Business as usual at the NAB and grab

The Priestley’s are due to be forced out of their farms in a few days due to unconscionable conduct by the NAB, says Assoc Prof Evan Jones, yet the courts don’t care.

THE NATIONAL AUSTRALIA BANK is a corrupt organisation. It also runs a bank on the side.

But running a bank is an essential vehicle for the former — possessing a banking license gives one carte blanche to engage in corrupt practices. Some of the corruption is strategic, some the product of unplanned mopping up operations arising from the NAB’s serial incompetence.

There is a scandal brewing in Britain, with NAB’s subsidiary Clydesdale having embedded Interest Rate Swap Agreements in business customers’ loan contracts. The bank employed salespersons rather than qualified lending officers, and it earned commissions on the use of the IRSAs. These swaps have now turned toxic in a low interest environment, and are now costing a motzah to service. Of course, there has been zero coverage in the Australian media of this currently hot issue — a scandal in itself.

Back on the home front, the NAB’s war against outer Sydney residents Patricia Thirup and her husband represents corporate blackguardery at its most unprincipled. The NAB has on its side the criminal complicity of the NSW judiciary via the August 2011 judgement handing over the Thirup’s residence to the bank, with Dibbs Barker playing the handmaiden.

On bread and butter NAB practices, the farming siblings Chris and Claire Priestley are facing eviction from their farm in north-west New South Wales. January 22 is the date when the keys are meant to be handed over, the NAB having been given the green light on 10 December.

In late 2004, the Priestleys were offered loan capital by the NAB to buy a large chunk (over 7,100 hectares) of their father’s property, outside Walgett. The loan package was established during an extended drought period, with no immediate prospect of the drought lifting. In 2006, the bank extended the loan capital for the Priestleys to purchase an adjoining property on over 1,700 hectares, then going cheaply.

The drought did not end until December 2009. In the interim, the bank extracted from the NSW Government five sums over successive years (2005-09) for a total of $470,000 in drought relief payments on the strength of the Priestley assets. This bonanza is representative of a widespread practice by the banks in extracting ready revenue from the NSW and Queensland governments via their drought relief authorities on mortgaged land then unproductive.

It is noteworthy that the drought relief authorities hand over funds only if the farms are deemed viable in the long-term. An August 2007 report judged the Priestleys’ properties as satisfying that criterion.

On Boxing Day 2009, the heavens opened. This was a transformation of biblical proportions. The bank immediately recommended that the Priestleys sell the properties (i.e. without crops planted), and this regardless of market conditions. A local real estate agent thought otherwise. Prospective purchasers would have been in the same boat.

The Priestleys were effectively defaulted in February 2010, with draconian default/penalty interest rates imposed from April onwards.

During this time, the Branch and Regional Managers refused to come out and inspect the Priestley properties, then lush. When the Priestleys emailed photos of the property in lieu of refused visits, the Regional Manager then got shirty.

The Priestleys attempted to engage the bank in the viability of a cotton crop. In early March, the bank claimed to countenance a budget including cotton to June 2011, but a 25 March email from the Regional Manager said no deal. Bank staff denied the viability of a cotton crop, yet cotton prices were then at a 10-year high.

Moreover, during 2010, the NAB was funding an extensive cotton crop on Cubbie station, then in receivership with the NAB as a substantial creditor. The NAB is Australia’s most significant ‘agribusiness’ lender, with the bank perennially advertising its expertise, and with the NAB’s Narrabri office at the heart of cotton research country.

On 12 April 2010, the Narrabri manager demanded that the Priestleys sell up in May, requiring a marketing and debt servicing plan by the end of April. Several days later, the Priestleys went to the Narrabri branch to complain of their treatment. They were denied a meeting, with the local manager subsequently instructing that all ‘concerns’ (the word ‘complaints’ had been banished from the local lexicon) should be voiced at farm debt mediation or in writing.

Several days later the Priestleys were served with Mediation – effectively the commencement of enforcement action. When the Priestleys did voice their complaints in writing to the CEO, Cameron Clyne, in May 2010, his office again dictated mediation; there was the same response in a meeting with agribusiness ‘manager’ Khan Horne, who excused himself from involvement.

Farm Debt Mediation was introduced into New South Wales by an Act in 1994. Mediation as a practice has been introduced to attempt to bypass the inefficiencies and costs of litigation. But in this context, mediation was also developed to attempt to moderate the asymmetry of power between the conflicting parties.

Whatever improvements were had in the status of the back-to-the-wall bank customer in the early days, the system has since fallen into disrepair. The NSW Rural Adjustment Authority appears to have been reduced to a box-ticking bureaucracy. More, the Act itself, intrinsically weak, was further emasculated in 2004 when a 2000 amendment requiring the creditor to act in good faith was deleted from the Act. The relevant section was repealed after the National Competition Council deemed its inclusion ‘anti-competitive’. Now, this is a very sick joke, but the corruption endemic to the introduction of National Competition Policy in 1996 is a separate matter.

In short, farm debt mediation is ripe for rorting; the NAB knows this, and it proceeded in July to rort the system in the Priestley’s case, the NAB manager in charge of defaulting the Priestleys effectively dictating procedures. The end result of the procedure was that the draconian penalty rates and a default timetable were now legitimised and advanced in the mediation ‘agreement’. Rather than the Mediation process being a vehicle for offsetting the profound structural imbalance of power between lender and borrower, it has become a means of reinforcing it.

In the meantime, the Priestleys went ahead with a wheat crop, without the bank’s assistance. The bountiful crop was manna from heaven. Alas, what the gods giveth, the gods also taketh away. The rains came and persisted, floods ensued and what crop was left was partially lost due to transportation difficulties (the NAB being non-cooperatve in payment of contractors). Millions of dollars literally down the drain. The Mediation ‘agreement’ required the repayment of $1 million by 31 January 2011. The natural disaster-driven crop failure ensured that the Priestleys’ default was further entrenched.

The Priestley case has dragged out. Penniless, in early 2012, the Priestleys managed to obtain a Sydney-based lawyer to assist them. A previous duo of lawyer and consultant were deemed to be not transparently removed from the bank’s interest. But the new lawyer’s actions and inaction effectively contributed to disarming any defense that the Priestleys had against the bank. The lawyer failed to take advice, submitted desultory statements of defence which were dismissed, and declined to pass on correspondence from the bank.

A substantial Amended Defence was written in July 2012 by another lawyer. This was the basis for the court’s granting of another hearing before Justice Schmidt in the NSW Supreme Court on 8 August. The amended defence made a number of counter claims against the bank. The NAB’s barrister opined before the judge, who evidently would have preferred to be elsewhere:

“(to the effect) yes, your Honour, but where is the evidence to support these claims; there isn’t any, and I give you Davies J in NAB v McCann to knock this frivolous pursuit on the head.”

The author of the amended defence being overseas, the Priestley’s hitherto inactive lawyer did not rise to the defence of the Amended Defence. Alas, if self-litigants are all at sea in the arcane world of legal niceties, having a lawyer on board whose interests are not transparently for the respondent only serves to scuttle the bank customers’ flimsy vessel faster.

The subsequent judgement dismissed the Priestley’s plea. Schmidt J dutifully embraced the bank barrister’s eminent direction and held up NAB v McCann as a key precedent for the adverse judgement. A perusal of NAB v McCann highlights that Ms McCann was indeed short of evidence for her claims (the hapless McCann was probably a victim of predatory lending). But 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.

The phenomenon of ‘asset lending’, much practiced by the NAB, deserves mention to help understand the Priestley case. That practice could be termed ‘lending on customer assets’, as opposed to lending on customer prospects — the latter a skills and resource-intensive project. The practice of asset lending may be a product of lending officer laziness / indifference / incompetence or of conscious design. Very occasionally, initial good intent will be overtaken by circumstance.

Asset lending involves no necessary concern on the part of the bank lender with the business prospects of the loan recipient. The financial relationship becomes a ‘money-lending’ transaction rather than a banking transaction. The latter implies professional expertise and ethics, the former does not.

In a December 2012 affidavit I wrote in support of the Priestley case, I listed five exemplary cases of NAB ‘asset lending’. Four of the five (save Kay et. al. v NAB) led to catastrophic outcomes for the borrowers. In all four cases, the outcomes were curiously ‘legitimised’ by the courts.

1. Somerset/Kabwand v NAB, FCA Queensland G65 of 1986, 29 September 1988. Proximate cause: fraudulent up-valuations (275% in four months) of a worthless asset marketed to the borrower by the NAB lending officer, prior to loan-backed customer purchase. Lacking functional security for such a transaction, the lending officer garnered security over other customer assets by deception and threat. The lending officer and his accommodating regional manager remained in employment at the bank until they took normal retirement, the lending officer with promotion.
2. NAB v Troiani/Wide Bay Bricks, QSC S7759 of 2000, 22 March 2001. Proximate cause: fraudulent entrapment, enacted with the intention of foreclosing on the business. This takedown is one of the great individual case scandals in Australian banking history.
3. NAB v Walter, VSC 36, 16 February 2004. Proximate cause: initial lending manager indifference/incompetence translated into entrapment.
4. Kay v NAB, NSWSC 1116, 30 September 2010. Proximate cause: unconscionable manipulation of facilities and imposition of penalty interest rates.
5. NAB v Lawrence, VSC 556, 15 November 2011. Proximate cause: unconscionable conduct on the part of the lending officer.

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. Thus, 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.

The prospective customer is not disabused of their erroneous mentality. On the contrary, the paraphernalia of a banking operation continues to exude an aura consistent with the borrower’s naïve expectations.

In the bank’s initial Letter of Offer, 18 August 2004, the document claims:

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.

Now that is a heavy duty promise. Lending manager promises are often verbal, and will be subsequently denied; this one is on paper. This statement, unerasable, commits the bank to a relationship with the Priestleys that is responsible, competent, committed and for the long term, and ethical.

And, as it turns out, the Priestley’s original lending manager was an honest, well-intentioned bloke. But he left the scene, and the Priestley’s account was moved from Walgett to Narrabri in July 2007. Whatever the original intentions, the Priestley account appears to have morphed into ‘asset lending’ status thereafter. It is not inconsequential that the 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.

The new, hard-line, regime is well represented in a loan package imposed on the Priestleys in April 2008. The package is, in essence, no different to the previous, but it incorporates elevated default interest rates and new (and unworkable) repayment schedules.

The bank subsequently advised the Priestleys that it would not fund 2009 crops, even though the 2008 dry land wheat crop achieved designated levels. The income from the 2008 crop was reduced because of unavoidable late harvesting, necessitating pooling. But a decisive element was the bank’s refusal, in February 2008, to allow the Priestleys to engage in wheat swaps, then available on favourable terms. Wheat swaps would have facilitated higher and more timely income from the 2008 crop.

The rock-solid commitment in the Letter of Offer is complemented by two other commitments, of general significance.

The first of these generalised commitments to customers is implicit in the bank’s omnipresent advertising and public relations programme.

1. Note the bank’s longstanding logo: more give less take.
2. From the bank’s website:

Being a responsible business for our customers means that we listen and address issues of concern, that we recognise the trust placed in us by our customers to provide safe and secure banking, and that we conduct our business in an ethical manner.

1. From the bank’s public relations screed (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. … NAB Agribusiness general manager Khan Horne said this team had been focused on supporting customers to manage both challenges and new opportunities. “Our business teams use their local knowledge and industry expertise to work with farmers to help achieve their business goals, and take advantage of opportunities presented by the market.

The bank’s ‘mission statements’ and public claims and promises in its various forms underpins and reinforces the bank’s specific stated commitment to the Priestleys.

But, in particular, the NAB has long claimed a deep and abiding concern for the Australian Indigenous community. Thus:

In March this year [2012] we launched our fourth Reconciliation Action Plan … This includes a renewed commitment to financial inclusion, job access, cultural awareness, and building business partnerships with Indigenous Australians, and over the last year we’ve seen steady progress in each of these areas.

The Priestleys made a substantive proposal to the NAB for the development of their properties as training facilities for young generations of the area’s substantial Indigenous community, some members of which are currently trapped in a cocktail of dependence on alcohol, drugs and gambling. The NAB sidelined the Priestley’s proposal, highlighting that the NAB’s formal commitment to Indigenous communities’ wellbeing is essentially public relations spin.

The second of these generalised commitments to customers is embodied in the Code of Banking Practice. In the bank’s Approval Advice letter for the overdraft facility to the Priestleys, 1 October 2004, there is contained:

The Bank has adopted the Code of Banking Practice and relevant provisions of the Code apply to this facility, if you are an individual or small business customer (as defined by the Code).

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 Code (as per 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; …

In April 2010, the bank refused to listen to the Priestley’s complaints (contra 35.7) and forced the Priestleys into mediation (contra 36).

The current flawed Farm Debt Mediation process is incompatible with the Code.

The bank substituted a vehicle for reinforcing the default process (with the customer forced to share the costs) for a complaints mechanism and cost-free dispute resolution service mandated under the Code. The blatant hypocrisy and sham of the substitution is further exemplified by the fact that the Branch and Regional managers who were central to the Priestleys’ complaints were present at the Mediation meeting. A bank Legal Counsel was also present, whose office is alternately described as ‘Dispute Resolution’ (transparently inactive) and ‘Recoveries’.

As for 2.2, consider the following sequence in which bank personnel displayed the ultimate in inhumanity with respect to the Priestleys’ family life.

The Priestleys’ elderly father had a stroke on 1 February 2012. The Priestleys were due to appear at a hearing in Sydney scheduled for 6 February. Claire Priestley attempted to get the defaulting manager from NAB – lets call him Adrian Green – to have the hearing date changed. Green replied to the effect that he had no influence in this matter as the legal process had been out-sourced. Claire Priestley left her dying father to attend the 6 February hearing, effectively for nothing.

Another hearing was set for 20 February, again without consideration for the Priestleys’ predicament. The Priestleys race to Sydney again, effectively again for nothing with an extension granted. Their father died on the 19th, with them absent.

The bank still demanded possession on the 20^th February, claiming that the Priestleys had sufficient time to file a defence — in spite of bank personnel knowing the prevailing conditions – the Priestleys’ personal loss and the fact that floodwaters then prevented access to their property and to their files.

On 24 May 2012, Green himself filed (no out-sourcing in sight) for possession of the Priestleys’ properties.

The history of the Code itself is far from encouraging.

The 1991 Martin Inquiry into the banking sector was established to head off the deluge of adverse publicity coming from Democrat Senator Paul McLean in Parliament and with respect to the foreign currency scandal as reported extensively in the media. The subsequent weak Report gave the errant banks an out — either we reregulate the sector or you regulate yourselves. Naturally, the banks chose the latter option.

A Code of Banking Practice was belatedly formulated in 1993 and more belatedly adopted in 1996. It was a weak reed; the product of bank lobbying. The Code was revised in 2003 with, among other changes, to include small business under its coverage and a formally independent monitor of code compliance established (the Code Compliance Monitoring Committee) — important additions.

Yet simultaneously, the banks set about creating a Code Compliance Monitoring Committee Association (comprising bank CEOs), which had a Constitution written by Mallesons (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 a 2008 review of the monitoring system.

In short, the Code Banking Practice is a sham, yet another dimension of a sectoral public relations front, the formal terms of which the banks are delighted to honour in the breach.

Insofar as the Code is an integral component of loan contracts, the NAB (with the other banks) has broken its contract with the state and with its small business / family farmer customers en masse. Manifestly, via a triad of written commitment, misleading advertising and non-adherence to the Banking Code, the NAB has broken its contract with the Priestleys.

Dibbs Barker, the NAB’s solicitors in the Priestley matter, views it differently through well-remunerated rose-coloured glasses. The Senior Associate responsible for the case emailed Claire Priestley on 9^th January. Said the SA:

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.

Ah, the career trajectory of smart young things whose exceedingly favourable Year 12 marks propels them unerringly into that high prestige, but ethics-free, profession — the law. With the compulsory Faustian bargain readily succumbed to, the scene is set for progression up the ranks and a comfortable future.

The Priestleys gained another hearing on Wednesday 5 December. Before the court 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.

On Monday 10 December, Judge Garling rejected the Priestley’s application to re-open the case. Garling J apparently noted that the Priestleys early successive defences (courtesy of the rogue lawyer) that were dismissed had damned them and that their time was up. The Judge apparently also said that the Priestleys might have a case against the bank on some matters.

One says ‘apparently’ because the Judge’s judgement was not made available for scrutiny. In response to the Priestley’s attempts on Christmas Eve (two weeks after the verbal dismissal) to obtain the judgement, the Judge’s Associate replied:

As originally advised, when the judgment has been finalised I will send a certified copy to the parties. … The Court is now on vacation break until 28 January 2012. Only urgent matters are being dealt with during the break.

The 10 December oral judgement is final; the orders take effect from that moment. The bank has legitimation, from the oral delivery, for demanding the keys to the property at the latest on the 22^nd. The bank has no need of the written judgement; the Priestleys have a pressing need for it, but their need is deemed non-urgent.

Happy New Year, Claire and Chris Priestley!

The law and the Court have a conveniently straight-forward view of bank-customer litigation — that such disputes clog the system daily. The customer contracts to borrow a sum, the customer does not fulfil the repayment obligations, the customer is thus liable to default and repayment of the sum due with costs. End of story.

Notions of ethical considerations, a code of banking practice, etc., are an immense irritation with which the law and the Court would prefer not to deal. As Paul de Jersey, Chief Justice of Queensland, a close friend of the banks, claimed in a conference presentation in June 2002:

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 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. Remember the contrast between the public perception of banking and of money-lending — significant institutionally, culturally, ethically. The law and the Court only ever recognised (with very rare exceptions) the bank-customer relation as a money-lending operation. To all small business/farmer bank customers out there who thought otherwise, stiff cheddar.

If the Priestley trajectory follows convention, this is the likely scenario:

The Priestley properties will be sold under value, to a friendly party (several appear to be already on the blocks). A manufactured residual debt will be concocted, courtesy of the sale under value, the appropriations of the usurious default interest rates, assorted costs of default and foreclosure (legal bills, eviction costs, etc.). The residual debt will then be used in court to engineer bankruptcy of the Priestleys, thus inhibiting any litigation against the bank for the indefinite future. The residual debt will be written off as bad debt in the accounts, and the unwitting taxpayer will remit a goodly portion of it. The NAB will continue to advertise itself as the farmer’s best friend which, because the media (especially the rural press) will not touch bank-customer fallout stories, the public will take at face value.

And it will be business as usual at the National Australia Bank.

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