Esanda Finance Corporation Limited v Plessnig

[1988] HCATrans 18

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide No A35 of 1987

B e t w e e n -

ESANDA FINANCE CORPORATION

LIMITED (formerly ESANDA

LIMITED)

Applicant

and

HEINZ PLESSNIG and PATRICIA

PLESSNIG

Respondents

Application for special leave

to appeal

WILSON J

Esanda

DAWSON J

GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT ADELAIDE ON FRIDAY, 19 FEBRUARY 1988, AT 9.49 AM

Copyright in the High Court of Australia

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MR SHAW, QC: If the Court pleases, I appear with my learned

friends, MR D.J. HABERSBERGER, QC and MR L.FERDINANDY,

for the applicant. (instructed by Mouldens) .

MR D. ANGEL, QC:  May it please the Court, I appear with

my learned junior, MR N. NIARCHOS, for the respondents.

(instructed by Nicholas N1archos)

WILSON J:  Yes, Mr Shaw.

MR SHAW: If the Court pleases, this is an application for

leave to appeal from a judgment of the Full Court

of this State. I say a judgment - in fact, there

were two bites of the cherry in the Full Court

but I shall not go into the procedural history
of the matter, although it is somewhat odd. It

arises out of a hire purchase agreement which appears

in the application book at pages 82 and 83. The

hire purchase agreement related to a Scania truck

and if I might go to page 82 to remind the Court

of certain features of the agreement, at line 34

on page 82 there is a provision relating to:

Rent instalments payable during the hiring -

WILSON J: Mr Shaw, could I invite you rather to state the

i s sue s that vaild be r a i s e d in the event o f the

application being granted and then the Court might

find it expedient to call on Mr Angel.

MR SHAW: Yes. The matter~' in the end, on a decision by

the majority of the Full Court and the relevant

passages are at pages 42 to 43 and 45 to 46 in

the judgment of the Chief Justice and pages 54

to 56 in the dissenting judgment of

Mr Justice Von Doussa. At page 42, at lines 3

to 19, the Chief Justice rejected the application

to a hire-purchase agreement of the suggested

criteria for an appropriate clause which had been

accepted by Mr Justice Walsh and accepted by

Mr Justice Mason and Your Honour the presiding

Judge in relation to a hiring agreement.

At line 20, going over to line 24 on the next

page, and at page 45, the bottom line, and going

over to line 6 on the next page, His Honour concluded

that there was a windfall or benefit to the owner

in the clause and that it was therefore a penalty.

The question which would arise, firstly, relates

to the nature of a hire-purchase agreement because

His Honour regarded it as tantamount to an agreement

for sale and failed in relation to the question

of windfall to take into account the fact that
the hirer was not bound to pay all the instalments
of hire, could at any stage terminate, and if he

did would be bound to pay the same amount as was

provided under clause 6 which was held to be a

penalty.

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So there are two questions there which go

to the fundamental nature of a hire-purchase
agreement and then there is the final question
whether a contract which provides for payments
of certain amounts in certain events which, when
they are paid, cannot be a penalty, can amount
to a contract which provides for a penalty in

events which are simply not provided for and the

so-called windfall results from not the clause

itself but, really, from the forfeiture of the

estate of the hirer. And similar clauses, of course,

are found in contracts for the sale of land, in

the COMPANIES CODE, in relation to the forfeiture

of shares.

So a fundamental question arises relating

to the general law of contract about whether you

can have something which is a penalty although

not a payment. So there is a general question

of contract law applicable in a wide range of

commercial contracts and there is a question about

the nature of hire purchase and, in our submission,

there are three issues which arise, two relating
to the nature of a hire-purchase contract and one
relating to the general law of contract. All of

them are of sufficient importance, we would submit,

to entitle us to special leave. The last one)

obviously enough, the first two because now that

there is the consumer credit legislation the rules

of common law in relation to hire purchase obtain

in South Australia and New South Wales and the

ACT, at least in relation to all non-consumer

agreements, and in the other States in relation

to agreements with dealers, at least.

So those, we would submit, are the issues.

WILSON J:  Thank you, Mr Shaw. Mr Angel, what do you say

about the application?

MR ANGEL:  May it please the Court, we oppose the application.

In our respectful submission, the majority applied

settled principles relating to the law of penalties

to the two clauses in question, clauses 5 and 6.

The reasoning of the Chief Justice, in our submission,

at pages 42 and 43 in particular, are correct where

he held that the clauses fail as a penalty because

no provision is made in the clause for the

reimbursement of any excess credit that may arise

upon an application of the clause. And on that

ground, alone, and the question of reimbursement,
of course, is one discussed by

Your Honour Justice Wilson in O'DEA's case, 1s a relevant feature of penalties.

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So we say and submit that the decision is

sustainable on the reasoning of the Chief Justice

at pages 42 and 43.

DAWSON J:  Was the matter of excess credit or his view that

there was an element of purchase price in the

payment ?

MR ANGEL:  It is the question, ultimately, in our submission -

His Honour's reasoning turns on the failure to

make provision for reimbursement of a credit that

arises on an application of the clause. His Honour

does, of course, advert to the question of hire-

purchase contracts and hire contracts but it is

failure for the reimbursement of the credit on

the application of the clause that is central to

His Honour's reasoning. If I can take Your Honour

to the pa r t i cu 1 a r pa s sage , a t pages Ju. and 4 3 .

His Honour, at the bottom of page 42, having cited

IAC V HUMPHREY and the AMEV decision of

this Court, at line 29, discusses the maximum loss

that can occur under a hire-purchase contract:

The maximum loss which the respondent could

sustain in consequence of termination of the

contract was therefore the amount of any

payments of rent in arrears, together with

the total of unpaid future payments

appropriately rebated for acceleration of

payment and the expenses associated with

termination. Any formula which might produce

a benefit to the owner which is disproportionate

to that maximum loss must stand in danger

of condemnation as a penalty.

In our submission, His Honour has there correctly

formulated the question. His Honour then deals

with that question in the following passage from

lines 5 onwards on page 43:

The contractual formula provides for

the recovery of the total rent subject to

deduction of amounts already paid, an

appropriate rebate in respect of future payments

and the wholesale value of the repossessed

vehicle. Such a formula could well be regarded

as a genuine pre-estimate of the owner's loss

on termination -

and then I come to the passage I particularly stress -

if its operation were limited to situations

in which the aggregate of amounts already

paid and the value of the vehicle, less expenses

of termination, did not exceed the maximum

loss, as explained above, which could result

from termination and if it were supplemented

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by provision for reimbursement to the hirer

of the amount of any such excess.

And His Honour then goes on to hold that it 1s

the failure of the clause to make provision for

that reimbursement in the event of an excess that

results in the clause being a penalty. And in

our submission, in so holding he is merely applying

settled principles. That is our first ground of

opposition.

May it please the Court, our second ground

of opposition is that the decision is sustainable

on another ground, although it is not the ground

of the majority and that is that the provision

held to be penal provides, as part of its mechanism,

the crediting of the wholesale price. His Honour

Justice Von Doussa, in dissent, dealt with this

question but, in our submission, the correct approach

is the approach of Justice Sholl is the Victorian

case of UNIVERSAL GUARANTEE V CARLILE and I am

indebted to my friend for the reference - it is
on my learned friend's list of authorities before
the Court - where Justice Sholl said, in the absence
of any evidence as to why a finance company cannot

sell retail, the proper mode of credit is for the

retail price. That is the proper price to be credited

against the moneyspayable and not the wholesale

price. And in the case at bar there is, as there

was in the UNIVERSAL GUARANTEE case, no evidence

to sustain the application of the principle of

wholesale as opposed to retail price. So we submit

the Full Court decision is sustainable on that

additional ground in any event.

May it please the Court, the only other

submission we wish to make is if the Court is

otherwise disposed to grant leave we would ask

that it be on specific terms and there are two

matters I would ask the Court to draw into account:

one is that there is $4000 involved and, secondly,

the questions urged by my learned friend on this

appeal arose for the first time during the second
hearing of the Full Court.	So if leave were to

be granted our submission would be that for those

reasons it should only be allowed on condition

that the appellant pay costs in any event and that

the costs orders below not be disturbed on the

appeal.

In our submission the Full Court decision

is sustainable, both on the ground given by the

Chief Justice which is settled principle and on

the alternative ground. May it please the Court.

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WILSON J: It may well be that Mr Angel's assertion of

grounds on which the decision below is sustainable

might be established but the Court believes there

are important questions of law involved that warrant

the grant of special leave. There are two points

that need to be addressed. Mr Shaw, what do you

say about the question of costs?

MR SHAW:	Your Honour, this goes to the procedural matter
I mentioned at the beginning.  The Court will have
noticed that the matter of penalty did arise in
rather a peculiar way. It does not seem to have
been dealt with at first instance at all. Then
it seems to have been raised by the present respondent and half decided on the first hearing and then,
when amendments were made in accordance with the
first judgment of the Full Court, the matter was fully argued again before the Full Court and the
result which was arrived at was come to. But in
our submission the reason the matter arose at a
late stage was because it was not raised by the
respondent until a late stage.

WILSON J: Initially, do I understand, the case was really

proceeded on the basis that the hirer had returned

the vehicle?

MR SHAW:	Yes_, the district court judge decided - there was a voluntary return and decided it was recoverable
under clause 5, not clause 6.
WILSON J:	And it was when the alternative view was brought

into play that the question of penalty arose.

MR SHAW:	Yes, that is how it happened.
WILSON J:	Yes, well, you have not indicated yet whether

you resist a limitation on the grant of special

leave that would require you to pay the costs in

any event. What is the generosity of Esanda?

MR SHAW:	I was giving a hint, Your Honour.	The hint was
we did not want to.

WILSON J:	But you would if -
MR SHAW:	If it was extorted from us, we would. But our
submission is that the circumstance urged does not warrant that conclusion.
WILSON J:	No, but perhaps the circumstance that might warrant

it is the fact that Esanda has very much more at

stake than $4000.

MR SHAW:  I cannot deny that.

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WILSON J: And that really, from your client's point of view,

it is in the nature of a test case.

MR SHAW:  That is certainly so, Your Honour.

WILSON J: In that context it would not seem to be

unreasonable for your client to pay the costs of the appeal in any event. I am not so sure about not disturbing the order for costs in the court

below. Perhaps that could be left to the appeal.

MR SHAW:	Your Honour, I would not wish to say anything further
on that.subject.

WILSON J: There is one further matter, Mr Shaw. The second

matter to which I alluded is on page 87 in the

draft notice of appeal there is a ground numbered 8:

Their Honours the majority Judges of the

Full Court were in error in their August decision in concluding that there was not

a breach of a fundamental or essential term

by the Respondents, entitling the Appellant
to damages for loss of bargain.

That does not appear to have been agitated in the judgments of the court below.

MR SHAW:	No, it was not.
WILSON J:	And why should we take it on board?

MR SHAW:	Because it arises.	It is not a matter which was
debated at all.
WILSON J:	And it does not necessarily arise.	I mean, the

appeal could proceed to clarify the issues of law

that you have raised on the basis that was really

assumed, probably in the light of all States or

some of the earlier decision~ that a contractual

breach of non-payment of rent does not necessarily

or does not per se constitute a repudiation of
the contract.	Could not the questions of law be

determined conveniently without our entering into

that further straw at which your client might clutch?

MR SHAW:	A plank, Your Honour, but the answer is "Yes'', it could . but we simply, say it is a matter
which arises that is all.  I cannot deny that it
was not debated in the Full Court.

WILSON J: Bearing in mind the value the Court places on

reviewing question where they do have the benefit

of the reasoning of the court below, and bearing

in mind the general congestion of work in the Court

from which we seek to protect ourselves, it would

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not seem unreasonable to direct that the appeal

be limited to the other matters set out in the

notice of appeal except for paragraph 8.

MR SHAW:	Your Honour, if the Court was going to do that
WILSON J:	Is there some other?
MR SHAW:	Perhaps 9.
WILSON J:	Yes, well, certainly we do not want to get into

the question of calculating and assessing damages.

MR SHAW:	I mean, they really seem to be the same thing.
WILSON J:	Thank you, I had not really appreciated the way

in which 8 and 9 hung together. Thank you, Mr Shaw.

Do you want to say anything about excluding those grounds?

MR ANGEL:  We would support the exclusion, Your Honour, on

the ground that they have not been argued before.

WILSON J:  Very well. Thank you,counsel. The order of the

Court is that the application for special leave

will be granted, limited to the matter set out

in the draft notice of appeal, excluding

paragraphs 8 and 9, and on condition that the

appellant pay the costs of the respondent - the

cost of the appeal to the High Court in any event,

appeal.

the question of the costs of the appeal to the of the

MR SHAW:  If the Court pleases.

AT 10.09 AM THE MATTER WAS ADJOURNED SINE DIE

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