National law firm Slater & Gordon and the Commonwealth Bank of Australia have today (Tuesday 23 February) finalised an historic agreement which will deliver compensation including cash refunds and home loan cuts to people caught up in the Storm Financial collapse.
The agreement (called the Proposal Framework) establishes the compensation principles to be applied to the claims of more than 2,000 Slater & Gordon clients who borrowed from the CBA to invest in equity investments on the advice of the Queensland based financial advisory company, Storm Financial and are part of the Storm Resolution Scheme established by the Bank in July 2009.
Depending on individual circumstances Slater & Gordon clients could receive:
-cash compensation; and/or
-concessions including reduced loan balances and interest rates, interest refunds and in some cases permanent tenancy arrangements.
The CBA is expected to start making compensation offers within days and all offers are expected to have been made by the end of May.
Mr Damian Scattini, Slater & Gordon Group Practice Group Leader, Brisbane said the agreed compensation principles will deliver a quick, fair, transparent and commercially appropriate resolution of the claims against the Bank.
"This will take into account the individual circumstances of all clients, this is not a one size fits all approach.
"Agreeing compensation principles is a critical final step in delivering faster and fairer compensation for Storm victims. It builds on the innovative Resolution Scheme, established by the Bank following negotiations with Slater & Gordon last year.
"We expect that significant, in some cases life changing, outcomes will be delivered to our clients by the Bank following this agreement", Mr Scattini said.
The agreed compensation principles have the following key elements:
-Investment home loans will be individually assessed retrospectively at the date the loan was provided against agreed prudent lending principles. If it is determined that the Bank has lent imprudently, any difference between this assessment and the original loan offer, including interest, will be written off the loan balance or paid in cash where there is no remaining loan.
Additionally, where a borrower retains a CBA investment home loan, the borrower...s current circumstances will be evaluated and, where and as appropriate, financial hardship assistance including debt reduction, permanent tenancies and interest rate relief will be offered;
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-Where margin loans entered margin call in the second-half of 2008 borrowers will generally receive 90 per cent of the equity they held in their portfolios on the day of their notional first margin call plus interest.
-Additionally, any "negative equity... that the borrower owes the Bank on their margin loan will be written off and any cash contribution made by the borrower to the negative equity balance after 8 December 2008 will be refunded, with interest;
-Borrowers can reject an offer from the Bank prepared using the Proposal Framework and ask for an evaluation and determination from the Independent Panel which continues to oversee the CBA Resolution Scheme. A borrower may also withdraw from the Scheme at any time with all legal rights and entitlements intact. In addition, if ASIC secures a better outcome following the conclusion of its investigations, then the difference will also be available to borrowers even if they have already accepted an offer from the Bank.
-Interest payments on Investment Home Loans suspended by the Bank since 17 June 2009 will be written off for each borrower who receives a proposal, even if that proposal results in a "status quo" offer.
The compensation principles were negotiated between the Bank and Slater & Gordon following an extensive "test case... process which involved six typical claims. During the test cases all relevant legal issues were exhaustively tested before an eminent independent panel of lawyers.
Mr Scattini said Slater & Gordon believes the application of the compensation principles will deliver outcomes for clients entirely consistent with what they could hope for if they took the Bank to court.
"In the case of margin loans, for instance, borrowers will typically be put in the position they would have been in had their margin loans been managed very effectively in the second half of 2008. They will receive this compensation despite the realities of a rapidly falling market.
"It remains the case, however, that we expect some clients will not be offered compensation. This will reflect their individual circumstance and the strength of their legal claims against the Bank.
"Our clients wanted a process that focused on their individual circumstances, the strength of their legal claims and allowed them to put the Storm saga behind them as quickly as possible."
Mr Scattini said the Bank had acted conscientiously, quickly and in good faith to try and find a solution for Storm clients that remedies where the Bank has done wrong, as CBA CEO Mr Ralph Norris said it would.
"We look forward to other Banks taking a similar approach," Mr Scattini said.
The agreed compensation principles have been examined by the Independent Panel of former Federal Court Justice Roger Gyles AO QC and Robert Gotterson QC as neutral evaluators and retired High Court Justice Ian Callinan AC as chairman.
The Independent Panel has indicated that the principles have delivered fair outcomes in each of the six "test case... claims and are also likely to produce satisfactory and fair results in other similar claims.
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