Cash Solutions (Aust) Pty Ltd v Turner
[2008] QDC 108
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- Cash Solutions (Aust) Pty Ltd v Turner[2008] QDC 108
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Cash Solutions (Aust) Pty Ltd v Turner[2008] QDC 108
Cash Solutions (Aust) Pty Ltd v Turner[2008] QDC 108
DISTRICT COURT OF QUEENSLAND
CITATION: | Cash Solutions (Aust) Pty Ltd v Turner & Anor [2008] QDC 108 |
PARTIES: | CASH SOLUTIONS (AUST) PTY LTD V SANDRA TURNER & STEPHEN NEVILLE MAGUIRE |
FILE NO/S: | DC 600 of 2007 |
PROCEEDING: | Appeal |
ORIGINATING COURT: | Magistrates Court Southport |
DELIVERED ON: | 15 May 2008 |
DELIVERED AT: | Southport |
HEARING DATE: | 29 April 2008 |
JUDGE: | Newton DCJ |
ORDER: | Appeal against the decision of the magistrate to reopen transaction is dismissed. The appeal against that part of the magistrate’s decision to fix the applicable interest rate at 30% per annum is allowed. In lieu of the interest rate fixed by the magistrate order that the rate of 48% per annum be applied. No order as to costs. |
CATCHWORDS: | CONSUMER CREDIT – Consumer Credit Code Appeal against decision of Magistrate to reopen transaction – appeal against part of magistrate’s decision to fix applicable interest rate at 30% per annum – whether Magistrate was wrong to reopen transaction – whether after reopening transaction the Magistrate made wrong decision in fixing interest rate at 30% per annum – power to reopen unjust transactions. Consumer Credit Code (Q’ld) s 70 Contracts Review Act [1980] NSW Consumer Credit (Queensland) and Other Acts Amendment Bill 2008 Baltic Shipping Co. v Dillon (1991) 22 NSWLR 1 – referred to West v AGC Advances Ltd (1986) 5 NSWLR 610 – referred to Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482 – referred to Accom Finance Pty Limited v Mars Pty Limited (2007) NSWSC 726 – referred to State of Queensland v Ward and Anor [2002] QSC 171 – referred to Dale v Nichols Constructions Pty Ltd (2003) QDC 453 – referred to |
COUNSEL: | L.D. Bowden for the appellant B.G. Devereaux SC for the first respondent No appearance for the second respondent |
SOLICITORS: | Forbes Dowling for the appellant Legal Aid Queensland for the first respondent No appearance for the second respondent |
- [1]This is an appeal against a Magistrate’s decision to reopen a credit transaction pursuant to the Consumer Credit Code.
- [2]The appellant, Cash Solutions (Aust) Pty Ltd (“Cash Solutions”) loaned a total of $15,500.00 to the respondents, Sandra Turner and Stephen Maguire, on various dates and in various amounts, viz:
- 23 May 2006, $3,500.00;
- 5 September 2006, $5,000.00;
- 18 October 2006,$2,000.00; and
- 22 December 2006,$5,000.00.
- [3]The purposes of the loans were for airfares for a female friend of Mr Maguire to travel to Queensland from Russia (and return), car repairs incurred by Mr Maguire and the purchase of Christmas presents. I was informed by counsel for Cash Solutions that one of the points seriously in contest at the trial was whether or not the transactions were caught by the provisions of the Consumer Credit Code (“the Code”). The magistrate found that the transactions were consumer transactions as opposed to commercial transactions. Mr Bowden made it clear that this part of His Honour’s decision is not challenged in this appeal.
- [4]The two grounds relied upon by the appellant are:
- (a)that the magistrate was wrong to reopen the transaction; and
- (b)that having (wrongly) reopened the transaction, he made a further error in fixing an interest rate of 30% per annum.
- [5]The loan contract in question was described as a continuing credit loan contract which permitted the respondents to make re-draws from time to time. For stamp duty purposes the document was stamped with the date of each particular advance and the appropriate amount of stamp duty paid. The amounts shown against the relevant dates do not exactly correspond to the amounts advanced in respect of each loan because when a re-draw occurred there was, in essence, a new loan consisting of the new amount plus the amount still owing as at that date.
- [6]The interest rate in respect of all amounts advanced (that is the original loan and the three re-draws) was 204% per annum.
- [7]The power of a Court to reopen unjust transactions derives from section 70 of the Code:
70(1) Power to reopen unjust transactions. The Court may, if satisfied on the application of a debtor, mortgagor or guarantor that, in the circumstances relating to it at the time it was entered into or changed, the Court is to have regard to the public interest and to all the circumstances of the case and may have regard to the following-
- (a)the consequence of compliance, or noncompliance, with all or any of the provisions of the contract, mortgage or guarantee;
- (b)the relative bargaining power of the parties;
- (c)whether or not, at the time the contract, mortgage or guarantee was entered into or changed, its provisions were the subject of negotiation;
- (d)whether or not it was reasonably practicable for the applicant to negotiate for the alteration of, or to reject, any of the provisions of the contract, mortgage or guarantee or the change;
- (e)whether or not any of the provisions of the contract, mortgage or guarantee impose conditions that are unreasonably difficult to comply with, or not reasonably necessary for the protection of the legitimate interests of a party to the contract, mortgage or guarantee;
- (f)whether or not the debtor, mortgagor or guarantor, or a person who represented the debtor, mortgagor or guarantor, was reasonably able to protect the interests of the debtor, mortgagor or guarantor because of his or her age or physical or mental condition;
- (g)the form of the contract, mortgage or guarantee and the intelligibility of the language in which it is expressed;
- (h)whether or not, and if so when, independent legal or other expert advise was obtained by the debtor, mortgagor or guarantor;
- (i)the extent to which the provisions of the contract, mortgage or guarantee or change and their legal and practical effect were accurately explained to the debtor, mortgagor or guarantor and whether or not the debtor, mortgagor or guarantor understood those provisions and their effect;
- (j)whether the credit provider or any other person exerted or used unfair pressure, undue influence or unfair tactics;
- (k)whether the credit provider took measures to ensure that the debtor, mortgagor or guarantor understood the nature and implications of the transaction and, if so, the adequacy of those measures;
- (l)whether at the time the contract, mortgage or guarantee was entered into or changed, the credit provider knew, or could have ascertained by reasonable inquiry of the debtor at the time, that the debtor could not pay in accordance with its terms or not without substantial hardship;
- (m)whether the terms of the transaction or the conduct of the credit provider is justified in light of the risks undertaken by the credit provider;
- (n)the terms of other comparable transactions involving other credit providers and, if the injustice is alleged to result from excessive interest charges, the annual percentage rate or rates payable in comparable cases;
- (o)any other relevant factor.
(3) Representing debtor, mortgagor or guarantor. For the purposes of subsection (2)(f), a person is taken to have represented a debtor, mortgagor or guarantor if the person represented the debtor, mortgagor or guarantor, or assisted the debtor, mortgagor or guarantor to a significant degree, in the negotiations process prior to, or at, the time the credit contract, mortgage or guarantee was entered into or changed.
(4) Unforseen circumstances. In determining whether a credit contract, mortgage or guarantee is unjust, the Court is not to have regard to any injustice arising from circumstances that were not reasonably foreseeable when the contract, mortgage or guarantee was entered into or changed.
(5) Conduct. In determining whether to grant relief in respect of a credit contract, mortgage or guarantee that it finds to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the contract, mortgage or guarantee since it was entered into or changed.
(6) Application. This section does not apply to a change in the annual percentage rate or rates payable under a contract, or to an establishment fee or charge or other fee or charge, in respect of which an application may be made under section 72 (Court may review unconscionable interest and other charges). This section does not apply to a change to a contract under this Division.
(7) Meaning of unjust. In this section, “unjust” includes unconscionable, harsh or oppressive.
- [8]The appellant submits that if a person knowingly enters into a transaction involving a high interest rate, that fact alone does not entitle a court to find the transaction unjust. In this regard the appellant is critical of that part of the magistrate’s judgment at p. 12 where His Honour stated:
“I am of the view that what is unjust about the contract is the interest rate. It seems to me that a rate of 30% would have adequately protected the defendant in all the circumstances, and a rate of 204% is simply not justified. It is simply unjust.”
- [9]I do not accept that the above remarks should be understood as indicating that the magistrate has relied only upon one fact alone, namely the high interest rate, in finding the transaction unjust. It is clear enough from a reading of the transcript of His Honour’s reasons that many factors were considered by him relating to the transactions and the parties in reaching his decision. These factors will be considered in due course.
- [10]It may be accepted that, in general, the law expects people to honour their contract. Indeed, as Gleeson J observed in Baltic Shipping Co. v Dillon (1991) 22 NSWLR 1 at p. 9 “that policy forms part of our idea of what is justice”. In West v AGC Advances Ltd (1986) 5 NSWLR 610 at pp. 621-2, McHugh JA said:
“If a defendant has not been engaged in conduct depriving the claimant of a real or informal choice to enter into a contract and the terms of the contract are reasonable as between the parties, I do not see how that contract can be considered unjust simply because it was not in the interest of the claimant to make the contract or because she had no independent advice. The late Professor Peden who was largely responsible for the drafting of the [Contracts Review] Act [1980] has said that in accordance with his recommendation:
‘…the Act does not include the term unfair since this might have been interpreted to include situations in which, although the contract favours one party, there has been no abuse of power or unfair conduct on his part’ [reference omitted].
This passage brings out the important point that, under this Act, a contract will not be unjust as against a party unless the contract or one of its provisions in the product of unfair conduct on his part either in the terms which he has imposed or the means which he has employed to make the contract”.
- [11]In refusing an application to reopen a transaction under section 70 of the Code, McGill S.C. DCJ in Dale v Nichols Constructions Pty Ltd (2003) QDC 453 at para [101] stated that:
“I am not aware of any authority or guidance at least in courts in this state as to what is meant by a contract being ‘unjust’ for the purposes of the Code. A contract might be unjust because of its terms and the way in which they would operate either if the contract is properly performed or if the contract is breached, or because of the way in which the contract came to be made. A contract in particular terms may be unjust with a particular debtor, even though an agreement in the same terms might not be unjust with another debtor if the contract came to be made under different circumstances. A contract is not unjust simply because it is not in the interests of the debtor to enter into the contract, [West v AGC Advances Ltd (1986) 5 NSWLR 610 at 621 per McHugh JA] or because the debtor is unable to pay the debt when called upon to do so, or because enforcement of the contract will lead to the loss of the debtor’s home [Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482 at 491].”
- [12]I turn, then, to consider the circumstances which persuaded the magistrate to find in this case that the contract was unjust for the purposes of the Code. Firstly, the magistrate noted that prior to 23 May 2006 (the date of the first advance of $3,500.00) the first respondent, Ms Turner, was running a company involved with carrying motor vehicles from premises leased from Mr Willich, the principal behind Cash Solutions. In some form, therefore, the appellant was in a position akin to that of landlord to the first respondent. It may be assumed, then, that the parties knew each other in a business sense and that Ms Turner was not a stranger to the world of commerce. As for Mr Maguire, although not employed by his mother (Ms Turner) or her company, he did from time to time help out with the servicing of the trucks in his occupation as a diesel fitter.
- [13]Mr Willich testified that Mr Maguire had a bad credit rating and that he could not obtain a loan from a bank or other mainstream lending institutions. Mr Willich’s intention was to assist Mr Maguire to obtain a good credit rating by including him on the loan document so that once the loans had been paid off his credit rating would be enhanced. This evidence is relevant to both the financial status of the second respondent as well as to the knowledge of such status by Cash Solutions.
- [14]Having noted the interest rate of 204% charged by Cash Solutions, which he described as “on the high side”, the magistrate turned his attention to those matters referred to in section 70 of the Code which a court may have regard to in determining whether a term of the particular contract is unjust. The first of these matters was that noncompliance with all or any of the provisions of the contract has meant that Mr Maguire lost his motor vehicle when it was taken into its possession by Cash Solutions. The vehicle, it will be recalled, was offered as security for the original loan. It was repossessed on 9 August 2007.
- [15]The next issue to be considered by the magistrate was the relative bargaining power of the parties. In this regard it was concluded that there was a difference in the relative bargaining power of Mr Maguire and Cash Solutions in that the former was a person with a poor credit rating who was unable to borrow money from mainstream lenders and who was in need of a relatively small amount of money.
- [16]The magistrate then turned his attention to whether the contract was the subject of negotiation. He saw little evidence of there being any negotiation concerning the interest rate. As to whether it was reasonably practicable for the respondents to negotiate the provisions of the contract, the magistrate found that there was some opportunity for negotiation by Ms Turner and Mr Maguire but that they had not taken up such opportunity. The magistrate considered that this was not a major issue in the case.
- [17]The next issue was whether or not the provisions of the contract imposed conditions that were unreasonably difficult to comply with, or not reasonably necessary for the protection of the legitimate interests of a party to the contract. The magistrate was of the view that this really came back to the question of the rate of interest, but also raised the issue of the terms of other comparable transactions involving other credit providers, and if the injustices alleged resulted from an excessive interest charge, the annual percentage rate or rates payable in comparable cases. It was also seen as relating to whether the terms of the transaction or the conduct of the credit provider were justified in the light of the risks undertaken by the credit provider.
- [18]The evidence of Mr Cooper, who testified on behalf of Cash Solutions, was traversed by the magistrate. Mr Cooper wrote the software used by Cash Solutions. His evidence was that fringe lenders charge interest rates of between 180% per annum and 360% per annum. The average annual rate of the approximately 90 persons who used his software was 216% per annum. Bank interest rates are very much lower than this, said Mr Cooper, and for small unsecured loans from a finance company interest may be charged at 25% per annum.
- [19]The magistrate concluded that because Mr Maguire was not a person of substance, a higher rate of interest was justified. In the case of Ms Turner His Honour expressed difficulty in assessing the risk associated with lending money to her. He ended this part of his judgment by stating:
“But clearly, a higher interest rate is required when lending to people of this nature. But it seems to me that 204 percent per annum is well beyond what would be considered to be a commercially necessary rate to reflect the level of risk. This is especially the case when one considers that the loan was secured by a car, albeit, presumably not a particularly valuable car.”
- [20]The magistrate then proceeded to look at other factors including those not mentioned specifically in section 70 of the Code. His Honour took into account that the respondents, especially Mr Maguire, were not legally sophisticated people, and that they had not read the loan documentation or sought independent legal advice. The magistrate did not believe that any undue pressure had been placed upon the respondents by Cash Solutions. However, His Honour found that neither Mr Willich or the appellant company had insisted that the respondents actually obtain independent legal advice, and that Cash Solutions was prepared to follow through with the transaction in circumstances where it was aware that the respondents had not received such advice.
- [21]It was following a consideration of the matters canvassed above that the magistrate determined to reopen the contract pursuant to section 70 of the Code. Immediately prior to indicating his decision to reopen the contract, His Honour stated:
“I am of the view that what is unjust about the contract is the interest rate. It seems to me that a rate of 30 percent would have adequately protected the [appellant] in all the circumstances, and a rate of 204 percent is simply not justified. It is simply unjust.”
- [22]It is submitted on behalf of Cash Solutions that if a person knowingly enters into a transaction involving a high interest rate, that fact alone does not entitle the court to find the transaction unjust. In this regard reliance is placed on the judgment of Windeyer J in Accom Finance Pty Limited v Mars Pty Limited (2007) NSWSC 726 at paragraph 54:
“Unless there is pure asset lending, the fact that the rates appear exorbitant does not in itself make them unconscionable.”
The reference to “pure asset lending” is said to refer to the fact that some borrowers have no income and the only way that the loan can possibly be repaid is ultimately by the sale of their assets.
- [23]Counsel for the appellant emphasises four circumstances of the arrangements in this case which, it was contended, militate against finding the contract unjust:
- There were four separate transactions which suggest that the respondent thought that the arrangement was sufficiently satisfactory;
- None of the transactions came about through ill-health or unemployment requiring urgent funding;
- The borrowings were for relatively small amounts which should have been easily repaid, unlike those cases where large amounts are borrowed secured against the borrower’s property where there is very little prospect of the borrower being able to repay the loans at high interest rates if, for instance, other contingencies occur or fail to occur; and
- In this case there was no real property involved as security.
- [24]For the respondents it was submitted that it was open to the magistrate to decide that the contract was unjust in circumstances where
- (a)the interest rate charged was 204% per annum;
- (b)the original loan was secured by Mr Maguire’s car, reducing the risk of loss to the lender;
- (c)Mr Maguire (the second respondent) lost his car for non-repayments at that interest rate;
- (d)Mr Maguire was in a poor bargaining position as he had a bad credit rating and was unable to borrow from mainstream lenders; and
- (e)there was little evidence of there being any negotiation concerning the interest rate.
- [25]Against this background, it was argued, it was entirely reasonable for the magistrate to conclude, while keeping in mind the risks involved in lending such amounts to people in the position of the respondents on the security of the second respondent’s motor vehicle, that an interest rate of 204% per annum is well beyond what would be considered to be a commercially necessary rate to reflect the level of risk.
- [26]I was referred by Senior Counsel for the respondents to State of Queensland v Ward and Anor [2002] QSC 171 where monies had been loaned at rates of between 156% per annum and 208% per annum. With late payment fees the annual rate of interest sometimes reached 360% per annum. Ambrose J described these rates as “outrageously exorbitant” and “extortionate” (at paragraphs [103] and [104]). In the Court of Appeal Jerrard JA, with whom McPherson JA and Wilson J agreed, referred to the rate of 156% per annum paid by one borrower as “staggering” (State of Queensland v Ward and Anor [2003] QCA 366 at [17] and [18]). These descriptions may equally be applied in describing the interest rate in this case.
- [27]The statement of principle of McHugh J in West v AGC Advances Ltd (1986) 5 NSWLR 610 at 621-2, to which reference has been previously made in this judgment, namely that “under this legislation [The Contracts Review Act], a contract will not be unjust as against a party unless the contract or one of its provisions is the product of unfair conduct on his part either in the terms which he has imposed or in the means he has employed to make the contract”, must be viewed in the context of the facts of that case. The transaction in question involved an advance of $68,000.00 with interest at 18% per annum reducible to 16 % per annum if there were to be no default. In addition, a mortgage over the borrower’s home was required as security. It was not suggested that the interest rate or any provision of the transaction “departed from what was normal in an ordinary commercial borrowing of this nature”. (Per McHugh J at p 619)
- [28]Of relevance in the instant case, in my view, to both the question as to whether the transaction should be reopened and, if so, as to what rate interest should be set, is the evidence of the appellant’s witness Mr Cooper. His evidence as to the practices of credit providers other than the appellant, I accept was not binding upon the magistrate, although it did comprise matters to which the magistrate was entitled to have regard (see section 70(n) of the Code).
- [29]According to Mr Cooper, whose testimony on these matters appears to have been received as expert evidence, a loan of some $10,000.00, unsecured except by a chattel mortgage, was commercially available with an annual interest rate of around 17%. Finance companies were lending at around 19.25% per annum on a secured loan for a car. An unsecured loan would be in the region of 25% per annum. In the light of this evidence, it was submitted on behalf of the respondents, it was open to the magistrate to reopen the transaction and to set the interest rate at 30% per annum.
- [30]The magistrate’s task in this matter was made more difficult than it would otherwise have been by the respondents appearing as applicants before him unrepresented. His Honour faced the challenge of asking sufficient questions of the witnesses whilst not descending into the arena. Even so, there are aspects of the transaction which deserved further exploration in the lower court. The financial status of the respondents, their respective levels of business acumen, their educational standards relevant to their ability to comprehend (or even read) the loan documentation, the reasons for their decision not to seek independent legal advice and their understanding of how the four credit advances were to be repaid were all issues deserving far more attention than they actually received.
- [31]Furthermore, evidence such as copies of tax returns, bank statements and documentation relating to other business dealings was not forthcoming. So, too, was there a dearth of evidence relating to the costs of the appellant in providing the funds advanced in this case. How the degree of risk to the lender was calculated also remains unclear.
- [32]Notwithstanding the deficiencies in the evidence the learned magistrate has not been shown to have intervened on impermissible grounds, for example by reopening the transaction merely because the respondents were foolish, gullible or greedy (see Esanda Finance Corporation v Tong (1997) 41 NSWLR 481 at 491 per Handley JA). Nor has it been shown that the magistrate failed to consider relevant factors to which he was entitled to have regard pursuant to section 70(2) of the Code. In particular, I reject the submission of counsel for the appellant that the magistrate based his judgment upon the high interest rate as providing the primary reason for the finding that the transaction was unjust. It seems clear from his reasons that His Honour gave careful consideration to all the circumstances of the case revealed by the evidence in reaching his decision.
- [33]I do, however, have some reservations in relation to the decision of the magistrate to fix the interest rate at 30% per annum. Such a rate finds little, if any, basis in the evidence of Mr Cooper whose unchallenged testimony was the only source of evidence on the topic of comparable interest rates. As counsel for the appellant has submitted, the figure of 30% per annum seems to have been “plucked out of the air”. That rate of interest does not, in my view, adequately compensate the appellant for the risks associated with providing credit to people in the position of Ms Turner and Mr Maguire. In that regard I do consider that the learned magistrate has fallen into error and that consequently, the discretion to set an appropriate interest rate must be exercised afresh. The difficulty is, as was apparent in the court below, in deciding an appropriate rate in all the circumstances. A rate of 204% per annum, in my view, far exceeds what may reasonably be required to reflect the degree of risk presented by the respondents’ situations. Senior counsel for the respondents accepted (transcript pp 49-50) that this court would be entitled to have regard to what the capped rate is in other jurisdictions if it reached the conclusion that there had been an error in the exercise of the magistrate’s discretion to fix the rate at 30% per annum. Counsel for the appellant did not seek to argue against this proposition. I was informed that the capped rate of interest for transactions of this nature in other jurisdictions in Australia is 48% per annum. This rate is also proposed to be introduced in Queensland by the Consumer Credit (Queensland) and Other Acts Amendment Bill 2008. I was invited to take judicial notice of the proposed capped rate under this Bill. It seems to me appropriate to do so.
- [34]The public interest (referred to in section 70(2) of the Code) is likely to be far better served in this case by fixing the interest rate at 48% per annum rather than at the agreed rate of 204%per annum.
- [35]I am indebted to counsel for the following suggestion:
“Your Honour, we would have in mind that if your Honour were prepared to disturb that 30% finding…that your Honour might leave the mathematics to us and we might go away and work out the mathematics, as it were, try to agree to them with our friends and come back with minutes of order at some later stage” (transcript p4).
I gratefully accept that suggestion.
- [36]In the result, then, the appeal against the decision of the magistrate to reopen the transaction is dismissed. The appeal against that part of the magistrate’s decision to fix the applicable interest rate at 30% per annum is allowed. In lieu of the interest rate fixed by the magistrate I order that the rate of 48% per annum be applied.
- [37]In the circumstances I make no order as to costs.