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Journal of International Banking Law

1990

Case Comment Australia - banker-customer - Swiss franc loans

Subject: Banking and finance. Other related subjects: Negligence Keywords: Australia; Bankers duties; Duty of care; Loans Case: Spice v Westpac (Unreported - Australia) *J.I.B.L. N185 In early 1985, Mr Spice approached his manager at a busy Sydney city branch of Westpac regarding the possibility of a Swiss franc loan. He allegedly asked "what is the catch?' and allegedly was told there was no catch. However, internal memoranda within Westpac had been indicating for some time real misgivings regarding the risks involved in Swiss franc borrowing. The Court found as a question of fact that the bank was in the role of an adviser to Mr Spice, and accordingly had an obligation to use reasonable care to provide to Mr Spice a sufficient explanation in all circumstances of the advantages and pitfalls of entering into one of the banks offshore loan facilities to enable Mr Spice to make a reasonably informed decision as to whether to take that step or not'. On that basis, following well established authority on the obligations of professional advisers, the Court found that Westpac was in breach of its duty of care. Mr Spice had practised for a number of years as a partner in a law firm before giving up practice to become a property developer, had been involved for some period in a small importing company, and had travelled overseas and was aware of the likelihood of currency fluctuation. None the less, in the view of the Court he was quite unsophisticated in the matter of overseas borrowing. Comment: A number of practical points emerged from this case which are perhaps as important as the legal outcome: (1) Give comprehensive advice of risks and rewards When transacting any business with a customer where there is an advisory element involved (and a great deal of banker/customer business involves such an element) the bank personnel involved must provide comprehensive information as to the risks as well as the rewards: When in doubt, provide more rather than less. *J.I.B.L. N186 (2) Make reliable file notes

The judge made the point very early in his judgment that the demeanour of the witnesses and the manner of the giving of their evidence was very important. Mr Spice appears to have had remarkable and detailed recall of the contents of a number of conversations held a number of years earlier with his bank manager, Mr BL, and with Mr CG, an Assistant Manager in Westpac's International Business Centre. The judge found this level of recall not surprising on the basis that he is likely to have a better recollection of it being a significant occasion for him whereas for [Mr BL] it would have been one of a large number of interviews conducted by him with potential offshore loan borrowers. On the other hand, Messrs BL and CG were vague witnesses, with poor recall of their various conversations with Mr Spice. Particularly, Mr BL could not clearly recall the crucial conversation with Mr Spice in which he purportedly said that there is no catch to foreign currency lending. On the witness stand, the best Mr BL could say was: I would not have said that. Mr BL made brief formal file notes of his conversations with Mr Spice, but without any detail as to the actual words used. Mr CG apparently made no file notes of his conversations with Mr Spice at all. When it came to their giving evidence a number of years later, they had nothing to spur their memories. The lesson from this is that bank personnel when acting in an advisory capacity must make