Popes Electrical & Data Supplies Pty Ltd ACN 102 613 481 v Arc Electrical Mechanical Pty Ltd ACN 165 462 939 (Civil Dispute)

[2021] ACAT 48

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

POPES ELECTRICAL & DATA SUPPLIES PTY LTD ACN 102 613 481 v ARC ELECTRICAL MECHANICAL PTY LTD ACN 165 462 939 (Civil Dispute) [2021] ACAT 48

XD 484/2020

Catchwords:               CIVIL DISPUTE – incorporation of terms and conditions into a contract – penalty interest rates – quantum meruit interest

Legislation:                 Mercantile Law Act1962 s 14

Subordinate

Legislation cited:        Court Procedure Rules 2006

Cases cited:MacRobertson Miller Airline Services v Commissioner for State Taxation (WA) [1975] HCA 55

Oceanic Sun Line Special Shipping Company Inc v Fay [1988] HCA 32

Paciocco v Australia and New Zealand Banking Group Limited [2016] HCA 28

Tribunal:Senior Member A Anforth

Date of Orders:  15 June 2021

Date of Reasons for Decision:      15 June 2021

AUSTRALIAN CAPITAL TERRITORY          )

CIVIL & ADMINISTRATIVE TRIBUNAL     )          XD 484/2020

BETWEEN:

POPES ELECTRICAL & DATA SUPPLIES PTY LTD ACN 102 613 481

Applicant

AND:

ARC ELECTRICAL MECHANICAL PTY LTD ACN 165 462 939

Respondent

TRIBUNAL:Senior Member A Anforth

DATE:15 June 2021

ORDER

The Tribunal orders that:

1.Within two weeks of receiving this interim decision, the applicant is to produce a table of calculation based on 7.75% p.a. showing periods and amounts of default and giving credit for any interest already paid.

2.Within a further two weeks the respondent is file and serve its response to that calculation.

3.If the applicant does not wish to pursue the matter further then it is to file a notice of discontinuance.

………………………………..

Senior Member A Anforth

REASONS FOR DECISION

Overview:

1.The applicant is a supplier of electrical products. The respondent had a running credit account with the applicant since April 2016 for products purchased for the respondent’s business. The credit account application was entered on 25 November 2013.

2.The credit account application purported to incorporate by reference the applicant’s ‘Terms and Conditions of Trade’. The terms and conditions of trade contained a clause for interest on default of payment:

14.1 Interest on overdue invoices shall accrue daily from the date when payment becomes due until the date of payment, at a rate of 2.5% per calendar month (and at Popes sole discretion such interest shall compound monthly at such a rate) after as well as before any judgement.

3.The applicant defaulted on payments at various times since April 2016. On 30 October 2018 the applicant informed the respondent that interest would be debited to their account for any further default. The applicant commenced debiting interest from 16 November 2018, weekly. The formula used was:

Balance of arrears x 2.5% x 12 x 7

365

4.The respondent eventually paid the outstanding accounts for the products purchased but refused to pay the interest charges.

Procedural history in the Tribunal

5.The applicant lodged a claim with the Tribunal on 17 April 2020 claiming the sum of $11,111.89 as outstanding compound interest. The interest charges were calculated over the period 16 November 2018 through to 19 March 2020 at 2.5% per month under the above formula.

6.On 22 September 2020 the respondent filed a response to the claim asserting that the compound interest charged by the applicant was in the nature of a contractual penalty and therefore unlawful, and it never agreed to and therefore never formed part of the contract between the parties. The respondent did not deny having signed the credit account application but denied ever having been provided with a copy of the terms and conditions of trade in which the interest clause appeared. At no point has a copy of those terms and conditions signed by the respondent, ever been provided.

7.The respondent asserted that interest had previously been debited to its account and paid, for which it should receive credit. To this end, the respondent asked for the applicant to carry out a reconciliation of its accounts to differentiate between amounts paid for products and amounts paid for interest.

8.The applicant filed submissions on 10 October 2020 along with a timeline of events, a signed copy of the application for credit, an unsigned terms and conditions of trade, a statement from Mr Darryl Read, the manager of the applicant and Mr Lindsay Waring, the account manager of the applicant.

9.The matter was listed for directions on 20 October 2020. Mr Read appeared for the applicant and Mr Herrald, solicitor appeared for the respondent. Directions were made for the applicant to prepare a reconciliation of the interest claimed.

10.On 30 October 2020 the applicant filed a printout of all purchases by the respondent and a documents that purported to be the reconciliation of interest charges, commencing from 26 November 2018 to 18 March 2020.

11.The matter did not settle at a conciliation on 26 November 2020.

12.On 4 and 12 January 2021 the respondent filed further submissions and a statement from Mr Scott Huggins, director of the respondent. In that statement Mr Huggins admitted his signature on the application for credit but denied that he was ever given a copy of that application, or a copy of the terms and conditions of trade, or that the interest term was ever brought to his attention. He said that he could not make sense of the applicant’s interest calculation or the formula it used. Mr Huggins said that he had paid interest on some accounts in the past and asked for a further reconciliation of the applicant’s account to differentiate payments made for products as opposed to interest.

13.The matter came for hearing in the Tribunal on 29 January 2021. Mr Read appeared for the applicant and Mr Herrald, solicitor for the respondent. It transpired that the applicant had not received the respondent submissions of 4 and 12 January 2021.

14.Mr Herrald repeated his primary contentions that the terms and conditions of trade were not lawfully incorporated into the agreement for credit arrangements because they were not appended to the application for credit and were not otherwise brought to the respondent’s attention.

15.In the alternative he submitted that the interest clause was in the nature of a ‘penalty’ and therefore void at law. In the further alternative, the Tribunal lacked jurisdiction due to the dispute resolution clause 15 in the terms and conditions of trade. In the further alternative the quantum of the interest rate was unlawful.

16.Clause 15 of the terms and conditions dealt with disputes:

If a dispute arises between the parties to this contract then either party shall send to the other party a notice of dispute in writing adequately identifying the providing details of the dispute. Within fourteen days after service of a notice of dispute, the parties shall confer at least once, to attempt to resolve the dispute. At any such conference each party shall be represented by a person having authority to agree to a resolution of the dispute. In the event that the dispute cannot be so resolved either party may by further notice in writing delivered by hand or send by certified mail to the other party refer such dispute to arbitration. Any arbitration shall be:

(a)     Referred to a single arbitrator or be nominated by the President of the Institute of Arbitrators Australia; and

(b)     Conduct in accordance with the Institute of Arbitrators Australia Rules for the Conduct of Commercial Arbitration.

17.The parties were provided with a choice. The hearing could be adjourned while the respondent reserved its submissions and documents; or the issues of law could be completed on the papers with further written submissions but no further oral hearing. The issue of quantum would be deferred to a future hearing depending on the outcome of the legal issues. The parties chose the latter course. The Tribunal made orders and a timetable to that effect.

18.On 15 March 2021 the applicant filed written submissions that appeared to be drafted by a legal practitioner. On the issue of the interest being a penalty, the applicant relied upon the High Court Paciocco v ANZ[1] and other cases to the effect that it was permissible to charge interest that acted as a deterrent to customer default as long as it was not “extravagant, unconscionable or out of proportion”. The submission argued that the applicant operated on tight margins and could not afford customers to default on timely payments.

[1] [2016] HCA 28

19.The applicant submitted that if the 2.5% per month were found to be unlawful then the appropriate amount is 8% p.a. in accordance with section 14 of the Mercantile Law Act1962 or 7.75% p.a. in accordance with the Court Procedure Rules 2006.

20.The applicant argued that clause 15 would only preclude access to ACAT if it were in the nature of a ‘Scott v Avery clause’, which it is not. It was argued that a ‘Scott v Avery’ clause requires that the arbitration must be attempted as a prerequisite to any litigation in the courts or tribunals, whereas present clause 15 does not explicitly contain any such constraint.

21.The applicant noted attempts to negotiate a settlement and that respondent had not raised this jurisdictional issue until the hearing. In these circumstances the respondent should be taken to have waived any rights it may have had under clause 15.

22.The applicant’s submission did not address Mr Herrald’s primary submission concerning the non-incorporation of the terms and conditions of trade as a term of the credit agreement.

23.On 12 April 2021 the respondent filed its submissions. Mr Herrald again referred to his primary submission which had gone unanswered by the applicant. He asserted that no proper reconciliation of the applicant’s account had occurred. He challenged the relevance of the applicant’s assertion that it operated on tight margins. He noted the contextual nature of any inquiry into whether an interest rate is a penalty. Mr Herrald did not address the jurisdictional issue.

Consideration of the issues

The jurisdictional issue

24.The Tribunal infers from the content of the final submissions that the respondent does not press this issue. In the light of the cogency of the applicant’s submissions on the point, the Tribunal is satisfied that it has jurisdiction.

The respondent primary submission

25.There is much force in this submission. It is one thing to provide the respondent with the application for credit that merely refers to the terms and conditions, but it is also necessary to provide a copy of those terms and conditions. This is particularly so where an interest clause of the present kind is contained in those terms.

26.The respondent’s evidence is that he was never provided with a copy of the terms and conditions at all. When he requested a copy of those terms from the applicant he was told that they are the same terms that have applied since 2012. The applicant has not produced a copy of the terms and conditions bearing the respondent’s signature nor given any evidence consistent with the respondent having been provided with a copy of the terms and conditions at the time of entering the credit arrangements.

27.There is no problem in principle of having terms and conditions annexed to a contract, but for lawful incorporation as a term of the contract, those terms and conditions must be given to the respondent before he enters the contract and preferably, for evidential purposes, signed by the respondent.[2]

[2] MacRobertson Miller Airline Services v Commissioner for State Taxation (WA) [1975] HCA 55; Oceanic Sun Line Special Shipping Company Inc v Fay [1988] HCA 32

28.The Tribunal cannot be satisfied that the proper incorporation process summarised above has occurred in this case and therefore those terms and conditions do not form part of the contract between the parties.

Is the interest clause a penalty?

29.In the light of the finding immediately above, it is not necessary to answer this question. However, it is difficult to see how this hefty interest rate could act as a deterrent to customers default in the manner argued by the applicant, if the customers were not aware of it.

30.On its face the interest rate is so high that, if it were an incorporated term of the contract, the Tribunal would have found it to be a penalty.

The remedy

31.The respondent was not provided with the terms and conditions setting out the interest rate, but it must have known that some interest rate would apply to defaults. In fact Mr Huggins conceded so much in his statement and that he had in fact paid some interest. This was the reason for the requested reconciliation of the applicant’s accounts.

32.On a quantum meruit basis, it is unfair to the applicant that the respondent escape any interest charges for its default, only because the terms and conditions were not properly incorporated into the contract. The applicant must be taken to have known that he would be charged at least the prevailing industry rate for default. The Tribunal has no evidence of that rate and in default therefore takes the 7.75% p.a. of the Court Procedure Rules 2006 to be a reasonable approximation thereof.

33.This leaves open the quantification of the claim based on this interest rate and having regard to interest already paid by the respondent. These are matters for resolution at the resumed hearing.

34.Within two weeks of receiving this interim decision, the applicant is to produce a table of calculation based on 7.75% p.a. showing periods and amounts of default and giving credit for any interest already paid. Within a further two weeks the respondent is file and serve its response to that calculation.

35.If the applicant does not wish to pursue the matter further then it is to file a notice of discontinuance.

………………………………..

Senior Member A Anforth

Date(s) of hearing	29 January 2021
Applicant:	Mr D Read, authorised representative
Solicitors for the Respondent:	Mr P Herrald, Jack C Herrald Solicitors