The Quade Appeal on Decision vs CBA 6

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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.

48.  I reject these two submissions as somewhat semantic. There can be no
doubt that the documents in evidence at the trial as supplemented by the 'G'
documents laid emphasis on the desirability of and need for the appellants to
seek tax advice from their accountant whom the bank described alternatively as
a "tax consultant", especially on the specific incidence of withholding tax
and the tax treatment of profits or losses on exchange rate dealings. Many
people are able to structure their affairs so that they pay little tax.
Experienced farmers often pay little tax because their assessable income is
low and primary industry generally has larger numbers of allowable deductions.
They may even ignore altogether their possible liability for withholding tax
because they do not understand it or regard it as irrelevant to them, or
because they know or believe that if and when it becomes relevant, their
accountant will raise it with them. For such people to be told to seek tax
advice is much less significant than to be informed that independent expert
advice regarding the utility and safety of a foreign currency loan is needed.
This type of 'general' information would be considerably more weighty and
important than 'tax' information.

49.  Further, there was no evidence, and it is not particularly likely, that
the appellants' tax accountant, who may well have been an expert in handling
their tax affairs and those of other people involved in primary industry, and
presumably had sufficient knowledge to deal with the possible implications of
foreign currency loans on withholding tax and profits/losses treatment to
which the bank drew such specific attention, would have been able to advise
them on the general wisdom of undertaking a foreign currency loan, of the
risks if they did, and of the precautions they should take as a consequence.
Because of the limited evidence at the trial, Morling J was not asked to find
whether the appellants would have sought independent advice on a foreign
currency loan if it had been made clear to them that they should do so, and
that they should not proceed with such a loan without doing so, because the
bank lacked the expertise necessary to advise them and the bank's interests
were in serious conflict with theirs. It is not difficult to speculate on the
conclusions his Honour would have reached if he had needed to do so, but
speculation it would nonetheless appear to be for this Court.
    . In any event, the respondent told the appellants to see
    their accountant about the loan generally. The basis of
    this submission is that Morling J. concluded that the
    appellants did not seek advice as to the wisdom of
    entering into a foreign currency loan. This, the
    respondent submitted, implies a prior finding by his
    Honour that the appellants had been told by them to seek
    such advice.

50.  In my opinion, this argument is logically flawed. His Honour made no
finding that the appellants were told to seek advice, merely that they did not
do so. More importantly, I cannot read the information given by the bank so
clinically. As I have already shown, the thrust of what the  Quades  were told
was that they should consider and seek any necessary professional advice on
the tax implications, especially as to withholding tax and profits/losses. The
bank was held out to be the expert on foreign currency loans but it could know
nothing about the taxation consequences of the proposed loan for the
appellants because it had little or no knowledge of the appellants' taxation
affairs.

51.  The respondent further submitted that if the appellants were given the
relevant information, the duty of the respondent was discharged. The
respondent also relies on the finding that there were many opportunities for
the appellants to inform themselves. For example, in the Offer the respondent
had stated:
    Please do not hesitate to contact us should you
    require further clarification of any of the matters
    raised above.

52.  The respondent says that from this invitation, although not taken up, the
conclusion should be drawn that it had done everything required of it by the
law.

53.  I am unable to accept these arguments or approaches. There is no dispute
that the bank took it upon itself to speak to the appellants about this loan.
It is obviously not adequate to give an explanation of the elements of a loan
in bland terms, and to be vague, imprecise or technical about the risks and
potential disasters for the clients if the loan is accepted. This applies no
less in a case where the language is so complex or inexact that the person
being spoken to could not possibly understand it without assistance, than in
the extreme case of the information actually being given in a foreign tongue.
The respondent on the 'G' documents

54.  The respondent submitted that because some of the 'G' documents now
relied on are the same as in David Securities, the view formed of them there
should be followed here. The respondent said that, in fact, the 'G' documents
add nothing new to the appellants' case. It is agreed that the documents
indicate the bank's awareness of the complexity of foreign currency
transactions and that they disclose a policy of active promotion of such
loans, but the respondent said that both complexity and promotion were argued
at the trial. There was even expert evidence before Morling J to establish
complexity. In other words, to the respondent the 'G' documents do nothing but
repeat, even if they perhaps underline and emphasise, what was litigated
without them.

55.  Again I do not agree. In my view, it is not important that an expert knew
that the loans were complex; what mattered (and what the 'G' documents appear
to show) is that the bank not only knew their complexity at the time it
undertook the task of advising the appellants but, at least partly due to the
lack of training and experience of its staff, in a very real sense failed to
convey the nature and extent of the complexity to them and failed to
appreciate or acknowledge their basic inability to comprehend it, at any rate
without expensive outside aid. The documents also indicate that the bank knew
that its officers were in truth not competent to provide the advice or quality
of advice they purported to proffer. Their offer to these appellants of an
unhedged loan may even have been reckless; it at least manifested a general
lack of care in the advice given.

56.  It is of course true that the trial included assertions that the bank's
promotion of this loan was incomplete, and that the bank was therefore
negligent and deceptive. But the 'G' documents appear to provide specifics
where only generalities were previously possible. The respondent submitted
that even if it was found that it had a policy of promoting foreign currency
loans, this would not have altered the decision of Morling J. It submitted
that such a finding is only relevant to the question of the credit of the
respondent's West Wyalong branch manager, Mr Plumb, with whom the appellants
dealt. The respondent submitted that the 'G' documents are not relevant to Mr
Plumb's credibility because they were not his documents and he did not know
about the policy. However, in my opinion, this is no answer to the cogency of
the criticism of the bank's clearly established policy as evidenced in the
documents. The bank is the respondent. The state of knowledge of its policy by
individual officers is not relevant on the question of its failure to provide
adequate and comprehensive advice, and of its misleading and deceptive conduct
in this regard.

57.  The respondent put other reasons for the irrelevance of the new evidence.
The 'G' documents could indicate the forseeability of loss. The respondent
said that this goes only to the question whether there was a duty of care, and
since Morling J. found that a duty existed, the 'G' documents are not relevant
in this respect. In my opinion, for the reasons previously given, this
argument is not valid.

58.  Second, the 'G' documents may indicate the nature and extent of the risk.
This information would go to the question of the nature of the respondent's
duty of care. As Morling J found the duty to be not to make a negligent
mistake and to explain fully, the respondent said that the 'G' documents would
not have led to a different result. The respondent pointed to two sources of
information at the trial regarding the nature and the extent of the risk -
viz. other bank documents and the expert evidence. I have already referred to
the irrelevance of the expert evidence to this aspect of the case. The general
bank documents at trial post-dated the appellants' loan whereas, as Burchett J
has pointed out in his judgment here, many of the important documents here
pre-dated the loan, and the attitudes and policy they reflect were apparently
influential at the time of its negotiation and execution. Thus the material
and evidence at trial were understandably entitled to significantly less and
perhaps no weight on the relevant issues. The trial Judge clearly so treated
them. I doubt that he would have given as scant treatment to some of the 'G'
documents.

59.  The respondent also made some specific submissions as to the meaning of
the 'G' documents:
    . They do not say that a borrower "should not hedge".
    Instead, they say that hedging should be an available
    option to someone who has a foreign currency loan.
    . They do not say that the bank vigorously promoted them
    with people the bank recognised as being unsuited. The
    appellants were not encouraged to take the loan.
    . The appellants' submission that the 'G' documents show
    that the bank should have told the appellants to have the
    loan managed by an expert is contrary to the appellants'
    approach at the trial and can thus not be pursued on this
    appeal.

60.  In my view, these arguments should all be rejected as at best too
legalistic and selective for the present factual circumstances. I think that
the correct conclusion is that the documents appear to create an atmosphere or
aura of promotion which did not draw distinctions between what advice should
be given where the proposed borrowers were sophisticated entrepreneurs and
what should be told to inexperienced dabblers in this type of commerce. These
appellants, quite dissimilarly to the borrowers in David Securities, were the
victims of this unselective approach. The appellants' failure to raise at
trial the issue of external advice, monitoring and management does not assist
the respondent as they did not have the documents on which these arguments
could evidentially have been based. Presumably if they had been available, the
appellants would have pleaded this contention as well. At least they would
have had the choice of doing so.

61.  Although the result of such an undertaking seems to me clear, and so long
after these catastrophic events for the appellants, this Court should be
hesitant in providing a prescritpion for further delay, we are apparently
bound not to speculate what the fate of this argument would have been. In my
view, it certainly provides a cogent reason for a new trial at which the
documents would all be available for testing and consideration alongside the
rest of the evidence. The only question with which I have found some
difficulty was whether the necessary certainty was supplied, and the power
existed, to reverse the trial result. As the appellants did not argue that we
should do so, the matter does not have to be determined in this case.
The Issues

62.  As I see it, the various issues raised in the appeal pose certain
specific questions for resolution.
1. Attack on the conclusions of the trial Judge

63.  We were not asked to hold that the trial Judge erred in his factual
findings themselves. In my view we should not upset the conclusions he drew
from them in a case which significantly depended on assessing witnesses and
counterbalancing their evidence with the documents then available. I agree
with Burchett J. that the graphs produced in evidence at the trial cannot lead
to a reversal of the verdict but may very well be assessed differently when
considered alongside the 'G' documents.
2. Dangerous product principle

64.  Having regard to the views of the Full Court in David Securities at 291,
this interesting argument is not available for review here but will have to
await another day and place.
3. Negligence

65.  What is in issue is the nature of the duty. Neither party clearly stated
how it should here be defined. Relevant factors are that the respondent
assumed the responsibility of advising, knowing that the appellants would rely
on that advice and that the appellants were financially unsophisticated. In my
view there are three potential aspects of the duty to advise in this case:
    (a) to identify the nature of the risk
    (b) to explain the extent of the risk. This in turn has two
    elements: (i) the likelihood of an adverse currency
    fluctuation either permanently or at the time of
    rollover; (ii) the gravity of the consequences of such
    fluctuation depending on its size
    (c) to identify quite specifically what needed to be done to
    monitor and manage the loan so that the appellants could
    be in a position to make the best decision on whether to
    take the loan at all and on how to minimise the risk, on
    a continuing basis, once a loan was taken out

66.  David Securities seems to require all of these, but the Full Court there
was satisfied that the facts answered the tests. However, as in Spice, I think
the factual criteria here require a different, perhaps more onerous or
rigorous, application. I am unable to accept that it was sufficient to satisfy
these three requirements merely to give the appellants the opportunity or a
reminder to inform themselves and to take tax advice. Although the trial Judge
found that they were aware of the risk as the evidence before him defined it,
the 'G' documents powerfully admit of a finding that in fact they had a patent
lack of appreciation and understanding of the true risk to which they were
being exposed and the inadequacy of the advice which the respondent had given
them.

67.  In Lam v Austintel Investments Australia Pty Ltd 1990 ATPR 40-990,
Gleeson CJ of the NSW Supreme Court said (at p 50,880) in a somewhat different
but logically related context:
    Where parties are dealing at arm's length in a
    commercial situation in which they have conflicting
    interests it will often be the case that one party
    will be aware of information which, if known to the
    other, would or might cause that other party to take
    a different negotiating stance. This does not in
    itself impose any obligation on the first party to
    bring the information to the attention of the other
    party, and failure to do so would not, without more,
    ordinarily be regarded as dishonesty or even sharp
    practice. It would normally only be if there were
    an obligation of full disclosure that a different
    result would follow. That could occur, for example,
    by reason of some feature of the relationship
    between the parties, or because previous
    communications between them gave rise to a duty to
    add to or to correct earlier information.

68.  The most obvious case of this kind is where the parties are in an unequal
bargaining situation or where, as here, they have unequal knowledge and
understanding of the facts and problems. Another would be where there is a
statutory obligation to advise or not to mislead either directly or by
silence.

69.  There has even been discussion of something akin to fiduciary duties
being imposed on a bank in some situations: Catt v Marac Australia Ltd (1986)
9 NSWLR 639. Cf James v Australia and New Zealand Banking Group Ltd (1986) 64
ALR 347 at 391 per Toohey J. Many relationships between bank customers and
bank managers are not truly or solely arm's length transactions between
independent financial and commercial entities or enterprises. Many bankers,
especially in rural areas, are or become family advisers and "father
confessors" to their clients. Bank managers or senior staff of this kind share
personal friendships and joint social, philanthropic, communal, church or
sporting pursuits with their clients, during and by reason of which the client
becomes even more susceptible to trust and rely upon the bank and its advice.

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