New Holland Credit Aust P/L v Vandeleur
[2006] SADC 57
•2 June 2006
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
NEW HOLLAND CREDIT AUST P/L v VANDELEUR AND ORS
[2006] SADC 57
Judgment of His Honour Judge David Smith
2 June 2006
STATUTES - ACTS OF PARLIAMENT - INTERPRETATION - INTERPRETATION ACTS AND CLAUSES - PARTICULAR ACTS & ORDINANCES
TRADE AND COMMERCE - TRADE PRACTICES AND RELATED MATTERS - CONSUMER PROTECTION
Appeal from Master of District Court to single Judge of District Court – s43(2)(a) of District Court Act 1991 – District Court Rule 97.01 – Court may exercise any discretion afresh and error on part of Master is not prerequisite to interfering with Master’s decision – claim by both parties that Master struck out defendant’s defence and counterclaim because it did not disclose a cause of action under s73 of the Trade Practices Act 1974 (Cth) – discussion of meaning of s73 of Trade Practices Act– held pleadings properly disclose the first defendant by counterclaim is a “linked credit provider” and plaintiff’s by counterclaim entitled to set up breach of contract for contract for supply of goods against the first defendant by counterclaim – appeal allowed – orders made by Master set aside.
District Court Act 1991 s43(2)(a); Trade Practices Act 1974 (Cth) s52, s73; Fair Trading Act 1987 s56, referred to.
O’Brien Lovrinov Crafter Pty Ltd v Corradini [1999] SASC 1549; Transeast Pty Ltd v Commonwealth Bank (1990) 157 LSJS 447; Landy DFK Finance Pty Ltd v Rasarthnam [2000] VSC 322, considered.
NEW HOLLAND CREDIT AUST P/L v VANDELEUR AND ORS
[2006] SADC 57Introduction
This is an appeal by the defendants against a decision made by a Master on the 27th March 2006 whereby the Master struck out the Amended Defence and Amended Counterclaim of the defendants and gave liberty to the defendants to refile a Further Amended Defence and Counterclaim.
Nature of Appeal
This appeal is instituted pursuant to s43(2)(a) of the District Court Act 1991 and Rule 97.01 of the District Court Rules, and is by way of rehearing. This Court may exercise its own discretion without regard to the manner in which it was exercised by the learned Master (see O’Brien Lovrinov Crafter Pty Ltd v Corradini[1] and see also Transeast Pty Ltd v Commonwealth Bank[2]).
[1] [1999] SASC 1549
[2] (1990) 157 LSJS 447 at 450 per Perry J
Grounds of Appeal
The relevant ground of appeal is as follows:
1.1The learned Master erred in law in holding that, in order to rely on section 73 of the Trade Practices Act 1974 (Cth), it is necessary for the Defendants to plead that the Plaintiff breached a contract in which it agreed to provide credit to the Defendants;
Background Circumstances
The background circumstances are set out in the Master’s decision and are drawn from the pleadings and the affidavit of Paula Mertiris sworn on the 14th September 2005. It seems that there is little dispute about the background facts alleged in this matter.
The appellants (“Vandeleurs”) purchased three items of farm machinery from New Holland Australia Pty Ltd (“New Holland Australia”) through an agent. The sales contract was in writing and was entered into on about the 1st August 2001. The Vandeleurs required finance to make the purchase and obtained it from New Holland Credit Australia Pty Ltd (“New Holland Credit”). A credit contract was entered into in writing on the 25th September 2001. The amount borrowed was $172,159.03 and it was repayable by four annual payments. Those payments were secured, inter alia, by mortgages over the equipment.
A dispute arose about the performance of the machinery and the servicing of it by New Holland Australia by its agent. This dispute was purportedly resolved. A Deed was entered into documenting the said resolution.
The Vandeleurs failed to make the first payment which was due on the 25th February 2002. The equipment was repossessed by New Holland Credit on that day, the 25th February 2002, and sold.
New Holland Credit instituted this action against the Vandeleurs claiming the money said to be outstanding under the Credit Contract, namely $65,565.75 plus interest.
In their defence, the Vandeleurs admitted that they failed to pay the instalment due on the 25th February 2002 but denied that the sum of $65,565.75 was due and payable to New Holland Credit because it was extinguished or diminished by reason of the matters pleaded in the counterclaim. In the counterclaim, which was brought against both New Holland Credit and New Holland Australia, the Vandeleurs alleged:
·that New Holland Australia and its agent were guilty of multiple breaches of the Sales Contract and Deed including breaches of the Trade Practices Act;
·that New Holland Credit was a “linked credit provider” of the New Holland Australia for the purposes of s73 of the Trade Practices Act;
·that pursuant to the said s73 New Holland Credit was jointly and severally liable with New Holland Australia for the breaches by New Holland Australia of the Sales Contract and Deed; and
·that the damages for breach may be set-off against the New Holland Australia’s claim.
This statutory “joint and several liability” of the “linked credit provider” was rather sparsely pleaded in paragraph 26 of the counterclaim in the following terms:
26.Pursuant to section 73 of the TPA, New Holland Credit is jointly and severally liable to PM & WM Vandeleur in respect of the breaches of the Sales Agreement and/or the Deed in so far as it is a consumer for the purposes of the TPA.
The defence and counterclaim did not plead any breach actual or implied of the Credit Contract by the credit provider New Holland Credit.
It is against that background that the New Holland Credit applied to strike out the Defence and Counterclaim and further and rather optimistically sought judgment.
Both counsel agreed that the Master struck out the Vandeleurs’ pleadings because it was his view that in order to rely on s73 of the Trade Practices Act, the Vandeleurs had to plead or allege a breach of the credit contract which they had not done. So he ordered the striking out pursuant to Rule 46.18 as the pleading did not disclose a reasonable cause of action
I did initially form the view that the Master merely took the view that reliance on s73 was poorly pleaded but on a reconsideration of his reasons, I now accept both counsels’ view of the basis of the decision.
The parameters of this Appeal
This is an appeal about the adequacy of the defendants’ pleadings. It is not an application to determine a point of law prior to trial (see Rule 75.02). So it is neither necessary nor desirable for me to finally decide on the meaning of s73. It is best left for the trial judge. To allow the pleading to stand it is only necessary to conclude that it discloses a reasonable cause of action, that is, one which is arguable or has some chance of success. Although the language I use may indicate a final decision on the point it is its arguability which is all that is necessary to determine this appeal.
The meaning, purpose and object of s73 of the Trade Practices Act 1974
The relevant portions of s73 of the Trade Practices Act provide as follows:
(1) Where:
(a) .....................
(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 2001 , 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.
.......................................
(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 continuing credit contract” means a continuing credit contract under which a credit provider provides credit in respect of the payment by a consumer for goods or services supplied by a supplier in relation to whom the credit provider is a linked credit provider.
“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
(the italics are mine)
The meaning of the above provision is obvious. It imposes a statutory joint and several liability on a linked credit provider for breaches by the supplier of goods or services. The section does not require, as a precondition to the liability of the credit provider, that there be a breach of the credit contract. Rather, the breaches which enliven the joint and several liability are breaches of the contract for the supply of goods or services. The joint and several liability of the credit provider is imposed by the statute.
The purpose and object of s73 is clear. It is a perfectly straightforward and intelligible consumer measure, which protects the purchaser in a case where the supplier of goods or services is associated with the provider of finance. It prevents a financier who is associated, in the requisite way, with the goods supplier, sheltering behind the principle of privity of contract and enforcing the terms of the credit contract when there is a problem with the goods, the purchase of which, he has financed.
The above construction of s73 is supported by:
·the plain meaning of the provision construed in the context of the section and the Act as a whole;
·the Commonwealth Parliament’s explanatory memorandum in respect of the provision when it was in bill form; and
·case law and academic comment
I turn to each of the above.
The plain meaning of s73
To begin with, for the provision to apply there must be “... a contract with a linked credit provider ... for the provision of credit in respect of the supply by the supplier of goods or services or goods and services ...” (see s73(1)(b)). Clearly there are two contracts envisaged, namely:
·a contract between a consumer and a supplier for the supply of goods or services (ie a goods or services contract); and
·a contract between the consumer and a linked credit provider for the provisions of credit in respect of the supply by the supplier of goods or services (ie a credit contract).
Given the linking of the two contracts, by reason of the requisite association between the supplier of goods and the provider of finance for them, s73 provides that the provider of finance and the supplier of goods will be jointly and severally liable for any loss and damage which is sustained by the consumer as a result of:
·“... misrepresentation, breach of contract or failure of consideration in relation to the contract ...”;
·“... breach of a condition that is implied in the contract by virtue of ss 70, 71 or 72 ...”; and
·breach of “... warranty that is implied in the contract by virtue of s74 of this Act or s12ED of the Australian Securities and Investment Commission Act 2001 ...”
Is the contract referred to in the above three instances the credit contract or the contract for the supply of goods or services?
Counsel for New Holland Credit, Mr Wilkinson, contended that the contract referred to in the above three instances is the credit contract mentioned earlier in the section. He said it followed that the joint and several liability was predicated on the happening of one of the above specified breaches to that credit contract.
Counsel for the Vandeleurs, Mr Robertson, submitted that the contract referred to in each of the said three instances is the contract for the supply of goods and that the breaches referred to, could only be intended by the legislature to be breaches of the contract for the supply of goods.
I agree with the submission of the Vandeleurs.
A reading of ss70, 71 and 74 in the Trade Practices Act make it clear that the contract referred to is the goods contract.
Sections 70, 71 and 72 imply, into contracts for the supply of goods to a consumer, conditions that goods will:
·correspond with description;
·be of merchantable quality and fit for purpose; and
·correspond in quality with any sample provided.
Section 74 implies a range of warranties into contracts for the supply of services to a consumer.
So it can be seen that terms implied by ss 70, 71, 72 and 74 are specifically applied only to contracts for the supply of goods and/or services. Accordingly, having been adopted into s73 without modification those sections in the context of s73 must be read as having the same scope and application. There is no warrant to interpret those sections as applying to credit contracts.
Indeed the character of the terms implied by the said sections are such that they could only sensibly relate to a contract for the supply of goods or services.
The meaning of s73 is clear, but if the meaning is not, as I have found it to be, the question which arises is ‘what work is s73 to do’? Is it there to facilitate an implication of those specified implied terms in s73(1) into the credit contract? If so, why is that not clear from the language and why then impose the joint and several liability?. Further, if its purpose is to enable the implying of terms into the credit contract which could in any event be implied pursuant to ordinary common law contractual principles, it would then be otiose in the extreme.
The Commonwealth Parliament’s Explanatory Memorandum as to the intent of s73
I have set out above what I regard as the clear purpose of s73. It is an obvious consumer protection measure which as counsel, Mr Robertson, said “is intended to expand the remedies that would otherwise be available to the consumer at common law”.
The Commonwealth Parliament’s Explanatory Memorandum for the Trade Practices Revision Bill 1986 (Cth) confirms that purpose in the following terms:
Section 73: Liability for loss or damage from breach of certain contracts
... the credit provider must carry some fault. If he has an arrangement with the supplier to provide credit in respect of purchases from the supplier, he is aiding the supplier’s business. He is then in a better position to know of the solvency of the supplier and depending on the connection he may be able to exercise some control over the supplier’s business conduct.
Under the credit legislation recently introduced in New South Wales, Western Australia and the Australian Capital Territory, where a credit provider who is linked to the supplier provides credit to a consumer in respect of a purchase from the supplier, the credit provider and the supplier are liable jointly and severally for any breach of the contract of sale, misrepresentation or failure of consideration.
The existing s.73 is being repealed and replaced with a section modelled on and consistent with the linked credit provider provisions in the State Credit legislation (see e.g. s.24 Credit Act 1984 (NSW), s.34 Credit Act 1984 (Vic.)). Sub-ss. (1) provides that a ‘linked credit provider’ (as defined in sub-s. (14)) is liable jointly and severally with the supplier for any misrepresentation, failure of consideration or breach of the contract of sale.
...............................
Where the credit provider is not linked to the supplier, sub-s. (2) makes clear that the credit provider is not liable for breaches of the conditions and warranties implied by Division 2. In these circumstances the consumer can seek redress from the supplier.
As with the rest of Division 2, the consumer will be able to recover his loss or damage by action in a State or Territory Court of competent jurisdiction.
There is no debate that it is permissible for a court to refer to such extrinsic material as Explanatory Memoranda in order to discover the purpose or object of the legislation and to confirm the literal meaning. This can be done even where the provision is clear on its face (see ss15AA, 15AB of Acts Interpretation Act 1901 (Cth); see also Statutory Interpretation in Australia 5th Ed Pearce & Geddes, Chapter 3 and in particular at [3.11]).
As can be seen the intention and purpose of the law makers as indicated in the Memorandum accord with the view expressed by me above as to the literal meaning of the section.
Case Law and Academic Comment
Counsel for the Vandeleurs referred the Court to the decision of Balmford J in the Victorian Supreme Court in Landy DFK Finance Pty Ltd v Rasarthnam[3]. That case was an appeal from a magistrate which required the resolution of three questions of law concerning s73 of the Trade Practices Act. The facts were as follows. The respondent entered into a Sale and Management Agreement with Wallco Ostrich Corporation Limited (“Wallco”) whereby for $30,000 Wallco would sell two ostriches to the respondent. Under the agreement, Wallco was also to agist and manage the ostriches for the respondent. In order to finance this contract, the respondent entered into a loan agreement with Wallco Finance (Australia) Pty Ltd (“Wallco Finance”). In the course of time, Wallco Finance assigned the loan agreement to the appellant. The respondent still had liabilities under the agreement. The respondent did not receive the ostriches he had purchased. The magistrate found that there was a failure of consideration in the contract between the respondent and Wallco. The respondent was in default under the assigned loan agreement. In paragraph 6 of his judgment, Balmford J set out the material findings of the magistrate as follows:
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.
[3] [2000] VSC 322
The issue for the appeal before Balmford J was “... 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 s73 ...” (see para 7).
Balmford J held, dismissing the appeal, that the appellant assignee of the credit contract took the contract subject to the rights of the respondent debtor under s73. So whilst the case was focussed upon the issue of whether an assignment in such circumstances was subject to the usual rule that the assignee takes the debt subject to equities, the court necessarily had to accept the correctness of the magistrate’s conclusions as to the effect of s73. As indicated above, the magistrate found that the liability of the respondent debtor under the credit contract was extinguished because of the failure of consideration in respect of the contract for the supply of the goods and services, namely the failure to deliver the ostriches to them. In paragraph 17, Balmford J said
The purpose or object of the Act is the protection of consumers; and the purpose or object of section 73 is ... 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.
So the case of Landy is clearly supportive of the contention that pursuant to s73 the purchaser of goods and services who has financed the purchase through a linked credit provider can set off his liability under the credit contract against any entitlement under the contract for goods and services. There is not a hint of a suggestion in Landy that it was necessary for the respondent to establish a breach implicit or actual of the credit contract.
This interpretation is also supported by the following commentary pertinent to s73 in Miller’s Annoted Trade Practices Act 27th Ed 2006 at [1.73.5]:
Section 73 has the effect of making the supplier and the financier both liable in certain circumstances where a consumer suffers loss or damage in relation to goods or services the consumer has acquired from the supplier on the basis of finance provided by the financier.
I do not read the commentary relating to s73 in the previous edition, the text of which is set out in the learned Master’s reasons in [53], as being necessarily inconsistent with that set out above, but if it is, then the learned author, Mr Russell Miller, obviously had an appropriate change of heart.
I note here that counsel for the appellants, Mr Robertson, informed me that, in the argument before the Master, neither he nor opposing counsel, Mr Wilkinson, put before the Master either the Commonwealth Parliament’s Explanatory Memorandum or referred the Master to the case of Landy. So in making his decision, the Master did not have the benefit of that material and the arguments relating to it.
Criteria for striking out on the basis that pleading “discloses no reasonable cause of action or defence” (Rule 46.18 District Court Rules)
The principles which guide this discretionary power to strike out pleadings are clear. The Master directed himself as to them. It is therefore almost unnecessary to say that such a power should be exercised only in the clearest of cases. Unless the claimed cause of action be manifestly untenable, it should be left to be dealt with in a trial on the merits in the usual way. These time consuming and expensive procedural battles should only be entertained in the clearest of cases. In my view, for the above reasons, the cause of action pleaded by the Vandeleurs was clearly arguable.
Conclusion
So for the above reasons I uphold the appeal.
Provided that Vandeleurs are properly pleaded to be “consumers” and New Holland Credit a “linked credit provider” within the meaning of the Trade Practices Act then the Vandeleurs are entitled, pursuant to s73(4), to set up alleged breaches of the contract for the supply of goods as specified in s73(1) in diminution or extinction of any liability they may have under the credit contract. In particular, there is no prerequisite, that in any such action, the Vandeleurs allege breaches of the credit contract.
Accordingly, I make the following orders:
·the appeal is allowed;
·the orders made by the Master on the 27th March are set aside; and
·the application for directions filed by New Holland Credit on the 15th September 2005 is dismissed.
I will hear the parties as to question of costs and any further orders or directions.