When considering the consequences of the disingenuous code/customer relationship, and the ambiguous wording in the Code (2003), the researchers noted several legal issues.
Despite having no experience at law or in the legal processes, the researchers looked at the conduct of bank directors and banks, and the corrupt arrangements engineered by the CEOs, commencing in 2003.
There are sections in this paper relating to corrupt conduct, including:
- breaches of contract;
- misleading and deceptive conduct;
- unconscionability; and
- acting in bad faith.
In addition to corrupt concerns, which may raise questions of intent and fraud, there were secondary issues relating to the conduct of instructing banks and their lawyers. By keeping information regarding the terms of the unpublished CEOs constitution from customers and their lawyers (and the courts) subscribing banks and the Code Compliance Monitors misled their public, presumably taking no action while high-priced lawyers misled the courts.
When drafting this paper, the researchers discovered the unpublished constitution. It completely changed the powers, authority and independence of the Code Compliance Monitors, and their ability to investigate any allegation by any person if a subscribing bank breached the Code. These Code practices set out agreed standards in the interests of all parties, banks and customers alike.
There is a considerable amount of evidence underpinning the existence of banks corrupt dual contracts. The subscribing banks published, promoted and adopted Code (2004), after producing the CEOs constitution. This removes any credibility bestowed on the subscribing bank directors and managers (and associates) when documenting and publishing the banks practices and dispute resolution procedures.
Whist the express terms in bank/ customer agreements allow banks under certain circumstances to terminate contracts and take customers to court to recover funds, there can be extenuating circumstances. These circumstances might include banks being in breach of the bank/customer contract and concealing it, and banks acting dishonestly. Therefore the Code Compliance Monitors, when appointed, accepted they had a duty to investigate any such allegations.
However the unpublished constitution, known only to banks and their lawyers, placed unreported limitations on the Code Compliance Monitors that were out of reach of both customers and the courts.
This paper provides an opportunity for the public to consider the motives of bank directors and banks when offering contracts to customers with misleading and deceptive terms and conditions, without referring to the overriding CEOs constitution. The 20 February 2004 unpublished constitution was for the sole benefit of the deposit-taking institutions.
If overriding (unpublished) constitution was introduced with the knowledge of bank directors and the banks, it would constitute misleading and deceptive conduct. This being the case, it would be in breach of the Trade Practices Act 1974 (Cth) (s 18 of Australian Consumer Law).
It might also be alleged bank directors and the banks, and the ABA, acting together, intentionally misled and/ or deceived customers when they published, promoted and adopted the problematic Code (2004) a few months after the bank CEOs association adopted the 20 February 2006 constitution. If this was the case, the subscribing banks might have intended to limit the independence, authority and powers of the Code Compliance Monitors, breaching s52 and s55A of the Trade Practices Act.
Section 52 of the Trade Practices Act 1974 (Cth) (s 18 of Australian Consumer Law) provides that:
- a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive, and
- nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1).
Section 55A of the Trade Practices Act 1974 (Cth) (s 34 of Australian Consumer Law) provides that:
A corporation shall not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics and the suitability for their purpose, or the quantity of any services, given that:
- the CEOs constitution sets out the subscribing banks interpretation and implementation plans under the Code in relation to such pertinent issues as Internal Dispute Resolution practices, and
- the Code has the status of a schedule of implied terms and conditions within each individual contract entered into between a deposit-taking institution and client.
Section 45E of the Competition and Consumer Act 2010 (Cth) applies to a director or bank that has an obligation to supply specific services to customers. It must not make a contract or arrangement, or arrive at an understanding with employees, officers or agents, if a provision in the contract prevents them from supplying good or services (such as Code compliance and dispute resolution) to customers.
In this case, the supply of services, included warranties and compliance with the Code (2004). The Code set out key commitments and general obligations, including dispute resolution clauses that sixteen banks said required them to investigate all complaints (clause 35.7) and required the Code Compliance Monitors to investigate and make a determination on any allegation a subscribing bank breached the Code.
The bank CEOs constitution however limited the independence, powers and authority of Code Monitors carryout their duties and investigate any complaints. Obviously, the bank directors and banks drafting the 20 February 2004 constitution knew the Code, bound by it, was nothing more than a cunning strategy to win customers trust.
When customers lodged complaints with the Code Compliance Monitors, they found their rights denied due to the banks overarching constitution, which was kept from all customers signing contacts. Without the bank customers understanding the impact of the changed contract conditions, they could argue being seriously and intentionally misled.
The bank directors and banks appear to have intentionally breached contracts with customers, and their conduct was in contravention of the Competition and Consumer Act 2010 (Cth).
Misleading Courts in Civil and Criminal Actions
In addition to allegations of misleading and deceptive conduct, the actions of bank directors and banks, and their lawyers, concealing the bank CEOs constitution from customers and customers’ lawyers and the court introduced more serious concerns. It might have been intended to infer to the court that customers had rights under clauses 34(b)(ii) and 35.7 without enforcing them. This meant the banks and directors and their lawyers might have deliberately acted to mislead the court with regard to the facts of cases.
The bank directors and banks knew their lawyers had a duty not to mislead the court with regard to the facts of cases. This meant that lawyers misled the court with the banks knowledge and this could be evidenced in cases when the court was provided copies of customers’ contracts including Facility Offers and General Standard Terms that included the Code as part of the contract. Whilst these three documents formed small businesses standard contracts, there is evidence this occurred during the past eight years, and the banks would therefore have acted unconsciously.
Whilst the conduct of banks and lawyers is potentially unconscionable, instructing lawyers to mislead the court gives rise to more serious concerns. The possibilities of bank directors permitting bank lawyers to litigate and conceal the CEOs constitution from the court supports assertions the directors and banks acted in bad faith.
There will be circumstances where criminal offences occurred involving unlawful conduct by banks and third parties. Such conduct is also referred to in the Code with the bank stating they would comply with all relevant laws, which certainly include breach of the Crimes Act as well as other banking services.
In such cases, banks are bound by clause 35.7, which requires them to investigate all complaints. The Code Compliance Monitors also have a duty to investigate any allegations from any person banks failed to investigate such unlawful conducts by its management and staff.
In these circumstances, banks would indemnify internal dispute resolution staff and the Code Monitors, and their lawyers, when they are investigated civil matters. This protection would not apply if, whist carrying out an investigation, these parties cited evidence of criminal behaviour such as theft, fraud and other breaches of the Crimes Act by delinquent bank parties when carrying out investigations under the Code.
Constitution and Cartel Provisions
According to Part IV Division 1 of the Trade Practices Act 1974 (Cth) (Competition and Consumer Act 2010; Schedule 1; Part 1; Division 1; Cartel conduct), provisions of a contract, arrangement or understanding may be taken to be a cartel if they directly or indirectly prevent, restrict or limit the capacity to supply services, such as the code subscribing banks and bank CEOs members have.
Two criteria must be met in order for an agreement or arrangement to constitute a breach of the cartel provisions:
- intention to prevent, restrict or limit the capacity, likely capacity or actual supply of [Code compliance monitoring and dispute resolution] services, which must be present in the agreement, and
- subscribing banks and financial institutions must either be competitors or would be competitors [and provide effective and competitive banking products, services and warranties] but for an agreement to the contrary.
These conditions are satisfied if at least two parties to the contract, arrangement or understanding are, or are likely to be, or would be competitors, if they had not made an agreement [to introduce provisions and constitution] to the contrary and therefore would be in competition with each other in relation to the supply of relevant services.
As the sixteen banks and directors of the banks provide loans and manage deposits of nearly every Australian, customers have bound themselves to limitations set out in the bank CEOs constitution. These limitations removed customer warranties relating to reasonable banking standards and practices set out in Code (2003-2004). This paper raises concerns that the bank CEOs association members, by their conduct, limited and/or withdrew crucial services provided to customers, suggesting this constitutes cartel conduct.
Good Faith in Contractual Dealings
Did the sixteen code subscribing banks and their directors fail to act in good faith in achieving contractual objectives with customers published in the Code (2004) having regard to principles of fairness of in their bank/ customer relationships?
According to McDougall J in Tomlin v Ford Credit Australia  NSWSC 540, citing Sir Anthony Mason at , parties have a duty to act in good faith in contracts, which generally requires:
- an obligation on parties to co-operate in achieving contractual objectives (loyalty to the promise itself);
- compliance with honest standards of the conduct; and
- compliance with standards of conduct that are reasonable having regard to the interests of the parties.
Accepting this general view, this paper suggests consideration be given to whether the sixteen banks and directors of the banks would be acting in bad faith if they proceeded to:
- enter into a contract with a client without disclosing the existence of the bank CEOs constitution and the restrictive effect it had on the banks ability to act in accordance with reasonable standards and practices in the Code, and therefore contractual obligations, and
- refuse to pursue complaints through their Internal Dispute Resolution process, which they promoted as being obliged to do under the Code standards, except for the existence of the undisclosed bank CEOs constitution.
Conflicts of Interests
The body charged with powers and authority for determining the application of the Code was the bank CEOs association. It is alleged to have acted in a cartel-like way to further the sixteen subscribing banks interests.
In all likelihood this was due to less than independent Code Monitors, appointed or co-appointed by subscribing banks and the banks funded FOS, both being privy to the unpublished bank CEOs constitution. The constitution, produced in 2004, followed Code (2003) and preceded Code (2004), with bank directors and banks promoting Code compliance when they knew or should have been known certain practices were at best problematic and at worst untruthful, corrupt and intentionally dishonest.
The Martin Committee report stated principles of best practice should not have been the sole prerogative of banks because:
- banks cannot be relied upon to secure, by themselves, the improved standards their customers need; and
- while banks continue to have a major say in setting standards ¦ standards should be reflected in an objective assessment of adequacy.
This paper raises concerns with regard to conflicts of interests between the directors of the ABA and the ABA, directors of subscribing banks and the banks and the bank CEOs and the association’s members. It also raises concerns with regard to actions of the FOS and its officers and the Code Compliance Monitoring Committee.
It alleges conflicts of interest existed, with failed governance throughout the banking sector, and lack of regard for transparency in all operations and the appointment of Compliance Monitors and Code reviewers who lacked independence.
There must also be a concern to government regulators with statutory powers, failed to act in a responsible manner and use these powers.
An anomaly exists because the bank directors and banks use shareholders funds and the industry’s PR machine. Located at the ABA’s Pitt Street headquarters, this body is managed by directors employed by the sixteen subscribing banks and with PR funded by the same banks, acting to conceal the truth about practices undermining the bank/ customer agreement.
The ABA is a fertile atmosphere for subscribing banks, working together to promote high-practices and conceal dishonest practices, use their privileged positions to attract customers and sign agreements with customer, without intending to comply with them.
The researchers found the high-principles in Code (2004), with 250 clauses and sub-clauses, said to protect customers from deceitful bankers, are meaningless. This is not what the Martin Committee intended in 1991, nor the legislator’s expected when the Code was conceived. With such a financially powerful group, the future for customer protection, under the self-regulated Code looks anything but bright.
The regulators, like bank directors and managers, are bound to act in a responsible manner when being alerted to unlawful conduct. Regardless of banks’ commitment to comply with the laws, regulators and banks governance should be beyond reproach. As with banks Internal Dispute Resolution staff, Compliance Monitors and lawyers, regulators and banks officers have a duty to investigate all allegations of unlawful conduct and breaches of the Crimes Act, rather than individuals and small businesses exposing corrupt and unlawful conduct.
This paper does not infer any one person masterminded the problematic Code. However legislators must have been briefed on banks intentions when the ABA published the Code (2003). However, the requirement for effective governance across the industry has been overlooked.
When the Code (2003) was published, ABA senior officers were:
- Mr John McFarlane, retired ANZ Bank, Chief Executive and ABA Chair, and
- Ms Gail Kelly, presently Westpac’s Chief Executive and ABA Deputy Chair
The subscribing banks introduced the bank CEOs constitution on 20 February 2004 and, once again, it seems dishonest.
In 2004, when the Code was amended, the public would have had no idea the bank CEOs constitution existed. The senior ABA officers, were:
- Mr John McFarlane, Chairman, and
- Mr Ahmed Fahour, retired Citibank Chief Executive and ABA Deputy Chair.
A third notable event occurred in 2008. The Code Compliance Monitors appointed in 2004 made an early exit following a public statement regarding the problematic Code. However, the ABA directors resisted dealing with unethical concerns raised by them, acting as whistle-blowers. The senior ABA officers, were:
- Mr John Stewart, ex-NAB Bank Chief Executive and ABA Chair, and
- Mr Stewart Davis, ABA Deputy Chair and HSBC CEO
Senate Committee Report webpage (Sub No. 90): Click Here…