Australian Finance Direct Ltd v Director of Consumer Affairs Victoria

SUPREME COURT OF VICTORIA
COURT OF APPEAL

No. 7569 of 2004

AUSTRALIAN FINANCE DIRECT LIMITED
	Appellant
(Cross-Respondent)
v.
DIRECTOR OF CONSUMER AFFAIRS VICTORIA	Respondent (Cross-Appellant)

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JUDGES:	MAXWELL, P., ASHLEY and NEAVE, JJ.A.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	19 April 2006
DATE OF JUDGMENT:	20 November 2006
MEDIUM NEUTRAL CITATION:	[2006] VSCA 245	1^ST Revision, 29 November 2006

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CONSUMER CREDIT – Loan contracts regulated under the Consumer Credit (Victoria) Code – Loans to consumers for payment of fees for investment seminars – Arrangement for credit provider to retain for itself portion of loan moneys otherwise payable to seminar provider – Whether contractual arrangement – Whether retention required to be disclosed to borrower as payment of “credit” – Whether retention amount constituted interest - Whether breach of Consumer Credit Code - Consumer Credit (Victoria) Code ss15 & 16(B), (C), (D) & (E).

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APPEARANCES:	Counsel	Solicitors
For the Appellant (Cross-Respondent)	Mr A.C. Archibald, Q.C. with Mr D.G. Robertson	Dibbs Abbott Stillman
For the Respondent (Cross-Appellant)	Mr D.J. O’Callaghan, S.C. with Mr J.A. Redwood	Solicitor for Consumer Affairs Victoria

MAXWELL P:

The appellant (“AFD”) is a credit provider. AFD entered credit contracts with individuals who wished to borrow money in order to pay the enrolment fees for a type of investment seminar. A standard form of credit contract was used for this purpose. This appeal concerns the application to this particular credit contract of the disclosure requirements of the Consumer Credit (Victoria) Code.

In the substantive proceeding before the Victorian Civil and Administrative Tribunal (“VCAT”), the respondent (“the Director”) applied under s.101 of the Code for a declaration that AFD had breached ss.15(B), (C), (D) and (E) of the Code. The Tribunal made a declaration in those terms.[1]
[1]Director of Consumer Affairs v Australian Finance Direct Ltd [2004] VCAT 1515.

On appeal to the Supreme Court (by leave) pursuant to s.148(1) of the VCAT Act, the Tribunal’s finding was upheld in relation to s.15(B) but not otherwise.[2] AFD appeals from the Judge’s decision upholding the Tribunal’s finding that there was a breach of s.15(B). The Director cross-appeals from the Judge’s decision that, contrary to the Tribunal’s view, there was no breach of ss.15(C), (D) or (E).
[2]Australian Finance Direct Ltd v Director of Consumer Affairs [2004] VSC 526.

Under s.148(1), an appeal lies from VCAT on a question of law only. AFD does not challenge the Tribunal’s findings of fact. Rather, AFD contends that the Tribunal made errors of law in determining the legal character of the arrangements in question, and in its conclusion that s.15(B) did apply to the arrangements so as to require additional disclosure by AFD.

In my opinion, those are issues of law which are properly raised on an appeal such as this. In what follows, I proceed on the basis of the facts as found by the Tribunal.

Borrowing to pay the seminar fee

The typical dealing involved three participants, as follows:

·the supplier of investment seminar services (N);
·the consumer or customer who wished to attend such a seminar (C); and
·the credit provider (A).

The facts of the typical case are straightforward. C wished to attend one of N’s seminars. C entered an agreement with N (constituted by the seminar enrolment form) under which C promised to pay the fee in return for N’s promise to provide the seminar. (This will be referred to as “the seminar contract”).

C was offered a number of alternative methods of paying the seminar fee, including cash, cheque, credit card and loan. C decided to borrow the amount of the seminar fee. At the same time as C signed the seminar enrolment form, he/she also signed a loan application form addressed to A. Acceptance by A created a loan agreement between A and C, under which A agreed to lend to C the amount of the seminar fee. The agreement specified the interest rate (if any), the term of the loan, and the number and amount of the repayments which C undertook to make. (This is referred to as “the credit contract”).

Ordinarily, in circumstances such as these, a credit provider would pay to the supplier the full price of the goods or services acquired by the consumer. (In the present case, that would have meant A paying N the full amount of the seminar fee.) By this means, the customer’s debt to the supplier would be discharged. The customer would instead be indebted to the credit provider.

The distinctive feature of the dealings in the present case is that A did not pay N the full amount of the seminar fee. A retained a proportion of the fee for itself. This was known as a “holdback”. The holdback was retained by A in accordance with “an arrangement or understanding” which the Tribunal found existed between A and N. The function of the holdback was to enable A to lend on more favourable terms (that is, at a lower rate of interest) than it would otherwise have been prepared to lend and, in some cases, to lend to customers who did not meet the normal credit criteria and would otherwise not have been able to borrow at all.

There were two types of holdback. The first was an “interest free holdback” or “standard holdback”. In these cases, the arrangement between A and N was that the loan made by N to C would either be interest free or at a lower rate of interest than that which would ordinarily be charged by A to a borrower. The second was a “high risk holdback”, which was retained in addition to the standard holdback. In these cases, the arrangement between A and N was that the loan application would be approved even though the loan application would ordinarily have been declined by A because of the higher than usual risk of default. The function of the high risk holdback was to compensate A for the higher risk of default.[3]
[3][2004] VCAT 1515 at [60].

The standard holdback was typically 10% of the loan amount; the high risk holdback was typically 40% of the loan amount. The holdback was credited by A to an unearned income account and, each month during the term of the loan, a pro rata amount was debited to A’s unearned income account and credited to A’s income account.

C was unaware of the holdback. The credit contract itself did not disclose that A was retaining a proportion of the loan funds. This gives rise to the first issue under the Code, namely, whether the failure to disclose the holdback contravened the requirement in s.15(B) of the Code, that the credit contract must specify the amount of credit to be provided and –

“the persons... to whom it is to be paid and the amounts payable to each of them”.

Section 15 is headed “Matters that must be in contract document”. It relevantly provides –

“The contract document must contain the following matters –
...(B)    Amount of credit.
(a)       If the amount of credit to be provided is ascertainable –
(i)       that amount; and
(ii)the persons, bodies or agents, (including the credit provider) to whom it is to be paid and the amounts payable to each of them, but only if the person, body or agent and the amount is ascertainable...

(C)Annual percentage rate or rates
(a)The annual percentage rate or rates under the contract...

(D)Calculation of interest charges
The method of calculation of the interest charges payable under the contract and the frequency with which interest charges are to be debited under the contract.
(E)Total amount of interest charges payable
The total amount of interest charges payable under the contract, if ascertainable, (but only if the contract would, on the assumptions under sections 158 and 160, be paid out within 7 years of the date on which credit is first provided under the contract)”.

To whom was the loan payable?

On these facts, a question of law arises as to the true character of the arrangements between the participants.[4] Even if this is not in truth a separate question of law, characterisation of the arrangements is a necessary part of addressing the question of law as to whether s.15B applies.[5]
[4]See, for example, Coshott v Shipton Lodge Cobbity Pty Ltd [2004] NSWSC 353 at [14] per Simpson J; Dagi v BHP Minerals (unreported, Supreme Court of Victoria, Harper J, 8 November 1994).
[5]Vetter v Lake Macquarie City Council (2001) 202 CLR 439 at 450 [24]-[25] per Gleeson CJ, Gummow and Callinan JJ.

In my opinion, the arrangements between N, C and A are to be characterised as follows:

16.1 Under the seminar contract, N was entitled as against C to full payment of the seminar fee.

16.2 Under the credit contract, C was entitled as against A to have the seminar fee paid to N in full. (The whole purpose of the credit contract from C’s point of view was to discharge in full C’s fee debt to N).

16.3 Due performance of the seminar contract and the credit contract would result in N receiving payment of the full seminar fee from A.

16.4 The seminar fee was N’s to dispose of as it chose.

16.5 The retention by A of a percentage of the seminar fee was done with the concurrence of N. It could not have been done otherwise.

16.6 In summary, the holdback arrangement involved N allowing A to retain part of the seminar fee which was owing and payable to N.

In the course of argument, each of these propositions was assented to by senior counsel for the Director. Specifically, it was conceded that no other view of the evidence was open but that N concurred in the retention by A of the holdback amount. The learned trial judge described that matter as “clear and ... beyond dispute.”[6]
[6][2004] VSC 526 at [55].

Once the true character of the dealings is thus exposed, it can be seen that the holdback is equivalent to a payment to A at the direction of N. More accurately, it is equivalent to a payment by A (in its capacity as lender) to A (in its own right) at N’s direction. As Ashley JA pointed out in argument, N might have directed A to pay some proportion of the seminar fee to one or more of N’s trade creditors. In compliance with that direction, A would have paid that part of the loan amount not to N but to the nominated trade creditor(s). This would be an example of funds owing, and payable, to N being diverted to a third party at N’s direction. (The concept of moneys dealt with at the direction of the person entitled is, of course, a feature of the calculation of assessable income in income tax law.[7])
[7]Income Tax Assessment Act 1936 s.19(1); Income Tax Assessment Act 1997 s.6-5(4).

What the holdback mechanism achieved could equally have been achieved by two separate payments, that is, by A paying to N the full amount of the seminar fee, and N then paying to A the amount of the holdback. This more elaborate payment procedure would have made unambiguously clear that the full amount of the seminar fee was payable to N and that the amount of the holdback was disposed of by N to A. The use of the holdback mechanism simplified the transaction, by providing for the payment to A of a net amount. (This was described by A’s principal witness as “a matter of commercial convenience”). But the payment of a net amount does not – cannot - alter the true character of the transaction. In each case, N allows A to have for itself a portion of the moneys payable to N.

There was debate in the Tribunal as to whether the amount of the holdback was “retained” by N or “paid” to it. The Tribunal concluded that it was retained rather than paid.[8] Proposition 16.5 above accepts this characterisation although, with respect to the learned Deputy President, this seems to me to be a distinction without a difference. As I have explained, the mechanism of holdback (or retention) was simply a shortcut. It was equivalent to a payment from A to N and a smaller payment back from N to A. Once again, the critical matter is that the full amount of the seminar fee was payable to N. N alone had the power to decide whether any, and if so what, part of the seminar fee would in fact be received by some other person.
[8][2004] VCAT 1515 at [45], [46], [49], [59] and [63].

Nor, therefore, does it matter whether N was indebted to A for the retention amount. (AFD’s primary submission to the learned trial Judge was that the Tribunal had erred in concluding that the holdback was not a debt). All that matters is that a portion of N’s money was retained by A, with N’s concurrence. There being concurrence – and of course the retention could not have occurred otherwise – it seems to me also to be irrelevant whether the holdback arrangement was to be characterised as contractual or not.

As senior counsel for AFD pointed out, the learned trial Judge at one point used the language of collateral contract to describe the holdback arrangement. His Honour said:

“In the present case, the holdback allowed by NII/Capital to AFD was in consideration for the loan by AFD to the borrower, but it had an independent legal existence from the obligations in the credit contract. The holdback was not an obligation between AFD and the borrower; nor was the arrangement between AFD and NII/Capital provided for, or stipulated by, the loan contract between AFD and the borrower.”[9]

[9][2004] VSC 526 at [97].

This characterisation accurately reflects the nature and purpose of the arrangement, as disclosed by the evidence. The holdback arrangement was separate from and independent of the credit contract, though the two were closely related. Clearly, there was mutual commercial benefit to A and to N in the arrangement. By introducing its seminar customers to A, N provided A with a source of new loan business. By agreeing to A’s retention of part of the seminar fee, N increased the likelihood that prospective seminar customers would be able to obtain loan funds, and hence be able to pay the seminar fees. Doubtless, N took the view that it was better to receive 90% of a customer’s seminar fee (the fee less the holdback) than not to have that customer attend at all.

But the character of the holdback between A and N does not depend on whether the arrangement was contractual or not. What matters is that the seminar fee was N’s to dispose of and that N, for its own commercial reasons, elected to permit A to retain a portion of that fee. It is immaterial whether the permission to retain those funds was given voluntarily or in performance of some obligation.

“The persons... to whom it is to be paid”

In my opinion, s.15(B) of the Code did not require the credit contract to state that the amount of the holdback was “to be paid” to N. The Code is concerned with the content of the agreement between the lender and the borrower. What C requested A to do, and what A agreed to do, was to pay the seminar fee to N. As I have already said, that was C’s sole concern – to ensure that the fee debt to N was discharged in full.

Under the credit contract, the full amount of the seminar fee was payable to N. What N chose to do with the loan funds payable to it was not required by the Code to be disclosed. By contrast, the establishment fee (which was part of the total credit amount) was payable to A (beneficially) under the terms of the credit contract, and was properly identified in the contract.

When asked about Ashley JA’s example of a payment by A, at N’s direction, to N’s trade creditors, senior counsel for the Director conceded that the actual distribution of these funds was irrelevant and was not required to be disclosed. The concession was properly made. Plainly enough, the consumer/borrower has no need to know what the payee of the loan funds (in this case, N) proposes to do with them.

Counsel for the Director maintained, nevertheless, that because the retention amount stayed with the credit provider, itself a party to the credit contract, the retention amount was in a different category from a payment made by A to N’s trade creditors at N’s direction. The Director adopts the Tribunal’s conclusion, that the holdback arrangement was –

“... so fundamental in nature and so fundamental to the transaction as a whole (that is, the transaction which the debtor entered into), ... so intrinsically bound up with the debtor’s obligation to pay principal and interest under the credit contract, that [it] cannot be regarded as somehow apart from, or excluded from, the credit contract and the transaction which led to it.”[10]

[10][2004] VCAT 1515 at [74].

With respect, I cannot accept this submission. The retention of a proportion of the seminar fee by A is a transaction of exactly the same character as a payment by direction to N’s trade creditors. They are both expressions of the same indisputable truth, namely, that the entirety of the seminar fee was N’s to dispose of as it - and it alone - chose to do. In both cases, the arrangement between A and N as to the disbursement of the loan funds is wholly extraneous to the credit contract itself.

I accept, of course, that the holdback arrangement has a direct connection with the credit contract which a payment by direction to N’s trade creditors does not have. N allows A to retain the holdback precisely because A has agreed to enter into a credit contract with N’s customer, C. But the fact that there is this nexus, or association, between the credit contract and the holdback does not make the holdback arrangement part of the credit contract.

When the Code requires disclosure of sums payable pursuant to arrangements which are outside the credit contract, specific provision is made, independently of s.15B: see s.15(M) and s.15(N). Of particular relevance is s.15(M), which requires disclosure (with particulars) of any commission payable to the credit provider “for the introduction of... business financed by the contract.” If it had been intended to require disclosure of amounts of the character of the holdbacks – that is, amounts payable by N to A to mitigate A’s credit risk in lending to C – specific provision to that effect could readily have been made.

When asked what policy objective of the Code would be served by requiring disclosure to C of the holdback amount, senior counsel for the Director submitted that it was relevant information because it showed that N was “in fact prepared to admit people to the seminars for less than the full advertised fee”. This meant, so it was argued, that C – armed with that knowledge - could have bargained with N for a reduced seminar fee.

Even assuming that disclosure could have had that effect, the Code is not concerned with the transaction between the consumer and the supplier of goods or services – the primary transaction – which creates the need for credit. The Code is concerned with the credit transaction alone – the secondary transaction – and with ensuring that the borrower has all the relevant information about the terms of that transaction. As appears clearly from the Second Reading Speech of the Minister when the Code was introduced, the purpose of the Code is to ensure that the consumer is fully informed about the transaction between him/herself and the credit provider, in particular in relation to the pricing of the credit.[11]
[11]Victoria, Parliamentary Debates, Legislative Assembly, 4 May 1995, 1234 (Mrs Wade, Attorney-General).

In short, the requirement in s.15(B) that the credit contract identify –

“the persons... (including the credit provider) to whom it is to be paid and the amounts payable to each of them”

is fully satisfied in relation to these dealings by the disclosure that the full amount of the seminar fee is to be paid to N. That is, of course, what would actually happen if the two-way flow of funds referred to above took place. Had that method been adopted, there could have been no complaint about compliance with s.15(B). The holdback method is different in form but identical in substance. There being no difference in substance, there is no reason in logic or policy why the disclosure requirement should have any different application.

As senior counsel for AFD submitted, s.15(B) requires the contract to name the person(s) to whom the credit provider is required to pay the loan funds. The question is: what are the payment obligations of the credit provider under the credit contract? The answer to that question supplies the particulars required by s.15(B). It is that obligation, and the relevant payee(s), which must be disclosed, not the actual mode of disbursement of the funds. As the examples I have given show, the actual disbursement may involve only part – or none - of the loan moneys in fact being paid to the supplier.

The learned trial Judge concluded that to read s.15(B) in this way would be, in effect, to read s.15(B) as if the additional words “under the contract document” were inserted into the sub-section, twice, after the words “paid” and “payable” respectively. In his Honour’s view, that would constitute impermissible judicial legislation.

With respect to his Honour, I do not agree that this interpretation of s.15(B) requires any additional words to be read in. If it did, I would have rejected the interpretation, for precisely the reasons which his Honour gave. It seems to me to be plain on the face of s.15 as a whole that it is concerned with – and only with – the terms of the credit contract.

More particularly, s.15B requires the contract documents to disclose “the amount of credit” and –

“(ii)the persons... to whom it [ie. the amount of credit] is to be paid and the amounts [of credit] payable to each of them...”.

The definition of “credit” in s.4(1) is as follows:

“For the purposes of this Code, ‘credit’ is provided if under a contract –
(a)payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred; or
(b)one person (the debtor) incurs a deferred debt to another (the credit provider)”. (emphasis added)

In short, the provision of credit is defined for the purposes of the Code as provision under a contract. Thus, a “credit contract” is defined as “a contract under which credit is or may be provided”. In short, the reference in s.15B(a)(ii) to “the persons to whom [the amount of credit] is to be paid” must be a reference to amounts paid under the credit contract.

It is true that the words “under the contract” appear in ss.15(C), (D) and (E) but, given the context, I would attach no significance to their non-appearance in s.15(B). After all, the rule of construction here invoked – expressio unius est exclusio alterius - is to be applied with extreme caution.[12] It is “a maxim upon which... it is dangerous to rely”.[13] In any case, the Code is far from consistent in this regard. For example, s.4(2)(b)(i) uses the phrase “credit is... provided under the contract”, whereas s.6 contains numerous instances of the phrase “credit is provided” being used without the additional words “under the contract” – doubtless because it was thought unnecessary to keep repeating what the definition of “credit” makes clear.
[12]Pearce and Geddes, Statutory Interpretation in Australia, (5^th ed 2001) p 110.
[13]The Daniels Corporation International Pty Ltd v Australia Competition and Consumer Commissioner (2002) 213 CLR 543 at 560 [34] per Gleeson CJ, Gaudron, Gummow and Hayne JJ, cf. Financial Wisdom Ltd v Newman (2005) 12 VR 79 at 93 [32] per Nettle JA.

For the reasons I have given, the disclosure requirements of the Code are not – do not purport to be – concerned with arrangements which might exist between the creditor/supplier (N) and the credit provider (A) for the disbursement of the loan funds at the creditor’s direction.

A further reason for his Honour’s rejection of this interpretation was that it conflicted with the manifest purpose of the Code, being to ensure that there was “truth in lending”. With respect, I see no conflict between the interpretation I have adopted and that policy. Rather, the very phrase “truth in lending” reinforces the conclusion that the disclosure requirements relate to the lending transaction itself. The lender must truthfully inform the borrower about the terms of the borrowing. For the reasons I have given, the credit contract in the present case was perfectly truthful.

The holdbacks were not interest

Sections 15(C), (D) and (E) of the Code require the credit contract to state the annual percentage rate of interest, the method of calculation of the interest charges and the total amount of interest charges payable. The Director’s argument – indeed, his primary argument on the appeal – was that the amount of the holdback was interest and was always regarded by A as interest. On this submission, the amount of credit was reduced, and the amount of interest was increased, by the amount of the holdback.

In my opinion, this argument also fails. It follows from the analysis of the dealings set out earlier in this judgment that, as between C and A, the interest rate was as stated in the contract. The contract required A to pay the full amount of credit to N, and it required C to pay interest on that amount at the specified rate.

As the Tribunal found, the function of the holdback arrangement was to give A an amount additional to the interest payable by the borrower. This could properly be described as an “interest subsidy” or “interest supplement”. But it was not a cost of the borrowing from the borrower’s point of view. It was a cost to N, which decided to pay the interest supplement in order, as I have said, to facilitate A’s entering into loan arrangements with potential seminar customers.

Accordingly, there was no failure to comply with the requirements of the Code. The appeal succeeds and the cross-appeal must fail.

ASHLEY JA:

I have had the advantage of reading in draft the judgments of Maxwell, P and Neave, JA. I refer to aspects of those judgments hereafter. For the reasons which follow, I consider that both the appeal and the cross-appeal should be dismissed.

The Facts

I respectfully adopt the President’s outline of pertinent circumstances at [6]-[13], but with the following additions.

First, his Honour’s description of the sequence of events in the case of individual transactions[14] is to some extent an over-simplification. The circumstances as found by the Tribunal were more fully described by the learned judge below in this way:
[14]At [8].

“The following loan application procedure applied where the course fees were to be financed by AFD. When the NII or Capital customer signed the course or seminar enrolment form, the customer would also sign an AFD loan contract offer, a loan application and associated documentation. That documentation was then faxed to AFD, which assessed the application. If the loan was approved, AFD advised Capital or NII. NII or Capital would then forward the loan contract offer and a completed copy of the course enrolment form to AFD. If the loan proceeded to settlement AFD endorsed the loan contract as

accepted and settled the loan on that day. The loan moneys would be advanced directly to NII or Capital on the same day in the manner which I shall hereafter describe.”[15]

[15][2004] VSC 526, [5].

Second, I think that it is useful to expand upon the learned President’s statement[16] that the rate of standard holdback was typically 10% of the loan. That does not, I think, quite reveal the intimate relationship between the amount of a loan (which corresponded with the cost of the seminar purchased by the borrower), the quantum of holdback, and the rate of interest (if any) charged on the loan – by contrast with AFD’s then standard interest rate - in the more than 2,300 pertinent transactions. Those matters, as found by the Tribunal, were more fully discussed by the learned judge below. Thus –

“There were two types of holdback applicable to the relationship between AFD and NII/Capital. The first type of holdback was referred to as ‘an interest free holdback’. All NII contracts, and 16 of the 70 Capital contracts, had an ‘interest free’ holdback.
The amount of interest free holdback varied over time. Generally there was a correlation between the holdback as a percentage of the amount loaned on the one hand, and the standard interest rate charged by AFD. For much of the period concerned, AFD’s standard lending interest rate was 24%. In general the interest rate charged on loans advanced by AFD to NII customers, and the percentage of interest free holdback applicable to such loans, arithmetically added to approximately 24%. For NII contracts between February and June 2002, the loan term was 24 months, repayments of principal were expressed to be at no interest, and the interest free holdback was 18%. From June to October 2002 the applicable loan term was 48 months, repayments of principal were expressed to bear interest at 13.5%, and the interest free holdback was 10.5%. For contracts from October 2002 to February 2003, the applicable loan term was 48 months, the principal repayments were expressed to bear interest at 14%, and the interest free holdback was 10%. From February 2003 AFD charged an establishment fee of $345. For contracts entered into between February 2003 and November 2003 the applicable loan term was 48 months, the principal repayments were expressed to bear interest at 14%, and the interest free holdback was 6.75%.
There were two kinds of Capital contracts in respect of which there was an interest free holdback from April 2003 to November 2003. The first was expressed to be interest free, with an interest free holdback of 5%. The second bore an interest rate of 14%, with an interest free holdback of 10%.”[17]

[16]At [12].

[17][2004] VSC 526, [8]–[10].

Third, as appears from the passage in the judgment below which I have just cited, it is not the situation that holdback was retained in the case of every borrower who was introduced to AFD by one of the Capital companies. Indeed, despite Introducer Accreditation Agreements made between AFD and Capital Holdings (NSW) Pty. Ltd. dated 1 April 2003 and 14 August 2003, each of which contained so-called pricing parameters that referred to holdback, holdback was only retained by AFD in a small number of Capital cases.

Fourth, each of the various versions of the loan offer signed by the borrowers (which, once accepted by AFD, was one of two documents constituting the contract between AFD and the borrower) made provision for insertion of the amount of the loan, and to whom the amount of the loan as to be paid. In every instance, when such document was completed, the amount of the loan corresponded with the cost of the investment seminar; and the amount of the loan was said to be payable to NII/Capital – that is, regardless whether holdback was to be retained, and regardless whether any such holdback was of the standard or standard plus non-standard variety.

The “arrangement” by which AFD retained holdback. AFD’s case from time to time

AFD contended, before the Tribunal, that on the evidence the Tribunal should find –

“… that under a separate agreement or arrangement independent from the credit contract, the introducer (NII or Capital) agreed to pay the holdbacks to AFD. On loan settlement day, according to AFD’s submission, what happened was that AFD offset its liability to pay NII or Capital the amount specified under the supplier’s name in the credit contract, against NII’s or Capital’s liability to pay the holdback to AFD. AFD paid the net balance resulting from this set off process to NII or Capital.”[18]

[18][2004] VCAT 1515, [44].

The references to “liability” and “set-off” (process) make it tolerably clear that AFD was contending that NII/Capital had been under an enforceable liability to pay holdback to AFD, or to permit AFD to retain the same. It was not suggested before the judge below – or, I believe, before this Court – that the Tribunal had misstated its arguments. Further, AFD made attempts in evidence to show that an enforceable agreement,[19] independent of the loan agreements, had been made between itself and NII/Capital.
[19]In fact, more than one agreement, but it can conveniently be described in the singular.

The Tribunal, as will be seen, dealt with AFD’s case on the basis which had been advanced.

AFD appealed. The learned judge below summarised the principal relevant grounds of appeal this way:

“The Tribunal erred in holding that AFD had breached s.15(B) of the Code because:
(a)The Tribunal erred in holding that the holdbacks were not amounts payable by the relevant service provider company (that is, NII/Capital) to AFD. The appellant submitted that the whole of the “amount of credit” specified in the credit agreement between the lender and the borrower was paid by AFD to NII/Capital, and was offset against a debt owing by NII/Capital to AFD for the holdback applicable to that amount of credit.
(b)Even if the holdback was not to be characterised as a debt payable by NII/Capital to AFD, nonetheless there was no breach of s.15(B), because the credit contract correctly recorded the obligation of AFD, under the credit contract, to pay the amount of credit to NII/Capital.”[20]

[20]Reasons, [32].

Sub-paragraph (b), read in retrospect, in travelling beyond “debt”, arguably got to the point of contending that it mattered not whether NII/Capital had come under an enforceable liability to pay holdback, or permit AFD to retain the same. But the sub-paragraph was equally open to the interpretation that AFD was simply contending that it had a legally enforceable right to holdback even if the relationship was not one of creditor and debtor.

It is then necessary to observe that, as the learned judge noted, AFD submitted in argument that “[the Tribunal] had erred in holding that holdback was not a debt incurred by NII/Capital to AFD.” That opened up what his Honour described as “two interrelated issues” –

“First, the appellant is required to establish an error made by the Tribunal in concluding that holdbacks were not an amount payable by NII/Capital to AFD. Further, the appellant must show that any such error constituted an error of law giving rise to a right of appeal under s.148(1) of the Victorian Civil and Administrative Tribunal Act 1998.”[21]

[21]Ibid, [34].

The learned judge then noted an apparent shift which occurred in AFD’s position as the appeal proceeded. At the outset –

“Essentially the submission of the appellant was that the holdback constituted a debt owing by NII/Capital to AFD. That debt was said to arise as and when AFD remitted to NII/Capital the amount of the loan which it had agreed to make to the customer in order to fund the fees which the customer had incurred to NII/Capital. Thus, it was submitted, the proper analysis is that, when AFD remitted the payment of the amount of the loan minus the holdback to NII/Capital, AFD thereby offset the amount of the loan (advanced to the borrower and paid on the borrower’s account to NII/Capital) against the debt for the holdback then owing by NII/Capital to AFD. It was submitted that the Tribunal erred in failing to hold that that was the correct analysis of the contractual arrangements between the parties.”[22]

[22]Ibid, [50].

Then, on the second day of the hearing, AFD had been granted leave to file an amended Notice of Appeal, by which it was contended, in essence –

“… that the Tribunal erred in law by misconstruing the contracts or arrangements between the appellant and NII/Capital so as to conclude that there was no agreement between the two parties whereby NII/Capital incurred an obligation to pay the holdback to AFD.”[23]

[23]Ibid, [51].

The shift in position discerned by the judge, which appears to have reflected the inhibitions imposed by s.148(1) of the Victorian Civil and Administrative Tribunal Act 1998 (“the VCAT Act”) did not extend to a case that holdback was payable to, or might be retained by, AFD other than by reason of a liability enforceable against NII/Capital.

His Honour, as will be seen, dealt with AFD’s case on the basis which its counsel advanced from time to time; just as the Tribunal had done.

By its Notice of Appeal from the order below, AFD relied, inter alia, upon the following grounds:

“(d)The learned judge erred in law in not holding that the holdbacks were debts due or amounts payable to the Appellant by the relevant service provider company.
(e)The learned judge erred in law in holding (in effect) that the question whether the holdbacks were debts or amounts payable to the Appellant by the relevant service provider was independent on whether a contract or agreement providing for such debt or payment was identified.
(f)The learned judge ought to have held, as a matter of law, that the uncontradicted evidence showed that at all material times there existed contracts, agreements, arrangements or a course of conduct between the Appellant and the relevant service provider the effect of which was that the holdbacks were debts due or amounts payable to the Appellant by the relevant service provider.
(g)the learned judge erred in law in that he misconstrued the contracts or arrangements between the Appellant and the relevant service provider in concluding that the payment of a net remittance did not in the circumstances effect a payment of the holdback by the relevant service provider and a payment of the full amount of the credit advanced under the credit contract by means of an offset.
(h)The learned judge should have, on a proper construction of the contracts or arrangements between the Appellant and the relevant service provider, concluded that –
(i)the relevant service provider incurred an obligation or liability for the holdback;
(ii)the payment of or the liability for the holdback was effected or satisfied by allowing the Appellant to retain the holdback;
(iii)the payment of a net remittance by the Appellant effected after deduction of the holdback nevertheless constituted payment by the Appellant of the whole amount of credit agreed to be paid to the relevant service provider, as stated in the credit contract.”

Most of those grounds employed language of considerable elasticity. Thus, for example –

·“Debts due or amounts payable”.
·“Contract or agreement”.
·“Contracts, agreements, arrangements or a course of conduct … the effect of which was that the holdbacks were debts due or amounts payable”.
·“Contracts or arrangements”.
·“Obligation or liability”.

Nonetheless, it is not clear that AFD, by any of those grounds, was seeking to argue that the learned judge had erred by failing to decide the appeal favourably to it regardless whether or not holdback had been retained pursuant to an enforceable right which it had against NII/Capital.

The same may be said about the other grounds of appeal. They were concerned with the construction of s.15(B), and although, in retrospect, grounds (a) and (c) could be wide enough to embrace an argument which was not dependent upon the existence of a legally enforceable right and a correlative liability, AFD’s conduct of the case, to that point, gave no reason to read those grounds in such a way.

It is next notable that in the appellant’s written outline of argument, so far as it concerned the nature of the relationship between itself and NII/Capital concerning holdback, the concept of there having been a creditor/debtor relationship was not mentioned at all. There was simply reference to “discrete arrangements.”.

In oral argument, I sought to obtain an answer from AFD’s counsel whether the learned judge below had correctly characterized his client’s argument in the passage set out at [59] above.[24]
[24]It was in essence the same argument as AFD advanced under its re-cast notice of appeal – the amended notice addressing the inhibition imposed by s.148(1) of the VCAT Act.

At one point, counsel responded that “recoupment” – that is, by AFD – “must necessarily reflect a legal entitlement of recoupment”.

At another point, counsel said that his client’s present argument was not different to that recorded by the learned judge. But he added that –

“Your Honour needs to understand that … in referring as his Honour does to what the Tribunal found, his Honour is referring to the notion that the President mentioned, that the retention deprived what occurred of the character of indebtedness; and that’s why the argument was engaged in about debt”.

At yet another point in his argument, counsel submitted that because coins of the realm had not passed from one to another, it did not mean that there was no debt.

Still later, he submitted that –

“If there were no such obligation, there could not be said to have been any discount, for the amount of credit, any reduction for any amount of credit, any impact at all upon the obligation in the credit contract upon the credit provider to pay the $5,995, absence of debt in the abstract helps us, rather than the Director, because the only way the obligation to pay $5,995 to the supplier could be eroded, would be by some obligation or arrangement with the supplier; between the supplier and the credit provider. If there isn’t, then there is no room for a view that something has happened to the amount of credit. It may be that what the credit provider does is not in conformity with its obligations to the borrower, or not in conformity with its obligations to the supplier, but that wouldn’t impact at all on what was to be paid under the credit contract so … if there is no debt, but for this retention point, we win. We win in any event.”

In my opinion there can really be no doubt that AFD’s case greatly altered with the passage of time. Until AFD came to this Court on the hearing of its appeal, great emphasis had been laid upon there having been a legally enforceable liability in NII/Capital to pay, or to permit AFD to retain, holdback. Almost entirely, that had been cast in terms of there having been a creditor/debtor relationship. Evidence had been led in the Tribunal in an attempt to establish the existence of such a relationship. But then, in AFD’s written argument on this appeal, its reliance upon there having been that relationship was not plainly stated. In oral argument, however, such a relationship was both relied upon and then said to be irrelevant. In the end, as I see it, AFD did attempt to put its case on alternative bases, whilst asserting that each led to the same, favourable, conclusion.

The way in which AFD sought to advance its appeal has significance at two levels. First, it must be kept steadily in mind that appeal to the Supreme Court from the decision of the Tribunal was authorized by s.148(1) of the VCAT Act. This Court has no more extensive jurisdiction than did the judge in the Trial Division. Second, it appears to me that the arguments which could be available to AFD in support of its appeal would in some measure differ depending whether the relationship between NII/Capital and itself was or was not one that gave it a legally enforceable right to retain holdback, or to have the same paid to it.

The “arrangement” by which AFD retained holdback. The conclusions of the Tribunal and the judge at first instance. Are they unimpeachable?

Although, as AFD would now have it, it must succeed whether or not the arrangement between itself and NII/Capital reflected a legally enforceable right to retain holdback, I should now focus upon that “arrangement” for two reasons. First because, as I have already said, it appears to me that the arguments available to AFD are not entirely the same in the event that the relationship between itself and NII/Capital did or did not give rise to a legally enforceable right in AFD to retain holdback, or to have the same paid to it. Second, in case the Tribunal’s findings, if unimpeached, were to the effect that AFD had no legally enforceable right to holdback.

Concerning the second of those reasons, as I have already observed, the appeal from the Tribunal to the Supreme Court was authorised by s.148(1) of the VCAT Act. Under that section, a party may appeal “on a question of law”, from an order of the Tribunal.

A huge amount has been written concerning the distinction between questions of law and questions of fact. At the margins, particular difficulties arise. That said, two propositions command general acceptance: First, it will generally be a question of law whether facts found fall within a statutory provision properly construed.[25] Second, a challenge to a finding of fact requires the challenger to contend and establish, for there to be error of law, that the finding was unsupported by evidence, or, perhaps, was perverse.[26]
[25]See, for example, Collector of Customs v Agfa-Gevaert Limited (1995) 186 CLR 389 at 395, and Vetter v Lake Macquarie City Council (2001) 202 CLR 439, at 450-451, [24]-[27] per Gleeson, CJ, Gummow and Callinan, JJ, and at 467-468, [79] per Kirby, J.
[26]See, for example, Vetter, ibid, at 465, [73]. S v Crimes Compensation Tribunal [1998] 1 VR 83 at 86-93 per Phillips, J.A. Transport Accident Commission v O’Reilly [1999] 2 VR 436 at 452, [33] per Tadgell, JA; and see the qualification mentioned by Callaway, JA at 460, [58].

In the present case, there was always debate as to the construction of s.15(B)(a)(ii) of the Act. That issue was agitated before the Tribunal, before the learned judge below, and in this Court. The correct meaning of the provision involved a question of law, which I shall later address.

Further in this case, there was debate – although AFD in the end claimed that it was inconsequential - about the nature of the “arrangement” between NII/Capital and AFB whereby holdback was retained. The end point of the debate centred upon the question whether or not the arrangement was contractual. The answer to that question rested upon findings of fact, and the application of those findings to the legal concept of contract.

The findings of fact were just that. They could only raise a question of law in the extremely limited circumstances to which I referred a few moments ago.

Characterization of the facts as found – that is, whether or not they disclosed a contract – raises a more difficult question. In the present case it was not argued that the Tribunal adopted some mistaken view of the law of contract – that is, that it characterized the facts by reference to a wrong template. Had it done so, a question of law would plainly have arisen. So the issue becomes this: if the Tribunal’s findings of fact were unimpeachable, and if it did not mistake the law of contract, should its characterization of the “arrangement” between NII/Capital and AFD as non-contractual be regarded as raising a question of law – or at least a question of mixed law and fact?

I consider that, in the circumstances of this matter, the answer to that question is not determinative of the outcome of the appeal. Nonetheless, I should first focus upon what the Tribunal in fact decided, and, upon whether its finding could be successfully impugned.

I have already noted that AFD contended, before the Tribunal, that on the evidence the Tribunal should find –

“… that under a separate agreement or arrangement independent from the credit contract, the introducer (NII or Capital) agreed to pay the holdbacks to AFD. On loan settlement day … what happened was that AFD offset its liability to pay NII or Capital the amount specified under the supplier’s name in the credit contract, against NII’s or Capital’s liability to pay the holdback to AFD. AFD paid the net balance resulting from this set off process to NII or Capital.”[27]

[27]Tribunal’s reasons, [44].

The Tribunal considered a body of oral and documentary evidence. The former had been given by Mr Peter Gray, Business Relations Manager of AFD, and the Tribunal described it, for reasons given, as “unclear”. The latter was summarised by the Tribunal, and characterised by it as “scant, at best”.

The Tribunal said this:

“I am satisfied that there was an arrangement, or understanding, between AFD and NII and between AFD and Capital, that if there was an interest free holdback in respect of a particular loan contract that loan contract would, as far as payment of principal was concerned, be interest free or bear interest at a rate lower than that usually charged by AFD to its customers. I am satisfied that there was an arrangement or understanding between AFD and NII that if there was a high risk holdback in respect of a particular loan contract, that customer’s loan application would be approved even though, according to AFD’s standard approval guidelines the application would ordinarily have been declined, because of the higher than usual risk of default.”[28]

[28]Ibid, [31].

The Tribunal later concluded that –

“… the holdbacks were retained by AFD, not paid by NII or Capital. I am not satisfied that there was any independent clear arrangement applying throughout the relevant period under which NII or Capital incurred an obligation to pay these holdbacks to AFD.”[29]

[29]Ibid, [59].

It reiterated that finding this way:

“I found that whatever may have been the nature of any understanding between AFD and NII or Capital, what AFD actually did was to retain the holdbacks and that AFD and Capital paid nothing. The amounts were retained by AFD for its own use.”[30]

[30]Ibid, [63].

Concerning the application of s.15(B)(a)(ii) of the Code, the Tribunal observed that if holdbacks had been paid by NII/Capital to AFD under some agreement which “had nothing to do with the credit contracts” then AFD’s argument that holdbacks were not a matter dealt with in the credit contracts, and were correctly not reflected in the credit contracts, might have “some force”. But that, it said, was not the situation in the particular case. There was an intimate relationship between the debtor’s obligations under the credit contract and holdback such that it was:

“artificial to regard them as matters arising under arrangements between AFD and NII or AFD and Capital, which had no bearing on the credit contract, or the documents relating to it.”

The conclusions last-mentioned bear on the application of facts found to a statutory provisions properly construed – which, as I have said, will generally involve a question of law. I have mentioned those conclusions only insofar as they might cast any light upon the relevant facts as found by the Tribunal.

AFD appealed against the Tribunal’s finding that it had breached, inter alia, s.15(B) of the Code. I have earlier set out the pertinent grounds of appeal, and noted his Honour’s description of the shift in AFD’s position as the appeal unfolded.

It was in the context established by the grounds of appeal that his Honour, specifically noting that the Director submitted that the issue was factual, exhaustively reviewed the material adduced at trial.[31]
[31]Ibid, [35]-[49].

In addressing the issues raised by AFD as the appeal developed, the learned judge said – and I respectfully agree – that four matters were clear and indeed beyond dispute –

“First, holdbacks were applied to loans made by AFD to customers of NII/Capital. Second, NII/Capital consented to the application of those holdbacks. Third, the holdbacks were applied by being deducted from the amount of the loan, which AFD had agreed to make to the borrower, and which was remitted by AFD, on behalf of the borrower, to NII/Capital. Fourth, the borrower was not a party to the arrangement by which holdbacks were so applied to loans made to the borrower and thus remitted to NII/Capital. The credit agreement did not record the fact of the holdbacks. Indeed the borrower did not know about them. Essentially any agreement or arrangements concerning the holdbacks were necessarily bipartite between AFD on the one hand NII/Capital on the other.”[32]

[32]Ibid, [55].

His Honour noted that the Tribunal had found that there was no agreement established by the evidence which constituted the holdback a debt that was offset in accounting between AFD and NII/Capital. All that had been proven was an agreement – the Tribunal’s word was in fact “understanding”- or arrangement whereby holdbacks were applied.

The learned judge said that AFD had not attempted to establish an oral contract between itself and NII/Capital. Then, having reviewed various documents upon which AFD relied, he concluded that the Tribunal had not erred in concluding that the evidence did not establish an agreement between AFD and NII/Capital whereby the holdbacks constituted a debt owed or to be owing by the latter to the former.

His Honour’s conclusion should be taken to mean this: First, that the basal findings of fact made by the Tribunal pertinent to the relationship between AFD and NII/Capital were at least supportable.[33] Second, that those facts supported the Tribunal’s conclusion that no agreement – that is, giving rise to an enforceable liability– had been reached between either of NII/Capital and AFD.
[33]If his Honour, improbably, made his own findings of fact to similar effect, then he approached the matter too favourably from AFD’s standpoint.

This should be added. In a later section in his reasons, in which he dealt with AFD’s alleged breach of s.15(C), (D) and (E)of the Code, his Honour, distinguishing Australia and New Zealand Banking Group Limited v R & D Bollas & Ors,[34] said that in this case –

“The holdback allowed by NII/Capital was in consideration for the loan by AFD to the borrower, but it had an independent legal existence from the obligations in the credit contract.”[35]

That was said at a point, however, when his Honour had rejected AFD’s case that the Tribunal had erred in its findings as to the nature of the relevant relationship between AFD and NII/Capital. I consider that his Honour should not be taken to have been saying anything more than that, whatever arrangement had existed, it was outside the credit contracts; for which reason holdback could not be “interest charges payable under the contract.” Had his Honour been saying that the relationship between AFD and NII/Capital was contractual, there would have been apparent tension in his conclusions.[36]

[34](1999) ASC, 155-031; [1999] VSCA 50.

[35][2004] VSC 526 at [97].

[36]But if it be supposed that his Honour was indeed expressing a conclusion that holdback was the subject of contract between AFD and NII/Capital, then the terms of that contract – and here it would be necessary to have recourse to the Tribunal’s basal findings of fact, assuming that they were unimpeached – would tell against success of the appeal. That is so quite apart from other difficulties faced by AFD. Of this, more later.

In this Court, as I have said earlier, counsel for AFD submitted that his client should succeed in the present appeal regardless whether or not the relationship between his client and NII/Capital was contractual. Nonetheless, he sought to sustain a conclusion that the relationship had indeed been contractual by arguing that the course of dealings between the parties showed that NII/Capital accepted that they were liable for the holdbacks.

It is not in doubt that, in the abstract, a course of dealings – either of itself, or considered together with written and/or oral communications – may sufficiently establish a contract. The reasons of the learned judge below do not suggest that any argument to that effect was pressed upon him. The same may be said of the Tribunal’s reasons. Be that as may, all that the course of dealings showed in the present case was that AFD deducted amounts of holdback from all NII-referred loans, and from some Capital-referred loans; and that NII/Capital acquiesced.

Summarizing the issue now under consideration, I think it is clear, first, that the Tribunal did not find that NII/Capital were under any legally enforceable liability either to pay, or to permit AFD to retain, holdback. Rather, the Tribunal concluded that the same was retained – it must have been out of the amount of credit - pursuant to an understanding or arrangement between AFD and NII/Capital which imposed no legally enforceable obligation upon the latter.[37]
[37]I speak of an understanding or arrangement, but no doubt there was a separate understanding etc between AFD and each of NII and the Capital companies. The case was argued throughout on the footing that, whatever be the precise nature of the relevant relationship, it could be dealt with in the singular.

Second, I consider that the learned judge below, on the better view of his reasons, concluded that no error of law was disclosed in the Tribunal so finding. Implicit in that conclusion were two aspects to which I referred earlier in these reasons.

Third, the learned judge, in my respectful opinion, was right to conclude that the Tribunal’s findings of fact were (at least) supportable, and that it had not erred in holding that the evidence, and its findings thereon, did not lead to a conclusion that NII/Capital were under any contractual obligation to AFD with respect to holdback.

Fourth, nothing advanced for AFD on this appeal, in my opinion, cast doubt upon the Tribunal’s conclusion. I consider, indeed, that the evidence strongly supported the Tribunal’s pertinent factual findings. The documentary and oral evidence adduced by AFD was both confused and scanty. Again, the course of dealings, as I said a moment ago, did not assist a conclusion that holdback was retained pursuant to some contractual obligation imposed upon NII/Capital.

The consequence of an unimpeachable conclusion that NII/Capital were not under any contractual liability to AFD with respect to holdback is that one way that AFD put its case – indeed, the way in which it put its case factually at trial and on appeal to the learned judge below – is denied to it.

But what if there was a legally enforceable agreement between AFD and NII/Capital concerning holdback? The construction of s.15(B)(a)(ii)

Suppose, despite what I have thus far said, that the Tribunal should be taken to have found that, throughout the period of dealings between AFD and NII/Capital[38] there was a legally enforceable agreement in place between AFD and the other companies by which it was entitled to retain holdback[39]. Suppose, alternatively, that the learned judge below should be taken to have concluded that the Tribunal erred in not finding that the evidence disclosed an enforceable agreement of such a kind. If either such assumption be made – and treating it as being unimpeachable in this Court - I consider, whilst respectful of the President’s characterisation of holdback as equivalent to a payment by AFD to itself under a direction, such as might be equated with a payment by AFD to a trade creditor of NII on the latter’s direction, that such characterization is not helpful in deciding whether, under s.15(B)(a)(ii), holdback must have been disclosed. To characterise holdback as being equivalent to a payment to AFD under direction from NII appears to me to run contrary to the Tribunal’s unimpeached finding that there was an understanding or arrangement- for present purposes, read “enforceable agreement”- by which AFD retained holdback. Retention, in context, must have been intended to connote retention out of the amount of credit nominally payable by AFD to NII/Capital – that is, that in substance the amount of credit was split between AFD and NII/Capital. Further, to treat a payment by a credit provider to itself out of the amount of credit[40] as having no different significance to a payment upon direction to a trade creditor of the person to whom the amount of credit should otherwise be paid tends to suggest an answer to the construction of s.15(B)(a)(ii) which directs attention away from the language of the provision itself.
[38]It extended, overall, between February 2002 and October 2003 – although the Capital companies were only involved for part of that period. It ended, ironically, when in November 2003 an administrator and receiver were appointed to each of NII and the Capital companies – companies which had conducted investment, or wealth creation, seminars; NII going into liquidation a few months thereafter.
[39]Though not an agreement which made the amount of holdback a debt due to AFD.
[40]It was not in debate that the amount of credit included at least the amount of the loan, out of which holdback was retained.

Next, one may concede, for argument’s sake – assuming the existence of an enforceable holdback agreement, and always dependent upon its terms - that what was done in fact could have been effectuated by payment of the amount of the loan by AFD to NII/Capital; and then by a discrete payment from the latter to the former. But assuming that such a regime would have precluded the need for AFD to disclose holdback to the borrower in the credit contract document, that does not assist, in my respectful opinion, an answer to the question whether, having regard to the terms of the (assumed) agreement as found, and the manner in which it was in fact effectuated, an obligation to disclose holdback was statutorily imposed upon AFD.

Focussing upon this case, and assuming the existence of an enforceable agreement compatible with the findings of the Tribunal, the key question is whether, when disclosing to the borrower to whom the amount of credit was to be paid, and in what constituent amounts, AFD was required by s.15(B)(a)(ii) to specify an amount retained by it out of the credit amount pursuant to an agreement with NII/Capital, which agreement was external to the credit contract; the entitlement to retention depending upon and being triggered by the making and acceptance of the loan offer, and its quantum being determined by the amount of the loan.

In my opinion, that question should be answered in the affirmative. It follows, in the case of each loan contract where holdback of one or both kinds was retained, that AFD breached s.15(B)(a)(ii) by failing to disclose that it had retained the same.[41]
[41]Nothing was said by AFD to suggest that retention was not, upon this analysis, a payment to it. Indeed, it argued that such was the case.

The most important matters which tend to that conclusion, in my opinion, are the language of s.15(B)(a)(ii) itself, its legislative context, and its legislative history. Pertinent, in the second-mentioned connection, is the comparison between its language and the language of s.15(B)(b), (C)(a) and (c), (D), (E), (G)(a) and (c), (H); and compare (M).

Upon the three matters to which I referred a moment ago, I respectfully agree with the substance of the analysis by Neave, JA, particularly noting her Honour’s observations at [175], [177]-[178], [181]-[182], [185]-[188], and [192]. Further, and without seeking to detract from the relevance of her Honour’s observations otherwise about “truth in lending”, I specifically agree with her Honour’s reasons at [173]-[174] and [189]–[190].

That said, and still confining myself to an assumption that NII/Capital fell under an enforceable liability to permit AFD to retain holdback, I wish to add something about the question whether disclosure of holdback was required by s.15(B)(a)(ii), particularly focussing upon submissions advanced for AFD. Those submissions were advanced as if they were interchangeable regardless whether the pertinent relationship between AFD and NII/Capital was or was not contractual. In my opinion they were not wholly interchangeable. I shall later explain that opinion.

AFD contended that s.15(B)(a)(ii) is concerned only with what the credit contract document must say about the amount of credit. The obligation of AFD to the borrowers under the credit contracts was to advance the amount of credit to the borrower by paying it to NII/Capital. That being so, s.15(B)(a)(ii) required such obligation to be set out in the contract document; and this was done. The holdbacks arose out of discrete arrangements between AFD and NII/Capital. The borrower had no role in those arrangements, and need be told nothing about them.

In furtherance of those submissions, AFD argued that –

·Where s.15 requires disclosure of sums payable pursuant to discrete arrangements, it says so. See s.15(M) and (N)
·This was not a case in which AFD paid less than the full amount of credit to NII/Capital; because what was done constituted an offsetting of cross-liabilities.[42]
·There was no significance to the fact that the phrase “under the contract” did not appear in s.15(B)(a)(ii). It was unnecessary because of the definition of “credit” in s.4(1) of the Code.
·The substance of the holdback agreement would have been no different had there been two discrete transactions in each instance.
·NII/Capital could not have recovered the amount of holdback from the borrower.
·The phrase in s.15(B)(a)(ii) “including the credit provider” had an obvious connection with payments arising under the credit contract – one instance being an establishment fee.
·The phrase in s.15(B)(a)(ii) “to whom it is to be paid” means “paid under the credit contract.”
·If NII/Capital had factored all their receivables to AFD, surely it could not have been the case that this must have been disclosed under s.15(B)(a)(ii).

[42]Citing Larocque v Beauchemin [1897] AC 358 at 365, 366 per Lord Macnaghten; and North Sydney Investment and Tramway Company Ltd v Higgins [1899] AC 263 at 273 per Lord Davey.

The following considerations, in my opinion, tend against acceptance of AFD’s submissions.

First, it is true that s.15(B) is concerned with what the credit contract document must state with respect to credit; particularly its amount, and the persons to whom it is to be paid, and the several amounts payable. But, in substance, AFD’s argument involved inserting into s.15(B)(a)(ii), after the words “to whom it is to be paid”, the words “under the contract”. As Neave, JA has explained, not only are the latter words not present, they were present in predecessor legislation but are not present now.

Second, I said a moment ago that in substance AFD’s argument involved writing words into s.15(B)(a)(ii) so as to reflect the fact that AFD’s submission was more subtle. The contention was that inclusion of the words would have been surplusage because of the definition of “credit” in s.4(1) of the Code.

What that definition does is to say in what two circumstances credit is taken to be provided under a contract. The definition of the “amount of credit” follows in turn. If AFD’s argument was sound, one would think that the definition need not refer, when specifying charges which are not to be included in the “amount of credit”, charges arising “under the contract”, for it would equally be surplusage. But in fact the definition does so. In all, I do not consider that inclusion of the phrase “under the contract” in s.15(B)(a)(ii) would necessarily be surplusage, so that its omission should be seen as only an avoidance of repetition.

Third, if AFD’s submission seeking to explain the absence of the phrase “under the contract” in s.15(B)(a)(ii) was sound, then by parity of reasoning there would be no need for the phrase to be used in s.15(C)(a) and (c). That is because of the definition of “annual percentage rate” in s.25(1). But still the phrase is used in s.15(C)(a) and (c). The same may be said of the use of the phrase in s.15(D) and (E) despite the reference to “interest charges under the contract” in the definition of “amount of credit” in s.4(1); and see also s.26.

Fourth, it is no doubt the case that s.15 specifically addresses payments which are to be made or recorded under agreements external to the credit contract. See s.15(M) and (N). But it does not follow that s.15(B)(a)(ii) does not, by its language, extend to payments out of the amount of credit to persons whose entitlement arises out of an agreement external to the credit contract. The Tribunal’s unimpeached finding, significantly, was that such was the nature of what I have presently assumed was an enforceable agreement between AFD and NII/Capital.

Fifth, it is beside the point that the same monetary outcome as ensued between AFD and NII/Capital might have been achieved by discrete transactions which did not call s.15(B) into play. The question is whether what did take place required a disclosure which was not made.

Sixth, it is not established (even if it could be decisive, or weighty) that NII/Capital could not have recovered the amount of holdback from the borrowers. In fact, NII/Capital was content not to seek to do so. I do not doubt that the whole regime was perceived by NII/Capital to be much in their commercial interests.

Seventh, it is no doubt true that the phrase “including the credit provider” could have work to do in respect of payments arising under the credit contract. But that does not answer the question whether s.15(B)(a)(ii) had a relevantly wider field of potential operation.

Eighth, in my opinion there is no useful point of connection between an agreement whereby part of the loan moneys were in substance retained by AFD and a contract by which NII/Capital factored all their receivables to AFD.

Ninth, in the Minister’s Second Reading Speech in respect of the Consumer Credit (Victoria) Bill 1995 there was reference to the obligation of a credit provider to make adequate disclosure of “fees and charges”, and to the requirement for “significant financial details to be set out in tabular form in the front section of a pre-disclosure statement”. Nothing was specifically said about disclosure of the disbursement, out of the credit amount, of amounts to persons in respect of third party obligations. Yet the Code does require some such disclosures. Moreover, the objective of disclosure was said to be to ensure that –

“… before any contract is entered into, the prime financial information is presented in a simple form so that the borrower can assess the true cost of any proposed credit transaction and make meaningful comparisons with competing products on offer.”[43]

[43]Hansard, Assembly, 4 May 1995, page 1234.

It is true that, in this case, the contract documents accurately stated the total amount of credit and charges which the borrower would have to pay. But in my opinion the statement, as presented, was essentially misleading. For it concealed from the borrower the fact that the true cost of borrowing was much higher than was represented; and that such cost was being financed, in effect, out of what was the apparent cost of the services which were to be provided by NII/Capital to the borrower. I accept that it is not a function of a credit contract to set a borrower on a train of enquiry which might well lead to a conclusion that the cost of services has been inflated so as to meet the credit provider’s true interest requirements. But it is another thing to say that the true cost of borrowing was effectively concealed and misstated – not because the interest rate set out in the credit contract was itself false, but because it was greatly reduced (and in many instances reduced to zero) by the effect of the holdback subsidy.

Tenth, the submission that the retention of holdback was to be explained as an offsetting of cross-liabilities, in which case the correct analysis was that NII/Capital in each instance had been paid the amount of the loan in full, appears to me to sit uneasily with the Tribunal’s findings that holdback was retained out of the amount of credit. If enforceable agreement rather than understanding or arrangement there was, then according to the Tribunal’s finding it was an agreement whereby the amount of credit was paid in part to NII/Capital and retained in part by AFD. In that connection I would add that AFD adduced no evidence, as by accounting records, to show that it raised an entitlement to holdback from NII/Capital, the liability of the latter being discharged when the amount of credit was partly paid to NII/Capital and was partly retained by AFD.

But assume - it is an assumption upon an assumption - that the agreement was one in respect of which retention of holdback represented a contractual payment due by NII/Capital to AFD. One would then say that an obligation was owed by AFD to the borrower, under the credit contract, to pay the amount of the loan to NII/Capital; and that an obligation was owed by NII/Capital to AFD, under a separate contract, to pay holdback to AFD. A question arises whether what occurred could properly be described as an offsetting of cross-liabilities, one aspect of which was that AFD must be understood to have paid NII/Capital the loan amount in full. In my opinion, it could not properly be so understood. There are three situations, it seems, where offsetting may arise. The first is where a set-off is available under the Rules of Court, it operating as a defence. The second is equitable set-off. The third is where a separate contract exists whereby the parties agree to set-off the relevant debt.

The right of set-off which exists under r.13.14 of Chapter 1 of the Rules is one available where there is a proceeding between parties. That is not this case. Further, it operates as a defence to a claim made by one party against the other. That is not this case. Even beyond that, a further problem would seem to arise in the application of the rule. There would appear to be an absence of necessary mutuality.

Next, the learned authors of Equity: Doctrines and Remedies[44] describe four kinds of equitable set-off. Common to all of them is the existence of a proceeding between parties - which most often, though not necessarily, will raise a money claim. That, as I have already said, is not this case. Further, whilst it is said that equity never insisted upon mutuality as an ingredient of set-off,[45] according to the authors the better view remains that the set-off must ”actually go to the root of, be essentially bound up with, ‘impeach’, the title of the plaintiff”.[46] On AFD’s preferred version of the agreement, I doubt that the last-mentioned requirement would be satisfied.
[44]4^th Ed, 2002, para. 37-035.
[45]Ibid, 37-045, (f).
[46]Ibid, 37-045, (h) to 37-055

Finally, it is well-established that where two parties owe debts, one to the other, they may agree that the balance only be paid, rather than go through the formalities of handing money back and forth.[47] Larocque was decided on that basis. But here there was no privity between AFD and NII/Capital. They could not agree “to set one demand against the other”, as Mellish, LJ put it in Spargo’s Case.

The consequences of the unimpeachable conclusion that the arrangement between AFD and NII/Capital imposed no enforceable liability upon NII/Capital

[47]Spargo’s case L.R 8 Ch 407, cited in Larocque (citation at fn. 23) at 361-362.

I consider that AFD’s case is no better when considered in the context of the Tribunal’s unimpeachable conclusion as to the nature of the arrangement concerning holdback. Indeed, I think that its position is in some respects worse. That is so for these reasons.

First, of the 10 considerations to which I referred when analysing AFD’s case on the assumption that it had a contractual entitlement to holdback, the first nine apply with no less force to a “no-contract” situation.

Second, apropos the tenth consideration, it appears to me that AFD’s argument founded on an off-setting of cross-liabilities – particularly having regard to the authorities cited – could not be available in a “no-contract” situation.

Third, characterization of the arrangement as being equivalent to a payment by AFD to itself under a direction, such as might be equated with a payment by AFD to a trade creditor of NII/Capital on the latter’s direction, seems to me to be even more difficult. For upon the facts which must now be assumed, the trade creditor is not a creditor in the legal sense, but simply someone to whom the person giving the direction chooses to gift money.

Fourth, the absence of any recognizable legal framework to explain the retention of holdback by AFD emphasises the fact, as the Tribunal in substance found, that what AFD and NII/Capital did was to split the amount of credit between them. At that point, a construction of s.15(B)(a)(ii) which yields the result that it should be held that the credit contract disclosed the persons to whom the amount of credit was to be paid becomes, I think, even less compatible with the language of the provision, its legislative context, and its legislative history.

The Cross-Appeal

Whether holdback was retained pursuant to an understanding or arrangement, or pursuant to an enforceable agreement, such understanding, arrangement or agreement arose externally to the credit contract - although it was intimately related to such contract. In those circumstances, I do not think it can be said – assuming that holdback should be characterized as an interest charge - that AFD breached any of s.15(C), (D) or (E). The stumbling block appears to me to lie in the phrase “under the contract”, which appears in each of those subsections.

Counsel for the Director sought to give the phrase an expansive meaning, citing a passage from the judgment of Gummow J in Commissioner of Taxation v Energy Resources Australia Ltd.[48] He submitted also that the phrase, like all statutory provisions, must be construed in context. He referred to evidence given before the Tribunal in order to demonstrate that holdback was in truth an interest charge, and had been so viewed by AFD. He argued that to conclude that there had been no breach of s.15 (C), (D) or (E) would be to permit triumph of form over substance.
[48](1994) 54 FCR 25 at 53.

Already in these reasons I have remarked upon the significance of considering a statutory provision in context. I think it is also pretty clear that, from AFD’s perspective, holdback at least equated to a payment of interest. But to treat it as interest “under the contract” would involve giving that phrase a meaning which it was not given by Gummow J in Energy Resources; a meaning, moreover, which was

not given to that phrase in any authority cited by counsel for the Director.

Other than what I have thus far said concerning the cross-appeal, I adopt, with respect, the reasoning of the learned judge below.[49] In all, I consider that the application of orthodox principles of statutory construction means that the cross-appeal must fail - just as it dictates dismissal of the appeal.

NEAVE, J.A.:

[49](2004) VSC 526 at [90]–[98], with the earlier-expressed qualification concerning [97].

This case concerns the effect of disclosure requirements imposed on credit providers by the Uniform Consumer Credit Code (“the Code”).[50] The learned judge below upheld the decision of the Victorian Civil and Administrative Appeals Tribunal that Australian Finance Direct Ltd (“AFD”) had breached s 15(B) of the Code. I agree with Ashley, J.A. that the appeal by AFD, against that decision, should be dismissed.
[50]The Code is set out in the Appendix to the Consumer Credit (Queensland) Act1994 and applies in Victoria by virtue of the Consumer Credit (Victoria) Act1995 s 5.

The learned judge also held that the Tribunal was wrong in finding that the holdbacks were interest, which should have been disclosed by AFD as required by ss 15(C) (D) or (E) of the Code. I agree with Maxwell, P. and Ashley, J.A. that the cross-appeal by the Director of Consumer Affairs against that decision should be dismissed.

The Facts

I gratefully adopt Maxwell, P.’s outline of the facts of this case. I have also taken account of the additional matters to which Ashley, J.A. refers in his judgment at [49]-[51]. At [192] below I make particular reference to some of these matters and explain why I regard them as important in resolving the issues in this appeal.

The Issues

The first issue for consideration is whether the findings made by the Tribunal about the nature of the holdback arrangement can be challenged on appeal. Two other issues then arise.

·Did the judge below err in finding that the Tribunal correctly concluded that the evidence did not establish an enforceable agreement between AFD and NII/Capital, under which the holdbacks constituted a debt owing by NII/Capital to AFD?

·Does s 15(B)(a)(ii) require disclosure only of amounts which are payable out of the amount of credit under the contract made between a credit provider and a borrower, or does it also require disclosure of amounts paid under related arrangements made outside that contract?

Can the Tribunal’s factual findings be challenged on appeal?

The Tribunal found that the holdback arrangement between the credit provider and the supplier did not create a debt payable by NII/Capital to AFD, which could then be “offset” against the amount which it was required to pay NII/Capital under the contract with the borrower. The Deputy President said:

“Although this evidence is not uniformly consistent, it is my overall conclusion from it that the findings argued for by the Director ought to have been made. I conclude that the holdbacks were retained by AFD , not paid by NII or Capital. I am not satisfied that there was any independent clear arrangement applying throughout the relevant period under which NII or Capital incurred an obligation to pay these holdbacks to AFD.”[51]

[51][2004] VCAT 1515 at [59], per Deputy President McKenzie.

Section 148(1) of the Victorian Civil and Administrative Tribunal Act Appeals Act 1998 permits a party to appeal from the Tribunal to the Supreme Court on questions of law alone. As the judge below acknowledged, AFD’s appeal from this aspect of the Tribunal’s decision could therefore only succeed if it could show both that the Tribunal erred in its characterisation of the holdback arrangement, and that the error was an error of law. [52]
[52][2004] VSC 526 at [34].

The shifts in AFD’s position about the nature of the holdback arrangement are set out in Ashley, J.A.’s judgment at [53]–[72]. AFD’s position before the Tribunal was that AFD was not required to disclose the holdback amount because the arrangement created a debt owing by NII/Capital to AFD, which fell outside s 15(B) of the Code.

In the court below, AFD’s counsel again contended that the Tribunal was wrong to hold that the holdback arrangement did not create a debt owing by NII/Capital to AFD. It was submitted that the whole of the amount of credit to be provided under the contract between AFD and the borrower was payable by AFD to NII and it was then offset against the debt created by the holdback arrangement.

The amended notice of appeal, filed on the second day of the hearing in the court below, contended that the Tribunal had erred in law “by misconstruing the contracts or arrangements between the appellant and NII/Capital to conclude that there was no agreement between the two parties whereby NII/Capital incurred an obligation to pay the holdback to AFD.” According to the judge below the principal purpose of this amendment was to “specify an error or errors of law involved in the errors alleged in the notice of appeal.”[53] Although the grounds of appeal are capable of being interpreted as submitting that s 15(B) did not require disclosure of the holdback, even if the arrangement was not legally enforceable, the reasons of the learned judge below dealt almost entirely with AFD’s claim that the holdback constituted a debt owed to it by NII/Capital.[54]
[53]Australian Finance Direct Limited v Director of Consumer Affairs Victoria [2004] VSC 526 at [31].
[54]Ibid at [50]-[69]. Note that at [70], the learned judge addressed the alternative contention. Although this considered the situation even if the holdback was not a debt, his Honour’s reasoning turned primarily on the construction of s.15(B).

As Ashley, J.A. notes in his judgment at [63]-[73], the position of AFD shifted again on the appeal to this court. In oral argument counsel for AFD submitted both that the learned judge had erred in his characterisation of the arrangement made between NII/Capital and that AFD should “win” regardless of whether NII/Capital was under any legally enforceable liability to pay the amount of the holdback.

The distinction between an errors of fact and an error of law is not clear-cut.[55] In S v Crimes Compensation Tribunal[56] Phillips, J.A. said that -

“The determination of [a] question of fact may depend upon the acceptance or rejection of evidence that is led; it may depend upon a choice between witnesses, and an assessment of their credibility or reliability; or it may depend more directly upon the sufficiency or insufficiency of the evidence that is given.”

[55]See the comments on this matter in Vetter v Lake Macquarie City Council (2001) 202 C.L.R. 439 at 464 - 5 per Kirby, J.

[56][1998] 1 V.R. 83 at 89.

It is arguable that the Tribunal’s findings about the nature of the arrangement between AFD and NII/Capital were simply findings of fact, which depended on an assessment of the evidence of the witnesses who testified as to the nature of the arrangements made between the parties. If the Tribunal’s decision on the nature of the arrangements between AFD and NII/Capital is a factual one, the Tribunal can only be shown to have erred in law if those findings were not supported by any evidence, or were otherwise perverse.[57] By contrast, the question about whether the amount of the holdback is required to be disclosed under s 15B of the Code, is clearly a question of law.[58]
[57]S v Crimes Compensation Tribunal [1998] 1 VR 83 at 88-89 per Phillips, J.A.; Transport Accident Commission v O’Reilly [1999] 2 V.R. 436 at 452 [33] per Tadgell, J.A., but see also Callaway, J.A. at 460 [58].
[58]Vetter v Lake Macquarie City Council (2001) 202 C.L.R. 439 at 450 [24] per Gleeson, C.J., Gummow and Callinan JJ. Characterisation of the arrangement between AFD and NII/Capital does not involve the question whether the facts fit a statutory criterion, as was the issue in that case.

The Tribunal heard evidence and examined documents passing between the parties in order to ascertain the nature of the holdback arrangement. The nature of that evidence was carefully analysed by the judge below, who found that the factual findings made by the Tribunal were open on the evidence before it. Given that AFD conducted its case before the Tribunal on the basis that s 15B would apply unless NII/Capital had incurred a legally enforceable obligation to pay holdback to AFD,[59] and assuming that the characterisation of the arrangements between AFD and NII/Capital is a factual question, and not a question of mixed fact and law, the appeal could be dismissed on this ground alone.
[59]My reasons at 191 suggest that s 15(B) may also apply in some circumstances where the lender has incurred a separate legal obligation to pay moneys to a third party.

Characterisation of the hold-back arrangement.

The alternative position is that although the Tribunal’s findings about the precise arrangements made between AFD and NII/Capital are findings of fact, the question whether the facts so found correspond with the legal description attached to them by the Tribunal, is a question of law, or, at the least, a mixed question of law and fact.[60] The judge below concluded that the Tribunal did not err in characterising the arrangements between the parties.
[60]Vetter v Lake Macquarie City Council (2001) 202 C.L.R. 439 at 450 [24] per Gleeson, C.J., Gummow and Callinan JJ.

The evidence examined by his Honour can be summarised as follows.[61] In August 2000 an agreement was made between Investment Source Corporation and FAI Finance Corporation Pty Ltd, which provided for Investment Source to refer prospective borrowers to FAI to obtain finance, to fund the borrowers’ participation in investment seminars. This agreement did not refer to holdbacks, but FAI had an arrangement with Investment Source (later re-named NII) under which loans were made on an interest-free basis, and FAI retained a proportion of the loans. The amount of the holdback varied according to the period of the loan.
[61][2004] VSC 526 at [36]-[69].

A similar arrangement continued after AFD purchased the business of FAI. There were a series of letters and emails between the parties between 2002 and 2003, but none of these imposed a clear obligation on NII/Capital to pay holdbacks to AFD. The evidence of Peter Gray, the business manager of AFD referred to the fact that AFD retained holdbacks, but Mr Gray was unable to produce any written agreement relating to the application of holdbacks between the parties. These amounts were always deducted from the loan before it was paid by AFD to NII/Capital. There was no evidence of any written or oral agreement between the parties which constituted the holdback amounts as a debt owed by NII/Capital to AFD.

It was not until 2003 that AFD entered into three formal agreements (“Introducer Accreditation Agreements”) under which AFD appointed NII and associated companies Capital NSW and Capital Vic as accredited introducers of AFD, in consideration for AFD providing finance contracts to purchasers of investment seminars.

Clause 9.1 of the Introducer Accreditation Agreements provided that finance contracts would be offered by AFD in accordance with “pricing parameters” specified in schedule 1 to the agreement. This provision could be varied by AFD at any time by notice to the introducer or otherwise by the written agreement of the parties. The details of the pricing parameters differed in the schedules to the three Introducer Accreditation Agreements. They were however in common form, in the sense that each set out a specified “interest rate subsidy” of 14% per annum, and a “finance contract term holdback”. In two agreements the holdback was 10% for a loan for 48 months and in the third agreement it was 6.75%.

AFD submitted that the effect of this arrangement was that -

“the whole of the credit amount, recorded in the credit contract, was paid by AFD to NII/Capital, but that under a separate agreement, NII/Capital agreed to pay the holdbacks to AFD. On settlement of a loan … AFD offset its liability to pay NII/Capital the amount specified under the supplier’s name in the credit contract, against NII’s or Capital’s liability to pay the holdback to AFD.”

I respectfully agree with Ashley, J.A.’s reasons at [99]-[101] for upholding the decision of the judge below that the Tribunal did not err in finding there was no legally enforceable agreement between NII/Capital and AFD for payment of holdbacks. Neither the arrangements made between AFD and NII/Capital when their relationship began in March 2002, nor the subsequent letters and emails between their representatives, nor the three Introducer Accreditation Agreements made in April, May and July 2003 made the holdbacks debts payable by NII/Capital to AFD. If AFD had mistakenly paid the whole amount of a particular loan to NII/ Capital, instead of retaining an amount out of the loan as normally occurred, AFD would not have succeeded in an action for breach of contract to recover the amount of the holdback from NII/Capital. [62]
[62][2004] VSC 526 at [68].

His Honour the President takes a different view of the arrangement between AFD and NII/Capital. In his view the holdback was equivalent to a payment to [AFD] at the direction of NII/Capital:

“More accurately, it [was] equivalent to a payment by [AFD] (in its capacity as lender) to [AFD] (in its own right) at [NII/Capital]’s direction… [NII/Capital] might have directed [AFD] to pay some proportion of the seminar fee to one or more of [NII/Capital]’s trade creditors. In compliance with that direction, [AFD] would have paid that part of the loan amount not to [NII/Capital] but to the nominated trade creditor(s). This would be an example of funds owing, and payable, to [NII/Capital] being diverted to a third party at [NII/Capital]’s direction. (citations omitted).”[63]

Maxwell, P says this could not be differentiated from a direction given by NII/Capital to AFD to pay NII/Capital’s trade creditors, out of the amount of the loan.

[63]At paragraph [18] above.

For the reasons given in [143]-[152], it may not be open to this court to make a different finding about the nature of the holdback, than the finding made by the Tribunal. Even if the Tribunal’s characterisation of the agreement was a question of law, I respectfully disagree with the President’s analysis of the arrangement between AFD and NII/Capital. The holdback fee was retained by the credit provider. It was never contemplated by AFD or NII/Capital that the holdback fee should be paid to the latter. There is a clear distinction between this situation and the situation in which the parties make an arrangement under which a credit provider holds an amount on behalf of the supplier of goods and services (in this case NII/Capital), which can then direct disposal of that amount. In my view it is wrong to regard the holdback arrangement as a payment by AFD to itself at NII/Capital’s direction, or to equate the arrangement to a situation in which AFD set aside an amount for NII/Capital and then paid part of that amount to NII/Capital’s trade creditors.

The President’s view is that s 15(B) requires disclosure only of amounts paid under the agreement between the credit provider and the borrower. On this view, it is irrelevant whether or not there was or was not a contractual arrangement between AFD and NII/Capital in relation to the holdback, as long as the funds are retained by or paid to AFD outside the terms of the credit contract.

In my opinion, however, even if it is accepted that the holdback was equivalent to a payment to AFD at the direction of NII/Capital, AFD was required to disclose the amount of the holdback to the borrower under s15(B)(a)(ii). In the next section I discuss my reasons for holding that the disclosure requirements in s 15(B) are not limited to obligations arising under the contract between AFD and the borrower.

Does s 15(B) require disclosure of amounts not required to be paid under the credit contract?

Counsel for AFD submitted that s 15(B)(a)(ii) only requires disclosure of an amount which is payable out of “the amount of credit” to a person (including the credit provider) under the contract between the credit provider and a borrower. It does not require disclosure of amounts payable under arrangements made outside that contract.

I agree with Ashley, J.A. that this submission should be rejected. The legislative history and policy goals of the Code[64], the text of the provision itself and the legislative context in which it appears[65] support an interpretation of s 15(B)(a)(ii) which requires disclosure of the amount of the holdback to the borrower.
[64]Interpretation of Legislation Act(Vic) 1984, s 35. This goal is also reflected in the NCP Review of the Consumer Credit Code (KPMG Consulting, December 2000), that comments at 74 in relation to the definition of a credit contract “…the broad definition provided in the Consumer Credit Code extends to a number of arrangements that would not constitute a ‘contract’ under common law. Hence, the definition of ‘credit contract’ is also considered appropriate to the objectives of the Consumer Credit Code as it is broad enough to encompasses all forms of consumer lending.” [Citations omitted].
[65]Cf Stingel v Clark [2006] HCA 37 at [89], per Kirby, J.

Background and Purposes of the Code

The Code is the culmination of more than 30 years of attempts to reform and modernise consumer credit laws[66] and to apply a uniform approach to credit transactions across Australia.[67]
[66]In England seven major deficiencies in consumer credit laws were identified in the Report of the Crowther Committee (1971). In South Australia the 1969 Rogerson Committee Report recommended repeal of hire purchase and money lending legislation and the introduction of national uniform credit laws. In Victoria the 1972 Molomby Committee Report identified similar problems to those dealt with in the Crowther Committee Report and elaborated reform proposals in the Rogerson Committee Report.See A. Duggan and E. Lanyon, Consumer Credit Law Butterworths, (1999) pp. 18 - 21.
[67]The goal of achieving uniform credit laws was set out in the Australian Uniform Credit Laws Agreement see A Duggan and E Lanyon, Consumer Credit Law, Butterworths, (1999) p. 22.

The Explanatory Notes to the Consumer Credit (Queensland) Act say that the Code -

“is based on the principle of truth in lending which will allow the borrower to make informed choices when purchasing credit.”

This objective of “truth in lending” was first sought to be achieved by United States legislation[68] enacted in the 1970s. The state credit laws which preceded the enactment of the Code were based on a similar goal.
[68]A. Duggan and E. Lanyon, Consumer Credit Law, Butterworths, (1999) p. 84.

“Truth in lending” protects individual consumers, by ensuring that they receive accurate information before they enter into a credit contract, but it has other objectives as well. According to Duggan and Lanyon’s leading text, Consumer Credit Law, it is also intended to stimulate competition in the credit market by giving consumers who are “shopping around” for credit, a standardised basis on which they can make comparisons between products and to “encourage restraint in the use of consumer credit by alerting consumers to the full cost of credit transactions.”[69]
[69]A Duggan and E Lanyon, Consumer Credit Law in Australia, Butterworths, (1999) pp 84 - 85.

Earlier credit legislation had similar purposes. In Australia and New Zealand Banking Group Ltd v R & D Bollas & Ors,[70] this Court was required to interpret provisions in the Credit Act 1984, which required disclosure of information to borrowers. Ormiston, J.A. said that the relevant section should be:

“given an interpretation appropriate to its use in this context and not one which would have enabled credit providers to create artificial transactions in order to deny their obligation to make disclosure” [71]

[70][1999] VSCA 50.

[71]Ibid at [8]. See also Canham v Australian Guarantee Corporation Ltd (1993) 31 N.S.W.L.R. 246 at 254, per Kirby, P.

This approach to the interpretation of consumer credit legislation is endorsed by clause 7 of Schedule 2 of the Code, which provides that:

“(1)In the interpretation of a provision of this Code, the interpretation that will best achieve the purpose or object of this Code is to be preferred to any other interpretation.
(2)Subclause (1) applies whether or not the purpose is expressly stated in this Code.”

The purpose of consumer credit legislation is to regulate the provision of credit for “personal, domestic or household purposes.”[72] Interpretation of the legislation must necessarily take account of the link between consumer credit laws and the broader consumer protection movement which developed in the mid-twentieth century. During the late nineteenth and early twentieth century various consumer credit arrangements were made to finance the purchase of goods for personal and household purposes. For example in the early twentieth century it became common for suppliers of goods and consumers[73] to enter into hire purchase agreements to finance the purchase of consumer durables. It was not until later in the century that finance companies became involved as third parties in these arrangements.[74]
[72]Consumer Credit Code s 6(1)(b).
[73]In Helby v Matthews [1895] A.C. 471 it was held that the common form of hire purchase agreement was not an agreement for sale, so that the Factors Act provisions relating to conditional contracts did not apply.
[74]A. Duggan and E. Lanyon, Consumer Credit Law in Australia, Butterworths, (1999) pp. 7-9.

The Code is now intended to cover all forms of consumer credit.[75] Where credit is provided on a single occasion or for a single purpose (as in the case before us) the transaction may be a bi-partite one involving an arrangement between a consumer and a retailer who supplies both goods and credit, or between a borrower and a financier, who supplies credit for the personal purposes of the borrower. Alternatively it may be a multi-partite transaction which involves a supplier of goods or services, a consumer and a third party credit provider. In a multi-partite transaction the consumer enters into two contracts, the contract of sale with the supplier and the loan contract with the credit provider. Multi-partite transactions may not involve –

“…any contract between the dealer and the credit provider at all. However, there will be some form of ongoing arrangement between the credit provider and the dealer with respect to the provision of credit to the dealer’s customers; and it is this feature which serves to distinguish the case from one where the customer independently obtains a loan from, say, a bank and uses the proceeds to finance the purchase from the dealer.”[76]

[75]Second Reading Speech of Consumer Credit (Queensland) Bill, by the Honourable T.J. Burns, Minister for Emergency Services and Minister for Rural Communities and Consumer Affairs, Parliamentary Debates, Queensland Legislative Assembly, 4 August 1994, 8828.

[76]A. Duggan and E. Lanyon, Consumer Credit Law in Australia, Butterworths, (1999) p. 22.

The breadth of the Code’s coverage and the common use of multi-partite arrangements as a mechanism to finance the purchase of goods and services are, in my view, factors which should be taken into account in interpreting the scope of disclosure requirements in s 15(B)(a)(ii) of the Code.

The Legislative Context

Two further points should be made about the legislative context in which s 15(B)(a)(ii) must be interpreted, before I examine the words of the provision. First, it is relevant to note that the pre-contractual disclosure requirements in the Code are not confined to matters concerning the contractual relationship between the credit provider and the borrower. For example s 15(L) requires the borrower to be given a statement on the terms of any guarantee or mortgage which is to be or has been taken by the credit provider. The parties to the contract of guarantee will often not be parties to the credit contract. Section 15(M) requires disclosure of the fact that a commission is to be paid by or to the credit provider for the introduction of credit business or business financed by the contract;[77] and s 15(N) requires disclosure of the details of any credit-related insurance contract which is to be financed, including any commission which the credit provider is aware is to be paid in relation to the insurance contract. All of these provisions relate to matters which involve a separate contractual relationship between the credit provider and a third party, but which may be relevant to a consumer who is seeking to compare the true costs of different credit arrangements.
[77]This does not include fees payable by a supplier under a merchant service agreement, which is an agreement under which the credit provider agrees to pay to the supplier amounts for goods supplied by the supplier and paid by means of credit cards: see Schedule 1 clause 1.

AFD submitted that the explicit requirements to disclose amounts payable outside the credit contract to third parties in ss 15(L), 15(M) and 15(N) supported the view that s 15(B)(a)(ii) was not limited to amounts payable under the credit contract. I agree with Ashley, J.A. that this argument is not decisive in interpreting s 15(B)(a)(ii). In any case, this argument is negated by the express words of the provision, which are discussed below.

The provisions of the Code impose overlapping obligations on credit providers and suppliers. Part 7 of the Code recognises the inter-relationship between contracts for the purchase of goods and contracts for the provision of credit by making credit providers liable for the conduct of suppliers in certain situations, even though the borrower contracts separately with the supplier and the credit provider and is not a party to any contract or arrangement between the supplier and the credit provider.

A credit provider to whom the supplier, by arrangement with the credit provider, regularly refers persons for the purpose of obtaining credit, is a linked credit provider for the purposes of Part 7 of the Code.[78] When a borrower enters into a contract with a linked credit provider of a supplier, for the provision of credit, in respect of the supply of goods and services, the supplier and linked credit provider may be jointly and severally liable to the debtor, if the debtor suffers loss or damage as a result of misrepresentation or breach of contract in relation to the contract for supply of the goods or services.[79] Further, where a credit provider who is liable under this provision claims an amount of money from a debtor, the debtor may set up the liability of the credit provider to reduce the debtor’s liability under the credit contract.[80]
[78]Consumer Credit Code s 117. The definition of “linked credit provider” includes a credit provider “to whom the supplier, by arrangement with the credit provider, regularly refers persons for the purpose of obtaining credit.” See also definition of “tied loan contract” in s 117(3).
[79]Consumer Credit Code s 119(1)(b). For exceptions to this principle see s 119 (2)(b).
[80]Consumer Credit Code s 120. Note the qualifications in s 120 (2)-(5).

To summarise, the Code contains provisions which recognise the multi-partite relationships which may exist between suppliers of goods and services and credit providers. This supports an interpretation of s 15(B)(ii) which does not confine its operation to the contractual obligations of the parties to the credit contract. For the reasons discussed below, such an interpretation is also consistent with the express words of the provision.

The words of the section

Section 15(B) says that the contract document must set out -

“(a) If the amount of credit to be provided is ascertainable -
(i) that amount; and
(ii)the persons, bodies or agents (including the credit provider) to whom it is to be paid and the amounts payable to each of them, but only if both the person, body or agent and the amount are ascertainable.”

Under s 4(2) of the Code “the amount of credit” is defined as “the amount of the debt actually deferred.” In this case the amount of debt actually deferred is the amount paid by the consumer for the right to participate in investment seminars. Under s 4(2) the amount of credit does not include -

“any fee or charge…that is not payable in connection with the making of the contract or the making of a mortgage or guarantee related to the contract.” (emphasis added).

I note that the words “in connection with the making of the contract” are sufficiently wide to cover payments occurring outside the contract itself.

Section 15(B)(a)(ii) has two important features. First, unlike s 15(C), 15(D) and 15(E) (dealing with interest charges and the annual percentage rate), s 15(G) (dealing with credit fees and charges) s 15(H) (dealing with changes affecting interest and credit fees), s 15(J) (dealing with the default rate) and 15(K) (dealing with enforcement expenses under the contract or an associated mortgage), the disclosure requirements in s 15(B)(a)(ii) are not qualified by use of the words “under the contract.” I agree with the view of the Judge below that -

“The use of the phrase ‘under the contract’ in each of those provisions gives significance to the absence of the same phrase in s 15(B)(a)(ii). These sub-sections support the [Director of Consumer Affairs’] contention that s 15(B)(a)(ii) is intended to require the contract document to specify the persons to whom the amount of credit is to be paid, regardless of whether the source of that obligation is the contract document or a different agreement.”[81]

[81][2004] VSC 526 at [74].

The interpretation for which AFD contends would require the words “under the contract” to be read into the section. AFD submitted that it was unnecessary for the words “under the contract” to be included in s 15(B)(a)(ii) because “credit “ is defined in s 4(1), which requires credit to be provided “under a contract” in which the payment of a debt is deferred. At [114]-[116] of his judgment Ashley, J.A. explains why the failure to include the words “under the contract” in s 15(B)(a)(ii) cannot have been based simply on the need to avoid repetition. I agree with his Honour’s reasoning on this issue.

The history of the disclosure requirements contained in the Victorian Credit Act 1984 and equivalent legislation in the other states, provides additional support for regarding the absence of the words “under the contract” in s 15(B)(a)(ii) as particularly significant. Section 36 of the Credit Act required certain matters to be set out in a loan contract, including “the amount agreed under the contract to be lent (other than certain specified amounts)[82] and certain other specified payments payable “under the contract” to the credit provider.
[82]Credit Act 1984 Schedule 4 (This and subsequent footnotes refer to the Act as originally enacted. Though the Act was amended on many occasions the basic scheme of these provisions remained the same).

The civil penalty imposed for contravention of disclosure requirements under the Credit Act resulted in the debtor being absolved of all liability for credit charges, unless an order was made by the relevant court or Tribunal restoring the charges.[83] This prompted litigation about whether the credit provider had breached legislative disclosure requirements, by failing to disclose obligations imposed on the borrower to pay certain charges or disbursements,[84] some of which were deducted from the amount of the loan and some of which may have been payable by the borrower from other sources. Determination of this issue turned on the interpretation of the words “under the contract.“[85]
[83]Credit Act 1984 ss 42, s 85.
[84]For example amounts payable under a mortgage associated with the loan, stamp duty, and fees payable to the bank for providing a bank cheque see Australian and New Zealand Banking Group Ltd v R & D Bollas & Ors [1999] VSCA 50.
[85]It was necessary to determine which amounts were included in “the amount financed” which was “the amount agreed under the contract to be lent”. It was also necessary to determine whether certain other amounts were “under the contract” payable by a debtor to the credit provider, whether or not those amounts were payable to another person. See for example Australian and New Zealand Banking Group Ltd v R & D Bollas & Ors [1999] VSCA 50 which held that fees and charges payable under a mortgage associated with the loan were included, but that fees paid for bank cheques and production and lodgement fess charged by the bank did not have to be disclosed separately. See also Avco Financial ServicesLtd v Abschinski & Adonis& the Department of Justice [1994] 2 V.R. 659.

Lengthy debate and negotiation preceded the introduction of the Code. Although there are differences between the language of the disclosure requirements in the Code and the disclosure requirements in the Credit Act 1984 and equivalent legislation, it can be assumed that the expert bodies involved in devising the Code would have been well aware of questions about the scope of disclosure requirements that had previously arisen. In such circumstances these bodies are likely to “have followed closely the course of judicial interpretation of the legislation in its earlier form.” It is accordingly “reasonable to infer an awareness of the manner in which technical language has been construed”.[86] This buttresses my view that considerable significance should be attributed to the omission of the words “under the contract” in s 15(B)(ii).
[86]Stingel v Clark [2006] HCA 37 at [12] per Gleeson, C.J, Callinan, Heydon and Crennan JJ.

Secondly, the words of s 15(B)(a)(ii) clearly cover the amounts retained by the credit provider. The provision refers to “the persons, bodies or agents, (including the credit provider) to whom [that amount] is to be paid and the amounts payable to each of them.” The words “including the credit provider” is apt to cover the retention of the holdback fee. It should be read as covering amounts payable outside the contract, as credit fees and charges payable “under the contract” are dealt with in s15(G). Although the primary purpose of the provision may have been to cover fees,[87] payable to the credit provider by the borrower, the words are also apposite to cover amounts payable out of the loan to third parties or the credit provider in connection with, but not under, the contract. On this point I agree with the reasoning of Ashley, J.A. at [121].
[87]Note however that the definition of “credit fees and charges” includes fees payable “in connection with” a credit contract or mortgage; see Schedule 1 clause 1”.

The interpretation which I propose is consistent with the “truth in lending” purpose of the legislation. His Honour, the President, reasons there is no inconsistency between the objective of “truth in lending” and an interpretation of s 15(B)(a)(ii) that relieves AFD from the obligation to disclose the existence of the hold-back fee, which it received as the result of its arrangement with the supplier. According to his Honour’s approach, the goal of “truth in lending” applies only to the contractual terms of the lending transaction between the credit provider and the borrower. The terms of any arrangement, direction or contract between AFD and the supplier fall outside this requirement.

This approach confines the purpose of “truth in lending” to ensuring that an individual customer is aware of the terms of the contract between him/herself and the credit provider. It does not take account of the difficulties that an arrangement of the kind made between AFD and NII/Capital is likely to create in comparing credit terms offered by different credit providers. It undermines the goal of providing standardised terms to enable such comparisons to be made. It would disadvantage borrowers by failing to provide them with the information that may allow:

·informed negotiation with the service provider for purchase at a reduced cost;
·informed negotiation with the credit provider for a rebate on the holdback; or
·a meaningful comparison with the terms offered by other credit providers, and service providers who enter into multi-partite arrangements.[88]

[88] I respectfully agree with the comments that Ashley, J.A. makes on this issue at [53] of his Honour’s reasons.

For that reason the words “including the credit provider” should be interpreted as covering amounts paid out of the amount of credit in connection with the credit contract, but which are not required to be paid under the contract itself.

Relevance of the nature of the “holdback”

If s 15(B)(a)(ii) applies to payments out of the “amount of credit” which are not made under the credit contract, what are the limits on its operation? The Code is a remedial statute, which is designed to protect consumers. It should not be construed “grudgingly or with a penchant for technicality”.[89] In my view s 15(B)(a)(ii) should be regarded as applicable in any situation where an amount paid to or retained by the credit provider or a third party is inextricably inter-related to and dependent upon the loan transaction. In this respect I note the comment of the Deputy President of VCAT and endorsed by the Judge below that the holdback arrangement was –

“so fundamental in nature and so fundamental to the transaction as a whole, (that is the transaction which the debtor entered into) …so intrinsically bound up with the debtor’s obligation to pay principal and interest under the credit contract, that they cannot be regarded as somehow being apart from, or excluded from, the credit contract and the transaction which led to it.”[90]

[89]Re Australian Marine Engineers (1986) 71 ALR 73 at 79 per Gummow, J.

[90][2004] VCAT 1515 at [74].

The inter-relationship between the credit contract between the borrower and AFD, the contract between NII/Capital and purchasers of investment seminars and the retention of a “holdback” by AFD is evidenced by the fact that:

·the loan documents were provided with the enrolment form for the investment seminars. Credit was offered solely for the purpose of the seminars, and could not be used for any other purpose;
·borrowers who obtained finance to pay their seminar fees signed the loan contract at the same time that they signed the seminar enrolment form; and
·although the amounts of holdback varied over time (see Ashley, J.A.’s judgment at [50]) there was generally a direct arithmetical relationship between the standard rate of interest charged by AFD and the percentage of the loan which was retained by AFD. The standard rate of interest was generally 24%. As the hold back fee increased, the amount of interest which the borrower was charged was reduced. Arithmetically the two rates usually added to 24%.

AFD’s submissions reflected the assumption that the disclosure requirement in s 15(B)(a)(ii) would not have applied if there had been two contracts between NII/Capital and AFD, one under which NII/Capital contracted to pay a holdback fee to AFD and one under which AFD was liable to pay the amount of the loan to NII/Capital, so that the parties could off-set their respective liabilities under the contracts.

I agree with Ashley, J.A. at [105] that in interpreting the provision it is not to the point that AFD might not have been required to disclose the holdback if the parties had structured their arrangements differently. Further, to my mind, such restructuring would not necessarily exclude the operation of s 15(B) in a case where an amount paid to a credit provider or third party was inextricably related to the credit contract. Because this was not argued, however, I express no concluded view on the issue.

The interpretation urged by the appellants is at odds with the purpose of the Code and should not be sustained.

I would therefore dismiss AFD’s appeal against the Judge’s decision.

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[2006] VSCA 245

20 November 2006