Queensland's Farm Debt Mediation Bill will go some way towards addressing bank ruthlessness against farmers but will it be enough? Lynton Freeman reports.
IN QUEENSLAND, the Government has introduced a Farm Debt Mediation Bill 2016 (FDMB).
Independent MP Elizabeth Cunningham tried to introduce a similar bill into the Queensland Parliament in 2004 but it was defeated by the major parties.
Now, both major parties support the bill.
Queensland farmers and some small businesses were, until now, at the mercy of a simple procedure by financiers when they demanded mediation with the farmer if the farmer was being unreasonably or unlawfully prosecuted by the financier but would then stop the mediation and resort to finding a monetary, or other, process to defeat the farmer.
The reality of this situation was produced in a case note by ACU Law Professor Lawrence Boulle: 'The dog that did not bark: mediation style'. The unfortunate part of it is that despite being aware of the ruthlessness of financiers against farmers, Queensland's Parliament waited until now to try to remedy the situation.
Australian Small Business and Family Enterprise Ombudsman Kate Carnell has just completed an inquiry where her report states that one-third of bank customers prosecuted by banks of the situations she examined were unjustified.
The Impairment of Customer Loans Inquiry found the National Australia Bank (NAB) has admitted it had forced one farmer – myself – off my property when the loan to valuation ratio (LTV) was outside bank requirements. The problem was the bank had not put my funds as handed through the Queensland Rural Adjustment Authority (QRAA) into my account, but refused them. The bank then called me unviable, though I traded for four years after that date.
QRAA was charged with assessing my viability and it was confirmed by them. The bank had a consultant give a further assessment after the funds had been refused from QRAA, but his formula was rejected in a later court case. Other deposits were not placed to the account on the date received, with the manager reporting to the bank's credit control and asset structuring division that the account was outside limits.
These circumstances were just some of many manipulations by the bank of my accounts.
Efforts by banks to make persons unviable were judged in McDonald v Holden (QSC 57, 2007, Mullins J). The assets problem was partly defined as including all the farmer’s assets, including partnerships.
This list of assets is required in the FDMB at Section 22:
Giving documents to mortgagee
(1) The farmer must give the mortgagee documents or up-to-date information about—
(a) the farmer’s most recent taxation return prepared for lodgement with the Australian Taxation Office; and
(b) the farmer’s assets and liabilities; and
(c) the farmer’s cash flow projections for a period of at least 1 year.
(2) The farmer must comply, at the farmer’s cost, with subsection (1) Within—
(a) 30 business days after receiving a notice from the mortgagee under section 16(3); or
(b) a longer period agreed between the farmer and the mortgagee, in consultation with the mediator.
This situation is not perfect for the farmer as any bank manipulations could be used and continued in his accounts. It is better he supplies the information on assets, cash flow and taxation. However, taxation records are not a good identifier of cash flow because of statutory requirements for depreciation and other write-downs. His choice of accountant, if required, becomes important as it could be that the accounting analysis by the bank is dependent on accounting principles and formulae foreign to the customer. His account notes only clarify some situations for critical analysis.
Very few farmers would be able to argue these facts on their own. Here, the FDMB is deficient because the farmer is restricted to one advisor only without mediator acceptance. How are barristers accommodated when needing an instructing solicitor and farm viability arguments are required?
One of the major shortcomings of the FDMB is that there are no penalties for false evidence, something customers constantly complain about in banker mediations.
To illustrate, in my submission to the Impaired Loans Inquiry (at 64), I showed how the bank manipulated the business loan to valuation ratio. After a question on notice from the Parliamentary Committee, the bank had to admit the only default was trading outside of LTV guidelines. I believe this bank manager was told that he would not have funds to lend and that any moneys he required had to be found by recoveries and payments from existing customers. He then targeted accounts with average debt and high capital value. The manager eventually left the bank during litigation.
The bank continued in the court and the situation was examined by Professor Laurence Boulle in 'The dog that did not bark: mediation style'.
He defined the farmer’s case as:
... during the mediation he was unfairly pressured and that he had no alternative but to sign the mediation deed. In court the farmer claimed he was ill and the mediator said and the bank officers said they did not notice the situation. However the farmer at the time had a common livestock disease and he was sweating and had the small beads of froth forming at the sides of his mouth when his mouth was extremely dry from fever. Others must have noticed so the mediator sent the bank personnel out of the room and he denied the facts as principle witness in the court. These facts of illness were eventually proven when Newcastle University identified the disease after culture and issued a Certificate. The symptoms described in court documents corresponded with the certified disease reported symptoms and many could not be denied.
Here, the mediator, who at trial was a judge, is quoted by Boulle:
In Freeman the farmer, in evidence, alleged that the mediator had told the parties that they had given away all their common law rights. He also alleged that the mediator had informed the defendant about the likely quantum range if he were successful on the counterclaims. The mediator had "no recollection" and "did not recall" such disclosures. He did, however, acknowledge advising the defendant that the plaintiff had the legal upper hand in relation to the securities and that Freeman was best advised to settle on the most favourable terms he could extract from the bank at the mediation.
Turnbull Gov's new laws on bank malpractice useless in light of ASIC's spectacular inaction, says Andrew Schmulow https://t.co/flaWJvjKg0— IndependentAustralia (@independentaus) October 6, 2016
In this situation, where the bank had failed to take payments from the customer’s account and the customer noticed the practice and paid the funds, the bank could not claim the customer was in default under Section 96 of the Property Law Act 1974 (Qld):
PROPERTY LAW ACT 1974 — SECTION 96
96 Mortgagee accepting interest on overdue mortgage not to call up without notice
(1) Where the mortgagor has made default in payment of the principal sum at the expiry of the term of the mortgage, or of any period for which it has been renewed or extended, and the mortgagee has accepted interest on the sum for any period (not being less than 3 months) after default has been so made, then so long as the mortgagor performs and observes all covenants expressed or implied in the mortgage, other than the covenant for payment of the principal sum, the mortgagee shall not be entitled to take proceedings to compel payment of the sum, or for foreclosure, or to enter into possession, or to exercise any power of sale, without giving to the mortgagor 3 months' notice of the mortgagee's intention so to do.
(2) No purchaser from the mortgagee exercising the mortgagee's power of sale shall be concerned to inquire whether the mortgagee has accepted interest after such default.
(3) This section applies to mortgages whether made before or after the commencement of this Act, but only where the default has occurred after such commencement, and shall have effect despite any stipulation to the contrary.
In this situation, the mediation deed after mediation was constructed to the circumstances of Section 96 of the Property Law Act 1974 to allow the bank to take over the property without resistance from the farmer after three months. Did the mediator give incorrect information at the mediation? Professor Boulle comments that the lawyers behaved in such a way as not to challenge the mediator as a witness. In my opinion, it is a weakness in the system that lawyers will not challenge a witness for a bank after a bad mediator performance because he has become a judge.
Self-regulating banks rob us blind https://t.co/sRu9rU6cdz. "they cannot be trusted. We are being governed by cowards, charlatans & spies"— Shirley Green (@ShirleyGreen11) May 25, 2016
Unfortunately, the Queensland Parliament failed to address the problem recognised by Campbell Newman of injustice to bank customers in Queensland and Federal Courts. I attacked the bank at mediation about the behaviour of their Bundaberg bank manager, who antagonised customers and corrupted their files. Then NAB, after investigation, sent another rural manager to Gayndah to advise me. But this manager drove directly past my door to deal with the same problems further down the road. This simple act shows the disgraceful attitude of NAB to its farmer customers.
Part 8 of the FDMB deals with transitional provisions and negates any chance for farmers previously wronged or comments of support where banks admit false evidence. At issue is where farmers have been bankrupted by a party to the Banking Code of Practice, they have available a mediation or arbitration through the commercial agreement. In the case of the Bankruptcy Act 1966 (Cth) at 60(2), the FDMB makes all court proceedings property of the trustee — something strived for by banks. However, under Section 60(5) and in precedent, the FDMB makes the point private contracts, mediations and arbitrations are not subject to the Bankruptcy Act 1966 (Cth). This is a very important access to justice situation and clearly one misunderstood by the legislature.
Mediations do not silence the right to an equity account, but Queensland Courts strive to stymie applications from bank customers on the point. However, NAB has admitted that customer’s accounts back to 1982 have been affected by incorrect accounting and, in the case of court appearances and closed accounts, the bank has not made admissions or refunds. In that regard, the direct questions to NAB about the LTV situation quoted above is the first direct admission from the bank about the farmer’s account falsifications. This situation of incorrect accounting and manipulated default supported by Queensland Courts was recognised by Campbell Newman as premier and supported by the Productivity Commission findings in the Access to Justice Inquiry of 2014.
Judge Margaret McMurdo made speeches to support the Supreme Court of Appeals handling of self-litigants but failed to mention any support for self-litigants against banks when the bank later admits false evidence and, in this particular instance, a definitive answer that this affected sworn evidence by bank representatives. New South Wales Courts have already led the way in this style of false bank evidence and corrective accounting. There remains the question as to why Queensland law cannot address sophisticated situations involving a financier’s improper behaviour against customers.
Queensland has addressed, through Section 85(1) to (10) of the Property Law Act 1974, the problem of banks being responsible for receivers, having liability in sales of property and discovery of evidence, where receivers use the bank's mortgagee status to sell the property of unrelated entities at any time. Their hiding behind the veil of representing the customer is now partially removed.
This was highlighted in a criminal prosecution where NAB used court staff and circumstances to falsify evidence of livestock ownership. The bank presented evidence well known to the bank prior to trial as being false. The cattle sale dockets showing the cattle belonging to others were hidden by police, bank, receivers and agents to try and convict me of cattle stealing as a mortgagor. The court of appeal supported the bank, by accepting at a civil appeal the bank's evidence the documents did not exist. However, I subpoenaed the cattle sale documents for another case where the presiding judge from the appeal was on the bench for a bank application to dismiss the action. The judge then admitted the receiver lived next door to him and that they had discussed the case, with the judge putting a date on the discussion before the appeal. In another application before the court, another judge brought up the issue that the judge used the first judge’s circumstances against me.
Unfortunately, it appears Queensland farmers are still to be at the mercy of bad financiers' practices. While the Commonwealth tries to address bad practices created by profit-hungry financiers, Queensland has missed the boat and given financiers a new method to bully farmers – by supporting the financiers' unchallenged viability of evidence – knowing their demands will be reinforced by QRAA.
It was the Supreme Court in 2007 in McDonald v Holden that identified that QRAA’s acceptance of bank viability processes was incorrect and disadvantageous to the customer. Between 2004 and 2011, NAB admitted 38 circumstances of false accounting in an estimated 400,000 customer’s accounts. They were joined by the Bank of Queensland, the ANZ Bank and the Commonwealth Bank, and circumstances of false accounting are known by the writer in Westpac and NAB going back to 1970. Indeed, there was a determined effort by NAB, commencing in 1992, to create default interest by bank failure to renew facilities on time.
The last word should go to Professor Laurence Boulle:
' ... mediation was devised as an alternative to litigation not as an alternative way of litigating.'
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