The Quade Appeal on Decision vs CBA
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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
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.
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Re: THOMAS QUADE ; MARY QUADE ; SHAWN THOMAS QUADE and GERARD WILLIAM QUADE And: THE COMMONWEALTH BANK OF AUSTRALIA No. N G734 of 1989 FED No. 24
(1991) 13 ATPR 41-093 99 ALR 567 27 FCR 569 COURT IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION Neaves(1), Burchett(2) and Einfeld(3) JJ. HRNG SYDNEY #DATE 14:2:1991 Counsel for the Appellants: Mr M.L.D. Einfeld QC with Mr J. Chippindall Solicitors for the Appellants: Messrs Ferrier and Associates Counsel for the Respondent: Mr J.R. Sackar QC with Mr J. Marshall Solicitor for the Respondent: Mr L.E. Taylor
ORDER The Court receive the fresh evidence tendered on the hearing of the appeal. The appeal be allowed; the orders of the learned trial judge made 12 October 1989 be set aside; and a new trial of the action be granted. The respondent pay the appellants' costs of the trial, of the motion to receive fresh evidence, and of the appeal. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. JUDGE1 The circumstances which gave rise to the claim by the appellants against the respondent for damages for negligent mis-statements and for relief under s.52 of the Trade Practices Act 1974 (Cth) and under the Contracts Review Act 1980 (N.S.W.) are fully set out in the judgment of the learned primary judge and are outlined in the judgment to be delivered by Burchett J. There is, therefore, no necessity to repeat them in this judgment. 2. I am satisfied that there was ample evidence before the primary judge justifying the conclusions of fact at which he arrived. No basis has been established upon which this Court would be justified in interfering with those findings. Nor has it been demonstrated that his Honour fell into any error of law in concluding that the claim should be dismissed. 3. The appellants, however, also seek a new trial based on additional documentary material which was not produced by the respondent on discovery but was made available to the appellants after the matter had been heard and determined by the primary judge. I have had the advantage of reading and considering what has been written by Burchett J. on this aspect of the matter. I am persuaded, though not without considerable hesitation, that the additional material is such as to warrant the granting of a new trial. I, therefore, agree in the orders proposed by Burchett J.
JUDGE2 This is an appeal at the hearing of which the appellants also moved the court to receive further evidence pursuant to s.27 of the Federal Court of Australia Act 1976 and Order 52 r.36 of the Rules. It is convenient to commence these reasons by outlining the nature of the case, and then to look at the question of fresh evidence. The appellants, by their action, sought damages for negligent mis-statements, and sought also relief under s. 52 of the Trade Practices Act 1974 and under the Contracts Review Act 1980 (NSW). These claims arose out of a foreign currency borrowing, drawn down on 6 February 1985, of the equivalent in Swiss francs of $600,000. The loan was negotiated during the latter half of 1984; offered by the bank and accepted by the appellants at the end of October 1984; and made the subject of a formal agreement of loan executed on 15 January 1985. Because of the virtual collapse of the Australian currency against the Swiss franc between February 1985 and February 1988, when the loan was brought back on-shore, the appellants now face financial ruin, the amount of their debt, as measured in Australian dollars, having more than doubled. 2. The foreign currency loan was negotiated in order to enable the appellants, who were successful farmers and graziers in the West Wyalong area, to acquire an additional property at a price of $410,000, together with additional farming equipment, while making a contingency provision in respect of increases of interest and other payments which might be incurred by reason of movements in the exchange rate. The contingency provision built into the borrowing was in the sum of $100,000. The appellant Thomas Quade , who is the husband of Mary Quade and the father of the other appellants, was the moving force in the arranging of the loan. He knew his own financial position to be such that a borrowing at the then domestic rate of interest of perhaps 15% per annum would be very difficult to service. He went to his bank manager to seek information about borrowing overseas. He was given to understand that there was some element of risk associated with a borrowing in a foreign currency, and was probably told that such a borrowing was "a punt on the foreign exchange". That was on 23 July 1984. 3. On 14 September 1984, Mr Quade met the new manager of the bank's West Wyalong branch, a Mr Plumb, who said he knew nothing about foreign currency loans. It was at that time that the suggestion was made of a borrowing of an additional $100,000 to cover currency fluctuations, particularly in respect of interest payments. Also, Mr Quade then arranged to go to Sydney to talk to the bank's experts. In the meantime, Mr Plumb gave Mr Quade a copy of a document entitled "Foreign Currency Borrowing", to assist his thinking and provide some basis of information on which he could build in Sydney. The document warned that "there is always the risk that the currency concerned will be stronger against the Australian dollar at the time of repayment than at the time of drawdown. As discussed, in such circumstances you will need more Australian dollars than were initially borrowed to purchase the required foreign currency amount to repay the loan." It also stated that this risk could be eliminated or quantified by hedging, although the mechanism of hedging was not really explained. The document then reiterated: "It is more important that you fully understand the potential risks involved in borrowing in a foreign currency on an unhedged basis." There were other warnings to similar effect. Although Mr Quade may not have fully understood each statement, the trial Judge held "he must have had a general appreciation, if he had read it, that there were risks in borrowing in a foreign currency." 4. On 16 October 1984 Mr Quade , with four of his neighbours, Messrs Connell, M. Staniforth, K. Staniforth and Tull, conferred in Sydney with two officers of the bank, Messrs Herden and Bennett. Mr Quade 's account of this conference makes it plain that the bank officers indicated there was a risk of currency fluctuations; but his case was his attention was not drawn to any risk that the Australian dollar could fall in value by a significant amount, nor to the catastrophic effect such a fall could have on interest payments and on the principal of the loan. It was not suggested he should hedge the loan, and it was pointed out that hedging would take away any advantage of borrowing off-shore, by increasing the costs of the loan to the equivalent of domestic interest rates. He said he was led to believe there was no great risk involved. There was a suggestion that the exchange rate might vary by about 5% or 10%, "but", it was said, "it recovers over a period". This evidence was confirmed by Mr M. Staniforth, who recalled they were told the Swiss franc "varies a few cents either way but it moves back". According to him, one of the bank officers said it was a "good proposition". Mr Connell and Mr Tull also confirmed Mr Quade 's account. 5. The learned trial judge rejected this evidence in the following terms: "I am confident that neither Herden nor Bennett stated that the (variations in) exchange rates were as limited as the applicants' witnesses claim they said they were." His Honour did not suggest there was anything about the witnesses, or the manner of their giving their evidence, to lead to this conclusion; rather, he based it on his own analysis of documents which appear to have been available at the meeting. Properly understood, those documents did show that "borrowing in Swiss francs was a risky exercise". It seems to me, with respect, that the trial judge's approach to the question whether the bank officers had in fact made the statements alleged was unexceptionable. The documents should have led the bank officers to be cautious, and in the absence of sufficient evidence to the contrary, it was appropriate to decide the question, on the probabilities, on the footing that the bank officers had expressed the natural conclusions to which their documents led, or, at least, had not expressed plainly contradictory conclusions. His Honour said: "I am satisfied on the whole of the evidence that neither Herden nor Bennett conveyed to those attending the meeting on 16 October that currency fluctuations in the future would be as limited as is suggested by the applicants' witnesses. The written material, which was produced at the meeting, showed quite plainly that currency fluctuations might be quite considerable. Neither Herden nor Bennett had any reason to represent that future currency movements would not be great. The fact that an example was given of an effective interest rate of 50% per annum, admittedly over a short period, is quite inconsistent with the bank officers representing that a borrower could safely assume that future currency variations would not be great. I do not accept that the officers led Quade to believe that there was no great risk in foreign currency loans." 6. In the absence of anything of the nature of fraud (which was never suggested), to have reached a different conclusion would have involved taking the view that the bank officers were blinded by optimism or by the unconscious influence of some strong motivation to endeavour to sell foreign currency loans to customers such as Mr Quade . There was simply no evidence before his Honour to justify either of these conclusions. 7. But it now appears that there is evidence to suggest the bank was, at the time, actively promoting foreign currency loans as a matter of policy, so that its officers would in fact have had strong conscious and subconscious motivation to put the best complexion on the exchange situation. Furthermore, the bank seems to have been promoting such loans to customers who were inadequately informed on the subject, so that its own senior management had expressed a number of concerns, including concern about the level of understanding of the complex issues involved shown by loans officers and bank managers. In particular, it is plain that the appellants did not nearly meet the criteria set by the bank itself for borrowers who could safely venture into the foreign exchange market. Only extreme optimism could have thought otherwise. Even assuming the appellants had met those criteria, the bank's own expert assessment was that it would have been necessary for them to have had the loan constantly monitored, so that at any time it could have been promptly "hedged" in order to anticipate or contain any adverse movement of the exchange rate. If this material had been before the court, in the wealth of detail that is now available, it would not have been possible for his Honour to have said that "neither Herden nor Bennett had any reason to represent that future currency movements would not be great". They had the reason that the bank was actively marketing this particular type of loan, and the fact was that some of their colleagues did appear to have succumbed to the temptation involved of promoting loans inappropriately. Had the evidence been considered free of any a priori presumption of the unlikelihood of the bank officers mis-stating the position, Mr Quade 's evidence, supported as it was by a number of relatively independent witnesses, might have carried the day. 8. Some brief (not at all exhaustive) examination should be made of the documents now available (which I shall call "the new documents"). They are bank documents produced, after the conclusion of the hearing, in recognition of the fact that they had been wrongly omitted from the bank's affidavit of documents filed and served in purported compliance with an order for discovery. A fairly small proportion of them consists of documents that were also produced after the hearing in David Securities Pty Ltd v. Commonwealth Bank of Australia (1990) 93 ALR 271, although there no formal discovery had taken place. The documents comprise a somewhat heterogeneous collection, from which the following points may be noted: . A memorandum for the general manager, stamped with the date 16 March 1982 and headed "FOREIGN CURRENCY LENDING TO AUSTRALIAN CUSTOMERS", speaks of the "considerable difficulty" of the bank in meeting borrowing requirements from domestic funds, which gave importance to lending not similarly constrained. It also speaks of the importance of "match(ing) the competition". It discusses the desirability of the bank making more use of its own overseas assets, and of directing "to the small and medium size business area" foreign exchange loans which would be very profitable for the bank. It makes fairly scant mention of the foreign exchange risk, commenting "it is now possible to use the hedge market to cover the risk which should mean that all-up costs should broadly match the cost of AUD finance." The conclusion is reached: "There should be greater consideration given to this source of finance (i.e. foreign currency lending) as a means of satisfying customers' requirements." . A document dated 17 March 1982, headed "CHIEF MANAGER'S COMMENTS", appears to deal with the subject of the last mentioned memorandum. It describes as "urgent" the taking of a number of steps "to make several moves now to try and promote the full range of foreign currency lending". It recommends that "now (this week)", among other things, there be "a spirited promotion" of foreign currency lending as a way of beating lending quota restrictions. It speaks of the bank's "critical liquidity position" as making such action urgent. . A memorandum dated 2 April 1982, signed by the bank's assistant general manager, headed "FOREIGN CURRENCY FACILITIES FOR AUSTRALIAN CUSTOMERS", speaks of thought being given to "how the CTB can make greater use of foreign currency facilities to satisfy the needs of its customers". It describes foreign currency lending as "an underdeveloped segment of the CTB's lending services" and concludes: "(T)here would seem to be considerable advantage in present circumstances in giving this type of business more emphasis." . A further memorandum on the subject of foreign currency loans to Australian borrowers, dated 15 April 1982, sets out an objective as follows: "In a total foreign currency asset book of some AUD 1,700m, a reasonable objective for loans to Australian borrowers (other than large corporates, project finance and semi-government) would be AUD 100m. This should be capable of achievement within a 12 month period." Specific State by State target figures, aiming at this total, are then set out. . A head office memorandum for the general manager dated 6 May 1982, a signatory to which was a Mr Knezevic, who played some part personally in the present matter, refers to "the promotional drive" in respect of foreign currency facilities for Australian customers and suggests an object "to expose as many people as possible to this type of lending". It points out that foreign currency loans provided "a way of meeting domestic loans which may otherwise be declined because of A$ lending constraints". It notes that "it is highly unlikely clients would readily accept foreign currency loans ... unless they and the CTB are prepared to allow the facility to proceed on an unhedged basis. The statement is regularly made that the cost of hedged foreign currency loans is approximately equal to the cost of borrowing funds in Australia. ... However, there would be occasions where a client would be prepared to accept foreign currency loans on an unhedged basis ... and applications of this type should not necessarily be discouraged."
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