Australia and New Zealand Banking Group Ltd v Bollas & Ors [1999] VSCA 50

Australia and New Zealand Banking Group Ltd v Bollas & Ors [1999] VSCA 50 - VSCA 1999 case summary — Zoe

[9]

Other than the issue which relates to the appearance on a number of contracts of more than one percentage rate (which requires consideration of s.40 of the Act), each of the matters raised involved challenges or assumed challenges to loan transactions which were said in one way or another and not to comply with s.36 of the Act and, in the majority of cases, with the requirements as to the statement of the "amount financed" in accordance with Schedule 4 to the Act. It must be reiterated, as was examined by me in some detail in AVCO, that the issue raised by s.36 and Schedule 4 is one only of disclosure and so it must be looked at in the light of the legislature's requiring borrowers to be informed of certain aspects of their loan transactions. It has led to much litigation because, in the absence of the relief which may be given pursuant to s.85, the consequence of non-compliance is the extinguishment of the borrower's liability to pay all credit charges by reason of s.42. The present case does not raise for consideration whether each of the relevant contracts was in writing in accordance with s.31 of the Act, nor whether certain possible alterations or additions to terms and conditions of those contracts were invalidated by reason of s.32(5). The difficulty is that although those matters are not raised directly they may have a bearing on what constitutes the "contract" in each case which is the subject of the disclosure requirements of s.36. In the end, however, I have felt able to reach my conclusions by assuming that the documents the subject of this appeal reflect the terms of the parties' agreement (whether satisfying ss.31 and 32 or not) except in those cases where the inference should be drawn that the Bank could have made the relevant entries and debited the borrower's account only if it had contractual authority to do so. If the payment occurred or might have occurred after settlement or if the borrowers were thereafter free to choose, i.e., were not contractually bound, to direct that the payments be debited to one or other of their accounts, it does not seem possible on the materials before this Court, and before the Tribunal, to reach a conclusion that they must have been disclosed in accordance with s.36. That is because Schedule 4, by reason of the covering words, requires disclosure of each of the relevant amounts which "under the contract, are payable by a debtor to the credit provider ...".

[10]

To my way of thinking that relatively simple analysis enables the Court to dispose of most of the disputed categories of transactions, in particular the series of claims relating to fees and charges. The only clear indication of a contractual requirement, when not expressed in the contract document before the Court, is where the borrower receives less than the paragraph (a) moneys, in other words less than the "amount agreed under the contract to be lent", but even then it is of no consequence where any diminution in the amount paid to the borrower reflects only directions or assumed directions to the Bank to debit or pay out sums other than those described in paragraphs (b) to (f) of clause 1 of Schedule 4, including those amounts prescribed under paragraph (d) as set forth in regulation 27 of the 1984 regulations or regulation 30 of the 1995 regulations. The reasons for excluding from the requirement of disclosure of amounts not so described in or under paragraphs (b) to (f) are sufficiently set out in the decision in AVCO. Thus, regardless of whether they were debited to the borrower's loan account or to some other account of the borrower, I consider there was no obligation to disclose pursuant to s.36 any of the payments or amounts which did not come within the categories in Schedule 4. Phillips, J.A. has pointed out that some of the payments in the test cases of this kind were, as was conceded in argument, in fact within paragraphs (b) to (f) inasmuch as they in fact were prescribed by regulation. Apart from those payments I have had great difficulty in understanding why the Tribunal and the learned trial judge thought that they should have been disclosed, especially in the light of the majority's reasoning in AVCO. There seemed some suggestion at one stage that the small amounts in question ought not to be treated as truly "lent" but that misunderstands the proper meaning to be given to paragraph (a). It was also suggested that the payments should be treated as part of the credit charges, but that seemed to flow from the conclusion that the moneys were not lent. I can see no reason to doubt that the proper sum was stated as the amount financed in each case and there was no basis for holding that they should otherwise have been disclosed pursuant to s.36. There should be a declaration accordingly.

[13]

As to the other matters raised on this appeal I would likewise agree with Phillips, J.A.'s analysis of the materials before the Court and the proposed resolution of those issues. I would add only this in relation to the claims made by the appellant that it had not contravened s.40 by allowing the insertion of more than one "annual percentage rate" on the contract documents. On its face the section seems an unusual provision inasmuch as, if there were true uncertainty as to the rate of interest to be imposed, then the contract might fail for want of certainty. In substance, of course, it is the credit charge which identifies the amount to be paid by way of interest in a concrete form which ought to be clear, at least to the extent that borrowers should be able to appreciate their obligations to pay it over the course of the contract. Nevertheless, those borrowers would otherwise in most cases be ignorant of or uncertain about the true rate of interest which was being imposed, were it not for provisions requiring the stating of the annual percentage rate. To my way of thinking s.40 is intended to ensure that borrowers are not left in ignorance of or are not misled or confused as to what rate of interest is in fact being charged. Before the introduction of this and other similar legislation in the past, it was common for borrowers to be told that they would pay interest at a rate which has come to be known as a "flat rate". Parliament has determined that that method of describing a rate of interest on borrowings of this kind is not an appropriate or informative method of describing the relevant interest rate. Consequently a statutory formula has been chosen to describe the true interest rate and I believe that s.40 was designed to prevent unscrupulous lenders from trying to assert that the interest rate payable by particular borrowers is in fact less than what is properly calculated under statute. For those reasons I consider that Phillips, J.A.'s analysis and conclusions on these issues is correct.

[19]

On the other hand, what the Act gives it sometimes takes away; for by s.85 the Tribunal is authorised, on application by the credit provider, to relieve (either wholly or in part) against the consequences of non-compliance with the Act. In the ordinary course that power to grant relief on the application of the credit provider might be thought to make the pursuit of detail by the debtor not worth the expense involved, but not so here. That is because of the structure of this litigation. Under s.85B, either party can seek a declaration about whether there has been a failure to record something that should have been recorded, as part of the loan contract, with the consequence that liability for the credit charge is removed, subject to s.85. Such a declaration is all that was sought in this case. The parties have chosen test cases and, on the assumption that these represent many others, have sought to have determined the extent to which there has been compliance or not on the part of the appellant bank with the requirements of the statute, and in particular s.36. What might otherwise have simply been an interlocutory application has thus been converted, by dint of s.85B, into principal litigation. The end of this litigation is the declaration authorised by s.85B, no matter that the Tribunal might yet relieve (perhaps in full) against the consequences of any declaration of non-compliance. We were told from the Bar table that as yet no formal application has been made by the bank under s.85. It is perhaps unfortunate that the Court of Appeal is required to adjudicate on the question of compliance or no without regard to the possibility of relief under s.85; for if non-compliance be established and relief subsequently granted in full on application under s.85, the borrower whose loan contract is in issue would appear to have little real interest in the outcome of the current litigation - however useful in the future the appellant might find the Court's decision on the question of compliance.

[36]

The foregoing is sufficient to indicate the structure of s.36(1). Critical, so far as the lending is concerned, is the statement of "the amount financed" and the statement of "the credit charge", the total of which must be plainly stated. Both terms are defined in s.5, the first, "amount financed", by reference to clause 1 of Schedule 4 (about which more in a moment) and the second, "credit charge", by reference to s.11(1). In short, the "credit charge" in relation to a loan contract is the amount by which the amount payable under the contract by the borrower to the lender (but not including any deferral charges, default charges or enforcement expenses) exceeds the amount financed. As will be seen, "the amount financed" is, in lay terms, the principal sum which is borrowed (directly or indirectly), while the credit charge includes such things as the interest charged by the lender for the loan and any other fees, charges and expenses which the lender would seek to recoup but which, for some reason or another under this Act, may not be included within "the amount financed". For instance, had it not been permitted to include, as part of the amount agreed to be lent, the amount of the valuation fees under consideration in Avco Financial Services Ltd. v. Abschinski [1994] VicRp 76; [1994] 2 V.R. 659 (which is further discussed below), the lender must have included the amount of the valuation fees within the credit charge as the only means of recouping from the borrower the amount of those fees which had been incurred in connection with the loan transaction. To include the valuation fees within the credit charge would have been permitted, but then the amount of those fees would have been at risk to the extent that the credit charge is put at risk by the terms of the Act. Moreover, to the extent that the credit charge was increased by inclusion of the valuation fees, "the annual percentage rate", which is to be stated in accordance with s.38, must have been increased correspondingly. We were told in argument that the statement of the annual percentage rate is required in order to enable those who would borrow to compare like with like, when shopping around for the best deal; and if so it is in the interests of the lender, as a marketing exercise, to include any fees or charges within the amount financed rather than within the credit charge. It must be said, however, that if a loan contract is entered into in accordance with the Act and is then performed by all parties according to its tenor, the outcome would appear to be the same, whichever course is adopted.

[73]

Because the relevant loan contract accounts were debited it would seem to be clear enough that the borrowers shouldered the ultimate financial burden for the payment of the fees and the duty in question, though no doubt the bank saw in due course to the actual payment, whether to the Titles Office or otherwise. In each of these three cases, the internal records of the bank show that the debiting operated to reduce the amount which, on the day of settlement, was otherwise being made available and put at the disposal of the borrower. In these circumstances it is perhaps surprising to find the bank contending that the payment of these amounts was no part of the loan contract that had to be in writing but, as I apprehend it, the submission went thus. When the loan contract was entered into (and so at the time at which it had to be in writing), the loan contract contained no requirement that these amounts should be paid to or by the bank. None the less the borrower was liable for them, although not by virtue of the loan contract but by virtue of the mortgage which though given in connection with the loan contract was separate therefrom. The subsequent debiting of the amount of the fees and duty to the loan contract account was consistent with some subsequent instruction from the borrower when ordering, according to his own choice, the disposition of the funds which under the loan contract were being put at his disposal. This was how the facts should be understood as there was no direct evidence to gainsay it and no inference to the contrary was justified, having regard in particular to the terms of the offer in writing which stated the amount agreed to be lent without deduction for the fees and duty in question. In the circumstances (so the argument ran) the deduction of the amount of the fees and duty from the amount otherwise being put at the disposal of the borrower on the day of settlement was simply at the option of the borrower, not affecting in any way the agreement between the parties about what "under the [loan] contract [was] payable by a debtor [i.e., the borrower] to the credit provider [i.e., the lender] " (to adapt the expression used in the covering words in clause 1). There was therefore no requirement that the amount of those fees and the duty be shown separately under clause 1 of schedule 4 (which would have served to reduce the amount otherwise "agreed under the contract to be lent"), and accordingly no non-compliance by the bank with s.36(1)(b) because they were not shown separately in the document relied upon.

[75]

To my mind, the argument of the appellant ought to be rejected, and I make three points. First, there is the distinction which Mr. Archibald sought to draw between liability under the mortgage and liability under the loan contract. 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 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. After all, in view of the covering words what are relevant are not just "amounts [which] under the contract are payable by" the borrower, but "amounts [which] under the contract are payable by [the borrower] to the credit provider" - and that will often be the product of the loan contract rather than the mortgage. 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. And that is a conclusion which seems to me consistent with the approach taken in both Custom Credit Corporation and in Westpac Banking Corporation v. Donald-Murrell [1992] VicRp 73; [1992] 2 V.R. 429 at 438-9.

[78]

Moncrieff was thus not an example of instructions for disbursement of funds, given after the parties entered into the contract in writing and before the day of settlement. However, Ceeney (Tab B57) and Duvjnak (Tab B58) were. In both, the offer document which was signed contained no significant instructions for disbursement of the moneys that were to be made available to the borrower on the day of settlement; instead, in the case of Ceeney there were only two straight lines drawn to indicate the absence of any present instructions [AB B331] and in Duvjnak there was only the word "cash" [AB B335]. But how could settlement occur without some or more specific instructions? It is, I suppose, always possible that cash was to be handed over, but that was surely most improbable and it did not occur. Instead, as the bank documents show, before settlement the bank was able to note the required draw-down as including separate amounts for the fees now in question, which must necessarily have reduced the balance that would otherwise have been put at the disposal of the borrower, for own use: see in re Ceeney the bank's diary note dated 12 November 1987 and in re Duvjnak the diary note dated 6 August 1992. The bank claims that these instructions were no part of the relevant loan contract, but why not? In the absence of any evidence otherwise I would infer that these instructions for disbursement were given by the borrower not only under the loan contract but in furtherance of it, in order to facilitate performance on the part of the bank. If given by the borrower, the instructions were obviously accepted by the bank. We cannot say, on what little we are told, whether the instructions came about at the unsolicited suggestion of the borrower or at the urging of the bank, and it does not matter; it is enough that these instructions for disbursement were agreed upon as the means of carrying out the bank's part of the bargain which stood awaiting fulfilment. It seems to me that in those circumstances by the time of settlement the loan contract, for the purposes of the Act, comprised the document in writing as supplemented by the instructions for disbursement of the moneys otherwise agreed to be lent. Those instructions were in effect for the payment to the bank by the borrower of the amounts in question for fees and duty, and as these amounts were within the descriptions in paragraphs (b) to (f) of clause 1 of schedule 4 and they went in reduction of what otherwise was the amount agreed under the contract to be lent (paragraph (a)), they should have been shown separately in the contract in writing, if s.36(1)(b) was to be satisfied. They were not shown separately and the bank was in default under s.36(1)(b) accordingly.

[85]

The argument of the bank on this appeal was that, on the evidence before us, it could not be concluded that the amounts in question did form part of the amount financed; for the offer document made no reference to them and in those circumstances, it was argued, there was no basis for concluding that the loan contract, when entered into, included the payment of these amounts out of any of the moneys being provided under the contract. Yet they were so paid out of the amount provided under the contract to the extent that the amount agreed to be lent (according to the offer document and stated as such by reference to paragraph (a) of clause 1) was placed to the credit of the loan account from which these amounts were debited. From what I have said when dealing with the first category of fees and charges, it might be thought to follow that, on the evidence we have, I would be prepared to infer that the amounts now in question were paid under a loan contract which by the time of performance included provision for their payment. But it is perhaps not so clear in relation to the fees for bank cheques; for this was simply payment for a service provided at the time of settlement - and in the end, as I have said, it just does not matter. Whether or not the loan contract was supplemented or amplified after the document in writing was signed by the borrower as an offer and accepted on behalf of the bank, there was no need for the amounts here at issue to be shown separately in any statement of the amount financed. If payment of these amounts formed part of the loan contract, they were nonetheless (like the valuation fees considered in Avco) properly included within the amount "agreed under the contract to be lent", within the meaning of paragraph (a) of clause 1, and did not have to be shown separately. It is a fortiori if these amounts were paid altogether independently of the loan contract, and because the borrower, being obliged to make the payment, chose to do so out of the amount agreed to be lent, and without affecting in any way at all the terms of the loan contract as first made. Either way, there was no failure to comply with s.36(1)(b).

[91]

According to the Agreed Statement of Facts and Documents [AB B37-8] the amount agreed to be lent was disbursed as follows: the sum of $4,607.11 to this last-mentioned account and the sum of $10,392.89 to the "personal cheque account". Thus, though these two sums total $15,000 (the "amount agreed to be lent" according to the offer document), by far the greater part of that amount found its way into the personal cheque account of the borrower. That happened on 29 September 1989, which it appears from the bank's transaction report [AB B346] was the day of settlement. On the same day the bank debited the personal cheque account with (inter alia) three sums totalling $111.60, comprising $58.60 for production fee payable to the Bank of Melbourne, $45.00 for mortgage registration fee and $8.00 for search fee payable to the Titles Office. (It is only these last two, $53 in all, that are the amounts presently at issue.) On the few facts that we have, I would infer that the three sums totalling $111.60 were debited to the borrower's cheque account by agreement between borrower and lender, an agreement reached in supplementation of the written document and as part of the instructions for settlement so necessary to performance of the loan contract. It is obvious that the debiting of these sums went to reduce the amount that otherwise was being made available by the bank to the borrower and put at his disposal; the sum of $10,392.89, if it was ever to be at the borrower's disposal, was promptly made less by $111.60 and the amount agreed to be lent was correspondingly made less. As this was all by antecedent agreement between the parties (as I infer) within the framework of the lending transaction, the two amounts in question (being amounts within paragraphs (b) to (f) of clause 1) ought, according to s.36(1)(b), to have been shown separately in the loan contract in writing, serving thereby to reduce the amount of $15,000 as the "amount agreed to be lent" while leaving unaffected the amount of $15,000 as the "amount financed". These two amounts were not shown separately and the amount agreed to be lent was wrongly shown as $15,000 and to that extent there was non-compliance by the bank with clause 1 of Schedule 4 and s.36(1)(b). (The third sum of $58.60 included in the total debit of $111.60 is to be dealt with shortly in the fourth category of case.)

[92]

Reference to the facts of Bulle, so far as we are told them, serves to expose the reasoning involved. In the case of Wilson (Tab B66) we are told even less. The loan contract was supported by a third mortgage over the borrower's home. The offer document stated the amount agreed to be lent as $21,300, which was also given as the amount financed. According to the Agreed Statement of Facts and Documents [AB B39-40], bank records revealed that government fees totalling $178 were "payable in relation to the loan contract": $84 for stamp duty on mortgage, $47 for registration of mortgage and $47 for discharge of mortgage - and all three were amounts within the descriptions found in paragraphs (b) to (f) of clause 1 of Schedule 4, though none of them was shown separately in the offer document. It appears from the bank's transaction report [AB B395] that on 7 September 1990 the sum of $178 was paid by the bank to the credit of the borrower's access account (not the loan contract account) and on the same day the three sums totalling $178 were debited to that account. Other fees - bank fees - that were also "payable in relation to the loan contract" were charged, we are told, on 15 November 1990, which makes it difficult, if not impossible, to discern the date of settlement. I assume however that it was not earlier than 7 September 1990. Further I infer from a bank memorandum headed "Loan Approval - Advice of Costs" [AB B394] that all three items debited on 7 September, two fees and the duty, were part and parcel of the lending transaction, and that though paid out of the access account of the borrower that was simply for convenience, by antecedent arrangement between the parties. It follows that the sums so debited went in reduction of what was otherwise being made available to the borrower and put at the borrower's disposal, and so the amounts in question ought to have been shown separately in the loan contract in writing. They were not, and there was accordingly non-compliance with s.36(1)(b).

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