The Foreign Currency Loan Experience in 1980s Australia: Dwyer v Commonwealth Bank of Australia - 2

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School of Economics and Political Science
Working Papers

In the early 1980s, in the first flush of financial deregulation, three of Australia’s four major banks embarked on a strategy of marketing loans denominated in foreign currencies to small businesses and farmers. Devaluation of the Australian currency, especially against the Swiss franc, saw an escalation of principal owed in Australian dollars by such borrowers. The resulting crisis produced a wave of litigation against the banks. Some of the court judgments favoured the borrowers, albeit these judgments were in a minority. Legal precedent, judicial culture and the superior resources of the banks proved formidable obstacles to borrower success in the court system, not least against the Commonwealth Bank of Australia. This paper examines the judicial experience of one litigation in particular – that of Dwyer & Anor v. Commonwealth Bank of Australia. The thrust of Dwyer, although not identical, is representative of the experience of foreign currency loan borrowers in the Australian courts.

 

Table of Contents

Bank Fraud Exposed - Money out of YOUR Pocket!

Bank Fraud in Australia is Systemic - part 2 - part 3

The Foreign Currency Loan Experience in 1980s Australia: Dwyer v Commonwealth Bank of Australia -  2 - 3 - 4 - 5

The Quade Appeal on Decision vs CBA - 2 - 3 - 4 - 5 - 6 - 7

Paul McLean is Back to Expose Bank Fraud

Paul McLean is Back to Expose Bank Fraud

Bank Fraud in Australia Is a Step Toward Controlling the Economy and the People

Bank Fraud in Australia Is Systemic and Affects All Australians

The Banks and Small Business Borrowers: case studies of adversity

by Evan Jones

1  - Introduction
2 - Goonans
3 - Paul Buckman
4 - The Walter family
5 - The McMinns
6 - Lynton Freeman
7 - Ross Delahunty
8 - Keith Smith
9 - The Somersets
10-Conclusion

Articles by Evan Jones

The NAB and Its Publicity Grabs

Innovation at the NAB and Grab

NAB accused of dirty tricks in Queensland

Bank Fraud and John Howard

Australian Four Pillars Bank Policy

Document Discovery and the Australian Courts

Final Warning: A History of the New World Order

Banks Behaving Badly

When the Bankers became Con-men

NABbed - an overcharging scandal involving the biggest Australian bank

A Case Study in the Adverse Small Business Environment in Australia

The Walter Family and the National Australia Bank - part 2

The Victorian Courts  - part 2

The Industry and the Federal Authorities

The State of Victoria and the Bracks Government

The NAB and the New Public Relations Program

The Regulators, the Law and Bank Malpractice - part 2

Conclusion and References

Tony Rigg -Never in Default

1 - NEVER IN DEFAULT - Rigg

2 - Fraudulent Swiss Franc loans

3 - Insider Trading within a Secret Society

4 - Corrupt Receiver and Illegal Eviction

5 - Collusion in Government

6 - Commonwealth Bank Code of Practice

7 - Pioneer in Steel Structure Building

8 - Summary of Argument on Appeal from Federal Court

9 - Brief for Joanna Gash, Federal MP from Gilmore

Steve Heinrich's Last Submission to Federal Court

Wilfred Taylor

Corporate Australia

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3 Representative Sackar cross-examination

What are the elements of this process of cross-examination? First, the Bank’s counsel constructs a set of statements claimed to have been presented to Dwyer and/or Baird (the operative phrase is ‘I would suggest’). Such statements, if they had been uttered, would indicate that Dwyer/Baird obtained a comprehensive exposure to the nature and risk of unhedged foreign currency loans and thus there could be no reliance of the plaintiff on the CBA for the consequences of the disaster that subsequently befell him and his mother. No documents were offered to support the veracity of the claim. Bank officers took no diary notes of relevant meetings. The detailed nature and technical complexity of the purported statements impart to the claims an air of
implausibility.

Second, Dwyer and/or Baird claim that they could not recall such statements, or they deny that they were uttered.

Third, Sackar repeats the propositions, and the ‘can’t recall’ or the denials are also repeated.

Fourth, Sackar shifts tack and then insists that Dwyer/Baird did know or should have known the substance of these statements, regardless of whether they had been made.

Fifth, the memory and/or motives of Dwyer/Baird are questioned, compounding the attack on the credibility and integrity of the plaintiff and his solicitor.

Sixth, having failed to elicit the ‘correct’ answer or to elicit conflicting answers from Dwyer/Baird, Sackar moves quickly to a separate matter but might return later to the same event and repeat the process. The probable becomes suspect; the improbable becomes likely. Myth and reality are inverted. Truth is determined here not by the quality of the evidence but by the relative resources the respective parties can commit to commanding the historical record for their own side.

4 Some contradictory elements of the cross-examination

Ironically, the general tenor of the exchange resulting from Sackar’s lengthy cross-examination has contradictory elements. Sackar was simultaneously attempting to pin on Dwyer a comprehensive knowledge of (or, as a fallback, a comprehensive exposure to) foreign currency loans yet also slating him for his incompetence.

A detached reader of the court transcript could only conclude that Dwyer’s business skills were more intuitive than formal. Dwyer’s record-keeping appeared to be far from adequate. His success as a jewellery importer rested on his feel for the product and his personality. On any matter requiring technical expertise, Dwyer relied on his accountant or his solicitor. On all dimensions of foreign currencies, Dwyer was totally out of his depth.

A related contradictory elements is that Sackar attempts to construct an
environment permeated by both a prescience as to all possible scenarios for some participants (including the implications of the float of the dollar and the prospects of the decline of the Australian dollar during 1985) and an ignorance of other participants, an environment which was supposed to simultaneously accurately inform and inaccurately mislead Dwyer and Baird. It is the ideal world in which Sackar could, at his discretion, impute either a state of informedness or a state of uninformedness to Dwyer and Baird prior to their dealings with the CBA, so that the subsequent experience of Dwyer as a CBA
foreign currency loan borrower could not be attributed to the CBA. The Commonwealth Bank doesn’t appear in Sackar’s world, and the G documents (the label given to CBA internal documents), for consistency, would have to be passed off as forgeries.

Another significant imponderable in Sackar’s reconstruction is how Dwyer and his mother came to obtain a foreign currency loan from the Commonwealth Bank. The Dwyers’ business was in trouble, with the jewellery importing component having gone into receivership in 1982 following a tsunamic fluctuation in the gold price and a subsequent robbery of stock. The Dwyers needed to refinance existing commitments if property was to be retained, and saw a low interest foreign currency loan (following consistently inadequate advice) as their salvation. In Geoffrey Dwyer’s phrase after approval from the
CBA, the foreign currency loan appeared to be ‘the greatest thing since sliced bread’. Pending the viability of several new prospects (a new importing contract; development of the building housing the retail business), they could not afford domestic interest rates, and their security was good but not exemplary – two of the demanding criteria by which reputedly hard-headed bank officers were presumed to be judging customers for the granting of a foreign currency loan.

Whence, then, the CBA foreign currency loan to the Dwyers? The loan was obtained because Dwyer’s mother was on friendly relations with a recently retired senior official, Mr James Gerathy, from the Commonwealth Bank. Gerathy was, until his retirement in April 1984, Chief State Manager for the Bank. In his capacity as a regular visitor to the Dwyer’s Randwick shop (horse-racing was a common interest), Gerathy heard of the Dwyer’s difficulties with their then bank, Westpac, and contacted CBA personnel. A Bank-induced
statement from the retired banker (Gerathy, 1991) disputes some aspects of the Dwyer’s account of events. But the indisputable fact is that the Dwyers were given the foreign currency loan in atypical circumstances – no representations were made to the Bank by the Dwyers (of which more below). The transcript on this issue, covering 20 pages of feigned disbelief by the inquisitorial counsel, is not merely instructive but adds some overdue comic relief (1991a: 244ff).

Sackar: “You seriously want this Court to accept that a loan of what turned
out to be just under one million dollars was organised without you supplying any information at all to the Commonwealth Bank?

“That is correct.

Sackar: “I suggest you know that that is completely false.

Sackar: “ … you must have found this most extraordinary, that a close friend of your mother’s was able to, what, just dip into the coffers of the Commonwealth Bank and give you and your mother a million dollars?

“That is what happened.

Sackar: “First time you heard of a thing like that happening in your business experience?

“True.

Sackar: “When you got along to see Mr Wyatt and Mr Rogers you would have thought there was no need to do anything at all?

“That is exactly right.

Sackar: “Incredible story?

“That’s what happened.

Sackar: “So here you are a customer of Westpac facing threats from Westpac and, what, the Commonwealth government puts its hand in its pocket for a million dollars without ever hearing from you about what your business was doing?

“That is what happened Mr Sackar.

Sackar: “You only knew him as of October ’83 and July of ’84 as a customer who shared with your mother a mutual interest in porcelain?

“Correct. I might add he was quite fond of the horses and my mother and Mr Gerathy used to talk at length about what was happening at the races on Saturday.

Sackar:“ You must have thought he was Father Christmas to organise a loan without you asking for it?

“He was a senior man in the Commonwealth Bank.

Sackar: “Neither you nor, to your knowledge, your mother ever asked Mr
Gerathy for a loan?

“In the true sense of the word.

Sackar: “Tell us what happened?

“Mr Gerathy likes buying a French loaf of bread, which is a long

Sackar: “I am sorry to interrupt but did you go to the bakery with him, did you?

“No, he goes every Saturday morning.

Sackar: “Just tell me what he did when he came into your shop, no what he did when ...

“He came in with his regular loaf of Huspen bread or French loaf or whatever you describe it as. He stood in the doorway of the shop and said words to the effect that the funds were available from the Commonwealth Bank to pay out Westpac.

Sackar: “Is that all he said?

“No, he said a few more words to my mother. I was about six feet away on that particular occasion and he said, ‘As a matter of pleasantries, would you get Geoff – I think he considered me to be a young chap – to pop in to see Mr Wyatt’.

Sackar: “I want to suggest to you that that is rubbish, Mr Dwyer

“Well, you ask Mr Gerathy.

Sackar: “You see, we have and I suggest to you that is absolute nonsense that he never said any such thing to you at all and that you know that what he did was no more than assist you to get an interview with the Commonwealth Bank so that you could try and persuade them to finance you.

“That is incorrect.

Sackar: “Incorrect, is it?

“It is.

Sackar: “So is this the truth: when you set off to visit Mr Wyatt and Mr Rogers, you just thought you were going, as you would have it, through the pleasantries?

“Exactly true.

Sackar: “And here is virtually a total stranger who has a mutual interest with your mother in horse racing and porcelain who has not got a clue what security you are going to offer the bank for the purposes of this loan and who had not got a clue what your statement of assets and liabilities might be but nevertheless, on your story, comes down Belmore Road on a Saturday morning on behalf of the bank, you say, and just says, ‘Here is a million dollars’. That is ridiculous, isn’t it?

“That’s what happened.”

1 - 2 - 3 - 4 - 5

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The plight of Tony Rigg and others is a disgrace.

What a blight on the Legal System and the government, when the likes of successful businessman Tony Rigg has had to assume the role of his own lawyer.

Try though they may, these wonderful Australians are no match for those who act for the banks and other lending institutions and who, without
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