What charges were imposed for providing credit?
135 The fundamental issue for determination in this proceeding is whether the Cigno Services charges can properly be characterised as charges for providing the loans made by BHFS to Ms Morrow. Unlike in Teleloans, a failure to establish the existence of a "composite contract" would not be fatal because this proceeding is concerned with s 6(5), rather than s 6(1), of the Code. It would be sufficient to establish that the Code applied if it could be established that the Cigno Services charges were charges for the provision of credit.
136 ASIC's principal contention was that the Cigno Services charges are charges encompassed by the phrase a charge "for providing the credit" for the purposes of ss 5(1)(c) and 6(5) of the Code. It submitted that it thereby followed that neither limb of s 6(5) was satisfied. It submitted that the first limb of s 6(5) was not satisfied because the level of the Financial Supply Fee component of the Cigno Services charges varied by reference to the amount advanced by BHFS to Ms Morrow. It submitted that the second limb of s 6(5) was not satisfied because the quantum of the Financial Supply Fee had the effect of increasing the charges beyond the prescribed maximum charges in reg 51 of the Regulations.
137 ASIC advanced the following submissions in support of its principal contention.
138 First, it submitted that the distinction between "the provision of credit" and the "credit contract and related matters" in ss 5(1) and (2) indicated that "the rights and obligations arising under the identified credit contract do not describe the full scope of the meaning of the 'provision of credit'". The provision of credit for the purposes of s 5(1)(c) was "plainly, intended as a broad encompassing phrase and it's given extended meaning by the words in parentheses" in the chapeau to s 5(1), "rather than being limited".
139 It further submitted that construing charges for providing the credit as including charges imposed by third parties for the provision of the credit was "consistent with the beneficial and protective purpose and object of the Code". ASIC contended that this purpose would be undermined if these words were construed as having no application where a charge, which in substance was a charge for the provision of credit, was "structured as an obligation incurred outside the credit contract to a person other than the credit provider".
140 These general propositions are of limited assistance, however, in determining what is a charge for the provision of credit and what is a charge related to the provision of credit.
141 Second, ASIC submitted that the charges are "entirely parasitic" upon the provision of the loans made to Ms Morrow irrespective of whether the credit contract is the BHFS Contract or the Composite Contract. In its written submissions, ASIC submitted that but for the provision of credit by BHFS, Cigno could neither offer nor charge money for the supply of the Cigno Services. At the same time, ASIC submitted Ms Morrow could not receive the loans from BHFS unless she paid the Financial Supply Fee, the Account Keeping Fee and where applicable, the Change of Payment Schedule Fee.
142 In his oral submissions, senior counsel for ASIC clarified that ASIC was not propounding any but for test, rather ASIC was advancing the in exchange for test advanced by Dowsett J in Fast Access Finance.
143 In Fast Access Finance at [256]-[257], Dowsett J, relying on dictionary definitions, concluded that a charge for the provision of credit, for the purposes of s 5(1)(c) of the Code "clearly involves the notion of exchange, the charge being made for the provision of credit".
144 The approach taken by Dowsett J is consistent with the approach taken by Lord Hodson in Shop and Store Developments Ltd v Commissioners of Inland Revenue [1967] 1 AC 472 (Shop and Store) at 498, where he held that "[w]hatever extended definition is given to 'consideration' it must represent a quid pro quo for that which passed by the transfer or conveyance". The High Court in Chief Commissioner of State Revenue (New South Wales) v Dick Smith Electronics Holdings Pty Ltd (2005) 221 CLR 496; [2005] HCA 3 at [72] (Gummow, Kirby and Hayne JJ) cited with approval the following statement by Lord Wilberforce in Shop and Store at 503:
In the first place, the phrase "consideration for the transfer or conveyance" seems to me to refer clearly and naturally to that which passed to the transferor company "for" the transferred properties.
145 Senior counsel for ASIC described the Cigno Services charges as an "essential quid pro quo for the provision of the credit", "an essential precondition to the loan in the present case" and the "sine qua non" of the loans made to Ms Morrow. Counsel contended that it "simply can't be said that the Cigno services, the charges for the Cigno services, have no direct relationship with the loan".
146 The respondents submitted that these submissions were unjustified in circumstances where ASIC did not plead that Ms Morrow could not have obtained any loans from BHFS without the involvement of Cigno and in circumstances where the SOAF expressly stated that Ms Morrow had the choice of proceeding with Cigno or proceeding directly with BHFS. They submitted that the evidence established that Ms Morrow would have been referred to a page on the BHFS website that "made perfectly clear the availability of personal finance" independently of Cigno, but acknowledged that there was no specific evidence of how this might have occurred.
147 In the circumstances, it is not possible to reach any conclusion that Ms Morrow could not have obtained loans directly from BHFS, independently of Cigno. Any practical difficulties or hurdles, including the cost and potential delay in obtaining finance directly from BHFS, were not addressed in the SOAF or otherwise in the affidavit evidence relied upon by ASIC.
148 Further, any but for test would tend to obscure rather than illuminate a determination of whether a charge is for the provision of credit or a charge for something that is a precondition for the supply of credit or is otherwise a charge for a service related to the provision of credit. As senior counsel for BHFS submitted, an accountant may verify a borrower's financial positon on their behalf as a necessary precondition to a loan approval but that could not sensibly be characterised as the provision of credit.
149 Third, ASIC placed particular emphasis on the fee or charge described as a Financial Supply Fee in support of its contentions that the Cigno Services charges were imposed for the provision of credit to Ms Morrow.
150 There was no allegation that the services supplied by Cigno were not genuine services provided pursuant to a genuine agreement or that the stipulated purposes for which those services were provided was a sham or any allegation that the services were not in reality provided.
151 In the absence of any suggestion that the Financial Supply Fee was a sham, the more relevant enquiry is the identification of the purpose of the payment rather than its description. As noted above, the Cigno Services charges that were principally comprised of the Financial Supply Fee were stated to be payable in return for Cigno facilitating "in all enquiries, management, payments and all other services relating to the loan or financial product" in circumstances where the client had "chosen to engage" Cigno to "assist, rather than dealing directly with a lender or provider".
152 Fourth, ASIC submitted that whether a charge was for the provision of credit was not answered by adopting a binary approach. It contended that a charge could conceivably be both a genuine charge for services relating to the provision of credit and a charge for the provision of credit.
153 In theory, it is certainly conceivable that a charge might be imposed for multiple purposes. However, ss 5(1)(c) and 6(5) of the Code are confined to "charges for the provision of credit". Unlike the text employed in ss 5(1)(b) and 5(1)(b)(iii), the familiar drafting language of "wholly or predominately" is not used to address a situation in which there may be multiple purposes.
154 It is important to pay careful attention to the precise statutory language to be construed. Here it is s 6(5) that exempts credit provided under a continuing credit contract with specified attributes from the provisions of the Code. The exemption is only engaged "if the only charge that is or may be made for providing the credit is a periodic or other fixed charge that does not vary according to the amount of credit provided" (emphasis added). The provision of credit is not the advance of funds, but rather the deferment of an existing debt or the creation of a new, deferred debt: Fast Access Finance at [261].
155 Unlike s 6(2) of the Code, charges for the purpose of s 6(5) do not extend to any charge "for any service related to the provision of credit". Nor, unlike the definition of "credit fees and charges" in s 204(1), is s 6(5) directed at "fees and charges payable in connection with a credit contract".
156 Further, in contrast to ss 6(1) to (3) of the Code, s 6(5) is not limited to charges under a credit contract; it focuses only on a charge for the provision of credit. Charges may be made other than under a credit contract for the provision of credit. It also follows, however, that charges may be made under a credit contract that might constitute a service that is "related to the provision of credit" but not be charges for the provision of credit.
157 Finally, as observed above, unlike ss 5(1)(b) and 5(1)(b)(iii) of the Code, s 6(5), does not employ the familiar drafting language of "wholly or predominately".
158 It is logical that s 6(5) picks up the language in s 5(1)(c) in stating a rule providing for the inapplicability of the Code, and it should be given the same meaning, consistent with the principle that provisions of the Code should be construed to give effect to harmonious goals: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 at [70].
159 The respondents submit, and I accept, that:
(a) the fees charged by Cigno were in exchange for, or the quid pro quo for, providing the services pursuant to the Morrow Services Agreement, not for the provision of credit; and
(b) it is not possible to ignore the terms of the Morrow Services Agreement and "the reality that Cigno provided services pursuant to that agreement, and the reality that the fees paid to Cigno were fees for providing those services".
160 If follows that the only charges made in exchange for the provision of the credit to Ms Morrow were the charges payable under the Morrow Loan Agreement, namely the $15 BHFS Fee. The Cigno Services fees and charges were paid in exchange for the provision by Cigno of application, management and collection services. In reaching those conclusions, I am satisfied that the respondents have satisfied the evidentiary burden otherwise imposed by s 175D of the Act and s 13(1) of the Code.
161 On one view, given the beneficial and protective purpose and object of the Code, it might be thought that this produces a result that could not have been intended, but as the High Court stated in Cooper Brookes (Wollongong) Proprietary Limited v The Commissioner of Taxation of the Commonwealth of Australia (1981) 147 CLR 297; [1981] HCA 26 at 305 (Gibbs CJ), when construing a provision "it must be given its ordinary and grammatical meaning, even if it leads to a result that may seem inconvenient or unjust".
162 Unlike in other related provisions of the Code, the phrases "provided wholly or predominately", "any service related to the provision of credit" and "fees and charges in connection with a credit contract" are starkly absent from the text of ss 5(1)(c) and 6(5).