Commerce Commission v Bluestone Mortgages NZ Limited
[2012] NZHC 1946
•6 August 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-409-000617 [2012] NZHC 1946
BETWEEN COMMERCE COMMISSION Plaintiff
ANDBLUESTONE MORTGAGES NZ LIMITED
Respondent
Hearing: 14 June 2012
Appearances: S J Mills QC for Plaintiff
D J Goddard QC for Respondent
Judgment: 6 August 2012
JUDGMENT OF COURTNEY J
This judgment was delivered by Justice Courtney on 6 August 2012 at 4:00 pm
pursuant to R 11.5 of the High Court Rules.
Registrar / Deputy Registrar
Date......................................
Solicitors: Meredith Connell, P O Box 2213, Auckland 1140
Fax: (09) 336-7629 –
Bell Gully, P O Box 4199, Auckland 1140
Fax: (09) 916-8801
Counsel: S J Mills QC, P O Box 4338 Shortland Street, Auckland 1140
Fax: (09) 377-6956 – Email: [email protected]
D J Goddard QC, P O Box 1530, Wellington 6140
Fax: (04) 499-6118 – Email: [email protected]
COMMERCE COMMISSION V BLUESTONE MORTGAGES NZ LTD HC AK CIV-2009-409-000617 [6
August 2012]
Introduction
[1] The first defendant, Bluestone Mortgages Limited (Bluestone), lends on residential mortgages to what are commonly referred to nowadays as sub-prime borrowers. Although loans were typically granted for a 30-year term, most were repaid within the first four years.1 The loan agreements included a credit fee called a deferred establishment fee (DEF) payable in the event of early repayment. Under the Credit Contracts and Consumer Finance Act 2003 (CCCF Act) credit fees of this
kind must not be unreasonable. The Commerce Commission alleges that the DEF provided for in the Bluestone mortgages was unreasonable and breached ss 41(1) and s 51 of the CCCF Act. It is seeking a refund of a number of such fees.
[2] Initially, the Commission’s allegations were limited to loans entered into between 5 April 2005 and 13 October 2006. However, its second amended statement of claim seeks to extend this time frame to cover loans entered into between 5 April
2005 and 6 July 2011. The defendants assert that some of the loans entered into within this extended time frame are barred by High Court r 7.77 and the limitation provision in s 95(2) of the CCCF Act. The parties have made a joint application2 for the determination of the following questions before trial:
Question one: whether, in respect of a fee which breaches any of sections 41,
51 or 543 of the CCCF Act, the limitation period under s 95(2) of the CCCF Act commences:
(i)on the date when a borrower and a lender enter into a contract containing the fee; or
(ii) on the date when a lender charges the borrower the fee.
1 The loans were securitised and the second and third defendants, Trustees Executors Limited and TEA Custodians (Bluestone) Ltd, acted as trustees on the securitisation. This aspect is not relevant to the present application.
2 Pursuant to r 10.15 of the High Court Rules.
3 Although the parties have referred to s 54 amongst the provisions allegedly breached, the statement of claim alleges breaches of s 41 “by virtue of” ss 42-44 and a breach of s 51 “by virtue of” s 54. The Commission’s claim, thus, only alleges breaches of ss 41 and 5and 51, though those breaches are understood by reference to other provisions. As those other provisions have no relevance to the present application, they will not be considered further.
Question two: whether the Commission is time-barred from amending its first amended statement of claim to include causes of action arising from loans which were either:
(i) settled after 13 October 2006; or
(ii) discharged after 5 March 2007;
and which were also settled before 6 July 2008
or in the alternative, whether the Commission is time-barred from amending its first amended statement of claim to include causes of action arising from loans which were either:
(i) settled after 13 October 2006; or
(ii) discharged after 5 July 2007;
and which were also discharged before 6 July 2008.
[3] Question two is framed in the alternative. If the answer to question one is that the limitation period commences when the impugned contract is entered into, then the first form of question two must be answered. However, if question one is answered that time runs from the date the DEF is charged, then the second form of question two must be answered.
Question one: When does the limitation period under s 95(2) start to run?
The statutory regime
[4] The CCCF Act is directed towards the protection of consumers under consumer credit contracts, consumer leases and buy-back transactions. The purposes of the CCCF Act, set out in s 3, include:
(a) Protecting the interests of consumers in connection with credit contracts, consumer leases and buy-back transactions of land;
(b)Providing for the disclosure of adequate information under consumer credit contracts and consumer leases to enable consumers to distinguish between competing arrangements, become informed of the terms of them before being committed and to monitor the performance of the contracts or leases;
(c) Providing rules about interest charges, fees and payments in relation to consumer credit contracts.
[5] The relevant provisions came into force on 1 April 2005. Part 2 of the CCCF Act is directed specifically towards consumer credit contracts. Part 4 contains general provisions relating to enforcement and remedies, and includes the limitation provision that is the subject of this application.
[6] Sub-part 6 of Part 2 of the CCCF Act contains provisions relating to fees charged by lenders. Generally speaking, fees are categorised as either credit fees or default fees. The fee that is in issue is a credit fee, being a fee or charge payable by the debtor to, or for the benefit of, the creditor in connection with a credit contract which does not include interest charges, charges for an optional service, a default fee or Government charges.4 The amount of any credit fee and the way it is calculated must be disclosed either before the contract is entered into or within five working days of the contract.5
[7] Under s 41 a consumer credit contract must not provide for a credit fee or default fee that is unreasonable. That section provides a remedy in the event of that happening, being the right to apply to have the fee annulled or reduced:
(1) A consumer credit contract must not provide for a credit fee or a default fee that is unreasonable.
(2) If the Court is satisfied, on the application of the Commission, a debtor, or a guarantor, that a credit fee or a default fee is unreasonable, it may order that the fee be annulled or reduced.
(3) The Court may make any other order it thinks fit for the purpose of giving effect to an order under subsection (2).
4 Section 5.
5 Section 17.
(4) An application for an order may be made within one year of the day that the fee is imposed or debited under the consumer credit contract.
(emphasis added)
[8] Section 51 provides that any prepayment required by a consumer credit contract must be appropriately calculated. There is a dispute about whether the credit fee in this case ought to be categorised as a prepayment fee under s 51 or as an establishment fee (as it is identified in the loan agreements) but that distinction is not relevant to the question being determined. Section 51 provides:
(1) The amount required for the full prepayment of the consumer credit contract must be no more than the sum of the following less the amount referred to in section 52:6
(a) the unpaid balance at the time of the full prepayment; and
(b) if expressly authorised by the contract, the administrative costs incurred by the creditor arising from the full prepayment or a charge equal to the creditor's average administrative costs arising from full prepayments of consumer credit contracts of the appropriate class; and
(c) if expressly authorised by the contract, a fee or charge that does not exceed a reasonable estimate of the creditor's loss arising from the full prepayment.
(2) In calculating the unpaid balance, the creditor must only include interest charges and other fees and charges that have accrued or would ordinarily be payable under the consumer credit contract up to the time of the full prepayment.
[9] In respect of the alleged breach of s 41(1), it is accepted that the Commission was well outside the time frame allowed by s 41(4) for bringing an application that the fees be annulled or reduced. Rather, the proceedings are brought under s 94, which forms part of the general enforcement and remedies section in Part 4, of which ss 93-95 are relevant.
[10] Section 93 confers on the Court the power to make the remedial orders provided for in s 94:
The Court may make all or any of the orders referred to in section 94 if the
Court finds that a person (whether or not that person is a party to any
6 Section 52 concerns the rebate of insurance.
proceedings) has suffered loss or damage by conduct of any creditor, lessor, transferee, buy-back promoter, paid adviser or broker that constitutes, or would constitute, –
(a) a breach of any of the provisions of sections 17-82:
(b) aiding, abetting, counselling or procuring any other person to breach any of those provisions:
(c) inducing or attempting to induce, any person, whether by threats, promises or otherwise, to breach any of those provisions:
(d) being in any way, directly or indirectly, knowingly concerned in, or party to, the breach by any other person of those provisions:
(e) conspiring with any other person to breach any of those provisions.
[11] Self-evidently, the reference to breaches of ss 17-82 includes the provision of an unreasonable credit fee contrary to s 41(1) as well as the calculation of the amount required for full prepayment under s 51.
[12] Section 94 provides:
(1) The types of orders that the Court may make against the person who engaged in the conduct referred to in section 93 are as follows:
(a) an order directing the person to refund or credit a payment in accordance with s 48:
(b) an order directing the person to pay to any person who has suffered loss or damage by that conduct an amount not exceeding the amount of the loss or damage (to the extent that any statutory damages that are to be paid do not adequately compensate the person for the loss or damage):
(c) an order directing the person to pay exemplary damages to any person who has suffered loss or damage by that conduct:
(d) an order for any consequential relief that the Court thinks fit:
(2) The Court must not make an order under subsection 1(c) if a penalty has been imposed against the person in relation to the same conduct under section 103.7
[13] Section 95 confers the right to actually apply for the orders specified in s 94 and contains the limitation provision:
7 Under s 103, it is a criminal offence to breach certain specified provisions, including ss 17-69. No criminal proceedings have been commenced against the defendants in this case.
(1) An order under section 93 may be made on the application of the Commission or any party to a consumer credit contract, guarantee, consumer lease or buy-back transaction.
(2) An application for an order under section 93 may be made at any time within three years from the time when the matter giving rise to the application occurred.
(3) An application made by the Commission for an order under section
93 may be made on behalf of the person or a class of persons …
(emphasis added)
[14] The Commission maintains that the three year limitation period in s 95(2) runs from the date the fee is actually charged – that is, when the loan is repaid. The defendants, however, argue that the words in s 95(2) “within three years from the time when the matter giving rise to the application occurred” mean three years from the date of the contract being entered into. If that is correct, some of the claims that are the subject of the second amended statement of claim will be time barred.
Meaning of “the matter giving rise to the application”
[15] Although there is no authority as to the meaning of “the matter giving rise to the application” under the CCCF Act, this phrase was comprehensively considered by the Court of Appeal in Murray v Eliza Jane Holdings Ltd.8 In that case the issue was whether a civil proceeding brought for misleading and deceptive conduct in contravention of the Fair Trading Act 1986 (FTA) was time barred by s 43(5) which provided that:
An application under subsection (1) of this section may be made at any time within three years from the time when the matter giving rise to the application occurred.
(emphasis added)
[16] The Court considered whether the expression “the matter giving rise to the application” related simply to the relevant conduct constituting a breach of the FTA, or conduct coupled with ensuing loss or damage or the likelihood of loss or damage. The Court noted the correspondence between the wording of s 43(5) in relation to civil proceedings, and s 40(3) which created the time bar for criminal proceedings
using the phrase “three years after the matter giving rise to the contravention arose”.
8 Murray v Eliza Jane Holdings Ltd (1993) 5 TCLR 272 (CA).
It considered that the use of the expression “the matter giving rise to” in the context of the offence provision could only have referred to the contravening conduct since no question of loss arose in the criminal context.
[17] Dismissing the possibility that Parliament intended different limitation periods for past as opposed to prospective loss (a feature of the FTA that does not exist in the CCCF Act), the Court went on to conclude in relation to the proper construction of the phrase:9
Three further points can be made. First, the word “matter” is in the singular. Clearly it can be read in the plural if the context requires, but we do not consider that to be so. The singular word “matter” is hardly apt to cover both conduct and ensuing loss. That may be a small point but it does carry some weight in our minds. The second factor is this. If one reads s 43(5) in its statutory setting, according to the natural and ordinary meaning of the words, uninfluenced by the concept of accrual of a cause of action in traditional terms, we consider it reasonably plain that the subsection is aimed at conduct simpliciter. That in our view is the ordinary straightforward construction of the words used.
The third point relates to the structure of s 43(1). It is apparent that at least injunctive relief may be sought and granted before any contravening conduct has actually occurred. A person can seek an injunction on the premise that he or she is likely to suffer loss by the conduct of some other person that “would constitute” a contravention. That presumably means would, if carried out, constitute a contravention and is directed to the concepts of counselling, procuring, inducing, and conspiring. In those respects the “matter” for the purposes of s 43(5) cannot logically include loss or damage. At most it could include their likelihood. The only reasonable construction is that “the matter giving rise to the application” in this context relates only to conduct. That word, ie the word “conduct”, has not been used because it was not thought apt to cover all the concepts involved, for example the concept of conspiring.
All this persuades us that Parliament, when speaking of the occurrence of “the matter giving rise to the application”, was focusing on the conduct which constitutes the breach of the Act. It is the occurrence of that matter which starts time running. While it is true that relief cannot be granted unless the applicant has suffered or is likely to suffer loss or damage as a result of the relevant conduct, the occurrence of loss or damage was not, in our judgment, intended to be an ingredient of the concept “the matter giving rise to the application”.
(emphasis added)
[18] The Court of Appeal’s consideration of policy issues led it to the same
conclusion. The Court considered that the fact that the limitation period was shorter
9 At 278.
than those for contract and tort claims and the use of “the matter giving rise to the application” as the starting point, rather than the conventional accrual of the cause of action, indicated an intention by Parliament to shorten and confine the limitation period:10
That approach appears to have been a counter-weight against the potential width and reach of the Act for the purpose of giving to those engaged in trade some reasonable certainty as to when their potential liability under the Act will come to an end. Although the Act is consumer oriented Parliament has endeavoured to strike a balance between the concepts of protecting and compensating consumers and long exposure of traders to the risk of litigation. In essence it has adopted the contract rather than the tort approach to limitation for the purpose of the Fair Trading Act claims.
It is extremely unlikely that any person seeking a remedy under s 43 will be disadvantaged by the construction of s 43(5) which we consider to be the correct one. Three years from the date of occurrence of the contravening conduct is a substantial time. While legal proceedings cannot be taken under s 43 unless there is loss or damage or its likelihood, in the ordinary case such loss or damage or its likelihood will occur at the time of or shortly after the contravening conduct. Equally the contravening conduct and the loss are likely to be discovered or to be discoverable either at the time of their occurrence or shortly thereafter. On a cost/benefit approach it seems to us that Parliament has taken the view that the benefits to those involved in trade of a clear and easily defined starting point outweigh the possible disadvantages to the very occasional consumer who may lose his rights before becoming aware of them.
[19] Following this decision, Parliament chose to include the same phrase within s
95(2), thus potentially triggering a presumption of the kind articulated in Lowsley v
Forbes:11
It has long been a rule of construction that when Parliament uses a word or term, the meaning of which has been the subject of judicial ruling in the same or similar context, then it may be presumed that the word or term was intended to bear the same meaning.
(emphasis added)
Has the Lowsley presumption been triggered?
[20] Whilst Mr Mills QC, for the Commission, accepted that there were similarities between the FTA and CCCF Act as pieces of consumer protection
10 At 279-280.
11 Lowsley v Forbes [1998] 3 All ER 897 (HL) at 905; see also Lord Reid’s statement in London Corporation v Cusack-Smith [1955] AC 337 (HL) at 361: “Where Parliament has continued to use words of which the meaning has been settled by decisions of the court it is to be presumed that Parliament intends the words to continue to have that meaning.”
legislation, he argued that there are important differences between the two Acts. Such differences, he submitted, render it inappropriate to presumptively apply the Eliza Jane principles to the CCCF Act; legislation must, after all, be interpreted according to its text and in light of its purpose.12
[21] Turning to the textual differences Mr Mills argued that the Court in Eliza Jane was concerned with the application of s 43(5) to cases where loss was only prospective and that this was key to its finding that loss or damage was not part of the “matter giving rise to the application”. Prospective loss is not, as noted above, a feature of s 95(2). No remedy can be given under s 93 unless a person has in fact suffered loss or damage. For that reason, Mr Mills submitted that the matter giving rise to the application must, in the context of the CCCF Act, include the occurrence of loss or damage.
[22] However, I consider that this approach attaches too much significance to the role prospective loss played in Eliza Jane’s reasoning. Prospective loss was only relied upon after the Court had determined the natural and ordinary meaning of the phrase, and purely to demonstrate that the natural and ordinary meaning was the only reasonable construction in the circumstances. Eliza Jane’s reasoning in respect of the natural and ordinary meaning of the phrase applies equally to s 95(2) and, although prospective loss is not a feature of s 95(2), there are other reasons (which I will identify later) that Parliament must have intended that meaning to apply to s 95(2).
[23] Mr Mills further relied upon the different wording in the offence provisions of the two statutes. Section 40(3) of the FTA refers to the “matter giving rise to the contravention”, whilst s 105 of the CCCF Act refers to the “matter giving rise to the breach”. Eliza Jane relied, in part, upon the wording of s 40(3) in reaching its conclusion and so Mr Mills argued that the difference in wording between the two offence provisions is significant. However, I agree with the submission of Mr Goddard QC, for the defendants, that this attributes unwarranted importance to a change in wording that is consistent with a desire to simplify the language used; “breach” is synonymous with “contravention” and there is no justification for
reading any significance into the use of the plainer word.
12 Interpretation Act 1999, s 5.
[24] I turn next to Mr Mills’ submissions regarding the purposes of the two statutes. Mr Mills submitted that the broad consumer protection provided by the FTA may be contrasted against the specific consumer finance regulation offered by the CCCF Act. The CCCF Act seeks to protect unsophisticated, low-income, high- risk borrowers and has empowered the Commission to bring proceedings on behalf
of an individual or a class in order to further that purpose.13 Mr Mills pointed out
that for vulnerable borrowers it is only when they are actually required to pay the credit fee that they realise the implications of the arrangement they entered into and have cause to reflect on whether the fee is unreasonable. It is at that point that the Commission may become involved. However, it may take some time before the Commission can adequately investigate whether the concern expressed by an individual borrower is a symptom of a widespread practice involving many individuals which would, ultimately, justify action on behalf of a class of borrowers.
[25] Against that background Mr Mills submitted that interpreting the limitation provision so as to unduly curtail the time available to the Commission to adequately investigate and act on complaints would be contrary to the purpose of the CCCF Act. He argued that interpreting the words “matter giving rise to the application” as referring to the point of entering into the contract (as opposed to the imposition of the fee) would have that effect.
[26] Mr Mills also submitted that there are important policy differences between the two Acts. The FTA, as observed in Eliza Jane, has broad application and is typically applied to everyday consumer transactions where harm would usually occur well within three years.14 As a result, it was unlikely that many consumers would be affected by taking the date of the contravening conduct as being the point from which time ran for limitation purposes. In contrast, many of the transactions with which the CCCF Act is concerned will last for a significant period so that the full impact of a transaction may not be known for a long time.
[27] However, Mr Goddard argued that three years from the date of a contract does provide sufficient time for borrowers to identify a problem and the Commission
to investigate. In this regard, he said that the limitation period had to be viewed
13 See s 95(3), quoted at paragraph [13].
14 See quote at paragraph [18] above.
against the disclosure regime. Consumers had the right to full and clear disclosure either before the contract is entered into or within five days of that date.15 The purpose of disclosure is to ensure that borrowers have sufficient information at the time the contract is entered into to compare terms being offered by lenders. This must necessarily involve properly assessing the fees that are being charged under it. Consumers would therefore have three years with the benefit of this disclosure to
consider this aspect of the agreement and take action or for the Commission to take action on their behalf. Mr Goddard did not accept, and nor do I, that three years is not long enough for the Commission to take such steps.
[28] All limitation periods reflect a balance between the competing rights of potential claimants and defendants. In this case, there is a balance to be struck between the rights of borrowers who may be unsophisticated and have difficulty fully understanding the details of a contract, and lenders who need to be able to plan and manage their business with some degree of certainty. A limitation period of three years from the date of the contract fairly recognises both of these interests.
[29] In summary, therefore, I do not accept Mr Mills’ contention that there are differences in statutory context preventing application of the presumption outlined at paragraph [19] above. Such a presumption is particularly strong in this case due to the legislative histories of the two Acts. At the time the Consumer Credit Bill (which gave rise to the CCCF Act) was introduced, s 43(5) had already been altered to provide for a limitation period based on a test of reasonable discoverability. Eliza Jane therefore had no further significance in relation to the FTA. Despite this, Parliament introduced and subsequently enacted s 95(2) in almost identical terms to the original form of s 43(5), apparently signalling an intention that the meaning attributed to the original wording of s 43(5) by the Court of Appeal would apply to s
95(2). Nevertheless, this presumption is not conclusive.16
Do any further matters rebut the presumptive adoption of Eliza Jane?
[30] Mr Mills raised additional issues regarding the application of Eliza Jane to the CCCF Act, which I now turn to consider. First, he submitted that the other civil
15 See paragraphs [4] and [6] above.
16 Lowsley, above n 10, at 905.
limitation provisions within the CCCF Act (ss 41(4), 90(3) and 125) demonstrate that Parliament was not concerned with the date of entry into the relevant contract but rather with the relevant triggering event provided for in each specific section. Dealing with each limitation period in turn, I do not see that any of those provisions assist the Commission. On the contrary, s 41(4) reveals the greatest flaw in the Commission’s approach, namely that the construction it contended for would not make sense in terms of the statutory scheme because it would result in the remedy provided by s 41(4) being rendered irrelevant.
[31] In comparison to the remedy provided in s 94, which applies generally to a variety of breaches under the Act, s 41(4) provides a very specific remedy available only where an unreasonable credit or default fee has been imposed contrary to s
41(4). It is limited in scope, only providing for an order that the fee be annulled or reduced. It is also limited in time; an application must be made within a year of the fee being imposed or debited. If the limitation period in s 95(2) ran from the time the fee was actually charged, it would subsume the limitation period provided for in s 41(3) and the significance of the specific remedy in s 41(4) would be entirely lost. However, if the limitation period in s 95(2) ran from the date of the contract being entered into, the shorter limitation period in s 41(4) and the longer limitation period in s 95(2) would complement one another. It would, as already described, provide a wider remedy for three years, running from an earlier point but if that limitation was missed, a narrower remedy for a shorter period running from a later point.
[32] On this analysis, the shorter limitation period supplements the rights of the borrower who, notwithstanding disclosure, may not realise the effect of the DEF until the fee is actually charged. For those borrowers, s 41(4) provides a further, but more limited, opportunity to take action. I consider that any construction of s 95(2) that would result in the specific remedy conferred by s 41(4) being rendered impotent would be contrary to Parliament’s intention. There did not seem to be any satisfactory explanation for why Parliament would grant a specific remedy with a very different limitation period only for it to be rendered ineffective by the general provisions.
[33] Turning next to s 90(3), that provision limits the time within which an application for statutory damages may be made, providing that such an application
can be made “at any time within three years from the time when the matter giving rise to the application occurred”. Mr Mills argued that because an application under s 90(3) could be brought in relation to many kinds of breaches, not all of which will occur within three years of the contract being entered into, this limitation provision is intended to relate to the particular conduct in issue. He pointed by way of example to the fact that a breach of s 17 (initial disclosure) occurs five working days after a contract is made but a breach of s 18 (ongoing disclosure) does not arise until there has been a failure to provide the necessary information, which may occur more than three years after the contract has been entered into.
[34] The flaw in this argument arises from the way the question has been articulated. Asking whether the limitation period in s 95(2) runs from the date the contract is entered into obscures the fact that the trigger is actually the conduct constituting the breach; the breach involves the provision of an unreasonable fee in a contract under s 41 and referring to the date the contract is entered into is simply a shorthand way of expressing that. But the trigger is, in fact, the same as that provided under s 17. The trigger in s 18 is different again because it involves continuing conduct. Section 41(1), for reasons discussed below, does not; a breach of s 41(1) occurs immediately upon the contract being entered into because it is at that point that the contract provides for the fee.
[35] The last limitation period Mr Mills pointed to, s 125, applies to applications to re-open a credit contract, consumer leases or buy-back transactions and provides for two different limitation periods. In the case of buy-back transactions and cases other than a contract or lease that has been terminated, the limitation is “three years after the due date for the performance of the last obligation required to be performed under the transaction”. In the case of a contract or lease that has been terminated, the limitation is “one year after the date on which the contract or lease was terminated”. Neither of these limitation periods assists in interpreting the limitation provision in s 95(2).
[36] Mr Mills further argued that the particular provisions the defendants have allegedly breached require a different interpretation from Eliza Jane. He said that any breach of s 41 is ongoing, with the relevant contracts continuing to provide for the DEF up until the point of the credit fee being charged. In such circumstances,
the limitation period does not commence at the date of the first contravention.17
However, the “evergreen” limitation period contended for could only apply if there was a continuing duty to take some action; instead, what is prohibited is the initial inclusion of the objectionable fee provision in the contract. There is no ongoing statutory duty to identify and remove such provisions.
[37] In terms of s 51, Mr Mills said that it is not always possible to know at the time of entering into the contract whether a creditor will breach this section by charging an unreasonable amount. The borrower may think that they will have their loan for more than four years and therefore not believe that any fee will be charged. Consequently, Mr Mills submitted it is unlikely that Parliament intended the limitation period to run from the point of entering the contract, requiring borrowers to challenge fees they did not expect would apply to them. However, I am not swayed that this justifies a departure from the natural and ordinary meaning of the words as identified in Eliza Jane. The offence clearly seeks to restrict the amount a contract may require for full prepayment. The lawfulness of the prepayment fee falls
to be determined at the time the contract is entered into18 and it is then that the
“matter” giving rise to the application emerges. From that point, three years are allowed for the borrower to appreciate that their circumstances might render them liable to pay such a fee and take action. Balancing the interests of borrowers against those of the lenders, such a time frame is reasonable and it is the one I consider Parliament intended to apply.
[38] I conclude, therefore, that the scheme of the CCCF Act further supports the application of the presumption triggered by Eliza Jane. Parliament clearly intended the limitation provision in s 95(2) to apply from the date the allegedly contravening contract is entered into, not the date the fee is charged.
Question two: Are some loans identified in the second amended statement of claim time-barred?
[39] The Commission seeks to extend its claim to include borrowers who entered
into contracts between 5 April 2005 and 6 July 2011. The Commission’s previous
17 Griffins Foods Ltd v District Court (1997) 7 TCLR 710 (HC) at 714-715.
18 Commerce Commission v Avanti Finance (2009) 9 NZBLC 102,662 (HC) at [34].
pleadings (the statement of claim dated 27 March 2009 and the amended statement of claim dated 28 August 2009) had only sought relief in respect of borrowers who had entered into contracts between 5 April 2005 and 13 October 2006.
[40] My conclusion in relation to question one means that it is the first form of question two that falls to be determined:
Whether the Commission is time-barred from amending its first amended statement of claim to include causes of action arising from loans which were either:
(i) settled after 13 October 2006; or
(ii) discharged after 5 March 2007;
and which were also settled before 6 July 2008.
[41] The defendants assert that the claim cannot be amended to include loans settled after 13 October 2006 or discharged after 5 March 2007 and which were also settled before 6 July 2008, as those loans are time barred by r 7.77 of the High Court Rules and s 95(2) of the CCCF Act.
High Court Rule 7.77 and s 95(2) of the CCCF Act
[42] Rule 7.77, which seeks to ensure that a plaintiff does not circumvent a limitation defence by amending an existing pleading,19 provides that:
(2) An amended pleading may introduce, as an alternative or otherwise–
(a) relief in respect of a fresh cause of action, which is not
statute barred …
[43] As I have held that time begins to run under s 95(2) from the date of entering into the impugned contract, amending its statement of claim to include loans entered into after 13 October 2006 or discharged after 5 March 2007, and settled before
6 July 2008, will be statute barred if they constitute “fresh” causes of action. A
19 Meates v Commercial Bank of Australia CA190/85, 11 March 1986.
cause of action is simply a “factual situation the existence of which enables one
person to obtain from the Court a remedy against another person”.20
Has the Commission raised fresh causes of action?
[44] The defendants argue that each loan in respect of which relief is sought is a separate cause of action and must therefore have been identified in the pleading (even if only by a date range) within three years of the date on which it was entered into. The Commission, however, maintains that its claim has always been a representative one and it has always been clear that details of the specific loans at issue would be identified before trial in an amended pleading. It says that its second amended statement of claim, and in particular the change to the date range that is pleaded, is no more than a further particularisation of the existing claim and is not time barred.
[45] Mr Mills relied on the approach taken by the Court of Appeal in Chilcott v Goss.21 That case concerned a claim by a creditor of a finance company to recover monies ostensibly borrowed by the respondents, Mr and Mrs Goss, though in reality received by Mr Goss’ brother-in-law, Mr Hadden, who was a director of the finance company. The liquidator had originally pleaded breach of an implied promise to pay within three months and also recovery as monies had and received. He sought to
amend the pleading by alleging an advance for a term of three months, a failure to repay and interest at 33%.
[46] On the question as to whether the amendment was time barred, the Court of Appeal identified the test as being that articulated in Smith v Wilkins & Davies Construction Co Ltd:22
The issue is, I think, put as clearly as anywhere in the words in Lord Wright MR in Marshall v London Passenger Transport Board [1936] 3 All ER 83, as being whether the new pleading involves “a new departure, a new head of claim, or a new cause of action” (ibid, 87). In other words, is it essentially something different from that which was pleaded earlier? Such a change in character may be brought about, in my view, by alterations in matters in law
20 Letang v Cooper [1965] 1 QB 232 (CA) at 242; approved by Ophthalmological Society of New
Zealand Inc v Commerce Commission CA168/01, 26 September 2001 at [22].
21 Chilcott v Goss [1995] 1 NZLR 263 (CA).
22 Smith v Wilkins & Davies Construction Co Ltd [1958] NZLR 958 (SC) at 961, quoted in Chilcott v
Goss, above n 20, at 273.
or of fact, or both. Alterations of fact could possibly be so vital and important as by themselves to set up a new head of claim. On the other hand, more often alterations of fact do not affect the essence of the case brought against the defendant … In each case it must, I consider, be a question of degree.
[47] The underlying objective of this test is to do justice to the parties.23 Applying such a test, Mr Mills argued that the Commission’s claim is that Bluestone’s fee structure contravened the CCCF Act and the number of times this fee structure was charged, whilst relevant to the remedy sought, does not go to the essence of its claim. Further, Mr Mills argued that allowing those amendments could not give rise to any prejudice. Bluestone knows the number of contracts in which the impugned fee structure was imposed, and to forbid amendment would preclude affected borrowers from relief.
[48] As against that test Mr Goddard relied on the decision in Hoechst United Kingdom Ltd v Inland Revenue Commissioners.24 That case concerned the claim by Hoechst and another company to recover tax payments following a determination that the tax had been unlawfully imposed. Hoechst United Kingdom Ltd (Hoescht) had framed its claim as being for:25
Compensation for the loss of the use of monies paid pursuant to the demands by the defendant … such amounts include but are not limited to payments made by the plaintiff, namely …
[49] There followed a list of payments. One payment Hoechst had intended to claim for had been omitted. It subsequently applied to amend its writ under a provision which permitted the addition of time barred causes of action if the new causes of action arose out of substantially the same facts as the pleaded cause of action. New Zealand does not have such a provision but the reasoning of the Judge is apt. Park AJ considered that, whilst the background to the causes of action was the same, the central fact giving rise to the cause of action was the payment of a dividend and the consequential tax payment calculated by reference to the dividend. Those facts were not substantially the same as the facts applying to the payments
specifically pleaded.
23 Elders Pastoral Ltd v Marr (1987) 2 PRNZ 383 (CA) at 385.
24 Hoechst United Kingdom Ltd v Inland Revenue Commissioners [2003] EWHC 1002 (Ch).
25 At [10].
[50] This reasoning is consistent with the Court of Appeal’s decision in Boyd Knight v Purdue which treated a representative claim as alleging multiple causes of action, each element of which required proof.26 There, Mr Purdue and Mr Matthew brought a representative claim alleging that Boyd Knight, the auditor of failed finance company Burbery Mortgage Finance & Savings Ltd (Burbery), breached its duty of care to potential investors in its preparation of an audit report. The relevant audit report had stated that financial statements provided by Burbery represented a “true and fair view of the state of affairs” when in fact one of Burbery’s directors had
committed fraud and created fictitious loan accounts. It was accepted that, had Boyd Knight taken reasonable care, it would have discovered those frauds and the audit report would not have been given.
[51] The only evidence regarding reliance upon the audit report was given by Mr Purdue. At trial, it was held that the represented parties could look to that evidence as proof of their own reliance. The Court of Appeal, however, revisited the duty of care, stating that it would cast too large a burden on auditors if they were
liable for the accuracy of figures not directly relied upon by investors.27 Direct
reliance needed to be proven by each individual claimant.28
[52] I consider that each loan pleaded by the Commission represents a fresh cause of action. The central fact giving rise to the claim is the provision for a DEF within a particular loan. The specific facts of the various DEFs will be different between each loan. Therefore, the DEFs provided for in loans settled after 13 October 2006 or discharged after 5 March 2007, and which were also settled before 6 July 2008, go to the essence of the case and involve fresh causes of action that are time-barred by virtue of r 7.77 and s 95(2). Although my finding may prevent some borrowers from claiming relief, I nevertheless consider that it would not be reasonable or fair if a borrower could circumvent the CCCF Act’s limitation provisions simply by joining a
representative claim.
26 Boyd Knight v Purdue [1999] 2 NZLR 278 (CA).
27 At [55].
28 At [62].
Conclusion
[53] The answer to question one is that the limitation period under s 95(2) of the CCCF Act commences on the date when a borrower and a lender enter into a contract containing the fee.
[54] The answer to question two, posed in its first form, is that the Commerce Commission is time-barred from amending its first amended statement of claim to include causes of action arising from loans which were either:
(i) settled after 13 October 2006; or
(ii) discharged after 5 March 2007 and –
which were also settled before 6 July 2008.
[55] I was not addressed on the issue of costs. Counsel may file memoranda as to costs by 24 August 2012, memoranda in reply by 31 August 2012 and any response
by 7 September 2012.
P Courtney J
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