Senate Legal and Constitutional Affairs References Committee | Resolution of disputes with financial service providers within the justice system Inquiry | (Dr) Evan Jones, late of the Department of Political Economy, University of Sydney.
28 February 2019
As per the Terms of Reference:
a. whether the way in which banks and other financial service providers have used the legal system to resolve disputes with consumers and small businesses has reflected fairness and proportionality
Questions i.–iii. under (a.) reflect a naïve view of the nature of the beast. The banks have long employed the legal and judicial systems brutally to complete and legitimise the post-deregulation era of fraudulent defaults and foreclosures (mortgagors, small business, family farmers).
Exactly a decade ago, this same Committee initiated the ‘Inquiry into Australia’s Judicial System, the Role of Judges and Access to Justice’. I made a lengthy submission on bank litigation (attached to this submission as supplement) that was held in confidence, contrary to my intention, and ignored. Evidently neither the then Committee nor the then Labor government took the matter seriously. A decade later, and a decade’s worth of new victims of bank corruption, nothing has changed.
The law firms on bank panels inevitably act corruptly for their bank masters; ditto counsel. It comes with the business. Perennial feedback from victims highlight the mercilessness with which bank lawyers and counsel, the bank’s front line to defaulted customers, brutalise such victims.
Victims with some residual resources who seek their own legal representation (not on bank panels and typically of marginal competence at best) to offset the imbalance in court or in mediation regularly confront that their own lawyer has been bought off or warned off and is working for the other side. The banks in essence have the entire legal profession tied up.
Some of the ruses used by the banks include:
- If a lending manager has disadvantaged a customer, through incompetence and/or fraud, head office will step in and pursue the customer to destruction while protecting the manager and accomplices.
- Exhibit A for this process is described in Salmon & Jones ‘The Somersets and the National Australia Bank’, April 2017 (30,000 words)
- A variation on the above theme is when a lending manager will collude with one member of a customer couple (typically the male of a relationship) to defraud the other member of the couple (the female, often with children in tow). Contemptible.
- The long-time inclusion of what are now termed ‘unfair contract terms’ in SME/farmer loan facilities to facilitate speedier foreclosure down the track by enhancing the supposed legal legitimacy of the foreclosure. Recent legislated changes to offset these cruelties has been met with ongoing feet-dragging by the banks. It is not at all clear, and one cannot be optimistic on this score, to what extent the banks have eradicated such contract clauses.
- Ditto, as above, with ‘non-monetary default’ clauses.
- Non-discovery of vital customer documentation.
- If ordered (rarely) by judge, discovery of customer documentation at the eleventh hour before a Trial hearing to ensure that the import of the documentation cannot be digested in time.
- Fabrication/falsification of discovered customer documentation presented to the court.
- Harassment/denigration of and lying to defaulted customers at mediation to force on them a pitiful settlement, confidential of course.
- Arbitrary and extortionate charges and extractions by the banks against the customer accounts to impede customer access to funds to litigate. These include discretionary lawyer charges, penalty interest rates, and theft of balances in customer accounts.
- Pursuit of summary judgments against the defaulted customer, where no evidence is provided by the bank save for a manufactured debt quotient.
- Following the above steps, pursuit of the customer to bankruptcy so that the customer is precluded from mounting an appeal.
b. the accessibility and appropriateness of the court system as a forum to resolve these disputes fairly
In a word, hopeless. No chance.
- Inequality of resources, profound, is at the heart of litigation between a bank and a defaulted/foreclosed bank customer. The unequal starting endowments is enhanced by the strategic plunder by the bank of a victim’s remaining resources – as outlined above.
- Consumer legal centres do a marvellous job in representing impecunious retail banking customers. However, they and legal aid are generally not available to assist small business and farmer victims of bank predation, because the latter as business principals are presumed to have all the wherewithal to fend for themselves in the rough and tumble of commercial relationships. It is an erroneous conventional belief.
- Banks insure against the costs associated with failed or fraudulently defaulted customers and obtain tax write-offs at the drop of a hat regardless of legitimacy, with ancillary use of tax havens for advantage (Singapore). The principal of Idoport, against whom the NAB threw an estimated $70 million in legal costs to prevent Idoport’s case even being heard, claims that the NAB came out of the years-long process with a $10 million profit. In other words, if a bank wants to destroy a customer, there is no financial impediment likely to cut short its crusade. And remember that the Court system (and the Sheriff and Bankruptcy infrastructures) is run at public expense – a massive subsidy from the public purse to a gang of thieves.
- The banking sector has gobbled up most competent and experienced law firms onto their panels. Most of those law firms on the outer rarely have the personnel numbers, competence and experience, even if they have the integrity – itself a rare commodity. When victims approach law firms not formally on the bank teat, they will often be told that they (the law firms) don’t have the muscle to take on the powerhouse that is a bank with a bottomless fund and its ethics-free law firm. Alternatively, the law firm will take on the case with no intention of fighting it, drain the hapless victim of their last shekels, and clear off. The lawyer with a social conscience and protective of her or his integrity works in fields other than banking.
- The courts operate insouciantly under a glaring inconsistency. At law, the receiver/liquidator is an instrument of the mortgagor. De facto, the receiver/liquidator is an instrument of the bank lender mortgagee, plundering the defaulted customer at will at the behest and with the full accord of the bank. Note the contortions exercised by Spender J in Freeman v NAB, FCA 427, 9 April 2002, at 5.
- The environment of the court room is generally a terrifying experience for the defaulted bank customer, especially but not only for the self-representing customer. The culture, the unspoken conventions, are second nature to bank representation and its mutual relationship with the bench. Those presiding are regularly condescending, dismissive, belligerent to the victim who is uninitiated and unfamiliar with the rituals. And that’s if one can make sense of the bench’s discourse, often unintelligible, product of the learned judge being either out of their depth and/or obtuse by design.
- Presiding over bank litigation, the bench is facing a situation in which the bank seeks possession of customer assets of which it has taken security, most fundamentally the farm/home (which may have been in the family for generations) or family home of small businesspeople. The indifference with which a judge can readily grant possession, with the customer’s entire livelihood and personal security in the balance, highlights that judicial culture has rendered its practitioners totally devoid of the gene of sympathy.
- There is a good chance that the judge, before his elevation, has acted as counsel for the very bank engaged in the litigation at which s/he presides. What chance impartiality?
- There is a good chance that the judge and bank legals are known to each other, indeed even on good terms, because of the incestuousness of the legal profession. This proximity, cosiness, is even more likely in the smaller
- States of Tasmania, South Australia and Western Australia.
- On regular occasions a judge will admit, in passing, that the bank that is party to the litigation is the bank with which he banks. Expecting consent from all present that this disclosure is of no substantive consequence, the judge will judiciously proceed with the case. It is not unknown for such disclosures to be erased from the transcript of proceedings.
- I have been informed of occasions where even a Court Registrar will display partisanry in the treatment of a defendant in bank litigation.
- Occasionally, a judgment in favour of the bank litigant is so manifestly disgraceful that one must necessarily infer that the author/s of said judgment have either lost their marbles (unlikely) or in the pay of the bank. The rock of Precedent, on which is grounded the majesty of judicial objectivity and continuity, has proved to be a wonderfully malleable instrument. It is not out of the question, indeed plausible, that a bank may seek to influence a judge’s ‘judgment’. At a hearing involving the ANZ’s suit for bankruptcy (ANZ v James, FCA 332, 2016)., according to the defendant, Katzmann J opened the hearing with the claim that the ANZ had contacted her the previous day with the offer of a banking relationship. There is, fortuitously, no register of interests required of the judiciary, unlike that of the political class. But who is to discern a possible discounted mortgage interest rate? No register would expose such a device.
- Most fundamentally, the judiciary is the product of a flawed education; or, perhaps more accurately expressed, it is the product of a successful socialisation process. Contract law is the Ten Commandments all in one. A contract is a contract is a contract. Customers borrow funds from a bank, and they are obligated to pay it back. End of story. (Kenneth Hayne himself is in that mould, in his decision for the bank in Norman v NAB, HCA Trans 171, 20 July 2012.) Those elevated to the bench, whether before or after, generally have not bothered to inquire as to the nature of the bank lender – small business/farmer borrower relationship. This, as I keep emphasising, is one of the most profoundly asymmetric of all commercial relationships.
- The immediate above is a result of the impoverished tertiary training by which lawyers become credentialled. A window into this affair, apart from the primacy of Contract Law in law degrees, is available from inspection of the couple of dominant Banking Law textbooks in Australia. Huge sections of text are devoted to the reproduction of statutes but whether such statutes are applied or to what effect is ignored. Bank fraud against customers doesn’t exist. And the essence of the relationship is encapsulated thus:
- Tyree & Weaver, Weerasooria's banking law and the financial system in Australia, 2006, p.488): ‘[The lender-borrower relationship] is based on contract and the parties deal at arm’s length, with no obligation on either party to act with any higher duty to each other than that required by the law of the marketplace.’
- Weerasooria himself, ‘Banks owe no fiduciary of “special duty” to customers: a reaffirmation’, Australian Banking & Finance Law Bulletin, April, 2000.
- The judicial class, in spite of all its worldly-mindedness, has not yet come up to speed on the proneness to corruption and criminality (based on the enormous capacity for such by virtue of the intrinsic nature of banking) of the banking sector. Perhaps the judicial class and the banking class live in the same suburbs, and mix socially – this is pure speculation, though not implausible. But judicial failure to look beneath the surface is no doubt a by-product of the successful socialisation process noted above. Occasionally, though rarely, a judge will act out of school – e.g. Balmford J in NAB v Petit-Breuilh, VSC 291, 2000; Rothman J in Kay v NAB, NSWSC 1116, 2010. On some occasions when a judge has decided for a victim s/he will find that their appearances in bank litigation will have dried up (Pincus, foreign currency loans), or their judgments criticised in legal circles (Rogers, ditto).
- The legal profession is incestuous and self-regulating. Its authoritative bodies, Legal Services Commissions, regularly take action against suburban bad apples, but the lawyers who act as mafioso for our banks are outside their purview. For example, a current CBA Queensland victim has sought assistance from the LSC regarding the CBA’s maverick lawyers but told to go elsewhere. Even the most principled and admirable of judges with respectable records stay mum in the face of contemporaries failing the most basic of ethical standards. Of course, judicial discretion is considerable, and a precedent is available for all manner of skulduggery dressed up as acuity, but some members of the judiciary have recognisably played too loose with conventions to avoid suspicion.
The courts then are more than merely an unknowing gullible accessory to bank predation; rather they are an integral part of the means by which predation is achieved. And the delivery of justice? An NAB victim known to me judges that this mentality is a misconception. He opines that the courts are not there to deliver justice but to maintain order.
This claim, outlandish to those to whom it refers, should be self-evident in the evolution of employment law. But here’s a judgment that fits the bill – ACCC v Berbatis Holdings, HCA 18, 9 April 2003.
Gleeson CJ opined that the stronger party to a commercial relationship (here a shopping centre landlord) has the right, indeed the duty, to exploit to the greatest extent the weaker party (here a tenant under family duress).
More details are provided in my 2009 submission, attached.
Kirby J dissented, and his entirely reasonable and eminently moral stance earns him kudos to complement the public high esteem in which he is already held. But as for the Berbatis Gang of Four – Gleeson, Gummow, Hayne (the same!) and Callinan – well, they can’t expect a warm welcome at the Pearly Gates.
My sense of outrage, upon reading this judgment as a non-lawyer outsider, receives sober support from law academic Rick Bigwood, in ‘Curbing Unconscionability: Berbatis in the High Court of Australia’, Melbourne University Law Review, Vol. 28, 2004. Bigwood is the author of the very fat volume Exploitative Contracts (2003). In banking SME/farmer borrowers, the exploitative contract is standard fare.
But Berbatis is about the landlord-tenant relationship – so what? Aha, the power of useful precedent. Judges presiding over bank litigation hone in on them like moths to the light.
We turn to Tomcsanyi v NAB, WASC 448, 30 November 2015. At 93 we have a long disquisition on what Acting Master Gething claims, with the full weight of learned opinion, that the equitable doctrine of unconscionable conduct has to be very very carefully quarantined from loose extension by any judge inclined to let personal feelings (indeed common sense) intrude into her/his rigorous professional training and judicial obligations. Berbatis is hauled in as heavy duty support by Gething to buttress his extended bout of sophistry. Acting Master Gething presumably will go far.
Lord Mansfield rescued Equity from its ghetto in Chancery in the late 18th Century, much to the chagrin of his purist contemporaries. Mansfield’s legacy was embodied in the British Supreme Court of Judicature Acts 1873-75 which merged the administration of the common law and of equity. Two hundred and fifty years after Mansfield, Down Under, in the formal context of belated ‘fusion’, latter day purists (well represented in Australia) are doing their best to keep Equity at bay – at least in the large-scale domain of banking litigation.
Reinforcing the Trial hearing sermon, Tomcsanyi’s appeal against AM Gething (Tomcsanyi v NAB, WASCA 140, 27 July 2017) is met with variations on a common theme. At 56 & 57, Martin CJ, Newnes & Murphy JJ find that the Code of Banking Practice has no legal standing whatsoever, denying any relevance of NAB v Rice, VSC 10, 2015 or of the content of the Code. Our learned men of the bench have chosen not to educate us on what purpose the aforesaid Code (which gets fatter with each re-doing) is meant to serve.
In early 2017, I compiled a list of ‘Bank Litigation Judgments of Interest to Bank Victims’ – partial, of course, but noting much key bank litigation since the mid-1980s. There have been some victories for victims – some of general import but others ephemeral or of minor significance regarding redress. However, the list provides a ready, if crude, list of legal and judicial complicity with ongoing bank predation.
It is appropriate to conclude this section by mentioning the summary judgment (brief) granted to the bank by Young J in Rigg v CBA, NSWSC (Equity Division!) No.1544/89, 19 April 1989 (judgment not publicly available). Rigg’s Nowra-based welding and manufacturing building frame company was taken down fraudulently by the CBA, with the assistance of respectable local identifies (some subsequently beneficiaries of stolen Rigg assets) and the police.
The Rigg family loss of business and home was a successful scam of broad significance. The CBA was then a public bank, reputedly the ’People’s Bank’. The Young judgment was a farce. The Rigg case was a foundation case from which Democrat Senator Paul McLean (as Democrat small business spokesperson) mounted his campaign for bank victim justice in Parliament, against which the Labor Government established the Martin banking inquiry to head McLean off at the pass. This manoeuvre was to prove a brilliant success as the whitewash Martin Report set the scene for the banking sector’s self-regulation which has produced the cowboy environment that ultimately led to the establishment in November 2017 of the Hayne Banking Royal Commission.
Senator McLean moved a motion for the establishment of a Royal Commission into banking, which was voted down by the Senate on 5 April 1989. Only the 7 Democrat Senators and one Independent Senator voted for the motion. Thirty years later, and a whitewash banking Royal Commission just completed – we haven’t moved an inch since Rigg and McLean. Tony and Dorothy Rigg, multiple failed court cases later, are still waiting for justice.
c. the accessibility and appropriateness of the Australian Financial Complaints Authority (AFCA) as an alternative forum for resolving disputes
This inquiry is the first occasion for which the former Financial Ombudsman Service has been the object of formal complaint and investigation. Congratulations are due to those who formulated the Terms of Reference, even if long overdue. ASIC and (to a lesser extent) APRA have been exposed and found wanting, but FOS has evidently been protected to date.
Myriad submissions have been made by bank victims to Parliamentary inquiries documenting their adverse experience with FOS. In particular, the Senate Economics References Committee has not merely given the last word (protocol demands it with submissions criticising criminals made public) to the bank lender but also to FOS. The FOS replies have been formulaic, puerile and marked by a comprehensive refusal to answer the detailed criticisms outlined by the victims. This is a long-running scandal but unremarked in all corridors of the authorities.
Occasionally, FOS will do the right thing by a complainant – the more minor the complaint the more likely the success. However, small business and farmer complaints have been met with prevarication, lack of coherent treatment as passed between staff members, denial of accessibility because of size of business or of loss, imposition of ridiculous time deadlines for victim responses while failing to cater to functional deadlines itself, and finally unfathomable resolutions in favour of the bank. Some senior FOS staff have been exposed as in transparent collusion with the bank under complaint. Some FOS resolutions are formally in favour of the victim but substantively give the victim nothing, or trivial compensation. The bank under complaint can ignore FOS directives with impunity – for example, in document discovery but even in accepting occasional FOS ultimatums in favour of the victims.
At root, one has an organisation that is funded by the banks themselves (unlike the UK equivalent). Certainly, this arrangement saves the exchequer money, but at what cost?
I don’t have any answer for the remediation of FOS in AFCA complicity and corruption. But exposure of its sins is a necessary first step of a corrective.
d. the accessibility of community legal centre advice relating to financial matters
Community legal centres do a herculean job on limited resources, always under threat. However, their calling is to assist the most impecunious of disgruntled bank customers, typically with retail banking concerns.
All other complainants and victims – not least SMEs and farmers, businesses – need other forms of institutional support and means of achieving recognition and redress. As above.
* * *
In general, there is no ready solution for the failings of the legal and judicial system in dealing with defaulted and foreclosed SME and farmers, overwhelmingly the victims of predation.
The problem, as outlined, is deeply entrenched. Even with the best of will, and with uncharacteristic assistance from the legal profession itself, it will take decades to effect substantive improvements.
Some mild suggestions for ready implementation and improvement are in order (reproduced from my 26 February 2018 submission to the Hayne Royal Commission:
- no judge who has been elevated to the bench after perennially acting for banks should be permitted to preside over bank litigation.
- the banking connections of judges must be publicly declared and available on record. No judge should be permitted to preside over litigation involving any bank with which s/he has any connection.
- the bench must demand that bank claims regarding the quantum of residual debt be fully documented, and that such documentation be early available to the respondent of such claims and be subject to the right of counter-claim.
- the summary judgement mechanism should be rendered inadmissible for use in bank litigation.
- tampering with court transcripts, other than corrections mutually agreed by all parties, should be a criminal offense. Ditto the prevention of access by litigants to court transcripts.
- all bank litigation judgments should be publicly available.
- seek personnel with an appropriate background to revise the banking law tertiary syllabus so that future legal practitioners are educated as to the nature of the bank lender – borrower (especially SME/farmer) relationship.
* * *This submission has been put up on the Senate Legal and Constitutional Affairs References Committee Inquiry website in its submissions list. The text has been slightly modified for purposes of clarification and to correct typos.