ANZ Bank faced heavy criticism over its miss-selling of swap contracts to farmers, with the Court of Appeal overriding disclaimer clauses where Bank legalese was in effect saying: ‘Notwithstanding what we promised we would do and what we represented to be true, you have no claim against us even though we did not do what we said we would do and what we represented to you was false’.
Taranaki dairy farmers Sharon and Bill Coomey sued ANZ over terms of their ANZ business loans, turning down successive offers to settle out of court as their trial date loomed. ANZ won in the High Court. The Coomeys won comprehensively in the Court of Appeal. Questions of damages were deferred at the request of both parties; often a precursor to compensation being settled quietly behind closed doors.
Court of Appeal was told the Coomeys ANZ borrowings reached $11.97 million by 2008; interest charged was a mixture of fixed and floating rates. Floating rates were hedged with three separate fixed rate swap agreements. Bank staff sold swap contracts to clients as managing interest rate risk: with a swap, floating rates in effect were fixed, they said, with customers still enjoying the benefit of any favourable interest rate movements. Internal bank documents produced in court showed growing concern at higher levels within the bank about selling tactics; field staff were confused about the product, selling loans and swaps as a package deal when they were in fact two different products with different risk profiles.
During 2008, the Coomeys increased ANZ borrowings to $19.47 million, funding purchase of a run-off. Existing loans were consolidated with the full amount becoming what was a floating rate loan hedged with an option to swap for a fixed interest rate. Rates moved against the Coomeys following turmoil in capital markets triggered by the US bankruptcy of Lehman Brothers in September 2008. This led to increases in bank funding costs.
ANZ was held in breach of contract for its misleading representations that adding swaps to a floating rate loan was the same as a fixed rate loan. Downside risk was not disclosed to the Coomeys. It also failed to honour promises to hold steady its agreed margin over the bank bill rate. Contractual promises to ‘monitor’ the Coomeys’ risk were not honoured. ANZ did not respond to queries from the Coomeys about possible action they could take as the 2008 financial crisis unfolded, and also failed to be pro-active advising the Coomeys about anticipated interest rate movements. The Coomeys refinanced with another bank in 2013, quitting ANZ after paying $16.3 million.
The Court of Appeal dismissed ANZ arguments it was protected by a disclaimer of liability in its loan contract. Courts have power to ignore disclaimers under the Contractual Remedies Act where it is ‘fair and reasonable’ to do so. The Court of Appeal said it counted against the Bank that its standard form swap contracts were ‘non-negotiable’, were designed for customers not having sophisticated knowledge of derivative contracts and that all customer information came from ANZ marketing its own product.
Bushline Trustees Ltd v. ANZ Bank – Court of Appeal (24.06.19)
19.120
Post Judgment Note: ANZ appealed. The Supreme Court ruled in July 2020 there was no evidence ANZ promised not to increase its agreed margin, leaving the Coomeys liable to pay a disputed $3.8 million for increased margins charged. All other issues had been settled out of court, the Supreme Court was told.