Speaking at the initial public hearing in Melbourne on Monday (12 February), commissioner Kenneth Hayne AC QC warned that a confidentiality and non-disparagement agreement will not act as “a reasonable excuse” for witnesses not to answer a question, adding that those giving evidence or producing a document under a notice or summons will be protected from litigation and injury.
Justice Hayne said: “There has been some recent public discussion about the effects on the work of the commission of contractual provisions about confidentiality. It is said that many arrangements made to settle disputes with participants in the financial services industry have had confidentiality provisions and that, as a result, the consumer who made the settlement and signed the agreement may be reluctant to approach the commission.
“It’s also said that employment agreements, settlement agreements or severance agreements may contain non-disparagement terms. The commission’s terms of reference require me to consider matters relating to the governance and culture of the industry as well as the effectiveness of redress mechanisms.”
The commissioner highlighted that this royal commission, like every federal royal commission, has “extensive compulsory powers” and that confidentiality or non-disparagement clause in an agreement will “not act as a reasonable excuse against production in answer to a notice to produce or a summons”.
He said: “It would not be a reasonable excuse not to answer a question in a hearing. It seems to me to follow that answering a notice or summons would not amount to a breach of any confidentiality or non-disparagement clause.
“Further — and this is very important — under section 6M of the Royal Commissions Act, if a witness gives evidence or produces a document under a notice or summons, no injury can be done to that person.
“Suing the person would almost certainly fall within that prohibition.”
The commissioner went on to explain that in cases where a dispute had been settled on confidential terms, the most “immediate fact” for the commission will be that the dispute was settled, not the particular terms on which it was settled, and “the fact of the settlement of the dispute will not be within any confidentiality provision”.
Justice Hayne warned: “But whether or not that is so, any institution which sought any form of legal redress against a member of the public or a whistleblower seeking to volunteer information to the commission in anticipation of the possible exercise of the commission’s coercive powers would be taking a step which would very likely provoke two immediate consequences.
“First, the commission would be very likely indeed to exercise its compulsory powers to secure the information in question. Second, the very fact that an institution sought to inhibit or prevent the disclosure of the information would excite the closest attention not only to the lawfulness of that conduct by the institution, but also to what were the institution’s motives for seeking to prevent the commission having that information.”
The commissioner also told the initial hearing that not all aspects of the work will be released to the public.
He said: “Because a central task for the commission is to inquire, it is important to this investigative aspect of the work of the commission that, like any other investigating body, the commission decides when and to what extent it discloses information it has gathered and that it decides when and to what extent it discloses the particular courses of action that it proposes to take.
“Premature disclosure of those matters will not help the commission find out the truth. It would prejudice the effective performance of the commission’s task.”
The initial hearing in Melbourne also released further details on what can be expected in the first public hearing, which is scheduled for next month.
The initial hearing of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry will be looking at home lending.
The senior counsel assisting, Ms Rowena Orr QC, revealed: “[O]ne of the themes that has emerged from the public submissions through the commission website is inappropriate or unsuitable lending.
“The focus for the first round of hearings will be on consumer lending and practices. It is likely that this topic will be examined in the context of a number of credit products, such as home loans, car loans and credit cards.”
Highlighting that home loans account for $1.07 trillion of owner-occupier loans and around 5.8 million households had a home loan with a bank, the senior counsel assisting said that the stats “reveal the significance of home ownership for the economy, but they do not necessarily reveal the importance of home ownership for the average Australian for whom the purchase of a property is likely to be the most substantial and perhaps the most stressful financial transaction of their life”.
She continued: “The need for honesty and fairness in this context is paramount.
“The commission will hear evidence of events involving certain financial services entities in the context of home lending that suggest that consumers have not always enjoyed the right to be treated honestly and fairly when it comes to home loans.
“Some of these events may have involved breaches of the law, while others may have involved departures from community standards and expectations.”
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.