Diners Club (NZ) Limited v District Court at Auckland
[2017] NZHC 2616
•25 October 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-1202 [2017] NZHC 2616
UNDER the Judicature Amendment Act 1972 IN THE MATTER
of an application for judicial review
BETWEEN
DINERS CLUB (NZ) LIMITED Applicant
AND
THE DISTRICT COURT AT AUCKLAND
First Respondent
RICHARD LESLIE BROOKER Second Respondent
CIV-2016-404-806
UNDER Part 21 of the High Court Rules
IN THE MATTER of a case stated from the District Court at
Auckland
BETWEEN DINERS CLUB (NZ) LIMITED Plaintiff
ANDRICHARD LESLIE BROOKER Respondent
Hearing: 26 and 27 April 2017 Counsel:
R J Katz QC and J G Ussher for Diners Club (NZ) Limited
S Hunter, Amicus Curiae
A M McClintock for Intervener (Commerce Commission)Judgment:
25 October 2017
JUDGMENT OF KATZ J
DINERS CLUB (NZ) LIMITED v THE DISTRICT COURT AT AUCKLAND [2017] NZHC 2616 [25 October 2017]
This judgment was delivered by me on 25 October 2017 at 4:00pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: J G Ussher, Auckland Meredith Connell, Auckland Crown Law Office, Wellington
Counsel: R J Katz QC, Bankside Chambers, Auckland
S Hunter, Shortland Chambers, Auckland
Table of Contents
Introduction ..........................................................................................................[1]
Background...........................................................................................................[6]
Does s 120 of the CCCFA give the Court power to reopen a credit
contract on its own motion? ..............................................................................[21]
The relevant statutory provisions [21] The Setefano decision [26]
Do evidentiary concerns weigh against interpreting s 120 as enabling
a court to reopen a credit contract on its own motion? [31] Can borrowers reasonably be expected to protect their own interests? [46]
Do the Commission’s enforcement powers constitute an adequate
safeguard for borrowers? [53] Conclusion on interpretation of s 120 of the CCCFA [60]
Do the District Court Rules 2014 oblige the Court to seal judgment
for every undefended claim for payment of a liquidated demand?...............[62]
If the Judge does direct a formal proof hearing, is he or she required
to give reasons for that direction?.....................................................................[68]
Other issues that Diners Club seeks to argue ..................................................[72] Summary and conclusion ..................................................................................[83] Result ...................................................................................................................[86]
Introduction
[1] Richard Brooker failed to repay credit card and loan debts that he owed to Diners Club (NZ) Ltd (“Diners Club”). As a result, Diners Club brought proceedings against him in the District Court. Mr Brooker took no steps to defend the proceedings, so Diners Club applied to enter judgment against him by default.
[2] A court registrar referred the matter to Judge G M Harrison and alerted him to some concerns she had regarding Diners Club’s claim. Judge Harrison declined to enter judgment by default. Instead, he set Diners Club’s claim down for a formal proof hearing, in order to consider whether the contract between Mr Brooker and Diners Club was oppressive and should therefore be reopened under s 120 of the Credit Contracts and Consumer Finance Act 2003 (“CCCFA” or “the Act”).
[3] Diners Club challenges the Judge’s decisions not to enter default judgment in its favour and to set the matter down for formal proof. It says that the District Court has no jurisdiction to set an undefended claim for payment of a liquidated demand down for formal proof. Rather, the Judge was required to enter default judgment in its favour, regardless of any concerns he may have had.
[4] Diners Club appeals the Judge’s decisions, by way of case stated from the District Court. It has also brought related judicial review proceedings. Although Diners Club pleads wide-ranging judicial review grounds, the key issues raised in its submissions (insofar as they are related to Mr Brooker’s case) are:
(a) Does s 120 of the CCCFA give the Court power to reopen a credit contract on its own motion if it considers the contract to be oppressive?
(b)Do the District Court Rules 2014 (“the Rules”) oblige the Court to seal judgment for every undefended claim for a liquidated demand? Or does it confer a discretion on the Court, enabling a Judge to direct a hearing?
(c) If the Judge does direct a hearing, is he or she required to give reasons for that direction?
[5] Diners Club also seeks to raise issues of significantly wider scope regarding other aspects of the “acts and practices” of the District Court in relation to applications for entry of judgment by default. These issues do not relate to Mr Brooker’s case. For the reasons set out at [72]-[82] below, it is my view that these broader issues are not properly before the Court for determination in these proceedings.
Background
[6] Mr Brooker became a Diners Club cardholder in October 2012. In his application form he stated his occupation as a rigger. Mr Brooker worked for a scaffolding company, but left that job in January 2016. He was living in rented accommodation in East Auckland but had moved by March 2016 and did not leave a forwarding address. Little more is known about him than that.
[7] Shortly after joining Diners Club in 2012, Mr Brooker used his credit card to make purchases of $406.24 and to draw cash advances of $2,581. Around the same time, he took out a $2,000 personal loan from Diners Club. Mr Brooker’s total borrowing was therefore $4,987.24.
[8] Mr Brooker did not make any repayments towards the personal loan. His account statements show that direct debits were made from his bank account but then reversed, presumably because of insufficient funds. Mr Brooker made payments of
$465 towards the credit card debt before proceedings were issued, and a further payment of $100 afterwards.
[9] The interest rate on the personal loan was 17.8 per cent per annum. Diners Club’s statement of claim did not disclose the interest rate on the credit card, but in response to enquiries by the District Court it advised that the rate was 19.95 per cent. In fact, Diners Club’s terms and conditions at the relevant time provided that its interest rate for cash advances on credit cards was 21.95 per cent. Most of
Mr Brooker’s credit card debt arose from cash advances and so this is the more relevant rate.
[10] Diners Club issued proceedings against Mr Brooker in October 2014. In respect of the personal loan, Diners Club claimed:
(a) the outstanding balance, which at 26 April 2013 was $2,296.18 including interest and charges;
(b) debt collection costs on a commission basis of $405.21; (c) any further debt collection costs;
(d)interest at the contractual rate or, in the alternative, at the statutory rate; and
(e) costs on a solicitor/client basis.
[11] In respect of the credit card debt, Diners Club claimed:
(a) the outstanding balance, which at 15 June 2013 was $3,046.36 including interest and charges;
(b) debt collection costs on a commission basis of $687.60; (c) any further debt collection costs;
(d) interest at the statutory rate; and
(e) costs on a solicitor/client basis.
[12] After Mr Brooker failed to file a statement of defence, Diners Club applied for default judgment. Its memorandum in support calculated interest on the personal loan balance of $2,296.18 (which itself included interest) at the rate of
17.8 per cent per annum for a further two-and-a-half-year period from April 2013 to
September 2015. Diners Club did not seek further interest on the credit card debt, presumably because contractual interest had not been claimed and because statutory interest cannot be obtained by default. Diners Club’s application for default judgment was in the total sum of $8,771.36.
[13] All applications for default judgments are apparently now processed through the Central Registry (previously called the Central Processing Unit), based in Wellington. The Chief District Court Judge, in consultation with the Ministry of Justice, has issued guidelines to District Court Registrars (including in particular those based in the Central Registry) regarding the processing of applications for default judgment (“Guidelines”). The Guidelines essentially guide the Registrars in the exercise of their powers under r 15.7(3) of the Rules, which permit them to seal default judgments. Registrars will generally authorise the sealing of a default judgment for a claim for a liquidated demand unless there are deficiencies in the papers (for example, missing information) or the claim appears to raise issues of oppression under the CCCFA. In the latter case, the claim is referred to a Judge for further direction.
[14] On 29 September 2015 a Central Processing Officer at the Central Registry requested Diners Club to provide a further breakdown and details of the interest rate charged on the credit card debt. On 2 October 2015 Diners Club supplied the requested breakdown and advised that the interest rate on the credit card debt was
19.95 per cent (which appears to have been incorrect).
[15] The same day (2 October 2015), the Deputy Registrar wrote to Diners Club advising that she had referred the matter to a Judge, as she considered the collection costs and the duration of the interest claimed to be oppressive. Those are both matters identified as areas of concern in the Guidelines, based in part on previous case law. For example, in Aotea Finance (West Auckland) Ltd v Hiku, Judge Harrison held that an interest claim for a period exceeding one year would be
oppressive.1 He observed that a one-year period “now seems to have been accepted by most if not all of the finance companies”.2
[16] On 10 December 2015 the District Court sent a notice to Diners Club advising that its claim against Mr Brooker had been set down for a formal proof hearing. Although not stated in the letter, it is now clear that Judge Harrison made that direction.
[17] Diners Club took issue with the Court’s decisions not to enter default judgment and to set the matter down for a formal proof hearing. At its request, Judge Harrison prepared an appeal by way of case stated for this Court. The case on appeal raises the following question of law:
Does the Court have the jurisdiction to reopen a credit contract on its own motion or can it only do so on the application of a party to the contract, usually the borrower?
[18] In addition, Diners Club issued separate judicial review proceedings,
challenging the Judge’s decisions. The two proceedings were consolidated.
[19] Mr Brooker has taken no part in the proceedings. The District Court abides the decision of this Court. Mr Hunter was accordingly appointed as amicus curiae, to represent the interests of Mr Brooker and to act as contradictor to Diners Club’s arguments. Leave was also granted to the Commerce Commission
(“the Commission”) to intervene, on a fairly limited basis.3
[20] There are conflicting District Court decisions as to whether s 120 of the CCCFA allows a Judge to reopen an oppressive credit contract on his or her own motion.4 At the time that Judge Harrison stated Mr Brooker’s case on appeal the issue had not yet been considered by an appellate court. That is no longer the case,
however. In Real Finance Ltd v Setefano Mallon J held that a Judge does have
1 Aotea Finance (West Auckland) Ltd v Hiku [2015] NZDC 22553 at [12]-[14], citing My Pay Day
Loan Ltd v Lepou [2009] DCR 890 at 897.
2 At [12].
3 Diners Club (NZ) Ltd v District Court at Auckland [2016] NZHC 2551.
4 See, for example, Aotea Finance (West Auckland) Ltd v Hiku, above n 1; Agco Finance Ltd v
McGowan [2015] NZDC 22298; and Real Finance Ltd v Hislop [2015] NZDC 22303.
jurisdiction to reopen a credit contract under s 120 on his or her own motion.5
Diners Club submitted in these proceedings, however, that her Honour’s decision in
Setefano was wrong, and should not be followed.
Does s 120 of the CCCFA give the Court power to reopen a credit contract on its own motion?
The relevant statutory provisions
[21] As with all legislation, the meaning of the CCCFA “must be ascertained from its text and in the light of its purpose”.6 The Court of Appeal has described the CCCFA as the “centrepiece of the legislative framework regulating consumer credit transactions”.7 The primary purpose of the Act is to protect the interests of consumers in connection with credit contracts, consumer leases, and buy-back transactions of land.8
[22] Part 2 of the Act concerns consumer credit contracts; Part 4 concerns enforcement and remedies; and Part 5 concerns the reopening of oppressive credit contracts, consumer leases, and buy-back transactions. This case is principally concerned with Part 5. The key provision is s 120, which provides:
120Reopening of credit contracts, consumer leases, and buy-back transactions
The court may reopen a credit contract, a consumer lease, or a buy- back transaction if, in any proceedings (whether or not brought under this Act), it considers that—
(a) the contract, lease, or transaction is oppressive; or
(b) a party has exercised, or intends to exercise, a right of power conferred by the contract, lease, or transaction in an oppressive manner; or
(c) a party has induced another party to enter into the contract, lease, or transaction by oppressive means.
5 Real Finance Ltd v Setefano [2016] NZHC 2293.
6 Interpretation Act 1999, s 5(1).
7 Sportzone Motorcycles Ltd (in liq) v Commerce Commission [2015] 3 NZLR 191 (CA) at [23].
8 Credit Contracts and Consumer Finance Act 2003, s 3(1).
[23] Oppressive is defined as meaning “oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice”.9
[24] Section 124 sets out various matters a court must have regard to, to the extent they are relevant, when considering whether to reopen a credit contract. These include all the circumstances relating to the making of the arrangement,10 the relative bargaining power of the parties,11 whether the contract is a consumer credit
contract,12 whether the debtor received independent advice,13 and so on.
[25] Section 125 sets out when proceedings to reopen a contract may be commenced. It relevantly provides:
125 When reopening proceedings may be commenced
(1) Proceedings seeking the reopening of a credit contract … may be commenced in the court by the Commission, any party to the contract … at any time earlier than,—
…
(c) in any other case, 1 year after the due date for the performance of the last obligation required to be performed under the contract or lease.
…
(4) Proceedings seeking the reopening of a credit contract … may not be
commenced at any other time.
(5) The Commission may commence proceedings on behalf of a person or a class of persons.
(Emphasis added)
The Setefano decision
[26] Mr Setefano entered into two loan agreements with Real Finance Ltd (“Real Finance”). He struggled to repay his debt. Real Finance issued proceedings to recover the debt. No statement of defence was filed by Mr Setefano. Real
Finance applied for the entry of judgment by default but, like the present case, its
9 Section 118.
10 Section 124(1)(a).
11 Section 124(1)(c).
12 Section 124(1)(e).
13 Section 124(1)(f).
claim was set down for a formal proof hearing. Real Finance was not informed prior to the hearing that the Judge was contemplating reopening the contract in respect of a monthly administration fee. That possibility only came to light at the start of the hearing. Real Finance then sought to have the matter adjourned to enable it to consider the issue and prepare submissions on the topic, but its request was declined. The hearing proceeded and the Judge delivered an oral judgment declining to award judgment for the monthly administration fees, which were held to be excessive and oppressive.
[27] On appeal to the High Court, Mallon J found that the District Court had jurisdiction to reopen a credit contract on its own motion. However, the appeal was allowed and the case remitted back to the District Court for reconsideration in order for Real Finance to be given the opportunity to adduce evidence to support its claim to enforce the administration fees.14
[28] Mallon J rejected Real Finance’s argument that s 125 limited the application of s 120. Rather, she considered that s 120 confers jurisdiction in any proceedings, whereas s 125 restricts the right to bring proceedings under the Act to have the contract reopened:
[41] The court’s jurisdiction to reopen a credit contract arises under s 120 of the Act “if, in any proceedings (whether or not brought under this Act), it considers that … the contract … is oppressive.” There can be no question that the claim brought by Real Finance is a proceeding. On the words of s
120 the court had jurisdiction to reopen the contract if it considers the contract is oppressive. The section does not purport to limit the court’s jurisdiction to situations where a party or the Commerce Commission has applied for a credit contract to be reopened.
[42] Real Finance submits the court’s power under s 120 is qualified by s
125. It submits s 125 defines who may bring proceedings to reopen a credit contract as well as setting time limits for doing so. It provides that
proceedings may be brought by the Commerce Commission, a party to the contract or a guarantor. Real Finance submits this is consistent with the
District Court rules for default judgment on a liquidated demand. That procedure involves no consideration of the merits of the case. It submits that, where a court intervenes of its own motion, it is depriving the creditor
of the default judgment procedure, imposing an evidential burden on the creditor to disprove oppression, and intervening without the mandate of the
debtor.
14 Setefano, above n 5, at [61].
[43] Section 120 is not expressly subject to s 125. Rather, s 120 provides the court with the power to reopen a credit contract “in any proceeding (whether or not brought under this Act)”. The power is expressed widely. It may be exercised in any proceeding where the court considers oppression arises in a credit contract, not simply when a party has brought a proceeding specifically seeking the reopening of a contract. In my view it is only when a proceeding is brought seeking to reopen a contract that s 125 applies.
[44] This interpretation of s 120 is consistent with the Act’s purpose of protecting the interests of consumers in connection with credit contracts. It may often be the case that oppressive credit contracts will come before the court by way of an enforcement proceeding by the creditor against a debtor who is in financial difficulty. As was the case here, the debtor may take no steps to defend the proceeding. Reasons for that include lack of knowledge as to their rights, lack of means to defend the proceeding (or to initiate proceedings to reopen the contract), and other practical, psychological and cultural barriers to taking such steps. It would be surprising if the court was required to enter a default judgment on a debt where it was evident that the fees charged were oppressive just because the debtor was not in a position to raise this issue.
[29] In respect of the one-year time limit for bringing proceedings under s 125 to reopen a contract, her Honour observed that:
[48] Real Finance submits that, if the court can act on its own initiative, that circumvents the one year time limit for bringing proceedings to reopen an oppressive contract set out in s 125. I do not agree. The time limit set out in s 125 applies only to proceedings which are brought to reopen a credit contract. The court will only act on its own initiative under s 120 where there is already a proceeding before it where the issue arises. Typically this will be a proceeding seeking judgment for the debt. There is no reason why a debtor should not be able to resist judgment for the debt if it arises under an oppressive contract. Otherwise the creditor under an oppressive contract could wait to commence its proceeding for the debt until one year after the due date for performance of the last obligation under the credit contract has elapsed. In this way the creditor would be able to circumvent the prospect of the contract being reopened for oppression if that jurisdiction only arises on a proceeding commenced under s 125.
[30] Having considered, and rejected, several other arguments advanced by Real Finance, Mallon J concluded that the court does have the power to reopen credit contracts on its own motion:
[55] In my view it is not wrong to deprive a plaintiff of the default judgment procedure for a liquidated demand where the claim gives rise to concerns of oppressiveness. The plaintiff may still seek default judgment under the formal proof procedure. It is not improper to require a plaintiff to satisfy the court that judgment can be entered under the formal proof procedure. It should not be difficult for a creditor to set out in an affidavit, for example, the basis on which it has set its fees, if that is the concern which has been identified, in declining to seal a judgment under the liquidated
demand procedure. As noted above, a defendant who is a party to an oppressive contract may face barriers to defending the claim. The absence of a mandate from the defendant ought not to preclude the court from intervening where it is clear the contract is oppressive. The court should not allow its procedure to be used by a creditor to enforce a contract where it is clear that oppression arises.
Do evidentiary concerns weigh against interpreting s 120 as enabling a court to reopen a credit contract on its own motion?
[31] Diners Club did not challenge many (indeed most) aspects of her Honour’s reasoning. Rather, its primary submission as to why s 120 should not be interpreted as allowing a court to reopen a credit contract on its own motion was that a court, acting on its own motion, will simply have insufficient evidence before it to properly determine whether a contract is oppressive. Mallon J made the following comments about this issue in Setefano:
[56] The various matters raised by Real Finance do, however, support the need for caution. As the District Court Judge recognised, the court should not cast about looking for oppressiveness or take on the role that would be expected of counsel for the debtor. A court should exercise its power on its own motion only in the clearest of cases. The court should not do so if it does not have the relevant evidence before it and where the creditor has not had the opportunity to address the issue. Where the court has concerns about oppression, and it does not have the relevant evidence before it, it may wish to refer the contract to the Commerce Commission for it to decide whether to intervene. However it is not precluded from acting on its own initiative if the Commission does not intervene.
[32] Mr Katz QC, for Diners Club, submitted that Mallon J’s interpretation of s
120 wrongly shifts the evidential burden to the creditor, effectively requiring it to disprove oppression. Ordinarily, however, the party asserting oppression bears the onus of providing material to support the claim of oppression.15 Mr Katz relied in particular on the following observations of the Court of Appeal in Greenbank New Zealand Ltd v Haas:16
[24] … To determine whether a contract or term is oppressive … it is necessary to have some basis of comparison … It is therefore important, unless the oppressive aspect is beyond rational dispute, for the Court to be
15 See ANZ Bank New Zealand Ltd v Erasmus [2013] NZHC 2026, (2013) 14 NZCPR 373 at [22];
Herron v Wallace [2016] NZHC 1129 at [153]; and Greenbank New Zealand Ltd v Haas [2000]
3 NZLR 341 (CA) at [28], citing Autohelp & Towage Ltd v Central Acceptance Ltd CA144/92,
11 June 1992 at 4.
properly informed how the contract or terms measures up against reasonable standards of commercial practice.
[25] That will usually, indeed almost always, necessitate the calling of evidence on the point …
[33] Mr Katz also relied on the statement of the Court of Appeal in Sportzone Motorcycles Ltd (in liq) v Commerce Commission (which related to unreasonable credit or default fees under s 41 of the CCCFA) that “plainly there would be an evidentiary burden on the party making the application”.17 Mr Katz submitted that this observation must apply equally to the reopening of a contract under s 120. The Judge or Deputy Registrar, he submitted, cannot lawfully form just any view on
whether or not the actions of the plaintiff creditor in applying for judgment by default are or might be unconscionable or oppressive. Rather, there must be an evidence-based and principled approach to the exercise of any discretion. Mr Katz argued that where a court acts on its own motion there will not be a proper evidential basis for it to either reach a preliminary view that further investigation is required or make a final determination that the claim is oppressive.
[34] In the course of oral argument Mr Katz did accept, however, that there may be exceptional cases where it was apparent on the face of the contract or pleadings that a contract was (or was likely to be) oppressive. An example would be a routine consumer contract that included an interest rate of 500 per cent. This is consistent with the Court of Appeal’s observations in Greenbank that the court would need to be properly informed as to how the contract or terms measure up against of reasonable standards of commercial practice unless the oppressive aspect is beyond rational dispute. Similarly, in ANZ Bank New Zealand Ltd v Erasmus Associate
Judge Sargisson observed that:18
[21] It is not enough simply to assert that the contract or conduct in issue is oppressive – except in the plainest of cases, evidence to support the assertion is required.
(Emphasis added)
[35] As I have mentioned, the meaning of s 120 must be ascertained from its text and in the light of its purpose. The primary purpose of the Act is to protect the
17 Above n 7, at [58].
interests of consumers in connection with credit contracts.19 Section 120 relevantly provides that:
The court may reopen a credit contract, a consumer lease, or a buy-back transaction if, in any proceedings (whether or not brought under this Act), it considers that—
(a) the contract, lease, or transaction is oppressive; …
(Emphasis added)
[36] The plain words of s 120 therefore suggest that a court may act on its own motion. There is nothing in the section to indicate that a court’s jurisdiction only arises where a debtor or the Commission has applied for the credit contract to be reopened. This can be contrasted with other sections of the Act that expressly require that an application be made.20 Further, a broad interpretation of the section is consistent with the legislative purpose of consumer protection. Diners Club’s interpretation would require courts to seal judgment no matter what the circumstances are, or how blatantly oppressive the terms of the credit contract might
appear to be. Such an interpretation rests uneasily with the statutory focus on consumer protection.
[37] Evidential difficulties may well arise at the formal proof stage (and I note that this case has not yet reached that stage). I have not been persuaded, however, that this factor weighs against interpreting s 120 as empowering a court to reopen a credit contract on its own motion in appropriate cases.
[38] I accept Mr Hunter’s submission that there are at least four situations where a credit contract could be reopened by a court, acting on its own motion, without insurmountable evidential obstacles arising. There are no doubt others.
[39] First, in some cases it may be apparent on the face of the pleading that the claim is oppressive. The paradigm case is a contract with an interest rate in the
extreme. The court could, in essence, rely on judicial notice in such cases. For
19 Section 3(1).
example, a court would likely not require evidence in order to conclude that an interest rate of 500 per cent in a routine consumer contract was oppressive.
[40] Second, a claim could be found oppressive based on consistent precedent. Where a body of precedent has established that a certain type of fee or rate of interest is oppressive, the Judge could reopen the credit contract. It cannot be the case that even if an undefended claim for a liquidated demand included a fee or rate of interest which had previously been declared unlawful the court would nonetheless be required to seal judgment.
[41] Third, a court may well be able to derive assistance from the evidence that is put before the court by the creditor at the formal proof stage. When a claim is set down for formal proof the plaintiff will need to file an affidavit attaching the contract and proving to the satisfaction of the Judge the various elements of its claim. Such evidence might provide a sufficient evidential basis for determining oppression. The formal proof procedure requires the plaintiff to establish its claim “to a Judge’s
satisfaction.”21 The Judge may require any deponent to attend to give additional
evidence.22 In Ferreira v Stockinger Duffy J observed that:23
The fact the rules make provision for a Judge hearing a formal proof to hear from witnesses whose evidence has obviously not been challenged by an opposing party suggests to me that the level at which a Judge is required to satisfy herself regarding the plaintiff’s evidence is much the same as it would be if the proceeding had gone to trial.
[42] Kós J commented to the same effect in Neumayer v Kapiti Coast District Council.24 Where the court has raised the issue of oppression on its own motion, and notified a creditor of its particular concerns, then obviously the creditor will need to engage with those concerns at the formal proof hearing.
[43] Fourth, I accept Mr Hunter’s submission that public documents produced by the Commission may be of assistance. For example, if the Commission were to
21 District Court Rules 2014, r 15.9(4).
22 District Court Rules 2014, r 15.9(5).
23 Ferreira v Stockinger [2015] NZHC 2916 at [35].
24 Neumayer v Kapiti Coast District Council [2013] NZHC 1106 at [8].
produce relevant guidelines on oppressive conduct under the CCCFA, following industry research and consultation, it may be possible for a Judge to refer to those either by consent (and I expect that many responsible lenders would consent) or possibly by requesting the Commission to intervene or adduce relevant evidence.
[44] The fact that evidential challenges may arise at the formal proof stage is not a reason to interpret s 120 as entirely precluding a court’s jurisdiction to intervene on its own motion. Rather, in my view s 120 envisages the court having a residual supervisory jurisdiction. This is consistent with the CCCFA’s legislative purpose of protecting consumers (many of whom are likely to be vulnerable) from oppressive credit contracts. As Mallon J recognised in Setefano, however, the court must
proceed with caution.25
[45] In this case, all that has occurred to date is that Judge Harrison has directed that Diners Club’s claim be set down for a formal proof hearing. Any decision as to whether or not to reopen the credit contract between Diners Club and Mr Brooker is yet to come. Any specific objections as to how the formal proof hearing is conducted, and the adequacy of the evidence relied on by the District Court, can only be made after the formal proof hearing has taken place (as occurred in Setefano).
Can borrowers reasonably be expected to protect their own interests?
[46] The second key argument advanced by Diners Club was that, given that the CCCFA empowers both borrowers and the Commission to challenge oppressive contracts, there is simply no need to interpret s 120 as conferring a residual supervisory discretion on the courts.
[47] Turning first to the powers of borrowers under the Act, s 125 enables them to bring proceedings to challenge potentially oppressive credit contracts. Further, borrowers can potentially raise allegations of oppression in defence to debt recovery proceedings. Mr Katz submitted that the statutory scheme therefore enables borrowers to adequately protect their own interests. This context, he submitted,
militates against the need for a court to intervene on its own motion. Mr Hunter and
25 Above n 5, at [56].
the Commission submitted, however, that the (somewhat theoretical) ability of borrowers to protect their own interests does not remove the need for court oversight.
[48] There can be no doubt that Mr Brooker incurred a debt to Diners Club which he has largely not repaid. Nevertheless, Mr Hunter identified a number of potential issues for investigation at a formal proof hearing, including that Diners Club:
(a) seeks judgment for about twice the sum borrowed;26
(b) claims interest for a long period and also interest-on-interest;
(c) may have given the District Court wrong information about the interest rate charged; and
(d)claims third-party debt collection charges calculated on a percentage basis.
[49] Mr Brooker has not raised any of these issues himself, however. He has not taken any steps at all to defend the proceeding. Obviously, we do not know why that is so. The Commission has, however, provided evidence of a general nature as to why borrowers fail to challenge potentially oppressive contracts in court. In particular, it says that borrowers who are the subject of default judgment proceedings are often vulnerable people with limited financial means, who are unable to effectively challenge oppressive credit contracts. The Commission noted that the reasonableness and legality of what can be charged to debtors is not a straightforward area. Borrowers cannot therefore be expected to routinely identify issues themselves. It is therefore simply unrealistic to suggest that such borrowers will be able to effectively use the court process (or a complaint to the Commission)
to hold a lender to account.
26 Mr Brooker borrowed $4,987.24, of which he has repaid $565. The application for default judgment was for $8,771.36 plus further interest.
[50] The Commission’s evidence is that in its experience a wide range of factors prevent borrowers from engaging in the processes necessary to challenge potentially oppressive credit contracts. These include:
(a) limited financial means;
(b) lack of knowledge about their rights and the rights of the lender;
(c) lack of knowledge about how much they actually owe (when taking into account interest, fees etc);
(d)difficulty for borrowers recognising that fees are unreasonable or that a fee has been charged for a service which has not been carried out;
(e) borrowers being unwilling to alienate a lender on whom they rely by initiating an investigation;
(f) lack of knowledge about how to challenge a lender’s claim for
enforcement through the court system;
(g) lack of knowledge about how to make a complaint to the Commission
(or even that they are able to do so);
(h)lack of knowledge of specific provisions such as s 94 of the CCCFA which gives borrowers the power to have unreasonable fees refunded; and
(i) being unaware of proceedings being filed against them.
[51] The Commission provided some factual examples of how a borrower’s vulnerability affects their ability to challenge proceedings filed against them. It noted that most complaints that it receives about consumer credit contracts arise out of the intervention of community law centres or budget advisors, and rarely on the initiative of the borrower themselves. The Commission submitted that this speaks volumes about the efficacy of borrowers themselves holding lenders to account.
[52] The Commission’s evidence, which I accept, clearly demonstrates that borrowers cannot reasonably be expected to routinely protect their own interests under the CCCFA. For a wide range of reasons, borrowers are often not in a position to adequately protect their own interests. The fact that the CCCFA includes provisions that enable borrowers to challenge oppressive contracts or practices does not therefore militate against an interpretation of s 120 that empowers a court to intervene on its own motion in appropriate cases.
Do the Commission’s enforcement powers constitute an adequate safeguard for
borrowers?
[53] Diners Club also submitted that the Commission’s enforcement powers constitute an adequate safeguard for borrowers, making it unnecessary for the District Court to consider the accuracy of the amount claimed, or the issue of oppression, on its own initiative.
[54] Section 112 of the CCCFA is widely framed and provides the Commission with power to intervene in “any proceedings brought (in whole or in part) under [the CCCFA]”. The difficulty, however, is that proceedings (like Diners Club’s claim against Mr Brooker) to recover a debt and seal judgment by default are not brought under the CCCFA. The Commission’s power to intervene in such proceedings is not automatic. Rather, it will generally need to seek leave from the court to intervene (as happened in this case). Together with resource constraints, this limits the Commission’s ability to intervene in a large number of individual cases. To date the Commission has only intervened under s 112 of the CCCFA in two cases. I also note that s 112(4) of the CCCFA expressly states that the Commission’s right to appear and be heard in any proceeding “does not affect the court’s power to make any order”.
[55] The Commission also has the power under s 125 of the CCCFA to commence proceedings to reopen a contract for oppression on behalf of any person or class of persons. However, the use of this power is again restricted in the judgment by default context, due to the limitation period in s 125 (one year from the due date for performance of the last obligation under the contract). The Commission’s evidence is that it is very common for lenders to seek to enforce credit contracts well after this
time period has expired. To date the Commission has only sought to reopen a credit contract in one case.
[56] In Setefano Mallon J held that the Commission’s role under the CCCFA does
not preclude the court from intervening under s 120 on its own motion:27
[50] It can also be argued that, where the court has concerns about oppression in the context of an application for a default judgment, the proper course is to refer the matter to the Commerce Commission. The Commission has the function of monitoring credit markets and the conduct of creditors and taking civil proceedings under the Act. It has the right to appear and be heard in proceedings even if it was not a party to the proceedings. However it has no duty or obligation to bring any proceedings, and its priorities may not enable it to intervene in every case where a default judgment is sought for a debt under a loan agreement which may raise issues of oppression. The Commission’s right to appear and be heard in any proceeding “does not affect the court’s power to make any order”. The Commission’s role does not therefore preclude the court from acting on its own motion.
(Footnotes omitted)
[57] The Commission supported her Honour’s conclusion. In particular, it argued that it is neither realistic nor accurate to view its powers as a substitute for the ability of the District Court itself to consider, where appropriate, whether sums claimed by way of default judgment are oppressive, inaccurate and/or unreasonable. The Commission’s evidence was that its role under the CCCFA, and its enforcement criteria, mean that it is focused on taking enforcement action where it considers there is a significant consumer detriment or wider public interest. It does not take action where consumer detriment may be limited to one individual or where there is no greater public interest. The breadth of the Commission’s mandate necessitates effective use of its resources, as expressly reflected in its enforcement guidelines. Further, there are other practical barriers, such as the lack of knowledge the Commission will have on a day-to-day basis regarding claims brought against individual borrowers. Because borrowers rarely bring issues to the Commission’s attention themselves, cases often either do not come to its attention at all or come to its attention at a very late stage. If judgment by default is entered on oppressive,
inaccurate or unreasonable contracts the practical consequences of such a judgment
27 Above n 5.
may have taken effect long before the Commission has become involved. Borrowers may have lost their house and/or possessions, or filed for bankruptcy.
[58] Ms McClintock, for the Commission, submitted that given these limitations it would be incorrect to cast the Commission’s regulatory role as one that involves, or could involve, pursuing (or intervening in) a vast number of proceedings relating to individual borrowers. She noted that the District Court, on the other hand, already has oversight of individual credit contracts as part of the process of assessing applications for judgment by default. Unlike the Commission, the Court does not need to rely on the borrower participating, taking the initiative in defending an enforcement proceeding, or alerting a relevant agency to potential issues.
[59] I find the Commission’s submissions (and the evidence that underpins them) to be compelling. The Commission’s powers under the CCCFA are subject to a number of practical and legal constraints. As a consequence, the Commission’s powers under the CCCFA are not an adequate substitute for the ability of the District Court itself to consider, where appropriate, whether issues of oppression arise in a particular case. Rather, the Commission’s powers supplement both the ability of the Court to act on its own motion and the rights and powers of borrowers under the Act.
Conclusion on interpretation of s 120 of the CCCFA
[60] For the reasons outlined, I reject Diners Club’s submissions that potential evidentiary difficulties, the ability of borrowers themselves to take action, or the role and powers of the Commission, militate against interpreting s 120 as allowing a court to intervene on its own motion.
[61] I have set out Mallon J’s reasoning in Setefano in some detail above. I agree with her Honour’s interpretation of s 120. The plain meaning of the words of s 120 clearly suggest that a court is entitled to intervene on its own motion. The legislature has not purported to circumscribe s 120 to circumstances where there has been an application under s 125. Rather, s 120 provides that a court may reopen a credit contract “in any proceeding (whether or not brought under this Act)”. Thus the court’s power under s 120 may be exercised in any proceeding where the court considers that oppression arises in a credit contract, including debt recovery
proceedings brought by a creditor. It is not limited to situations where a party has commenced proceedings under s 125. Such an interpretation best accords with the statutory purpose of the CCCFA, which is focused on consumer protection.
Do the District Court Rules 2014 oblige the Court to seal judgment for every undefended claim for payment of a liquidated demand?
[62] I now turn to consider Diners Club’s argument that r 15.7 obliges the District Court to seal judgment for every undefended claim for payment of a liquidated demand. Rule 15.7 provides:
15.7 Liquidated demand
(1) If the relief claimed by the plaintiff is payment of a liquidated demand in money and the defendant does not file a statement of defence within the number of working days required by the notice of proceeding, the plaintiff may seal judgment in accordance with this rule for a sum not exceeding the sum claimed in the statement of claim plus—
(a) interest (if any) payable as of right calculated up to the date of judgment (if interest has been specifically claimed in the statement of claim); and
(b) costs and disbursements as fixed by the Registrar.
(2) If the plaintiff claims costs and disbursements, the plaintiff must file a memorandum setting out the amount claimed and how that amount is calculated, together with any submissions in support of the claim.
(3) A Judge or a Registrar may authorise the sealing of a judgment under subclause (1) if satisfied that the relief claimed by the plaintiff falls within this rule.
(4) A Registrar has the jurisdiction and powers of the court under these rules to fix costs and disbursements under subclause (1)(b).
(5) For the purposes of this rule and rule 15.9, liquidated demand
means a sum that—
(a) has been quantified in, or can be precisely calculated on the basis of, a contract relied on by the plaintiff; or
(ab) is quantified in, or can be precisely calculated on the basis of, or by reference to, an enactment relied on by the plaintiff; or
(b) has been determined by agreement, mediation, arbitration, or previous litigation between the same parties; or
(c) is a reasonable price for goods supplied or services rendered
(when no contract quantifies the price).
(Emphasis added)
[63] On its face, r 15.7(3) confers a discretion (“may authorise the sealing of a judgment”). Mr Katz submitted, however, that any discretion is extremely limited in scope, with the sole criterion for its exercise being that the Judge or Registrar is satisfied that the relief claimed by the plaintiff falls within this rule (i.e. is for a liquidated demand). Mr Katz argued that, provided the Court is satisfied that the claim is undefended and for a liquidated demand, its discretion must be exercised in favour of sealing judgment.
[64] Rule 15.7 reflects changes to the default judgment and formal proof rules that were made in 2013. Prior to that, the relevant rules (in both the District Court and the High Court) did not, on their face, confer any discretion. In Morahan v Stubbs Anderson J accepted the plaintiffs’ contention that there was no discretionary element, provided that the formal criteria were met.28 Following the 2013 amendments, however, the rules do confer a discretion on the Court, as noted by the learned authors of McGechan on Procedure (commenting on r 15.7 of the High Court Rules 2016):29
(2) Discretion
Before the February 2013 amendments, entry of judgment was the plaintiff ’s entitlement under the rule which contained no discretionary element provided the formal requirements were met: Morahan v Stubbs (1993)
7 PRNZ 178 at 179-180. However, under the amended rules, it appears an element of discretion has been added because r 15.7(3) provides that a judge
or registrar “may” authorise the sealing of a judgment if satisfied the claim
falls within the rule.
[65] On Diners Club’s analysis, default judgment must be entered if the amount claimed is a liquidated sum. But that is no discretion at all. In my view, on a proper
construction of r 15.7(3), the discretion arises only once the Judge or Registrar is
28 Morahan v Stubbs (1993) 7 PRNZ 178 (HC) at 179-180.
29 Andrew Beck and others McGechan on Procedure (looseleaf ed, Thomson Reuters) at
[HR15.7.01].
satisfied that the claim falls within the rule (in other words, is for a liquidated demand). In such cases the Court may seal judgment, but is not obliged to do so.30
[66] It cannot be the case that the Court is always required to seal judgment where a liquidated claim is undefended, no matter how extreme the circumstances. There is a clear need for residual discretion on the part of the Court. Such a discretion provides a “safety net” in appropriate cases. It also incentivises plaintiffs to be scrupulous and vigilant regarding the accuracy of their claims, knowing that they cannot simply rely on the Court to be a “rubber stamp”. In this context I note that the Commission provided examples of lenders who have sought (and sometimes obtained) judgment by default for amounts that were incorrect, and others that have actively sought to improperly use the judgment by default procedure to their own advantage. This reinforces the importance of the Court’s residual discretion.
[67] I further note that this interpretation of r 15.7(3) is consistent with my view as to the correct interpretation of s 120 of the CCCFA (as outlined above). Section 120 confers substantive jurisdiction on the Court to intervene, on its own motion, to address issues of oppression under the CCCFA in appropriate cases. The Rules, which are procedural rather than substantive in nature, need to be read consistently with the Court’s powers under s 120 to reopen an oppressive credit contract on its own motion.
If the Judge does direct a formal proof hearing, is he or she required to give reasons for that direction?
[68] Diners Club submitted that Judge Harrison erred in not giving reasons for his direction on 10 December 2015 that Diners Club’s claim be set down for a formal proof hearing. As a result, it submitted, the process followed was unfair and in breach of Diners Club’s legitimate expectation of procedural fairness. Mr Katz submitted that, while no detailed reasons are required for a procedural decision of this nature, there must be at least something that sets out why and on what basis the
Judge has formed a particular view (and what that view is).
30 See further Setefano, above n 5, at [52]-[53] for discussion as to why the formal proof procedure is the appropriate way forward when the court declines to enter judgment by default.
[69] The provision of reasons promotes open justice, helps maintain public confidence in the justice system, assists courts of supervisory jurisdiction to assess what has been done, and provides a discipline against arbitrary decision- making.31 Woodhouse P in R v Awatere noted that there is no inflexible rule of universal application requiring Judges to give reasons, but nevertheless Judges should do their conscientious best to provide reasons that can sensibly be regarded as adequate to the occasion.32 When it comes to the sufficiency of reasons, context is
important. In some cases, reasons may be evident without express reference.33 As
well, reasons can be abbreviated.34 They do not need to be comprehensive.35
Reasons are not necessarily required (and are often not given) for the making of routine procedural directions.
[70] In setting a matter down for formal proof, a Judge is doing no more than indicating that he or she would like to hear more on the matter. The actual decision on whether to issue judgment will follow the hearing. Nevertheless, it is appropriate that if a decision is made to set a matter down for formal proof the plaintiff is given brief notice of the Judge’s particular areas of concern, so that the plaintiff is able to prepare to address those at the hearing. I note that Mallon J reached a similar view
in Setefano.36 Similarly, if further concerns emerge at a later stage, the plaintiff
might require additional time to consider and address those.
[71] I accept Mr Hunter’s submission, however, that in the particular circumstances of this case Diners Club was adequately alerted to the Court’s concerns with its claim. In particular, as outlined above, on 2 October 2015 the Deputy Registrar sent a letter to Diners Club advising that she had referred the matter to a Judge because she considered the collection costs and the duration of the interest claimed to be oppressive. It was implicit, in my view, that the reasons why the claim was then set down for a formal proof hearing (as notified to Diners Club
in the Court’s letter of 10 December 2015) were those previously identified.
31 See Lewis v Wilson & Horton Ltd [2000] 3 NZLR 546 (CA) at [75]-[82].
32 R v Awatere [1982] 1 NZLR 644 (CA) at 649.
33 Waikanae Christian Holiday Park Inc v New Zealand Historic Places Trust Maori Heritage
Council [2015] NZCA 23, [2015] NZAR 302 at [72].
34 Waikanae, above n 33, at [72]; and Lewis, above n 31, at [81].
35 Legal Services Agency v R (2009) 20 PRNZ 423 (HC) at [108].
36 Above n 5, at [61].
“Best practice” however, would be for a (brief) Minute to be issued by the Judge who sets a matter down for formal proof, identifying the particular areas of concern. This would ensure that a creditor has advance notice of the matters it needs to address at the formal proof hearing. In this case, however, it is implicit in my view that Judge Harrison’s concerns were limited to those set out in the Deputy Registrar’s 2 October letter. If that is not the case, then any additional areas of concern should be notified to Diners Club in advance of the formal proof hearing.
Other issues that Diners Club seeks to argue
[72] Diners Club’s statement of claim identifies the specific decisions under challenge in its judicial review proceedings as being the District Court’s decisions of
10 December 2015:
(a) not to enter judgment by default against Mr Brooker; and
(b)setting the proceedings against Mr Brooker down for a formal proof hearing on 14 January 2016.
[73] Towards the end of the statement of claim, however, is a heading (not a separate cause of action) that refers to “Practices and acts in proceedings other than CIV 2014-004-1514” (the Brooker proceeding). It is under this heading that Diners Club advances what it describes as a “somewhat swingeing attack” on “practices and acts” of “the [Auckland District Court], other District Courts, judges and Deputy Registrars thereof, and Deputy Registrars operating from the [Central Registry].” The relevant practices are said to arise, at least in part, from the application of the Guidelines. Both the content and application of the Guidelines are strenuously criticised.
[74] The specific “practices and acts” complained of include rejecting documents for faulty intituling, amending applications for judgment by default without giving the plaintiff an opportunity to be heard, denying costs where there has been a sale after repossession, setting cases down to cross-examine deponents, and failing to distinguish between trade and consumer debt. The statement of claim does not,
however, plead any specific decisions that Diners Club is challenging, with reference to the relevant parties, the CIV number of the proceedings, or otherwise.
[75] Diners Club’s supporting evidence is provided by Janesh Kumar, a litigation assistant employed by Debtworks (NZ) Ltd (“Debtworks”). His two affidavits annex correspondence and other documentation from a number of other District Court proceedings in which Debtworks has been involved. However, the names of the parties to those other proceedings, and other identifying details such as CIV numbers, have been redacted. The exception is where Diners Club is the plaintiff, in which case its name is not redacted, but the CIV number and identifying details of the relevant defendant are.
[76] Mr Kumar deposes that Jeff Ussher (a sole solicitor) is the solicitor on the record for “almost all proceedings issued by Debtworks”, including the Brooker proceedings. Mr Kumar deposes at some length as to various problems that Mr Ussher has apparently encountered in dealing with the Central Registry in these other (unnamed) proceedings.
[77] The difficulty for Diners Club is that its wide-ranging attack on “acts and practices” of the District Court, and on the content of the Guidelines, does not relate to anything that has actually happened in Mr Brooker’s case. There has been no rejection of documents, no amendment to pleadings, no sale after repossession, no cross-examination, and no confusion between trade and consumer debt. All that has happened in Mr Brooker’s case is that Diners Club has applied for default judgment, a Deputy Registrar has referred the matter to a Judge having explained her reasons for doing so, and the Judge has set the application down for a formal proof hearing.
[78] Diners Club has purported to “tack on” to the end of the Brooker judicial review claim (which pleads two specific decisions relating to Diners Club’s claim against Mr Brooker) a wide-ranging and unparticularised challenge to “practices and acts” alleged to have occurred generally or in other, unidentified, proceedings.
[79] The Court of Appeal identified the importance of clear pleadings in judicial review cases in Abortion Supervisory Committee v Right to Life New Zealand Inc:37
[148] … If a party is to seek to review the administrative action of the Committee by way of judicial review it is required to identify the relevant statutory power, the decision to be challenged, the relevant surrounding factual circumstances giving rise to the breach and the basis upon which the breach is sought to be reviewed. In the third amended statement of claim no proper allegation of a reviewable decision or an alleged breach of statutory power was pleaded. We therefore agree with Arnold J to the extent that it is very difficult for the Court to answer questions in the abstract … The Court, on an application for judicial review, is unable to fulfil the function of a generalised commission of inquiry. …
[149] Our concern is not merely technical. This judicial act of undertaking a generalised inquiry quite outside the pleadings is grossly unfair on the Committee and the certifying consultants.
[80] Such observations are equally apt in this case. This Court cannot issue some sort of “advisory opinion” about the Guidelines or the practices of the Central Registry. Specific decisions need to be pleaded and properly particularised. The parties to any challenged decisions must be joined to the proceedings and be given an opportunity to be heard. For example, even if it elected to generally abide the decision of this Court, the District Court may wish to provide background material relating to specific decisions under challenge, in the event of those decisions being properly pleaded and particularised. Further, any relief sought must be linked to the particular decisions under challenge. For example, in relation to the Brooker proceedings, Diners Club seeks that the relevant decisions be quashed.
[81] The issue is not one of standing, as Mr Katz submitted, but pleading. Whether or not issues of standing also arise can only be determined once the particular decisions that Diners Club seeks to challenge by way of judicial review are properly identified, pleaded and particularised.
[82] Decisions may well have been made in other cases that are amenable to judicial review. I note, for example, that it is alleged that Registrars in the Central Registry have at times unilaterally altered the amounts claimed by creditors and then
sealed judgment for the revised amount, without giving the creditor a chance to be
37 Abortion Supervisory Committee v Right to Life New Zealand Inc [2011] NZCA 246, [2012]
1 NZLR 176.
heard on the matter. It is difficult to see how such a practice, if it occurs, accords with fundamental notions of natural justice. The proper course, however, is for Diners Club (or another lender) to seek judicial review in a particular case where that has occurred. It is not possible to rule on such matters in the abstract.
Summary and conclusion
[83] Mr Brooker has not repaid Diners Club what he owes. There is no doubt that in due course Diners Club should be entitled to judgment for the debt and for such of its charges as are not oppressive in terms of the CCCFA.
[84] The outcome sought by Diners Club, however, would require a court to seal default judgment on every undefended liquidated claim. Creditors would receive a judgment of the court no matter how obvious it might be that their lending practices were oppressive and in breach of the CCCFA. I have found that neither the CCCFA nor the Rules require such an outcome.
[85] In conclusion:
(a) Section 120 of the CCCFA on its own terms and consistent with the Act’s purpose provides that a court may reopen an oppressive credit contract on its own motion.
(b)Rule 15.7 of the Rules does not oblige the District Court to seal judgment for every unliquidated demand. Rather, r 15.7(3) confers a discretion on the Court as to whether default judgment should be entered.
(c) The Court was required to alert Diners Club (succinctly) to the issues it wished to consider at the formal proof hearing. That requirement was complied with.
Result
[86] The case on appeal poses the following question of law:
Does the Court have the jurisdiction to reopen a credit contract on its own motion or can it only do so on the application of a party to the contract, usually the borrower?
[87] The answer to that question is:
Yes. The Court does have jurisdiction to reopen a credit contract on its own motion.
[88] The judicial review claims are dismissed. No reviewable errors were made by the Court. The formal proof hearing should now proceed.
Katz J
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