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Westpac, the Foreign Currency Loans Scandal and the de Jersey Factor

(Image: Warren Brown) (Image: Warren Brown)

Evan Jones  26 March 2014

[Patience is required; this piece is 10,800 words long.]

The Chief Justice of Queensland, Paul de Jersey, has recently been appointed as Queensland’s next Governor. The changeover will take place in July. De Jersey was appointed to the Supreme Court in 1985 and made Chief Justice in 1998. That makes 29 years on the bench in Queensland, 16 of those in command of the justice system in that State.

One judgment deserves special attention – that of Westpac v Potts, 16 April 1992. Presiding over the Appeal Court were Macrossan CJ, de Jersey and Dowsett JJ. Westpac had appealed against the Trial court judgment of MacKenzie J, who decided for Potts on 10 December 1990. The Westpac-Potts Appeal judgment is mentioned derisorily in my ‘The Sliding Scales of Justice in Queensland’, but its context and significance demand a separate article.

A representative foreign currency loan scenario

The major banks (the NAB reluctantly) began offering loans denominated in foreign currencies (FCLs) to non-corporate borrowers in the early 1980s. This thrust followed from the perceived threat of new institutional lenders, regulatory quantitative lending restrictions and the prospect of making tidy profits in a new sphere. Enhanced profits were to be achieved not least from higher margins, tax minimisation strategies and (as it transpired) under-the-table expropriations from borrowers. The major currencies used were Japanese yen (JPY), Swiss francs (CHF) and the US dollar (USD).

Domestic interest rates were soaring – the rate on a bill facility went over 20%, payable up front – whereas interest rates on some foreign currencies (especially the CHF) were much lower. The catch was the exchange rate between the AUD and these currencies. If stable, the FCL seemed like a great idea – as some borrowers said at the time, ‘too good to be true’; and thus it proved to be. But hardly anybody at the time (save for a couple of academic specialists) had a clue as to likely movements, including the small number of supposedly specialist staff in the banks. And of course, the AUD was not floated until December 1983 (it had been officially devalued significantly in March 1983, a foretaste of likely future movements).

However the AUD soon devalued against the JPY and significantly against the CHF. 1985 was the year of truth. An FCL borrower in CHF would end up owing a principal totaling more than twice what s/he had borrowed, against which a lower interest rate now paled into insignificance.

Worry then panic set in amongst the borrowers; worry then panic set in amongst the bank lenders. Ultimately the dominant concern of the banks was how to minimise their own losses and impart the responsibility of risk-taking to the borrowers. Thus there gradually ensued litigation in the courts in the late 1980s and early 1990s with the borrowers consumed for years with their losses. The press at the time did a good job at covering the high-stakes battle.

Lionel Potts was a Queensland-based pilot by profession but (not alone) he was a small-scale property developer on the side. He had a bill facility for a small development with Westpac with climbing interest rates and had heard on the grapevine about FCLs. He was directed to the resident Queensland FCL ‘expert’, Neville Imhoff. Thus did Potts obtain a 2-year FCL in May 1982, an early borrower. He only wanted $250,000 (to replace his existing facility) but was told that the minimum FCL loan was $500,000. So Potts borrowed $500,000 in the recommended JPY (Imhoff had previously worked in Japan) and was required to put half of it on deposit (there are complexities but they will be neglected here).

A contemporary Bank of New South Wales advertisement (the Australian, 13 April 1982) claimed the following:

Success in cracking international markets builds from strategic definition of opportunities and co-ordinated planning. As Australia’s International Bank, the Wales is better equipped to provide the essential advice and assistance you will need. At the outset and throughout your dealings, our International Specialists work with you. … We advise you on how to competitively finance your venture, minimise your exposure to exchange risks, and ease account-settlement difficulties.

The phone number to call in Queensland was that of Neville Imhoff. Potts of course was not attempting to ‘crack international markets’ but rather to pursue a modest development in the Brisbane suburbs. Finance to fit the purpose? And the advertisement clearly states: ‘We advise you on how to … minimise your exposure to exchange risks …’

Contemporaneously, Brisbane-based builder Tony Lanza-Volpe had been given an Australian dollar loan by Westpac, but his development plan was facing objections and he was forced to delay the loan’s drawdown. When Lanza-Volpe complained about the ongoing commitment fee, Westpac put him onto a FCL. Lanza-Volpe had no idea, and was similarly ‘advised’ by Imhoff. The Lanza-Volpe experience highlights that Westpac not merely desired to expand its FCL book but that it was facing quantitative constraints (dictated by the Reserve Bank) on conventional loan aggregates.

By early 1984, Potts’ principal debt had risen to $620,000. He was given permission to switch currencies and, late in 1984, had his loan extended for a further 3 years. By the termination date of May 1987, the debt on Potts’ FCL had blown out to over $1,783,000. Potts finally paid out Westpac in August 1987, to the total sum of $1,796,000! This on a $500,000 loan. Brilliant! Welcome to the fruits of financial deregulation.

Potts v Westpac 1990

At first Potts sought some financial compensation. He sought immediate satisfaction in 1987 but was repelled. In late 1989, Potts sought compensation from Westpac of $850,000 plus costs – without success. In January 1990, Potts sought compensation from Westpac of $1,140,000 plus $300,000 costs – the sum of estimated losses not including losses arising from foreign exchange transactions during the life of the loan. Potts claimed that compensation for the latter losses was also justified (following Foster J in Spice and Chiarabaglio, below), but settlement on these terms would save Westpac from having to cater to demands for document discovery and public exposure of Westpac’s modus operandi.

Potts’ then solicitors noted to Westpac, 9 January 1990:

Our clients are aware that the Bank has settled other cases recently. This, together with the bank’s refusal to talk settlement prior to the without prejudiced conversation with … has made our clients more determined to see this matter through to the end should this prove necessary. They are still prepared to resolve this matter out of court, but the Bank’s persistent attitude will only strengthen our clients’ resolve in this case and gradually erode their preparedness to settle for anything less than the full amount of their claim.

No response. Thus did Potts take Westpac to court. Mackenzie J ruled in Potts’ favour in December 1990.

The typical FCL litigation centred on what the bank officer/s said to the prospective borrower. Did the manager offer information and advice? Was the information accurate? Was the proffered information adequately comprehensive? Was the advice non-committal or partisan? Did the customer come with their mind made up to obtain a FCL or were they persuaded after listening to the bank officer’s explanation? Did the borrower obtain advice from elsewhere? Was the customer capable of understanding the complex character of the FCL facility, given the customer’s business background?

As litigation took place years after the relevant meetings, and notes were scanty, what was said and what was understood had to be reconstructed from the notes and from memory. Thus did the judge have to decide on the credibility of the accounts by the participants in meetings long past.

In Queensland, the advice in Westpac regarding FCLs was highly centralised in the person of Manager, International Business. That role was first played by Neville Imhoff (mid-1979 to 1983). Imhoff was promoted to NSW and replaced by Albert Look (late 1982 to early 1987, under the lesser title Manager International Business Development). Potts took out his FCL after meeting with Imhoff, but later (in the context of looming troubles) had to deal with Look.

MacKenzie found that Potts had more credibility than Imhoff, both with respect to their accounts and their demeanour. Potts claimed that Imhoff had claimed that the AUD/JPY variation would be relatively minor, and that Imhoff had thus minimised the risks as well as not communicating some important conditions associated with FCLs (such as non-tax deductibility of exchange rate losses). Imhoff was also queried on the implications of his ‘success’ rate, given the unusually large number of FCLs initiated under his watch.

Potts had sued under both general law (duty of care, negligence, reliance, causation between advice and loss) and under s52 of the Trade Practices Act (misleading & deceptive conduct). Other FCL borrower litigants did likewise. MacKenzie found for Potts under general law. Thus: Potts’ background precluded an adequate understanding of the FCL facility. Imhoff had a duty to advise and to advise appropriately, and he failed in that duty. There was reliance by Potts in taking up the FCL facility on his understanding of Imhoff’s claims. Negligence was attributed to the bank via its staff’s actions.

MacKenzie cited a 1968 opinion by Barwick J, effectively, that a person with all the trappings of authority and expertise shall be held responsible for their utterances; there is inevitably a relationship of trust by the customer in the bank official.

MacKenzie also examined Westpac documents, discovered in the litigation. Those documents disclosed the bank’s desire to actively market FCLs, of the profound lack of expertise within the bank, the growing concern with the early AUD relative devaluations, and the expressed desire to ensure that the onus of responsibility for impending losses was to reside with the hapless borrower. MacKenzie found that Imhoff’s professed confidence in the facility did not reflect the lack of expertise and uncertainty within the bank itself, with Imhoff himself out of his depth.

Westpac’s senior counsel, R.N. Chesterman, pursued a variety of tacks to eliminate or minimise Westpac’s liability – any reliance by Potts would have ceased as soon as the AUD/JPY fell and Potts confronted that Imhoff’s opinions were unsound; that Potts should have readily brought the loan onshore and sued Westpac; etc. MacKenzie J was not impressed with Chesterman’s advocacy.

Having established negligence, MacKenzie had to determine at what point the bank’s liability for Potts’ losses (causation) was to be truncated. MacKenzie determined that this point occurred in April 1985 when Potts brought the loan (then in CHF) onshore (i.e. conversion into AUD) with a view to crystallising the debt (albeit the move onshore was temporary). Following expert calculation, MacKenzie determined that Westpac was liable to Potts to the sum of ~$650,000. Note that Potts’ loss on principal alone was of the order of $1.3 million.

Westpac’s annus horribilis 1991

Westpac prepared to appeal the MacKenzie judgment through 1991. The context is crucial.

Westpac lost in court (Foster J) to FCL customer Chiarabaglio in Queensland, July 1989. Westpac then lost in court (again Foster J) to FCL customer Spice in NSW, September 1989. Westpac then lost on appeal against both Foster judgments, in April 1990 (Spice) and August 1990 (Chiarabaglio).

In February/March 1991, the ‘Westpac Letters’ were exposed to the public. Dated November and December 1987, the letters are from Allen Allen & Hemsley to a Westpac senior executive regarding the involvement of a Westpac subsidiary, Partnership Pacific Ltd, in the management of some FCLs. The letters highlight PPL’s incompetence, inaction and denial, and customer rip-off on the side. The intent of the letters was to advise Westpac on minimising its liability for the catastrophe of its own doing. Democrat Senator Paul McLean sought the advice of Melbourne law firm Galbally & O’Bryan. It advised, in February 1991:

We confirm our advice that we consider that the letter from Allen Allen & Hemsley to the Westpac Banking Corporation dated the 26th November, 1987does not attract solicitor/client privilege. … As stated [in Halsbury’s Laws of England] “there can be no professional confidence as to the disclosure of communications of this nature and the furtherance of a fraud or assistance given for the purpose of wrongfully evading the law …”.

The letter … is an acknowledgement that illegal activities took place in relation to the PPL managed foreign currency loans [i.e. skimming off the top through ‘point taking’ and ‘deal switching’].

If the advice rested at that then in our view, legal professional privilege would apply. However, the advice went further by recommending a strategy to avoid admission of the dishonest activities and a method to contain repayment to those persons who suffered loss as a result of those activities.

Westpac went on the offensive, claiming confidentiality (gaining assent in the NSW Supreme Court) and harassing whistleblowers. As a Westpac victim (Trevor King / Eltran) later claimed before the Elliott Committee Inquiry hearings (the follow-up inquiry to the 1991 Martin Inquiry) following comprehensive official inaction on the Westpac Letters, 11 May 1992:

It is beyond belief that you people are not investigating this. Think about it. Have our public watchdogs become bank lap dogs? Where is the Securities Commission, the Trade Practices Commission, the Attorney-General, the Treasurers, past and present, who are directly responsible for what we are talking about? The Westpac letters and folders are so clear that Blind Freddy could realise the white collar crime involved.

In spite of Westpac’s success in nobbling officialdom on the Westpac Letters, considerable resources had to be devoted to fighting victim complaints to the Martin Banking Inquiry right through 1991. Although the Inquiry was a show piece designed to quarantine victim complaints into a black hole of empty rhetoric (and stop Senator McLean from reading victim stories into Hansard), the Inquiry process disclosed further reputation-damaging information on Westpac’s (and other banks’) role in the FCL scandal.

Then there was Drambo. Robert Porter had gone to Westpac to re-finance a troubled loan from the troubled Tricontinental merchant bank. He was given a FCL in CHF for $13 million in January 1985 (just as the AUD plummeted). Porter started proceedings in 1991, the sums involved being considerable.

The year ended with further adverse judgments, foreseeable earlier. Westpac lost in court (Lee J) to FCL customer Ferneyhough in Queensland, mid-November 1991. The bank lost against in court (Pincus J) to FCL customer Thannhauser in Queensland, December 1991. Westpac did not appeal the Ferneyhough or Thannhauser judgments.

It is instructive to draw some quotations from the four judgments against Westpac.

Spice:   If the applicant had been given proper and adequate advice by the respondent as to all or any of the matters alleged in paragraphs 14 and 15, the applicant would not have entered into the loan facility at all. …

Mr Spice had interpreted portions of an address given by a Westpac economist [at a conference], Mr Hewer, as indicating that at the time he was dealing with Westpac in relation to entering into the loan, Westpac was well aware that the Australian dollar would weaken significantly against the Swiss franc in 1985. He took the view that this information should have been made available to him, with the result that he would have refrained from taking the loan. …

It was also quite reasonable that Mr Spice should approach his bank manager, especially where he was manager of a major branch of a major traditional trading bank, to obtain the sort of information he was seeking in respect of a facility actually supplied by the bank; it was equally reasonable that he should approach and rely on for the provision of further information, another bank officer recommended by the bank manager as an ‘expert’.

Chiarabaglio:   He obviously was of the view that Westpac's attitude to him and his business dealings was helpful, considered, cautious and conservative. … It is quite clear to me that he would have trusted the bank not to lead him into financial error but, on the contrary, to steer him away from it. From the bank's point of view, it is equally clear that Mr Chiarabaglio was regarded as a valued and loyal customer and as an honest hard-working businessman, a good family man, an upright citizen, conservative and cautious in matters of finance and worthy of the bank's support.… It was a local banker-customer relationship of the best possible kind. …

I am, however, satisfied that no attempt was made in the presentation to bring the minds of the audience to bear upon the realities of risk involved in the situation where the Australian dollar might devalue vis-a-vis the yen in significantly higher percentages than those referred to. …

I am quite firmly of the view that if Mr Imhoff's acts and omissions in April 1982 involved the bank in legal responsibility to the applicants, then the applicants ultimate losses are properly attributable to those acts and omissions. … I am also satisfied that he saw himself as, and acted in the role of, a promoter of that product, even if not as a forceful salesman.

Ferneyhough:   I am left with a clear impression that the meeting [with FCL adviser Albert Look] was steered towards an exposition of potential benefits to be enjoyed by borrowers of foreign currencies without sufficient or any attention being directed to the particular circumstances of the Ferneyhoughs. …

As is the usual nature of [a long-term bank-customer] relationship the terms of the contract were not fixed within the four corners of a document but rested upon implications as to what the parties understood their contractual position to be. … those specific covenants or agreements in writing did not define that relationship exclusively and were only part of a continuing and broader contractual relationship of banker and customer capable of including implied terms. …

[Drawing on Westpac documents:] With the removal of foreign exchange restrictions a natural barrier to the use of the facility was removed and perhaps the use of such loans expanded ahead of Westpac's capacity to put in place sufficiently skilled personnel and settled instructions as to prudent practices to be followed by Westpac to advance its interests and to safeguard the interests of unsophisticated customers drawn into such transactions in response to the competition for an expanded market being undertaken by Westpac. Abandonment of previous rules restricting such loans to large corporate borrowers with knowledge of the facility and access to natural hedges and relaxation of a requirement that all such borrowings be hedged raised the level of the obligation on Westpac to provide an explanation of the facility and of the need for and method of management of the risk adequate in all the circumstances for the customer concerned.

Thannhauser:    If the bank had what may be described as an official view about the wisdom or safety of encouraging people to borrow from the bank large sums denominated in CHF, or about the likely future trend of the AUD against the CHF, that was not disclosed to the Court. … Mr Look had a poor knowledge of the subject on which it was his task to advise. There is no evidence that the concentration on CHF loans was a result of a carefully thought out policy; …

It is unnecessary to discuss the documents any further, as there is good ground for satisfaction, and I am satisfied, that Mr Look was not telling the truth when he said that his role was to warn people of the risks of offshore borrowing. The truth is that it was his job to try to persuade people to borrow in that way, no doubt because of the large profits which the bank would earn, and perhaps favourable tax treatment of those profits. … The impression created by the evidence was that Mr Look could say much what he liked to prospective borrowers, as long as what he said generated a substantial amount of business and involved the creation of documents likely to protect the bank against the complaints of disappointed customers. …

It is common ground that on 14 May 1984 [the Thannhauser-Look meeting], the applicant had no special need of a loan. … She was, I think, the sort of person who relied upon her advisers in areas with which she was unfamiliar, and the transaction in question was one of that kind. As she said, she trusted the bank; her trust proved to be misplaced.

Finally, by the end of 1991, Westpac was broke – B-R-O-K-E. To the effect that Westpac (the once mighty Bank of New South Wales) faced a takeover bid from Kerry Packer – the ultimate ignominy.

Lessons from Westpac documents: unsavoury elements behind the trusted logo

It is salutary at this point to emphasise some key issues, deducible from Westpac documents. Westpac was actively flogging FCLs in the manically unrestrained environment unleashed by financial deregulation. Messrs Neville Imhoff and Albert Look took this brief seriously. Here is an assessment on Imhoff in pursuit of a promotion (Personnel Appointments Document, 17 May 1982): “An outstanding performer in this highly specialised field. … A tireless and highly marketing-oriented manager who is an automatic choice for this position.”

As for Look, here is his ‘Performance against objectives’ evaluation (no date; circa 1983-84?):

1. To contribute a significant effort towards achievement of business levels set by M.I.B. in particular capture of Euro loan business … Achieved. Euro loans approved $240 M. Drawn down $220M – after upward revision of original objectives mid way through the year.

2. To expand marketing sphere to include major provincial cities of … for the promotion of International products. … Achieved. …

5. To increase income from Euro loans to AUD 2,180,000 and contribute significantly to other income levels set by M.I.B. for Queensland Div. … Achieved. Estimated Euro loan income gained $3,034,000, Income from other International products at record level $7,425,000 (+58%). …

Behind the scenes of the triumphal progress of Imhoff and Look, there was a good deal of turbulence. For example, this from an area Queensland functionary, L.J.D. Smith, District Commercial Manager, 14 March 1986:

We remain very concerned over our continued inability to offer manager euro-loan facilities. As we expressed [recently] it is somewhat difficult to accept that a Bank of our size and international stature in the marketplace remains unable … to offer borrowers in this category some tangible form of protection against, in some cases, the real threat of bankruptcy. You should be aware that our image in the marketplace (at least in our area) is at an all time low, with several clients becoming nervous enough to threaten Westpac with legal action, media exposure and the like. … [FCL borrowers] are asking, with some justification, what can Westpac do, with all its professed expertise in financial matters to give them a degree of comfort against the very real prospect of their slipping into financial ruin.

In a memo to his boss on the running crisis, 29 April 1986, Sydney-based P.J. Clarke, Deputy Treasurer Foreign Exchange, took the opportunity to discount Smith’s complaints:

Despite the emotional outburst from Queensland Division we do not believe the bank’s credibility has suffered. It does not help when account managers also believe the bank has a responsibility for the predicament of its customers. Perhaps those same account managers should have exercised a little more care when the loans were first approved.

Well perhaps Mr Clarke should have had a quiet chat with Mr Look about the matter. The differences within the bank were considerable. Senior Head Office manager Frank Cass (Chief Manager, Retail Lending) was long opposed to FCLs and wanted to close down the operation, but was in the minority. We also have a Minute written for the early 1986 internal Riley Committee, which examined the crisis (without resolution). Said F.A. Ward, General Manager, Credit Policy & Control, 17 January 1986:

Neither the Bank nor the borrower has control of liabilities. The issues are clearly identified and there is an urgent need to bring these assets under competent management.

Neither the bank nor the borrower has control of liabilities! A time bomb built into the facility.

Then we have Clarke’s replacement, Graham Mackie, writing to Brisbane, 25 February 1987, with a different perspective:

Neither here in Sydney nor elsewhere do we consider it a function of the Treasury Division to deal direct with the retail segment of the foreign exchange market. … We are even more disenchanted when the business is related to offshore commercial loan customers most of whom would be involved in trying to repair unrepairable damage. To tie up the proposed foreign exchange team in Brisbane with a multitude of non productive calls would certainly be contrary to our proposed business thrust. … the Bank has a major problem in how to manage these unfortunate peoples (sic) affairs in a way that will minimise the risk to the Bank. … attempts to manage clients out of currency difficulties is next to impossible …

In other words, the (wholesale) foreign exchange powerhouse in Westpac, the status of which was leveraged by the bank to claim expertise in the offering of FCLs, is saying – keep these tragic people out of our hair. It is for the reason that Westpac lacked the resources, expertise and inclination to attempt to manage the out-of-control FCLs that the bank sub-contracted management of some FCLs to its subsidiary PPL. Thus there arose the additional depredation of the FCL borrower that was exposed in the Westpac Letters above. A heady mixture of greed, incompetence and bravado were too entrenched to be reversed.

Thus, when sued, Westpac’s strategy emphasised the destruction of the borrower victims.

Westpac v Potts 1991-92

We turn to the Westpac Appeal against the MacKenzie Trial judgment. (Potts also cross-appealed against the ‘paucity’ of the damages granted.) The appeal was conducted over four days in early November 1991. The judgments by Macrossan, Dowsett and de Jersey were delivered separately. None are extensive.
Macrossan upheld the MacKenzie judgment (albeit in a rather slapdash fashion). Said Macrossan, MacKenzie drew on principles established in cases ‘dealing with the cause of action of negligent misstatement’, from which that judge ‘found that the bank owed a duty of care to the plaintiffs’. Proximity and an ‘element of trust at the heart of this relationship … gives rise to a duty of care.’ Macrossan made one insightful comment: ‘We should, then, be slow to depart from findings which the trail judge has made from the standpoint of the advantages which he possessed [testimony and demeanour of Imhoff and Potts, scrutiny of bank documents, etc.].’

Macrossan disagreed with MacKenzie’s deliberations on damages. Said Macrossan, MacKenzie’s cut-off point for determining causation was arbitrary. The cut-off point should be at the end of the 2-year loan in May 1984. That Potts chose to extend the loan for another three years was his business, notwithstanding the advice of Look (who had replaced Imhoff) that Potts should extend the loan. Macrossan thus reduced damages payable to Potts from some $615,000 to some $209,000.

Dowsett disagreed with MacKenzie (and Macrossan), claiming no duty of care. ‘The appeal should be allowed.’ Dowsett drove a wedge through an opening created by MacKenzie himself. Imhoff was held to have said to Potts that any devaluation of the AUD against the JPY would be contained within a 10% band. MacKenzie held (strangely) that, by itself, this statement was not negligent. MacKenzie had had to suffer through witness testimony of a number of economist/finance ‘experts’ (including Westpac’s expert-for-hire Tom Valentine) on likely relative fluctuations in exchange rates and their possible causes. MacKenzie concluded from this testimony that ‘experts’ held widely different views, and thus the future was an open book. Quite.

Dowsett opined that Imhoff’s claim was merely one expert opinion and that he had a right to be wrong about the future.

He was not, after all warranting that there would be no depreciation in value beyond the 10 per cent figure. He was only offering an opinion. … Of course, to outline the negative side without outlining the positive would also give a misleading impression. This line of reasoning would lead to the conclusion that one must outline all of the factors considered in forming such an opinion. This instead of expressing an opinion, one would be obliged to outline the arguments for and against a particular proposition, all this in the context of giving gratuitous advice.

As I have said, to offer an opinion of necessity carries the implication that there are outcomes other than that suggested. Such a communication almost inevitably contains its own warning of the possibility of non-fulfilment. … An honest opinion formed upon a reasonable basis and expressed as an opinion is not negligent simply because it is not accompanied by a discussion of the various considerations taken into account in its formation. …

To express such an opinion [re the 10% maximum devaluation] obviously implies by its terms the theoretical possibility that prediction will not be realised. …

Arguably, the appellant [the bank] should not be held liable for losses resulting from these unforeseen and unforeseeable events [the March 1983 AUD managed devaluation and the December 1983 float of the AUD].

Thus expert opinion is no less expert for being invariably wrong! Dowsett also cited the ‘evidence’ available in a booklet sent by Imhoff to Potts, the contents not explained by Imhoff, in which the fact of a AUD devaluation against the JPY during the 1970s is outlined. Another booklet also outlined hedging which Dowsett claims is sufficient to deny the bank any obligation regarding the necessity to closely manage the loan in terms of risk exposure. All completely transparent. Thus buyer beware, no duty of care. Life’s a gamble.

Dowsett has constructed a hypothetical scenario at variance from the one on trial and under appeal. Imhoff was not one of multiple experts whose opinion on the future was allowed to be wrong, both because experts disagree and the future is unknowable. In this guise, a prognostication, even from an ‘expert’, is by definition bound to be proved wrong with the passage of time. Rather, Imhoff was the person to whom Potts was directed for advice. He was offered as the expert, he gave advice, which was found to be negligent not because it was wrong (it was) but because Imhoff was presented as the person who embodied the bank’s reputation as a trustworthy institution, whose role was to flog FCLs, who divulged incomplete information and who was in fact non-expert. Imhoff, and Look following him, were salesmen.

Both Dowsett and Macrossan demonstrate no understanding of the bank-borrower relationship (a peccadillo that suffuses the entire judiciary); Macrossan explicitly makes statements regarding the bank-borrower relationship which are simply erroneous.

More, Macrossan likens Potts’ status in May 1984 (the end point of the initial 2-year loan) to that of a gambler: “In the end, the choice for the plaintiffs in May, 1984 was similar to that which confronts a losing gambler when he must decide whether to leave the gaming table.” Macrossan merely ignores that MacKenzie, on the evidence had found it ‘rational’ on Potts’ part to renew the loan and to attempt its management.

It is also relevant that Imhoff’s successor Look had advised Potts to do so. Macrossan claims that “No claim against the defendant bank was based upon Look’s advice.” This claim allows Macrossan and Dowsett to ignore Look’s contributing role to Potts’ decisions. But MacKenzie had not included Look’s role in his determination because, explicitly, he had already found negligence, reliance and causation attributable to Imhoff.

It was Imhoff’s role (and that of Look following Imhoff) to sell a faulty product (‘neither the bank nor the borrower has control of liabilities’) and to calm the potential ‘buyer’ so that the fault was not transparent or, at best, minimised in the small print. This essential character of the bank-borrower relationship in this instance (laid out by MacKenzie, and in Spice/Chiarabaglio/Ferneyhough/Thannhauser) is bypassed for a fictional scenario.

And finally to the judgment of de Jersey.

I will not restate the facts, which appear in the judgments of the Chief Justice and Dowsett J. [A select few, incomplete, partisan.]

No-one suggested the bank assumed the role of investment adviser, and there was nothing inaccurate in what the bank officers did tell the respondents. [Wrong on both counts.]

De Jersey opines that MacKenzie chose the wrong precedent. Cornish v Midland Bank (1985) – “a factually different case”, “a different situation which finds no parallel here” – involving ‘duty of care’, was the wrong precedent. A right precedent, said de Jersey, was the 1991 Commonwealth Bank v Mehta appeal. Note that neither the 1990 Mehta v CBA Trial judgment (Rogers J) nor the Appeal judgment (Samuels, Meagher, Waddell JJ) are readily accessible.

It is pertinent that Cornish v Midland was used as validating precedent in the judgments for the borrower in Spice, Chiarabaglio and Ferneyhough. Remember that Westpac lost appeals both in Spice and Chiarabaglio and did not try it again in Ferneyhough. Contrary to de Jersey, Cornish (although referring to a wife providing an ill-explained guarantee for an errant husband) finds a direct parallel in the FCL borrowings.

As for CBA v Mehta, de Jersey misleads again. The Trial judge, Rogers, argued in terms of s.52 TPA statute liability. The Appeal judges in Mehta claimed that silence (i.e. an ‘incomplete explanation’) does not constitute misleading and deceptive conduct, and thus there is no duty of care. The specifics were that Mehta was a Newcastle-based doctor, ambitious for material gain and full of hubris. He was clearly out of his depth, but his manner allowed Samuels & Waddell to claim that there was no reliance (on the explanation, hence its incompleteness was irrelevant).

But MacKenzie argued (following the pleading) from the general law and (rightly) found negligence and reliance. This key fact of Potts differs from the comparable key fact of Mehta. More, de Jersey refers only to Meagher, whose contribution in the Mehta Appeal was insignificant, blustering and prejudiced. Said Meagher:

A foreign currency loan is largely a gamble; consequently, it would be unattractive to the timid and the prudent. Nonetheless, there are perfectly rational people who are prepared to gamble; and it is notorious that many borrowers did enter into such transactions at the time without suffering any damage, some of whom actually made a profit. All the experts agreed that it was reasonable for an informed borrower to enter into such transactions. One cannot but have an uneasy feeling that a dogmatic view that such loans are necessarily irrational will lead to the imposition of liability on lenders where justice does not require it.

Let us confront that Rogers (atypically for judges in FCL cases) waded through mountains of CBA documents and formed his opinion undogmatically of the essential irrationality of FCLs. (As a by-product of Rogers’ in-depth probing on the bench, Rogers wrote an incisive article on the broader subject, viz.: ‘Developments in Foreign Currency Loan Litigation’, Journal of Banking and Finance Law and Practice, September, 1990.)

By contrast, Meagher did no homework and formed his own opinion dogmatically. Meagher has been feted as a legal giant (and a specialist on Equity – what?) but his obiter dictum above gives a different slant on the sources of Meagher’s fame. But no – de Jersey found something crucial in Meagher’s throwaway lines, wherein resided a direct reproduction of the banks’ propaganda screed regarding the potential rewards of FCL borrowing.

To continue with the de Jersey judgment.

I will restate the observation that the risks associated with the volatility of the currencies were obvious, and in fact flagged by documents provides to Mr. Potts, and he knew generally how to manage those risks. [All these claims are directly contradicted by MacKenzie’s informed findings.]

De Jersey proceeds to leverage some ill-advised claims by Potts’ counsel, diversionary from the MacKenzie judgment. Then this:

There was no finding supporting a general assumption of responsibility by the bank officer to advise more comprehensively, or known reliance on the part of the respondents upon the bank officer’s giving that more comprehensive advice. [Transparently false.] I find no factual basis for this suggested justification of the existence of the duty of care found by the learned judge.

One should not of course overlook the Judge’s particular justification for the duty of care, which was based on Cornish … His findings were expressed in light of Cornish. [Cornish was one of several precedents, and not the soul one drawn on.]

Centrally, de Jersey delivers the coup de grâce:

The situation is in the end like that described by Deane J. in Sutherland Shire Council v Heyman, pp.502-3:
    … “Indeed, in a competitive society, the infliction of pure economic loss upon another will commonly be concomitant of the successful pursuit of personal advantage by the way of lawful conduct in that there can be discerned, in many commercial and financial transactions, a correlation between the attainment of personal gain for one’s self and the sustainment of economic loss by another.”

The law of the jungle. The flippancy of this dénouement, after a cacophony of diversionary dissonance to that point, is breath-taking. Gilbert & Sullivan’s Trial by Jury has nothing on the black comedy that is this farce.

The speciousness of the overall Appeal judgment and its essential vulgarity beggar the imagination. Remember that Potts went to Westpac to inquire about the nature of foreign currency loans as a possible replacement for his then bill facility of $250,000. He came out in May 1982 with a FCL of $500,000, and the debt ultimately owing in May 1987 was $1,783,000. The Appeal judgments neatly sidelined the essential character of the contract and the relationship between Westpac and Potts, all outlined in the Trial hearing and judgment by Mackenzie.

No wonder that the Trial and Appeal judgments have not been made publically available.

Behind the Westpac Appeal Court Victory

But there is a context to the Westpac Appeal against Potts, and it enhances one’s understanding significantly. For this context I am indebted to then bank victim consultant John Salmon, who was asked by Potts for assistance in the Appeal.

Potts had been anxious for some months during 1991 to have the Appeal brought on. His preferred counsel (Kirk, as from the Trial representation) had been briefed. But the Appeal was forestalled by Westpac then finally listed without due notice to Potts, and Potts’ chosen counsel was no longer available. New counsel had to be found and briefed virtually overnight.

On the Friday evening, at 4.30pm, before the Full Court’s hearing’s commencement on Monday 4th, Westpac delivered 250 documents to the court registrar (right before closing time). Potts wasn’t informed of their existence by his counsel until the Tuesday.

In concluding his judgment in the Appeal court, de Jersey noted:

There was however, at least theoretically, a second question, whether the respondents should have a new trial because of the bank’s discovery of relevant documents just before the commencement of the appeal hearing. But we were shown no such document suggested as relevant to the erection of a duty of care. So there should not be a new trial.

Dowsett concurred. Yet some of the late discovered documents were Imhoff’s diary notes recorded after meetings with prospective FCL borrowers (the Potts diary note was not among them). Details as per Imhoff’s spiel generally tended to confirm Potts’ claims and Mackenzie’s conclusions in his Trial judgment – Imhoff gave misleading and selective information and was actively pushing FCLs. The apparent willingness of de Jersey and Dowsett to ignore the substance of the MacKenzie judgment and write an alternative history of the relationship meant that the late discovered documents also had to be assumed away as of no import.

After the November 1991 hearings, Potts attempted to obtain a copy of the hearing transcripts (as is customary for litigants). Potts was denied the transcripts by the State Reporting Bureau; he never obtained them and nor did anyone else (did Westpac?).

It is not irrelevant that, prior to his elevation to the bench, de Jersey had long acted for Westpac. He has admitted to being on a retainer from Westpac at some stage (albeit misleading the Queensland Attorney-General as to its quantum, letter dated 23 March 2006). Dowsett was discovered (from a search by Salmon) to have had two mortgages with Westpac, one registered in September 1991 not long before the Appeal hearing in November. Potts’ own counsel, F.I. Hanger, was discovered by Salmon to have a registered mortgage with the Commercial Bank of Australia, one arm of the merger with the Bank of New South Wales in 1982 into what became Westpac.

More, de Jersey and Dowsett were both products of Brisbane Grammar (‘Churchie’), notes a Courier Mail article (‘Out of the ivory tower’, 27 February 1999) on their longstanding collegiality.
 

   … at university [de Jersey] was drawn into a close association with two other brilliant student minds. The triumvirate came from opposing GPS schools: John Dowsett [Grammar] and John Byrne [Brisbane Boys]. … One former classmate … says … “They worked together, they studied together … It was a little world of their own.”

Moreever, Potts was not happy with Hanger’s representation of his case, noting that Hanger and Chesterman shared chambers.

And again, there is the law firm Feez Ruthning. Feez Ruthning was long Westpac’s Queensland solicitors. De Jersey did his articles at Feez Ruthning where Graeme Morris was long-time partner and then senior partner. De Jersey subsequently becomes friends with Anthony, son of Graeme, now QC. The son appeared for Westpac in several FCL cases – Ferneyhough and Thannhauser – so he would be familiar with the skulduggery involved in the FCL saga. In sum, a small world.

All the evidence points to the Westpac Appeal being a set up job.

Interesting that Kiefel J found herself questioned regarding a potential conflict of interest in presiding over a Queensland FCL case in which she denied a claim by a FCL victim (Donkin). Noted Kiefel in Donkin v AGC (a Westpac subsidiary), 9 December 1994:

I am asked to disqualify myself from hearing further submissions on the applicant's motion since there is said to be an apprehension of bias which arises by reason of a number of matters. Firstly, it is said that one might infer from the text of my reasons delivered on 2 November 1994, an element of pre-judgment of an issue yet to be determined. Secondly, it is said that there is an apprehension that I might not bring an impartial mind to bear and which is said to arise from my having acted as senior counsel for Westpac Banking Corporation, a company having a connection with the respondent, in a case concerning foreign exchange dealings some years ago [Ferneyhough]

Insofar as there is said to be a need for disqualification where a judge hearing the matter has formerly acted as counsel for one party, or a corporation associated with that party, it clearly has no basis, for the reasons given by [precedent given; here the judiciary protecting its own]

The matter is then resolved [Kiefel is staying put] because the apprehension could not be said to be based in reason. On the other hand, an inference open, where the bases put forward are so clearly untenable, is that the applicant and the [Foreign Currency borrowers’] Association itself seeks some measure of control over which Judge might determine foreign currency cases.

By contrast, the appointment of de Jersey and Dowsett to the Westpac Appeal and those Judges’ learned deliberations were the product of a ruthlessly detached and impartial process. The high-mindedness of the (Queensland) judiciary is a wondrous thing to behold.

Aftermath of the successful Westpac Appeal

It goes without saying that Potts was nonplussed and devastated by the Appeal outcome. John Salmon was told by Queensland legal acquaintances at the time that it was the worst judgment in the Appeal jurisdiction that they could ever remember. Potts essentially carried on (rightly) as if the Appeal judgment had no legitimacy. Potts continued legal appeals through the courts, vainly, and continued to bombard Westpac with demand for financial restitution.

The details of what follows are somewhat murky. Potts soon appealed to the High Court, but that Court (meeting in Brisbane) rejected granting a right of appeal. Potts, grasping at straws, then made an appeal to the newly constituted and distinct Queensland Appeal Court on the grounds of late document discovery. The appeal was denied.

Potts would not give up. In a letter to Potts, 10 November 1992, Westpac noted “The Bank and its officers are not unsympathetic to your current financial position.’ Then why did Westpac not settle with Potts in 1987, 1989 or 1990 (before or after the Trial)? Did Westpac at this point implicitly confront that its ongoing belligerence lacked a certain legitimacy?

Westpac agreed to a ‘determination’ by an outside party, in this case Sir Laurence Street, albeit with Westpac writing the terms of reference (and paying the costs). Noted Westpac:

The question which we are prepared to put to Sir Laurence is: … is there any new material or matter which has emerged as at 10 November 1992 which would lead to the conclusion that either majority decisions of the Full Court of the Supreme Court of Queensland or the decision of the High Court in relation to the application for special leave to appeal were wrong?

Most of 1993-94 (!) was taken up by this process, with Westpac attempting to prevent this determination considering damages. Street eventually came up with a determination in October 1994 that ‘the Court got it wrong’.

A key element in Street’s determination was that the Appeal judgment might have turned in Potts’ favour if the Western Australian Full Court decision in Wardley v State of Western Australia, then available to the Appeal judges, had been considered by them. The Full Court judgment was later confirmed by the High Court (October 1992). Wardley entrenched a statutory time limit under the Trade Practices Act to 3 years. Street apparently determined that the establishment of Potts’ ultimate loss occurred in 1987 when Potts’ repaid his accumulated debt; thus Potts’ instigation of litigation claiming damages within the ensuing 3-year period gave Potts’ claims admissibility (Westpac of course disagreed).

Street determined that the Full Court was wrong to deny Potts damages but adhered to Westpac’s dictates that he was not to discuss quantum. Street was further exposed by Potts to fraudulent elements of Westpac’s activities, but chose not to go there. Westpac responded to Street’s ambiguity by claiming that, at best, a decision for Potts would end up requiring from it a damages commitment of less than $200,000 – slightly less than that determined independently in the Appeal by Macrossan. Potts at the time claimed $2 million, following independent advice from an accounting firm.

Potts was thus having none of the sub-$200,000 derisory offer. The fight continued through 1995. At this stage, a mediator Mediate Today (a debut significant mediation following its recent establishment) was brought in. Mediate Today treated Potts and his claims cavalierly. But in the end, Potts appears to have come out with damages not merely greater than the Macrossan determination but also greater than that of Mackenzie (~$650,000) – estimated to be $765,000. The settlement was, as usual, confidential, and Potts adhered to the convention.

Why and how a ‘tolerable’ settlement was achieved is not clear. Mediate Today itself gained traction with this settlement, yet apparently failed to deliver comparably on successive bank mediation cases (as for Lanza-Volpe). Westpac itself demonstrated until then that it intended to pursue Potts and other FCL victims (vide Porter of Drambo and Donkin) mercilessly. Earlier, Westpac had fought FCL victim Trevor King (Eltran) for 5 years from 1987, with King incurring $1 million in legal fees, only to agree on the steps of the court to a settlement to prevent King’s case and his evidence becoming public.

Westpac’s Annual Report of 1992-93 curiously reports (under Commitments and Contingent Liabilities):

There are 66 outstanding foreign currency loan related claims against Westpac and Partnership Pacific Limited. Twelve matters have been settled by negotiation/mediation since December 1992 [i.e. within a mere 6 months]. The assessed claims total approximately $70 million. Westpac believes that mediated or negotiated solutions will be possible in respect of any genuine and properly founded claims.

Those cases settled by Westpac would of course have had nothing to do with being ‘genuine and properly founded’ (they all were genuine and properly founded, by nature of the faulty product) and more to do with what Westpac could get away with. But why was Westpac settling any FCL claims given that it has always claimed publically to be in the right?

The peculiar settlement with Potts following Street’s ‘determination’ and mediation may have been due to Potts by now having turned himself into a ‘loose cannon’. Potts was embarrassing the Westpac Board at AGM’s. He was the spearhead of a large-scale counter-propaganda thrust by the FCL victims’ action group, the Foreign Currency Borrowers’ Association, which produced such meaty documents as ‘Do You Trust Your Bank?’ (~August 1995). And sympathetic Parliamentarians were airing his and fellow victims’ grievances in Parliament, calling for an investigation of Westpac’s right to hold a banking license.

Thus Ken Aldred (Liberal Member for Deakin, Victoria), 22 November 1995:

Mr Deputy Speaker, the arrogance of Westpac is unprecedented. It is obvious that Westpac has learnt nothing and nor has its conduct changed. Westpac still pursues its favoured course of intimidation. … Banking officials who hide behind the corporate veil of a major bank and conspire to pervert the course of justice must be called to account. Corporate intimidation is simply not acceptable in a civilised and law based society. …

Many Australians have lost their homes, many lies have been told, and many jobs and business opportunities have been lost due to Westpac's present new business practices. … I ask the Treasurer [Willis, Labor]: when was Westpac's banking licence reviewed, and when will it be reviewed next? Westpac should be renamed `the ugly Australian'. It is not a matter of changing the corporate image of Westpac; the Westpac culture needs root and branch investigation by the appropriate authorities, to ensure that it acts in the interests of its customers and shareholders and, above all, to ensure that Westpac obeys the corporate laws of Australia.

Aldred also highlighted that Feez Ruthning, on behalf of Westpac, had written to potential funders of litigation by victims Porter and Donkin (information obtained through what means?), threatening them with a costs claim if the bank wins in court.

Ray Braithwaite (National Member for Dawson, Queensland), 27 September 1995, had earlier made a comparable general denunciation of Westpac’s venality and complete absence of contrition:

Westpac, I believe, has done all it can to avoid its moral responsibilities for the bank's fiascos since deregulation. An alternative dispute resolution mechanism has not been properly put into place and the mechanism under the present system is just not working.

The problems, of course, are not just for foreign currency borrowings. Complaints against major banks are being given to me on a regular basis. It is also a fact that, while these banks are operating within their legal responsibility, they are also entering into possession on security prior to giving customers sufficient warning that they are going to do so. …

But it is obvious that the bank will do anything to fight to prevent a successful application by the litigant, because if that does occur a whole lot of other cases are just waiting to be stacked up to follow the precedent that would be set.

Braithwaite further complemented Aldred’s comments, 27 November 1995:

My final observation on this whole matter is that neither the government nor the Reserve Bank is prepared to uphold its own legislation and regulations [re qualities required of a licensee, ‘integrity, prudence and professional skill’]. …

The Westpac letters are evidence, as is an examination of the cases of Donkins (sic) and Potts. The recent letters of Feez Ruthoning (sic) prove that banks have no integrity in this regard, no prudence, and had no professional skill when foreign currency loans were first marketed. I have placed questions on notice to the Reserve Bank to determine whether such Westpac practices should mean a review of the licence under which that bank operates with impunity from the law.

Braithwaite also notes:

I have followed the case of the Donkins since it came to my notice after the [1991Martin] inquiry. I have corresponded with the law section of the bank to argue the case and have received no satisfaction whatsoever. What can you argue against a bank's representative who says, `We have spent over $1 million on the particular Donkins' case and don't intend to lose it now,' even to the point of prosecution into bankruptcy, which was their answer?

Donkin was indeed pursued to bankruptcy, and his case (as does Porter/Drambo) remains a monumental scandal in itself. Donkin is still waiting for justice.

It is of course of no relevance that Donkin’s attempt to sue a firm of solicitors for negligence (and, inter alia, his trustee in bankruptcy) involved an appearance before Chesterman J, S251 of 2002, 23 October 2003. Chesterman had acted as counsel for Westpac in Thannhauser, Potts and Drambo, discreditably in Potts, and had been briefed in Donkin (albeit not used). Chesterman J (26 October) denied Donkin’s plea. Chesterman claimed that the manner in which Donkin’s case against the solicitors was pleaded was ‘nonsensical’. He also effectively accused Donkin of being vexatious and ordered that any future statements of claims by Donkin would have to be submitted to the court for approval.

No doubt with the blessing of Kiefel J, as above (Kiefel was elevated to the High Court in 2007, so the tedium of confronting grizzling bank victims was left for those of lesser rank).

Potts’ settlement was generous compared to zero. But Potts had lost well over $3 million, his job, the family house (and the daughter’s residence), and his retirement nest egg.

Potts wrote to Laurence Street when Street first appeared on the scene. He notes that in his career as a war pilot, as a bank officer, and as a commercial pilot, his operations in his environment could only function on trust and on absolute professional responsibility. He notes:

In my 11 year career with the Commonwealth Bank from 1946, I saw no sign of corruption or fraud. … if a difficulty arose the manager was there to sort it out. He was trusted to be fair in his assessments. …

In my Air Force days flying high performance single engine fighter aircraft required total faith in the professionalism of the service engineers. You had to have trust … as you were putting your life in the hands of those people.

In my 27 year career as a Commercial Airline Pilot with [TAA] … trust was again required … Training and checking were second nature in our lives. … any serious mistake can cost you your career.

The above may help explain my absolute surprise and disquiet at the dishonesty and personal behaviour not only of the various Bank Officers but also from some of the legal profession during our litigation. … Misplaced trust can be a shattering experience as occurred on that fateful day I met Mr Nev Imhoff, the Westpac International Manager.

Fateful day indeed. In the late 1990s, Potts was still seeking enhanced compensation, writing to Westpac CEO Bob Joss in September 1997 and February 1999 to that effect. Without success. Replying for Joss to the September 1997 request, Westpac General Counsel Bettie McNee claimed:

Westpac has never acknowledged any liability in respect of your claim. It does not and never has believed it owed you any money. The [1995] settlement reflected our concern to provide you with an opportunity to put the claim behind you and help you get your financial affairs in order.

Lionel Potts died in 2007, of cancer. His successful career was prematurely ended in May 1982.

The continuity of Westpac’s unsavoury culture

Westpac has never acknowledged nor recanted its sins during its heady participation in the FCL saga. Indeed, a comparable venality and tendency to corruption in dealings with SMEs has survived and been reinforced through a succession of CEOs and Board Chairmen. This succession includes one David Morgan, senior official of the federal Treasury which looked the other way during the FCL years, and who joined Westpac as a senior manager in 1990, rising to become CEO in 1999. Morgan did erect a ‘corporate social responsibility’ facade to veil the bad smell – the media dutifully covered the former but ignored the latter.

Indeed, at this moment (March 2014), Westpac is pursuing in a Queensland court a hapless victim of an elaborate sting operation. Rather, there were two sting operations – one to have the victim take on board for his development proposal a partner lacking the requisite integrity, two the sting operation by Westpac itself to recover funds which were divested fraudulently by bank officers to the benefit of said partner lacking the requisite integrity, with nobody upstairs in Westpac being any the wiser.

The said victim signed up with one Mario Girardo, who was represented to him as a legitimate investor but who has since run into a spot of bother over previous dealings – described for example in the Australian, 13 August 2011, the Courier-Mail, 13 August 2011, and the Northern Star, 17 August 2011. Mr Girardo is currently experiencing a period of incarceration.

In court, the victim earlier heard an opinion handed down by the judge that Westpac had a case to answer, and a summary judgment demanded by Westpac was declined. But that judge was curiously replaced by another judge, who has put the victim through a merry dance for the victim merely wanting a transcript of a crucial hearing – needed to prepare the defense. The state of play to recent days is (rather cryptically) outlined in the Gold Coast Bulletin – the purportedly idyllic Gold Coast naturally being the scene of the crime.

And which legal firm is acting for Westpac in this matter? Allens Arthur Robinson, into which Feez Ruthning were merged in several stages. Feez Ruthning / AAR has thus been on the Westpac drip for decades – a very nice earner and to hell with the immorality behind Westpac litigation.

Here we have a triumvirate of bank, law firm and judiciary coalescing to facilitate bank corruption and to ensure the impossibility of successful prosecution of that corruption. The scenario redolent of the Westpac v Potts Appeal is still in place. As partial explanation …

The continuity of de Jersey’s attractions to the banks’ takedown of unsuspecting borrowers

The Appeal judgment for Westpac led by de Jersey was a turning point for Westpac. Spice, Chiarabaglio, Ferneyhough and Thannhauser had been obliterated as if they had never happened. A substantial legal opinion, instigated by massive documentation by the FCBA, that Albert Look (who had advised on the majority of Queensland FCLs to SMEs) had committed perjury in court was rendered irrelevant.

Paul de Jersey became Chief Justice in 1998. The interest moves from Westpac to the National Australia Bank. De Jersey presided over a hearing in 15 October 2003. The occasion was an application by Lynton Freeman, ex-farmer and NAB victim and dogged litigant, to re-open a previous judgment against him and for the bank.

CHIEF JUSTICE: I should at the outset of this matter have revealed that 1 am a customer of the National Bank. I'm not a shareholder in it, I'm simply a day to day customer. I should have said that at the outset probably.
[Freeman]: With respect your Honour, that's worse. I'd rather you be a shareholder.

CHIEF.JUSTICE: But, there you are, I've been candid with you. I don't think anything arises from it. I would not consider the circumstances would have justified my disqualifying myself from the case.

De Jersey presided over a hearing on 20 August 1998, at which court approval was sought for the sale of Doneley family farming properties. Anthony Morris had been appointed by de Jersey as Trustee of a Doneley family trust in September 1997. The court granted approval for a Heads of Agreement in which Morris as trustee could enter into a joint sale arrangement with the National Australia Bank to sell the leasehold section of the Doneley properties, over which the NAB held security. Both leasehold and freehold properties (the latter including valuable water licenses) were subsequently sold for $3.3 million, with the leasehold property of minimum worth, say $300,000-500,000. The NAB did not hold security over the freehold portion, but obtained 57% of the total sale return, effectively allowing the bank to rip off the Doneley family to the tune of $1.6-1.7 million.

With regard to the Doneley litigation, a letter from Morris led to a reply by de Jersey on 14 December 1988 (tabled by Chris Foley, Independent Member for Maryborough, in Parliament, 8 March 2006):

I was delighted to hear of the good outcomes in the Doneley case. You may rightly regard your own contribution to this as little short of monumental. I have already told you how extremely valuable I found your submissions – from which as you know I shamelessly plagiarised in preparing my judgment! Thank you very much for writing to me. …

De Jersey presided over the summary judgment for the NAB against Troiani/Wide Bay Bricks, 19 March 2001. The scale of the destruction of Sante Troiani, with the de Jersey summary judgment pivotal, is monumental. McMurdo P (who had acted for Thannhauser against Westpac) agreed to represent Troiani but within 24 hours withdrew, citing other commitments. Anthony Morris, brought in overnight to represent Troiani (Troiani’s solicitor had previously used Morris), advising Troiani that his presence would not be necessary at the hearing. Neither the transcript nor the judgment ever became publically available.

De jersey presided over a claim by Anita Bernstrom against the NAB in Cairns, 20 September 2001. De Jersey upheld a counter-claim against Bernstom by the bank for summary judgment. The bank’s counsel engaged in a deceptive act with a Bernstrom witness (her son), the Trial transcript was doctored to obliterate that fact, and the judgment has not been made publically available.

Thus has the NAB been a happy beneficiary of de Jersey’s considered rulings. (de Jersey has also presided over other hearings, applications, etc., involving his personal banker the NAB, not considered here.)

Paul de Jersey, after a stellar career in the law in Queensland, will become Governor of that State in July. This elevation may be in the public interest in so far as it is a positive development for future bank victim litigation in Queensland. But there is a deeper culture of partiality to be transcended, and that won’t be over-turned overnight.

To cite the immortal comment by Muir J, presiding over McMinn v NAB, 17 January 2002:

Litigants should be careful about making allegations against banks relative to fraud. It has been my experience that on the basis of 100 allegations of fraud against banks, 99 have no substance and cannot be sustained.

(The comment was noted down by John Salmon, present with the McMinns at the hearing; fortuitous, because it had been omitted from the hearing transcript subsequently obtained by the McMinns.)

Muir acted for both Chiarabaglio (1989) and Thannhauser (1991) against Westpac, in which bank perfidy was flayed by the judges. But judges can’t be expected to remember what happened in a previous century, being bogged down with exposing spurious allegations of fraud against banks.

In a recent article in the Courier Mail, 19 March, one Anthony Morris has opined: “Yet another advantage of specialisation [of judges presiding more narrowly over matters with sectional expertise] is in maintaining the exceptionally high calibre of Queensland’s Supreme Court judiciary.”

One may well indeed have an ‘exceptionally high calibre’ within the Queensland judiciary. But the ends to which that high calibre have been applied is an issue requiring closer consideration.

The afore-mentioned Westpac victim Trevor King said to the Elliott Committee Inquiry hearings, 11 May 1992:

The integrity of the financial industry of this country has to be rebuilt. We appeal to all members of parliament: study the facts, state the truth, so that justice will be done. It is absolutely essential that this happen. The legal system cannot give us overall justice as the borrowers’ funds are very limited and the banks’ funds unlimited. As throughout history, the borrowers now look to their Parliament as their last and only hope for justice. We do not want recommendations or, heaven help us, another Martin report. We want a royal commission and Acts of Parliament.

Twenty-two years down the track, and another twenty-two years’ accumulation of bank victims, King’s demand is as pressing as ever.

Last modified onFriday, 04 April 2014 22:40

1 comment

  • Col Walker
    Col Walker Thursday, 27 March 2014 22:45 Comment Link

    Another gem, Evan. Very comprehensive - and damning. It's a great pity we don't have governments with the courage to address these issues as they should be.......especially the dismal state of the judiciary(and its corruption) in these matters. Must be required reading for all national media. Regards Col Walker

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