'Arbitrary' EDR power could cause 'rank injustice'

by Adam Smith22 Nov 2011

EDR schemes have been given arbitrary power under the NCCP, which could result in non-bank lenders being "scared away" from the market, it has been claimed.

Matthew Bransgrove of Bransgroves Lawyers, a firm specialising in mortgage law, has told Australian BrokerNews the power given to EDR schemes like COSL and FOS under the NCCP could "oust the jurisdiction of the courts from dealing with the enforcement of mortgages".

"This is a very strange and unusual state of affairs in the free world. The fundamental underpinning of a free society is the respect for and enforcement of the rights of property and the person through the law courts," Bransgrove said.

ASIC currently dictates that it is preferable for disputes to be brought to an EDR scheme rather than the courts. The watchdog's regulatory guide on EDR schemes states that court action could "undermine the EDR process". However, Bransgrove has claimed that EDR schemes themselves could undermine legal precedent. He pointed to FOS' terms of reference, which dictate that the scheme decide cases based upon "what in its opinion is fair in all the circumstances".

"Students of history will remember that wherever a person has been asked to determine property and personal rights based on what in their opinion is fair in all the circumstances, rank injustice has always followed," he said.

Bransgrove said FOS allows complainants to provide information and request that it not be made available to the party with whom they have a dispute. He commented that this stands in contrast to the court system, wherein all evidence is "available for scrutiny and rebuttal".

"This smacks of the old Star Chamber, where those facing punishment were not allowed to know what the evidence against them was," he said.

The result of EDR schemes taking precedence over legal proceedings, Bransgrove claimed, could be growing anxiety for lenders. Without the assurance that courts will uphold property rights, Bransgrove said lenders could find mortgage lending "a very uncertain thing to do". He predicted that many lenders could exit the market as a result.

"The credit markets will remain tight and perhaps even grow tighter if non-bank lenders are scared away by Australia preventing mortgage lenders to access the courts to uphold their property rights.
The most significant danger then of the NCCP, is not its eventual interpretation by the courts, but rather the ousting of the courts’ jurisdiction to hear mortgage matters at all," Bransgrove said.