Commerce Commission v Harmoney Limited
[2021] NZHC 665
•30 March 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-1970
[2021] NZHC 665
UNDER Parts 1, 2 and 4 of the Credit Contracts and Consumer Finance Act 2003 BETWEEN
COMMERCE COMMISSION
Plaintiff
AND
HARMONEY LIMITED
First Defendant
HARMONEY INVESTOR TRUSTEE LIMITED
Second Defendant
Hearing: 26 March 2021 Appearances:
J D Every-Palmer QC and A D Luck for the Plaintiff I Thain for the Defendants
Judgment:
30 March 2021
JUDGMENT OF GAULT J
This judgment was delivered by me on 30 March 2021 at 11:30 am pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Solicitors / Counsel:
Mr J D Every-Palmer QC, Barrister, Auckland Mr J D Cairney, Barrister, Auckland
Mr A D Luck (plaintiff’s instructing solicitor), Meredith Connell, Office of the Crown Solicitor, Auckland
Mr A R Galbraith QC, Barrister, Auckland
Mr I Thain and Ms I S Scorgie (defendants’ instructing solicitors), DLA Piper, Auckland
COMMERCE COMMISSION v HARMONEY LTD [2021] NZHC 665 [30 March 2021]
[1] The defendants (Harmoney) seek further particulars of a claim by the Commerce Commission (the Commission) that Harmoney’s platform fee was unreasonable, in breach of s 41 of the Credit Contracts and Consumer Finance Act 2003 (CCCFA).
[2] Harmoney says further particulars are required to give it fair notice of the Commission’s claim. The Commission opposes the application on substantive and discretionary grounds. The timing is unfortunate. The Commission’s fact briefs of evidence were due on the same day as the hearing and Harmoney’s fact briefs are due on 16 April 2021, with the exchange of expert briefs to follow soon after and the trial commencing on 6 September 2021.
[3] Although the further particulars sought stretch to 110 items, this reflects the fact that the Commission’s second amended statement of claim pleads ten causes of action covering ten different time periods. It is common ground, for present purposes, that the causes of action are equivalent but for the time period at issue. It is therefore only necessary to address the first cause of action.
The Commission’s pleading
[4]The relevant paragraphs of the Commission’s pleading are as follows:
79.To the extent that the Platform Fee was an establishment fee, it was unreasonable in that it:
(a)exceeded the defendants’ reasonable costs connected with the Establishment Activities; and/or
(b)recovered costs not connected with the Establishment Activities.
Particulars
The costs not connected with the Establishment Activities included, but were not limited to:
(a)costs associated with the presentation of the Website, including providing product offering information to prospective Borrowers and Investors;
(b)costs associated with facilitating the involvement of Investors in the Harmoney Transaction, including the costs of conducting credit assessments of Investors, identifying
Investors, creating Website accounts for Investors, providing documentation to Investors, and transferring Funds from Investors’ accounts.
(c)costs which were attributable to expenses incurred prior to the Commencement Date; and/or
(d)business overheads, including IT costs not connected to the number of Loans made; and/or
(e)marketing expenses; and/or
(f)system development, maintenance and improvement costs; and/or
(g)staffing costs, including staffing costs which were not connected with the Establishment Activities; and/or
(h)software licencing costs, including licence costs which were not connected with the Establishment Activities; and/or
(i)costs related to the sourcing of Funds, including costs related to dealings with Investors and potential Investors; and/or
(j)costs connected with the provision of Loans to Borrowers outside of New Zealand; and/or
(k)entertainment and catering costs; and/or
(l)costs incurred in relation to applications for credit by applicants in cases that did not result in a Loan being made.
80.To the extent that the Platform Fee was a credit fee other than an establishment fee, it was unreasonable because it exceeded the amount required to reasonably compensate the defendants for any costs incurred by them through the arranging of a Loan which settled.
81.Further, or alternatively, to the extent that the Platform Fee was a credit fee other than an establishment fee, it was unreasonable in that it recovered costs not connected with the arranging of a Loan which settled.
Particulars
The costs which were not connected with the arranging of a Loan which settled included, but were not limited to:
(a)costs associated with the operation of the Website, including providing product offering information to prospective Borrowers and Investors;
(b)costs associated with facilitating the involvement of Investors in the Harmoney Transaction, including the costs of conducting credit assessments of Investors, identifying Investors, creating Website accounts for Investors, providing
documentation to Investors, and transferring Funds from Investors’ accounts;
(c)costs which were attributable to expenses incurred prior to the Commencement Date; and/or
(d)business overheads, including IT costs not connected to the number of Loans made; and/or
(e)marketing expenses; and/or
(f)system development, maintenance and improvement costs; and/or
(g)staffing costs, including staffing costs which were not connected with the arranging of a Loan which settled; and/or
(h)software licencing costs, including licence costs which were not connected with the arranging of a Loan which settled; and/or
(i)costs related to the sourcing of Funds, including costs related to dealings with Investors and potential Investors; and/or
(j)costs connected with the provision of Loans to Borrowers outside of New Zealand; and/or
(k)entertainment and catering costs; and/or
(l)costs incurred in relation to applications for credit by applicants in cases that did not result in a Loan being made.
…
83.Further, or alternatively, the Platform Fee was unreasonable in terms of s 41 of the Act in that it included an allowance for Harmoney to potentially profit from fees.
…
86.Affected Borrowers have suffered loss or damage as a consequence of paying an unreasonable establishment fee.
Particulars
The Affected Borrowers suffered the following losses:
(a)the amount paid by them in excess of the Recoverable Costs Amount; and
(b)interest on the amount set out above.
Particulars sought
[5] The further particulars sought by Harmoney are as follows:
Paragraph 79(a)
1Precisely specify and quantify each of what the plaintiff alleges were the defendants’ reasonable costs connected with each of the Establishment Activities during Period One.
2State precisely the amount by which the plaintiff alleges the Platform Fee in Period One exceeded the total of what the plaintiff alleges were the defendants’ reasonable costs connected with the Establishment Activities in that period.
Paragraph 79(b)
3Precisely specify each cost which the plaintiff alleges was recovered by the Platform Fee, but not connected with the Establishment Activities, in Period One and which is not specified in the particulars provided and/or is intended by the plaintiff to be referred to by the words ‘included’ and ‘including’ in those particulars.
4Precisely quantify the amount of each specified cost (including each cost specified in answer to the preceding paragraph of this notice) which the plaintiff alleges was recovered by the Platform Fee in Period One.
Paragraph 80
5Precisely specify and quantify each cost that the plaintiff alleges was incurred by the defendants (or either of them) through the arranging of a Loan which settled in Period One.
6State precisely the amount that the plaintiff alleges was required to reasonably compensate the defendants for the costs incurred by them through the arranging of a Loan which settled in Period One.
7State precisely the amount by which the plaintiff alleges the Platform Fee in Period One exceeded the amount required to reasonably compensate the defendants for the costs incurred by them through the arranging of a Lona which settled in that period.
Paragraph 81
8Precisely specify each cost which the plaintiff alleges was recovered by the Platform Fee, but not connected with the arranging of a Loan which Settled, in Period One and which is not specified in the particulars provided and/or is intended by the plaintiff to be referred to by the words ‘included’ and ‘including’ in those particulars.
9Precisely quantify the amount of each specified cost (including each cost specified in answer to the preceding paragraph of this notice)
which the plaintiff alleges was recovered by the Platform Fee in Period One.
Paragraph 83
10State precisely the amount of the alleged allowance for Harmoney to potentially profit from fees during Period One.
Paragraph 86
11State precisely the amount which the plaintiff alleges each referred to Affected Borrower paid in excess of the alleged Recoverable Costs Amount.
12State precisely the amount of interest which the plaintiff alleges each referred to Affected Borrower paid on the relevant amount specified in answer to the preceding paragraph of this notice.
Pleading principles
[6] The relevant pleading principles are not in dispute. The High Court Rules 2016 require statements of claim to give sufficient particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances to inform the Court and the party or parties against whom relief is sought of the plaintiff’s cause of action.1 A party may, by notice, require further particulars that may be necessary to give fair notice of the cause of action or the particulars required by the Rules.2
[7]As the Court of Appeal stated in Price Waterhouse v Fortex Group Ltd:3
… Pleadings which are properly drawn and particularised are, in a case of any complexity, if not in all cases, an essential road map for the Court and the parties. They are the documents against which the briefs of evidence are or should be prepared. They are the documents which establish parameters of the case, not the briefs of evidence.
… both the Court and opposite parties are entitled to be advised of the essential basis of a claim or defence, and all necessary ingredients of it, so that subsequent processes and the trial itself can be conducted against recognisable boundaries. Neither the Court nor opposite parties should be placed in the position of having to deal with a proposition of whose substance adequate notice has not been given in the pleadings.
…
1 High Court Rules 2016, r 5.26(b).
2 Rule 5.21(1).
3 Price Waterhouse v Fortex Group Ltd CA179/98, 30 November 1998 at 17-19.
The object of a Statement of Claim is to “state” the “claim”, so that the Court knows what it is to rule upon, and the Defendant knows the case which it must meet. As a matter of practicalities, this initial “statement” is not at the level of a full disclosure of all evidence and documentation. It is of course an abbreviated summary “statement” of the basic facts said to give rise to the claim, and of the relief which is sought.
…
In marginal cases, it is better to avoid generalities and rules of thumb, and to return to principle. The pleader and Court simply ask “in the circumstances of this claim, is that statement sufficiently detailed to state a clear issue and inform the opposite party of the case to be met?”. This is not, under modern practice, simply some minimum which a Defendant needs so as to be able to plead. It is intended to supply an outline of the case advanced, sufficient to enable a reasonable degree of pre-trial briefing and preparation. Discovery and interrogatories are only an adjunct, not a substitute for pleading.
[8] The parties differ starkly, however, on the application of these principles in this case.
Submissions
[9] Mr Thain, for Harmoney, emphasises that the Commission bears the onus of establishing its allegation that the Platform Fee was unreasonable.4 He submits that the Commission’s pleading does not give Harmoney fair notice of the claim by specifying what the measure of reasonable costs is and therefore by how much Harmoney exceeds it. He submits the Commission must have calculated such a measure in order to commence proceedings. He seeks further particulars specifying the costs in issue, not just of the quantum by which Harmoney exceeds reasonable costs. Mr Thain submits that the Commission effectively seeks to reverse the onus when it says that Harmoney should first identify its permissible costs before the Commission’s experts respond. The pleading in effect states the statutory tests and a non-exhaustive list of (“including”) impermissible cost categories. He submits that more specificity as to the costs in dispute and their materiality may help to narrow and potentially resolve issues. He acknowledges the application is late but submits there is no prejudice to the Commission as Harmoney accepts the Commission can only provide particulars that it has.
4 I use the term unreasonable to describe the somewhat different tests in ss 42 and 44 as the Commission’s case pleads alternatively that the Platform Fee is an establishment fee and/or a credit fee other than an establishment fee.
[10] Mr Every-Palmer QC, for the Commission, accepts that the Commission bears the burden to show the platform fee is unreasonable, albeit submitting that the Court of Appeal in Sportzone Motorcycles Ltd (in liq) v Commerce Commissioner referred to an evidential onus.5 In Sportzone in the High Court, the Commission’s experts were also responding to the defendant’s factual evidence.6 Mr Every-Palmer submits that Harmoney has fair notice of the Commission’s claim. He says the Commission is not in a position to be more specific as to quantum – it has done various calculations but does not have a reasonable costs number. It has identified categories of costs that it considers impermissible (as pleaded), and other categories where some component of the costs, but not all, will be permissible depending on factual information within Harmoney’s knowledge. Mr Every-Palmer says, at this stage, the Commission cannot be more specific – no cost categories are accepted. Insofar as the particulars use the words “included, but were not limited to”, he submits that the impermissible categories are open-ended as the Commission is anticipating Harmoney’s cost arguments.
[11] Mr Every-Palmer also confirmed that paragraph 83 of the second amended statement of claim is not referring to any specific “allowance” by Harmoney – it means only that the fee is higher than reasonable.
Discussion
[12] The Commission must plead its claim with sufficient particularity to inform Harmoney of the case to be met. The claim here is a breach of s 41 of the CCCFA – that the Platform Fee is unreasonable. As Mr Every-Palmer submits, ss 42 and 44 contain mandatory relevant considerations rather than essential elements of the cause of action, but in substance and at least in part they prescribe the relevant statutory tests. Section 94 is remedial, rather than making consumer loss and damage an element of the cause of action.
5 Sportzone Motorcycles Ltd (in liq) v Commerce Commission [2015] NZCA 78, (2015) 14 TCLR 22 at [58]; upheld in Sportzone Motorcycles Ltd (in liq) v Commerce Commission [2016] NZSC 53, [2016] 1 NZLR 1024.
6 Commerce Commission v Sportzone Motorcycles Ltd (in liq) [2013] NZHC 2531; [2014] NZHC 2486.
[13] The regulatory nature of the claim does not alter the approach to pleadings as a matter of principle. Particulars should ensure that the litigation – regulatory or otherwise – is conducted fairly, openly, without surprises and to reduce cost. Particulars also help to limit and define the issues of the case, thus enabling the Court to deal with the case efficiently.7 Nor does Sportzone alter the approach to pleadings
– in that case both the Commission and the creditor appear to have been more specific in their pleadings. Here, the Commission claims information asymmetry whereas Harmoney points to the Commission’s broad investigation powers, saying the Commission had access to whatever information it wanted. Irrespective, Harmoney accepts that the Commission can only provide particulars within its knowledge.
[14] As a matter of pleading, the Commission is not required to narrow its claim and accept that certain categories or sub-categories of cost are reasonable. Mr Thain acknowledges that if the Commission is not yet able to specify the costs in issue with any more particularity, so be it. Harmoney will have to prepare its factual evidence to defend the claim on the basis that all its costs are in issue. Of course, that may have cost consequences for the Commission, whether or not Harmoney’s Platform Fee is ultimately determined to be reasonable,8 but the purpose of pleadings is not to confine a plaintiff’s claim in this way. In any event, Mr Thain at least seeks confirmation that the Commission alleges that no category of Harmoney’s costs, or component of any category, is permissible.
[15] It would be preferable if the Commission were able to specify Harmoney’s impermissible costs with more particularity so as to distinguish the costs in issue from reasonable recoverable costs. That would help focus the claim, narrow the issues and be better for all. But Mr Every-Palmer indicated that the Commission does not yet have enough information to specify the costs in issue with any more particularity, which I accept.
[16] In these circumstances, I decline to order the Commission to provide further particulars. But it is appropriate to record the Commission’s position that its current pleading in effect alleges that no category of Harmoney’s costs, or component of any
7 Commerce Commission v Qantas Airways Ltd (No 2) (1992) 5 PRNZ 227, 4 TCLR 444 (HC).
8 Under either rr 14.6 or r 14.7 of the High Court Rules 2016, depending on the ultimate outcome.
category, is permissible. So, Harmoney is on fair notice that it has to prepare its factual evidence on the basis that the Commission has put all Harmoney’s costs in issue. To the extent the Commission is prepared to confine the issues and thus its cost exposure, it should do so as soon as possible. That would assist Harmoney and the Court.
Result
[17]The application for further particulars is dismissed.
Gault J
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