Foreign Currency Loan Fiasco in 1980 - Dwyer v Commonwealth Bank of Australia
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School of Economics and Political Science
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.
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The Foreign Currency Loan Experience in 1980s Australia:
A case study in litigation culture
School of Economics and Political Science
If you give me six lines written by the most honest man,
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
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
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
1 This issue will be considered in a companion paper.
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
Moreover, court procedure itself exposes rough treatment of borrowers. John McLennan (adviser to foreign currency borrowers) has commented:
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
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
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):
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.
Dwyer: “No, I specifically remember.
Diversionary? Sackar to Dwyer (1991a: 305):
Sackar: “Do you recall a company in Hong Kong called Owari?
Dwyer: “That was my company.
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]
Sackar: “You could read English in 1984? (1991a: 295B)
Dwyer: I did not.
Sackar: “You have no difficulty adding or multiplying or
Diversionary and abusive? Sackar to Dwyer (1991a: 146):
Sackar: “I see, Mr Dwyer, have you spoken to Mr and Mrs
Sackar: “Do you say that on your oath? Would you like 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
Dwyer: “That is correct.
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
Sackar: “How many times?
“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: “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?
“No, but I am pretty certain that there was no discussion
Sackar: “And him saying that the history indicated a risk
which could not
Baird “He didn’t say that.
Sackar: “You are quite certain he didn’t say that?
Sackar: “That of course was something you already knew, wasn’t it?
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?
“That’s correct. He didn’t explain them in that context. …
Sackar: “You of course, having asked for Swiss francs …?
I hadn’t …
“He didn’t say that.
Dwyer: “No more than 5 per cent.
Sackar: “You regarded what – Mr Savell and Mr Fuller as
“I relied on their advice.
Dwyer: “He did not.
Sackar: “You 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’?
“He did not saying of that drift whatsoever (sic).
Dwyer: “He did not.
Sackar: “You didn’t need any explanation of that, did you?
“I know what they are today.
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
“I’m trying to at all times.
Dwyer: “I think I’ve already answered that question.
Sackar: “Are you able to tell us?
“No. I’m only going to repeat myself.
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
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?
“No, not in pragmatic sense.
“’Locking in the loss,’ I don’t remember that.
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
“No. No, it was confirmation of the understanding that we
Sackar: “I want to suggest the truth is quite the contrary
to what occurred
Baird: “I don’t agree.
Sackar: “And that time and emotion have completely confused
Baird: “No, I don’t agree.
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