The Foreign Currency Loan Experience in 1980s Australia:
Dwyer v Commonwealth Bank of Australia
A case study in litigation culture
Evan Jones
School of Economics and Political Science
University of Sydney
Email: evanj@econ.usyd.edu.au
CONTENTS
1. Introduction and Background 1
2. Dwyer v Commonwealth Bank in the
NSW Supreme Court
3. Representative Sackar cross-examination
4. Some contradictory elements of the cross-examination
5. The judge brings his learning to bear on the case
6. The judgment 11
7. The Dwyer Appeal: substance
8. The tenor of the Appeal 15
9. The Appeal Judgment 18
10. The Missing Background 20
11. Conclusion 21
12. References 22
If you give me six lines written by the most honest man,
I will find something in them to hang him.
Attributed to Richelieu [1585-1642]
1 Introduction and Background
Beginning in 1982, and with impending deregulation of the
Australian financial sector, three major banks (and some lesser players)
fashioned loan products denominated in foreign currencies for small
business borrowers. Australian interest rates were high; interest rates in
some other countries (notably Switzerland) were significantly lower
(roughly 7% compared to 13%). The number of such loans was never
established with any accuracy, but it is estimated that between 3000 and
5000 such loans were made, mostly in the 1982-1985 period. The Australian
dollar plummeted in 1985, and the principal owing blew out dramatically. A
million dollar loan in Australian dollars (a not
unrepresentative sum) blew out to over two million dollars as the Swiss
franc appreciated against the Australian dollar.
Disbelief on the part of borrowers led to meetings seeking
clarification and reassurance or instructions to cope with intolerable
debt burdens. Disputation between borrower and lender escalated in the
late 1980s and, in many instances, ended up in the courts. A small handful
of borrowers were successful litigants, especially against Westpac, but
the typical litigating borrower was unsuccessful, especially against the
Commonwealth Bank of Australia.
The issues were extraordinarily complex, involving
technicalities of foreign currency products and uncertainties associated
with the relative movement of currencies (for which economists were
brought in by one or both sides to offer ‘expert’ opinion). Contemporary
media coverage was substantial, but surprisingly little published academic
literature has been generated from this affair. Kingston (1997), and a
reply by Valentine (1997) provide a rare (if narrow) contribution by
economists. Weerasooria (2000) gives an impoverished and uninsightful
summary from an academic legal perspective. The Martin Committee, in its
general inquiry into the banking sector, heard copious evidence from
participants in the dispute, only to produce a lamentable summary in its
report, A Pocketful of Change (Martin Committee, 1991, Ch.17). A
speech by one of the judicial participants in litigation, Andrew Rogers,
offers rare substance for public exposure (Rogers, 1990). With superior
resources, the banks were successful in many court cases in centring and
limiting judicial wisdom to the issue of information and knowledge – what
did the borrowers know about the nature of the product they had signed up
for. The nature of the facility itself was removed from consideration.1
By contrast, at the centre of court litigation over foreign currency loans
was whether the borrowers went into the contract with ‘eyes wide open’,
the nature and extent of
information imparted by bank personnel, and whether bank lenders had a
fiduciary duty to their borrowers regarding the viability of the foreign
currency loan in the hands of the borrowers.
This peculiar emphasis of much litigation deserves
attention; it has predictably been neglected because of the excruciating
minutiae which forms the building blocks of such cases. Because of
neglect, one case is offered as a case study in foreign currency loan
litigation – Dwyer v Commonwealth Bank of Australia.2
The case went over 19 days (albeit some truncated), producing over 800
pages of transcript (Dwyer v Commonwealth Bank of Australia, 1991a).
What follows is not an impartial account. However, aspects
of the
strategy of cross-examination and aspects of judicial intervention and
judgment, to this author, appear to fall below the standards of integrity
that we are led to expect of the legal process in a civilised community.
For that reason, considerable attention is paid to details in the
proceedings.
1 This issue will be considered in a companion paper.
2 No transcripts of the Dwyer case are available on the website of the
Australasian Legal Information Institute.
2 Dwyer v Commonwealth Bank in the NSW Supreme Court
In one of the Commonwealth Bank’s supplementary submissions
to the Martin Inquiry, the Bank claimed that: “CBA’s position is that it
responsibly approaches litigation, does not drag out court cases so as to
increase the cost, nor does it mis-use the legal system.” - (Commonwealth
Bank of Australia, 1991: 2464)
The evidence does not support this claim. First, there is
the matter of
document discovery. Both the CBA and Westpac discovered documents
belatedly, begrudgingly and partially. Early litigants against both banks
lost cases in the courts in the face of inadequate discovery.
Moreover, court procedure itself exposes rough treatment of
borrowers. John McLennan (adviser to foreign currency borrowers) has
commented:
I have attended many of the cases heard before the court
and
frankly, I am disgusted at the tactics used by the Bank’s counsel. It
appears the whole circus is run for the benefit of the Legal
profession with little or no interest in the real legal issues. I sat
through one session in Spice –v– Westpac where the Bank’s
counsel [R A Conti QC] cross examined Mr Spice for four hours
over the meaning of a pencil line drawn across a page in his diary.
(McLennan, 1990: 1350)
The Commonwealth Bank was not to be out-done. The process
is exemplified in the CBA’s 1991 defence against the plaintiffs Geoffrey
and Gloria Dwyer (Dwyer’s mother) in the NSW Supreme Court. The
cross-examination of the CBA’s senior counsel, J A Sackar QC, was
diversionary, abusive and manipulative. It is not until the sixth day of
the hearing (and page 243 of the transcript – Dwyer v Commonwealth Bank of
Australia, 1991a) that Sackar gets on to the crucial meeting on 1 August
1984 of Dwyer and his solicitor David
Baird with Mr Les Savell from the International Division of the CBA at
which the nature of the foreign currency loan was discussed.
The transparent object of Sackar’s cross-examination was to
highlight Dwyer’s prior knowledge of foreign currency loans and to destroy
his credibility so that the role of CBA personnel could be made incidental
to Dwyer’s actions. His Honour Acting Justice Staff was suitably
impressed. The same drawn-out preliminaries are engaged in with the
cross-examination of David Baird, Dwyer’s solicitor, with CBA matters not
addressed until the twelfth day (1991a: 551). In the crossexamination of
Baird, Sackar regularly interrupted Baird’s replies to Sackar’s questions,
compelling Dwyer’s counsel to return to the
questions to facilitate a complete answer from Baird. In addition, Sackar
perennially objected to the substance of his opposite number’s questioning
of all witnesses. Sackar was also aggressive on admissibility, including
bank-discovered documents. Sackar’s behaviour deserves examination at some
length. I claim above that Sackar’s questioning was diversionary, abusive
and
manipulative.
Diversionary? After the 1 August meeting at the Bank, Dwyer
and Baird were taken to the Bank’s dealing room which, for Dwyer, was a
public relations exercise oriented to impressing the visitors with the
Bank’s competence (of which more below). Dwyer was suitably impressed.
Sackar to Dwyer (1991a: 322):
Sackar: “How big was the room?
Dwyer: “It wasn’t really all that large.
…
Sackar: “Do you recall what Mr Knezevic looks like? ... Do you recall what
Mr Fuller looks like? … Go on then?
“You were asking me to describe the room earlier.
Sackar: “I am not asking you to describe the room one bit.
… I am not asking you to describe the room, all right?”
Diversionary?. Sackar to Dwyer (p.288):
Sackar: “[A synthetic loan] is a term, I suggest, you
picked up from somebody other than the Commonwealth Bank.
Dwyer: “I recall Mr Savell using that expression.
Sackar: “I suggest he never used that description and
always referred to it as a simulated foreign currency loan?
Dwyer: “He also used that expression as well.
…
Sackar: “In fact it is so confused in your mind you are not quite sure who
used the term ‘synthetic’, is that right?
Dwyer: “No, I specifically remember.
…
Sackar: “By the way, I suggest [Savell] never used the word ‘synthetic.”
(p.336A)
Bank-discovered documents for the Dwyer case included the CBA internal
paper ‘Swiss Franc forecast – 1984/85’ (G34A), produced by Savell’s
International Division in June 1984 (International Division, 1984). G34A
has a 2 page attachment (written in February 1984 by J. M. McAnany) titled
‘Synthetic/Simulated Currency Loans’. The exchange regarding nomenclature
highlights that a detailed familiarity with significant ancillary material
may not have been a high priority for Court participants.
Diversionary? Sackar to Dwyer (1991a: 305):
Sackar: “Do you recall a company in Hong Kong called Owari?
Dwyer: “That was my company.
…
Sackar: “Do you recall business to the value, as at 30 June 1979, of some
$6,500 Australian being done through this entity in Hong Kong? … The Hong
Kong situation, how was that effected? what was going to be done?”
Dwyer explained that Owari was an agency to facilitate
manufacturers exporting to Australia and bypassing their agents in
Australia with whom they were unhappy. Sackar was attempting to impute
that Owari was both a tax haven for Dwyer and proof that Dwyer had
substantial knowledge of overseas currencies. The miniscule scale of
activities in 1979 should offer a clue as to the lessons to be learnt from
this marginalia. Ignoring Dwyer’s earlier explanation, Sackar returned to
the Hong Kong affair again (p.360; p.509) to impute a non-existent
international complexity and sophistication to Dwyer’s activities.
Abusive? Sackar, in the context of Dwyer’s [lack of]
understanding of
the substance of letter of offer he received from the CBA:
Sackar: “You could read English in 1984? (1991a: 295B)
“You understood the mathematics involved in the examples given,
didn’t you? “
Dwyer: I did not.
Sackar: “You have no difficulty adding or multiplying or
subtracting in
1984, did you? … or dividing?” (p.298) And so on.
Diversionary and abusive? Sackar to Dwyer (1991a: 146):
Sackar: “I see, Mr Dwyer, have you spoken to Mr and Mrs
Rahme [also
foreign currency loan litigants against the CBA]?
Dwyer: “No.
Sackar: “Do you say that on your oath? Would you like to
reconsider?
Have you spoken to …?
Dwyer: “I have seen Mrs Rahme.
Sackar: “Did you speak to her over the weekend?
Dwyer: “I did see Mrs Rahme.
Sackar: “Did you speak to her over the weekend?
Dwyer: “Yes I did.
Sackar: “Thank you. Why did you say no when I first asked
you?
Dwyer: “Well, it’s a personal matter.
Sackar: “A personal matter? She and her husband are in the
back of the
court at the moment?
Dwyer: “That is correct.
…
Sackar: “Did you speak to them about your case?
Dwyer: “No.
Sackar: “Why not?
Dwyer: “I’m not supposed to talk about my case.
Sackar: “Did you seek them out or did they seek you out? …
Did you ring
them? … And did you go to their place or did they come to yours? … Over
the telephone?
Dwyer: “Correct.
Sackar: “How many times?
Dwyer: “Once.
“Which day?” And so on.
Sackar had already previously impugned the hapless Rahmes
(1991a: 36). Having again exhausted the possibilities of their connection
with Dwyer, he then moved abruptly to another matter.
For a brutal instance of abuse, hear Sackar cross-examining
Baird (1991a: 478).
Sackar: “By the way, do you feel at all responsible for Mr
Dwyer going into a foreign currency loan with the Commonwealth Bank?
Baird
“No, I don’t feel responsible
Sackar: “Completely a clear conscience?
Baird
“Yes, I’m completely aware of the tragedy, both the family
tragedy and the financial tragedy [Dwyer’s wife was then (and remains) in
a coma until her death in 2006].
Sackar: “I’m not asking about that.”
Manipulative? There is a consistent procedure applied by
Sackar.
Representative of this procedure is Sackar to Baird (1991a: 490):
Sackar: “Do you recall [D W Carroll, principal of financier
International Currency Services] showing you graphs and pointing to the
history of the Swiss franc and how it had moved?
Baird
“No, but I am pretty certain that there was no discussion
as to
history.
Sackar: “And him saying that the history indicated a risk
which could not
be predicted as to what would happen in the future?
Baird
“He didn’t say that.
Sackar: “You are quite certain he didn’t say that?
Baird
“Absolutely.
Sackar: “That of course was something you already knew,
wasn’t it?
Baird “What?
Sackar: “That no one could predict where the rates could go
in the future?
Baird
“No, no, in my view …” [Sackar interrupts]
The following examples are also representative of a process
of manipulation and they substantively go to the nub of the matter. They
refer to recollections of the crucial meeting of Dwyer and Baird with
Messrs Les Savell and Mark Fuller on 1 August 1984. Sackar to Dwyer (1991a:
327-330):
Sackar: “You recall [Savell] saying something like ‘If a
customer did not have a natural hedge which is where the person has a
business which is generating income in the foreign currency that they are
seeking to borrow there would be an exchange risk’?
Dwyer:
“No, I don’t recall him saying that.
Sackar: “That is something you knew though?
Dwyer:
“Not at all.
Sackar: “You were there to have things explained?
Dwyer:
“That’s correct. He didn’t explain them in that context. …
I recall
Mr Savell saying that the ideal currency to borrow was the Swiss
franc because it had the biggest cushion against the Australian
dollar.
Sackar: “You of course, having asked for Swiss francs …?
Dwyer:
I hadn’t …
…
Sackar: “Do you deny that he said ‘similarly, if the Australian dollar
depreciated against the foreign currency, then the amount required
to repay the loan would increase’?
Dwyer:
“He didn’t say that.
…
Sackar: “You came away from this meeting with an impression that
fluctuations were going to be – what?
Dwyer:
“No more than 5 per cent.
Sackar: “You regarded what – Mr Savell and Mr Fuller as
guaranteeing
that, do you?
Dwyer:
“I relied on their advice.
…
“Sackar: I want to suggest that [Savell] said to you that there was no
limit
as to how far exchange rates could move over time?
Dwyer:
“He did not.
Sackar: “You deny it?
Dwyer:
“I deny it.
Sackar: “I also suggest that he gave an example of the
Swiss francs and looked at approximately a rate of 2 to 1 saying: ‘If it
moved to 1 to 1 the amount of Australian dollars required to repay the
loan would double’?
Dwyer:
“I have no recollection of such a statement.
Sackar: “I want to suggest to you that he said that ‘Such a
movement indicated the way in which the risk arises and that if the
customer proceeded with this type of facility it was a risk that that
(sic) the customer had to accept’?
Dwyer:
“He did not saying of that drift whatsoever (sic).
…
Sackar: “He also talked to you about parity adjustments?
Dwyer:
“He did not.
Sackar: “You didn’t need any explanation of that, did you?
Dwyer:
“I know what they are today.
…
Sackar:“It wasn’t something that you went along to particularly discuss,
was it?
Dwyer:
“We went along …
Sackar: “Mr Dwyer; please.
Dwyer:
“That’s exactly the truth, Mr Sackar.
Sackar: “Look Mr Dwyer, can you please try and address the
question. Do
the best you can this time.
Dwyer:
“I’m trying to at all times.
…
Sackar: “Would you please tell us what exactly Mr Savell said about this 5
per cent.
Dwyer:
“I think I’ve already answered that question.
Sackar: “Are you able to tell us?
Dwyer:
“No. I’m only going to repeat myself.
…
Sackar: “I want to suggest to you you came away from this meeting with a
misunderstanding, would you agree?
Dwyer:
“A misunderstanding of the risks, for sure.
Sackar: “A misunderstanding of what I suggest Mr Savell
said to you?
Dwyer:
“Not at all.”
On the same theme, Sackar to Baird (1991a: 578ff.):
Sackar: “I suggest [Fuller] put to you something like this,
‘Hedging is available to eliminate the risk at any point while you are
exposed. Do you recall that?
Baird:
“No, I don’t.
Sackar: “He said then, ‘If you find the exchange rate is
moving against you
you may decide after it reaches a certain point that it is better to
pay the cost of hedging and eliminate any further risk rather than
letting the exposure continue’?
Baird:
“I don’t recall that.
Sackar: “But you understood that that was always at the
choice of the borrower, to intervene in his interest in that way?
Baird:
“No, not in pragmatic sense.
…
Sackar: “I want to suggest to you that he then said something like this,
‘If you do that, namely hedge, you would be locking in the loss up to the
point of hedging’?
Baird:
“’Locking in the loss,’ I don’t remember that.
…
Sackar: “Did you listen to me? … I don’t want to keep repeating myself?
… Would you listen please?
…
Sackar: “If the exchange rate starts to go against you, you should have
some idea in mind of how far you would be prepared to let it go before
hedging?
Baird:
“[Fuller] didn’t say that. That is not my recollection.
Sackar: “Did he say anything like it?
Baird:
“Yes, he said, ‘If there’s a minor fluctuation that is
against you, even if you hedge later on in the contract you will still be
better off because if you average the interest rate and the
fluctuation and compare it to the domestic interest rate you will be
better off.
Sackar: “You must have been having to blink your eyes to
see whether or
not you were talking to Mr Looke [Dwyer’s previous accountant,
and an earlier (ill-informed) advocate of foreign currency loans
denominated in US dollars] or Mr Fuller at this meeting, surely?
Baird:
“No. No, it was confirmation of the understanding that we
had at
the time.
Sackar: “I want to suggest the truth is quite the contrary
to what occurred
at this meeting?
Baird:
“I don’t agree.
Sackar: “And that time and emotion have completely confused
your
recollection of what Looke had told you and what you can recall of
this meeting?
Baird:
“No, I don’t agree.
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