National Australia Bank Ltd V Swed (NO.2) [2015] NSWSC 1322

Wednesday, 04 November 2015

When it comes to litigation, financiers generally hold all the cards. They write the terms and conditions of their loans and securities and understandably do everything they can in order to protect their interests. As a result, it is unusual for a financier to lose a Court action. This article deals with a case decided in September 2015 where a bank lost significantly (NATIONAL AUSTRALIA BANK LTD V SWED (NO.2) [2015] NSWSC 1322).

The facts in short were that a Mr Swed was obsessed with keeping his account PINs secret. He had good reason to as his wife had been addicted to gambling and had previously caused serious financial problems for the family.

Mr Swed believed that neither his wife nor his children knew his PINs but unfortunately he was wrong. Despite his diligence, Mrs Swed, through a cunning ploy gained knowledge of his PINs, accessed his accounts, withdrew funds and lost them to her addiction.

Mr Swed discovered the misappropriation and when the Bank sought repayment of his debts, he disputed them. The bank sued for possession of the property which secured the debts and Mr Swed in his defence admitted the loan agreement and the mortgage but denied that he was in default. He filed a cross-claim asserting that the bank had wrongly debited amounts other than mandated payments. The bank claimed, for its part, that he had acted with "extreme carelessness" in handling his PINs and was liable for the money his wife had taken. The Court found otherwise and the bank's claim failed.

It was common ground between the parties that under the relevant account and loan terms and conditions Mr Swed was required to keep his PINs secret. A number of those terms and conditions referred to Mr Swed's responsibilities including that Mr Swed was "not to act with extreme carelessness in failing to protect" his PINs.

The evidence given by Mrs Swed was that when her husband wished to access his accounts by phone he would ask his wife to make the call and when the bank requested his PIN to be entered Mrs Swed would hand the phone to him, he would enter the PIN and then hand the phone back to Mrs Swed.

Mrs Swed gave evidence that when the phone was back in her hands she could still see her husband's PIN. She would then listen to the phone, hear the account balance and then hand the phone back to her husband to hear not the account balance, but rather the amount which was available for re-draw which was a lesser amount. Mrs Swed also gave evidence that she intercepted and destroyed all bank account statements mailed to her husband.

The principal issue in the case was whether Mr Swed had handled his PINs with extreme carelessness.

Whilst the Court was not entirely satisfied with aspects of the Sweds' evidence it nonetheless came to the conclusion that Mr Swed had not acted with extreme carelessness in respect of his PINs and had not disclosed them to his wife at any time. A number of facts supported this conclusion including that Mr Swed was well aware of his wife's previous problems and had gone to lengths to ensure that the bank would not allow his wife to access his accounts and that he had not revealed his PINs to his trusted daughters.

The Judge did not consider that by entering his PIN and handing the phone back to his wife Mr Swed had acted with extreme carelessness. It was not even reasonable for him to have considered that if he did so his wife would see and remember his PINs. The test of "extreme carelessness" was considerably higher, the Judge observed, then acting unreasonably. In the result the Court found for Mr Swed.

This case is a salutary reminder to financiers that whilst their terms and conditions generally work to protect their interests there can be occasions, albeit rare, where they work against those interests.


This article was prepared by David Richardson, Partner.

Disclaimer: This article is not intended to be a substitute for obtaining legal or other expert advice and no responsibility is accepted for any action taken as a result of any material in this article. Information and advice relating to your specific commercial dealings can be obtained by contacting HWL Ebsworth Lawyers.