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THE

THE UNTOUCHABLE BANKS: An exposé of the banking process and legal deception; by John A Salmon:


THE
UNTOUCHABLE
BANKS


An exposé of banking process and legal deception

Authored by John A Salmon

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without permission of the author, John A Salmon.

Copyright: August 2004: John SALMON

This book has been printed because it is in the PUBLIC INTEREST.


Author’s Note


This book is dedicated to those victims of banking malpractice – particularly those who have lost their life’s assets, including a family relationship, and now rely on government support for sustenance.

I would like to express my gratitude to all those people who have encouraged me during the past ten years to put my knowledge and post banking career experience into creating this book.

My untold thanks go to Dr Evan Jones, Associate Professor, University of Sydney in the Faculty of Economics and Business, who encouraged me to restart this venture. This book could not have come into being without Dr Jones’ unstinting support despite his onerous workload.

Lastly and by no means least, I would like to thank my wife Joan who has supported me over the years and has never shown any resentment towards the number of hours required to bring this book to fruition.


FOREWORD


John Salmon retired from the National Australia Bank in 1986 after over thirty six years with the Bank. He was envisaging a leisurely retirement. He was soon approached by the solicitor for a couple to assist in their litigation against the institution for which he had worked for most of his adult life. Salmon was dismissive at first, but he reluctantly agreed to look at the details. He was shocked at what he found.

The case involved Ned and Joy Somerset and their company Kabwand. Salmon has lived with Kabwand for seventeen years, and his account fills half this book. Why devote half a book to the entrails of an inconsequential banking dispute? Kabwand merits attention because it has the makings of a thriller. What started out as dodgy practices at branch manager level spread through the entire institutional structure that mediates commercial disputation. The process of covering up a localised original sin spreads and multiplies the sin throughout the system. The integrity of the legal system that is presumed to underpin essential principles of justice is undermined.

In the thriller which is Kabwand there are no dead bodies, but there is much pain – a farming couple’s lifetime of hard work destroyed. This experience is not rare but is representative of myriad other banking disputes.

My own involvement in these matters developed accidentally. I was doing research on the history of rural finance in Australia. In particular, I developed an affection for the Commonwealth Development Bank, a marvellous institution serving the family farmer and small business. The CDB was unceremoniously abolished in 1996 following the full privatisation of the Commonwealth Bank.

Out of the blue I received communication from a rural business couple with a CDB loan who had been unconscionably defaulted by the Commonwealth Bank. Phone calls and communications followed from others who had had a run-in with their bank lenders. Even though I had already developed a jaundiced view regarding the nature of power and its abuse in our society, I was still taken aback by the details to which I was privy. The weakness of the courts in adjudicating litigation was a depressing revelation.

The apex of adverse bank experiences resides with those small businesses who borrowed in foreign currencies in the early to mid-1980s. The foreign currency loan saga constitutes one of the great scandals in Australian financial history. But it had to be swept out of sight because important constituencies – ‘market’ players, academics, politicians, and regulators – have a vested interest in a generally glowing story of the aftermath of financial deregulation.

The foreign currency loans disaster pointed to an extreme dysfunctionality in the terms on which financial deregulation occurred. Intermittent corruption in bank dealing rooms is another pointer. The bias against publicly owned institutions is a third pointer. For example, the abolition of the CDB eliminated a standard for small business borrowing against which other lenders would be judged.

Formally, there is ‘competition’ amongst banks for small business lending. But the fact that roughly 80% of small business borrowers have their primary relationship with one of the four majors highlights that the competition is of a rather peculiar sort. Some small businesses persist with one of the majors because of a lack of alternatives; moreover, the gobbling up of second-tier banks restricts the field.

The essence of the bank-small business financial relationship is not the fact that a bank will be forthcoming with an initial loan. This is the only dimension measured by the ‘competition’ pundits. The important ingredients are the nature of the instruments, the functionality of those instruments to the borrower’s conditions, and the acting by the parties in good faith for the terms of the relationship.

Unlike the fundamental premise of the Campbell Committee whose 1981 Report legitimised the ensuing deregulation, banking is not comparable to any other industry. The structural asymmetry of the bank-borrower relationship, both in terms of institutional power and of the possession of information and specialist knowledge, makes a bank more like a doctor than like a retailer.

The concept of ‘incomplete contract’, developed to explicate the long-term open relation between franchisor and franchisee, is equally applicable to the bank-borrower relationship. The earliest de facto acknowledgement of ‘incomplete contract’, in the domain of the employer-employee relationship, resulted in the development of specialist tribunals to arbitrate the conflicts that were both inevitable and of a particular character. The law of contract, evolving out of the Common Law and to which the judiciary genuflects, is out of kilter with the lender-borrower relationship.

Small business complaints about the general lack of a level playing field in the marketplace led to the incoming Howard Government establishing a Parliamentary Inquiry. The Reid Committee 1997 Report, Finding a Balance, documented pervasive abuse by big business in a number of key arenas, including that of finance.

Following the Report, the Government did legislate several changes, including the establishment of a Small Business Commissioner within the Australian Competition and Consumer Commission. Section 51 of the Trade Practices Act was amended in 1998, so that a new section, S.51AC, formally acknowledged the possibility that small business might be the victim of unconscionable conduct by big business.

But S.51AC has sat in the Act unused, save for a minor victory against a middling franchisor. The unconscionable conduct provisions of the Act were further weakened in 2001 by a division of responsibility for their administration between the Australian Securities and Investments Commission and the ACCC. Even apart from the administrative ambiguity, bank bastardry is in the too-hard basket for both the ASIC and the ACCC.

Under these conditions, the prospect of a major bank being successfully sued for unconscionable conduct under the Trade Practices Act is nil. The banks are effectively above the law.

It is hoped that this book by the courageous and tireless Mr. Salmon will make a small contribution to changing this parlous situation, and that small business victimisation by banks will soon achieve a sympathetic hearing by the regulators, by governments and by the courts.

Evan Jones University of Sydney


THE UNTOUCHABLE BANKS

John Salmon

Preface 2

Foreword 3

Table of Contents 6

Prologue 7

Ch.1 The Bank 11

The Somersets and Kabwand

Ch.2 The Strawberry Farm Fiasco 43

Ch.3 Consultancy Introduction 62

Ch.4 The Trial 88

Ch.5 The Decision 117

Ch.6 Road to Bankruptcy 125

Ch.7 The No Road to Justice: Bankruptcy Aftermath 138

Ch.8 Conclusion 153

Ch.9 Smith: The Guarantee and Indemnity Scam 186

Ch.10 Heinrich: Don’t Sign Bank Documents in Blank 215

Ch.11 Legal Profession Deception 241

Ch.12 In Retrospect 278


Prologue


I commenced employment with the National Australia Bank as Postage Clerk at the bank’s Central Branch, Queen Street Brisbane in February 1950. I progressed through the ranks seeing service in many parts of Queensland. Branch Accountant status was first achieved at Ingham, North Queensland in 1965 and subsequently at the Town Hall Branch Townsville in 1968. I assumed my first managerial appointment at Augathella, Western Queensland in June 1970. I then continued to enjoy managerial status until December 1986 when I retired. At managerial level I enjoyed eight appointments while in all I had seen service for my employer in over twenty-five towns in Queensland.

On retirement, I put my banking career behind me and thought at the time that my association with banking was finished except for the aspect of my personal banking matters. My expectation in this regard was to prove incorrect because, in April 1987, I received a telephone call from an old established firm of solicitors and attorneys in Brisbane. The caller informed me that his firm had clients who considered that they had been defrauded by employees of the National Australia Bank, my former employer, and would I be prepared to assist, principally relating to matters of my former employer’s discovery of documents. This is a legal process that requires a party to the litigation to make available all documentation that they hold on behalf of a litigant participating.

It was only after the third such telephone call from the solicitors that I agreed to assist and that was on the clear understanding that I would only do so after I had examined the bank’s discovered documents and confirmed to myself that the solicitor’s clients had been defrauded by my former employer. I was extremely reluctant to initially comply with the solicitor’s request because I considered that I had given nearly thirty seven years loyal service to the National Australia Bank and I was not about to play the part of a turncoat even though I had retired.

I must admit though that my career experience had revealed that my former employer had unlimited power and was easily able to subvert the statutes of this country at any time if it chose to do so.

My preliminary examination of the bank’s documents then available proved conclusively to me that the solicitor’s clients had certainly been defrauded by my former employer and this would have been patently obvious to bank administration if they had had the material before them. I considered the fraud to be of mammoth proportions and this was subsequently proven when I became cognisant of all the facts. It was certainly far worse than even the solicitor and their clients could have imagined.

Little did I realise at the time that in agreeing to assist in any way possible, it was to place me into a permanent part time role of investigating complaints by people who considered that they were victims of banking malpractice, principally by the four major banks in Australia – National Australia Bank, ANZ Banking Group Limited, Commonwealth Trading Bank and Westpac Banking Corporation.

This is despite the fact that I do not advertise a bank consultancy.

My career had revealed that the National Australia Bank would readily engage in deceitful and fraudulent behaviour if it suited them to do so. This behaviour would generally be reflected under two style situations, i.e. one where the conduct was instigated by the bank’s administration and the other where a bank employee participated in deception of a serious nature, in this latter instance when the deception came to the attention of the bank’s administration, it was subsequently condoned.

There was also the fairly common practice of bank employees opening accounts in fictitious names. However it could be said that in instances of this nature, instigation commenced with the customer.

Wild indiscriminate lending did not take place until after the then Federal Treasurer Paul Keating deregulated the banking industry. Deregulation of the banking industry proceeded in stages; it initially commenced in 1982 and was finalised in 1984. All quantitative restrictions ceased in 1984 and banks told their lending staff to go out and lend, lend and lend. Money was available in abundance.

Staff delegated to lend were subjected to pressures by superiors to enforce the policy of the day with the resulting consequence that many Line of Credit Applications which were approved were in breach of the Trade Practices Act. This meant that the bank employee had engaged in misleading or deceptive conduct. There were also instances where the lending represented an act of dishonesty with a resultant detriment to the borrower and a benefit to the bank and/or employee.

I was aware prior to my retirement in December 1986 that my employer accelerated the promotion of high-fliers whose modus-operandi was to promote and acquire new business under any circumstances. However I was not aware until after my retirement that the so-called high-fliers induced borrowers into certain financial arrangements, knowing that they would suffer a financial loss and in some instances become destitute.

I am now in possession of half a century of banking experience in various forms and can unhesitatingly say that it is my belief that our four major banks in this country are the leaders and masters of white collar crime, as the following chapters will reveal. The facts are that banks conduct their business under procedures. These procedures are laid down in manuals of varying description, viz., General, Lending and International. When the procedures as laid down are followed there would be no untoward behaviour. In other words, the bank’s good name would always be protected. When it comes to malpractice, employees will manipulate these procedures to their advantage and to the detriment of the other party.

In essence what transpires is the fact that the bank’s superior knowledge wins the day. A bank will engage in any type of activity that will preclude them from writing off a loss when they consider it appropriate to do so. However when they perpetrate a sting operation, writing off a ‘loss’ presents no problem. When a bank employee conspires with another bank employee, or a bank employee conspires with a third party, for example a financial planner, it is my contention that it is virtually impossible for the victim to obtain justice. The system, both banking and legal, will prevent this.

The preliminary chapters of this book will deal with issues that resulted in the ‘rip off the customer’ mentality. It will also deal with scams that related to skirting proper administrative procedure.

In many of the instances that I propose to illustrate, and reveal that the customer/ victim etc, call him what you like, could have mounted an action under common law or the Trade Practices Act of 1974. He could also initiate a private prosecution under the Crimes Act 1914 due to breaches by his bank. I also have no doubt those banks over the last forty or fifty years have played a role in breaching the Income Tax Assessment Act on numerous occasions.

Bank employees are under the impression that everything that they see and gain knowledge of during their career is confidential. However the simple fact is that, where the statutes of this country have been breached and criminal activity is involved, then in so far as the aspect of bank employee confidentiality is concerned, it is an irrelevancy. In other words the Confidentiality Agreement signed by the employee before employment is commenced becomes null and void.

Why am I writing this book? I consider the banks’ treacherous activities, both in the direct and indirect sense, should be brought to the notice of the Australian public. My consultancy work of the past fifteen years has brought considerable knowledge even though I do not promote a consultancy business. What has prompted me into action now? Well, I refer you to the article published in The Australian on the 19th July 1999 titled Service With a Smirkand authored by one, James Duncan, who stated: “I think our banks have a dark side. Like a movie character who has been hiding a terrible secret, the truth has finally come out.”

You will realise that the journalist’s quote relates to the John Laws association with the Australian Bankers Association regarding the cash for comment scandal. He is certainly right about the banks’ “dark side” implications of their industry.

However I think that it would be fair to say that the Australian public would not be aware of the total depth of those implications. Within a few days of the foregoing article being published, we have Janet Holmes à Court saying; “our banks are bad corporate citizens” (The Australian 10th August 1999). I consider that it is about time that the Australian public became aware of our banks’ erstwhile rapacious behaviour.


Chapter 1: The Bank

The BASTARD tag given to the banking industry originated from The Bulletin Magazine of May 1989 when their highlighted front page cover recorded the words “WHY BANKS ARE BASTARDS”. The bastard tag has stuck and during the intervening years has raised its ugly head on many occasions. The cover story in The Bulletin was written by journalist Stuart Kennedy who gave it a five page spread and created record sales for the publishers. Kennedy contacted me in preparation for his article and I gave him much information that related to the malpractice of my former employer, the National Australia Bank. He devoted substantial space to my former employer’s deceitful conduct and concluded by highlighting the undermentioned known facts under the preliminary comment:

Salmon now advises customers running court actions against banks. In three cases, he says that officers have conspired to pervert the course of justice by all or a combination of the following:

Bank customers were starting to realise in increasing numbers that the promised benefits of a deregulated banking industry were a complete furphy. That situation is unchanged to this day and, as the years have progressed, the deceit and corruption in the industry escalates and goes unchecked.

The blame in this regard can be squarely directed to our federal politicians, the government of the day and their apparent lack of interest in bringing our four major banks to heel. Our legal system also plays a role where the banks know that they hold all the high cards. Remember the banks’ golden rule – “we have the gold, so we make the rules”.

The four major banks’ bottom line, particularly since deregulation, has been the quest for super profits and let nobody get in their way. Australian Democrat Senator, Paul McLean, was the only federal politician who had the determination and intestinal fortitude to take on the banking industry. He delivered a speech to the Senate on 11 December 1990 wherein he reiterated the comments of Swiss Banker, Dr Henry Stalder:

Senior bank officers who manipulated Australian business people and farmers into Swiss foreign bank loans between 1984 and 1986 are little more than criminals and should be in gaol.

Senator McLean also told the Senate on 12th November 1990 of the National Bank’s “fraud, deceit and greed” with respect to their customers, Edward P and Joyce E Somerset, who lost their life savings at the hands of corrupt bank employees. McLean concluded his speech by saying: “This type of financial thuggery must be resisted by all fair minded Australians”.

McLean’s media release of 7 February 1991 stated as follows:

I have recently received further evidence of the most serious malpractice perpetrated by bank personnel which will shake the Australian banking industry to its foundations.

As might have been expected, nothing positive came from the remarks of McLean and the National Australia Bank won the day once again. Senator McLean resigned from the Senate on the 23rd August 1991; unfortunately the pressure of bank malpractice exposure from various directions caused that dramatic action.

Senator McLean was so concerned with the prima facie evidence of widespread corruption in Australian Banks and its concealment that he raised several letters addressed to the Governor of the Reserve Bank of Australia, Bernie Fraser, in 1993 advising him of a study that he had undertaken outlining details of malpractice and corruption revealed within Australian Banks. The Senator asked the Governor and his Board to examine the clear evidence available; but alas the Governor responded by saying that there was nothing he could do unless hard evidence of specific wrongdoings was produced. Fraser went on to say that discussions between himself and the Senator would serve no useful purpose.

I would have thought that when the Governor of the Reserve Bank was advised of systemic corruption in the banking industry by a Senator of the Australian Parliament that he would be duty bound to investigate and seek a response from the banks concerned asking why their license to conduct banking business in Australia should not be revoked.

Shortly after the McLean/Fraser correspondence came into being, Federal Treasurer John Dawkins threatened the banks with legislation “to ensure consumer protection”. As might have been expected, nothing came of this so the banks won the day once again.

In July 1994, the Sunday Telegraph published an article titled Top cop to target business fraudswith the Federal Police Commissioner, Mick Palmer, being quoted as saying;

I have a real interest in those crimes which impact on Australia in the wider sense – and it is hidden crime, like corporate fraud, which so often can be normalised.

I immediately wrote to the Federal Commissioner outlining information concerning banking malpractice; however I received no acknowledgment. It was some months later that it was brought to my notice that Ian Fisher, Chairman of the Foreign Currency Borrowers Association, also saw the Sunday Telegraph article and wrote to the Federal Commissioner outlining some of his members’ concerns regarding banking malpractice. Once again there was no acknowledgment.

The “Bastard” tag given to Australian Banks had permeated all levels of Australian society, so much so that Westpac Chief Executive Robert Joss told those present at a luncheon in March 1995 organised by the Australian Institute of Company Directors that:

Banks were wrongly perceived as BASTARDS by members of the community. … We are seen as the ‘BASTARDS’ but we’re not. … We are the good guys and we play a good role [in society].

When I read the article published under the heading Retail Banks must shed the bad-guy tag I said to myself, is this guy (Joss) for real? With forty-five years experience in the banking industry, I considered that anyone who had managerial level experience as a banker would treat Joss’s statements simply with a guffaw. On the score of Westpac’s involvement in the Foreign Currency Loans fiasco alone, it was patently obvious that Joss was prepared to forget that his bank was the virtual leader of the Foreign Currency Loans fiasco. It was subsequently revealed and alleged that Westpac employees and their solicitors had engaged in numerous breaches of the Crimes Act 1914. The House of Representatives Standing Committee on Finance and Public Administration (Martin Inquiry) stated in their findings released in November 1991 that, with respect to the Westpac Letters associated with Partnership Pacific Limited (a wholly owned subsidiary of Westpac), the Committee recommends that:

61. the Attorney General refer the so-called Westpac Letters to the National Crimes Authority for investigation as to whether any criminal wrong doings arise from the management of foreign exchange contracts by Partnership Pacific Limited.

As a result of the publication of the article as described above, I immediately wrote to Chief Executive Joss to illustrate some examples of banking malpractice that his bank had been engaged in. However I received no response, despite the fact that Westpac has seen fit to compile a substantive dossier on my activities.

Five months down the track we have Australian Democrat Senator for Tasmania, Robert Bell, issuing a media release under the date of 28th August 1995 under the heading: Bell on corrupt bankers – we must get the BASTARDS.

Action at last! With these headlines surely we can get some positive action. The Senator goes on to tell those who become aware of his media release:

Over the past few years there has been a mountain of evidence of bank corruption and malpractice virtually rammed down this Government’s throat and it had totally ignored it. Minister after minister, authority after authority, have turned their backs. We have witnessed incompetence, indifference and dereliction of duty unequalled anywhere in the Western World.

If we tolerate this, we’ll tolerate anything.

When you sweep aside all the mumbo-jumbo the realities of the Westpac Letters couldn’t be plainer and must not be ignored. McLean has spelt it all out for us. These letters were Australia’s most prominent lawyers telling Westpac that they are liars, cheats and thieves on a huge scale, but not to worry, because they can get them off the hook.

You would think that the Government of the day must take action here; but alas, as usual, nothing happened. The final comment, as per the release above, “but not to worry, because they [Westpac solicitors, Allen, Allen & Hemsley] can get them off the hook” is one hundred per cent correct. That is principally my experience and the Keith Smith case history, which I relate in due course, will prove that.

As soon as Senator Bell’s Media Release became known to me, I immediately directed a letter to him setting out details of certain case histories which I had direct knowledge of to ascertain whether an issue could be taken up on behalf of victims of banking malpractice who had been duped and had received no compensation for their losses to date. However the usual political response took place – Nil to hand.

One month after Senator Bell’s damning statements of criticism regarding the Australian banks, we have the Chairman of the National Crime Authority, Mr Tom Sherman, telling the populace at large that bankers, together with lawyers and accountants, are now among Australia’s top criminals, some “money laundering” $600,000 at a time for organised crime (Sunday Mail September 24, 1995).

Sherman is spot on here and I propose to relate how my former employer remitted millions of dollars to an overseas tax haven destination on behalf of its number one profit-earning customer in Queensland. The fact is that if a bank wishes to achieve a desired aim, which entails breaches of the Crimes Act 1914 and the Income Tax Assessment Act 1936, it is no trouble to them. The likelihood of their illegality being revealed is remote. I consider that their power is ultimate in this country; the evidence is there. However banks keep most of their cases quiet because no one wants to talk about money laundering in the open.

Anne Lampe, journalist for the Sydney Morning Herald specialising in banking issues, told her readers on April 14, 1997 that: “NSW Treasurer, Michael Egan is to meet lawyers, banking experts and the member for the South Coast, Eric Ellis, to hammer out a resolution of disputes between customers and the Colonial State Bank involving about $500 million.”

I would imagine that a substantial percentage of those disputes would represent breaches of Section 52 of the Trade Practices Act (the section concerned with misleading representation). I also strongly lean to the view, from knowledge gleaned over the past twelve years, that, on investigation, it would have been revealed that Colonial State Bank employees had engaged in activity whereby they could have been prosecuted with breaches of the Crimes Act 1914, and/or the State’s Criminal Code.

An article appeared in the Sydney Morning Herald on Monday, September 1, 1997 under the title Westpac in crisis: how the Halabi scandal exploded.

A box statement contained in the article recorded as follows:

In January 1987, Westpac was tipped off about unusual trading by one of its foreign exchange dealers, Naji Halabi. Two months later, Halabi was arrested by fraud squad detectives and charged with conspiracy to defraud Westpac. Before Halabi came to trial, Halabi refused an unusual offer to settle.

The body of the article went on to state: “Westpac was left in no doubt about what was intended by the proposition: settle the case against the Halabis or risk devastating publicity to itself or the possible embarrassment to clients, that would follow from the damaging letters being made public. Westpac characterised the approach as blackmail.”

There are two major factors here, Halabits involvement to defraud Westpac and Westpac’s decision to lay formal charges against Halabi.

The ‘blackmail approach’ is a very interesting one and I would suggest that banks will resort to prosecution against a customer / former customer and others when it becomes known to the bank that he is about to publicise illegal activity that his bankers have been involved in. The ploy is to undermine the credibility of your accuser.

For instance, Channel 7 told a story to its viewers on the 17 April 2001 6.30 Today-Tonight Report that a resident of Adelaide at auction purchased several ex-Westpac Tellers’ Mobile Trolleys. What did the purchaser find on unlocking one of the trolleys? Cash and cheques which came to the value of almost $1,300 being the property of Westpac’s head office in Adelaide. This discovery was embarrassing enough; however what also was revealed was a bank record, which represented tellers’ records revealing their daily surpluses and deficiencies in dollar terms. This confidential information indicated that the bank’s cash money goes missing quite often.

Westpac was very keen to have all their records returned to them. To achieve this aim, Westpac offered the purchaser a $2,000 reward. However there was a catch in that Westpac insisted on the signing of a confidentiality agreement which would have prohibited the purchaser bringing the whole exercise to the notice of the public.

As a consequence the purchaser’s nominated negotiator found himself being the victim of an extortion allegation formally lodged with the South Australian State Police. When Westpac thought the police could not make the extortion charge stick, the allegation was changed to criminal libel, an unusual offence and one that had not been successfully prosecuted in almost 100 years. What eventuated is a clear indication how far Westpac was prepared to go to protect its dwindling image and questionable reputation.

As I have continually stated over the years, banks have a bagful of dirty tricks up their sleeve, which they will bring into play as the occasion demands. As we approach the end of 1997, the Sydney Morning Herald published an article by Sean Aylmer titled NAB sees off 50 of its older managers. The author goes on to quote an insider (I take this to mean a senior administrative employee of the bank): “Former high-fliers in the bank have been given golden handshakes and told there is no place for them in the organisation.” These high-fliers held senior positions in the bank, some for as long as thirteen years. What havoc they must have created during their careers.

It is known that one NAB branch manager was incompetent in processing lending applications and thus responsible for generating inordinate bad debt numbers in his lending book. Transfer out of his last managerial appointment was forced due to this incompetence. His successor needed to effect a special stationery requisition for personal loan bad debt submission to the bank’s administration. Over forty pages were required for this purpose. What happened to this branch manager? They promoted him.

What is a high-flier? It is a bank employee who intentionally engages in an act of deception, knowing that his actions will place the bank’s customer in a position whereby he will lose all his assets or part thereof. You will read of a good example of this in due course in what I describe as the “strawberry farm fiasco” which is formally described as Federal Court of Australia litigation G65 of 1986, Kabwand & Others -v- National Australia Bank.

The bank manager knew from the outset that serviceability of the borrowing was an impossibility. It was simply a matter of time before the bank would inform the borrower that he had to sell his assets on his own volition or, if he procrastinated, then the bank would take demand action and eventually sell its securities as mortgagees in possession.

At the same time you will find that the bank manager has inflated the market value of their proposed security to gain the business and, down the track, they will deflate the market value of that same security by deceitful design simply to facilitate the aim of triggering unserviceability status and leading to bankrupting the borrower.

So Bulletin journalist Stuart Kennedy’s “Bastard” tag that he cast upon the banks in 1989 remains permanently in the mind of all Australians and therefore justified. In October 2001, we have former Chief Executive of the ANZ Bank Will Bailey (1982 to 1992) rather belatedly telling the Australian public that banking deregulation had gone too far and that hundreds of thousands of consumers had been disadvantaged in the quest by banks to satisfy shareholders.

Bailey went on to say: “Sixteen years after deregulation started, we need to look at what happened and who has missed out. Not every decision we made in the 1980’s and the 1990’s was right; many of them were wrong. Sometimes deregulation had a train smash effect”.

N. R. (Nobby) Clark, former Managing Director of the National Australia Bank recognised and highlighted the problem much earlier. In his article titled “viewpoint” appearing in the September 1990 publication of the Australian Printer Magazine, Mr Clark told readers:

Some have criticised financial deregulation, pointing to the inflation of asset prices, to the failure of highly geared entrepreneurs, to the loss of some deposit-taking and investment institutions, and to the decline in business morality. It is true that some mistakes were made and some excesses allowed, but it would be wrong to blame all these problems solely on deregulation.

While the Chief Executives of our major financial institutions have at all times stressed that the bottom line is to satisfy shareholders, I would suggest that there is also another vital ingredient in the banks’ quest for super profits. The mind frame of all senior executives of banks, which also permeates the thoughts of banks’ Board of Directors, is that if we can increase the remuneration of the shareholders, then we are entitled to an increase in our own remuneration, be it by way of salary and/or bonus increment. For evidence and confirmation of this, we only have to peruse the annual reports of the four major banks over the past fourteen years.

For instance, the 1987 Annual Report of the National Australia Bank revealed that Directors’ remuneration averaged $90,000 per annum while the remuneration of executives averaged out at $170,000 per annum. Contrast those figures with the most recent published information as contained in the Concise Annual Report 2003 of the same bank. The average remuneration for the eight non-executive directors of the NAB was $237,405, while their accrual of retirement allowance benefits for the year aggregated to $840,083. We now turn to the total remuneration of the former Managing Director and Chief Executive, Frank J. Cicutto, which was revealed at $7,774,626 plus options, while the following five senior executives of the bank individually pocketed benefits ranging between $3,204,959 and $2,241,983, with each receiving options and performance rights.

I believe that the benefits awarded to bank directors and their senior executives of the four major banks in Australia are obscene and set a very bad example, not only to the corporate community but also to all spheres of business in Australia. I have no doubt that our federal politicians have used bank executive remuneration over the years as a relative benchmark in which to set their own financial packages.

Did the ingrained attitude of greed, quest for the super profit factor commence with deregulation of the banking industry in the early 1980s or did it have its foundations before that? I can say without hesitation that that quest for the super profit factor commenced well before deregulation and in the following chapters I will illustrate and relate how this factor came about.

Banking Changes: were they for the best?

In the post-war years to the late 1960s, the major Australian Banks of the time conducted their affairs with a substantial branch network, demonstrated little flair for change from an administrative point of view and simply opened new branches as the opportunity presented. During this period, branch managers were required to submit all sizeable Line of Credit Applications to their State Administration for approval.

During this period, all major banks, with the exception of the Commonwealth Bank of Australia, were members of the Associated Banking Group. All member banks agreed to abide by a predetermined fee for all services provided by the bank, which was laid down in the Associated Banks’ Handbook. All branches of member banks held a copy of the Handbook. The banking system was to radically change with the introduction of the Regional Management concept. This system was introduced by most major banks progressively, with some variance. The Regional Management concept had the effect of changing the bank’s administration from one that may be described as “horizontal” to one that was divided into “in line divisions”.

My former employer introduced this concept in 1968. Each State was divided into regions, each containing about a score of branches, under the control of a Regional Manager, who had the total responsibility for the welfare of those branches. The Personnel Manager was accountable to the State Manager, who in turn was accountable to the Managing Director at Head Office. Additionally there were other divisions, best described as support services, for example, Personnel, International Banking, Financial Services and Marketing & Planning.

Each branch manager was required to prepare a branch plan incorporating annual projections – dissected quarterly for deposits, lending and travel commission, etc. Marketing programs were the order of the day and could include Term Deposit gathering, New Bankcard Applications, Personal Loans and any other product that the bank held in its selling portfolio. These programs enabled staff who were successful to achieve monetary rewards incorporating cash bonuses, increase in salary increment, paid overseas and local travel and other rewards. These benefits were generally paid on a quarterly basis. All staff of course were subject to annual appraisals with branch managerial appraisals being assessed by the Regional manager.

The most vital aspect of the Regional Management concept was the fact that, under this style of administration, each branch manager was given a Delegated Lending Authority. This in essence meant that the majority of all lending decisions that came across the branch manager’s desk could now be approved by him without the need to submit a Line of Credit Application to State Administration for consideration.

I will describe the Delegated Lending Authority concept briefly because it is this system that has permitted bank personnel to enter into deceitful and fraudulent conduct, instrumental in sending customers into financial oblivion. There were several bank-lending products that came within a bank manager’s delegated lending authority – in the 1980s, they ranged over Overdrafts and Fixed Loans, Personal Loans, Custom Credit Personal Loans, Custom Credit Mortgage Lending and Bankcard Applications, etc. However, on the score of generalised bank lending, the Delegated Lending Authority was dissected into the following categories:

At introduction of Regional Management in the late 1960s, the maximum Category “A” lending for a branch manager was $25,000. In 1983 a senior branch manager held Delegated Lending Authority levels at “A” $80,000; “B” $20,000; “C” $1,000. Within twelve months, following deregulation of the banking industry by the Federal Government, these authority levels were increased to: “A” $200,000; “B” $100,000; “C” $10,000. Four years later the same branch manager would hold Delegated Lending Authority levels of “A” $1,000,000; “B” $500,000; “C” $100,000.

All National Australia Bank lending was based on the Bank Value of its securities. Bank Value was arrived at by shading of the Market Value. This latter figure was arrived at in accordance with the Bank’s Lending Manual guidelines. Although guidelines were laid down for the valuation of real estate (broad-acres & dwelling house properties, etc.), the Market Value eventually recorded was generally determined by the branch manager. However, in capital cities the bank did designate some of their former branch managers as property inspection officers for valuation purposes. It goes without saying that if a branch manager inflated his market values of the bank’s securities for lending purposes, be it direct or indirect, he had the ability to contain the Line of Credit Application within his own discretionary lending authority which would thereby enable him to avoid submitting a Line of Credit Application to his superiors.

A good example of this automatically came to my attention early in my managerial career where the customer’s file recorded that my predecessor had placed a Market Value amounting to $44,000.00 on the bank’s security. What the covering security schedule did not reveal was the fact that, within the previous twelve months, the property had been purchased by the customer for $8,500.00. Some two years down the track the customer got into severe financial difficulty and this property eventually realised $9,000.00 at auction.

The whole concept of Regional Management was well received by staff at all levels; however, like all systems they are open to abuse and it so eventuated very early after the introduction of the Regional Management concept that some bank employees became master manipulators. With the bank’s aim of increasing business irrespective of how that business was acquired, it had the effect of pitting branch manager against branch manager. This was easier to achieve if the opposing branch manager was located in another region; however it was not uncommon for a manager to rip business off a branch within his own region.

An example would be where the customer applies for certain lending facilities and is quoted by his branch manager the bank’s Base Interest Rate plus a Margin of say 2%. The customer thinks that this margin is a bit high and decides to approach another National Australia Branch in the same Region with the identical proposition. That branch manager, to gain new business, will approve the lending with a reduced margin being applicable at 1.5% and so transfers the customer’s business. The first branch manager holding the customer’s business has approved the margin at 2% in terms of bank policy of the day. The marginal rate impost is added to the bank’s Base Rate of the day to reach the nominal rate to be applied. The Base rate is subject to weekly publication in national newspapers.

Alternatively, a branch manager is transferred from the south side of the city to the north side of the city after an appointment of say three years duration. He has proved very popular with a certain section of his highly valued customers so much so that he is able to induce them to transfer their business to his new branch. Needless to say, this branch manager’s successor will commence his new appointment at a substantial statistical disadvantage from which he is very unlikely to recover, irrespective of his eventual term of appointment.

These two foregoing examples will give an insight into a banker’s mind, particularly that of the bank manager. One must remember that up until there was a change in the administrative structure of the bank, all senior administrative employees holding a Delegated Lending Authority had been at some stage a bank branch manager. The aspect of self-preservation will be achieved by deceit, treachery and any means possible; that’s how these bankers play the game. Where there is a conspiracy you will not beat them.

Bankers at Work on Dirty Tricks

Everyone knows how ethics and integrity in banking rapidly deteriorated following deregulation in the early 1980s; however, was this environment created overnight? I would suggest not. It has always been inherent in a banker’s mind that if business expansion is to be achieved but, in doing so, laid down statutes might be breached, well that will be okay for the simple reason that detection of that breach is highly unlikely.

A common ingredient here concerned the opening of accounts in fictitious names. This was fairly common throughout the industry. In most cases it was a tax-evasion exercise. Some bank managers opened so many accounts in fictitious names that they retained a notebook where all details were recorded therein. The widespread practice of opening fictitious accounts was brought to the notice of the Australian public from the evidence given to the Royal Commission into the activities of the Federated Ship Painters and Dockers’ Union. Chairman Costigan made several recommendations in his report findings with the aim of eliminating this practice.

It was shortly after the release of Costigan’s final report that the 100 points system was introduced requiring a bank to sight certain documentation before an account could be opened.

When the Associated Banks Agreement was disbanded in the early 1970s, and the Trade Practices Act was promulgated shortly thereafter, the National Australia Bank took the immediate opportunity to inform all personnel that charges for all services which were provided, as laid in their recently introduced charges manual, were considered at all times to be a minimum and at all times higher fees should be applied particularly where the market could stand it. In other words “load” fees where the opportunity presented; that was the way it was to go. It can be seen that the situation that we have in the banking system today had its origins just on thirty years ago. Following deregulation, this conduct developed to such an extent that it escalated into a rip-off mentality.

A good example of this was where my employer conducted a branch in a mining town, miners’ earnings being well above the national average. The “loaded fee policy” was relatively easy to implement. The victims of this National Australia Bank policy were completely unaware that they were being screwed. This type of policy was the order of the day until I retired from the bank in 1986. One of the components of the branch manager’s annual appraisal was his ability to generate fee income for his employer. It has to be remembered that at all times the branch manager’s superiors also played a direct role in this sphere of bank activity to their own personal financial advantage.

At one stage in the 1970s, this policy of the NAB got completely out of hand when some branch managers who applied loaded fees cashed an internal branch voucher applicable to the transaction and set up a slush fund with the excess dollar content. As you would imagine this type of deceitful process had unhappy consequences for some. In my opinion, the policy of loading was illegal. I see this situation as no different to a bank policy of loading exchange rates which was revealed in the Foreign Currency Loans fiasco, which I propose to deal with in due course.

Not only were fees for services rendered loaded and became the order of the day, a far bigger instance of illegality was also prominent and had a far more elaborate effect, and that was the aspect of loading and/or manipulating interest rates. This aspect initially took place many years before deregulation of the banking industry. In so far as my former employer was concerned, deceit and illegality took place as early as 1974.

Once again if my former employer had a designed aim in mind or the incremental factor would go undetected (and that was virtually always), then the NAB would persistently breach the statutes of this country. If there was the remotest chance that they might be detected, then they would deal with that issue in due course on a confidential basis. In this regard, there is always one vital factor that will issue in the bank’s favour and that is, if a bank rips off say 1000 customers in a particular interest rate scam that they have devised and say ten per cent of such customers are astute enough to become aware that they are victims of such a scam, then so be it. The bank has won the day because in settling with the ten per cent of such victims, the relative payout so applicable would be minor when compared to the monetary rewards received by the bank from that illegal operation.

There are many good examples of this. One can be found of which I had direct knowledge in the 1973/1974 years when the NAB approved bridging loans on behalf of borrowers, with a take-out clearance date of 31/03/74. Many of these loans remained standing as at this date and the bank’s administration decided, if these loans were not cleared by 30/04/74, then a penalty interest surcharge of 5% would apply to the outstanding debt at that latter date. Some victims of this scam were so irate – they had never been told at the outset that an interest rate surcharge would apply for non-clearance – that they sought legal advice. When this transpired it was revealed to the bank’s customer that the bank’s actions in applying the interest rate surcharge was illegal. The National Australia Bank was forced to disgorge.

What about the remaining customers who were the victims of the bank’s illegality? Simply nothing; they suffered the consequences. There was no way that the bank was going to inform them that it had engaged in illegal behaviour.

There can be no doubt that banks have had a field day with manipulation of interest rates over the past thirty years, and are most probably engaged in deceitful activity today. The bank was virtually forced to record its base interest rates on customer bank statements after 1991. However what has to be remembered is that an interest rate margin needs to be taken into interest rate calculations and I would suggest that very few borrowing customers have the ability to confirm that bank interest so charged and debited to their overdraft account is correct.

Research will show that in January 1987 there was a downward trend in interest rates. National Australia Bank Branch Managers were informed by telephone at the time of this prediction and that the bank’s Base Interest Rate would therefore move downward. What they were told was that as soon as they were officially informed that the bank’s Base Rate had decreased they were to immediately offset the drop by increasing the customers’ borrowing margin by a like amount. Borrowers of course thought that they had benefited by the market trend.

The State Manager handed down these instructions to his Regional Managers who in turn were required to instruct the branch managers in their region as appropriate. One particular Regional Manager put the State Manager’s instructions in writing by way of memorandum; however, he omitted to sign the memorandum. It can be seen that this is treachery at its highest level. The only question for consideration is, was the State Manager’s directions of the time a resultant reaction from a Head Office Direction? My former employer ripped off millions of dollars from their borrowers in Queensland who thought they were benefiting from the official decrease in the Reserve Bank of Australia’s cash rate. Alas, they were victims of their bank’s deception.

The stories regarding interest rate manipulation are never ending. One such ruse that became known to federal Parliamentary members in 1989 was the fact that my former employer was applying interest rate margins to some of their borrowing customers as high as 10.5%. A bank head office survey had revealed this at the time and the Executive Director (Banking) in April 1989 issued a directive to his General Manager for Queensland warning him about these unfair practices and to ensure that if this activity prevailed in his State, it was to be curtailed.

The following case history that I had cause to personally deal with further exemplifies the treachery of banks. In this case Westpac Banking Corporation had been cheating on its valued customer for some years. It so transpired that I agreed to part time employment with a Proprietary Company, which had a weekly turnover averaging one million dollars per week. My work position, which spanned over an eighteen month period in the early 1990s was completely unrelated to my bank consultancy activity. However the directors of the company were aware of my banking background. One day the administrative director sought my assistance in reconciliation of the interest being charged on the company’s bank accounts by Westpac Banking Corporation. He was of the opinion that the bank was overcharging the company, and asked his bank’s Commercial Account Manager to check his employer’s records and confirm to him that they were correct. The Commercial Manager responded by saying that it was up to the company to check the amount themselves; hence his approach to me.

Calculation of interest due to the bank was somewhat complicated due to the fact that the company enjoyed borrowing facilities which incorporated a set-off arrangement between eight accounts while the working overdraft limit facility was temporarily doubled for the last ten days of the month. The company’s director was of the opinion that a marginal interest rate applied to credit balances so set-off. However the company’s facility approval letter which was current did not contain specific details to enable me to check Westpac’s calculations.

When I sought details in this regard from the bank, three telephone calls to Westpac were necessary to achieve a positive outcome. My calculations revealed that the company had been overcharged each quarter during the annual period and that the aggregate excess amounted to $88,559.26 which Westpac Banking Corporation refunded forthwith. Their explanation was that:

It would appear that our system was unable to monitor the swing limit each month and calculate interest payable at the correct rate. The switch facility previously in place also compound these calculations.

The swing limit facility had been in force for at least two years and senior administrative employees of the bank must surely have been aware that their Electronic Computer Processing System could not automatically handle an input structure of this nature.

What goes through my mind is the question, how many other Westpac Banking borrowing customers were in the same predicament, and if so was the overcharged amount ever revealed to them? I strongly doubt it. The bank knew that the customer was highly unlikely to be able to check the bank’s calculations for veracity.

I would say that banks had a field day with interest rate manipulation with respect to their lending during the twenty odd years preceding the promulgation of the House of Representatives Standing Committee on Finance and Public Administration Inquiry into the Banking Industry in 1990. The Inquiry revealed many of the banks’ sleazy and deceitful tricks, which I would say were directly responsible in forcing banks to record changes in their base lending rates on bank statements that they issued to their customers.

I don’t think that this change solved the problem completely; however it certainly helped. Up until this compliance, it was highly unlikely that a borrower was able to detect whether he was a victim of his bank’s interest rate manipulation. The only section of the bank’s customers who would be considered safe would be those within the corporate sector. This sector would be less than 5% of a bank’s borrowers.

My former employer was always rejigging the interest rate system, especially in the 1980s, so much so that special action by branch staff was necessary to ascertain the current rate of a borrower because the changes implemented by the bank were not recorded in the customer’s file.

During my final year of employment with the National Australia Bank, one of the bank’s long-standing professional customers asked me if I would check the current interest rate that was applying to his loan. His arrangement with the bank at the time was that his loan approval was in the 15% to 16% range. An examination of all bank records produced to me revealed that he had been charged an interest rate ranging between 22% and 23%.

As I have stated previously, bankers consider that they are immune from the law. Borrowing customers of the National Australia Bank, as well as other banks, would have had difficulty in reconciling whether interest debited to their accounts was arrived at in terms of contractual arrangements.

All branch managers’ managerial approvals contained within his Delegated Lending Authority could be subject to overview by his Regional Manager. This senior employee usually elected to carry out this duty during his periodic visits to the branch or he may have issued a direction to his branch manager to forward certain files to Regional Operations for overview purposes.

On perusing a customer’s file, the Regional Manager might say to his branch manager “this margin @ 1.5% is a bit low for this type of lending, the margin applicable here is 2%. I’ll change this to 2% now and I want you to amend all other branch records accordingly so in effect he is being charged our base rate plus a 2% margin from today. If, in the remotest chance, the customer queries the amount of interest so charged to his account in the future, no adjustment is to be made without prior contact with myself”.

Some Regional Managers who conducted their overview of managers’ approval in Regional Operations increased the margin and returned the customer’s file without any further communication; a Manager might anticipate that his branch Manager would see his amendment and amend branch records accordingly. Some branch managers saw their superiors’ amending instructions; they took no action and simply put the file in the filing cabinet.

Many of these loans so amended were subject to previously ratified Loan Agreements; however the Regional Manager simply took no notice of this. Several branch managers resented taking part in an exercise of this nature. Some complained to the State Secretary of the Australian Bank Employees Union; however he told the informant that there was nothing his Union could do.

I would like to relate an incident which occurred during my second last managerial appointment before I retired from the bank. The Regional Manager proceeded to review the branch statistics during his usual quarterly visit to overview branch performance. The Regional Manager informed me that my branch was the worst performing of all branches in his region when it came to the subject of averaged out interest rate return for aggregate branch lending.

I told the Regional Manager that this situation was very easy to explain. Some eighteen to twenty four months previously the bank had a special allocation of funds for lending purposes where the applicable interest rates were very attractive because they were shaded below the bank’s circularised lending rates of the day. This funding was available over a three or five year term with the applicable interest rate fixed for that term.

However managers had a very short time frame in which they were required to submit their Line of Credit Applications to the bank’s administration for approval. It transpired that with some promotional effort on my part, I was able to obtain approval with respect to two such applications. In aggregate, this exposure represented a noticeable percentage when numerated against the aggregate branch lending figure.

With the passing of time there was an upward trend in interest rates throughout Australia and as a consequence there was a corresponding increase in rates of the bank’s lending products. With the interest rate applicable to the two special fixed loans remaining fixed during this period, it naturally had the effect of lowering the averaged out interest rate return for my branch.

The Regional Manager, when informed of this explanation, simply told me to increase the rate with respect to each loan without informing the borrowing customer. I responded by saying that the two loans were subject to signed loan agreements with interest amount charged out and repayments being on a monthly basis. It would only be a question of time before these borrowing customers smelt a rat; they would then be seeking an explanation from myself. I knew that both borrowers were astute businessmen. I was not prepared to comply with the Regional Manager’s direction and told him so. The situation was never brought up again.

If I had complied with the Regional Manager’s direction, there would have been a distinct possibility that the customers involved with these two loans may have decided to transfer their banking business to another bank. If that transpired, I would have been held responsible; the Regional Manager comes out squeaky clean of course.

It can be seen from my foregoing commentary that a bank’s bag of dirty tricks is of unlimited dimension. One wonders what is going on in the interest rate manipulation stakes today.

The Royal Commission into the Federated Ship Painters’ Union (the “Costigan Royal Commission”) and the Dire Consequences for a National Australia Bank Manager

I have previously alluded to the Royal Commission conducted by Chairman Costigan QC in 1984, specifically mentioning the aspect of banks opening accounts in fictitious names.

In this particular case history, the branch manager had no hesitation in opening accounts in fictitious names, be it cheque accounts, savings accounts or interest bearing term deposit. The “benefit” was two ways. Firstly the bank manager increased his deposit branch base, while secondly his customer firmly believed that he was able to increase his monetary net worth by paying less Income Tax. This particular branch manager was one who recorded all details of these fictitious accounts in a specially raised notebook. He kept this notebook in his office at the branch. This bank manager will be described as BM1.

The Costigan Royal Commission revealed that a customer of the National Australia Bank’s City Hall Branch in Brisbane inner city by the name of Robin David Huston was heavily engaged in what became known as “Bottom of the Harbour Schemes”. These schemes often represented what was known in banking circles as “round robin” transactions which generally meant that to complete the “round robin” a banking account utilised for the purpose would record a debit balance after a series of transactions had taken place.

The National Bank manager (BM2) permitted these “round robins” to take place after he sought the approval from the bank’s State administration. This bank manager (BM2) was subpoenaed to give sworn evidence in open court to the Costigan Royal Commission at a hearing held in Brisbane. However at this time he had been transferred on promotion to a Brisbane suburban branch of the bank. His evidence proved highly embarrassing to his employer. The consequence of his evidence saw the bank having an internal bank audit to be carried out at the City Hall Branch as well as the branch where he currently held his managerial appointment.

During the audit of his current branch appointment, BM2 handed a notebook to the bank’s internal auditor which contained details of accounts which had been opened by his predecessor in fictitious names. He told the bank’s auditor that he had inherited all the accounts presently current at the branch from his predecessor, BM1. His predecessor had been transferred to a Gold Coast Branch of the bank on promotion.

The bank’s auditor viewed the situation regarding conduct of these accounts in fictitious names quite seriously. So much so that he made special mention of the situation in his Branch Audit Report. The original of this report was forwarded direct to the bank’s head office in Melbourne while a duplicate copy was forwarded to Queensland State Administration of the bank.

The outcome of the overall situation resulted in this BM2 being demoted three grades by his employer and appointed to a clerical position in the bank’s premises department. He remained in premises department until his retirement some three years later and suffered both personal and financial loss.

I indirectly became involved in the whole fracas when the BM3 of City Hall Branch at the time of the Costigan Royal Commission hearing in Brisbane mentioned my name in derogatory terms to the bank’s auditor in the course of a very heated argument. (The same auditor was instructed by his superiors to carry out both branch audits). The thrust of what the City Hall BM3 told the internal auditor was that I had knowledge of the fact that the State administration of the bank will destroy incriminating customer file documents if it suits them to do so. In this instance it was Customer Interview Records. The Customer Interview Records were raised by a branch employee on behalf of their VIP customer and formed part of the customer’s file records.

An Australian Taxation Office Field Auditor had called at the branch requesting an inspection of this customer’s file. The ATO auditor mentioned to the bank employee in passing that they had reason to believe that the taxpayer was not declaring profits derived from property dealings.

A quick glance at the file revealed to the bank employee that file content could be incriminating and, after consultation with the BM4, it was decided to defer the ATO’s audit officer request. He was told to return to the branch in a few days time when his authority to inspect had been determined by the bank’s administration.

The branch immediately despatched the customer’s file to administration indicating to them the situation at hand. The file was returned promptly and – guess what – the incriminating Customer Interview Records were no longer contained therein. My informant to all these happenings was a senior salaried employee working at the branch who I had known for just on ten years. I had found him to be a fellow employee of high integrity. It was the branch view at the time that someone in the bank’s administration had destroyed the incriminating Customer Interview Records as secured to the file.

The ATO Audit Officer inspected the customer’s file on his second visit with the incriminating Customer Interview Records no longer available, destroyed of course. National Australia Bank fraud and deception has no limitations.

As a consequence of my involuntary involvement, I made a conscious decision to make enquiries in an endeavour to gain an overall picture as to what had taken place at the two branches where the bank audits had taken place. The principal reason for this was because I was of the firm opinion that the BM2, who had been demoted three grades, was being made the scapegoat by the Queensland Administration of the National Australia Bank.

The BM3, who was responsible for involving me in the whole exercise, gladly told me the whole sorry saga in so far as he knew the situation. He informed me that, after his predecessor had given evidence at the public hearing of the Costigan Royal Commission in Brisbane, Regional Operations telephoned City Hall Branch – he was on annual leave at the time – and requested that the fi le of Robin Huston group of companies be sent to them in the branch overnight courier bag without explanation. The branch complied and was returned in due course. This was the file of the customer who was heavily involved in “bottom of the harbour” schemes.

It so transpired that, at the time Regional Operations requested the customer’s fi le, the branch accountant was relieving in the capacity as branch manager. An inspection of the customer’s file by branch staff on its return from Regional Operations revealed that branch to Regional Operations Internal Memorandums approving “round robin” transactions had been changed to one indicating non-approval.

The permanent BM3 told me that his very heated argument with the branch auditor arose because he was extracting numerous branch records which related to “bottom of the harbour” transactions. The BM3 observed the auditor’s work effort in this regard and asked what he intended to do with these branch records. The auditor’s response was that he was despatching them to State Administration. The BM3 knew full well that if these branch records left the branch, they would never see the light of day again. They would either be destroyed or get lost in the system. He told the audit officer that he would take possession of all the records and photocopy same before he despatched them to State Administration. The audit officer did not want this to take place and the very heated argument ensued. The BM3 informed me his authority prevailed and he photocopied all branch records before they were despatched to State Administration. I have absolutely no doubt that the branch manager’s thoughts with respect to the eventual destiny of the records were one hundred per cent correct.

I was subsequently informed that Robin Huston, the valued branch customer responsible for “bottom of the harbour” instigation, was personally invited to attend luncheons with senior members of the National Australia Bank’s State Administration.

It was the policy of the Australian Taxation Office to have a senior employee attend all Costigan Royal Commission hearings to ascertain whether he could glean if there might be any breaches of the Income Tax Assessment Act by those called to give evidence or by third parties who may be named.

The Australian Taxation Office was familiar with National Australia Bank procedure in these given circumstances. After the internal audit had been carried out at the branch where their BM2 was subsequently demoted, the Australian Taxation Office sought an inspection of the Auditor’s Report, which was made available rather reluctantly I would imagine. As soon as the Australian Taxation Office read the report and became cognisant of the content relating to the note book regarding names of bank customers who held accounts in fictitious names, it demanded production of the note book for inspection purposes.

Some months after these events, I attended the local hotel. I received a tap on the shoulder from a person with whom I had a limited acquaintance. He asked me if he could talk to me privately for a moment. He told me that he had an account in a fictitious name at a branch of the National Australia Bank. The account had been opened for him by BM1, who had since been transferred to the Gold Coast. The account was at the branch which was subject to audit. He informed me that he went to the National Bank branch to make a transaction and was unable to do so. Further the newly appointed branch manager refused to see him. Could I help him get access to his money? I solved his problem by legitimising the situation. He told me some time down the track that he resolved his predicament with Australian Taxation Office. He suffered no income tax penalty, most probably because he, through his tax accountant, brought the matter to the Australian Taxation Office notice in the initial instant.

For my part, because my name had been mentioned in the Audit Officer’s Report, I was required to be interviewed by two senior officers of the bank’s administration in Queensland. I was to learn that Head Office wanted a full explanation of what the allegation of “document destruction by administration” was all about. I was accompanied by the BM3 who had named me in the first place.

On legal advice provided at the instigation of the Queensland State Secretary of the Australian Bank Employees Union, I informed the two bank administrators what had taken place. I was subsequently told by one of those administrators, the Manager Personnel Administration, that the bank wanted a letter of retraction from me regarding the claim of destruction of records. When I alluded to the implication of fellow employees, I was told that they did not agree with my alleged version of events.

When I enquired what would happen if I was not prepared to furnish the letter of retraction as requested, I was told by the Manager Personnel Administration that I should remember what had happened to former National Australia Bank Branch Manager, John Jones (not real name). John Jones had been sentenced to a gaol term of 3 years on a complaint by the National Australia Bank. John was known to me personally; as a matter of fact I visited him in incarceration. His predicament was personally known to me. I was of the firm view that extenuating circumstances applied in his case and that he had been dealt with very harshly indeed by his employer. I came to the view that John Jones was a victim of personal vindictiveness; the extenuating circumstances should have permitted those responsible to adopt a far more lenient penalty.

What the ‘John Jones’ implication meant for me was quite simple – bank administration in Queensland would force my dismissal. Queensland Administration of the bank had to come out squeaky clean in the whole saga in the eyes of Head Office.

Up until the alleged felony, John Jones’ unblemished banking career spanned just on twenty years and his situation needs to be contrasted with that of a female officer employed by the National Australia Bank who, over an extended period of months was stealing cash from fellow female employees. She pleaded guilty following a carefully laid trap set by a senior employee. It also transpired that she had perpetrated the same behaviour in a previous branch office where she was working. What happened to her? She was allowed to resign without any admonishment whatsoever, simply because she was the daughter of a current serving Regional Manager of the National Australia Bank in Queensland.

Duplicity in banking has no limits – the contents of this chapter reveal this. It also reveals that the more senior your position in the bank hierarchy, the more protected you are. I would like to bring to the notice of readers, the oral evidence of Leonard N Hingley, Federal Secretary to the Australian Bank Employees Union on 28th February 1991 to the House of Representatives Standing Committee on Finance and Public Administration Inquiry into the Australian Banking Industry: According to Hingley:

The problem in the industry is that the lower down the scale you are, the higher the risk, the more dangerous it is for you. The higher up you are, even if you are wrong, you are safe. We have written a number of articles on this sort of question in our National Publications. After one of them about this sort of lending we were threatened with a fairly substantial writ.

Mr Hingley’s evidence to the committee speaks for itself – bankers are all powerful. They can override the statutes of the day at will. Integrity? Never heard of the word.

The foregoing quoted oral evidence of the Australian Bank Employees Union Federal Secretary, Mr Hingley, is exemplified in this case history. As I have indicated above, BM2 was demoted and lost his managerial status after he gave evidence to the Royal Commission into the Federated Ship Painters and Lockers Union in Brisbane in 1982.

My inquiries reveal that at all times BM2 acted with his Regional Manager’s or the Bank’s Administrative approval. If this is correct, why should BM2 be demoted; why shouldn’t the senior administrative employee who approved the round robin transactions in the first place be demoted also? The fact was of course that BM2 was the most junior employee involved in the transaction trail; he was the one who was generally in direct contact with the customer and it was BM2 who had to be made the scapegoat.

The National Australia Bank knew full well that the bank would be held accountable by the Chairman of the Royal Commission, and good practice must be seen to be done and in the future. The bank was fully aware from the adverse publicity that the Royal Commission was generating that this was having an unfavourable reflection on the bank’s name. There needed to be a positive outcome from a public perception point of view.

Chairman of the Royal Commission, Frank Costigan QC, saw fit to particularly highlight the National Australia Bank’s name in deleterious fashion in Volume 1 of his Final Report under the date of 26th October 1984. He informed the reader:

(i) National Australia Bank: Enquiries reveal breaches of Banking Regulations. These involved false bank accounts. Disciplinary action has been taken against at least three senior officers. (Chapter 8, Banks: 8.056, pp. 198 & 199)

The names of the three senior National Australia Bank employees are not mentioned of course. However if one refers to the Royal Commission’s Final Report, Appendix 1-A, it lists the names of all Public Witnesses. Four of those names are listed as ‘Manager National Bank’. (No National Australia Bank Administrative employees are mentioned.)

The National Australia Bank was heavily involved in ‘bottom of the harbour’ schemes which involved BM2. Moreover, their customer, R D Huston, was heavily involved in those schemes and was subject to prosecution. It is fair assumption to say that, in the circumstances, BM2 was one of the three National Australia Bank senior officers referred to in his Final Report.

One has to ask the question, did Royal Commissioner Frank Costigan get it right? I don’t think so. I have strong reservations concerning Royal Commissioner Costigan’s conclusions. My interpretation of the Commissioner’s conclusions is that he has targeted the bank manager as the perpetrator as the one responsible for instigating the bottom of the harbour scheme, when at all times the scheme has the imprimatur of the bank’s senior administration. The motto was – we can keep the customer happy, and at the same time charge the customer substantial fees for the service. The fact is that Federal Secretary Hingley’s oral evidence statement, as quoted above, has come into play. BM2, the most junior employee in the transaction trail, was demoted.

I had discussions with BM2 after he gave evidence to the Royal Commission in Brisbane and he informed me after his demotion that the bank gave him no reasons why he was transferred on demotion.

Overseas Remittance Scam

During the 1979 to 1980 period, I was employed by the National Australia Bank as Assistant Accountant at the bank’s main office in Brisbane, 308 Queen Street. My duties during this period required the Queensland Manager of the bank’s International Operations to consult with me regarding certain aspects of his daily routine. It was during one of our discussions that he told me earlier in the day that he had the responsibility to supervise two overseas transactions that represented many millions of dollars.

In the lead-up to this conversation, he told that if you are a favoured customer of the National Australia Bank, they will do anything for you. He went on to say that the bank’s number one customer in Queensland had extensive open cut coal mining operations, was a major exporter and all its overseas foreign currency transactions were handled by the National. This customer had a United States parent.

It transpired that the company’s senior executives organised through their US parent to remit company funds from the United States for credit of their account in Australia. These funds were brought in to assist the National Australia Bank’s liquidity during the taxation rundown period which normally took effect during the June quarter of the year. The monies so remitted to their account enabled the National Australia Bank’s Exchange Settlement Account conducted with the Reserve Bank of Australia to avoid applying for lender of last Resort facilities with the Reserve Bank of Australia. If the bank was forced to resort to Lender of Last Resort facility, the Reserve Bank would impose severe interest rate penalties for the amount to cover them for the period.

The parent company’s remittance remained in Australia for some time before it was remitted back to its source. This transaction was straightforward in every respect. However the National Australia Bank was required to pay interest on the amount while it was in Australia. On the instructions of the Queensland company, the interest as paid was remitted to the company’s account conducted in a tax haven country in Europe. The remittance was routed through the National Australia Bank’s London Office. The authorised process to achieve the desired result was effected by telex. The significance of the interest payment remittance was the fact that no records of the transaction were to remain in Australia. The Manager International Operations would not commence the remittance by telex process without the appropriate written authority.

Needless to say the interest payment transaction had to receive the approval of high authority in the National Australia Bank Administration. While I believe that the Queensland State Manager of the National Australia Bank gave the necessary approval, I strongly suspect that the transaction re interest payment was ratified and had the consent of the National Australia Bank’s Head Office Administration. It can readily be seen that the National Australia Bank is returning their valued customer’s favour.

My immediate thoughts were that my employer had facilitated procedures allowing their customer to evade company tax, if not withholding tax. I also suspected that Reserve Bank Exchange Control Regulations may have been breached while it would also need to be investigated whether there were any breaches of the Income Tax Assessment Act and the Crimes Act 1914.

If we assume that the principal amount remitted to the company in Australia was, say, $500 million, then it is my belief that the interest paid component would be in the vicinity of A$15 million.

Sometime after I retired, I told this story to a solicitor who I was acquainted with and he advised me to immediately inform the Australian Taxation Office details of the transactions. This I did. The ATO investigator I spoke to informed me in due course that he discussed the transactions with ATO personnel in Canberra during one of his periodical visits. He said that they had no doubt that transactions had taken place; however they would not be taking any punitive action because of the time lapse since the transactions took place and the proprietorship of the bank’s number one customer in Queensland had changed in that it had been taken over by an Australian public company listed on the Australian Stock Exchange.

I was extremely disappointed with the ATO decision and told the ATO Investigator so. I told him that the ATO should at least organise an interview with the Queensland Manager of International Operations. He told me that this would not be done. The ATO investigator expressed the view to me that both the Income Tax Assessment Act and Reserve Bank of Australia Exchange Control Regulations had been breached.

The foregoing case history clearly indicates the complete contempt for the statutes of this country. We have one of our major banks in this country with their personnel at its highest level wilfully engaging in illegal activity. I was astounded by the details of the transactions.


Chapter 2: The Strawberry Farm Scam

Edward Plantagenet Somerset and his wife Elsie Joy Somerset, at age 60 and 57 respectively, were successful farmers and graziers. After thirty-two years in the rural industry producing wheat, sheep and cattle, they sold their western rural holdings and retired to Toowoomba, Queensland in 1984. The Somersets were married in 1952 and commenced as soldier settlers who balloted land in the first brigalow land development scheme in Wandoan, situated north of Miles on the Brisbane to Charleville western line.

In the course of the next thirty odd years, they purchased several additional properties and had numerous dealings with bankers, principally the Australia & New Zealand Bank and the Commonwealth Bank of Australia. The bank manager’s opinion was always sought with respect to those properties as well as their trading in livestock and grain, etc. In all their dealings with these banks, they always found the bank managers they dealt with to be people of integrity whose word and ethic could be relied upon as trusted officers in the banking industry.

Mrs Somerset purchased vacant land in Toowoomba in 1968 on which two units were erected shortly thereafter. When Mrs Somerset and her husband decided to retire she made a decision to erect a further six strata title units on the property, and work in this regard commenced in 1984. Their last grazing property to be sold was “Bimbadeen”. Following settlement in October 1984, they would hold approximately $500,000 in cash.

Sometime during August of 1984, Edward P Somerset was approached by a Stewart McDonald with a view to borrowing money to assist him in the purchase of a strawberry farm property known as “Gunnadoo”. The property was situated six kilometres north of Toowoomba, contained two hectares and the amount McDonald was seeking was $500,000. Somerset eventually inspected the strawberry farm, which became subject to a Contract of Sale by McDonald’s company dated 10th September 1984 with consideration recorded at $625,000. The contract was unconditional and called for settlement by 31st October 1984.

Without any previous introduction, Mr McDonald made persistent contact with the Somersets seeking their help by way of financing the strawberry farm purchase. In view of this persistent approach, the Somersets agreed to look into the situation. They had never been faced with this predicament before.

Edward Somerset sought legal advice with respect to McDonald’s proposed financing and, with that advice in his hands, decided not to go ahead with the financing of the strawberry farm. During the months leading to October 1984, the Somersets examined business alternatives to invest their $500,000, e.g. grazing properties, property trusts. Edward Somerset attended many seminars with investment brokers and studied various portfolios, which were presented to him and his wife.

By mid October 1984, the Somersets’ semi retirement plans had crystallised to some extent in that they showed interest in a broad-acre property just north of Toowoomba known as “Glenhaven” which contained an area of just on 95 acres. The Somersets decided to go ahead and purchase this property and signed a contract for $275,000 on the 23rd October 1984. The vendors would only confirm and accept this contract providing the purchase price was increased by $10,000 to $285,000 to which the Somersets agreed, and the contract subsequently recorded the date of 26th October 1984.

On reading the Toowoomba Chronicle newspaper, at early light on the morning of the 27th October 1984, Edward Somerset noted a box advertisement for a property offered for sale by the National Australia Bank as mortgagees in possession. The description fitted the property Glenhaven, on which the Somersets had previously paid a purchase deposit. Somerset immediately telephoned the Toowoomba real estate agent to ascertain what the status of their contract was.

Somerset was informed by the agent who processed the contract – not to worry; the contract would stand and the bank would allow it to proceed. The agent assured the Somersets that their contract would stand (their firm having previously experienced similar situations with the National Australia Bank – particularly so when the contract price was at or greater than the reserve price). Some two to three days later, the real estate agent telephoned the Somersets to inform them that the National Australia Bank had insisted that the Glenhaven property must proceed to auction and unfortunately they would have to consider their contract to be lapsed.

When this became known to Jeffrey Robert Cardell, the registered proprietor and vendor of the strawberry farm Gunnadoo, Cardell became a regular caller at the Somersets’ residence which adjoined the Range shopping centre, which in turn contained retailer Woolworths.

Cardell regularly delivered strawberries to Woolworths, which had been picked earlier in the day. Cardell was somewhat persistent in endeavouring to reactivate Somerset’s interest in his strawberry farm property. McDonald had previously told Edward Somerset that the strawberry farm was earning $50,000 per month, ‘nett as is’, and he wanted to illustrate to them how this was achieved.

The Somersets sounded out both their current bankers, ANZ and CBA, concerning their opinion of these figures. In each case, the Somersets received a response that they had no knowledge of strawberry farm production - they had no customers engaged in this activity.

Mrs Somerset was very wary of Cardell; there was just something about his presentation that did not go down well with her and there was an internal signal that expressed caution.

Towards the latter part of October 1984, Cardell offered to introduce the Somersets to his National Australia Bank, bank manager, Casper Gunn, at the 441 Ruthven Street Branch. The Somersets agreed and an appointment was made and set down for the 29th October 1984. However, due to circumstances beyond the Somersets’ control, it was not possible to keep that appointment of the 29th and it was postponed to the next day, the 30th October 1984. Mr Somerset kept this appointment with Gunn on the 30th October; however Mrs Somerset did not accompany her husband as she had urgent business affairs to deal with.

At the initial interview with bank manager Gunn on October 30th, Gunn confirmed that his customer Jeffrey Cardell had been in contact with him and had acquainted him with the position to date. Somerset informed Gunn at this initial interview that they had signed the Glenhaven contract. Edward Somerset initially stressed that he knew nothing about strawberry farming and that his expertise was in growing grain and raising cattle and sheep. Somerset asked Gunn to inform him of everything he knew about Cardell’s strawberry farm. (Refer affidavit of E P Somerset, deposed to and filed on 8 August 1987 and exhibited in the Kabwand/Somerset v National Australia Bank G65 trial hearing before Justice Neaves, Federal Court of Australia, Brisbane; detail in the following seven paragraphs is also drawn from the affidavit.)

Gunn reiterated Cardell’s statement to him that the strawberry farm income had grossed over one million dollars and netted $600,000 on the basis of $50,000 per month as is. Cardell had declared officially only a portion of his income for tax purposes, with the balance being treated as “black market money”.

Gunn responded by saying that he had to respect the confidentiality of his client; but went on to say that they had come to Gunnadoo with next to nothing and look at them today, he is going to build a $3.7 million motel. Gunn went on to make the enhancing statement that Cardell had won the Commonwealth Development Bank Award for the farm and also Gunnadoo had been featured in the Country Wide TV Program. Gunn then went on to say to Edward Somerset that Cardell had informed him that “he owes no money to anyone and puts a lot of black market money in a security box in your bank”.

Gunn reiterated his previous statement that he could not divulge his client’s business; however he had done extremely well. Cardell is part of a family team and works very hard. Somerset informed Gunn, in response, that Cardell was asking $625,000 for the property. Cardell was prepared to take $500,000 and was prepared to carry the balance on first mortgage until the 31st January 1985.

Gunn went on to say that if you decide to buy the strawberry farm, “you will not regret it”. Somerset then informed Gunn that if he and his wife decided to go ahead and purchase Cardell’s property that they still intended to go ahead and purchase Glenhaven which would have the effect of off-setting the large cash flow that would be generated from the strawberry farm. Development and improvement expenses on Glenhaven, e.g. dams, contour tanks and fences, etc., would be tax deductible.

Edward Somerset then inquired of Gunn, if we decide to go ahead and purchase Gunnadoo, could you assist us with the purchase of Glenhaven. Gunn responded by saying that he would need a statement of assets and liabilities so that he could put a proposition to his Area Manager.

Gunn raised the issue of agreeing to take down those details now; however Mr Somerset deferred on the grounds that all this information was held in black and white at their residence. Somerset further stated that their accountants were Robertson & Stafford in Toowoomba. Gunn responded by saying that Robertson & Stafford were also his accountants. Somerset then went on to inform Gunn that he had no objection to Gunn contacting the firm regarding his current trading position.

Gunn then agreed to Somerset’s suggestion that he would present him with all this information and an appointment for him to see Gunn for this purpose on the 1st November 1984. Gunn continuously took notes during this meeting.

Edward Somerset’s inclination to purchase Gunnadoo was substantially hardened after this interview with Gunn. Following the glowing remarks Gunn had made concerning the strawberry farm, Somerset naturally conveyed the substance of his discussion to his wife when he returned home. The facts were that Edward P Somerset had reiterated all strawberry farm production figures to Gunn which had been told to him by Cardell. Gunn had not raised any contrary position.

The outcome of this was that when Cardell telephoned the next day, the 31st October 1984 to inquire whether he intended to go ahead and purchase Gunnadoo, Edward P Somerset replied in the affirmative. As a result, Cardell immediately called upon the Somersets at their unit residence and a deposit cheque for $500,000 was handed over. While Mrs Somerset still had some reservations about the property, she was under the impression that nothing was binding until the contract was signed.

Cardell advised that he would have his solicitors prepare the contract for signature the next day and that his accountants were R N Elliott & Co of Toowoomba. The Somersets’ solicitor, John Davies, Toowoomba based, was unavailable the following day and the contract signing was set down for the 2nd November 1984.

The following day, the 1st November 1984, Edward P Somerset called at the National Australia Bank 441 Ruthven Street Toowoomba for his arranged interview with bank manager Gunn. He was driven to the bank by a friend and once again his wife did not accompany him.

Somerset took with him his statement of assets and liabilities which was a headed statement titled Structure of EP and EJ Somerset. This document consisted of two pages and was prepared in the handwriting of E P Somerset. The assets listing detailed thirteen individual items aggregating $1,902,000 with liabilities spread over seven individual items aggregating $818,000. Somerset also handed over to Gunn Cardell’s strawberry farm production figures for confirmation as to authenticity, and there was no detracting commentary from Gunn in this regard.

Somerset then informed Gunn of the terms and conditions regarding purchase of the strawberry farm as were known to date, which principally were - contract price at $625,000 with $500,000 deposit (paid) with balance payable on the 31st January 1985 with vendor Cardell to take a first mortgage over the property. Gunn informed Somerset at the time that “he would not regret it at that price” and went on to say that “it was a very good business”.

Gunn then discussed with Somerset item by item, as detailed on his Structure of EP & EJ Somerset. This exercise took a considerable time, and Gunn took the opportunity to take extensive notes relating to each item discussed. Somerset then went on to inform Gunn that his operating company, EJR Pastoral Company Pty Ltd, had an accumulated $70,000 taxation loss from previous properties and that Ian Scannel handled his affairs at Robertson & Stafford. He reiterated his previous statement authorising Gunn to contact Scannel as he saw fit. The interview concluded on the note with Gunn saying that he would look into it and give him a ring in a day or so.

Somerset did inform Gunn that the Gunnadoo strawberry farm business was theirs from today (1 November 1984) and that Cardell would work on the property for the next thirty days. Gunn was further informed that it was proposed to sign the contract the next day. Gunn responded by asking Somerset if he would provide a cash flow budget for the ensuing twelve months. Somerset informed him that he would consult with Cardell in the matter and get back to him. Once again Gunn took copious notes right throughout the interview discussion.

As per ritual, Edward Somerset informed his wife at first opportunity what had taken place. Mrs Somerset still had some reservations about the profitability of Gunnadoo although she had prepared herself for the signing of the contract the next day. Her husband had two satisfactory meetings with bank manager Gunn. Mrs Somerset understood that the Certificate of Title to the strawberry farm would need to be produced at settlement. Mrs Somerset wanted to ensure that there was no mortgage attaching to the title.

The Gunnadoo contract was to be signed mid afternoon on 2nd November 1984; however the Somersets’ solicitor, John Davies was delayed and the settlement process did not commence until after 4.00 pm. The Somersets’ accountant had previously advised that the purchase was to be subject to a property contract with consideration at $310,000 and a Business Contract at $315,000 (there is more on this distinction in the next chapter).

The apportionment of the Business Contract would record as follows:

Plant and vehicles

$9,000.00

Irrigation equipment

$20,000.00

Fittings and cold-rooms

36,000.00

Goodwill and strawberry plants

$250,000.00

TOTAL

$315,000.00


The purchaser of the Property Contract was Kabwand Pty Ltd whereas the purchaser of the Business Contract was EJR Pastoral Company Pty Ltd. The Property Contract recorded encumbrances as “NIL” with settlement to be finalised on the 16th November 1984. Mrs Somerset asked Cardell to produce the Certificate of Title and he refused, saying that he was free from debt and owed no money.

As no National Australia Bank employee was present, Mrs Somerset repeated her request to see the Certificate of Title so that she could personally check that there was no registered mortgage endorsed thereon. She was refused once again and a heated discussion took place concerning this issue. Cardell’s solicitor intervened, endorsing his client’s views by saying “you don’t get the deed”.

The contracts were dated 1st November 1984. Following completion of formal settlement procedures, Cardell handed to Edward P Somerset the Gunnadoo Enterprises Strawberry Farm Projected Cash Budget (Farming Operations) 1984/85. This document was dated 27th July 1984 and was prepared under the signature of R N Elliott & Co Chartered Accountants with the recorded disclaimer recorded thereon:

We have prepared this Projected Cash Flow Budget from estimates supplied by J R Cardell for his exclusive use. No attempt has been made to substantiate the basis for those estimates. Accordingly, no warranty or accuracy or reliability is given to any person.”

The major significance of this document is that it indicated to the reader that income from strawberry farm sales for the twelve month period to July 1985 aggregated $920,040. This figure was arrived at on the basis that monthly income was static at $76,670 per month. Income from Strawberry Puree sales was also static at $14,375 per month and extended to $172,500 for the 1984/85 period. In all, this document recorded total income for the period at $1,092,540.

Edward P Somerset telephoned bank manager Gunn on the 5th November 1984 to ascertain whether his bank would lend his company any funds to purchase Glenhaven. Some days earlier, Somerset had been contacted by the real estate agents regarding the Glenhaven contract to inform him that he and his wife would unfortunately have to treat their existing contract as invalid as the National Australia Bank was insisting that the property go to auction and that auction would be held on the 9th instant.

Gunn informed Somerset that he did not have some relevant information and could he call on appointment and bring his wife in who was a partner and director in all his involved companies. Gunn advised verbally at the time that he would need to get a cash flow budget from Jeff Cardell relating to Gunnadoo. At this appointment, arrangements were made regarding opening of accounts with the National Australia Bank and, at the same time, transfer of existing accounts with other banks would need to be arranged. An appointment was made to see Gunn the next day, the 6th instant.

On arrival at the bank on the 6th November, Edward Somerset introduced his wife to Gunn and she immediately questioned him on the productivity and the cash flow of the Gunnadoo strawberry farm. Gunn responded by saying that it was a good business, that we would not regret our decision and it had an excellent cash flow. Gunn went on to say that he had been trying to contact them by telephone to gain Gunnadoo figures and had been unsuccessful; he then contacted Cardell to gain the information required.

During this interview the Somersets discussed their forward plans for both properties indicating their keen desire to keep Gunnadoo strawberries disease free; also their aims to grow strawberries hydroponically. A copy of Cardell’s Cash Flow Budget (Farming Operations) 1984/85 was handed to Gunn; however he stated that all information required had been obtained from Cardell.

Edward P Somerset had prepared a statement titled Proposed Movement of Account, and recorded thereon, Estimated Income “Gunnadoo” 1/11/84 to 30/6/85 $240,000 clear of expenses.

Gunn called in his Manager’s Clerk, William Rivers, into his office and introduced him to the Somersets. He had apparently compiled a Statement of Position on the bank’s printed stationery item with details recorded thereon taken from Edward Somerset’s document ‘Structure of EP & EJ Somerset’ handed to Gunn on the 1st instant. This Statement of Position recorded the date of 6/11/84 with amounts shown as Total Assets @ $1,509,000; Liabilities @ $465,000. These figures represented a surplus @ $1,044,000. E P Somerset signed the Statement of Position document at Gunn’s request.

At this interview the Somersets signed the bank’s Customer Record Card – Company opening Account re EJR Pastoral Company Pty Ltd. This record shows the Somersets signing as Directors while Mrs Somerset was designated Secretary. This document was also dated 6/11/84. The initial deposit to the account was $90,000 and represented transfers amounting to $75,000 and $15,000 from EJR Pastoral Company Pty Ltd accounts conducted with ANZ Banking Group and the Commonwealth Bank of Australia respectively.

This interview lasted about one hour and, by concurrence at the time, the next appointment was set down for the 8th November in two days time. Once again Gunn took copious notes right throughout the interview. When the Somersets left Gunn’s office that day, they had both gained confidence from Gunn’s remarks in that his response to all their questions regarding the million dollar cash flow were all positive. Gunn made the reiterating point “it is a good business”.

On the morning of the 8th November, 1984 Cardell called on them both at their unit residence and discussed both properties, Gunnadoo and Glenhaven. He went on to say that he was having lunch with bank manager Col Gunn that day and the Somersets both gleaned from the conversation that Cardell had previous social contact with Gunn.

The Somersets’ meeting with Gunn proceeded as arranged on the 8th November and Gunn advised them that the bank would lend them the money to purchase Glenhaven at auction, build an hydroponics shed at Gunnadoo and also pay out vendor Cardell’s first mortgage that he was holding on Gunnadoo title deed. Gunn went on to say that they could bid up to $300,000 at the Glenhaven auction. Gunn then handed to Edward P Somerset a five-leaf cheque book so that they could issue cheques immediately if necessary.

Cardell’s strawberry farm successes were discussed once again from the point of view that if, say, disaster struck the strawberry farm business, they did not want the National Australia Bank tacking notices on their front door. Gunn responded to the effect that even if Gunnadoo produced half the figures, you will still be well ahead.

Gunn in the course of the discussion revealed that he was having lunch with Cardell later and always referred to him as Jeff Cardell. The erection of the hydroponics shed was discussed in much detail. Gunn took notes during the course of the meeting, which was his apparent established practice.

The Somersets proceeded to the Glenhaven auction on the 9th November 1984 and they were successful in their final bid at $320,000. This amount, of course, was $35,000 in excess of their previous contract, which had lapsed. The contract called for a thirty day settlement and was purchased in the Somersets’ individual names on their accountant’s advice. The bank amended the final settlement date by extending it by four days, viz., 14th December 1984.

The auctioneers introduced the Somersets to Ted Linnan, the bank manager of the National Australia Bank’s 33 Russell Street, Toowoomba Branch where the registered proprietors of the auctioned property banked. Deposit cheque for $32,000 was issued out of the five leaf cheque book handed to the Somersets by Gunn on the 8th instant. After the auction, Edward Somerset contacted the 441 Ruthven Street of the National Australia Bank and made arrangements to see Gunn on Monday the 12th of November.

Mrs Somerset contacted South East Queensland Electricity Board (SEQEB) first thing on the 12th November to make arrangements for the power to be connected and was advised by the Board’s engineer that that was unfortunately not possible because there was an outstanding and pre-existing requisition order attaching to the property. The Somersets were amazed with this finding because there was no mention of this fact in advertising material and it was not announced at auction prior to the commencement of the bidding.

The Somersets brought this matter to the notice of Gunn and he responded by saying that the bank had not been aware of the Requisition Order and that any cost to rectify would be the responsibility of the vendor and registered proprietors. Gunn told the Somersets that he would deal with the matter urgently; however he was unaware at that stage what was actually needed to rectify the situation and the applicable cost appertaining thereto.

Mr & Mrs Somerset also called upon Ted Linnan, Manager of the bank’s 33 Russell Street Branch and he also confirmed that the bank was unaware of the Requisition Order. Eventually it was necessary to carry out an inspection of Glenhaven to see the extent of the electricity defects and Linnan was present at this inspection.

It took almost four months to satisfy SEQEB Requisition and only on completion could settlement arrangements be made. During the period to the end of February, the Somersets had several appointments with both Gunn and Linnan and many, many telephone calls to and from these bank employees were made concerning matters of both finance and SEQEB Requisition. The Somersets had in mind to lease Glenhaven and this was simply not possible without power and water being available.

In late February 1985, the Somersets sought an interview with Linnan to inform him that they wished to cancel the contract, utilising a condition clause recorded on the back of the contract. Linnan informed them if they did so, then the bank would take legal action against them.

The Somersets contacted their solicitor concerning this situation. Their solicitor recommended that legal opinion be obtained and this was done. Since the Somersets were informed that the National Australia Bank did not become aware of the SEQEB Requisition until after the auction had taken place, the bank would succeed in any litigation. (It was eventually revealed in litigation, through discovery, that the bank became aware of the SEQEB Requisition some weeks before the auction date.) In the circumstances, they had no alternative other than to proceed with the contract.

Cardell commenced the erection of the hydroponic shed towards the end of November 1984 and the Somersets were successful in leasing the shed for a three year period and a deposit of $20,000 was paid, with the balance due on completion of the shed. Cardell was to have the shed completed by the end of January 1985; however it so transpired that it was never completed.

From mid November to the end of January 1985, the Somersets had numerous interviews with Gunn, not only relating to the SEQEB Requisition, but also strawberry farm production. Development plans for Glenhaven were also discussed. It was quite evident by mid-January that there was a severe lack of cash flow from Gunnadoo and production figures were nowhere near up to expectations.

Sometime during January at one of the Somersets’ interviews with Gunn, he brought to their notice that they should consider a Foreign Currency Loan for the purpose of refinancing all existing liabilities as well as forward commitments. Gunn advised that First National, a merchant bank, may be interested and he would contact them on their behalf. In due course the Somersets were contacted by an employee of First National; however; after an initial discussion of some duration, there was no further contact from this employee of First National.

During discussions with Gunn during the month of January 1985, Gunn mentioned the aspect of interlocking personal guarantees which, in essence, would give the bank a second charge over Mrs Somerset’s units which were to be eventually strata titled; she was the sole registered proprietor. Mrs Somerset was strongly opposed to giving a charge over her units; it was her intention at the time to retain four units and sell the remaining four. One unit was specially designed for the use of Mr Somerset’s father on a leased basis.

By mid-January, the Somersets were expecting Gunn to advise them that the bank’s security documentation was ready for completion; however the call never came. During the last week of January 1985, Gunn informed his new customers that he was proceeding on annual leave and he then introduced them to Relieving Bank Manager Patrick M Albion who would perform the relieving duties during his four week absence.

By mid-January 1985, the Somersets had also come to the decision that they would refuse to pay vendor Cardell the balance due to him, namely $125,000, on the 31st instant as the hydroponic shed was far from complete. Furthermore strawberry farm production, sales by-products, strawberry puree etc., were nothing like those that they had been led to expect and achieve as was stated in Cardell’s strawberry farm production sheets. Admittedly their critical remarks were tempered by the fact that Gunnadoo experienced a hail storm in January, which did not help matters.

Gunn informed them that it was paramount that they meet the balance due to Cardell and it was only after lengthy discussions that Edward Somerset agreed to pay the $125,000 against his wife’s better judgement.

When the Somersets initially saw Relieving Manager Pat Albion during the first week of his relief, Albion informed them that there was a great deal of work to be done on his part before signing of the bank’s documentation could take place, and that included paying out first mortgagee, Cardell, the sum of $125,000.

For the next two to three weeks the Somersets jointly or Edward Somerset solely called on Albion virtually every second day with information that Albion advised he required so that he could submit an Application for Accommodation to State Administration on their behalf.

During this period, Relieving Manager Albion, accompanied by other bank officers, inspected the two properties, Gunnadoo and Glenhaven while an inspection of Mrs Somerset’s strata title ‘units to be’ was also undertaken by bank officers, one of whom was the bank’s Area Manager, Brian Dick. Mrs Somerset’s thoughts at the time of unit inspection was that it was simply a situation of confirming the values which her and her husband had placed on the individual units.

It eventually became known that Albion’s first Line of Credit Application (LOCA) applied for credit lines aggregating $915,000, which incorporated taking over the Esanda finance attaching to Mrs Somerset’s strata title ‘units to be’. Albion had never discussed with either Somerset the matter of the bank holding security over Mrs Somerset’s strata title ‘units to be’ as security. This LOCA was declined by the bank’s Administration. Relieving manager Albion then resubmitted a fresh LOCA at the lower level of $575,000 – which excluded the takeover and refinance of the Esanda Unit debt where erection of the units was almost finalised. This LOCA was approved by the bank on the following basis:

  1. (a) Instalment Loan o/a Kabwand Pty Ltd $225,000 with repayments at $3189.00 per month incorporating principal and interest to expire 28/2/2000.

  2. (b) Instalment Loan o/a EJ & EP Somerset $230,000 with repayments at $3260.00 per month incorporating principal and interest to expire 28/2/2000.

  3. (c) Overdraft in Reduction o/a Elsie J Somerset $120,000 to expire 28/2/86.


The Cash Flow Budget that accompanied Albion’s LOCA for $575,000, which he compiled in close consultation with Edward P Somerset for the period 01/03/85 to 28/02/86, recorded the final amounts for the respective split-ups as projected income as follows:

Strawberries

$640,000.00

Runners

$ 12,000.00

Rentals hydroponic shed - (never completed)

$ 22,000.00

Strawberry sales from leased crops

$500,000.00

TOTAL

$1,174,000.00


Albion’s LOCA included as bank security a second registered mortgage over Mrs Somerset’s strata title ‘units to be’, together with a first registered mortgage over the two properties, Gunnadoo and Glenhaven.

The Somersets received no formal letter of approval from the bank regarding lines of credit so approved. Albion had had no formal discussions with Mrs Somerset regarding giving the bank security over her units. When the issue was first brought to her notice, she emphatically told the bank that she would only consent to five units being subject to a second encumbrance. She was most unhappy the way that these events had unfolded.

The three Lines of Credit Facilities, (a), (b) and (c) as mentioned above, were all created by the near end of March 1985 following settlement. Up to settlement, Somersets always dealt with Albion or other subordinate staff members. On one or two occasions over recent weeks, Mrs Somerset had seen Mr Gunn, the permanent manager in the office area.

On or about the 6th May 1985, Cardell’s son, Jeffrey Cardell Junior, called at the Somersets’ unit residence and informed them that they had been conned and went on to state as follows:


The very next day Edward Somerset made an urgent appointment for himself and his wife to see Gunn. The interview discussion became very heated and, after some hesitation, Gunn admitted that the bank was going to foreclose on Cardell if he didn’t sell the strawberry farm when he did. Mrs Somerset pointed out to Gunn the discrepancy in the Glenhaven property SEQEB Requisition; income derived from the strawberry farm business incorporating actual sales, puree strawberry plant numbers and acreage under cultivation - and it all added up to one enormous fraud which he was basically cognisant of and he had permitted the National Australia Bank to be a participant to that fraud.

Mrs Somerset went on to tell Gunn that they had now been jammed into an horrific situation. They had mortgaged all their assets, relying on the integrity of employees of the National Australia Bank. Mrs Somerset said to Gunn in a very angry tone “how come you let us in, a clean skin client; we put in all our assets on the basis of your fraudulent misrepresentation.” Gunn found it difficult to respond in the circumstances and responded by saying, “I inherited Cardell as a client”. Gunn went on to say that his predecessor was always chasing him (Cardell) and, as a matter of fact, it was left to him to put the brakes on him now. The Somersets demanded to see a more senior administrative employee of the bank; however Gunn would not accede to this request.

The Somersets realised at this point in time that their financial well being was precarious indeed. They had expended all their savings, while Gunnadoo was not generating anywhere near the anticipated profits. In fact production could only be described as exceptionally poor. They were now cognisant of the fact the strawberry rotation plants should have been ploughed in, the soil fumigated and fertilised and the ground replanted. The fact was that there was no money to do this and repayments aggregating $6,449 per month needed to be provided as well as interest cover for the Overdraft In Reduction Loan in Mrs Somerset’s name solely.

During the two month period, April to May 1985, the Somersets were working very long hours and doing everything possible to raise production; this even incorporated sending fruit and fruit salad out west. At the same time everything was done to prune expenses. They could still not achieve anywhere near the figures presented to them by Cardell. They called up officers from the Department of Primary Industry seeking their advice, read literature and discussed production difficulties with other strawberry farmers. This latter event took place some time during the September quarter 1985.

The Somersets realised that they needed to sell assets to reduce indebtedness and, as a consequence, both Gunnadoo and Glenhaven were extensively advertised throughout Australia; however there were no bids.

By mid 1985, The Somersets were of the clear view that they should sue Cardell for fraudulent misrepresentation. They contacted their Toowoomba solicitor in this regard to ascertain the best cause of action and he recommended that they litigate against Cardell in the Supreme Court of Queensland. At their solicitor’s direction, he arranged for a barrister’s opinion to be sought concerning the prospects of success in a proposed action against the Cardell family. It transpired that the Somersets’ cheque issued for this professional service was dishonoured by Gunn.

Interviews with Gunn continued and; in late September 1985, the Somersets gave Gunn a copy of a letter from Messrs Stephen Jaques Stone James, solicitors, dated 20th September 1985 with enclosure, which had been obtained by their Toowoomba solicitor. The attaching documentation recorded the Certificate of Conviction of Robert Cardell regarding Intent to Defraud. Gunn photocopied same, and read the material in their presence.

As previously indicated, efforts to sell Gunnadoo and Glenhaven had proved unsuccessful; however in November 1985, a prospective purchaser of signed a contract to purchase at $350,000, subject to finance. The Somersets were aware at the time of signing this contract that the intending purchasers had more than adequate cash resources which would have enabled them to sign the contract on an unconditional basis. When Mrs Somerset raised this issue, she was informed that the finance clause inclusion was normal process. It was subsequently brought to the Somersets’ notice that the prospective purchasers were bank customers of the National Australia Bank, 441 Ruthven Street Toowoomba Branch, and that bank manager Gunn, who was consulted by the intending purchasers, refused finance on account of their age.

The Somersets commenced legal proceedings in the Supreme Court of Queensland against Cardell, claiming damages for deceit – Writ No 2643/1985. From formal instigation of this action to early December, it took three court orders for the bank to discover specific nominated documents.

As soon as Mrs Somerset accepted legal advice to sue Cardell, she telephoned Gunn’s secretary, informed her of the position and asked her to ensure that all bank appointment and diary records were retained for evidence in the forthcoming court action. It was later admitted by the bank that their branch auditors had destroyed bank manager Gunn’s Manager’s Diary records.

The Somersets discontinued the Gunnadoo strawberry farm operation in December 1985; it had proved absolutely useless to continue. The strawberry farm had generated income for the period 1/11/84 to 17/12/85 amounting to $139,985.39; after expenses were taken into consideration for the identical period, there was an excess of expenditure over income amounting to $9,031.79. The relative financial statement here was prepared by the Somersets’ Accountant, Ian Scannel of Robertson & Stafford. Gunnadoo income amounting to $139,985.39 represents a shortfall amounting to $1,034,014.61 or 13.53% of the aggregate figure as per cash flow budget which accompanied Relieving Manager, Pat Albion’s LOCA for $575,000 which was approved by the bank’s Administration in March 1985.

In February 1986 a Supreme Court of Queensland Writ of Summons was served on the National Australia Bank at 255 Adelaide Street Brisbane, alleging Breach of Contract and/or negligence and/or negligent misstatement by Mr & Mrs Somerset as first plaintiffs. This action was instigated by the Somersets’ Toowoomba-based solicitor.

Due to the workload in prosecuting this writ, it was decided to transfer same to a leading firm of Brisbane solicitors and attorneys. On reassessment of the Somersets’ legal status, their new advisors recommended that two barristers’ opinions be obtained with a view to ascertain the best course to obtain compensation through the courts.

The unanimous outcome was that the existing writ should lapse and be replaced with litigation to commence in the Federal Court of Australia, where a breach of Section 52 of the Trade Practices Act could be pleaded. Section 52 stated that “A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead and deceive”. This became recital No G65 of 1986. An application was filed on the 17th July 1986.

On the 9th July 1986, The Honourable Justice Shepherdson handed down his decision in favour of the Somersets for the sum of $170,769.15 plus interest and costs. However, the Somersets were unable to enforce the judgement against Defendant Cardell in that action. The Somersets’ solicitors advised that nothing further could be done from a compensatory point of view.

During 1986, the Somersets’ trading company, EJR Pastoral Company Pty Ltd sold all plant and equipment on both properties.

The Gunnadoo fiasco had a devastating effect on both the husband and wife.


Chapter 3: Consultancy Introduction

Sometime in October 1987 I received my third telephone call from the Somersets’ instructing solicitors to inform me that they were now in possession of the National Australia Bank’s discovered documents. Would I be prepared to inspect these documents?

During the instructing solicitors’ first and second contact with me, I was advised that they had clients who considered that they had been defrauded by the National Australia Bank through the hands of their Toowoomba Branch Manager, Casper Gunn. I treated the remarks made about the bank manager with some scepticism and was reluctant to get involved, as I had given just on thirty seven years of loyal service to the National Australia Bank.

However I was cognisant of the fact that if my former employer wished to engage in activity which breached various statutes of this country, then they would not hesitate to do so. I therefore agreed to inspect the bank’s discovered documents and if I was satisfied that the bank had defrauded their clients, then I would definitely agree to act as a consultant. My services were initially engaged to report on the adequacy of the bank’s discovery.

My initial inspection of the bank’s documents consisted principally of National Australia Bank file documents raised in the name of their clients as well as the strawberry farm vendor, Jeffrey Robert Cardell. It didn’t take me too long to realise that the defendant bank had failed to discover numerous documents. More importantly I was able to form the view at that early stage that the Somersets and their companies were defrauded by the bank through the preliminary actions of bank manager, Casper Gunn.

I raised reports for the Somersets’ solicitors, listing all documents which I believe came into existence which were held by the bank at some stage in either customer file or general files. In this exercise I was assisted by the fact that the bank had discovered both its General and Lending staff instruction manuals. The instructing solicitors had seen fit to photocopy what they considered to be the relevant sections which may assist in the litigation.

Assistance was also gained by the fact that the defendant bank’s documents discovered in Federal Court of Australia litigation, Salvatore and Francesca Nobile -v- The National Australia Bank, were made available for reference purposes. The National Australia Bank lost this action.

During the six week period to December 1987, I was aware that considerable correspondence had been raised and addressed to the bank’s solicitors with respect to the inadequacy of their client’s discovery. I sighted some of this correspondence.

In late December or early January 1988, the Somersets’ solicitors handed to me a transcript copy of Federal Court directions hearing held on the 14th December 1987 which was spread over thirty five pages. The Somersets’ Junior Counsel pointed out to his Honour the shortfalls in the bank’s discovery. The bank was represented at the bar table by its instructing solicitor. He adopted a virtual total rebuttal approach and at the same time informed His Honour that bank manager Gunn was present in the Court.

As soon as I read the transcript I realised immediately that the bank’s solicitor was deceiving His Honour with his bar table statements; they were false in every respect. My long banking career underpinned this conclusion. As a consequence I raised a special report for the instructing solicitors illustrating how misleading and deceptive were the statements made from the bar table by the bank’s instructing solicitors and they were numerous.

An issue of considerable import was the status of the account of Gunnadoo Enterprises conducted with the Respondent Bank when the registered proprietor was strawberry farm property vendor, Jeffrey Robert Cardell. The bank’s instructing solicitor informed His Honour that the banking account in question, viz., Gunnadoo Enterprises, was never an irregular account. (A state of irregularity exists where the liabilities of a customer exceed the approved facility by a $1 or more; are current when the approved facility has expired; are $1 or more if no facility approved.) He followed these remarks by saying allegations as to account irregularity as raised in the affidavit content of the Somersets’ solicitors did not apply and were therefore incorrect.

My research revealed that bank records which came into being during 1984 would reveal that the Gunnadoo Enterprises banking account had been irregular for 352 days and that, during the period from the 29th February 1984 to 27th September 1984, the account had been irregular for 65% of the time. I described the account from a banking point of view as one which was chronically irregular.

Accounts which are conducted on this basis are subject to mandatory special reporting by the branch manager to his State Administration. No reports titled Customers Liabilities Irregular had been discovered by the bank.

The Respondent Bank’s solicitor did acknowledge to His Honour that a certain document may have come into his client’s possession; however it was not a kept document and had therefore been destroyed. The Respondent’s General Manual, sub-section Record Retention, stated that Customer files were to be retained for a period of seven years while all bank records were to be retained indefinitely once the bank became aware that it was involved in a legal dispute.

It was clear to me at that early stage that my former employer was treating its obligations with respect to court discovery process with contempt.

Automatic confirmation of this was gleaned when it was realised that a bank computer generated document known as a Limit Enquiry - Summary of Account Activity had not been discovered. This printout document, of which there should have been several, contained two vital statistics – namely, account turnover and the number of days irregular for the past twelve months. (Refer exhibit ‘A’.)

The Federal Court directions hearing dealt with over twenty separate types of bank documentation which had been raised in correspondence between the two solicitors. The Respondent solicitors’ explanations were totally unsatisfactory. It was obvious that the bank through their solicitors were bringing their bag of dirty tricks into play.

The instructing solicitor endeavoured to extricate his client from the mire by informing His Honour “I have brought Mr Gunn the branch manager down; I have had a conference with him most of the day”. His Honour responded by informing those present “it is plain in the conversations that I have had that I regard discovery very much as a matter of professional responsibility”. His Honour issued further orders that the aspect of further and better discovery on the Respondent Bank’s part was to be investigated further.

There was one particular matter which I brought to the notice of the Somersets’ solicitors. This was the importance of Delegated Lending Authority as it applied to Branch Manager Gunn and his Regional Manager, Brian Dick. In my view the litigation revolved heavily around banking procedure. Discovery of the appropriate documentation regarding the Delegated Lending Authority could possibly reveal whether there had been any type of manipulation – in the circumstances with respect to Gunn’s manipulation of market valuation of the bank’s securities. (Refer exhibit ‘B’.)

Pending the outcome of future developments regarding further and better discovery by the bank, I had come to the end of my original assignment. The Somersets’ solicitors sought my opinion as to how I saw the situation from their clients’ point of view. I told them that, in my opinion, their clients were most likely to be gazumped unless they put me in the witness box. I considered from the evidence available it represented all the hallmarks of a mammoth fraud perpetrated by bank employees and, at the same time, the bank’s administration had decided to condone the actions of their employees so implicated. The circumstances all conspired to the disadvantage of the plaintiffs, compounded by the environment of comprehensive ignorance by the judiciary of ordinary banking procedures.

I was informed that my direct involvement as a witness for their clients was not possible. The trial process was by way of affidavit and, if an affidavit with myself as deponent was raised and filed, the bank would seek an adjournment as the trial date had been set down.

The current status of their clients’ litigation was such that it was being funded by legal aid. Raising such an affidavit would certainly have the effect of bringing on a directions hearing by the bank’s solicitors with the aim of seeking an adjournment of the trial hearing date. This would be granted. Cost of this trial postponement would be for their client’s account and there was no funding available to cover this. I was not in a position to make any commentary in this regard. (Some years down the track after the Somersets’ litigation had come to a tragic end and their appeal to the High Court of Australia was dismissed, I told Mrs Somerset the substance of these discussions which had taken place in January 1988. Mrs Somerset informed me that what I had been told by her solicitors was incorrect. The fact was that their litigation cost all up was approximately $800,000. Of this amount, she and her husband had paid her solicitors just on $400,000 with the balance being met by Legal Aid.)

Gunn’s first Customer Interview Record of his first meeting with the Somersets was raised under the date of 8th November 1984. (Refer exhibit ‘C’.) Customer title of this document was E J R Pastoral Company Pty Ltd, the Somersets’ business operating company. Gunn’s affidavit deposed to the fact that he denied conducting interviews with Edward P Somerset on the 30th October 1984 and 1st November 1984.

I had strong reservations as to whether this diary record of Gunn’s was genuine or whether it represented a reconstruction. This document recorded the details of the Somersets’ desires to bid for the Glenhaven property at auction. Gunn gave the Somersets a five leaf cheque book and told them that they could bid up to $300,000 for the property. What he was saying meant that the bank had approved a line of credit facility to the extent of $300,000.

Gunn records in his Customer Interview Record “I have taken from them their S/P (Statement of Position) which shows a net asset position of in excess of $1m.” This clearly indicated to me that this was another factor in support of Edward P Somerset’s contention that he had interviews with Gunn on the 30th October 1984, 1st November 1984 and the 6th November 1984.

Gunn’s Regional Manager, Brian Dick, added an addendum to Gunn’s Customer Interview Record of the 8th November 1984 which stated ‘Against adequate security cover including the James Street Town Houses.” (Town Houses were eight in number in Mrs Somerset’s name solely.) The Statement of Position signed by her husband on the 6th November 1984 recorded under the heading of Owner’s Estimate of Market Value extended at $640,000 while the offsetting liability was extended at $340,000. (Refer exhibit ‘D’.)

The fact was that Gunn never included, in his Line of Credit Application dated 26th November, Mrs Somerset’s Town Houses as proposed collateral security. If the Regional Manager’s raised addendum date is correct, namely 22nd November 1984, Gunn has blatantly disregarded his superior’s instructions. This type of behaviour is a sackable offence in my view and one can be reasonably confident that Dick has realised belatedly that there is a catastrophe in the making and he is trying later to cover his tracks.

My examination of the Jeffrey R Cardell trading as Gunnadoo Enterprises bank file revealed that at no stage in any given twelve month period accruing in 1984 did turnover of the strawberry farm exceed $180,000 per annum.

This figure has to be contrasted with the initial figures given to Gunn by E P Somerset on the 1st November 1984 as per his handwritten statement headed, Proposed Movement of Account. This document recorded Estimated Net Income for the period 1st November 1984 to 30th June 1985 was $240,000 - for an eight month period. Gunn knew from the outset that this figure was preposterous. He knew in reality the Somersets never had an acceptable proposition. What he did have was a chronically bad account, and a potential customer of sufficient means who could be used to clear it at any cost.

What was predominantly to the forefront in Gunn’ mind when he came into contact with Edward P Somerset on the 30th October 1984 was the fact that he had permitted the indebtedness in the name of vendor Jeffrey R Cardell trading as Gunnadoo Enterprises to escalate to such a level that sale of bank security could only solve the problem. This was done contrary to instructions raised by Gunn’s superiors and contained on the file.

If vendor Cardell had not obtained a positive outcome by 31st October 1984, then the bank would have resorted to selling Cardell’s Bank securities as mortgagees in possession. If this had eventuated, Gunn’s career promotional aspects would have been in jeopardy.

The simple fact was that Gunn had permitted the indebtedness in the name of strawberry farm vendor Jeffrey R Cardell to escalate from $180,000 in February 1984 when he assumed control of 441 Ruthven Street Branch to $240,000.

Cardell had never been able to demonstrate that he could service his commitments over the past two years and had now reached a situation where his current facility with his bankers was Bridging. This meant that he was at the end of the line, meaning that the strawberry farm had to be sold. There was no option.

There were other critical matters which were revealed in the examination of the bank’s documents. A bank form titled Statement of Position signed by Edward P Somerset on the 6th November 1984 was discovered by the bank bearing the date 26th November 1984. (Refer exhibit ‘D’.) This document was prepared by Gunn’s Manager’s Clerk and recorded details of Mr & Mrs Somersets’ Assets and Liabilities.

This document was not prepared in the Somersets’ presence and the details recorded thereon could only have been taken from the document which Edward P Somerset handed to Gunn on the 1st November 1984. A naked eye inspection of the document gives the clear impression that the “2” appearing before the “6” indicated that the “2” was inserted sometime after the Manager’s Clerk’s writing of “6/11/84” was originally written on the document.

Further examination of bank documents revealed that some forms known as Security Schedules which formed part of Gunn’s Line of Credit of Credit Application dated 26th November 1984 bore varying dates. These dates were 16th November 1984 and 26th November 1984. Under magnification the “1” and “2” were slightly out of alignment. On the Statement of Position prepared by Gunn’s Manager’s Clerk under the sub-heading “Other Property”, he recorded “Gunnadoo” Toowoomba $625,000. The fact was that the Somersets purchased Gunnadoo for $310,000 as per the foregoing sub-heading. In addition they signed a Business Contract for $315,000.

The apportionment split up as detailed in the Business Contract recorded “Goodwill and strawberry plants $250,000.00.” Gunn’s Manager’s Clerk should have known, Gunn most definitely would have, that special provision was in the Bank’s Statement of Position document for Goodwill and was listed as “Goodwill of Business Est. $ …….”. The amount so inserted was not to be extended to the column under sub-heading “Owners Estimate of Market Value $”. In other words no figure for good will could ever have a market value for lending purposes under National Australia Bank lending policy.

On the 12th November 1984, Mr & Mrs Somerset called on Gunn to inform him that they had purchased the Glenhaven property at auction for $320,000. This figure represented an increase amounting to $35,000 on their previous contract to purchase which had lapsed.

Gunn’s Customer Interview Record raised under this date informs the reader that the Somersets’ company will require a Bills Acceptance & Discount Facility for $300,000. Gunn went on to further state that if his new customers were unsuccessful in seeking overseas loan finance, they would look to the bank to borrow $750,000.

Gunn goes on to say that these customers have sold the lease of the Glasshouse to be erected for growing strawberries hydroponically for $20,000. Gunn proceeds to instruct his Loans Officer to put forward a proposition for Bills at $300,000 for Mr Dick’s approval.

Gunn knew full well that his reference to “Overseas Loan” in his Customer Interview Record of the 12th November 1984 was to instill in the Somersets’ minds that everything that had taken place to date was above board and totally legitimate in every respect.

The “Overseas Loan” statement was simply a charade because the Somersets could never comply with the stringent loan to security margin lending requirements. Gunn was well aware that the true market value of the strawberry farm for bank security lending purposes could not possibly exceed $310,000. Gunn’s new customers had paid the exorbitant figure of $625,000. In others words a future loan application incorporating foreign currency would never have stacked up.

My perception of the situation at the time the Line of Credit Application for $300,000 was submitted for approval was simply a ruse on Gunn’s part to lock his clients into a financial relationship by obtaining a formal commitment from his superiors.

The fact was that a limit of $300,000 was totally inadequate from the Somersets’ point of view because they were committed to meet known additional expenditure upwards of $225,000. Gunn was completely aware of this. He knew that arrangements were in hand to erect a glasshouse on the strawberry farm at an approximate cost of $100,000 for hydroponic strawberry production; a further $125,000 was required to payout mortgagee Cardell on the 31st January 1985, while there was an immediate need to make provision for stamp duty, legals, etc., plus carry-on expenses.

Gunn never raised a formal letter of approval to let the Somersets know what the terms and conditions of the $300,000 were. What was also strange was the fact that Gunn’s Customer Interview Record of the 12th November 1984 told his Loans Officer “You have already obtained a second mortgage on the Gunnadoo property together with a Guarantee”. Bank records indicated that Gunn’s quoted statement was false. Another situation which gives rise to the question, is this another reconstructed bank record? The Somersets confirmed to me that they signed no bank security documents until March 1985.

During my discussions with the instructing solicitors, I informed them that Bank employee William J Overs, a Regional Lending Manager, held inside knowledge of what transpired up until the approval of Gunn’s Line of Credit Application for $300,000 dated 26th November 1984. Regional Lending Manager Overs had warned Gunn in his Memorandum dated 27th August 1984 when he said “and submit revised values together with detailed comments to support any increases (i.e. apart from the valuation by a registered valuer which must be treated with some caution so far as we are concerned and our values assessed in the light of a verified market indicators).” (Refer exhibit ‘E’.) The fact was that Overs would have been well aware of Gunn’s most recent valuation of the strawberry farm; placing a Market Value amounting to $475,000 was totally preposterous. There were no recorded improvements.

Overs would have been able to recollect that this figure was substantially in excess when the security schedule recording Gunn’s recently increased Market Value came across his office table. His research would have revealed that Gunn has increased the Market Value by 126% in the space of seventy three days from 11th September 1984 to 22nd November 1984. Gunn had already increased the Market Value by $50,000 to $260,000 on the 11th September 1984 and now he is increasing the value by a further $215,000. Overs would have simply said to himself “what is going on here, I do not want a bar of this, this is ludicrous.” (Refer exhibits ‘F1’ & ‘F2’). Overs was known in banking circles to be a man of high integrity and a first class banker. It is my view that he most certainly would not have been prepared to accept this Line of Credit Application with Gunn’s strawberry farm valuation on a “as is” basis.

My foregoing conclusion is confirmed by the fact that Gunn has been forced to raise an Internal Memo – Lending addressed to Regional Operations dated 10th December 1984 under the heading “Line of Credit Application - Commercial Edward Plantagenet Somerset and Elsie Joy Somerset, reference Application dated 26.11.84”. (Refer exhibit ‘G’.) The subject heading does not record any communication reference as to why Gunn has been forced to raise this Memorandum. This clearly indicates to me that Regional Lending Manager Overs, whose responsibility it was to formally approve this Application, considers that there are major inadequacies therein. Overs knows full well that the Application is tainted and might well be described as a “hot potato”. Overs would also be cognisant of the fact that if the Somersets were declared bad and doubtful in due course following his approval, then he could well be called upon to submit a Letter of Explanation to his superiors as to why he approved Gunn’s Line of Credit Application. Dire circumstances may have eventuated for Overs because there were serious implications surrounding Gunn’s Line of Credit Application.

Gunn’s Internal Memorandum saw fit to highlight the under mentioned statements:

Applicants were previously customers of the A.N.Z. Bank but have been let down by the fact that they claim they can never see the Manager and were always dealt with by junior staff.

My comment: this is a blatant lie.

The $500,000 paid by way of deposit has cleared our debt of $240,000 in the name of J R Cardell trading as “Gunnadoo Enterprises”.

My comment: what Gunn omitted to say was the fact that the $240,000 debt was in bridging mode and if the indebtedness was not cleared by the 31st October 1984, then the bank would have commenced sale of securities as mortgagees in possession. Gunn had personally placed the bank in this predicament and J R Cardell had a friendly relationship with Gunn.

Because of the need for urgency proposition was placed before Mr Dick (Regional Manager) who gave his approval.

My Comment: This statement is correct; however one wonders, why didn’t Dick give his formal consent to Gunn’s Line of Credit Application? The fact was that Dick knew full well that Gunn had deceived the Somersets and he wished to distance himself from the Application.

Security is quite safe on a Category “A” basis. We believe that the price paid $625,000 was somewhat high for the property as is.

My comment: Gunn’s statement regarding price paid is highly deceiving. Firstly he does not disclose to his superiors that purchase of Gunnadoo was represented by two contracts and the purchase of the property was $310,000. Gunn’s Line of Credit Application records that he placed a market value amounting to $575,000 on Gunnadoo. What this indicates is that Gunn has defrauded both his employer - he has failed to protect their good name - and the Somersets as well. Gunn’s Application at this time was Category “C”, meaning that it was unsecured. (This property was eventually sold by the Bank as mortgagees in possession on 01/09/89 for $165,000.)

It will be seen that Gunn emphasises the fact that “Security is quite safe on a Category A” basis. Gunn has been able to record a Category “A” rating simply because he has placed inflated Market Values on the strawberry farm security. The reason why Gunn has emphasised the “Category A” factor is because he has improved the rating of his Line of Credit Application by altering same from “B” to “A”. (Refer exhibit ‘H’.)

Examination of the bank’s document known as Line of Credit Application – Commercial dated 26th November 1984 reveals that the Lending Category recorded the typed in rating as “B”. The “B” rating has been crossed out by Gunn with “A” inserted. These amendments are in Gunn’s own handwriting. On this same document Gunn has amended B/V figure for this security under the sub-heading, Securities: Summary from $201,400 to $281,400. This amendment is in Gunn’s handwriting once again. What this indicates is that, most likely, the Regional Manager, Mr Overs, has returned Gunn’s Line of Credit Application to the branch and most probably advised him that it is not acceptable in its present form by virtue of its Category “B” rating.

Gunn realises that the only way that he can get his Somerset Line of Credit Application approved is to increase the Market Value of the strawberry farm by $100,000 to $575,000. (Refer exhibit ‘F2’.) He justifies that this is OK in his own mind because $100,000 and upwards is going to be spent on a Glasshouse in which it is intended to grow strawberries hydroponically. Firstly these improvements were not part of bank security and secondly he failed to disclose the true situation to the bank’s administration.

Debt is to be cleared from overseas loan, said to be arranged, or from sale of 6 strata title units which are to be marketed shortly. (Gunn’s Memorandum to his superiors 10/12/1984, Refer exhibit ‘G’.)

My comment: the “overseas loan” refinance is a complete furphy on Gunn’s part. Gunn raised this issue with the Somersets to present a false picture of the position and he has now told a blatant lie to his superiors because he knows full well that Overseas Loan Refinance is a complete impossibility. Deception once again. At this point in time, Gunn had never discussed with Mrs Somerset the aspect of selling her strata title units. Two units would never be sold because Mr & Mrs Somerset would reside in one, while her elderly father would reside in the other.

They have purchased “Gunnadoo” strawberry farm as a cash flow business, In the meantime serviceability should not present any problems as the cash flow from the strawberry farm has been confirmed at $50,000 per month as is. (Refer exhibit ‘G’.)

My comment: Gunn’s first statement is certainly correct; however he knew that the “$50,000 per month as is” was simply ludicrous. It was an action of deceit of the highest order. Gunn’s state of mind was such that he would have been able to immediately acknowledge that the bank’s file in vendor J R Cardell’s name would have recorded therein that gross turnover in any twelve month period to 30th September 1984 never exceeded $180,000. With $50,000 per month extending to $600,000 per annum, it was not only deceitful, it was fraudulent in the circumstances.

The extent of the in depth commentary which Gunn has been forced to raise in his Internal Lending Memo dated 10th December 1984 indicates that he was endeavouring to refrain from commenting on pertinent facts which should have been included in his General Report Document. A General Report is a document which forms part of a Line of Credit Application. There is nearly always a need to raise such a document because the standard bank forms which incorporate a Line of Credit Application contain insufficient space for supplementary comment. I also suspect that the contents of Gunn’s General Report which did form part of his Line of Credit Application contained information which he may not have been able to substantiate to the bank’s administration if called upon.

The reason I use the word duplicitous is because the Respondent Bank did not discover this General Report which formed part of his Line of Credit Application dated 26th November 1984. (Refer exhibit ‘I’.) A bank printed stationery item known as a Credit Assessment Review which forms part of this Line of Credit Application   a discovered document   records in Gunn’s handwriting in the section titled Established Income Capacity the words “See General report”. Despite repeated requests in pre-trial discovery matters to discover this document, it was never discovered by the bank. I would suggest that this document was extremely vital to the Somersets’ cause. Non-discovery clearly indicates that the bank has something to hide.

Following receipt of this Internal Memorandum - Lending of the 10th December 1984, Regional Lending Manager Overs formally approved Gunn’s Line of Credit Application under date of 12th December 1984. Overs approval formally locked the bank into advancing $300,000; it indirectly had the effect of also locking the bank into advancing further monies to the extent of $225,000 taking the maximum sought by the Somersets to $525,000.

I asked the instructing solicitors if I could meet their clients as I thought that it may be of assistance if I could get their response to several matters which I needed to clarify. This meeting took place about mid-January and I was introduced as Consultant “A”. Formal introduction did not take place until during the trial. I never was to learn the reason why I was not formally introduced at the initial meeting.

The Somersets advised me that during the months of December 1984 and January 1985, they had several interviews with Gunn wherein the common inquiry was, when will Bank security documents be ready for signature so that settlements for Gunnadoo and Glenhaven take place? They were always fobbed off with some obscure reason by Gunn. Gunn was able to do this because he knew that he was proceeding on annual leave in the first week of February 1985 and he could place the whole mess in the lap of his Relieving Manager.

Edward P Somerset informed me that he was forced more or less to call at the Bank about every second working day while Gunn was on annual leave. Relieving Bank Manager Patrick Albion informed him that there was no relevant information on the file and he had to start from scratch. This meant that Gunn had culled the Somerset file and extricated all incriminating evidence.

A vital issue I wished to discuss with the Somersets was what had transpired at the Gunnadoo settlement. Bank discovered documents revealed that the bank had released its first and second registered mortgages over the Gunnadoo certificate of title well before E P Somerset had his initial interview with Gunn on the 30th October 1984. This had been done at the written request of registered proprietor, Jeffrey R Cardell, after the sale of the property was subject to a cash contract where the MacDonalds were the purchasers. These released mortgage documents would have remained in the bank’s possession unregistered until the aggregate Cardell indebtedness had been repaid. Repayment could not possibly have taken place prior to the 1st November 1984. The Cardell/Somerset property contract was signed on the 2nd November 1984 and recorded encumbrances as Nil. What this meant is that the relative Certificate of Title would have been endorsed to the fact that there were two registered mortgages in existence and a title search at any time would have recorded this.

I asked the Somersets if their Toowoomba solicitor had instituted a search of the title deed. They told me that they were under the impression that he did so some time during the preceding weeks when they were considering providing finance with respect to the MacDonald contract. If it had been the case, of course, the registered mortgages would have been revealed.

Mrs Somerset had attended many settlements with respect to their property dealings over the years and always sought production of the certificate of title. She was informed by the vendor’s solicitor that she was not entitled to same. This was incorrect; it was a vital part of settlement procedure that the certificate of title be produced for inspection. If the certificate of title had been produced, the Somersets would have been able to discover an outcome that would have disclosed the charade played to date by vendor Cardell and his co-conspirator bank manager Gunn.

I suspect that, at the time of settlement on the 2nd November 1984, indebtedness in Cardell’s name had not been cleared by the bank because Edward P Somerset issued his initial cheque for $500,000 representing consideration in full for the Business Contract with the balance going towards deposit applicable to the property contract. This cheque was dishonoured by the bank. He had inadvertently drawn this cheque on the incorrect account. His original cheque was drawn at 5.30pm on the 1st November, was subsequently dishonoured and a replacement on the correct account issued.

Search at the Real Property Office reveals that the Registrar did not register the release of the two bank mortgages until the 29th January 1985.

What was the Somersets’ Toowoomba solicitor doing in this whole exercise? Has he acted responsibly in accordance with his profession’s standards? I contacted this legal person who continues to practice and, of course, after nearly twenty years cannot recollect actuality. One matter which he does recall with clarity is the fact that, when he joined in the settlement process, Mrs Somerset was very upset due to the fact that the Gunnadoo strawberry farm Certificate of Title had not been produced.

Once the National Australia Bank had released its mortgages, they would have considered that their security was held in escrow. However it was the policy of the day that as soon as it became known to Gunn that the MacDonald cash contracts had lapsed, Gunn should have approached Cardell immediately and have him execute fresh mortgages.

My interview with Mr & Mrs Somerset lasted about ninety minutes.

The instructing solicitors asked me if I could raise reports on any subject which I considered appropriate. I did so and other matters which I believed to be of relevance, especially any matters which would give rise to the fact that Edward P Somerset had his first and second interviews with bank manager Gunn on the 30th October and the 1st November 1984. I was also requested to examine Customer Interview Records carefully to ensure that they were genuine and did not represent a reconstruction.

By the end of January 1985 I considered it to be a distinct possibility that Gunn’s Line of Credit Application, discovered under date of the 26th November 1984, was an amended date with the original bearing the date of 6th November 1984. As previously stated, Edward P Somerset signed bank form Statement of Position on the 6th November 1984 while security schedules which accompanied his Line of Credit Application bore dates of either the 26th November 1984 or the 16th November 1984. Other bank discovered documents indicated that a reconstruction was a distinct possibility.

Before Gunn proceeded on annual leave in early February 1985, his main aim during the past three months had been to continue to present a charade to the Somersets so as to ensure that they never got wind of the deception until such time as settlement involving the two properties took place, viz., Gunnadoo and Glenhaven. Gunn was very successful in doing this and he was able to crystallise his aims by virtue of the fact that he was proceeding on annual leave. In doing so he could dump the catastrophic situation in which he had placed his employer into the lap of the bank’s relieving manager.

The Somersets’ second Gunnadoo settlement represented the payout to vendor Cardell who was carrying a first mortgage on the property at the level of $125,000. The National Australia Bank would need to obtain the Certificate of Title at settlement together with the release of the existing mortgages. While bank records indicate that the first mortgage to Cardell was to be registered, no such registration was recorded in the Titles Office Records. The Somersets, as well as their solicitor of the day, cannot recall whether mortgage documents were ever executed.

Contract for the Glenhaven property purchased at auction on the 9th November 1984 called for settlement on the 10th proximo. Settlement did not then take place due to the fact that an outstanding South Queensland Electricity Board requisition had not been attended to by the National Bank as mortgagees in possession. The bank’s discovered documents revealed that they were aware of this requisition at the time of the auction, however considered there was a need on their part to conceal same. By mid-January 1985 the Somersets had been continually pressing Gunn, when would the Bank be ready for settlement?

During my discussions with the instructing solicitors in January and February 1988, I informed them that, as far as I was concerned, the fraud so perpetrated was represented by three issues:

  1. (a) it was patently obvious that the bank files of their clients and Jeffrey Robert Cardell had been culled so as to remove all incriminating evidence with the aim of deceiving their opponents. I strongly believed that the Somersets’ version of events was correct, particularly the fact that Edward P Somerset had kept his interview appointments with bank manager Gunn on the 30th October 1984 and the 1st November 1984.

  2. (b) bank manager Gunn had manipulated the Market Value of the Gunnadoo strawberry farm which was the Bank’s principal security.

  3. (c) The representations made by Gunn to induce the Somersets to purchase the strawberry farm were simply a case of mammoth deception.


The facts were that Gunn had increased the Market Value of the strawberry farm for security lending purposes from $210,000 to $575,000 during the period from September 1984 to February 1985. There were no acknowledged improvements to bank security during this period. Policy procedure re security valuation was clearly defined in the bank’s lending manual which stated, viz.: “Market Value is the currently realisable value of the asset on a sale basis (where both buyer and seller would be willing participants). A margin is deducted as a contingency against realisation under adverse conditions to arrive at a Bank Value. The amount of credit facilities must not be taken into account in assessing values.” (Refer exhibit ‘B’.) The property sale contract executed by the Somersets recorded consideration at $310,000.

Not only did Gunn fraudulently manipulate his security values of bank security to be, he also saw fit to double the area on his Gunnadoo strawberry farm security schedule from two hectares to four hectares. (Refer exhibits ‘F1’ and ‘F2’.) This is another instance of blatant deception on Gunn’s part; he feels the need to resort to any lengths to ensure that his Line of Credit Application is approved in due course. It must be remembered that, at all times, Gunn had the support of his Regional Manager, Brian Dick. (Gunn did not insert the correct area description of two hectares on Bank documents until 20th November 1985.)

I pointed out to the Somersets’ solicitors that Relieving Bank Manager Patrick Albion had raised no Customer Interview Records concerning the Somersets’ interviews with him, of which there were many. Albion had raised Customer Interview Records concerning telephone discussions. I also told them that I had known Albion for many years as well as Victor Caplick whose name appeared on bank discovered documents. I was requested to contact them and glean whatever information I could.

I telephoned Victor Caplick and he informed me that it was the practice at Gunn’s branch to prepare customer interview records in at least duplicate, with the original to be placed on the customer’s file. The duplicate was known as ‘duplicate running sheets’ which were placed in a diary binder. This was a major point of interest because the bank had not discovered any duplicate running sheet copies.

I telephoned Patrick Albion sometime in January 1988. After initially discussing matters of personal interest, I informed him of my consultancy status and asked him would he be prepared to discuss the Somerset saga with me if I travelled to Toowoomba. He agreed and the meeting took place at the Shamrock Motel on the 1st February 1988.

Relieving manager Albion’s first Line of Credit Application dated 13th February 1985 was submitted for $915,000 which made provision for payout of amount owing to Esanda at $340,000 representing strata title unit construction in Mrs E J Somerset’s name. This Application was declined.

In his Fate (i.e. Decision) Memorandum, Senior Lending Manager Broad responded by saying “we are committed to advance $300,000.00” and sought clarification on many issues. He pointed out that that takeover of Esanda debt was not attractive. He left the way open for resubmission at a reduced commitment. As a result, Albion submitted a fresh Line of Credit Application dated 26th February 1985 for $575,000 which was approved on the following basis:

  1. (a) $225,000 in the name of Kabwand Pty Ltd with monthly repayments at $5189.00

  2. (b) $230,000 in the name of EJ & EP Somerset with monthly repayments at $5260.00

  3. (c) $120,000 in the name of Elsie J Somerset with clearance in full by 28th February 1986


A Cash Flow Budget for the period 1st March 1985 to 28th February 1986 accompanied the Line of Credit Application recorded the anticipated income:


Strawberries

$640,000 per annum

Runners

$12,000 per annum

Rentals hydroponic shed

$22,000 per annum

Sales strawberries from leased crops

$500,000 per annum

TOTAL

$1,174,000 per annum


When it is realised that the strawberry farm’s turnover never reached $180,000 per annum in any given twelve month period to 30th September 1984, the cash flow projected details above become totally phony; any banker of status would have to wonder “what is going on here?” if he had the facts before him. The bank’s Lending Manual of the day specifically stated:

The resolving of question on cash flow properly considered, is virtually the keystone of a lending proposition. The provision of a sound cash flow budget, CAREFULLY CHECKED AGAINST PAST PERFORMANCE, is a necessary requirement in assessing both soundness of purpose and viability of repayment program for businesses. (Refer exhibit ‘J’.)

The duplicity of the cash flow projections are highlighted by the paucity of the outcome – Somersets’ accountants prepared financial statements for the strawberry farm which recorded gross income from 1st November 1984 to 17th December 1985 at $139,985.39.

Settlement for both Gunnadoo and Glenhaven took place in the latter part of March 1985, and Loans (a), (b) and (c), as mentioned above, were created and drawn. With respect to Instalment Loans (a) and (b), four and three payments were made respectively, aggregating $22,536. Sometime after the Somersets’ litigation was finalised, I asked them where these monies originated. The response was “from private resources”.

There is one very interesting point to highlight concerning Albion’s Line of Credit Application for $575,000. It contained a supporting addendum signed by Regional Manager Dick which stated, “They have past records to prove the outdoor production.” Dick was completely aware that his statement was deceptive in the extreme. His written instructions to his branch manager in January 1984 were, “For lack of alternative, we are there now, however absolutely no more and sale or refinance by expiry to be a definite obligation”. These were Dick’s approval comments on his branch manager’s Line of Credit Application for $180,000 dated 4th Jan 1984. (Refer exhibit ‘K’.)

At the meeting with Pat Albion on the 1st February 1988, the instructing solicitors told me to stress the following facts to Mr Albion, viz. “an injustice has been done and your reputation is first class; you are now a witness of the court and must eventually answer all questions”. I was also requested to specifically ask him, “did he raise any Customer Interview Records with respect to the numerous interviews he conducted with the Somersets?” and “would he be prepared to give a statement to the Somersets’ instructing solicitors?”

He informed me that he did raise Customer Interview Records and from recollection it was at least two to three. The bank’s solicitors prepared his affidavit and he did not read same before signing. Initially there was a distinct air of tenseness; however Albion relaxed as the interview progressed.

Albion told me that when he initially inspected the Somerset file following commencement of his relieving managerial duties, he found it exceptionally strange that the file was bereft of documentation, documentation which he would normally have expected to be on the file since there was a bank commitment amounting to $300,000 approved already on behalf of the Somersets. What this meant was that Albion had to start from scratch to prepare a Line of Credit Application for submission to his Administration on behalf of the Somersets because Gunn had told the Somersets that the bank was prepared to consider further assistance.

This is confirmed by the contents of Gunn’s Customer Interview Record of 18th January 1985, compiled following an interview he had with Edward P Somerset. He stated therein that the bank will consider advancing a further $200,000 pending his ability to rearrange his finances. This typewriter raised record has a handwritten amendment to the figure of $200,000 reducing same to $190,000 should we suspect. This was undoubtedly done by Gunn to ensure in due course that a Line of Credit Application for $490,000 would come within the Delegated Lending Authority of his Regional Manager, Brian Dick. Gunn most assuredly wanted to contain and restrict details of his Somersets’ catastrophe to the knowledge of his Regional Manager, certainly for the time being.

Gunn would have readily perceived the situation that a Bills Facility at $500,000 would place the proposition outside the Regional Manager’s Delegated Lending Authority as it stood. Gunn had simply solved this by increasing the Market Value for lending purposes of the strawberry farm by $100,000 to $575,000. To do this, Gunn needed to justify that improvements had taken place to this value extent. There was no evidence in any bank documentation that improvements to bank security had taken place in any form.

Bank documentation indicated that Gunn inspected the strawberry farm on the 30th January 1985 so as to authorise and formalise an increase in Market Value to $575,000. This was done on the last day before Gunn proceeded on annual leave. The Somersets advised me some time down the track that Gunn never called at the property to carry out any inspection confirming improvements to bank security.

Gunn was doing his utmost to conceal the truth and, in doing so, engaged in acts of deception not only towards his employer but also to his fellow employees. Gunn was endeavouring to place responsibility for the “Somerset fiasco” on to the shoulders of Albion. This view was enforced by the fact that when I spoke to Victor Caplick he had no hesitation in informing me that he and his fellow employees believed that the “Somerset fiasco” was of Albion‘s making.

Albion informed me that he would telephone me in a few days time on the question of providing a statement. He did so and advised that he was not in a position to assist us. As far as the personal situation was with his former employer, he told me that “he was protected”. When I asked him who had told him to say that and what it meant, he refused to respond. I passed on all detail of my discussions, etc. with Albion and Caplick to the Somersets’ solicitors immediately.

The series of events and the litigation relied heavily upon banking procedure. The non-discovery of vital bank documents clearly indicated that the Respondent Bank was engaged in deceit at its highest level.

I was astounded as to what had taken place from my former employer’s point of view, so much so that I recommended to the instructing solicitors that they endeavour to seek the opinion of other retired National Australia Bank Managers. They did so and were successful in engaging the services of two retired managers. They were asked to examine bank discovered documents, etc. and some of my reports which I raised on specific issues. They unanimously came to the same conclusions as myself and also raised other points of interest.

Counsel for the Somersets decided that the further and better discovery issue should be pursued and it was decided that I would depose to certain issues by way of affidavit. Consultant “B” would also depose to certain issues and at the same time would concur in principle with the contents of my affidavit. (Mr & Mrs Somerset were informed by their instructing solicitors that they had progressively engaged the services of consultants; however our names were not revealed and were to be known to them as Consultants “A”, “B” and “C”). These three Consultants together held just on one hundred years employment with the National Australia Bank, of which approximately half was employed at managerial level.

A special court hearing was to be brought on following filing of the two affidavits. The involving issues were heard before His Honour on the 11th February 1988 which was four days before the trial proper commenced on the 15th February. His Honour enlightened those present by bench comment “are we going to have a banking spycatcher are we?” My affidavit dealt with non and partial discovery only of Bank documents known as “Limit Enquiry -Summary of Account Activity”, “Managers’ Watch Lists”, “Delegated Lending Authority”, “Irregular Account Returns” and various memoranda as well as dealing with the conduct of Gunnadoo Enterprises account maintained by Jeffrey Robert Cardell. This account conducted by the Respondent Bank was described as one that was chronically irregular.

There was also the question of account irregularity with respect to the three loan accounts conducted in the Applicants’ names. Exhibited to my affidavit were eleven pages of the Respondent Bank’s documents discovered in Federal Court of Australia G22 Nobile & Ors -v- National Australia Bank litigation. The contents of the two affidavits clearly illustrated that the National Australia Bank was treating court rules of discovery with contempt.

The National Australia Bank’s signatory to certification as to the veracity of discovery of documents rested on the shoulders of its employee, Neville A Clarke, State Securities Officer. Clarke was cross examined and admitted that he relied upon bank manager Casper Gunn to discover all documents because they were under his control and he was a senior manager of the bank. Gunn, of course, was to be the bank’s principal witness.

His Honour concluded the hearing pointing out to counsel for the bank that his clients’ position was unsatisfactory. The Hearing was adjourned and to be continued once again at the commencement of the trial proper before the presiding judge. Time was available for the bank in the interim to investigate discovery matters further.

The bank endeavoured to extricate itself from its discovery deceit predicament with its consequential embarrassment by having a senior employee who previously held the position of Relieving Administrative Officer, Regional Operations, depose to certain procedural issues of his employer. He stated in his affidavit that in the re-organisation of operations to decentralise management, he authorised shredding of certain classes of documents. Types of documents so shredded were listed as “Managers’ Watch Lists”, “Customers’ Liabilities Irregular Returns” and “Limit Enquiry – Summary of Account Activity”. The deposing senior employee of the Bank applied terminology such as “generally” and “may”. There can be no doubt that the wording was cleverly constructed with the aim of legitimising the fact that their intentional destruction of the documents was in order. (Refer affidavit of D W Bartholomew, sworn 12 February 1988 and filed 15 February 1988.)

Bankers can dream up any excuse for any occasion; however my experience indicates that the majority of all this deceitful activity is instigated by the Bank’s legal team. Some five days later the State Securities Officer, Mr Clarke, raised another affidavit regarding bank discovery wherein the contents informed the court that documents previously stated as destroyed were now produced – a prime example of dishonesty.

During the two to three week lead-up period preceding the trial hearing, I participated in meetings with the Somersets’ counsel to discuss aspects of their client’s position and at the same time respond to any questions which may be put to me. At my first meeting when both junior and senior counsel were present, I can distinctly remember senior counsel putting to his junior, “will our pleadings cover this?”. This exchange came about on more than one occasion with the response always being in the affirmative. Junior counsel was emphatic in the affirmative. I did not understand the substance definition of these discussions which were taking place during this period. However I gained the view that senior counsel certainly had strong reservations about the pleadings in their present form. The pleadings incorporated breach of Section 52 of The Trade Practices Act 1974.

When I highlighted the facts surrounding Gunn’s manipulation of his bank security valuation and other vital issues of deception, it seemed to me that there was an inability by counsel to comprehend the application and relevance of these events. If they did comprehend, they were certainly unwilling to do anything about them and it passed my mind, was it too late in the day?

The documentation made available to me and my fellow consultants clearly revealed that Gunn was prepared to go to any lengths to get rid of the troublesome liability in the bank’s books irrespective of cost. Gunn had the apparent ability to induce fellow staff into his conspiracy. Gunn created the problem, despite advice to the contrary, and he was prepared to go to any length to protect his position. The status of the situation under all facets, viz. creation, pursuance, concealment could have only been done with the cooperation of his Regional Manager Dick. That is why I say there was a conspiracy to defraud.

There were five bank employees who were to give evidence in the trial for their employer. Their affidavits consisted of 266 pages in aggregate. Those page contents were principally about bank procedure. Three of those employees, including Gunn and Albion, devoted comment on how they raised Customer Interview Records at the branch. The claimed procedures were all in variance, highlighting that they had fabricated events and were deceiving the court; not one of the employees mentioned the fact that they were all prepared in duplicate and/or triplicate for the permanent bank record.

The contents of the bank employees’ affidavits were clearly drawn up so as to confuse their opponents. Albion did not even read his affidavit before affirmation thereto.

As the day of the trial commencement approached, I had accumulated many more questions in my mind for the Somersets as to how their predicament evolved. When E P Somerset was first interviewed by bank manager Gunn on the 30th October 1984, with his wife, they commanded an asset surplus upwards of one million dollars. E P Somerset could never have envisaged that when he departed from Gunn’s office, they would be virtually destitute in twelve months time. I found it very difficult to comprehend.

My former employer’s intentions were clear: they were proceeding with their involvement in the litigation on a “boots and all” basis (as admitted in their own correspondence). (Refer exhibit ‘L’.) This is exemplified by the partial contents of Regional Manager Dick’s Internal Memo dated 2/4/86 wherein he informs his Lending Controller:

This matter is becoming very messy and quite frankly cost us a lot of money. I am firmly of the opinion that we must act as soon as possible and then pursue him to Bankruptcy and if solicitors advise he or his legal advisors have breached the criminal code to continue litigation in the criminal courts. … This action must be pursued on behalf of the industry, as these people are apparently making a mockery of the law.

This statement of Dick clearly indicates that no stone will be left unturned in the National Australia Bank’s efforts to win the litigation. Dick’s remarks as quoted above indicate a tendency to feign. Dick held the power to stop the fraud on the Somersets from being perpetuated. He did not; he decided to go along with his branch manager’s nefarious activity and conspire to defraud the Somersets. (Refer exhibit ‘M’.)

I considered that the Somersets faced very difficult times ahead.


Chapter 4: The Trial

The trial commenced on the 15th February 1988 before His Honour Justice Neaves, a judge of the Federal Court of Australia who had an interstate base. He had to initially deal with the adjourned proceedings of the 11th February 1988 which related to further and better discovery of the Respondent, the National Australia Bank.

The Somersets’ junior counsel addressed His Honour to inform him that, despite the fact that the Respondent Bank’s counsel had filed further affidavit material re discovery, they still considered their opponent’s discovery to be deficient. Both parties were of the view that the discovery issue should be dealt with and resolved before the trial proper commenced.

The Somersets’ counsel sought approval from His Honour to cross examine the deponent of the most recently filed affidavit as well as the bank’s State Security Officer, N A Clarke, who had previously been subject to cross examination on the 11th instant. His Honour refused this request on both counts.

The bank had extricated itself perfectly from its predicament; the subject content of the most recently filed affidavit was distinctly of the red-herring variety. The bank’s opposing counsel did not possess the necessary expertise to determine the in-depth meaning of the affidavit content. The discovery issue was concluded with the Somersets’ junior counsel informing His Honour, “we are prepared to take this matter on the run, without adjourning the trial”. This consent proved to be a disastrous decision, a gross error of judgement in my opinion. This opinion was to be proved correct. The ‘take it on the run’ agreement was raised on more than one occasion when it came to the Somersets’ bankruptcy litigation.

The trial proper then commenced. I was not present in the courtroom on the opening day, having been instructed in the previous week that my presence was not required in court until bank employees of the Respondent were called to give evidence. As a consequence my appearance in court did not occur until the eighth day of the trial. I was asked to assist counsel by noting any discrepancies in bank employees’ evidence and report accordingly as appropriate. Six National Australia Bank employees were scheduled to give evidence.

Sometime during the second week of the trial Somersets’ instructing solicitors handed to me Diary Binders containing Customer Interview Records to be known as Duplicate Running Sheets which represented copies of all Customer Interview Records raised by branch staff at 441 Ruthven Street Branch of the bank for the years 1984 and 1985. The binders in aggregate comprised just on 1200 pages which included an index. It so transpired that pages were numbered and some of the individual Customer Interview Records were noted with a reference number.

Several years passed before I was told that the two Diary Binders were handed over by the bank’s instructing solicitors in the building stairwell on the first Saturday after trial commencement. This was done without any covering affidavit or correspondence cover. These documents were apparently despatched direct to the bank’s instructing solicitors by a Relieving Bank Manager performing relieving duties at 441 Ruthven Street Branch Toowoomba. The Somersets travelled to Brisbane the next day (Sunday) to inspect these documents. At the time of inspection, they were told by their solicitors that they had inspected these documents and they were all OK. The obvious major points of concern were: had the bank discovered all originals and were the originals which were already discovered exactly the same when compared to those in the Diary Binders.

At the time of my inspection of the Duplicate Running Sheets, I had been informed that at least three individual Customer Interview Records raised by bank manager Gunn differed in content when compared to the alleged original which had previously been discovered by the bank. These Customer Interview Records were raised in the customer name of Gunnadoo Enterprises, J R Cardell and EJR Pastoral Company Pty Ltd. Dates of these interviews raised by Gunn were 31st July 1984, 6th December 1984 and the 15th September 1985 respectively, and indicated to the reader that interviews were held with Mr Cardell twice and Ned and Joy Somerset.

What this all meant was that the said three original Customer Interview Records so discovered represented a reconstruction and someone at some stage had seen fit to destroy the originals. This revelation once again confirmed to me that my previously held thoughts that Gunn had most probably made a conscious decision to cull all bank files so as to eliminate incriminating documentation from his bank’s discovery process.

The substituted original Customer Interview Records, as mentioned above, were discovered among those in the binders by Mrs J E Somerset.

The reconciliation of the Customer Interview Records known as Duplicate Running Sheets proved extremely difficult in every respect. I am now completely satisfied that the Duplicate Running Sheets have been tampered with in some way, certainly for the six month period to March 1985. Accurate photocopies were never produced and the solicitors for the Somersets commenced the exercise of reconciliation; however, this exercise was eventually abandoned due to the prevailing difficulty.

Gunn deposed in his twenty-four page affidavit under date of the 4th September 1987 that: “the practice at the National Australia Bank Limited since before 1981 was and still is that all customer dealings are recorded on file”. He makes no mention of the fact that a Customer Interview Record Duplicate Running Sheet is also created. This system was a specialised system because the process would have been in operation in less than 10% of all National Australia Bank Branches in Queensland.

The first and principal witness for the Respondent Bank was to be their bank manager, Casper Gunn, whose current appointment remained as Manager of the 441 Ruthven Street, Toowoomba Branch. Gunn took control of the branch on the 29th February 1984. He gave evidence spread over three days with transcript covering just on two hundred pages.

The first two days of Gunn’s cross examination principally dealt with the conduct of the Gunnadoo Enterprises account under the proprietorship of Jeffrey Robert Cardell for the years leading up to sale of the strawberry farm.

The Somersets’ senior counsel sought Gunn’s responses regarding how he arrived at the contents of his Internal Lending Memo dated 10th December 1984, viz.: “serviceability should not present any problems as the cash flow from the strawberry farm has been confirmed at $50,000.00 per month as is”. Initially Gunn could not recollect the source and a standard adjournment was necessary before he could answer the question positively.

Gunn advised that the “$50,000 per month as is” was reconciled from the document Edward P Somerset handed to Gunn titled, “proposed Movement of Account” on the 8th November 1984. This document in E P Somerset’s own handwriting records net income from the 1st November 1984 to 50th June 1985 at $240,000 which of course extends to $30,000 per month. Strawberry farm expenditure was also recorded on this document which Gunn calculated out at $40,000 per month. He states in evidence that he then adopted the conservative approach by reducing this latter figure by half, added same to $30,000 per month figure to arrive at his Memorandum figure of $50,000 per month as is. (Refer exhibit ‘G’).

When it is borne in mind that the bank’s own documents record that in any given twelve month period from the time of Gunn’s control of the branch in February 1984 to the 30th September 1984, the averaged out monthly gross income never exceeded $15,000. The figure of “$50,000 per month as is” was not only preposterous; it was highly deceptive in the circumstances.

The cross examination of Gunn was exceedingly difficult for counsel because Gunn gave false and misleading responses in responding to questions on no less than forty two occasions. My view principally is that Gunn was forced to adopt this policy because the discovered bank documents relating to the files of J R Cardell trading as Gunnadoo Enterprises and of E P & E J Somerset represented a reconstruction for which he was responsible. Where practicable he orchestrated the destruction of vital documents.

One such document was the bank’s computer generated printout known as Limit Enquiry. This document, amongst other things, recorded annual turnover with quarterly split together with the days when the account had been irregular. This document had been available to branch staff since the introduction of computerisation in the early 1970s. (Refer exhibit ‘A’.)

When Gunn was asked, on more than one occasion, which documents he relied upon with respect to strawberry farm turnover and profitability, he responded by saying “bank statements”. This response was false in my view; the correct response should have been “Limit Enquiry”. The reason Gunn gave the response that he did was because he had destroyed most of these documents when he culled the file (Gunn’s transcript evidence so refers).

Gunn’s documentation throughout 1984 said that the strawberry farm business was improving and turnover was increasing. The evidence which was not brought out was the fact that, by January 1984, the month before Gunn took up his appointment as branch manager, indebtedness had increased during the past twelve months by 227%. During the eight month period to 30th September 1984 when the strawberry farm account was under the control of Gunn, indebtedness increased by 33%. The two Line of Credit Applications submitted by Gunn to the bank’s administration during this period were to regularise an existing irregular situation in the bank’s books. Gunn admits that his customer Cardell would have been in severe financial difficulty by the end of October 1984 if a contract of sale had not been brought into existence.

On the 12th November 1987, the Somersets’ instructing solicitors addressed a letter to the National Australia Bank’s solicitors regarding further and better discovery. In this communication, twenty bank originated documents were nominated that had not been discovered. At trial commencement eight of the listed documents had not been discovered by the bank. One such document was listed as “(u) General Report, as referred to in Line of Credit -Credit Assessment Review – Commercial (Document 143)”. (Refer exhibit ‘I’.)

Gunn was cross examined on this document and he responded by saying that his Internal Memo Lending dated 10th December 1984 was the ‘General Report’ in question. It was my contention that the Gunn Internal Memo Lending was a supplementary document to his previously submitted Line of Credit Application dated 26th November 1984. Gunn had been forced to raise this Internal Memo due to the shortfalls contained in his Line of Credit Application. I told the instructing solicitors that the Gunn ‘General Report’, together with Customer Interview Records, were the most vital bank discovery documents.

Gunn confirms in evidence that he submitted the Somersets’ Line of Credit Application dated 26th November 1984 for $300,000 to the bank’s administration in November. Included and forming part of this document is the bank’s printed stationery item known as a Statement of Position. This document is a replica of the document signed by E P Somerset on the 6th November 1984 and was discovered by the bank with the figure “2” added so as to record the date of document as “26.11.84”. (Refer exhibits ‘D’ and ‘H’.)

The bank discovered a typed version of the Statement of Position bearing the date of 26.11.84. At the conclusion of this document there is provision to record current leasing contract details of machinery, motor vehicles, etc. In the space provided was inserted in Gunn’s own handwriting (on my visual observations of Gunn’s handwriting in other bank documentation) the lease details of the Somersets’ grain harvester, viz., “Grain Harvester, A.G.C. Rental $25.500 p.a. (could be under H/P rather than lease – see General Report 5/3/85)”. After the Somersets had sold their last property, they decided to retain this piece of equipment until the leasing contract had expired. (Refer exhibit ‘N’.)

Perusal of Gunn’s Internal Memo Lending dated 10th December 1984, which he has described in evidence as the ‘General Report’ attaching to his Line of Credit Application dated 26th November 1984, contains no reference to the Grain Harvester. The reference to the Grain Harvester was contained in his General Report which was originally submitted with Albion’s Line of Credit Application dated 26th February 1985. In view of the lease details in Gunn’s own handwriting it would seem that he has had some input into Albion’s Line of Credit Application dated 26/02/85. This input, if it occurred, has never been disclosed in any bank discovered document.

Gunn was subjected to considerable cross examination regarding the substitution of the four Customer Interview Records. Since the initial discovery of the three substituted records, a further one had been revealed under the date of 26th November 1985.

Gunn now admitted that Customer Interview Records raised at the 441 Ruthven Street Branch Toowoomba were prepared in triplicate with the original being placed on the customer’s file with the duplicate being placed in a diary binder and were known as Duplicate Running Sheets. Gunn makes special mention in Clause 8 of his affidavit, executed 4th September 1987, of his practice in raising Customer Interview Records. However he sees fit to overlook the fact that they are raised in triplicate. This was a clear exercise in deception.

Gunn was asked to describe what the actual practice was. An examination of some substituted Customer Interview Records revealed that Gunn had used a stationery print item which had not been in existence at the time the said diary note record was raised.

It was pointed out to Gunn that over a year has passed and he has seen fit to destroy and substitute original documents. His response was that when he heard on the grapevine that there was a dispute between his two customers, he set about reviewing the file record. I would suggest that Gunn made a conscious decision to destroy all incriminating material that included the General Report as mentioned above.

It was never put to Gunn in cross examination that the interview he conducted with the Somersets on the 8th November 1984, his claimed initial interview, was also a substituted record. Having now had the opportunity to examine the Somerset case history over many years, I strongly lean to the view that this Customer Interview Record is a reconstruction.

There is no doubt that a lengthy interview between the parties took place on that day. However, as far as the Somersets were concerned, there was absolutely no discussion on their part with respect to an overseas loan, as Gunn states. The Somersets had no knowledge regarding this type of finance. What is more, Gunn well knew that the Somersets’ financial position of the day would have precluded them from ever obtaining a foreign currency loan from any financial institution. The overseas loan statement is simply a charade statement so as to enhance his own position. It was a rearguard action.

Gunn states in evidence on cross examination that sometime after this interview he telephoned the Somersets to inform them that their proposition had been approved by the bank. This was clearly false. Towards the end of this interview, the Somersets were handed a five leaf cheque book and told they could bid at auction for the Glenhaven property to the extent of $300,000. This automatically confirms that Gunn had previously discussed the proposition with his Regional Manager Mr Dick who had approved same. It also confirms in my view that Edward P Somerset’s version of events re previous interviews is correct.

Gunn’s Customer Interview Record of the 8th November 1984 contains an addendum inserted in Regional Manager Robert J Dick’s handwriting wherein he states “against security cover including the James Street Town Houses.” Dick has initialed this addendum and records the date of 22/11/84. (Refer exhibit ‘C’.)

Gunn submits his Line of Credit Application four days later, viz., 26th November 1984, and Gunn does not include Mrs Somerset’s James Street Town Houses as security.

If one assumes the addendum date is correct, then Gunn has seen fit to ignore his immediate superior’s clear instructions within the next four days. My career experience indicates that Gunn would not be so bold and have the audacity to do this. The revelation of an act of insubordination of the sort we have here would probably call for instant dismissal of the bank manager involved. I am of the view that it is possible that when Gunn sought approval to the Somerset accommodation as per his telephonic communication, he did not disclose all the relevant facts. Some weeks, perhaps months down the track when Regional Manager did become aware in the Somersets’ lead up involvement, he decided to add the addendum to protect his position. The most senior officer is always in the privileged position in subsequent issues of conflict if and when they are revealed.

The principal issue of deception which Gunn needed to conceal was the fact that the Somersets had entered into contracts to purchase the strawberry farm on the strength of the fraudulent cash flow figures of the strawberry farm, viz., $240,000 net for an eight month period. Gunn had never ever questioned these figures when presented and made it is business to support these figures at all times when brought to his attention by both Mr & Mrs Somerset. Gunn was successful in doing so in oblique fashion. This consistency was maintained when it came to the Somersets seeking financial accommodation to purchase Glenhaven at auction.

This was a masterful charade on Gunn’s part because in the back of his mind was the fact that the Somersets had substantial assets. He makes mention of this in his Customer Interview Record of 8th November 1984 wherein he states, viz., “their S/P (Statement of Position) shows a net asset position of in excess of $1m”.

Gunn goes on to confirm in Clause 24 of his affidavit wherein he states, viz., “I have no doubt that part of the advance is based on the asset backing rather than any perception that the plant would achieve what it was apparently supposed to”. At no stage prior to Gunn proceeding on annual leave in February 1985 did he disclose to the Somersets that his bank’s accommodation so approved was on the basis of their asset backing.

Gunn further confirmed this issue in evidence as indicated in the following cross examination, followed by Gunn’s response to each question:

But in deciding to grant their application for $300,000 for the purchase of Glenhaven, did you consider whether they would be able to service it from profits from Gunnadoo? – That, and also they had units to sell.

In other words they had assets? – Yes.

If things went bad, the debt could be discharged by selling their assets? – This is not necessarily the thought. They were selling those items specifically to pay out the debt that I had proposed to approve for them.

So it was contemplated on both sides, was it, that the accommodation which you granted to them the extent of $300,000 would be paid out of their capital assets? – Which my Regional Manager granted to them, yes.

Which you recommended? – That is correct.

It is transparent what the state of Gunn’s mind was at the time. Up until that time Gunn submitted his Line of Credit Application in November 1984, the question of serviceability of accommodation sought had never at any time brought up the question of part receipt of proceeds from sale of strata title town houses in Mrs Somerset’s name solely.

A final determination re sale of the town houses had never been made. If Gunn had raised this issue, the question would have automatically been raised in the Somersets’ minds, why wouldn’t the cash flow from the strawberry farm be able to service the accommodation now sought? The fact was that one of the reasons for the purchase of Glenhaven was to offset the tax losses presently standing to the credit of the Somersets’ trading company, EJR Pastoral Company Pty Ltd. These tax losses had been accumulated over recent years from primary industry production.

Yes, the Somersets did have asset backing, to use Gunn’s terminology. It certainly was a substantial improvement when compared to the strawberry farm vendor’s financial position. However, when the Respondent Bank approved the Somersets’ Line of Credit Application at $300,000.00, I would not consider their asset position strong by any means. The price paid for the strawberry farm at $625,000.00 represented virtually double the realistic market value of the day. Gunn had inflated the Market Value of the strawberry farm for security lending purposes to ensure that the Somersets’ purchase of this property was consummated. Gunn’s security lending category of his Somerset Line of Credit Application was “A”. However, if bank lending policy was as per lending manual, then the security lending category was “B”. Gunn’s recorded Market Value extended to $475,000. This figure represented an increase amounting to $215,000 when compared to the figure recorded for the security when registered in the vendor’s name.

On the last working day before Gunn proceeded on annual leave in February 1985, Gunn increased the Market Value of the strawberry farm by $100,000 to $575,000. The bank’s appropriate documentation did not record the reason for the increase. Gunn’s recorded date was 1st February 1985. This date was in his own handwriting and the document recorded two previous dates, also in Gunn’s handwriting.

Gunn responded to questions under examination that these changes indicated that there had been improvements to the property after November 1984 following submission of his Line of Credit Application. If one refers to Clause 24 of Gunn’s affidavit he states that Relieving Manager Mr Albion made provision for improvements to Line of Credit Application which he submitted. These improvements represented an hydroponics shed and an allowance amounting to $100,000 for the erection thereof. This figure of course represented the increase in Gunn’s valuation of the strawberry farm from $475,000 to $575,000. (Refer exhibit ‘F2’.)

I was able to ascertain some months after trial completion that Gunn had never inspected the strawberry farm on the 1st February 1985 in so far as the Somersets were concerned. The Somersets informed me that the erection of the hydroponic shed was commenced; however it was demountable and was never completed. When it was decided to discontinue the erection of this project an amount in the vicinity of $40,000 only had been expended, while the shed only reached the fifty per cent completion stage. Moreover, the hydroponic shed vested in the name of the Somersets’ trading company, EJR Pastoral Company Ltd; the bank had no charge over the assets of this company.

It can be seen that Gunn has been forced to the limits of deception; not only must the charade continue with his new found customers, he does not realise that his actions may not only damage the good name of his employer, they may also result in his employer suffering considerable loss. I would describe Gunn’s actions as fraudulent. Gunn had to resort to this subterfuge because he had agreed in principle to the bank providing further accommodation. The formalisation of this exercise was to be placed in the lap of the Relieving Manager who would be in control while he proceeded on annual leave.

The bank’s proposed security position would be precarious, Gunn was well aware of that. The true security categorisation of the relieving manager’s Line of Credit Application was “C”, meaning it was technically unsecured. In this instance, limits applied for exceeded the Bank Value of the bank’s proposed security, which brought it into an unsecured classification. The Bank Value of proposed security, which would include a second registered mortgage over Mrs Somerset’s Town Houses as per Gunn’s security manipulation, was $704,000. This figure has been inflated by Gunn to the extent of $186,000. The true figure should have been recorded as $518,000. This was a fraudulent exercise on Gunn’s part. It so transpired that on the 22nd November 1985 Gunn re-inspected the Somersets’ strawberry farm security and reduced the Market Value by $225,000 to $350,000. Nearly four years later the bank sold this property as mortgagees in possession at auction for $165,000.

One reason why Gunn was able to succeed with his fraudulent behaviour regarding manipulation of his property valuations was because he did not disclose in bank records that the Somersets’ purchase of the strawberry farm was subject to two contracts – a Property Contract for $310,000 together with a Business Contract for $315,000. Perusal of bank Customer Interview Records Duplicate Running Sheets reveals that at all times it was Gunn’s policy and practice to record contract details when to hand or advise the interviewee to bring in a copy of the relevant contract to the bank when to hand. This was another act of deception on Gunn’s part because he states in evidence that the bank was in possession of the two contracts. Gunn did not want incriminating evidence formally recorded in bank records.

Gunn was asked in cross examination if he raised a diary note record following his interview with the Somersets when they informed him in May 1985 that Jeffrey Robert Cardell had conned them. Gunn responded by saying that “the Somersets were extremely upset and that there was not enough substance to what they had said for me to keep it”. Gunn’s response is utterly absurd. If there was some doubt in his mind, then he should have checked it out immediately and report the matter to the bank’s administration following his creation of a diary record.

It would have been highly embarrassing and incriminating if Gunn had reported this fact to the bank’s administration. After all, settlement with respect to both Glenhaven and Gunnadoo had taken place only seven weeks previously. Gunn was subject to further questioning about his recollection when the Somersets handed to Gunn a document which described Jeffrey Robert Cardell’s conviction for fraud. Gunn couldn’t recall this event and he failed to raise any diary note reference.

One of the reasons why Gunn failed to raise records of particular events which occurred between himself and the Somersets from October 1984 to November 1985 was because Gunn and Jeffrey Robert Cardell were friends. Gunn was asked in cross examination whether they were friends and he denied the allegation. However Gunn stated in evidence that he normally discussed matters with Cardell when he came to the bank to deposit monies to his account. As Cardell deposited monies to his account on 69 occasions from March 1984 to October 1984 it would be fair to say that a relationship developed. The transcript of evidence in the Supreme Court of Queensland where the Somersets were the plaintiffs and Jeffrey Robert Cardell was the Defendant records Cardell stating, “I would have called on him 60 times” and “We were good friends”. It can readily be seen where the truth lies.

Aspects of the inadequacy of the bank’s discovery was given more emphasis in Gunn’s third day of cross examination. In pre-trial correspondence an issue given prominence was the subject of reporting from Gunn’s branch to the bank’s administration regarding the status of the Cardell and Somerset group accounts when they were in a state of irregularity.

It transpired that senior counsel for the Somersets also acted as senior counsel for the Applicants in Federal Court of Australia G22 of 1986 litigation known as Nobile & Ors -v- National Australia Bank. In this action the National Australia Bank discovered its document titled, Customers Liabilities Irregular Return – $20,000.00 and over. Introduction of these documents proved incriminating for the bank – so much so that His Honour made mention of same in his judgement. None of these documents had been discovered in the Somerset litigation despite the fact that the Gunnadoo Enterprises Banking Account was one which I described as chronically irregular. I suspect that Gunn withheld and/or destroyed these documents.

Senior Counsel for the National Australia Bank made the joke of the day when he told His Honour, “They have full discovery”. Counsel for the Somersets responded, “Full discovery, protracted dribs and drabs after many months, after protracted applications to this court.” His Honour then told those present, “I do not want to get into an argument about that”. There can be no doubt that it was becoming a losing cause.

In another exchange between Gunn and the Somersets’ counsel, Gunn informed the court that it was conventional practice not to raise Customer Interview Records with respect to telephone discussions. However perusal of the Customer Interview Records Duplicate Running Sheets reveals that from the time of Gunn’s appointment at the branch in 1984 to the end of 1985, he recorded telephone conversations by way of Customer Interview Record on no less than twenty five occasions.

Gunn went on to inform the court how his own personal Manager’s Diaries for the years 1984 and 1985 were destroyed. He told the court, “I can only react to definite instructions as to what is produced. I am sorry, but that is the way it is. I do not understand, unless I am specifically requested to produce certain things”. And with that statement in mind, therein lies the problem. The overall responsibility for the veracity of the bank’s discovery vested in the hands of its Manager, Legal Services. He called on the branch manager to forward all documents. Manager, Legal Services was not a practising bank manager and had not been for some years and, as a consequence, had no idea what variety of documents had come into existence. Given that Gunn was substantially responsible for the Somersets’ predicament, he simply decided not only to cull all relevant bank files of incriminating documentation and destroy same; he also decided to withhold vital documentation.

From information furnished to the Somersets’ solicitors, the Customer Interview Records Duplicate Running Sheets, discovered during the weekend after the trial commencement without affidavit cover, were surrendered by the Relieving Bank Manager at 441 Ruthven Street Toowoomba Branch. Bank Manager Gunn was alleged to be on annual leave.

I was of the view prior to the commencement of the trial that the bank’s discovery was a farce. Gunn’s evidence from the witness box proves that completely.

The Respondent Bank’s next witness was their Regional Manager, Brian Dick, who had been in his current appointment for the past six years. He was Gunn’s immediate superior in the bank’s administration. His duties required him to overview the activities of 441 Ruthven Street Toowoomba Branch of the bank and he carried out these duties on a bi-monthly visit to the branch. At the time of his evidence he had been employed by the bank for over thirty six years and it was known to me that he had held senior branch managerial appointments.

Dick was asked to respond in cross examination as to the capability and serviceability of the strawberry farm while under the proprietorship of Jeffrey Cardell in 1985. These questions were subject to objection on the grounds that this witness was not classified as an expert witness and therefore was not competent to respond to this question. Have you ever heard of anything so ridiculous in the circumstances?

The answer lay in the bank’s own documentation. By referring to Line of Credit Application dated 4th January 1984 applying for a $180,000 Accommodation Bill facility, this application was approved by Regional Manager Dick. This was done most probably during one of Dick’s bi-monthly visits to the branch. He approved the application and, at the same time, recorded his approval advices, “For lack of alternative, we are there now, however absolutely no more and sale or refinance by 30th June 1984 is to be a definite obligation by customer. Report monthly on progress. Sgd E J Dick, 4.1.82.” (Refer exhibit ‘K’.) It can be seen that Regional Manager Dick has the appropriate expertise to comment on the conduct of the Gunnadoo Enterprises account at any time to date of sale which occurred in November 1984.

Dick was asked whether he recorded his addendum on Gunn’s Customer interview Record raised in the name of E.J.R. Pastoral Company Pty Ltd under date 8th November 1984 which states, “against adequate security cover including the James Street Town Houses” as per his recorded date of 22/11/84. Dick replied in the affirmative. Dick was not asked the critical question, “was he aware that Gunn’s Line of Credit Application dated four days later on 26th November 1984 and submitted to Regional Operations during November ‘84 did not include the James Street Town Houses as bank security”.

He would have responded in the negative of course. Gunn could have instilled an element of doubt in Mrs Somerset’s mind if he had brought up the aspect of additional bank security at that stage. A further follow-up question to Dick should have been asked: “what attitude would you take if you had become aware of this and would you have found it necessary to report Gunn’s act of deception to higher authority within the bank?”. In my view it could well be in these given circumstances that the bank would call for Gunn’s instant dismissal.

Gunn acknowledges in his Customer Interview Record of the 8th November 1984 that the Somersets are committed to further expenditure, meaning that Gunn is planning ahead for the bank to provide further accommodation and then he will insist and obtain security over Mrs Somerset’s James Street Town Houses.

Dick was asked to express an opinion concerning Gunn’s actions in trawling through customer file records and substituting original Customer Interview Records with one which differed in content when compared to the original print. Dick responded by saying, if the practice became known to him, he would have it stopped immediately and the perpetrator would be severely censured. I fully endorse these remarks.

One of the critical issues in this case history relates to the timing of events regarding the Somersets and Gunn as well as other bank employees regarding the chronology of events. With this in mind, the Somersets’ Junior Barrister asked Dick when he received the telephone call from Gunn as per the content of Gunn’s Customer Interview Record of the 8th November 1984 which recorded, “the proposition has been discussed with Mr Dick the Regional Manager and he has agreed to assist should the property be purchased at settlement”.

Dick responded by saying, “it would have to be the 7th or the 8th”. Either of these dates could be correct. We know that contact was made prior to the Somersets/Gunn interview on the 8th November 1984 because the Somersets were handed a five leaf cheque book and told that it was in order for them to bid at auction for Glenhaven to a limit of $300,000. Gunn would have been in a position to hold all the necessary information to enable him to prepare a Line of Credit Application after he interviewed the Somersets on the 6th November 1984. E P Somerset signed the bank’s Statement of Position form at the interview held on that date.

This sequence of events indicates to me that, for a stage such as this to be reached on the 8th November regarding bank approval to lend the Somersets $300,000, credence must be given to E P Somerset’s version of events regarding his interviews with Gunn held on the 30th October and the 1st November 1984. It takes time for a banker to acquire the appropriate knowledge to enable him to put together a Line of Credit Application at a Category level outside his own Delegated Lending Authority. It must be remembered that, in the lead up period to the 8th November 1984, the Somersets were customers of both the Commonwealth Bank and the ANZ Bank.

Dick was subject to considerable cross examination regarding the question raising Irregular Account Returns for the years 1984 and 1985. Dick was also asked of his knowledge concerning Monthly Reports which 441 Ruthven Street Branch were to submit to Regional Operations from February 1984. Dick correctly responded to these questions by saying that the handling of this sphere of activity within the bank was under the control of the Regional Lending Manager Mr Overs. It would also be one of Mr Overs’ duties to control and oversee the submission of branch $20,000 and Over Irregular Returns for accounts so nominated.

This section of cross examination proved completely unsatisfactory in my view simply because bank process regarding the raising of Irregular Returns at all levels was not understood by the Somersets’ Junior Counsel. For clarification of these matters it would have undoubtedly assisted His Honour if Regional Lending Manager, Bill Overs, had been called to give evidence. I had informed the Somersets’ instructing solicitors some weeks into my consultancy that Bill Overs should be called as a witness as he held much information concerning the banking situation of both Cardell and the Somersets. The instructing solicitors informed me that he was not to be a bank witness. I told them that the bank is endeavouring to conceal the real facts and that they should subpoena him. My advices were not heeded.

The Respondent Bank next called William Rivers to the witness box. Mr Rivers enjoyed the position for his employer as Manager’s Clerk at the 441 Ruthven Street Branch and had been stationed at the branch for the past three years. Rivers had deposed to certain events in his affidavit executed for the litigation on the 4th September 1987. The major points of interest therein which were of a concern to the Somersets and their legal team were of very significant dimension. According to Rivers’ version of events, Mr & Mrs Somerset called at the branch on the 6th November 1984 and approached the receptionist. She in turn approached fellow employee Rivers and told him that Mr & Mrs Somerset wished to discuss a loan application and would he interview them. Since he had no office he invited these people into the loans section of the branch after introducing himself.

Rivers went on to say in his affidavit that a general discussion took place with Mr & Mrs Somerset informing him of their previous ownership of properties and how they disposed of them. He could not recall the name of the strawberry farm business, where his customer Jeffrey Cardell was the sole registered proprietor, ever being mentioned. He confirmed that he took from them a document headed “Structure of EP & EJ Somerset”. He alleges that this document covered the interview discussion and he made no records of the interview. The Somersets told him that they wanted to open accounts and to get loans of some hundred of thousands of dollars which were well beyond his power to deal with. He told the Somersets that they would have to see the manager or assistant manager.

While these discussions were taking place, Rivers saw Gunn in the office and introduced the Somersets to Gunn. Rivers was able to recall that Gunn was in a hurry and immediately left the office area after basic introduction. Rivers then proceeded to open an account in the name of EJR Pastoral Co Pty Ltd and organise for the issue of permanent cheque and deposit books. He goes on to say that on the 8th November 1984 he may have been asked by Mr Gunn to obtain a temporary cheque book for Mr & Mrs Somerset.

On the 9th November 1984 Mr Somerset called on him to inform him the result of the auction and at the time he took a Statement of Position from Mr Somerset. Rivers goes on to say that during this period that he attended to Mr Somerset several times, he was not sure of the dates and the discussions were not recorded in Customer Interview Records. With the exception of the last statement re 9th November 1984 interview, Mr & Mrs Somerset maintain that all other statements by Rivers are a fabrication and represent a reconstruction to tie in with bank manager Gunn’s version of events. As a consequence Rivers’ cross examination would be of vital interest to the Somersets’ counsel. The cross examination was to be in the hands of senior counsel.

Rivers’ initial question in cross examination was, “Did you make a diary note of the meeting (6th November 1984) you had with them? Rivers' response was in the negative and he went to say that, since he was handed a statement of assets and liabilities at the time, he treated that document as a bank diary note as it contained all the information. However when it was pointed out that the meeting was to present a proposal for finance, he acknowledged that he should have created a diary note as standard bank policy.

Rivers’ normal working day policy re the raising of diary notes can be found by reading the bank’s discovered documents, Customer Interview Records Duplicate Running Sheets. These records, from 25th October to 6th November 1984, reveal that Rivers raised five Customer Interview records with respect to meetings with bank customers. His style is exemplified in the following two extracts (*** refers to Rivers' initials; RLG LOANS OFF refers to Relieving Loans Officer):

Customer Name

29/10/84

***


RLG LOANS OFF


Richard called to advise that they are interested in purchasing a 2nd hand Toyota Landcruiser Ute which has become available through one of the Oil Companies.

Their intention is to purchase and resell the vehicle within one month for approx $10000.00. He stated that the bids are to close and the successful party announced on Thursday.

Their quote is to be $8,100.00 and therefore show a profit of approx $1,900.00.

Their present situation will facilitate the purchase, but with accounts due could overdraw the account approx $2000 for about a month.

Advised the Assist Manager who agreed. Mr ……… is to keep us informed of developments.


Customer Name

2/11/84

***


RLG LOANS OFF

Mrs …. called to advise that one of their trucks had just had a tyre blow at Murwillumbah and was required to forward $185.00 to Dunlop IBC’s local office before tyre was replaced.

I asked Mrs ……… if she had any funds to deposit to cover the cheque as they were already overdrawn $988.00. They advised the only funds was a cheque for $130.00, so I told them the cheque that had arrived today would be returned but I would cover them for the $185.00 so that they could get the truck back on the road.”


I consider that the foregoing two illustrations confirm that if Rivers had conducted the Somerset interview, he would have raised a Customer Interview Record, and in the manner shown. That was certainly his ordinary banking practice.

Rivers was also cross examined on his Customer Interview Record raised under the date of the 9th November 1984 wherein he states “Mr Somerset called to advise, etc”. Rivers maintained in evidence that this contact was a telephone call; however in perusing all his Running Sheet Diary Records, they clearly mention if the discussion relates to a telephone call.

Rivers was then subjected to cross examination on the Statement of Position – a bank stationery item form which was signed by Edward P Somerset in Gunn’s office on the 6th November 1984 and was discovered bearing the date “26” November 1984. Rivers confirms that all date figures are in his handwriting and confirms that he dated the document on 26/11/1984. It is then pointed out to Rivers that Bank Account Balances recorded in the document in his handwriting show “Commonwealth Bank $20,000” and “A.N.Z. $79,000”. These amounts were transferred to their National Australia Bank cheque account, viz., EJR Pastoral Company Pty Ltd, on the 13th November 1984. As a consequence these figures were correct as at 6th November 1984 and incorrect as at 26th November 1984.

Rivers was subjected to further cross examination concerning the original date of the document. He was asked whether the date, “26”, could be incorrect and whether he completed the document earlier in the month. His initial response was “possible” and went on to say when further pressed that it was “probable”.

Rivers' evidence is spread over fifteen pages and reveals that on fourteen occasions he responds with “ … cannot recall or cannot remember”. My clear view of his evidence is that he has had to tie in his evidence to fit Gunn’s reconstruction of customer file documents. Rivers was not cross examined on his Customer Interview Record of 10th January 1985 raised in the name of EJR Pastoral Company. He states therein that E P Somerset reported the strawberry plants not under cover were subject to storm damage. Mr Somerset has informed me that he never had this interview with Rivers; rather it took place with Gunn in his office. I am of the firm view that the contents of this Customer Interview Record were written by someone else.

The next bank witness was to be Relieving Bank Manager, Patrick Matthew Albion. Albion was introduced to Mr and Mrs Somerset by Gunn on his last working day in February 1985 before he proceeded on annual vacation. As a matter of fact the Somersets had called at the bank expecting to sign all documentation which would enable settlement of the two properties, Glenhaven and Gunnadoo. With respect to the latter, settlement was to pay out first mortgage to vendor Jeffrey Robert Cardell with consideration amounting to $125,000.

Following introduction, Gunn immediately departed leaving sole handling of the situation to Albion. When Albion ascertained the facts, he informed the Somersets that there was a great deal of work to do on his part before settlement for either property took place. Albion informed the Somersets that he would have to start from scratch to compile and prepare a Line of Credit Application for submission to the bank’s administration. Contents of the Somerset file was sparse. This most definitely should not have been the situation given that permanent manager Gunn submitted a Line of Credit Application for $300,000 which was approved on the 12th December 1984. In normal bank circumstances not a great deal of additional work would have been required on Albion’s part.

This activity clearly indicates to me that Gunn is playing a deceitful game; however he has the support of his Regional Manager, Brian Dick. The fact was that the Somersets did not have an acceptable proposition for the bank in their current situation; however Albion had been instructed to proceed by his Regional Manager, Dick. That assumption can be gleaned from Albion’s remark to me during pre-trial discussions when he informed me that he did what he did because he was “protected”. The only bank employee who could give “protection” in the circumstances was Regional Manager Dick. After the Somersets lost their High Court Appeal, I travelled to Toowoomba on two occasions and took the opportunity to interview Pat Albion on both occasions, and each time he reiterated the statement “he was protected”. I have spoken to many fellow National Bank employees who have had similar banking experience to that of myself and they are all in agreement that Regional Manager Dick gave that protection. Albion’s banking experience would readily have revealed to him that the Somersets’ situation was a disaster waiting to happen.

The cross examination of Relieving Manager Albion can be described in one word - a disaster. One of the pursuits in cross examination was to ascertain what documents Albion had available to him at the time he was interviewed for the preparation of his Affidavit. This attracted prominence because Albion had made a statement in the General Report which accompanied his Line of Credit Application that a document had been handed to the bank on the 1st November 1984. The bank was denying that an interview took place on this day.

Confusion reigned concerning terminology of documents and files. Albion responded in banking terms in cross examination by the Somersets’ counsel. Counsel considered it fit to inform His Honour, “I am going to explore what is on this file”. Counsel had to deal with responses from Albion of the like, “what do you mean by documents?” While this type of interchange is taking place we have a bank senior barrister rising on a point of order in regular fashion intermixed with comments from His Honour. To any banker of experience present in the court room at the time, only one conclusion would have been reached - it was totally useless, having futile implications. Unless His Honour has the advices of an independent expert witness in these circumstances, trials of this nature are simply a waste of time.

Albion admitted in evidence that he had access to the Gunnadoo Enterprises bank file when compiling his Line of Credit Applications. Albion would therefore have readily realised that Cash Flow Budget for the period 1st March 1985 to 28th February 1986 for recorded strawberry farm income extending to $640,000 was ridiculous. Albion was well aware that it was ridiculous because he told E P Somerset at an interview discussion that, “I’ll buy you a beer if you achieve these figures Ned”. Albion in reality was simply doing as instructed, sending the Somersets into financial oblivion.

When Albion was cross examined on the process of raising his Customer Interview Records, he confirmed that different systems are adopted in various branches of the National Australia Bank. Albion went on to say that it is only in large branches where these records are raised in duplicate. He also states in response that Customer Interview Records are raised with respect to all matters of importance, e.g. new lending. Albion’s affidavit had made no mention of the fact that Customer Interview Records at the 441 Ruthven Street Branch were raised in duplicate. Albion was asked whether he raised Customer Interview Records as a direct result of his interviews with the Somersets. He responded by saying, “I could be exact, two”. This response is more or less identical with what Albion had told me personally earlier in the month when he said in response to my same question, “two to three”.

The Somersets informed me, during the first two to three weeks of Albion’s term of relief, that they called at the branch very nearly every second day to give information to Albion which he was seeking to include in Line of Credit submissions.

Counsel for the Somersets then asked Albion, “Did they come to see you? … Once.” “Once, You are quite confident about that? ... Yes.” Albion then goes on to inform the court that he can definitely recall that Mr Mrs Somerset called at the branch on a Monday to inform him that First National had declined their application for finance.

It can be seen that Albion’s evidence is clearly at odds with that of the Somersets. Given the acknowledged fact that the Somerset customer file was bereft of documentation, there can be no doubt that Albion would have sought several interviews with the Somersets to enable him to finalise his Line of Credit Applications for $915,000 and $575,000.

No original Customer Interview Records regarding interviews were discovered by the bank and the Somerset name does not appear in this regard in the Duplicate Running Sheets. If Albion’s evidence is accepted that he raised Customer interview Records on two occasions, it means that at some stage the original Customer Interview Records have been removed from the Somerset file and destroyed. It also means that they have been similarly removed from the Duplicate Running Sheet Diary Binder. Taking this one step further, it means that the Duplicate Running Sheets for the relevant period represent a reconstruction.

Albion does raise a Customer Interview Record under date of 11th February 1985 with content relating to First National. However it is Albion’s normal practice with all his Customer Interview Records that his opening remarks state, “rang and/or called”. The 11th February record makes no mention of this. Perusal of the Duplicate Running Sheets reveal that this record is out of order from a chronological point of view. In other words, this is another facet which indicates that bank discovery is an overall reconstruction.

Perusal and examination of Albion’s Customer Interview Records Duplicate Running Sheets for the period of Albion’s relief while Gunn was on annual leave reveals that he raised sixty-one Customer Interview Records and a typical one raised on the 5th February 1985 records as follows:

RLG MGR. – Customer X Pty Ltd.


Further to previous Diary Note of 22/1/85 and discussions with permanent manager. We can see total borrowing at least $190,000 and with no future intentions given in approach for finance, we see this as minimum basic needs.

In summary:

(a) working limit given as $20,000. Study to June ‘84 indicates regular excesses over limit. What is position of account, these statements -June 84 to present not provided.

(b) Indefinite proposals to forward intentions.

(c) what value we put on undeveloped vacant land.

Rang today and advised that we would pass the business.
Took our decision without comment of note.


Another one of Albion’s Customer Interviews of contrast runs as follows:

1/2/85

Relg. Mgr.

J.A. & R.A. Citizen

Current Account No 169-7742

John requested we tolerate excesses to above account for 2 weeks. We agreed to cover.


Bank discovered documents revealed that Albion performed relieving duties at the 441 Ruthven Street Branch in both the pre and post period of his February/March 1985 Managerial Relief. These records clearly reveal Albion’s normal policy of raising Customer Interview Records. It therefore can be confidently construed that Albion would have normally raised Customer Interview Records for all his interviews with the Somersets. None in his normal format was discovered, so we are faced with two alternatives. Albion created these records as part of his normal duties and same were subsequently destroyed or his assurance by a superior officer that he was “protected” implied that no relevant records should be created regarding interviews because they could not avoid being incriminating.

The next witness called for the Respondent Bank was their Lending Advisor, Noel I Board. His evidence is spread over eight pages. Board dealt with lending at what was known as level 3 – State Manager Level, which was one step above that of Regional Manager. It fell upon Board’s shoulders to analyse the two Line of Credit Applications submitted by Relieving Manager Pat Albion for $915,000 and $575,000. He declined the first Application and approved the second. His duties also entailed the administration of branch irregular accounts which were classified as Level 3. Board confirmed in evidence that he had absolutely no knowledge of the Gunnadoo Enterprises account conducted at 441 Ruthven Street Branch of the bank.

Board is asked the question, “when did you become aware of the critical state of the Kabwand (Somerset) account” and he responds, “August or September I think”. The Kabwand Group of Accounts had been irregular (standing indebtedness exceeded the approved recorded limit) since the 1st April 1985. What this meant was the Kabwand Group of accounts had been irregular for at least four months and that state of irregularity had not been brought to his notice.

Board informed the court that he called for Level 3 Customer Liability Irregular Returns during that four month period and none were received. This simply means that the branch manager during this April to July period was concealing the state of irregularity of Kabwand Group of accounts from the most senior administrative officers of the bank in Queensland. This is a most serious offence which could result in severe admonishment.

What needs to be acknowledged in this situation is the fact that the Kabwand Group Account/s would appear in the Managers Watch List which recorded the names of all branch irregular accounts weekly for at least seventeen weeks and show a term of irregularity building up to 122 days. The bank manager not only would have perused the Manager’s Watch List; he would also have a need to discuss the irregularity during his Regional Manager Dick’s bi-monthly visits. Regional Manager Dick would have been well aware of the reporting procedure re Level 3 Irregular Accounts. The accounts’ irregular status was apparently concealed from the bank’s senior administration.

The question of non-submission of the Kabwand Group of accounts from inclusion in Level 3 Irregular Report also concealed another vital issue for the senior administration. The fact was, at the time, limits were quoted covering the three approved facilities for $225,000, $230,000 and $120,000 on account of Kabwand Pty Ltd, E P & E J Somerset and E J Somerset respectively, the bank’s securities were not in order. Albion’s approved Line of Credit Application for $575,000 made provision for taking a second registered mortgage over the eight strata title units where Mrs Somerset was the sole registered proprietor. This security was recorded in bank records as security No 3.

The bank did not have executed mortgages in their possession at the time the strata title plan was registered at the titles office. When the bank attempted to perfect its strata title unit security, Mrs Somerset was only prepared to sign the bank’s documentation covering five units, not the eight that the unit block comprised. Mrs Somerset had informed bank employees whenever unit security was brought to her attention that she was only ever prepared to allow five units to be subject to a second registered charge.

Referring to the bank’s letter of approval addressed to the Somersets dated 11th March 1985, it states, in part, “Securities for these advances are ... and 2nd registered mortgage over the units at James Street, Toowoomba”. However Mrs Somerset never agreed to these terms and conditions. Mrs Somerset never signed the duplicate acknowledgment required by the bank.

In my view the true position regarding bank security position was concealed at all times from the bank’s senior administration. Senior administration did not become aware of the deficiencies in the bank’s security position until October 1985, just on six months after settlement and loans drawdown.

Some commentary contained in bank discovered documents during October 1985 states:

Position is not good. These people are not playing ball by refusing to sign mortgages over 2 units.

It is obvious the strawberry farm is a financial disaster.

on the surface they seem to be going backwards fast.

so now we can go in boots and all.

The foregoing statements clearly indicate the reasons why the branch, through manager Gunn, was concealing the overall status from his senior administration.

The vital implications of what is stated here under witness Noel Board was not brought to the attention of the court.


Chapter 5: The Decision

His Honour Justice Neaves handed down his 79 page Reasons for Judgement on the 29th September 1988, some seven months after trial conclusion.

Neaves’ decision represented a disaster for the Somersets, as they lost on all counts. On all critical issues which principally involved Edward P Somerset, he was not believed by His Honour on any point. His Honour also did not believe any of Mrs Somerset’s evidence, so much so that he would not take any into consideration unless it was confirmed in alternative manner. At the same time the two vital witnesses for the Respondent Bank, Bank Manager Gunn and Manager’s Clerk Rivers were believed on every point. This was despite the fact that His Honour feels fit to mention that Gunn substituted two diary notes at a time well after the events took place.

At this point, I do not propose to enter into a full critique of the reasons for Judgement and will leave that for my concluding summary. It has eventuated that I have been involved in the Somersets’ efforts to gain just compensation from the National Australia bank since 1987. During that time I have been able to gain a far better overview of what I consider to have taken place in banking circles since the first interview contact took place when Edward P Somerset called on Gunn by appointment on the 30th October 1984.

His Honour devoted his first thirty four pages to background and lead up that led to the Applicants’ predicament. His Honour prefaces his remarks by saying that the two versions of events could not be reconciled (whether E P Somerset’s interviews with Gunn actually took place on the 30th October 1984 and 1st November 1984, and whether both Mr & Mrs Somerset were interviewed by Gunn on the 6th November 1984). Acknowledgment of this series of events, which most certainly did take place, largely depends on the credibility of Mr & Mrs Somerset.

His Honour’s background and lead up is highlighted in ‘statement of fact’ form where few opinions were expressed. However he did come to the conclusion that the Applicants saw the advertisement in the Toowoomba newspaper The Chronicle re the auction sale of Glenhaven on the 3rd November 1984 and not the day after the Glenhaven contract was signed. The Somersets have informed me that their vision is clear on this, that it was definitely the day after the contract was signed.

His Honour’s Reasons for Judgement are left wanting. He did not allude in any respect to the shortfalls and inadequacy of the Respondent Bank’s discovery. Not only was the trial hearing commencement devoted to the sole issue of further and better discovery by the Bank, but senior counsel for the Somersets permeated the whole of his cross examination of Bank Manager Gunn on this issue. Any reasonable person who examined this aspect would have to ask - what has the bank been concealing to date? His Honour was aware that hundreds of pages of bank discovered documents were handed over during the trial. It was an absolute impossibility to examine the veracity and implications of these documents during the time frame of the trial. As I have previously stated, Customer Interview Records Duplicate Running Sheets have not been subjected to a thorough forensic examination to this day.

Up to trial commencement day, documents were discovered in dribs and drabs by the Bank. This fact was highlighted and brought to His Honour’s attention on the third day of Gunn’s cross examination and His Honour responded by saying he doesn’t want to get into an argument about that. During Gunn’s third day of cross examination, just on eight pages in sequence are devoted to the shortfalls in bank discovery.

During the trial a missing document known as a ‘General Report’, which the Somersets’ instructing solicitors had been seeking for some time, was brought to the Court’s notice. The ‘General Report’ was a vital document - that is why it was specifically highlighted. If His Honour had any resolve, he should have made it his business to dig deeper into the situation. It may have been revealed to him what a deceptive game the Bank had been playing regarding discovery.

It is my view that Neaves ‘s judgement is flawed, because, on the discovery issue alone, Federal Court Rules – Parties’ Obligations to the Discovery Process have been treated with contempt. This issue presented a very serious picture to His Honour; however he chose to ignore the situation, I wonder why? Senior counsel for the Somersets lost count of the number of affidavits which the Bank had cause to file regarding the further and better discovery issue. My research reveals that they numbered at least eight.

In his judgement deliberations, His Honour needed to take into consideration the fact that Gunn had seen fit to trawl through bank records of Customer Interview Record status some two years after the stated events took place, destroyed originals and replaced same with a different version. This was all done by Gunn to enhance his employer’s position of debate. The same implication applies regarding destruction of documents and late discovery of documents. When His Honour became cognisant of the foregoing events he should have said to himself, “what other deceptive practices has the Respondent Bank been involved in?” His Honour had another instance right before his eyes. The Statement of Position signed by Edward P Somerset on the 6th November 1984 is discovered by the Bank under date 26th November 1984. Anyone with normal eyesight could determine from perusing this document that it is a distinct possibility that the “2” has been inserted sometime after that of the original date of 6th November 1984. Manager’s Clerk Rivers admits in evidence that it was probable that this document originally bore the date of 6th November 1984.

His Honour deals with the issue that Mr Cardell’s account was subject to close monitoring by Bank employees, and indeed it was. However, he goes on to say that total indebtedness was commensurate with value of security held. Unfortunately, His Honour did not understand what was going on. The fact was that the debt was being allowed to escalate until it was necessary for the branch manager at the time to submit Line of Credit Applications to his superiors to regularise the account. However, before doing so it was necessary for the Branch Manager of the day to increase the Market Value of the strawberry farm, which was the covering supporting security, on four occasions   from $93,000 to $260,000 – a mammoth 179% in the space of twenty months. Failure to increase the Market Value of the strawberry farm at the time would have classified the lending as unsecured. This in effect was an internal ruse that the bank’s administration accepted at the time, including Regional Manager Dick personally. This is one of the reasons why there was pressure on Gunn to get rid of the Gunnadoo Enterprises’ troublesome liability. Gunn was cross examined on his increased valuation of the strawberry farm security when in the name of the Somersets’ company, Kabwand Pty Ltd. The increase represented $100,000 – from $475,000 to $575,000.

While the Somersets’ senior counsel cross examined Gunn on aspects of his valuations, His Honour interjected to say words to the effect, “a bank can value their securities for any amount they like”. Counsel was then forced to drop the issue. This quoted statement does not appear in the transcript and this was not to be the last time that statements made by His Honour from the bench have not appeared in the transcript. I deplore this practice which to me represents unacceptable behaviour. The bank’s acquiescence to manipulation of the strawberry farm valuation plays a very important role in the conspiracy to defraud Mr & Mrs Somerset.

His Honour gives strong credence in his judgement to the fact that there was no criticism concerning Gunn’s critical diary note of the 8th November 1984, as well as the fact that bank documents raised such as Applications enables him to accept the evidence of bank witnesses. If His Honour had had the benefit of an expert witness experienced in National Australia Bank procedure, he would never have been able to come to this conclusion. This situation is exacerbated because some Customer Interview Records relating to Duplicate Running Sheets represent a reconstruction. One original, for instance, is a total fabrication. Even if one looks at the available evidence constructively, on the balance of probabilities, the Somersets win the day.

There were many aspects of His Honour’s judgement where he referred to issues appertaining to Mr & Mrs Somerset which I was unable to interpret. It was quite sometime after all their court appeals that I was able to decipher what His Honour was alluding to. This was only achieved on my part after several discussions that I had with Mr & Mrs Somerset.

A good example of this is His Honour’s judgement commentary that Mr & Mrs Somerset never at any time made a complaint to the bank concerning Gunn’s conduct. His Honour’s statement is true on the evidence, however completely untrue as to reality. His Honour had absolutely no right to make this statement. The fact was that Mrs Somerset was responsible herself for arranging such a meeting with members of the Bank’ s senior administration, including the State Manager for Country Zone in the State of Queensland. Mrs Somerset’s Toowoomba solicitor accompanied her and her husband when they travelled to Brisbane. The meeting lasted approximately two hours and was conducted at National Australia Bank House, corner of Adelaide and Creek Streets Brisbane, on the 23rd August 1986. (Refer exhibit ‘P’.)

I hold the view that His Honour’s statement had serious ramifications for the Somersets because in every court jurisdiction following this trial judgement, the Bank’s instructing solicitors, Thynne & Macartney, always saw fit to bring this matter to His Honour’s notice. The fact was that the Bank’s instructing solicitors well knew this fact to be false. It so transpired that the meeting of the 23rd August 1986 was organised by the bank’s most senior external solicitor and senior partner of Thynne & Macartney. This solicitor partner took copious notes throughout the meeting, but took no part in any discussion.

His Honour gave judgement for the Cross Claimant, the Respondent Bank, for the sum of $972,852.57 plus costs. My pre-trial opinion was confirmed – the case could have been considerably assisted by my evidence.

Mr & Mrs Somersets’ legal advisers came to the conclusion, after examining His Honour Justice Neaves’ Reasons for Judgement, that there were legitimate grounds for appeal and they so recommended. The appeal was heard just over six months after the primary decision was handed down with junior counsel in that trial becoming senior counsel for the Federal Court Full Bench Appeal. Senior counsel’s junior was familiar with the case history to date and I had been associated with him since first agreeing to act as a consultant right up to the trial hearing.

Documents filed for the appeal consisted of over 4500 pages. The Appeal Book Binder documents were settled with all page transcripts of proceedings, including directions hearings, included. This was despite the fact that the instructing solicitors strongly pressed for the exclusion of all transcript pages regarding directions, which of course included all the contentious matters relating to their client’s discovery. The bank’s instructing solicitors also desired exclusion of my affidavit together with the affidavit of consultant “B” where content referred to the controversial issue their client’s discovery. Their intentions were unsuccessful in this regard.

During the six month lead-up period to the appeal hearing, Mr & Mrs Somerset contacted me on several occasions when aspects of their predicament were discussed. When the appeal brief became available they gave me a copy for personal reference purposes. Up until that time I had no bank documents in my possession; however I did have a copy of some of my reports which I had compiled for the instructing solicitors. I made myself available at counsel’s request to advise them on purpose of bank documents and procedure.

The Appeal Hearing was conducted before His Honours, Hill, Hartigan and Lockhart with Lockhart as presiding judge. Their principal issues for deliberation turned on questions of fact and the credibility of the directors of the Appellant company, Kabwand Pty Ltd – Mr & Mrs Somerset. The primary issues in this regard were Mr Somerset’s alleged appointments with Bank manager Gunn on the 30th October and 1st November 1984 and the appointment with Gunn on 6th November 1984 where both Mr & Mrs Somerset were present. Since the primary judge came to the clear conclusion that the meetings of the 30th October 1984 and 1st November 1984 did not take place and the meeting of the 6th November 1984 was conducted in a vastly different format than alleged by the Appellants   Gunn’s and Manager’s Clerk Rivers’ evidence won the day as one corroborated the other. It followed that the alleged representations had not been made with respect to property purchase of Gunnadoo, the strawberry farm.

This then left the residual representation that Manager Gunn had confirmed in his evidence that the “strawberry farm had an excellent cash flow situation” and that this representation concerned surrounding aspects of the Appellants’ purchase of the property Glenhaven. This latter transaction had nothing to do with the purchase of the strawberry farm which had transpired and crystallised some days earlier. Exhibits were tendered during the primary trial which tended to support the “Excellent cash flow” factor.

Counsel for the Appellants then sought to make four amendments to their clients’ Statement of Claim and this was refused on the casting vote of the presiding judge. The successful rebuttal argument promoted by counsel for the Respondent Bank was that their learned friends were now alleging that it was a fraud case and, if that had been the situation, they would have run their client’s action along completely different lines. The bench considered it to be unfair to give a benefit of this nature to the Appellants indicating that the Respondent Bank could not be compensated for costs or otherwise and would be a victim of injury.

Senior counsel for the appellant company spent considerable time in address to their Honours regarding the inadequacy of the bank’s discovery which incorporated non-discovery of documents as well as Gunn’s admittance that he had destroyed two of his original diary notes.

Time was expended in address regarding the two issues of inducement and confidentiality.

All in all, the appeal was a disaster for the Somersets; all arguments went against them and their Honours saw fit to include in their judgement that the Somersets had never made a complaint to a bank officer concerning the misleading conduct of bank manager Gunn. No mention was made in their judgement concerning the serious shortfalls in the Respondent Bank’s discovery. The one exception was that the primary judge pointed out Gunn’s acts of diary note substitution, yet he considered Gunn’s action in this regard did not affect Gunn’s credibility.

Through counsel, the Somersets then mounted an Appeal to the High Court of Australia seeking an Application for Special Leave to Appeal. The hearing was held in Brisbane on 30th June 1989 with covering transcript reaching nine pages. Attention was given to “The strawberry farm had an excellent cash flow situation” and the fact that it was well known to Bank manager Gunn at the time of making this statement, that the vendor’s indebtedness had been constantly increasing. It had reached a figure of $240,000 and the situation was being closely monitored at all times. The aspect of inducement and confidentiality were raised together with the fact that the Loan Contracts which gave the Respondent Bank the right to vary the interest rate so charged at will.

The Somersets’ Application was dismissed, with costs awarded against them.


Chapter 6: Road to Bankruptcy

Shortly after the Somerset’s Appeal was heard in the Federal Court of Australia in April 1989, 1 had a lengthy interview discussion with them and showed them copies of some of my Reports which I had prepared for their instructing solicitors. These Reports were titled, “Comments Re: Transcript of Proceedings on 14/12/87”, “Scenario on what I consider may have taken place” and “Valuation of Bank Security known as Gunnadoo”, bearing dates 12th, 13th and 15th January 1988 respectively. Mr & Mrs Somerset were astounded with the contents of my Reports as they had received no prior knowledge of them. They indicated to me that they had received no feedback whatsoever concerning the activities of the three consultants who had been engaged to examine National Australia Bank discovered documents, etc. They were aware that the services of three retired National Australia Bank bank managers had been engaged and were known to them as “A”, “B” and “C”.

The Somersets were very concerned that their instructing solicitors could have understood the case differently in interpreting aspects regarding their banking history, especially so when it was compared to the bank’s version of events. It was the Somersets who came up with the suggestion to seek and endeavour to engage the services of ex National Australia Bank managers (and the way to go about it) to examine and report on documents. When I informed the Somersets that I had informed their instructing solicitors in January 1988 that it was unlikely that their clients would win the action unless they put me in the witness box, the Somersets were astonished. Not only had their solicitor’s response been erroneous; in fact, the Somersets had never been informed of my advice. The Somersets had the generalised impression at the time that ‘Mr “A” would be a witness for them.

The Somersets’ major concern with their solicitors during the primary trial lead-up, was the fact that Somersets construed that their solicitors did not believe them on the important points of Mr Somerset’s meetings with Bank Manager Gunn on the 30th October 1984 and 1st November 1984 and their joint meeting with Gunn on the 6th November 1984. This credit factor was partly due to the figure “2” being placed in front of the date, 6/11/84 to make it appear that the legitimate date of the Statement of Position form was 26th November 1984. Bank balances recorded on the form were incorrect as at 26th November 1984. This change in bank balances was confirmed by perusal of the Somersets’ National Bank, ANZ Bank and Commonwealth Bank statements.

The contents of my three Reports of January 1989 origin clearly indicated the fraudulent behaviour and inherent conspiracy of certain Bank employees. The Somersets’ long time thoughts had at last been vindicated. The disturbing fact for the Somersets, however, was that they unfailingly maintained at every stage that they were the victims of a mammoth and continuing fraud perpetrated by employees of the National Australia Bank.

The Somersets had legally proceeded against Cardell (strawberry farm owner and vendor) and had had the opportunity to view Cardell/National Australia Bank exhibited documents. The Bank had been able to extricate itself from the mire (to date); now the intentional deceitful purpose right from the outset was revealed. This was despite the fact that the Bank would not provide many documents in the Cardell litigation.

The Somersets decided that under no circumstances would they accept their predicament as is, without utilising every means at their disposal to gain just compensation from the Bank and maintain their integrity. The Somersets considered themselves to be the victims of bastardry. They were both now impecunious, and eventually Mr Somerset received unemployment benefits.

The Somersets made a formal complaint against their former bankers and bank employees on appointment with the Australian Federal Police. This took place in about mid 1989. However when AFP Officers became aware that one of Australia’s leading banks was involved, they soon allowed the complaint to lapse. Once again the air was tainted with the scene that the Somersets were in “fantasy land”; bank employees do not involve themselves in that type of behaviour   criminal at that.

Just prior to the commencement of the Cardell Supreme Court trial hearing, the Somersets’ Toowoomba solicitor, John Davies & Company, on the Somerset’s instruction filed a Supreme Court of Queensland action against the National Australia Bank citing fraud at that time. The National Australia Bank was withholding documents from the discovery process regarding the Cardell trial hearing. This action was later superseded by Brisbane solicitors, Cranston & McEachern & Company, on two counsels’ advice (Fitzgerald & Davies, eventually both judges) in the writ as: Misleading and Deceptive Conduct, Section 52 of the Trade Practices Act which became G65 of 1986.

Towards the end of 1989, the Somersets had arrived at the decision that they should sue the bank and bank manager, C H Gunn, for “Breach of Contract and/ or Negligence and/ or Misrepresentation and/or Negligent Misstatement, Wilful Destruction of Bank Documents, Withholding back documents, Fraudulent Intent, Deceit, and/or Altering Clients’ and bank documents with intent to deceive”. Writ No.69 of 1989 was served on the 6th February 1990 on instruction of the Somersets.

In the latter part of 1989, the Somersets also decided to lodge a formal complaint with the Queensland Police Service Toowoomba, Fraud Squad Section. Detective Senior Constable, Paul Ruge, at Toowoomba Base Headquarters interviewed the Somersets who handed to Detective Ruge copies of my 1988 Reports. It transpired that Ruge was the same detective who called on the Somersets at the strawberry farm with respect to a complaint by the National Australia Bank alleging that the Somersets had stolen property belonging to the bank (National Australia Bank) as mortgagees in possession. Detective Ruge found the bank’s allegation to be groundless and took no action.

Details of the National Australia Bank’s foregoing complaint is referred to in the bank’s discovered document, described as an Internal Memo dated 2/4/86, signed by Regional Manager Dick and addressed to his Lending Controller (Refer exhibit ‘M’), with partial contents being:

This matter is becoming very messy and quite frankly will cost us a lot of money. I am firmly of the opinion that we must act as soon as possible and then persue (sic) him to bankruptcy and if solicitors advise he or his legal advisors have breached the criminal code to continue litigation in the criminal courts.

This action must be persued (sic) on behalf of the industry, as these people are apparently making a mockery of the law.

Dick’s statement as above is endeavouring to ensure at that stage in proceeding, i.e. 2/4/86 (some eighteen months after he had conspired with his subordinate branch manager Gunn), to send Mr & Mrs Somerset into financial oblivion. Mr & Mrs Somerset have lived an exemplary lifestyle, highly respected, and the bank is endeavouring to trump up phony charges. There can be no doubt that Dick is right on the mark when he says “quite frankly this will cost us a lot of money”. The inevitable bank loss was his responsibility. Dick’s actions clearly confirm the comments recorded on a file note by of one his subordinates made some six months previously when he said, “we can now go in boots and all”.

Dick’s recommendations regarding bankruptcy came to fruition when the Somersets were served with Bankruptcy Notice No 60 of 1990 dated 17th January 1990 wherein the National Australia Bank claims that they were a judgement creditor for $590,970.40. It can readily be seen that the bank was acting with lightning speed to issue and serve this notice, within six weeks of the Somersets serving writ on the bank alleging fraud, etc. The National Bank’s aim was to stop the Somersets action and prevent them from seeking justice with respect to their recent instigated legal action in the court. The Somersets’ writ No.69 of 1989 cited fraud perpetrated by the National Australia Bank as First Respondent with Bank Manager Casper Gunn as Second Respondent.

Mrs Somerset and her husband decided to defend the bank’s Bankruptcy Notice. Since they had both been rendered impecunious, they were forced to represent themselves and asked me whether I was prepared to assist by way of raising affidavits setting out the banking situation. I readily agreed. Mrs Somerset filed a defence in terms of Section 41 (7) of the Bankruptcy Act of 1966 on the 5th April 1990. This defence inferred that she and her husband had a counterclaim, set off or cross demand, equal to or exceeding the amount of judgement debt. Further, those issues could not have been set up in the G65 litigation.

I accompanied Mr & Mrs Somerset to all preliminary hearings in the Federal Court of Australia regarding directions. Mrs Somerset filed several affidavits to support her defence. Several of these affidavits were deposed by myself with the majority content being confirmed as a statement of fact by Consultants “B” and “C”. The National Bank’s senior counsel Fryberg endeavoured to have the Defence struck out on account of the fact that filing was not in compliance of the rules. The hearing proper was set down for the 3rd December 1990 before His Honour Justice Spender. I was present in the court to hear all evidence and was also present when His Honour handed down his Reasons For Judgement on the 21st December 1990.

Mrs Somerset’s address to His Honour is spread over just on seventy pages of transcript. Mrs Somerset addressed His Honour with all significant issues which had prevailed during the G65 trial hearing. Special attention was given to the circumstances surrounding Gunn’s valuation of the strawberry farm known as Gunnadoo. I had raised a nine page affidavit specifically relating to this issue to which was exhibited eighteen documents. Contents were concurred to by Consultants “B” and “C”.

His Honour stated in response that “if on the other hand he does it as a dodge to either get rid of a bank’s liability, or to sell out to a friendly vendor, then that of course is fraud”. Mrs Somerset’s response was, “well your Honour, that is what we claimed happened”. His Honour went on to say, “Yes, yes, but I understand that. But the first premise does not necessarily establish the second, does it”. The fact was that His Honour’s two established requirements did exist, however Mrs Somerset did not have the opportunity to reveal the appertaining facts. At this stage His Honour went on to state, “You will see there is one big difficulty at the moment, why was not all this before Justice Neaves.” (Presiding judge at the G65 trial hearing.) There was certainly specialised circumstances why this was so and Mrs Somerset was not aware of this; she had been kept in the dark on this score by her legal representation. The fact was that if His Honour had been informed of the full circumstances of what had transpired, I feel that His Honour would have recommended that all the relevant issues be subject to fraud investigation by the authorities.

Mrs Somerset dealt with the subject of inducement and at all times alluded to the fraudulent behaviour with respect to all issues raised.

In rebuttal, the bank’s senior counsel on more than one occasion stated that “it was a case of fraud’ or “it certainly left a fraud case”. (Bank counsel emphasised. this in Somersets’ Federal Court Appeal before His Honours, Hill, Hartigan and Lockhart.) Counsel went on to say that “there was nothing new since the G65 trial”. Counsel also saw fit to bring to His Honour’s notice that the primary judge had seen fit to include in his Reasons for Judgement the fact that the Somersets had at no time made any formal complaint to senior administrative officers of the Bank. Bank counsel also pointed out to His Honour that there had been no allegation on the Somersets’ part that Gunn’s critical Customer Interview Record, raised under date of 8th November 1984, represented a reconstruction. He concluded by informing His Honour that the allegation of “fraud” could at all times have been raised at the G65 trial hearing, the primary trial. However, the Somersets’ instructing solicitors had sought counsel opinions regarding the writ drawn up by their Toowoomba solicitors which alleged “fraud” and this was changed to breach of Section 52, false, misleading and deceptive conduct.

His Honour handed down his Reasons for Judgement on the 21st December 1990. He saw fit to mention the fact that he had paid particular attention to my reports concerning the primary deficiencies in the conduct of the Bank and its officers in their dealings with the Somersets. His Honour went on to say, “it seems to me that the claims presently made were able to be made in the original proceedings. Mr Salmon speaks of a conversation that he had with Mr Albion on 1st February 1988. The trial before Neaves J commenced on the 15th February 1988, Mr Albion gave evidence on the 29th February 1988.” In other words His Honour Justice Spender is saying that material existed which would support the Somersets’ claim was available to them prior to the commencement of the G65 trial hearing. This material was communicated to the Somersets’ instructing solicitors and not put to Albion in the course of his evidence-in-chief or his cross examination.

His Honour’s assumption was not correct regarding the vital issue of whether Albion had raised any Customer Interview records with respect to his interviews with Mr & Mrs Somerset. Albion was asked by the Somersets’ counsel, “How many times did you raise Customer Interview Records with respect to your interviews with the Somersets?” Albion responded by saying, “I can be exact – twice”. This question was specifically raised because Albion had told me at the pre-trial interview that he had raised “two to three Customer Interview Records”. This means that the Somersets’ counsel has used information I gave them following my pre-trial interview with Albion. Given that the NAB had discovered no Customer Interview Records concerning direct interviews that Albion had with the Somersets, it means that someone has seen fit to destroy or withhold the records that Albion had created. It also confirms that the Duplicate Running Sheets – Customer Interview Record copies have been tampered with.

Further, His Honour overlooked the fact that I travelled to Toowoomba on two occasions after Albion gave evidence on the 29th February 1988 and conducted discussions with him concerning the Somersets’ predicament. However His Honour came to the conclusion that all my knowledge regarding Albion was passed on to the Somersets’ instructing solicitors and that that information was in their possession during the G65 trial hearing. This was not so. His Honour also failed to take into consideration the obstructionist position with respect to the bank’s discovery with the highlighted aspect that thousands of documents were handed over during the trial without affidavit cover.

His Honour also alluded to the fact that, with respect to my evidence, it appeared to him, in large measure, that it was available prior to the trial. He went on to say that this is not a case where it can properly be said that the matters which are sought to be litigated now, “would not have been set up in the action or proceeding in which the judgement or order was obtained”. In other words the Somersets’ Affidavit filed under Section 41 (7) of the Bankruptcy Act was dismissed. His Honour held the view that the Somersets’ material now presented was available to their instructing solicitors for their G65 trial hearing.

What needs to be realised at this juncture was that their Honours in the Somersets’ Federal Court Appeal were able to unanimously come to the conclusion, “this is fraud”. This is distinct from a breach of Section 52 of the Trade Practices Act which stated: “A corporate shall not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive”. Section 52 of the Trade Practices Act was pleaded in the Somersets’ G65 litigation. With the conclusion of “fraud” by three Federal Court Appeal judges, the Somersets’ counsel, together with their instructing solicitors, started to sit up and take note of the fact that it was a fraud case after all.

His Honour made the point that the initial affidavit of the Somersets was filed within the time for compliance with the Bankruptcy Notice. I am sure that His Honour made a point of this because at all preliminary hearings the bank’s senior counsel always brought to the notice of the Registrar or judge presiding that the initial affidavit deposed to by Mrs Somerset was filed out of time. What needs to be highlighted is that Mrs Somerset was a self represented litigant and at all times sought information from Federal Court personnel as to the process involved. I was a witness to these events.

Since that time I have been in the courtroom on many occasions when a major bank was a litigant and it was alleged that affidavits were filed out of time in accordance with court rules and His Honour has always dismissed the complaint. It is patently obvious to me at all times that the bank’s senior counsel was resorting to intimidatory tactics, endeavouring to have the Somersets struck out.

His Honour then declared that Mr and Mrs Somerset will have committed an act of bankruptcy if they did not comply with the Bankruptcy Notice for which compliance was extended. His Honour then issued his orders on costs in the event of a sequestration order being made on the application of the National Australia Bank and also in the event if no sequestration order was made. The Somersets at that stage were not declared bankrupt, His Honour went on to say that passports could be activated and business activity by the Somersets could proceed.

His Honour’s conclusions clearly indicate that Mr and Mrs Somerset had been badly let down by their instructing solicitors with respect to the primary trial. Mrs Somerset sought final commentary from His Honour as to her and her husband’s current status and, as an aside, he told her that they should consider suing their instructing solicitors. This comment does not appear in the transcript.

On the 20th May 1991, a Notice of Intention of Debtor To Appear at the Hearing of Petition signed by Mrs Somerset was served on the National Australia Bank on the 23rd May 1991. Grounds of opposition principally included, “fraud, fraudulent actions, conspiracy to defraud, and collusion in deceit, and in testimony and false testimony was concealed, etc”. This was the procedure to be followed by the Somersets who were now required to defend the bank’s Bankruptcy Notice No.60 of 1990, dated 17th January 1990. This formal process of the bank had been interrupted by the Somersets’ Federal Court Section 41 (7) affidavit hearing.

His Honour Justice Spender presided over the Creditors Petition (National Australia Bank) hearing on the 6th November 1991. In the lead up to the hearing, there were directions hearings. During one of these hearings, Mrs Somerset asked His Honour whether she would be able to call witnesses on their behalf and he replied in the affirmative. His Honour’s remarks in this regard do not appear in the transcript. At that stage it was Mrs Somerset’s firm intention to call me to the witness stand.

The National Australia Bank was initially represented by its senior barrister, Fryberg (now judge in the Queensland Supreme Court) who had represented the bank at all trial hearings to date. However he was replaced early in the process. Documentation was handed to His Honour by Mrs Somerset which stated in essence that, “Fryberg did not deny the fraud”. It is the Somersets’ belief that this culminated in bank counsel Fryberg being removed.

Once again I gave the Somersets an affidavit which was filed by Mrs Somerset. She represented herself and her husband in direction hearings. At that stage the Somersets were acquainted with a resident country Legal Aid barrister. He was aware that they were the victims of National Australia Bank malpractice. He had input into Australian Democrat Paul McLean’s speech delivered in the Senate on the 12th November 1990. McLean’s speech was spread over four pages in Hansard and was accompanied by the tabling of thirty three documents in support. Mrs Somerset had introduced myself to this barrister some months previously. During the immediate lead up period to the hearing proper on the 6th November 1991 the barrister asked Mrs Somerset whether she was comfortable in presenting their case before His Honour Justice Spender. Mrs Somerset said, “I can argue the facts, however I cannot and am not permitted to argue the law”. In these circumstances it was agreed that he would act as counsel for final sequestration.

Mrs Somerset informed him that she wanted him to call me to the witness stand for examination, and to respond to aspects of my depositions. I can recall having at least one pre-trial conference with the barrister; however I cannot recall as to where this took place.

After Mrs Somerset was cross examined, His Honour asked bank counsel whether he intended to call further witnesses for cross examination. He replied in the negative. Many of the vital issues which had been dealt with in previous hearings were regurgitated. These included inadequacy of the bank’s discovery with specific mention of the ‘General Report” document, a vital document which had never been discovered by the bank.

However, there was rebuttal presentation to this issue, with the bank’s counsel informing His Honour that, in the G65 trial, the Somersets’ counsel informed Justice Neaves (without consultation with the Somersets) that “they were prepared to take it on the run” in so far as further and better discovery was concerned. The bank’s counsel also saw fit to inform His Honour that the Somersets had never made any attempt to complain about their predicament to senior officers of the bank’s administration. His Honour made it clear that he wanted the hearing finalised within a week, not the set down period of three weeks.

To me, the remark regarding “never made an attempt to complain about their predicament” was very pointed indeed because as new counsel he would have to have been recently told of this issue by the bank’s instructing solicitors. The bank’s instructing solicitors well knew that this statement was untrue – it was a blatant lie. This will clearly indicate to the reader the low level tactics which the legal profession are willing to resort to, to win the case for their clients. My sixteen years in consultancy clearly indicates that not only does the bank’s legal team adopt deceitful and underhand tactics; in some circumstances we also have the bank’s opposing counsel running up the white flag.

Counsel’s address for the Somersets was presented over some hours and, as time progressed, it became obvious to those in the court room that he did not have the ability to competently respond to His Honour’s questions from the bench. As His Honour interjected on occasions, the Somersets’ barrister was left wanting.

I was sitting at the bar table on the left of the barrister with Mrs Somerset on my left. At some stage during the proceedings, Mrs Somerset handed to me a note to give to the barrister which stated, “put John in the witness box”. Her barrister ignored this direction. I also brought various matters to his attention with respect to His Honour’s remarks; however he did not seem to be able to “grasp the metal” of my information or its vital importance in exposing the Bank’s fraud and deceit. Very shortly after the Somersets’ barrister received and read the note, his clients’ case was brought to a sudden conclusion.

His Honour handed down his Minutes of Order on the 13th November 1991 which covered fifteen pages. By far the majority of these pages contained the recital of the Somersets’ case history and, at the same time, this was interposed by case references. His Honour saw fit once again to mention the discovery issue and highlighted the fact that applicants ‘‘were prepared to take it on the run”. There was no mention of the fact that the Somersets’ junior counsel did so on his own volition; no consultation took place with clients. He went on to say that the alteration and destruction of documents “were extensively canvassed at the [G65] trial”. The real fact was that the trial judge, Justice Neaves, was not interested in hearing the ‘discovery problem” and told those present in the court room as such.

As there was no material before His Honour regarding non-inducement, he came to the conclusion that it would be futile to go behind the judgement and consider other aspects of the matter. He went on to say that it was not possible to conclude that there has been any failure to make discovery which might have affected the outcome. This was particularly so having regard to the factual findings as to non-inducement and the findings as to the timing of the various meetings made by Neaves J.

The bank had admitted, by way of filed affidavit content, that, in the course of re-organisation of the bank’s administrative structure, certain files and unimportant computer generated printouts were destroyed. There was no such thing as unimportant documents of any kind in the circumstances. Bank Manager Gunn had raised Customer Interview Records under the name of strawberry farm vendor wherein he stated, “has hit the jackpot, his troubles and ours will be over”. This is a clear indication of Gunn’s state of mind at the time.

There is no doubt that Neaves J’s findings were wrong in every respect. Any banker examining the files would know that Gunn was covering his tracks and that is why documents were destroyed, fabricated and reconstructed – all the hallmarks of a guilty person and/or persons.

His Honour was satisfied that acts of bankruptcy as alleged had been committed and he followed by making a sequestration order against the estates of both Mr and Mrs Somerset. Date of Bankruptcy became the 13th November 1991. His Honour’s decision represented another disaster for the Somersets. There can be no doubt that the primary cause was created within the G65 trial process and proceedings.

Looking at the situation now, I can see that other factors prevailed which went against the Somersets. If I had known, I would have proffered an explanation to the court why Gunn had destroyed certain documents. What should have been brought to His Honour’s notice was the fact that Customer Interview Records known as Duplicate Running Sheets had not been subject to a thorough forensic examination.

On the score of inducement, I consider that adequate evidence was presented at the primary trial and Justice Neaves had no right to reject that evidence. Naturally with Mrs Somerset being a self represented litigant did not help in the lead up to the sequestration trial hearing. There was no generalised offer of assistance despite the fact that just on $800,000 had been expended.

Mrs Somerset informed me some days after they were declared bankrupt, at the instigation of the bank, that their barrister told her that “he was disgusted with the legal profession and intended not to act as a barrister in the future”. To the best of my knowledge this is so. Mrs Somerset also told me that her barrister was a member officer of the Citizens Military Forces and the bank’s senior counsel whose services had been retained right throughout all litigation until the second day of the Creditor’s Petition hearing was also a member officer in the Citizens Military Forces.



Chapter 7: The No Road To Justice: Bankruptcy Aftermath

Sometime during the latter part of 1991, the Somersets received the disturbing news from the Toowoomba District Criminal Investigation Branch of the Queensland Police Service that their complaint against employees of the National Australia Bank would be terminated. They were extremely disappointed.

During December of the previous year, the original investigating officer who had spent a considerable time on the plaint was transferred to immediate relocation central coast Queensland. His investigation into the National Australia Bank criminal fraud ceased forthwith. This investigating officer received notification of the transfer on the same day (in the Brisbane Office) that he had travelled to Brisbane from his home base Toowoomba. He had already prepared the formalities in the Toowoomba Offices regarding the relevant warrants, and he intended to personally serve these warrants. He had advised the Somersets that he would telephone them that evening after his return from serving the warrants on the National Australia Bank Brisbane. Later that evening, the officer telephoned the Somersets and advised them of non-service of warrants and his immediate transfer. The Queensland Police discontinued their investigation.

This investigating police officer had conducted interviews with myself on two occasions at my home residence. I was led to believe that the decision to swear out warrants was taken at the highest level, i.e. the Director of Public Prosecutions. The Somersets were informed by the investigating officer that they would be contacted on his return to Toowoomba from Brisbane later that day. He telephoned them on his return, as promised, to advise them that he had received a transfer on promotion to Gladstone and that he was required to terminate his investigation into their complaint against National Australia Bank employees forthwith.

Both Mr & Mrs Somerset felt they had been cheated of lawful justice in this situation and sought an interview with the Director of Public Prosecutions, R N Millar Q.C. Mr Millar agreed to the interview which took place on the 23rd February 1993 at 10.00 am. I accompanied the Somersets (at their request) when Mrs Somerset sought an explanation - why the bank employees in question would not be interviewed or examined with a view to prosecution. The Director informed the Somersets that his department lacked the appropriate resources to finalise the prosecution of the indictment.

The interview was of approximately eighty minutes duration and towards the end of the interview I personally asked the Director, did he consider bank employees to be immune from criminal prosecution as a result of their actions in banking matters? He responded to this question, and I quote, “Where bank fraud is condoned by the bank’s administration, it was impossible to prosecute bank employees unless the bank employee admitted his guilt in the particular transaction and pleaded guilty. They, bank employees were entitled in law to refuse to answer police questions.”

The question is, can bank officers in Queensland engage in criminal behaviour in Queensland (in so far as their conduct with third parties is concerned) and be immune from criminal prosecution? I have brought this matter to the notice of many legal people, both in Queensland and interstate. Quite a few people in response do not agree with the Director’s foregoing statement.

Was this why National Australia Bank employees were not subject to prosecution regarding the Somersets’ fiasco?

Shortly after the Somersets’ Federal Court of Australia Declaration regarding Bankruptcy on the 13 November 1991, the Somersets received correspondence from the Official Receiver in Bankruptcy (the Insolvency and Trustee Service of Australia) instructing them to advise ITSA of their detailed financial status. What was revealed to ITSA was that the Somersets instigated Supreme Court of Queensland litigation against bank manager, Casper Gunn, and his employer the National Australia Bank. Documentation concerning this litigation was served on the National Australia Bank on 6 February 1990.

It was the Somersets’ strong view that ITSA should continue to involve itself in this litigation which they had commenced. In fact this action now vested in the name of ITSA and was therefore under its control. The Somersets provided ITSA with all the relevant material including all court filed affidavits mandatory in bankruptcy. ITSA referred the matter to the Australian Government Solicitor. I worked closely with him explaining the correct banking procedure together with the relevant rules, ethics and code of practice.

The Australian Government Solicitor raised his first report addressed to ITSA under date of 14 February 1992. This was spread over seven pages. Under the heading of “Fraudulent Misrepresentation”, he considered that there were prospects that Mr Gunn was acting fraudulently in the representations he had made to the bankrupts which in turn induced them to enter into the contracts of sale. This conclusion was subject to the qualification that a court would need to be satisfied with the evidence regarding the fact that Manager Gunn had manipulated the bank valuations fraudulently. It followed of course that correct banking procedure had not been maintained.

The Australian Government Solicitor dealt with these vital issues under Breach of Fiduciary Duty. He considered that there was sufficient merit in the bankrupts’ claim to justify ITSA seeking funding to obtain Counsel’s Advice on the evidence and prospects to amend pleadings. The Australian Government Solicitor had himself by this time, after examining bank documents, also reached the view that there was also fraudulent non disclosure by the bank in providing discovery. The Australian Government Solicitor discovered that the Somersets’ bankruptcy situation clearly presented their allegations of fraudulent behaviour by the bank. It is of note that similar material was submitted by the author before the House of Representatives Standing Committee on Finance and Public Administration (Reference: Australian Banking Industry) in 1990 and 1991. Similar material was also submitted to the Senate Rural and Regional Affairs and Transport References Committee in 1994. Much of this material is recorded in Hansard.

Surely these disclosures provided sufficient public interest for the Inspector General in Bankruptcy to consider funding pursuant to Section 305 of the Bankruptcy Act.

The Australian Government Solicitor concluded his communication by saying that, because the facts are already in the public domain, this action would generate bad publicity for the bank if it proceeds to trial and as a consequence he considered that there were prospects of the National Australia Bank making an offer to settle.

In subsequent correspondence addressed to ITSA, the Australian Government Solicitor saw fit to reiterate part of the Hansard Senate speech delivered by Senator Paul McLean on the 12 November 1990 which the Senator believed adequately summed up the bankrupts’ position:

In both instances the bank has used its privileged position of trust to protect its own financial interest against, and to the detriment of, deceit and greed the National Australia Bank has reduced previously wealthy customers to penury. To add insult to injury the National Australia Bank is now attempting to force Mr & Mrs Somerset into bankruptcy.

The recommendation of the Australian Government Solicitor proceeded. The requested barrister’s opinion did not become available until the last week of August 1993. In the meantime the Somersets’ trustee conducted creditors’ meetings, with myself attending. To the best of my knowledge I accompanied the Somersets concerning all meetings they had with ITSA employees, the Australian Government Solicitor and the barrister (counsel) selected to raise the opinion. During the eighteen month period dating from the Somersets’ declared Bankruptcy, the Somersets gained the distinct impression that ITSA employees (dealing with the file) were very mindful and fully aware of the National Australia Bank’s public profile, public status and power in the availability of unlimited resources to defend an action. I had gleaned the same opinion as the Somersets. At all times ITSA showed a degree of reluctance to take on an opponent like a bank.

Documents discovered under Freedom of Information indicate that an ITSA Internal Memorandum envisaged that the “cost of preliminary counsel advice and a four day hearing, provided the bank does not raise substantial interlocutory issues will be approximately $10,000.” This Internal Memorandum from Freedom of Information discovery also recorded that if Bankruptcy Section 305 funding was not forthcoming “then the Somersets would request that the action be assigned to them”. This statement was completely false and, in my view, was simply a ruse to avoid proceeding with Section 305 funding. The fact was that Counsel’s Advice on the 26th August 1993 recommended that an examination of National Australia Bank employees and others be entered into.

Once again I had discussions with the barrister (counsel) to explain the National Australia Bank bank documents and bank procedure. The barrister’s conclusion was, “despite the fact that fraud may be difficult to prove, an examination of certain people should be instigated in terms of Section 81 of the Bankruptcy Act”. Names included therein for examination included Bank Manager Gunn, Regional Manager Dick, Manager’s Clerk Rivers and other people known to Gunn, both personally and professionally. As consultant assisting ITSA and Counsel, I was handed a copy of the opinion. Minor inaccuracies in the barrister’s opinion I formally attended to as Consultant.

ITSA then sought funding from the Somersets’ creditors without success. ITSA then sought special provision for funding from the Inspector General in Bankruptcy, in terms of Section 305 of the Bankruptcy Act. This funding was not forthcoming; no such action took place.

When the Australian Government Solicitor became aware of the Somersets’ situation, he issued a directive to ITSA informing them that the Federal Court of Australia should be notified authorising the Federal Court to retain all bank exhibited documents originating from the G65 trial hearing. These exhibited documents remain in court custody to this day.

The Somersets were extremely irate that ITSA was not prepared to undertake a Section 305 Examination, so much so, that Mrs Somerset decided to enter into correspondence with anyone who she considered may be able to assist them in their plight. This approach in the main was directed to federal politicians.

One politician who was very concerned with their predicament was Senator Amanda Vanstone. The Senator’s correspondence by January 1995 included letters to D R Argus, National Australia Bank Managing Director and D W King, State Manager of the NAB for Queensland. In acknowledged correspondence were the words, “the matter looks quite serious and certainly very complex”. Professionals engaged in the case during the litigation commented that it is a matter of fraud. Senator Vanstone received correspondence from the bank signed by J M D’Arcy, Corporate Lawyer, Support Services, National Australia Bank.

One National Bank response was raised some four months after the Somersets’ letter of complaint was received. This particular letter was signed by D W Lawson, Principal Counsel, Group Legal National Australia Bank and contained the statement, “the courts in which the actions were brought or appealed found in favour of the Bank”. In other words the bank did and would do nothing. Mr G J King, State Manager for the National Australia Bank in Queensland, responded to my correspondence by informing me, “I do not believe that it is at all appropriate to pursue these matters any further and consider the fi les closed.” Both the Somersets and I were rebuffed by Chairman of Directors W R M Irvine in January 1997 after he had been informed of the fraud following the revelations of the Federal Court of Australia G355 Appeal Hearing.

Mrs Somerset also addressed considerable correspondence to the Inspector General in Bankruptcy as well as to the Justice Minister of the day, The Honourable Duncan Kerr MP. Mrs Somerset’s letter to the Minister under the date of the 13 April 1995 fully spelt out how they were the victims of National Australia Bank fraud. As a matter of fact the word “fraud” is mentioned thirteen times in her letter.

On Mrs Somerset’s authorisation, I also entered into correspondence with all those who she felt might be able to assist her and her husband in their quest for justice. Senator Vanstone received a letter from the Federal Minister for Justice, The Hon Duncan Kerr MP, raised under date of 2 March 1995. He stated therein in part that the Inspector General concluded that “examinations suggested by counsel amounted to no more, in effect, than a fishing expedition and highlighted a weakness of the case”. The Minister also went on to say, with respect to my personal representations in the context of Section 305, that I had addressed the specific public interest factor in the context of the banking industry as a whole and not specifically related to the Bankruptcy Act. This was a deliberate ministerial misrepresentation of the facts enclosed and directed to in the correspondence.

The facts were that following the completion of the Federal Court of Australia G65 trial hearing, in all subsequent litigation in which the Somersets were involved a common thread persistently appeared. The common thread was that National Australia Bank employees had a fraudulent involvement with respect to their dealings with the Somersets. His Honour Justice Spender, in Bankruptcy proceedings, had stated that if this and that had taken place, it was fraud. It was clearly stated that this and that had taken place. The Somersets were the victims of the bank’s fraudulent behaviour.

In my view these two explanations of the Inspector General are simply a ruse on his part so as to avoid bringing one of our major Australian banks to heel so as not to reveal the misdeeds of the National Australia Bank at Senior Administrative level.

Since the Somersets were declared bankrupt in November 1991, I have taken every opportunity to bring to the notice of anyone who I consider may be interested to learn of their plight. At the same time I have been highlighting aspects of banking malpractice and its inter-connecting link in the legal process to both Federal and State Parliamentary authorities as well as the judiciary.

One of those people I spoke to commanded a high public profile. He was very distressed to learn of the Somersets’ predicament and asked me how he could help. I mentioned the status of their situation with ITSA and he immediately gave me a cheque for $20,000 to assist defray of expenses regarding a proposed Bankruptcy Act Section 81 Examination. The benefactor made two conditions - the Section 81 Examination was to be conducted under the auspices of ITSA and any costs exceeding $20,000 were to come from Section 305 funding. I thought his conditions were reasonable, especially as ITSA had already estimated that approximately $10,000 would be required to cover the Examination.

I informed ITSA by letter under date of 6 April 1995 of this situation. ITSA’s response two weeks later indicated that a situation of this nature should be privately handled and ITSA did not have the considerable resources that would be required to instigate and administer same.

Needless to say the Somersets and I were very disappointed. Once again the evidence comes to light that “One” must not damage the image of one of our leading banks in Australia. I handed back the $20,000 untouched.

On occasions during the prior two years, there was a need for the Somersets to seek access to documents which were contained in their files held by their instructing solicitors. Each of these requests was refused. However sometime in 1998 a senior partner in the firm authorised my access to all documents held in storage. In all they comprised some fifty to sixty cartons. Eventually the Somersets were informed of access and subsequently collected all their file documents from storage. Documents were in no semblance of order and many were without binder or index.

Following the bankruptcy hearings, there was one issue which was constantly in the back of my mind. The National Australia Bank’s senior counsel, H G Fryberg QC (presently a judge on the bench in the Supreme Court of Queensland) had seen fit to bring to the notice of His Honour, Spender J in Federal Court of Australia, General Division Bankruptcy, that the Somersets had made no attempt to formally complain about their predicament to senior administrative employees of the National Australia Bank. There was a deliberate intention here to mislead His Honour. Senior bank counsel did not make this statement on his own volition. He did so following briefing from the bank’s instructing solicitors. The truth of the matter was that the bank’s instructing solicitors knew this statement to be incorrect – it was a blatant lie.

After the bankruptcy decision was handed down, I realised that the bank’s legal team had brought to their Honours’ notice, in five Federal Courts of variant jurisdiction, that the Somersets had never complained to the National Australia Bank about Gunn’s misrepresentations. These jurisdictions were Federal Court of Australia primary court G65 hearing, Federal Court of Australia Full Bench Appeal, High Court of Australia, Federal Court of Australia Hearing of’ a Section 41 (7) Affidavit and Federal Court of Australia, Bankruptcy - Contested Creditor’s Petition. In the initial hearing the matter of misrepresentation – lack of timely complaint – is not included in the transcript and has never been subject to any rebuttal in any of the five jurisdictions because of the specialised circumstances of the time.

I had a strong feeling that there was a perverse reason why this vital issue had received such prominence. As a consequence I pointed out the importance of what had transpired here to Mrs Somerset and asked her whether the statement made to the various courts was correct. Mrs Somerset informed me that it was most definitely incorrect; she proceeded to inform me what the true position was. Mrs Somerset advised me that she and her husband had been continually making complaints to bank manager Gunn ever since they had been advised by strawberry farm vendor’s son that they had been conned in May 1985. Sometime down the track Mrs Somerset asked Gunn to arrange an appointment with senior officers of his bank in Brisbane. Gunn refused, stating that he held complete authority. He proceeded to say that no appointment could be made without his concurrence.

Mrs Somerset advised Gunn that she would arrange such a meeting herself; she was determined because she and her husband believed that they had been massively deceived and that the bank, through their employee Gunn, was involved in some way. Consequently Mrs Somerset telephoned the bank’s Brisbane Administration and spoke to Country Zone State Manager for Queensland, Mr Tilbrook. The matter of a meeting was originally mentioned to him and he undertook to arrange such a meeting. It was to take place in August 1986. Mr Tilbrook advised Mrs Somerset to have her Toowoomba solicitor, John Davies, contact Doug Spence of Thynne & Macartney. Thynne & Macartney were the bank’s instructing solicitors and Doug Spence was a senior partner in the legal firm. The meeting was subsequently organised by Doug Spence in conjunction with John Davies and was set down for Friday the 22nd August 1986.

Mrs Somerset drove down to Brisbane and onto the Head Office of the National Australia Bank in Queensland. Their solicitor, John Davies, was a passenger in their car. Mrs Somerset informed me that several senior bank personnel were present, being Country Zone State Manager, Mr Tilbrook, State Securities Officer, Nev Clarke. Senior Lending Manager, Mr Noel Board and at least one other bank employee. Doug Spence, the senior partner with the bank’s external solicitors, was also present. Mr Spence took no part in the discussion; however he took notes right throughout the entire meeting which lasted approximately two hours.

Approximately eight months prior to the commencement of the G65 trial hearing, Mrs Somerset brought the matter of the meeting with senior bank personnel to the notice of the senior partner with her instructing solicitors. The senior partner advised her that he would contact their Toowoomba solicitor, John Davies, and obtain his confirmation to the meeting and his attendance.

Mrs Somerset was later to learn that her Toowoomba solicitor John Davies advised the senior partner of her instructing solicitors that he had recently moved his professional offices and had not been able to locate the relevant records.

As a consequence the Somersets’ instructing solicitors advised them that they could not use details of the meeting in their court evidence. The Somersets were then precluded from inserting details of the meeting with senior administrative employees of the National Australia Bank together with Doug Spence, the senior partner with the bank’s external and instructing solicitors.

When Joy Somerset had originally told me of this situation, I thought it quite strange, especially on the part of John Davies. He had been the Somersets’ Toowoomba solicitor for many years. I told Joy to telephone John Davies at her earliest convenience, refresh his memory on this matter and ask him to search his records and see if he can come up with anything.

There was a considerable time lapse before John Davies telephoned Joy Somerset to inform her that he had located his office records of the meeting. Davies was then able to recall with clarity some meeting details. Davies photocopied his records appertaining thereto and forwarded a copy to the Somersets. I am led to believe that John Davies records in his own hand, “Doug Spence @ 11 AM. 23rd Floor. Nat. Bank. Meeting. Build. John Tilbrook Nev Clarke. John Davies.” Other writings appear on the page which is most probably that of an employee. Date, Kabwand, National Bank and EJR Pastoral Co are written names recorded thereon. The meeting took place on Friday the 23rd August 1986.

The Somersets’ affidavits which were prepared for the G65 trial hearing by their Brisbane solicitors were deposed to on the 7th and 10th August 1987. What this means is that, after a time lapse of approximately twelve months, the Somersets’ Toowoomba solicitor, John Davies was unable to recall a meeting at National Bank House in Brisbane, arrangements in which he participated. Further he was chauffeured to Brisbane from Toowoomba by his client Mrs Somerset. When details of the complaint were brought to the attention of the Brisbane solicitor by Mrs Somerset, he informed her that, if John Davies could not recall his involvement in this regard, then he was not in a position to give sworn evidence at the G65 trial hearing.

For the G65 trial hearing, Esanda, which held a first mortgage over Mrs Somerset’s Toowoomba Town House units, were required to enter into third party discovery. Esanda discovered a Diary Note raised under date 11th August 1986 signed by her account controller. The contents indicated to the reader that Mr Tilbrook, Chief Rural Officer, has examined their (NAB) files and had agreed to meet with her. The meeting was expected to take place after Show week with Mrs Somerset to keep them (Esanda) informed.

In January 1995 Mrs Somerset was telephoned by the Editor of the Victorian Monthly Publication, the newspaper, “The Strategy” (published Goulburn, Victoria). The Editor informed her that he had been advised by a third party of the Somersets’ battle with the National Australia Bank. He also informed her further that he had read Senator Paul McLean’s Hansard speech delivered in the Senate on the 12th November 1990 concerning their predicament. The Editor went on to advise of his newspaper’s policy of Truth and Action. The Editor further said that he was aware of the unscrupulous activity within some of Australia’s leading banks and would like to publish their story. Mrs Somerset advised she had no objection and that neither she nor her husband would be interviewed or supply material at this time.

The outcome was that their involvement with the National Australia Bank was given comprehensive coverage in the March 1995 Volume 4 publication of The Strategy. The front page display was titled “Banks Guilty of Fraud?” This recital was accompanied by a photo of the National Australia Bank Branch with the supporting caption:

A story of what appears to be the most contemptible fraud, corruption and perjury ever used to bring a family to bankruptcy, that one could imagine.

Story publication covered a three full page spread with the following sub­headings: “Deceit Fraud and Conspiracy”, “Dereliction of Duty”, “Corruption Fraudulent Intent Conspiracy to Deceive Perjury”, “Never Discovered”, “False Words”, “Blatant Fraud and Deception” and “Lies and Deceit”.

What was the outcome as far as the Somersets were concerned? Absolutely nil. The National Australia Bank was certainly made aware of the publication. Copies were handed out outside Head Office Melbourne of the National Australia Bank, as well as the bank’s main Brisbane Administration building. They were also handed out outside the 441 Ruthven Street Branch of the bank where the alleged events took place. The National Australia Bank adopted the ‘lie low’ mode.

In January 1995, Mrs Somerset authorised me to write directly to the Chief General Manager of the National Australia Bank, Mr A W Diplock. Having known Alan Diplock during his banking career, I appealed to his sense of duty to do the right thing. I addressed Mr Diplock with the Somersets’ plaint which covered four pages, raising all the principal issues and, at the same time, indicating to him that I had the support of two other retired National Australia Bank Managers.

Mr Diplock responded some three months later and referred to what had transpired in the court proceedings. He made no effort to respond to my allegations and went on to say that he had been aware of publications in which my name was quoted that contained significant distortions which were decided by the courts. Mr Diplock proceeded to say that correspondence which had been forwarded to former officers of the bank appear to be unfounded and misleading. He concluded his letter by saying that my correspondence may be subject to future action.

A copy of this letter was sent to Amanda Vanstone, Shadow Attorney General and Shadow Minister for Justice. I then proceeded to communicate with Senator Vanstone to inform her how the Somersets and myself, with my two fellow retired managers, had come to the conclusion that the Somersets were the victims of fraud and deception perpetrated by the National Australia Bank senior officers and staff and that it was endorsed by senior management of the bank.

In the latter part of 1996, Mrs Somerset communicated with Attorney General, the Hon Daryl Williams AM QC MP, making a second request for Section 305 funding under the Bankruptcy Act. Her request was refused under the signature of the Acting Inspector-General and he informed Mrs Somerset in no uncertain terms that the stage had been reached where the Department’s scarce public service resources would be used no further in replying to persistent, repetitive correspondence.

December 1996 saw the National Australia Bank telling the Australian public in The Weekend Australian that the Bank’s new logo would now incorporate the wording, “Winning Together, Win, Win, Win”. Mrs Somerset raised a letter addressed to W R M Irvine, Chairman of Directors of the National Australia Bank, advising him that the logo wording was incorrect and should read, ‘Win, Win, Win at all costs by fair means or foul”. Mrs Somerset went on to point out in her seven page letter that she and her husband were the victims of his bank’s fraud and deceit. He should undertake to rectify the bank’s fraudulent activity in the 1980’s. No acknowledgement was forthcoming.

Some months prior to the end of 1996, Mrs & Mrs Somerset sought the advice of a solicitor who had been a practising barrister in the early nineties. In his former professional capacity, and on the recommendation of the Australian Government Solicitor, he raised a Memorandum of Advice dated 26th August 1993 concerning the bankrupt estate of Edward P Somerset and his wife Elsie Joy Somerset. As a consequence he had a good background knowledge of the Somersets’ predicament. The Somersets brought him up to date with their legal status as well as their case history.

The Somersets had become most anxious and concerned about the replacement ITSA Officer who was now placed in charge of their bankruptcy fi le. What concerned Mrs Somerset particularly was that she learnt, following inquiries, that this officer now handling their bankruptcy affairs was a former National Australia Bank employee based in Brisbane. Mrs Somerset had noted that his signature appeared under National Australia Bank letterhead and was also now appearing on ITSA’s correspondence addressed to her and her husband. It was concluded that this ITSA employee was not interested in promoting the bankrupt estate or advancing the Somersets’ interest in any way. I was in total concurrence with the Somersets’ thoughts here.

As a consequence I organised the transfer of the Somersets’ Bankruptcy Trusteeship to another Trustee domiciled in Brisbane. Although their solicitor recommended certain avenues of inquiry, which were proceeded with, there was no positive outcome. It was suggested, “if funding” was available, we could do this, we could do that. However the fact was that there was no funding available. The Somersets were impecunious and relied solely on the aged pension for sustenance.

I attended many briefings with the Somersets’ newly engaged solicitor. One day, following our examination and inspection of National Australia Bank discovered documents in the G65 trial, this solicitor said, “his clients, the Somersets were simply victims who had slipped through the legal system”. I told him that he was most definitely wrong. The fact is that the Somersets have been manipulated through the legal system.

For the Somersets, nothing of consequence has transpired for the past five years which might enable these decent and honest Australian citizens to gain just compensation for the abhorrent actions of the National Australia Bank, a company which always commanded single figure ranking in all generalised statistics of listed Australian companies.

Senator Paul McLean was right when he said in his speech of the 12th November 1990, “This type of financial thuggery must be resisted by all fair minded Australians.”


Chapter 8: In Conclusion

In writing about this case history there has been a need for me to re-examine documents which I have not sighted for over thirteen years. The documents that I have given special consideration to were all raised by the Bank in the latter six months of 1985. Although I did examine these documents initially in 1987, I gained the impression that the Somersets’ instructing solicitors considered the content so far removed from the critical period, from October 1984 to March 1985, that they were not interested in the definition of these documents. When I examine these documents now they reveal how there was a need to continue the conspiracy right up to February 1986, when it was necessary for the Bank to raise, in standard process, a Memorandum For Credit Bureau with the sub-heading Realisation of the Bank’s Securities.

My current interpretation of these documents has been facilitated by the fact that I have had the benefit of discussing the Somersets’ predicament more or less continuously for the past fourteen years.

As soon as Edward P Somerset handed his cheque for $500,000 to strawberry farm vendor, Jeffrey R Cardell, the wheels of entrapment already set in motion started to gather momentum. That momentum by way of steam train analogy would continue to accelerate until the train crashed. Once the $500,000, which represented payment for the strawberry farm business in full, with the sum of $185,000 representing deposit paid for the strawberry farm property, it would be very difficult for the Somersets to extricate themselves from the contracts. Given that the National Australia Bank became involved through manager Gunn, and that he was able to induce his Regional Manager, Brian Dick, to agree to lend to the Somersets the sum of $300,000, it would be virtually impossible for the bank to extricate themselves from the forthcoming disaster and stop the train.

Unbeknown to the Somersets at the time the crash was inevitable; it was simply a case of what form it would take and when. It would not take very long, because the Somersets were being encouraged to borrow additional funds by Gunn. However it was always envisaged by Gunn, on my interpretation of bank discovery documentation, that this additional funding should be contained within the delegated lending authority of his Regional Manager, Dick.

Unfortunately for Gunn that scenario was not to be. The loans eventually approved aggregated $575,000, which brought the lending category within the range of the State Manager for Queensland. It brought the tentacles of the conspiracy into the highest echelon of banking in the state of Queensland. Gunn’s major aim was to conceal the fraud with its attaching conspiracy for as long as possible. While he knew that the train would crash, he must defer the notification of the disaster for as long as possible, thereby lessening any chance of revealing the role that the Bank had played in the whole exercise.

When the crash came Gunn was confident that the Bank would suffer no loss of consequence because he knew full well that when the Bank would sell their securities as mortgagees in possession. If it was to reach that situation, the proceeds from the sale thereof would clear the outstanding indebtedness at the time. Gunn stated in his G65 trial evidence, “they had assets … Yes.”

However the bank’s position was precarious indeed in a forced sale situation, because Gunn had inflated the market value of the strawberry farm for lending categorisation, amplified by the fact that Gunn had increased his initial customer file valuation for this security by $100,000, alleging in evidence that improvements had been made. Gunn’s alleged improvements represented a glasshouse demountable which was never completed. This improvement was registered in the Somersets’ family company trading name over which the bank held no security. Gunn’s evidence in this regard was false because there had been no improvements to bank security. If the real security position had come to the notice of the Bank’s senior administration (which included General Manager for Queensland and General Manager Northern & Rural Zone), they would have been absolutely horrified.

This was the true position in March 1985 after settlements had taken place and loans created. In my view the highest Market Value which could have been placed on the bank securities in a mortgagee sale was: strawberry farm Gunnadoo $250,000, Glenhaven $300,000 and Strata Title Units in Mrs Somerset’s name Nil. This Nil value statement regarding Mrs Somerset’s units is due to the fact that she always made it clear to the bank when Strata Title Unit security was eventually brought up that she would only give the bank security over five units; one unit had previously been sold and two units were to be retained for personal family use.

The predicted crash, in so far as the Somersets were concerned, occurred on the 6th May 1985 when strawberry farm vendor’s son, Jeffrey Cardell Junior told the Somersets that they had been conned by his father. The Somersets immediately sought an appointment with Gunn to inform him what had transpired. The fraud is now openly ventilated and Gunn sees fit to raise no Customer Interview Record of this vital discussion. Voices were raised at this discussion. Notification of this event has taken place just six weeks after the two property settlements. The question for Gunn and his Regional Manager was how they were going to conceal the catastrophic situation from the Bank’s s senior administration (i.e. State Manager level)? The Somerset Group of accounts were already irregular at that point in time, so soon after the three loans had been created. I suggest these two officers decided that, until a forced situation arose, the Somerset Group Accounts would not be included in any branch Customer Liability Irregular Returns which would be due to be submitted to the Bank’s administration.

The forced situation raised its ugly head in September 1985 following the reporting by the branch to State Administration that they had been unable to perfect bank security as far as Mrs Somerset’s strata title units were concerned. The branch had messed up the situation in that it held a stamped mortgage over this security and were unable to register same because the strata title plan had been registered and certificate of titles issued. In the circumstances the mortgage could not be registered.

Mrs Somerset would have had to execute an individual mortgage over each of the eight units. Mrs Somerset had refused to do this - it had never ever been her intention to do so and she was only willing to sign mortgages over five units in the circumstances. Two units were always intended to be dedicated for personal family use and never to be encumbered while a third had been sold. The Senior Administration Credit Analyst’s internal File Note records: There must be some reason why they don’t want to pledge the other two units to us”. Then we have the statement of the Senior Lending Manager, in his Internal Memo addressed to the branch, wherein he says: ask Mrs Somerset again if she will execute a mortgage over remaining two units which was the basis of our original approval and confirmed by her in signing original mortgage.”

It is obvious that branch personnel who interviewed Mr and Mrs Somerset at the various times had not raised Customer Interview Records which should have recorded the bank’s proposed security position. As a matter of fact Mrs Somerset had never signed the Bank’s letter of offer dated 11th March 1985 and Gunn should have been aware of that.

I have discussed with Mrs Somerset on several occasions the matter of bank security over her strata title units. She cannot recall ever signing the Bank’s mortgage. It is possible that she unknowingly signed the Bank’s mortgage forms which would have been drawn in duplicate. When the Somersets were signing up for the other two property settlements, the manager may have slipped in two extra mortgages and got them signed. Bear in mind that the Bank’s unit mortgage had been stamped by the Bank; this document should have been discovered but, to the best of my knowledge, it wasn’t.

When Gunn was forced to advise senior Bank administration in September 1985 of the strata title unit fiasco, policy forced him to detail the standing bank balances of the Somerset Group of accounts. The three loan accounts were all irregular. It was the Bank’s standard practice where a state of irregularity existed, that the reason for such should also be advised. Gunn did not do this, so in the administration’s initial response he was asked to explain.

The position was that the Somerset account connection had been irregular for just on 200 days. Aggregate debt was standing at just on $600,000, whereas the two Instalment Loan Accounts were five instalments in arrears, aggregating $16,158.

When the position was fully reviewed in the next month, file memoranda records: “position is not good”; “seem to be going backwards fast”; “position is precarious”; and “position is quite hopeless”. The definitive instruction to the branch was, “submit Bad and Doubtful Debt Return Urgently”. The Senior Credit Analyst felt it appropriate to highlight to his superiors that strawberry farm turnover was $6000 per month as compared to a budget projection of $44,000 per month. The catastrophe was now being forced into the open.

There is one very important issue now for manager Gunn to deal with and that is the matter of the current market value of the Bank’s securities. The bank’s administration immediately realised that a mortgagee sale of their security is a distinct possibility. As a consequence, Gunn is instructed to re-inspect the strawberry farm as a matter of urgency.

This presented an interesting scenario. Gunn was permitted to get away with his inflated value by telling his superiors twelve months ago: “Security position is considered quite adequate on a Category “A” basis after a reduction of $150,000 in market value of Gunnadoo, (strawberry farm). We believe price paid $625,000 was somewhat high for the property as is, however it does have enormous potential and will no doubt reach the figure when fully developed.” How is he going to justify a reduction now given the catastrophic situation he and his Regional Manager Dick have placed the bank in?

Gunn resolved the issue by informing his superiors in the bank’s administration, by way of Internal Memo Lending under date of the 20th November 1985: “Fresh S/S (security schedule) for security No 1 (strawberry farm) is attached. Unfortunately with the complete failure of the hydroponic project and the severe recession in rural values in this area, drastic reduction has been made, however agents agree that value is realistic as stated even though auction of both security No 1 and No 2 have been unsuccessful to this time.” Gunn’s security schedule No 1 records that he has reduced the Market Value of the strawberry farm from $575,000 to $350,000.

Gunn’s action represents a mammoth 64% reduction when the decrease is numerated above the residual market value. The critical issue with respect to Gunn’s memorandum comments is represented by “the severe recession of rural values in this area”. Was Gunn’s statement true? Note that the severe recession must have occurred during the period from April to October in 1985.

I have made an effort to check for validity Gunn’s “recession’’ statement and my inquiries reveal that his statement is totally false. I have researched the issue with three experienced professional people who were conversant with valuations during the 1984, 1985 and 1986 years as well as Australian Business Research printouts applicable to the period. I have also sighted the relevant Annual Reports of the Department of the Valuer-General. In other words Gunn’s “recession” statement is a complete furphy. He was forced to do this to conceal his employer’s conspiracy to defraud implicating senior employees of the Bank, including himself of course.

In my view Gunn’s $350,000 market valuation was too high; the maximum figure should not have exceeded $250,000. (Refer exhibit ‘O’). When the Bank Administration’s Senior Lending Manager stated, in his Internal Memo to the branch on the 13th December 1985, “Position is quite hopeless”, it was indeed.

At this point in December 1985, the Somersets had walked off the strawberry farm. It was a total loss venture and the level of indebtedness extended to $627,126 with the attaching interest rate of 19% applying. The realistic market value in aggregate which could apply to the Bank’s securities in December 1985 in a forced sale situation was between $500,000 and $550,000. It is easy to see that the Bank’s loss situation was escalating by the day. This has all taken place in less than a year and because Bank employees have corrupted the system. Will they get away with this?

As I have stated above, Manager Gunn was instructed to submit a Bad and Doubtful Debt Return in the name of the Somerset group of accounts. Gunn did so under date of 16th December 1985. Under his General Report: Prospects for Clearance, Gunn highlighted the depressed state of the market, but claimed that securities were quite saleable. He goes on to say that debt is escalating at the rate of $10,000 per month. What this means is that in March 1986, one year after loans have been drawn down, the Bank is looking at a paper loss extending to $120,000. This is astronomical of course. I would say that Gunn and Dick have created a record of nefarious activity within the National Australia Bank.

Could Gunn and Dick survive this bank fiasco which they created without admonishment? We shall see. Procedure required that Regional Manager Dick make comments and recommendations in support and otherwise of Gunn’s Bad and Doubtful Debt commentary. His remarks are of genuine interest. In Dick’s second paragraph comments, he states: “Considerable time and money was poured into hydroponic strawberry growing which failed miserably.” Dick is right on the score of “considerable time”; however he is completely incorrect as to “considerable money”. It has been previously stated in an earlier chapter that approximately $40,000 was expended.

Dick reiterated manager Gunn’s remarks on the question of real estate values when he states: “depressed local real estate market”. Dick had been a Regional Manager at the time of writing these comments for just on four years and, in my view, he would have been certainly up to date on real estate values. My research into all facets of Dick’s involvement clearly indicates that he has participated in the conspiracy to defraud the Somersets. Dick highlighted the branch difficulty in perfecting the bank’s security over Mrs Somerset’s strata title units. While Dick indicates to the reader that a condition of the bank’s approval required 2nd mortgage over eight units, he did not state as matter of fact that Mrs Somerset had never ever agreed to give security over the eight units. Dick made his final comment that the Somersets had been less than co-operative and pointed out that no income was passing through the account with debts not being serviced. Dick pointedly overlooks to record the most vital issue which would acknowledge that the Somersets have already walked off the strawberry farm with the venture failed completely. He makes no mention of actual returns received as a comparison to projections. To do that would have created an embarrassment for both him and Gunn.

The Regional Manager’s comments above are confirmed by Senior Lending Manager, N E Board. There was a recommendation that the officer responsible for not following up perfection of unit security is to be censured. I would suggest that the conversion to strata title unit security was a highly unusual practice for the branch at that point in time and there should have been senior supervision at all times. Moreover, the routine process of the bank was that Manager Gunn should have authorised the recording of the three limits attaching to the three loans only after he was satisfied that the bank’s securities could be perfected.

We next have the directive of the General Manager for Queensland and of the General Manager Northern and Rural Zone and their comments are as follows: “Reduction in security values and lack of attention to perfect our security over eight units now places us in an invidious position with little margin between total liability and market value of security held. It would appear that security No 1 was highly valued at initial inspection and decrease in light of recent auction was appropriate. In the intervening period however, there has been a general decrease in market values for agricultural land which is outside the control of inspection officer. We support Senior Lending Manager’s recommendation for censure of officer concerned in respect to non-perfection of ‘unit’ security.”

What a cop out! Screw the poor young security clerk and let the two senior bank employees, Messrs Gunn and Dick, off the hook. Doesn’t it occur to the two most senior National Australia Bank employees in the State to investigate why security No 1 (the strawberry farm) was so highly valued in the first place? These two officers should have sent a special team of auditors to the branch. The auditors would have soon brought to light that the strawberry farm valuation was fraudulent. They would have soon realised the branch had been excluding the Somerset name from Branch Irregular Account Returns to State Administration from April to September 1985. The NAB’s Lending Manual sets out and warns branch managers and others involved in property security valuations how securities are to be valued. The relevant sections also highlight that bad debts can eventuate by over-valuation of securities. The bank’s formal conservative approach is clearly laid down in the manual. The auditor would have come to the conclusion in his report that Gunn and his Regional Manager should be dismissed. Their actions will damage the Bank’s good name severely and considerable monetary loss was inevitable.

I suggest the General Manager for Queensland and the General Manager Northern and Rural Zone decided on an alternative policy, one where they would adopt a cover-up mode and protect their Regional Manager with his subordinate Branch Manager. That is the way the events proceeded. The two senior men in Queensland who signed off on the Bad and Doubtful Debt Return dated 16th December 1985 made the concluding statement: “As soon as reserves have been set, a report is to be forwarded to Credit Bureau as market value of security involved is in excess of $200,000.” It will be noted that no Letters of Explanation were to be sought from Messrs Dick and Gunn.

The Memorandum for the Credit Bureau regarding the Realisation of Bank’s Securities was dated February 5 1986. The Manager of the Credit Bureau responded under date of 20th March 1986 and headed his advices by saying: “Processing of listing sheet has been delayed pending your response to our telephone message for Lending Controller.” Bureau Manager found the General Manager Northern & Rural Zone comments under the two headings, Report and Action Approved, confusing.

The opening comments of the Report inform the reader: “They (Mr & Mrs Somerset) retired to Toowoomba and sought finance from this bank to acquire 2 properties to farm strawberries by hydroponics.” This statement is decidedly incorrect on two counts. Firstly finance was sought for the property Glenhaven only; finance for Gunnadoo, the strawberry farm, was to payout the first mortgagee. This property was already in the Somersets’ company name. Secondly, it was never intended that the property known as Glenhaven would be utilised for strawberry hydroponic growing.

The General Manager Northern & Rural Zone also felt it appropriate to reiterate previous statements regarding the “depressed local real estate market”. My inquiries for this book revealed that this statement is a furphy.

The General Manager gave considerable space to the problem experienced by the branch in endeavouring to perfect strata title unit security. Once again the true picture is not revealed, this being that Mrs Somerset never agreed to give security over two units required for personal use. Technically the bank’s unit security was worthless from the outset on a bank assessment basis.

The General Manager also saw fit to mention, “Obligants are proving less than co-operative with no income passing through the account.” He doesn’t tell Credit Bureau Manager the facts - that the Somersets had abandoned the strawberry farm, having walked off. Wouldn’t it have been appropriate to inform the Bureau what actual strawberry farm turnover was for the past twelve months and make comparison to the Budget Projected Income amounting to $44,000 per month? Of course they couldn’t do this, as there was a risk that the fraud may be exposed.

The General Manager concluded by saying that it would be “prudent to make Bad Debt Provision of $60,000.” What a ridiculous statement. In my view, at time of writing there was a most probable loss upwards of $100,000 and increasing rapidly.

The contents of the Credit Bureau Memorandum represent evidence of concealment of the facts. In telephone discussions between General Manager and Manager Credit Bureau, the former revealed that $60,000 had now been written off. He also informed him “of other problems we are having”. I wonder what they were. Endeavouring to conceal the true story I would say.

Bank discovered documents reveal that the bank was forced to write off a second tranche bad debt amount of $230,000. What we now have, of course, is that it has been necessary to write off $290,000 in just on two years following creation in the bank’s books. The frightening situation is that bad debt write-off represents slightly in excess of fifty per cent of the loan commitment approved by the bank in March 1985. I lean to the view that if Head Office of the bank had been acquainted with the facts, then they would have called for a full and thorough investigation.

The Strawberry Farm Fiasco In Perspective

My consultancy, which I have described in the Somerset Case History, exposes a culture within the National Australia Bank which comes into play when the Bank becomes involved in litigation. It is obvious that the Bank’s manipulative ability and power is of unlimited dimension. The reader may immediately say to himself that the Somerset scenario is a one-off. It most certainly is not. Other examples in brief form follow.

(1) Salvatore NOBILE and Francesca NOBILE – Applicants -v- National Australia Bank Limited, G22 of 1986.

The principal witness for the National Australia Bank was the branch manager of a Brisbane suburban branch where the alleged events took place.

The bank manager had been given a sideways appointment and transferred out of the branch. Some months after this event took place, he was directed to return to the branch and deal with the customer’s file in which the Applicants above were guarantors and to reconstruct the file to the enhancement to the litigation on behalf of his employer.

This reconstruction took place over a two-day period. However in this course of this activity, the bank manager made a cardinal error of judgement. He raised a Customer Interview Record which indicated to the reader that six people (guarantors) called at the Bank at the same time to execute the guarantee. In actuality there were four separate visits by the guarantors (two couples, each individually) to execute the Bank’s guarantee.

In his reasons for judgement, His Honour Jackson J was not satisfied with the bank manager’s credibility with respect to the execution of the guarantee and his employer lost the action.

(2) Hyperno Investments Pty Ltd & Anor -v- National Australia Bank, Supreme Court of Queensland, No 4804 of 1988.

The National Australia Bank was the third defendant and eight Customer Interview Records were raised by the bank manager at the time during the period from 1st June 1983 to 22nd July 1983. Hyperno essentially lost this litigation against the bank.

The permanent bank manager during the aforementioned period was transferred out of the branch, virtually overnight towards the end of September 1983. He was subsequently directed to return to his former branch and retrieve the appropriate records so that he could complete and raise Customer Interview Records from a retrospective point of view so that they could air an impression of authenticity about them. In other words his job was to fabricate the records to enhance his employer’s position in the forthcoming litigation. This exercise was finalised over a two to three day period outside the branch.

(3) Frederick O’CONNOR (Deceased) and Walburga O’CONNOR -v- National Australia Bank Limited No 1661 of 1987, Supreme Court of Queensland. Judgement handed down in Bank’s favour.

The National Australia Bank discovered Customer Interview Record dated 8th September 1986 is a total fabrication. The purports to set out the circumstances that eventually led to the O’Connors executing a Guarantee and Indemnity for $30,000, Frederick O’Connor was in the bank manager’s office for a few minutes only and a lengthy interview of the nature as described in the Customer Interview record of 8th September 1986 most definitely never took place. The interview as described would take upwards of thirty minutes.

In this litigation, another Customer Interview Record was produced in the Bank’s discovery which was raised by the bank manager and also relates to the circumstances that eventually led another guarantor to sign a Guarantee and Indemnity for $30,000. Once again the interview as such never took place. The guarantor was only in the bank manager’s office for a few minutes.

This litigation was only brought to my attention after His Honour handed down his decision and I subsequently had the opportunity of interviewing all the guarantors induced by the bank manager. My discussion with them clearly confirmed my thoughts that the contents of the Customer Interview Records were a total fabrication. The alleged statements of fact contained therein never took place.

(4) Eric James Bouveng -v- National Australia Bank Limited, Writ Issued 26th July 1987, Supreme Court of Queensland.

A two-page branch to Regional Operations Internal Memorandum setting out the reasons for the customer’s predicament together with his outstanding irregular indebtedness and what was proposed regarding regularisation was not discovered by the bank. I formed the view that, because of the incriminating content contained in the memorandum, the documents had been destroyed by a bank employee. This case was resolved with an out of court settlement.

(5) National Australia Bank: Foreign Currency Loan Litigation.


In the numerous consultancies that I have been engaged in involving foreign currency loan clients, the bank never discovered any customer interview records relating to an initial interview where the Manager, International Business Development was present. It is my belief that at some stage a directive issued, most probably verbal, by someone in the bank’s senior administration to ensure that these records were processed in such a manner that they would never be discovered. These customer interview documents were generally prepared in duplicate with one copy placed on the intending borrower’s file at the branch, with the other remaining in State Administration.

The basic aim of this fraudulent culture within the National Australia Bank is to set up a state of confusion in the Court arena. His Honour, more often than not, will come to the conclusion and say in his reasons for Judgement, “I preferred the evidence of the bank manager or bank employee in view of the contemporaneous record”. His Honour will also be supported in his deliberations by the fact the bank’s witness so involved will perjure himself to confirm the contents of the fabricated Customer Interview Record.

In my research regarding the Somersets’ case history, I was able to speak to two retired relieving National Australia Bank Managers with respect to their relieving activities. It so transpired that in the course of their relieving duties, they both adopted a policy of raising their own customer files concerning branch customers when they were required to deal with that customer’s problems or specialised issues. These files were permanently held at their home residence. They could readily recall that they each held a file in the name of the Somerset Group of accounts. They both informed me that approximately five years ago they destroyed all previously held bank files compiled during relieving duties.

I asked them both, why did they feel that there was a need to compile and retain customer files for personal record purposes? They both came up with an identical response which was: “I did not want to be double-crossed by a fellow employee”. This statement tells us what the status of integrity is amongst the banking profession.

This is a tragic story. After accumulating considerable wealth during their working life, at the very early stages of retirement, the Somersets lose all their wealth overnight, solely due to corrupt bankers in direct and indirect association. Mr & Mrs Somerset have been in receipt of social security benefits for over fifteen years and reside in rental accommodation.

Gunn was able to induce the Somersets to purchase the strawberry farm and he was then able to continue that inducement with his Regional Manager, Dick. The records clearly demonstrate that Dick was a willing participant. In essence the bank formed a conspiracy to defraud the Somersets.

Dick’s involvement in the conspiracy is principally demonstrated by two factors. Dick personally compiled and signed a supplementary addendum for inclusion in Relieving Manager Patrick Albion’s Line of Credit Application dated 26th February 1985 submitted and approved for $575,000. Dick signed off with the following statement:

Strawberry production from hydroponic sheds 40,000 plants, plus outdoor plants 90,000 with further 30,000 to be planted should more than cover service of borrowings on say 2kg p.a. per plant at the lowest price $4 per kg. (presently $10). They have past records to prove outdoor production and the hydroponic exercise being disease and weather protected is virtually fail-proof.

The Somersets certainly held records relating to existing strawberry farm production which were handed to them by vendor, Jeffrey R Cardell. These figures were false; Dick knew that full well. Dick had been dealing with vendor Cardell’s file for many years during his bi-monthly scheduled visits in overview. Figures for turnover were held since strawberry production commenced and this would have revealed that turnover never exceeded an averaged-out figure amounting to $15,000 per month during the past twelve months to 31st October 1984.

Relieving Manager Albion’s Line of Credit Application accompanying Cash Flow Projection stated this figure (averaged out) at $53,333. It can be seen that the projection was fraudulent and the supporting comment of the Regional Manager is distinctly fraudulent in my view.

Dick makes an honest statement in his supplementary addendum when he states: “Injection of $80,000 net proceeds following sale of six units (security No 3) appears reasonable and safe.” Dick personally inspected these units in February 1985; Mrs Somerset was present as well as Relieving Manager Albion. Dick’s statement, “6 units” confirms the permanently held view that at all times she told all bank employees that she would only give security over six units.

Whether a Customer Interview Record was raised by Albion relating to the inspection of the units, one will never know. There would be a strong possibility that Albion did raise the appropriate record and that it was destroyed.

Gunn denigrated Mrs Somerset with respect to his commentary contained in branch to administration memoranda during the October, November and December 1985 period for refusing to give the bank security over eight not six as per original arrangements. Gunn is endeavouring to cover his tracks of course.

The second and vital issue illustrating Regional Manager Dick’s part in the conspiracy is evidenced by the fact that he has permitted his branch manager Gunn to exclude the Somerset Group connection name from all Branch Customer Liability Irregular Returns. The principal return here was known as Level 3, meaning the General Manager for Queensland control. This deceit was carried during the six-month period to September 1985.

It can be seen that the Somersets have been duped in many ways. I consider that bank employees, particularly Bank Manager Gunn and Regional Manager Dick, have breached many sections of the Queensland Criminal Code. In Corporate criminal responsibility, these two bank employees have obtained a financial advantage by deception.

I would believe that the Somersets should make a formal complaint to the Queensland Police Service on the grounds of new evidence now available. If the strawberry farm vendor is not now available, I see this as no real impediment to the issues at hand.

I would also recommend that the Somersets approach their instructing solicitors who were involved in their Federal Court G65 trial hearing with a view to re­opening the case, principally on the question whether the National Australia Bank’s discovery represents a concealed fraud.

Once Mr and Mrs Somerset formally complained to the National Australia Bank’s senior Queensland Administration, the orchestrated act of reconstruction of the Somersets’ files and other associated material was put in train.

The major aim was obliterate all file reference to the fact that Mr Somerset had called at the branch on appointment and had been interviewed by bank manager Gunn on the 30th October 1984 and the 1st November 1984; moreover, there was the fabricated version concerning the details of Mr & Mrs Somerset with Gunn on the 6th November 1984. The vital issue was that these two interviews had been conducted prior to Mr and Mrs Somersets signing both the Business Contract and the Property Contract to purchase the strawberry farm known as Gunnadoo which recorded aggregate consideration at $625,000.

I lean to the view that the reconstruction of the bank’s files took place after Mr & Mrs Somerset met with senior employees of the bank’s administration on the 23rd August 1986. However reconstruction could have taken place prior to this date because the bank / Gunn / Somerset relationship had become frosty prior to Gunn proceeding on annual leave in the beginning of 1985. That association progressively deteriorated from that point onwards.

Once it was decided to obliterate all reference to the first two meetings with Mr Somerset, it would be necessary for bank manager Gunn and his superior, Regional Manager Dick, to set up a fabricated scenario as to how the banking association came into being.

The bank’s legal team did a masterful job in creating a fabricated story regarding the circumstances which introduced Mr & Mrs Somerset to the National Australia Bank where Gunn was the branch manager. This is evidenced by the contents of the affidavits deposed to by Gunn, Manager’s Clerk, William Rivers, and Relieving Bank Manager, Patrick M Albion. These affidavits, raised for Federal Court of Australia trial hearing purposes, were executed on the 14th October 1987 by Gunn and the other two on the 9th October.

These three affidavits contain 234 pages in all and it would have been impossible for a non-banker reader of this material, armed at best with legal experience, to determine whether it represented the truth, whether ambiguity was evident or whether content was duplicitous by design. I do not intend to enter into a detailed critique of these three documents; however I propose to highlight some issues which played a vital role in the G65 trial hearing.

Generally speaking, in bank litigation the document discovered by the bank known as Customer Interview Record (Diary note) plays a very important role. In the G65 litigation, Gunn’s affidavit devotes a full page to the subject of customer dealings which incorporates diary notes and customer interview records.

Gunn states in his Clause 8, “In relation to customer interview records the long standing practice in the Bank and the practice I have always used is that interview notes are taken by the Bank Officer during the interview with a customer and those notes are subsequently written up. In the last several years my practice has been to transcribe my notes in detail onto tape which are typed up by an office typist.” Gunn omits to record that the typist types out “those notes” in duplicate and/or triplicate and that the duplicate is placed in a Diary Binder and are known as Duplicate Running Sheets. Gunn also omits to record that he initials the copy contained in the Diary Binder. Readers will recall that the Diary Binders were discovered and handed over during the G65 trial hearing without any documentary cover. It therefore follows that the contents as quoted above are, in actuality, false.

I now refer to the affidavit of Relieving Bank Manager, Patrick N Albion, and note that he devotes thirteen lines to the subject of customer dealings which are recorded in “appropriate Customer Interview Records and diary notes.” Albion proceeds to say that the system for keeping such records “was in accordance with the Bank’s normal practice and pursuant to its regulations under Banking Manuals”.

The fact is that, during the twenty five year period to 31st December 1985 there was never a titled section in the National Australia Bank’s manuals concerning the section heading ‘Customer Interview Records’ or Diary Notes. The bank discovered both its General and Lending manuals and I can say that there was no section titled ‘Customer Interview Records’. The duplicity with Albion’s affidavit content is obvious.

Albion goes on to say only that he took notes and that these notes were “typed up”. Albion makes no mention that his typed up notes are compiled in duplicate and or triplicate. Albion makes no mention that he initials the original typed up record which is placed on the customer’s file.

It will be seen that Albion has not disclosed the facts and, at the same time, has made statements which are false. It needs to be recalled that, if we believe what Albion told me during the interview I had with him in Toowoomba prior to his trial hearing involvement that Albion had no input into his affidavit, it could mean that the bank’s legal team induced Albion to engage in deceitful practice.

We now come to Manager’s Clerk Rivers, the first National Australia Bank employee alleged to have first interviewed Mr and Mrs Somerset on the 6th November 1984. Any banker of appropriate status who is acquainted with the facts would readily realise that the vital issues contained in Rivers’ affidavit are something derived in fantasyland.

Rivers makes no mention in his affidavit concerning his employer’s policy regarding the raising of records, particularly those described as Customer Interview Records. Rivers’ status required him to raise Customer Interview Records as appropriate and one would have thought that he would have raised one relating to his interview conducted on the 6th November 1984.

What was Rivers’ normal practice in carrying out his duties for his employer? The bank’s discovered documents, Customer Interview Records, Duplicate Running Sheets, record that, during the seven working day period prior to the 6th November 1984, Rivers saw fit to raise eleven Customer Interview Records. Further the eight working day period following the 6th November 1984 reveal that Rivers raised seven Customer Interview Records.

When it is borne in mind that Rivers would be classified as a junior employee employed within the lending section of the bank, and his eighteen Customer Interview Records relate to minor issues in lending, it is fair to say that Rivers would have most definitely raised a Customer Interview Record on account of the Somersets following his initial interview with these potential new customers he alleged was conducted on the 6th November 1984. As an indication of policy, Rivers even raises a Customer Interview Record recording a telephone conversation with a customer who wanted permission from the bank to draw a cheque for $12.80.

The conclusion drawn from Rivers’ alleged involvement, as detailed in his affidavit, is that the contents are a complete sham. This sham scenario has been designed by the bank’s legal team. One bank employee must support the other to the effect that Mr Somerset’s interviews conducted with Gunn on the 30th October 1984 and the 1st November 1984 never took place. By acting in unison, we bank employees will implant information to the court that both Mr and Mrs Somerset are liars. If we can keep hammering our fabricated story home, we will have an excellent chance of winning the forthcoming litigation.

It can be seen that the Somersets’ instructing solicitors have an up-hill battle on their hands with respect to pre-trial assessment regarding the bank’s discovered documents, particularly those described as Customer Interview Records. The instructing solicitors may be able to come to the conclusion that their opponents are playing a game of deception; however, how can they deal with this? If the instructing solicitors have no professional banking industry support, it is virtually guaranteed to be a loss engagement.

The contents of Gunn’s affidavit, executed 4th September 1987, generally represents a denial of all vital happenings which took place in so far as Mr & Mrs Somerset were concerned. With respect to other matters, Gunn simply states “cannot recall” on the appropriate occasions of which there are many.

For a National Australia Bank employee of the day or a recent retired employee holding the status of bank manager or above, it would have been readily realised that many of Gunn’s statements are simply incorrect or are oblique by design, making interpretation extremely difficult.

To give the reader a clear illustration of this, I refer to Clause 21, page 17 of Gunn’s affidavit which states, “The procedure followed was that the application was processed after Mr Somerset had confirmed the purchase at auction [Glenhaven]. The proposal had only been submitted in principle earlier in order to establish the availability of funds for that customer.” Let me say that at no time in November 1984 was there a procedure in the National Australia Bank in Queensland whereby it was necessary for a bank manager to submit a Line of Credit Application “to establish the availability of funds to that customer”. To the best of my recollection this particular policy of availability of funds occurred only once during my lending career, which was during the 1973/74 period.

Prior to the submission of Gunn’s Line of Credit Application raised on behalf of the Somersets dated 26th November 1984, Gunn had been advised earlier in the month by way of Special Advice To Managers of Queensland Branches signed by Chief State Manager, R C Kidman, that, “Funds for Lending were in abundance and with recent deregulation, it is imperative that we use every avenue possible to foster our existing customer connections and expand our customer base.”

It will be seen from Mr Kidman’s remarks that the foregoing quoted affidavit contents are false. This is a clear instance on the part of the bank to present a state of confusion to their opponents. Deceit reigns supreme.

Gunn’s affidavit produces no evidence of contact with Mr and Mrs Somerset after he proceeded on four weeks leave from the beginning of February 1985 until May 1985. Mr Albion’s relieving duties at the branch were completed as soon as he submitted his second Line of Credit Application on the Somersets’ behalf, dated 26th February 1985.

This can be confirmed by referring to Clause 23 of the affidavit of Gunn wherein he states, “When I did return I would have picked up from where Mr Albion left off. There is no hand over period with relieving management so that Mr Albion would have finished on the previous Friday and I would have come in on the next Monday and resumed the management position.”

By referring to Customer Interview Records – Duplicate Running Sheets it can be seen that the statement of Gunn, in so far as it relates to Mr Albion, is incorrect.

Perusal of the duplicate running sheets reveals that as per his standard practice, Mr Albion has initialed a diary record raised under date of the 1st March 1985. This indicates that Albion conducted this interview on the 1st March. This record shows the confirmatory initials of Mr Albion.

If one proceeds to the next running sheet page it records that Albion has conducted a telephone discussion with a customer as well as conducting an interview with a customer who called at the branch. Both of these records record the dates of the 4th March 1985 with only the latter bearing the initials of Albion. Neither record bears the confirmatory initials of bank manager Gunn.

An examination of the duplicate running sheet binder reveals that the next three sheets, numbered 127, 128 and 129, record no diary records conducted by Mr. Albion. However, perusal of the fourth page numbered 130 shows one diary note record raised under date of 1st March 1985. This record bears the initials of Mr. Albion; however the interesting point is that the preceding diary record on this page bears the date of 11th February 1985. This record bears the initials of Gunn.

The immediate foregoing reference to the duplicate running sheets indicates that Mr Albion did not cease his relieving duties at the branch of the 28th February; his relieving duties continued into the next week. Once again perusal of all bank records over this period imply that these records have been tampered with, meaning that reconstructions have taken place at some time.

The reader is reminded that these Duplicate Running Sheets were discovered and handed over during the G65 trial hearing without affidavit cover. Gunn was apparently enjoying annual leave at the time and the relieving manager at the branch at the time was responsible for their discovery. Prior to trial hearing commencement, numerous and repeated requests to the bank to produce relevant documents were non-productive. It became necessary for a Relieving Manager to comply with “Notice of Discovery” after trial commencement.

I consider that this reconstruction of bank documentation represents part of the overall policy to fit the reconstructed version of events, thereby avoiding aspects of incrimination.

Bank documentation indicates that settlements relating to both Gunnadoo and Glenhaven properties took place during the week ending the 22nd March 1985. Up to this date Mr & Mrs Somerset hold the firm view that they were never interviewed by Gunn at any time at the branch during the month of March. As a matter of fact they thought at the time that this was quite strange because on occasions they saw him in the back office of the branch.

Mr & Mrs Somerset certainly called at the branch prior to the two settlements taking place because they would have been required to execute the bank’s settlement documentation. The bank has discovered no Customer Interview Records confirming execution of the settlement documents. Bank documents normally raised in this procedure have also never been discovered by the bank. Some of these would be vital settlement instructions embodied on a special stationery printed form. This is further confirmation that the Somerset customer file records have been culled.

It is my belief that Gunn, and possibly other bank employees, never intended that the Duplicate Running Sheets were to be discovered. This improper discovery process was brought about by a forced special directions hearing before Justice Spender to deal with the issue of further and better discovery by the respondent bank. This was instigated by the Somersets’ instructing solicitors following the filing of two affidavits where the deponents were myself and a fellow retired National Australia Bank Manager.

I was the deponent to one affidavit which comprised thirty four pages. The contents of my affidavit dealt with several issues and clearly spelt out the shortfalls in the Respondent’s discovery.

The outcome from this special hearing drew commentary from Justice Spender in address to the bank’s junior counsel that his instructing solicitors should, at the highest level in the bank, take steps that independent people and the solicitor’s staff search to make sure that the bank had carried out its obligatory procedures. (Refer Court transcript of 11 February 1988.)

His Honour went on to infer that it was unsatisfactory that the Somersets’ solicitors had a need to depose, through two former employees of the Respondent, to the likelihood of documents to which no proper inquiry seems to have been directed. His Honour proceeded to say that it was quite likely that there will be further documents to be discovered. His Honour was also of the opinion that the solicitors for the National Australia Bank were aware of the unsatisfactory position in which their clients were placed. His Honour adjourned the hearing until trial hearing commencement on the 15th February 1988.

The reader will readily discern that the most critical commentary in summary address by His Honour was the fact that he believed that the National Australia Bank’s instructing solicitors were aware of the deceitful game their client was engaged in.

In this regard, I have no doubt that His Honour’s address statement was completely correct. The bank’s instructing solicitors raised their client’s affidavits. To what extent they were ratified by counsel is unknown. The content of all critical bank witness statements was false with respect to critical issues whereas other substantial content in those documents was false by design. The aims were to set up a state of confusion wherever possible so as to completely confuse their opponents to ensure that there was no chance of determining the truth in the court trial process.

The question for consideration and investigation is: did the bank’s instructing solicitors become aware that their client’s employees had been engaged in a conspiracy to defraud; were they aware that a bank employee or employees participated in a transaction to gain a financial advantage for themselves and their employer by deception and did the instructing solicitors advise “that constitutes criminal behaviour, however don’t worry, we will instruct you on how to develop a strategy to cover it up”?

What needs to be remembered in assessing this situation is that the National Australia Bank’s instructing external solicitors had their senior partner of the legal firm attend the meeting on the 22nd August 1986 when the Somersets told senior administrative employees of the bank from beginning to end what their predicament was.

Was improper advice given by the National Australia Bank’s instructing solicitors to bank employees? If the response to this question is in the affirmative, it could well be that there is a prima facie case that possibly senior administrative employees of the bank, as well as branch employees of their 441 Ruthven Street Branch Toowoomba and their legal advisors, may be guilty of aiding and abetting the initial deception and conspiracy and therefore may be accessory after the fact, having formed a latent continuing conspiracy.

I have illustrated that the hierarchy of the National Australia Bank in Queensland has condoned a strategy by subordinates to cover up the conspiracy to defraud the Somersets. Mr Albion told me prior to the G65 trial commencement that he was “protected”. Albion reiterated this word “protected” on at least one occasion when I held two interviews with him within one to two years after completion of the G65 trial hearing. What does the word “protected” mean in this instance? Given that Albion maintains that he had no input into his affidavit executed in Brisbane on the 9th September 1987, it means that if he commits perjury and that perjury is revealed and a complaint is made to the appropriate authorities, then the bank will guarantee that you will not be subject to prosecution. I believe that Albion fully understood the implications here.

If Albion was “protected”, what was the position concerning bank manager Gunn and his Manager’s Clerk, Mr Rivers? Did they also have “protection”? I strongly suspect that they were given to understand that they were also “protected”. What we do know is that the Somersets’ complaint to the Queensland Police Service Criminal Investigation Branch Toowoomba was terminated “overnight” after investigations lasting just over nineteen months. The newly appointed Detective Constable to the Toowoomba District Criminal Investigation Branch compiled a report under date of 5 September 1991. He stated therein that the complaint was not warranted. His report was forwarded to his superior and his superior’s conclusion was that he concurred wholeheartedly with his subordinate and informed Mrs Somerset immediately. The reasons given to the Somersets had dubious connotations. This is especially so when the comments of the Director of Public Prosecutions, Royce Miller QC, are taken into consideration (the Director’s comments are detailed in the previous chapter).

The G65 hearing concluded on the 1st March 1988 with final address delivered by both senior counsel. Counsel for the bank submitted first and his oral address is spread over forty-one numbered pages. After commencement he also handed to His Honour an eighteen page document titled “Notes For Address – Outline”. This document directed attention to four sub–headings, viz.: Somersets’ Credibility, The Making of the Representations, The Representations Pleaded, and Reliance.

The predominant aim of this material – with no copy handed to Somersets’ counsel – was an endeavour by bank’s counsel to implant in His Honour’s mind that the Somersets were, and I quote: “liars, their submitted evidence contained lies, they were evasive, engaged in direct falsehoods, were argumentative and unresponsive, their language was not free from ambiguity, he [E P Somerset] attempted a stupid reason to explain inconsistency and they gave false evidence in the Supreme Court trial hearing against vendor Cardell and other derogatory comment.”

The simple reason that the National Australia Bank counsel acted thus and did not provide a copy (at the time) to the Somersets’ lawyers was that the Respondent Bank’s documentary record is a reconstructed record with respect to the critical issues.

As I have previously stated it was the bank’s aim to set up a state of confusion. Once this was achieved then it automatically follows that there is going to be a contrast of extremes in the evidence with respect to these critical issues. However bank counsel’s derogatory remarks regarding the Somersets are most definitely not justified and I propose to so highlight.

Senior counsel saw fit to state in address that there was a failure to make timely complaint of the misrepresentations alleged. Both Mr & Mrs Somerset were persistently cross-examined on this point. This matter is also expressly dealt with in their affidavits. However, the Somersets engaged in a very heated discussion with Gunn by appointment on the following day of the Somersets’ notification by Cardell’s son in May 1985 that “they had been conned”. Mrs Somerset requested Gunn to arrange an appointment meeting with National Australia Bank Head Office Administration in Brisbane. Gunn refused, saying that such was not possible as Toowoomba area was autonomous. Mrs Somerset eventually found it necessary to take the matter into her own hands and she telephoned the State Manager Rural Zone, Mr Tilbrook, requesting an appointment with Senior Administration Brisbane.

A meeting was subsequently arranged with the senior partner of the legal firm that was to be the bank’s instructing solicitors in all subsequent litigation involving the Somersets and the National Australia Bank. The notable fact is that this senior instructing solicitor telephoned the Somersets’ Toowoomba solicitor who arranged and confirmed the appointment day and time – 22nd August 1986 at 11.00am, National Australia Bank Head Office Brisbane. When Mr and Mrs Somerset called on Gunn the day following receipt of information that they had been grossly deceived, the Somersets formed the view that the bank was aware that they were victims of Cardell’s deception. They also believed at that early stage that the bank may have played a role in that deception. Dissatisfaction with the bank and complaints to the bank have been ongoing since that time.

The bank’s legal team was well aware that “Lack of timely complaint” is a blatant lie. The bank’s senior external solicitor, who arranged the August 1986 meeting, attended same and took down notes continually while the two hour meeting was conducted. The Somersets told their story from beginning to end and the misrepresentations were made perfectly clear.

Why the “Lack of timely complaint” is so insidious is because the bank’s legal team felt the need to raise the “Lack of timely complaint” statement in four subsequent Federal Court of Australia matters of litigation between the Somersets and the National Australia Bank.

I could well understand the reader saying to himself, “what is going on here, did the National Australia Bank pay a success fee to the bank’s legal team when the decision was handed down in their favour?” In saying this the reader will be cognisant of the fact that judges in the subsequent four hearings all felt the need to reiterate the fact that the Somersets never at any time felt the need to make a timely complaint of the misrepresentation. What a joke! What sort of justice do we have in this country?

Bank counsel took delight in bringing to His Honour’s notice that Mr Somerset had inflated the asset value of the strawberry farm in his application for finance to First National when he extended a value amounting to $650,000. This figure represents a four per cent increase on the purchase price of $625,000. Mr Somerset responded to questions put to him that the reason for the increase represented stamp duty costs etc. My banking experience indicates that this reason is a totally acceptable one.

What needs to be pointed out here, in contrast, is that Bank Manager Gunn inflated the Market Value of the strawberry farm from $210,000 to $475,000 in the space of ten weeks. This practice, by definition in the circumstances, is a breach of the criminal code. Gunn’s increases were to facilitate the approval of Line of Credit Applications he was to submit to the bank’s administration. This would clear Cardell’s National Australia Bank overdraft but, more importantly, this would wipe out Gunn’s actions in advancing credit funds contrary to his own senior administration superior officer’s instructions. (Branch Line of Credit Application dated 4th January 1984 approved at $180,000, which recorded in the Regional Manager’s own handwriting, “Absolutely no more”.)

When the reader becomes aware that His Honour informed those present in the court that a bank could value its security for any amount they liked, and His Honour’s statement here was deleted from the transcript. One could reasonably question His Honour’s motives.

The bank’s legal team also felt the need to highlight to His Honour the “Absence of (Customer Interview Record) running sheets”. It was stated in their Notes for Address, those handed up in final address by bank counsel, that “There was no suggestion to Gunn that the records affecting the Somersets had in any way been altered or removed and the exhibit, which is page numbered and indexed, is ex facie complete for the period.”

This exhibit, comprising over one thousand pages, was discovered during the weekend midway during the trial hearing and an appropriate time frame was not available for a thorough examination. How could the Somersets’ counsel put the relevant questions to Gunn? These documents have never been subject to a forensic documentary examination to this day. My examination of a photocopy of these documents clearly indicates that the records have been tampered with during the six month period to 31st March 1985. The period begins when Mr Somerset attests to have attended his first appointment with Manager Gunn on the 30th October 1984 and again on 1st November. It includes Mr & Mrs Somersets’ joint interviews with Gunn starting only on the 6th and 8th of November 1984. (Account opening documentation was effected on 6th November). The period continues through to the bank’s conduct of property settlements which were effected during the last week in March 1985. My observation and consultation reveals that the tampering could be of a very serious nature indeed.

The Notes For Address presented to His Honour also brought to his attention that the Somersets’ Duplicate Letter Book was never discovered by Mr & Mrs Somerset and infers that no adequate explanation for its disappearance was offered and their solicitor was not called to corroborate Mr Somerset’s assertion that he gave it to his solicitors. Mrs Somerset assures me that this document was received by their instructing solicitors. This was acknowledged, and the loss was put down to being mislaid in photocopying.

The Somersets only recently discovered a copy of the bank’s legal team Notes For Address (G65 of 1986) while rummaging through the over fifty cartons of documents surrendered to them some years ago by their instructing solicitors. They had never seen a copy of this document before. They are disgusted that it has never been brought to their attention because it contains outright lies. Rebuttal should have been available to them in their Full Bench Federal Court of Australia Appeal, if not before.

Now that I have read the Notes for Address, allied with my general knowledge, I have to say that the bank, with the support of its legal representation, will resort to any tactics to win the case for their clients. When I told the Somersets’ instructing solicitors in December/January 1988 that their clients were unlikely to win unless they put me in the witness box, this was spot on. To a banker of appropriate seniority, the G65 trial hearing is a complete farce from beginning to end. One matter is patently clear; bank witnesses are given credibility on evidence by virtue of corroboration and the fact that there is a contemporaneous record. In this case bank witnesses had conspired to fabricate a phony case history. But the Notes for Address document confirms my previously held belief that the G65 litigation was corrupted.

In researching material for this book it brought me late access to the document titled “Notes For Address First Draft”. A second draft has never been discovered and I personally think that a second draft was never raised. Because of the very serious import of this document, I have made it my business to ascertain whether any member of the Somersets’ legal team could recollect any knowledge of this document.

I initially contacted by telephone the principal solicitor in charge of the Somerset G65 litigation and acquainted him with the document, mentioning that it bears his initials and the date of apparently taking possession is in his hand also. His writing appears elsewhere on the eighteen page document. He could not recall how the document was presented to him. I agree that this reaction was perfectly natural as the events took place over sixteen years ago. I offered to call on him so he could peruse the document; however he declined.

I then sought an appointment with the senior partner with the Somersets’ instructing solicitors who continues to remain in that position. On showing him a copy he was positive that he had never sighted this document before and he would normally have expected to see this document if it was handed to a member of his legal team. I provided him with a copy on request.

Next personal contact was with the junior barrister in the Somersets’ G355 Federal Court of Australia Appeal who had assisted throughout the G65 trial hearing. He was present in court on the last day of the trial hearing on the 1st March 1988. He stated without hesitation that he had never seen this document before. He confirmed that the writing on the document was that of the principal solicitor involved.

I then sought telephone contact with both the junior and senior counsel for the Somersets in their G65 trial hearing who were both present in court on the last hearing day. They both have no recollection of sighting this document which I fully described to them.

Senior counsel for the bank addressed His Honour with the opening remarks, “We have got some notes and it may speed up things and assist if we can hand up some of them but there is only one copy at the moment.” His Honour responded: “You can hand them up in due Course.” This record appears on page 1174 of the transcript of proceedings.

Proceeding to page 1179 of the transcript one sees that senior counsel for the bank asks His Honour, “May we hand up notes from which I am working? It may assist Your Honour in following what I am saying. It so transpires that senior counsel for the bank did not cover all subject headings as contained in his ‘Notes For Address First Draft’, copy of which was found and located within the boxes of documents received by the Somersets from their instructing solicitors.

One such sub-heading was apparently not brought to His Honour’s notice in address was the issue which His Honour had seen fit to include in his Reasons For Judgement was lack of timely complaint.

Mr & Mrs Somerset are of the opinion that there is something very sinister about this document, so much so that Mrs Somerset wrote to the Federal Court of Australia in Brisbane requesting that they search their G65 file and endeavour to locate the document titled, Notes For Address First Draft. A search failed to locate same and Mrs Somerset was advised by the Deputy District Registrar by letter dated 24th March 2004 that this document could not be located. The Deputy Registrar proceeded to say in her letter, “that it was assumed that this document formed part of the judge’s material which is not retained after a hearing”.

It would seem to me that the situation is clear. His Honour relied upon this document as confirmed in his Reasons For Judgement; accordingly it should never have been destroyed.

As the document was located in their instructing solicitor’s file, Mrs Somerset considers that this document most definitely should have been made available for their G555 Federal Court of Australia Appeal hearing, a clear logical and procedural assumption.

I have made it my business to check the Deputy Registrar’s opinion regarding court retention of this type of document. Senior barristers inform me that it should be a kept document because, on appeal, a document of this type should be included in the Appeal Binder, which is a court filed document. It would seem to me that Mr & Mrs Somersets’ view as to “something sinister” has some validity.

It can be seen that the Somersets have been duped in many ways. I consider many of those bank employees involved have breached the Queensland Criminal Code. Through these employees we have the bank obtaining a financial advantage by deception. The police investigation which was terminated in the early 1990s should be reopened.

Not only do we have the Somersets being duped by senior bank employees, we also have the Somersets being belittled and hindered by the legal profession. Where this combination of the two professions exists, I consider the chances for success for their opponents is remote indeed. The National Australia Bank’s document discovery process gives rise to the fact that a concerted and documented fraud exists.

Readers will agree that Mr and Mrs Somersets’ story is tragic indeed. In October 1984 their lifetime record clearly indicates one of success in many ways and they had taken the decision to proceed into semi retirement. When they first came into contact with the National Australia Bank, they commanded assets aggregating $1,509,000 from which was derived a surplus amounting to $1,044.000. These figures are recorded on the bank’s Statement of Position form which the Somersets signed on the 6th November 1984 in Gunn’s office. The details on the form were a copy of hand written detail (from a letter book) presented to Gunn by E P Somerset on his visit by appointment with Gunn on the 1st November 1984, Mr Somerset’s second visit to see Gunn. The figures on the Statement of Position form were correct as at 6th November 1984 but totally incorrect as of 26th November 1984. It was admitted in evidence by Manager’s Clerk Rivers that he “probably” took this document earlier in the month (meaning earlier than the 26th November 1984).

The bank’s criminal behaviour has tarnished the previous unblemished reputation of Mr & Mrs Somerset who are both in receipt of an aged pension and a Department of Veterans Affairs pension. They have resided in rented accommodation in Warwick since the early 1990s. During this period their lifestyle has been one of impecuniosity. Both being in their late fifties at the time they first came into contact with National Australia Bank employees, their circumstances have been such that accumulating further assets has been denied them.

While it is late in the day, it is not too late in the day for the National Australia Bank to pay damages to the Somersets to which they are justly entitled. This figure would exceed $3,000,000 in my view.


Chapter 9: Smith: the National Australia Bank Guarantee and Indemnity Scam

On the morning of the 22nd February 1984, Kelvin Sweeney called at the home of William Keith Smith of Sunnybank Queensland and asked if Keith would accompany him to see John Cleland McPherson who resided in the neighbouring suburb of McGregor. Keith had known Sweeney for some years and was aware that he was looking for finance to buy some hotels. It was intended that the hotels would be purchased by the company CGB International Pty Ltd. At the time Keith was acting as a hotel broker and he accompanied Sweeney as requested.

At the meeting with McPherson, with Sweeney in attendance, McPherson asked Smith if he would be willing to lend CGB International Pty Ltd the sum of $10,000. Keith responded by saying that he did not have that kind of money and regretted that he could not assist. Keith went on to say that a proposition of that kind would need further consideration; he would never proceed without discussing the situation with his wife.