IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY … · REAL FINANCE LIMITED v SETEFANO [2016] NZHC 2293 [27 September 2016] IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

REAL FINANCE LIMITED 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 Curiae

Judgment:

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]

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.

Default Administration Fees: $ 29.00

Interest: $ 2,593.51

Default Interest: $ 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. 21

Section 103.

(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:

120 Reopening of credit contracts, consumer leases, and buy-back

transactions

22

Section 111. 23

Section 118.

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). 26

Rule 15.4.

(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

27

Rule 15.10.

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].