Appellant v Respondent

2 The appeal is brought under s.148(1) of the Victorian Civil and Administrative Tribunal Act 1998. By order made 6 September 2004, Master Evans gave leave to the appellant to appeal from the whole of the decision.

3 AFD is a financier. It is common ground that it is a credit provider to which the Code applies. In March 2002, AFD commenced to lend money to people who wished to attend investment education seminars and courses conducted by National Investment Institute Pty Ltd ("NII"). The loans were intended to fund the fees charged by NII for attendance at those seminars. Similarly, in April 2003, AFD commenced to lend money to potential attendees of seminars conducted by two other companies which were related to NII, namely, Capital Holdings Group (NSW) Pty Ltd ("Capital NSW") and Capital Holdings Group (Vic) Pty Ltd ("Capital Vic"). I shall refer to those two companies collectively as "Capital".

4 AFD was one of a number of financiers who extended credit for the purpose of funding the fees charged by NII and Capital. Although not all persons who attended the courses conducted by NII and Capital needed to borrow the fees for those courses, nevertheless a significant number of them did so. Between March 2002 and November 2003 AFD entered into 2,318 credit contracts with debtors where the "supplier" was NII. Between April 2003 and November 2003 AFD entered into 70 credit contracts with debtors where the supplier was Capital.

5 The following loan application procedure applied where the course fees were to be financed by AFD. When the NII or Capital customer signed the course or seminar enrolment form, the customer would also sign an AFD loan contract offer, a loan application and associated documentation. That documentation was then faxed to AFD, which assessed the application. If the loan was approved, AFD advised Capital or NII. NII or Capital would then forward the loan contract offer and a completed copy of the course enrolment form to AFD. If the loan proceeded to settlement AFD endorsed the loan contract as accepted and settled the loan on that day. The loan moneys would be advanced directly to NII or Capital on the same day in the manner which I shall hereafter describe.

6 The central issue in the proceedings before the Tribunal, and before me, concerns the characterisation of an item described as "holdback" in the accounting between AFD and Capital and NII on settlement of the loans. The credit contract between AFD and the customer of Capital or NII ("the borrower") stated (inter alia) the amount of the loan to be the full amount of the seminar fee charged by NII or Capital to the borrower together with (after February 2003) an establishment fee charged by AFD. The credit contract also identified the "supplier" as Capital or NII. The credit contract then disclosed, in the section "amount payable to supplier", an amount equivalent to the whole of the seminar fee payable by the borrower to NII or Capital.

7 There was admitted in evidence before the Tribunal an example of a document entitled "Distribution Disbursement Summary". That document was an accounting document between AFD and NII or Capital (as the case may be). The Distribution Disbursement Summary, in respect of each loan, showed the amount of the loan, an amount of "holdback", and a net payment, consisting of the amount of the loan minus the holdback. Thus, on settlement of each loan, AFD remitted to NII/Capital a sum consisting of the difference between the contract amount and the holdback.

8 There were two types of holdback applicable to the relationship between AFD and NII/Capital. The first type of holdback was referred to as "an interest free holdback". All NII contracts, and 16 of the 70 Capital contracts, had an "interest free" holdback.

9 The amount of interest free holdback varied over time. Generally there was a correlation between the holdback as a percentage of the amount loaned on the one hand, and the standard interest rate charged by AFD. For much of the period concerned, AFD's standard lending interest rate was 24%. In general the interest rate charged on loans advanced by AFD to NII customers, and the percentage of interest free holdback applicable to such loans, arithmetically added to approximately 24%. For NII contracts between February and June 2002, the loan term was 24 months, repayments of principal were expressed to be at no interest, and the interest free holdback was 18%. From June to October 2002 the applicable loan term was 48 months, repayments of principal were expressed to bear interest at 13.5%, and the interest free holdback was 10.5%. For contracts from October 2002 to February 2003, the applicable loan term was 48 months, the principal repayments were expressed to bear interest at 14%, and the interest free holdback was 10%. From February 2003 AFD charged an establishment fee of $345. For contracts entered into between February 2003 and November 2003 the applicable loan term was 48 months, the principal repayments were expressed to bear interest at 14%, and the interest free holdback was 6.75%.

10 There were two kinds of Capital contracts in respect of which there was an interest free holdback from April 2003 to November 2003. The first was expressed to be interest free, with an interest free holdback of 5%. The second bore an interest rate of 14%, with an interest free holdback of 10%.

11 On settlement of each contract in respect of which an interest free holdback was charged, AFD credited the amount of the holdback to an account which it called an "unearned income account". Subsequently each month AFD transferred what was apparently a pro rata amount from that account into an earned income account.

12 It is useful to illustrate the above process with an example of a transaction involving an interest free holdback. On 17 December 2002 AFD entered into a credit contract with a borrower who I shall identify by the letter "K". The amount of the loan described in the credit contract was $15,340. The "total amount of credit" is shown as $15,340. The annual percentage rate is shown as 14%. The total amount of interest charges payable is shown as $4,781.12, and the loan term is 48 months.

13 The Distribution Summary for 17 December 2002 discloses the following in respect of the transaction relating to K. Under the heading "business type" are the letters "SQ" standing for "standard quality", which denotes the application of an interest free holdback in respect of the loan. The document then shows the contract amount as $15,340, an interest free holdback of $1,534, and a "net payment" of $13,806. The net payment in respect of K's contract, together with the net payment in respect of all other loan contracts settled on 17 December 2002, totalled $395,575.50, which was the subject of an electronic funds transfer by AFD to NII on that date. In other words, the amount actually remitted by AFD to NII was net of the interest free holdback.

14 In addition, some NII credit contracts also attracted a "high risk" holdback between July 2002 and July 2003. There were no high risk holdbacks applicable to the Capital credit contracts. The high risk holdback constituted 40% of the loan amount specified in the relevant contract, after deducting any relevant establishment fee. On settlement AFD credited the high risk holdback amount to its general ledger called "the high risk pool". If NII reversed a transaction with a customer, AFD would pay to NII an amount equivalent to the amount of the holdback in respect of that contract. Otherwise AFD treated the amount in the high risk pool as its own and debited amounts from it to other accounts on a monthly pro rata basis.

15 Where the high risk holdback was applicable, it was additional to the interest free holdback, which was applicable to all NII loans. Thus the Distributor Distribution Summary for 17 December 2002 in respect of a loan attracting a high risk holdback discloses: contract amount $25,040; interest free holdback $2,504; high risk holdback $10,016; resulting in a "net payment" of $12,520.

16 In July 2003 AFD and NII entered into a new arrangement. As a consequence, it was no longer necessary to have high risk holdbacks, which ceased to apply in July 2003. In November 2003 an administrator and receiver were appointed to NII and Capital, and AFD received no more loan applications from them. In February 2004 a liquidator was appointed to NII.

17 The issues which were before the Tribunal, and on appeal, concern the effect of the holdback on the obligations of AFD to disclose certain prescribed matters to borrowers under the code.

18 Section 5 of the Consumer Credit (Victoria) Act 1995 provides that the Consumer Credit Code, set out in the Appendix to the Consumer Credit (Queensland) Act as in force at the time being, applies as a law of the State of Victoria, and as so applying, may be referred to as "the Consumer Credit (Victoria) Code" ("the Code").

19 It is common ground that AFD is a "credit provider" under the Code, and that each of the contracts entered into between AFD and borrowers for funding the fees for NII and Capital seminars constituted "credit contracts" under the Code. Section 12 of the Code provides that a credit contract must be in the form of a written contract document signed by the debtor and the credit provider. Section 14(1) provides that a credit provider must not enter into a credit contract unless the credit provider has provided to the debtor a pre-contractual statement setting out the matters required by s.15 to be included in the contract document, and an information statement in the form required by the regulations of the debtor's statutory rights and statutory obligations. Section 14(2) provides that those statements must be given before the contract is entered into or before the debtor makes an offer to enter into the contract. Section 14(5) provides that the pre-contractual statement may be the proposed contract document or a separate document or documents.

20 The proceedings instituted by the Director against AFD alleged breaches of ss.15(B), (C), (D) and (E) of the Code. Those sections provide as follows:

The contract document must contain the following matters:

(a) If the amount of credit to be provided is ascertainable -

(ii) the persons, bodies or agents (including the creditor provider) to whom it is to be paid and the amounts payable to each of them, but only if the person, body or agent and the amount are ascertainable.

(b) If the amount of the credit to be provided is not ascertainable, the maximum amount of credit agreed to be provided, or the credit limit under the contract, if any.

(c) If the credit is provided by the supplier for a sale of land or goods by instalments, a description of the land and its price or of the goods and their cash price.

(a) The annual percentage rate or rates under the contract.

(b) If there is more than one rate, how each rate applies.

(c) If an annual percentage rate under the contract is determined by referring to a reference rate -

(i) the name of the rate or a description of it; and

(ii) the margin or margins (if any) above or below the reference rate to be applied to determine the annual percentage rate or rates; and

(iii) where and when the reference rate is published or, if it is not published, how the debtor may ascertain the rate; and

The method of calculation of the interest charges payable under the contract and the frequency with which interest rates are to be debited under the contract.

The total amount of interest charges payable under the contract, if ascertainable (but only if the contract would, on the assumptions under ss.158 and 160, be paid out with seven years of the date on which credit is first provided under the contract)."

21 Part 6 Division 1 of the Code contains the provisions in respect of civil penalties for breach of key disclosure and other requirements of the Code. Section 101(1) provides that the "government consumer agency" may apply to the Court for an order under the division. Under the legislation the Director has the functions of the government consumer agency for the purposes of the Code. Section 102(1) provides that on such an application being made the "court" must declare whether or not the credit provider has contravened a "key requirement" in connection with the credit contract or contracts concerned. Section 100(1) defines "key requirement" to include ss.15(B), (C), (D) and (E). The "Court" includes the Victorian Civil and Administrative Tribunal. Section 105 makes provision for the amount of civil penalties to be imposed in respect of contraventions of key requirements. Section 107 provides that the court may on application by a debtor or guarantor order the payment of an amount by way of compensation for loss arising from the contravention of a key requirement.

22 Section 4(2) of the Code provides that "the amount of credit" is the amount of the debt actually deferred, and that "the amount of credit" does not include -

(b) any fee or charge that is not payable in connection with the making of the contract.

23 The proceedings before the Tribunal were heard on 28 and 29 June 2004. On 15 July 2004 the Deputy President stated her reasons orally, and made orders consequent on those reasons. She subsequently provided written reasons dated 23 July 2004. The principal order made by the Deputy President was a declaration that the respondent had breached ss.15(B), 15(C)(a), 15(D) and 15(E) of the Code in respect of each of the credit contracts entered into since 1 March 2002 between AFD and various debtors, being contracts under which the supplier is named as NII or Capital and in respect of which AFD had retained an "interest free holdback", a "high risk holdback", or both. The Deputy President further ordered that the matter be set down for a directions hearing, presumably in relation to the next stage which would involve the imposition of civil penalties. On 6 September 2004 Master Evans gave the appellant leave to appeal from the orders of the Tribunal of 15 July 2004, and ordered that any further proceedings in the Tribunal be stayed until the determination of the appeal or further order.

24 The Tribunal's reasons for decision are quite detailed. After the introductory sections, the Deputy President, under a section headed "Evidence and Findings", set out the factual background to the proceedings, and analysed the evidence relating to the arrangement in connection with the application of holdbacks between AFD and NII/ Capital. At paragraph 43 the Deputy President recorded the submission on behalf of the Director that, on the evidence, the holdbacks were retained by AFD on settlement of the loan and a lesser or discounted amount was paid by AFD to NII or Capital. The Deputy President then, at paragraph 44, recorded the submission on behalf of AFD that the whole of the credit amount, recorded in the credit contract, was paid by AFD to NII/Capital, but that under a separate agreement, NII/Capital agreed to pay the holdbacks to AFD. On settlement of a loan (according to AFD's submission) AFD offset its liability to pay NII/Capital the amount specified under the supplier's name in the credit contract, against NII's or Capital's liability to pay the holdback to AFD.

25 The Deputy President, at paragraph 45, then stated that "On the evidence I make the findings argued for by the Director." In the next 14 paragraphs she analysed the evidence in relation to the application of holdbacks in the dealings between AFD and NII/Capital. At paragraph 59 she concluded:

"Although this evidence is not uniformly consistent, it is my overall conclusion from it that the findings argued for by the Director ought to be made. I conclude that the holdbacks were retained by AFD, not paid by NII or Capital. I am not satisfied that there was any independent clear arrangement applying throughout the relevant period under which NII or Capital incurred an obligation to pay these holdbacks to AFD."

26 The Deputy President then made findings in relation to how the holdbacks were to be regarded, and stated that on the evidence she was satisfied that AFD regarded the interest free holdback as a subsidy or substitute for interest.

27 The Deputy President then made her ultimate findings under a section of the reasons entitled "Key Issues and Submissions". Based on the findings which she had already made, she rejected the submission of AFD that AFD had paid the whole of the credit amount, referred to in the credit contract, to the supplier, and offset the amount of holdback "owing" by the supplier to AFD. She stated that accordingly AFD had breached s.15(B) of the Code, because the credit contract incorrectly stated the amount and the people to whom those amounts of credit were paid. Thus, the Deputy President concluded, the credit contracts incorrectly stated the amount payable to the supplier, and also omitted to state that an amount of the credit was payable by AFD to itself (consisting of the holdback). The Deputy President then rejected a submission by AFD that, even if the holdback did not constitute a debt by NII/Capital to AFD, nevertheless there was no breach of s.15(B). That submission was based on the proposition that the credit contract was only required to correctly record the obligations, as between lender and borrower, in respect of the amount of credit.

28 The Deputy President then turned to the question whether AFD had breached ss.15(C), (D) or (E). She noted the submission by AFD that the holdbacks were not interest and, in any event, that they were not payable "under the (credit) contract". The Deputy President rejected that submission holding that the holdbacks were in fact interest, and that they were payable under the credit contract. At paragraph 88 she construed the phrase "under the contract" broadly to mean "directly referable to the credit contract, within the bounds of the credit contract, as distinct from unrelated to it, outside its bounds or wholly independent of it."

29 Thus the Deputy President concluded that AFD had breached ss.15(B), (C), (D) and (E) of the Code and made the declarations, to which I have referred above, accordingly.

30 The appeal has been brought under s.148(1) of the Victorian Civil and Administrative Tribunal Act 1998. That section provides for a right of appeal, on a question of law, to the Supreme Court of Victoria from an order of the Tribunal made in a proceeding.

31 The original notice of appeal filed on behalf of the appellant stated a number of grounds of appeal on which the appellant relied. In the course of submissions before me the appellant was granted leave to file an amended notice of appeal. The principal purpose of the amendment was to endeavour to specify an error or errors of law involved in the errors alleged in the notice of appeal.

32 The principal grounds of appeal relied on on behalf of the appellant may be summarised as follows:

1. The Tribunal erred in holding that AFD had breached s.15(B) of the Code because:

(a) the Tribunal erred in holding that the holdbacks were not amounts payable by the relevant service provider company (that is, NII/Capital) to AFD. The appellant submitted that the whole of the "amount of credit" specified in the credit agreement between the lender and the borrower was paid by AFD to NII/ Capital, and was offset against a debt owing by NII/Capital to AFD for the holdback applicable to that amount of credit.

(b) Even if the holdback was not to be characterised as a debt payable by NII/Capital to AFD, nonetheless there was no breach of s.15(B), because the credit contract correctly recorded the obligation of AFD, under the credit contract, to pay the amount of credit to NII/Capital.

2. The Tribunal erred in holding that there was a breach of ss.15(C), (D) and (E) of the Code because:

(a) the Tribunal erred in characterising the holdbacks as interest;

(b) further, the Tribunal erred in holding that the holdbacks constituted interest payable under the credit contract.

Section 15(B)

33 The first submission by the appellant concerning s.15(B) concerned the correct characterisation of the "holdback". Mr N. Mukhtar QC, who appeared with Mr D. Robertson on behalf of the appellant, submitted that the Deputy President erred in holding that the holdback was not a debt incurred by NII/Capital to AFD. Mr D. O'Callaghan SC, who appeared on behalf of the respondent Director, submitted that the Tribunal did not err in holding that the holdbacks were not a debt incurred by NII/Capital to AFD. He submitted that the Tribunal correctly found that the holdbacks were an amount retained by AFD on settlement of the loan, with the result that a discounted credit amount was paid by AFD to NII/Capital.

34 The submissions of the appellant involved two interrelated issues. First, the appellant is required to establish an error made by the Tribunal in concluding that holdbacks were not an amount payable by NII/Capital to AFD. Further, the appellant must show that any such error constituted an error of law giving rise to a right of appeal under s.148(1) of the Victorian Civil and Administrative Tribunal Act 1998.

35 In order to assess the competing contentions of the parties it is necessary to consider the materials relating to the contractual relationship between AFD and NII/Capital. The evidence relating to any agreement concerning holdbacks was quite limited. Until 2003 no formalised document came into existence between AFD and NII/Capital governing their relationship which made any express reference to holdbacks. The lack of formal contractual documentation concerning the question of holdbacks is important to the issue whether any error, relied on by the appellant, is an error of law under s.148(1) of the Victorian Civil and Administrative Tribunal Act. In essence the respondent submitted that the issue was factual and that the Tribunal correctly found that the evidence did not establish any agreement that the holdbacks were payable by NII/Capital to AFD.

36 The relationship between the parties had its origins in a previous agreement between Investment Source Corporation Pty Ltd and FAI Finance Corporation Pty Ltd ("FAI Finance") dated 29 August 2000. Investment Source Corporation Pty Ltd ("Investment Source") was later renamed NII. That agreement provided for Investment Source to refer loans to FAI Finance for the purpose of funding persons who wished to enrol in one of the investment educational programmes conducted by Investment Source. The formal agreement between Investment Source and FAI Finance did not contain any reference to holdbacks. However, apparently by arrangement between the parties, the loans which were provided by FAI Finance were subject to a holdback. Loans for 12 months attracted a holdback of 10%, and loans for 24 months attracted an 18% holdback. All such loans were interest free.

37 The facility between Investment Source and FAI Finance was formally cancelled in April 2001. In February 2002 AFD purchased the business of FAI Finance and commenced trading on 12 February 2002. The relationship with Investment Source, which had become known as NII, commenced in March 2002. The material before the Tribunal stated that the relationship between the parties "essentially recommenced where it left off" between Investment Source and FAI Finance. Applications were submitted on a 24 month interest free programme with a holdback of 18%.

38 For the purposes of the appeal what is significant is there was no evidence as to any written agreement, or oral agreement, concluded between NII and AFD in or about March 2002 (or at any subsequent date) concerning the parties' rights and obligations in relation to the holdbacks which were applicable to loans to be made by AFD to customers of NII. Mr Peter John Gray, the business relations manager of AFD, had been employed by AFD and its predecessor, FAI Finance, since September 1995. He swore three affidavits before the Tribunal. However, none of those affidavits deposed to any oral agreement entered into between AFD and NII concerning holdbacks to be applied to loans to be made by AFD to clients of NII. Mr Gray's evidence, both in affidavit and before the Tribunal, did include evidence relating to his understanding of the nature of the holdbacks. However, that evidence was not directed to proving any specific agreement constituted between AFD and NII for the application of holdbacks to loans to be made by AFD to customers of NII.

39 Mr Gray's affidavit did have as an exhibit an agreement entitled "Introduction Agreement" made between AFD and NII dated 5 February 2002. The copy of the agreement which was tendered in evidence was not executed. Mr Gray's first affidavit suggests that it was the document which governed the relationship between AFD and NII until it was replaced by a later agreement between AFD and NII dated 16 July 2003 (to which I shall return later). The agreement dated 5 February 2002 did not itself contain any reference at all to holdbacks. However, clause 3.1 of the agreement stated:

"The Supplier agrees to adhere to the policies, procedures and guidelines detailed in AFD's 'Dealer (or Distributor) Information Handbook' as amended from time to time. No changes to AFD policy or procedure will become effective until those changes have been notified in writing to the Supplier."

40 There was in evidence an AFD/NII handbook effective 1 May 2002. Mr Gray, in cross-examination, stated that that document was provided to NII by AFD. The introduction to the handbook (at p.4) stated:

"This handbook provides information about AFD's products, financing policies, service and support commitments, and administrative arrangements - all of which are designed to ensure our services are delivered to you as smoothly and reliably as possible."

41 The handbook then proceeded to set out a number of matters relating to the method by which loan applications were to be obtained by NII for processing by AFD. Page 8 was entitled "Product Range" and stated:

"Following are the consumer financing facilities presently available to National Investment Institute. AFD's loan contract is an unsecured finance facility, which means that title in the goods passes to the purchaser on the day the loan contract is signed and funded by AFD - notwithstanding any right of cancellation a purchaser may have.

42 No 'pricing agreement' was produced in evidence, notwithstanding that the matter was raised specifically by counsel for the Director while cross-examining Mr Gray before the Tribunal.

43 The evidence also included a letter by AFD to NII dated 26 April 2002. The letter had been obtained by the Director from AFD. It was an exhibit to an affidavit in the proceeding sworn by the solicitor employed by Consumer Affairs Victoria who was responsible for the conduct of the proceedings on behalf of the Director. The status of the letter was not explained in the evidence. The salient parts of the letter are as follows:

Further to our meeting in your offices, outlined below is our proposal for providing finance on your courses.

Our proposal is to provide two categories of approvals: standard and high risk.

Standard would include any approvals fitting our standard lending criteria, along similar lines to the approvals you are currently receiving. High risk approvals would incorporate those approvals that would normally be a turndown ...

For standard approvals we suggest our interest subsidy product. The terms would be as follows:

For high risk approvals we submit three options for your consideration ... (I interpolate that the second option was ultimately utilised)

AFD to charge a holdback premium of 40% for all HR approvals. NII would not be required to repurchase any loans."

44 It is not clear whether there was any response by NII to that letter. On 24 June 2002 AFD sent an e-mail to NII " ... to confirm the pricing of the finance products". Under the heading "Interest Subsidy" the e-mail stated that AFD had changed the rate of 13.5%, so that the holdback for that rate needed to be 10.5%. The original proposal was for 14% rate and 10% holdback. Under the heading "HR Pricing" the e-mail confirmed "the holdback is 40% above the minimum holdback which means that the total holdback on the HR (high risk) deals is 50.5%."

45 It appears that subsequently similar changes were made to the interest rates and holdback rates by e-mail sent by AFD to NII. Thus on 4 October 2002 Mr Gray of AFD sent to Mr Stubbs of NII an e-mail setting out relevant interest rates and holdbacks for a 48 month loan. I shall not set out those rates. In essence, the higher the rate of interest, the lower was the rate of holdback. Arithmetically, the interest rate and the holdback rate added up to 24%.

46 On 16 April 2003 Mr Gray of AFD sent a letter to Mr Stubbs of NII concerning a number of matters. The letter proposed a holdback 6.75% with an interest rate of 15% to the customer. The high risk business attracted a holdback of 40%. The letter proposed the substitution of a full indemnity by NII to AFD to replace the high risk holdback.

47 In 2003 AFD entered into three formal agreements, each entitled "Introducer Accreditation Agreement", with Capital NSW, Capital Vic and NII. The agreement with Capital NSW was dated 1 April 2003, the agreement with Capital Vic was dated 14 May 2003, and the agreement with NII was dated 16 July 2003. For the purposes of the issues before me the three agreements are relevantly the same, albeit that they do have some differences. Each agreement contained a clause (clause 2.1) by which AFD appointed Capital NSW, Capital Vic or NII (as the case may be) as an accredited introducer of AFD, in consideration for AFD providing or considering to provide finance contracts to customers of the introducer. Clause 9.1 stated that finance contracts would be provided by AFD to customers in accordance with the "Pricing Parameters specified in schedule 1" to the agreement or as varied by AFD at any time by notice to the introducer or otherwise by the written agreement of the parties. Clause 11.1 provided for a right of set off, at the discretion of AFD, between any money payable by AFD to the introducer and any amount which AFD determines is or is likely to be owed to it by the introducer pursuant to the agreement. Schedule 1 to each of the agreements set out the "pricing parameters". They were set out in the same form in each of the three contracts. For the two Capital companies, schedule 1 was the same and was as follows:

48 Schedule 1 to the Introducer Accreditation Agreement between AFD and NII was in the same form as the Capital contracts, except that it showed a holdback of 6.75%. By the date of the NII contract AFD's standard holdback rate had been reduced to 6.75%.

49 The only witness who gave evidence on behalf of AFD was Mr Gray, who had sworn three affidavits. Mr Gray was cross-examined at some length by counsel for the Director. A significant part of his evidence was directed to Mr Gray's own understanding as to the nature of the holdback. Mr Gray's views as to the nature of the holdback are not relevant to the issues on appeal. In addition, however, some other matters were elicited from the evidence of Mr Gray. They included the following:

(a) Mr Gray was challenged on a number of occasions by counsel for the Director to produce written evidence of an agreement relating to the application of holdbacks between the parties. Mr Gray could only point to the letter of 26 April 2002, and to the e-mails, to which I have already referred.

(b) Mr Gray was unable to produce the document entitled "pricing agreement" which is referred to in the AFD/NII handbook.

(c) In general, the standard rate of interest charged by AFD to its customers was 24%. Generally, as the holdback rate increased, the interest rate charged to customers reduced. Arithmetically the two rates added to 24%.

(d) The holdbacks were always retained by AFD. In other words they were deducted from the total amount remitted to NII/Capital in respect of the loan made to the customer. The holdbacks which were so retained were treated as revenue by AFD, and were treated by AFD as a return on the money which it advanced to NII/Capital on behalf of the relevant borrower.

Section 15(B) - were holdbacks payable by NII/Capital to AFD?

50 It is necessary to return to the first submission made on behalf of the appellant in relation to the finding by the Tribunal that AFD had breached s.15(B) of the Code. Essentially the submission of the appellant was that the holdback constituted a debt owing by NII/Capital to AFD. That debt was said to arise as and when AFD remitted to NII/Capital the amount of the loan which it had agreed to make to the customer in order to fund the fees which the customer had incurred to NII/Capital. Thus, it was submitted, the proper analysis is that, when AFD remitted the payment of the amount of the loan minus the holdback to NII/Capital, AFD thereby offset the amount of the loan (advanced to the borrower and paid on the borrower's account to NII/Capital) against the debt for the holdback then owing by NII/Capital to AFD. It was submitted that the Tribunal erred in failing to hold that that was the correct analysis of the contractual arrangements between the parties.

51 There was, not surprisingly, some debate whether the type of error relied upon by the appellant in this respect was an error of law for the purposes of s.148(1) of the Victorian Civil and Administrative Tribunal Act. On the second day of the hearing before me, Mr Mukhtar requested (and obtained) leave to file an amended notice of appeal in order, as he put it, to "clarify with precision" the errors of law upon which he relied. In essence, it was submitted that the Tribunal erred in law by misconstruing the contracts or arrangements between the appellant and NII/Capital so as to conclude that there was no agreement between the two parties whereby NII/Capital incurred an obligation to pay the holdback to AFD.

52 The response by Mr Callaghan to Mr Mukhtar's submission was simple. He submitted that the determination by the Tribunal, that there was no agreement that the holdbacks were a debt owing by NII/Capital to AFD, was a factual determination, which was not only open to the Tribunal but was patently correct. He submitted that there was no evidence establishing an agreement whereby the holdbacks were to be a debt owing, or to be owed, by NII/Capital to AFD.

53 The appeal from the Tribunal's determination concerning s.15(B) raises two issues which tended to become fused during submission. The first issue involved identifying what agreement, if any, was proven in relation to the application of holdbacks by AFD to loans which it made to customers of NII/Capital. The second issue concerned the correct construction of any such agreement.

54 The appellant did not seek to rely on any specific document as containing the agreement between the parties for the application of a holdback. Rather, it relied on a number of documents, to which I have referred, as "evidencing" the nature and character of the agreement between the parties concerning the holdbacks. In particular it relied on the use in those documents of the word "charge" to describe the holdback.

55 As a preliminary observation, four matters are clear and indeed beyond dispute. First, holdbacks were applied to loans made by AFD to customers of NII/Capital. Second, NII/Capital consented to the application of those holdbacks. Third, the holdbacks were applied by being deducted from the amount of the loan, which AFD had agreed to make to the borrower, and which was remitted by AFD, on behalf of the borrower, to NII/Capital. Fourth, the borrower was not a party to the arrangement by which holdbacks were so applied to loans made to the borrower and thus remitted to NII/Capital. The credit agreement did not record the fact of the holdbacks. Indeed the borrower did not know about them. Essentially any agreement or arrangements concerning the holdbacks was necessarily bipartite between AFD on the one hand and NII/Capital on the other.

56 The Tribunal treated the issue before it as essentially one of fact. It found that there was no agreement established by the evidence which constituted the holdback as a debt incurred by NII/Capital to AFD and which was offset in the accounting between the two companies. The Tribunal found that all that had been proven was that there was an agreement or arrangement whereby holdbacks were applied in relation to loans made by AFD to customers of NII/Capital.

57 AFD did not adduce any evidence establishing an oral agreement between AFD and NII/Capital for the application of the holdbacks. The first written agreement, dated 5 February 2002, contains no reference to holdbacks. That omission may well be a reflection of the fact that AFD was the successor to FAI Finance in providing the loan facility to customers of NII. However, what is important is that there was no evidence as to any direct written or oral agreement concerning holdback between the parties when the relationship between them commenced in February-March 2002.

58 Clause 3.1 of the Introduction Agreement dated 5 February 2002 referred to AFD's "Dealer (or Distributor) Information Handbook". The appellant relies on the section of the AFD/NII handbook, to which I have referred, and in particular to the section entitled "Product Range". That section, under the sub-heading "Standard (Industry) Contract" set out the length of the loans, the fact that no interest rate applied, that there were to be monthly repayments, and the maximum and minimum amounts to be financed. It then stated: "Cost to Dealer Holdbacks are charged as per pricing agreement." The appellant placed particular emphasis on the use of the word "charged", and on the use of the concept of "charged", to describe holdbacks. It submitted that a charge constitutes a debt, and thus, as a matter of proper construction, the original agreement between the parties provided for the holdbacks to be payable as a debt by NII to AFD.

59 There are two answers to the point thus made by the appellant. The first response concerns the status of the handbook in the relationship between the parties. Clause 3.1 of the Introduction Agreement required the supplier (NII) to adhere to the "policies procedures and guidelines" detailed in the handbook. In other words the handbook was incorporated into the agreement as the repository of the policies procedures and guidelines to be adhered to by NII. It did not incorporate it as the source of the right relating to the holdback; rather, it set out how the holdbacks were to be treated procedurally in the accounting between the parties.

60 The role of the handbook is evident not only from clause 3.1, but also from the handbook itself. The introductory section of the handbook states that it " ... provides information about AFD's products, financing policies, service and support commitments and administrative arrangements - all of which are designed to ensure our services are delivered to you as smoothly and reliably as possible." In successive sections the handbook set out, in some detail, procedures to be followed by the supplier in processing and dealing with loan documentation which it obtains from its customers for onforwarding to AFD.

61 The second response to the appellant's submission is related to the first response. In the context of the handbook, the use of the verb "charge" does not necessarily connote that the holdback is a "debt" owed by NII to AFD. At most, in the context of the handbook, the term is neutral. The handbook was not written as a contract setting out, in exact terms, the corresponding rights and obligations of the parties. Rather it was a practical document designed to set out how the relationship between the parties was to be implemented. In this context it would be grossly overtaxing the word "charge" to extract from it a legal relationship of creditor and debtor between AFD and NII.

62 The only other document which might qualify as a contractual document between the parties (before 2003) is the letter of proposal sent from AFD to NII dated 26 April 2002. I have set out the contents of that letter. The section of the letter concerning the standard category of approval set out the suggested "interest subsidy product", and described an escalating amount of holdback depending on the length of the term of the loan to be made to the customer. Pausing there, there is nothing in the letter which would thereby constitute the standard holdback, a debt owing or to be owed by NII to AFD. The section of the letter entitled "high risk" contained an option (option 2) which was later adopted by the parties, and which stated:

"AFD to charge a holdback premium of 40% for all HR approvals."

63 The letter of 26 April 2002 was entitled "Pricing Proposal". It was later in time to the Introduction Agreement. There is no evidence that it was intended to add any further obligations or rights between the parties to those contained in the Introduction Agreement. Rather, the express purpose of the letter was to produce agreement as to the "pricing" between the parties, rather than to add to or alter the relationship between them.

64 Further, if the letter was part of the contract between the parties, the use in it of the verb "charge" on its own, and in the context of the relationship of the parties, does not necessarily connote that the holdbacks were to be treated as a debt to be owed by NII to AFD. This is particularly so when the phrase is construed in the context of the letter. The proposed option 1 required NII to pay out any loan in the high risk category as soon as the loan was 120 days in arrears. In that context, the use of the verb "charge" in option 2 did no more than identify that, in contrast to option 1 (which was a pay out by NII to AFD), the holdback, in option 2, was to be a deduction made by AFD for all high risk approvals. Thus, I do not consider that the letter of 26 April 2002 supports the contention of the appellant that the determination by the Tribunal in respect to s.15(B) was based on a misconstruction of the agreement between the parties.

65 Mr Mukhtar also relied on the e-mails between the parties to which I have referred above. However those e-mails do no more than contain adjustments to the rate of holdback applicable in the ongoing relationship between the parties. They do not contain or constitute a further or new agreement that the holdback was to be constituted a debt by NII to AFD. Nor do they evidence any antecedent agreement that the holdback was a debt by NII to AFD.

66 Finally, the appellant relied on the "pricing parameters" contained in schedule 1 to each of the three Introducer Accreditation Agreements entered into by AFD with NII/Capital in 2003. The appellant relied on the phrase "interest subsidy charge to introducer" contained in that schedule. The appellant submitted that the word "charge" denoted a debt owed by the introducer (NII/Capital) to AFD.

67 I do not consider that the Tribunal erred in concluding that the use of the word "charge" in that context did not denote, or constitute an agreement, that the holdback constituted a debt owed by NII/Capital to AFD. The phrase "interest subsidy charged introducer" was contained in a schedule to the agreement. The agreement itself is comprehensive in its terms. There is no express term in it specifying that the holdback constituted a debt by the introducer to AFD. The use of that term in a schedule is inappropriate and insufficient to create the creditor/debtor relationship for which the appellant contends. Furthermore, the "pricing parameters" are specified as an adjunct to clause 9.1 of the agreement. That clause provides that finance contracts are to be provided by AFD to customers "in accordance with the pricing parameters specified in schedule 1 ... ". In that context the use of the word "charge" is appropriate to denote the deduction of the holdback as an interest subsidy. On the other hand, it would be an extraordinary context in which to introduce the concept of a debt owing by the introducer to AFD as contended by the appellant.

68 Finally, it must be remembered that the Introducer Accreditation Agreements were entered into in the context of a relationship which was already on foot. It was not suggested in argument that the 2003 agreements constituted a significant change in the relationship between the parties. As I have found, the Tribunal correctly concluded that there was no evidence of any antecedent agreement between the parties that the holdbacks constituted a debt owed by NII/Capital to AFD. That background matrix militates strongly against a construction whereby the schedule to the Introducer Accreditation Agreements was the mechanism by which those agreements created, for the first time, the relationship of debtor and creditor between NII/Capital and AFD in relation to the holdbacks.

69 Thus, for the reasons which I have set out above, it is my conclusion that the Deputy President of the Tribunal did not err in concluding that the evidence did not establish an agreement between AFD and NII/Capital whereby the holdbacks constituted a debt owed or to be owing by NII/Capital to AFD.

Is s.15(B) confined to rights and obligations between lender and borrower?

70 That conclusion requires me to consider the second submission made by the appellant, namely, that even if the holdback was not a debt owing or to be owed by NII/Capital to AFD, nevertheless s.15(B) of the Code only requires that the contract document contain details of the amount to be paid under the contract document to NII/Capital. In other words, the appellant contended that the contract document was only required to reflect the obligation, between lender and borrower, as to the payment of the amount of credit. In each case the contract document required that the whole of the amount of credit be paid by the lender to the service provider (NII/Capital). The arrangement whereby the holdback was to be deducted from the amount of credit remitted to the service provider was contained in a separate agreement between AFD and NII/Capital. Under that separate agreement, AFD was required to pay less than the amount of credit (referred to in the agreement between the borrower and the lender) to NII/Capital. However (so it was submitted) s.15(B) did not require that the contract document set the terms of that separate agreement. Rather, s.15(B) was only concerned with accurately recording the terms of the agreement between the lender and the borrower.

71 I do not accept that submission for three reasons. First, the construction contended for by the appellant constitutes a rewriting of s.15(B)(a)(ii). Relevantly, that section provides that the contract document must contain in respect of the amount of credit which is to be provided:

"the persons, bodies or agents (including the credit provider) to whom it is to be paid and the amounts payable to each of them ... ".

72 In essence, the appellant's submission requires further words to be added to s.15(B)(a)(ii) so that it should now read:

"the persons, bodies or agents (including the credit provider) to whom it is to be paid under the contract document and the amounts payable under the contract documents to each of them ... ".

73 There is no warrant for construing the section to add the words which I have highlighted above. It is not necessary to add those words in order to render s.15(B)(a)(ii) intelligible. Nor was it submitted that a construction of s.15(B)(a)(ii) without that qualification would produce a manifest absurdity.

74 The second reason for rejecting the submission of the appellant is that it ignores the consistent drafting of the successive provisions of s.15 of the Code. Section 15(C) requires the contract document to specify the annual percentage rate or rates "under the contract". Section 15(D) requires the contract document to disclose the method of calculation of the interest charges "payable under the contract". Section 15(E) provides for the contract document to specify the total amount of interest charges "payable under the contract". Section 15(G) requires the contract document to state the credit fees and charges that are "payable under the contract". Section15(H) requires the contract document to specify the annual percentage rate or rates or the amount of frequency of payment of a credit fee or charge or instalments "payable under the contract". The use of the phrase "under the contract" in each of those provisions gives significance to the absence of the same phrase in s.15(B)(a)(ii). Those sub-sections support the respondent's contention that s.15(B)(a)(ii) is intended to require the contract document to specify the persons to whom the amount of credit is to be paid, regardless of whether the source of that obligation is the contract document or a different agreement.

75 That construction is also supported by s.15(M) of the Code. That section provides: "If a commission is to be paid by or to the credit provider for the introduction of credit business or business finance by the contract" the contract document must contain a statement of that fact, the persons to whom and by whom the commission is payable, and the amount of commission. Section 15(M) is not confined to the payment of commissions "under the contract". That phrase is, understandably, deliberately omitted from s.15(M). The omission of that phrase from s.15(M) reinforces the conclusion that it was also intentionally omitted from 15(B)(a)(ii).

76 The third reason for rejecting the submission of the appellant deries from the evident purpose of the Consumer Credit Code and its various provisions. It was common ground that, broadly speaking, the purpose of the Code is to ensure that there be "truth in lending". Section 3(2) of the Code provides that schedule 2 to the Code contains miscellaneous provisions relating to the interpretation of the Code. Clause 7(1) of schedule 2 of the Code provides that the interpretation of the Code which will best achieve the purpose or object of the Code is to be preferred to any other interpretation. The underlying purpose of the Code, of promoting full disclosure to borrowers, militates against implying a qualification into s.15(B), which is directly concerned with ensuring that appropriate disclosures be made to borrowers.

77 The appellant's contention that such a qualification should be applied to s.15(B)(a)(ii) was based solely on the proposition that s.15 commences with the words "The contract document must contain the following matters - ". It was argued that thus the contract document was only concerned with specifying matters which reflect the obligations between the borrower and the lender. Such a submission is a non-sequitur. Obviously s.15 is concerned with what the contract document will contain. For that reason it commences by stating: "The contract document must contain the following matters ... ". However, the use of that phrase does not lead to the conclusion that the contract document must only contain the obligations, in the contract, lying between the borrower and the lender.

78 Accordingly I conclude that the Tribunal did not err in rejecting the submission on behalf of the appellant that s.15(B) was not breached because the arrangement for the holdbacks was not an arrangement between borrower and lender under the contract document. It follows that the Tribunal correctly held that there was a breach by AFD of s.15(B) of the Code, that breach consisting of the overstatement in the contract document of the amount to be paid by the lender to the service provider, NII/Capital, in respect of loans to which holdbacks applied, and of the failure of the contract document to state the amount of the loan paid by the lender AFD to itself.

79 The Tribunal based its determination, that AFD had breached ss.15(C), (D) and (E) of the Code in respect of loans to which holdbacks applied, on the following propositions:

(a) The term "interest" in the Code covers a payment which can be characterised as made for the use of money lent, and also a payment which can be characterised as compensation to the lender for deprivation of the use of that money (reasons para 83).

(b) The purpose of the holdbacks was to supplement, or substitute for, interest, and also, in the case of high risk holdback, to compensate for increased risk of default (reasons para 85).

(c) Accordingly, "their true purpose brings them within the ordinary meaning of interest" (reasons para 86).

(d) The phrase "under the contract" in ss.15(C), (D) and (E) means "directly referrable to the credit contract, within the bounds of the credit contract, as distinct from unrelated to it, outside its bounds or wholly independent of it". (Reasons para 88)

(e) Based on that construction, the holdbacks were paid under the credit contract.

(f) Accordingly the holdbacks were interest paid under the credit contract. AFD therefore breached ss.15(C), (D) and (E) by failing, in the credit contract, to disclose the correct annual percentage rate of interest, method of calculation of that rate, and the total amount of interest charges payable under the contract.

80 The appellant contended that the Tribunal made two principal errors in reaching that conclusion, namely:

(a) Although a purpose of the holdbacks was to subsidise interest otherwise payable by the borrower under the credit contract, the holdbacks themselves did not constitute interest.

(b) The holdbacks were not interest payable "under the contract"; rather, the holdbacks were allowances under a separate contract between AFD and NII/Capital.

81 In response the respondent contended that, the legislation being remedial, the terms "interest" and "under the contract" should receive a broad rather than a narrow construction. Further, the respondent contended that the amount of holdback was paid by the borrower, being contained within the amount required to be repaid by the borrower. The obligation of the borrower to repay the amount constituted by the holdback was an obligation under the loan contract. Accordingly, it was argued, the holdback constituted interest payable under the contract, and so the Tribunal was correct in concluding that AFD had breached ss.15(C), (D) and (E).

82 There was no controversy before me as to the meaning to be attached to the word "interest" in the Code. Although that term is not the subject of specific definition in the Code, it was common ground that it should be given its ordinary meaning as understood in other statutory contexts. In particular, the parties accepted - in my view correctly - that the term "interest" should be understood as meaning "the return or compensation for the use or retention by one person of a sum of money belonging to or owed to another".[1]

83 There is no doubt on the evidence that the holdbacks, deducted from the amount of loan principal remitted by AFD to NII/Capital, had the purpose of subsidising the rate of interest payable, or substituting for a higher rate of interest which would otherwise have been paid, by the borrower to AFD, on the amount lent by AFD to the borrower. The evidence of Mr Gray made it plain that there was a correlation between the interest rates specified in the loan between the borrower and the lender, and the percentage rate of holdback applicable to the payment remitted by AFD to NII/Capital. For much, but not all, of the period under consideration, the percentage rate of holdback (commonly about 10%) and the percentage interest rate charged to the borrower (commonly about 14%) when added arithmetically totalled 24%. (Of course, other than when the loan is for a period of 12 months, such an arithmetic exercise would not produce the result that, in reality, AFD received interest, or a rate of interest, of 24% per annum).

84 Hence, on any view, the holdback was a concession which enabled the lender to make the loan at a lower nominal rate to the borrower than it otherwise would have. The amount represented by the holdback was paid by the borrower on repayment of the loan. In other words, the borrower did not receive any discount in the reduction of the principal repayable by it. The borrower incurred a liability for the whole of the loan. AFD remitted the amount of the loan, less the holdback, to NII/Capital. However, the borrower repaid the whole of the principal of the loan, which principal included the amount of the holdback.

85 The question, then, is whether the payment by the borrower of the amount of the loan equivalent to the amount of the holdback constituted the payment by the borrower of interest.

86 The answer to that question is to be found in the clear terms of the loan contract itself.

87 Under the terms of the contract document between AFD and the borrower the payment made by the borrower constituted a payment of principal and not interest. The fact that it included an amount equivalent to the amount of the holdback applicable to the transaction between the lender (AFD) and the service provider (NII/Capital) does not, in my view, transform that amount to interest. There is an essential distinction between, on the one hand, the fact that the amount repaid by the borrower included an amount equivalent to the holdback, and, on the other hand, the correct contractual characterisation of that component of the amount of the loan so repaid by the borrower to AFD. The fact that AFD did not remit that amount to NII/Capital, but rather retained it to subsidise a lower interest rate charged be to the borrower, could not and did not convert that amount, as between AFD and the borrower, into interest. Under the contract between AFD and the borrower, the amount repaid by the borrower was and remained a repayment of principal.

88 In support of his submissions, Mr O'Callaghan placed emphasis on the fact that, in the hands of AFD, the holdback was treated as income and not capital. Thus the holdback on standard loans was credited to an unearned income account, and then, on a pro rata basis, was progressively debited to that account and credited to an earned income account. The high risk holdbacks were initially credited to a "high risk pool", and then debited from it to other accounts on a monthly pro rata basis.

89 The treatment of the holdbacks as income in the hands of AFD is relevant as demonstrating the relationship between the rate of interest charged to the borrower and the holdback rate applicable between AFD and NII/Capital. However, that treatment can not alter the proper characterisation of the legal obligation between borrower and lender under the contract between them, which was an obligation by the borrower to repay the whole of the sums borrowed by way of principal. The proper construction of those obligations may not be determined by the method by which AFD treated the holdback in its accounts. Accordingly, it follows that the holdbacks applicable to the loans made by AFD to NII/Capital do not constitute interest for the purposes of ss.15(C), (D) and (E) of the Code.

Sections 15(C), (D) and (E) - "under the contract"

90 The Tribunal reached the contrary conclusion to that which I have stated by characterising the holdbacks, not according to the terms of the credit agreement between AFD and the borrower, but by reference to the agreement or arrangement relating to holdbacks between AFD and NII/Capital. In doing so the Tribunal adopted a wide construction of the phrase "under the contract" so that the agreement between AFD and NII/Capital defined the character of the holdback for the purposes of s.15(C), (D) and (E).

91 The phrase "under the contract" has been construed in a number of different contexts, both legislative and contractual. Generally that phrase has been construed so that, in order that a payment be made or an obligation arise "under the contract", the contract must be the source of the relevant payment or obligation.[2]. However, the Deputy President construed the phrase "under the contract" in ss.15(C), (D) and (E) of the Code more widely to mean "directly referable to the contract, within the bounds of the credit contract, as distinct from unrelated to it, outside its bounds or wholly independent of it."[3] Based on that construction the Tribunal held that holdbacks were interest "under the contract".

92 The construction of that phrase preferred by the Tribunal, and supported by the respondent in its submissions before me, is particularly wide. It is also quite vague and imprecise, and as such does not really assist in the resolution of the issue whether holdbacks are interest payable "under the contract". There is no reason why the phrase "under the contract" in ss.15(C), (D) and (E) should not bear its plain and ordinary meaning. As I have already noted, it is evident that the phrase "under the contract" has been used selectively in s.15. It appears in some of those sub-provisions but not in all of them. Where it appears - for example in s.15(G) which provides that the contract must contain a statement of credit fees "payable under the contract" - it evidently bears its ordinary meaning. Similarly, it appears in s.15(F)(a)(iii), s.15(H) and s.15(I) in contexts consistent with it bearing its ordinary meaning.

93 The phrase "under the contract" was considered, in passing, by Ormiston J (as he then was), as a member of the Full Court in Avco Financial Services Limited v Abschinski [4]. That case concerned various provisions of the Credit Act 1984 which was the predecessor to the Code. Section 36(1)(b) of the Credit Act required that a loan contract shall include a statement of the amount financed in accordance with schedule 4. Clause 1 of schedule 4 provided that the statement of the amount financed must state various items either agreed to be lent, or payable, "under the contract". In Avco, the credit provider in a number of loan contracts included, in the amount financed, valuation fees paid by it for valuation of properties mortgaged to secure the loans. The Full Court held that those valuation fees did not fall within any of the specific items nominated by clause 1 of schedule 4. However, the Court held that Avco did not thereby breach s.36(1)(b) because schedule 4 was not an exhaustive list of what might be included in the amount financed, and thus did not prohibit the lending of an amount to be used for valuation fees. In considering the meaning of schedule 4, clause 1, Ormiston J stated:

"The covering words (of clause 1 of schedule 4) define the circumstances under which each of the amounts in paras (b) to (f) are required to be stated; they say nothing about other costs, charges or fees. Each of the amounts there described must be 'amounts as, under the contract, are payable by a debtor to the credit provider ... whether or not the credit provider pays, or has paid, those amounts to another person ... '

Thus they are confined to amounts which are payable "under the contract" and which are payable "by a debtor to the credit provider". The language excludes payments agreed to be paid by reason of any separate agreement or arrangement and so, in the circumstances described by the appellant's witnesses, it would not have comprehended payments to valuers such as Blackburn and Lockwood which were paid to those valuers before the loan contract was entered into and which were not the subject of that contract."[5]

94 Thus, in Avco, Ormiston J construed the phrase "under the contract" in its ordinary sense as excluding rights and obligations, the source of which was a separate or different contract.

95 Mr O'Callaghan also submitted that if the phrase "under the contract" bears its ordinary meaning, nevertheless holdbacks constitute interest payable "under the contract" for the purposes of ss.15(C), (D) and (E) of the Code. Mr O'Callaghan contended that there was an essential link between the credit contract between AFD and the borrower on the one hand, and the agreement in respect of the holdbacks between AFD and NII/Capital. In particular, he contended that the agreement for the holdback between AFD and NII/Capital was entirely contingent upon the credit agreement between AFD and the customer. Accordingly, he submitted that any holdback, payable by virtue of the provisions of the agreement between AFD and NII/Capital, is properly characterised as an amount payable "under the credit contract" between AFD and the borrower. In support of that submission Mr O'Callaghan relied on Australia and New Zealand Banking Group Limited v R and D Bollas and ors[6].

96 In Bollas, the appellant bank initially approached the Credit Tribunal under s.85(B) of the Credit Act 1984 in order to obtain a determination whether, and if so to what extent, it had failed to comply with the requirements of that Act in relation to a number of loan contracts which it entered into with various debtors. The application concerned the four categories of loan contracts. The first category, which is relevant to the submission made by the respondent in this case, concerned loan contracts in respect of which fees or charges were paid by means of a debit passed by ANZ to the loan contract account. The fees were for stamp duty on a mortgage or a search fee and the fee payable to the Titles Office on registration of a mortgage. Those fees were not disclosed in the document which contained the offer to the debtor, and which became the contract document between the bank and the debtor. On behalf of the bank it was submitted that the liability of the borrower for the fees did not arise by virtue of the loan contract, but by virtue of the mortgage executed by the borrower to secure the loan which was the subject of the loan contract. Accordingly, it was submitted, the fees were not payable "under the contract". The Court of Appeal unanimously rejected that argument. Phillips JA, who delivered the leading judgment, held that there was an essential link between the contract and the mortgage. The obligations under the mortgage were directed solely to securing the obligations of the debtor under the loan contract. The mortgage served no other purpose. Hence, his Honour held, the obligation under the mortgage constituted an obligation by the debtor "under the (loan) contract". His Honour stated:

"The bank contended that the amounts here in question, which all concerned the mortgage given, or to be given, in connection with the lending, were payable by the borrower by virtue of the provisions of the mortgage and therefore, being payable under the mortgage, were not amounts payable "under the contract" (meaning the loan contract) within the covering words in clause 1. But to my mind the conclusion does not follow from the premise. The loan contract made reference to the mortgage as held, or to be held, by the bank and I suppose (in this context of amounts for stamp duty, registration fees and the like) that that (sic) there was no purpose for the mortgage save as security for the borrower's obligations under the loan contract; at all events nothing suggests otherwise. It follows, I think, that whatever fees or charges were payable under the mortgage, by virtue of its provisions, were properly to be regarded as payable by the borrower "under the contract"; the two are not mutually exclusive as the appellant's argument tended to suggest. ... In short, I do not consider the distinction which the bank sought to draw between the requirements of the mortgage and the requirements of the loan contract as of significance in itself, given the link between the two."[7]

97 As the above passage reveals, there is a clear distinction between the link between the contract and the mortgage in Bollas' case, and the suggested link between the credit contract (between AFD and the borrower) and the holdback arrangement (between AFD and NII/Capital) in the present case. In Bollas' case, the obligations under the mortgage had no independent existence from the obligations under the loan contract; the mortgage secured the loan. The provision of the mortgage derived from the terms of the loan contract. It necessarily followed that a payment under the mortgage constituted a payment under the loan contract. In the present case, the holdback allowed by NII/Capital to AFD was in consideration for the loan by AFD to the borrower, but it had an independent legal existence from the obligations in the credit contract. The holdback was not an obligation between AFD and the borrower; nor was the arrangement between AFD and NII/Capital provided for, or stipulated by, the loan contract between AFD and the borrower. Thus the connection between the holdback arrangement and the credit agreement in the present case is critically different to the relationship between the contract and the mortgage in Bollas' case. Whereas in Bollas the link was such as to constitute obligations under the mortgage as obligations "under the contract", the link in the present case is not such as would constitute the holdback allowance by NII/Capital to AFD under the arrangement between those parties, as an amount payable by the borrower to AFD "under" the loan contract.

98 Accordingly, for the reasons which I have set out above, I conclude that the Tribunal erred in holding that the holdbacks constituted "interest charges payable under the contract" for the purposes of ss.15(D) and (E) of the Code. It follows that the Tribunal also erred in holding that the rate of holdback constituted part of the "annual percentage rate or rates under the contract" for the purposes of s.15(C)(a) of the Code.

99 For the reasons set out in this judgment I have therefore concluded:

(a) that the Tribunal did not err in determining that AFD breached s.15(B) of the Code in respect of credit contracts under which the supplier was named as NII, Capital Vic or Capital NSW and in respect of which AFD retained a holdback;

(b) that the Tribunal erred in determining that AFD breached ss.15(C)(a), (D) and (E) of the Code in respect of such contracts entered into by it.

100 Accordingly, and subject to hearing from counsel as to the precise wording of the order and as to any questions and costs, I propose making the following orders:

1. That the appeal from the order of the Victorian Civil and Administrative Tribunal dated 15 July 2004 in proceeding No. M115 of 2003 be allowed in part.

2. That paragraph 1 of the said order of the Tribunal be set aside and in lieu thereof there be substituted the following order:

"1. This Tribunal declares that the Respondent has breached s.15(B) of the Code in respect of each of the credit contracts entered into since 1 March 2002 between the Respondent and various debtors, being contracts under which the supplier is named as National Investment Institute Pty Ltd, Capital Holdings Group (NSW) Pty Ltd or Capital Holdings Group (Vic) Pty Ltd and in respect of which the Respondent has retained what it called an "interest free holdback", a "high risk holdback" or both."

[1] 27 Halsbury's Laws of England 3rd ed. 7, quoted with approval by Woodhouse J in Adams v Paul's Properties Limited [1965] NZLR 161 at 169; see also Consolidated Fertilisers Limited v Deputy Commissioner of Taxation [1992] FCA 224; (1992) 107 ALR 456 at 461 - 2 (per Cooper J).

[2] See for example Chans and anor v Cresdon Pty Ltd (1989) 189 CLR 242 at 258 (per Mason CJ, Brennan, Deane and McHugh JJ); Elmslie v Commissioner of Taxation [1993] FCA 549; (1993) 46 FCR 576 at 592 (per Wilcox J); Thurn and anor v The Commissioner of Taxation for the Commonwealth of Australia [1965] HCA 31; (1965) 112 CLR 432 at 437 (per Kitto J); Federal Commissioner of Taxation v Sara Lee Household and Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520 at 537 (per Gleeson CJ, Gaudron, McHugh and Hayne JJ).

[4] [1994] VicRp 76; [1994] 2 VR 659.

[6] (1999) ASC 155 - 031.