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Kabwand v National Australia Bank for Law Students

NAB branch, Ruthven St, Toowoomba: scene of the crime NAB branch, Ruthven St, Toowoomba: scene of the crime

 Wickrema Weerasooria was a Sri Lankan-born lawyer and legal academic (he returned to Sri Lanka from Australia in 2002 and died in 2018). His textbook on banking law in Australia has been seminal. From a first co-authored edition in 1976 to the 6th edition in 2006, Weerasooria’s Banking Law and the Financial System in Australia (Tyree & Weaver, eds.), this text would have ‘educated’ thousands of tertiary law students over several decades.

Evan Jones & John Salmon

(This article is 6,000 words long)

I            Weerasooria’s definitive banking law textbooks

As non-lawyers outside the loop, we find the 600 page tome Weerasooria’s Banking Law and the Financial System in Australia most unsatisfactory. For example, there are multiple pages devoted to outlining what regulatory agencies are supposed to do but no treatment of their comprehensive failure to fulfil their legislated obligations in practice.

The essence of this book comes with this quote (6th edn, p,488), one that Jones has cited elsewhere:

‘[The lender-borrower relationship] is based on contract and the parties deal at arm’s length, with no obligation on either party to act with any higher duty to each other than that required by the law of the marketplace.’

In general, the text offers no awareness nor treatment of the asymmetric nature of the lender-borrower relationship. And there is no acknowledgement that banks may, indeed do, engage, not merely intermittently but regularly and knowingly, in malpractice against their customers. It is integral to their modus operandi. Their power invites malpractice, and the immunity granted them by officialdom reinforces such compulsion.

More significant is another book by Weerasooria, his 1998 Bank Lending and Securities in Australia. Peculiarly, this more important book has never gone through another edition. Here it is occasionally admitted, albeit rather obliquely, that banks might get up to some dirty business.

Of interest here, however, is Weerasooria’s treatment of a single case, Kabwand v National Australia Bank (Banking Lending and Securities in Australia, pp.15.25-26).

II            Weerasooria and Kabwand v National Australia Bank

Kabwand has been much cited as precedent in court judgments and referenced in legal academic analysis, of which more below. Thus has Kabwand become of broad significance to banking law in Australia.

Weerasooria notes:

‘The Kabwand decision merits careful study by banks because it shows how a careful bank manager had prevented the bank’s liability by maintaining diary notes and a contemporaneous record of events and discussions with the bank’s customers, who later sued the bank alleging that he gave wrong assurances.’

Ned & Joy Somerset, principals of Kabwand, wanted to plead fraud (as it was), but were persuaded by their lawyers to plead s52 Trade Practices Act (‘misleading or deceptive conduct’) instead – of which more below.

The trial judge, Alan Neaves of the Federal Court, decided for the bank. Weerasooria refers to three significant issues.

One. ‘Both the seller (Cardell) and the buyers (Somersets) banked at the same branch. Accordingly, the Somersets claimed that the bank manager knew that the strawberry business was unprofitable; that Cardell was also indebted to the bank and the manager should have disclosed these facts to them; that there was a conflict of interest and the manager had breached his duty to the buyers. The court disagreed. On the contrary, it held that given well established rules of banker’s confidentiality, for the branch manager “to have said anything at all about the business affairs of his customer Mr Cardell, would have been a clear breach of the bank manager’s obligations to him”.’ (Note: The Somersets were longstanding customers of the ANZ. The Somersets belatedly ‘banked at the same branch’ only because the Ruthven St Toowoomba branch manager forced them to move their accounts there as a quid pro quo for the predatory loans dispensed. They were thus made captive to the branch where the vendor did his business.)

Two. ‘The court emphasised that under TPA s 52, as in an action for deceit, the person claiming relief or damages must show that he or she was induced to do something, or to refrain from doing something, as a result of the misleading and deceptive conduct. The deceptive or misleading conduct must be an inducement, although it need not be the sole inducement. … In Kabwand, the trial judge found that the bank manager’s statement had not induced the applicants to act as they did.’

Three. ‘… whether the bank manager’s silence amounted to misleading and deceptive conduct under s 52. In the court’s view, common law silence may amount to misrepresentation where there is a duty to divulge. The issue of silence must be raised as an independent claim for relief under the TPA. In this case, this had not been done. In any event, the mere failure of the bank manager to inform the Somersets that Cardell’s business was unprofitable or that he was indebted to the bank was not a breach of s 52.’

This summation captures the essence of the trial judgment but misses the fact that the trial judge erred in his characterisation of events, and compounded that error, in spite of evidence before him, of deciding for the bank. It was manifestly a corrupt judgment.

III            The Somersets and the National Australia Bank

We have documented the Kabwand v NAB saga. at great length (30,000 words), in ‘The Somersets and the National Australia Bank: A case study in banking fraud and legal and judicial complicity’, April 2017, at bankvictims.com.au.

That article is too dense to replicate here. A summary of the Somersets’ experience with the National Australia Bank is necessary to highlight the grievous error of the trial judgment and of the appeal judgment that declined to look behind the opaque veil that the trial judge had erected over the case.

A manageable summary is reproduced here, amended from a paper that Jones wrote in April 2004, ‘The Banks and Small Business Borrowers: case studies of adversity’, listing eight victims of malpractice by the NAB.

Ned and Joy Somerset were successful farmers and graziers. In 1952 the Somersets commenced as soldier settlers who acquired balloted land in the first Brigalow land development scheme in Wandoan in Queensland. After 32 years on the land producing wheat, sheep and cattle, the Somersets sold their western rural holdings and retired to Toowoomba. In the development of their properties, the Somersets had had numerous dealings with banks and bank officers, finding them to be institutions and people of integrity. This relationship of trust was to underpin the mentality that they brought to an engagement with the National Australia Bank, a trust that would be brutally abused by that bank.

In semi-retirement in Toowoomba, the Somersets became interested in purchasing a nearby run-down grazing property called Glenhaven. The property would have been suitable for their long acquired farming skills. As it happened, the property had been foreclosed and its administration managed from one of two NAB branches in Toowoomba at Russell St. The Somersets made a reasonable offer for the property of $285,000 in October 1984, which was accepted, but that offer was subsequently mysteriously dissolved under instructions from the then regional manager Arkell, overruling the Russell St manager’s support for the sale to the Somersets.

At the same time, Ned Somerset was drawn by an acquaintance to visit a property called Gunnadoo, a strawberry farm, with the vendor anxious to sell. It was priced at $625,000. Figures produced by the vendor, Jeffrey Cardell, showed the property returning above $400,000 per annum. Cardell boasted that he was making so much money that he was even engaging in some tax evasion. The Somersets did not believe the valuation so the vendor, in an endeavour to encourage a sale, directed the Somersets to his own bank manager at the other Toowoomba NAB branch at Ruthven St, Mr Cannon.

Ned Somerset discussed the property with Cannon at the NAB branch on 30 October and 1 November 1984, as well as the financial investment and cash flow of the vendor. At these meetings Cannon praised Gunnadoo’s profitability fulsomely, with even more extravagant claims than of Cardell himself. Cannon told Ned that Cardell intended to leverage the strawberry farm’s considerable profits into a substantial real estate development. Joy Somerset did not attend these crucial two meetings as she had been otherwise engaged, dealing with planning details for building a strata-titled 8-unit block, one of which they were to occupy. Ned became readily convinced of the merits of Gunnadoo and, effectively overnight, wrote a cheque for the deposit on 2 November. The Somersets had no experience with strawberry farming.

At settlement, the Somersets were denied access to the title deed of Gunnadoo. The title deed would have disclosed two NAB mortgages on the property worth $260,000. Yet the property contract signed by the Somersets records encumbrances as ‘NIL’. It later transpired that the vendor paid the mortgages and eliminated the encumbrances out of the deposit paid to him by the Somersets immediately prior to settlement.

Ned and Joy Somerset both met with Cannon and became NAB customers on 6th November. Further reassurances were given regarding the property’s cash flow and profitability.

Settlement of Gunnadoo was to be on 16 November. The Somersets informed Cannon that they were still interested in Glenhaven. However, with their investment in Gunnadoo they were not in a position to proceed.

The Somersets were advised that the manager could assist with the Somerset's acquisition of Glenhaven but that the Somersets would have to transfer their business to the NAB. Cannon indicated that the Somersets would have no difficulty servicing a bill finance facility of $300,000. An appointment was made for the Somersets on 8 November 1984, the day preceding the sale of Glenhaven by auction on 9 November 1984. On 8 November, Cannon advised the Somersets that the NAB had approved the sum of $300,000 to assist in the purchase of Glenhaven, to be auctioned the next day by the NAB as mortgagees in possession.

At auction, the Somersets successfully bid for Glenhaven, albeit for the higher sum of $320,000. The NAB Russell St manager had set a reserve of $280,000, which had elicited the Somerset’s initial offer of $285,000 (which they could have paid cash for, thus with only an ephemeral involvement with the NAB). Through a contrived auction process, the NAB scammed the Somersets out of an additional $35,000. The contract required settlement within 30 days. However, settlement did not take place until 22 March 1985, due to a South East Queensland Electricity Board requisition order, in force since September. This was not advertised nor disclosed at the auction. Discovered documents highlight that NAB officers knew of the existence of this charge on the property. The bank threatened to sue the Somersets if they tried to rescind the contract.  

From 8 November 1984 through December the Somersets met with Cannon on numerous occasions to complete the financial documents. However, the manager departed on leave before Christmas, leaving everything in abeyance.

On 13 November 1984 the Somersets transferred their banking business to the NAB Ruthven St branch. The relieving manager, Mr Albion, during his manager’s absence, obtained approval for three loans totaling $575,000. The loan documents were signed on 14 March 1985.

Gunnadoo proved to be immediately and dramatically less productive than the promises of vendor and bank manager. Gross income for the entire 13 ½ months of operation amounted to $140,000; net income summed to a paltry $9,000. By contrast, Cannon had stated in an internal memo to Regional Operations, dated 10 December 1984, that “the cash flow of the strawberry farm has been confirmed at $50,000 per month as is”. Rather, it had never exceeded $15,000 per month. By July 1985, the loans were in default. The Somersets walked off the property in December 1985. The repayments made had been drawn from the Somersets’ savings.

In May 1985, the vendor’s son informed the Somersets that they had been `conned'. The vendor had a criminal record for fraud. The son estimated that his father’s NAB overdraft had increased from $50,000 to $260,000 and, after being extended by a bridging loan, faced an ultimatum from the bank for the 31 October 1984. This information, consistent with the Somerset’s experience of Gunnadoo’s profitability, was contrary to what Cannon had led them to believe.

The Somersets instituted Supreme Court proceedings against the vendor for fraud and won the case (Kabwand & EJR Pastoral v Cardell, QSC, 86/299, 9 July 1986). However, the vendor had disposed of what assets he possessed and the Somersets received nothing for their victory.

The Somersets sought to sue the NAB for fraud but were influenced by their law firm and a subsidiary legal opinion from a junior barrister to sue the NAB in the Federal Court for false and misleading conduct under s52 of the Trade Practices Act.

In late 1987, the Somersets' solicitor engaged on their behalf John Salmon, a recently retired long time NAB manager. Salmon brought to the job a deep experience of NAB operational procedures and culture. Salmon’s examination of discovered bank records revealed that the vendor’s account with the NAB had a history of chronic irregularity. The vendor was unable to service the overdraft indebtedness in the twelve months prior to the contracted sale date. The overdraft had escalated from $55,000 to $240,000 in the previous three years. No other income was shown. None of this was disclosed by the bank to the Somersets when their purchase of the property was discussed.

As a means of (arbitrarily) reducing the loan to valuation ratio to within acceptable bounds, Cannon increased the market value of the Gunnadoo property/business from $260,000 to $475,000 in November 1984. In September, some 10 weeks prior to this November revaluation, Cannon had increased the property’s market value from $210,000 to $260,000 in bank records. There was no substance to the raised valuations. The effect of the revaluations was to allow the terms to fall within the regional manager’s delegated lending authority (avoiding the necessity to send details further ‘upstairs’ to State Manager level). The September revaluation facilitated localised approval of a bridging loan to the vendor; the November revaluation facilitated localised approval of the loan to the Somersets.

Moreover, the property was correctly recorded in bank records as two hectares in the property vendors’ name. When comparable bank records were raised by Cannon in the Kabwand name, the area was recorded as four hectares. (Following foreclosure for purposes of disposal, the property’s area was again recorded accurately as two hectares.)

Before taking annual leave and leaving the loan application in abeyance, Cannon increased the market value of Gunnadoo a third time, by $100,000 to $575,000, offering no evidence for the increase. The further revaluation assured the success of the application processed by the relieving manager.

Cannon stated during the trial hearings that improvements by the Somersets had justified the increase. However, the ‘improvements’ were a demountable unused building, and the NAB held no security over it. There had been no fixed improvements to Gunnadoo that would justify the revaluations.

The Somersets took the NAB to the Federal Court (FCA Qld, G65 of 1986) but the judgment, 29 September 1988, went against them. The trial hearing had commenced without full discovery from the Bank. Moreover, some duplicate documents belatedly produced as evidence at the trial were different in content to those produced in discovery which had been produced and stated in interrogatories as the original documents. It is surmised that one set of ‘original’ documents were fabricated reconstructions.

In discounting NAB personnel dissembling, documents of questionable authenticity and inadequate document discovery, Justice Neaves considered that bank staff were more reliable witnesses than the Somersets – Ned in particular. Neaves J did not believe the Somersets’ claim that meetings took place between Ned and bank manager Cannon on 30 October and 1 November 1984 (the meetings at which Ned was given distorted representations of Gunnadoo’s prospects). Rather, said Neaves, the Somersets had already made up their mind to purchase Gunnadoo before first meeting Cannon.

An appeal by the Somersets was heard (FCA Qld, Lockhart, Hartigan, Hill JJ, G355 of 1988) and dismissed on 21 April 1989. Leave to amend the appeal pleadings to include fraud was denied because fraud had not been a component of the original pleading.

The Somersets appealed to the High Court on twenty five grounds with five specific orders sought. The High Court appeal was dismissed in June 1989 on all counts.

The Somersets were declared bankrupt in November 1991.

The Somersets came to the National Australia Bank in 1984 with net assets exceeding $1 million (in their Statement of Position, compiled by the manager’s clerk and given to the Somersets to sign at the meeting of 6 December 1984). The initial trial and the appeal cost approximately $800,000, with the Somersets paying their solicitors approximately $400,000 and the balance being met by Legal Aid. The Somersets were left penniless, obtained by default a Department of Veterans Affairs pension, and lived thereafter in rented accommodation. Ned Somerset died in July 2013 and Joy in April 2014, having obtained no redress from any authority for the fraud perpetuated against them.

Kabwand is now regularly cited in court judgments – consult Austlii and see our ‘The Somersets and the National Australia Bank’, Ch.13, for examples. However, the significance of the Kabwand case lies in domains other than those presumed in the citations.

IV            The official story, as summarised by Weerasooria, versus the real story

Let us return to Weerasooria’s three decisive elements claimed for Neaves’ judgment for the bank.

One. ‘The Somersets claimed that the branch manager knew that the strawberry business was unprofitable.’ The branch manager’s knowledge was a fact and the Somersets’ claim was a fact. The strawberry farm owner Cardell and branch manager Cannon were friends and were regularly seen in company together. Cannon presided over Cardell’s account, whose debt was growing through 1984, which had been placed on watch, and with regional manager Arkell noting that default and foreclosure could no longer be avoided.

Weerasooria raises the quaint notion of ‘well established rules of banker’s confidentiality’ that purportedly prevents Cannon from disclosing crucial facts. But confidentiality between banker and whom? What is at stake here is confidentiality regarding the conspiratorial relationship between vendor and bank borrower Cardell and bank manager Cannon.

One is reminded of the case of Brian and Anastasia Timms. The Timms bought a worthless furniture store (‘Artrona’), listed on CBA books as failing, with a CBA loan in 1991, on the advice of bank officers (and with no dissent from their accountant). The Timms’ series of law suits against the CBA was well reported during 2002-04 by Sydney Morning Herald financial journalist Anne Lampe.

Quoting Lampe from her article of 26 June 2003, reporting on court proceedings:

‘The second investigative accountant's report [of two reports initiated by the bank] estimated that the business had a shortfall in shareholders' funds of more than $1 million. The Wheelers [Artrona’s owners] were also behind in mortgage payments on their Bayview home.

‘These circumstances had led the bank to consider calling on its equitable mortgage security and appointing a receiver to Artrona. But this was rejected after the bank concluded that when tax debts were paid and employee obligations met there would be nothing left.

‘So it looked at a second option finding a new buyer. Internal bank documents outlined in the NSW Supreme Court yesterday showed that in November 1991 the Barrack Street branch wrote to CBA's Five Dock branch to see if it had any customers on its books looking to buy a business who had sufficient security to borrow $1.25 million to buy it.’

Quoting Lampe from her article of 27 June 2003:

‘A Commonwealth Bank loans manager yesterday admitted he had broken the bank's rules by failing to supply certified accounts for a business to satisfy loan requirements. Michael Hart, who progressed a $950,000 loan for a couple to buy a mortally wounded furniture business from another CBA client, agreed he made a false statement in a loan application for Brian and Anastasia Timms in November 1991.

‘Then loans manager at the Five Dock branch …, Mr Hart said in 1991 that the Artrona accounts had been certified by the Timms's accountant when they had not. Mr Hart agreed he breached his duties to the bank and his customers by failing to have the company's accounts verified before the loan was approved.

‘According to evidence given in the NSW Supreme Court, Artrona was a basket case and about to have a receiver appointed by the CBA in late 1991. The Timmses bought the business after branch manager Gregory Walker assured them it was viable, profitable and sound. They did not know that a CBA city branch, which had had the Artrona account, knew the group was in "dire straits". When the Timmses bought the business, little hint of its true financial state was provided to them and the Five Dock branch.

‘Asked if he had made an "appalling mistake" by progressing the loan application without the required account certification, Mr Hart said his conduct was incorrect but not reprehensible.

‘Probed further on what he knew of Artrona in late 1991 and if he had formed a view that the business was good, viable, profitable or sound, Mr Hart said it was not his job to make those assessments. He said he only viewed the Timms's loan application from the point of view of whether they could service the loan, which he said they could.’

In short, the CBA got rid of a bad debt by flogging it to an unsuspecting couple who, as per standard Australian banking practice, were forced to give security over the family home for what transpired to be a worthless loan for a worthless business.

The Timms lost their litigation against the bank in trial court (Timms v CBA, NSWSC, 6 July 2001). This, mind you in the Equity jurisdiction! The Timms appealed, with the appeal court overturning the trial judgment and directing that the case return to the lower court (Timms v CBA, NSWCA, 23 September 2002). The trial court, under a different judge, again determined for the bank (Timms v CBA, NSWSC, 24 February 2004). The Timms appealed again, but this time the appeal court determined for the bank (Timms v CBA, NSWCA, 13 May 2005).

The Timms’ mis-judgment, it appears, was entirely to their own account. The warning caveat emptor needs to be emblazoned over the portal of every bank and every courtroom.

Confidentiality regarding the accounts of the Wheelers, owners of the doomed furniture store, could have readily been assured. Save for the key information at stake in this case – the parlous health of the furniture store business and the associated bad debt of the bank. It was the confidentiality of this information, not that pertaining to the Wheelers in general, that bank officers sought to ensure – to the detriment of the unknowing Timms, the suckered purchasers.

The Timms’ experience was of a kind with that perpetrated by the NAB against the Somersets in 1984 – save that, in the Somerset case, the failing business account and the patsies to be induced to purchase it were in the hands of the same person.

Branch manager Cannon was the central figure of the conspiracy to simultaneously save a friend and get a bad debt off the bank books, the patsies arriving out of the blue in the nick of time. The secreting of this information was appropriate according to the ‘well established rules of banker’s confidentiality’ claimed by Weerasooria? We don’t think so.

Two. According to Weerasooria, there could be no misleading and deceptive conduct (s52 TPA) because: ‘In Kabwand, the trial judge found that the bank manager’s statement had not induced the applicants to act as they did’. This is, of course, an error of fact on the part of the judge. Ned Somerset was wary of vendor Cardell’s extravagant claims regarding Gunnadoo’s profitability, not least because coming from a self-interested party. Cannon’s misrepresentations, even more extravagant but from a seemingly detached, authoritative and informed source, to Ned Somerset at their meetings on 30 October and 1 November 1984 was decisive in leading Ned Somerset to write a cheque for the deposit soon after.

In a meeting of Ned Somerset with Cardell at the latter’s farm, Cardell said to Somerset (words to the effect): “I’ve contacted my bank manager Cannon and arranged that you should meet. He will tell you everything you need to know”. The effect of this message on Somerset has to be understood in the context of his and Joy’s background in farming but also in livestock and property investment. They had always sought their bankers’ advice regarding their business activities and such relationships had to date led to unquestioning trust by the couple in the professionalism of banking officials.

It is precisely because of the importance of the two meetings with Cannon on 30 October and 1 November that the bank, the officers and the bank’s legal team sought to convince (successfully) the seemingly gullible judge that these meetings never took place. Thus (G65, p.5):

‘The respondent denies that any such meetings as alleged by the applicants took place on 30 October 1984 and 1 November 1984 and, while agreeing that Mr Cannon met Mr and Mrs Somerset on 6 November 1984, denies that he had any relevant conversation with them on that day.’

These denials are preposterous. Did they meet to discuss the weather? This the judge accepts, in spite of Ned’s courtroom description of the meetings and in spite of the fact that the Somersets’ counsel presented statements from two third parties corroborating Ned’s attendance at the bank on those days for the purpose of discussing Gunnadoo. One of those parties drove Ned to the bank and watched him get out and go inside the premises.

Thus did the bank concoct fabricated diary notes to that effect. The fact that the court had before it two sets of diary notes discovered at different times, and inconsistent, did not trouble the judge.

Let us remind ourselves of Weerasooria’s presumed summation of the bones of the significance of Kabwand:

‘The Kabwand decision merits careful study by banks because it shows how a careful bank manager had prevented the bank’s liability by maintaining diary notes and a contemporaneous record of events and discussions with the bank’s customers …’

Weerasooria’s summation is, of course, rubbish, but how would he know better when learned judges had decided otherwise?

Three. To repeat: ‘… whether the bank manager’s silence amounted to misleading and deceptive conduct under s 52. … The issue of silence must be raised as an independent claim for relief under the TPA. In this case, this had not been done. In any event, the mere failure of the bank manager to inform the Somersets that Cardell’s business was unprofitable or that he was indebted to the bank was not a breach of s 52’.

Let us clarify that ‘silence’ is not meant literally. The bank manager was not literally silent but voluble, extolling the virtues of the marginal strawberry farm to high heaven. By ‘silence’, here one means ‘failure to disclose’. Moreover, regarding s52, Weerasooria’s last sentence above (‘In any event …’) is simply inaccurate.

A useful relatively short article on this matter is Susanna Dechent, ‘Liability for Misleading or Deceptive Conduct in the Banking Industry’, The Finance Industry, 11, 2009. Dechent notes, judicial precedents supplied, that “… the particular circumstances may give rise to an obligation to disclose relevant facts”. Dechent highlights that a ‘reasonable expectations’ test has prevailed since 1989, where “… the main question should always be whether silence, in light of all the relevant circumstances, amounted to conduct that was misleading or deceptive, or likely to be so”. In the circumstances here, with the Somersets’ reliance on the bank manager’s responsible role, that Cannon’s ‘silence’ was misleading and deceptive is self-evident. Ironically, Dechent refers to Kabwand but, contrary to the thrust of her article, takes the conventional ‘wisdom’ on Kabwand for granted.

A fourth claim, not discussed by Weerasooria, also damned the Somersets in the trial court, and was repeated in the appeal court. The claim is that the Somersets brought no complaint regarding their supposed adverse experience with the bank.

In his adverse leading judgment in the appeal court, Lockhart J noted that Justice Neaves “found that no complaint of alleged misleading conduct by Mr. Cannon was made to any officer of the respondent before the commencement of the proceedings in this Court and that such complaints as were made related to other matters” (G355, par.36, citing G65, p.67). This claim was not made during the trial but appears in Neaves’ judgment. Not merely is the claim made by Neaves and repeated by Lockhart, but it is repeated anew by the bench in the two hearings regarding bankruptcy proceedings against the Somersets and in the Somersets’ attempt to access the High Court. It transpires that, on all five occasions, the source of the judges’ information was the NAB’s counsel through their instructing solicitors.

This claim was merely a pernicious lie perpetrated by NAB legals. The Somersets (predictably) had a bitter row with Cannon immediately following the disclosures to them by the vendor’s son in May 1985. They knew already that the strawberry farm was dead and that they had been lied to. Cannon refused to acknowledge and act on their complaints. The Somersets then initiated and participated in a lengthy meeting with senior bank officials in the offices of the NAB’s State Administration on the 23 August 1986. Solicitors for both sides (Thynne & McCartney for the bank, Cranston McEachern for the Somersets) were present. The Somersets’ Toowoomba solicitor, John Davies, drove the Somersets to Brisbane and also attended the meeting.

V            The truth designated ‘not for distribution’

Unsavoury dimensions abound in the Kabwand litigation, unknown or ignored in the Kabwand literature.

In all likelihood, none of those analysing the implications of Kabwand, including Weerasooria and the judges citing Kabwand as precedent, have sighted or read the trial judgment G65 of 1986. All rely on the appeal judgment G355 of 1988. Nobody cites G65. This lack is for good reason, as the G65 judgment has disappeared into a black hole. On the cover front page of the 80+2 page judgment is written, and underlined, Not for distribution. This status is not as rare as one might think, as controversial judgments have a habit of being designated ‘not for distribution’. (The denial of transcripts of court hearings to bank victims is also not a rarity.)

Lacking the G65 judgment, inquirers are at ease in not questioning anomalies. The essential criminality that led to the litigation would be known only to the immediate participants.

As noted above, co-author John Salmon was hired as an expert witness by the Somersets’ solicitors to advise on document discovery and to comment on documents once subject to discovery.

By December 1987, Salmon advised Cranston McEachern that this was a clear case of fraud, which should be so pleaded. The Somersets’ solicitors had begun the action against the NAB in early 1987. First off, the solicitors had obtained from one Tony Fitzgerald an opinion that this was a case of fraud. (This is the same Fitzgerald who would soon become famous as the head of the 1987 Commission of Inquiry into corruption in Queensland.) The solicitors decided otherwise, however, and moved to plead s52 of the TPA (an easier life?).

Cranstons told Salmon in December 1987, in response to his evaluation, that it was too late to change pleadings as the process would be too costly. Thus Cranstons prevailed in the orientation of the litigation. At this stage, Salmon had not been introduced to the Somersets. It was only much later that Salmon recounted to Joy Somerset the exchange with Cranstons. Joy was dismayed, noting to Salmon that if the matter had been raised with them at the time, they would have raised the necessary funds from relatives. The matter had not been raised with them, indicating that the Somersets’ own solicitors were travelling at half mast.

The only plausible inference that can be made from Salmon’s inspection of materials and direct experience with personnel from his intimate involvement in the case is that Kabwand v NAB was a stitch-up job.

Salmon sat through all days of the G65 hearings during which NAB staff were cross-examined by the Somersets’ excellent barrister Rob O’Regan. Two instances, in particular, stick in his mind to this day.

The first. O’Regan was questioning branch manager Cannon regarding the successive enhanced valuations, preposterous, of Gunnadoo (as above). The judge opined that a loan manager could place any valuation whatsoever on a property at his discretion. Ludicrous.

The second. O’Regan, in cross-examining regional manager Arkell, sought to question him on NAB banking procedures. The judge denied O’Regan’s intent, claiming Arkell to be not an expert witness. Yet here is Salmon accredited as an expert witness in the litigation, and Arkell, whose formal status was higher than Salmon’s experience as branch manager and/or accountant, was deemed otherwise. The judge thus quarantined Arkell from being exposed to detail his involvement in the affair.

These two instances, indeed the administration of the entire litigation, indicated to Salmon that the bench was complicit with the bank in denying justice to the Somersets.

At a bankruptcy hearing in the Federal Court brought on quickly by the NAB, 3 December 1990 (Salmon was present), Spender J claimed: “if on the other hand he does it as a dodge to either get rid of the bank’s liability, or to sell out to a friendly vendor, then that of course is fraud”. Joy Somerset replied: “Well your Honour, that is what we claimed happened”. Spender in turn replied: “You will see there is one big difficulty at the moment; why was not all this before Justice Neaves?”. And there’s the rub.

This is a peculiar affair indeed. Alan Neaves was a senior federal public servant before moving to the bench. After Kabwand, Neaves was member of the three judge appeal court in both the Westpac v Chiarabaglio appeal (August 1990) and the seminal Quade v CBA appeal (February 1991), foreign currency loan cases, both of which were decided for the borrower victim.

Kabwand v NAB stands out as a crime perpetrated against the Somersets, initiated by a loan manager, supported by the bank hierarchy itself, and sanctioned under the aegis of the seeming autonomy and integrity of the judiciary.

VI            Precedent

Precedent is the rock on which a semblance of consistency and objectivity is presumed to be acquired in the administration of the law.

However, the Kabwand case highlights that nobody, apart from the participants in the trial litigation, knew or know the truth about it. The myriad instances of the leveraging of Kabwand as precedent, thanks to the appeal court rubber stamping of a corrupt trial court judgment, are thus egregiously misplaced. They are precedents taken from a fabricated Kabwand, seriously and tragically contrary to the real Kabwand.

What does this mean for the legitimacy of precedent in general? Is Kabwand a one off? The courts don’t know and the courts don’t care.

VII            The fearsome weight of respectable opinion and its casualties

But back to Wickrema Weerasooria. Weerasooria’s labours have been entrenched as a central locus of tertiary education in banking law.

In his dogged work Weerasooria has had to canvas hundreds upon hundreds of court judgments and weave them into a corpus with a semblance of coherence. Where is the time to look behind what is publicly available and conventionally understood?

Given the stretched resources for so mammoth a task, it would seem appropriate that the author display a modicum of uncertainty and humility in the finished product. But no. The stance implicit in Weerasooria’s texts is that, although inconsistencies have arisen, the judiciary must know what it is doing and the system in general works out for the best. Justice is done in the courts, even if its workings are occasionally opaque.

Most of us are imbued with an optimism gene that wants to put the best slant on events, irrespective of the evidence before us. No doubt Weerasooria had it too, otherwise such a huge labour of love would have been a misdirection of scarce energy in a time-limited life.

However, Weerasooria, to our minds, did stretch his optimism to the limits. His banking research centre at Monash University was funded by that perennial sponsor of causes designed to paint its public image in the best light, the National Australia Bank.

At base, Weerasooria possessed a crude outlook on contract law. This is captured summarily in the quote above, reproduced here to ensure that the reader captures its essence:

‘[The lender-borrower relationship] is based on contract and the parties deal at arm’s length, with no obligation on either party to act with any higher duty to each other than that required by the law of the marketplace.’

Weerasooria reiterated his claim in an article for which the title fully captures the argument in the text, ‘Banks owe no fiduciary or “special duty” to customers: a reaffirmation’, Australian Banking & Finance Law Bulletin, 15, 9, April 2000. This statement incorporates not merely a claim as to past judicial practice but an implicit direction to future judicial practice.

It is effectively the law of the jungle out there, folks. Ned and Joy Somerset joined the game and lost, end of story.

If you, dear law student, tender in years, perchance have an element of ethics in your makeup, we suggest that you choose a legal career path in which ethics retains a foothold. No such space exists in the banking domain, where only a Faustian bargain for prestige and material comfort involves the inevitable loss of one’s soul.

Last modified onSunday, 31 January 2021 21:03

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