Major loss for ASIC...
smh.com.au/business/banking-and-finance/no-wa...
smh.com.auPosted Aug 13, 2019, 2:25 AM UTC
4538
smh.com.auFor the peasants:
The corporate watchdog has lost a landmark case against Westpac Banking Corporation over the bank's alleged breaches of responsible lending laws after a judge found borrowers could ditch luxury food items like wagyu steak and shiraz for more humble fare.
The Federal Court on Tuesday dismissed the Australian Securities and Investments Commission's case against the bank after finding the regulator had failed to prove its case.
ASIC had alleged Westpac had breached responsible lending laws on more than 260,000 home loan applications by using a benchmark known as the Household Expenditure Measure to assess and estimate a borrowers' expenses rather than reviewing their expenses individually to determine if they could service the loan.
In throwing out ASIC's case, Justice Nye Perram found a borrower could change some of their expenses after taking on a loan so that they could make payments.
"The problem for ASIC’s argument is that the mere fact that there are living expenses is not necessarily relevant to whether a consumer will be unable to comply with their loan obligations because it is always possible that some of the living expenses might be foregone by the consumer in order to meet the repayments," Justice Perram said.
He gave the example of everyone needing to eat, but that different consumers spend different amounts on food depending on their financial circumstances.
"I may eat wagyu beef everyday washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare."
Justice Perram said similar issues arose in assessing whether a loan would place someone into financial hardship.
"The fact that the consumer spends $100 per month on caviar throws no light on whether a given loan will put the consumer into circumstances of substantial hardship."
"Nor for that matter does knowing that the consumer spends $500 per week on basic food items," he said.
Extending that example, Justice Perram said that to determine hardship a lender would then need to know firstly that a loan repayment would force them to cut their budget by a certain amount and that that amount would have to be cut from what the consumer spent on food and those cuts would place the consumer in circumstances of substantial hardship.
The case was one of the first to come out of the banking royal commission where Westpac and other banks were criticised over their use of benchmarks to assess the ability of borrowers to repay a loan leaving some borrowers in severe financial hardship.
Westpac had originally tried to settle the case for $35 million but Justice Perram dismissed the settlement over concerns that ASIC had not properly made out its case and that the bank and the regulator had not agreed on how many loans were in breach of the laws.
For the more refined, the judgment itself
33
Thanks for sharing this summary - a pleb
8
Begs the question of what sort of cuts to lifestyle expenses would be considered reasonable.
I mean if you had to eat beans and rice for 5 years in order to get a foot on the property ladder that probably speaks to a larger issue with housing affordability.
I know that's largely irrelevant to the ruling, just makes me think.
18
Wagyu isn’t even that great. You auslaw cunts will do better with a grass-fed traditional British breed that has been dry aged for at least a month and wasn’t slaughtered too early.
17
...but the shiraz, I'll take that
2
[deleted]
13
[deleted]
10
You can hear the plaintiff lawyers collectively shrieking
9
No wagyu for this financial year for those fuckers!
1
Perram J at [38] busting out his propositional calculus. Love a good constructive disjunction:
However, this issue does not actually arise and does not need be resolved. ASIC is either right or wrong in its contention that Westpac was obliged to base its assessment of unsuitability on the consumer’s declared living expenses. If ASIC is right about that, it is irrelevant whether the HEM benchmark is a good, bad or indifferent proxy for substantial hardship because, regardless, this can have no impact on the fact that Westpac failed to take into account any of the declared living expenses. If, on the other hand, ASIC is wrong about that, the qualities of the HEM benchmark also do not matter because they have no impact on the result. This is because ASIC will, on that hypothesis, already have failed. Consequently, the capacity of the HEM benchmark to serve as a proxy for substantial hardship is not an issue which is actually live in the litigation. By the conclusion of the submissions at trial, the irrelevance of this issue was suspected on both sides of the bar table but neither party, having expended so much effort on the HEM benchmark over the course of the litigation, seemed willing to bite the bullet and to let it go. However, I can see no utility in resolving the issue. Beyond the fact that the HEM benchmark appears to be a mechanism for assessing hardship and Westpac thought it to be such, I see no relevance to this material.
8
Ah, the old law of the excluded middle. Can anyone cite some judicial authority for the proposition that contentions about obligations are to be analysed with classical logic and not constructively?
2
At the risk of restarting the Coke vs. Holmes feud, the consensus seems to be that they’re not. Though Ken Yin would disagree with me there (in fairness his argument rests on the syllogistic form, not classical logic, but I still think it’s a stretch): http://www.austlii.edu.au/au/journals/JlALawTA/2017/17.pdf
(FWIW, I worked with Prof. Hajime Yoshino and came to the conclusion that if he can’t formalise legal constructions into classical logic, chances are no-one can.)
5
Yin seems to be saying that x (a legal argument) is good is equivalent to x is a good logical argument. I don't think he made any statements about whether every proposition about law must by reason of some axiom be either true or false. Some legal propositions can be meaningless, certainly.
For fun, I have encoded his honour's reasoning in a slightly more symbolic form. I'll leave out a formal definition of live issue, because that's pretty complicated to express. I would guess that defining a live issue is much more determinative of what kind of logic you would need to describe the reasoning than the following.
let R = result / 'ASIC wins'
let H = 'HEM is a good proxy for substantial hardship'
let A = 'ASIC was right in contention that Westpac obliged to base ... on declared living expenses'
let B = Westpac based unsuitability on declared living expenses
assume A
| formalities omitted
| R <=> ~B
| B unrelated to H, ie forall formula f. ~(f(H) => B) ∨ f(H) => ~B))
| H not a live issue
assume ~A
| ~R because 'ASIC will, on that hypothesis, already have failed'
| R already determined, so H could not affect it
| H not a live issue
A ∨ ~A because classical logics make this axiomatic i.e. forall p ∈ Propositions. p ∨ ~p, and A ∈ Propositions.
thus H not a live issue by rule (a => c ∧ b => c, a ∨ b gives c)
Clearly your choice of logic determines whether you can pull off this move. And I think your choice is somewhat constrained by what issues a judge is allowed to decide. The ~R step is somewhat related: ASIC will have failed because it did not advance any other tests (IDK, didn't read further). In this case you might have A ∨ ~A simply because of the way the litigation was set up. But I would imagine that some well-formed propositions would be unprovable.
3
All the proof you need that AI will replace the entire legal system.
5
I don’t think Yin’s issue is whether all legal propositions are axiomatically true (that was the pipe dream of the failed “all civil law is reducible to unjust enrichment” crowd 10 years back who stalled out on the moneys had and received cause of action). The problem as I it is that we can imagine a legal proposition that is binding precedent, but itself concluded on illegitimate reasoning. Yin’s equivalence implies that you could roll up to the Supreme Court and ask them to deviate from binding authority on purely logical, rather than legal grounds. I doubt that’s the case. If it isn’t it implies there’s more going on in the translation between the syllogistic form and legal argument than Yin assumes (that is, Holmes was right to suggest that the life of the law is experience, not logic).
2
"The life of the law has not been logic; it has been experience... The law embodies the story of a nation's development through many centuries, and it cannot be dealt with as if it contained only the axioms and corollaries of a book of mathematics."
Oliver Wendell Holmes, The Common Law (1881), p. 1.
Cited in the HCA four times by my count.
1
I don't think that precludes dealing with it as if it contains some axioms and some experience. A sprinkle of both.
1
Correct, but that's not the question I was responding to.
1
When I got to the point of the judgment where His Honour explained that ASIC abandoned all their allegations of actual irresponsible lending (at para 9) and that therefore "this is a case about the operation of the responsible lending laws without any allegation of irresponsible lending" - what was ASIC even doing running this case?
Couldn't they have hung out at the Royal Commission if they needed to find people with real stories of irresponsible lending? It beggars belief that ASIC ended up running a pure hypothetical.
The headlines make it sound like the judge was out of touch; reading the judgment makes it appear that it is ASIC that is out of touch - with any degree of competence.
5
The RC was long on sob stories and short on illegal behaviour from what I've read. A great deal of "Oooh yeah that does look super dickish when you put it like that, oops, our bad" and not very much "here is where we broke the law".
Hence ASIC needing to stretch itself a little to bring the cases no doubt they were under a lot of political pressure to bring.
But I don't get paid to understand the RC so perhaps I'm wrong.
3
Just so long as I dont have to give up my smashed avocado.
4
At 14.
- Witness 1 - Random senior manager - Really impressive witness.
- Witness 2 - Random senior manager - Really impressive witness.
- Witness 3 - Random senior manager - Really impressive witness.
- Witness 4 - Random senior manager - Really impressive witness.
- Witness 5 - Random actuary - Well fuck that was a boring afternoon.
3
Damn
2
Time to be responsible for your own borrowing.
1
The meeting at ASIC after the judge tossed the settlement because they weren't establishing their case must have just been a riot.
I can just imagine their collective response:
sigh
Maybe after the first nose beer.
Absolutely... I find it astonishing that Westpac (like its competitors, other than NAB) was otherwise prepared to pay $35m
I can imagine a blanket directive to settle cases resulting from Royal Commission criticisms for PR purposes as long as the cost is reasonable tbh, even if it wasn't technically illegal.
Surely it would cost a bank close to that to litigate such a matter properly, even if they were ultimately successful?
Unlikely - this trial would be no more than 2 weeks. It would have cost a fraction of $35m
Depends who they brief...
Even if it did, most corporate clients would prefer a large, avoidable legal bill to getting slapped in the face with a big, veiny, throbbing fine. Obviously blowing your group's legal budget out the arse is bad, but it's usually much better than having to explain a big fine to the board and shareholders.
$35m is a bargain if they are scared of copping three times that and their evaluation at the time was its a coinflip, and that's before the marketing team give a soft dollar figure, and also assuming the bean counters guesstimate on share price impact didn't comes into it.
A complete shit canning of a judgement could potentially of would up setting an ugly bar to meet so far as practices moving forward go as well.
Yeah, the settlement payment would be purely a risk management exercise. When you're as big as Westpac and ASIC are bringing a case literally alleging wrongdoing in over 200,000 loan files, it doesn't take much to generate a negative story that will cost the shareholders big.