The Quade Appeal on Decision vs CBA - 2

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Given that I'm not a lawyer, this case has a strange status. The Quades went before the full bench of the Federal Court to seek
leave to appeal against a single judge Federal Court judgment against the Quades and in favour of the Commonwealth Bank.

The full bench in this three person  judgment unanimously found that the Quades had cause (non-discovery of documents, but in general, an inadequate judgment) and found in favour of the Quades right to appeal the judgment before a full bench.

From my understanding the Bank caved in and settled after this judgment to give the Quade's the right to appeal.

About three months later, the Dwyer case was argued and the same counsel for Commonwealth Bank of Australia, Mr. Sarkan, bullied and blustered his way to flim flam the judge while neither Mr. Dwyer's counsel nor the Judge took notice of the Quade decision nor of the new documentation revealed belatedly in the discovery process that had similarly been left "undiscovered" in the Dwyer case.

The quality of the decision in the Dwyer case was noticeably substandard.

The memorandum suggests in some cases requiring clients 
    to take a foreign currency loan, acknowledging that they
    might be "reluctant to accept such an arrangement," but
    adding "they would have no alternative if that was the
    only way the CTB would provide the accommodation."
    However, under the heading "HEDGING", the memorandum
    states:
      "While the CTB does not have a published policy
      on hedging when providing foreign currency
      facilities to customers, it would be safe to
      say that the majority of management consider
      hedging to be an essential ingredient to any
      foreign currency proposal. There are obviously
      moral considerations at issue as well as the
      safety of the CTB's security position.
      On the moral issue, it is felt that the CTB
      would protect its banker/customer relationship
      by fully explaining the inherent risks in
      borrowing in a foreign currency on an unhedged
      basis. If after hearing of the risks involved
      a client wishes to borrow on an unhedged basis
      then it is not necessarily the CTB's right to
      dictate otherwise. ...
      This leaves the CTB's security question.
      Foreign exchange rates can move sharply at
      little notice and therefore regardless of the
      level of allowances made for this risk, the
      allowance may be insufficient."
    A document bearing the same date is headed "SENIOR
    MANAGERS (sic) COMMENTS". It refers to "the reasons why
    CTB is keen to develop more foreign currency lending".
.   A letter to state managers of the bank dated 12 May 1982
    contains the following:
      "The present high level of domestic interest
      rates is creating an awareness of the
      availability of foreign currency loans, which
      is being exploited by merchant banks and
      foreign banks. It is important that the CTB
      fully exploits this area of business,
      particularly at a time when lending in
      traditional areas is being contained.
      Accordingly I would like you to ensure that
      loans officers in your capital office, and
      selected branch managers are aware that the CTB
      is keen to develop more foreign currency
      lending. This thrust will have application,
      not only to new proposals, but to existing
      business, particularly at time of annual
      review."
    The letter refers particularly to loans of the size of
    that involved in the present case, and adds that special
    considerations include "whether the borrower should or
    should not take advantage of forward cover/hedging as
    protection against volatile movement in overseas exchange
    rates". The letter again refers to Mr Knezevic as a
    source of head office expert guidance.
.   A report, dated June 1983, on "THE ECONOMIC AND FINANCIAL
    OUTLOOK - 1983 TO 1986", prepared by the Investment and
    Economic Research Department of the bank, projected some
    fall in the value of the United States dollar, an
    appreciation of the Jananese yen against the US dollar
    and an appreciation of the West German mark against the
    US dollar. It concluded:
      "On these assumptions, the Australian dollar
      will record diverse movements against the major
      currencies. Over the period to 1986 it is
      expected to appreciate noticeably against a
      declining US dollar and pound sterling, but to
      fall substantially against the yen and Deutschmark.
      Exchange rates are expected to continue to
      exhibit a high degree of volatility."
    The conclusion of this report provokes the comment that
    it is one thing for bank officers to warn a customer of a
    risk that exchange rates may move adversely; it is quite
    another to say that they are expected to do so. An
    expectation of volatility involves an expectation that at
    unpredictable times in the future the rates will be
    adverse. The loan might fall due for repayment at just
    such a time. It was not suggested in the bank's evidence
    in this case that Mr  Quade  was warned in these terms.
    Nor was he told, when considering a loan in Swiss francs,
    that the Australian dollar was expected to fall
    substantially against the neighbouring West German mark.
    Indeed, when Mr  Quade , on the occasion of the first
    roll-over of the loan, "requested that (the bank) arrange
    forward exchange cover for the loan", which would in fact
    have avoided a great part of the loss, Mr Knezevic
    "advised", as the branch manager noted, "that such a move
    would be madness", and Mr  Quade  was persuaded against his
    own better judgment to leave the loan off-shore and
    unhedged. In the light of the new documents, Mr
    Knezevic's emphatic advice is intelligible, and only
    intelligible, on the footing he really thought, to use
    the expression Mr M. Staniforth attributed to one of his
    colleagues, that the exchange rate "moves back" after a
    fluctuation.
    . An internal memorandum to the head office of the bank
    from its International Division, dated 18 April 1984,
    deals with the subject of "NEW PRODUCT DEVELOPMENT
    MANAGEMENT OF FOREIGN CURRENCY BORROWINGS". It refers to
    a stepping up of the activity of the bank's International
    Division in respect of advice concerning foreign currency
    lending, and notes "considerable scope exists for the
    generation of a range of corporate business out of this
    initiative". It says "the level of knowledge amongst the
    commercial sector generally is poor." It refers to the
    International Division's "initial aim ... to generate
    additional foreign exchange activity for the CTB."
    . A memorandum from the bank's Corporate Banking Division
    dated July 1984, on the subject of simulated currency
    loans, contains the statement:
      "As with the management of an actual foreign
      currency borrowing, the exchange risk factor
      should be continuously monitored and remedial
      action taken when necessary e.g. when there are
      strong expectations of the exchange rate moving
      against the borrower consideration should be
      given by the borrower to closing out (part or
      all of) the oversold forward position and at
      the appropriate time re-establishing the
      original position."
    It is also noted:
      "The forward/hedge contract should be dealt
      with in terms of C/I's although it is
      emphasised that the bank needs to be satisfied
      (as with an actual foreign currency loan) that
      the borrower has the capacity to meet any
      likely foreign exchange losses that may be
      incurred."
    . A memorandum dated 17 July 1984, concerned with "FOREIGN
    CURRENCY LOANS TO AUSTRALIAN CUSTOMERS", refers to the
    bank's effort to achieve "an increase in the
    smaller/higher yielding F/C/L's to Australian customers".
    It indicates that from 1982 to mid 1984 foreign currency
    loans by the bank grew from about $5m US to about $100m
    US - a huge increase. The memorandum states its own
    object as to set "some direction for the future for the
    smaller category of F/C loans (non-trade)". It refers to
    recent market interest in foreign currency loans and to
    the bank's need of expertise in the area. It concludes
    that "a reasonable CBA attitude to F/C Loans and a plan
    for handling this product in the immediate future" would
    include the following:
      "Foreign currency loans to be available as
      a product to service those customers/non-customers
      of the necessary credit standing
      which have foreign currency receivables or the
      capacity to manage the foreign currency exposure.
      F/C Loans and simulated loans should not
      be aggressively marketed. Rather they should
      be used to meet the genuine needs of
      customers/non-customers, particularly in the
      face of competition from other lenders.
      Group Treasury to have responsibility for
      providing information/advice to borrowers on a
      regular basis to assist borrowers manage exposure."
    . A further memorandum dated 7 August 1984 suggests
    "(t)he main reason for the lift in awareness of
    F/C/Ls by our lending staff in the branches is the
    activity of our competitors. The other trading
    banks and the merchants are pushing F/C/Ls in the
    profitable small to medium end of the market as are
    brokers and accountants. Unless we take a more
    positive approach we will lose sound opportunities."
    There is then a reference to doubts "about the
    desirability of lending to the small end of the market",
    and to the need "to ensure that the inexperienced are not
    assisted or encouraged into a situation they cannot
    handle". There is a comment "we were not instructed to
    hold back from F/C/Ls but merely to lend judiciously."
    The memorandum refers to the urgency of the need "to
    familiarise staff with F/C/Ls at the present". It
    comments that they "may be marketed to those clients who
    it is considered may utilise them and 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."
    . A memorandum on the Chief General Manager's letterhead,
    addressed to the managers of all branches, dated 6
    September 1984, refers specifically to "FOREIGN CURRENCY
    RELATED FACILITIES". It mentions "a growing interest" in
    foreign currency lending and aggressive marketing by
    competitors. It continues:
      "With this increase in interest I consider it
      imperative that CBA be in a position where it
      can provide facilities to customers on a
      competitive and responsible basis. It is vital
      that the major aspects of these facilities be
      understood by managers and appropriate CBA
      lending staff.

      In explaining the facilities to customers care should be taken to ensure there is no
      misunderstanding as to the inherent currency exchange risks if unhedged (uncovered) exposure
      is involved. However, notwithstanding the
      exchange risks that may be involved, there are
      customers of sufficient standing for whom an
      unhedged foreign currency related facility can
      be justified. Generally these customers would
      have demonstrable capacity to meet any losses
      resulting from currency exchange rate movement.
      It would also be necessary for the customers to
      have capacity to manage that risk."
    . A memorandum dated 8 October 1984, for the General
    Manager International of the bank, refers to a growing
    awareness of foreign currency lending, and to a plan to
    conduct, as soon as practicable, seminars dealing with
    foreign currency lending techniques. Notes endorsed on
    it indicate a poor opinion was held of the knowledge of
    bank managers concerning foreign currency lending, and
    there is also the comment: "A major (fresh) push into
    this business demands an improved service to borrowers
    particularly at or just before rollovers/maturities. I
    understand group treasury has been looking at this but is
    anything concrete happening?"
    . An address by the bank's senior economist delivered on 21
    February 1985, just after the drawdown of the loan
    involved in the present case, emphasizes the complexity
    of the matters which influence movements in exchange
    rates. It also says of the banking industry: "There is a
    tremendous surge towards more innovative products.   ...
    At the same time, international expansion has become
    attractive for the Australian banks due to the increased
    integration of domestic and offshore markets."
    . On 27 February 1985 a memorandum from the Assistant
    Manager International of the bank, written some three
    weeks after the loan was drawn down, refers to "the
    extent of the AUD depreciation which has occurred - ...
    6% over 12 months for SFR". It seems remarkable there is
    no suggestion, in the present case, that depreciation of
    this extent was drawn to the attention of the appellants,
    who were borrowing in Swiss francs, at about the end of
    that very period of 12 months.

9.  While, as I have said, the foregoing summary statement of matters raised
in the new documents is by no means exhaustive, I think it is sufficient to
show that a great deal of material existed, which ought to have been
discovered by the bank, bearing on vital issues in the case. Most importantly,
that material cuts away the foundation of a major part of the trial judge's
reasoning in rejecting the evidence of Mr  Quade  and his neighbours. But it
also suggests that further aspects of the appellants' case might have been
elaborated with success, particularly in relation to the adequacy of the
information supplied to Mr  Quade  on the subject of hedging; in relation to the
adequacy of the warning concerning the possibility of exchange rate movements
(even on the bank's own case, having regard to its expectation that there
would, not might, be volatility over the ensuing few years in the value of the
Australian dollar); and in relation to the implied representation that Mr
 Quade  was a suitable candidate for a foreign currency loan if he himself chose
to take the risk of possible movements in the exchange rate, notwithstanding
his extremely marginal income position, and notwithstanding the bank's view
that these loans were suitable only for persons with access to foreign
exchange, or of substance sufficient to meet losses, or with capacity to
monitor exchange movements constantly and react to them appropriately.

10.  The bank's first response to the appellants' motion to adduce the new
documents was a submission that, if they had been disclosed, their disclosure
would have made no difference to the result of the hearing. It was not
disputed that the bank had failed in its duty to make proper discovery,
fulfilment of which would have involved the disclosure of these documents. But
it was said that the new documents are not different in kind from the
documents belatedly disclosed in David Securities (supra), which are included
among them. In that case, the joint judgment of Lockhart, Beaumont and Gummow
JJ. (at 293) contains the statement:
    "Although the trial judge did not have them, we are
    not persuaded that these documents, of themselves,
    or taken in conjunction with the evidence before his
    Honour, establish that the bank should be held
    liable for the losses suffered by the appellants."

11.  There is more than one answer to this argument. In the first place,
evidence may have a cumulative effect, and the opinion of the full court in
David Securities that some of these documents would have been insufficient to
change the balance of the evidence does not demonstrate that the great
quantity of documents now available might not have done so. Furthermore, the
standard their Honours set for the documents was that of establishing the
liability of the bank. In the light of the authorities concerning the
reception of fresh evidence, and with respect, I do not suggest that was an
inappropriate standard to set in the particular circumstances of that case.
One of those circumstances was the absence of any formal order for discovery,
an absence which the full court regarded as actually responsible for the
unavailability of the documents at the trial. It stated: "(B)ecause discovery
had proceeded in an informal way, the documents had not been discovered." In
the present case, in which formal discovery occurred, I think a different
standard is appropriate.

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