9 The Appeal Judgment
On 30 June 1995 Justice Sheller, Justices Clarke and
Handley concurring, delivered a judgment dismissing the appeal
(Dwyer v Commonwealth Bank of Australia, 1995b). Relevant text comprises 6
½ pages. The Record Sheet summary reads thus:
"… it was open to Staff AJ to hold that nothing the CBA
officers said at the meeting induced the appellants to make the simulated
FCL or the direct FCL.
“The CBA was not under a duty to give general warnings
which would have demolished Mr Dwyer’s belief that the risk of adverse
foreign exchange fluctuations was negligible as such fluctuations evened
out’ over the term of the loan. the evidence that Mr Dwyer had
consistently ignored warnings about the risks of foreign currency
borrowings justified the conclusion that even if the
information and advice produced by CBA was less than its duty required,
this would not have altered Mr Dwyer’s decision to borrow offshore.”
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Part of the Dwyer appeal involves a claim for the recovery
of withholding tax. All borrowers of foreign currency loans were ordered
by their lenders to pay a 10% surcharge on their interest payments,
insofar as they were considered as virtual overseas residents. The tax was
paid to the lending institution with the presumption that it would be
passed on to the Australian Tax Office. In another foreign currency
litigation, it was argued that s.261 of the Income Tax Assessment Act 1936
rendered void the necessity to pay the tax. During the Dwyer litigation
the issue was pending in the High Court. Interim judgments highlight that
the legal profession found itself in a quagmire of uncertainty, with legal
argument dominated by an incalculable sophistry. Evidence of the tax
having been passed on to the ATO has been hard to come by. The ANZ Bank
admitted culpability and redistributed the tax. The CBA and Westpac have
remitted the tax selectively. The Dwyers were claiming $37,500.
The Appeal judges were so flummoxed by the withholding tax
issue that they recommended referral back to the Commercial Division of
the NSW Supreme Court. The CBA’s in house Counsel, L. E. Taylor, wrote to
the Dwyers in August 1995 (Taylor, 1995). Taylor claimed that the CBA
intended to fight the case, but that the bank would release the Dwyers
from any costs associated with the hearing or a subsequent appeal, in
return for the Dwyers ‘agreeing to release the Bank from any claim in
respect of withholding tax or any claim of any other nature’. This offer
was transparent blackmail. The Dwyers did not accept the bribe and
rejected the offer.
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On close examination, the Appeal judgment is more guarded
in tone
than the Staff judgment, but its quality is little better. Partly the
common elements are because Sheller repeats some of the inaccuracies of
the Staff judgment and perpetuates its parameters. No questions of law are
at stake. The issue remains the credibility of Dwyer and, to a lesser
extent, his solicitor Baird. Sheller refers to instances of documentation
to which Dwyer and/or Baird would have been exposed. Says Sheller (p.14):
‘There was ample evidence from officers of Westpac and other finance
consultants of advice given to Mr Dwyer about the ramifications of a
foreign currency facility and the
risk of exchange rate fluctuations. … [A 1982 Westpac] document referred
to the volatility of exchange rates and interest rates’. But such
references imply that the meaning of the text is transparent. The Appeal
judges to a man exposed themselves during the hearing as novices on
currencies. We have also seen how Sackar drew a particular, partisan and
dubious interpretation from the Bamfield report.
Formally, the matter of the recovery of paid withholding
tax remains open.
Sheller’s judgment did us the service of outlining (reproducing the
presentation of Dwyer’s counsel Dubler) the steps and the linkages
necessary in the Court’s determination of responsibility in the arena of
information, advice and reliance (p.10):
• what the bank wrote or said
• whether what was written or said was incorrect or
misleading, or written or said negligently
• to what extent, if any, the bank was under a duty to
provide more information or give more advice
If in any of these steps the bank was in breach of its duty
• to what extent and in what way, if any at all, the
customer relied upon what was written or said or would have relied upon
the further information or advice
If the customer establishes reliance
• whether loss resulted.
Sheller agreed with the plaintiffs that his Honour ‘short
circuited the process by dealing with reliance without determining what
representations were made’ (p.11). But Sheller proceeds to perform his own
short circuit – ‘On its face his Honour’s approach appears to be
unsatisfactory but, on analysis, I think the findings he made justify his
conclusion’.
On his way to this evaluation Sheller claims curiously that
‘[Staff] proceeded on an assumption that the CBA was under a duty “as
alleged” that is that CBA should have given more information or advice
than it did’ (p.10). On the contrary, the idea of fiduciary duty made no
entrance in the trial hearing. The transcript of the trial judgment reads
(1991b: 5): ‘… if one assumes a duty upon the defendant Bank, as alleged,
I cannot be satisfied that Mr. Dwyer would have relied upon or accepted
such information or advice as the Bank
would have tendered …’. Staff is speaking hypothetically; he did not
assume a duty upon the defendant Bank.
Sheller likes Staff’s conclusions but doesn’t like his
reasoning. Sheller finds another route to the attractive conclusions, this
time circuitous, although without having to retrace Staff’s steps. Sheller
claims that the appellants, through Dubler, came before him arguing that
the Bank had a duty to ‘demolish the theory attributed to Mr Looke’
(p.13), or alternatively ‘to give general warnings which would have been
“necessarily inconsistent with and would hence debunk the Looke theory”’
(p.14)
Kevin Looke was Dwyer’s accountant until 1982, and Looke
became aware that some brokers were touting the availability of foreign
currency loans. He disseminated this information, but his involvement
appeared to be that of generating sufficient interest from business people
to join a consortium by which a substantial block foreign currency loan
would be obtained; obtaining a bank guarantee for the block loan was also
a necessary step. Looke did not attract much interest in this proposition.
Looke’s relationship with Dwyer (and hence his capacity for continuing
influence and advice) following this early dead-end was a subject of
dispute among the parties. Looke died in 1984 so he was not available to
constrain the use and abuse of his name in the Dwyer hearings.
The so-called ‘Looke theory’ is the presumption that a
foreign currency loan might involve losses and gains from currency
fluctuations, but over time these fluctuations would not be great in
amplitude and would tend to balance out. In short, the implication of the
‘Looke theory’ is that a foreign currency loan would be a viable
proposition.
It is this optimistic scenario, with Looke’s name on it,
that the trial judge Staff claimed was held by Dwyer, such that no amount
of warnings as to parlous risk would have dislodged Dwyer from his ‘blind
faith’.
Sheller claimed that the appellants’ efforts to get the Bank to ‘disown’
the Looke theory damned their case. ‘There was no evidence that CBA or any
of its officers were aware of should have been aware that Mr Dwyer was
convinced by such a theory and acting in reliance on it’ (p.13). Moreover,
the presumed reasoning was ‘… a far cry from the way the appellants ran
the trial. Their case before Staff AJ was that Mr Dwyer had a very limited
knowledge or an interest in FCLs before his contact with CBA and was
almost entirely uninfluenced by Mr Looke’ (p.14).
Said Sheller: ‘This makes their argument on appeal quite
artificial’. So the appeal was doomed. But the ‘far cry’ is a concoction.
There is a common thread. Dwyer had become aware of foreign currency loans
from Looke. He had subsequently inquired about and applied for such a loan
on several occasions. Did he understand at any point what he was getting
himself into? In his inquiries with Baird he was met with various
presentations which appear to be generally of a formulaic nature. The Bank
thought that this was more than enough in quantity and quality. The Trial
judge agreed. So did the Appeal judges. The crucial Savell/Rogers CBA
meeting was, to Dwyer and Baird, little
different from meetings with other potential lenders/brokers, if anything
probably less informative on the key issue of risk.
The Appeal judges added additional subtleties to Staff’s
conclusions. First, Sheller confronts the divergence of memory between the
two sides of what was said at the Savell/Rogers meeting (indeed, he opens
with this issue). Savell is alleged by Dwyer to have claimed that the
floating of the Australian dollar and the fact that foreign currency loans
are mediated through the US dollar both contribute to a stable regime for
a foreign currency loan. Savell denies having made either claim. The
colour of Sheller’s articulation is such that he cannot conceive that a
bank officer’s memory might be flawed. It doesn’t matter that ‘Mr Savell
had no recollection of meeting Messrs Baird and Dwyer’ (p.12). It is
sufficient, concurring with Staff’s reasoning, that Dwyer’s account was
not corroborated, including by Baird’s notes.
Second. Sheller hedges his bets and transcends the
difficulty of establishing veracity by reasoning that it doesn’t matter.
‘It is not self evident that if [Savell’s] statements were made they were
wrong’ (p.11).
Third, reliance is everything. The importance of reliance
provides an additional layer for why what was said was not of primary
concern. Dwyer was held to come to the meeting only to hear about the
difference between two forms of foreign currency loans. In this Sheller
concurs with the Trial judge. Sheller goes further in claiming that,
insofar as Dwyer shifted from the initial simulated loan to a direct
foreign currency loan in early 1985, that extra step and the
deliberations behind it vitiated any notion that the Savell/Rogers meeting
was decisive in determining Dwyer’s long term path of action.
10 The Missing Background
The Dwyer court cases were run almost completely without
context. The economic backdrop entered only through the murky character of
graphs displaying relative currency ratios. Remarkably, legal precedent
played the most minimal of roles in the Dwyer hearings. Foreign currency
cases figure in the submissions of the parties both before and following
the Trial hearing. The plaintiffs forwarded Potts v Westpac (1990) and
Mehta v Commonwealth Bank
(1990), among others, as relevant to a ‘duty of care’ (Dwyer v
Commonwealth Bank, 1991c). They also forwarded Quade v Commonwealth Bank
(1991), Spice v Westpac (1990) and Chirabaglio v Westpac (1990) for
general reference. All five judgments favour the borrowers.
By contrast, the Bank forwarded David Securities (1989) as
precedent
for the onerous test to argue for ‘duty of care’ (Dwyer v Commonwealth
Bank, 1991d). On the matter of disclosure of exchange risk, the Bank also
forwarded David Securities v Commonwealth Bank (1989) (and the failed
Appeal initiated by the borrowers, not referenced here), Ralik v
Commonwealth Bank (1990)
and the Mehta Appeal, successful for the bank following an adverse Trial
judgment (Mehta v Commonwealth Bank, 1991). In the posthearing submission
(Dwyer v Commonwealth Bank, 1991e), the Bank again forwarded Ralik (1990)
and the Mehta Appeal judgment (1991), amongst others, to claim brutally in
the Dwyer case, ‘There is no duty’. None of this mattered, save for brief
cameos. Most surprising of all is the absence of Quade. [The Quade
judgement states “the bank was told by their own treasury department not
'if' or ‘maybe’ the Australian dollar would devalue but it will
devalue substantially.” This information was known to the bank prior to
the bank selling this loan to its trusting customers. It was withheld from
the borrowers that were sold a foreign currency loan by CBA so that they
could not make an informed decision.]
Quade appealed on
the grounds of nondiscovery, a problem for all early litigants. The Appeal
judgment overturning the Trial judgment that favoured the CBA is, to this
author’s knowledge, the only foreign currency case proceeding through the
courts that was lost by the Commonwealth Bank. Non-discovery itself was a
telling factor. According to Burchett J (Quade v Commonwealth Bank of
Australia, in ALR, 1991: 577/8):
Here, the evidence was withheld from the appellants by the
default of the respondent in the performance of its obligation to comply
with an order relating to the discovery of documents. … It is only in the
narrowest sense that a trial can be said to have been regularly conducted
when a vital procedural step involved in the preparation for it has been
stifled by one party’s default. …
In my opinion, in such a case the principle on which the
general
rule is really founded [regarding the treatment of fresh evidence,
Dixon J in Orr v Holmes (1948)] … must be modified by its
collision with the equally important principle that a party should
not be permitted to mock the orders of the court, which would
surely be mocked if the opponent could be deprived permanently
of a fair prospect of success by a party’s failure to comply with the
obligation or an order so important in the conduct of litigation as
an order of discovery. … To revert to the language of Dixon J …
an appellant is entitled to claim there is an imperative demand of
justice to be fulfilled.
It was found that the Bank assumed the responsibility to
advise, that there was reliance, and that the advice was inadequate. This
judgment was in February 1991, three months before the Dwyer case began in
May. Quade had been consigned to oblivion in three months.
Bank documents were available in the Dwyer case (thanks to
Quade?). They made only a cameo appearance in the Court hearings (given
their contents, this absence hardly does credit to the Dwyer counsel).
Bank documents (especially the ‘G’ documents) and other material will be
the subject of a paper complementary to this one.
11 Conclusion
The prospect of the Dwyers winning in their court actions
was close to zero. One begins with the structural asymmetries in court
actions. The banks command massive resources. They can purchase the cream
of legal talent, and John Sackar’s powerful performance in Dwyer indicated
that he is clearly in that category. Behind counsel, it is clear that
there was an army of staff devoted to gathering material to demolish the
Dwyer case. Of course, there was more at stake than this single case.
There was the necessity to sustain the momentum of victories in foreign
currency litigation and to stem the damning
indictment of the Bank in Quade, based on the content of Bank documents,
from being used as precedent in further litigation. In the case of Dwyer v
Commonwealth Bank of Australia there are merits in being an outsider to
the legal process. From an outsider’s perspective, the Trial Court process
was conducted with an absence of ethical standards; the judgment itself,
as noted above, was sub-standard in quality. The Appeal Court process
predictably centred on technicalities, de facto reinforcing the
legitimacy of the Trial Court
process. Here was the Commonwealth Bank, born as the People’s Bank in 1911
to offset unequal access to finance then prevailing, employing its
disproportionate command of resources and bullyboy tactics in the singular
pursuit of the commercial ‘bottom line’. Court transcripts are typically
perused with a clinical eye solely for the purposes of tracing the lineage
of precedent. Dwyer v Commonwealth Bank of Australia might profitably be
used in courses on business ethics that now populate business programs
purporting to train the next generation of business leaders in Australia.
12 References
Bamfield & Company (1985), ‘Report’ [on the relative merits
of Direct Foreign Currency Borrowing and Simulated Foreign Currency
Borrowing]. 29 January. 3pp. Plaintiffs’ Bundle of Documents, pp.353-355.
Baird, David (1991), ‘Dwyer –v– Commonwealth Bank of
Australia: Supplementary Statement of David John Baird’, 23 May. 7pp.
[Campbell] Committee of Inquiry into the Australian
Financial System (1981), Australian financial system: final report.
September.
Commonwealth Bank of Australia (1991), ‘Overview of Foreign
Currency Lending’ [Supplementary Submission #3a], in Martin Inquiry
[Standing Committee on Finance and Public Administration], Australian
banking industry, Submissions, Volume Ten, 2430-2490.
Dodd, Max (1998), Affidavit for Gregory Ronald Roach v
Commonwealth Bank of Australia, 10 March, 11pp.
Dwyer & Anor v Commonwealth Bank of Australia (1991a)
Supreme Court of New South Wales No.50463/90 Transcript of Hearings 27 May
– 12 Sept.
Dwyer & Anor v Commonwealth Bank of Australia (1991b)
Supreme Court of New South Wales No.50463/90 Judgment Staff AJ 18 October
1991.
Dwyer v Commonwealth Bank of Australia (1991c) Plaintiff’s
Topics for Submissions. 28 May. 5pp.
Dwyer v Commonwealth Bank of Australia (1991d) Defendant’s
Topics for Submissions. 27 May. 15pp.
Dwyer v Commonwealth Bank (1991e) [Defendant’s] Outline of
Submission. no date (July?). 4pp.
Dwyer & Anor v Commonwealth Bank of Australia (1995a)
Supreme Court of New South Wales Court of Appeal No.40663/91 Transcript of
Hearings 27 April – 28 April.
Dwyer & Anor v Commonwealth Bank of Australia (1995b)
Supreme Court of New South Wales Court of Appeal No.40663/91 Judgment
Sheller, Clarke, Handley JJ 30 June 1991.
Edwards, J. L. (1984), ‘Foreign Currency Loans to Australian Customers’.
Memorandum [G44], 17 July.
Gerathy, J. (1991), ‘Statement of J Gerathy’ [filed for the
Defendant]. 21 June. 3pp.
International Division [CBA] (1984), ‘Swiss Franc Forecast
– 1984/85’ [G34A], 22 June.
Long, E. (1984), ‘Comments’ [G46], 7 August.
McLennan, J. R. (1990), Submission #36, in Martin Inquiry
[Standing
Committee on Finance and Public Administration], Australian
banking industry, Submission, Volume Five, 1343-1373.
Kingston, Geoffrey (1997), “The Foreign Currency Loans
Affair: a
Rejoinder”, Australian Economic Papers, December, 369-371.
Martin Committee [Parliament of the Commonwealth of
Australia,
House of Representatives Standing Committee on Finance and
Public Administration] (1991), A Pocket Full of Change: Banking
and Deregulation, November.
Roe, David, Treatt & Watts [Solicitors] (1982), letter to
Westpac, 25
October.
Rogers, [Justice] Andrew (1990), “Developments in Foreign
Currency
Loan Litigation”, Journal of Banking and Finance Law and Practice,
September, 201-210.
Rogers, J. C. (1984), ‘Application for Advance’,
Memorandum, 23
July.
Savell, W. L. P. (1991), ‘Statement of W L P Savell’ [filed
for the
Defendant]. 29 May. 21pp.
Taylor, L. E. [Chief Solicitor & General Counsel] (1995),
to Mr G R
Dwyer & Mrs G I Dwyer, Letter, 17 August.
Valentine, Tom (1997), “The Foreign Currency Loans Affair:
Some Comments”, Australian Economic Papers, December, 362-368.
Weerasooria, W. S. (2000), Banking Law and the Financial
System, 5th
edn., Sydney: Butterworths.
Wyatt, R. J. [Acting Chief State Manager NSW] (1984),
‘Comments [re Dwyer loan security]’, 23 July.
Other Court Cases
Chiarabaglio v Westpac (1990) Federal Court of Australia
Queensland No. G 159 of 1987 Judgment Foster J 21 July 1989.
David Securities [Rahme] v Commonwealth Bank of Australia
(1989) Federal Court of Australia NSW No. G 234 of 1988 FED No.208
Judgment Hill J 11 May 1989.
Mehta v Commonwealth Bank of Australia (1990) Supreme Court
New South Wales 50023 of 1989 Judgment Rogers J 27 June 1990.
Mehta v Commonwealth Bank of Australia (1991) Court of
Appeal New South Wales 40407 of 1990 Judgment Samuels, Meagher, Waddell JJ
28 March 1991,
Ralik v Commonwealth Bank of Australia (1990) Supreme Court
New South Wales 050261 of 1989 Judgment Cole J 14 August 1990.
Potts v Westpac (1990) Supreme Court Queensland 657 of
1988. Judgment MacKenzie J 10 December 1990
Quade v Commonwealth Bank of Australia (1991) Federal Court
of Australia NSW No. G 734 of 1989 FED No.24. Full Court Judgment Neaves,
Burchett, Einfeld JJ 14 February. [reproduced in Australian Law Reports
(1991), v.99, 567-600; Stephen Gageler, Reporter.]
Spice v Westpac (1990) Federal Court of Australia No. G 49
of 1987
Judgment Foster J 1 September 1989.
Thannhauser v Westpac (1991) Federal Court of Australia
Queensland No. Q G29 of 1989 FED 98 Judgment Pincus J 19 March 1991.
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