On wagyu beef and shiraz and judgments

The Guardian published an interesting piece today in which the ACCC’s chairman, Rod Sims, advocated for a prohibition on unfair conduct to replace the present prohibition on unconscionable conduct. I have half-written a piece in which I think about the implications that such a change might bring about. I will publish that later this week. In the meantime I want to take issue with (rant about really) the opening paragraphs of the Guardian’s article.

Here is that opening:

When a judge says a bank’s borrowers could afford its loans if they cut down on Wagyu beef and fine shiraz, the accusation that the judiciary is out of touch is not a hard one to make.

That was the case last month, when the federal court judge Nye Perram threw out a case brought by the Australian Securities and Investments Commission alleging irresponsible home lending by Westpac.

If that, in fact, was what Perram J said in Australian Securities and Investments Commission v Westpac Banking Corporation (Liability Trial) [2019] FCA 1244, I don’t think there would be any question that, at least that one judge, was out of touch. However, that completely misreads his Honour’s comments. But it is not a rare misreading.

What Perram J was saying was that simply asking the amount of a consumer’s living expenses does not show what portion of those expenses the consumer is able to forego to repay their loan. That is, simply finding out that someone spends $500 per week on food does not reveal whether that is what they spend on staples or whether it is what they spend on luxury items, such as wagyu beef and shiraz. The former, the consumer would not be able to cut or, if they did, would experience hardship in so doing, to be able to make loan repayments. In the case of the wagyu and shiraz consumer, they could conceivably eat a cheaper cut of meat (or go vegetarian) and drink water without it being seen as an undue hardship.

What Perram J was addressing was ASIC’s argument that knowing a consumer’s basic living expenses, of which the consumer’s spending on food is a part, was necessary to answer the question in s131(2)(a) of the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act), which provides that a credit contract will be unsuitable if it is likely the consumer would not be able to comply with the consumer’s obligations under the contract or could only do so with substantial hardship.

As Perram J went on to say after his, now infamous, comments:

Without additional information, I do not consider that it is possible to accept that the consumer’s declared living expenses tell one anything about their capacity to meet the repayments under the loan. I do accept that with additional information, it may be possible to do so.

It is possible to take issue with Perram J’s conclusion. For example, there is an argument that to know whether a consumer is likely to be able to meet their obligations under the contract, a bank should be required to ask for more specific information about spending than to not be obliged to ask at all. Instead, critics have gone for the easy, populist, wrong shot.

Of more concern than the media’s misreading of Perram J’s judgment is that it seems to be based on the CALC’s advocacy. Its director, Gerard Brody is quoted in this earlier piece as saying:

To suggest that borrowers ditch wagyu steaks and shiraz for cheaper food really is out of touch with the realities faced by most Australians.

Again, if his Honour was saying that, it would be outrageous. But he did not say that.

We will wait to see if Perram J’s reading of the NCCP Act stands. Unfortunately, the reporting of it seems to have stuck.