Real Finance Ltd v Setefano

JurisdictionNew Zealand
CourtHigh Court
JudgeMallon J
Judgment Date27 September 2016
Neutral Citation[2016] NZHC 2293
Docket NumberCIV 2015-485-1019
Date27 September 2016

[2016] NZHC 2293

IN THE HIGH COURT OF NEW ZEALAND

WELLINGTON REGISTRY

CIV 2015-485-1019

Between
Real Finance Limited
Appellant
and
Tofi Setefano
Respondent
Appearances:

E Horner for the Appellant

No appearance by the Respondent

M Smith as Amicus Curiae

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.

Held: The court's jurisdiction to reopen a credit contract arose under s120 CCCFA (the court may reopen a credit contract if, in any proceedings (whether or not brought under the CCCFA), it considered that the contract was oppressive). The claim brought by Real Finance was a proceeding. On the words of s120 CCCFA, the court had jurisdiction to reopen the contract if it considered the contract was oppressive. The section did not purport to limit the court's jurisdiction to situations where a party had applied for a credit contract to be reopened.

Section 120 CCCFA was not expressly subject to s125 CCCFA. The power under s120 CCCFA was expressed widely. It may be exercised in any proceeding where the court considered oppression arose in a credit contract, not simply when a party had brought a proceeding specifically seeking the reopening of a contract. It was only when a proceeding was brought seeking to reopen a contract that s125 CCCFA applied. That interpretation of s120 CCCFA was consistent with the Act's purpose of protecting the interests of consumers in connection with credit contracts. Sections 85 CCCFA (jurisdiction of High Court) and s86 CCCFA (jurisdiction of District Court) set out the respective jurisdictions where there was an application for orders under the CCCFA. However the power under s120 CCCFA, on its terms, was not dependent on there being any application before the court. The power arose where the court considered in any proceeding, whether or not it was brought under the Act, that the contract was oppressive. The time limit set out in s125 CCCFA (one year) only applied to proceedings which were brought to reopen a credit contract.

The court had a discretion whether to seal a judgment on a liquidated demand. Where a court had concerns that the creditor was seeking judgment on an oppressive contract, it was open to the court to exercise that discretion. The court had broad remedial powers. The formal proof procedure was appropriate whenever there was an issue as to the appropriateness of the liquidated demand procedure. It was not wrong to deprive a plaintiff of the default judgment procedure for a liquidated demand where the claim gave rise to concerns of oppressiveness. The plaintiff may still seek default judgment under the formal proof procedure.

The terms of the agreement, including the interest rates and fees, had been before the Court and were considered by the Judge. 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 high) and which were in addition to fees payable for every conceivable step taken when a loan was in default. The matter had come before the DC for formal proof when it 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 had not been granted. Real Finance may have wanted to provide evidence in support of the monthly administrative fee and should have had that opportunity.

The appeal was allowed. The DC's judgment was set aside. The matter was remitted back to the DC for reconsideration. Real Finance was to have the opportunity to adduce evidence to support its claim for the administrative fees.

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...

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3 cases
  • 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 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......
  • 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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