THE UNIVERSITY OF SYDNEY
Political
Economy
Faculty of Economics & Business
Merewether
Building
NSW 2006
AUSTRALIA
B R Watson
Manager, Credit Management
Commonwealth Bank of Australia
GPO Box 4170
Sydney 2001
30 April 2007
Dear Mr. Watson
There has been recent correspondence
between the Commonwealth Bank and a sometime customer, Mr Geoffrey
Dwyer. In particular, a letter under your name dated 3 April has been
sent to Geoff Dwyer, which Dwyer has passed on to me as an interested
party.
I feel obliged to comment on the
sentence ‘You are aware that the allegations raised in your letters were
heard and dealt with in the Supreme Court of New South Wales and the
Court of Appeal.’
Before the Dwyer v Commonwealth Bank
of Australia affair (and the entire foreign currency loan saga)
disappears into history, it is important to outline some truths for the
benefit of your ill-informed generation.
In the wholly novel environment thrown
up by financial deregulation, with threatened enhanced competition and
an official restraint on lending quantum from domestic sources, the CBA
threw itself into the aggressive marketing of foreign currency loans to
the financially unsophisticated small business sector. The CBA, along
with Westpac and the ANZ (the NAB’s then CEO recognising immediately the
built-in potential for disaster), jumped in at the deep end without the
requisite knowledge, personnel skills, or facilities.
The madness of this venture is
encapsulated in a minute (dated 17 January 1986) by Westpac executive F.
A. Ward, General Manager Credit Policy & Control, in which he comments
on a report on the situation: ‘This document encapsulates the whole
dilemma with this product, it was the only product marketed within the
Banking system where neither the Bank nor the borrower had control over
the principal.’ Madness indeed.
Rather than show remorse and
accountability for its culpability in the debacle, the Bank, under the
supervision of in-house counsel Les Taylor, instigated a strategy to
have responsibility placed entirely on the hapless borrowers’
shoulders. The culpability of the Bank is transparent in the ‘leave to
appeal’ judgment in the full Federal Court re
Quade v CBA ( N G734 1989). This
judgment is compulsory reading for the whole saga (as is Thannhauser v
Westpac, Q G29 1989). In Quade the implications of the ‘G’ documents
that the Bank declined to discover were laid out by Justices Burchett
and Einfeld (some of the minute handful of presiding judges to have
actually performed their job and read bank-discovered documents in
foreign currency litigation). There the Bank (and by implication its
counsel Sackar) is subject to sober but systematic condemnation.
Absence of requisite skills, absence of necessary facilities, preference
for self-interest and thus absence of accountability – all are
transparent in Bank staff’s own words.
A
mere several months later and the Bank is back in court re Dwyer, and
its strategy through its attack dog Sackar (the legal profession lacks
the ethical equivalent of the Hippocratic Oath) is to ignore completely
the condemnation handed down in Quade and its implications.
My extended
Working Paper on the Dwyer case
(December 2005), to which you have been privy, dissects forensically the
Dwyer v CBA litigation. The ‘allegations’ raised in Dwyer’s
correspondence with the Bank merely reproduce the salient features of
the G documents and which are confirmed in Quade. Dwyer’s ‘allegations’
state the facts. These matters are systematically excluded from the
Dwyer court cases. The essence of the strategy of the Bank (as with all
other FCL cases), through Sackar, was to place entire responsibility on
Dwyer for the tragedy to which he and his family were subsequently
exposed. The indifferent Acting Judge produced an off-the-cuff judgment
that appears to have been essentially based on the notes handed up to
the bench by the Bank after the conclusion of the hearing. The Dwyer
judgment was a joke and a disgrace. The Appeal judges restricted
themselves to technicalities, the narrow parameters having already been
set in the Trial Court.
Einfeld J, in Quade, also brings in
the matter of trust. The credit instrument places the small-scale
borrower, in a dependent relationship with the lender. The structural
subordination is encased in the wording of the securities. The
asymmetric power that the lender acquires is presumed to be constrained
by the professional integrity of the staff and the reputation of the
institution itself. As for Quade, so for Dwyer. The Bank leveraged its
reputation in building its foreign currency loan portfolio in this
transparently dangerous arena. In the process of the instrument’s
development and of its denouement, the staff debauched their integrity
and abused the Bank’s reputation (the ‘People’s Bank’).
The passage of time has brought a new
generation to the Bank’s senior management. I would have hoped that the
new guard would have thought it appropriate to clean out the closet and
effect a reconciliation for past sins. Not so. The new guard at the
other banks have adopted the same pose. Business ethics, it appears,
remains an oxymoron in the Australian finance sector.
Yours Sincerely
(Dr) Evan Jones
