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Monday, 27 November 1995
Page: 3805

Mr BRAITHWAITE (4.50 p.m.) —I bring to the attention of the House what a member referred to the `ugly Australian' last Wednesday. The member for Deakin (Mr Aldred), from a separate and independent source, came to the same conclusion as I did—that Westpac is abusing its banking licence and the legal system to prevent its becoming accountable for all its deficiencies revealed in what is known as the Westpac or French letters. My concern goes to the inquiry by the then House of Representatives finance and public administration committee into banking and deregulation. Its first report A pocketful of change was tabled in the House of Representatives in November 1991 and its follow-up Checking the changes in October 1992. The member for Fairfax (Mr Somlyay) and I are the only remaining members of that original committee still on the current banking, finance and public administration committee.

  The crux of the first report that I can recall is that some of the major banks, under their deregulated role, went deeply into foreign currency loans on behalf of clients and never had the experience or the staff to properly market and service the product. Westpac's whole litany of inexperience and then deceit was offered up by the bank's Mr Stuart Fowler in a series of letters between the bank and its lawyers, Allen Allen and Hemsley. It is on the public record that on 7 March 1991 these letters were tabled at the inquiry. The committee indicated that it would thoroughly examine the issues raised in the letters as well as the more general matter of foreign currency loans. In fact, this became a prominent part of that inquiry.

  The then Senator McLean provided a mass of evidence to the committee in connection with not only these but also many other matters with other banks where he maintained the banks were abusing their banking licences. The then Senator McLean called on the committee to recommend a royal commission into these abuses by the banks. Unfortunately, as I now view subsequent and current tactics, especially by Westpac, we made the wrong decision in not insisting on a judicial inquiry or a royal commission at that time. Our only recommendation on the Westpac letters was recommendation 61:

The Attorney-General refer the so called Westpac Letters to the National Crime Authority for investigation as to whether any criminal wrong doings arise from the management of foreign exchange contracts by Partnership Pacific Limited.

While I understand that the letters were referred to the National Crime Authority, no action was taken. These papers were not tested. The most self-incriminatory piece of evidence given to the inquiry was not investigated and the only reason I have been given is that the NCA had insufficient resources and funds. No wonder so many people hurt, not only by Westpac but also by other banks, have lost faith in our parliamentary system, our committees and this report. I believe and now recommend that the government should set up a royal commission or a judicial inquiry to inquire into the Westpac letters and other related matters.

  I now turn to a related matter which required litigation by former clients of the banks. The committee heard evidence about the cost of the settlement of cases and dispute resolution. It was obvious from evidence that banks could force former clients to insolvency in legal and court costs before the matter could be properly judged by a court. This surplus of funds by the banks to engage top lawyers and expend large amounts—all tax deductible—was in contrast to the financial resources to respond with adequate funds, not tax deductible, for legal expenses by the client. This led to recommendation 60:

. . . that an independent mediator (or mediators), funded by the banks, but acceptable to both banks and foreign currency borrowers be appointed to mediate in foreign currency loans cases that remain in dispute. Mediation is not compulsory, banks will pay for their own mediators or for a general mediator based on usage. The determinations of the mediator will not be binding on either party. Banks should endeavour, to the extent possible, to advise all foreign currency loan borrowers of the mediatory mechanism.

Some banks have engaged in meaningful dispute resolution. Westpac has not. The member for Deakin gave a detailed summary of one such case. I have evidence of another. This case ended in Westpac bankrupting Heather and John Donkin after unsuccessfully endeavouring to have that done by the Taxation Office on its behalf and then having to do it itself to ensure that a bankrupt could not continue a case against it. In fact, the solicitors for AGC Advances Ltd—Messrs Clayton Utz—followed this decision up with the official receiver in Brisbane requesting the trustee to elect whether or not he wished to continue with court action and, further, to undertake not to assign interest to Mr Donkin or any other person in that case. This is typical of the intimidatory actions that this bank is capable of producing. The effect on the Donkins of this and the letters in the Drambo, or Porters, case was to dissuade some of those who were representing the Donkins to cease their services under the threat that costs in the eventual pursuance of the case would be sought against the representatives in the event the bank won the court action.

  Other matters, post the banking inquiry, not mentioned or investigated to any extent are now coming to light in other court cases and those settled on the court steps, such as Stringer v. ANZ in South Australia. These additional points include: the extent of point taking by the banks at the expense of the client—in Drambo's case, I understand this part of the claim is for $3 million or $4 million; whether in fact the client actually borrowed foreign currency or whether the bank did itself and, upon bringing the proceeds onshore, then lent to the client but charged the client for the exchange losses and took the profit of point making for itself; and the fact that withholding tax should have never been deducted from clients' funds, as found in subsequent cases.

  Thankfully, I can report that AGC Advances intentions have apparently been thwarted by a letter I received from the Minister for Justice (Mr Kerr), which states:

I refer to your letter of 9 October 1995 to the Attorney-General in which you made representations on behalf of your constituents, Mr C J and Mrs H K Donkin, both of whom are bankrupt, in relation to their proposed High Court action against AGC Advances Ltd.

As you know, on the bankruptcy of Mr Donkin, his right to conduct the action vested in the trustee of his estate (the Official Trustee). I note that, under subsection 60(2) of the Bankruptcy Act 1966, the Official Receiver . . . has elected not to continue the action.

However, I understand that, so as not to frustrate the Donkins' action, the Official Receiver proposes assigning the rights in it to Mr Donkin. The assignment would allow Mr Donkin to continue the action, notwithstanding that he is bankrupt.

The problem still remains for the Donkins, having already expended thousands of dollars in legal representation, now being bankrupted and now in view of the more recent Westpac letters threats of Feez Ruthoning: where do they go? Particularly when negligence has been found against AGC Advances in the court decision.

  In the interests of justice, legal aid should be given to provide competent representation to Donkins, Potts, Porters and others. There is a need for the Treasurer (Mr Willis) to follow through on a notice of motion that I have initiated for debate in this House, which stands on today's Notice Paper at No. 11, where I am suggesting that legal expenses be non-tax deductible to banks, particularly in these cases, so there can be some equality and justice.

  I have followed the case of the Donkins since it came to my notice after the inquiry. I have corresponded with the law section of the bank to argue the case and have received no satisfaction whatsoever. What can you argue against a bank's representative who says, `We have spent over $1 million on the particular Donkins' case and don't intend to lose it now,' even to the point of prosecution into bankruptcy, which was their answer?

  I have no doubt that the law section of Westpac act in isolation from the rest of the bank whose only instruction is, apparently, to ensure that the Westpac letters are put to rest permanently and to ensure the statute of limitations works in the bank's favour, which it currently is doing.

  My final observation on this whole matter is that neither the government nor the Reserve Bank is prepared to uphold its own legislation and regulations. In the Banking Act 1959 under `Interpretation', `prudential matters', in relation to the bank, means, amongst other things:

(i)  to keep itself in a sound financial position; and

(ii)  not to cause or promote instability in the Australian financial system; and

(b) with integrity, prudence and professional skill;

The Westpac letters are evidence, as is an examination of the cases of Donkins and Potts. The recent letters of Feez Ruthoning prove that banks have no integrity in this regard, no prudence, and had no professional skill when foreign currency loans were first marketed.

  I have placed questions on notice to the Reserve Bank to determine whether such Westpac practices should mean a review of the licence under which that bank operates with impunity from the law. In a recent letter to the Treasurer for intervention in the Donkins' case, I received an answer from the Assistant Treasurer (Mr Gear) who said that he had no right of intervention because of the separation of powers. I believe the Assistant Treasurer is wrong. It is a matter for him, the Treasurer and the Reserve Bank to conduct a thorough examination of the bank's conduct that should affect the conduct of its licence.

  I believe that there should be a royal commission or a judicial inquiry into the Westpac letters; legal aid should be made available to litigants in the cases I have mentioned; consideration should be given to ensure that the bank's litigation expenses are not tax deductible; and a review should be undertaken of all banking licences on the basis of the prudential requirements of the act. (Time expired)