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

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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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A New Beginning: A Practical Course in Miracles
1  INTRODUCTION
HISTORY OF COMMERCE
3 RESPONSIBILITY
4 REDEMPTION

5 POWER OF ACCEPTANCE
6 BEING A DIPLOMAT
7 BEING A SOVEREIGN
8 PRIVATE BANKING

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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
conscience, sacrifice these innocents to the scrapheap.

It is imperative that the battle fought is on 'legal' grounds and the result obtained is financially beneficial to the battlers.

I am saddened that so many, spend so much of their life, with very little reward.

I have been where these fine people are, and now have a real
opportunity to assist. I now own an Incorporated Legal Practice - "NICHOLAS POULOS LAWYERS" and we specialise in litigation (but have a general practice).

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Kind regards,
Patricia Poulos

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7 The Dwyer Appeal: substance

From the trial judgement we move to the court of appeal, presided over by Justices Sheller, Clarke and Handley (Dwyer v Commonwealth Bank of Australia, 1995a; 1995b).

Counsel for Dwyer, R Dubler, argued that what took place at the 1 August 1984 meeting, between bank officers Savell and Fuller and borrower Dwyer and his solicitor Baird, was the crucial issue. Dubler was claiming in tort both negligent mis-statement and negligent conduct in failing to advise. Dubler claimed that Dwyer’s credibility had been tested on other matters and His Honour had ruled against Dwyer’s credibility in toto. Moreover, His Honour had made no judgment on the credibility of bank officer representations. As Dubler
noted: ‘there is nothing in the judgement that indicates his Honour’s view of the evidence of Mr Savell and Mr Fuller, bearing in mind their evidence was one of [customary] practice’ (1995a: 29).

The only record of the 1 August meeting was the notes taken by Baird, and Sackar devoted considerable time to persuade the bench that the notes embodied conclusions different to Baird’s own recollections. The bank officers’ testimony referred to customary practice, not to recollections of the specific meeting, and even formal practice remains hypothetical without supplementary confirmation.

The atmosphere was not assisted by the fact that, in numerous interventions during the Appeal hearing, a judge would repeat the inaccuracies written into the trial judgment. These were not corrected by Dubler, and it was left to Dwyer, in a supplementary submission two weeks later, to highlight the reproduction of the inaccuracies.

In the trial hearing, the Bank’s counsel had made much of Dwyer’s earlier attempts to seek information on finance options, in the course of which foreign currency loans were discussed. As a consequence, it was argued that Dwyer ought to have been deeply familiar with their character before he came into contact with the Commonwealth Bank.

His Honour found that Dwyer ‘down-played any knowledge he received from other sources’. Dwyer’s claim, through Dubler, was that ‘[t]he thrust of his evidence was he received little advice of significance from the other parties …’ (1995a: 24).

The appeal judges wanted to know why Dwyer was not more assertive in questioning the bank officers. They were also inclined to believe the trial judge’s assertion that, if Dwyer was not listening, there could be no reliance for Dwyer’s subsequent behaviour on the officers’ statements. Dubler’s counter-claim was that (1995a: 34):

“… if someone is receiving generalised warnings in the terms that Mr Dwyer had heard before [namely, that there will be exchange rate fluctuations, but their scale will be minor and insufficient to offset the interest rate differential available from a foreign currency loan] which is not remarkable nor fatal to the appellant’s case, that he did not trouble himself to make great deal of note of them. … had the warnings been given in clear terms inconsistent with the beliefs of Messrs Dwyer and Baird at the meeting, would the appellant have ignored them? We say that those findings of not paying attention or not listening can only have bite and meaning if it can be clearly understood what those warning (sic) were. … But it is the case of Mr Baird that what was said was limited and that there was confirmation that negligible risk was the likely result.”

Sackar’s counter-counter-claim is that Dwyer’s mind was already made up – he was set on an offshore loan (1995a: 53). What might or might not have been said at the Savell/Fuller meeting is ultimately irrelevant because Dwyer was not listening. Said Sackar:

“The authority [the Court] does no more than simply advert to the
possibility that there are such people in the community who will
wilfully and successfully pursue a particular course of conduct as
is best is best illustrated in Sutton v Thompson …”

Moreover, because Dwyer’s mind was made up, the bank does not:

“… attract a duty to discuss in such as way as to permit of an informed decision the pros and cons of offshore as opposed to
onshore generally in the circumstances here …”

Another contradiction arises in Sackar’s interpretation of the 1 August meeting. A good deal of the trial hearing (and the fight over Baird’s notes) involved the attempt by Sackar to claim that the Savell/Fuller meeting provided Dwyer and Baird with an appropriate explanation of attendant risks. This defence is accompanied by the strident claim that the only function of the meeting was to outline the differences between simulated and a direct offshore facility, although the meeting might have gone beyond this point ‘… if [Savell] voluntarily assumed some responsibility’.

The only consistent thread in Sackar’s various and less than coherent defenses is that the Bank bears no responsibility for subsequent events. The cognisance of, interpretation and lessons from the graphs is another dimension of this circus. Sackar made much of Dwyer’s seeming incapacity to learn from graphs presented at the meeting, emphasising the lessons regarding potential exchange rate volatility. The graphs are brought up again in
the appeal. The graphs at question were the ones typically shown to CBA foreign currency borrowers, with the date span being 1980 to 1984. These graphs were typically shown to present the case for relative stability of the currencies (AUD, CHF, USD). The notion that these graphs presented indubitable warnings regarding volatility is ludicrous. Witness an exchange between minds versed in the law (1995a: 28):

“Dubler: But in particular some of these graphs do not go back a great deal of time, but they tend to have …

Handley: … quite short term – there’s more than five per cent on that page [his Honour makes one of many ill-informed interventions, spontaneously joining the ‘volatility camp’]

Dubler: … that is corroborative of an averaging by the Luke [read Looke] theory that there are fluctuations but within a band, and if you wait long enough it will come back. … A lot of these cases will revolve around graphs and it depends which currency you choose, which time period and the like.

Our submission is, as is not uncommon, graphs can speak many different things. It really needs the explanation to make it good, that of all the currencies, for no matter what period you look at, have essential instability in them and there can be no real trend. That is the substance of any relevant advice.

The [Looke] theory was that there was a trend, particularly for Swiss francs and Australian dollars of perceived instability, and it went further, the perceived instability was something a borrower could rely upon as being likely to continue. Something can be made of the graphs one way or the other, and they were in cross-examination of Mr Dwyer, along the lines your Honour has suggested, but the essential conflict is that some of the graphs show different things and there was no clear explanation of what a borrower should draw from the graphs. So we say it is not correct to say, if it be the case that there was simply a production of graphs at a meeting, that they necessarily meant the [Looke] theory was being challenged.

The detached observer would have to conclude that counsel has made a
salient point, drawn from rudimentary lessons in elementary statistics. Yet Dwyer and his solicitor were damned by legal minds partly on the strength of their ‘faulty’ understanding of these graphs. Moreover, here is Sackar later in the Appeal hearing sticking to his last (p.57):

“… both of them were cross-examined on those graphs. Both
acknowledged they showed volatility … They are graphs Baird
conceded he saw …”

Lies, damned lies and statistics. It was not acknowledged by Defence counsel nor by the bench that bank personnel and expert economists were also having difficulty interpreting the graphs.

8 The tenor of the Appeal

There are notable features of the Appeal hearing that elucidate the character of the judicial process. First, the appeal judges carried on the trial judge’s neglect of bank documents as pertinent evidence. Dubler’s reference to the adverse implications of several discovered documents for the Bank’s credibility were ignored. In particular, Dubler (1995a: 12) referred to a memo
dated 7 August 1984 (G46), a week after the Dwyer meeting (Long, 1984). G46 comments on a 17 July memo (G44) on the expansion of foreign currency loans (Edwards, 1984). The G46 memo highlights doubts raised by the Chairman of the Bank’s Credit Committee ‘some weeks ago’ … “about the desirability of lending to the smaller end of the market and in the discussion which ensued it was agreed that care needs to be taken to ensure that he inexperienced are not assisted or encouraged into a situation they cannot handle. However my understanding of the discussion is such that we were not instructed to hold back from F/C/Ls but merely to lend judiciously.” (Text from the G documents are not included in the Appeal transcript!)

The author of G46 claims that, in promulgating [an expansionary F/C/L policy]

“… the following could be clearly conveyed:

F/C/Ls may be marketed to those clients … who would have the capacity to manage their exposures or meet exchange losses which may occur. F/C/Ls are not a facility for weaker clients. The terms on which F/C/Ls may be offered. Specific comment on all aspects such a security, margins etc is proposed. (The question of whether existing written instructions are adequate will be reconsidered.) …”

This need for caution, expressed at senior level, was not followed by loan officers; neither were the mooted conditions under which the policy was to be effected. Yet this background proved to be of no import to the presiding judges.

Second, there are myriad interventions by one or other of the appeal judges, and joined by Sackar, making assertions on details of foreign currencies that are inaccurate, diversionary or inconsequential. The legal minds presume to display their informedness on a subject of which they are ignorant. The interventions would be comic were it not for the seriousness of the situation. Dubler had to remind them in summation that ‘[the Dwyers] were putting on line their worldly assets on the notion that the risk would be negligible’ (p.83). The judges were only risking their reputation, but the absence of witnesses to such interventions ensured that their Honours’ reputations would remain intact.

Third, Sackar’s defence continued to be manipulative and, at times, liberal with the truth. Three examples are offered below. First, Sackar returned to the matter of the origins of the CBA loan. Says Sackar (1995a: 61):

“His Honour must have found that, that part of the evidence was a complete invention. It is clear that Mr Gerathy arranged in some way for Mr Dwyer to go and see Mr White [read Wyatt]. …

“So [Dwyer] said and swore on oath that prior to 20 July the Commonwealth bank had told him via Mr Gerathy that the facility was in place …

“That is his evidence. Is it any wonder his Honour rejected that. In part Mr Gerathy was shown (a) not to have been at the bank at the time, being retired some months earlier and (b) being overseas during the time this conversation was said to have taken place and (c) the commercial unreality of it.”

Geoff Dwyer and his mother were in the shop when Gerathy called, and they have a common account of events. Gerathy differs on timing and what was said. Regarding timing, Gerathy’s Statement has him out of the country between May 4 and July 15, claiming Passport stamps as evidence (it appears that the Passport was not presented to the Court). Given that the Dwyers remember Gerathy coming into the shop after his return from abroad, describing his experience in Alaska as memorable, the trip does not loom as an insuperable obstacle to the Dwyer scenario. Gerathy claims that he only offered (and subsequently carried out) to arrange a meeting with Mr Robert Wyatt, Deputy Chief State Manager. (Wyatt, in a brief Statement prepared for his employer’s defence on 4 June 1991, claims no memory of any process involving the Dwyer loan, though he does acknowledge his signature or initials on Dwyer documentation.) Dwyer and his mother claim that Gerathy told them that a loan had been arranged, and that Westpac could be paid out. (As a reflection of her gratitude, Gloria Dwyer gave Gerathy a Royal Worcestershire hand-painted fruit bowl, valued at approximately $600. Such a gift is hardly compatible with a transaction claimed by the Defence counsel to be merely one of the transmission of information and the establishment of a contact.)

Says Sackar (p.62):

‘It may be his mother had given details of the amounts outstanding in the letter she had shown Mr Gerathy. His Honour for good reason refused to acknowledge that episode ever occurred and all that occurred was that a contact was made and Mr Dwyer went and asked for a loan’.

To repeat, the indisputable fact is that the loan process was in train before the Bank had seen any paperwork. Dwyer’s solicitor forwarded material on the 19 July, immediately prior to the 20 July meeting, and the passage of that meeting is consistent with Dwyer’s view as ‘a formality’. The loan was processed and approved within several days. The process may reasonably be described as embodying a ‘commercial unreality’. Sackar, through the power of language, hopes to turn fact into fiction, a fiction supposedly residing only in the minds of the plaintiffs. Their Honours were passive on this issue.

Second, Sackar also manipulates the situation regarding a contemporaneous inquiry for a loan from Transcity. Sackar implies that the inquiry was begun with Transcity after the exchange with Gerathy. This presumed timing is then claimed to support the claim that the Dwyers knew that no loan with the CBA had been arranged. One piece of manipulation requires another. Yet the inquiry to Transcity through Baird was contemporaneous. The CBA was informed at the 20 July meeting that Dwyer was considering a Transcity loan. Transcity sent Baird an ‘indicative’ letter on 27 July (‘and now set out below the basis whereby Trans City would be prepared to considered providing a multi-currency line of credit …’). By the 27th, the paperwork had been processed at the CBA, and the indicative letter was not pursued.

Sackar also claims that the Trans City inquiry proves that Dwyer was hell bent on an offshore loan, which rendered void any responsibility of the CBA to outline the associated risks. This issue is pursued in the Conclusion.

Third, there is another incident of misrepresentation. John Bamfield, an accountant hired by Dwyer after he had obtained the CBA loan, produced a report on the relative merits of simulated loans versus foreign currency loans. The three page January 1985 report is held by Sackar to damn Baird (and Dwyer) because Baird presumably denies ever hearing the word ‘loss’ used with respect to a foreign currency loan. According to Sackar, the Bamfield report ‘talks about losses, exchange, gains and losses’ (1995a: 56). Sackar returns to Bamfield again (p.71): ‘[Bamfield] adverts to the fact that not only were [gains] possible but losses were possible.’ However the report, natural product of an accountant’s expertise, discusses the magic word ‘loss’ in an utterly pedestrian manner. With respect to a foreign currency loan, Bamfield reports that parity adjustments ‘will be necessary if the borrower is faced with an exchange loss’ – familiar stuff. With respect to a simulated loan, Bamfield offers an opinion on whether net exchange gains or losses, upon repayment of the borrowing, would represent a return of capital or income. There is nothing in the Bamfield report that conveys the impression that Sackar hopes to convey to the bench. The report was offered to their Honours, but did they read it? Sackar also claims that Baird’s supposed dissembling on the Bamfield report was a critical element in his Honour, in the trial judgment, declaring that Baird’s attachment to his prejudices was ‘bordering on blind faith’ (p.72). Had
Acting Justice Staff read the short Bamfield report? Blindness is not a trait monopolised by the borrowers, it seems.

Sackar rounds off his revisited demolition of the credibility of Dwyer
and Baird with further abuse.

“That [Dwyer’s and Baird’s recollection of receipt of and the
import of the graphs, as noted above] is but one piece of evidence
but not important (sic) because it does show the very indifference,
the very obdurate nature displayed by both people and which his
Honour clearly took into account. (p.57)

“This is a man [Dwyer] who was not prepared to make too many
concessions in the course of cross examination and almost at every
turn put his position at its most extreme. His Honours used the
word “fashioned”. That was clearly elegant to describe what this
witness was doing. It was quite appropriate to use a much more
perhaps inelegant and cruder description.” (p.63)

Sackar’s performance is met with rapturous applause by Clarke J. (p.77):

“Mr Sackar, I think you have been able to put your case orally with
great force and it is supplemented by very detailed notes. As far as
the Bench is concerned I do not think we need to hear you any
further. We understand precisely the point you make and I do not
think it would be advanced by any further argument.”

Given that Sackar had behind him the full resources of the Commonwealth Bank, the availability of ‘very detailed notes’ is not surprising. This pat on the back marks the end of the appeal and the end of the Dwyers.

Clarke’s concluding words are (p.84):

‘The Court is indebted to counsel for very helpful submission (sic) in what is, in the circumstances, a case with some complexity and difficulty’.

This is a diplomatic phrase, but the previous interventions belie the courtesies.

1 - 2 - 3 - 4 - 5

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