When Michael Lee and Majed Hawatt signed up as “sophisticated investors” for Westpac’s GPS “capital protected” borrowed funds investment in June 2007, they were working on the assumption they could take back their cash after 12 months.
They knew the arrangement was far more complicated but relied on what was said by the bank about the capital guarantee.
What they didn’t know – but would have been detailed in the documents had they taken the time to read them – was that the bank’s guarantee only applied if the funds remained committed for a five year term.
The market upheaval resulting from “a period of turbulence on the financial markets in 2008, known as the Global Financial Crisis” precipitated the investors’ call for the return of their funds and a dispute that ultimately came before the NSW Supreme Court .
By August 2012, the investors had already paid Westpac $380k and sought relief against payment of the balance of $443k still outstanding at the they rescinded the deal in October 2009.
Notwithstanding that the GPS brochure incorporated charts to explain how the scheme worked, the plaintiffs argued that – like most retail and business investors – they relied on the bank rep’s conversations and emails that explained it in terms they could understand.
In addition to the specific representation about capital guarantee, the investors also asserted a “reasonable expectation that [Westpac] would advise them of the key features of the product” and that failure to do so was a “representation by silence” they had relied on to suffer the loss.
Lee admitted to making a “false statements” in a letter to Westpac dated 22 June 2004 agreeing to having read the bank’s documents and having obtained advice – as all investors must agree as a pre-condition of doing business – the court accepted as truthful, his evidence as to the representations that were made.
The court reminded the parties that TPA s52 imposes a heavy onus on plaintiffs to prove the alleged conduct and the circumstances which rendered it misleading as well as – in the case of “the speaking of words” – the necessity “that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances”.
Westpac did not call the sales rep and the customer relationship managers to give evidence, without any explanation as to why.
Notwithstanding he was evasive and “unwilling to make concessions”, Lee’s evidence as to the spoken words – “you do not need to put any capital in. Your loan is 100% capital guaranteed so you cannot lose any money” – was unchallenged in cross examination.
This allowed the court to “feel an actual persuasion” of the occurrence of the conversation notwithstanding “the inherent unlikelihood of its occurrence and …. the gravity of the consequences flowing” to Westpac.
The plaintiff investors succeeded.
The court ordered the arrangement void and unenforceable and gave judgment against Westpac for the $380k it must repay to the plaintiffs.
Lee v Westpac Banking Corporation  NSWSC 899 9 August 2012