Landy DFK Finance v Rasaratnam
[2000] VSC 322
•17 August 2000
SUPREME COURT OF VICTORIA
COMMON LAW DIVISION
Not Restricted
No. 4413 of 2000
| LANDY DFK FINANCE PTY. LTD (ACN 004 792 090) | Appellant |
| v | |
| PRADEEP RASARATNAM | Respondent |
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JUDGE: | Balmford, J. | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 31 July 2000 | |
DATE OF JUDGMENT: | 17 August 2000 | |
CASE MAY BE CITED AS: | Landy DFK Finance v Rasaratnam | |
MEDIA NEUTRAL CITATION: | [2000] VSC 322 | |
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Appeal from Magistrates’ Court – Trade Practices Act 1974 – Loan agreement sold to the Appellant – Whether the Appellant takes the contract assigned to it subject to the rights conferred upon the Respondent by s 73 of the Trade Practices Act 1974.
Interpretation of Legislation Act 1984; s 35
Property Law Act 1958; s 134
Trade Practices Act 1974; s 73(1), (3), (4), (5), (7), (14)
Provident Finance Corporation Pty Ltd v Hammond [1978] VR 312
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APPEARANCES: | Counsel | Solicitors |
For the Appellant | Mr M Scott | Kliger Partners |
| For the Respondent | Mr C Johnson | Consumer Credit Legal Services |
HER HONOUR:
This proceeding is an appeal pursuant to section 109 of the Magistrates’ Court Act 1989, which provides that a party to a civil proceeding in the Magistrates’ Court may appeal to this Court, on a question of law, from a final order of the Magistrates’ Court in that proceeding. The final order the subject of the appeal was made on 28 January 2000 by the Magistrates’ Court at Melbourne constituted by Mr Smith, Magistrate, whereby the appellant’s complaint was dismissed, and costs reserved.
By Order made on 3 March 2000 Master Wheeler found that the questions of law shown by the appellant to be raised by the appeal were:
(a)Whether the Appellant as legal assignee of a “linked credit provider” as defined in section 73(14) of the Trade Practices Act 1974 is subject to rights and equities arising in favour of the respondent under [that] sub section[,] 1(b), in respect of a contract other than that assigned?
(b)Whether the Respondent as a consumer under section 73(4) of the Trade Practices Act 1974 is entitled under section 73(4) to set up the liability of a credit provider arising under section 73(1)(b) in diminution or extinction of his liability to the Appellant as legal assignee of the credit provider?
(c)Whether the Appellant, as legal assignee of a credit provider for the purposes of section 73(4) of the Trade Practices Act 1974, was itself a credit provider for the purposes of that section?
Section 73 of the Trade Practices Act 1974 (“the Act”) reads as follows, so far as relevant:
73Liability for loss or damage from breach of certain contracts
(1)Where:
(a). . . ; or
(b)a consumer enters into a contract with a linked credit provider of a corporation (in this section also referred to as the supplier) for the provision of credit in respect of the supply by the supplier of goods or services, or goods and services, to the consumer;
and the consumer suffers loss or damage as a result of misrepresentation, breach of contract, or failure of consideration in relation to the contract, or as a result of a breach of a condition that is implied in the contract by virtue of section 70, 71 or 72 or of a warranty that is implied in the contract by virtue of section 74 of this Act or section 12ED of the Australian Securities and Investments Commission Act 1989, the supplier and the linked credit provider are, subject to this section, jointly and severally liable to the consumer for the amount of the loss or damage, and the consumer may recover that amount by action in accordance with this section in a court of competent jurisdiction.
.. .
(3)A linked credit provider of a particular supplier is not liable to a consumer by virtue of subsection (1) in proceedings arising under that subsection if the credit provider establishes:
(a)that the credit provided by the credit provider to the consumer was the result of an approach made to the credit provider by the consumer that was not induced by the supplier;
(b)where the proceedings relate to the supply by way of lease, hire or hire-purchase of goods by the linked credit provider to the consumer, that:
(i)after due inquiry before becoming a linked credit provider of the supplier, the credit provider was satisfied that the reputation of the supplier in respect of the supplier’s financial standing and business conduct was good; and
(ii)after becoming a linked credit provider of the supplier, the credit provider had not had cause to suspect that:
(A)the consumer might be entitled to recover an amount of loss or damage suffered as a result of misrepresentation or breach of a condition or warranty referred to in subsection (1); and
(B)the supplier might be unable to meet the supplier’s liabilities as and when they fall due;
(c)where the proceedings relate to a contract of sale with respect to which a tied loan contract applies, that:
(i)after due inquiry before becoming a linked credit provider of the supplier, the credit provider was satisfied that the reputation of the supplier in respect of the supplier’s financial standing and business conduct was good; and
(ii)after becoming a linked credit provider of the supplier, but before the tied loan contract was entered into, the linked credit provider had not had cause to suspect that:
(A)the consumer might, if the contract was entered into, be entitled to recover an amount of loss or damage suffered as a result of misrepresentation, breach of contract or failure of consideration in relation to the contract or as a result of a breach of a condition or warranty referred to in subsection (1); and
(B)the supplier might be unable to meet the supplier’s liabilities as and when they fall due; or
(d)where the proceedings relate to a contract of sale with respect to which a tied continuing credit contract entered into by the linked credit provider applies, that, having regard to:
(i)the nature and volume of business carried on by the linked credit provider; and
(ii)such other matters as appear to be relevant in the circumstances of the case;
the linked credit provider, before becoming aware of the contract of sale or of proposals for the making of the contract of sale (whichever the linked credit provider first became aware of), had not had cause to suspect that a person entering into such a contract with the supplier might be entitled to claim damages against, or recover a sum of money from, the supplier for misrepresentation, breach of contract, failure of consideration, breach of a condition or breach of a warranty as referred to in subsection (1).
(4)Subject to subsection (5), in any proceedings in relation to a contract referred to in paragraph (1) (a) or (b) in which a credit provider claims damages or an amount of money from a consumer, the consumer may set up the liability of the credit provider under subsection (1) in diminution or extinction of the consumer’s liability.
(5)Subject to subsection (6), a consumer may not, in respect of a liability for which, by reason of this section, a supplier and a linked credit provider are jointly and severally liable:
(a)bring proceedings to recover an amount of loss or damage from the credit provider; or
(b)where proceedings are brought against the consumer by the credit provider, make a counter-claim or exercise the right conferred by subsection (4) against the credit provider;
unless the consumer brings the action against the supplier and the credit provider jointly or, in the case of a counter-claim or right conferred by subsection (4), claims in the proceedings against the supplier in respect of the liability by third-party proceedings or otherwise.
.. .
(7)The liability of a linked credit provider to a consumer for damages or a sum of money in respect of a contract referred to in subsection (1) does not exceed the sum of:
(a)the amount financed under the tied loan contract, tied continuing credit contract, lease contract, contract of hire or contract of hire-purchase;
(b)the amount of interest (if any) or damages in the nature of interest allowed or awarded against the linked credit provider by the court; and
(c)the amount of costs (if any) awarded by the court against the linked credit provider or supplier or both.
.. .
(14)In this section:
credit provider means a corporation providing, or proposing to provide, in the course of a business carried on by the corporation, credit to consumers in relation to the acquisition of goods or services;
linked credit provider, in relation to a supplier, means a credit provider:
(a)with whom the supplier has a contract, arrangement or understanding relating to:
(i)the supply to the supplier of goods in which the supplier deals;
(ii)the business carried on by the supplier of supplying goods or services; or
(iii)the provision to persons to whom goods or services are supplied by the supplier of credit in respect of payment for those goods or services;
(b)to whom the supplier, by arrangement with the credit provider, regularly refers persons for the purpose of obtaining credit;
(c)whose forms of contract or forms of application or offers for credit are, by arrangement with the credit provider, made available to persons by the supplier; or
(d)with whom the supplier has a contract, arrangement or understanding under which contracts or applications or offers for credit from the credit provider may be signed by persons at premises of the supplier;
.. .
tied loan contract means a loan contract entered into between a credit provider and a consumer where:
(a)the credit provider knows or ought reasonably to know that the consumer enters into the loan contract wholly or partly for the purposes of payment for goods or services supplied by a supplier; and
(b)at the time the loan contract is entered into the credit provider is a linked credit provider of the supplier.
No question arises as to the facts. On 19 August 1997, the respondent entered into a sale and management agreement with Wallco Ostrich Corporation Limited (“Wallco”), a term of the agreement being that Wallco would transfer two ostriches to the respondent for $10,000, the total consideration payable under the agreement, including agistment and management fees, being $30,000. This was a tax-linked investment. The respondent also entered into a loan agreement with Wallco Finance (Aust) Pty Ltd (“Finance”), from which he borrowed $21,000, repayable in instalments. On 1 September 1997 Finance sold the loan agreement, among others, to the appellant. On 12 March 1998 the respondent was given notice of this assignment in terms of section 134 of the Property Law Act 1958 (“the Property Law Act”).
The respondent did not receive the ostriches due to him under the agreement with Wallco, and the Magistrate found there to have been a failure of consideration in respect of the agreement between Wallco and the respondent. The respondent is in default in his loan repayments, and the amount owing by him to the appellant at the time of the Magistrates’ Court hearing in December 1999 was $22,344.82. Wallco went into liquidation on 3 April 1998 and Finance on 3 June 1998.
The Magistrate found that Finance was a “linked credit provider” in relation to Wallco, and in effect found the loan agreement between Finance and the respondent to be a “tied loan contract”, both in terms of the definitions in section 73(14). That being so, and consideration having failed in relation to the contract for goods and services, being a contract referred to in section 73(1)(b), the respondent could rely on section 73(4) to set up the liability of the appellant under section 73(1) in diminution of his own liability to the appellant under the loan agreement. The result was, His Worship found, that the claim of the appellant in respect of the provision of credit was wholly extinguished.
The three questions in the order of Master Wheeler are all directed to the same issue; that is, whether the appellant, as assignee of the linked credit provider, takes the contract assigned to it subject, as the Magistrate found, to the rights conferred upon the respondent by section 73.
It was not suggested, nor could it be, that the appellant was a “linked credit provider” in terms of the definition in section 73(14). Mr Scott, for the appellant, pointed out that the definitions of “credit provider” and “linked credit provider” in that provision were not expressed to extend to an assignee, and submitted that they did not, in their ordinary meaning, extend to include successors in title.
He submitted further that subsection (4), as brought into operation by paragraph (1)(b), did not, as the Magistrate had found, have the effect of creating “a situation where the credit provider vis à vis the consumer, stands in no better and in no worse position than the supplier of the goods in the case of one of these tied contracts”. Its operation was more limited than that, he submitted. It applied to create a set-off only in the case of loss or damage as a result of misrepresentation, breach of contract, failure of consideration or breach of certain conditions and warranties implied by statute. However, it can be said that in any of those circumstances, one of which is the circumstance with which the Court is here concerned, section 73(4) does in fact operate in the manner described by the Magistrate.
Mr Scott referred to subsections (3), (5) and (7), providing protection to credit providers, and submitted that they did not afford protection to an assignee, and that indeed subsection (3) had no conceivable relevance to an assignee. Thus an assignee would be significantly more exposed than the assignor to it who was a linked credit provider. This was unfair and could not have been intended.
He submitted that there was no evidence to show that the appellant was anything other than a bona fide purchaser without notice of the existence of the right of the respondent to a set-off. The policy behind the section was the protection of the purchaser in a case where the supplier of goods or services and the provider of finance were associated. That policy, he submitted, did not extend to protecting the purchaser from an assignee who had acquired the loan contract at arms length. He produced no authority for that proposition.
In Mr Scott’s submission the law continued to be as stated by Lush J in Provident Finance Corporation Pty Ltd v Hammond [1978] VR 312. In that case the defendant purchased a business and signed a bill of sale in favour of the vendor to secure the money outstanding under the contract of sale of the business. Thus there were two contracts, although they were made between the same parties. The assignee of the bill of sale, a purchaser for value without notice, sued the defendant for the balance due, and the defendant joined the original grantee of the bill, the vendor of the business. The defendant established three claims for damages against the grantee/vendor, for fraudulent misrepresentation and breach of warranties, all associated with the contract of sale. His Honour said at 321:
The conclusion which I draw from the authorities is that it is not open to a debtor to set up against an assignee as an equity a claim for damages under a contract other than that assigned. I think that that is so even if the contracts are part of one transaction. . . . I think that the inference is that the rights embodied in the bill of sale were not and were not intended to be “intertwined” with the various other rights and obligations of the contract of sale.
The Magistrate found that the effect of section 73 was to overrule, or create a statutory exemption to, the law as there stated by His Honour.
Mr Johnson, in reply, submitted that section 73 had no effect on the fundamental principle that the assignee of a contract stands in the shoes of the assignor. It would have been otiose for the section to refer to the position of an assignee. Section 134 of the Property Law Act provides that the assignee of a chose in action takes “subject to equities having priority over the right of the assignee”, where, as in this case, notice of the assignment has been given to the debtor. Lush J said in Provident Finance at 319:
The essential concept of an equity in this context is that it is a transaction or event or circumstance which entitles the debtor to say that it is unjust that the debt should be enforced against him without bringing into account his cross-claim arising from the transaction, event or circumstance.
. . .
Dixon J in McDonnell & East Ltd v McGregor (1936) 56 CLR 50 at p 60 said that the distinction between a counterclaim and a set off was irrelevant to the question whether or not an equity existed in the debtor.
The principle quoted in paragraph 12 above from Provident Finance did not apply because, Mr Johnson submitted, in the circumstances of the present case the effect of section 73 was that the rights of the respondent under the loan agreement were, to use the word adopted by Lush J, “intertwined” with his rights under the agreement for sale of the ostriches.
So far as the defences in subsections (3), (5) and (7) are concerned, he submitted that they were available to the assignee in the same way as to the assignor; the assignee would have the benefit of any proper enquiries carried out by the assignor.
Mr Scott referred to section 8 of the Victorian Credit Act 1984, which expressly extends the operation of section 24, the provision of that Act corresponding to section 73, to apply to an assignee. However, the presence of that section in the Victorian Act, as against its absence from the Commonwealth Act, can be explained on various grounds, and I have not taken it into account in reaching my decision.
Having considered the matter, I am not persuaded by the submissions of Mr Scott that the Magistrate was wrong. Section 35 of the Interpretation of Legislation Act 1984 requires that, in the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act is to be preferred to a construction that would not promote that purpose or object. The purpose or object of the Act is the protection of consumers; and the purpose or object of section 73 is, as Mr Scott correctly said, the protection of the purchaser in a case where the supplier of goods or services and the provider of finance are associated. Such a purchaser in that situation has no less need of protection when the provider of finance has assigned its rights. The assignee of a tied loan contract must take that contract subject to the rights of the debtor under section 73.
For the reasons given, the appeal will be dismissed. Counsel may wish to make submissions as to costs.
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