Banking royal commission: NAB admits it had no right to customer’s house

NAB was forced to concede it had no lawful entitlement to seize the proceeds from selling a customer’s home to repay his debts.

NAB executive Ross McNaughton leaves the royal commission. Picture: David Geraghty

NAB’s bold strategy of aggressively cross-examining a small business customer was left in ruins at the financial services royal commission yesterday when the bank was forced to concede it had no lawful entitlement to seize the proceeds from selling his home to repay his business debts.

In a first for the commission, NAB’s counsel, Wendy Harris QC, grilled borrower Ross Dillon for more than two hours over Wednesday afternoon and yesterday morning, seeking to cast doubt on his evidence about the conduct of the bank.

However, evidence from its own witness, NAB executive Ross McNaughton, torpedoed the effort when he admitted he had only recently discovered the bank had no right to Mr Dillon’s house under the business loan.

The spectacular collapse of the bank’s argument makes it less likely that other companies will follow suit, with most bank lawyers up until now choosing not to cross-examine customers.

Mr Dillon, a director of musical instrument importing business National Music, became frustrated during Ms Harris’s heavy questioning but stood by his evidence that he never planned to use all the proceeds of his house sale to pay down debt.

He emphasised that as he and his wife sold their family home, Goanna Downs, they planned to inject some cash into their business and also spend part of the money on buying a smaller house.

Their business was affected by a slowdown in discretionary spending during the global financial crisis.

But Mr Dillon was surprised and angry when his business banker let him know that NAB would be taking all the family home sale proceeds to reduce his credit facilities with the bank.

This meant he did not have enough money left from the sale to buy another home that they could use as security for the loan, which meant he felt he did not have an option to switch banks, he told the commission.

Mr McNaughton, NAB’s general manager of strategic business services, admitted that the bank had no lawful entitlement to insist on the full proceeds of Goanna Downs being used to pay down the debts of National Music.

Mr McNaughton only discovered this while preparing for the commission.

The Goanna Downs property supported the guarantee that Mr Dillon had given, but it did not directly secure the debts, Mr McNaughton agreed.

NAB did not hold security over the property in respect of National Music’s borrowings. Instead, if the business went into default, and the business needed to repay up to $2.085m, then only in that case would the couple have a liability that they had offered their home as security for.

Under questioning from senior counsel assisting the commission, Michael Hodge QC, Mr McNaughton agreed that he removed from his statement to the commission a positive assertion that NAB was entitled to require the proceeds of the sale.

Mr Hodge asked why the bank executive didn’t explain in his statement that NAB didn’t have a lawful entitlement to require the proceeds to be used to discharge National Music’s debts.

“I didn’t feel I had to because I had corrected my statement,” Mr McNaughton said.

Mr Dillon had given evidence that he felt he had to do what the bank was asking him.

Mr Hodge asked if NAB told its customer that the bank required all the funds from the house sale to be paid to the bank.

This was only a “proposal”, Mr McNaughton said.

Mr McNaughton did not think it was relevant to NAB’s “proposal” that the bank did not have a lawful entitlement to require the money.

Mr McNaughton said the “communication could be better” in Mr Dillon’s situation, but he “wouldn’t say it was poor” and he did not think the communication was unfair.