Nathan v Macquarie Leasing; Fox v Westpac (No 3)
[2024] VSC 688
•8 November 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
GROUP PROCEEDINGS LIST
S ECI 2020 03924
BETWEEN:
| DAIMIN NATHAN & ANOR (according to the attached schedule) | Plaintiffs |
| and | |
| MACQUARIE LEASING PTY LTD (ACN 002 674 982) | Defendant |
S ECI 2020 02946
AND BETWEEN:
| ALANNAH FOX & ANOR (according to the attached schedule) | Plaintiffs |
| and | |
| WESTPAC BANKING CORPORATION (ACN 007 457 141) & ANOR (according to the attached schedule) | Defendants |
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JUDGE: | John Dixon J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 31 October 2024 |
DATE OF RULING: | 8 November 2024 |
CASE MAY BE CITED AS: | Nathan v Macquarie Leasing; Fox v Westpac (No 3) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 688 |
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EVIDENCE — Relevance — Hearsay — Opinions — Where the application of a legal standard that is a matter for the court arises — Whether discretion to limit use of evidence should be exercised — Whether discretion to exclude evidence that may cause or result in undue waste of time should be exercised — Admissions — Whether second-hand hearsay — Transcripts of evidence before Royal Commission — Whether statement adverse to party’s interest in the outcome of the proceeding — Evidence Act 2008 (Vic), ss 55, 56, 59, 69, 76, 81, 82, 135, 136, 190, Dictionary.
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APPEARANCES: | Counsel | Solicitors | |
| For the Plaintiffs in each proceeding | Mr J Stoljar SC with Mr D Fahey, Ms L Coleman, Ms S Hogan and Mr M Bui | Maurice Blackburn | |
| For the Defendant in S ECI 2020 03924 | Mr J Williams SC with Mr D Farinha and Mr S Gerber | Gilbert + Tobin | |
| For the Defendants in S ECI 2020 02946 | Mr D Thomas SC with Ms C Hamilton-Jewell, Mr M Forgacs and Mr S Speirs | King & Wood Mallesons | |
HIS HONOUR:
At the conclusion of oral evidence, the parties submitted lists of documents that they sought to tender. I stated that the Court would not consider any document on the tender list that had not been introduced either by a witness or by counsel in submissions and I was assured that this was not intended. There were however objections to the reception of some documents, and it is upon those objections that I now rule.
For convenience, I will refer to the defendants in S ECI 2020 02946 (‘the Fox proceeding’) collectively as Westpac, which by its Consolidated Schedule of Objections dated 31 October 2024 [OBJ.KWM.004.0001] organised the documents into seven categories being:
1. Draft and final correspondence between ASIC and Westpac.
2. Westpac internal documents.
3. Tender of this category - ASIC and FCA reports and submissions on add-on insurance - was not pressed by the plaintiffs.
4. ASIC reports and papers in relation to Flex commissions.
5. Royal Commission documents (submissions, witness statements, exhibits, transcripts, reports, related emails).
6. Introducer monitoring presentations and related documents.
7. Documents re Senate inquiry into four major banks.
In S ECI 2020 03924 (‘the Nathan proceeding’), the defendant (‘Macquarie’), in its Schedule of Defendant’s Objections to Documents dated 31 October 2024 [OBJ.GTO.003.0001] adopted the same categories.
Both Westpac and Macquarie adopted the submissions advanced by the other.
Categories 1 and 2
In respect of the documents in each of these categories, the defendants contended that the documents could be admitted but subject to an appropriate limitation pursuant to s 136 of the Evidence Act 2008 (Vic). The defendants contended:
(a) To the extent that the documents referred to ‘risk of unfair customer outcomes’, ‘risk of unfairness’, ‘unfairness’ or ‘conflicts’, they cannot be evidence relied upon as statutory unfairness for the purposes of s 180A of the National Credit and Consumer Protection Act 2009 (Cth) (‘NCCPA’).
(b) To the extent that the documents contain opinions that there was ‘a risk of unfairness’ or ‘certain outcomes’, ‘unfairness’, or ‘conflicts’, an exception to the opinion rule, which is not subject to the business records exemption, needs to be made out to render those opinions admissible as such. Further, to the extent that the documents contain an opinion involving the application of a legal norm or standard to particular facts, they cannot be admissible as opinions.
(c) Even if the opinions are capable of constituting admissions, the issue is one which the Court is to determine.
Accordingly, the admission of the documents should be subject to a limitation pursuant to s 136 of the Act: that the document be admitted as to the fact of its existence and the representations of fact asserted, but not as to the truth of the opinion set out in it and not as opinions as to any legal standard which the Court must determine.
The plaintiffs submitted that the documents were business records and admissible as such. To the extent that the documents contained evidence of opinions, the asserted facts contained in the documents are admissible under s 69. Equally, to the extent that a document contains hearsay, it is admissible under s 69. The defendants have not purported to identify anything unfairly prejudicial, misleading or confusing about this evidence and accordingly s 136 is not engaged. Further and in the alternative, the document contained admissions that are admissible under s 81 and/or s 87.
The defendants accepted that the documents falling within categories 1 and 2 were business records, noting that many of the documents were hearsay, as the parts to be relied on constituted previous representations made by the author of the documents tendered to prove the existence of a fact that it can reasonably be supposed the author intended to assert by the representations. The defendants contended that to the extent that the plaintiffs seek to rely upon those documents as truth of the opinions set out in them, the business records exemption (s 69) does not affect the operation of the opinion rule and the evidence is not admissible pursuant to s 76 unless an exception under pt 3.3 has been established.
Having identified the issues raised by the parties in respect of these categories, I can, mostly, identify the relevant principles applying in this ruling.
Applicable Principles
The plaintiffs submitted that asserted facts contained in a document that is a business record are admissible under s 69, citing ASIC v Rich.[1] The crux of the Court’s reasoning in Rich was that the opinion rule (pt 3.3 of the Act) is confined to evidence of opinions given by witness in court and that out of court hearsay representations of fact and opinion are governed by pt 3.2.
[1](2005) 191 FLR 385, 435 [212]-[217].
In Lithgow City Council v Jackson,[2] the High Court disapproved of the reasoning in Rich. French CJ, Heydon and Bell JJ stated:[3]
One exclusionary rule is the hearsay rule. If evidence satisfies s 69, then by s 69(2) the hearsay rule does not apply. But s 69(2) does not provide that the evidence is admissible. It is only admissible if no other exclusionary rule applies. Section 76 excludes “[e]vidence of an opinion” – not “evidence by a witness of an opinion”. There is no indication in any other provision in Pt 3.3 that it operates only in relation to the opinions of witnesses.
[2](2011) 244 CLR 352, 362 [18]-[22].
[3]At [19].
In written submissions, the plaintiffs also cited Panaya v Deputy Commissioner of Taxation.[4] However, in this decision the New South Wales Court of Appeal did not traverse the same reasoning as the High Court in Lithgow. Rather, the Court of Appeal was satisfied that in the circumstances before it, s 69(2) was satisfied, making the documents admissible to prove the facts asserted pursuant to the business records exception to the hearsay rule. This decision does not offer relevant assistance to the Court.
[4](2017) 319 FLR 228, [42].
The New South Wales Court of Appeal revisited the issue in Capital Securities XV Pty Ltd (formerly known as Prime Capital Securities Pty Ltd) v Calleja.[5] Focusing on the application of the business records exception to the hearsay rule, Leeming JA (with the other members of the Court agreeing) identified the following propositions:
(a) the onus lay on the party seeking to tender the documents to establish that the exception in s 69 applies.
(b) section 69 draws a distinction between a ‘document’ and a ‘representation’. That the documents in issue were business records is not disputed in this case. However, as Leeming JA explained, the business records exception turns on the particular representation contained in the document, the admission of which would otherwise contravene the hearsay rule. To the extent that s 69(2) is satisfied in respect of the identified representation, then only to that extent the hearsay rule does not apply to the document.
[5][2018] NSWCA 26, [83]-[88].
The plaintiffs also relied on pt 3.4 of the Act. Section 81 provides that the hearsay rule and the opinion rule do not apply to exclude evidence of an admission.
In Dovuro Pty Ltd v Wilkins & Ors,[6] in a negligence proceeding evidence was given at trial of the defendants having published statements acknowledging that ‘the situation should not have occurred’ and of having sent letters to growers referring to its ‘failing in its duty of care’ to inform growers of the presence of weed seeds. In the High Court, Gleeson CJ, agreeing with Gummow J, observed that care needs to be taken in identifying the precise significance of admissions, especially when made by someone who has a private or commercial reason to seek to retain the goodwill of the persons to whom the admissions are made. The statement that the appellant ‘failed in its duty of care’ cannot be an admission of law, and it is not useful as an admission of failure to comply with a legal standard of conduct, there being no evidence that the author of the statement knew the legal standard.
[6](2003) 215 CLR 317.
Gummow J observed that the relevant statements involved the proposition that the facts demonstrate that the corporation failed a standard fixed by law. His Honour accepted that a party may admit the facts from which a conclusion of law may then be drawn, for example, by admissions on the pleading, but stated that different questions arise where the suggested admission includes a conclusion which depends on the application of a legal standard, since, as Glass JA observed in Grey v Australian Motorists and General Insurance Co Pty Ltd,[7] an admission made by a witness unfamiliar with the standard governing his statement is not merely of dubious value but, by definition, valueless.
[7][1975] 1 NSWLR 669, 675.
Finally, in Australian Prudential Regulation Authority v Kelaher,[8] Jagot J accepted the following propositions:
[8](2019) 138 ACSR 459, 507 [136].
(a) to the extent that a document records a fact, then describing the document as an ‘admission’ does not give it any different or greater status than it already has by virtue of being a business record;
(b) to the extent that it is a factual opinion upon which the tenderer relies, then before the court could treat it as evidence of the truth of the opinion, an exception to the opinion rule would need to be made out;
(c) to the extent that the documents contain an opinion involving the application of a legal standard to particular facts, or of the author’s opinion concerning the law, such documents are not probative of whether or not there was a contravention of any covenant or other legal standard;
(d) to the extent that documents are relevant, the weight to be given to the matters recorded in them needs to be assessed in light of the role and qualifications of the person creating them, as well as the regulatory context in which the respondents were operating. In other words, the context in which, the purpose for which, and the spirit in which representations were made in documents needs to be considered.
Jagot J further observed that statements involving a conclusion of law such as to the effect that there was a breach of a statutory standard, could not attract any weight, even if considered to constitute admissions, in the overall analysis because the issue is one for the Court to determine based on the evidence and consistent with principle.
Her Honour’s observation, with which I respectfully agree, is pertinent here because the references to ‘risk of unfair customer outcomes’, ‘risk of unfairness’, ‘unfairness’ or ‘conflicts’ and like matters are mostly related to the concept of statutory unfairness for the purposes of s 180A of the NCCPA. This is not a concept of unfairness that is at large, understood only by common English usage of the word. It is a statutory standard defined by and interpreted in the context of the NCCPA.
The plaintiffs submitted that s 136 was not engaged as the defendants have not purported to identify anything unfairly prejudicial, misleading or confusing about this evidence.
I do not agree. There is a danger that the particular use of the impugned evidence might be misleading or confusing because these documents have not been generated in the context of the operation of the loan origination programs, Sovereign or MacLease, or of any dealings concerning any specific transactions that are in issue in the proceedings. Rather, they relate to other considerations affecting Westpac in its dealings with ASIC, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and an inquiry undertaken by a House of Representatives Standing Committee. These are not the same considerations raised by the Court’s inquiry into whether there has been a breach of legal norms and standards giving rise to causes of action for various remedies. The Court is necessarily distracted from the key issues in the proceeding to assess the probative value of these documents, being the point well made in Kelaher and noted at paragraph 16(d) above. Such considerations raise the general discretions given to the Court by ss 135 and 136 of the Act.
Considering the principles as I have set them out, I rule as follows:
Categories 1 and 2 – Correspondence between ASIC and Westpac: Westpac internal documents
(a) Documents 1 and 2 can serve as examples for the application of much of my reasoning. They are admitted, but simply as to the fact of the documents, to prove any relevant previous representation made or recorded in the documents. Substantially, the plaintiffs suggested that the defendants’ statements in these documents justify a conclusion that very senior executives of Westpac recognised that flex commissions provided incentivisation of dealers to set interest rates to the disadvantage of consumers from the existence of conflict between dealers’ and consumers’ interests. The plaintiffs may rely on these documents and statements of fact found within them as business records but to the extent they express conclusions properly characterised as opinions it matters not that they may have been actually and honestly held by the defendants. Their use is otherwise limited and they are not to be used to establish the existence of facts by reference to opinions set out in them where the plaintiffs have not proved an exception to the opinion rule (Lithgow) and not in respect of any opinions as to any legal standard (Dovuro, Kelaher), in particular whether there has been any breach of s 180A of the NCCPA or deceptive and misleading conduct. I accept the defendants’ submissions that observations that flex commissions give rise to a risk of unfair outcomes or create circumstances of unfairness or generate the possibility of conflicts of interest arising between consumers and dealers either constitute inadmissible opinions or conclusions dependent on a legal standard that the author may, or may not, properly comprehend and which is, in any event, a matter for the Court to determine. The features of MacLease and Sovereign will be identified by the Court based on the evidence about the operation of those systems in the context of the transactions.
(b) I do not accept the plaintiffs’ submission that they do not tender these documents as proof of a conclusion of law and that to the extent documents draw conclusions, for example, of unfairness, that is to be understood as an opinion of unfairness in the lay and ordinary sense of what a reasonable person would understand. This submission begs the question. Pressed to explain it, counsel for the plaintiffs submitted that these documents were relevant to establishing the state of mind of Westpac executives. Even if state of mind were relevant, I am not persuaded that the representations in these documents are sufficiently focused to avoid the danger of a misleading, confusing and wasteful inquiry into the precise circumstances in which those statements were made and in particular the motivations and objectives of the relevant executives.
(c) It was not submitted that the representations in any of these documents were relevant to the circumstances of the individual plaintiffs or even any specifically identified group member. Plainly, they were made in quite different contexts in which the defendants have legitimate interests that are likely to differ from the issues in these proceedings. That is one reason why it is significant that the relevant Westpac executives were not called. Their absence was unexplained and I can see no reason why the plaintiffs could not have compelled their attendance, just as the Royal Commission did. In the event, the Court is left with very high level, generic, statements made in unexplained circumstances where the issues, motivations, objectives and possible outcomes are quite different.
(d) I do not accept the plaintiffs’ submission that the s 136 limitation on the use of such evidence proposed by the defendants is not necessary or needed because these documents are not evidence of or a conclusion as to a legal matter because they are relevant to the Court’s assessment about whether the conduct of the dealers was unfair. The flaw in this submission is that the concept of unfairness is not assessed in the ‘lay and ordinary sense of what a reasonable person would understand’ but rather in the context of the NCCPA.
(e) I am also not persuaded that the state of mind of Westpac executives at and after the time of the Royal Commission is relevant to the mistake claim, which turns on the state of mind of the plaintiffs. No claim is maintained by the plaintiffs that the defendants’ conduct was unconscionable.
(f) Much of this reasoning will apply to many other documents to which Westpac takes objection. In particular, the parties accepted that resolution of the principles and application of them to category 1 would reveal the reasoning for my ruling in respect of the documents in category 2.
(g) Accordingly I ruled that documents 3 to 5 inclusive in category 1 and all the documents in category 2 (documents 6 to 27, except for document 22) will be admitted into evidence in the Fox proceeding on the same basis as I have stated above in respect of documents 1 and 2.
(h) Document 22: On review of this document, which was not specifically addressed in oral submissions, I was not persuaded that it satisfied the s 55(1) relevance test. The tender of document 22 is rejected.
(i) Macquarie correctly submitted that the documents falling into categories 1 and 2 are not relevant in the Nathan proceeding. The plaintiffs did not identify any asserted fact in these documents that could rationally bear on the issues in the claims of the Nathans or the common question about MacLease and Macquarie’s loan originating processes that have been identified. It was misconceived to submit that such objection could no longer be taken because Macquarie acquiesced to the order that the evidence in its proceeding be evidence in the Westpac proceeding.[9] Apart from the fact that the order is interlocutory and subject to any further order I might make, it cannot be reasonably maintained that it extends to each and every piece of evidence tendered in each proceeding. Rather, such an order recognises the commonality of issues and of the practical utility of admitting evidence to be used across both proceedings to achieve the overarching purpose of civil litigation. The order does not, and plainly cannot, operate to deny the force of s 56(2) of the Act.
(j) It was also put that opinions actually and honestly held by Westpac were relevant in the Nathan proceeding to the issue of unfair conduct for the purposes of s 180A of the NCCPA. In Macquarie’s proceeding, it is its conduct that is assessed against the statutory standard, not that of Westpac, and in addition to a want of relevance, because the issue is determined by s 56(2), the possible exercise of discretion under ss 135 and 136 does not arise. I am satisfied that the category 1 and 2 documents are not admissible in the Nathan proceeding because they cannot rationally affect the assessment of the probability of the existence of a fact in issue in the Nathan proceeding. Whether Macquarie has breached the legal standards applicable to it as claimed by the Nathans in that proceeding is unaffected by Westpac’s conduct as identified in the disputed document.
(k) To avoid repetition, I will record at this point that by the same reasoning the documents in categories 4, 5, and 7 are inadmissible in the Nathan proceeding against Macquarie, leaving only category 6 which is considered later in these reasons.
[9]Order of John Dixon J made 21 August 2024.
Category 4 – ASIC Reports and Papers in respect of Flex Commissions
As noted above, the plaintiffs did not press the tender of category 3 documents.
Category 4 identifies documents published by ASIC in relation to flex commission arrangements in motor vehicle financing. There were three documents: an ASIC consultation paper, an ASIC regulation impact statement and an exhibit tendered to the Royal Commission which was an ASIC media release. Westpac did not oppose these documents being admitted subject to a s 136 limitation that the documents cannot be relied upon to establish that dealers had engaged in unfair conduct as this involves the application of a legal standard. Ultimately, the plaintiffs do not contest this basis for admission of these documents and accordingly they will be admitted subject to a limitation that they are not admitted as opinions as to any legal standards that the Court must determine, nor as proof of any contravention of such legal standards. Their use can be explained in final submissions.
Category 5 – Royal Commission documents
Document 34 in the Westpac schedule is no longer pressed. Documents 37 and 38 are transcripts of evidence before the Royal Commission.
The first transcript (document 37) concerned the evidence of Philip George Godkin. Mr Godkin was, when he gave that evidence, the General Manager, Specialist Finance Business Bank at Westpac and was, in that role, responsible for overseeing most aspects of Westpac Auto Finance Business. The plaintiffs’ proposed tender was confined to four passages of his evidence,[10] the substance of which was:
[10]21 March 2018 – Final Transcript for Day 8 [RCT.999.002.0002_RCD] at T753:10; T753:26-29; T754:16-26; T757:17-29.
(a) customers never know the way that the flex commission structure works;
(b) when a person walks into a dealership and becomes a Westpac customer, the dealer earns more money the higher the interest rate is by virtue of the flex commissions;
(c) concerning reasons given by ASIC in its consultations with the Royal Commission, it is fair to say that one of the concerns about flex commissions is that the interest rate charged to the consumer is not related to their credit rating or risk of default but what they can negotiate with the dealer, which can provide an incentive for sales intermediaries to increase the price of the credit contract which is not something that is disclosed to the consumer;
(d) the flex commission is built into the price of the loan and Mr Godkin recognised there was a problem about this, being poor customer outcomes and a significant increase in risk of poor customer outcomes.
The next document that the plaintiffs sought to tender were excerpts from a transcript of evidence given by Brian Charles Hartzer (document 38). Mr Hartzer was at the time the Managing Director and Chief Executive Officer of Westpac. The parties agreed that my ruling in respect of the transcript of Mr Godkin’s evidence will apply equally to this transcript. The plaintiffs’ proposed tender was confined to three passages of his evidence,[11] the substance of which was:
[11]21 November 2018 – Final Transcript for Day 62 [RCT.999.002.0003_RCD] at T6819:10-46; T6822:3-7; T6824:11-15.
(a) Westpac has an obligation to think about the controls that need to be in place for car dealers, given that they are representing Westpac in providing finance, and a number of improvements to those controls have been made to address that issue.
(b) Westpac acknowledged that the flex commission model of remuneration carries the risk that some dealers may prefer their own interests to the interests of consumers and create the risk of a conflict of interests between dealers and customers.
(c) Westpac itself accepted that in a submission that it made to ASIC in 2016 and it submitted to ASIC that ASIC ought to ban flex commissions because, from Westpac’s perspective, flex commissions created the potential for risk to bad outcomes for consumers.
(d) Flex commissions were only in the interests of dealers and Westpac, because dealers could make more money by flexing up the commission and because they were an incentive for the dealer to deliver business to Westpac. Westpac understood all of this in 2016 but it decided not to abandon flex commissions.
(e) When the dealer is engaged in trying to facilitate a loan, they are in some respects acting for Westpac. They are the agent of Westpac from a finance point of view, and they’re providing a service to the customer that is around the convenience of being able to finance the car on site, essentially. They’re not acting as a broker.
Initially, Westpac submitted that by force of s 69(3) the transcript was not admissible as a business record,[12] meaning that the only pathway around the hearsay rule to admissibility was pt 3.4 (Admissions).
[12]Thomas v NSW (2009) 74 NSWLR 34, [7]-[11], [17]; Slea Pty Ltd v Connective Services Pty Ltd (No 9) [2022] VSC 136, [507].
Westpac then submitted that the transcripts were inadmissible second-hand hearsay, and the operation of s 81 was excluded because the evidence of the admissions was not firsthand, relying on Slea.[13] and noting that although recorded in a transcript, the transcript had not been signed by the witness.[14] The plaintiffs contended that the excerpts they sought to tender were admissions excluded from the operation of the hearsay rule by s 82. Westpac submitted that applying the principle identified in Slea, transcripts from a Royal Commission cannot be admitted as to the truth of what is said in those transcripts, but only as to the fact of that an individual made a statement to the Royal Commission. What a witness said to the Royal Commission is irrelevant and therefore inadmissible. The transcript either had to be authenticated by the transcriber or adopted by the witness.
[13]Note 8.
[14]See the Dictionary, Part 2 s 6.
The plaintiffs responded to the submission that s 81 was inapplicable by seeking to tender the audio recording of the evidence given to the Royal Commission as transcribed. The audio recording was a document for the purposes of s 82(b). Further, the plaintiffs applied under s 190(3) of the Act to dispense with the requirement under s 82 because the matter to which the evidence relates is not genuinely in dispute or application of that section would cause or involve unnecessary expense or delay. They submitted that it cannot genuinely be in dispute that Messrs Godkin and Harzer did not give the evidence recorded, or that it was not them at the Royal Commission, or that they did not have authority to speak on behalf of Westpac. Further, tendering the audio or calling the witnesses simply to prove these statements would cause or involve unnecessary expense or delay.
Bearing in mind the matters to be considered as specified in s 190(4), there is not a genuine dispute as to the authenticity of the Auscript transcript necessitating that the Court take additional time at the expense of the parties to listen to the audio recording. Westpac put no substantive submission challenging the transcript’s authenticity and the objection was purely ‘technical’.[15] Westpac appeared not to persist with this ground of objection when I pressed counsel, but to avoid doubt I will order that s 82 does not apply to these two transcripts so as to require authentication of the transcript by the transcriber or the adoption of the transcript as an authenticated record of the proceeding by the signature of the witness. Accordingly, s 81 can operate to exclude the hearsay rule and the opinion rule from application to evidence of an admission found in the transcripts.
[15]T1012:24.
Next, if its s 82 submission be rejected, Westpac raised two further objections: firstly, that what was said by the senior Westpac executives was not adverse to Westpac’s interests in these proceedings and did not qualify as an admission and, secondly, by reference to the submission based on Dovuro, explained earlier, the evidence should be subject to a s 136 limitation.
There was some merit in Westpac’s contention that the proper course would have been to call Messrs Godkin and Hatzer as the plaintiffs plainly intended to do at some stage, that change of strategy being unexplained. The extent to which the passages of the transcripts were adverse to Westpac’s interests may have been clearer had that occurred. It was submitted that the crux of the ‘admissions’ was that the flex commission arrangements were never disclosed to the customer, which Westpac submitted was admitted on the pleadings such that the transcripts were not adverse to any interest of Westpac in this proceeding. On review of paragraph 11 of Westpac’s defence, I was not persuaded that it went far enough to permit the conclusion that the matters that the plaintiffs seek to tender are not adverse to Westpac’s interests in the proceeding, particularly in the context of the common questions based on how the Sovereign platform and dealer agreements operated according to their terms. Other aspects of the statements made by Messrs Godkin and Hatzer may be strongly supported by other evidence. That said, I am satisfied that the passages of transcript to be tendered do qualify as evidence of an admission or necessary context for the statement said to constitute the admission.
Finally, I am not persuaded that this evidence should be subject to a s 136 limitation by reference to the Dovuro principle. There may be issues about the probative value of this evidence that can be addressed in due course.
I will accept the tender of the identified passages of documents 37 and 38. Having regard to their content, I see no reason for any s 136 limitation to be imposed.
The next two documents (documents 35 and 36 on the schedule) were submissions made by Westpac, firstly, on the Auto Finance Case Study for the Royal Commission[16] and, secondly, Westpac’s submission in response to the Interim Report.[17] The plaintiffs confine the tender to five paragraphs of the Case Study submission and four paragraphs of the Interim Report submission. The first of these (paragraph 40) is irrelevant as the fact that the dealer has a discretion to set the customer’s interest rate on a loan-by-loan basis without reference to the customer’s risk rating is not a disputed issue in this proceeding. The tender is refused.
[16]WBC.001.051.6988.
[17]POL.9100.0001.0906.
The second statement (paragraph 46) explains Westpac’s interpretation of its obligation to disclose the fact of a payment of a commission to a dealer. The critical observation is ‘Westpac accepts that many, likely most, consumers do not understand the way in which Dealers are remunerated or the level or basis of commission paid to Dealers’. I am satisfied that this representation, which is relevant to issues about the operation of Sovereign in the context of dealer agreements, is adverse to Westpac’s interests in the outcome of this proceeding and is neither an opinion nor a conclusion based upon the application of a legal standard. I will permit the tender of the first three sentences of paragraph 46 of this document.
In paragraph 48, Westpac agreed that current commission practices and their non-disclosure to a purchasing consumer was out of step with other developments in the consumer credit area contending that industry-wide change was necessary to address the issue. The plaintiffs submitted that this statement was relevant to the Court’s assessment of whether dealers engage in unfair conduct contrary to s 180A of the NCCPA.
In my view this statement is too imprecise to have any probative value on any issue that I must decide. But there are other difficulties. The phrase ‘current commission practices’, whatever that means, may not correlate with the practices identified by relevant evidence of the operation of the Sovereign loan origination platform and relevant dealer agreements about which there is evidence before the Court. Further, it is not in dispute that no aspect of commission practices between Westpac and dealers were drawn to the attention of any of the representative plaintiffs. It would become necessary to interrogate the circumstances of the Royal Commission more broadly to properly understand what other developments in the consumer credit area are being referenced and whether Westpac’s promotion of its view that industry-wide change is necessary to achieve better customer outcomes is a statement that can properly be construed as an admission. The tender of this paragraph is rejected.
In paragraph 81 of the document, Westpac identified that the ‘inherent problem, given the dealer’s position, is the dealer’s discretion to determine interest rates or make decisions that ultimately have an effect on their commission. As Michael Saadat said in his statement “flex commissions create distortions in the cost of finance in a way that is more likely to disadvantage financially vulnerable consumers”’. This is a statement of fact about the way in which Westpac permits the introduction of loan applications to it by via Sovereign together with its acceptance of ASIC’s views about the disadvantage thereby created. Westpac has not persuaded me to reject the first two sentences of paragraph 81. I accept that this hearsay material is admissible as an admission, and I accept its tender on that basis.
Finally, in paragraph 85, Westpac expressed certain beliefs about the need for the finance industry to commit to developing a payment and commission arrangement that meets specific key principles that it articulated. Ultimately, the plaintiffs submitted that this expression of belief as to appropriate policy reform necessarily implied that the existing payment and commission arrangements were accepted by it as unfair.
I will not accept the tender of this paragraph. The probative value of the implication that the plaintiffs seek to draw from suggestions for prospective policy reform is substantially outweighed by the danger that the evidence may cause or result in an undue waste of time seeking to identify the relationship between the express policy objective, Westpac’s motives, the regulatory context in which the beliefs came to be expressed, the spirit with which such statements were conveyed to another tribunal and the legal norm that it is my duty to interpret: the statutory concept of unfairness with which this proceeding is concerned. The tender is rejected in the exercise of my discretion under s 135 of the Act.
Four paragraphs of the next document, Westpac’s Submission in Response to the Royal Commission’s Interim Report (document 36), were pressed by the plaintiffs. That tender is rejected based on the reasoning explained above.
The final document in this category consists of an email explanation, an internal Westpac document, of legislative changes to come into force on 1 November 2018 banning flex commissions.[18] The key statement appears to be ‘so the short answer is from a Westpac perspective and how we are implementing for post-flex, the unfairness of flex commission practices is largely addressed’. I am satisfied that this document satisfies s 69(1). This representation was made by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact. The author, Mr Paris George, is described as the head of business risk, specialist finance at Westpac. I do not accept Westpac’s submission that the representation falls within the terms of s 69(3). On this basis the tender of this document is accepted. Whether it has any significant probative value can be addressed in submissions.
[18]WBC.001.030.2981.
Category 6 – introducer monitoring presentations and related documents
The tender of these documents[19] against Westpac in the Fox proceeding is rejected on the basis that they are irrelevant, for the like reasons given earlier for rejecting the tender in the Nathan proceeding of Westpac documents against Macquarie.[20]
[19]MAC.001.185.1894 and MAC.001.040.9132.
[20]See above [21(j)].
In the Nathan proceeding, these documents dated September 2017 and January 2018 are not relevant having come into existence some years after the Nathans’ purchase of their car. The plaintiffs pointed particularly to an example that they submitted bore a factual resemblance to the circumstances of the Nathans. The document, which I will assume for present purposes to be a business record, notes that a consumer was offered a reduction in interest rate from 13.75% to 5.95% and a $500 goodwill payment to resolve a complaint about the conduct of the dealer at the time the customer was asked to sign the loan contract. This document is not relevant to any issue in the Nathan proceeding. In particular, it sheds no light on the operation of the MacLease system according to its terms because the complaint recorded concerned the conduct of the dealer divorced from the operation of MacLease and the response of Macquarie, suggestive of reduction of the contract interest rate to the base rate, did not arise in the ordinary course of financing transactions but appeared to be the exercise of a discretion by ‘Client Relations’. The tender of these two documents is rejected.
Category 7 – documents re Senate inquiry into four major banks
The three documents in this category were prepared for the purpose of responding to the House of Representatives Standing Committee on Economics - Inquiry into the Four Major Banks. The issue of flex commission arose in this inquiry and, in substance, Westpac executives were indicating support for the reforms proposed by ASIC. Ultimately, all that the plaintiffs seek to point to is an acceptance by Westpac executives that flex commissions can be an incentive for intermediaries to increase the price and create risk of unfairness for consumers. They submitted that the statement goes to the issue of the Court’s assessment of what is unfair, particularly having regard to Westpac’s acknowledgement of the risks of unfairness created by flex commissions. As is apparent throughout these reasons, I am not persuaded that these generic references to ‘risk of unfair customer outcomes’, ‘risk of unfairness’, ‘unfairness’ or ‘conflicts’ are relevant to the assessment of the material facts that might constitute evidence of statutory unfairness for the purposes of s 180A of the NCCPA. Westpac also repeated its submissions outlined above made in reliance on Dovuro and Kelaher. In the context of the common questions concerning the operation of the online loan origination program, Westpac’s executives have accepted that flex commissions which are a part of the Sovereign system’s operation, can be an incentive to create a risk of unfairness. The plaintiffs may submit that Westpac’s acknowledgement of the risk of unfairness could rationally affect, at least indirectly, the Court’s assessment of the probability that the documents that constitute the manner of operation of the Sovereign system should be interpreted as operating in this way whenever implemented by a consumer application for a car loan. The probative value of this acknowledgement is not relevant to its admissibility and is a matter that can be addressed in final submissions. However, for the reasons already advanced, I will limit the tender of these documents to be used as evidence of the fact that the documents exist and that representations to the effect recorded in them were made to a Standing Committee but that the use of these documents is otherwise limited in that they cannot be used as to the truth of opinions set out in those documents or, in particular, as opinions as to the application of the legal standards in issue in this proceeding which are matters that I must determine.
Finally, for the avoidance of doubt, all of the objections taken by Macquarie are upheld. Only one category of document concerned a Macquarie document. None of the Westpac documents will be accepted as evidence against Macquarie in the Nathan proceeding on the grounds that they are irrelevant and cannot be made relevant by reference to an interlocutory order about the use of evidence in separate proceedings being heard together.
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SCHEDULE OF PARTIES
S ECI 2020 02946
BETWEEN:
| ALANNAH FOX | First Plaintiff |
| BRIDGET NASTASI | Second Plaintiff |
| - and - | |
| WESTPAC BANKING CORPORATION (ACN 007 457 141) | First Defendant |
| ST GEORGE FINANCE LIMITED (ACN 001 094 471) | Second Defendant |
S ECI 2020 03924
AND BETWEEN:
| DAIMIN NATHAN | First Plaintiff |
| TANIA NATHAN | Second Plaintiff |
| - and - | |
| MACQUARIE LEASING PTY LTD (ACN 002 647 982) | Defendant |
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6
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