The dangers of inaction

Posted on July 10th, 2015

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by Tony Cavanagh

Tony Cavanagh is a Director at Mullane & Lindsay in Newcastle and specialises in commercial dispute resolution & litigation, and employment law.

The NSW Court of Appeal recently considered a claim by an investor against the Commonwealth Bank, which failed to act on a written request, sent in September 2007, for certain high risk investments to be redeemed. The investor was aware that CBA had not acted on the request. Until mid December 2007 the investments could have been redeemed with little or no loss. After that, they significantly declined in value.

The investor sued CBA for breach of contract. It ultimately admitted breach, but argued the breach had not caused loss; that the investor’s own decision had caused or contributed to any loss and/or that the investor had failed to mitigate loss.

In a nutshell, CBA argued that the investor was well aware the bank had failed to act on the redemption request; but made a subsequent, fully informed, decision not to lodge a further request. The investor did so knowing that the investments were of a high risk nature and in circumstances where he was monitoring financial markets regularly. The trial judge agreed with CBA. An appeal was unsuccessful because, the Court of Appeal said, the investor’s conduct was unreasonable in the particular circumstances; he had not suffered any immediate loss due to the bank’s breach of contract and it was appropriate to take into account the investor’s own decision (following the bank’s breach) as to what the legal cause of any loss was. The Court also said the investor’s independent and informed decision not to submit a subsequent redemption request broke any connection between CBA’s breach of contract and any loss that was later sustained.

The case shows that there are circumstances in which it is necessary to ‘strike while the iron is hot’, to pursue legal rights or remedies because delay may be fatal, or at least prejudicial, to a delayed claim – particularly where loss might have been avoided or minimised if a person who was initially an ‘innocent party’ does not act promptly: Chand v Commonwealth Bank of Australian [2015] NSWCA 181

Tony Cavanagh is a Director at Mullane & Lindsay, and practises extensively in Commercial and other Litigation and Employment Law. If you require any assistance in these areas please contact Tony Cavanagh or contact our Newcastle office.

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