APPLICANT: Director of Consumer Affairs Victoria

NOTIFIED PERSONS: Secretary, Department of Justice, and Various Debtors

Pursuant to Section 80 and of the Victorian Civil and Administrative Tribunal Act 1998, this Tribunal directs -

1. That on or before 14 April 2004 the Respondent must file with the Tribunal and serve on the Applicant any material (including any affidavit or outline of submissions) on which it wishes to rely at the directions hearing mentioned in paragraph 3.

2. That on or before 19 April 2004 the Applicant must file with the Tribunal and serve on the Respondent any material in reply.

3. This matter is listed for a Directions Hearing on 21 April 2004 at 10:00am at 55 King Street, Melbourne. The purpose of the Hearing is to enable the parties to raise any issues concerning discovery, to hear any application for a separate hearing of any issue in this proceeding that might be made by the Respondent, and to make Directions concerning the further course of this hearing.

(1) I reserved my decision and I am now in a position to be able to hand it down.

(2) My decision is that the application for joinder made by the individual debtors should be dismissed but that provision should be made in the orders to give the individual debtors, represented by Maurice Blackburn Cashman, Solicitors,("MBC") and Consumer Credit Legal Service, solicitors, ("CCLS") an opportunity to apply at the appropriate time for leave to intervene in these proceedings. Those applications will relate to any mediation that is held in the proceeding and to the hearing of the proceeding.

(3) I now give my reasons. The Director of Consumer Affairs Victoria, ("the Director"), has applied to the Tribunal under Division 1 of Part VI of the Consumer Credit (Victoria) Code, ("the Code"), for a declaration that the respondent ("AFD") has breached certain key requirements of the Code and for an order that AFD pay a civil penalty in respect of those breaches. Other incidental orders are applied for but they are not presently relevant.

(4) In brief, the claim, as set out in the Director's amended application, is that under the Code AFD is a linked credit provider in respect of the company's National Investment Institute Pty Ltd, ("NII"), Capital Holdings group (N.S.W) Pty Ltd and Capital Holdings Group (VIC) Pty Ltd which I refer to collectively as "Capital". This application concerns over 4000 loan contracts entered into between individuals and AFD under which individuals borrowed money from AFD to finance their participation in courses run by NII and Capital.

(5) For the purpose of this part of the proceeding it was common ground that the Code applied to these contracts, that is that they were credit contracts within the meaning of the Code. The Director claims, and AFD denies, that AFD has, in respect of these contracts, retained amounts which AFD called respectively an interest free hold back and a high risk hold back. The claim goes on to say that these amounts are interest and that the disclosures which the Code requires to be made in credit contracts concerning the amount and method of calculation, and the rate of interest, were not made in the credit contracts in respect of these hold backs. The Director claims, and AFD denies, that in this respect there were breaches of certain key requirements of the Code. The relevant contracts were entered into between 1 March 2002 and October 2003.

(6) Under s.110 of the Code the Tribunal directed AFD to publish an advertisement in specified newspapers and at specified times, notifying those potentially interested that application had been made. The form of the advertisement was agreed between the parties and approved by the Tribunal. It was published in mid-January 2004. Among other things, the advertisement stated that if a debtor affected by the application wished to apply to become a party, or to intervene in the proceeding, a notice must be filed with the Tribunal by 13 February 2004.

(7) By 13 February 2004, 19 individuals notified the tribunal that they wished to participate in the proceeding. CCLS also filed with the Tribunal a notice that it represented some 17 debtors, all of whom wished to participate in the proceeding.

(8) On 17 February 2004 the Tribunal received a notice from MBC stating that it represented some 450 individual debtors all of whom wished to participate in the proceeding. After this date and before the hearing of the present application on 10 March 2004, the Tribunal has received a number of other notices from individuals all indicating a wish to participate in the proceeding. The Tribunal has also received further notifications from MBC and CCLS that they represent more individuals who also wish to participate.

(9) I take the view, consistent with the Tribunal's duty to act without undue technicality and according to fairness and merits, that all notices indicating a wish to participate in the proceeding received before 10 March 2004, the date of the hearing of the present application, should be taken into account.

(10) The notices received from the individual debtors, that is those not represented by MBC or CCLS, can be summarised by saying that they ask the Tribunal either or both of the following things. They ask first for compensation from AFD because NII and/or Capital did not provide, or inadequately provided the courses they had paid for. Secondly, they ask for termination of their loan contracts with AFD.

(11) The debtors represented by CCLS and MBC have now formally applied to this Tribunal to be joined as parties to this proceeding. They have filed with the Tribunal outlines of submissions. The Tribunal set down the matter for hearing on 10 March 2004 and in doing so gave a further opportunity to the other individual debtors, who had filed notices with it, to make further submissions on the question of joinder. A number of individual debtors did so. Their submissions can be summarised as the request to be joined as parties for the reasons I have earlier given.

(12) At the hearing, the Tribunal heard extensive submissions from MBC, CCLS and the representatives for the parties. AFD opposes joinder. The Director, in effect, is content to abide by the decision of the Tribunal but does not oppose joinder.

(13) In essence, MBC and CCLS submit that the debtors that they represent should be joined as parties because their interests are affected by this proceeding, and because it is desirable to join them. In essence, AFD submits that the joinder of parties provision in s.60 of the Victorian Civil and Administrative Tribunal Act 1998, ("the VCAT Act"), is inconsistent with Part VI of the Code and so does not apply. Or alternatively having regard to the nature of this proceeding as shown by Part VI of the Code I should not exercise my discretion to join these debtors under s.60 of the VCAT Act.

(14) Apart from a decision of mine in Cashnow (Central Highlands)and the various debtors and Anor,. A decision of this Tribunal dated 1 March 2002, none of the submissions pointed me to any other case in which this matter has been considered in detail, or for that matter to any other material in which this matter has been considered in detail.

(15) I first say something about s.60 of the VCAT Act. I then considered the relevant provisions of Part VI of the Code. I then come to considering this particular application.

(16) I commence by making two introductory points. First there was a suggestion in the CCLS and MBC submissions that because of the relatively small number of contracts involved, and because a large number of debtors were represented wither by MBC or CCLS, joinder would not unduly lengthen this proceeding because the legal representatives would deal with the matter on the basis of the group that they represented rather than on the basis of each separate individual in that group. I do not consider that this is an appropriate way to approach this proceeding.

(17) An application by the Director under Division 1 of Part VI of the Code is, generally speaking, a class based application. It could, it is true, relate to any number of credit contracts, from one to hundreds of thousands. The debtors under those contracts may or may not be legally represented. The Tribunal, in my view, should not adopt an approach which will only be practicable where large numbers of debtors are legally represented. It should prefer an approach that will be workable, whatever the number of credit contracts affected, and whether the individual debtors are, or are not, legally represented.

(18) Second, while approximately 500 of the individual debtors under the contracts to which this application relates, are legally represented either by CCLS or MBC, the debtors under some 3500 of the contracts are not. Of these a few, less than 30 in all, have notified the Tribunal that they wished to be joined as parties. If the application of CCLS and MBC and all these individuals was granted, this would result in the joinder to this proceeding of some 530 debtors while the debtors under some 3500 of the relevant contracts would not be joined. To me such a result makes little sense. If in truth the interests of debtors are such that they ought to be joined, or it is otherwise desirable that they should be joined as parties, then all debtors under the relevant contracts should be joined as parties.

(19) Under s.60 of the VCAT Act the Tribunal can join parties, among other things, on its own initiative. If I had granted this joinder application I would have considered it appropriate to join the debtors under the other relevant contracts by using this power.

(20) I now come to s.60 of the VCAT Act. That section relevantly in sub-section (1) provides that -

"(1) The Tribunal may order that a person be joined as a party to a proceeding if the Tribunal considers that--

(a) the person ought to be bound by, or have the benefit of, an order of the Tribunal in the proceeding; or

(b) the person's interests are affected by the proceeding; or

(c) for any other reason it is desirable that the person be joined as a party."

(21) Section 60 (2) allows joinder on application or at the Tribunal's initiative.

(22) It is clear from decisions of VCAT under this section that the power given to the Tribunal is very broad. It is expressly and more broad than the joinder powers of the Supreme Court. In the context of s.60(1)(b) I accept that the word "interests" has a very broad interpretation covering pecuniary, proprietary, reputation and other personal interests - Indeed any interest in a proceeding which a person has beyond that of an ordinary member of the public.

(23) It is argued for AFD that this paragraph, that is s.60 (1)(b) was limited to the Tribunal's review jurisdiction by analogy with s.5 of the VCAT Act which uses the term "interests affected" and deals with decisions, and is clearly related only to the Tribunal's review jurisdiction. There is nothing, in my view, in the wording of s.60 (1)(b) to justify such a limitation. It is placed not in Division 3 of Part 3 which relates to the Tribunal's review jurisdiction only, but in Division 2 of Part 4 which contains general provisions relating to parties.

(24) MBC and CCLS argued that I should use the broad interpretation of "interests" contained in s.5 of the VCAT Act to support a similarly broad interpretation of the words "interests affected" in s.60 (1)(b). But s.5 may also have been included to clarify standing to seek the review of administrative decisions only rather than to give indication of the broader interpretation of other provisions of the VCAT Act. Without relying on s.5 I nevertheless consider that the words of s.60(1)(b), in their ordinary meaning and taking into account the breadth of the section as a whole, are very broad. And when combined with s.60 (1)(c) give very wide joinder powers to the Tribunal.

(25) As the Tribunal said in Gregor v. State of Victoria, a decision of mine the reference of which is 2001 VCAT 414, even if the criteria in s.60(1)(a), (b) or (c) are met, the provision still uses the word "may" so that joinder is still a discretionary matter. In deciding whether or not to exercise that discretion the Tribunal may take into account matters such as delay or prejudice, and also, in my view, and with particular relevance to this application, what the relevant legislation says about the nature of the particular proceeding.

(26) I now come to Division 1 of Part 6 of the Code. I note that s.159 of the VCAT Act has the effect that when applied to Part 6 of the Code, if a provision of that part is inconsistent with a provision of the VCAT Act, the provision of Part 6 prevails to the extent of the inconsistency. Using this provision it is argued for AFD that Division 1 of Part 6 of the Code is inconsistent with the joinder provision in s.60. So that those provisions do not apply to permit the joinder of individual debtors in this proceeding.

(27) I now summarise the provisions of Division 1 of

Part 6. Section 101 permits a party to a credit contract, a guarantor or the Government Consumer Agency, to apply to the "Court" for any order under the relevant division, that is Division 1 of the Part. The combined effect of the definitions in Schedule 1 of the Code and of the Consumer Credit (Victoria) Act 1995, ("CCVA"), is that in this context the "Court" means this Tribunal and "The Government Consumer Agency" means the Director.

(28) The effect of s.101(2)and (3) is this. The debtor or guarantor cannot, with one exception, apply under the division in respect of a contravention - that is a contravention of a key requirement as defined in s.100 - of a contract, if that contravention under that contract is or has been the subject of an application by the credit provider or relevant Government Consumer Agency anywhere in Australia under the Code or under a corresponding law. The exception is that the debtor, or guarantor, may still apply for an order for compensation under s.107.

(28) Under s.102, if an application is made under s.101, the Tribunal must declare whether or not the credit provider has contravened a key requirement in connection with a contract or contracts concerned. The Tribunal may then make an order that the credit provider is required to pay a civil penalty if satisfied that a key requirement has been contravened.

(29) Section 102(3) and (4) then set out matters to which the Tribunal must have regard in considering the imposition of the civil penalty. These include a number of matters which will be within the knowledge of the credit provider, such as its prudential standing, which the Tribunal must primarily take into account if the credit provider so requests; it's conduct before and after the contract was entered into; whether or not the breach was deliberate; when it became aware or ought recently to have become aware of the breach; any systems or procedures to identify or prevent breaches; whether it could have prevented the breach, and any action to remedy the breach to compensate debtors or to prevent further breaches.

(30) The matters also include matters which will be within the knowledge of the individual debtors and, in some cases, which may only be within their knowledge. Examples are the conduct of the debtor before and after the contract was entered into, and the loss or detriment suffered by the debtor as a result of the breach. It may well be that debtors may also be able to cast additional light on some of the matters I have earlier mentioned in connection with a credit provider, such as steps taken by the credit provider to compensate debtors or remedy the breach, and when the credit provider first became aware or ought reasonably to have become aware of the breach.

(31) Under s.111, the Director may apply to be joined as a party to a proceeding under the Division, and if joined "has standing to represent the public interest and the interests of debtors". I pause here to say that in my view this means the interest of all affected debtors, not only of some, or particular individuals.

(32) These are the provisions of the Division relevant to this proceeding which apply to all applications under the Division, whether by a credit provider, the Director, the debtor or a guarantor. But there are provisions of the Division which apply only to applications by the Director or a credit provider, and others which apply only to applications by a debtor or guarantor.

(33) I deal first with the relevant provisions which apply only to the Director and the credit provider.

(34) Under s.105 any civil penalty ordered must be calculated so that the total civil penalty for all breaches of the relevant key requirement in Australia as disclosed by the credit provider, do not exceed a specified maximum amount. The Tribunal must determine the appropriate penalty for breaches of the particular key requirement in all credit code jurisdictions, and then the amount applicable in each jurisdiction according to the number of contracts in that jurisdiction affected by the breach. The order is only effective in the jurisdiction in which it is made and not in any other code jurisdiction, except according to the law of that other jurisdiction.

(35) Under s.106, a civil penalty ordered on the application of credit provider or the Director is paid into the consumer credit fund. This is the combined effect of s.38 of the CCVA and the Credit (Administration) Act 1984.

(36) Section 110 makes it clear that applications by a credit provider or the Director can relate to classes of contract. It permits the tribunal to require the publication of notice of such an application in a newspaper circulating in Victoria or in Australia.

(37) I now briefly summarise those relevant provisions which relate only to applications by a debtor or guarantor. Under ss.103 and 104 any civil penalty ordered to be paid on the application of a debtor or guarantor is determined by reference to the interest charges payable under the particular contract. The penalty cannot exceed the interest charges payable in respect of certain periods specified under those sections. The civil penalty may, however, be increased if the Tribunal is satisfied that the debtor has suffered loss. A civil penalty can be set off against amounts due under the contract by the debtor or guarantor to the credit provider, or it can be recovered from the provider as a debt.

(38) Section 107 is a provision permitting a debtor or guarantor to make a separate application for compensation for loss arising from a breach by a credit provider of a key requirement. But this application cannot be made if the debtor or guarantor has previously obtained, or been refused, a civil penalty in respect of that breach.

(39) Section 112 permits the Tribunal to make appropriate directions to protect the interests of a debtor or guarantor who has applied under the Division.

(40) I now come to the various submissions. It is first submitted for AFD that this division, at least insofar as it relates to applications by the Director, is inconsistent with s.60 of the VCAT Act and joinder of the debtors is not contemplated by Division 1 of Part VI of the Code. The only joinder power, it is said, is that in s.111 which relates of course to the Director and relates only to applications, or must by implication relate only to applications made by the credit provider, a debtor or guarantor. I should take into account that this is a uniform code, it is said, which has been applied in the various States or Territories. If it had been intended that others could be joined under Division 1 of Part VI of the Code, the Code would have said so. It was not intended that the joinder should be left to the vagaries of what might well be different joinder provisions in the different States and Territories legislation which establishes judicial and administrative mechanisms to support the provisions of the Code.

(41) While it is true that the Code represents a uniform regulatory scheme, it is applied in the various States and Territories by their own law. In Victoria, for example, the CCVA adopts or applies the Code as part of the law of Victoria. That Act goes on, among other things, to give VCAT jurisdiction under the Code as so adopted. There is nothing, in my view, in the Code or its method of adoption under the CCVA to suggest either expressly or by necessary implication that s.60 of the VCAT Act does not apply to Division 1 of Part VI of the Code.

(42) CCLS and MBC then submit that the interests of individual debtors are affected by this proceeding and that it is otherwise desirable to join them as parties. First they say that it is probable, as I suggested in the Cashnow Case, that the declaration as to whether or not key requirements have been breached, will bind all debtors under the contracts to which the application relates, as well as, of course, the credit provider and the Director. If the debtors are to be bound by the declaration they should be able to participate in the proceeding in which it is made and have a sufficient interest to do so. If, on the other hand, there is any doubt about whether the declaration would bind the debtors who were not parties to the proceeding, then the debtors should be joined to ensure that they are bound. This would prevent any future attempt by the debtors to re-litigate for example on a compensation application under s.107 the issue of whether not a particular key requirement in issue in this proceeding has been breached.

(43) The making of the declaration, it is said, is of critical importance to the debtors. It could be used as a basis for subsequent applications under s.107 for compensation, if the declaration were that particular key requirements had been breached. It could be used by the debtors in subsequent proceedings for a breach of s.21 of the Code or s.39 of the CCVA. These are provisions relating to the unenforceability of contracts which contain prohibited terms concerning interest. This would be so if the declaration indicated that the high risk hold back, or the interest free hold back constituted interest.

(44) Second, it is said that the debtors can assist the Tribunal by making submissions as to issues not covered, or not fully addressed, by the Director or AFD during the proceeding. For example, those issues might include loss to debtors resulting from the alleged breaches of key requirements.

(45) In essence it is argued for AFD that whether or not in a broad sense the proceeding affects the interests of debtors, the proceeding is of a general and not an individual nature. Accordingly it is not intended that each individual debtor should be a party. It is also argued that the exact role of the debtors, and the relief they would seek in this proceeding, have not been specified. AFD also argues that by seeking joinder the debtors are effectively seeking the same relief as they would if they had applied under s.101. That section bars individual debtors from applying under s.101 where the Director has already applied. I should not permit individual debtors to do indirectly by joinder, what s.101 bars them from doing directly by application.

(46) I now express my views on the nature of this proceeding. In my view a proceeding by the Director under Division 1 of Part VI is of a general or global nature. It could, it is true, relate to only one contract or a few contracts. But it could relate to a vast number of contracts, and is more likely to do so. Just as when joined as a party under s.111 the Director has standing to represent the public interest and the interests of debtors, so also, in my view, the Director when applying under this Division represents the public interests and the interests of all debtors. Where the Division requires the Tribunal to take into account the loss of affected debtors, it does not mean that the Tribunal must hear every individual debtor and determine what loss every individual debtor suffered. The Tribunal must take the loss of debtors into account in a global way. Any civil penalty ordered on an application by the Director goes into a statutory fund, not to the individual debtors.

(47) A declaration will clearly declare whether or not key requirements have been breached, but the declaration will relate to the whole population of affected contracts. It will not relate to every individual contract. The Tribunal does not have to look at every individual contract to see if it contains particular key requirements to which the declaration relates. The declaration is, in my view, binding on all debtors under the contracts affected by the application. This is so because in some sense the proceeding is brought by the Director in the interests of all the debtors and has at least some of the character of a representative proceeding. It is also because, in my view, the Code does not intend that each individual debtor could, on a compensation application under s.107, argue that the Tribunal has been wrong on a previous application made for example by the Director or the credit provider, and related to the same breach and the same contract, in declaring at that time that in the particular circumstances there was no breach of the key requirement of the Code. In this sense the declaration binds more than just the immediate applicant and the immediate respondent to this proceeding.

(48) I should add that I have considered this issue in terms of statutory construction rather than by trying to apply the distinctions between a remedy in rem or in personam.

(49) There is no need then to join every individual debtor to make sure that he or she is bound by the declaration that the Tribunal might make.

(50) The correctness of this view can be tested by asking "In what capacity should the debtors be joined?" they cannot, in my view, be applicants. They are prevented by s.101(2) from making application for a civil penalty to be paid direct to them. In any event it is clear to me from the submissions made at the hearing that this is not what is sought by the debtors represented by MBC and CCLS. The debtors cannot be joined as applicants with the Director. The Division only permits the Director or credit provider to make an application which if granted would result in the payment of any civil penalty to the consumer credit fund. The debtors are not properly respondents. The proper respondent, the organisation which has allegedly breached the Code and against whom the civil penalty is sought, is AFD.

(51) This proceeding is to be contrasted, in my view, with the proceeding where a debtor or guarantor applies under the Division. That proceeding directly involves an individual contract, and where the penalty is payable it is payable to an individual.

(51) An examination of the nature of this proceeding leads me to conclude that the joinder of individual debtors in this case is not consistent with the nature of the proceeding and therefore I refuse to exercise my discretion to join the debtors as individual. But this does not mean that debtors should not be able to participate in the proceeding, or at least some part of it.

(52) In my view there are two parts of this proceeding in which such participation would be appropriate. First there is mediation. If this matter goes to mediation it may be that issues such as the making of refunds or other compensation to debtors will be discussed. Just as the proceeding is global, I would anticipate that discussion of refunds or compensation schemes would proceed on a global basis. The question of loss by the affected debtors might also arise. If this matter is listed for mediation and the debtors then applied for leave to intervene under s.73 of the VCAT Act in respect of that mediation, my preliminary view, subject to any submissions the parties might then make, is that leave should be granted.

(53) Second, there is the hearing. It may be that the parties in the evidence and submissions that are to be given or made at the hearing, have omitted some important issue, or not dealt adequately with such an issue. If this were the case and the debtors applied for leave to intervene in the hearing, my preliminary view, subject to any submissions the parties might then make, is that leave should be granted.

(54) That leave might well limit participation to the making of submissions only and might also make it clear that the issues must be addressed on a global rather than an individual basis. Leave should not of course be granted if all that is sought to be done is to repeat submissions already made by any of the parties.

(55) I intend to give leave to apply for leave to intervene in these two ways, to the debtors represented at the relevant time by MBC or CCLS. I do not intend to give this liberty to apply to the other individuals who have notified the Tribunal of their wish to participate in this proceeding.

(56) As I said in my summary of what they said in their notices, what the individuals sought was either compensation or the termination of their loan contracts. Neither of these are remedies which the Tribunal could order in this proceeding. Of course there may well be applications under other provisions of the Code which these debtors could make.

(57) I make some concluding comments. First, although some of what I have said will apply equally to applications under Division 1 of Part VI by the Director, or by the credit provider, it should not be assumed that the same reasoning automatically applies to applications by the credit provider. For example, joinder of individual debtors might be appropriate on such an application if the Director did not apply to be joined, or if the class of affected contracts was so small that individual circumstances could hardly be ignored.

(58) Second, in view of what I have said about liberty to apply for leave to intervene, and to facilitate such an application, I have directed that copies of directions, orders and notices by the Tribunal and of documents filed by the parties with the Tribunal, will be served by our principal Registrar on MBC and CCLS. Without this information they would not be in a position to know whether and when it would be appropriate to apply for leave to intervene.

(59) Third, this decision considers in more detail, and after very extensive submissions, some of the matters touched on briefly in the Cashnow Case. I emphasise that that case concerned the issue of notice to debtors rather than of joinder, and related to an application by the credit provider rather than by the Director.

(60) Fourth, I do not accept that the publication of the advertisement asking debtors to notify any wish to participate in the proceeding gives those debtors automatic right to be joined by the tribunal as parties. Leave to intervene is in my view the appropriate way in which to permit debtors to participate in this proceeding. But it is still relevant for the Tribunal to know which debtors might wish to take this step. As I have said, where the application is by a credit provider there may well be cases where joinder of debtors would be appropriate.

(61) Fifth, because of my conclusions it has been unnecessary for me to consider at this time the question of costs, prejudice, and a number of other matters raised by the parties.

(62) Sixth, in reaching my decision I have not relied on cases decided under the now repealed Credit Acts. Those Acts in this respect are quite different from the Code. That completes my reasons for decision.