Australian Securities and Investments Commission v Rent 2 Own Cars Australia Pty Ltd
[2020] FCA 1312
•11 September 2020
FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission v Rent 2 Own Cars Australia Pty Ltd [2020] FCA 1312
File number(s): QUD 609 of 2018 Judgment of: GREENWOOD J Date of judgment: 11 September 2020 Catchwords: CONSUMER LAW – consideration of whether the National Consumer Credit Protection Act 2009 (Cth) (the “NCCP Act”) and the National Credit Code (the “Code”), Schedule 1 to the NCCP Act, apply to 232 contracts for the provision of credit in the form of hire purchase style contracts – consideration of whether the contracts are credit contracts – consideration of the elements of provision of credit – consideration of the construction to be attributed to each of the subsections of s 9 in the context of the statutory purpose
CONSUMER LAW – consideration of the following provisions of the NCCP Act: ss 3, 5, 7, 8, 29, 47, 64, 65, 71, 166, 168, 169, 177, 187 – consideration of the following provisions of the Code: ss 3, 4, 5, 6, 9, 17, 23, 32A, 32B, 111, 112, 113, 116, 122, 124, 204
CONSUMER LAW – consideration of whether conduct said to engage contraventions of the Code also engages contraventions of the Australian Securities and Investments Act 2001 (Cth) (the “ASIC Act”) – consideration of ss 12DA(1), 12DB(1)(a), 12DB(1)(g), 12BAA(7), 12BAB(1) of the ASIC Act – consideration of the terms “standard, quality, value or grade” in s 12DB(1)(a) of the ASIC Act
STATUTORY CONSTRUCTION – consideration of the principles to be applied – consideration of provisions of the NCCP Act and the Code – consideration of whether the directors of the respondent corporation were knowingly concerned in the contraventions of the Code by the respondent corporation and whether they were knowingly concerned in the respondent corporation’s contraventions of the ASIC Act – consideration of s 12GBA(1)(e) of that Act – consideration of the principles derived from Yorke v Lucas (1985) 158 CLR 661 – consideration of the state of knowledge that must be shown to exist in the relevant person before such a person is knowingly concerned in the contraventions of another – consideration of authorities of intermediate courts of appeal applying principles of accessorial liability under the statutory text in issue
Legislation: Australian Securities and Investments Commission Act 2001 (Cth) ss 12DA(1), 12DB(1)(a), 12DB(1)(g), 12BAA(7), 12BAB(1)
Corporations Act 2001 (Cth) s 79
National Consumer Credit Protection Act 2009 (Cth) ss 3, 5, 7, 8, 29, 47, 64, 65, 71, 166, 168, 169, 177, 187
National Credit Code ss3, 4, 5, 6, 9, 17, 23, 32A, 32B, 111, 112, 113, 116, 122, 124, 204
Trade Practices Act 1974 (Cth)
Australian Securities and Investments Commission Regulations 2001 (Cth) reg 2B(1)
Cases cited: Amalgamated Society of Engineers v Adelaide Steamship Co. Ltd (1920) 28 CLR 129
Application by Isentia Pty Limited [2020] ACopyT 2
Australian Competition & Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17
Australian Competition and Consumer Commission v TF Woollam & Son Pty Ltd (2011) 196 FCR 212
Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) (2015) 235 FCR 181
Body Bronze International Pty Ltd v Fehcorp Pty Ltd (2011) 34 VR 536
CH Real Estate Pty Ltd v Jainran Pty Ltd; Boyana Pty Ltd v Jainran Pty Ltd [2010] NSWCA 37
Cooper Brookes (Wollongong) Proprietary Limited v Federal Commissioner of Taxation (1981) 147 CLR 297
Downey & Anor v Carlson Hotels Asia Pacific P/L [2005] QCA 199
Ducret v Chaudhary’s Oriental Carpet Palace Pty Ltd (1987) 76 ALR 183
Giorgianni v The Queen (1985) 156 CLR 473
Given v C V Holland (Holdings) Pty Ltd (1977) 15 ALR 439
Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435
Hamilton v Whitehead (1988) 166 CLR 121
Independent Commission Against Corruption v Cunneen (2015) 256 CLR 1
Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1
Milorad Trkulja (aka Michael Trkulja) v Google LLC (2018) 263 CLR 149
Pereira v Director of Public Prosecutions (1988) 82 ALR 217
Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1
Roper v Taylor’s Central Garages (Exeter) Ltd [1951] 2 T.L.R. 284
Rural Press Limited v Australian Competition and Consumer Commission (2003) 216 CLR 53
Thompson v Riley McKay Pty Ltd (No 2) (1980) 31 ALR 507
Wheeler Grace & Pierucci Pty Ltd v Wright (1989) 16 IPR 189
Yorke v Lucas (1985) 158 CLR 661
Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub‑area: Regulator and Consumer Protection Number of paragraphs: 438 Date of last submission/s: 1 August 2019 Date of hearing: 29 July 2019 – 1 August 2019 Counsel for the Applicant: S J Cleary and S E Seefeld Solicitor for the Applicant: H Copley of ASIC Counsel for the First and Third Respondents: S J Forrest Solicitor for the First and Third Respondents: Behlan Murakami Grant ILP ORDERS
QUD 609 of 2018 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Applicant
AND: RENT 2 OWN CARS AUSTRALIA PTY LTD ACN 082 691 085
First Respondent
TIMOTHY JAMES ROBERTS
Second Respondent
PAUL ANTHONY GREEN
Third Respondent
ORDER MADE BY:
GREENWOOD J
DATE OF ORDER:
11 SEPTEMBER 2020
THE COURT ORDERS THAT:
1.The Applicant is directed to submit to the Court within 14 days proposed forms of relief to be granted having regard to the reasons for judgment published today and in particular taking into account the matters set out at [436] of the reasons for judgment.
2.The parties are directed to conduct discussions with a view to submitting to the Court within 14 days proposed directions for undertaking such steps as may be necessary for the hearing of the separate question of penalty.
3.As to the question of the period of the restraint the subject of an injunction as contemplated by point 5 of the matters at [436], the parties are directed to put on such further submissions (if any) within 14 days.
4.The costs of and incidental to the proceeding are reserved.
5.Pursuant to s 23 and s 37P of the Federal Court of Australia Act 1976 (Cth), r 1.32 and r 1.36 of the Federal Court Rules 2011, these Orders and Reasons for Judgment in support of these Orders made and published in Court today are, additionally, dispatched to the parties from chambers.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
GREENWOOD J
Background
These proceedings are concerned with an application by the Australian Securities and Investments Commission (“ASIC”) for a range of relief in relation to contended conduct on the part of the corporate respondent Rent 2 Own Cars Australia Pty Ltd (“R2O”) said to involve contraventions of ss 32A, 23(1), 17(4) and 17(5) of the National Credit Code (or “Code”) which is Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth) (the “NCCP Act”), and ss 12DA(1), 12DB(1)(a) and 12DB(1)(g) of the Australian Securities and Investments Commission Act 2001 (Cth) (the “ASIC Act”).
Relief is also sought against two individual respondents, Mr Timothy James Roberts and Mr Paul Anthony Green, who were the directors of R2O at all times material to the conduct allegations made against that corporation. ASIC contends that Mr Roberts and Mr Green were “involved in” the contraventions of the National Credit Code asserted against R2O, within the terms of s 5(1) of the NCCP Act. The definition of the term “involved in” contained in s 5(1) of the NCCP Act is in the same terms as the definition of that term in s 79 of the Corporations Act 2001 (Cth) (the “Corporations Act”). The same formulation of that term is adopted in s 2(1) of the Australian Consumer Law (the “ACL”; Schedule 2, Competition and Consumer Act 2010 (Cth)). Section 12GBA(1) of the ASIC Act confers power on the Court to order a person who has contravened a relevant provision of the ASIC Act to pay such pecuniary penalty as the Court determines, and to order a person who has had any one of the degrees of involvement in the contravention described in s 12GBA(1)(b) to (f) to pay such pecuniary penalty as the Court determines. The text of s 12GBA(1)(c), (d) and (e) is in the same terms as s 5(1)(a), (b) and (c). Section 5(1)(d) is in similar terms to s 12GBA(1)(f). ASIC contends that the jurisprudence concerning the interpretation of the term “involved in” in s 79 of the Corporations Act, s 2(1) of the ACL and the elements of s 12GBA(1)(c), (d) and (e) of the ASIC Act assist in the construction and application of the statutory term “involved in” in s 5(1) of the NCCP Act.
These proceedings are concerned only with the question of the liability of the respondents in respect of the contended conduct. No question of penalty arises for consideration in these proceedings.
The question of the proper principles to be applied in determining whether a person is “involved in” a contravention of the relevant sections of the National Credit Code relied upon by ASIC and whether, applying those principles, Mr Green (and Mr Roberts) were involved in any (or all) contravention(s) established against R2O is one of the matters in controversy in these proceedings. ASIC also contends that Mr Green and Mr Roberts were involved in the contended contraventions of the ASIC Act by R2O within the terms of s 12GBA(1) of the ASIC Act. All of these matters at [2] and [3] are addressed later in these reasons.
The conduct allegations are framed by an Amended Concise Statement filed by ASIC in support of an Amended Originating Application. The respondents have put on a Concise Response. However, as mentioned later in these reasons, the character of the response adopted by R2O and Mr Green on the one hand, and Mr Roberts on the other hand, changed significantly after the filing of ASIC’s opening submissions for the hearing of the proceeding.
For the purposes of an overview of the proceedings, the following matters should be noted.
ASIC contends that R2O operated a business as a credit provider for the purchase by consumers of used cars. R2O has held an Australian Credit Licence (“ACL”) issued under the provisions of the NCCP Act since 24 December 2012 (Licence No. 428838). That licence recites 12 classes of “credit activities” in which R2O is authorised to engage as a “credit provider” which include: “carrying on a business of providing credit being credit the provision of which the National Credit Code applies to; and/or, being a credit provider under a credit contract”. Between 1 July 2012 and 26 July 2018, R2O entered into 5,930 credit contracts and as at 19 April 2018, R2O had 2,239 credit contracts on foot.
In this proceeding, ASIC relies on 232 contracts made between R2O and consumers. Those credit contracts fall into two tranches. The first tranche comprises 142 contracts made between 1 March 2017 and 6 September 2017. They are described as the 2017 contracts in Schedule 1 to the Amended Concise Statement and para 86 of the affidavit of Ms Irma Schoch sworn on 18 March 2019. Ms Schoch is a lawyer employed by ASIC and three affidavits sworn by her form part of ASIC’s evidence in the case. The second tranche of contracts comprises 90 contracts made between 25 May 2018 and 18 June 2018 described as the 2018 contracts as set out in Schedule 1 to the Amended Concise Statement and para 88 of Ms Schoch’s affidavit of 18 March 2019.
As to those 232 contracts, ASIC contends that there are five versions of the contract. However, ASIC contends that within both tranches of contracts, the differences between the five versions are not material. The differences between them are said to be minor matters of terminology and formatting which do not affect the material terms of each contract for the purposes of these proceedings. In order to illustrate the material terms of the contracts represented by the 2017 contracts, ASIC has selected a contract made between R2O and Ms Adele Renae Abbott dated 7 June 2017 (Tab 99A to Ms Schoch’s 18 March 2019 affidavit). As to the 2018 contracts, ASIC has selected a contract made between R2O and Ms Dorinda Rona May Abraham dated 5 June 2018 (Tab 101A to Ms Schoch’s 18 March 2019 affidavit) as emblematic of the 2018 contracts.
Mr Roberts does not contest any aspect of the case made by ASIC against R2O or him. Mr Roberts advised the Court that he did not intend to participate in the trial of the proceeding and would submit to any order made in the proceeding but would wish to be heard on the question of costs.
R2O and Mr Green were represented by counsel in the proceeding. However, the area of contest between ASIC and these respondents narrowed considerably, especially as to important matters of fact. I will return to the scope of the issues between those respondents and ASIC, as framed by those respondents, shortly. For present purposes, however, it should be noted that there is no contest that the contract with Ms Abbott fairly reflects the material terms of the 2017 first tranche contracts (the “2017 contracts”) or that the contract with Ms Abraham fairly reflects the material terms of the 2018 second tranche contracts (the “2018 contracts”): the consumers entering into these two tranches of contracts are described as the “2017 and 2018 consumers”.
The following additional factual matters drawn from the written opening of ASIC (and the Court Book, exhibit 1) should be noted having regard to the position adopted by R2O and Mr Green at para 2 of the written submissions filed on behalf of those respondents. Those written submissions frame the areas of contest between ASIC and those respondents and, as mentioned, I will return to those matters shortly.
As to the topic of motor car dealers acting as franchisees and credit representatives of R2O, ASIC contends that R2O operated its business through a network of franchisees. At 17 July 2017 and 26 July 2018, there were 21 such franchisees operating in Queensland, New South Wales, Victoria, South Australia, Tasmania and Western Australia. Each franchisee, or a person employed by the franchisee, held a Motor Dealer Licence within the relevant State jurisdiction. For each franchisee, R2O authorised the franchisee entity or person, and/or one or more persons employed by the franchisee to be a credit representative of R2O under s 64 of the NCCP Act, enabling that representative to engage in “credit activity” on behalf of R2O. The R2O Operations Manual noted the requirement for franchisees to hold a Motor Dealer Licence and to be a credit representative of R2O.
As to contracts made between R2O and the 2017 and 2018 consumers, ASIC contends that R2O provided credit through a hire purchase style of contract between R2O and consumers for the purchase by them of used cars from R2O franchisees. Examples of those contracts are the contracts with Ms Abbott and Ms Abraham. A template of the contract was provided by R2O to its franchisees through its intranet and was included in the R2O Operations Manual. The R2O contract with each of the 2017 and 2018 consumers, which ASIC says is a credit contract for the purposes of the National Credit Code, makes numerous references to the National Credit Code. R2O and Mr Green contest the contention that the 2017 and 2018 contracts are credit contracts for the purposes of the National Credit Code. For present purposes, I will describe the contracts with the 2017 and 2018 consumers as credit contracts recognising, of course, that the question of whether those contracts are credit contracts for the purposes of the National Credit Code is a question in issue.
By way of overview for present purposes, ASIC relies upon the following “key provisions” of the R2O credit contracts characterised in the following way.
First, each contract required a consumer to pay a deposit, sometimes called a first payment. ASIC contends that R2O recommended to consumers a deposit of approximately 75% of the stock purchase price of the used car. ASIC contends that R2O recommended that franchisees purchase used car stock for between $800 and $2,000 per vehicle with the aim of obtaining a deposit on each vehicle of 75% of the stock purchase price, having regard to the comments made under the heading “Stock Purchase” in the Operations Manual.
Second, the contract provided for each consumer to make weekly repayments throughout the term of the contract. ASIC contends that the term of the contracts the subject of the proceeding varied between 50 weeks (approximately one year) and 208 weeks (four years). The majority of contracts provided for a term between 78 weeks (1.5 years) and 104 weeks (two years).
Third, each contract referred to the cash price of the car as the car retail price or the comparison price. ASIC contends that R2O instructed its franchisees to determine this amount by researching the retail price of similar cars advertised on the internet and one example of a site providing such information was carsales.com.
Fourth, each contract set out the total amount to be paid by the consumer under the contract which was sometimes called the contract total or contract price. ASIC contends that the total amount to be paid under the contract was the deposit or first payment as described earlier plus the total of the weekly repayments, described earlier. For example, in the case of the contract with Ms Abbott, the first payment (deposit) was an amount of $1,200. The contract provided for 84 rental payments of $118.91 each resulting in total repayments of $9,988.44 which, taken together with the first payment, gave rise to a contract price of $11,188.44. The comparison price, as earlier described, is recited as $5,900. The contract also recites a warranty cost of $1,000 (to be mentioned shortly). The contract total or contract price is recited as $11,188.44. The contract recites an interest rate of 45% per annum and recites a total amount payable as interest of $4,288.44. Since the total repayments are recited as $9,988.44 and the total interest payable is recited as $4,288.44, it seems that the non-interest component amounted to $5,700. The amounts of $5,700, $4,288.44 and $1,200 amount to $11,188.44, described as the contract cash price.
Fifth, as mentioned, each contract stated an annual interest rate expressed as a percentage by reference to the letters “p.a.” which is said to be a reference to a per annum rate of interest.
Sixth, each contract provided for a warranty amount to be charged as illustrated above.
Seventh, as to ownership, each contract provided for an option enabling the consumer to acquire title to the used car.
It will be necessary to examine the contract between R2O and Ms Abbott and R2O and Ms Abraham in greater detail later in these reasons, and the relationship between those contracts and the “price calculator” used by franchisees to calculate the weekly repayment amount.
As already noted, a consumer entering into a contract with R2O was required to make a first payment as part of the transaction and a number of regular repayments with title typically passing upon the exercise of an option to acquire title in the used car on payment of the last repayment (although the mechanism need not necessarily work in that way). Accordingly, interest was a component of the amount of the repayment. In order to distil the calculus of factors into a quantified regular repayment over the term of the contract, R2O provided the franchisees with a number of “price calculators”, from 16 August 2016, in the form of a “Microsoft Excel” calculator for the purpose of determining the weekly repayment under the contract for a stated interest rate and contract term. Mr Green provided six such price calculators by email to the franchisees: 16 August 2016; 10 November 2016; 14 December 2016; 19 January 2017; 1 November 2017; and 11 April 2018.
ASIC contends that each of these calculators (except for the price calculator sent to franchisees on 11 April 2018) required the franchisee to insert into the calculator the cash price of the used car, the deposit amount, the warranty amount, the term of the contract in weeks and a selected interest rate, so as to determine the quantified amount of the weekly repayments. ASIC contends that R2O issued instructions to its franchisees on how to use the price calculator.
As to these price calculators, ASIC relies on the price calculator sent by Mr Green to franchisees on 19 January 2017, as this was the last price calculator sent to the franchisees before R2O entered into the first tranche of contracts between 1 March 2017 and 6 September 2017.
ASIC also relies on the price calculator sent by Mr Green to the franchisees on 1 November 2017 as this calculator was sent after the first tranche of contracts, but before the 2018 contracts (the second tranche).
ASIC also relies on the last price calculator sent by Mr Green to the franchisees on 11 April 2018, which was sent before entry into the second tranche of contracts.
Assuming for the moment that the National Credit Code applies to each of the 232 contracts in issue in these proceedings, ASIC contends, put simply, that the National Credit Code establishes, relevantly for these proceedings, the following obligations.
First, s 32A(1) of the National Credit Code provides that a credit provider must not enter into a credit contract if the annual cost rate of the contract exceeds 48%. The term annual cost rate is determined according to the elements of s 32B of the National Credit Code. ASIC contends, based upon expert evidence given by Mr Michael John Hill, a Chartered Accountant retained by ASIC to provide an expert report for the purposes of these proceedings, that as to the first tranche of contracts, the annual cost rate of 48% has been exceeded in 108 of the 142 credit contracts and, as to the second tranche of contracts, ASIC contends that the annual cost rate of 48% has been exceeded in 32 of the 90 contracts. In other words, ASIC contends that of the 232 contracts in issue in these proceedings, the annual cost rate of 48% has been exceeded in 140 of those contracts, in contravention of s 32A of the National Credit Code.
Second, s 23(1)(c) provides that a credit contract (other than a small amount credit contract) must not impose a monetary liability on the debtor in respect of an interest charge under the contract exceeding the amount that may be charged consistently with the National Credit Code. ASIC contends that because 140 of the 232 credit contracts in issue exceeded the annual cost rate of 48%, those 140 credit contracts imposed on the consumers a monetary liability in respect of an interest charge (in contravention of s 32A of the National Credit Code) which also gave rise to a contravention of s 23(1)(c) of the National Credit Code in respect of those 140 contracts.
Third, s 17(4)(a) of the National Credit Code provides that in the case of a credit contract (other than a small amount credit contract), the contract document must contain the annual percentage rate or rates under the contract. Section 27 of the National Credit Code defines the annual percentage rate under a credit contract to mean a rate “specified in the contract as an annual percentage rate”. ASIC contends that when that definition is read with Division 3 of the National Credit Code, which addresses the topic of “interest charges” and, particularly, s 27 of the National Credit Code, which contains a number of definitions relating to “interest”, it is clear that the “annual percentage rate” referred to in s 17(4) of the National Credit Code refers to an “interest charge” in a credit contract.
ASIC contends that all of the 232 credit contracts in issue in these proceedings purported to state an annual interest rate on the face of the document. It contends that for 187 of the credit contracts, the interest rate stated in the contract was not the annual percentage rate actually charged to the consumer. ASIC contends that the inclusion of an incorrect annual interest rate in each credit contract constitutes a contravention of s 17(4) of the National Credit Code and in order to illustrate that particular matter, ASIC refers to the contracts with Ms Abbott and Ms Abraham.
As to the credit contract with Ms Abbott dated 8 June 2017, the contract recites an interest rate of 45% per annum. ASIC contends that Mr Hill has calculated that the annual percentage rate for this contract was 77.11%. As to the credit contract with Ms Abraham dated 5 June 2018, the contract recites an interest rate of 35% per annum. ASIC contends that Mr Hill has calculated that the annual percentage rate for this contract was 74.9%. I will refer to the schedules to Mr Hill’s report later in these reasons.
As to Mr Hill’s evidence, Mr Hill has concluded that the annual percentage rate actually charged to the consumer is different to that stated in the credit contracts for all 142 of the first tranche of credit contracts. In 133 of those credit contracts, the annual percentage rate actually charged was higher than that stated in the credit contract, whereas in nine cases it was lower. As to the second tranche of contracts, Mr Hill has concluded that the annual percentage rate actually charged to the consumer is different to that stated in the credit contracts in 45 of the 90 credit contracts. In 44 of those 45 contracts, the annual percentage rate actually charged was higher than that stated in the credit contract, whereas in one case it was lower.
ASIC observes that it has not pressed this contravention for nine of the credit contracts where the difference in question is only 0.01%. Nevertheless, in 187 of the 232 credit contracts in issue in these proceedings, the annual percentage rate actually charged to the consumer was different to the annual interest rate recited in the credit contract and in 177 of these contracts, the annual percentage rate actually charged to the consumer was higher than the interest rate recited in the credit contract, whereas in 10 cases it was lower.
Fourth, s 17(5) of the National Credit Code provides that in the case of a credit contract (other than a small amount credit contract), the contract document must contain 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. ASIC contends that R2O has failed to set out in its contracts the matters required by s 17(5) of the National Credit Code. ASIC contends that each of the credit contracts in issue contained a clause addressing the topic “Annual Interest Rate” in these terms (at, for example, p 5 of the Abbott contract):
Annual Interest Rate
[An] annual interest rate of a maximum 45% per year will be added to the stipulated Comparison Price of the Vehicle should you elect to rent your vehicle for the full term that you have specified in this agreement. This annual interest rate is included in your rental payments and is disclosed above in “Payment Arrangements”.
In the case of the contract with Ms Abbott, for example, p 15 contains a “Contract Schedule” which has within it a section entitled “Payment Arrangement” in these terms:
Item Amount Contract Price $11,188.44 First Payment $1,200.00 Total Rental $9,988.44 Rental Amount $118.91 No. of Rental Payments: 84 Frequency: Weekly
ASIC contends that the Annual Interest Rate clause coupled with the Payment Arrangements part of the Contract Schedule fails to meet the requirements of s 17(5) of the National Credit Code because the most that the clause says is that an annual interest rate will be added to the comparison price of the vehicle. ASIC contends that this description falls short of the specificity required to describe the method of calculation of the interest charges payable under the credit contract and does not deal at all with the frequency with which interest rates are to be debited under the contract. ASIC contends that all 232 credit contracts in issue fail to comply with the requirements of s 17(5) of the National Credit Code.
As to the role of the price calculators sent by Mr Green to the franchisees, ASIC contends that R2O engaged in repeated contraventions of s 32A and s 17(4) of the National Credit Code because it directed its franchisees to use particular Microsoft Excel price calculators which incorrectly determined the amount of the weekly repayments for a stated interest rate and contract term. ASIC contends that Mr Hill has assessed each of the price calculators upon which ASIC principally relies, namely, the price calculators sent to the franchisees on 19 January 2017, 1 November 2017 and 11 April 2018, to determine whether those price calculators correctly carry out the purported calculations. ASIC contends that Mr Hill’s evidence reveals that the price calculator of 19 January 2017 does not calculate the weekly repayments correctly because it applies the interest rate percentage to the cash price for the entire term of the loan and does not apply a periodic interest rate to the reducing loan balance. Mr Hill says that the calculator fails to deduct the deposit amount from the cash price and fails to take into account the warranty amount.
As to the price calculator of 1 November 2017, Mr Hill observes that whilst this calculator does deduct the deposit amount from the cash price, it nevertheless applies the interest rate percentage for the entire term of the loan and does not apply a periodic interest rate to the reducing loan balance. As to the calculator of 1 April 2018, Mr Hill concludes that this calculator calculates the weekly repayments for a stated interest rate and contract term correctly, save for a minor adjustment in respect of the average number of weeks per year. The April 2018 price calculator is based on 52.142 weeks per year, whereas it should have adopted 52.18 weeks per year. ASIC contends that even though the franchisees were provided with a price calculator on 11 April 2018 that derived a correct calculation, it nevertheless remains the position that R2O contravened s 32A in 32 of the 90 credit contracts in the second tranche and contravened s 17(4) in 45 of the 90 contracts in the second tranche.
Apart from these provisions, ASIC contends that because, in the case of 177 of the 232 contracts in issue, the annual interest rate actually charged to consumers was higher than the interest rate recited in the relevant credit contract, R2O has engaged in conduct of making a false representation in the contract as to the annual interest rate to be charged to the consumer throughout the contract. ASIC contends that this conduct engages the following prohibitions contained in the ASIC Act.
First, s 12DA(1) prohibits misleading or deceptive conduct in relation to the provision of financial services.
Second, s 12DB(1)(a) prohibits false or misleading representations that services are of a particular quality in connection with the supply of financial services.
Third, s 12DB(1)(g) prohibits false or misleading representations with respect to the price of services in connection with the supply of financial services.
ASIC observes that these sections of the ASIC Act are each concerned with the provision of financial services. ASIC contends that for the purposes of s 12BAB(1) of the ASIC Act, a person provides a financial service if they deal in a financial product or if they provide a service that is otherwise supplied in relation to a financial product. ASIC contends that by reason of s 12BAA(7)(k), a credit facility (within the meaning of the Australian Securities and Investments Commission Regulations 2001 (Cth) (the “ASIC Regs”)) is a financial product for the purposes of Division 2 of Part 2 of the ASIC Act. Regulation 2B(1) of the ASIC Regs provides that for s 12BAA(7)(k) of the ASIC Act, the provision of credit for any period; and with or without prior agreement between the credit provider and the debtor; and whether or not both credit and debit facilities are available, is a credit facility. Regulation 2B(3) of the ASIC Regs provides that credit means a contract, arrangement or understanding under which payment of a debt owed by one person to another is deferred or one person incurs a deferred debt to another and includes any form of financial accommodation; and, specifically, a hire purchase agreement: ASIC Reg 2B(3)(b)(ii). ASIC contends that these provisions engage with the R2O credit contracts in issue in these proceedings with the result that the credit contracts are, by ASIC Reg 2B(1) a credit facility and therefore a financial product under s 12BAA(7)(k) of the ASIC Act with the result that by s 12BAB(1), R2O provided a financial service and was thus governed by ss 12DA(1), 12DB(1)(a) and 12DB(1)(g) of the ASIC Act.
As to s 12DB(1)(g) of the ASIC Act, ASIC contends that R2O has, in connection with the supply or possible supply of financial services or in connection with the promotion of the supply or use of those services, made a false or misleading representation with respect to the price of services because for 177 of the credit contracts in issue, the annual interest rate actually charged to those consumers was higher than the annual interest rate recited in the contracts.
As to s 12DB(1)(a) of the ASIC Act, ASIC contends that R2O, in trade or commerce, in connection with the supply or possible supply of financial services or the promotion of the supply or use of those services, has made a false or misleading representation that services are of a particular standard, quality, value or grade because a representation about the size of an annual interest rate applicable to the provision of credit under a contract is a representation about a quality or feature of that credit contract and about the value of the credit contract. Because the statement of the annual interest rate in 177 of the R2O contracts was a false or misleading representation with respect to the quality or value of the financial services, R2O is said to have contravened s 12DB(1)(a) of the ASIC Act.
As to s 12DA(1) of the ASIC Act, ASIC contends that the section operates as a general prohibition against misleading and deceptive conduct with the result that if the Court is satisfied that R2O has contravened s 12DB(1)(a) and (g) of the ASIC Act, it would follow that the prohibition in s 12DA(1) is contravened. Section 12DA(1) provides that a person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.
As to Mr Green and Mr Roberts, ASIC contends that each individual was “involved in” the contraventions by R2O of the National Credit Code and the ASIC Act.
For present purposes, it is sufficient to identify the terms of the definition of “involved in” contained in s 5(1) of the NCCP Act. The definition is in these terms:
involved in: a person is involved in a contravention of a provision of legislation if, and only if, the person:
(a) has aided, abetted, counselled or procured the contravention; or
(b) has induced the contravention, whether by threats or promises or otherwise; or
(c)has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
(d) has conspired with others to effect the contravention.
Particular emphasis is placed by ASIC on the elements of the defined term. For present purposes, it is sufficient to note that s 5(1) of the NCCP Act is simply a definitional or Dictionary section of that Act containing the defined terms used in the NCCP Act (but not the National Credit Code; s 5(1), NCCP Act). Section 5(1) must engage with a provision of the Act in order to have any role to play. It will be necessary to examine the elements of the statutory scheme later in these reasons.
Having regard to all of these matters, ASIC identifies as the central questions to be decided in the present proceedings, in relation to the 232 contracts in question, the following questions:
(a)whether the National Credit Code applies to each of the 232 contracts in issue, notwithstanding that ASIC contends that until recently, R2O seemed to regard each of the contracts as regulated by the National Credit Code;
(b)whether, in the event that the National Credit Code applies to each of the 232 contracts, R2O contravened ss 32A, 23(1), 17(4) and 17(5) of the National Credit Code;
(c)whether Mr Roberts and Mr Green were involved in any, or all, of the contended contraventions by R2O of the National Credit Code;
(d)whether R2O contravened ss 12DA(1), 12DB(1)(a) and/or 12DB(1)(g) of the ASIC Act; and
(e)whether Mr Roberts and Mr Green were involved in any, or all, of the contended contraventions of the ASIC Act.
In the context of all of these matters, it is now necessary to note the position adopted by the respondents.
As to Mr Roberts, as already mentioned, Mr Roberts elected not to contest any of the matters asserted by ASIC in its Amended Concise Statement. He elected not to participate in the trial of the proceeding and put on no evidence to contradict any of the evidence relied upon by ASIC. Mr Roberts has taken the position that he will submit to any order the Court might make in the proceedings, but wishes to be heard on the question of costs.
As earlier mentioned, R2O and Mr Green were represented by solicitors and counsel in the proceeding and they filed submissions which frame the position adopted on particular questions. In their written submissions, they say that R2O and Mr Green do not contest much of ASIC’s case as opened in ASIC’s opening submissions extensively described earlier. They say that, in particular, with reference to the list of central issues to be determined as identified by ASIC (and set out at [53] of these reasons), R2O does not contest that:
a.if, contrary to R2O’s contention, on its proper construction the National Credit Code does apply to the contracts relied upon by ASIC, R2O has contravened sections 32A, 23(1), 17(4) and 17(5) in the respects alleged;
b.R2O has contravened sections 12DA and 12DB(1)(g) of the Australian Securities and Investments Commission Act 2001 in the respect alleged.
R2O and Mr Green also say this at para 4 of the opening submissions:
The concession that R2O has contravened sections 12DA and 12DB(1)(g) of the ASIC Act is made in recognition that ASIC’s evidence establishes that, as ASIC states at paragraph 78 of its opening submissions, for 177 of the credit contracts, “the annual interest rate charged to consumers was higher than the annual interest rate stated in those contracts”. It follows that the inclusion of a lower interest rate than that actually charged constitutes conduct that is misleading or is likely to mislead or deceive within the meaning of the jurisprudence on that issue.
R2O and Mr Green also observe that, however, it is important to note that ASIC has not alleged that any customers were actually misled by the conduct. They say that there is no allegation nor any evidence that such conduct resulted in customers suffering any loss or damage as a result of the conduct. They also say that although it will only be relevant to the question of sanction (in the event that the Court accepts ASIC’s submissions concerning the application of the National Credit Code to the contracts in issue) that the total dollar amounts calculated by Mr Hill in his reports were based upon the sums stated in the contracts to which he referred. They say, however, that the evidence will show, that the actual amounts charged to customers of R2O were in many cases significantly less than Mr Hill’s reports would suggest. This proposition is advanced by Mr Green in his affidavit.
At para 7 of the submissions, R2O and Mr Green say this:
As to the matters that are in contest, as between ASIC on the one hand and R2O and Mr Green on the other, the primary issues for determination by the court are:
a.whether or not, on its proper construction, the National Credit Code applies to the contracts relied upon by ASIC;
b.if (contrary to R2O’s contentions), on its proper construction the National Credit Code does apply to those contracts, whether Mr Green was involved (within the meaning of the National Consumer Credit Protection Act 2009) in R2O’s contraventions;
c.whether R2O contravened s 12DB(1)(a) of the ASIC Act;
d.whether Mr Green was involved (within the meaning of the Corporations Act 2001) in R2O’s contravention or contraventions of the ASIC Act.
As to the matters identified by R2O and Mr Green at para 7(b) of the submissions set out above, it should be noted that Mr Green concedes that if the National Credit Code does apply to the contracts in issue in the proceeding, the evidence supports a finding that Mr Green “was involved in R2O’s contravention of s 17(4) of the Code, in the respects alleged”, although the reference to s 17(4) should be a reference to s 17(5) of the Code. At para 8 of the opening submissions, R2O and Mr Green observe that as to ASIC’s summary of the case as opened and described above, “there is little by way of factual controversy between the parties” and rather “the contest is predominantly as to issues of law, and to a lesser degree, issues of mixed fact and law”.
Before examining those matters, it is necessary to set out aspects of the statutory scheme.
The statutory scheme
The NCCP Act consists of the principal Act itself and a Schedule to the Act described as Schedule 1 which contains the National Credit Code. Section 3 of the NCCP Act provides that the National Credit Code has effect as a law of the Commonwealth. The provisions of the NCCP Act and the National Credit Code are considered in the terms they took during the period of the contended contraventions.
Section 5 of the NCCP Act contains a Dictionary of defined terms for the purposes of the Act, but not for the purposes of the National Credit Code. The National Credit Code contains a Dictionary of terms for the purposes of that Code at s 204.
Section 35 of the NCCP Act provides that an Australian credit licence is a licence that authorises the licensee to engage in particular credit activities. The credit activities in which a licensee is authorised to engage are those credit activities specified in a condition of the licence as authorised credit activities. The term credit activity is given meaning by s 6 of the NCCP Act and, relevantly for present purposes, a person engages in a credit activity if the person is a credit provider under a credit contract or the person carries on a business of providing credit to which the National Credit Code applies or the person performs the obligations or exercises the rights of a credit provider in relation to a credit contract or proposed credit contract (whether the person does so as the credit provider or on behalf of the credit provider).
A person engages in a credit activity if the person provides a credit service. A person provides a credit service if the person provides credit assistance to a consumer or acts as an intermediary: s 7, NCCP Act.
The term credit assistance is defined by s 8 of the NCCP Act.
A credit contract has the same meaning as that term has in s 4 of the National Credit Code. It will be necessary to separately examine the provisions of the National Credit Code.
Section 29(1) of the NCCP Act provides that a person must not engage in a credit activity if the person does not hold a licence authorising the person to engage in the credit activity. The prohibition in s 29(1) provides for a civil penalty of 2,000 penalty units. Part 2‑2 of Chapter 2 of the NCCP Act addresses the topic of Australian credit licences, how to apply for such a licence, the basis on which a licence is granted and related matters. Division 4 of Part 2‑2 addresses the topic of the conditions which may be imposed as part of a licence.
Section 47(1)(c) and (d) of the NCCP Act provide that a licensee must comply with the conditions on the licence, and comply with the “credit legislation”. The term credit legislation is defined to mean the NCCP Act (which includes Schedule 1, consisting of the National Credit Code); the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Cth); Division 2 of Part 2 of the ASIC Act and Regulations made for the purpose of that Division; and any other Commonwealth or, relevantly, State legislation that covers conduct relating to credit activities, but only insofar as it covers conduct relating to credit activities.
Part 2‑3 of Chapter 2 addresses the topic of “Credit representatives and other representatives of licensees”. Section 64(1) of the NCCP Act provides that a licensee may give a person a written notice authorising the person to engage in specified credit activities on behalf of the licensee and s 64(2) provides that a person who is authorised under s 64(1) is a credit representative of the relevant licensee. The credit activities specified may be some or all of the credit activities authorised by the licensee’s licence. Section 65(1) provides that a body corporate that is a credit representative of a licensee may, in that capacity, give a natural person a written notice authorising that natural person to engage in specified credit activities on behalf of the licensee and s 65(2) provides that a natural person who is authorised under s 65(1) is a credit representative of the relevant licensee. Again, the credit activities specified may be some or all of the credit activities authorised by the licensee’s licence. Section 71 provides that if a person authorises a credit representative under s 64(1) or s 65(1), the person must, within 15 business days, lodge with ASIC a written notice in accordance with s 71(3) of the NCCP Act.
The NCCP Act contains a wide‑range of obligations to be discharged and prohibitions upon conduct. It is not necessary to set out a summary of those provisions.
Chapter 4 of the NCCP Act addresses the topic of “Remedies”. Division 2 of Chapter 4 addresses the topic of “Declarations and pecuniary penalty orders for contraventions of civil penalty provisions”. As to the notion of a civil penalty provision, s 5(1) of the NCCP Act defines a civil penalty provision in this way:
civil penalty provision: a subsection of this Act (or a section of this Act that is not divided into subsections) is a civil penalty provision if:
(a)the words “civil penalty” and one or more amounts in penalty units are set out at the foot of the subsection (or section); or
(b)another provision of this Act specifies that the subsection (or section) is a civil penalty provision.
The term this Act includes instruments made under the NCCP Act.
Section 166 of the NCCP Act provides that ASIC may apply to the Court, within six years of a person contravening a civil penalty provision, for a declaration that the person contravened the provision. Section 166(2) provides that the Court must make the declaration if it is satisfied that the person has contravened the provision, and s 166(3) specifies matters which must be within the terms of the declaration. Section 167 provides that ASIC may apply to the Court, within the same timeframe, for an order that the person pay the Commonwealth a pecuniary penalty. Section 166(3) addresses the topic of determining the amount of the pecuniary penalty.
Section 168 of the NCCP Act provides that a contravention of a civil penalty provision is not an offence.
Section 169 of the NCCP Act provides that a person who is involved in a contravention of a civil penalty provision is taken to have contravened that provision.
Section 169 of the NCCP Act is the operative provision which engages with the defined term involved in, as defined in s 5(1) of the NCCP Act as set out at [51] of these reasons. Thus, a person who is involved in a contravention of a civil penalty provision within the terms of that concept as defined by s 5(1) is taken to have contravened the provision in question.
Part 4‑2 of Chapter 4 addresses the topic of the “Power of the court to grant remedies”. Section 177 addresses the topic of “injunctions”. Section 177(1) is in these terms:
177 Injunctions
(1)If, on the application of ASIC or any other person, the court is satisfied that a person has engaged or is proposing to engage in conduct that constitutes or would constitute:
(a) a contravention of this Act; or
(b) attempting to contravene this Act; or
(c)aiding, abetting, counselling or procuring a person to contravene this Act; or
(d)inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or
(e)being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or
(f)conspiring with others to contravene this Act;
the court may grant an injunction on such terms as the court considers appropriate.
The NCCP Act contains other remedial provisions. It is not necessary to address all of those provisions in these reasons. Section 187 of that Act confers civil jurisdiction on the Federal Court of Australia in matters arising under the NCCP Act.
As to the National Credit Code, these matters should be noted.
Section 204 of the Code contains a number of “Principal definitions” for the purposes of the Code and, as already mentioned, the definitions contained in the NCCP Act in s 5(1) apply for the purposes of the Act, other than the National Credit Code. Section 3(1) of the Code provides that for the purposes of the Code, credit is provided, “if under a contract, payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred; or one person (the debtor) incurs a deferred debt to another (the credit provider).
Section 4 of the Code provides that, for the purposes of the Code, a credit contract is a contract under which credit is, or may be provided, being the provision of credit to which the Code applies.
Section 5 addresses the topic of the “Provision of credit to which this Code applies”. Section 5(1) provides that the Code applies to the provision of credit (and to the credit contract and related matters) if, when the credit contract is entered into or (in the case of pre‑contractual obligations) is proposed to be entered into, the debtor is, relevantly, a natural person; and, the credit is provided or intended to be provided, relevantly, wholly or predominantly for personal, domestic or household purposes; and, a charge is or may be made for providing the credit; and, the credit provider provides the credit in the course of a business of providing credit carried on in the relevant jurisdiction, or as part of, or as an incident of, any other business of the credit provider.
Section 5(2) provides that if the Code applies to the provision of credit and to the credit contract, the Code applies in relation to all transactions or acts under the contract and the Code continues to apply even though the credit provider ceases to carry on a business in the relevant jurisdiction. No issue is taken with any of these elements of s 5 of the Code. Nor is any point made that s 6 of the Code is engaged which addresses the topic of the “Provision of credit to which this Code does not apply”. No point is taken as to ss 5 or 6 by R2O or Mr Green, and Mr Roberts does not contest any aspect of ASIC’s case. There is nothing in the material which suggests any question arising in relation to either ss 5 or 6 of the Code, except those questions concerning the construction and application of s 9 of the Code and its relationship with those sections as asserted by R2O and Mr Green.
Section 9 of the Code is the centre point of the contention on the part of R2O and Mr Green that none of the 232 contracts in issue in these proceedings are governed by the National Credit Code.
Section 9 is in these terms:
9 Goods leases with option to purchase to be regarded as sale by instalments
(1)For the purposes of this Code, a contract for the hire of goods under which the hirer has a right or obligation to purchase the goods, is to be regarded as a sale of the goods by instalments if the charge that is or may be made for hiring the goods, together with any other amount payable under the contract (including an amount to purchase the goods or to exercise an option to do so) exceeds the cash price of the goods.
Note:A contract includes a series of contracts, or contracts and arrangements (see Part 13).
(2)A debt is to be regarded as having been incurred, and credit provided, in such circumstances.
(3)Accordingly, if because of subsection 5(1) the contract is a credit contract, this Code (including Part 6) applies as if the contract had always been a sale of goods by instalments, and for that purpose:
(a)the amounts payable under the contract are the instalments; and
(b)the credit provider is the person who is to receive those payments; and
(c)the debtor is the person who is to make those payments; and
(d)the property of the supplier of the goods passes under the contract to the person to whom the goods are hired on delivery of the goods or the making of the contract, whichever occurs last; and
(e)the charge for providing the credit is the amount by which the charge that is or may be made for hiring the goods, together with any other amount payable under the contract (including an amount to purchase the goods or to exercise an option to do so), exceeds the cash price of the goods; and
(f)…
(g)any provision in the contract for hiring by virtue of which the supplier is empowered to take possession, or dispose, of the goods to which the contract relates is void.
(4)For the purposes of this section, the amount payable under the contract includes any agreed or residual value of the goods at the end of the hire period or on termination of the contract, but does not include the following amounts:
(a)any amount payable in respect of services that are incidental to the hire of goods under the contract;
(b)any amount that ceases to be payable on the termination of the contract following the exercise of a right of cancellation by the hirer at the earliest opportunity.
Note:Part 11 (Consumer leases) applies to the contracts specified in that Part for the hire of goods under which the hirer does not have a right or obligation to purchase the goods.
[emphasis added]
The term cash price used in s 9 of the Code has the following definition under s 204:
cash price of goods or services to which a credit contract relates means:
(a)the lowest price that a cash purchaser might reasonably be expected to pay for them from the supplier; or
(b)if the goods or services are not available for cash from the supplier or are only available for cash at the same, or a reasonably similar, price to the price that would be payable for them if they were sold with credit provided – the market value of the goods or services.
ASIC contends that s 9(1) treats a contract under which goods are hired to a person who has a right (or obligation) to purchase the goods, as a sale by instalments if the charge that actually is, or may be made, for hiring the goods, together with any other amount payable under the contract, exceeds the cash price (being the lowest price a cash buyer might reasonably be expected to pay, or the market value of the goods). In those circumstances, credit is provided (s 3(1); s 9(2)) and the contract, so treated, is a credit contract. Section 9(1) contemplates that a contract, having the character of a contract for the hire of goods coupled with a right or obligation to purchase those goods, is to be regarded as a sale by instalments, if, having regard to a comparison (required by the section), made between an amount payable under the contract (made up of the charge that is or may be made for the hiring, together with any other amount payable under the contract) on the one hand, and the cash price of the goods, on the other, that comparison reveals that the charge taken together with any other amount payable under the contract exceeds the cash price of the goods. In that comparison, if the amount so calculated, as described in s 9(1), exceeds the cash price, the contract is to be taken to be a sale by instalments and, by virtue of ss 3(1), 4 and 5(1), a credit contract.
However, the point of distinction contended for by R2O and Mr Green is that the calculation of the amount payable under the contract recited in s 9(1) does not include, by reason of s 9(4) of the Code, any amount that ceases to be payable on the termination of the contract following the exercise of a right of cancellation by the hirer at the earliest opportunity. R2O and Mr Green contend that, since each of the 2017 and 2018 contracts contained a clause that entitled each customer to terminate his or her contract at any time, including immediately after entry into the contract (with the result that the immediate position would then be that no further payments would be payable under the contract), the “amount payable under the contract” would never exceed the cash price of the used car. In that case, s 9(1) would not be engaged and the contract, at least by operation of s 9(1), would not be regarded as a sale by instalments and the contract would not be one engaging the provision of credit under s 3(1) (as s 9(2) would also not be engaged), and the contract would not be a credit contract within s 4 and s 5(1) of the Code. On that footing, R2O and Mr Green contend that the National Credit Code does not apply to any of the 232 contracts in issue in these proceedings.
Section 14 of the Code provides that a credit contract must be in the form required by s 14. Section 17 of the Code provides that the contract document for the purposes of ss 3, 4, 5 and 14 must contain the matters set out in s 17. Section 17(4)(a) provides that in the case of a credit contract other than a small amount credit contract, the “contract document must contain the annual percentage rate or rates under the contract”. Section 17(4) is in these terms:
(4)In the case of a credit contract other than a small amount credit contract, the contract document must contain:
(a) the annual percentage rate or rates under the contract; and
(b) if there is more than one rate, how each rate applies; and
(c)if the annual percentage rate under the contract is determined by referring to a reference rate:
(i) the name of the rate or a description of it; and
(ii)the margin or margins (if any) above or below the reference rate to be applied to determine the annual percentage rate or rates; and
(iii)where and when the reference rate is published or, if it is not published, how the debtor may ascertain the rate; and
(iv)the current annual percentage rate or rates.
Note:A penalty may be imposed for contravention of a key requirement in this subsection: see Part 6.
The term “annual percentage rate” has the meaning attributed to it by s 27 of the Code: s 204(1) of the Code. Section 27 provides that for the purposes of the Code: “annual percentage rate under a credit contract means a rate specified in the contract as an annual percentage rate”. Accordingly, the annual percentage rate under a credit contract for the purposes of s 17(4) of the Code is the rate specified in the contract as an annual percentage rate.
Section 17(5) of the Code provides, under the sub‑heading “Calculation of interest charges”, as follows:
(5)In the case of a credit contract other than a small amount credit contract, the contract document must contain 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.
Note:A penalty may be imposed for contravention of a key requirement in this subsection: see Part 6.
The term “charge” is not defined in the Code. However, it seems clear enough that an amount of interest payable under a credit contract is regarded by s 17 of the Code as a charge and by s 17(5) the contract document must contain the method of calculation of the interest charges payable under the contract and the frequency with which those charges will be debited.
Section 23 of the Code addresses the topic of “Prohibited monetary obligations – general”. Section 23(1) is in these terms:
(1)A credit contract (other than a small amount credit contract) must not impose a monetary liability on the debtor:
(a) in respect of a credit fee or charge prohibited by this Code; or
(b)in respect of an amount of a fee or charge exceeding the amount that may be charged consistently with this Code; or
(c)in respect of an interest charge under the contract exceeding the amount that may be charged consistently with this Code.
Note 1:A penalty may be imposed for contravention of a key requirement in this subsection, but only at the time the credit contract is entered into: see Part 6.
Note 2:This subsection also applies to liabilities imposed contrary to section 133BI of the National Credit Act: see subsection (7) of that section.
It should be noted that the term small amount credit contract is given, by s 204 of the Code, the same meaning as the term has in s 5(1) of the NCCP Act.
Division 4 of Pt 2 of the Code deals with the general topic of “Fees and charges”. Section 31 provides that the Regulations may specify credit fees or charges or classes of credit fees or charges that are prohibited for the purposes of the Code.
Division 4A of Pt 2 deals with the topic of “Annual cost rate of certain credit contracts”. Section 32A of the Code within Division 4A provides by s 32A(1) as follows:
32AProhibitions relating to credit contracts if the annual cost rate exceeds 48%
Entering into a credit contract
(1)A credit provider must not enter into a credit contract if the annual cost rate of the contract exceeds 48%.
Criminal penalty: 50 penalty units.
Section 32A(4) contains an application of laws provision. It provides that s 32A does not apply if the credit provider is an “ADI” (a term which has the same meaning as that given to it in the Banking Act 1959 (Cth)), or the credit contract is a small amount credit contract (“SACC”) or bridging finance contract. R2O is not an ADI and none of the contracts in issue in these proceedings fall within the definition of a SACC. Nor do the contracts fall within the definition of a bridging finance contract within s 204 of the Code.
The prohibition in s 32A(1) upon a credit provider is concerned with not entering into a credit contract if the annual cost rate of the contract exceeds 48%. The “annual cost rate” of a credit contract must be calculated “as a nominal rate per annum, together with compounding frequency” using the formula set out in s 32B of the Code. The formula is in these terms: “n” x “r” x 100% where “n” is the number of repayments per annum to be made under the credit contract (subject to the particular precision identified for the unit “n” in s 32B) and where “r” is the solution of the equation set out in s 32B(2). There is little to be gained by reciting that equation in these reasons. For present purposes, it is sufficient to note that ASIC contends that, in essence, the formula giving rise to the calculation of the annual cost rate incorporates both the number of repayments, the amount of each repayment and any fees, charges or commissions to be paid under the credit contract. The formula is said to take into account all of the costs to the consumer under the credit contract, expressed as an annualised percentage.
ASIC contends that the purpose of the provision, and the formula contained within it, is to prevent credit providers from circumventing the prohibition upon charging an annual interest rate in excess of 48% by imposing fees and charges on the consumer which would then have the practical effect (when converted into an annualised percentage) of delivering to the credit provider an effective interest rate in excess of a 48% annual interest rate.
R2O and Mr Green do not contest ASIC’s formulation of the role s 32B plays in the context of s 32A of the Code. However, they do challenge aspects of Mr Hill’s calculations.
As to that, as mentioned earlier, Mr Hill has provided an expert report which calculates the annual cost rate for each of the 232 credit contracts the subject of the proceeding, using the formula set out in s 32B of the Code. In the case of R2O, there are no additional fees and charges imposed on the consumer for the purposes of the formula in s 32B with the result that the “credit cost amount”, item “Cj” in the formula is $0. ASIC contends that, as a result, the total cost to the consumer can be determined based on the amount of the deposit plus the repayments over the term of the loan. The formula in s 32B has a further item “F”. That item is to be subtracted from the outcome of the sigma calculation with the result that in calculating the annual cost rate for medium amount credit contracts, an amount of $400 is to be excluded. Mr Hill, in undertaking his calculations for the purposes of s 32B, has adopted the $400 amount for item “F” and excluded that amount for any R2O credit contract which falls within the definition of a medium amount credit contract (which is a term defined in s 204 of the Code).
Sections 32A and 32B of the Code were introduced into the Code by amendments made by the Consumer Credit Legislation Amendment (Enhancements) Act 2012 (Cth) (the “Amendment Act 2012”) which commenced operation on 17 September 2012. When the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 (Cth) (the “Amendment Bill”) was presented for the first time in the House of Representatives, the proposed s 32B did not contain subsection (4A) as it appears in the Amendment Act 2012 and now as it appears in the Code. This may explain why there is an Explanatory Memorandum (“EM”) in support of the Amendment Bill and also a Revised Explanatory Memorandum (“REM”). Many of the paragraphs of the EM also appear in the REM. As to s 32A and s 32B, these matters should be noted based on the REM (with cross‑references to the EM):
5.46The Enhancements Bill introduces a cap on costs for all other contracts other than small amount credit contracts. Section 32A will introduce a prohibition on a credit provider entering into a credit contract where the annual cost rate exceeds 48 per cent [5.29, EM].
5.47As with the caps on small amount credit contracts, strict penalties are introduced for providers of credit assistance where they suggest or arrange a credit contract, and they either know or are reckless as to whether the cost charged under that contract will exceed the cap. [5.30, EM]
5.48[5.48 addresses the circumstances in which the cap does not apply as earlier described in the course of these reasons].
5.49[5.49 contains an explanation of the term bridging finance contract].
…
5.54Section 32B sets out the formula for calculating whether or not the 48 per cent annual cost rate has been exceeded. This formula largely adopts the model currently in force in New South Wales, pursuant to the Credit (Commonwealth Powers) Amendment (Maximum Annual Percentage Rate) Act 2011. [5.33, EM]
5.55The use of an existing formula avoids the need for changes by credit providers who currently have developed practices to comply with the New South Wales cap on costs. [5.34, EM]
5.56Section 32B will, however, allow for amounts to be prescribed by regulation that would need to be taken into account in calculating the annual cost rate. The introduction of this regulation‑making power will enable the government to quickly respond to attempts to circumvent the object of these reforms. [5.35, EM]
5.57Subsection 32B(4A) provides the flexibility to exclude, by regulations, certain fees or charges from a class of credit contracts that would otherwise be required to be included in the credit cost amount. …
5.58This regulation‑making power is included in recognition, in the Australian jurisdictions that have a cap on costs, of the development of a diverse range of methods of charging the borrower additional amounts that do not meet the definition of costs to be included in calculating the cap in State or Territory legislation. Credit providers have adopted a range of practices in order to be able to generate a return of more than 48 per cent while still complying with the cap. [In almost identical terms, 5.36, EM]
5.59A contravention of the annual cost rate requirement in section 32A will be a consequential breach of the current prohibition in section 23 on credit providers charging amounts in excess of the monetary liabilities allowed under the Code. [5.37, EM]
As earlier mentioned, Mr Hill’s calculations reveal that as to the first tranche of contracts, the annual cost rate of 48% has been exceeded in 108 of the 142 credit contracts and as to the second tranche, Mr Hill has concluded that the annual cost rate of 48% has been exceeded in 32 of the 90 credit contracts, resulting in 140 of the 232 credit contracts exceeding the annual cost rate cap of 48%, in contravention of s 32A of the Credit Code.
Part 6 of the Code addresses the topic of “Penalties for defaults of credit providers”. Division 1 of Part 6 addresses the topic of “Penalties for breach of key disclosure and other requirements”. Section 111 within Division 1 is, relevantly for these proceedings, in these terms:
(1)For the purposes of this Division, a key requirement in connection with a credit contract (other than a continuing credit contract) is any one of the requirements of this Code contained in the following provisions:
…
(b) subsection 17(4);
(c) subsection 17(5);
…(i)subsection 23(1) – but only at the time the credit contract is entered into;
(j)subsection 32A(1);
…
Section 111(2) provides that for the purposes of Division 1 of Part 6, a key requirement in connection with a continuing credit contract includes ss 17(4), 17(5), 23(1) and 32A(1).
Section 112 provides that ASIC may apply to the Court for an order under Division 1. Section 113 provides that the Court must, on an application being made, by order declare whether or not the credit provider has contravened a key requirement in connection with the credit contract(s) the subject of the application. Section 113(2) provides that the Court may make an order requiring the credit provider to pay an amount as a penalty if the Court is of the opinion that the credit provider has contravened a key requirement. Section 113(4) provides that the Court, in considering the imposition of a penalty, must have regard to the factors at s 113(4)(a) to (i). Section 116 provides for a total penalty not exceeding the prescribed amount. Section 122 provides that nothing in Division 1 affects the liability of a person for an offence against the Code or the Regulations.
Division 2 of Part 6, by s 124, provides for the civil effect of contraventions by a credit provider of a requirement of, or a requirement made under, the Code. Remedies might be sought under that section by a person affected by the contravention or by ASIC in its own right.
Division 4 of Part 12 addresses the topic of “Provisions relating to offences”.
ASIC seeks the following relief against R2O by its Amended Originating Application:
(a)declarations pursuant to section 113(1) of the Credit Code, that the first respondent contravened sections 32A, 23(1), 17(4) and 17(5) of the Credit Code in respect of the credit contracts set out in the schedule to the amended concise statement;
(b)an order pursuant to section 113(1) of the Credit Code that the first respondent pay a pecuniary penalty in respect of the contraventions of sections 32A, 23(1), 17(4) and 17(5) of the Credit Code;
(c)an injunction pursuant to section 177(1) of the [NCCP Act], restraining the first respondent from further contraventions of sections 32A, 23(1), 17(4) and 17(5) of the Credit Code;
(d)an injunction pursuant to section 177(1) of the [NCCP Act], restraining the first respondent from engaging in credit activity for a period the Court sees fit;
(e)declarations pursuant to section 12HD of the ASIC Act that the first respondent, in respect of the credit contracts set out in the schedule to the amended concise statement, in trade or commerce, and in connection with the supply of financial services:
(i)by stating the relevant annual interest rate in the credit contract under the heading “Summary of Proposed Repayment Arrangements” (the stated annual interest rate); and
(ii)by stating in the credit contract that “A [sic] annual interest rate of a maximum of 45% per year will be added to the stipulated Comparison Price of the Vehicle should you elect to rent your vehicle for the full term that you have specified in this agreement. This annual interest rate is included in your rental payments and is disclosed above in ‘Payment Arrangements’”;
and thereby representing that:
(iii)the stated annual interest rate was the annual interest rate used to calculate credit charges under the contract;
and in circumstances where it was in fact the case that:
(iv)the stated annual interest rate was not the annual interest rate used to calculate credit charges under the contract;
has in relation to each credit contract set out in the schedule:
(v)engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of section 12DA [of the] ASIC Act;
(vi)made a false or misleading representation that its services were of a particular standard, quality, value or grade in contravention of section 12DB(1)(a) of the ASIC Act; and
(vii)made a false or misleading representation with respect to the price of the services in contravention of section 12DB(1)(g) of the ASIC Act.
(f)an order pursuant to section 12GBA(1)(a) of the ASIC Act that the first respondent pay a pecuniary penalty in respect of the contraventions of sections 12DB(1)(a) and 12DB(1)(g) of the ASIC Act; and
(g)an injunction pursuant to section 12GD of the ASIC Act, restraining the first respondent from further contraventions of sections 12DA, 12DB(1)(a) and 12DB(1)(g) of the ASIC Act; and
(h)costs.
As against Mr Roberts, ASIC seeks the following relief:
(a)declarations pursuant to section 21 of the Federal Court Act, that [Mr Roberts] was involved (within the meaning of section 5(1) of the [NCCP Act]) in the first respondent’s contraventions of sections 32A, 23(1), 17(4) and 17(5) of the Credit Code;
(b)an injunction pursuant to section 177(1) of the [NCCP Act], restraining [Mr Roberts] from being involved in further contraventions by the first respondent of sections 32A, 23(1), 17(4) and 17(5) of the Credit Code;
(c)an injunction pursuant to section 177(1) of the [NCCP Act], restraining [Mr Roberts] from carrying on any business engaging in credit activity or being involved in the carrying on by another person of any business engaging in credit activity, for a period the Court sees fit;
(d)declarations pursuant to section 12HD(1)(a) of the ASIC Act, that [Mr Roberts] was involved (within the meaning of section 79 of the Corporations Act) in the first respondent’s contraventions of sections 12DA, 12DB(1) and 12DB(1)(g) of the ASIC Act;
(e)an order pursuant to section 12GBA(1)(e) of the ASIC Act that [Mr Roberts] pay a pecuniary penalty in respect of his involvement in the contraventions by the first respondent of sections 12DB(1)(a) and 12DB(1)(g) of the ASIC Act;
(f)an injunction pursuant to section 12GD of the ASIC Act, restraining [Mr Roberts] from being involved in further contraventions by the first respondent of sections 12DA, 12DB(1)(a) and 12DB(1)(g) of the ASIC Act; and
(g)costs.
As against Mr Green, ASIC seeks the following relief:
(a)declarations pursuant to section 21 of the Federal Court Act, that [Mr Green] was involved (within the meaning of section 5(1) of the [NCCP Act]) in the first respondent’s contraventions of sections 32A, 23(1), 17(4) and 17(5) of the Credit Code;
(b)an injunction pursuant to section 177(1) of the [NCCP Act], restraining [Mr Green] from being involved in further contraventions by the first respondent of sections 32A, 23(1), 17(4) and 17(5) of the Credit Code;
(c)an injunction pursuant to section 177(1) of the [NCCP Act], restraining [Mr Green] from carrying on any business engaging in credit activity or being involved in the carrying on by another person of any business engaging in credit activity, for a period the Court sees fit;
(d)declarations pursuant to section 12HD(1)(a) of the ASIC Act, that [Mr Green] was involved (within the meaning of section 79 of the Corporations Act) in the first respondent’s contraventions of sections 12DA, 12DB(1) and 12DB(1)(g) of the ASIC Act;
(e)an order pursuant to section 12GBA(1)(e) of the ASIC Act that [Mr Green] pay a pecuniary penalty in respect of his involvement in the contraventions by the first respondent of sections 12DB(1)(a) and 12DB(1)(g) of the ASIC Act;
(f)an injunction pursuant to section 12GD of the ASIC Act, restraining [Mr Green] from being involved in further contraventions by the first respondent of sections 12DA, 12DB(1)(a) and 12DB(1)(g) of the ASIC Act; and
(g) costs.
It is necessary to say something further about the claims for relief made against Mr Roberts and Mr Green to be “involved in” the contended contraventions of ss 32A, 23(1), 17(4) and 17(5) of the National Credit Code.
ASIC makes no claim in the amended originating application for an order that either Mr Roberts or Mr Green pay a pecuniary penalty on the footing that either or both of those respondents were “involved in” R2O’s contraventions of ss 32A, 23(1), 17(4) and 17(5) of the National Credit Code. That no doubt follows for the reasons mentioned below. However, ASIC seeks a declaration that each of those Respondents were involved in, within the meaning in s 5(1) of the NCCP Act, the contraventions by R2O of those sections of the Code. That declaration is sought pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth). An injunction is sought against each of Mr Roberts and Mr Green pursuant to s 177(1) of the NCCP Act should the Court be satisfied that either or both of them has engaged in conduct falling within any of the subparagraphs of s 177(1). Those subsections include, being in any way, directly or indirectly, knowingly concerned in, or party to, the contraventions by a person (R2O) of the NCCP Act.
In examining the question of whether a declaration ought to be made that Mr Roberts and Mr Green were “involved in” R2O’s contraventions of ss 32A, 23(1), 17(4) and 17(5) within the meaning of s 5(1) of the NCCP Act, these things need to be kept in mind.
First, Mr Roberts is unrepresented and is abiding by any decision the Court makes in the proceeding. For that reason, it is necessary to explain some aspects of the statutory scheme so far as the scheme relates to persons being involved in contraventions by another and the character of the contraventions and the relationship between those contraventions and the defined term “involved in”.
Second, s 5(1) of the NCCP Act, which contains a definition of the term “involved in”, is a definitional provision only, not one which, by itself, gives rise to a liability in a person in respect of any particular conduct.
Third, the provisions of the NCCP Act (including the National Credit Code) relevant to the conduct of R2O and Mr Roberts and Mr Green are those provisions of the NCCP Act (and the Code as schedule 1) as it stood during the period of the conduct giving rise to the 232 contracts in issue in the proceedings. The relevant period governing the conduct of the respondents is 1 March 2017 to 18 June 2018, the period of the two tranches of contracts earlier described.
I am satisfied that Mr Green and Mr Roberts were both knowingly concerned in R2O’s contraventions of s 32A of the Code. As indicated earlier, I am not willing to accept the evidence of Mr Green as to the moment in time when he first became aware of the problem with these contracts by reason of s 32A of the Code (contracts exceeding the cap). Nevertheless, ASIC must establish that Mr Green knew, in the sense described in the authorities, of facts that the cap was being exceeded by reason of the use of his flawed non-compliant calculators so far as they related to the contracts falling within the tranche 1 contracts. I am satisfied that they have done so.
The second tranche of contracts comprises those 90 contracts entered into between 25 May 2018 and 18 June 2018. As discussed earlier, Mr Green sent a new Price Calculator to the franchisees by his email of 11 April 2018, as he describes at paragraphs 55 and 56 of his affidavit: see [350] of these reasons.
As ASIC notes, Mr Hill’s evidence is that the new April calculator was largely correct. Nevertheless, 32 of the 90 second tranche contracts exceeded the 48% cap on the annual cost rate. ASIC accepts, however, that the April 2018 calculator was capable of performing correct “interest calculations”. ASIC contends that Mr Green and Mr Roberts were knowingly concerned in the second tranche contraventions of s 32A (32 contracts or 36% of them exceeding the cap, with the two earlier mentioned contracts having an annual cost rate of 87.41% and 79%), because Mr Green “set the conditions for non-compliance” and both Mr Green and Mr Roberts were “intimately involved in the operation of the business”; they provided the training and directed the procedures to be adopted by franchisees; and they were able to monitor contracts and carry out “spot checks” of particular contracts.
Apart from these matters, ASIC makes a point about timing and its relationship with an earlier culture of non-compliance fostered by Mr Green and Mr Roberts. The point is this. ASIC says that although the new calculator was sent to franchisees on 11 April 2018, all of the breaches of s 32A in the second tranche occurred after 28 May 2018, more than six weeks later, and most of the breaches occurred in early June 2018, some 8 weeks after 11 April 2018. What is said to follow from the timing is that although a correct Price Calculator was sent to the franchisees in April, it is clear that Mr Green and Mr Roberts had, by their earlier conduct, “set the conditions” for further contraventions of s 32A in many of the second tranche contracts. That is said to be so because first, Mr Green and Mr Roberts had established a pattern of behaviour by reference to incorrect calculators thus leading to error and second, they “had not established the procedures to ensure compliance”.
ASIC says that the earlier culture of non-compliance permeated the later conduct of calculating the weekly repayments according to inputs into the fields, reflecting an annual cost rate in excess of the 48% cap when the calculation was undertaken.
The email to franchisees asking them to implement the new calculator was sent by Mr Roberts on 30 May 2018. This, in part, explains the elapsed time between 11 April 2018 and the beginning of June 2018 when, in the main, the contracts began to be entered into.
In order to examine the claim that Mr Green and Mr Roberts knew the essential facts of R2O’s contraventions of s 32A in respect of the second tranche contracts, it is necessary to examine a little further the context of the exchanges.
Mr Green’s evidence is that a critical matter occurred on 29 March 2018. That was the date when he was called to give further evidence at the ASIC examination under the NCCP Act. On that date, he was told by counsel for ASIC that ASIC had concerns that R2O’s Price Calculators were not in compliance with the Code. Mr Green says that he was advised by counsel for ASIC that ASIC had reviewed the “Amortization Loan Calculator” created by Mr Ashe and using a sample of the same contracts used in the analysis undertaken by McGrath Nicol, ASIC had reached the same conclusion reflected in that report, namely, that R2O’s calculators were not undertaking the task in accordance with the Code. Mr Green said that that came as a “huge surprise” to him.
In this context, Mr Green gave evidence that he advised ASIC that he had used the loan difference calculator sent to him by Mr Ashe with the instructions of 14 August 2017 to “check contracts”. He said that although he had “nominated” that he had reviewed 200 contracts over a period of months, he was not really sure “how many contracts I had checked or over what period I had checked them when I was being examined”. Mr Green affirmed at paragraph 53 the matters recited at paragraph 44 of his affidavit, which were that using Mr Ashe’s loan difference calculator, he had reviewed 1,267 contracts and only one contract was identified where the interest rate had not been correctly applied. Mr Green, at paragraph 53, engages with that matter as contextually relevant matters in relation to ASIC’s criticism that the calculator used by Mr Green was not undertaking calculations in accordance with the Code.
At paragraph 54, Mr Green says that following this examination on 29 March 2018, it became apparent to him that he had not used Mr Ashe’s Loan Difference Calculator correctly and it was this matter that caused him to decide that he would create a new calculator and would ask the franchisees to rewrite all the existing contracts in accordance with the formula contained in the Amortization Loan Calculator.
Mr Green says that in or around 11 April 2018, he sent an email to all franchisees attaching the new 2018 calculator and the price guide calculator. On 30 May 2018, Mr Roberts sent an email to all franchisees asking them to implement the new calculator. In that email, Mr Roberts said this.
In keeping with the regulations of ASIC we have to re-calculate ALL current Contracts with the new calculator, then you must email the pages 3 & 15 as below samples to each customer with a good news message saying “there has been an error in calculating your payments please see attached amendments to your contract, in most cases this will be in your favour with reduced payments or contract term”
Then you MUST amend the Ezidebit payments to match
I understand this is a big undertaking but we must fully comply
Tim Roberts
On 1 June 2018, Mr Green sent an email to the franchisees attaching a Loan Difference Calculator. Mr Green referred to the email from Mr Roberts requesting everyone to recalculate any current contracts. Mr Green attached to his email a “checking calculator to simplify the task”. Mr Green instructed the franchisees to take these steps: enter the retail car price as demonstrated and disclosed; put in the warranty; put in the deposit; enter the length of the contract in weeks; and leave the interest rate at 48% regardless of the rate that might be recited in the contract. The instruction was that if the difference is negative, the calculator would show the negative amount in red, and in that case the contract would be incorrect. If the difference appeared in green, the contract would be regarded as correct and falling under the cap in s 32A. An example was set out in the email under the name “Smith”, which in fact recites the transactional circumstances applying in the case of Ms Abbott’s contract. In her case, the calculator demonstrated that although her contract repayment amount was $118.91, it ought to have been $86.85, with a negative difference of $32.06.
On 7 June 2018, Mr Green sent the franchisees the text of a letter or email to be sent to the customer advising the customer of any adjustment to the customer’s contract.
I do not accept that the failure of Mr Green’s calculator to properly calculate the annual cost rate came as a huge surprise to him on 29 March 2018. I have already rejected, as earlier explained, Mr Green’s evidence of having checked 1,267 contracts.
ASIC says that Mr Green and Mr Roberts, as company directors and the guiding minds of the “R2O ACL”, had responsibilities to ensure that R2O complied with its general conduct obligations, including ensuring that its credit representatives complied with credit legislation: s 47(1)(e), NCCP Act. The particular contravention relied upon, presently in issue, is that R2O as a credit provider contravened the prohibition in s 32A of the Code (as informed by s 32B of the Code).
The question in issue is whether Mr Green and Mr Roberts knew each of the essential facts going to those contraventions by R2O of s 32A in respect of the particular contracts falling within the second tranche of contracts (that is 32 contracts out of 90 contracts which involved a contravention), so as to give rise to the conclusion that they were knowingly concerned in the particular s 32A contraventions by R2O, constituted by R2O entering into contracts after 11 April 2018 and particularly 30 May 2018 where the annual cost rate exceeded 48%.
I am not satisfied that Mr Green and Mr Roberts did know the essential fact. The prohibition in s 32A is a prohibition upon a credit provider entering into a credit contract if the annual cost rate of the contract exceeds 48%. It is critical therefore that each director knew that the annual cost rate of the relevant contract exceeded 48% on entry into the contract by the credit provider. Thus, Mr Green and Mr Roberts must be shown to have known that fact. I am not satisfied that the evidence establishes that they knew that fact. Mr Green and Mr Roberts had caused a calculator to be distributed to the franchisees to enable the relevant statutory calculation to be conducted. That calculator is not shown to have contained the earlier flaws. I am not satisfied that the relevant state of knowledge is established by reason of an historical culture of non-compliance by reference to the earlier calculators which had the effect that franchisees continued to bring contracts into existence in breach of the cap. Nor am I satisfied that that circumstance, taken together with contended inadequate training, is sufficient to establish actual knowledge. The evidence suggests that Mr Green sought to address the flaws in the earlier calculators and sought to make adjustments in relation to current contracts within the scope of the Ezidebit arrangement. Moreover, the “serious concerns” put to Mr Green and Mr Roberts were the things which the new calculator sought to resolve. Thus, the earlier obfuscation by Mr Green of ASIC’s concerns was no longer the characterising feature of the conduct of the directors. Contraventions by R2O undoubtedly occurred in relation to the number of the second tranche contracts as ASIC contends, but I am not satisfied that each of Mr Green and Mr Roberts are shown to have known the essential fact at the moment in time when R2O entered into the contracts in contravention of the prohibition.
As to s 23(1), I am satisfied that Mr Green and Mr Roberts were knowingly concerned in R2O’s contraventions of s 23(1)(c) as to the relevant first tranche contracts for the same reasons that they were knowingly concerned in R2O’s contraventions of s 32A. I am also satisfied that Mr Green and Mr Roberts were not knowingly concerned in R2O’s contraventions of s 23(1) as to the relevant second tranche contracts for the same reasons that they were not knowingly concerned in R2O’s second tranche contraventions of s 32A.
As to s 17(4) of the Code, the subsection provides that in the case of a credit contract, the contract document must contain the “annual percentage rate”, which is the rate specified in the contract as the annual percentage rate: s 17(4)(a); s 27 [emphasis added].
The annual percentage rate is a charge for the provision of credit, generally expressed as an annualized rate struck as a percentage of the debt owing from time to time (or, for example, from week to week). The “annual percentage rate” is an interest charge made or to be made for providing the credit. That follows because the credit contract must contain the annual percentage rate charged by the credit provider for providing the credit: s 4, s 5(1)(c) and s 17(4)(a).
Each of the 232 contracts recites an annual interest rate on the face of the contract. However, Mr Hill’s report demonstrates that as to the first tranche of contracts, the annual percentage interest rate actually charged to the consumer is a different rate for all 142 contracts, and in 133 of them, the rate charged is higher than the rate contained in the contract. As to the second tranche of contracts, the rate actually charged is different to the stated rate in 45 of the 90 contracts, and in 44 of those contracts, the rate charged is higher than the recited rate. As already mentioned, Ms Abbott’s rate was actually 77.11% rather than 45% and in the case of Ms Abraham, the actual rate was 74.9% rather than 35%.
In the case of a contravention of s 17(4), it is sufficient to establish a contravention by R2O as to the element of the stated rate, to establish that the contract does not “contain” an annual percentage rate (interest charge) or that the annual percentage rate contained in the contract is incorrect having regard to the rate actually charged. In the number of contracts already mentioned, the annual percentage rate was incorrect.
For Mr Green and Mr Roberts to be knowingly concerned in R2O’s contravention, knowledge of these facts needs to be established: each hirer/buyer was entering into an arrangement (characterised as a matter of law as a credit contract, although the characterisation is not itself an essential fact) which required repayments to be made by a person to R2O; the quantum of the repayments was determined by applying a formula taking account of the method already extensively described based on the nominated cash price, the deposit, a warranty (if any) and the nominated term of the repayments (the period of weeks); and the calculators created by Mr Green applying the formula just described produced outputs which gave rise to weekly repayments that failed to provide for an annual percentage rate (interest rate) in accordance with the rate in the contract. For all the reasons mentioned in relation to s 32A, having regard to the chronology of events extensively described, Mr Green knew that there were serious concerns agitated by ASIC concerning the accuracy of the calculations arising out of the use of his calculators, the treatment of the deposit, the failure to calculate the interest rate on the basis of diminishing balances having regard also to the treatment of the deposit, and issues of amortization. The result was that although Ms Abbott’s contract, for example, recited an annual percentage rate of 45%, she was charged an effective interest rate of 77.11%. I have already identified the respects in which Mr Green failed to come to grips with the inadequacies and flaws in his calculators and the obligations in relation to matters such as the annual cost rate and the imperative of ensuring that the annual percentage rate (interest rate) charged to consumers was correct in terms of the rate recited in the contract.
In the number of contracts already mentioned, it was not.
The effective interest rate was significantly different. Mr Green knew there were serious concerns consistently being pressed by ASIC about this very matter. I have already explained the respects in which Mr Green approached the creation of his calculators and the formulas within them, with eyes tightly closed, notwithstanding that he had been put on notice of serious concerns by a regulator charged with the responsibility of highlighting the very matter now in question. Moreover, I am reinforced in my view that Mr Green was conscious of these difficulties by the manner in which he approached the checking of the contracts later in time and the issue about the 1,267 contracts. I am satisfied that Mr Green was obfuscating the position as to that matter, as undertaking the matter properly would have been likely to reveal his state of knowledge about non-compliance with the requirements of the Code on this issue.
Mr Roberts was knowingly concerned because he chose to leave the entire question to Mr Green and Mr Green’s calculators and the method contained within them.
As to those contracts falling within the second tranche of contracts where the interest rate charged was different and higher than the rate recited in the contract, a different position applies. As mentioned earlier, Mr Green formulated the 2018 calculator and ASIC accepts that the 2018 calculator correctly calculated the interest rate. Nevertheless, there were contracts where the rate charged was different and higher than the rate contained in the contract. However, I am not satisfied that the evidence demonstrates that Mr Green and Mr Roberts knew that the effective rate being charged to the hirer was incorrect in relation to those contracts entered into after the commencement of the new 2018 calculator on 30 May 2018.
As to s 17(5) of the Code, Mr Green does not contest the proposition that he was knowingly concerned in a contravention of s 17(5). Section 17(5) of the Code provides that in the case of a credit contract, the contract document must contain the method of calculation of the interest charges payable under the contract and the frequency with which the interest charges are to be debited under the contract. Thus, the credit contract must contain the method of calculation and the frequency with which interest charges are to be debited. I am satisfied that the contracts do not set out those matters. The “Annual Interest Rate” clause already quoted in these reasons is not sufficient to satisfy the requirements of s 17(5) and thus R2O failed to meet the requirement of that subsection in respect of all 232 credit contracts the subject of the proceeding. Mr Roberts has elected to abide by a determination of the Court on all issues in these proceedings. As to this issue of s 17(5), I am satisfied, having regard to the position of Mr Roberts as a director and his engagement directly in the affairs of the company, that he was knowingly concerned in these contraventions of s 17(5) of the Code.
The ASIC Act contraventions
As to R2O’s contraventions of ss 12DA, 12DB(1)(a) and 12DB(1)(g) of the ASIC Act, those provisions of the legislation are concerned with prohibitions upon engaging in conduct in relation to, or in connection with the supply of, financial services, that is misleading or deceptive or is likely to mislead or deceive (s 12DA); or the making of a false or misleading representation that services are of a particular standard, quality, value or grade (s 12DB(1)(a)); or the making of a false or misleading representation with respect to the price of the services (s 12DB(1)(g)). In order for Mr Green and Mr Roberts to be knowingly concerned in R2O’s contraventions of those sections of the ASIC Act, Mr Green and Mr Roberts must be shown to have had knowledge of the essential facts which give the conduct of R2O, giving rise to the contraventions, the character of misleading or deceptive conduct or conduct likely to mislead or deceive, or a false or misleading representation concerning the subject matter of ss 12DB(1)(a) and (g) respectively.
ASIC’s contention is that as to the first tranche of contracts, the annual percentage rate actually charged to the consumer/hirer/buyer in 133 of the 142 contracts was higher than the rate recited in the credit contract, and in 44 of the 90 second tranche contracts, the annual percentage rate actually charged was higher than the rate recited in the contract. Thus, 177 contracts recited a lower annual percentage rate than that actually charged to the contracting party.
ASIC relies on this conduct as containing a representation which bears the statutory characterisation in ss 12DA, 12DB(1)(a) and 12DB(1)(g). I have already examined and found that R2O contravened each of these sections.
ASIC contends that Mr Green and Mr Roberts were knowingly concerned in that conduct.
In order for that to be so, ASIC must prove that Mr Green and Mr Roberts knew that the credit contracts contained a representation as to an annual interest rate (whatever that rate may have been in the particular individual contract in question), and that they knew that the representation was incorrect.
They may be shown to have known that the rate charged to the contracting parties was higher than the rates recited in the contracts, and thus the rate recited in the contracts was incorrect (a falsity) as a matter of direct evidence, or they may be shown to have conducted themselves in such a way that inferences arise from primary facts such that they knew that the annual percentage rates actually charged to the relevant consumers were higher than the rates stated in the contracts.
As mentioned earlier, it is not necessary for ASIC to show that the directors knew that the conduct of charging an annual percentage rate higher than the contract rate bears any particular statutory characterisation.
In this case, for all the reasons mentioned earlier, Mr Green and Mr Roberts knew that there were serious concerns that the Price Calculators created by Mr Green did not calculate a weekly repayment obligation that reflected an annual percentage rate in compliance with the Code. The flaws were fundamental in so many respects, as described earlier. They were the work of Mr Green. They were the subject of well-placed concern, agitation and criticism by officers of ASIC. When those concerns were raised, Mr Green sought to obfuscate the position and diminish the concerns. When the time came for later checking the contracts, Mr Green gave the evidence I have rejected concerning his checking of the contracts.
Lest there be any doubt about the matter, these matters of foundation fact should be noted again in this context.
ASIC emphasises that Mr Green and Mr Roberts were the sole directors and owners of R2O during the relevant period relating to the contracts in issue. Mr Roberts was the responsible manager for the R2O ACL as from 24 December 2016. Both Mr Green and Mr Roberts were listed as fit and proper persons for the purposes of the R2O ACL. It is correct to say that they were both intimately involved in the operation of the company and, as ASIC observes, they were the only people working in the company until September 2017. They provided the franchisees with a template of a credit contract. That was done through R2O’s intranet. It was included in the Operations Manual. The franchisees were instructed as to its use. Mr Green and Mr Roberts were the authors of the Operations Manual and carried out the training. Moreover, the franchisees were required to use the template for each individual contract entered into with a consumer. Those details were saved onto R2O’s intranet. In addition, franchisees were not able to sell a car without using the R2O intranet system and without R2O knowing about it. The evidence is that Mr Green and Mr Roberts carried out spot checks of about 40 contracts per month entered into by R2O through the franchisees. Apart from this, Mr Green created and distributed the Price Calculators to the franchisees.
Having regard to all of these facts, it is perfectly clear that Mr Green and Mr Roberts knew the terms of the credit contracts and knew that they contained statements about the annual percentage interest rate the consumer would be charged under the contract.
As to the contracts, Mr Green and Mr Roberts directed the franchisees about the mechanism for using the calculator, which engaged directions about how to determine the cash price of the vehicle. He directed the franchisees about the matters of the deposit (first payment), the warranty (if any), the term of the contracts in weeks and the activation of the calculator to determine, as an output, the quantum of the weekly payment over the term.
Thus, it can be seen that Mr Green and Mr Roberts were at the epicentre of the conduct of this business.
Nevertheless, one of the essential facts which Mr Green and Mr Roberts must be shown to have known, in order to be knowingly concerned in R2O’s contraventions, is that the rates recited in the relevant contracts were incorrect. As earlier mentioned, Mr Green and Mr Roberts knew that to be the position, having regard to the fundamental flaws in the calculators and in failing to come to grips with ASIC’s serious concerns. I have already addressed much of the evidence concerning the treatment of the deposit, the application of interest to the debt without accommodating the deposit, the failure to apply interest to reducing balances and the failure to deal with amortisation. These are the facts which give rise to the inference of knowledge, having regard to the gravity of the matters, and the failures of Mr Green and Mr Roberts to address such fundamental problems especially in the face of ASIC’s serious concerns. However, ASIC emphasises the following particular facts.
First, on 25 February 2017, Mr Green sent the email earlier mentioned in these reasons to Mr Wills providing a description of the formula used in his pricing calculator. The email has been quoted earlier. The description of the formula shows that Mr Green understood that interest was being applied by R2O to the cash price before taking into account and subtracting the deposit.
Second, ASIC emphasises the conference of 9 March 2017 between ASIC officers, Mr Green, Mr Roberts and Mr Wills. It was a teleconference. As earlier mentioned, the minutes of the meeting record the serious concerns identified by ASIC in relation to the calculation of charges and whether the charges being imposed on the consumer entering into the credit contract were within the 48% rate cap. As mentioned earlier, ASIC officers told Mr Green, Mr Roberts and Mr Wills in the plainest terms that R2O was not calculating its charges correctly, and that based on ASIC’s analysis, R2O was exceeding the 48% cap.
Third, on 16 March 2017, ASIC sent an email to Mr Wills seeking further information about R2O’s calculation of charges under the contracts. That email was subsequently sent to Mr Green. The email tells R2O, in relation to pricing calculations, that the deposit was not being deducted from the cash price of the car and that the calculation was not in conformity with s 32B of the Code.
Fourth, on 31 March 2017, ASIC sent an email to Mr Wills seeking answers to earlier queries and pursuing ASIC’s concern about two things. First, R2O’s disclosure requirements, and second, the annual cost rate of R2O’s contracts. That email was also subsequently sent to Mr Green. The email expressly raises non-compliance with s 17 of the Credit Code and again informs R2O of ASIC’s view that the credit provider was exceeding the 48% cap. ASIC expressed concerns about the accuracy of R2O’s interest calculations.
Fifth, on 12 April 2017, ASIC sent an email to Mr Wills chasing up a response to previous concerns ASIC had raised concerning R2O’s contracts exceeding the annual cost rate.
Sixth, on 31 May 2017, ASIC sent a further email to Mr Wills, which was copied to Mr Green, observing that ASIC’s concerns had not been addressed. Those concerns were questions raised earlier by ASIC about whether the formula R2O had adopted to calculate charges did so in accordance with the Code, and whether the methodology used to make calculations was not in accordance with the Code.
These are the matters of fact described earlier, all of which I find as facts, which give rise to an inference that Mr Green knew that the business method and calculators used to implement the business method were not in conformity with the Code and were giving rise to incorrect outputs in the annual percentage rate charges to consumers, with the result that the rate recited in the contracts in issue was incorrect. On this footing, Mr Green and Mr Roberts knew that the rate in the contracts was incorrect.
That state of knowledge, as to that matter, is the position in relation to 133 of the first tranche contracts.
It is not the position, however, in relation to all of the 44 second tranche contracts in issue because by the time of entry into many of those contracts, Mr Green had developed his new 2018 calculator which correctly calculated the interest rate and which was his attempt to address the fundamental flaws in the earlier calculators, as described earlier in these reasons.
Accordingly, I am not satisfied that Mr Green and Mr Roberts knew of the incorrect essential fact in relation to many of the contracts within the second tranche contracts entered into after 30 May 2018.
Accordingly, the position is this. R2O has contravened the four provisions of the Code in suit in these proceedings and the three provisions of the ASIC Act in suit in these proceedings in relation to the contracts (first and second tranche) in suit as contended by ASIC. Mr Green and Mr Roberts were knowingly concerned in each of R2O’s contraventions so far as the contravening conduct concerned the first tranche contracts in issue. Mr Green and Mr Roberts also were knowingly concerned in R2O’s contraventions of s 17(5) concerning the second tranche contracts. The intervention of the new calculator devised by Mr Green means that neither he nor Mr Roberts were knowingly concerned in R2O’s contraventions of ss 32A, 23(1) and 17(4) of the Code concerning those second tranche contracts entered into after 30 May 2018 where the rate was incorrect. Nor were they knowingly concerned in R2O’s ASIC Act contraventions concerning the second tranche contracts in issue in the proceedings entered into after 30 May 2018 because as R2O entered into those contracts, through the franchisees, they are not shown to have known that the annual percentage rate (interest rate) was, so far as the relevant contracts are concerned, incorrect, and nor was there an ignored serious concern to which Mr Green and Mr Roberts each turned a blind eye as to those post-30 May 2018 contracts.
The following relief is to be granted, framed in appropriate terms:
(1)A declaration that R2O contravened ss 32A, 23(1), 17(4) and 17(5) of the National Credit Code by engaging in particular conduct framed to take account of the findings in these reasons.
(2)A declaration that Mr Green and Mr Roberts were knowingly concerned in the contraventions by R2O of ss 32A, 23(1), 17(4) and 17(5) of the Code framed according to the findings in these reasons.
(3)A declaration that R2O contravened ss 12DA, 12DB(1)(a) and 12DB(1)(g), framed according to the findings in these reasons.
(4)A declaration that Mr Green and Mr Roberts were knowingly concerned in the contraventions by R2O of the ASIC Act provisions in suit framed according to the findings in these reasons.
(5)Injunctions restraining R2O, Mr Green and Mr Roberts from, respectively, engaging in contraventions of ss 32A, 23(1), 17(4) and 17(5) of the National Credit Code or being knowingly concerned in the contravention of any of those provisions of the Code by another. ASIC seeks an injunction restraining the respondents from engaging in credit activity, or being involved in a business engaged in a credit activity for a particular period as the Court determines appropriate. An injunction directed to this conduct is to be granted. However, the parties will be given an opportunity to be heard further on the question of what is an appropriate period for such a restraint.
(6)An injunction restraining R2O from engaging in further contraventions of ss 12DA, 12DB(1)(a) and 12DB(1)(g) of the ASIC Act and an injunction restraining Mr Green and Mr Roberts from engaging in conduct constituting being knowingly concerned in contraventions of those provisions of the ASIC Act.
(7)As to the question of a pecuniary penalty, ASIC seeks an order against R2O for payment of a penalty in relation to its contraventions of ss 32A, 23(1), 17(4) and 17(5) of the Code. ASIC also seeks a pecuniary penalty order in respect of R2O’s contraventions of ss 12DB(1)(a) and 12DB(1)(g) of the ASIC Act. ASIC also seeks a pecuniary penalty order against Mr Green and Mr Roberts in respect of their conduct of being knowingly concerned in R2O’s contraventions of ss 12DB(1)(a) and 12DB(1)(g) of the ASIC Act.
The question of the determination of an appropriate penalty will be the subject of further directions in relation to a further hearing on the separate question of penalty.
The applicant will be directed to submit proposed forms of relief consistent with these reasons, within 14 days. The parties will be directed to put on submissions within 14 days as to the period of the restraint contemplated by point 6 at [436] of these reasons. The parties will be directed to conduct discussions with a view to recommending further procedural orders in relation to the separate question of penalty leading to a hearing on that matter.
I certify that the preceding 438 (four hundred and thirty-eight) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Greenwood. Associate:
Dated: 11 September 2020
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