Robinson v Budget Loans Limited
[2012] NZHC 1206
•1 June 2012
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV 2011-485-002527 [2012] NZHC 1206
BETWEEN KIRK DAVID ROBINSON Appellant
ANDBUDGET LOANS LIMITED Respondent
Hearing: 3 May 2012
Counsel: W D Bevan for Appellant
A R Davie for Respondent
Judgment: 1 June 2012
RESERVED JUDGMENT OF THE HON JUSTICE KÓS
Introduction
[1] Two motor vehicles are repossessed by a creditor. The post-possession notices, which the creditor must provide under the Credit (Repossession) Act 1997, state almost identical amounts to reinstate (i.e. resume) or to settle (i.e. pay off) each of the loan contracts. That is because the debtor’s defaults have triggered an acceleration clause. As a result the whole amount due under each contract is now payable. Is it lawful to include the entire accelerated amount in the notices as the amount required to reinstate? If not, does that make the notices void, so that the subsequent sales of the cars are also unlawful? And does it matter that the notices included a value range, rather than a specific figure, as the price at which the debtor could introduce a cash buyer for the cars?
[2] A District Court Judge dismissed the debtor’s complaints about the post- possession notices and gave judgment for the creditor on its claims under the loan
ROBINSON v BUDGET LOANS LIMITED HC WN CIV 2011-485-002527 [1 June 2012]
contracts.1 The Judge also dismissed the debtor’s claim that the creditor had acted oppressively or unreasonably in terms of the Credit Contracts and Consumer Finance Act 2003.
[3] The debtor now appeals to this Court. The specific issues for consideration are set out at [14]. But first I will sketch the background to the appeal. I am able to draw directly on the account given by Judge Walker in his judgment.
Background
[4] The debtor, Mr Robinson, entered into a consumer credit contract (loan 8804) with Budget Loans Limited (Budget) on 3 October 2007. A Mitsubishi Diamante car (the Mitsubishi) was used as security. Later, on 5 February 2008, he entered into another consumer credit contract (loan 8920) with Cynotech Securities Limited. A Suzuki Swift car (the Suzuki) was used as security. The Cynotech contract was assigned to Budget on 2 September 2010.
[5] Both loan contracts provided that the lender was entitled to accelerate the loan (that is, require the unpaid balance of the loan to be paid to the lender forthwith) if the borrower breached the agreement.
[6] Mr Robinson was regularly in arrears in relation to both loans. Nearly all payments were made late. Mr Robinson made only six out of 102 payments on time. Some were up to 60 days late. I note that there were some extenuating circumstances relating to Mr and Mrs Robinson’s employment. It was clear from the evidence that Budget had been extremely patient with Mr Robinson. That continued even after he had defaulted on late payment arrangements. However, patience eventually ran out. On 9 April 2010 Budget sent immediate demands and pre- possession notices to Mr Robinson.
[7] Mr Robinson did not remedy the default. Rather, he challenged the validity of the pre-possession notices and sought relief in the Disputes Tribunal under the
Credit (Repossession) Act 1997 (Act).2 Referee Smallbone issued a decision on
5 October 2010 dismissing the application. The decision noted Mr Robinson’s “abysmal late payments history”. On the evidence I have seen, that description is justified.
[8] The vehicles securing the loans were eventually repossessed on 18 November
2010. Budget issued post-possession notices (in respect of both loans) on
25 November 2010, in accordance with the Act. The post-possession notices stated that in order to reinstate (i.e. resume) the loans Mr Robinson was required to pay the entire accelerated balance of the loans: $9,234 for loan 8804 and $13,120 for loan
8920. The amounts required to settle (i.e. pay off) the contracts were just $50 higher than reinstatement in each case. The difference was a $50 “settlement fee”. Otherwise the amounts were the same.
[9] The Act also provides that post-possession notices must state the creditor’s estimate of the value of the goods repossessed, to facilitate the debtor’s right to introduce a cash buyer in accordance with s 30. The post-possession notices in this case provided ranges: $1,500–$2,000 for the Mitsubishi and $8,000–$9,000 for the Suzuki.
[10] Mr Robinson did not pay the reinstatement amounts specified in the post- possession notices. The Suzuki was sold at auction on 17 February 2011, generating net proceeds of $9,353. The Mitsubishi was sold at auction on 21 February 2011, generating net proceeds of $1,353. Budget credited these amounts to Mr Robinson’s account. On 1 March 2011 it issued post sale notices claiming the balance on both loans, amounting to $14,015.
[11] Substantial penalty interest and default fees have accrued as a result of Mr Robinson’s arrears. As a result the amount paid and still owing on the loans is now well in excess of double the amount initially advanced.
[12] On 27 September 2010 Budget claimed $16,669 from Mr Robinson in
District Court proceedings. Mr Robinson defended on the basis that Budget was not
entitled to accelerate the loan balances, because that would contravene the right to reinstate under the Act,3 and was acting oppressively (for which relief should be granted). He counterclaimed for relief under the Act and compensation of $6,500.
[13] In a reserved decision dated 4 November 2011 Judge Walker gave judgment for Budget on claim and counterclaim.
Issues for determination
[14] The parties are agreed that the same issues arise on this appeal as arose before Judge Walker. They are five in number:
(a) Issue 1: Does the failure to exclude amounts payable under an acceleration clause from the reinstatement estimate in a post- possession notice render the notice so defective as to be void?
(b)Issue 2: Does the provision of a range of figures in relation to the estimate of the value of the goods repossessed in a post-possession notice render the notice so defective as to be void?
(c) Issue 3: If either of the above is answered in the affirmative, is the consequence that Budget must be regarded as having sold the vehicles without notice?
(d)Issue 4: Does Budget’s acceleration of the loans amount to exercising a contractually conferred power in an oppressive manner for the purpose of the Credit Contracts and Consumer Finance Act 2003 (CCCFA)?
(e) Issue 5: Are the default fees and penalty interest amounts incurred by
Mr Robinson unreasonable for the purpose of the CCCFA?
Issue 1: Does the failure to exclude amounts payable under an acceleration clause from the reinstatement estimate in a post-possession notice render the notice so defective as to be void?
[15] The Act prescribes three steps before secured goods may be repossessed and sold, where a debtor is in default. First, a pre-possession notice (in the form prescribed in schedule 1 of the Act) must be served on the debtor.4 The notice must specify the nature of the default and require the debtor to remedy the default within the period prescribed in the notice. The prescribed period must be at least 15 days after the notice has been served.5 A debtor served with a pre-possession notice may apply for relief to a Disputes Tribunal or District Court.6 Secondly, secured goods may be repossessed if the debtor does not pay the arrears within the prescribed period (or has not obtained a court or tribunal order by way of relief in the
meantime). Thirdly, the creditor must serve a post-possession notice (in the form prescribed in schedule 2 of the Act) on the debtor7 within 21 days of taking possession.8 A creditor must then wait before selling or disposing of the goods: 15 days must pass after service of the post-possession notice.9 Before that point the debtor may reinstate the agreement. I will return to that right, as it is central to
Mr Robinson’s complaint.
[16] This issue concerns the third step. It concerns what may be stated in the schedule 2 post-possession notice about reinstatement. That notice must state that the debtor is entitled to get back their goods “if, within 15 days, you either reinstate or settle the agreement.” It then specifies what each of those terms means. We are concerned with the first. It must state that:
Reinstate means to resume the agreement by paying the arrears of instalments owing (plus costs) and remedying other breaches of the agreement.
4 And any guarantor: section 8.
5 Section 9.
6 Sections 12, 13, 39 and 40. As we have seen, Mr Robinson exercised that right unsuccesfully in
2010: see [7] above.
7 Again, and any guarantor.
8 Sections 20 and 21.
The notice must also set out “the creditor’s estimate of the amount you must pay to
reinstate the agreement”.
[17] Here the two notices did that. But, as noted earlier, the amount included in the estimates for “arrears of instalments” included the full accelerated balance of the loan. Was that lawful?
[18] Section 28 of the Act provides:
28 Debtor’s right to reinstate agreement
(1) The debtor may, at any time after the creditor has taken possession of the consumer goods and at any time before the creditor sells or agrees to sell the consumer goods in accordance with this Act, reinstate the agreement by—
(a) paying to the creditor the amount required to reinstate the agreement or, where the agreement secures the performance of an obligation other than the payment of money, performing any accrued obligations; and
(b) remedying any default in so far as it is capable of being remedied.
(2) In this section,—
(a) the amount required to reinstate the agreement means the aggregate of—
(i) any amounts which have fallen due for payment under the security agreement and have not been paid, including, without limitation, interest and other charges, but excluding, where the agreement provides that the total advance falls due for
payment i mmedi atel y on the debt or ’ s def aul t , t hat part of the advance which would not have fallen due but for that provision; and
(ii) the reasonable costs and expenses of the creditor of and incidental to taking possession of, holding, storing, repairing, maintaining, valuing, and preparing for the sale of, the consumer goods and of returning them to the order of the debtor; and
(iii) the costs reasonably and actually incurred by the creditor in doing any act, matter, or thing necessary to remedy any default by the debtor:
(my emphasis added)
Judge Walker held that the effect of that provision was to preclude the inclusion of amounts payable only because of acceleration in the reinstatement estimate in a post- possession notice.
[19] Mr Andrew Davie, counsel for Budget, argues that the Judge was wrong to do so in this case. That is because the agreements provided a discretion to accelerate, so that they did not fall due for payment immediately on default. Here the creditor exercised that discretion to accelerate.
[20] I do not accept that argument. Sections 28 and 31, and schedule 2, clearly intend to distinguish between reinstatement (without acceleration) and settlement (which requires payment of the whole of the balance of the advance, plus the other reinstatement costs). Mr Davie’s argument would diminish the distinction intended
by Parliament.10 In the present case the estimates given in the notices of the amounts
required to reinstate or to settle were virtually identical.11 Given the purpose of the provision, in its context, the exclusion prescribed in s 28(2)(a)(i) applies where the agreement automatically accrues the total advance or where it creates a power to do so and the creditor has exercised that power.
[21] Here the creditor had exercised that power. The estimates expressed in the notices were, in consequence, wrong. Does that render the post-possession notices void? In UDC Finance Ltd v Hunt12 Judge Harvey held that erroneous estimates of value did not invalidate a notice provided, amongst other considerations, that they were genuine and bona fide. That case concerned the Hire Purchase Act 1971. Judge Walker followed that decision in the present case.
[22] An erroneous schedule 2 post-possession notice is irregular. But there is no basis in statute or common law to treat such a notice as void automatically. Whether or not it is invalid as against a particular debtor will involve a more faceted enquiry than simply whether or not the error was deliberate. In the context of this Act the
enquiry should be focused on the debtor rather than the creditor. I would ask myself
10 See Law Commission Review of the Credit (Repossession) Act 1997 (NZLC R124, 2012) at
[3.87].
11 See [8] above.
12 UDC Finance Ltd v Hunt [1992] DCR 542.
these questions. First, how substantial was the error? (A very small error in an estimate is unlikely to invalidate the notice. But, even so, the next question is the more important one.) Secondly, how material was the error? Sub-questions would include: was the debtor misled in fact? In particular, did the debtor know that he or she could challenge the estimate and tender the correct sum? (The right to reinstate in s 28 overrides the creditor’s estimate expressed in the notice.) Is it reasonably possible that the debtor could actually have reinstated the agreement in that event? (If the situation is academic in either case, the error may not be a material one.) Thirdly and lastly, was the error genuine and bona fide? (Deliberate deception of the debtor should invalidate the notice in any event.) It may be that the current Law Commission review of the Act will result in further reform of this area, but these are the considerations I think most germane.
[23] Mr Bill Bevan, counsel for Mr Robinson, reflecting the approach taken in UDC Finance, argued that Budget’s estimates were deliberately erroneous and calculated to prevent Mr Robinson from reinstating the contracts. He points to an email that he had sent Budget on 8 October 2010. This was immediately after the Disputes Tribunal decision referred to earlier, service of the District Court proceedings and some five weeks before the vehicles were in fact repossessed. The email put the ability to accelerate the loans in issue. And it said that the ability to accelerate would “defeat the remedies found in s 29 of the [Act]” – meaning no doubt s 28. A subsequent email from Mr Bevan to Budget the same afternoon expressly referred to s 28(2)(a)(i) as preventing acceleration of the whole loan. It also said that if Budget repossessed, that provision meant Mr Robinson could reinstate without paying the accelerated amounts.
[24] In fact, subject only to the remaining issues for consideration in this judgment, there is no doubt that the contracts permitted Budget to accelerate the amounts due. Equally, however, Mr Robinson had the right to reinstate without paying the accelerated amounts.
[25] The evidence does not enable a conclusion that the errors in the notices were deliberate deception on the part of Budget. First, the second 8 October 2010 email was not entirely correct in its legal analysis of the situation. It was wrong in saying
that s 28 prevented acceleration. But it was right in saying that it meant that Mr Robinson could reinstate without paying the accelerated amounts. Secondly, the allegation of deliberate deception was not put to Budget’s witness at the District Court hearing. And that necessarily is the end of that contention.
[26] I return now to the more important question identified in [22] above – the materiality of the error. I am satisfied that Budget’s erroneous estimate was not material. The 8 October 2010 emails, discussed at [23] above, establish: (1) Mr Robinson had a solicitor acting for him throughout the relevant period; (2) that solicitor had identified the fact that s 28(2)(a)(i) meant that any post-possession notice based on the accelerated amounts would be in error; and (3) the solicitor had also identified, again correctly, that Mr Robinson would have the right under that provision to reinstate without paying the accelerated amounts.
[27] It follows that the debtor here was well aware of his rights under s 28(2)(a)(i), and aware that the notices were (1) erroneous and (2) inconclusive as to what must be paid to reinstate. The debtor could not simply treat the notices as void in these circumstances. Unless he then exercised his right to reinstate by tendering the correct amount to reinstate, and that right was wrongly denied him by the creditor, there is no basis for the Court now to intervene.
[28] The answer to Issue 1 is “Not in this case”.
Issue 2: Does the provision of a range of figures in relation to the estimate of the value of the goods repossessed in a post-possession notice render the notice so defective as to be void?
[29] As noted earlier13 post-possession notices must state the creditor’s estimate of the value of the goods repossessed, to facilitate the debtor’s right to introduce a cash buyer.14 Such notices in fact contain three separate estimates: the amount to reinstate, the amount to settle and (in the “notes” within the notice) “the creditor’s
estimate of the value of the goods”. Section 30(1) provides:
13 At [9].
14 A right conferred under s 30.
30 Debtor’s right to introduce buyer
(1) The debtor may, at any time after the creditor has taken possession of the consumer goods and at any time before the creditor sells or agrees to sell the consumer goods in accordance with this Act, require the creditor to sell the consumer goods to any person introduced by the debtor who is prepared to purchase the consumer goods for cash at a price not less than the estimated value of the consumer goods set out in the post-possession notice served on the debtor.
[30] The post-possession notices in this case provided ranges: $1,500–$2,000 for the Mitsubishi and $8,000–$9,000 for the Suzuki. These were the figures given to Budget’s manager, Ms Armstrong, by the auctioneers. Ms Armstrong gave evidence in the District Court. She was asked whether, if Mr Robinson had turned up with the bottom-of-range sum of $8,000 for the Suzuki, he would have been allowed to redeeem it. Ms Armstrong agreed that he would have.
[31] Judge Walker held that the inclusion of a narrow band or range of values did not invalidate the notice. He said:15
In this case the range of value was conservative. The vehicles actually sold at the top of the range and beyond. In my view the use of a range of values did not render the Post-Possession Notices so defective as to be void.
[32] Mr Bevan argued that s 30 requires a specific value to be stated. He said that to permit a range would impose an unreasonable burden on consumers to “argue” with creditors over the right to purchase at the bottom of the range.
[33] I do not accept the appellant’s argument. Section 30 requires an estimated value to be expressed in the notice. The purchaser (or his or her nominated cash buyer) is entitled to buy at a price not less than that value. If a creditor inserts a value range – a practice not to be encouraged – the effect of s 30 is that a price offered at the bottom of the stated range must be accepted. In any event, it is clear from the evidence of Ms Armstrong that Budget acknowledged that obligation in this case. Mr Robinson did not test the water by producing a buyer at $8,000, so there
has been no denial of his s 30 rights.
15 Budget Loans Ltd v Robinson [2012] DCR 219 at [30].
[34] The answer to Issue 2 is “No”.
Issue 3: If either of the above is answered in the affirmative, is the consequence that Budget must be regarded as having sold the vehicles without notice?
[35] Given the negative answers to the first two issues, Issue 3 falls away.
Issue 4: Does Budget’s acceleration of the loans amount to exercising a contractually conferred power in an oppressive manner for the purpose of the CCCFA?
[36] Issues 4 and 5 occupied considerably less time in the argument of the appeal because Mr Robinson was in no position evidentially to be able to answer the fundamental point relied upon by the Judge in giving negative answers to both issues: the lack of supporting evidence.
[37] As to Issue 4, oppressive conduct is conduct that is “harsh, unjustly burdensome, unconscionable or in breach of reasonable standards of commercial practice.”16 The argument in this appeal focused on the words “in breach of reasonable standards of commercial practice.” In Greenbank New Zealand Limited v Haas17 the Court of Appeal said that evidence will almost always be needed to establish what reasonable standards of commercial practice are. It is seldom appropriate to proceed on an “intuitive or impressionistic” basis.18 In this case there was no such evidence. The Court can however take judicial notice of the fact that acceleration clauses in lending contracts are not exceptional. They are not per se oppressive.
[38] Mr Bevan argued that I could nonetheless find oppression in the absence of direct evidence because of the deliberate decision by Budget to issue post-possession notices in breach of s 28 of the Act. I do not agree. There are two objections to this submission. The first is that I have not found deliberate deception by the creditor. The second is that oppression must always look not only to the conduct of the
creditor, but also to the impact of that conduct on the debtor. In this case
16 Credit Contracts and Consumer Finance Act 2003, s 118.
17 In Greenbank NZ Limited v Haas [2000] 3 NZLR 341 (CA).
18 At [25].
Mr Robinson was legally represented at the relevant time and perfectly well aware of his right to reinstate by payment of a figure other than that stated in the notices.
[39] The answer to Issue 4 is “No”.
Issue 5: Are the default fees and penalty interest amounts incurred by
Mr Robinson unreasonable for the purpose of the CCCFA?
[40] The same answer must be given in relation to Issue 5. The extent of Mr Robinson’s repeated defaults and delays in payment will have been causative at least in part (but significantly so) of the penalties that he has incurred. As the Judge noted, neither party provided evidence of how the fees charged compared with reasonable standards of commercial practice in the circumstances of this case.
[41] Mr Bevan argued that the creditor should bear the onus of proof as to reasonableness, but that submission is quite misconceived and finds no warrant in the statute. It is the debtor’s claim. The debtor must make it out with sufficient evidence to establish that it is more likely than not that the default fees and penalty interest are unreasonable. He or she can only avoid calling such evidence if it is so obvious as to go without saying that the amounts are unreasonable.
[42] The onus lying on Mr Robinson to prove unreasonableness in that manner was not discharged in the District Court. It cannot be improved upon on appeal, when the same evidence is again before me.
[43] The answer to Issue 5 is “No”.
Conclusion
[44] Despite Mr Bevan’s thoughtful submissions this is in the end a clear case. The appeal is dismissed.
[45] The respondent will have costs. If parties cannot agree these, memoranda may be filed. I encourage agreement.
[46] I thank counsel for their submissions.
Stephen Kós J
Solicitors:
Kapimana Legal Services Limited, Porirua for Appellant
Treadwells, Wellington for Respondent
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