D.1.3. Carrying on a business contravention declaration
114 The final form of the declaration that ASIC seeks pursuant to s 166 of the Act with respect to the carrying on a business contravention declaration is in the following terms:
…from 18 October 2019 until14 April 2020, BHFS contravened s 29(1) of the NCCP Act by engaging in a credit activity without holding an ACL authorising BHFS to engage in that activity, being the activity of "carr[ying] on a business of providing credit being credit the provision of which the Code applies to" as specified in item 1(b) of s 6 of NCCP Act, in that:
(a) on 1 July 2019, BHFS entered into the BHFS/Cigno Agreement with Cigno under which Cigno was to manage loan agreements BHFS entered into with borrowers, in accordance with the conditions of the BHFS/Cigno Agreement, which included that Cigno was able to charge the borrower fees at Cigno's discretion;
(b) between on 18 October 2019 and 14 April 2020, pursuant to the BHFS/Cigno Agreement, BHFS entered into continuing credit contracts with clients of Cigno in circumstances where those clients also entered into services agreements with Cigno pursuant to which they were charged, amongst other fees, the Financial Supply Fee; and
(c) the Financial Supply Fee was a "charge that is or may be made for providing the credit" within the meaning of s 6(5) of the Code in Schedule 1 of the NCCP Act, that credit being credit provided by BHFS.
115 BHFS submits that facts that ASIC cited in their written submissions at [43] and [44] do not go far enough to establish a "carries on a business" contravention. It submits that the entirety of the conduct necessary to establish the contravention has not been proven on the findings made to date.
116 BHFS submits the factual findings that might support any "carries on a business contravention" are limited to:
(a) the finding in my primary judgment at [82] that:
the evidence establishes that at least BHFS was carrying on a business of providing credit"
(b) the observation by O'Bryan J in the Full Court judgment at FCJ [103] that:
[o]n this appeal, there is no dispute that the loans provided to consumers by BHFS as part of its lending arrangements with Cigno satisfied the elements of s 5(1) [of the Code]. The loans were provided to natural persons, the loans were for personal, domestic or household purposes, BHFS charged a fee for providing the loan and BHFS provided the loans in the course of a business of doing so.
117 BHFS submits that:
Beyond this limited factual footing, however, there is little more that can be said for there being a basis for the making of a declaration with respect to a contravention by BHFS of s 29(1) of the NCCP Act in carrying on a business of providing credit. This can be demonstrated by recasting the proposed declaration and attempting to include the requisite degree of specificity based on the findings made in this proceeding to date:
The Court declares, pursuant to s 166 of the NCCP Act, that from 18 October 2019 to 11 January 2020 BHFS contravened s 29(1) of the NCCP Act by carrying on a business of providing credit, being credit the provision of which the Code in Schedule 1 of the NCCP Act applies to, without holding an ACL authorising BHFS to engage in that activity in that:
a. from 18 October 2019 to 11 January 2020, BHFS provided loans to consumers who were natural persons for personal, domestic or household purposes in the course of a business of doing so;
b. during that period, all individual borrowers who obtained loans from BHFS did so through Cigno.
118 BHFS submits that the conduct, as specified in (a) and (b) above, is insufficient to make out a contravention of "carrying on" a business in breach of the requirements of the Code, and therefore, it is insufficient to warrant the making of a declaration pursuant to s 166 of the Act. It submits that (a) a declaration in the terms identified above would have the conclusive effect described and form the basis upon which civil penalty proceedings could be brought, and (b) there are no agreed facts or factual findings that ASIC can point to in order to demonstrate that Cigno had a standard form of services agreement throughout the period for which declaratory relief is sought.
119 BHFS submits that critically, there is also no finding as to the basis upon which the Financial Supply Fee was calculated by Cigno throughout the period with respect to individuals beyond Ms Morrow. It submits that the SOAF was (a) relevantly cast in terms confined to the calculation of "Ms Morrow's Financial Supply Fee" and her "repayment schedule", and (b) it should not be distorted to now found the basis for a declaration in respect of an allegation that was given limited attention at trial and on appeal, and that was not the focus of the evidence led by ASIC in the absence of any further findings.
120 BHFS further submits, that even putting these matters to one side, it is clear that ASIC should be kept to the period that it has pleaded in the ASOC. ASIC had pleaded that this contravention related to the period between 18 October 2019 to 11 January 2020, when BHFS entered into a loan agreement with Ms Morrow and in respect of two related drawdowns. It submits that ASIC has provided no explanation of why it now seeks a declaration for the different period of 14 September 2019 to 14 April 2020.
121 BHFS submits that a further danger in making a declaration in the terms sought by ASIC with respect to the "carrying on of a business" contravention is that it is unclear whether one or more contraventions is entailed in the language of the declaration proposed by ASIC. "Credit activity" encompasses the composite activity of "carrying on of a business of providing credit" in item 1(b) of s 6(1) of the Act, and it is that "credit activity" that is the subject of the prohibition in s 29(1) of the Act. That is, the declaration that ASIC seeks must only be in respect of a single contravention of carrying on of a business of providing credit. However, none of this is exposed in ASIC's submissions on the remittal, nor on the face of the second declaration that it seeks. BHFS, nor the public at large, should not be left guessing as to these fundamental matters.
122 Alternatively, BHFS submits that any "carrying on a business" declaration should be confined to the lending to Ms Morrow, consistently with the manner in which ASIC put its case at first instance.
123 I am satisfied that a declaration with respect to the carrying on a business contravention should be made but not in the form sought by ASIC.
124 First, there was no appeal from the finding in my Primary Judgment at [82] that BHFS was carrying on a business of providing credit. ASIC pleaded in the ASOC at [112]:
BHFS engaged in a credit activity of carrying on a business of providing credit, being credit the provision of which the Code applies to, without holding an Australian Credit Licence authorising it to engage in that credit activity, when it provided the Morrow Loan, the First Morrow Drawdown and the Second Morrow Drawdown to Ms Morrow, respectively on or around 18 October 2019, on or around 2 December 2019 and on or around 11 January 2020.
125 As I stated in the primary judgment at J [85], an isolated activity, with the intention of it being repeated is sufficient to establish the carrying on of a business: see Williams v ATM & CPA Projects Pty Limited [2015] NSWSC 703 at [70] (Ball J). It was by reference to that principle that I was satisfied that BHFS had relevantly carried on a business of providing credit by providing the Morrow Loan, the First Further Morrow Drawdown and the Second Further Morrow Drawdown.
126 Second, the reliance by ASIC on the following finding by O'Bryan J at FCJ [211] to support its proposed declaration is misconceived:
Further, there was no appeal against the trial judge's finding that BHFS was carrying on a business of providing credit at (J [82]) and it follows that BHFS carried on a business of providing credit, being credit the provision of which the Code applied to, within the meaning of item 1(b) of s 6(1).
127 The finding is expressed in terms that make it clear that it was made in the context of, and does not seek to go beyond, my finding at J [82].
128 Third, more generic allegations of engaging in a credit activity of carrying on a business of providing credit to which the provisions of the Code applied were advanced in the ASOC at [112] and [115]. Critically, however, the credit activity alleged to have contravened s 29(1) of the Act was limited to the loans and drawdowns made to Ms Morrow alleged in the ASOC at [112] as made clear in the ASOC which alleged:
113 By reason of [112], BHFS contravened s 29(1) of the NCCP Act.
114 By reason of [113], the Court should make a declaration that BHFS contravened s 29(1) of the NCCP Act by carrying on a business of providing credit, being credit the provision of which the Code applies to, from on or around 18 October 2019 until on or around 11 January 2020, without holding an Australian Credit Licence authorising it to engage in that activity.
129 The last debit of a repayment from Ms Morrow's bank account might have been made on 14 April 2020, but that was not the basis on which ASIC took this matter to trial. In proceedings involving contraventions of civil penalty provisions, a defendant is entitled to proceed on the basis that a regulator will be held to its pleadings.
130 The allegation in the ASOC at [115] that BHFS was "continuing to engage in a credit activity of carrying on a business of providing credit being credit the provision of which the Code applies to" was pleaded in support of the grant of an injunction, not a contravention of s 29(1) of the Act. Although the particulars to that paragraph referred to customer numbers of 5,000 per week entering into loan agreements since September 2019, those particulars were not provided in support of any of the alleged contraventions of civil penalty provisions.
131 Fourth, as submitted by BHFS, I am satisfied that the proceedings were conducted, at all times, up to the conclusion of the liability hearing, by reference to the allegations in the pleadings. On 3 November 2020, Perram J stated during a case management hearing for the matter:
Now, can I telegraph to the parties what I intend for this matter, which is that the pleadings should probably form - serve two purposes. One is the articulation of ASIC's case and the articulation of the defendant's of the respondent's case. So I'd like these pleadings to bring out what the actual legal arguments are. Secondly, I'd like it to form - and we can discuss this on the last - at the next case management hearing to form the basis, hopefully, of some kind of agreed version of what the facts are, maybe agreed documents because if we can get that done then it could be tried very rapidly.
132 It was in that context, that ASIC made a decision to advance allegations with respect to only one consumer and to include in the Statement of Claim and subsequently the ASOC, the allegations in [112]-[114]. It is to be noted that in ASIC's concise statement it had included allegations with respect to three consumers.
133 BHFS submits that ASIC's attempts to resist being held to its pleaded case by contending that the findings made travelled beyond the lending to Ms Morrow should be rejected. In opposing these contentions by ASIC, BHFS also relies upon correspondence it sent to ASIC on 26 March 2021, 13 April 2021 and 21 April 2021 in which BHFS referred to ASIC's case as a "test case". BHFS submits that ASIC remained silent as to the characterisation of its case as a "test case".
134 I accept, as submitted by BHFS, that it was incumbent in the above context, for ASIC, as a regulator, to correct any misunderstanding that BHFS might have expressed in correspondence with ASIC.