Chief Justice Kiefel (centre). Image via abc.net.au.

As a former counsel for the banks, Chief Justice Kiefel, who presides over banking litigation cases, should be well aware of their corrupt behaviour, writes Dr Evan Jones.

SUSAN KIEFEL has recently been elevated to the rank of Chief Justice of the High Court of Australia, sworn in on 30 January.

Kiefel was appointed to the Queensland Supreme Court in 1993 and to the Federal Court of Australia in 1994. She has been a High Court justice since September 2007.

Much praise has been heaped on her appointment as the most senior officer in the country’s judiciary. The Sydney Morning Herald devoted an editorial and an op-ed piece to the occasion.

Her being historically the first female chief justice is undoubtedly a milestone. And her Wikipedia entry highlights that she is a self-made person par excellence. But there has to be more than this to make her elevation truly meritorious.

My interest is in banking litigation and Ms Kiefel is not a stranger to banking litigation. A ready inference from available judgments is that Kiefel has not been a particularly good friend to bank customers before the courts — people who I have rationally come to call "bank victims".

At the time when Kiefel was being considered for appointment to the High Court during the Howard Government years, the media reported:

'She is considered a conservative "black letter" lawyer in the mould of Justice Heydon.'

That label might provide a clue to the following.

Nobile v NAB

My first sighting of Kiefel is when she appears in May 1987 as junior counsel for the National Australia Bank (NAB) against plaintiffs Nobile and Martelli — guarantors for their married children’s business. The bank officer engages in misleading representation and fabricates diary notes whose misrepresentation is self-evident; Judge Jackson J strikes out the guarantees. It is a lay down misere for the guarantors. The NAB, having already acquired a "take no prisoners" mentality, stupidly saw fit to appeal. Three judges affirmed the trial hearing judgment in March 1988.

One would have thought that Kiefel would have her eyes opened in the Nobile case to the dirty practices of which banks are capable. Not so, it appears.

Ferneyhough v Westpac

Kiefel appears as senior counsel for Westpac in Ferneyhough during 1991. Ferneyhough was the fourth Queensland foreign currency loan victim of Westpac (after Chiarabaglio, 1989; Potts, 1990; and Thannhauser, 1991) to have a judgment go in their favour. There was also a judgment for Spice (1989) in New South Wales. There had never been anything like this balance tipped towards the bank customer in bank litigation. The background to this affair was the fact that foreign currency loans had been aggressively "sold" (and misrepresented) by those successively in charge of the portfolio in Queensland, Neville Imhoff and Albert Look. Of the total number of foreign currency loan borrowers nationally, a disproportionate number emanated from Westpac customers in Queensland.

Kiefel would be well aware of the details behind these victories, not least Ferneyhough.

Presiding over Ferneyhough, Lee J notes:

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.

Kiefel would have to have had a watching brief on all ongoing foreign currency loan litigation, especially in Queensland. Soon after Ferneyhough comes Westpac’s successful appeal against Potts' victory in the lower court under MacKenzie J (10.12.90), delivered by de Jersey & Dowsett JJ (16.4.92). This judgement would have to be one of the most scandalous judgments in Australian judicial history.

It’s my understanding that there were no more victories for Westpac foreign currency loan victims in any court in Australia.

The foreign currency loan saga was being displayed in the mainstream media on an almost daily basis. Moreover, the coverage reached fever pitch when the so-called "Westpac Letters" were exposed in early 1991. The label refers to two letters written by Westpac’s lawyers Allen Allen & Hemsley to Westpac senior executive Warwick Kent on 26 November and 11 December 1987. They highlight that Westpac’s subsidiary, Partnership Pacific (PPL), had promised its foreign currency loan customers professional and cautionary management of such loans, whereas PPL staff had fraudulently deceived and cheated their clients through a mixture of total incompetence and dishonesty.

Thus Kiefel would be well aware of the behaviour that banks can get up to against customers. This is all happening precisely as a backdrop when she is acting for Westpac against Ferneyhough. For Kiefel to be ignoring the history of foreign currency loan litigation and the guilty banks’ consistent attempt to deny responsibility for their intemperate venturing into this minefield would involve significant professional negligence on her part.

But Kiefel would also be aware that such miscreant banks had friends in Parliament (vide the whitewash Martin banking inquiry in 1991) and friends at court.

Kiefel herself was appointed to the Queensland Supreme Court in 1993, and then to the Federal Court of Australia in October 1994. Thus she comes to preside immediately over her own foreign currency loan case, in the form of Donkin v Australian Guarantee Corporation (2 November and 9 December 1994).

Donkin v AGC

AGC started life as a hire purchase company but was bought up by the Bank of New South Wales (forerunner of Westpac) during the post-war years (as were its competitors by other banks), becoming wholly owned by Westpac in 1988. By the late 1980s, under the impulsion of comprehensive financial deregulation, AGC’s lending practices (as with its parent company) had lost all prudence, moving beyond its staff’s competence.

Kiefel comes to the Donkin litigation late. Beaumont J, August 1991, claims that the loan officer had a duty to advise on this complex product but concluded that no damages were due to the borrower. Donkin’s appeal, December 1991, was dismissed. A judgment on 24 December 1991 (note the date, the judgment curiously unavailable), gives possession of Donkin’s properties (hotels, nightclub) to the bank. Donkin, facing bankruptcy, gains potential respite, in August 1994, with a judgment that Donkin’s counter-claim might have merit.

Enter Kiefel, 12 November 1994. Readers of judgments seeking readily understandable reasoning will not find them in a Kiefel court. In general, Kiefel denies Donkin’s claims of sale of properties under value (deemed inconceivable?) and of receiver liability for mismanagement. Kiefel also denies Donkin’s belated claim that the bank-employed accountant (taken as "expert") had strategically miscalculated the likely return to Donkin if the foreign currency loan had been appropriately managed. This denial leads to the supposed non-basis for Donkin’s damages claim.

Donkin then appeals for Kiefel to disqualify herself from presiding over his case, on the grounds that Kiefel has acted for Westpac in Ferneyhough. Donkin is not helped by the exaggerations of the Foreign Currency Borrowers’ Association (FCBA) in this regard. In her judgment of 9 December, Kiefel takes umbrage. Kiefel even foreshadows “the possibility of an order for costs against Mr Donkin’s legal representatives”.

Kiefel notes:

'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 … '

A "company having a connection"? Hello? AGC had been majority owned by Westpac for decades and wholly owned since 1988. AGC would have been offering foreign currency loans precisely because it was under licence from its parent. Beaumont J rightly claims that AGC personnel should have had automatic access to Westpac personnel expertise regarding foreign currency loans (although he wrongly assumed that parent company personnel themselves possessed such "expertise").

In the hearing of 17 November 1994 (from which the 9 December judgment derives), the transcript records:

'There is another matter, and it is a matter which I invariably bring to the attention of people in Westpac matters, and that is Westpac is in fact my banker'.

That acknowledgment has not been referenced in the judgment itself. Also missing from the hearing is the fact that Kiefel’s longtime close friend, Helen Lynch, enjoyed a longtime career at Westpac, serving as a director until 2006 and subsequently as chair of several Westpac boards. The friendship is acknowledged in Kiefel’s swearing in ceremony to the High Court in 2007. (I know of one person who received a foreign currency loan by courtesy of Lynch, so she also would be familiar with the intricacies of this troubled portfolio.)

Kiefel notes in the 9 December judgment:

'It was then submitted to me … that any such hypothetical perception was one which might amount in law to a reasonable apprehension that I might not be able to bring an impartial mind to bear … '

Quite. But Kiefel has already pulled up the drawbridge:

'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 the New South Wales Court of Appeal in S & M Motor Repairs Pty Ltd v Caltex Oil (1988) at 364-5.'

As a non-legal outsider (which has its advantages in such matters), it does seem unsatisfactory that a judge should call on precedent (another judge’s excuse) to hide from what, to the layperson, appears to be a straightforward matter of morality. The potential for conflict of interest is transparent.

It so happens that the case that Kiefel cites does not support her stance. Kiefel refers specifically to Bryson J’s reasons for not standing down. But the long discourse by Kirby J, dissenting against his two peers, in S & M Motor Repairs v Caltex refers to the absolute necessity that no hint of possible bias should be attributable to court proceedings.

Kirby J’s disquisition meanders initially through the Bible, Plato, Socrates and Thomas Aquinas, so one is forced to ask: who is writing this stuff? It turns out to be one Michael Kirby, then President of the NSW Appeal Court, later on the High Court and eventually something of a judicial celebrity.

Kirby highlights the evolving standard — "whether a reasonable man with no inside knowledge might well think it might be biased”. Kirby here is referring, not to attitudes within the legal fraternity, but “ordinary reasonable citizens on the Emu Plains omnibus”. Kirby here confects the Aussie vernacular equivalent of "the man on the Clapham omnibus". Quite.

Kirby orders that the judgment of the said judge be set aside. He concludes that “it is inherent in my finding that the appellants did not have a trial according to law.”

Kiefel remained on the bench in Donkin v AGC, but she should have found a more amenable precedent to stay put.

One also notes that Donkin, still trying to overturn his bankruptcy, appears before Chesterman J in 2003. It so happens that Chesterman, in a previous life, had been briefed by AGC. Chesterman had also appeared for Westpac in Thannhauser, Potts, Porter/Drambo (1996) and Cockerill — a veritable member of the family! What chance detachment? The throws of the dice, it appears, have gone heavily against Donkin.

A considerable amount of literature has been generated by the legal profession itself regarding issues of "disclosure" of interests by judges and the elicitation of self-justifications for judges not disqualifying themselves. Self-disqualification remains rare and judicial conflict of interest in bank litigation is rampant (they all have banking relationships, details undisclosed). But examination of that literature must be left for another occasion.

Kiefel proceeds to infer that the logical implication of Donkin’s call for her disqualification is that there is:

' … 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.'

That was not the intention of Donkin’s legal representative, nor of the FCBA. It is a provocative gambit by any judge who should be playing with a straight bat. But, once raised, the issue of judge selection is not entirely irrelevant.

In this same hearing (17 November), the transcript records Kiefel as saying:

"I think judge shopping is becoming a real problem."

What? "Judge shopping"? Quite. Far from the bank victims themselves seeking to engage in "judge shopping", a matter of which they have zero influence, the odd close court-watcher has inferred that this beast does rear its ugly head on occasion. The bank litigant, of course, not the bank victim, comes out with the judgment.

Exhibit A for those who claim that judge shopping is a fact of life is the appeal of Westpac against Potts, decided 16 April 1992 before de Jersey and his Brisbane Grammar contemporary Dowsett (with Macrossan CJ taking a back seat). The judgment for the bank, reversing a series of foreign currency loan judgments against Westpac for the victims, is curiously not available publicly. That is a good thing for the reputation of the courts, as it is a legal embarrassment.

Dr Evan Jones is a retired political economist. This is the first of a three part investigation; part two tomorrow; conclusion Friday.

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