Love for Life

Lynton Freeman was a grazier, with a 10,000 hectare property out of Gladstone, Queensland. In 1992, Freeman borrowed $540,000 from the NAB on a property that the bank valued at $2m, consolidating debt previously owed to other lenders. Freeman had been improving the property for ten years and had recently managed a divorce settlement. Over the next few years he borrowed another $400,000 to finance improvements and herd expansion, especially breeders, all with the Bank’s support.

A long drought had him successfully gain a subsidy from the Queensland Rural Adjustment Authority annually from 1994 to 1996 (applicable to early 1997). To get this subsidy, the client has to undergo a review that satisfies the Authority that the client is long-term viable. Freeman passed this test. The program had a five year orientation.

In July 1996, Freeman’s NAB branch acquired a new manager, Mr. ‘Birch’. In his first credit report in August, Birch upped Freeman’s interest rate another .75% above the base rate and demanded that Freeman reduce his overdraft by $30,000 by November 1996, to claw back previous extensions of his overdraft limit.

Freeman pointed out that, if Birch would do the bank’s contribution to the annual review for the QRAA subsidy, the subsidy would reduce his overdraft for 1997 significantly below the reduction desired.

Birch’s October 1996 budget was cavalier on cattle sales, and didn’t include the potential subsidy, or the additional expected income from mining rights and timber sales. This inaccurate budget became the fulcrum for Freeman’s later treatment.

Freeman put together a QRAA application in early 1997 with assistance from a Department of Primary Industry consultant. There were delays with the bank signing and returning the application. The QRAA belatedly approved the subsidy (worth $54,550) in April, pending the bank’s formal review.

Birch then reported to superiors as if the QRAA approval had not taken place (NAB document D1-57, 10 June 1997). In essence, the bank demanded a reduction of debt by $30,000 and, at the same time, refused to accept $54,550 from the QRAA. Birch never completed the review and Freeman never received his subsidy. In a letter of July 1998 to Liz Cunningham, the State Member (Independent) for Gladstone, the bank denied knowledge of the favourable QRAA report.

Freeman’s accounts were moved to the Asset Structuring Unit in June 1997. In November his facilities were not renewed and he was forced into mediation.

Bank-farmer mediation was established with Queensland Farmer’s Federation assistance in 1996, with the presumption of enhancing the rights of the borrower. In practice, mediation has acted to enhance the substantial asymmetry of the bank-customer relationship.

Freeman’s four facilities were consolidated into one commercial accommodation bill. This amalgamation of accounts facilitated the bankruptcy process in due course. Freeman never received closing statements for these facilities. Freeman was instructed that he had until early April to refinance or suffer foreclosure. As no other institution will offer finance under these circumstances, the pain is merely prolonged.

There appears to have been internal differences in the bank hierarchy over Freeman’s treatment. In early March 1998 he was made a verbal offer by the Brisbane Asset Structuring Unit that the bank would accept repayment of half of the debt.

To satisfy this new arrangement, Freeman paid in $2205 as partial interest payment. However, Freeman was defaulted anyway. The $2205 was put into a suspense account and not credited to Freeman for another 36 days. The diversion of the payment facilitated demand, which was issued on April 20th.

The bank then devalued Freeman’s securities. In 1992 Freeman’s property had a market value in the NAB’s books of $2m. In 1996, it was down to $1.75m, but no documents have been discovered to explain the downgrading. Security schedule documents were not discovered by the bank during litigation, including schedules for Freeman’s stock. Freeman’s bank file documentation recorded the market value of his mixed herd of livestock at $578,000 as at 17 March 1995.

On 14 April 1998, market value was put at $1.4m., and another $600,000 arbitrarily knocked off for the ‘effects of mining involvement and Freeman’s possible effect on price’ (NAB document, D1-48). Market value of stock was not included. Freeman’s 1996 Statement of Position, accepted by the bank, estimated his net surplus at $2.067m. (D1-80, 9 May 1996). With receivership expenses, Freeman’s net worth had been reduced from an approximate $2m. surplus to a deficiency of $250,000 at several strokes of the pen.

The NAB took Freeman to the Queensland Supreme Court for possession of the property, gaining assent in October 2000 (QSC 295). The judgment relied upon a draconian caveat in the mediation deed that released the Bank from any claims against it to that date. Judge Ambrose inconsistently touched casually on Freeman’s claims, only to conclude that one could hardly countenance claims against ‘bank officers of their experience and holding the offices that they did’ (National Australia Bank v Freeman, 2000: par.94).

Freeman would not win prizes for social graces, antithetical to sympathy from an impatient loans officer or a status-conscious judiciary. But bank lending is not supposed to be determined on personality and refinement.

Freeman had made losses but was financing his interest bill and bank charges. His debt at worst was marginally outside ‘Category A’, the Bank’s own classification for low risk. If the QRAA subsidy had been received by the bank and reduced indebtedness as proposed, liabilities would have then attracted a ‘Category A’ classification. The Bank’s documents had recorded the property sound and Freeman competent, and the QRAA had judged him long-term viable.

The property, inaccurately advertised, was sold in May 2001 for $770,000 (net of selling costs).

Freeman appealed the Supreme Court judgment but the Court of Appeal rejected Freeman’s appeal in December 2001 (QCA 473). Judge White declined (as per the trial court proceedings) to consider Freeman’s substantive complaints. Affidavits incorporating relevant evidence were not admitted into the hearing.

The Bank filed for bankruptcy in January 2001, based on the spurious asset deficiency. The bankruptcy petition was granted on 12 March 2002 (FCA 244). The judgment is not particularly coherent. Judge Spender deliberated on whether to look behind the Supreme Court decision, citing precedents that legitimise this option, and then declined to take this route. The matter of the existence of a debt is integrally tied up with the nature of the valuation of the property and the sale by the receiver. The Judge cited precedents that the law treats the receiver as the agent of the mortgagor (the borrower), but declined to follow the logic of the argument to infer that the Bank had interfered with this agency.

The thrust of Freeman’s judicial experience is that, after myriad Court hearings, his complaints against the Bank have never been given a proper airing. The caveat in the Mediation deed facilitated this neglect, but possible avenues for examining the full nature of the relationship were not pursued by the presiding Judges.

Several days after the bankruptcy judgment, Freeman was pursued by the Queensland Stock Squad and arraigned in the Gladstone District Court with stealing cattle from his property. Freeman’s documentation proved that the relevant cattle were not encumbered to Bank mortgages, and a jury found in his favour.

Freeman’s application to annul his bankruptcy was recently heard in the Federal Court in Brisbane and dismissed. He is appealing that decision.