Victorian Producers Co-operative Co Ltd v Nessie Mary Edwards, James Barton, Brian William Albert Sapiatzer and Ian David Edwards No. SCGRG 89/995 Judgment No. 3732 Number of Pages 11 Consumer Credit

[1992] SASC 3732

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA PERRY J

CWDS
Consumer credit - Claim for balance alleged to be due on a running account with stock and station agent for the supply of goods and services on credit - defence that no interest was recoverable by reason of the fact that the plaintiff did not hold a credit provider's licence under the Consumer Credit Act - held that on a proper construction of the contract pursuant to which the account was established, the principal exceeded $15,000 and the credit being provided other than on the security of land, no such licence was required. Consumer Credit Act ss 5, 6, 28, 40 and 42.

HRNG ADELAIDE, 3-5 June 1992 #DATE 7:12:1992
Counsel for plaintiff:                Mr P McNamara
Solicitors for plaintiff:             Wallmans
Counsel for defendant N Edwards:     Mr G Holland
Solicitors for defendant N Edwards: Andrew Ley Jordan
Remaining defendants:                 No attendance

ORDER
Judgment for plaintiff.

JUDGE1 PERRY J The plaintiff sues for the balance of a running account with the plaintiff operated by the defendant, Nessie Mary Edwards ("Mrs Edwards") and her late husband Brian Peter Edwards ("the deceased") who died on 25 August 1986. The plaintiff's claim is for the sum of $173,293.21. 2. The defendants apart from Mrs Edwards ("the executors") are the executors of the estate of the deceased. The executors have reached an arrangement with the plaintiff, the terms of which were not disclosed at the trial. However, as a result of the arrangement only Mrs Edwards appeared, by counsel, at the hearing. At the trial, the plaintiff sought relief against her only. 3. No evidence was called by Mrs Edwards, and there was no attack on the credit of the witnesses called by the plaintiff. As will be seen, the critical questions raised by the case are as to the construction of various provisions in the Consumer Credit Act. The factual findings which follow are, therefore, largely uncontentious. 4. At the time the account with the plaintiff was opened, Mrs Edwards and the deceased together carried on business as farmers at a property approximately five miles west of Millicent. 5. From about 1973, Mrs Edwards and the deceased had operated a running account with a company known as DSM Estates Limited ("DSM") and its predecessor, Australian Estates. That account was of a kind commonly operated by farmers with general stock and station agents. DSM supplied on credit goods and services used in the carrying on of the farm, and was sole agent for the sale of livestock and crops, including wool. 6. The plaintiff, which is a co-operative, is incorporated in Victoria. Like DSM, its major business operation is that of general stock and station agents. The greater part of its working capital is provided by way of loans from its members, who are in turn primary producers. 7. The plaintiff's principal places of business are in Victoria where it has some 46 branches. In 1953 it first opened a branch in South Australia, at Bordertown. In the 1980s it further expanded its business operations in this State and opened branches at Mount Gambier and Naracoorte and, as will be seen, Millicent. 8. The defendant Mr Brian Sapiatzer, is Mrs Edwards' brother. He was manager of the Millicent branch of DSM and looked after the account operated with that company by his sister and the deceased. 9. Early in 1984, a company known as Elders announced its intention to take over DSM. Mr Sapiatzer thereupon approached the plaintiff to see if it was interested in establishing a branch at Millicent. They agreed to do so. Mr Sapiatzer then left DSM and took up the position of manager of the plaintiff's new Millicent branch. He commenced duty in that position on 6 July 1984. 10. Mr Sapiatzer gave evidence that before that date, he had a discussion with his sister and the deceased as to what would become of their account with DSM after the Elders takeover. As a result of that discussion, they agreed to establish an account with the plaintiff in lieu of the account with DSM. Mr Sapiatzer undertook to put forward an application to the head office of the plaintiff on behalf of Mrs Edwards and her husband to ascertain whether the plaintiff would be prepared to pay out the amount owing to DSM and from then on to operate a similar current account with them. At that stage, the amount owing to DSM, which would have to be paid to that company in order to clear the account, was approximately $110,000. 11. Mr Sapiatzer prepared an application for finance. He filled it in from information which Mrs Edwards and the deceased gave to him or from information which he already knew. It contains an estimate of the stock on hand and the position as to their other assets, including the property which they owned, and their selling program for the next year. It embodies a request for an advance to pay out DSM in the total sum of $111,700.18. 12. Although the document is dated 20 July 1984, that was the date upon which Mr Sapiatzer typed out the application, and sent it to his Melbourne head office. He had obtained the details for the statement, insofar as he needed instructions, from Mrs Edwards and the deceased, shortly after he commenced with the plaintiff on 6 July 1984. 13. At that time stock and station agents commonly offered two kinds of accounts to farmers, the accounts being operated on much the same terms as between the various companies offering this facility. I find that the general terms of operation of both kinds of accounts were well known to Mrs Edwards and the deceased. One kind of account was known as a sundry debtors account. Under that account, goods and services were supplied by the stock and station agent on 30 day terms. Payment was to be made on a statement furnished at the end of the month during which the goods and services were supplied. No interest was charged provided that payment was made on the due date. Furthermore, such an account was not an account which was allowed to accumulate from month to month, as the basis of its operation was that it be cleared each month. 14. The other type of account commonly offered was known as a financed account. It was a financed account which Mrs Edwards and the deceased had operated for many years with DSM. I accept Mr Sapiatzer's evidence that the essential terms of operation of the DSM account were the same as those which applied to the financed account offered by the plaintiff. Financed accounts were offered to farmers who wanted ongoing credit. When such an account was established, the stock and station agent would obtain details of a program within the framework of which the account holder indicated what sales of crops and livestock were likely to be made and when the revenue was expected to come in from such sales, during a given year. The farmer would then be permitted to charge up goods and services within that year, on credit, in the expectation that if sales were effected according to the program set at the start of the year, the account would be cleared within twelve months trading. 15. It was not common for an express limit to be set on a financed account, but the local manager of the stock and station agent would keep an eye on the account to see that it was running generally within the expected limits, having regard to the program. Given the unpredictable nature of farming operations, I infer from the evidence that a fair degree of flexibility was inherent in the operation of such an account. 16. In the case of a financed account, interest was charged daily and debited at the end of each month. A monthly statement would issue, which set out the debits for the various goods and services supplied, the amount of any payments received during the month and the amount debited for interest. 17. The rate of interest was fixed at the discretion of the stock and station agent. In the case of both DSM and the plaintiff, the rate was set by the company's head office. The local branch managers had no participation in the setting of the interest rate. It was always slightly higher than the equivalent bank interest rate. No advance notice was given to customers as to any change in the interest rate. The monthly statements of account simply indicated the amount of interested calculated according to the rate prevailing during that month. The only pressures which operated to contain the interest rate were those which resulted from competition between the various stock and station agents, and recognition of the generally prevailing levels of interest. 18. When Mr Sapiatzer discussed the position with Mrs Edwards and the deceased early in July 1984, they were keen to change their account to the plaintiff. Mr Sapiatzer told them that he would work out a program "to give them the possibility of clearing the account within twelve months". The Edwards made it clear that they wished to have a financed account. Mr Sapiatzer said that the plaintiff would debit interest in the same way that DSM had. Nothing else was said about the terms of the proposed account as their years of experience in operating such an account with DSM had made Mrs Edwards and the deceased familiar with the essential characteristics of its operation. They correctly assumed that any such account, if the plaintiff was willing to allow them to open one with it, would be on essentially the same terms as those on which they had operated with DSM. 19. Mr Sapiatzer did not have authority as Millicent branch officer of the plaintiff to approve the opening of a financed account. He did, however, have authority to extend credit on a sundry debtors account. Mr Sapiatzer's evidence, which I accept, was that during the discussions which took place early in July 1984, Mr Edwards said: "What do I do in the short term until approval of the financed application is given?" to which Mr Sapiatzer replied:
    "The only thing you can do is use a sundry debtors account.
    If it is approved, we can transfer it to the financed
    account, but if it is not, you will have to pay the sundry
account and continue trading with DSM Estates." 20. Pending consideration by the plaintiff of the application for a financed account, Mr Sapiatzer opened a sundry debtors account. The evidence establishes that the first debit in the sundry debtors account was struck on 10 July 1984 when there was a purchase of some chemicals, and there was some other merchandise purchased at various dates down to 26 July 1984. 21. The head office of the plaintiff approved the defendant's application for a financed account on 30 July 1984. I accept the evidence of Mr Sapiatzer that the sundry debtors account was then merged with the financed account. From the date of approval of the financed account, there was only one effective account between the plaintiff and Mrs Edwards and the deceased. That was the financed account, which was made retrospective to 10 July, so as to accommodate the first purchases which had been made on the sundry debtors account. Not only did Mr Sapiatzer give oral evidence to that effect which I accept, but also the statements of account make it clear that there was only one running account, commencing from 10 July 1984, which was the financed account. What is more, an amount of interest was debited as of 31 July 1984 in the sum of $14.69, which applied to all of the purchases dating back to 10 July. That interest was taken up in the balance shown on the statement dated 31 July 1984 of $2,037.09. 22. On 1 August 1984, after he had been advised of the approval of the financed account, Mr Sapiatzer arranged for a cheque to be drawn and paid to DSM, effectively closing the account with that company. The cheque was in the sum of $111,700.18. That amount was raised as a debit in the financed account and appears in the August statement. 23. 1984-5 proved to be a bad season. Mr Sapiatzer had discussions with his sister and brother-in-law towards the end of 1985 and early in January 1986. Mr Morris, the manager of the finance department of the plaintiff, wrote to Mrs Edwards and the deceased expressing concern at the level of the account and the paucity of what were described in the letter as "cash reductions". 24. The account was continued, however, after the death of the deceased. In May 1987 a separate financed account was opened in the name of Mrs Edwards alone, from which time the subject account does not appear to have carried many movements except the debiting of interest and occasional credits transferred from Mrs Edwards' account. 25. The plaintiff's claim of $173,293.21 is calculated to May 1992. That sum is said to be the balance of the financed account as of that date. 26. In reaching that figure, credit has been given for $16,726.14 paid by Mrs Edwards on a partial summary judgment against her pronounced by Master Burley on 23 October 1989 (Judgment No. M1141), said to relate to that part of the account as at that stage represented "principal moneys". 27. Thereafter, the amount claimed has been said to be limited to the interest component in the account. I am not persuaded that the dissection of the account which preceded the entry of partial summary judgment proceeded on a basis which properly gave effect to the intention to distinguish "principal" from "interest" or credit charges. However, I do not pursue that aspect of the matter further, as it cannot affect the outcome of the case, or the amount for which final judgment should be entered. 28. Against that background, it is necessary to have regard to the issues between the parties. 29. By her defence, Mrs Edwards admits that she and the deceased entered into an agreement with the plaintiff which was partly oral and partly in writing on or about 10 July 1984, pursuant to which the plaintiff agreed to lend to her and the deceased moneys on a current or running account, under the style "B.P. and N.M. Edwards" and under the terms of which the plaintiff allowed her and the deceased to purchase goods from the plaintiff on credit. Importantly, it is admitted also on the pleadings that on or about 1 August 1984, the plaintiff lent to the defendant and her husband, jointly and severally, $111,700.18: "... which was drawn down by the defendant and the deceased in cash, such moneys to be debited to the said account." 30. As to this aspect of the matter, I find on the evidence that on about 10 July 1984, Mrs Edwards and the deceased opened a sundry debtors account with the plaintiff, which subsequently was subsumed in the financed account, for which approval was given on 30 July 1984, effective from 10 July. 31. In her defence, Mrs Edwards denies that it was a term of the agreement that the plaintiff would be entitled to any interest. But on my findings of fact, it seems to be inescapable that there was an implied term that the plaintiff was entitled to charge interest at a rate which it was free to set each month, and further, that the interest was chargeable on the outstanding balance of the account at the end of each month. The evidence which compels me to that finding is the evidence of the terms upon which the financed account with DSM operated for many years, the fact that Mrs Edwards and the deceased sought a similar account with the plaintiff, the evidence of Mr Sapiatzer to the effect that he explained that interest would be charged monthly, and the course of dealing between the parties after the account was opened. I mention, however, that the plea in paragraph 3.2.4 of the amended Statement of Claim as to various factors which it is asserted were agreed to as matters to be taken into account in fixing the interest rate, and evidence called by the plaintiff as to the process followed in that request, are both misconceived. Mrs Edwards and her husband must be taken simply to have agreed that the plaintiff was entitled to interest to be debited monthly at such rates as the plaintiff might unilaterally determine. Nothing occurred which had the effect of fixing Mrs Edwards or the deceased with knowledge of the process to be followed in determining or varying the rate, or which gave rise to an implied term that any particular process would be followed in that respect. 32. The critical issue upon which the decision in the case turns is the assertion in her defence by Mrs Edwards that if it was a term of the agreement that the plaintiff would be entitled to charge interest, the plaintiff is prevented from pursuing its claim for such interest by virtue of the provisions of s.28 of the Consumer Credit Act ("the Act"), or alternatively, by reason of s.40(8) of the Act. 33. In order to understand that issue it is necessary to have regard to a number of provisions in the Act. 34. S.28 of the Act provides in part as follows:
    "28.(1) A person shall not carry on business as a credit
    provider or hold himself out as carrying on business as a
    credit provider unless he is duly licensed as such under
    this Act. Penalty: One thousand dollars.
    (2) ...
    (3) Subject to subsection (4) of this section, a credit
    provider who is required to be licensed under this Act shall
    not be entitled to recover or retain any credit charge in
    respect of credit provided by him at any time at which he is
    unlicensed.
(4) ..." 35. Pursuant to s.5 of the Act, a "credit provider" is defined to include: "... a person whose business is, or includes, the provision of credit, or who holds himself out in any way as carrying on that business." 36. In the same section, "credit" is defined as follows:
    "'Credit' means-
    (a) any advance of money or money's worth made in expectation
    of repayment or any forbearance to require payment of any money
    owing made in expectation of subsequent payment;
    and includes -
    (b) ..." 37. "Credit charge" is defined as:
    "'Credit charge'-
    (a) in relation to a credit contract (other than a sale by
    instalment) means any interest or other amount (however it may
    be described), or the value of any other benefit, in excess of
    the principal, that has been, or is to be, paid or given in
    consideration of, or otherwise in respect of, the provision of
    credit but does not include ..." 38. "Credit contract" is defined as meaning:
    "... a contract or agreement (whatever its terms or form
    may be) under which credit is provided by a credit provider
    to, or for the use or benefit of, a person (other than a
body corporate) and includes a sale by instalment." 39. Having regard to the provisions of the Act to which I have so far referred, there is no doubt, and indeed it was common ground, that the plaintiff is and was at the relevant time a credit provider within the meaning of the Act, that the agreement between the plaintiff, Mrs Edwards and the deceased was a credit contract, that the advances of money and goods on the credit contract were made by the plaintiff during the course of carrying on business as a credit provider, and that the levying of interest on the account amounted to the imposition of a credit charge within the meaning of the Act. Furthermore, it was conceded by the plaintiff that at the relevant time it did not hold a licence under the Act as a credit provider. 40. Mrs Edwards contended that in these circumstances s.28(3) was of application, so as to deny the plaintiff the ability to recover or retain the interest debited in the account. 41. Alternatively, the defendant called in aid s.40 of the Act. The parts of that section relevant to the defendant's plea are as follows:
    "40.(1) A credit contract (not being a sale by instalment)-
    (a) must be in writing and signed by or on behalf of the
    consumer;
    (b) must set out the terms and conditions upon which the
    credit is provided and in particular must show-
    (i) the amount of the principal;
    (ii) the person to whom and the place at which repayment is
    to be made by the consumer;
    (iii) ...
    (c) ...
    (2) Where the particular matters of which disclosure is
    required in a credit contract under subsection (1) of this

    section are not ascertainable by the credit provider before, or
    at the time of, the formation of the credit contract, the
    contract must-
    (a) set out those matters to the extent to which they are
    ascertainable; and
    (b) set out the terms and conditions upon which the credit is,
    or is to be, provided in a clear and concise manner so that the
    obligations of the consumer under the contract are explicitly
    stated and readily ascertainable.
    (3) For the purposes of subsection (1) of this section if the
    contract provides for a number of advances of principal and the
    total amount of principal to be advanced in pursuance of the
    contract is not ascertainable at the time of execution of the
    contract, the amount of the principal first lent in pursuance of
    the contract shall be deemed to be the amount of the principal.
    ...
    (7) If a credit contract to which this section applies does
    not comply with the provisions of this section, the credit
    provider shall be guilty of an offence and liable to a penalty
    not exceeding five hundred dollars.
    (8) If a credit contract to which this section applies does
    not comply with the provisions of this section, the credit
    provider shall not be entitled to any amount in respect of the
    credit charge payable under that contract.
    (9) Any such amount paid by or on behalf of the consumer in
    respect of a credit charge may be recovered back or deducted
    from any amount payable under the contract or payable in respect
    of any security given in respect of the contract,
notwithstanding agreement to the contrary." 42. Further or alternatively, the defendant pleads in aid the provisions of s.42 of the Act. That section is, in part, in the following terms:
    "42.(1) Subject to subsection (2) of this section any credit
    contract shall be void in so far as it provides directly or
    indirectly for-
    (a) payment of interest upon a credit charge;
..." 43. The defendant pleaded as well that the account in question was an unauthorised "revolving charge account" within the meaning of s.5 of the Act. The plaintiff conceded that it had never obtained a credit contract in a form complying with s.40, and further, it was common ground that compound interest was charged so as to attract the application of s.42(1) if it was otherwise applicable. 44. The plaintiff's case in answer to the defendant was that the Act was not of application to its contract with the defendant by virtue of s.6. Relevantly, at the time in question, that section provided:
    "6.(1) ...
    (2) ...
    (3) This Act does not apply to a credit contract-
    (a) where the amount of the principal exceeds $15,000 and
    the credit is not provided on the security of land;
    (b) ...
    (5) This Act does not apply in respect of any revolving
    charge account maintained on behalf of a consumer in
    accordance with the conditions prescribed by the Tribunal by
    a person authorized by the Tribunal to provide credit by
    means of such accounts. (6) The Tribunal may, on the
    application of any person, authorize him to provide credit by
    means of revolving charge accounts, and such an authorization
    may be granted upon conditions-
    (a) limiting the frequency with which credit charges may be
    made on any such account;
    (b) limiting the amount of the credit charges that may be made
    on any such account, and such other conditions as the Tribunal
thinks fit." 45. The plaintiff maintains that s.6(3)(a) is of application in that the principal exceeds $15,000 and the credit was not provided on the security of land. 46. As to s.6(5), relating to a revolving charge account, the plaintiff's case was that the credit contract, although arguably taking the form of a revolving charge account, nonetheless, was not caught by the Act by reason of the application of s.6(3)(a) and the characterisation of the contract as a revolving charge account was, therefore, nothing to the point. The defendant s ought to avoid the conclusion that the substantial advance made by the plaintiff to pay out DSM meant that the principal, for the purposes of s.6(3), exceeded $15,000 by pointing to the provision in s.40(3) that if the contract provides for a number of advances of principal, and the total amount of principal to be advanced is not ascertainable at the time of execution of the contract, the amount of the principal first lent in pursuance of the contract: "... shall be deemed to be the amount of the principal." 47. The defendant contended that as the very first credit given to her and her husband was for goods to the value of $237.40, not only did s.40 apply so as to oblige the plaintiff to secure the execution of a credit contract conforming to the form set out in s.40, but having failed to do so, any credit charge imposed thereafter was not recoverable by reason of s.40(8), or alternatively, s.28(3). 48. In my opinion, the defendant's argument must, on a proper construction of the Act, fail. 49. The critical words in s.40, for the purposes of considering the defendant's argument based on that section are the opening words of subsection
(3), namely: "For the purposes of subsection (1) of this section ..." 50. It seems to me that the remainder of subsection (3) deals only with the situation which occurs when the contract provides for a number of advances of principal, and simply indicates what, in that situation, amount is to be set out in the credit contract in order to comply with the requirement to be found in s.40(1)(b)(i). S.40(3) is not a section which has the effect of attracting the provisions of the Act as a whole or displacing the provisions of the Act as a whole, as the case may be, depending upon the amount of the advance of principal. 51. The application of the Act as a whole is governed by s.6(3), and if the principal within the meaning of s.6(3)(a)(i) exceeds $15,000, and the credit is not provided on the security of land, one does not reach either s.40 of the Act or, for that matter, s.28 or s.42. 52. As to what must be taken to be the amount of the principal for the purposes of s.6(3), "principal" is defined in s.5 as follows:
    "'Principal'-
    (a) in relation to a credit contract (other than a sale by
    instalment), means the amount actually lent by the credit
    provider, or of which he forebears to require payment, under
    the credit contract; and
    (b) in relation to a sale by instalment, has the meaning
assigned by section 41 of this Act." 53. In my opinion, the words "the amount actually lent" make it plain that in identifying the principal in relation to a credit contract, one looks at the amounts actually lent. The amount agreed to be advanced or lent is irrelevant. Furthermore, for the purposes of s.6(3)(a)(i), where there are successive amounts of principal lent, it is necessary to aggregate the amounts "actually lent" for the purposes of determining the application of the Act, and furthermore, the total is irreducible. By that I mean that no credits, such as payments on a running account which result in a reduction in the total shown in the account from time to time should be taken into account in determining the amount of the principal, just as no other debits, such as interest, should be taken into account either. The amount actually lent is a fixed and invariable amount at the moment it is advanced, and as successive amounts lent accrete, once the total exceeds $15,000, where the credit is not provided on the security of land, the Act is not of application, although it may have otherwise been of application before that stage was reached. 54. It follows from the observations which I have made that by the time the second account was rendered to the defendant, that is, by the end of August 1984, the amount actually lent, which by then included the advance of $111,700.18 paid to DSM, exceeded $15,000 and was not lent on the security of land. In the result, the Act did not apply to the credit contract in question. It follows that the fact that the plaintiff was not licensed as a credit provider pursuant to the Act does not operate to preclude the recovery of the interest charges the subject of the claim. 55. There must, therefore, be judgment for the plaintiff against Mrs Edwards for the amount of the amended claim, namely, $173,293.21, together with such further interest as the plaintiff may be entitled to. As that involves a further calculation, I will hear counsel as to the amount for which final judgment is to be entered, and as to costs.