Real Finance Ltd v Setefano

JurisdictionNew Zealand
JudgeMallon J
Judgment Date27 September 2016
Neutral Citation[2016] NZHC 2293
Docket NumberCIV 2015-485-1019
CourtHigh Court
Date27 September 2016
Between
Real Finance Limited
Appellant
and
Tofi Setefano
Respondent

[2016] NZHC 2293

CIV 2015-485-1019

IN THE HIGH COURT OF NEW ZEALAND

WELLINGTON REGISTRY

Appeal against a District Court (DC) decision which held the appellant could not recover monthly administration fees as part of an outstanding loan, as the fees were oppressive under the Credit Contracts and Consumer Finance Act 2003 (CCCFA) — the defendant had obtained a number of loans from the appellant which included a monthly administration fee of $60 and numerous default fees — the DC had indicated that the reopening of the contract in respect of the monthly administration fee was an issue — the appellant had unsuccessfully sought for the matter to be stood down or adjourned so it could make submissions on the issue — whether the Court had jurisdiction under s120 CCCFA (reopening of credit contracts, consumer leases, and buy-back transactions) to reopen a contract of its own initiative — if so, whether the jurisdiction to reopen the contract was properly exercised.

Appearances:

E Horner for the Appellant

No appearance by the Respondent

M Smith as Amicus Curiae

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

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.

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

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...

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3 cases
  • Powell v K 2 Investment Group Ltd
    • New Zealand
    • High Court
    • 30 August 2021
    ...Ltd, above n 34, at 4, cited with approval in Greenbank New Zealand Ltd v Haas, above n 32, at [28]. 37 Real Finance Ltd v Setefano [2016] NZHC 2293 at [56]. See also ANZ Bank New Zealand Ltd v Erasmus, at 34, at 38 Greenbank New Zealand Ltd v Haas, above n 32, at [24] and [25]. See also D......
  • Watherston v PGW Rural Capital Ltd
    • New Zealand
    • Court of Appeal
    • 5 August 2020
    ...Holdings (Auckland) Ltd, above n 11, at 9. 17 Credit Contracts and Consumer Finance Act, s 120; and Real Finance Ltd v Setefano [2016] NZHC 2293, (2016) 23 PRNZ 711 at [48]; and Diners Club (NZ) Ltd v District Court at Auckland [2017] NZHC 2616, [2017] NZAR 1738 at 18 For cases where re-op......
  • Powell v K 2 Investment Group Limited
    • New Zealand
    • High Court
    • 30 August 2021
    ...Ltd, above n 34, at 4, cited with approval in Greenbank New Zealand Ltd v Haas, above n 32, at [28]. Real Finance Ltd v Setefano [2016] NZHC 2293 at [56]. See also ANZ Bank New Zealand Ltd v Erasmus, at 34, at Greenbank New Zealand Ltd v Haas, above n 32, at [24] and [25]. See also Diners C......

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