Very rarely does a judge tear up a multimillion-dollar penalty signed up to by both the regulator and the alleged perpetrator.
Yet that’s what Federal Court judge Nye Perram did on Tuesday, throwing out a A$35 million settlement between Westpac and the the Australian Securities and Investments Commission over its alleged failure to properly assess whether borrowers could meet their repayments before signing them up to mortgages.
Agreed settlements are common
In commercial litigation, as in most litigation, there is an emphasis on trying to settle matters early before they are heard in court.
In criminal law matters the prosecutions encourage early guilty pleas in exchange for lower penalties.
Courts usually rubber-stamp them
Where the alleged breach of the law is serious, necessitating a large penalty, a judge has to formally approve the settlement, in a hearing until now regarded as something of a rubber-stamping exercise.
As the Hayne Royal Commission into the Misconduct in Financial Services has pointed out, the downside of such quick settlements can be that the facts aren’t established in court and the law isn’t tested.
Where they are established and the law is tested, as Justice Yates did earlier this year in Australian Transaction Reports and Analysis Centre versus Commonwealth Bank of Australia very big penalties can be handed down - A$700 million for more than 50,000 breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act.
Along with it were landmark judgments that establish the scope of the law and tell firms what to avoid in the future.
This time the court said no
He rejected the joint application for settlement between ASIC and Westpac Banking Corporation for a penalty of A$35 million.
He asked ASIC and the Westpac to redraft the agreed settlement and return to court by 27 November 2018.
To establish the law and what happened
The case matters because the Financial Services Royal Commission has been examining the use of computer programs to determine the ability of borrowers to repay loans.
It is possible that many Westpac loans were approved to customers who would have been found to be unable to meet the repayments had their individual circumstances been examined, and it is possible that is in breach of the law.
But without a clear judgment or a clear statement of facts for the court to examine, or a clear judgment from the court, it is impossible to tell.
That’s why Justice Perram said no, to establish what the law requires and what Westpac did.
- ^ failure to properly assess whether borrowers could meet their repayments before signing them up to mortgages (www.smh.com.au)
- ^ ASIC (asic.gov.au)
- ^ enforceable undertaking (www8.austlii.edu.au)
- ^ Hayne Royal Commission into the Misconduct in Financial Services (financialservices.royalcommission.gov.au)
- ^ Australian Transaction Reports and Analysis Centre versus Commonwealth Bank of Australia (www.judgments.fedcourt.gov.au)
- ^ Commonwealth Bank's $700 million fine will end up punishing its customers (theconversation.com)
- ^ sought the right to do the same (www.smh.com.au)
- ^ National Consumer Credit Protection Act 2009 (www8.austlii.edu.au)
- ^ Consumers need critical thinking to fend off banks' bad behaviour (theconversation.com)
Authors: Michael Adams, Professor of Corporate Law & Governance, School of Law, Western Sydney University