New South Wales Supreme Court CITATION : Police Dept Employees' Credit Union v Flood [1999] NSWSC 885 CURRENT JURISDICTION : Administrative Law Division FILE NUMBER(S) : 30004/99 HEARING DATE(S) : 22-23, 29 July 1999 JUDGMENT DATE : 2 September 1999 Police Department Employees' Credit Union Limited (Plaintiff) v PARTIES : Pamela Flood (First Defendant) Commercial Tribunal of New South Wales (Second Defendant) JUDGMENT OF : Davies AJ LOWER COURT JURISDICTION : Commercial Tribunal of NSW LOWER COURT FILE NUMBER(S) : 1167/97 LOWER COURT JUDICIAL OFFICER : O'Connor J COUNSEL : P - Mr R G Forster SC 1D - Mr P Bingham P - Lange & Co SOLICITORS : 1D - Legal Aid Commission 2D - Submitting Appearance CATCHWORDS : Consumer credit; whether breach of Consumer Credit (NSW) Code; whether a pre-Code continuing contract can be partly in writing and partly not in writing; whether a credit contract imposed a fee and an interest charge in breach of the Code; whether the opening and closing balances in statements of account must be correct in fact or correctly reflect the credit provider's books; whether a statement of account should include interest actually debited or only interest properly debited; whether insurance particulars previously disclosed in accordance with the Code; whether credit limited to a period not exceeding 60 days; whether overdrawn credit constituted the provision of credit without prior agreement so as to exclude the operation of the Code; whether charges payable even if credit facilities not available Commercial Tribunal Act 1984, s20 ACTS CITED : Consumer Credit (NSW) Code, ss7,12,14,15, 21,26,32,102-104 Consumer Credit Regulations, reg41,43,48,58 DECISION : See para 47 IN THE SUPREME COURT OF NEW SOUTH WALES ADMINISTRATIVE LAW DIVISION DAVIES AJ Thursday, 2 September 1999 30004/99 - POLICE DEPARTMENT EMPLOYEES' CREDIT UNION LIMITED v Pamela FLOOD & ANOR JUDGMENT 1 HIS HONOUR: This is an appeal from a judgment of the Commercial Tribunal of New South Wales ("the Tribunal"), constituted by his Honour Judge K P O'Connor, Chairman, given on 30 November 1998. As the appeal is brought under s 20(5) of the Commercial Tribunal Act 1984 ("the Act"), it is limited to questions of law. 2 Issues arising under the Consumer Credit (New South Wales) Code ("the Code") and the Consumer Credit Regulations ("the regulations") were raised before his Honour and he dealt with the matter with care and clarity in the 48 pages of his reasons for judgment. In this Court, many of the same issues were debated again and additional issues were raised on both sides, the issues being said to raise questions of law only. I allowed the parties to raise the additional matters as it seemed to me that the basic question to be resolved was how the Code and the regulations applied to the factual circumstances which were before his Honour. I considered that it would be wrong to overlook relevant provisions of the Code or the regulations if they bore upon the issues in dispute. 3 In the appeal, Mr R G Forster SC appeared for the plaintiff, the Police Department Employees' Credit Union Limited ("the Union"), and Mr P Bingham of counsel appeared for the first defendant, Pamela Flood. 4 The Consumer Credit Code set out in the Consumer Credit (Queensland) Act 1994 (QLD) was, by s 5 of the Consumer Credit (New South Wales) Act 1995, applied as a law of New South Wales under the name of the Consumer Credit (New South Wales) Code . Counsel are agreed that the Code relevantly came into operation on 16 November 1996. The Tribunal found that, in relation to a credit contract which Ms Flood had with the Union, the Union had breached ss 21(1)(b) and (c), 21(3), 26, 32(B), 32(E) and 32(I) of the Code. The Tribunal held that the contraventions under ss 21(1)(b) and (c) and under s 32(E) of the Code constituted contraventions of key requirements, as specified in s 100 of the Code, and accordingly, the Tribunal imposed a civil penalty in accordance with the provisions of s 102 and ordered, under ss 103 and 104 of the Code, that the penalties be paid to Ms Flood and set off against the amount properly due under the credit contract. The Credit Contract 5 Ms Flood joined the Union in October 1994 and by doing so opened an S1 Easy Access Savings Account. The S1 account was not a credit account. By her application form, Ms Flood agreed to pay any charges required by the Union as listed in the Rules and further agreed to be bound by the Rules and any amendments thereof. On 27 January 1995, Ms Flood entered into a Line of Credit Loan Agreement ("the L12 contract") under which she was granted a credit loan in the sum of $3,000. The written Agreement contained the following provisions: "10. Interest shall be charged on the total principal, or so much thereof as shall remain unpaid, at the rate determined from time to time by the Board of Directors of the Credit Union. The current rate is 1.330 per month at monthly rests. 15.96%pa 11. The member shall make payments of principal and interest at the rate of $70 per fortnight. 12. It is understood and agreed that advances may be made under this agreement in a sum or sums not to exceed the Approved Amount of $3000 and that each of such advances shall constitute a loan and shall be added to the balance then owing but so that the maximum amount outstanding on the account at any time shall not exceed the approved amount, plus charges and 1.330% of that total amount." The Agreement also contained the following declaration and acceptance: "I declare that the information stated within this loan application is true and correct in every particular, AND I HEREBY ACCEPT the Terms and Conditions set out above and acknowledge that I am subject to the liabilities and restrictions imposed by the NSW Credit Union Act (as amended) and by the Rules of the Credit Union." It may be noted that the Agreement did not make provision for overdrawings, save insofar as it referred to overdrawings to the extent of 1.330% of credit provided. Otherwise, the express agreement was that Ms Flood would not exceed the approved amount. 6 The Tribunal held that the acceptance stated in the L12 contract was not sufficient to incorporate into the contract the rules and practices of the Union as they related to fees and charges. I agree with that view. I would not interpret the contract as a written agreement to pay the subject overdrawn service fee ("OSF"), which on 27 January 1995 was $15 per month. At the most, the terms of the acceptance should be given the interpretation that the L12 contract was not to be read as inconsistent with the liabilities and restrictions imposed by the Rules of the Union and, therefore, that it was not to be read as excluding, by written agreement, the operation of charges such as the OSF imposed under the Rules. 7 At a Special General Meeting of the Union held on 21 July 1993, the Rules of the Union had been amended to include the following provision: "20.6 Fees and Charges (1) Except as provided by the Code, the Board may from time to time determine fees and charges for any one service provided by the credit union. (2) The Board must cause notice of its determinations under this Rule to be published at regular intervals to members and to be displayed at all offices of the Credit Union." (emphasis added) One fee determined by the Board was a fee of $15 per month on an overdrawn account. This fee was first imposed on Ms Flood's overdrawn account on 3 April 1995, and in most months thereafter. Thus, Ms Flood was well aware of the charge prior to the commencement of the Code. On 1 September 1996, after discussion, the Union credited Ms Flood's account with $105 being a credit for the last eight months' OSF. I need not explain why this occurred. The interest was not readjusted. The fee was increased on or about 15 October 1996 to $17.50 per month. The Schedule of Fees and Charges as at 15 October 1996 sent to members of the Union included this item: " Overdrawn Savings or Line of Credit * Line of Credit Overdrawn by $200 of Approved Limit within a calendar month or any Savings Account overdrawn by $50 or more within a calendar month effective from 1/12/96 ………………………… $17.50 plus Line Of Credit Rate will be charged on all overdrawn savings and amounts over the approved Line Of Credit limit." It was to be inferred by this description that the OSF was to be charged to the overdrawn account, as occurred in fact. There have been no calculations to show, and the Tribunal did not find, that the OSF charged to Ms Flood's account did not accord with the authority to impose it. 8 Mr Bingham submitted that the rule introduced on 21 July 1993 did not authorise the Board to impose a charge on an overdrawn credit account. He submitted that the words "any one service" should be read as authorising the charging of a fee for a specific service which the Board had agreed to provide. In my opinion, this submission should be rejected. It is clear from rule 20.6(2) that the rule was intended to encompass the range of activities in which the Union engaged with its members and that the Board would, from time to time, determine relevant fees and charges and would publish those fees and charges to the members. The rule was wide enough to authorise the Board to impose an overdrawn service fee (OSF) on the overdrawn accounts of its members. The provision of credit was a service. 9 That was the view taken by the Tribunal. The Tribunal found that the OSF was lawfully imposed, that, on the balance of probabilities, the information brochures relating to fees and charges, including the brochure of October 1996, was sent to Ms Flood at the address to which the monthly accounts were sent and that Ms Flood was contractually bound to pay the fee. 10 The Tribunal then held: "100. It will be apparent from my analysis of the issues, that I regard the OSF as not having been lawfully imposed by the credit contract . On the other hand I do regard it as having been lawfully imposed by the membership contract ." The Tribunal regarded this distinction between the credit contract and the membership contract as crucial, notwithstanding that the imposition of the monthly charge, and of interest on the monthly balance increased thereby, became a regular part of the credit arrangements between Ms Flood and the Union eighteen months before the Code came into operation. 11 Under s 12 of the Code, the credit contract must be in the form of a written contract document. Section 15 sets out matters which the contract document must contain. Had Ms Flood's credit transaction been entered into after the commencement of the Code, it would have been necessary for a charge such as the OSF to have been included in the written contract. That is clear from the requirement that the credit contract be a written document and from s 15 of the Code which requires that all credit fees and charges that are or may become payable under the contract be stated. However, that law did not govern the transaction when Ms Flood entered into her contract on 27 January 1995. I am informed by Mr Bingham that, prior to the Code, the Union was not required to ensure that all relevant charges were set out in the relevant written credit contract. 12 Prior to the commencement of the Code, two arrangements operated with respect to Ms Flood's by then overdrawn credit account. Firstly, the terms of the L12 contract of 27 January 1995 applied. Secondly, monthly OSF charges were imposed pursuant to the Rules of the Union. 13 It is not in dispute that, whatever the arrangement was between Ms Flood and the Union, it was a "pre-Code continuing credit contract" as defined in reg 41. The Tribunal so held. The Tribunal held, however, that the relevant credit contract was that executed on 27 January 1995, the L12 contract, and that the terms of that contract were set out in the written document. The Tribunal drew attention to the principle that, where the parties have executed a formal document, they are presumed to have expressed all of the terms of the contract. The Tribunal held that the L12 Line of Credit Loan constituted a credit transaction separate from the original transaction of joining the Union. The Tribunal rejected the Union's submission that the L12 transaction formed part of a single credit contract which had a number of components. The Tribunal therefore went on to consider the issues between the parties on the footing that the terms set out in the L12 contract of 27 January 1995 contained all the terms of the credit contract. The Tribunal applied the terms of the Code accordingly. 14 In my opinion, that approach was wrong in law. The Tribunal was considering a pre-Code continuing credit contract. It was necessary for the Tribunal to take into account all those arrangements between the parties which, had the credit transaction been entered into after the coming into operation of the Code, should have been set out in the written contract required by s 12. It was not necessary that a pre-Code continuing credit contract be contained entirely in one document, or that it be entirely documented. 15 In my opinion, the OSF charge, which Ms Flood was bound to pay, formed part of the arrangements between Ms Flood and the Union with respect to her credit loan and was a part of the pre-Code continuing credit contract. It was wrong for the Tribunal to proceed on the footing that Ms Flood was not bound to pay the OSF under a credit contract. The OSF was not a fee payable in respect of Ms Flood's membership. It was payable in respect of the credit provided to her and it was a term of her credit arrangements. Ms Flood was contractually bound to pay the OSF and, when the Union imposed the monthly charge on her overdrawn credit account, it did so in pursuance of its contractual entitlement to do so. The Code did not strike down that contractual entitlement. It was not held by the Tribunal that the charge would have offended any stipulation of the Code had it been contained in a written contract. 16 What was submitted to the Tribunal was that, as the OSF was not a term of the L12 contract of 27 January 1995, it was to be ignored. The Tribunal accepted that submission and proceeded on the footing that, on the coming into operation of the Code, the Union was no longer entitled to charge the OSF. However, reg 41, which defines a "pre-Code continuing credit contract" , does not specify the form in which that contract may be found. Regulation 43(1) provides that the Code applies to the provision of credit under a pre-Code continuing credit contract but that the Code does not apply to anything done or omitted to be done in respect of the contract before the deferred commencement date, which has been agreed as 16 November 1996. Accordingly, whatever was done before the commencement of the Code continued to have validity and effect under the law under which it was done; but actions taken after the commencement of the Code were required to comply with the Code. 17 If support is needed for the view that I have just expressed that a pre-Code continuing credit contract continues in force notwithstanding that it does not comply with ss 12 and 15, one finds support in reg 48 which provides that, not later than three months after the commencement of the Code, the Union must give to the debtor the statements required by s 14 of the Code, which provides for 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. On or about 18 December 1996, the Union sent to all its members having an L12 contract, including the applicant, a document which was intended, inter alia, to comply with the requirements of reg 48. That document did not in fact refer to the OSF and, accordingly, there would appear to have been a breach of reg 48. However, that was not an issue raised before the Tribunal. 18 I turn now to the breaches found by the Tribunal to have occurred. Section 21(3) 19 This subsection reads: (3) A credit fee or charge cannot be charged in respect of a credit contract unless the contract authorises it to be charged. 20 As a monthly OSF fee of $17.50 was imposed on Ms Flood's overdrawn L12 account from 2 January 1997 onwards, and as the L12 contract of 27 January 1995 did not make reference to any such fee, the Tribunal found that the Union had imposed a credit charge in respect of a credit contract in the circumstance that the credit contract had not authorised it to be charged. The Tribunal accepted that Ms Flood was contractually bound to pay the charge and that the Union was entitled as a matter of contract to impose it but considered that the pre-Code continuing credit contract did not authorise it to be charged. 21 I have already expressed my view that the Tribunal was wrong in law in finding that the pre-Code continuing credit contract was comprised of the written agreement in which Ms Flood undertook, inter alia, not to exceed the approved credit of $3,000 and charges plus 1.330% of that total amount and Ms Flood's agreement to abide by the Rules of the Union in accordance with which the Union imposed the OSF on overdrawn credit accounts. Accordingly, the imposition of the OSF was authorised by the pre-Code continuing credit contract. 22 In the light of this conclusion, most of the other breaches found by the Tribunal necessarily fail, but, as there has been debate about them, I should discuss them. There are additional reasons why these findings erred in law. Section 21(1)(b) and (c) 23 These provisions read: 21 . (1) A credit contract must not impose a monetary liability on the debtor- … (b) in respect of an amount of a fee or charge exceeding the amount that may be charged consistently with this Code; or (c) in respect of an interest charge under the contract exceeding the amount that may be charged consistently with this Code. 24 The Tribunal found that, as the Union had charged a monthly fee which the L12 contract had not authorised and as it charged interest on the monthly balance which included the charge, the Union breached both paragraphs (b) and (c). No other basis for a breach of these provisions was found. 25 In my opinion, it is not possible to base a breach of s 21(1) on a breach of s 21(3). The two provisions speak of different and inconsistent matters. Section 21(3) does not apply unless the contract does not authorise the imposition of the subject fee or charge. Section 21(1)(b) and (c) operates only when the contract imposes the relevant fee, charge or interest. As the Tribunal found that the L12 contract did not authorise the imposition of the OSF, the Tribunal ought to have rejected the submission that there was a breach of s 21(1)(b). Similarly, the Tribunal ought not to have held that the contract imposed interest upon an invalid charge. Section 32(B) 26 This provision reads: 32 . A statement of account must contain the following matters- … (B) Balances . The opening and closing balances (indicating the amount owed by the debtor at the beginning and at the end of the statement period). 27 The Tribunal held that, as the Union had wrongly imposed the monthly OSF charges on Ms Flood's L12 account, it had failed to provide statements of account which disclosed the opening and closing balances, indicating the amounts owed by the debtor at the beginning and end of each statement period. The Tribunal held that the balances shown were incorrect. 28 In my opinion, s 32(B) is not concerned with any such matter but rather with the provision of information showing the state of the debtor's account at the beginning and end of each statement period. Such a statement should reflect the state of the account as reflected in the creditor's, in this case the Union's, books of account. Section 32(F) requires particulars of any fees and charges debited to the debtor's account during the statement period and s 32(G) requires particulars of each amount credited to the debtor during the statement period and of payments debited to the account during the statement period. If, during the statement period, a fee or charge is wrongly charged to the account or a payment that ought to have been credited into the account was not credited or a payment that ought to have been debited to the account was not debited, that matters not for the purposes of s 32(B). The paragraph requires information to be given as to how the account stands. If a charge was debited or if an amount was credited or a payment was debited in fact, the statement must disclose this. Only by a disclosure of what has occurred can the debtor be fully informed of the state of the account and enabled to take remedial steps if not satisfied with the position. 29 As the statements of account provided by the Union to Ms Flood correctly recorded the entries to her account, including the charges debited to her account and the opening and closing balances as shown in the Union's records, there was no breach of s 32(B). Section 32(E) 30 This provision reads: 32 . A statement of account must contain the following matters- … (E) Interest charges. (a) The amount of the interest charge debited to the debtor's account during the statement period and when the interest was debited. (b) The annual percentage rate or rates and, if required by Part 4, details of any change since the last statement period. 31 The Tribunal found that there had been a breach of this provision. However, as the Union's statements of account showed the interest debited to Ms Flood's account during the statement period, there was no breach. Section 32(I) 32 This provision reads: 32 . A statement of account must contain the following matters- … (I) Insurance payments . If payment to an insurer is made during the statement period under a credit-related insurance contract that is agreed to be financed under the credit contract- (a) the name of the insurer, the amount paid to the insurer and the kind of insurance; (b) if the credit provider is aware of any commission to be paid by the insurer in relation to the insurance contract - the amount of the commission expressed either as a monetary amount or as a proportion of the premium, if ascertainable when the statement is given; (if not previously disclosed in accordance with this Code). 33 Ms Flood had entered into a policy of disability benefit insurance which required payment of a fortnightly amount by way of premium. Ms Flood became disabled and the disability benefit was paid to the maximum available under the policy. Ms Flood continued the insurance cover even after this time and so a debit of about $7 per month for "DISABILITY COVER" appeared in each of her monthly statements. 34 The information statement, sent in December 1996 to Ms Flood and other members of the Union having an L12 contract, contained the information: "Insurer: THE CUNA MUTUAL GROUP Type of Insurance: SICKNESS AND ACCIDENT INSURANCE Period of Insurance Contract: FOR THE DURATION OF THIS FACILITY Premium Payable to Insurer: 17.5 CENTS/$100 DRAWN OR PART THEREOF We will receive a commission for your insurance business 20% of the premium" As I have already mentioned, the document in which that information was contained was sent to the members in satisfaction of the requirements of reg 48 which incorporates s 15 and, inter alia, paragraph (N) thereof which deals with the particulars to be given in relation to a credit-related insurance contract. 35 The information provided by the Union complied with the information specified in s 15(N), save insofar as the description, "THE CUNA MUTUAL GROUP", did not adequately set out the name of the insurer. The "Certificate as to Insurance" described the policy of insurance as being with "the CUNA Mutual Insurance Group" . Obviously, the precise company was not named. There may have been a technical breach of the Code but there was no finding of the Tribunal on that point and no penalty was imposed because of it. 36 Mr Forster submitted that, as the relevant information had been disclosed to Ms Flood in accordance with the Code in the statement supplied in accordance with reg 48, no breach of s 32(I) of the Code occurred. Mr Bingham submitted that, as ss 14 and 15 of the Code did not apply directly to a pre-Code continuing credit contract, then the information had not been previously disclosed in accordance with the Code and that it was necessary that the Union disclose the information in every monthly statement, as in fact occurred in statements issued to Ms Flood as from 15 October 1997. I prefer Mr Forster's interpretation of the Code. I consider that s 32(I) does not require disclosure in each monthly statement and would be satisfied if the insurance arrangements were disclosed in the pre-contractual statement provided under s 14 and in the contract in accordance with s 15(N). In my opinion, disclosure in accordance with the transitional reg 48, as occurred in the present case, was a sufficient disclosure. 37 The Tribunal said: "118. The post-Code monthly statements of account were alleged to be inaccurate, and therefore in contravention of s.32, in that the statements did not show the name of the insurer, the amount of commission in respect of payment to an insurer and the minimum amount payable under that agreement. The PDECU did not dispute those allegations ." (emphasis added) It was submitted by Mr Bingham that the Tribunal proceeded on the footing that there had been a concession of breach of s 32(I). I do not read the Tribunal's reasons in that way. In that passage, the Tribunal was merely stating that the Union did not dispute that the statements prior to 15 October 1997 did not show the information of which s 32(I) speaks. 38 The Tribunal said that, although the notice to members sent out in December 1996 did include a disclosure of particulars in the insurance held in connection with the loans, the copies of statements of account from November 1996 to September 1997 did not contain this information. On this basis, the Tribunal found that there was a breach of s 32(I). In my opinion, the Tribunal erred in that the disclosure made in accordance with reg 48 was a relevant disclosure in accordance with the Code. Therefore, there was no breach of s 32(I). 39 As a result, I am satisfied that the Tribunal erred in law in all its findings of breach of the Code. However, there are still some issues which were raised by Mr Forster which I should mention, as they were debated before me. Section 7 40 This section reads, inter alia: 7. (1) Short term credit . This Code does not apply to the provision of credit limited by the contract to a total period not exceeding 62 days. (2) Credit without prior agreement. This Code does not apply to the provision of credit without prior agreement between the credit provider and the debtor. For example, when a cheque account becomes overdrawn but there is no agreed overdraft facility or when a savings account falls into debit. 41 Mr Forster submitted that, as the L12 contract of 27 January 1995 provided in clause 2 that the total principal was "repayable immediately on demand" , then, by reason of s 7(1), it was not a contract to which the Code applied. I reject that submission. Section 7(1) refers to a situation where the provision of credit is limited by the contract to a period not exceeding 62 days. There was nothing in the arrangement between Ms Flood and the Union which limited the provision of credit to a period not exceeding 62 days. The period was not limited by time; but the sum due could be called up on demand. 42 Mr Forster further submitted that, as Ms Flood had expressly agreed in her contract of 27 January 1995 not to exceed the approved line of credit, the provision of credit beyond this sum was a provision of credit without prior agreement, within the meaning of those words in s 7(2). He put the point that credit over the agreed amount came about when cheques were drawn and the Union, in its discretion, paid them. He submitted that such a circumstance amounted to a provision of credit without prior agreement. 43 I prefer Mr Bingham's exposition of s 7(2), which is that it applies in only a very limited case, that is where there has been no relevant agreement for the provision of credit, such a circumstance being, for example, where a member of a union, without having arranged any credit facility, overdraws on a savings account. Regulation 58 44 This regulation reads, inter alia: 58(2) For the purposes of the Code, credit fees and charges do not include any fees or charges that are payable to or by a credit provider in connection with a credit contract in connection with which both credit and debit facilities are available if the fees or charges would be payable even if credit facilities were not available . (emphasis added) 45 Mr Forster relied upon this provision to submit that the monthly OSF charges were exempt from the Code by reason that the charges would be payable even if credit facilities were not available. Mr Forster submitted that the monthly charge of $17.50 was imposed on overdrawn accounts, whether they be savings accounts or credit accounts. 46 The L12 credit arrangement was one in respect of which both debit and credit facilities were available. The OSF applied to a line of credit overdrawn by $200 above the approved limit. I have earlier set out this provision. Therefore, it was a charge on a credit account, on an overdrawn line of credit. Therefore, reg 58(2) did not apply. Regulation 58(2) looks to fees and charges which are payable whether or not a credit facility is available. The subject OSF charges were not of that character. Transaction charges which apply whether or not credit is available may have the stipulated character. Conclusion 47 For these reasons, I am of the view that all parts of the Tribunal's determination, declaration and orders, other than paragraphs 1 and 7 of the determination, should be set aside. The parties may apply, within ten days, for consequential orders including orders with respect to costs. ********** Last Modified: 09/02/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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