] SASC 110

The bank loaned $5m to the Eddy Groves, the CEO of ABC Learning Centres (now in receivership) for the purchase of the Adelaide Dome. At the time of the loan he owned shares in ABC Learning Centres worth $200m. Just before the loan expired, a substantial drop in share price brought the value of his shares below the amount owed on his various margin loans and triggered repayment.

In subsequent negotiations the bank asked for a mortgage over the Dome. The Groves said that if he did not sell it he would need a longer term facility which the bank allegedly represented would not be a problem if they had security over the Dome subject to a valuation. In the meantime short extensions on the facility were granted.

Groves defaulted and the bank sued for the debt. Groves claimed that the bank had engaged in misleading conduct and caused him loss in the higher interest incurred on the short term facilities and the loss of opportunity to earn additional revenue and avoid a capital loss on the Dome.

The court found that the bank executive did not make the representations and even if he had, Groves could not have believed that he was guaranteed a three year $5 million loan, regardless of his financial circumstances, at some the point in the future when he might choose to request the long term loan.

The court found that he must have appreciated that whether he would be granted such a loan in future would depend on his financial. The court found it was inherently unlikely that the bank executive would have given an unqualified assurance of a long term facility.

The court also found that even if the bank executive had made misleading representations, the claim failed on causation because the court was not satisfied that the borrower would have acted differently to the manner in which he actually acted and obtained alternative finance. The court was not satisfied that the borrower would have sought financial approval and even if he did, he would have deferred accepting it for as long as possible until the same point he was actually in because the alternative financier would have reassessed his eligibility based upon his worsened finances. The borrower’s claim was dismissed.

The court gave judgment for the bank for the debt plus interest.

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