Real Finance Ltd v Setefano
[2016] NZHC 2293
•27 September 2016
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV 2015-485-1019 [2016] NZHC 2293
BETWEEN REAL FINANCE LIMITED
Appellant
AND
TOFI SETEFANO Respondent
Hearing: 15 April 2016 (further information provided 26 September
2016)
Appearances:
E Horner for the Appellant
No appearance by the Respondent
M Smith as Amicus CuriaeJudgment:
27 September 2016
JUDGMENT OF MALLON J
Table of contents
Introduction ....................................................................................................................................... [1] The background facts........................................................................................................................ [3]
The first loan .................................................................................................................................. [4]
The second loan.............................................................................................................................. [9]
The District Court proceeding ....................................................................................................... [12] Background................................................................................................................................... [12] This claim ..................................................................................................................................... [13]
Jurisdiction ...................................................................................................................................... [23] The statutory provisions ............................................................................................................... [23] District Court procedural rules .................................................................................................... [37] Can the court act on its own motion ............................................................................................. [41]
Exercise of the jurisdiction ............................................................................................................. [57]
Result ................................................................................................................................................ [62]
REAL FINANCE LIMITED v SETEFANO [2016] NZHC 2293 [27 September 2016]
Introduction
[1] Real Finance Limited commenced proceedings to recover sums owing under a loan agreement with Mr Setefano. Mr Setefano took no steps to defend the claim. Acting on its own motion at a formal proof hearing the District Court declined to allow Real Finance to recover that part of the sums claimed which were for unpaid monthly administration fees charged under the loan agreement. It did so on the basis that these fees were oppressive under the Credit Contracts and Consumer Finance Act 2003 (the Act). The District Court entered judgment for the balance.
[2] Real Finance appeals against the District Court’s refusal to enter judgment for
the monthly administration fees. The appeal raises two issues:
(a) whether the Court had jurisdiction under s 120 of the Act to reopen a contract of its own initiative; and
(b)if so, whether the jurisdiction to reopen the contract was properly exercised.
The background facts
[3] Mr Setefano had previously obtained loans from Real Finance. These included loans in 2007 and 2008 for $3,980, $1,550 and $1,800 which were repaid in full.1 This proceeding concerns two further loans, described below as the first and second loans, which were entered into in 2012.
The first loan
[4] On 23 May 2012 Mr Setefano entered into a loan agreement with Real
Finance for $3,415 (the first loan). This sum was made up of a principal advance of
$3,041 and two fees. The two fees were an establishment fee of $370 and a PPSR
search/registration fee of $4. It seems that the principal advance was to refinance other loans, as the loan agreement described the loan as being for a “refinance
1 The evidence does not indicate whether Mr Setefano had any other loans from Real Finance, prior to the loans at issue in this proceeding, which were not repaid.
amount” of $1,784 and a “refinance other contract” sum of $1,257. It is unclear
whether they were loans from Real Finance or another lender.
[5] The loan agreement provided for 40 weekly payments beginning on 29 May
2012. These payments were for $110, except the final payment which was for $80. The interest rate was 29.8735 per cent per annum. The loan agreement also provided for a “monthly administration fee” of $60 payable at the end of each month. The lender could vary this fee. The loan agreement did not provide any other detail about what was included in this fee.
[6] The loan agreement also provided for default interest charges and fees. The default interest rate was 39.8735 per cent per annum. The default fees were:
(a) $5 per month if the account was in arrears at any stage during the month when a payment was due;
(b) $1 per text message sent regarding a missed payment or other default; (c) $5 per local call made regarding a missed payment or other default;
(d)$8 per toll call made to a mobile or any STD code regarding a missed payment or other default;
(e) $15 per letter written regarding a missed payment or other default;
(f) $10 per Consumer Monitor Report received regarding credit activity; (g) $40 per hour any time a staff member travelled to visit the client or
any guarantor, attend a meeting, court or tribunal. Mileage could also be charged;
(h)$25 if any scheduled payment was made after the due date, was reversed, or was not made at all;
(i)$60 per hour for any administration time spent when the account was in default; and
(j) $60 if a visit was paid to the client’s home or office regarding a
missed payment or other default.
[7] Mr Setefano made the first weekly payment on 29 May 2012. He defaulted on the next weekly payment. Thereafter he made some of the weekly payments but missed others. As a result he was incurring default fees and default interest as well as the monthly administration fee.
[8] On 12 September 2012 Mr Setefano made a repayment of $615 to clear his defaults. This repayment came from a further loan which Mr Setefano obtained from Real Finance (the second loan) discussed below. Mr Setefano made the next weekly payment. He thereafter made a number of payments, however these were at times after the due date and for less than the amount due. A number of payments were missed. The loan account accumulated interest charges, the monthly administration fees, default interest rate charges and default fees.
The second loan
[9] On 12 September 2012 Mr Setefano entered into a second loan agreement with Real Finance (the second loan). This was for $1,815 which was again made up of a principal advance and fees. The principal advance was $1,615 of which $615 was a “refinance amount”. That amount was then used to clear defaults on the first loan. The fees were an establishment fee of $190 and a PPSR search/registration fee of $10.
[10] The loan was repayable by 39 weekly payments of $60. The interest rate was
29.3795 per cent per annum. The loan agreement also provided for a monthly administration fee of $35. The lender could vary this amount. The default interest and default charges were the same as for the first loan.
[11] Mr Setefano made the first weekly payment under the second loan on 18
September 2012. Thereafter he made no further weekly payments. The account for
the second loan accumulated interest, monthly administration fees, default interest, and default fees.
The District Court proceeding
Background
[12] When claims for liquidated damages are filed in the District Court and a defendant takes no action, generally a deputy registrar will grant judgment by default. In about mid-2015 deputy registrars became concerned about the high interest rates, the period of time allowed to elapse from a default before a claim was brought (during which period interest continued to be claimed), and the collection costs and other charges being claimed by financiers. As a result, where registry staff
had concerns, the file was referred to a Judge for further direction.2 Usually this led
to the applications for judgment by default being referred for formal proof. This in turn often led to plaintiffs electing to reduce the amounts claimed so that default judgment could then be entered. Otherwise the claim proceeded to formal proof.3
When claims proceeded to formal proof Judges took differing views about whether the Court could reopen credit contracts of its own motion.4
This claim
[13] Real Finance filed its statement of claim in this case on 20 February 2015. It claimed a total loss under the first and second loans of $6,827.39.5 The proceeding was served on Mr Setefano on 16 March 2015. He did not file a statement of defence, although he did make three $30 payments towards the amount owing under
the first loan.
2 This practice was in accordance with guidelines issued by the District Court Rules Committee where registry staff had concerns.
3 This background is set out in the case stated by Judge Harrison in Diners Club (NZ) Ltd v
Brooker DC Auckland CIV-2014-004-1514, 23 March 2016.
4 See Agco Finance Ltd v McGowan [2015] NZDC 22298 and Real Finance Ltd v Hislop [2015] NZDC 22303 compared with Aotea Finance (West Auckland) Ltd v Hiku [2015] NZDC 22553 and Diners Club (NZ) Ltd v Brooker, above n 3. An appeal from Diners Club has been heard. The judgment is reserved.
5 That sum was described as comprising $5,874.14 (principal), $831.24 (interest), and $122.01 (default interest).
[14] On 24 April 2015 Real Finance made an application for judgment by default for a liquidated demand.6 On 27 May 2015 the District Court (Judge Tuohy) issued a direction. He said the claim was insufficiently particularised to enable the Court to decide whether judgment by default should be granted. He directed that an amended statement of claim be filed specifying how the principal and interest claimed was calculated.
[15] An amended statement of claim was filed on 22 July 2015. The claim set out the terms of the loan agreement as to interest, default interest, the monthly administration fee and default fees. The claim also set out the amounts owing for each loan as follows:
Loan 1
Principal: $ 3,415.00
Monthly Administration Fees: $ 1,920.00
Default Fees: $ 51.75
Letter Fees: $ 315.00
Consumer Monitor Fees: $ 30.00
Interest: $ 1,914.41
Default Interest: $ 206.72
Less Payments made by the Defendant ($ 4,925.00) Loss: $ 2,927.88
Loan 2
Principal: $ 1,815.00
Monthly Administration Fees: $ 980.00
Default Fees: $ 34.50
Letter Fees: $ 180.00
Consumer Monitor Fees: $ 10.00
Default Administration Fees: $ 29.00
Interest: $ 679.10
Default Interest: $ 121.91
Less Payments made by the Defendant ($ 60.00) Loss: $ 3,789.51
Total Claim
Principal: $ 5,230.00
Monthly Administration Fees: $ 2,900.00
Default Fees: $ 86.25
Letter Fees: $ 495.00
Consumer Monitor Fees: $ 40.00
6 By this stage the claim was for $7,211.39 being the amounts claimed in the statement of claim, less the $90 Mr Setefano had paid in reduction of the loan, plus $474 in costs and disbursements.
DefaultAdministrationFees: $ 29.00 Interest: $ 2,593.51 DefaultInterest: $ 328.63 Less Payments made by the Defendant ($ 4,985.00)
Loss: $ 6,717.39
[16] For the first loan the amended statement of claim sought judgment for
$2,927.88 plus interest and default interest from 13 January 2015. For the second loan the amended statement of claim sought judgment for $3,789.51 plus interest and default interest from 27 August 2013.
[17] The proceeding was set down for a formal proof hearing on 10 November
2015. An affidavit in support of the claim was filed for that hearing. This affidavit explained that the terms of the loans were discussed with Mr Setefano and he had received the disclosure statements. The affidavit provided a copy of the two loan agreements and the loan accounts. The affidavit noted that ordinary interest had not been charged on the accounts since 13 January 2015 and default interest had not been charged since 16 April 2013.
[18] The loan accounts provided with the affidavit showed all charges and fees debited for each loan. They confirm that default interest was not charged against the loans from 16 April 2013. They also show that from that date the loans continued to be charged ordinary interest, the monthly administration fees and letter fees. For the
first loan all these charges ceased on 15 January 2015,7 at which time the account
was $3,097.88 in debit. For the second loan ordinary interest charges ceased on 27
August 2013 but monthly administration charges and other fees continued to be charged until 31 December 2014 at which point the loan account was $3,789.51 in debit.8
[19] Counsel for Real Finance on this appeal advises that Real Finance was not informed prior to the formal proof hearing that the Judge was contemplating
reopening the contract in respect of the monthly administration fee. At the beginning
7 The 40 weekly payments for the first loan concluded on 26 February 2013. Default fees and interest were charged until 16 April 2013. Monthly administration fees ceased on 31 December
2014, interest charges ceased on 13 January 2015, and letter fees ceased on 15 January 2015.
8 The 39 weekly payments for the second loan concluded on 11 June 2013. Default fees and interest cased on 13 April 2013.
of the hearing the Judge indicated that this was an issue. Counsel for Real Finance sought to have the matter stood down or adjourned to enable Real Finance to make submissions about this. This request was declined. The hearing proceeded and the Judge gave his oral judgment at the conclusion of the hearing.9
[20] The Judge granted judgment for the sums claimed in the amended statement of claim less $2,900 being the amount itemised as the monthly administration fees. Judgment was therefore for $3,817.39 plus ordinary interest from 13 January 2015 and default interest from 16 April 2013 until the date of judgment, plus actual solicitor/client costs and disbursements.
[21] The Judge declined to award judgment for the monthly administration fees because he regarded them as “excessive” and “oppressive”. In reaching this conclusion the Judge noted the following matters:
(a) The loans had the appearance of being high risk loans so that a substantial interest rate was justified.
(b)The total payments Mr Setefano had made ($4,985) were almost as much as the principal ($5,230) and the amount claimed ($6,717.39) was greater than the principal sum.
(c) The main items which made up the amount claimed ($6,717.39) were the monthly administration fee ($2,900), interest and default interest ($3,000) and letter fees ($495).
(d)The two loans had establishment fees ($370 and $190) and the loan agreements provide for “specific amounts to be added to the loan for every particular step that one can imagine is required if the loan is in
default.”10
9 Real Finance Ltd v Setefano [2015] NZDC 22798.
10 At [9].
(e) It was difficult to see how the monthly administration fees, at the level at which they were charged, could be justified, particularly taking into account the “already very high interest rate being charged.”11
[22] The Judge considered the Court was entitled to consider whether a charge was oppressive when it is asked to grant judgment by formal proof. He considered this jurisdiction arose under s 120 of the Act. He acknowledged there was an opposing view which was based on s 125 of the Act. The Judge’s view was that:12
… the Court should not go out of its way to consider whether these claims might be oppressive, and the Court should recognise that loans of this nature are high risk and will justify high interest rates and fees, nevertheless there is a limit.
Jurisdiction
The statutory provisions
[23] The primary purpose of the Act is “to protect the interests of consumers in connection with credit contracts” and other documents and transactions.13 The other purposes of the Act include “to provide remedies for debtors … in relation to … oppressive credit contracts”.14
[24] Part 2 of the Act concerns consumer credit contracts. It defines a credit contract as one where the debtor is a natural person who enters into the credit contract primarily for personal, domestic or household purposes, or in certain other prescribed situations.15 Disclosure requirements are set out.16 There are no specific limits placed on interest rates, but they are subject to the “oppressive” provisions.
[25] There are prohibitions on unreasonable fees. Section 41 provides that a
“consumer credit contract must not provide for a credit fee or a default fee that is
unreasonable”. The Act then set out provisions for determining whether particular
11 At [10].
12 At [8].
13 Section 3(1).
14 Section 3(2)(d)(i).
15 Section 11.
16 Sections 17 to 26A.
kinds of fees are unreasonable. For present purposes the relevant provision is s 44 which is as follows:
44 Credit fees other than establishment fees and prepayment fees
(1) In determining whether a credit fee is unreasonable, the court must have regard to, in relation to the matter giving rise to the fee, whether the fee reasonably compensates the creditor for any cost incurred by the creditor (including the cost of providing a service to the debtor if the fee relates to the provision of a service).
(2) In determining whether the fee reasonably compensates the creditor for any cost referred to in subsection (1), the court must have regard to reasonable standards of commercial practice.
…
[26] Section 44B provides that “evidence of a creditor’s compliance with the provisions of the Responsible Lending Code … is to be treated as evidence that a credit fee or a default fee is not unreasonable.” The Responsible Lending Code is issued by the Minister and comes into force by notice in the Gazette.17
[27] Part 4 of the Act concerns enforcement and remedies. This Part of the Act provides for statutory damages, injunctions and other orders. The orders which may be made include an order that an unreasonable fee be refunded.18 Such an order “may be made on the application of the Commission or any party to” a credit contract.19 There are three year time limits for proceedings for statutory damages and other orders.20 It is an offence to breach the prohibition on charging a credit fee
or a debit fee that is unreasonable.21
[28] The District Court’s jurisdiction is set out in s 86 as follows:
86 Jurisdiction of District Courts
(1) A District Court may hear and determine proceedings for offences against any of the provisions of this Act.
(2) A District Court may hear and determine applications for orders under any of the provisions of this Act if—
17 Sections 9G and 9H.
18 Section 94(1)(ca)(iii).
19 Section 95(1).
20 Sections 90 and 95.
(a) the occasion for the exercise of the power arises in the course of civil proceedings properly before the court;
…
[29] The Commerce Commission’s role is “to promote compliance with this Act.” Its functions include monitoring trade practices in credit contracts, monitoring the conduct of creditors in exercising rights of repossession, issuing infringement notices for offences, taking prosecutions for breaches, taking civil proceedings under the Act (including proceedings under Part 5) and making appropriate information available to promote compliance with the Act.22
[30] The Commerce Commission has a right to appear in proceedings under the
Act:
112 Commission’s rights to appear and adduce evidence
(1) The Commission may appear and be heard, in person or by a barrister or solicitor, in any proceedings brought (in whole or in part) under this Act in a District Court, the High Court, the Court of Appeal, or the Supreme Court.
(2) That right applies whether or not the Commission was a party to the proceeding at any earlier stage in the proceedings.
(3) The Commission has the right to adduce evidence and the right to cross-examine witnesses if the Commission appears under this section, unless the proceedings are by way of appeal.
(4) This section does not affect the court’s power to make any order
(including any order as to costs).
[31] Part 5 of the Act concerns reopening oppressive credit contracts. It defines oppressive as meaning “oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice.”23
[32] The court has the power to reopen oppressive credit contracts as follows:
120Reopening of credit contracts, consumer leases, and buy-back transactions
22 Section 111.
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 or 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.
[33] Section 124 of the Act sets out a long list of considerations to which the court must have regard “to the extent” that they are “applicable in the particular circumstances” in “deciding whether section 120 applies and whether to reopen a credit contract”. These include for example the relative bargaining power of the parties, whether the contract was expressed in a clear language and the length of time the debtor has to remedy a default. The relevant considerations also include “any other matters that the court thinks fit”.
[34] Section 125 provides:
125 When reopening proceedings may be commenced
(1) Proceedings seeking the reopening of a credit contract, consumer lease, or buy-back transaction may be commenced in the court by the Commission, any party to the contract, lease, or transaction, or any guarantor under a guarantee relating to the credit 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.
…
(5) The Commission may commence proceedings on behalf of a person or a class of persons.
…
[35] Where credit provided under the contract is used to pay amounts owing under another credit contract, the one year time period applies after the due date of the last obligation required to be performed under any of those contracts.24
[36] Section 126 sets out evidence that is admissible when the court is considering reopening a credit contract. This includes evidence regarding the terms on which credit was available from other persons. Section 127 sets out the court’s broad remedial powers when it reopens a credit contract. One such power is to order that any obligation under the credit contract is extinguished.
District Court procedural rules
[37] Where a defendant does not file a statement of defence, the plaintiff can obtain judgment by default. The District Court Rules 2014 provide two ways for this to occur depending on whether the claim is, or is not, for a liquidated demand. A liquidated demand is defined for these purposes as follows:25
… 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
(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).
[38] Where the claim is for a liquidated demand, on proof of service of the proceeding, the plaintiff may seal a judgment:26
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—
24 Section 125(2) and (3).
25 Rule 15.7(5).
(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.
…
(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.
[39] Where the claim is not for a liquidated demand, the plaintiff can obtain judgment at a formal proof hearing:
15.9 Formal proof for other claims
(1) This rule applies if, or to the extent that, the defendant does not file a statement of defence within the number of working days required by the notice of proceeding, and the plaintiff seeks judgment by default for other than a liquidated demand.
…
(4) The plaintiff must, before or at the formal proof hearing, file affidavit evidence establishing, to a Judge’s satisfaction, each cause of action relied on and, if damages are sought, providing sufficient information to enable the Judge to calculate and fix the damages.
(5) If the Judge before or at the formal proof hearing considers that any deponent of an affidavit filed under subclause (4) should attend to give additional evidence, the Judge may direct accordingly and adjourn the hearing for that purpose.
[40] A default judgment obtained under either procedure can be set aside or varied if it appears there has been a miscarriage of justice.27
Can the court act on its own motion
[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.
[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.28 It
would be surprising if the court was required to enter a default judgment on a debt
28 Elaine Kempson and Clair Whyley “Extortionate Credit in the UK: A report to the DTI” Department of Trade & Industry (London, 1999) referred to in the submissions presented by the amicus.
where it was evident that the fees charged were oppressive just because the debtor was not in a position to raise this issue.29
[45] The contrary position is arguably supported by s 86 which sets out the jurisdiction of the District Court under the Act. This provides the District Court with jurisdiction to:
… hear and determine applications for orders under any of the provisions of this Act if … the occasion for the exercise of the power arises in the course of civil proceedings properly before the court … (my emphasis).
[46] When a District Court reopens a contract on its own initiative it might be said that there is no application for orders under the Act for the court to determine. The same wording is used in s 85 which sets out the High Court’s jurisdiction under the Act: the High Court may “hear and determine … applications for orders under any of the provisions of this Act …”.
[47] Sections 85 and 86 set out the respective jurisdiction of the High Court and the District Court where there is an application for orders under the Act. However the power under s 120, on its terms, is not dependent on there being any application before the court. The power arises where the court considers in any proceeding, whether or not it is brought under the Act, that the contract is oppressive. If a civil proceeding is properly before the court the power arises.
[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.
29 The amicus’ submissions gives the hypothetical example of a court having previously determined that a particular fee is oppressive and being asked to enter default judgment in another case under a loan agreement which contains the same fee.
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.
[49] It can also be argued that, if the court has jurisdiction to reopen an oppressive contract on its own initiative, this is inconsistent with the remedies available under Part 3. For example, an order to refund an unreasonable fee, or an order that a credit fee cannot be imposed, may be made “on the application of the Commission or any party to” a credit contract.30 However Part 3 and Part 5 of the Act can be seen as working alongside one another. Orders (and other remedies) under Part 3 are available where they are sought by or on behalf of a party. They do not require
oppression to be proven. Relief against oppression may be granted when it arises in
a proceeding “whether or not it is brought under [the] Act”.31
[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”.32 The Commission’s role
does not therefore preclude the court from acting on its own motion.
[51] There are, however, practical difficulties if a court acts on its own motion. In particular the court is required to have regard to a number of matters in deciding whether s 120 applies and whether to reopen the contract. Some of those matters may require evidence. For example, if it is relevant in the particular circumstances of the case, the court must have regard to the terms of other arrangements under
which the debtor could have obtained the same or substantially similar credit.33 I
30 Sections 94 and 95(1).
31 Section 120.
32 Section 112(4).
33 Section 124(1)(h).
consider this means the court should exercise caution before acting on its own motion. It does not, however, bar the court from acting on its own motion where it has the necessary information to determine whether s 120 applies and whether to reopen the contract.
[52] Real Finance submits that the court is acting contrary to the District Court Rules for default judgments if it acts on its own motion to reopen a contract. The court does, however, have a discretion whether to seal a judgment on a liquidated demand. In my view, where a court has concerns that the creditor is seeking judgment on an oppressive contract, it is open to the court to exercise that discretion.
[53] That raises the question of whether the proceeding can be referred for formal proof. The formal proof procedure applies when the plaintiff seeks default judgment for “other than a liquidated demand”.34 Enforcement of a sum due under a credit contract would ordinarily qualify as a liquidated demand, as it is a sum that can be quantified on the basis of a contract relied on by the plaintiff.35 However, where a credit contract may be oppressive, it may be reopened and the court has broad remedial powers. When such an issue arises the claim can be said to be for “other than a liquidated demand” because there is an issue whether the plaintiff may rely on the contract to quantify the sum it claims. In any event the formal proof procedure is the appropriate one whenever there is an issue as to the appropriateness of the liquidated demand procedure.
[54] Lastly Real Finance submits it is inappropriate for the court to intervene on its own motion for a number of reasons: it deprives plaintiffs of the benefit of the default judgment procedure; it wrongly imposes an evidential burden on plaintiffs to disprove oppression; and it purports to act in the defendant’s interests without a mandate from the defendant, in the absence of information as to why the defendant did not file a statement of defence; and the amount of the judgment is likely to be
irrelevant because the defendant is insolvent.36
34 District Court Rules 2014, rule 15.9.
35 Rule 15.7.
36 These were the reasons relied on in Real Finance v Hislop, above n 4, at [15] where the District Court judge declined to consider whether interest rates, commission and collection costs, and legal costs were excessive.
[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.37 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 procedures to be used by a creditor to enforce a contract where it is clear that oppression arises.
[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.38 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.
Exercise of the jurisdiction
[57] Real Finance submits that, if the Court did have power to reopen the contract on its own initiative, then it did not give proper consideration to the relevant factors
37 In Sportzone Motorcycles Ltd (in liq) v Commerce Commission [2016] NZSC 53 at [111]-[112] the Supreme Court has held that finance companies are not able to charge as fees the general costs of their business. Such costs must be related to the costs incurred by the creditor in relation to the steps to which the fee relates. It is not permissible to take all operating costs and allocate them to one fee or another. The Commerce Commission is presently consulting on draft guidelines.
38 See eg, Greenbank New Zealand Ltd v Haas [2000] 3 NZLR 341 (CA) at [25] where Tipping J observed that “[s]ave in the plainest of cases, Judges cannot be expected to take some form of judicial notice of what is or is not in accordance with reasonable standards of commercial practice.”
set out in s 124. It submits the Court found the administrative fees excessive because there were already fees for each step in the default of a loan and the fees were in addition to the high interest rates charged. It submits the Court failed to have regard to the relative bargaining power of the parties, the ability of the debtor to protect his interests, whether the debtor took advice before entering into the contract, whether there was any undue influence on the debtor, whether the form of the contract and its terms were expressed clearly and the length of time the debtor has to remedy the default.
[58] Those matters are all potentially relevant considerations under s 124 depending on the circumstances. The requirement is to have regard to the considerations in s 124 “to the extent that the … matters are applicable in the particular circumstances”. I agree with the submissions from the amicus that the Judge has implicitly considered a number of them. The Judge, for example, noted that the loans had the appearance of being high risk which would justify a substantial interest rate. The terms of the agreement, including the interest rates and fees, were before the Court and considered by the Judge.
[59] The amicus’ submissions nevertheless accept that the Court did not have evidence on some potentially relevant matters. The amicus’ submissions refer to the following passage from the Court of Appeal’s decision in Greenbank New Zealand v Haas:39
[24] … To determine whether a contract or term is oppressive within any of the words or phrases in the definition, it is necessary to have some basis of comparison. In the context the comparator can only be what would be expected or acceptable in terms of reasonable standards of commercial practice. Something which is in accordance with such reasonable standards could hardly be held to be oppressive. Conversely something which is not in accordance with (ie in contravention of) such standards is, by definition, oppressive. It is therefore important, unless the oppressive aspect is beyond rational dispute, for the Court to be properly informed how the contract or term measures up against reasonable standards of commercial practice.
[25] That will usually, indeed almost always, necessitate the calling of evidence on the point, as is contemplated by s 13. There would be difficulties and dangers in expecting Judges and Masters to take an intuitive or impressionistic approach to the question. What to one Judge might seem unjustly burdensome might not necessarily seem so to another. The commercial experience of judicial officers may differ markedly. Save in the
39 Greenbank New Zealand v Haas, above n 38.
plainest of cases, Judges cannot be expected to take some form of judicial notice of what is or is not in accordance with reasonable standards of commercial practice. …
[60] In this case the Court’s concern was with monthly administration fees that were about half the principal that remained owing, which exceeded the interest charges (which were on the face high) and which were in addition to fees payable for every conceivable step taken when a loan was in default. As they continued to be charged when payments by Mr Setefano had long since ceased, and there were letter fees still being charged, it is difficult to see what costs arose for which the monthly
administration fee was intended to compensate.40 Evidence from other finance
providers in the market about monthly administration fees will not assist if the fees charged by those providers are not reasonable.41 I did not receive submissions on this point, but it may be that an unreasonable fee will go some way to establishing oppressiveness.
[61] That said, I accept the amicus’ submission that the matter should be referred back to the Court for reconsideration. Real Finance apparently did not have advance notice that the Judge was contemplating reopening the contract in respect of the monthly administration fee. As I understand it, the matter came before the District Court for formal proof when this was a relatively new approach being taken by the court to default judgments sought on consumer credit contracts. A request to stand the matter down or to adjourn the matter was not granted. Real Finance may wish to provide evidence in support of the monthly administrative fee. It should have that opportunity if it wishes to do so.
Result
[62] The appeal is allowed. The District Court’s judgment is set aside. The matter is remitted back to the District Court for reconsideration. Real Finance is to have the opportunity to adduce evidence to support its claim for the administrative fees.
Mallon J
40 Sportzone Motorcycles Ltd (in liq) v Commerce Commission, above n 37.
41 At [92].
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