B.2 Disputed factual background
69 As noted above, the parties dispute the extent to which risks associated with the programme actually eventuated and the relevance of this fact: SOAF [102], [172], [207].
70 The issue of risk was canvased extensively in written submissions, though perhaps the lack of focus on it in oral submissions is indicative of its secondary nature to any penalty determination. That it is unlikely to affect the penalty was recognised by ASIC in its written submissions (at [100]), and was noted by NAB in its submissions (at [55]). This is because, for the purposes of this proceeding, customer harm only relevantly manifests in the form of exposure to a risk of harm as a result of the contraventions. Now, ASIC accepts that there is in fact no evidence before me about actual harm to Borrowers, though Senior Counsel urged that this was "only [part] of the picture" (T30). While proof of harm would likely have been an aggravating factor in determining the penalty imposed, it is not essential to establishing a contravention of s 31. To the extent that ASIC seeks to establish "manifestations" of these risks, this too is beyond the case ASIC actually ran.
71 Specifically, ASIC alleges (at [9] of its Concise Statement) that the contravening conduct "exposed the customers and NAB to the risks of wrongful conduct by the introducer, including possible fraud. It also exposed customers to a risk that loans would be advanced to them that were unsuitable" (emphasis added). I shall refer to these risks respectfully as "the wrongful conduct risk" and the "unsuitable loan risk". It is the assessment of whether NAB's conduct resulted in these risks arising that is of some relevance.
72 NAB accepted in its written submissions (at [47], [51]) that the Admitted Contraventions did give rise to certain risks (SOAF [100]-[101]), being the risks that: (a) NAB Bankers would, contrary to NAB policy, rely on information provided by the Introducer rather than dealing directly with the Borrower, without making their own inquiries about the Borrower's requirements and objectives in relation to the loan and without taking reasonable steps to assess the veracity of information and documents regarding the Borrower's financial situation put forward in support of loan applications to determine whether loans were unsuitable for that Borrower; and (b) that loans would therefore be made based on incorrect or fraudulent information.
73 NAB also accepts (at SOAF [50], [103], [106], [170]-[171], [205]-[207] and submissions at [51]) that there were:
(a) increases in risk and:
i. that in relation to 202 of the contraventions there was an increase in the risk of Borrowers being exposed to wrongful conduct or fraud because it is possible that Introducers were responsible for causing or encouraging the use of fraudulent documents (thought there is said to be no evidence of this in the cases the subject of this proceeding); if this did occur, it is "possible" the Introducer was incentivised to do so by the prospect of an Introducer fee;
ii. that its reward structure had inadequate controls in respect of the programme that made it more difficult for NAB to prevent and detect fraud from loan applications originating through the programme which may have increased the risk or incidence of unsuitable loans made based on fraudulent or unverified information; and
iii. the control breakdowns that occurred in relation to the programme increased the risk of loans being provided to Borrowers that were unsuitable, the provision of false documentation to support loan applications and the use of incorrect figures in loan serviceability assessments;
(b) manifestations of risk and:
i. insofar as Bankers received some documents from, or sent some documents to, Introducers in circumstances where they might otherwise have received those documents from, or sent them to, Borrowers directly, the relevant Banker did not deal directly with the Borrower in respect of the communication of those documents;
ii. that it is possible that, across the 260 contraventions, there were some instances where the Banker, contrary to policy, in fact relied on unverified information and failed to make direct contact with the customer or Borrower;
iii. the conduct in relation to 202 of the contraventions involved an Introducer providing one or more income verification documents to a Banker in support of a loan application, including payslips and rental appraisals and in these cases the Borrowers were exposed to the risk of wrongful conduct or fraud by the Introducer because payslips and rental appraisals are types of documents that can readily be falsified; and
iv. in the three cases where fraudulent payslips were presented, Borrowers were exposed to the possibility that the loans they sought would be unsuitable for them, in which case they might face difficulties in servicing the loans and therefore financial hardship.
74 I have been asked by ASIC to draw a number of inferences which are said to arise from NAB's admissions. But as one approaches the task urged by ASIC, difficulties arise.
75 First, I wish to clarify the language used to describe the admitted risk exposure by NAB. NAB does not admit that the contravening conduct gave rise to risks that Borrowers were exposed to "wrongful conduct" risk generally; rather, it accepts this only in respect of certain types of risks and the increase or manifestation thereof. I have summarised these above. The admissions therefore relate to exposure to types of wrongful conduct risk, but not all wrongful conduct risks. The inferences ASIC seeks that I draw relate to "manifestations" of types of wrongful conduct risk not otherwise admitted to, being: (a) that at least on occasion, Bankers did not deal directly with customers in relation to the content of the documents exchanged with Introducers; and (b) that Bankers at least on occasion did not make their own independent inquiries, or take reasonable steps to verify information provided by Introducers. ASIC also says that this Court should find that the risk of Bankers not dealing directly with customers, for instance by face-to-face meetings, manifested in relation to some loans. As to the unsuitable loan risk, NAB accepts that the control breakdowns that occurred in relation to the programme increased the risk of loans being provided to Borrowers that were unsuitable for them, the risk that false documentation would be provided to support loan applications and the risk that incorrect figures would be used in loan serviceability assessments: SOAF [206]. This risk came home on three occasions. As a matter of logic, if the veracity of the information used to advance the loan cannot be assured, neither can the suitability of the resulting loan. This has the necessary consequence that Borrowers were exposed to the risk that loans would be advanced to them that were unsuitable. Therefore, and although NAB did not admit this directly, the admissions it did make nevertheless made out the unsuitable loan risk alleged. By reason of the contravening conduct, borrowers were exposed to the unsuitable loan risk.
76 The inferences that ASIC asks the Court to draw primarily relate to the wrongful conduct risk.
77 An inference is a tentative or final assent to the existence of a fact which the drawer of the inference bases on the existence of some other fact or facts. The quality of the facts established affect the inference which may be drawn; "[n]o greater cogency can be attributed to an inference based upon particular facts than the cogency that can be attributed to each of those facts": Chamberlain v The Queen (No 2) (1984) 153 CLR 521 (at 599 per Brennan J), cited in Shepherd v The Queen (1990) 170 CLR 573 (at 583 per Dawson J). The inferences to be drawn must be established on the balance of probabilities: Evidence Act 1995 (Cth) s 140.
78 The strength of the evidence necessary to establish a fact or facts on the balance of probabilities or the "degree of satisfaction that is required in determining that that standard has been discharged" varies according to the considerations listed in s 140(2) of the Evidence Act 1995 (Cth): see Qantas Airways Ltd v Gama [2008] FCAFC 69; (2008) 167 FCR 537 (at 571 [110] per French and Jacobson JJ); see also Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007) 162 FCR 466 (at 480 [30] per Weinberg, Bennett and Rares JJ). Here, the inferences sought are not determinative of liability, and in all the circumstances, are unlikely to have any or any meaningful impact on penalty. However, the alleged contraventions are civil penalty provisions and hence are serious: see Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (No 3) [2002] FCA 1294; [2002] ATPR 41-901 (at 45,414 [53] per Goldberg J).
79 NAB admits (at SOAF [103]) that Bankers "did not deal directly with the Borrower in respect of the communication of those documents" (emphasis added). ASIC seeks that the Court draw an inference that the Banker also did not deal directly with customers in relation to the content of the documents exchanged with Introducers. However, the fact that there was not direct communication about a document does not lead me to conclude that there was also no direct later communication about the document's content. It seems entirely possible that in any particular case, the document's content may have been dealt with by other means, for example, by way of telephone conversation not recorded in Schedule A. Given the way ASIC has run its case, despite suspicions I may have that the inference could be proved in a large number of cases, suspicion is not proof and it would be speculation to conclude that a Banker did not deal directly with customers in relation to the content of the documents exchanged with Introducers.
80 Similarly, ASIC seeks that the Court infer that NAB Bankers "did not make their own independent inquiries, or take reasonable steps to verify information provided by Introducers". Again, I have not been provided with anything like a complete picture of the independent inquiries made by Bankers, or any particular banker. No Bankers or Introducers were called to give evidence and what I have before me are tables summarising the various loans, relevant parties and associated emails and attachments. There are around 4,309 documents which appear to be referenced in Schedules A, B and C. I have been referred to some of them briefly in Counsels' submissions. From these, I cannot say, in any particular case, that on the balance of probabilities, I have a state of reasonable satisfaction that independent inquiries were not made whether by telephone or other means not recorded in these documents. I am also asked to draw this inference regarding reasonable steps not taken. What were the reasonable steps required to be taken? If it is face-to-face meetings with each Borrower, ASIC's regulatory guidance during the Relevant Period included that a licensee can meet responsible lending obligations "using an online or face-to-face approach". Proof that there was no face-to-face meeting cannot, in and of itself, establish unreasonableness.
81 As in AMP Financial Planning Ltd (No 2), given ASIC's forensic decision to eschew adducing any direct evidence as to these matters, I am left looking through a glass darkly (at 81 [88]). Further, I also cannot say whether the involvement of the Introducer affected the integrity of the loan application and assessment process, or if the contravening conduct did or did not result in any actual unsuitable lending including whether any customers have suffered actual loss or damage. It may very well have done. I simply do not know.
82 Properly analysed, the inferences which ASIC seeks the Court to draw would not really have been about the consequences of the contravening conduct (in terms of customer harm) but would be evidence concerning separate alleged wrongdoing by the Bankers. This is not a case where it is alleged that any Banker, or NAB, breached the responsible lending requirements in the Act. NAB should not have to meet such a case by a side-wind. The decision by the regulator to run such a case on an opaque evidentiary foundation has deprived me (to use the words of Sir Owen Dixon) of the opportunity of feeling an actual persuasion of the absence of the relevant communications (Briginshaw v Briginshaw (1938) 60 CLR 336 at 361) or, to put it another way, has prevented me forming a state of "reasonable satisfaction" on the preponderance of probabilities such as to sustain the relevant issue as ASIC submits: Axon v Axon (1937) 59 CLR 395 (at 403).