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Australia's first female High Court Chief Justice, Susan Kiefel. (Image via http://www.wolfson.cam.ac.uk/)

Dr Evan Jones continues his investigation into newly-appointed High Court Justice Susan Kiefel's past role in failing to deliver justice to victims of bank malpractice.

Read part 1 here.

Lisciandro v Official Trustee in Bankruptcy

We move on to Lisciandro v Official Trustee in Bankruptcy, 6 September 1995, Kiefel presiding.

The semi-literate Lisciandro was asked by his "friend", the failed businessman Mr Radford, to serve as a "director" in his new company, which began to act as a service agent distributing parts supplied by a company called Alminco. Alminco demanded of Radford’s company a guarantee regarding short term credit extended in trading, which Lisciandro signed after misrepresentation of its significance by Radford.

Here, the hapless Lisciandro is made bankrupt for being a trusting soul. Kiefel determined that, as Alminco personnel knew nothing of Lisciandro’s (non-existent) role or circumstances, then it could not be held responsible for Liscandro’s fate.

Kiefel determined that Amadio did not apply here. Amadio v Commercial Bank of Australia, determined by the High Court in 1983, was decided in favour of the parent guarantors. The bank knew the son’s business to be failing. The parents’ English, especially written, was far from ideal. The parental guarantee was declared void. Amadio has served as a significant precedent for the court system’s voiding of guarantees in multiple cases of uncomprehending guarantors. Case dismissed.

Kiefel’s determination was probably "rational" in terms of the law, but justice was not served to Lisciandro. What Alminco gained from Lisciandro’s bankruptcy is not clear. Why Lisciandro hadn’t sued Radford is not known. Lisciandro’s ongoing bankruptcy served no purpose, but the law, as interpreted, dictates that it should be so.

The Lisciandro judgment serves as precedent for later determinations in comparable cases, where mischievous or corrupt intermediaries sever a direct link between the victim and the beneficiary (typically a bank lender) of the victim’s demise.

Kranz v National Australia Bank

Lisciandro is not a bank case, but the Kiefel determination was leveraged as precedent in Kranz v National Australia Bank (2003). The Kranz judgment is that of an appeal court, confirming a (non-available) trial judgment.

Kranz is another classic guarantor victim, brought in by a dodgy brother-in-law, who was speculating in mining stocks. The hazardous nature of the loan was transparent to NAB personnel: they knew that the would-be borrower was desperate. They imposed strict terms on the loan and they asked for further security. Bank personnel admitted in the trial hearing they had a duty to advise the guarantors of the implications, but the judges at both trial and appeal opined that the bank had no such duty (as below). One appeal judge also opined that this case would have been won for the plaintiff (Kranz) in the UK, but not in Australia.

The appeal judgment has the hallmarks of a judgment in which the "reasoning" (which is lacking) and the precedents have been developed to support a pre-determined judgment. In this affair, Kiefel in Lisciandro came in handy.

Kranz’ barrister, in supplication to the High Court, highlights not merely the lack of justice but the judicial "reasoning" that ensures a denial of Equitable principles.

… the inquiry is split [and] the applicant is denied the cumulative force of a consideration of all of the circumstances in determining what is a unitary inquiry after all. … all of the facts are relevant consonant with the approach of equity in dealing with the application of very broad and flexible rules rather than the process of law of reasoning by analogy and by categories. …

[There was] a special disadvantage constituted by the relationship of trust. … The Bank knew that my client Mr Kranz was family, that he was a brother-in-law. They knew it was a non-commercial relationship. …

The odd thing about this case is that it is a case where the Bank officers themselves took the view that the nature of the transaction, its unusual and speculative nature, and in particular the requirement of a holding period, made it necessary that the applicant be provided with a proper explanation. In other words, they took the view that they would be acting unconscionably if they had not provided it, and they said, of course, that they did, but the trial judge found against them and found that they had not. So it is odd to say they are wrong about this.

Obviously we accept that it is an objective test and it is not for the Bank officers to state the law but in a situation where the Bank knew better itself what it really knew, for them to say they thought it was unconscionable not to have provided Mr Kranz, the applicant, with an explanation, odd indeed that the court would say, ‘No, in fact, you didn’t need to at all. You’re being unduly scrupulous’.

The High Court, under the hard man Gleeson CJ, dismissed the appeal.

As the Dickens’ character opines in Oliver Twist:

‘The law is a ass!’

One can’t hold Kiefel responsible for the outcome in Kranz, but the trend is against the rights of the hapless guarantor. Kiefel has conscientiously contributed to that trend. The hard won success of Amadio and its successors is in danger of being consigned to the margins.

Kiefel has waxed philosophical about the grounds on which the judiciary has seen fit to void guarantees for bank loans, of which more below.

Cockerill v Westpac

Another judgment by Kiefel against another foreign currency loan borrower is relevant. The case is Westpac v Cockerill, FCA Queensland, February 1998. Kiefel led, with the other two judges assenting.

Cockerill and the Dingles took out a foreign currency loan in Swiss francs in 1984. The plummeting of the Australian dollar against the franc in 1985 led readily to disaster. Atypically, the borrowers established a compromise settlement with Westpac in 1988, whereby the loan was paid out at a reduced rate, but they still ended up in bankruptcy. Later, they sued Westpac, claiming that the terms of the settlement had been made under duress (they would later be foreclosed and sold up). A trial court judgment in December 1996 gave them leave to pursue Westpac.

Westpac (on a roll since the 1992 Potts judgment) in turn appealed. The reasoning by Kiefel is of consummate sophistry, finding flawed pleading by the applicants. Legalistic logic-chopping regarding various legal categories of "duress" replace the substance of the settlement and its background.

Kiefel claims, inter alia, that:

“…neither the threats of appointment and sale nor the demand for release were themselves wrongful nor could they have operated as coercive. The critical matter was the applicants' lack of choice.”

Make sense of that. Legal eagles will no doubt have an idea, but linguistically disenfranchised bank victims speak the King’s English (at best). The borrowers signed the settlement agreements under duress, regardless of which category of law the latter slippery concept fell. It is common practice by banks to impose the most draconian of conditions upon a bank customer, already reduced to helplessness by the bank’s behaviour.

Kiefel finds the trial judge in error and sets his determination aside, deciding for the bank. In such convoluted processes of reasoning, the only thing that seems to make sense is the outcome.

At one stage, Kiefel claims:

“It is not, however, that inequality of bargaining position, or the reason for its creation, which is the essence of the action — it is the pressure brought to bear and its wrongfulness …”

The applicants were not pleading inequality of bargaining position, although that, of course, was present (as with all lender-borrower contracts). So this sentence is gratuitous; indeed, it doesn’t fit with what comes before and after.

Interesting, then, that the phrase is appropriated in the "reasoning" of White J for the bank in NAB v Freeman, QCA, November 2001. Lyn Freeman, a Queensland farmer, owned a property suffering from drought but he was strategically defaulted by the NAB and his property sold under value.

The Kiefel claim that inequality of bargaining power was of no import in Cockerill is here leveraged in Freeman as substantive precedent, even though the phrase was gratuitous in Cockerill.

Relevant also that Paul de Jersey, then Queensland Supreme Court Chief Justice, reproduces the Kiefel claim from Cockerill in a June 2002 talk ‘Update on Case Law Developments’ (Supreme Court of Queensland Library). As elsewhere, de Jersey is concerned to delimit relief from claims under "economic duress" and absence of choice.

Kiefel, again, is not responsible for the subsequent use of her obiter dicta. But the incident is relevant for the "weight" that judges bring to their judgments and to the law in general. The accretion of precedent is presumed to give a measure of objectivity to the law. Here it is clear that it does no such thing. It’s more "pick a phrase, any phrase" to justify one’s intent.

The definitive and brutal judicial statement of why inequality of bargaining power in commercial transactions is not merely condoned by the law but its use and abuse ordained comes from the pen of Gleeson CJ of the High Court in ACCC v Berbatis, April 2003. That judgment, alas, was still to come for Kiefel in 1998 and White in 2001 (although Kiefel was to readily pick it up in 2003, below). Meanwhile, any port in a storm.

ACCC v Oceana Commercial

The 1990s saw the development and entrenchment of a widespread scam perpetrated on Queensland’s Gold Coast and Brisbane, whereby marketing fronts pushed and sold investment units at inflated prices to "mum and dad investor" non-residents. Most of the banks – first and second tier – were involved as suppliers of mortgage credit.

In 2001, the Brisbane Courier-Mail (then in investigative mode, before it became a total rag) started an exposé of the scam, especially the role of Westpac as funder. One banking insider told the Courier Mail (15 March 2003) that the profits “were too great to ignore”.

The insider continues:

"The banks were well aware of the practice and greatly rewarded the managers who wrote lots of new loans … In Westpac, I know of one branch lending manager who … was feted as a great business writer and was paid huge bonuses for his work."

In November 2001, the ACCC mounted a case for a Cairns-based couple, called Gleeson, joining the CBA as financier in the action.

Complaints to various authorities and the ACCC action led to Westpac secretly attempting to pay off its borrowers, albeit with trivial amounts. One such borrower, 63-year old widow Kay Elder blew the whistle on her "confidential" payoff. She paid $180,000 for the unit in 1998 with a loan from Westpac but was forced to sell for $110,000 in 2000 upon her retirement.

In December 2003, Kiefel decided against the marketeers but determined that the CBA had no case to answer. The judgment comprises over 50,000 words but the non-suit for the bank is contained in pars. 312-342.

The Gleesons paid $165,000 for the investment unit. The CBA had a valuation from a valuer that put the market value at $100,000.

Granted the ACCC ran its case badly. But for Kiefel, it is more logic chopping. The bank effectively is a mere money lender, having nothing to do with the scam, with no responsibility for disclosure.

Kiefel even asks, desperately, "what if the bank’s valuation had been wrong?" 

Kiefel declaims:

“… I would have thought it necessary for the Commission to have proved that [the valuer’s opinions] were in fact true.”

Not at all. A gap of $65,000? The bank heard from the valuer the full background of the scam that was responsible for this significant valuation gap.

As the Courier-Mail put it (15 March 2003):

'When the property marketeering machine was at full throttle, everyone with an integral part in the clever conspiracy — the banks, developers, solicitors, selling agents and financial advisers — did spectacularly well.'

Read "an integral part". Precisely. Note the insider quotation regarding Westpac above. There could be no marketing scam whatsoever without a willing lender. Just as there could be no financial investment "advisory" scams, à la Storm Financial and Commonwealth Financial Planning, without integrally involved lenders.

The Courier-Mail (26 January 2002):

'But of all the grubby parties, the bank is the most important. Without the funds provided by the banks, there can be no deals. The banks have been lying down with the dogs in this dirty business for years. But somehow, the banks avoided catching the fleas.'

Quite.

The Courier-Mail again (15 March 2003):

When the legal argument is stripped away, one fundamental issue for Kiefel to determine turns on whether banks should disclose everything relevant to a customer.

When Australians go to a bank for a loan or a product, they are compelled to disclose a wealth of information. Salary, assets and their value, credit worthiness and dependants are all relevant.

Common sense suggests it must follow that banks also should disclose relevant facts. It is difficult to imagine anything more relevant to a property purchase than the actual market value of the property. There is little point to consumer protection if the banks can, by their silence, profiteer while leading customers into a loan for a property the bank knows is a rip-off.

There is common sense and there is the law. Kiefel, as with the bulk of her profession, does not seek to understand the character of the lender-borrower relationship and its embodiment in contract. Of which, more below. This, in spite of the fact that litigation involving bank and related financial providers is the judiciary’s bread and butter.

The aforementioned Kay Elder was forced to take on the significant residual mortgage debt against her own home, after sale of the unit bought under misrepresentation. Some retirement package. How convenient for Westpac, which continued to profit from its conscious involvement in the scam after accounting for the trivial "compensation" offered to victims.

In defense of her exoneration of the bank, Kiefel cites Hill J in Golby v CBA (1996), in turn drawing on an Anthony Mason 1984 determination in the High Court:

“Absent therefore some special feature, such as the giving of advice …, there is no reason to erect a fiduciary relationship between banker and customer when that relationship is essentially one founded in contract.”

This line embodies a judicial axiom. But it conflates a practice and a norm. And the conflation is deeply submerged in the folklore of the law of contract, as explicitly flagged here. Yet the common law itself embodies a prejudice as to the nature of commercial relationships. Which is why the separate judicial culture of equity was constructed and evolved. But equity has been denigrated and quarantined as the irritating moralising relative.

As I noted in a talk to the Bank Reform Now Rally in Canberra, 21 November 2016, the bank-borrower relationship

... is probably the most asymmetric of all commercial relationships, because the bank has absolute power of life and death once you sign the contract, given the scale of the debt. The common law says that the bank and the small business borrower are equal under the law, which is absurd. …

[Conventional loan] facilities effectively are not fit for purpose. In effect not merely do we know about the low doc loans, the forged signatures, etc, but every loan made to a small business, or family farmer, in effect, has a predatory character because of the overwhelming imbalance of power written into that contract.

Kiefel also cites the High Court’s Gleeson CJ in ACCC v Berbatis (2003), just recently available. Gleeson declaims that asymmetry of power is relevant insofar as the more powerful party has not merely a right but an obligation to pursue its self-interest as far as that power allows. The judgment is a godsend for those who seek to legitimise oppression and exploitation in commerce.

The agenda is encapsulated in Weerasooria’s Banking Law and the Financial System in Australia, pre-eminent banking law textbook (6th edn., 2006, p.488):

The following principles govern the situation where a customer borrows from a bank:

  • A loan from a bank to a customer in a commercial context is a transaction in which the bank is entitled to seek and obtain the best terms it can.
  • A bank is entitled to have regard solely to its own commercial interest. …

Wickrema Weerasooria was a sometime Monash University academic, whose then research centre was thoughtfully funded by the NAB. He is the author of a "definitive" article, ‘Banks owe no fiduciary or “special duty” to customers: a reaffirmation’, in a 2000 issue of the Australian Banking and Finance Law Bulletin.

In short, the combination of the substantive character of the bank-borrower relation and judicial convention produces from the judiciary a directive to the banking sector that predation is to be not merely tolerated but legitimised. The judiciary gives the banks a license for unconscionability and fraud.

Kiefel’s exoneration of the financier in ACCC v Oceana Commercial has also been used as precedent in Clarke v Great Southern Finance (in liquidation) (2014). Great Southern, with Timbercorp, was a "managed investment scheme" scam, with the usual case of thousands of victims. A just and fitting outcome!

Dr Evan Jones' investigation into Justice Susan Kiefer's role with victims of bank malpractice concludes tomorrow.

Dr Evan Jones is a retired political economist. He has been writing on bank malpractice against small business and the family farmer for over a decade.

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