The High Court of Australia has decided that (by a majority of 3 to 2) Westpac’s return of 30 cheques marked “Refer to Drawer” was defamatory of its customer’s principal. It awarded the plaintiff damages of $50,000 plus interest.

In Aktas v Westpac Banking Corporation Limited [2010] HCA 25 the High Court rejected Westpac’s claim of qualified privilege.

In earlier proceedings a jury found proved defamatory imputations including those that a rental agency (Homewise) had passed valueless trust account cheques and that Mr Aktas had caused this to happen.

The High Court decided that while notice of dishonour had to be given by the bank within a reasonable time it was the reason given by Westpac for the notice of dishonour which was the basis of the action by Mr Aktas against Westpac.

At no time were there insufficient funds in the trust account to meet the cheques. The failure to honour the cheques was in breach of the term in the contract of banker and customer between Westpac and Homewise that the customer’s cheques be honoured to the extent of its credit. It is well accepted in Australia that the circumstances attending wrongful dishonouring may also support a defamation action.

There was no express malice on the part of Westpac. Westpac acted as it did by reason of the erroneous operation of its internal procedures.

The Financial Ombudsman Service has published an Operational Guideline discussing its prohibition on the pursuit of legal proceedings related to debt recovery instituted prior to the lodging of a dispute with FOS.

In FOS’s opinion, “upon receiving notification of the Dispute, the Financial Services Provider should have a process in place which ensures that no further steps are taken as soon as possible (with time being of the essence)….

As the critical date is the date of lodgement of the Dispute with FOS, any judgment obtained after that date must be set aside by the FSP at no cost to the Applicant. Within 14 days of the referral of the Dispute, the FSP must apply to set aside the judgment.”

We recently updated our fixed price products for credit unions and other mutuals. If you want more information ask us for a demonstration.

• Default notices: templates for every state for default notices for secured and unsecured loans and mortgage enforcement;
• Compliance services: Quick Call Answers, our phone enquiry service, Document templates, Webinars, Compliance assurance reviews, Compliance training;
• Langes Mortgage Service: national consumer credit mortgage processing;
• Wills days: wills preparation service for your members.

Contact a Langes+ partner in your state.

We will keep doing the free stuff including Australian Regulatory Compliance Review and National Consumer Credit Reform.

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The major provisions of the Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Act 2010 commence on 27 July 2010.

The Act expands APRA’s supervisory powers in amendments to the Banking Act and other Acts.

The Banking Amendment Regulations 2010 (No. 2) also make it clear that “a form of support that is entered into in the normal course of business is not to be considered external support” for the purpose of APRA giving directions including recapitalisation directions.

Examples of external support entered into in the normal course of business could include parent and shareholder support. Examples of support not entered into in the normal course of business could include arrangements such as industry support contracts certified under section 11CB of the Act, or support from the Government, such as the provision of a guarantee over an ADI’s obligations, an indemnity over risks on an ADI’s balance sheet, or an undertaking to provide capital support.

The US Senate has passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

To get an idea of the extent of the changes it’s worth reading Time’s report here and the Wall Street Journal’s report (including short video) here.

What is the prospect for further finance sector reform in Australia? High. We have received reports from the Ripoll Parliamentary Joint Committee on Corporations and Financial Services, the Henry Tax Review and the Cooper Super review and announced financial services changes are still to be implemented. There is still pressure for further banking regulation (see Stephen King here).

Under section 9 of the Corporations Act a person could be a director (commonly described as a shadow director) of a company “if the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes”.

Who is a director is important if a company is insolvent. The recent case of Buzzle Operations Pty Ltd (In Liquidation) v Apple Computer Australia Pty Ltd [2010] NSWSC 233 gives some useful guidance to lenders and others as to potential liability as a shadow director of a company.

Apple provided stock on credit to Buzzle secured by a company charge. When Buzzle went into liquidation its liquidator alleged insolvent trading by the Buzzle directors and also sued Apple and its finance director as shadow directors.

The NSW Supreme Court analysed the creation of the charge and payments made by Buzzle to Apple at certain key dates (were they uncommercial transactions? Did Apple suspect that Buzzle was insolvent?) and the relationship between Apple’s finance director and the company.

The court rejected the liquidator’s claims that the charge was void, the payments were preferences and Apple and its finance directors were shadow directors of Buzzle. In making that finding the trial judge observed:

• a company can be a shadow director, even though only individuals can be appointed as directors
• the liquidator had failed to show the directors acted in accordance with another person’s instructions
• it was not enough to show Apple imposed commercial terms on dealings or that directors felt obliged to comply with them
• in this case Apple’s prohibition on the sale of non-Apple products and its due diligence requirement were commercial terms only
• the making of loans did not make Apple a director.

The Financial Services Ombudsman has published a note (here) about what a financial institution needs to show to establish to FOS’s satisfaction that, on the balance of probabilities, it sent a document to a customer’s last known address.

Langes+ solicitor Joshua Annese has made these comments regarding proof of service default notices:
We usually suggest that clients have the person that serves the notice complete a proof of service form and attach it to a copy of the default notice that was sent. Having read through the FOS note it seems this would be perfect and provide FOS with all the information they need.

We have 10 template proof of service forms in our default notice product (1 for each state and territory and 1 for unsecured loans and 1 for goods mortgage secured loans [the goods mortgage secured and unsecured versions are the same as they have the same service requirements]). We do the same thing for default notices that we issue for clients and we have the process server complete the form.

We find that using a proof of service form provides sufficient proof and if Court proceedings follow, we have all the service information on the one document that we need for a proof of service affidavit. Also the proof of service forms contain the correct service information for that state or territory so it ensures the client complies with the state legislation service requirements and the NCC service requirements as well.

Recommendation 10.12 of the Super System Review Report is:
New Retirement Savings Accounts should not be allowed to be established after MySuper becomes effective and a mechanism should be considered for facilitating existing RSAs to be transferred to MySuper or other superannuation products.

The discussion is in Chapter 10 of Part 2 here:

“7.3.1 Retirement Savings Accounts
At 30 June 2008, there were approximately 120,000 Retirement Savings Accounts (RSAs) with $1.2B in assets, making up 0.32 per cent of assets in the retail sector.25 The asset base jumped dramatically to $6.2B by June 2009 due to the attraction of their capital guaranteed nature during the global financial crisis. Currently, there are ten institutions offering RSAs, most of which are credit unions.

RSAs have generally not been a success because they are a capital guaranteed product and there is currently no scope in the RSA framework for adding a market‐linked investment where the risk of loss is borne by the holder. RSAs are thus suitable only for individuals with an extremely low risk tolerance, and are essentially unsuitable for much of the accumulation phase of retirement saving.

The interest rate spreads used as a measure of the implicit fee in an RSA as the explicit account keeping fee is usually very low (typically between $0 and $30 a year). Implicit fees for balances less
than $5,000 are, on average, 1.2 per cent and generally fall as the account balance increases.

Rice Warner estimates RSA expense charges for the year to 30 June 2008 to be 2.3 per cent of assets.

Of this, 0.60 per cent is attributable to administration and 1.7 per cent to investment management.

Rice Warner explains the relatively high costs as a reflection of the low average account balances of RSAs.

The Panel considers that there has been little market demand for this product and they seem not to meet the low‐cost objective for which they were originally intended. As such, the Panel believes the
RSA product should be phased out and no new RSA should be established once MySuper products are available.”