The
Victorian Courts
Carmen Walter has sought redress in the Victorian courts. However, with no
resources, and without legal representation or training in the formalities
of court procedures and protocol12
(typical of aggrieved bank borrowers), her representations have
floundered.
12
Apart from her substantive claims, Ms Walter pursued various
undiplomatic sorties, including demand for trial by jury, claims of the
illegitimacy of fractional reserve banking, and accusations of
freemasonry in the Victorian judiciary. Curiously, under pressure on the
freemasonry allegation, a male judge withdrew from the Walter case.
Initial Walter representations in court in 2001 were addressed to the
receiver, centred on the illegality of seizure due to ownership of
property through a family trust. But the courts kept returning to the
fundamental fact that the bank possessed registered mortgages and a
debenture against the Walter assets, guaranteed by the Walters.
For the law, a contract is a contract. The divergence between legal
formalities and substance was captured neatly by Victorian Supreme Court
Justice Beach in the 2001 case against the receiver (Handberg v Walter,
2001: 2):
I feel a deal of sympathy for the Walter family. From the material
before the court it is clear that their life’s dream of establishing the
brewery and restaurant at Wodonga has been shattered. However … I am
required to administer the law as I find it to be and I can simply find
no basis upon which the first-named defendant can lodge any caveat in
relation to the property in question.
Conventional litigation involving banks and small business customers does
not get to the nub of the relationship or the key sources of the ensuing
crisis. The 2003 hearing of the Walters case against the Bank, presided
over by Supreme Court Judge Dodds-Streeton, is representative of such
litigation (National Australia Bank v Walter, 2004).
Given that 7 ½ months elapsed between the end of the trial and the
delivery of Dodds-Streeton’s judgment, one might have hoped for a better
quality product.
Selective treatment of the litigants
Selectivity of treatment by Judge Dodds-Streeton is manifest. The
business’ financial status is reported from the bank’s perspective,
without acknowledgement that there was disputation over the significance
of the figures regarding viability. In particular, Dodds-Streeton states
that the Walters were ‘in default under the interest-only loan …[which]
constituted a default under the home loan’ (ibid.: par.185). One cannot
tell from the judgment transcript that the default refers to the loan
status
after
the bank had issued demand. Default is a consequence of bank action.
Moreover, the December 1998 debt restructuring had conveniently (for the
Bank) brought security over the family home within the business
facilities. This latter manoeuvre was a clear indication of mal-intent on
the Bank’s part.
Much of court proceedings in bank litigation cases is devoted to exploring
the intricacies of what or was not said at crucial meetings, with the
necessity for the judge to make up with inference for the paucity of
information and for conflicting accounts – not least because of the
prevalence of verbal exchanges rather than documentary records. In the
Walter case, extant documents might have been handled more sagaciously by
the Court.
At
the 16 December 1998 meeting at which the new facilities were offered to
the Walters, including the ‘time bomb’ 12-month interest-only loan, Carmen
Walter had the letter of offer in front of her, and on it she wrote the
essence of the words she heard from the new manager at time of hearing,
‘[it will be renewed] year by year’. This document, with annotations, was
submitted to the court, without effect. The bench was not interested in
contemplating the possibility of misleading representation, but sees only
the terms of the letter of offer: ‘ … The Balance Owing shall be repaid in
full on the Maturity Date’.
Perennially in court litigation, bank staff claim that they do not
remember the substance of particular meetings, but that ‘it was their
normal practice to …’, etc. Perennially also does His/Her Honour conclude
that bank staff were ‘disinterested and honest witnesses’, and that the
borrower(s) were ‘evasive, unresponsive, inconsistent with contemporaneous
documentation and inherently improbable’ – Dodds-Streeton’s phrases during
this hearing (ibid.: pars.361, 362) – or words to that effect. A
disinterested reader of the Dodds-Streeton judgment would readily conclude
that Dodds-Streeton J has suspended her critical faculties on the
reliability of bank staff statements.
There is a transparent bias of judges accepting bank officer statements as
bona fide,
given that past court cases have exposed that banks may submit fabricated
statements and that bank officers may lie under oath. The courts will not
dig beneath the verbal testimony to confront an underlying structural
asymmetry embodied in the nature of facilities dictated to the borrower
and in the potential draconian clauses contained therein. The terms on
which borrowers go into the relationship and are subsequently forced out
of the relationship are generally hidden in the black box called
‘commercial discretion’.
Bank document discovery
Carmen Walter has naturally sought discovery of documents from the bank.
In this endeavour, the bank responded belatedly with dribs and drabs, on
each occasion insisting that all relevant documents have been discovered.
Document discovery should be in accordance with the parameters of the
statement of claim. In this case, discovery was transparently partial. No
security schedules, prime documents, were discovered. The Lending Manuals
were sought but denied, and only belatedly released during the main trial
but then under restricted conditions; thus the possibility of reasonable
examination by the Respondents was denied. As per usual, the bank
Realisation Accounts were not discovered.
Bank behaviour regarding the discovery of documents is perennially
contemptuous of court processes. Judge Balmford in the Victorian Supreme
Court delivered a harsh judgment on non-discovery in earlier litigation
involving the NAB (National Australia Bank v Petit-Breuilh, 2000: par.7)
regarding discovery:
However, it transpired that the bank's affidavit of documents, which had
been sworn on 7 January 1998, was significantly incomplete. Many
documents were discovered by the bank well after the commencement of the
hearing, and only after repeated demands by counsel for the defendants.
The Frankston branch of the bank was handling the loan to the
Co-operative from November 1994 …
Nevertheless, the substantial file of the Frankston branch, which
incorporated relevant material from the Burwood and Moorabbin East
branches from 1991 onwards, was not produced until after counsel for the
five defendants had closed his case.
The evidence of the solicitor … for the bank was that that was when the
Frankston file "came to light". The latest document on the Frankston
file is dated in January 1999, and it includes a note of a conversation
with that solicitor in December 1998. Other documents were still being
discovered on the final day of evidence – that is, day twelve of the
hearing. The bank's conduct of its case in this manner affected the
ability of counsel for the defendants to present their case. The
experienced practitioners representing the bank should be aware of their
responsibilities to the Court and to the other parties to litigation in
which their client is concerned.
The language is sober but the substance is damning of NAB behaviour and of
the Bank’s legal representation. The NAB lost this case (Petit-Breuilh),
but it involved a guarantee, the one area in which there is legal
precedent for rulings regarding unconscionable conduct (c/f Commercial
Bank of Australia v Amadio, 1983).
Shadow ledgers and their elusive status
Fragments of bank statements obtained belatedly by the Walters through
discovery are instructive. After informal demand was issued by the bank in
May 2000 (formal demand was issued in November), the ‘address’ for the
statements for the $1 million interest only account was changed from the
Walters’ home address to ‘Do not mail, refer to manager’. The Walters thus
were ignorant of the fact that their account was being loaded with legal
costs or of their extent, or that the account was subject to a partial bad
debt write-off.
This system of parallel accounts has been called ‘shadow ledgers’ within
the Commonwealth Bank and ‘red ink’ or bad debt memorandum account records
within the NAB, and has generally acquired the generic label of shadow
ledgers. The pervasive practice by banks of withholding these statements
from defaulted customers was examined and condemned by a federal
Parliamentary Committee in August 2000. The Committee hearing was
contemporaneous with the period in which the NAB was engaged in this
practice with the Walter accounts. The Committee under Chairman Grant
Chapman issued its ‘shadow ledgers’ report in October (Parliamentary Joint
Statutory Committee on Corporations and Securities, 2000).
In
the 2003 litigation by the Walters against the Bank, Judge Dodds-Streeton
found that the bank practices described as standard ‘are explicable by
legitimate internal recordkeeping and accounting requirements of the NAB’
(par.264). On the contrary. They constitute a deliberate withholding of
information from the borrower, and provide a vehicle for the loading of
arbitrary charges at the bank’s discretion. Her Honour was oblivious that
Parliament had highlighted the dubious ethics of these practices. Even as
a matter of first principles, a well-trained legal mind should be able to
discern the intrinsic unacceptability of the practice.
Fragments of bad debt memorandum account (BDMA) records obtained through
discovery present a conundrum. On the ‘principle plus interest’ term loan
for a particular period, there are different BDMA statements with the same
account number showing different amounts. These amounts differ from
another statement with the same account number but produced by the
official mainframe computer, which shows the account as closed. There is
another BDMA statement for the same loan with a different account number
showing a different amount. It would be natural to infer that there is
something amiss in this collection of statements; it would not be
unreasonable to infer that the figures on the memorandum account
statements have been contrived. It would follow that the residual debt
claimed by the Bank as owing by the Walters has also been contrived.
The BDMA statements, or parts thereof, have been presented to the court as
an accurate representation of debt. The Legal Services Manager of the NAB,
Athol James Aldous, prefaced the presentation of such statements to the
Court with a ‘Certificate Pursuant to Section 55B of the Evidence Act
1958’ claiming:13
To the best of my knowledge and belief –
(a) each document was produced by computer facilities operated by the
Bank which were used regularly to store or process information for the
purposes of the Bank’s business;
(b) each document was printed by a computer linked printer from
information stored in the computer which was transmitted by the computer
to the printer after retrieving that information from the computer, and
requesting the computer to transmit the information for printing;
(c) over the period of the accounts, information of the kind contained
in each statement was regularly supplied to the computer in the ordinary
course of the Bank’s business;
(d) throughout the period of the accounts, the computer was operating
properly;
and
(e) the information contained in the statements reproduces or is derived
from information supplied to the computer by the Bank’s personnel in the
ordinary course of its business. [c/f Dodds-Streeton: ‘disinterested and
honest witnesses’]
The BDMA statements were until recently produced by hand. That they are
now produced ‘by computer’ offers no proof of their veracity. Those who
legislated the Evidence Act would not be amused.
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History of Banking Fraud:
The Coming Battle
