Home Insights TGIF 11 November 2022 – Success for CBA in long-running dispute with developer

TGIF 11 November 2022 – Success for CBA in long-running dispute with developer

This week’s, TGIF considers the Court of Appeal’s decision in Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd [2022] WASCA 132, handed down on 4 November 2022 in favour of the Commonwealth Bank of Australia Ltd and Lloyds Banking Group (Financiers).  

Key takeaways

  • In assessing insolvent transactions, regard must be had to solvency, the contextual commerciality and reasonableness of the transactions and the appropriateness of the security. Debts due and payable are not always paid on time by solvent companies. Also, a period of forbearance may result in a debt not being due and payable.

  • Guarantees provided by directors or shareholders are not indicative of solvency as the company cannot compel payment to meet its debts.

  • Careful consideration of the commercial sophistication of the borrower and construction of forbearance arrangements, reinstated financing agreements, refinancing agreements and appropriate securities are imperative to enforceable securities.

  • Terms such as ‘code of conduct’, ‘event of default’ and ‘reasonable grounds’ that have been adopted by one lender do not expressly or impliedly purport to bind the other lender in a joint lending scenario.

The Court of Appeal carefully considered the application of the statutory provisions and authorities in affirming key principles in assessing solvency.

The success of the Financiers is a useful reminder that both insolvency and commerciality are necessary components when considering whether transactions entered into by a company are unconscionable, uncommercial and voidable. The judgment also considers contract construct, including the application of implied terms.


Westgem Investments Pty Ltd, related entities and the Liquidator (collectively Westgem) commenced multiple proceedings against the Financiers in 2012. In 2014, proceedings were commenced seeking to unwind certain transactions entered into between Westgem and the Financiers, including on the basis that the transactions were uncommercial, unconscionable and derived from misleading and deceptive conduct.

After an extensive hearing in 2018, Tottie J handed down a voluminous judgment in 2020, wholly in favour of the Financiers. The liquidator appealed on multiple grounds.  

Financing the Raine Square development

Westgem was a special purpose corporate entity controlled by sophisticated shareholders. Westgem’s purpose was the development of Raine Square, a commercial mixed-use high-rise development, in Perth.

The development was initially primarily funded through a Multi-Option Facility Agreement (MOFA). Security included a fixed and floating charge over Westgem’s assets, mortgage over Raine Square, a share mortgage and related party guarantees.

The MOFA provided for certain cost overrun fees to be paid where the costs to complete exceeded the budget. Westgem paid the first overrun fee of approximately $13 million. A second overrun fee of $17 million was not paid. Whilst maintaining that Westgem was in default under the MOFA, the Financiers continued to fund the development entering into various Deeds of Variation, Restated MOFA and related securities.

The Financiers appointed receivers and managers in January 2011, who ultimately completed and sold Raine Square. In October 2012, a liquidator was appointed.

Westgem’s claims

Westgem bought various claims against the Financiers, including that:

  • transactions entered into between the Financiers and Westgem (including the Restated MOFA) were uncommercial and voidable under section 588FE of the Corporations Act 2001 (Cth) as Westgem was insolvent at the time of entry;

  • in determining and asserting the overrun cost, the Financiers engaged in unconscionable conduct;

  • the Financiers acted unconscionably in entering into the refinancing agreements, keeping Westgem ‘alive’ merely to continue financing Raine Square; and

  • the Financiers had breached contracts and engaged in misleading or deceptive conduct including in respect of additional funding sought.

The Financiers successfully defended the claims. Westgem appealed.

Financiers’ success

The Financiers were overwhelming successful on appeal. Key considerations and application of the law included:

  • Affirmation of insolvency principles. The Court restated central principles of assessing solvency with consideration being given to a company’s entire financial position, encompassing its commercial activities, cash flow and ability to obtain funds by way of loan or asset sale. Whilst significant consideration is given to the willingness of secured creditors to continue lending despite temporary distress, the Court of Appeal noted that it could not overlook debts which became payable during the period in which the lack of liquidity was otherwise cured, nor the decision by related parties not to sell assets to enhance cash flow. The Court of Appeal found that Westgem’s inability to pay the second cost overrun signified the company’s insolvency because:

    • its net cash position was not sufficient to pay the debt;

    • Westgem had no further willingness nor short-term ability to contribute cash to the development; and

    • guarantors, who could have sold real estate interests to fund the debt, chose not to do so.

  • Uncommercial transactions. The Court of Appeal considered whether a reasonable person in Westgem’s position would not have entered into the refinancing arrangements involving the provision of extended guarantees and securities from the individual shareholders and their related entities. The Court of Appeal concluded that it was a rational commercial decision for Westgem to have entered into the variation agreements with the Financiers and the Restated MOFA, knowing that the alternative was receivership. The Court of Appeal acknowledged that although a difficult decision, it was commercially rational. The Court of Appeal determined that the refinancing arrangements entered into with the Financiers were not uncommercial transactions.

  • Consideration of the financing documents. The entry into the refinancing agreements was not unconscionable. Further, in assessing the overrun costs under the MOFA, the Financers did not engage in unconscionable conduct.

  • Application of implied terms. The MOFA did not contain an implied ‘code of conduct’ term, ‘event of default’ term or ‘reasonable ground’ term as alleged by Westgem. However, the Court of Appeal went further, noting that even if those implied terms existed, entry into the Restated MOFA by the Financiers did not breach such terms. Further, the adoption by one financier of the Banking Code does not imply such a term in joint lending.


Financiers should consider whether a borrower’s inability to pay at a point in time reflects a temporary lack of liquidity and whether cash flow can be restored. This can be challenging where the commercial reality of the borrower’s circumstances may be unknown.

In negotiating any forbearance arrangement, financiers should have regard to the appropriate consideration by the borrower, the inclusion of an acknowledgment of debt, the commercial acumen of the borrowers and act bona fide when assessing any additional security required.

In circumstances where financiers do not immediately enforce its rights, care needs to be exercised to ensure non-waiver and unequivocal reservation of rights to protect enforceability rights.

Where financiers jointly provide banking services, the services are provided on the same terms, such that the adoption of the Banking Code by one financier does not expressly or impliedly purport to bind the other financier.


Mark Wilks

Head of Commercial Litigation

Brooke Egan

Special Counsel


Restructuring and Insolvency

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