Garendon Investments Pty Ltd & Annor v Serina Sainama AFA

[1995] HCATrans 297

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S101 of 1995

B e t w e e n -

GARENDON INVESTMENTS PTY LIMITED (Receiver & Manager Appointed)

First Applicant

and

JOHN WILLIAM MURPHY & PETER BERNARD ALLEN in their capacities as Joint Trustees of the Meridian Investment Trusts (formerly the Estate Mortgage Trusts)

Second Applicant

and

SERINA SAINAMA AFA and PETTY TRIPOLITSIOTIS

First Respondents

and

ROSARIO LAMPASONA and EILEEN WILSON

Second Respondents

and

JUDITH THOMPSON

Third Respondent

Application for special leave to appeal

BRENNAN CJ
GAUDRON J
McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 13 OCTOBER 1995, AT 11.53 AM

Copyright in the High Court of Australia

___________________

MR J.M. STOWE, QC:   If the Court pleases, I appear for the applicants with my learned friend, MS I.A. PARSONS.  (instructed by Baker & McKenzie)

MR J.S. BASTEN, QC:   I appear for Ms Afa and the other respondents with MS J.S. MANUELL, if the Court pleases.  (instructed by Kingsford Legal Centre)

BRENNAN CJ:   Yes, Mr Stowe.

MR STOWE:   If the Court pleases, the Credit Act of New South Wales and the Credit (Administration) Act of New South Wales regulate, subject to their terms, a substantial proportion of consumer credit transactions involving less than $10,000 in this State.  Substantially similar legislation to the New South Wales Credit Act operates in Victoria, Western Australia, Queensland and in the Australian Capital Territory.  In those States and that Territory the legislation contains counterpart provisions which are, to all relevant concerns, identical with those in the New South Wales legislation with which this application is concerned.

The Credit Act imposes a very long list of requirements on contracts relating to the provision of credit to which its operations extend and the consequences of non-compliance with a significant number of those requirements are extreme.  Under sections 6 and 7 of the Credit (Administration) Act a prohibition is imposed subject to various exceptions on a person carrying on the conduct of a business of providing credit under regulated contracts in the absence of registration as a credit provider and section 8 of that Act provides that in the event of the contravention of sections 6 and 7, a contract entered into in such contravention will not entitle the lender to recover either the principal sum he has advanced or the interest upon that principal sum.

Under the Credit Act section 42 precludes a lender from recovering interest under a regulated contract which fails to comply with any one of a number of formal requirements of the Act referred to in section 42.  Where a lender has provided credit under a large number of contracts in uniform terms and under uniform circumstances, an aspect of those circumstances which activate section 8 or section 42, as is the case in the facts that underlie the present application, can involve huge sums of money and affect a very large number of people.

The provisions of section 8 and section 42 are both subject to section 85 of the Credit Act which empowers the Commercial Tribunal to restore under appropriate circumstances the whole or part of the moneys which are, in effect, forfeited pursuant to those provisions but the remedy available from the Commercial Tribunal is a discretionary remedy and where many parties are involved in circumstances of non-compliance, the application for relief under section 85 can be both protracted and extremely expensive.

The operation of section 8 of the Administration Act and section 42 of the Credit Act depends upon the existence of a regulated contract.  There are three forms of contract which the legislation addresses:  loan contracts, credit sale contracts and continuing credit contracts.  Those relevant for present purposes are the two former of those three.

GAUDRON J:   Do we need to consider the two former or only the loan contract from your point of view?

MR STOWE:   In this sense, the two have in common that the threshold question is regulated, your Honour, by section 30.  In relation to loan contracts and credit sale contracts, it is under section 30 that one determines whether the threshold of the regulation is in fact passed.        The function of section 30 is to draw the boundaries, in effect, in relation to loan contracts and credit sale contracts between those which fall outside the regulation of the Act and those which are covered by its regulation.  The meaning of section 30 and the manner and scope of its operation are accordingly of fundamental importance in the operation of the credit legislation in this State and in the other States where similar legislation obtains.              This application, we submit, raises an important question as to the way in which section 30, in those circumstances, operates.

The approach which was taken to the question via the Court of Appeal is one with respect which we submit is narrow and involves defining the operation of section 78 of the Credit Act in a way which effectively isolates that provision from the other provisions which, in fact, affect and relate to its operation.

BRENNAN CJ:   What is the precise question that arises on this application?

MR STOWE:   The question that arises is whether section 78, which permits certain tolerances in relation to the calculation of interest, that is, calculation of the annual percentage rate required to be disclosed in contracts regulated by the Act, should also be taken into account for the purposes of applying section 30, the function of which is to determine which contracts fall within the Act’s regulation and which fall outside it.

BRENNAN CJ:   That is section 30(2), is that right?

MR STOWE:   Section 30(2)(c) is the one which is specifically relevant, your Honour.  Section 30(1) excludes from the operation of Part 3 of the Credit Act contracts of a particular variety related to their subject matter and cost.  Section 30(2) excludes a further series of categories, where:

(a)  the amount financed is more than $20,000;

(b)  there is no annual percentage rate or there is only one annual percentage rate and that rate does not exceed 14 per centum; or

(c) -

which is the one that is relevant for present purposes, that:

there is an acceptable rate of interest and a higher annual percentage rate that exceeds the acceptable rate by not more than 2 per centum and that acceptable rate -

the lower one -

does not exceed 14 per centum.

In the present case the relevant contracts disclosed rates in the amounts of 12 per cent and 14 per cent.

BRENNAN CJ:   But if one looks at 78, it is expressed to be “in relation to a regulated contract”.

MR STOWE:   Yes, that is entirely true, your Honour.  We concede readily that viewed alone section 78 is a provision which operates in respect of regulated contracts.  But there are other provisions of the Act which we say import section 78 and give it, in effect, an extended function.

BRENNAN CJ:   What are they?

MR STOWE:   Section 10.  One is obliged to go to section 10 in order to determine what, for the purposes of section 30(2)(c), is the acceptable rate of interest to which it refers and what is the higher annual percentage rate to which it refers.  Those expressions are both defined in section 5(1) of the Act in a way which drives one back to the meaning of “annual percentage rate”.

BRENNAN CJ:   I must say I do not see the nexus that you are seeking to trace here, Mr Stowe.  Could you take me to it in the actual phrases?

MR STOWE:   Yes, I shall.

BRENNAN CJ:   What is it that gives 78 any operation in respect of 30(2)(c)?  What are the steps in that reasoning?

MR STOWE:   The steps are these, your Honour:  one, as I was just putting, must go to section 10 as the section - - -

BRENNAN CJ:   What does one get from section 10?

MR STOWE:   One gets from section 10 the meaning of the expression “annual percentage rate”.  Section 5(1) defines “annual percentage rate” by saying it “means annual percentage rate within the meaning of section 10”.  One then goes to section 10, the two relevant provisions of which are (a) and (b).  It says:

For the purposes of this Act, unless the contrary intention appears, a reference to the annual percentage rate:

(a)  in relation to a credit sale contract or a loan contract in respect of which the annual percentage rate has not been disclosed to the debtor or has been so disclosed otherwise than in accordance with section 38 -

and that is one of the material nexus expressions, your Honour -

is a reference to the lowest percentage rate per annum that can be determined in accordance with that section in relation to the contract;

(b)  in relation to a credit sale contract or loan contract under which the annual percentage rate has been disclosed in accordance with section 38, is a reference to the rate disclosed.

In this case, the applicant’s contention had been that the relevant contracts fell within 10(b) so that the rates to be looked at for the purpose of applying 30(2)(c) were the rates that appeared on the face of the contract.  That proposition was correct if those rates could be said to have been disclosed in accordance with section 38.  On the other hand, 10(a) would apply if those rates had been disclosed otherwise than in accordance with section 38.

BRENNAN CJ:   Had they been disclosed in accordance with section 38?

MR STOWE:   Well, that is the question.  Mathematically, the situation was that when the rates were calculated pursuant to the formulae for which section 38 provides, they produced rates which were slightly in excess, to about three decimal places, of 12 and similarly in excess of 14 and the gap between them - and this was the relevant thing - was slightly, very slightly in excess of 2.  Now, the question was whether those calculations, without more, determined the issue or whether the tolerances to which section 78 provided rendered the statement of those rates, as 12 and 14 respectively, sufficient.

BRENNAN CJ:   How does 78 find its way into the complex of sections to which you have just referred?

MR STOWE:   In this way, your Honour, we submit:  section 10 is the means by which its operation is extended.  Section 10 is clearly not confined to regulated contracts.  It is expressed as being enacted for the purposes of this Act generally, not just to Part 3 which regulates, and in 10(a) and in 10(b) and in 10(c) reference is made to “credit sale contract”, “loan contract” and “continuing credit contract” in distinction from “regulated loan contract”, “regulated credit sale contract”, “regulated continuing credit contract”.  So, we say it follows from that that 10 of itself is unrestricted in its operation so far as regulation and non-regulation is concerned.

BRENNAN CJ:   That is the definition section only, is it not?

MR STOWE:   Yes.

BRENNAN CJ:   It defines what is meant by “annual percentage rate”?

MR STOWE:   Yes, but it applies in relation to contracts.

BRENNAN CJ:   To all contracts, whether regulated or not.

MR STOWE:   Exactly.

BRENNAN CJ:   You then go to 38 in order to see whether or not, for the purposes of section 10, this contract is or is not a regulated contract.

MR STOWE:   Yes, but the expression used in 10 - and this is the critical aspect of our proposition - is “disclosed.....in accordance with section 38”.  When one goes to 38 its paragraphs (a) and (b) clearly do relate to methods of calculation of rates but the critical aspect of it, for present purposes, is the opening two lines of the section which are:

The annual percentage rate required under section 35 or 36 to be stated in a credit sale contract or a loan contract is -

section 35 and section 36 are the provisions of the Act which, inter alia, require, in relation to the credit sale contracts on the one hand and loan contracts on the other, the disclosure of the annual percentage rate.

Now, we say that it follows from that that “disclosed”, in accordance with section 38, as used in section 10, calls up that disclosure obligation, for present purposes, contained in section 36(1)(e).

McHUGH J:   That leads to the result that when 36(1)(e) says that a:

contract shall include.....

(e)  a statement of the annual percentage rate in accordance with section 38 -

it means a statement in accordance with section 38 as qualified by section 78?

MR STOWE:   Precisely, your Honour, yes.

GAUDRON J:   That might be so but for the unfortunate presence in section 78 of the words “in or in relation to a regulated contract”.

MR STOWE:   Yes, certainly alone section 78 is so constricted but it has an extended meaning given to it by 10, we submit. 

May I refer quickly to 42(1)(c) of the Act where the same formula is used, that is, “disclosed in accordance with section 38”.  Clearly section 42 is a provision in respect of which there is an operation of section 78.  Section 42 is concerned with regulated contracts.  There can be little doubt that, for the purpose of applying 42(1)(c), the tolerances provided for in 78 would be applicable.  The same formula used in 10, we submit, imports the same tolerances.

That that is so is a wholly understandable circumstance, we would submit, because it reflects in both of these situations the reality that it is impossible or it is rarely likely that the same precise number will be reached by making the various calculations of rate for which section 38 provides.  The legislature has recognised that and permitted tolerances in the statement of the rate because of the relative inaccuracy of the calculations and it is very difficult to see why it would not have intended the same tolerances to have applied in relation to disclosure as should apply in relation to defining the boundary between regulation and non-regulation.

McHUGH J:   But the difficulty is, is it not, that section 78 is concerned with whether Part 3 has been complied with in a contract to which Part 3 applies?  It has nothing to do with whether Part 3 applies to a loan contract.

MR STOWE:   Only by force of section 10 and we say that section 10, in effect, borrows the provisions of section 78 relevantly for the special purposes of 30 by its use of the words “disclosed in accordance with section 38”.

McHUGH J:   Section 38 does not use the term “disclose” at all and you have then got to use the word “stated” there - the reference to 35 and 36 to go back to 36. 

MR STOWE:   I see the red light is showing.  Those are our submissions, if the Court pleases.

BRENNAN CJ:   Thank you, Mr Stowe.  We need not trouble you, Mr Basten.

In our view the decision of the Court of Appeal was right.  Accordingly special leave will be refused.

MR BASTEN:  Costs, your Honour?

BRENNAN CJ:   With costs, Mr Stowe?

MR STOWE:   I have no submissions to make, your Honour.

BRENNAN CJ:   It will be refused with costs.

AT 12.15 PM THE MATTER WAS CONCLUDED