Wiles v Millard Shaw Pty Ltd
[2021] VSC 346
•16 June 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S ECI 2019 05143
| KELVIN WILES | Appellant |
| v | |
| MILLARD SHAW PTY LTD (ACN 090 126 247) | Respondent |
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| JUDGE: | Ginnane J |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 29 October 2020 |
| DATE OF JUDGMENT: | 16 June 2021 |
| CASE MAY BE CITED AS: | Wiles v Millard Shaw Pty Ltd |
| MEDIUM NEUTRAL CITATION: | [2021] VSC 346 |
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APPEAL – Magistrates’ Court orders – Contract – Factoring Agreement – Guarantee – Whether contract created – Whether subject to a condition precedent – Whether demand required under guarantee –Respondent’s claim for recovery of receiver’s fees – Whether respondent entitled to recover legal costs on an indemnity basis – Whether agreement provided financial services – Whether agreement subject to the Australian Consumer Law – Australian Securities and Investment Commission Act 2001 (Cth) ss 12BA, 12BAA; Competition and Consumer Act 2010 (Cth) s 131A, sch 2.
PRACTICE AND PROCEDURE – Costs – Indemnity costs – Power to award indemnity costs – Exercise of discretion to award indemnity costs.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr M Dean | |
| For the Respondent | Mr I Hristovski | JHK Legal Australia Pty Ltd |
HIS HONOUR:
Background
Mr Kelvin Wiles appeals on questions of law from orders of the Magistrates’ Court requiring him to pay $21,428.30 plus interest and indemnity costs to Millard Shaw Pty Ltd. The Court found that sum to be owing by his company, Find It Smart Franchising Pty Ltd, as a result of Millard Shaw providing invoice factoring finance to it. The Court found him liable to pay that sum under a guarantee of his company’s liabilities.
Millard Shaw Pty Ltd (‘Millard Shaw’) is a franchisee of a master franchisor. It provides services under the trading name Fifo Capital Port Phillip (‘Fifo’). I shall refer to it as Fifo. One of those services was invoice factoring finance, whereby businesses with cash flow difficulties, but awaiting payment of invoices or accounts receivable, sell those invoices at a discount of their face value for an immediate cash payment from the purchaser, who is assigned the right to collect the full value of the invoices.
In March 2016, Mr Kelvin Wiles (‘Wiles’) was the director of Find It Smart Franchising Pty Ltd (‘Find It Smart’), which conducted a franchise business offering advertising and related services to Victorian tourism businesses. He wanted to attend a franchising exhibition in Sydney but needed to pay the registration fee of $3,500 by 11 March 2016 and sought to obtain funds to do so. However, payments of invoices were due to be made to his company on 1 June 2016, 15 June 2016, 25 June 2016 and 25 July 2016 by one of its franchisees, Gacesa Enterprises Pty Ltd (‘Gacesa’).
On the morning of 10 March 2016, Fifo and Wiles discussed products it could offer Find It Smart, including an invoice factoring facility: ‘Fifo Invoice Finance Facility’. They exchanged emails and documents and later that day Fifo emailed Wiles the ‘Fifo Invoice Finance Facility’ Deed.
The next morning Find It Smart, through Wiles its sole director, agreed to sell three of the invoices to Fifo pursuant to the Deed. Gacesa signed a document acknowledging that it would pay to Fifo the amount owing to Find It Smart under the invoices.
On 15 March 2016, Wiles, as director of Find It Smart, and as guarantor, signed the offer to sell agreement, the Deed and the guarantee. Fifo confirmed it had accepted Find It Smart’s offer to sell three of the invoices and that it would deposit into its bank account 80 per cent of the amount of those invoices, being $16,395.20.
By email dated 1 June 2016, Gacesa informed Fifo that it was insolvent and it did not pay any Fifo any of the sums claimed by the invoices. As a result, Fifo contented that Find It Smart became obliged to pay it the amounts that it had advanced for each invoice plus the agreed fees and costs. Fifo requested those payment but Find It Smart did not pay them.
Fifo claims that Find It Smart breached the Deed by failing to repay the advances and the fees and costs due to it. Furthermore, Fifo claimed that Find It Smart’s failure to make those payments was a default event under cl 16.1 of the Deed and accordingly pursuant to cl 16.3, Fifo appointed David Ross of Hall Chadwick as Find It Smart’s receiver.
The Deed
Relevant clauses of the Deed stated:
1.2[Find It] may, from time to time, offer to sell Account Receivables to Fifo. In this deed or in another document [Find It] may agree to offer to sell Account Receivables to Fifo in which case [Find It] must offer to sell Account Receivable to Fifo in accordance with that agreement. If Fifo accepts [Find It]'s offer the Offered Receivable is a Purchased Receivable… Purchased Receivables are transferred to Fifo completely and unconditionally. Fifo will pay a purchase price to [Find It] for the purchased receivable.
…
2.1‘Costs’ means any costs (including legal costs and expenses) associated with performing due diligence; the execution, performance and enforcement of this deed an Offer to Sell or a Transaction; the collection and enforcement of a Purchased Receivable (including the costs of a debt collection agency); the enforcement of a Security Interest; complying with the PPSA; and other charges incurred by Fifo (including any Tax) in respect of any of the matters contemplated by this deed. In the case of legal costs and expenses the Costs will be the amount Fifo agrees to pay.
…
‘Payment Date’, in relation to a Purchased Receivable, means the earlier of the date it is due and 75 days from the date the Client’s offer was accepted in accordance with clause 3.3 or the date it was notified to Fifo in accordance with clause 3.4.
…
4FIFO’S FEES AND COSTS
4.4Fees and Costs payable by the Client when specified in the Offer to Sell or if not specified in the Offer to Sell or when there is no Offer to Sell when the Customer pays the Face Value (see clause 5.2) as they are taken into account in determining the Residual Payment. If they cannot be paid in that way (for example, because the Residual Payment would become a negative number) or the Face Value is not paid by the Payment Date, the Client must pay the fees and costs on the Payment Date. The Client must pay any Fees and Costs which accrue after the Payment Date immediately on demand. All other amounts payable by a Transaction Party must be paid immediately on demand by Fifo.
…
5PAYMENTS FOR ACCEPTED RECEIVABLES
5.3 If the Purchased Receivable is a Fifo-Protect Receivable, there is no dispute concerning the Purchased Receivable, there is no Default Event, the Customer is liable to pay the Purchased Receivable but has failed to do so solely due to a Customer Insolvency and the Fifo-Protect Receivable has been admitted to rank against the insolvent estate of the Customer, Fifo will pay the Fifo-Protect Payment less the Fee, any outstanding Costs and the Initial Purchase Price. Fifo will pay that amount to the Client after Fifo has received an amount not less than the Fifo-Protect payment from its insurer in connection with the Customer’s failure to pay but in making that determination the aggregate deductible and the maximum policy liability referred to in the policy will be disregarded. If the Client would like to see the policy it should ask Fifo for a copy. That amount and the Initial Purchase Price is the price Fifo pays the Client for the Fifo-Protect Receivable. If the Fee, Cost and Initial Purchase Price is greater than any amount Fifo receives from its insurer the Client must pay the difference to Fifo under the indemnity in clause 15 1(b).
5.4If the Purchased Receivable is a Full Recourse Receivable and Fifo does not receive the Face Value by the Payment Date, the Client must immediately repay the initial purchase price to Fifo. After the Client repays the Initial Purchase Price and all other amounts due to Fifo, Fifo will sell the Full Recourse Receivable to the client for $10, so long as there is no Default Event and there is no risk of Fifo having to hand over any payment Fifo has received. The Full Recourse Receivable is re-transferred to the Client (without any representation or warranty from Fifo), when the Client pays that amount so long as those conditions are satisfied.
5.5 Despite clauses 5.3 and 5.4, if a Default Event occurs and Fifo has not received the Face Value of Purchased Receivable the Client must immediately repay the initial Purchase Price, pay the Fees and Costs which would have been payable on the Payment Date and pay all other amounts to which Fifo is entitled.
The effect of the Deed was that if Gacesa did not pay the amount owed by Find It Smart to Fifo by the payment date, being within 75 days of the offer to sell being accepted,[1] Find It Smart was obliged to repay the advance to Fifo by that date.[2] In addition, it had to pay the fees and any costs payable to Fifo under the Deed.[3]
[1]Fifo Invoice Finance Facility Deed cl 2.1, definition of ‘Payment Date’ (‘Deed’).
[2]Ibid cl 5.4.
[3]Ibid cl 4.4.
Under the Deed, Find It Smart agreed to pay fees for the advance. If the invoices were paid within 30 days of the advance being paid to it, the total fees were $1434.58 being 7% of the total of the invoices. If the invoices were paid after 30 days of the advance, an additional fee of 0.2% per day, or $40.99 per day, was payable.[4] If the debts were not paid, Find It Smart had to pay fees which were annualised at 80 per cent a year. As a result, Fifo’s claim included approximately $40,000 for fees and $40,000 for indemnity costs.
[4]Millard Shaw Pty Ltd v Wiles (Magistrates’ Court of Victoria, G12564074, 10 October 2019) [14] (‘Magistrates’ Court Decision’).
The Guarantee
Under the Deed, Mr Wiles guaranteed that Find It Smart would pay Fifo all money owed under it.[5] Additionally, as guarantor he agreed that he would indemnify Fifo against all actions, claims, liabilities, costs, expenses and loss of any kind which Fifo might sustain, suffer or incur or become liable for or in respect of something done, not done or arising in any way out of or in relation to the Deed.
[5]Deed (n 1) cl 11.1(a).
The Magistrate’s decision
Fifo commenced proceedings against Mr Wiles in the Magistrates’ Court of Victoria in 2016 for a debt totalling $90,453.09 for sums advanced plus fees and costs claimed under the Invoice Finance Facility.
In his defence, Wiles contended that no agreement was made by Find It Smart to sell the invoices to Fifo. Its offer to sell the invoices was subject to a special condition, or condition precedent, that Fifo would seek Fifo Protect Insurance (‘Insurance’) for the receivables but it did not do so.
Mr Wiles also argued that Fifo was not entitled to indemnity costs pursuant to the Deed, nor to be paid the Hall Chadwick fees which it claimed. He filed a counterclaim alleging that Fifo had engaged in misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law[6] and that the guarantee was void ab initio or that the Court should refuse to enforce it. He also alleged that parts of the amounts claimed were a penalty.
[6]Competition and Consumer Act 2010 (Cth) sch 2 (‘Australian Consumer Law’).
On 10 October 2019, after a three day hearing, the Magistrate ordered that:
1. Kelvin Wiles pay Millard Shaw Pty Ltd $21,428.30.
2.Kelvin Wiles pay Millard Shaw Pty Ltd interest, the amount of which is reserved.
3.Kelvin Wiles pay Millard Shaw Pty Ltd’s costs on an indemnity basis to be assessed by the Costs Court in default of agreement.
4. Kelvin Wiles’ counterclaim is dismissed.
The Magistrate found that the fees charged under the Deed were a penalty, that the agreement insofar as it required Find It Smart to pay fees to Fifo was a penalty, that Wiles was not liable to pay them. Millard Shaw’s claim for the fees was dismissed.
Grounds of appeal
Mr Wiles appeals these orders on questions of law pursuant to s 109 of the Magistrates’ Court Act 1989, seeking to have them set aside.
Questions of Law 1, 2 and 3 Grounds 1, 2 and 3 – Conditional Offer Grounds
Mr Wiles’ first three questions of law and grounds relate to the receivables offer to sell and whether the formation of a contract was conditional on Fifo seeking Fifo Protect Insurance in respect of the invoices.
Grounds 1, 2 and 3 are:
1.In finding that it was unnecessary to decide whether or not the plaintiff sought Fifo Protect Insurance for the invoices the subject of the Receivables Finance Offer to Sell by Find It Smart Franchising Pty Ltd dated 14 March 2016 the Magistrate erred by:
(a) taking into account irrelevant considerations, namely, matters which occurred prior to the making of the offer on 15 March 2016;
(b) failing to consider if the plaintiff had satisfied the special conditions necessary for it to accept the offer.
2.The Magistrate erred in failing to consider whether the special condition to seek Fifo Protect Insurance was satisfied as acceptance of the offer to sell the invoices, either with or without Fifo Protect Insurance, was subject to a special condition that Fifo Protect Insurance be sought by the plaintiff.
3.The Magistrate erred in finding that the offer to sell was not subject to the special condition stated therein, namely, that ‘Fifo Protect will be sought for all debtors unless otherwise advised by Fifo.’[7]
[7]Appellant’s Notice of Appeal dated 8 November 2019; Court Book, Wiles v Millard Shaw Pty Ltd (Supreme Court of Victoria, Ginnane J, 29 October 2020) 4 (‘CB’).
The Magistrate’s findings
The appellant referred to the statement in the Magistrates’ reasons:
Given that Mr Wiles’ evidence was that he noticed that the Full Recourse column and the Fifo Protect column both had ‘yes’ written on them and the offer to sell clearly stated that Fifo Protect was not guaranteed, I am not satisfied that the offer to sell was made conditional on or subject to the provision of Fifo Protect Insurance.[8]
[8]Magistrates’ Court Decision (n 4) [153]; CB 492.
Mr Wiles’ submissions
Mr Wiles contended that no offer and acceptance had occurred to create a contract between Fifo and Find It Smart. The offer could only be accepted in accordance with its terms. The offer was subject to a condition precedent, which was not satisfied. Insurance had to be applied for, otherwise the offer could not be accepted on its terms. The offer was therefore unable to be accepted. Mr Wiles was not told that insurance could not be obtained. Fifo’s only possible claim might be in restitution for money paid under a mistake.
The offer to sell listed three invoices that Find It Smart offered to sell to Fifo and next to each of them were two columns. One column was headed ‘Full Recourse’ and the other ‘Fifo Protect’.[9] Mr Wiles had written ‘yes’ in both columns, but the three words stating ‘yes’ under the ‘Fifo Protect’ column had been crossed through, apparently by the director of Fifo, Ms G Jankowiak.[10]
[9]Transcript of Proceedings, Millard Shaw Pty Ltd v Wiles (Magistrates’ Court of Victoria, G12564074, 5 December 2018-20 December 2018) 81-82 (‘Magistrates’ Court Transcript’).
[10]CB 449.
Find It Smart’s offers were subject to a special condition about insurance, which stated:
SPECIAL CONDITIONS (as arranged)
FIFO PROTECT. FIFO PROTECT WILL BE SOUGHT FOR ALL DEBTORS UNLESS OTHERWISE ADVISED BY FIFO. FIFO PROTECT CANNOT BE GUARANTEED.[11]
[11]CB 428.
Mr Wiles submitted that Find It Smart’s offer to sell the invoices was conditional upon Fifo seeking Fifo Protect Insurance because the words ‘Fifo Protect will be sought for all debtors unless otherwise advised by Fifo’ were contained in a box titled ‘Special Conditions’ that appeared on the offer to sell document.[12] There was no evidence that Fifo advised Find It Smart ‘otherwise’ to use the words of the special condition set out in the previous paragraph.
[12]CB 428.
Mr Wiles argued that the Magistrate did not address the wording of the special condition and confused the provision of insurance with Fifo’s obligation to seek insurance. The Magistrate erred in considering the question of whether the offer was made conditional on the provision of Fifo Protect Insurance, rather than whether the offer was conditional on Fifo seeking Fifo Protect Insurance for all debtors. Find It Smart was willing to accept insurance cover whatever its amount. Fifo should have contacted the insurer or insurer’s agent to see if the insurance was available and made any application that was required. Furthermore, Wiles argued that the Magistrate erred by failing to decide whether or not Fifo sought Fifo Protect Insurance for the invoices. In this regard, her Honour, stated:
It is also unnecessary for me to decide whether or not Fifo sought Fifo Protect Insurance for the invoices or whether Mr Wiles is bound by the guarantee signed by him if Fifo Protect Insurance was not sought for the invoices.[13]
[13]Magistrates’ Court Decision (n 4) [159].
Mr Wiles argued that the Magistrate erred in finding that the offer to sell was not subject to the special condition that Fifo Protect Insurance would be sought for all debtors. He contended that the word ‘yes’ in the Full Recourse and Fifo Protect columns of the offer was not inconsistent with the special condition that ‘Fifo Protect will be sought for all debtors’. Wiles argued that the warning that Fifo Protect Insurance could not be guaranteed was not inconsistent with the special condition that ‘Fifo Protect will be sought for all debtors’.
Mr Wiles argued that if the Magistrate had considered whether Fifo had sought Fifo Protect Insurance for the invoices, she could only have found that no such insurance was sought. Such a finding would have required the further finding that the offer was not accepted by Fifo according to its terms, as the special condition would not have been satisfied. Accordingly, the Magistrate should not have found that Wiles was liable as a guarantor pursuant to the Deed for the advance of $16,395.20 made to Find It Smart for the purchase of the invoices.
Fifo held an umbrella insurance policy for its franchisees with QBE Insurance, which provided cover when the debtor did not pay the sums payable under the invoices and became bankrupt or insolvent. The fees charged under the Deed included a component for the cost of insurance.[14] However, franchisees, in order to be covered by the policy, had to be named in the schedule to the policy and Fifo was not so named.
[14]Mr Wiles’ grounds included a contention that the Magistrate wrongly took into account evidence of discussions between the parties which preceded the signing of the offer to sell, but it was not developed in submissions and, in my opinion, did not have substance.
Fifo’s submissions
Fifo submitted that the Deed was not provisional or conditional upon Fifo Protect Insurance being obtained.[15] The Magistrate’s decision was correct. Fifo submitted that the Magistrate found that Mr Wiles was not concerned with whether the offer was made with or without Fifo Protect Insurance. Because he needed the money urgently, he was content to receive the funding either way.[16] Wiles had not been concerned with insurance as evidenced by his action in writing ‘yes’ in both the ‘Full Recourse’ and ‘Fifo Protect’ columns of each of the offers to sell. The Offer to Sell made clear that insurance was not guaranteed given the Offer to Sell was to be read with the Deed, which Wiles read before signing. A reasonable person would interpret Find It Smart’s offer as an offer to sell with or without Fifo Protect Insurance. Once the offer was accepted and the money advanced, the effect of cl 3.3 was that no condition precedent had to be satisfied. It provided:
Fifo may at Fifo’s sole and absolute discretion, accept the client’s offer. Fifo accepts the client’s offer by telling the Client in writing (which in this instance includes email) that the Client’s offer is accepted. If Fifo has not accepted the client’s offer in that way but pays any of the Initial Purchase Price to the client that is an acceptance of the Client’s offer. The Client’s offer cannot be accepted in any other way. Immediately upon the Client’s offer being accepted the Offered Receivable is transferred to Fifo.[17]
[15]Respondent’s Submissions dated 18 June 2020.
[16]T 49.
[17]Deed (n 1) cl 3.3.
Fifo Protect Insurance was not guaranteed. The insurance was for the benefit of Fifo not for the guarantor or borrower see cl 17.6. Before the borrower could derive any benefit from the insurance the matters listed in cl 5.3 of the Deed would have to be satisfied. These were that there was no dispute about the purchase receivables, the party who owed the money had failed to pay it to the customer, the party who owed the money had become insolvent and the factored receivables had been admitted to rank against the insolvent estate. None of these matters had been satisfied.
Under cl 5.3 if a factored invoice was insured then the liability of Find It Smart to Fifo would be reduced by the amount which Fifo received from the insurer. There was a $10,000 excess and the amount payable under the insurance policy, if it was applicable, would have been 90 per cent of the value of the invoices less the excess, which in this case would have been about $6,000.[18]
[18]Transcript of Proceedings, Millard Shaw Pty Ltd v Wiles (Magistrates’ Court of Victoria, G12564074, 5, 5, 10 December 2018) 30 (‘Magistrates’ Court Transcript’) being the evidence of Ms Jankowiak; CB 114.
Fifo submitted that the Deed allowed for invoices to be factored without insurance and that the Offer to Sell did not state that insurance would be sought before factoring.
Ms G Jankowiak, the director of Millard Shaw, gave evidence that Mr Wiles’ finance application was her first invoice finance transaction. As a result of her enquiries at the franchisor’s head office, she understood that her company could not obtain insurance as it was not an insured under the master policy. In addition she was informed that it was unlikely that insurance could be obtained because the relationship between Gacesa and its franchisee was not at arm’s length. Mr Wiles expressed no concern that insurance had not been obtained. Under the Deed, he was obliged to pay the same fees regardless of which offer he accepted and therefore regardless of whether Fifo Protect Insurance was obtained. While the cost of the insurance was included in the fees, the Magistrates’ Court decided that Fifo could not recover the fees because they were a penalty and therefore Mr Wiles was not liable to pay the cost of insurance.
Grounds 1, 2 and 3 – Analysis
It is first necessary to determine whether a contract was created, which turns on whether the offer was conditional on the satisfaction of a condition precedent or whether it was capable of acceptance without Fifo first seeking Fifo Protect Insurance. Samuels JA defined a condition precedent as:
a stipulation in an agreement upon the fulfilment of which the existence of a contract, or of a principal obligation under an existing contract, is made contingent. The stipulation may involve the occurrence of an event that is independent of both parties, or it may require a unilateral act.[19]
[19]Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689, 703.
Determining whether a contract contains a condition precedent requires consideration of the terms of the contract. The relevant legal principles were discussed in Perri v Coolangatta Investments Pty Ltd.[20] Mason J dissented as to the outcome of the case, but considered extensively the principles by which a Court will determine whether a contractual provision is a condition precedent. His Honour stated:
In most cases it is artificial to say, in the face of the details settled upon by the parties, that there is no binding contract unless the event in question happens. Instead, it is appropriate in conformity with the mutual intention of the parties to say that there is a binding contract which makes the stipulated event a condition precedent to the duty of one party, or perhaps of both parties, to perform.[21]
[20](1982) 149 CLR 537.
[21]Ibid 552.
Thus, there is a distinction between conditions of formation of a contract and conditions of its performance. Many instances of a condition precedent state that the contract or obligations under it are ‘subject to’ the happening of some contingency, such as the provision of finance.
The statement that ‘Fifo Protect [Insurance] will be sought’, could mean that the insurance would be sought before the offer was accepted or sought at some later stage. The Deed contained a condition at cl 17.6, which stated:
Fifo does not provide insurance. A Transaction Party does not have any rights under any insurance policy Fifo has with its insurer or any rights to amounts payable under the policy. Each Transaction Party must do anything Fifo requires to assist Fifo to make a claim and receive payment under the insurance policy or to enable Fifo to fulfil its obligations to the insurer.[22]
[22]Deed (n 1) cl 17.6.
I do not consider that the creation of the contract depended on Fifo seeking Fifo Protect Insurance or other insurance. If insurance had been obtained, it might have resulted in some payment to Fifo if Gacesa had not paid the amount of the invoices. In turn, any such payment might have benefited Find It Smart. But steps taken by Fifo to seek insurance would not by themselves have provided any such benefit. The parties’ intentions, viewed objectively, do not suggest that they regarded any obligation of Fifo to seek Fifo Protect Insurance as a condition precedent. A requirement that insurance actually be obtained might have been a different matter.
The evidence does not suggest that either party treated the seeking of insurance as a precondition to the creation of a contract. As mentioned, Mr Wiles wrote ‘Yes’ for both the Full Recourse and Fifo Protect products. He did not raise the issue of the availability of insurance thereafter. Ms Jankowiak learned that insurance was not available, but chose to continue with the contract. In any event, the seeking of such insurance ceased to be a condition of the formation of the contract, when the parties proceeded to perform the contract.[23] Mr Wiles received the agreed sum of $16,395.20 without demanding that insurance be sought or enquiring whether it had been. In my opinion, he and his company thereby dispensed with any condition or requirement that Fifo seek insurance.
[23]Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537, 552-3, 560, 565.
Grounds 1, 2 and 3 are not established.
Question of Law 4 Ground 4 – Requirement for a demand under the guarantee
Mr Wiles’ fourth question of law and ground concerns whether a demand was required under the guarantee and if so whether a valid demand was made on Mr Wiles. Ground 4 provides:
4.The Magistrate erred in finding that the plaintiff’s cause of action for the advance did not require a demand to be made on the defendant in circumstances where:
(a) the advance made by the plaintiff was neither a fee nor a cost within the meaning of the Invoice Finance Facility Deed ("the Deed");
(b) the defendant was a ‘Transaction Party’ within the meaning of clause 2.1 of the Deed;
(c) clause 4.4 provided, inter alia, that all amounts payable by a Transaction Party (other than fees and costs) must be paid immediately on demand by the plaintiff.[24]
[24]CB 5.
The Magistrate’s decision
The Magistrate stated in respect of the requirement for a demand under the guarantee:
I am not satisfied that the agreement requires a demand to have been made to Find It Smart before the debt becomes due and payable by Mr Wiles in his capacity as a guarantor.
In addition, clauses 5.4 and 5.5 of the agreement, which set out Find It Smart's obligations to repay Fifo the advance if payment is not made by the payment date and to pay the fees and costs if there is a default event, do not require a demand to be made to Find It Smart.
Accordingly, Mr Wiles' defence that the cause of action for the advance had not arisen because no demand has been made for payment from Find It Smart or Mr Wiles must also fail. The same reasoning applies to the claims against Mr Wiles in relation to the fees, Hall Chadwick’s fees and the legal costs.[25]
[25]Magistrates’ Court Decision (n 4) [164]–[166].
Mr Wiles’ submissions
Mr Wiles submitted that the Magistrate erred in construing the guarantor’s obligations under the Deed as not being dependent on the making of a demand. Wiles argued that the Magistrate erred in interpreting cls 4.4, 5.4, 5.5 and 11 of the Deed. Clause 4.4 provides that all amounts payable by a guarantor, other than fees and costs, are immediately payable on demand by Fifo. Accordingly, her Honour erred by finding that a cause of action for the advance accrued without a demand first being made by Fifo on Wiles as a guarantor.
Until a demand was made under cl 4.4 on the client Find It Smart, Mr Wiles had no liability as guarantor.
Fifo’s submissions
Fifo submitted that cl 11 created a separate and independent obligation on Wiles to indemnify Find It Smart without first issuing a demand.[26] It submitted that cls 4.4, 5.4 and 5.5 also concerned separate obligations when dealing with recovery against the client or Wiles as guarantor. No demand of the borrower was required in order to exercise the rights given by cl 5.5. In any event, demands were made in writing and verbally.
[26]Citing Emhill Pty Ltd v Bonsoc Pty Ltd [2001] VSC 179.
Ground 4 – Analysis
In my opinion, clause 11 of the Deed created a separate and independent obligation binding Mr Wiles as guarantor of Find It Smart’s liabilities under the Deed without the need for a demand. Clause 11 of the guarantee is headed ‘Guarantee and Indemnity’ and provides:
11.1In return for Fifo (at the request of each Guarantor), entering into this deed each Guarantor –
(a)guarantees that the Client will pay the Money Owed to Fifo in accordance with this deed
(b)guarantees that the Client will observe and perform each of its obligations under this deed, and
(c)as a separate and principal obligation to Fifo must indemnify Fifo against all actions, claims, liabilities, costs, expenses and losses of any kind which Fifo may sustain, suffer, incur or become liable for in respect of something done, not done or arising in any way out of or in relation to this deed. This includes a loss suffered because the Client does not perform any of its obligations under this deed because Fifo cannot enforce the deed (either partly or completely) or because the Client does not pay is unable to pay or is not obliged to pay the Money Owed (whether in whole or in part) in Fifo.
I consider that Fifo did not need to make a demand Mr Wiles before its cause of action accrued under the guarantee and indemnity.
Clause 11 functions independently from the balance of the Deed. The chapeau of cl 11.1 makes clear that there is a separate exchange of consideration between the guarantor and Fifo. Clause 11.1(c) also stated that ‘as a separate and principal obligation to Fifo’, Wiles was required, as guarantor, to ‘indemnify Fifo against all actions, claims, liabilities, costs, expenses and losses of any kind which Fifo may sustain’. Clause 11.2 stated that the liability is absolute, irrevocable and unconditional. The word unconditional is at odds with Mr Wiles’ submission that his liability was conditional on a demand first issuing.
In Benson-Brown v Smith,[27] Ashley J decided that a clause requiring a demand was inapplicable to a claim made under a ‘principal debtor’ clause. He stated in terms relevant to the current case:
First, it was open to the lender and the surety to define the nature of their relationship. The fact that the document expressing their agreement was prepared by the lender's solicitor does not gainsay the relevance or validity of the characterisation.
Second, cl 2 unequivocally describes the guarantor as a principal debtor, and the clause itself as setting up a separate and additional obligation. Those descriptions do not conclude the issue. But the courts have at times been influenced by the language freely chosen by men of business.
Third, the content of cl2 is not resolutely opposed to the concept of an indemnity - which has been described as "a promise by the promisor that he will keep the promisee harmless against loss as a result of entering into a transaction with a third party’ … The parties having chosen to characterise the guarantor's separate and additional obligation in that way, I think that the clause should be read to facilitate, not destroy, that characterisation.
Fourth, there is a definite trend against treating a principal debtor arrangement as requiring, save in circumstances which plainly require it, an obligation to make demand before pursuing a claim. No such circumstances emerge in the present case.
Fifth, even if an attempt to create a principal debtor arrangement fails, so that the particular clause is to be read as guarantee, it does not mean inevitably that there must be demand before a claim is pursued. The fact that the parties have attempted to create such an arrangement may be thought to tell strongly against the need for a demand - it being a usual concomitant of such an arrangement that prior demand is not required.
Sixth, in the present case, even if cl2 did not bring about the arrangement that the parties intended, it provides that the schedule provisions "that are capable of applying to this instrument construed as an indemnity" shall apply. That is, it invites consideration of the schedule provisions on the footing that an indemnity is created by cl2. Looked at in such a way, the requirement for a demand is certainly unusual; and I would be prepared to say that in the circumstances cl(1) of the schedule should not be considered "capable of applying".[28]
[27][1999] VSC 208.
[28]Ibid [147]–[152].
In addition, the wording of the relevant clauses of the Deed does not create a requirement for a demand to be made on Mr Wiles. The words ‘must be paid immediately on demand’ in cl 4.4 operate to mean that a demand functions to immediately bring forward the obligation to pay the relevant fees, costs or other amounts that have accrued up to the issuing of the demand. The words of cl 4.4 do not contain a prerequisite to a cause of action accruing. Clauses 5.4 and 5.5 did not require that a demand be made.
In any event, the Magistrate found that Fifo had made a number of demands of Find It Smart and Mr Wiles before it commenced the Magistrates’ Court proceeding.[29]
[29]Magistrates’ Court Decision (n 4) [65]–[69].
Ground 4 is not established.
Question Law 5, Ground 5 – Hall Chadwick invoice
The fifth question of law and ground relate to the Hall Chadwick invoice. Mr Wiles’ ground states:
The Magistrate erred in finding the defendant liable to pay the Hall Chadwick invoice as there was no evidence to prove either the invoice or the work performed by Hall Chadwick. Accordingly, there was no proof of a liability owed by the plaintiff to Hall Chadwick.[30]
[30]Plaintiff’s Notice of Appeal dated 8 November 2019; CB 5.
Fifo sought payment of Hall Chadwick’s fees as receiver in the amount of $5,536.41, inclusive of GST from Wiles pursuant to cl 15.1(d) of the Deed, which provides:
15 INDEMNITY AND FURTHER ASSURANCE
Each Transaction Party must at all times immediately indemnify Fifo against
…
(d) all liabilities Fifo may have to a Receiver, other controller or an administrator (including under an indemnity Fifo gives) and all costs expenses and liabilities Fifo incurs in exercising or attempting to exercise any right, remedy or power under the PPSA or any other law or under any document.[31]
[31]CB 434–5.
Fifo relied on an invoice dated 3 July 2018 for this claim. That invoice was addressed to Millard Shaw (t/as FIFO Port Phillip) and stated:
To our Professional Fees and Charges in attending to the following:- Fee Amount: Total Time for acting as Receiver of the Company 5,024.00 Total Disbursements 9.10 Plus GST 503.31 TOTAL $5,536.41 Magistrate’s decision
Her Honour’s findings in relation to the Hall Chadwick invoice issue were:
Whilst I accept that there is no dispute in relation to all of the matters relied on by Mr Wiles, which are set out in paragraph 126 above, and Mr Ross did not give evidence to prove the invoice and the work performed by Hall Chadwick, I am not persuaded that these matters support a finding that the Hall Chadwick fees were not incurred and are not payable by Fifo. Ms Jankowiak gave evidence that she received Hall Chadwick's invoice and that Fifo owes Hall Chadwick $5,536.41, which amounts to a 'liability … to a receiver’.[32]
[32]Magistrates’ Court Decision (n 4) [172].
Mr Wiles’ submissions
Mr Wiles submitted that the Magistrate erred by finding him liable for the Hall Chadwick fees, as there was no witness called to prove the invoice, nor any evidence called to prove that the work was performed by Hall Chadwick. Ms Jankowiak did not give evidence that Fifo owed Hall Chadwick $5,536.41.
Mr Wiles relied on the following facts that the Magistrate noted were not disputed.[33] That Fifo appointed Hall Chadwick as receivers of Find It Smart on 12 July 2016, that the receivership ended on 20 September 2016 and on 25 September 2016 Ms Jankowiak instructed Hall Chadwick to close its file and did not thereafter instruct Hall Chadwick to resume the receivership. Fifo had previously claimed $2,377 for a Hall Chadwick invoice, which it did not discover and which claim it abandoned without explanation. The last contact between Hall Chadwick and Ms Jankowiak was during the 2017 financial year. Fifo had not paid the Hall Chadwick fees and Fifo did not receive a letter from Hall Chadwick after July 2018 requesting payment of an outstanding invoice. Hall Chadwick’s agreement with Fifo was that its fees were to be charged ‘in the manner indicated in the Schedule and are payable to the Receiver at the end of each calendar month’.
[33]Ibid.
Mr Wiles’ counsel called Mr Vosco, an employee of Hall Chadwick, and questioned him about the invoice, but he was unable to provide much information on its origins. It appears the invoice was sent to Fifo’s solicitors after they had asked Hall Chadwick to provide an invoice. [34] It is unclear who gave it to Ms Jankowiak or whether she ever received it. It had not been paid at the time Ms Jankowiak gave evidence.[35]
[34]Magistrates’ Court Transcript (n 18) 112. CB 197, Evidence of Mr Vosko.
[35]Magistrates’ Court Transcript (n 18) 73-4. CB 157–8, Evidence of Ms Jankowiak.
Fifo’s submissions
Fifo argued that the Magistrate correctly found that Mr Wiles was liable to pay it the amount of the Hall Chadwick invoice. Hall Chadwick were the receivers appointed by Fifo to Find It Smart. Her Honour found that: Fifo received an invoice from Hall Chadwick for $5,536.41 which Fifo owed Hall Chadwick. These two contentions were not challenged in the cross-examination of Ms Jankowiak. Accordingly, her Honour gave effect to cl 15.1(d) of the Deed, which provides that Wiles must indemnify Fifo for all fees payable to a receiver. Whether such fees were payable was a matter of fact for the Magistrate to determine and she found that they were. There was evidence from Ms Jankowiak that she accepted that her company had to pay the fees.
Fifo was not required by the Deed or at law to provide evidence of the work undertaken by the receiver before it could seek an indemnity for the fees that it was liable to pay to Hall Chadwick. The proof of Fifo’s liability to Hall Chadwick was that it had sent the invoice requiring the payment of the fees.
Ground 5 – Analysis
This was a claim for an indemnity Fifo for receiver’s fees under the Deed, particularly under cls 11 and 15. No one was called to prove the invoice or the work performed by Hall Chadwick or that Fifo owed the amount claimed in the invoice. Fifo had to establish it’s liability to Hall Chadwick for the amount of the invoice. It did not do that. Ms Jankowiak, Fifo’s director, did not give evidence that Fifo owed Hall Chadwick the sum of $5,536.41. She said that she had possibly received it and it had not been paid as Hall Chadwick ‘generally take their fees out of recovered fees’.[36] Ms Jankowiak did give evidence that she asked for the invoice and said that she was ‘taking their invoice as true and correct’. In my opinion, when the limited dealings between Fifo and Hall Chadwick referred to in paragraph 59 above are considered, the evidence does not establish that the amount stated in the invoice was owing to Hall Chadwick.
[36]Ibid.
It is insufficient that Fifo received the invoice. There needed to be evidence that Fifo was liable for the work – the sending of an unexplained invoice does not do that. An inference cannot be drawn from the face of the invoice. The Magistrate said that she was not persuaded that the matters on which Mr Wiles relied supported a finding that the Hall Chadwick fees were not incurred. With respect, it was for Fifo to prove that it owed the fees to Hall Chadwick for work it performed.
Fifo did not provide proof that established that the invoice was a business record under s 69 of the Evidence Act 2008. There was no evidence that the contents of the invoice was made ‘by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact’[37] ie the work done or services provided to Fifo.
[37]Evidence Act 2008 s 69(2)(a).
Mr Wiles has established ground 5 and therefore he is not obliged to pay the sum of $5,033.10 in respect of the Hall Chadwick invoice. That outcome means that his liability to Millard Shaw is reduced to $16,396.20.
Questions of Law 6, 7 and 8, Grounds 6, 7 and 8 – Legal costs
The sixth, seventh and eighth grounds of appeal concern the Magistrate’s findings on Mr Wiles’ liability to pay Fifo’s legal costs. Ground 6, 7 and 8 state:
6.The Magistrate erred in finding that any reference in the Deed to costs or expenses in the nature of legal costs is a reference to indemnity costs by failing to properly construe the Deed including clauses 2.1 and 4.4.
7.The Magistrate erred by taking into account irrelevant considerations, namely clauses 11 and 15 of the Deed and the proportion of legal costs covered by an order for standard costs.
8.The Magistrate erred by awarding the plaintiff indemnity costs in the proceeding without notice and procedural fairness to the defendant in circumstances where such costs were not the subject of the plaintiff's claim in its prayer for relief.[38]
[38]CB 5–6.
The Magistrate’s findings
The Magistrate’s finding in relation to issue of legal costs were:
[W]hilst I agree with Mr Wiles’ contention that the agreement does not expressly provide a contractual entitlement for indemnity costs, nor does it expressly refer to standard costs.
Taking into account the extent of the indemnity agree to by Mr Wiles as set out in clauses 11 and 15 of the agreement, which is extremely broad and all encompassing, I consider any reference in the agreement to costs or expenses in the nature of legal costs is a reference to ‘all costs’ or indemnity costs. If I held otherwise and Mr Wiles was ordered only to pay Fifo’s standard costs, this payment would not cover a significant proportion of the legal costs or expenses incurred by Fifo in enforcing the agreement, which objectively does not appear to be the intention of what was agreed by the parties.
In the circumstances, I intend [to] exercise my discretion to order that Mr Wiles pay Fifo costs on an indemnity basis to be assessed by the costs court in default of agreement.[39]
[39]Magistrates’ Court Decision (n 4) [180]-[183]. CB 495–6.
The Magistrate accepted that the costs that Fifo claimed had to be reasonably incurred and therefore should be taxed.
Mr Wiles’ submissions
Mr Wiles contended that the Magistrate erred by awarding indemnity costs to Millard Shaw. He submitted that, although the award of costs was in the Court’s discretion, costs are usually awarded on a standard basis in the absence of contractual terms or conduct warranting a higher costs order.
Clause 15 does not deal with legal costs. Clause 11.1(c) contains the word ‘costs’ in lower case, so the definition in cl 2.1 did not apply. In any event, cl 2.1 did not define ‘costs’ to include indemnity costs.
Mr Wiles argued that the Magistrate’s finding amounted to an error in law, as she did not find that he had engaged in any conduct that justified an order that he pay indemnity costs. Nor was there any term in the Deed that entitled Millard Shaw to indemnity costs. As her Honour found, the contract did not expressly provide a contractual entitlement for such costs. In making her award of costs, the Magistrate took into account an irrelevant consideration, being that an award of standard costs would not cover a significant proportion of the legal costs or expenses incurred by Fifo in enforcing the agreement, ‘which objectively [did] not appear to be the intention of what was agreed by the parties’.[40]
[40]Ibid [181].
Fifo’s submissions
Fifo submitted that the order for indemnity costs gave effect to the agreement between the parties and was consistent with the principle that the discretion as to costs should be exercised to reflect any contractual right of the party to recover costs on an indemnity basis.[41] It submitted that the pleadings made clear that indemnity costs were being sought.[42]
[41]Kent v Wilson [2008] VSC 98, [33] citing Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171.
[42]See [6.10] and [9.1(c)] of the Third Further Amended Complaint.
Grounds 6, 7 and 8 – Analysis
There are two clauses of the Deed relevant to these grounds: cls 11.1 and 15, which together with the definition of ‘costs’ contained in cl 2.1, I will again set out for ease of reference:
2.1‘Costs’ means any costs (including legal costs and expenses) associated with performing due diligence; the execution, performance and enforcement of this deed an Offer to Sell or a Transaction; the collection and enforcement of a Purchased Receivable (including the costs of a debt collection agency); the enforcement of a Security Interest; complying with the PPSA; and other charges incurred by Fifo (including any Tax) in respect of any of the matters contemplated by this deed. In the case of legal costs and expenses the Costs will be the amount Fifo agrees to pay.
11 GUARANTEE AND INDEMNITY
11.1In return for Fifo (at the request of each Guarantor) entering into this deed each Guarantor:
…
(c)as a separate and principal obligation to Fifo must indemnify Fifo against all actions, claims, liabilities, costs, expenses and losses of any kind which Fifo may sustain, suffer, incur or become liable for in respect of something done, not done or arising in any way out of or in relation to this deed. This includes a loss suffered because the Client does not perform any of its obligations under this deed, because Fifo cannot enforce this deed (either partly or completely) or because the Client does not pay, or is unable to pay or is not obliged to pay the Money Owed (whether in whole or in part) in Fifo.
15 INDEMNITY AND FURTHER ASSURANCE
15.1Each Transaction Party must at all times immediately indemnify Fifo against:
(a)all liabilities expenses or losses of any kind that Fifo may suffer or incur in respect of something done in relation to this deed; an Offer to Sell or a Transaction (including the transfer of a Purchased Receivable); any failure by any Transaction Party to perform its obligations; any liability Fifo has to a Customer or a payment Fifo has received but which Fifo hands over.
(b)any liability, expense or loss of any kind that Fifo suffers or incur because Fifo does not receive the Face Value in relation to a Purchased Receivable by the Payment Date. If the Purchased Receivable is a Fifo Protect Receivable Fifo’s loss will be determined after taking into account any amount Fifo receives from its insurer in connection with the Customer’s failure to pay.
(c)any liability expense or loss of any kind Fifo suffers or incurs in the enforcement of a Purchased Receivable this deed or a Security interest; and
(d) all liabilities Fifo may have to a Receiver, other controller or administrator (including under an indemnity Fifo gives) and all costs expenses and liabilities Fifo incurs in exercising or attempting to exercise any right, remedy or power under the PPSA or any other law or under any document.
In order to obtain an order for indemnity costs, there must be an express contractual entitlement to such an order or a party’s conduct must justify such an order or the party must have unreasonably refused an offer of compromise. It was not suggested that Mr Wiles had engaged in such conduct in this dispute.
The Magistrate decided that it was appropriate to award indemnity costs in the exercise of her discretion, because an order for standard costs would not cover a significant proportion of Fifo’s legal costs or expenses in enforcing the agreement, ‘which objectively does not appear to be the intention of what was agreed by the parties’.[43] With respect, that approach does not apply the principles applicable to the exercise of the discretion to award indemnity costs. Indemnity costs are not awarded because a party may otherwise be out of pocket. Rather they are awarded because a party has an express contractual entitlement to recover indemnity costs or because of a party’s conduct, including unreasonably refusing an offer of compromise. Even then, the Court has a discretion whether to award indemnity costs.
[43]Magistrates’ Court Decision (n 4) [181].
The Magistrate concluded that the Deed did not give Fifo an express entitlement to indemnity costs. Fifo contended that it did so provide, and sought to uphold the Magistrate’s indemnity costs order on that different footing. Mr Wiles contended that there was no such entitlement. So I next consider that question: did the Deed give Fifo an entitlement to the award of indemnity costs.
An agreement to pay costs will be construed as an agreement to pay costs on a standard or party and party basis, unless it is plain from its terms that costs are to be paid on a ‘special basis’.[44] By way of example a contractual obligation to indemnify a party ‘against all or any loss, damages, claims, costs and expenses’ incurred by the respondent as a result of ‘failing to observe any of the provisions of this Agreement’ was held by the Court of Appeal to be an obligation to recompense for costs on a party and party basis because there was no unequivocally plain language that the costs were to be paid on an indemnity basis.[45]
[44]Chen v Kevin McNamara & Son Pty Ltd [2012] VSCA 229.
[45]Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd (2010) 31 VR 46, [119].
Also relevant is whether the claim for indemnity costs has been pleaded or claimed in the Complaint. The relief sought in the Complaint was for costs, without mention of indemnity costs, although the final version of the Complaint pleaded clauses of the Deed which Fifo said entitled it to seek indemnity costs.
Each case turns on the wording of the relevant clause. The authorities interpreting provisions about the entitlement to costs are not all consistent. Clause 11.1(c) includes the words ‘all … costs, expenses and losses’ and the definition of the term ‘costs’ includes the word ‘indemnify’. I consider applicable the approach of the Court of Appeal in Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd,[46] where a somewhat similar costs clause containing the word ‘indemnify’ was held not to entitle a lender to obtain indemnity costs. The Court said of the award of costs:
We consider that the award of indemnity costs by the trial judge in favour of Aussie was made in error. We do not consider that it could be justified as, in effect, a means of enforcing the contractual obligation under cl 5, given that the award was only 70% when a breach of the contract would give rise to an entitlement to 100%. If made in the general exercise of discretion, we consider that the discretion ought not to have been informed by the contractual obligation in the manner it was, in the absence of unequivocally plain language that the costs that were agreed to be paid were to be on a solicitor and own client or indemnity costs basis.[47]
[46]Ibid.
[47]Ibid.
Grounds 6, 7 and 8 are established. The award of costs against Mr Wiles in the Magistrates’ Court should have been on a standard basis and not on an indemnity basis.
Questions of Law 9 and 10, Grounds 9 and 10 – Australian Consumer Law
The ninth and tenth questions of law and grounds of appeal arise from Mr Wiles’ counterclaim and concern the Magistrate’s findings regarding the Australian Consumer Law. Grounds 9 and 10 state:
9.[T]he Magistrate erred in finding, in respect to the defendant's counterclaim, that the provisions of the Australian Consumer Law do not apply by operation of s 131A of the Competition and Consumer Act 2010?
10. [T]he Magistrate erred in finding that the plaintiff was providing financial services to Find It Smart Franchising Pty Ltd as defined by section 12BAB of the ASIC Act?[48]
[48]CB 3-4.
The Magistrate’s decision
On these questions the Magistrate concluded that:
… the provisions of the ACL that Mr Wiles relies on in his counterclaim (ss 4, 18 and 243 of the ACL) do not apply to the supply of financial services and financial products by operation of s 131 of the CCA.
I also agree that Fifo was providing financial services to Find It Smart as defined by s 12BAB of the ASIC Act because its Smart Loans and invoice factoring facilities are financial products as defined by s 12BAA of the ASIC Act and Fifo was providing a service in relation to these financial products and providing financial product advice as defined by s 12BAB of the ASIC Act.[49]
[49]Magistrates’ Court Decision (n 4) [186]–[187].
These two grounds involve a question of statutory interpretation, being whether the Fifo Invoice Finance Facility Deed was a financial product or financial service. I will next set out the legislation relevant to the determination of this question.
The legislation
Section 131 of the Competition and Consumer Act 2010 (Cth) provides that sch 2 of the Act, being the ACL, ‘applies as a law of the Commonwealth to the conduct of corporations and in relation to contraventions of Chapter 2, 3 or 4 of [the ACL] by corporations’. However, the following section, s 131A (1) provides that:
Despite section 131, this Division does not apply, other than in relation to the following provisions of Schedule 2 as they apply as a law of the Commonwealth, to the supply, or possible supply, of services that are financial services, or of financial products:
(a) Division 3A of Part 3-2;
(b) Division 3A of Part 4-2;
(c) Part 5-5.
None of the provisions in (a), (b) or (c) are relevant for the purpose of this proceeding.
Therefore the ACL does not apply to the supply or financial services and/or products. Rather consumer protection provisions with respect to financial products and services are contained within the Australian Securities and Investments Commission Act 2001 (Cth) (‘ASIC Act’).
The definitions of ‘financial service’ and ‘financial product’ are contained in s 2 of sch 2 of the ACL and state:
financial product has the meaning given by section 12BAA of the Australian Securities and Investments Commission Act 2001.
financial service has the meaning given by section 12BAB of the Australian Securities and Investments Commission Act 2001.
Sections 12BAA and 12BAB of the ASIC Act define financial product and financial service. In relevant parts they state:
12BAA – Definition of financial product
General definition of financial product
(1) Subject to subsection (8), for the purposes of this Division, a financial product is a facility through which, or through the acquisition of which, a person does one or more of the following:
(a) makes a financial investment (see subsection (4));
(b) manages financial risk (see subsection (5));
(c) makes non‑cash payments (see subsection (6)).
…
Meaning of manages financial risk
(5) For the purposes of this section, a person manages financial risk if they:
(a) manages the financial consequences to them of particular circumstances happening; or
(b) avoid or limit the financial consequences of fluctuations in, or in the value of, receipts or costs (including prices and interest rates).
…
Specific things that are financial products (subject to subsection (8))
(7)Subject to subsection (8), the following are financial products for the purposes of this Division:
…
(k) a credit facility (within the meaning of the regulations);
…
12BAB – Meaning of financial service
When does a person provide a financial service?
(1) For the purposes of this Division, subject to paragraph (2)(b), a person provides a financial service if they:
(a) provide financial product advice (see subsection (5)); or
(b) deal in a financial product (see subsection (7)); or
…
(1AA)Without limiting subsection (1), for the purposes of this Division, a financial product is a financial service.
…
Meaning of financial product advice
(5)For the purposes of this section, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:
(a)is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or
(b)could reasonably be regarded as being intended to have such an influence;
but does not include anything in:
(c)a document prepared in accordance with requirements of Chapter 7 of the Corporations Act, other than a document of a kind prescribed by regulations made for the purposes of this paragraph; or
(d)any other document of a kind prescribed by regulations for the purposes of this paragraph.
Regulation 2B(1) of the ASIC Regulations, for the purpose of s 12BAA(7)(k) of the ASIC Act, defines a credit facility as:
(a) the provision of credit
(i) for any period; and
(ii)with or without prior agreement between the credit provider and the debtor; and
(iii)whether or not both credit and debit facilities are available;
…
(h) a guarantee of obligations under a credit contract.
Furthermore, reg 28(3) provides that within the regulation:
credit means a contract, arrangement or understanding:
(a) under which:
(i)payment of a debt owed by one person (a debtor) to another person (a credit provider) is deferred; or
(ii) one person (a debtor) incurs a deferred debt to another person (a credit provider); and
(b) including any of the following:
(i) any form of financial accommodation;
…
(xi) issuing, indorsing or otherwise dealing in a promissory note;
(xii) drawing, accepting, indorsing or otherwise dealing in a negotiable instrument (including a bill of exchange);
Mr Wiles’ submissions
In his counterclaim, Mr Wiles sought a declaration that the guarantee was void ab initio or an order refusing to enforce it. Mr Wiles relied on four representations made to him about Fifo Protect Insurance, and said that he would not have signed the guarantee but for them. He relied on s 18 of the Australian Consumer Law contending that the representations were misleading or deceptive or likely to mislead or deceive. He sought the declarations under s 243 of the Australian Consumer Law.
Mr Wiles submitted that the Fifo Invoice Finance Facility was not a financial product or financial service because it was not a ‘facility through which, or through the acquisition of which a person ... makes a financial investment … manages a financial risk … [or] makes non-cash payments’.[50] He also submitted that the Magistrate erred in characterising the facility as ‘a short term loan’ because invoice factoring does not involve borrowing money but the sale of invoices.
[50]Australian Securities and Investments Commission Act 2001 (Cth) s 12BAA.
Fifo’s submissions
Fifo submitted that the inclusion of ‘credit facility’ in the definition of financial product and the definition of ‘credit facility’ in the ASIC Regulations meant that the Fifo Invoice Finance Facility was a financial product and/or service and therefore the provisions of the ACL did not apply to it. It relied on the Magistrate’s finding that:
invoice factoring is essentially a short-term loan where cash is provided to a business with a cash flow problem where most of their assets are tied up in debtors.[51]
[51]Magistrates’ Court Decision (n 4) [1].
Fifo submitted that the ASIC Act contained a broad definition of financial product and financial service. The Fifo Invoice Finance Facility was a funding facility that has been provided to Find It Smart to assist in its cash flow. In substance it was a loan supported by an assignment of the invoices and was a form of financial accommodation.
Grounds 9 and 10 – Analysis
I agree with the Magistrate’s findings, which, in essence, were that the Invoice Factoring Facility was financial accommodation and included a guarantee in respect of that accommodation. Financial accommodation is a wide expression.[52] The Deed also included a security interest in Collateral.[53] That was a defined term which included ‘all of a Transaction Party’s present and after-acquired property, assets and undertaking’.[54] Fifo had registered the equivalent of a fixed and floating charge over Find It Smart’s business under the Personal Property Securities Register to become a secured creditor.
[52]International Litigation Partners Pty Ltd v Chameleon Mining NL (Receivers and Managers Appointed) (2012) 246 CLR 455 at 464.
[53]Deed (n 1) cl 12.
[54]Ibid cl 2.1.
Fifo purchased the Find It Smart invoices at a discounted value and for fees before the amounts owing under the invoices were due and payable.
I consider that the Fifo Invoice Finance Facility was a financial product and/or service and therefore the Competition and Consumer Act did not apply to it. It fell within the definition of ‘credit facility’ in the ASIC Regulations. Find It Smart incurred a potential deferred debt to Fifo and received financial accommodation in return. Fifo received an immediate cash payment for invoices which were not yet payable in exchange for entering into the Deed. It thereby agreed that if by the payment date, the invoices were not paid, Fifo would repay the amount advanced plus fees and costs. As the Deed’s title suggests, it provided finance in respect of invoices. While I accept that in form, the Deed provided for a sale of the invoices for payment of money, in substance Fifo provided a line of credit to Find It Smart. The effect of the transaction, the subject of the Deed, was that Find It Smart incurred a deferred debt to Fifo in exchange for receiving financial accommodation in the form of the payment of a percentage of the face value of the invoices.
Grounds 9 and 10 are not established.
Conclusion
Mr Wiles has succeeded on grounds 5, 6, 7 and 8, the Hall Chadwick ground and the indemnity costs grounds, but not in respect of the other grounds. To give effect to these conclusions, I would propose to allow the appeal on those grounds and set aside the Magistrates’ Court orders and in lieu thereof give judgment for Millard Shaw Pty Ltd in the sum of $16,395.20 together with interest and costs. The costs in respect of the Magistrates’ Court proceeding will be awarded on a standard basis. I will make orders containing the above outcomes and including orders dealing with interest and costs after considering submissions from the parties on those two issues of interest and costs.
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