Also of relevance is the
2004 consultancy report by Whitehall Associates for the Department of
Agriculture, Fisheries and Forestry. This report similarly and
inappropriately draws strong conclusions regarding the healthiness of
pricing and the retail supply chain from non-existent evidence in the body
of the report. The Whitehall report’s treatment of market power is in a
throwaway paragraph; no examination is taken of this significant
phenomenon. There is evidence that the Whitehall consultancy downplayed
the evaluation of market power in the report due to the perceived demands
of key stakeholders, not least the sponsoring federal Department. The
report was a politicised and hence political document, and its nugatory
treatment of market power merits little attention.
Ironically, the Whitehall report reproduced
uncritically propositions from the flawed ACCC report. In turn, the
general conclusions of the Whitehall report have been reproduced
uncritically, not least by ACCC Chairman Samuel in the November 2004 AGSM
speech.
As I have written elsewhere (unpublished document),
‘We are thus witness to a peculiar phenomenon in which reports blessed
with official status are interpreted as denying the existence of large
retailer market power although the reports avoided an examination of the
issue. The reputed absence of retailer market power has thus acquired
definitive status, although the grounds of its declaration are hollow.
Wishful thinking has been converted into tangible reality.’
The ACCC and bank-borrower relations in particular
One returns to the blank sheet that is actions by the
ACCC regarding bank malpractice. I refer to a letter from an ACCC staffer
to a complainant seeking assistance. This letter is representative in
tone of letters sent to complainants regarding alleged bank malpractice
(‘we can’t help you’), but it is more fulsome in detail, and thus merits
attention.
Carmen Walter (principal of the Wodonga
brewing/restaurant business defaulted by the NAB, outlined in my April
2004 dossier) wrote to the ACCC on 17 April 2001. Ms Walter received a
reply from Angusha Kangatharan, ACCC Senior Investigator, on 24 April.
The letter states, inter alia:
Under Part V of the Trade Practices Act 1974 (“the Act”) businesses are
prohibited from engaging in misleading or deceptive conduct. Thus, in the
present case, based upon the information you have provided the conduct in
question may raise concerns under section 52 of the Act.
However, the Australian Competition and Consumer Commission (“the
Commission”) is unable to pursue all matters that are brought to its
attention. Its efforts are aimed more towards achieving compliance with
the Act for the benefit of the public as a whole, than towards achieving
resolution of particular complaints. The Commission’s selection criteria
for matters which it will pursue include the following;
(i) an apparent blatant disregard of the law;
(ii) significant public detriment;
(iii) the potential for action to have a worthwhile educative or deterrent
effect;
(iv) a significant new market issue; or
(v) an opportunity to test the reach of the Act in appropriate
circumstances.
Furthermore, the Commission does not as a matter of policy become involved
in matters where private legal action has been taken. Accordingly, I
regret to advise that the issue you raise is not one this office can
pursue.
Apart from the message of the last paragraph, a
regular and key component of ACCC letters to such complainants, and the
failure of the writer to mention section 51AC as being of possible
relevance to the Walter inquiry, the middle paragraph merits attention.
The author writes of the necessity for selectivity in choosing arenas to
pursue, listing selection criteria. Ms Kangatharan fails to take the
small step and a natural application of logic to note that most of the
criteria listed fit closely the circumstances complained of by aggrieved
small business borrowers. It is readily arguable that there is no more
worthy arena deserving of the ACCC’s resources that would be directed
‘towards achieving compliance with the Act for the benefit of the public
as whole’. The ACCC has not taken this step.
Ms Walter then wrote to the Hon. Joe Hockey, then
Minister for Financial Services and Regulation. Hockey’s office replied
in mid June, saying (as per usual) that it was inappropriate to intervene
in a private matter, but that she should contact the ACCC. (An ACCC press
release was appended to the Hockey letter, in which the ACCC was
trumpeting success against the NAB with respect to a personal guarantee
case. It would not have been clear from the ACCC press release that the
NAB has, to this writer’s knowledge, never lost a court case except on a
handful of personal guarantee cases, for which there is established legal
precedent supporting the hapless defendants.)
Ms Walter wrote again to the ACCC, care of Ms
Kangatharan, on 9 July 2001. The essence of the letter was that, if the
ACCC could not intervene in the Walter case, ‘we would expect the
responsible government bodies to take action outside our personal case to
prevent matters as ours in future (sic)’. The ACCC did not reply to this
letter. A follow up letter from Ms Walter on 13 August 2001 met with a
similar silence.
Enter the Australian Securities and Investments
Commission
As if s.51AC was already not a damp squib, into the
equation comes ASIC, which is handed responsibility for business to
business unconscionable conduct in relation to financial dealings in March
2002. Whoever is responsible for the conception and execution of this
handover should be taken out the back and shot.
ASIC’s skills and associated culture are
incommensurate with the skills required to regulate unconscionable
conduct. Even were ASIC interested in acquiring skills, which it is not,
ASIC does not have the resources to regulate unconscionable conduct.
There appears to have been an implicit but mistaken belief that one could
readily tack on the regulation of business to business unconscionable
conduct to the management of consumer protection.
In correspondence with me in relation to ASIC’s
coverage of bank malpractice, letter dated 15 June 2004, ASIC’s Greg
Tanzer (for Greg Kirk), wrote, inter alia:
To date we have not relied
upon the unconscionable conduct provisions in any proceedings involving
credit.
Tanzer proceeded to elaborate at length on the
difficulties, constraints, and so on.
One might also highlight that Bruce Ford, sometime
CBA victim (Tratzea) spent an inordinate time with ASIC personnel before
and during 2004 in trying to get ASIC to take seriously the use by banks
of the ‘shadow ledger’ system for customers in the process of being
defaulted. The shadow ledger system facilitates extraordinary discretion
for banks to manipulate customer indebtedness, with implications not
merely for the hapless customer, but also for reporting accountability to
the Tax Office and to the banking regulatory authorities. Ford was heard
on a personally sympathetic level, but the issue ultimately was shelved.
The plot thickens. I quote from an article in the
Australian Financial Review, dated 18 February 2005 (authored by David
Crowe and Alesandra Fabro):
The crackdown on property spruikers was being hampered by overlaps between
two key regulators, prompting ‘intense frustration’ among investigators as
they tried to prosecute offenders, a senate committee heard yesterday. … [ACCC
chairman Graeme Samuel] described the situation as ‘less than
satisfactory’ after the separation of financial services regulation under
ASIC. …
The Productivity Commission last month described the overlaps between ASIC
and the ACCC and other bodies as a ‘source of confusion to industry’. Mr
Samuel said there was ‘intense frustration’ among some ACCC staff when
they needed to refer matters to senior counsel to determine whether they
had jurisdiction to investigate a case. …
Labor consumer affairs spokeswoman Kate Lundy described the overlap as a
‘dog’s breakfast’.
To this writer, Ms Lundy’s evaluation is on the
generous side. The situation, to be kind, is a shambles and a disgrace.
The outcome? There is effectively no regulatory oversight of
business to business unconscionable conduct in financial services.
The broader parlous environment for small business
bank victims
There is no doubt that confronting the abuse of the
structured imbalance of power by corporates is a Herculean task. Even by
these demanding standards, banking malpractice is in its own elevated
category. Even if s.46 and s.51AC had robustness, and if ACCC personnel
had both sympathy and commitment to small business complainants, the
broader environment remains unappetising.
The political class declines to go near bank
victims. Democrat Senator Paul McLean was forced out of Parliament in
1991, McLean himself experiencing exhaustion and disgust at the lack of
integrity of Parliament on this issue. The Martin Banking Inquiry closed
down the issue, and nothing has been heard from Parliament since (except
for the very occasional intrusion from backbenchers putting in their two
bits for constituents during the Adjournment Debates, to be immediately
ignored).
With political supineness as background, the banks’
foreclosure process has sucked up and compromised other sectors, in
particular the receiver/manager sector and the property valuation sector.
The public bankruptcy trustee, the Insolvency and Trustee Service
Australia, lacking resources, has lapsed into a cowardly neglect of its
responsibilities to those who have been trapped by bank bankruptcy
proceedings.
But the centre of the larger problem is the legal
profession and the judiciary. The NAB public relations machine recently
tells it thus: ‘All if the material [put forward by foreclosed
complainants] has been the subject of exhaustive investigation many times
by ourselves and by multiple courts of law. In each case the courts have
found the allegations to be unfounded’.
Very convenient for the NAB to hide behind the
fulsome integrity of the Australian legal system. The public relations
entourage can sleep soundly at night because it is its role to write the
script to order. The detail conveys a contrary story.
Anyone who has cared to examine a court case or two
from the foreign currency litigation would already have acquired a less
sanguine view of the Australian legal system (with some honourable
exceptions). It is more of the same with recent bank litigation. A
representative case is the Heinrich v CBA litigation in South Australia.
It is a disgrace. Hyland J settles the case for the Bank by preferring
the credibility of the corrupt lending manager Saunders to the credibility
of the hoodwinked farmer Heinrich. The a priori presumption of
bank staff integrity, rather than a forensic investigation from available
documents and testimony, determines the outcome. Why bother wasting
resources going through the motions when the outcome is predetermined?
In principle, the structured asymmetry of legal
firepower to the banks’ advantage should not inhibit the bench from
looking behind the rhetoric. Yet we have learned members of the bench
perennially displaying contortions of logic, acts of faith in bank
personnel and documentation, and selective appropriation of evidence to
find in favour of the more powerful party. Judges perennially accept
statements on faith by bank staff on events and claims regarding the debt
quotients. There is a pervasive ignorance of bank procedures amongst the
judiciary, and a pervasive lack of interest in acquiring a workable
knowledge of such procedures.
In particular, the issue of who the receiver/manager
owes allegiance to – the mortgagor or mortgagee – provides a colourful
legerdemain. The law says that the receiver/manager owes allegiance to
the mortgagor, but the practice is that the receiver/manager is the
chattel of the bank. Spender J, in National Australia Bank v Freeman, FCA
244, March 2002, more honest than most, exposed the distortions necessary
to turn the law to the advantage of the practice. Those in more of a
hurry to dispense with niceties (such as Dodds-Streeton J, in National
Australia Bank v Walter, VSC 36, February 2004) merely crash through the
inconsistencies to find the desired result.
Some judges come to office having acted for banks,
not surprising as banks are most prevalent in litigation and have the
resources to match the demand. Such has been the position of Paul de
Jersey, now Queensland Chief Justice, with Westpac; ditto Richard
Chesterman, now Queensland Supreme Court, with Westpac; ditto George
Fryberg, now Queensland Supreme Court, with the NAB (Fryberg was senior
counsel for the NAB in the Kabwand/Somerset case, another disgraceful
outcome).
We then find judges presiding over cases in which a
previous long term bank client is one of the parties. Thus did de Jersey
J preside over a decision for his previous benefactor Westpac in the
crucial foreign currency case Westpac v Potts, Queensland Supreme Court of
Appeal, No.657 of 1991, April 1992, a case resulting in what Queenslanders
in the know consider to be one of the worst decisions in recent judicial
history. This decision had the not inconsiderable effect of not merely
reversing the lower court ruling in favour of Potts but also a series of
decisions in the Federal Court against Westpac in Chiarabaglio,
Thannhauser and Ferneyhaugh, whose cumulative impact was threatening to
damn Westpac comprehensively over its foreign currency loan debacle. With
the Potts reversal, the significance of which was duly advertised to all
and sundry by Westpac, Drambo was subsequently won for Westpac. As with
the equally culpable CBA, the remaining foreign currency loan casualties
were left to rot and dissolve unlamented into history.
Similarly judges routinely preside, without
embarrassment, over litigation in which one of the parties is the bank
with which they have a financial interest or a personal banking
relationship. Judge Dodds-Streeton admitted to beneficial interest in NAB
shares worth a quarter of a million dollars in National Australia Bank v
Walter, but claimed that impartiality would prevail on her watch.
Chief Justice de Jersey has admitted to a personal
banking relationship with the NAB. And yet His Honour presided over a
Summary Judgment Hearing in early 2001 on the matter of Troiani as
guarantor and majority owner of Wide Bay Bricks. The Judge delivered a
decision in favour of the NAB and judgment on debt which allowed the NAB
to proceed to pursue the Troianis to bankruptcy. The NAB offered no proof
of debt, and there was no transcript of the hearing. The additional
advantage of this summary judgment was that there was nil discovery of
documents, documents which would have disclosed a telltale path of how the
Troianis were defrauded by the NAB. Curiously, Sante Troiani was not
present on that fateful day because his then barrister, a friend of the
court, had advised him against attendance. Estimate of net debt at time
of appointment of receiver/managers in 1999 is impossible due to apparent
widescale NAB manipulation of accounts (as an instance, the NAB stole
$3.985 million from WBB accounts shortly before appointment of
receiver/managers), but a rough estimate would have the Troianis’ net
equity in Wide Bay Bricks at $40 million. Add $20 million in personal
assets, and the NAB has neatly appropriated $60 million from the Troianis
through a judicial auto-da-fé.
‘Exhaustive investigation’ indeed.
In sum
At present in Australia, banks are effectively above
the law with respect to small business customers. Banks operate,
self-consciously, in the realm of the law of the jungle. The public image
of the Australian regulatory system is that the rule of law prevails. The
ACCC, ASIC, APRA, and so on, are the public face of this public image.
The public image in this domain is a lie.
Most victims, good law-abiding citizens, have lapsed
into passivity, which suits the banks and the regulatory agencies
perfectly. The less fuss the better. The victims have been reduced to
idleness (when not futilely seeking assistance from politicians and
regulators), supported by relatives, and/or are on pensions at public
expense. Family breakdown is par for the course. Suicide is not unknown,
especially amongst farmers (drought is a contributing factor to depression
in the bush, but bank thuggery is also a contributing factor, well known
to those affected but suppressed by the media and rendered oblivious to
those in authority). Frankly, one can understand if bank victims took the
view that they could achieve better justice if they themselves took the
law into their own hands and operated according to the same law of the
jungle.
It follows
The intellectual and moral frailty of the legal
profession is a larger problem, but there are lessons for the bailiwick of
the ACCC.
1. The ACCC needs to confront that there is a problem
with bank malpractice in this country, and that it is systemic.
2. The ACCC should lobby the government post-haste to
retrieve the unconscionable conduct in financial services provisions from
ASIC.
3. The ACCC should cease to pretend that the current
s.51AC has any guts and should support the small business lobby’s current
efforts to have it strengthened.
4. The ACCC should consider mounting a test case or
two in the courts against bank malpractice. There is no shortage of cases
to choose from. The ACCC’s existing selection criteria regarding
prioritisation, as outlined conveniently by Ms Kangatharan above,
highlight that the ACCC already has the tools to hand to expedite this
process. The availability of a quality legal team to a bank victim would
be a welcome change to the perennial dependence on lesser talents or the
inability to hire any legal assistance because of penury. ACCC
involvement would also bring much needed publicity to an arena starved of
publicity, given the extent to which financial journalism has been cowed
in matters of banking malpractice.
5. The ACCC should hire an individual experienced in
bank procedure and culture, preferably someone from an asset structuring
division who has seen the light and wishes to reclaim his/her soul.
Yours sincerely
(Dr) Evan Jones
Political Economy
University of Sydney
Email: evanj@econ.usyd.edu.au
Phone: +61 2 9351 6617
Fax: +61 9351 8596
cc.
Mr Graeme Samuel, Chairman, ACCC
ASIC (Greg
Kirk, Compliance and Campaigns, Consumer Protection Directorate; directed
to Robert Drake, Acting Assistant Director)
Various relevant Members of Parliament
Various small business organisations
Various bank victims and friends
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