Westpac claims ‘wagyu and shiraz’ win over ASIC

A Federal Court appeal against Westpac’s win in the so-called ‘wagyu and shiraz’ case has been dismissed, handing the bank another legal victory.

Justice Perram said borrowers could cut back on their consumption of wagyu and shiraz.

A Federal Court appeal by corporate regulator ASIC against Westpac’s win in the so-called “wagyu and shiraz” responsible lending case has been dismissed, handing the bank another legal victory.

But the dismissal of the appeal with costs on Friday, did not come without controversy given a split between the three appeal judges.

Justice John Middleton said his view was to allow the appeal “in part”, but the other two judges, Jacqueline Gleeson and Michael Lee, concluded it should be dismissed. The Australian Securities and Investments Commission was ordered to pay Westpac’s costs.

The case has taken a number of twists with ASIC in September lodging an appeal to the so-called “wagyu and Shiraz” decision, in which Federal Court Justice Nye Perram disagreed with a claim Westpac breached responsible lending practices when assessing customer applications.

ASIC commissioner Sean Hughes on Friday said the regulator acknowledged the judgement and “will review each of the separate decisions carefully – including what additional measures or clarification may be required to support compliance with the Credit Act”.

ASIC said it had taken on the case against Westpac to provide clarification around the legal obligation on lenders to ensure customers are sufficiently able to repay loans.

But Justice Gleeson said the language in the relevant legislation did “not support the degree of prescription contended for by ASIC” in the case.

“I do not consider that the primary judge erred in concluding that Westpac asked and answered the s 131(2)(a) questions and, accordingly, the primary judge was correct to conclude that ASIC’s case failed,” she added in her rationale for the appeal judgment.

The matter ended up in a battle after the Federal Court overturned what was originally a $35m settlement between ASIC and Westpac over the alleged breaches of responsible lending laws, given there were outstanding points of difference.

In August last year, Justice Perram handed Westpac a win by dismissing ASIC’s interpretation of the responsible lending provisions — which require lenders to only write loans to customers after undertaking a thorough assessment of their ability to service the debt — as incorrect. He said requiring banks to comb over expenses in detail left out the fact it was “always possible that some of the living expenses might be foregone by the consumer in order to meet the repayments.

“I may eat Wagyu beef everyday washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare,” he said.

Justice Lee supported that view on Friday.

“It is plain that a consumer may choose to, and can be expected to, forgo particular living expenses in order to meet their financial obligations under a credit contract,” he said.

“There is no textual requirement (in the legislation) specifying how the (loan) assessment is to be undertaken, and indeed ASIC accepted that ‘it remains open to a licensee to choose how it conducts the assessment required’.”

The case centred on how Westpac conducted the assessment of a borrower, including the use of a benchmark household expenditure measure and ratio of declared expenses compared to a consumer’s income.

The ASIC appeal was being watched closely by other banks and lenders, following extreme confusion last year about how the responsible lending rules should be implemented.

ANZ admitted it had taken too strict an interpretation of responsible lending, leading to a marked drop in its home loan volumes.

The law says lenders should make “reasonable inquiries” about a borrowers finances in granting them credit.

In its appeal, ASIC was arguing that Justice Perram should have found that Westpac would not have been able to comply with laws to refrain from selling loans to consumers who would endure ”substantial hardship” when repaying their mortgage.

In the original case, ASIC alleged that Westpac breached responsible lending laws when assessing almost 261,987 home loan applications between December 2011 and March 2015.

Westpac countered that by arguing that nothing in the governing legislation or regulation dictated that a loan suitability assessment had to be conducted in a prescriptive manner.

In 2018, Westpac had another win against ASIC over allegations it manipulated the bank bill swap rate. While its major rivals settled their respective cases, Westpac fought the action and ended up being ordered to pay a much lower penalty of $3.3m.

The bank is still fighting the regulator, though, on another matter involving financial advice laws, with Westpac appealing an unfavourable ruling to the High Court.