Love for Life

William Keith Smith of Brisbane left school at the age of 13 and worked for the timber merchants Hancock and Gore as a labourer. He was apprenticed as a fitter and turner and joined the Royal Australian Air Force in 1942 at the age of 18. He was discharged in 1946. After 1957 he was mainly involved in the hotel industry, either through leasing or ownership.

In the latter part of 1983 Smith decided to venture into hotel brokering. Previously, Smith had dealings with National Australia Bank managers and had found them to be people of integrity. Smith paid his debts, but he was judged by friends as ‘commercially illiterate’.

A customer interview record of an NAB branch manager (the Sunnybank Plaza Branch) records the circumstances of Smith's execution of a guarantee for $15,000 as follows:
"22 April 1984 CGB International: The Company Secretary, Mr. McP, called together with Mr. S, the Managing Director, and Keith Smith, our customer, the hotel broker. The firm is buying a series of hotels and borrowing overseas. They left an extensive rundown in the form of a presentation. Mr. S and Keith signed a Guarantee for $15,000 and they had to issue a cheque for $10,000 to their agent to go to Hong Kong to negotiate their overseas loan.”

At the time, NAB branch managers could not approve an unsecured loan in excess of $1,000. Yet here was a case of approval for $15,000. The manager took no statement of position to confirm whether Smith had the resources to act as guarantor for the $15,000. Standard bank guidelines at the time were that, if a proposed guarantor's principal asset was the matrimonial home and it was in joint names, the bank's guarantee was to be executed by both. If this were not the case, it would need to be fully explained by way of customer review record.

In the period preceding February 1984, the NAB had dishonoured Smith's car lease monthly payment of $396.68. The bank was not prepared to meet a payment of around $397 per month when there was insufficient funds in the account, but the local bank manager was prepared to accept an unsupported guarantee from Smith for $15,000. The co-guarantor, Mr. S, was later discovered to be an undischarged bankrupt and had a criminal record.

Smith accompanied S and McP to the bank. There was a statement by McP to the effect that bank manager, Mr. ‘North’, ‘owes me a favour'. At the beginning of the interview, another manager, Mr. P, was also present. During the initial discussions in which Smith did not take part, there was no mention of a Bank Guarantee and Indemnity. The relieving manager, Mr. P, confirmed the exchange via an affidavit in a statement to the police.

In Mr. P's statement to the police he said: “McP and [North] did all the talking. The discussion was about the hotel purchase and lasted about 15 to 20 minutes. At that time I was called away for an interview. I did not see McP, S or Smith from then on that day. There was no discussion of the guarantee and indemnity while I was present.”

After Mr. P left the manager’s office, a typist brought in a document which North perused and verified as acceptable. The document was placed in front of S to sign, which he did. The document was then placed before Smith. The company secretary, McP, asked Smith to witness S’s signature, which he did. Smith could not read the document, as he only had his driving glasses with him. Smith signed as requested by McP, with the word `guarantor' above his signature obscured by McP’s finger.

This process took place in front of North, the NAB manager. In normal banking procedures, the manager should have explained the importance of the document. The manager should have made Smith aware of the nature and extent of his liability under the guarantee. Smith must act under his own free will. Should there be suspicion that he was acting under duress or undue influence from the customer or anyone acting on the customer's behalf, and if the manager considered that Smith had failed to understand his responsibilities, then he should have told Smith to seek independent legal advice.

North disregarded normal banking procedures. A statement of position was not obtained from Smith. North did not query the fact that the company CGB International was in the process of buying hotels requiring about $25 million in capital, and yet it could not raise $15,000 set-up costs.

After Smith witnessed S's signature, he left the bank. The company accountant, McP, then drew a cheque for $10,000 which he signed, and North then issued a bank cheque in replacement, despite the fact that the bank's own authority for CGB International required two authorised persons to sign. The company accountant was previously an NAB employee and was believed to have reached the status of branch accountant. McP's personnel records have been expunged from the bank’s resigned officers' files.

Shortly after North oversaw the transaction, he was transferred. It was left to his successor at the Sunnybank branch to inform Smith of his obligations under the guarantee. It is Smith's understanding that the bank has never attempted to claim any type of reimbursement from S, the company owner and manager. Smith was told verbally that the NAB was only interested in chasing him. The witnessing of S's signature would ultimately cost Smith $35,880.

Smith was naturally dependent on professional legal advice. One of his solicitors permitted the bank to gain a judgment by default. The bank's documents were never called for in the discovery exercise. Moreover, affidavits of bank staff were transparently false, claiming that Smith was aware and acknowledged that he was signing a guarantee. Smith was advised to pay the judgment debt and pursue the matter later (either through appeal or through direct approach to the bank). Smith had to borrow to pay the debt. In the process, involving unsympathetic treatment by his solicitors, Smith had a massive heart attack. When it came to the appropriate proceedings he was advised that he should not have paid the judgment debt, namely $20,700, in the first place. Smith’s perception was that at times his counsel was working for ‘the other side’; he continues to hold that view.

Smith sent a letter to the Banking Ombudsman, dated 27 July 1990. Smith also lodged a submission covering similar material (3 December 1990) to the then Martin inquiry into the banking sector. The Ombudsman claimed that the office could not investigate Smith's complaint because the legislation did not allow them to consider a complaint originating in 1984. The Martin inquiry referred the matter to the bank that was the source of Smith’ distress. The NAB replied that, on investigation, there was no cause for complaint.

Since Keith Smith lost his Supreme Court of Queensland Appeal in October 1987 (No.447), he has brought his predicament to the notice of anyone who he considers may help him. One politician told him “your case is too hot to handle, Keith; I’m afraid there is nothing I can do”.

In January 2002 Smith lodged three complaints with the Queensland Law Society against the three solicitors who represented him. The Society informed Smith that there was nothing positive they could do and suggested that he may wish to complain to the Legal Ombudsman. Smith made his three complaints known to the Legal Ombudsman in March 2002. In late 2003 he was advised that he, Smith, was not in a position to pursue any action at that stage. There was then pending legislation to facilitate victims of unethical practices by their solicitors to pursue action retrospectively. The Queensland State election has come and gone and the legislation is still pending.

Smith is now a war service and disability pension recipient.

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14. The first part of the Smith account draws substantially on Hardgrave (1998).

15. The following summary and crude judgment on the Smith case is transcribed verbatim from the House of Representatives Hansard, from the mouth of Representative Gary Hardgrave (Hardgrave, 2001): “I think of a constituent of mine, Keith Smith from Robertson, who 15 or 16 years ago was in the National Australia Bank branch at Sunnybank and was allowed to sign as guarantor on a loan document which he thought he was witnessing. In fact, the manager was in cahoots with the person who borrowed the money and allowed him to sign and go guarantor. There were only tens of thousands of dollars involved, for a company which last year made $2.4 billion profit or whatever it was—not much money. But National Australia Bank, which has a hide thicker than the proverbial elephant's, could not care less and never has.”