DR Evan Jones, 20 February 2014
Below is a rejoinder to the NAB response to the submissions by Claire & Chris Priestley to the ASIC inquiry.
The Senate Committee Secretariat readily put up the NAB response, a 3-page letter characterised by lies, dissembling and omissions.
My submitted rejoinder has now been sitting for 6 weeks, awaiting a decision regarding acceptability.
(The Committee and Secretariat is currently at Inquiry hearings, at which one can guarantee that the subject of bank malpractice against SME/farmer customers and regulatory inaction will be ignored.)
The Secretariat had merely to redact the names of NAB staffers and upload this rejoinder as readily as it uploaded the NAB response.
Why the asymmetry of treatment?
* * *
Senate Economics Committee Inquiry
The performance of the Australian Securities and Investments Commission
Honorary Associate (previously Associate Professor), Department of Political Economy, University of Sydney
Re: Invited response from the National Australia Bank to Claire & Chris Priestley submissions (#394 & #397).
[Note: I have no pecuniary interest in the Priestley case; my interest is ethical, intellectual and policy-oriented.]
I refer to the Senate Economics Committee’s guidelines for submissions:
9. If your submission 'reflects adversely' on another person (for example, accusing them of lying or corrupt behaviour), the committee will send the comment to the other person so they can reply.
This practice of invited response from those adversely mentioned in submissions is a product of the recent procedure of making submissions publicly accessible. Although the practice is an essential component of ensuring accountability from the authors of submissions, the ‘persons’ invited to response appear to have been universally institutions – institutions that one would expect to be the subject of complaint and criticism by virtue of the Inquiry’s subject matter.
The operation of this procedure has resulted in a substantial asymmetry. Those for whom an Inquiry has been purportedly established in the first place, the self-described victims, are subject to a one-sided response from the very institutions under examination in the particular Inquiry who face no responsibility for accuracy or honesty in their own submissions, with the victims having no formal right of response to the response.1 The presumption is that victims of institutional malpractice cannot be trusted to give an accurate account of their experience. Perhaps the only consolation is that the institution so accused exposes, in its response, the unethical and unrepentant mentality that was responsible for the creation of its victims in the first place.
Such is the character of the National Australia Bank’s 28 November 2013 response to the Priestley submissions (#394, #397). The misleading nature of this response demands its own response.
At issue is not merely the treatment of the farming siblings Chris and Claire Priestley. At issue is the modus operandi of the major banks in their treatment of small business and family farmer borrowers – a matter of hugely significant public interest.
II. The profoundly asymmetric bank lender – SME/farmer borrower relationship
The relationship between bank lender and SME/farmer borrower is one of the most asymmetric of all commercial relationships. The power imbalance is immense. That imbalance could be conceivably reduced if bank lenders acted in a professional manner as befits the banker’s traditional status. Alas, whatever professionalism in banking existed was killed off with financial deregulation in the 1980s. The banker has been replaced by a money lender, albeit the typical borrower remains ignorant of the change.
The imbalance has been further enhanced as the era of financial deregulation grinds on. First, loan contracts have been embellished with endless conditions enhancing the lender’s prerogatives and the borrower’s (and guarantors’) servitude. More, the banks now have at their disposal the bill facility, an innately deceptive loan instrument that few SME/farmer borrowers understand, and a ready vehicle for the bank to initiate a borrower default (as for the Priestleys). More again, the NAB has introduced the innately unconscionable mortgage loan facility that is repayable at call (complementing the overdraft facility repayable at call). Second, the bank lender has become more ravenous in its pecuniary ambitions. Thus every single SME / farmer borrower, no matter how viable commercially, becomes a victim waiting to happen.2 How has this state of affairs been allowed to develop?
The overwhelming bulk of financial regulatory personnel, of legal and judicial personnel and of the political class do not understand, or pretend to not understand the nature of the bank SME/farmer loan contract and the playing out of its operation in practice.
Of particular relevance is the weltanschauung of the legal profession. From the horse’s mouth, we have Weerasoria’s Banking Law and the Financial System in Australia, a preeminent banking law textbook, claiming (6th edn., 2006, p.488):
The following principles govern the situation where a customer borrows from a bank:
• A loan from a bank to a customer in a commercial context is a transaction in which the bank is entitled to seek and obtain the best terms it can.
• A bank is entitled to have regard solely to its own commercial interest. …
A manifesto for predation and legal profession complicity. The proposition is made concrete in the majority decision of Gleeson CJ in Australian Competition & Consumer Commission v C G Berbatis Holdings, HCA 18, 9 April 2003:3
One thing is clear, and is illustrated by the decision in Samton Holdings itself. A person is not in a position of relevant disadvantage, constitutional, situational, or otherwise, simply because of inequality of bargaining power. Many, perhaps even most, contracts are made between parties of unequal bargaining power, and good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests. … Parties to commercial negotiations frequently use their bargaining power to ‘extract’ concessions from other parties. That is the stuff of ordinary commercial dealing.
With respect to the commercial dealing here at issue, it is ‘ordinary’ in the sheer pervasiveness of bank lenders taking self-interest to the limit, but there is nothing ‘ordinary’ in the scale and immorality of the predation involved.
But the typical regulator, or judge, or elected Parliamentarian will not find the time to understand these details. No doubt the acknowledgement of the latter would lead to much uncertainty and instability regarding one’s understanding of how business is done in this civilised country. This threat has been well expressed by Queensland Chief Justice Paul de Jersey, veteran (on both sides of the Bench) of much bank litigation: 4
There is real danger with concepts by nature diffuse – as with unconscionability, that they also become unpredictable; a degree of uncertainty may render commercial life exciting: too much, leave it intolerable. The law should be sufficiently predictable to allow the confident resolution of problems … The challenge for the courts is to avoid plunging these sorts of concepts into an abyss of subjective fairness where nothing is predictable.
An abyss of subjective fairness indeed – the entire edifice of credit is at risk from treating the debtor fairly. Such a threat to one’s confidence in the essential reasonableness of our illustrious banking sector’s culture and conventional practices and of Australia’s robust social institutions is unthinkable.
Thus could the letter from the NAB in response to the Priestley submissions – clinical in its expression and summation – be seen as an exemplar in truth-telling and reasonableness.
III. The NAB letter in response to the Priestley submissions
The letter from the NAB to the Committee is no such thing. It is an exemplar in misleading representation.
The Priestley claims are accurately reproduced:
The Priestleys' grievance arises from NAB's decision not to advance funding in 2010 for their farming operation, which they say was inconsistent with earlier representations of support made by NAB in prior years.
The Priestleys assert in the Submission that their complaints to NAB about this decision were not dealt with by NAB, as required by the Code of Banking Practice, and that instead NAB chose to proceed with farm debt mediation and ultimately court recovery action.
The rest of the letter is steeped in hyperbole.
III.1 The character of the loan relationship
The NAB letter notes that:
NAB did not make any inaccurate or misleading representations that it would continue to fund the Priestleys after 2009.
This claim is formally accurate. But what is the nature of the relationship between lender and borrower? The initial loan package was established fairly readily during August-October 2004, in the context of drought and with no immediate prospect of the drought lifting.
The bank’s initial Letter of Offer, 18 August 2004, incorporates the following paragraphs:
The National understands that a decision to expand operations and purchase additional farms is not made lightly. From our previous discussions and the information provided I believe our goals of committing to irrigated agriculture by buying your own farm, to build you long term wealth, can be met.
This proposal reflects your goals and provides 3 keys to achieving them,
√ To provide a finance package to assist with acquisition of “Wombillion”, “Glenacre” and “Riverview” Walgett NSW with a flexible, transparent and simple structure
√ 2. To provide a dedicated Agribusiness manager who is focused on providing service in a professional & timely manner, with access to the resources of the entire National Australia Bank group
√ 3. To build a business relationship that can be trusted and that will continue into the future with the sound knowledge we are committed to agribusiness.
These 3 keys unlock the value National Agribusiness wants to provide CW & CB Priestley.
This statement commits the bank, in writing, to a relationship with the Priestleys that demands competence, commitment and for the long term, and ethical behaviour.
This formal written commitment is complemented by the explicit general commitment embodied in the NAB’s advertising and public relations activities. Thus (the Land, 4 October 2012):
As Australia’s largest agribusiness bank, National Australia Bank (NAB) Agribusiness has built its reputation on providing customers with access to the skills and experience of its expert agribusiness bankers and teams across the country.
Again (the Land, 4 April 2013):
We see that agribusinesses need long-term support to take advantage of new opportunities and that’s why we continue to lend more to Australian agribusiness than any other bank. And we’re more than just bankers, we’re locals who are dedicated to supporting, understanding and growing your agribusiness here and overseas.
It is my inference that the bank’s formal commitment to the Priestley project was silently extinguished, if not already tenuous, when the Priestley account was moved from Walgett to Narrabri under another Branch Manager in July 2007.
The likelihood is that the Priestleys, if not from the first moment, were considered a vehicle for loans on ‘asset lending’ criteria as opposed to business prospects criteria. The ex-Priestley properties are situated on the Macquarie River near its confluence with two other rivers, with associated extremely valuable water licences in all but the most straitened of conditions – attractive properties which the current occupiers, the neighbours, appear to have had their eyes on for some time.
Within the space of three months after the October 2004 loan offer, in January 2005, the NAB was pressing more loan funds onto the Priestleys – a curious affair.
In August/September 2006, the NAB extended $500,000 to the Priestleys for the purchase of a neighbouring property, going cheaply. Yet the bank lent the Priestleys a further sum of $700,000, unrequested by the Priestleys, and wrapped the loans in a new package, the functionality of which was never adequately explained to the Priestleys and the character of which, in my view, the Priestleys have never understood to this day.
Through the bank’s holding of the Priestley properties as security during drought, the bank, without lifting a finger, profited to the sum of $470,000 in drought relief payments from the NSW government over the 5-year period 2005-09. Drought relief payments come with the presumption of the relevant properties’ long-term viability. However, the total assistance in interest subsidies had reached the maximum available under Rural Assistance Authority guidelines, and Walgett’s Exceptional Circumstances declaration had ceased on 31 March 2009. Three days later, the bank sent the Priestleys a letter, advising ‘The Bank does not have the risk appetite to provide any further funding beyond 30th June 2009 …’. As soon as the drought ended in late 2009, the bank gave notice to the Priestleys that it wanted out immediately.
There thus appears to be set in train quite early a divergence in understanding of the nature of the relationship. The NAB’s pervasive misleading advertising and the NAB’s ongoing seduction of farmer organisations (e.g. the NSW Farmers’ Federation) would have reinforced that divergence. As I note in my 4 December 2012 Affidavit for the Priestleys for their Court hearing on 5 December:
The typical prospective small business / family farmer borrower comes to a bank with the implicit expectation (as with attendance at a doctor’s surgery) that they are about to engage in a banking transaction with its attendant professional/ethical implications.
When a borrower is the recipient of a loan based on asset lending criteria, the implicit understanding of the nature of the bank-customer relationship on the part of the borrower diverges from the understanding on the part of the lender. This divergence of understanding operates to the advantage of the bank should the relationship become conflicted.
Asset lending involves no necessary concern on the part of the bank lender with the business prospects of the loan recipient. The practice of asset lending converts the financial relationship to a ‘money-lending’ transaction rather than a banking transaction. The latter implies professional expertise and ethics, the former does not.
The NAB has a long history of advancing loans on asset lending criteria, some of which have demonstrated laziness/incompetence and/or fraudulent intent from the beginning.5 So the establishment (and extension) of the Priestley loans on asset lending criteria would be nothing unusual for the bank.
Moreover, there are cumulative instances of actions from the bank implying a lack of good faith, which supports the inference that the bank was not interested in the viability or development of the Priestley properties. These instances include:
a. In February 2008, the Priestleys’ new manager, James Pitman, rejected their request to engage in wheat swaps, then exchanging on favourable terms, reputedly because, as said to Chris Priestley, ‘it’s survival for you only’. This rejection would cost the Priestleys sizeable and timely income (in turn, facilitating debt servicing). Wheat prices dropped dramatically between February and the harvest in late 2008. Also, the delay in harvesting by late-arriving contractors (were they warned off?) affected grades which required pooling to achieve the best price (but belated payment). Pitman was opposed to the pooling but was implicated in the Priestleys having to resort to it.
b. In May 2008, Pitman opposed the Priestleys’ attempt to add significant value to the recently purchased property by clearing land. Pitman threatened the Priestleys that he would bounce the cheque if they attempted to pay the earthmover.
c. The bank imposed on the Priestleys a new loan package in April 2008, with its attendant establishment fees. Yet the three facilities were the same as previously. The new package raised the default interest rates to draconian levels and imposed a tightened unrealistic loan reduction schedule. The imposed April 2008 package is a central embodiment of bad faith, and is unconscionable in substance and intent. One reasonably infers that the April 2008 package was a vehicle to facilitate a smoother default process of the Priestleys.
d. In early April 2009 Pitman advised the Priestleys (as above) that the bank would not fund the 2009 crop. This was in spite of the Priestleys meeting their half a tonne to the acre budget of dry land wheat in 2008.
e. After the breaking of the drought on Boxing Day 2009, into 2010 and beyond, bad faith’ essentially characterises the bank’s entire dealings with the Priestleys. The Branch and Regional Managers refused to come out and inspect the Priestley properties, then lush. Soon after drought broke in dramatic fashion the bank made the Priestleys seek a marketing plan from a real estate agent to organise a ready sale. The agent claimed (predictably) that the market was unsuitable and any contemplated sale should definitely involve a crop in the ground, but the bank did not take the agent’s informed professional advice on board.
f. In February 2010, the bank denied consideration of an equity scheme proposed by the respected Agricultural Management Company.
g. The Priestleys were effectively defaulted in February 2010. Default/penalty interest rates appear to have been imposed from April 2010. No prior written notification took place, contrary to the bank’s contractual obligations.
h. In March 2010 the bank demonstrated indifference to a cotton budget. Cotton prices were then at a ten-year high. A consultant, supposedly collaborating, failed to deliver the agreed input (warned off by the bank?).
i. During 2010, the bank denied to the Priestleys the viability of a cotton crop while at the same time the bank was pumping funds into cotton on Cubbie Station.
j. On 12 April 2010 further unrealistic demands were made by the bank regarding a properties sale plan (with no crops in ground) and debt servicing.
k. Also in April the Priestleys were denied access at any level to make complaints about their treatment.
l. On 23 April, Farm Debt Mediation was served on the Priestleys, unconscionably.
m. By default, the Priestleys sent a 12,000 word written complaint to CEO Clyne in May. The response was to ignore the content of the document and inform the Priestleys that FDM was the appropriate vehicle for ‘resolution’ of their ‘grievances’. NAB Agribusiness manager Khan Horne also declined Priestley requests for involvement in their complaints, with the same declaration.
n. In July 2010 the Farm Debt Mediation process is comprehensively rorted by bank representatives, headed by Ashley Gardiner. Gardiner serves as an Agribusiness Recoveries Manager (within the suitably euphemistic ‘Strategic Business Services’ division), but his status is regularly rendered oblique in public documentation. The FDM process was used merely to impose terms on the Priestleys that facilitated foreclosure.
o. NAB personnel recommended that the Priestleys seek psychological counselling (from an organisation with which the NAB was associated), in spite of the fact that such services were not requested nor needed. The Priestley’s mental health has never been impaired, in spite of the bank’s ongoing efforts to accomplish that end.
p. The Priestleys put forward an elaborate proposal in July 2011, addressed to NAB CEO Clyne, for the development and use of their properties for the training in agricultural skills of members of surrounding indigenous communities. Some local indigenous communities are in crisis with alcohol, drug and gambling dependence. The proposals were soon absorbed within a web of obfuscation, lack of communication and feedback, and stonewalling. No formal reply was forthcoming. This in the context of the NAB’s expansive public relations claims that it is a strong supporter of indigenous community development.
q. In July 2011, the bank also rejected a proposal from the Priestleys to involve a sharefarmer in cotton production on their properties.
r. Personnel acting under NAB’s directions contemptibly posted Statement of Claims on notices on 17 April 2012 in public places. These notices were placed in trees on the neighbour’s property adjacent to a public road (with said neighbours being prospective and ultimate occupiers of the properties). Such Claims Statements had already been received by the Priestleys in November 2011. The April 2012 action was transparently designed to humiliate the Priestleys.
s. Bank personnel displayed the ultimate in inhumanity with respect to the Priestleys’ family life. Ashley Gardiner demanded the presence of the Priestleys in Sydney in February 2012 when the Priestleys’ father was known to be dying. The Priestleys were forcibly absent from their father’s death bed.
t. The sale process of the Priestley properties in May 2013 was seriously flawed, desultory.
In short, all of the bank’s interactions with the Priestleys since July 2007 indicate that the bank was playing money lender, not banker. From the Priestley’s perspective, at no time from the movement of the account to Narrabri did they receive useful or functional advice from any NAB operative; what advice or instructions were received were ill-informed or mischievous. Rather than the bank offering professional support, it offered negativity and entrapment for default and foreclosure.
Remember that the NAB has possibly the most extensive advertising and public relations budget of any Australian corporation. The PR machine is effusive in its claims of lender expertise and support (as above), encapsulated in the rubric ‘More Give, Less Take’. The NAB’s advertising and public relations message is, in its entirety, misleading representation.
III.2 The NAB’s claim regarding Farm Debt Mediation
The NAB letter claims:
On 12 May 2010, the Priestleys responded to NAB that they wished to proceed to a farm debt mediation in accordance with that Act. …
In any event … the Priestleys requested and agreed to a farm debt mediation with NAB in July 2010 as a forum in which to ventilate and explore a resolution of the issues they now raise. That decision to go to mediation was made voluntarily by the Priestleys, as was their decision to enter into the abovementioned Heads of Agreement. NAB considers the matter was settled by the Heads of Agreement.
The Priestleys wished, requested and agreed to no such thing. Anybody with the slightest familiarity with Farm Debt Mediation in NSW would know this claim to be a lie. The Priestleys were forced into mediation against their will. The bank’s dissembling is telling of its arrogance and the fact that it would prefer to keep under wraps its modus operandi.
The bank claims that the session was presided over by an independent mediator. But the mediator is ‘independent’ only nominally. Gardiner dictated the session and dictated the outcome. I am aware that a comparable bullying operation by Gardiner was employed in another NSW FDM case, so the Priestley experience is not an aberration.
The Priestleys, as is customary with current FDM procedures, were forced to sign the ‘agreement’ written by the bank. The victim’s freedom consists of choice between immediate foreclosure or foreclosure not long down the track. The Priestleys did write a 6 page letter, dated 22 September 2010, to the Rural Assistance Authority outlining their dissatisfaction with the procedure – but even that formal notice of protest was moderated for fear of further adverse backlash from the bank.
The NSW Farm Debt Mediation Act was legislated in 1994 with the admirable intention of mitigating the powerlessness of the farmer as against bank lender.6 In the early days it is conceivable that a farmer might initiate mediation, facing a sensible and sensitive bank lender and a genuinely independent and competent mediator. That possibility has long gone, with FDM now in the hands of the marauding banks, an abjectly acquiescent RAA bureaucracy, and yet another grouping (mediators) drawing an income at the expense of hapless farmer bank victims.
III.3 The courts and the sometime Priestley lawyer
The NAB letter claims: 7
As also indicated by the above background, the Priestleys had numerous occasions to ventilate their grievances in the above Supreme Court and Court of Appeal proceedings, were legally represented through-out the Supreme Court proceedings, and the Court rejected their arguments.
The Court did indeed reject the Priestley arguments, but the larger story is more instructive than the one-liner.
Bank victims, typically penniless, are always short of competent and committed legal representation. The Priestley experience is representative in this regard. The Priestley’s accidentally acquired lawyer made successive impoverished defence and amended defences, which were rejected. The lawyer did not take instructions from the Priestleys, and refused to hand over material addressed via him from the bank made in reply to Priestley depositions to the bank. The lawyer was either incompetent or acting in the bank’s interests (a not atypical affair) or both. I was present at the 8 August 2012 hearing before Schmidt J. The lawyer had by this time in his possession a July 2012 Amended Defence written by a barrister who was then overseas. The lawyer did not make use of this substantial document, and my impression as an observer was that the lawyer was not acting in the Priestley’s interests.
These early rejections, courtesy of the aforesaid lawyer, according to a judicial convention inexplicable to penurious bank victims, rendered further amended defences (even with belatedly acquired new information) impossible.
More, the judicial process displayed its own peccadilloes. At the 8 August hearings, the bank’s barrister (instructed by Dibbs Barker) asked where is the Priestley’s evidence for their claims, and offered up NAB v McCann as precedent. As I have written elsewhere: Schmidt J dutifully embraced the bank barrister’s eminent direction and held up NAB v McCann as a key precedent for [her] adverse judgement. … But [in this humble non-lawyer’s opinion] the McCann case is not a close parallel to the Priestley case; ah well, anything off the shelf will do to get rid of these pestilent bank ex-customer litigants.
So here we have the learned judge peculiarly taking lessons from the bank’s solicitors, a not impartial source of opinion. Not so peculiar, it appears. The same phenomenon recurs in Priestley v NAB before Basten & Marfarlan JJ on 7 May 2013. The judges took counsel from bank counsel – precedent being supplied again by Dibbs Barker in the form of Caldar v Public Trustee of NSW, 2005 – that possession had already occurred which made the application ‘frivolous’. Again, this not unintelligent non-lawyer can’t see the relevance of the ‘precedent’ cited, but only the legal mind can discern the indiscernible. The judges copy and paste bank solicitors’ opinion into the judgement. The end. Do not the learned judges and their adjuncts have time to do their own research on appropriate precedents – the supposed cornerstone of the law’s legitimacy?
Basten & Macfarlan also declined to contemplate consideration of the Priestleys’ claims regarding rank corruption of the structures underpinning the Code of Banking Practice. An entirely discretionary decision on their part, but the associated Basten quip – ‘This is not a Royal Commission into the banking industry’ – highlighted that the judges may have been more cognisant of the significant stakes before them than they let on. But no, a straight bat, and the Priestleys are finally condemned to Hell.
Yet Basten & Macfarlan were following precedent here in running a mile from the implications of the Code of Banking Practice. The judiciary in general won’t touch it. To do so would plunge the bank-borrower relationship into de Jersey’s ‘abyss of subjective fairness’, and that would be an intolerable situation for legal certainty and the learned judges’ digestion.
In between the hearings before Schmidt J and Basten & Macfarlan JJ the Priestleys appeared before Garling J on 5 December 2012. Before the court (as well as an Affidavit from myself) was expert opinion on the Priestley properties, which claimed:
The net operational surpluses that could have been realised if operating capital had been forthcoming to the River Staation Partnership from 2009 until the present time is in the order of $3.67 million for grain enterprises and $5.42 million for the irrigated cotton enterprise. In total these equate to a figure of $9.09 million [with supplementary income obtainable from grazing].
This is not an insignificant amount and one that … would have been sufficient for the River Staation Partnership to meet its obligations with financiers and other creditors, pay down debt levels and allow it to progress to a more secure basis of operating into the future with greater equity.
Yet Garling honed in on the judiciary’s rock solid axiom –
Garling J: There seems to be little doubt that the payments are not up to date. CP: Yes.
His Honour: Ordinarily that would mean that the bank could take their security. CP: Yes.
His Honour: And that is the order they have got.
Garling conceded that the Priestleys might have a claim for damages (albeit improbable) but possession was inescapable. Garling wouldn’t touch the implications of the Code of Banking Practice or its corruption and was also ill-informed on and indifferent to the Priestley’s conscription into farm debt mediation. Besides, there were too many failed amended defences under the bridge, and Christmas was approaching. End of story.
As a Charles Dickens character astutely exclaimed (specifically regarding the tyrannical doctrine of coverture), ‘the law is a ass’. That aphorism is well applicable to the Priestley experience. The Court rejected the Priestley arguments, as the NAB notes, but that rejection is inconsequential to the justice of the Priestleys’ claims against the bank.
III.4 The NAB and the Code of Banking Practice
The NAB letter claims that:
NAB does not agree with the Priestleys' submission that it did not comply with its obligations under the Code of Banking Practice, or indeed that its conduct was in anyway unfair or inappropriate.
The bank’s claim had been previously parlayed by its solicitors Dibbs Barker:
NAB is satisfied that it has fully complied with its obligations under the Code of Banking Practice, and in particular that its conduct towards you has at all times been fair and ethical. [9 January 2013]
NAB maintains that it has complied with its obligations under the Code of Banking Practice, always acted fairly and ethically and that all your issues have been properly considered. [21 January 2013]
This claim is a farce and a disgrace. It goes to the crux of Claire Priestley’s submission (#394).
The Code is incorporated into the Priestley loan contracts.
More, from the NAB’s website:
All banks that adopt the Code are contractually bound by their obligations under the Code. National Australia Bank adopted the revised Code at the end of August 2003. … NAB is a strong supporter of the Code …
Pertinent sections of the then Code (August 2003 / May 2004) read:
2.2 We will act fairly and reasonably towards you in a consistent and ethical manner. In doing so we will consider your conduct, our conduct and the contract between us.
35.7 Our dispute resolution process is available for all complaints other than those that are resolved to your satisfaction at the time they are drawn to our attention.
36 External dispute resolution We will have available for you an external impartial process for resolving disputes. This process will be: (a) free of charge; …
Bank staff had consistently acted contrarily to 2.2 since early 2008. In April 2010, the bank refused to listen to the Priestley’s complaints (contra 35.7) and forced the Priestleys into mediation (contra 36) and subsequent foreclosure.
With regard to the Code’s prescriptions, the bank has broken its contract with the Priestleys. (Does the Court, obsessed with the sanctity of contract, care? Not a jot.) The bank has lied in its letter to the Committee.
III.5 The corruption of the operation of the Code of Banking Practice
The material above is incidental to the matters concerning the Inquiry into ASIC. However, it is important to offer a contrary interpretation of the Priestley-NAB relationship than that proffered by the misleading NAB letter to the Committee that now accompanies the Priestley submissions.
The NAB letter claims:
The Priestleys also make critical assertions in the Submission about Ms Segal in respect of their complaint. … Ms Segal's only involvement in this matter was as a recipient, along with other NAB Board members, of correspondence from the Priestleys in January 2013 shortly prior to the Sherriff s office eviction. Ms Segal had no input or involvement into NAB's conduct of the Priestley matter, either from a lending perspective, the farm debt mediation or the subsequent litigation. Specifically, Ms Segal did not make any inaccurate or misleading representations to the Priestleys.
The NAB glibly attempts to divert attention from the nature of the Priestley complaint. The Priestley complaints clearly concern a serious potential conflict of interest in the timing and succession of Ms Segal’s (and Mr D’Aloisio’s) appointments, with relevance for the operability of the Code of Banking Practice and ASIC’s effectiveness re bank unconscionability in general.
The Code of Banking Practice was mooted in 1991 during the Martin banking inquiry. That and the banking ombudsman service, created in 1989, were seen as twin pillars of banking self-regulation to head off substantive re-regulation of the sector following the bank-facilitated chaos of the 1980s. The banks, led by the NAB’s Don Argus and the CBA’s David Murray, attempted to ensure that the two structures would be weak or emasculated.
The banks were especially concerned that small business/farmers, spheres of bank dominance and ready exploitation preferably kept out of the public eye, should be kept out of the coverage of both structures. Yet Paul Elliott, Chairman of the Parliamentary Committee concerned with processing the recommendations of the 1991 Martin banking report, pressed in the delivery of his report (5 November 1992):
An extension of the code to cover small business and rural customers also will be essential in rectifying damaged relationships in these areas.
Quite. But the banks appropriated the development of the Code from the federal bureaucracy and the banks had their way – Elliott’s ambition did not come to pass, and the weakened Code was not established until 1996.
The pressure remained. In 2003, a new Code was established, with small business belatedly included and a formally independent Code Compliance Monitoring Committee. Yet old conventions die hard. The banks set about immediately emasculating the new Code. As I have written elsewhere, simultaneously the banks set about creating a Code Compliance Monitoring Committee Association (comprising bank CEOs), which had a Constitution written by Malleson Stephen Jaques (the NAB’s top-drawer law firm), dated 20 February 2004. The 24-page Constitution is secret, and a copy has been obtained only by accident. The Constitution limits the channels by which customer complaints can be made, enhances the banks’ prerogative in dealing with complaints, and proscribes the CCMC’s monitoring capacity. Indeed CCMC members themselves complained of that proscription in a submission to the McClelland 2008 review of the monitoring system.
A definitive condemnation of the CCMCA and its Constitution comes from the CCMC itself, in the aforesaid submission :8
The Committee’s firm view is that the constitution is problematic. The Committee has never met with the members of the CCMCA, its chair or the BFSO chair and to the Committee’s knowledge, the CCMCA has only met once to approve the constitution and approve the appointment of the Committee chair. The Committee notes that to the best of its knowledge, the constitution has never been made public despite its apparently intended impact of the provisions of the Code, which was itself subject to very wide public consultation.
Claire Priestley’s submission outlines her concerns regarding Ms Segal’s revolving door-ism:
Jillian Segal was Deputy Chair and Commissioner of ASIC 1997 – 2002
Jillian Segal was the Chair of the FOS from 2002- 2004. The FOS participated in the revised 2003 and 2004 Code of Banking Practice.
Jillian Segal has been a non-executive director of the NAB since 13 August 2004
Either Jillian Segal has been misled by the [Australian Bankers’ Association] … or she is guilty of conflict of interest, knowing that the NAB customers that have put their faith in her as a NAB director, will never be protected by both ASIC, the FOS and the CCMC.
Did Segal have a role in or was she aware of the emasculation of the Code? As Claire Priestley reasonably demands, this issue requires investigation. The Priestleys sent a series of letters to CEO Clyne, Board Chairman Chaney and all Directors (including Segal) during January 2013, highlighting in detail the failure of the bank to adhere to the Code under its contractual obligations in its dealings with the Priestleys and the bastardisation of the institutional structures of the Code itself. Cursory replies (including through Dibbs Barker) were gratuitous and ignored the Priestley claims, both in detail and in essence.
One might also ask how Segal, after 5 years’ experience as a senior regulator, could remain oblivious as NAB Director to the NAB’s ongoing malpractice against SME/farmer borrowers (ditto ex-Treasury Secretary Ken Henry).
Similarly for Tony D’Aloisio’s revolving door-ism – senior partner of Mallesons when it wrote the CCMCA Constitution, subsequently Chairman of ASIC during which time ASIC took no action in the face of endless complaints by SMEs/farmers against their bank lenders with D’Aloisio unrepentant in this inaction. 9
A closely related lacuna deserves special mention. Farm Debt Mediation in NSW (and in Queensland?) remains unmentioned and implicitly unaccounted for in the structures of the Code of Banking Practice, ultimately overseen by ASIC. FDM is not an External Dispute Resolution scheme, as the Priestleys rightly emphasise.10 Yet FOS excludes any farmer subject to FDM from consideration. This in a FOS letter, 6 December 2013, to a supplicant:
The Ombudsman considers that, where an Applicant has elected to attend farm debt mediation, this office will not consider the dispute as it is more appropriate that the mediation process deal with the resolution of issues relating to both the debt and the dispute. If a settlement is reached by reason of the farm debt mediation between the Applicant and the financial services provider in relation to both the debt and the dispute, then this office will not be able to interfere with that settlement. A Senior Dispute Analyst has reviewed the information you have provided and in her view, your further response does not change our position that the dispute is outside our [Terms of Reference].
All bureaucratic blather. The current situation is thus: the banks exercise total control of the FDM process, they pursue and legitimise foreclosure of farmers by this means, and FOS rules out coverage of this victimisation through discretionary deliberation. The banks thus have no regulatory impediments to the wilful appropriation of farmer borrower assets via FDM (as per the Priestleys). The secretive CCMCA and its secretive Constitution has hovered over this convenient construction. Bank corruption is thus further entrenched by regulatory inaction and complicity. The banks, FOS and the Rural Assistance Authority overseeing FDM are all happy to ignore the hall-of-mirrors discordance between the Code and FDM, to the substantial detriment of the trapped farmer victim. This is a criminal state of affairs. 11
The NAB in its letter to the Committee omits any response to Claire Priestley’s claims regarding the secret emasculation of the Code and the seeming involvement or acquiescence in this state of affairs by one of its Directors. The omission is telling.
III.6 The authorship of the NAB letter
The NAB letter comes under the signature of Nathan Butler, designated ‘General Counsel Governance Corporate & Enterprise Services’. Butler almost certainly did not write the letter and would be ignorant of the source of its contents.
The NAB has not had a Chief General Counsel since 2007. Involvement in and responsibility for crucially important legal input into bank strategy has been murky ever since. Until 2012-13 Butler had been General Counsel Corporate, probably far removed from the shady area of SME/farmer Recoveries.
The authorship of this letter remains hidden behind the corporate veil and is unaccountable for the inaccurate and pernicious character of its contents. Butler assumes formal responsibility but, as per convention, is held to no personal accountability. His name is merely an abstraction, representing the faceless unaccountable corporate entity.
A public corporation, blessed with all the benefits of legal personhood with none of its legal obligations, can claim anything that key insiders determine as desirable, further victimising its borrower victims, and be taken at its word by those in authority.
The Priestleys have been dispossessed of their farming aggregation. The properties have been occupied by the neighbour who proceeded immediately to engage in extensive operations before transfer of ownership. Meanwhile, the Priestleys have had no feedback from the bank as to the details of the sale (indeed whether a sale has taken place), but their debt to the bank continues to grow. The Priestleys have cause for complaint.
The NAB, by virtue of its disdain for the Code of Banking Practice to which it subscribes, has broken its formal contract with the Priestleys. It has also broken its tacit contractual obligations by virtue of the promises embodied in its advertising and public relations activities. The Priestleys’ case, although specific in detail, is not an aberration but representative. Who is to hold the NAB (and the other comparable acting banks) accountable?
The NAB letter, inaccurate and selective, highlights with what insouciance, indeed contempt, senior bank officials hold for the Parliamentary Inquiry process in general and the Senator Committee members specifically. We observed this mentality in its most pronounced form from CBA and BankWest executives during this same Committee’s Post-GFC Banking Inquiry.
The time is long overdue that Parliamentary Committee members and their Secretariats learned to read behind the lines of submissions from Australian banks, and to return the contempt with which the banks have served up such self-serving dissembling in the first place.
1The most telling reflection of this asymmetry is the submission of the Commonwealth Bank of Australia (#261), devoted in part to the dishonest and contemptible denigration of Geoff Shannon, a prominent casualty of the CBA’s yet to be explained default and foreclosure of hundreds of BankWest victims immediately following the CBA’s takeover of BankWest in December 2008.
2 Exhibit A for this claim is the findings of the Tomlinson Report into the predatory practices of the Royal Bank of Scotland (https://www.tomlinsonreport.com/), in collaboration with the UK Coalition Government’s Minister for Business. The 20 page report by businessman Lawrence Tomlinson, titled ‘Banks’ Lending Practices: Treatment of Businesses in distress’, was issued on 25 November 2013. For local examples, one need look no further than the fact of foreclosure (and the character of those foreclosures) by the CBA of the eminently viable BankWest borrowers – the hotelier Sean Butler and the resort developer Rory O”Brien.
3Berbatis, the landlord, had demanded transparently oppressive conditions from a disadvantaged tenant.
4The Hon P de Jersey AC, ‘Update on Case Law Developments’, Banking and Financial Services Law Association Annual Conference, Gold Coast, 7 June 2002.
5Five important instances readily come to mind, denominated by court cases – Kabwand/Somerset v NAB, FCA Queensland G65 of 1986, 29 September 1988; NAB v Troiani/Wide Bay Bricks, QSC S7759 of 2000, 22 March 2001; NAB v Walter, VSC 36, 16 February 2004; Kay v NAB, NSWSC 1116, 30 September 2010; NAB v Lawrence, VSC 556, 15 November 2011. All five relationships were initiated unconscionably or fraudulently in design and in intent. Yet only one of these victims (Kay et.al.) was successful in court.
6See Evan Jones, ‘The Achilles heel of farm debt mediation’, Online Opinion, 31 August 2010.
7There is some word play here, seemingly meaningless to outsiders, but peculiarly important to the bank itself. The Priestleys attempted to make complaints regarding their treatment in April 2010, but were denied a hearing. They then put their complaints in writing, which were ignored. However all correspondence from the bank referred to ‘grievances’, the word ‘complaint’ evidently having been evidently removed from the bank’s lexicon. ‘Complaint’ is the operative word in the Code of Banking Practice.
8The CCMCA’s Constitution has been replaced by the CCMC’s ‘Mandate’ for the revised 2013 Code of Banking Practice – ref. Code Compliance Monitoring Committee, ‘The Role of the CCMC – Fact Sheet’, n.d.. Thus is the existence of this secret structure belatedly and rarely acknowledged in an obscure bulletin. The 2013 Code of Banking Practice and associated paraphernalia is 72 pages long – a masterpiece of marketing gloss and bureaucratic obfuscation designed to inhibit, as per usual, its functionality. The timing of the introduction of the revised Code (and the replacement of the CCMCA and its Constitution) is itself instructive. It was introduced on the day that the Priestleys were dispossessed of their properties and following a month (January 2013) of intensive disclosure of the instrinsically corrupt character of the 2004 Code. The banks and the ABA have acted speedily to cover the tracks of their crime.
9D’Aloisio to Jones, 24 January 2011. See Attachment 2 to my submission (#295) to this Inquiry.
10An email to the Priestleys from Fran Willard, FDM manager of the Rural Assistance Authority, 28 October 2013, notes: ‘As previously discussed the Authority does not enter into the Code of Banking Practice.’
11Farm Debt Mediation remains excluded from acknowledgement in the 2013 Code, inviting ongoing rorting by the banks of that system.
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