“I kept phoning the bank to check if my son had made any payments. He had not. I always kept them up to date with his latest address. They did not try to find him and just came after me. I paid out in full to avoid further stress. Solicitor said I had to pay it anyway.
Four years later I received harassing phone calls from a collection agency. It was very stressful. They would not believe I had paid it.
I went to the banking Ombudsman who helped me to get [the bank] to stop the collection agency making more demands. Due to ill health I only work part time. Paying back the loan was a huge burden I still have not recovered from. I am also estranged from my son who has had a very good job these past eight years.”1
6.1 After the execution of the guarantee, the next time the guarantor hears about the loan is often when enforcement action is taken following the borrower’s default on the loan. Our research indicates that few guarantors received information about the loan during the period of the loan. Most guarantors were surprised when the lender advised the loan was in default and the guarantee would be enforced, and were further shocked to discover the extent of their liability.
6.2 This chapter looks at what happened when the transaction went wrong: how the guarantors found out there was a problem, how long after execution problems arose, how the guarantor addressed the problem and who (if anyone) they sought assistance from and what happened to the debt subsequently. We also examine enforcement issues, and the dispute resolution mechanisms that are available prior to, or instead of, litigation. Litigation is an expensive, complex and time consuming process. Many of our respondents were of the view that litigation was best avoided if at all possible. However, we found that the range of alternatives to litigation was very limited. Litigation itself is explored in Chapter 7.
HOW LONG BEFORE THE LOAN WENT WRONG?
6.3 The guarantor survey revealed that problems with the loan transaction emerged within a range of “straight away” to four years, with the majority becoming problematic within two years. This data is similar to that from our review of the litigated cases. Three-quarters of barristers who responded to our survey reported that recovery against the security occurred between one to five years after the guarantee was executed.
COMMUNICATION FAILURES
“Financial institutions often employ inadequate systems to administer loans and ensure fairness so guarantor is not exposed. There should be an onus on financial institutions to put [such systems] in place when each loan is assessed and defaults are handled on a personal basis, ie, no form letter. Problems arise because the standard and nature of communications is inadequate, including during the course of the loan.”2
6.4 The following section outlines some of the problems guarantors experienced once the loan fell into arrears. The data from the research points to a poor level of communication between the lender and the guarantor. These failures in communication relate to all areas of the life of the guarantee: from the basic details of the obligations under the guarantee, to informing the guarantor about the borrower’s default.
6.5 Poor communication from the lenders about the guarantee and its enforcement is clear from the survey of solicitors who reported, among other things, the refusal of lenders to communicate adequately with the guarantor, an aggressive or confrontational stance taken by lenders and the guarantor’s lack of bargaining power in the enforcement process.
Information about the loan
6.6 Consistent with other studies, guarantors generally only become aware of problems when their legal responsibilities were tested in times of trouble.3 Belinda Fehlberg found that most of her study participants only became aware of the extent of their liability once the bank began enforcement action, and often were unaware that there had been further advances upon the original loan until that point.4
6.7 Our guarantor survey revealed a similarly high level of ignorance among guarantors about their liability and its extent. Over 80% of our respondents were shocked to discover their liability as a result of signing the transaction5 and 65% of the respondents were surprised to find the debt was for a lot more than they had thought. Twenty seven per cent reported that they unaware that they had signed an all-moneys mortgage until the lender pursued them.
6.8 Around three-quarters of respondents to the guarantor survey reported that they personally received no information about whether the primary borrower was keeping up their repayments or received no information about any increase in the amount guaranteed.6
6.9 It seems many guarantors experienced problems getting information from the lender about the level of debt. One guarantor went to the bank to request information on the level of debt and was told that they could not have access to that information. It was only after they approached the bank after seeking advice from Legal Aid that they were given the information they were entitled to.7 Another guarantor was prevented from getting any information by his son (the primary borrower): his son vainly hoped the business would recover and he would be able to resume making payments.8
LACK OF INFORMATION: A CASE STUDY
Mr and Mrs D, 77 and 66 years old respectively, are age pensioners who own their home in Sydney’s western suburbs. In 1992 Mr and Mrs D’s daughter borrowed $26,000 to start up an optometrist practice. Mr and Mrs D agreed to grant a mortgage over their home to secure this loan. Mr and Mrs D understood that if their daughter did not repay her loan their house could be sold. It was not, however, explained to Mr and Mrs D that the mortgage that they signed included an all moneys clause to the effect that the mortgage secured all future advances made by the bank to the daughter.
In 1996 Mr and Mrs D agreed to sign a contract of guarantee limited to $20,000 for their son-in-law’s business. At this time their daughter’s loan was almost repaid. No security was referred to in the guarantee contract, and Mr and Mrs D believed that it had nothing to do with their house. Although their son-in-law ran the business, the paperwork for the business was jointly in the daughter’s name.
In 1996 the daughter also obtained a personal overdraft on her cheque account with the bank. Mr and Mrs D had no knowledge of this account. In May 1997, the daughter took out a personal loan to pay a taxation bill. Again, Mr and Mrs D had no knowledge of this loan. In 1997 the daughter paid out her original business loan. Mr D wrote on a number of occasions to the bank asking for their title deeds to be returned. He never received a reply.
In 1998 both the daughter’s and her husband’s business collapsed, and both were eventually declared bankrupts. Aware of their $20,000 guarantee, Mr and Mrs D sold a block of land and paid off $15,000, and entered into an arrangement to pay the remaining $5,000. However the bank asserted, relying on the all moneys clause in the mortgage, that they were responsible for all of the business debts, the daughter’s personal loan and the daughter’s cheque account overdraft.
The bank threatened proceedings to sell their home.
With the assistance of the ABIO and the Legal Aid Commission of NSW the debt was settled by payment of $5000 only.9
|
How guarantors found out there was a problem with the loan
“I was given no information whatsoever. You are the last to know if your borrower does not tell you.”10
6.10 While the reach of industry codes of practice is limited, lenders are required by most codes to send the guarantor a copy of any formal demand that is sent to the primary borrower.11 Such requirements are, however, subject to the consent of the borrower.12 The problems associated with disclosure of information and consent have been discussed at length in the Final Report of the Review of the Code of Banking Practice.13
6.11 Information from the guarantor survey points to a marked lack of communication from the lender about whether the borrower was keeping up with their repayments. This corroborated with comments from the barrister survey, some of whom said that financial institutions’ systems of communication with guarantors were inadequate.14
6.12 In some instances, guarantors found out that there was a problem with the debt quite incidentally. One guarantor reported going to make a purchase on credit and being informed that they were “blacklisted”. Other situations in which guarantors became aware that the loan had been defaulted on include receiving a notice that possession proceedings had been commenced in the Supreme Court. In one case, a woman put up her house as security for a loan for a friend’s company. The bank made no communication whatsoever with the guarantor until they attempted to take possession of her house. While the directors of the company had given personal guarantees, the bank made no attempt to recover the debt from them. It was only with the assistance of expensive private legal assistance that the guarantor eventually discovered that the directors had considerable assets.15 In Charles v Parkinson Mrs Parkinson only became aware of her husband’s business debts when a writ of execution was issued and a sheriff seized goods from the family home, following a default judgment from court proceedings about which she knew nothing.16
6.13 Many guarantors were unaware that the mortgage documents they signed involved an all moneys clause. In one case, the contract had been varied many times, with more money extended to the borrower without the guarantor’s knowledge. In this case, the guarantor only found out when she was called in to the bank to sign some more documents and she discovered that her fiancé had on previous occasions forged her signature.17
BELATED DISCOVERY: A CASE STUDY
Ms A signed, at the request of her husband, what she thought was a simple refinancing contract for work on the family home. The home had been bought by the family company: she and her husband were directors, the children were shareholders. The husband was the majority shareholder. The signing took place in the presence of her husband and took less than two minutes. She did not find out that the document was an all moneys mortgage until divorce proceedings at the Family Court, by which time she discovered there was $1.2million dollars owing under the contract. She then discovered, after demanding access to the family company’s files, that the bank had been lending her husband amounts of $100,000 at time under the all moneys clause. No company resolution was noted on the bank’s loan documentation. Ms A threatened to sue the bank on behalf of the minority shareholders (ie, herself and the children). The bank removed the penalty rates and the husband was left with a $200,000 debt, but the family home had already been sold when the mortgage was called in.18
|
6.14 One solicitor reported that many guarantors have no idea of the seriousness of arrears of the borrower until the matter reaches a critical point at a possession application.19 From our observations of the Possession List at the NSW Supreme Court through 2001 and 2002, it seems clear that once the matter has reached this stage, many guarantors turn up to Court with no legal representation and little idea of how to resolve the matter. It appears that much time is spent adjourning matters to enable unrepresented litigants seek legal advice.
RESOLUTION
6.15 It appears that many guarantors simply pay the debts of others rather than dispute a transaction. Given the high cost and low success rate of disputing debts, this is perhaps unsurprising. Furthermore, as most of the guarantors undertook obligations for a close family member, the added complication of further straining relationships appears to act as a strong disincentive for disputing the debt and prolonging the process.
6.16 Almost a third of respondents to the guarantor survey reported that they had paid the loan back in part or full.20 Twenty-four per cent still owed money to the lender, and 8% of guarantors had gone bankrupt. Eighteen per cent were disputing the debt. Of the remainder of respondents, many were trying to refinance to prevent possession of their homes, some managed to get the primary borrower to start repayments and a few had settled.
Enforcement
6.17 We asked guarantors if they sought assistance with the debt once they became aware of their liability. Around 40% of respondents sought help from private solicitors; a quarter sought help from the community sector,21 7% from the Legal Aid Commission; and 6% from another government body. The Australian Banking Industry Ombudsman (“ABIO”) was only used by 7% of respondents. This could be either a result of the respondents not being aware of its existence, or its jurisdiction had been ousted and was therefore not available to them. The role of the ABIO is discussed in further detail below.
6.18 We asked solicitors and barristers whether they thought the enforcement processes used by lenders to enforce guarantees was satisfactory. Most solicitors thought the process was not satisfactory, and the views of barristers were roughly evenly split. Many responses were clearly coloured by who they represent: whether their clients are lenders or guarantors.
6.19 Comments from those representing lenders included:
“Process of enforcement is slowed down by a barrage of generally unmeritorious and cumbersome defences and technical arguments.”
“… it should not be too hard and expensive to enforce guarantees. Too often straightforward claims to enforce just debts are turned into drawn out, expensive battles over bullshit defences.”
“No, usually the guarantor’s case is very weak and the lender’s legal advisors make no effort to negotiate a compromise until the “usual defences” are mounted.”
6.20 Reponses from lawyers representing guarantors included:
“as to the legal process – yes, as to the lender’s process, no.”
“Banks are unreasoning, uncompassionate bureaucrats who take no responsibility for what are (usually) bad lending decisions. If credit were more difficult to obtain in marginal cases there would be less litigation.”
“It was unfair, the process was such that … the client had little or no idea of the ramifications of the transaction.”
“Sometimes not. Sometimes it seems guarantor cases do not explore all of the defences that might be available to them.”
Most of those who thought the process was satisfactory did not explain why they thought so; others qualified their affirmation with comments that costs become too high.
6.21 Although the reasons given varied, there was a high level of dissatisfaction with legal processes. Over three-quarters of judges said that in their experience, these kinds of disputes are suitable to be dealt with by mediation or other dispute resolution mechanism.22 It was therefore surprising to find that more accessible alternative dispute resolution (“ADR”) regimes such as mediation, industry resolution and tribunal processes were not well utilised. While most matters settled, this often happened at a late stage.
6.22 Many guarantee transactions provide that it is the guarantor who is liable for the costs of enforcement – such costs can quickly escalate into tens of thousands of dollars. The costs of enforcement are often unclear on the face of the guarantee documents. One judge commented that consideration should be given to a statutory provision that requires each guarantee given by an individual specify the maximum sum of money which can be recovered on the guarantee, including interest, and preventing a lender from recovering any amount greater than that sum. This would obviate the practice of lenders using guarantees which render the guarantor liable for much greater sums of money than is initially apparent.
Settlement
“Litigation is not a satisfactory process – it forces people to be defensive (ie, it’s not my fault) rather than solution oriented. It also adds a significant prospective financial burden of legal costs – both during and after.”23
6.23 Solicitors, barristers and judges were asked how often third party guarantee matters settle. Almost 60% of solicitor respondents reported that their matters settled, with almost 70% of those matters settling during litigation, and 30% settling before litigation.
6.24 Of those matters that proceeded to litigation, only 5% went to ADR. Of those that settled, the majority settled on terms more favourable to the lender than the guarantor.
6.25 Some lawyers commented that the heavy-handed methods adopted by lenders in enforcing securities mean that chances of settlement are diminished. The following are some of the comments:
“the financial institution used the litigation process in a heavy-handed way. It failed to ensure the guarantor knew what the process was and what his rights were. This led to mistrust on both sides and made it impossible to settle in a timely and cost effective way.”24
“the [financial] institutions can afford to, and do in fact, work up huge costs of recovery which then form part of the principal sum, eat up any equity in the security, and kill all prospects of settlement.”25
However, other lawyers felt that obfuscation and delay caused by guarantors makes settlement difficult.
6.26 Data from our survey of judges was not definitive. Half of the judges who responded said that less than 40% of matters settle before judgment, around 20% said that many trials settle.26 One judge commented that matters are less likely to settle if family relationships or the survival of a small business is involved, rather than a commercial transaction with commercial parties. There does seem to be an impression that guarantors become desperate litigants: they have everything to lose by not defending a claim. One judge’s impression was that “many guarantors would rather spend their last dollars before financial ruin on lawyers no matter what their chances of success,”27 another commented that some cases are pursued in vain “only to delay the evil day”.28
6.27 While not asked what encourages settlement, some judges made the following comments. One judge said “early trial date is the only key to settlement”.29 Another judge commented that a bank may settle if it feels that the damage caused by publicity about the proceedings will outweigh the benefits of successful litigation.
Alternative Dispute Resolution
6.28 In recent years there has been a substantial growth in codes of practice and alternative dispute resolution (“ADR”) schemes, especially industry-funded ADR and Ombudsman schemes. This follows a commitment to self-regulatory policies by Governments. Codes of practice now represent a significant part of the consumer protection regulatory framework, and ADR schemes are set up as a way of securing accessible justice for consumers.
6.29 Under the Code of Banking Practice (“the Banking Code”), bank members are obliged to provide external dispute resolution processes to their customers.30 All Banking Code members reported that they used the Australian Banking Industry Ombudsman scheme to meet their obligations to provide an external dispute resolution process to their customers.31 This process is explained in Chapter 5.
6.30 In contrast, credit unions have established a number of different schemes or arrangements for external dispute resolution. The vast majority of credit unions are members of the Credit Union Dispute Resolution Centre, however, a significant number are members of the Credit Union Ombudsman schemes. Other external dispute resolution arrangements are used only by a small number of credit unions.32
6.31 Members of the Building Society Code have not established an industry-wide external dispute resolution scheme. Instead, they use a combination of small claims and consumer claims tribunals, expert determination and/or a mediation process based on a model developed by the Australian Association of Permanent Building Societies (“the AAPBS”). The AAPBS has supported the development of the Financial Co-operative Dispute Resolution Scheme33 (which will replace the Credit Union Ombudsman) as the external dispute resolution scheme for its members.
The Australian Banking Industry Ombudsman
6.32 The Australian Banking Industry Ombudsman (“ABIO”) resolves complaints between banks and their customers. The ABIO’s Terms of Reference set out its jurisdiction to consider disputes. Around 50% of disputes received by the ABIO are outside its Terms of Reference. The main reasons that a matter will be outside the Terms of Reference are:
- The dispute was made out of time;34
- The amount claimed exceeded $150,000;
- The subject matter of the dispute was being or had been addressed in another jurisdiction.
6.33 Despite there being support for the use of the ABIO, only 7% of our guarantor survey respondents reported using the ABIO to assist them with their problems with a guarantee.
6.34 Consumer advocates generally agree that using the ABIO is a good option. However, creditors are often quick to seek possession by instituting court proceedings: this immediately ousts the jurisdiction of the ABIO to mediate a matter.35
6.35 The fundamental problem with the ABIO in relation to third party guarantees is the low financial jurisdiction. The maximum amount in dispute that the ABIO can hear is $150,000 – and this sum includes the costs of enforcement. Given the high costs of residential premises and of enforcement, it is very unlikely that any guarantee secured over domestic property would come within the ABIO’s jurisdiction.
6.36 In September 1999, the ABIO published a report on relationship debt.36 The report aimed, among other things, to provide information on resolving relationship debt complaints under the ABIO scheme, and to identify the legal issues which may arise in such cases. The number of complaints received concerning guarantees is relatively small and the proportion of guarantee complaints has decreased relative to the overall number of complaints. In 1991 guarantee complaints represented 5% of all closed complaints, while in the year ending June 1998 they represented 0.4%.37 We asked the ABIO to provide more recent figures on the cases received relating to guarantees by gender. The updated figures indicate that the numbers of cases relating to guarantees handled by the ABIO are generally decreasing. However, a much higher proportion of these cases are coming from women rather than men or couples. In fact, the proportion of cases relating to guarantors as women are higher than they have ever been.38 The ABIO suggested that this increase may be due to the recent expansion of the ABIO’s jurisdiction to consider disputes over the debts of guarantors of companies.39
6.37 The ABIO suggested that they expected to see a decline in disputes relating to guarantees after the amended Code of Banking Practice became effective in August 2003 because the Code more thoroughly regulates guarantor transactions prior to execution.40 The Ombudsman has also noted that the new Banking Code will provide greater clarity to the ABIO’s dispute resolution work and will assist the ABIO in deciding whether a bank has observed good banking practice.41
Problems with using ADR in guarantee matters
6.38 One community legal centre stated that alternative dispute resolution was “the way of the future” and they always refer disputed guarantees to dispute resolution by the ABIO.42 According to this centre, alternative dispute resolution is an excellent way to get a fair hearing and encourage settlement. Another benefit is that the process is cheaper and the hearing is by a specialist industry focused body.
6.39 Australian banking mediation differs from current American and British practices in that by the time a matter comes on for mediation in Australia the debt has already been classified as problematic and been moved from local branch management to an asset management group (or recovery section) within the bank’s head office.43 By this time, meaningful negotiation may be impossible, as often the only option proffered by a lender is foreclosure and realisation of any property secured by a loan.44 One guarantor described his role in the mediation as being “largely a spectator.”45 It has been suggested that early dispute intervention by negotiation would increase chances of debt recovery.
6.40 A review of the mandated mediation scheme under the Farm Debt Mediation Act 1994 (NSW) has not been promising. Participants in the review of the scheme described the mediation as “an orderly exit” via foreclosure, rather than a process for exploring options.46 Garwood concludes from this review that if mediation such as that under the Act is to be mandated, it is vital that mediation be conducted at a stage where more than one option is possible to give the process a meaningful purpose. It appears from that review that early mediation intervention by short sessions spread over a longer period is more successful than single mediation sessions.47
6.41 It is also worth noting the issue of gender and power in the resolution of disputes between lenders and guarantors. Certainly, an “information differential”48 exists between parties to this kind of dispute. The differences in resources and concomitant bargaining power between a guarantor and a lender are exacerbated where the site of the dispute is partially located within a domestic relationship.
6.42 In its submission to the Commission, the Women’s Legal Resource Centre (“WLRC”) cautioned against reliance on industry dispute resolution schemes.49 WLRC noted concerns that some of these types of dispute resolution process amount to a “privatisation of justice”. This means that there is no precedent and no public resolution to guide similar cases. The WLRC argues that mediation may thereby militate against the development of conscientious lending practices.50
Consumer, Trader and Tenancy Tribunal
6.43 Another accessible dispute resolution forum is the Consumer, Trader and Tenancy Tribunal (“CTTT”) of NSW. The CTTT only has jurisdiction over loan transactions by virtue of the Consumer Credit Code in NSW.51 The Tribunal does not have jurisdiction under the Contracts Review Act 1980 (NSW) or any common law jurisdiction to hear claims of unconscionability. Our research found that very few third party guarantee disputes are being resolved under the Consumer Credit Code. The CTTT was unable to provide comprehensive information from their records concerning cases heard in the tribunal involving third party guarantees, but they indicated that disputes involving third party guarantees are not common in the CTTT.52
6.44 This lack of usage is likely to be caused by the consumer/business distinction drawn in the Consumer Credit Code, noted in Chapter 3. Small business transactions are excluded from the Consumer Credit Code; so where the purpose of the loan is commercial rather than personal, the CTTT has no jurisdiction to hear the matter. Applications brought by guarantors to the CTTT have been dismissed on this basis.53
6.45 A recent decision of the New South Wales Supreme Court significantly restricted the possible operation of the Consumer Credit Code in this area.54 In Park Avenue Nominees v Boon, credit was provided to the plaintiff to refinance an earlier loan made to the plaintiff and his son to finance the son’s cattle stud. The plaintiff was not involved in the cattle stud and the credit was secured by mortgages over property owned by the plaintiff. The NSW Fair Trading Tribunal (predecessor of the CTTT), held that the predominant purpose of the plaintiff in obtaining the loan was to assist his son and therefore obtained for a personal purpose, making the loan subject to the provisions of the Credit Code. The Supreme Court of NSW overturned this decision.55 The court found that the creditor established that the loan was not provided wholly or predominantly for personal, domestic or household purposes.
6.46 This decision effectively narrows the operation of the Consumer Credit Code in the area of third party guarantees. Data collected by the research project indicates that the primary motivation for many third party guarantors is the provision of assistance to family members and that most borrowers apply these funds to small business enterprises. The implication of the decision in Park Avenue is that where a relative is motivated to assist a borrower with a business loan, because of factors arising out of their relationship, access to dispute resolution mechanisms under the Consumer Credit Code are not available.
6.47 Our research found strong support for increased involvement by lower cost tribunals, such as the NSW Consumer Tenancy and Trading Tribunal in cases involving third party guarantees in order to overcome some of the problems of the high cost of litigation,56 but this is clearly not possible under the current jurisdictional restrictions of the Tribunal.
THE PERSONAL COST
6.48 Apart from the financial burden the costs of becoming a guarantor can be enormous. Belinda Fehlberg notes in her UK study that guarantors reported grave physical and emotional costs.57
6.49 Most respondents to our guarantor survey reported that their relationship with the primary borrower had changed as a result of the loan. The responses overwhelmingly indicated the relationship had gone awry: the vast majority had divorced, separated or ceased all contact. Of the few that had maintained their previous relationship, all reported a lack of trust, a rise in antagonism, contempt or resentment. In most cases where the borrower was a spouse, the couples had separated at the time of the survey; or if still together, the relationship was strained. In most cases where the guarantor/borrower relationship was a parent/child relationship, the loan resulted in a lack of trust between family members. A great many reported that they are completely estranged from each other.
6.50 Many guarantors reported an enormous emotional strain and stress which some felt lead to serious illness; some said the transaction and stress nearly “ruined” their lives. Others reported that they felt “foolish” or humiliated by the whole experience; and stated that they now find it difficult to trust people.
CONCLUSION
6.51 Our research found significant problems with communication once the loan became problematic. Many guarantors were not advised of difficulties with the loan and had problems gaining access to information during the course of the loan. Many guarantors were shocked when enforcement proceedings were begun against them as this was the first they had heard of any difficulties with the transaction. While privacy laws are an obstacle to open provision of much borrower information by lenders to guarantors there is clearly much room for improved communication on problematic loans.
6.52 Many participants expressed the view that litigation was expensive, complex and inefficient for the resolution of guarantee disputes and expressed a preference for more accessible dispute resolution mechanisms such as mediation, industry resolution or tribunal processes. Yet of the few such processes in existence, we found that they were very little used. While the majority of disputed guarantees in our research settled, we found that it was quite common for settlement to occur once litigation was already underway. Litigation is still clearly central to the dispute resolution process in this area.
6.53 The following chapter explores the particular complexities of litigation of third party guarantee matters.
FOOTNOTES
1. Guarantor Survey, Respondent 2.
2. Barrister Survey, Respondent 31.
3. See, for example, Singh’s study of women and family businesses which found women generally only became aware of their liabilities in business when there were marriage and/or business difficulties or failures: Supriya Singh, For Love Not Money: Women, Information and the Family Business (Consumer Advocacy and Financial Counselling Association of Victoria Inc, 1995) at 18-19.
4. Belinda Fehlberg, Sexually Transmitted Debt: Surety Experience and English Law (Clarendon Press, 1997) at 236.
5. Guarantor Survey, Question 26(b): 82% said the problem came as a big shock for them.
6. Guarantor Survey, Question 25(a): 74%; Guarantor Survey Question 25(b): 77%.
7. Guarantor Survey, Respondent 3.
8. Guarantor Survey, Respondent 77.
9. Case study from Legal Aid Commission of NSW, Submission.
10. Guarantor Survey, Respondent 30.
11. Code of Banking Practice (1993) s 20, Building Society Code of Practice (1994) s 20, and Credit Union Code of Practice (1994) s 20. Note that the Code of Banking Practice now includes small business transactions in its jurisdiction. These amendments are effective from August 2003.
12. In the case of banks and building societies, but not in the case of credit unions.
13. Dick Viney, Review of the Code of Banking Practice, Final Report (2001).
14. Barrister Survey, Respondent 31. It is unclear from the reports of litigated cases how the guarantor found out there were problems with the loan, as legal proceedings tend to focus on pre-transaction conduct. Data from our case law review is therefore limited.
15. Guarantor Survey, Respondent 54.
16. Charles v Parkinson [2000] FCA 1467.
17. Guarantor Survey, Respondent 55. The bank settled the matter for a much smaller figure than the debt.
18. Confidential, Submission 15 June 2000.
19. Stella Sykiotis, Legal Aid Commission of NSW, Telephone Consultation July 2000.
20. Guarantor Survey, Question 24(a): 18% paid the money in full; 13% paid part of the money.
21. Financial Counselling Service 15%; Community Legal Centre 11%.
22. 23% said it was not suitable for mediation.
23. Solicitor Survey, Respondent 6.
24. Barrister Survey, Respondent 22.
25. Barrister Survey, Respondent 26.
26. 7% reported that about half the matters settle, another 7% said almost all trials settle before judgment.
27. Judge Survey, Respondent 34.
28. Judge Survey, Respondent 45.
29. Judge Survey, Respondent 6.
30. See of the Code of Banking Practice (1993) cl 20.4; see Code of Banking Practice (2003) Part E.
31. See Australian Securities and Investments Commission, Compliance with the Payments System Codes of Practice and the EFT Code of Conduct: April 2001 to March 2002 (2003) at 21.
32. For details on the schemes or arrangements used by credit unions to meet their dispute resolution obligations under cl 20.4 of the Credit Union Code of Practice (1994) see Australian Securities and Investments Commission, Compliance with the Payments System Codes of Practice and the EFT Code of Conduct: April 2001 to March 2002 (2003) at 42.
33. This scheme was approved by the Australian Securities and Investments Commission on 28 January 2003.
34. The event to which the dispute relates must have occurred not more than six years before the disputant notified the financial services provider in writing of the dispute (para 5.5 Terms of Reference); the Ombudsman must only consider a dispute in relation to events which first occurred on or after the lender became a member of the ABIO scheme, on or after 6 July 1998 if the disputant is incorporated and on or after 6 July 1998 if the dispute relates to a guarantee or charge in favour of a financial services provider to secure an amount owed by an incorporated entity (para 5.6 Terms of Reference).
35. Stella Sykiotis, Legal Aid Commission of NSW, Telephone Consultation August 2000.
36. Australian Banking Industry Ombudsman, Report on Relationship Debt, Bulletin No 22, September 1999. The ABIO defined relationship debt as “the transfer of responsibility for a debt incurred by a party to his/her partner in circumstances in which the fact of the relationship, as distinct from an appreciation of the reality of the responsibility for the debt, is the predominant factor in the partner accepting liability”.
37. Australian Banking Industry Ombudsman, Report on Relationship Debt, Bulletin No 22, September 1999 at 3; note there was a small increase to 0.5% in the year ending June 1999. The ABIO speculates this is due to its then new jurisdiction to consider complaints about guarantees given to support loans to companies. This new jurisdiction is not, however, retrospective: the ABIO can only consider these complaints if the relevant act or omission of the bank took place on or after 6 July 1998.
38. Australian Banking Industry Ombudsman, Report on Relationship Debt, Bulletin No 22, September 1999 at 21 and statistical report provided to NSW Law Reform Commission July 2001: July 1998 to June 1999 – 27%; July 1999 to June 2000 – 38%; July 2000 to December 2000 (6 months) – 46%.
39. Australian Banking Industry Ombudsman, Telephone Consultation 11 March 2003, referring to the 1998 amendments to the ABIO’s terms of reference.
40. Australian Banking Industry Ombudsman, Telephone Consultation 11 March 2003.
41. Australian Bankers’ Association, Media Release, 12 August 2002.
42. Katherine Lane, Consumer Credit Legal Centre, Consultation June 2002.
43. Maureen Garwood, “A Time for Review and Change in Dispute Resolution Practices for Banks and Insolvent Borrowers” (2002) 13 Australasian Dispute Resolution Journal 211 at 212.
44. Ruth Charlton, Dispute Resolution Guidebook (LBC, 2000) at 223.
45. Confidential, Submission 13 December 2002.
46. Maureen Garwood, “A Time for Review and Change in Dispute Resolution Practices for Banks and Insolvent Borrowers” (2002) 13 Australasian Dispute Resolution Journal 211 at 220.
47. Maureen Garwood, “A Time for Review and Change in Dispute Resolution Practices for Banks and Insolvent Borrowers” (2002) 13 Australasian Dispute Resolution Journal 211 at 221.
48. Hilary Astor and Christine Chinkin, Dispute Resolution in Australia (Butterworths, 2002) at 345.
49. Women’s Legal Resource Centre, Submission at 10.
50. Women’s Legal Resource Centre, Submission at 10.
51. Consumer Credit (New South Wales) Code 1995 and Regulations.
52. The CTTT advised that their information system could not identify relevant cases. Few decisions of the CTTT are written.
53. Communication from Graeme Durie, Senior Member of the CTTT, 22 August 2002.
54. Park Avenue Nominees Pty Ltd v Boon (2001) ASC 155-052; (2001) ASC 155-045.
55. The Supreme Court held the Credit Code did not apply because the purpose of the loan did not come within s 6(1)(b). Both the Court and the Tribunal referred to the Victorian Supreme Court decision in Linkenholt Pty Ltd v Quirk (2000) ASC 155-040. However while the Tribunal distinguished that case, the Supreme Court relied upon it.
56. See eg Legal Aid Commission of NSW, Submission; Women’s Legal Resource Centre, Submission.
57. Belinda Fehlberg, Sexually Transmitted Debt: Surety Experience and English Law (Clarendon Press, 1997) 253-258.
