New South Wales Supreme Court CITATION : ELDERTON & ANOR v AUSTRALIAN FINANCE DIRECT LIMITED; ELDERTON v AUSTRALIAN FINANCE DIRECT LIMITED [2007] NSWSC 1192 HEARING DATE(S) : 16 November 2006 JUDGMENT DATE : 24 October 2007 JURISDICTION : Common Law JUDGMENT OF : Hulme J DECISION : In matter 11176/06; (i) Dismiss the summons; (ii) Appellants to pay Respondent's costs in this Court; In matter 11177/06; (i) Grant leave to appeal; (ii) Quash the decision of Mr Dillon made on 10 February 2006; (iii) In lieu thereof, order that the Plaintiff's claim in Downing Centre Local Court proceedings 5583/05 be dismissed; (iv) Respondent to pay Appellant's costs in this Court and the Local Court. CATCHWORDS : Appeal from local court – further evidence – consumer credit code section 125 – Contracts Review Act – no question of principle LEGISLATION CITED : Civil Procedure Act 2005 Contracts Review Act 1980 CASES CITED : Garcia v National Australia Bank Ltd (1998) 194 CLR 393 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 Timothy Richard Elderton – Appellant (11176/06 & 1177/06) PARTIES : Carolyn Elderton – Co Appellant (11176/06) Australian Finance Direct Limited - Respondent FILE NUMBER(S) : SC 11176/06; 11177/06 COUNSEL : Unrepresented (Emerson-Elliott, as McKenzie friend) – Appellants J M White – Respondent SOLICITORS : In person (Emerson-Elliott, as McKenzie friend) - Appellants Dibbs Abbott Stillman – Respondent LOWER COURT JURISDICTION : Local Court LOWER COURT FILE NUMBER(S) : 5583/05 LOWER COURT JUDICIAL OFFICER : Dillon LCM LOWER COURT DATE OF DECISION : 10 February 2006 IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION HULME J 24 October 2007 11176/06 11177/06 Timothy Richard ELDERTON & ANOR v AUSTRALIAN FINANCE DIRECT LIMITED ELDERTON v AUSTRALIAN FINANCE DIRECT LIMITED JUDGMENT 1 HIS HONOUR: These reasons concern 2 proceedings in this Court challenging decisions in the Local Court in favour of Australian Finance Direct Ltd (hereinafter referred to as "AFD") against, in the one case, Carolyn Elderton in an amount of $15,340 plus interest, and in a second case, her husband Timothy Elderton in an amount of $29,009 plus interest. Before turning to the particular grounds of challenge, and because there was a certain lack of clarity in the way issues were formulated and dealt with in the court below, there is virtue in recording at a little length the circumstances bearing on the issues and the course of proceedings there. 2 There was no dispute that AFD had lent the principal moneys for which it sued, opposition to its claims being based on the circumstances which were said to have preceded those loans. In evidence that was unchallenged and uncontradicted, Mr Elderton said that in 2002 he ran into financial difficulty and entered into an arrangement pursuant to Part X of the Bankruptcy Act. With a view to improving his financial situation he was encouraged, and he claimed persuaded, by one of his former employees Ms Victoria Chernyak, to undertake an investment course run by an organisation, National Investment Institute (hereinafter referred to as "NII"). When he had said that he could not afford such a course she offered to provide, or assist him to obtain, credit. She provided an application form he completed. A little time later she said that there was a hitch arising from his Part X arrangement and Mrs Elderton's name on the application was needed. Ms Chernyak then provided another application form which, after discussion between Mr and Mrs Elderton, the latter signed. 3 The application was successful and Mr Elderton commenced the course. Some time later, Mr Elderton's Part X arrangement came to an end. In about April 2003, Ms Chernyak spoke to Mr Elderton again and encouraged him to undertake a further course entitled "Gold Plus Affiliates". She provided another AFD application form which Mr Elderton completed and which was apparently also approved. Mr Elderton commenced that second course in May or June 2006. In November 2003, NII was placed in receivership and all courses ceased prior to Mr Elderton completing them. Mr Elderton asserted that he was induced to undertake the courses and, one may infer, complete and seek that his wife complete, the application forms by a number of representations made by Ms Chernyak. 4 The proceedings against Mrs Elderton were commenced on 24 March 2004 and sought recovery of moneys and interest said to be owing under a loan contract dated 9 December 2002. In those proceedings Mrs Elderton issued a Third Party Notice against Mr Elderton and, in addition to finding for AFD against Mrs Elderton, the magistrate also directed a verdict on that Notice in Mrs Elderton's favour in the same amount as she was held liable to AFD. 5 As pleaded, the terms of Mrs Elderton's Defence were:- 1. The defendant entered into a loan contract with the Plaintiff on or about 9 December 2002. 2. The defendant entered the loan contract at the request of her husband Timothy Richard Elderton "the husband". 3. The defendant and the husband separated in January 2003. 4. The defendant and the husband entered into Terms of Settlement under the Family Law Act on 16 February 2004. 5. Pursuant to Order 12 of the Terms of Settlement the husband agreed to indemnify the defendant in relation to the loan contract. 6. The defendant denies liability for the whole of the debt. 7. In the alternative the Defendant denies liability as the loan contract entered into is a tied credit contract within the meaning of section 117(3) of the Consumer Credit (New South Wales) Code where the principal supplier of services National Investment Institute failed to provide the services for which the loan moneys were advanced. 6 At the commencement of proceedings before the magistrate, counsel for AFD applied to have struck out paragraphs 2 to 6, a course Mrs Elderton's representative did not oppose saying "I would concede that it's not a defence to their client's claim, if that assists the Court". The paragraphs were struck out. 7 Mrs Elderton also filed a Third Party Notice against Mr Elderton. In this she asserted that in February 2004 orders had been made in the Family Court and in one of those orders Mr Elderton "agreed to indemnify (Mrs Elderton) in respect of the debt the subject of the (proceedings)". Mr Elderton's Notice of Defence to the Third Party Notice made no challenge to the indemnity allegation, stating as the grounds relied on by Mr Elderton:- 1. The second defendant entered into a service agreement with National Investment Institute (NII) on or about 9 December 2002, and at the same time his wife Carolyn Anne Elderton entered into a loan contract as his agent in order to pay for such services. 2. The first defendant entered into the loan contract as an agent of the second defendant on the advice and at the insistence of the plaintiff because the second defendant was unable to apply for credit at that time as he was subject to a Part X Arrangement under the Bankruptcy Act. 3. The second defendant denies liability as the loan contract entered into is a tied credit contract within the meaning of section 117(3) of the Consumer Credit Code where the principal supplier of the services, NII failed to provide the services for which the loan monies were advanced. 4. In the alternative the second defendant denies liability as the first defendant's agreement to the loan contract was induced by the fraudulent and deceptive conduct of the plaintiff. 8 Mr Elderton also filed a Cross-Claim against AFD seeking "the amount of $7,545.69 cents, being monies advanced by (Mr Elderton) to (AFD) as 'repayments' on the loan to (Mrs Elderton)", and asserting:- 1. That the First Cross-Defendant's conduct was unconscionable in that it failed to take reasonable (or any) steps to satisfy itself that the First Defendant entered into the loan subject to these proceedings freely and in knowledge of the true facts, and consequently the contract of loan between the First Cross-Defendant and the First Defendant dated 9 December 2002 should not be enforced under the equitable principle enunciated by the High Court of Australia in Garcia v National Australia Bank Limited [1998] HCA 48; or alternatively 2. That the court should refuse to enforce any or all of the provisions of the said contract under paragraph 7(1)(a) of the Contracts Review Act 1980 because the contract was unjust to the First Defendant in the circumstances relating to the contract at the time it was made because the First Defendant's agreement to the loan was procured only as a tactic to overcome the First Cross-Claimant's Part X status; or alternatively 3. That the First Defendant entered into the loan contract as the First Cross-Claimant's agent only, so that the loan contract had the character of a tied credit contract within the meaning of section 117(3) of the Consumer Credit Code and should be set aside as the service provider (NII) failed to provide the services for which the loan monies were advanced; and 4. That consequently all monies paid under the said contract should be repaid, and that all legal costs incurred by the First Defendant and the First Cross-Claimant in these proceeding should be paid by the First Cross-Defendant. 9 Early in the proceedings, again on the application of counsel for AFD, the magistrate struck out the first of these paragraphs. The basis of his decision in this regard was that the Local Court did not have jurisdiction to entertain equitable claims. 10 AFD filed a Defence to Mr Elderton's Cross-Claim, denying the various allegations and that Mr Elderton was entitled to any relief. 11 In the proceedings against Mr Elderton, commenced on 27 May 2004, AFD claimed $29,009 plus interest alleging that "The Defendant is indebted to the Plaintiff for moneys lent on commercial loan account 800004 as at 21 May 2004." 12 Mr Elderton's Defence to AFD's claim against him was:- 1. The debt claimed by the Plaintiff is not owed. 2. The loan agreement relied on by the Plaintiff was validly terminated by letter dated 20 December 2003. 13 On 17 January 2006, both proceedings in the Local Court were heard together, evidence in one being treated as evidence in the other. It was common ground in the proceedings that AFD was, within the Consumer Credit Code, a "linked credit provider" with NII. Judgment in both proceedings was delivered on 10 February 2006 with the results to which I have referred. 14 When the time came for evidence on behalf of Mr Elderton to be read – there had been a direction for the provision of affidavits or statements – Mr Emerson-Elliott, a barrister from the ACT, who was allowed to appear for Mr Elderton, sought to read the affidavit verifying the Defence. Objection was taken. Over opposition, a statement in paragraph 2.1 that "the loan agreement was validly terminated by me by letter dated 20th December 2003" was struck out although the letter itself was admitted. Mr Emerson-Elliott said he had no objection to the remaining paragraphs being struck out. In these Mr Elderton had asserted, inter alia, 3.2 The grounds on which I terminated the loan agreement with the plaintiff are as follows. In April 2003 I was induced by negligent or false and fraudulent misrepresentation to pay for a real estate investment course called "Gold Plus Affiliate Program" run by the National Investment Institute (NII), a company controlled by the real estate investment entrepreneur Henry Kaye. The NII Senior Consultant who sold me the "Gold Plus Affiliates" course, Marina Alvero, was also an agent for the plaintiff company, and at the same meeting at which I agreed to buy the course induced me to sign an application for a loan of $30,000 from the plaintiff company to pay for that course. 3.3 In November 2003 NII was placed into receivership and the "Gold Plus Affiliate" course terminated. Immediately I was aware of the failure of the course I terminated my agreement with NII on the basis of negligence, false and fraudulent misrepresentation, and/or a failure of consideration. Shortly thereafter, I terminated the loan contract with the plaintiff company (see attachment "A" to this affidavit). 3.4 It is my understanding and will be my submission that I was entitled to and did validly terminate my loan agreement with the plaintiff company under section 125(1) of the Consumer Credit Code on the grounds that the loan was taken out for the sole or principle purpose of purchasing the "Gold Plus Affiliate" course from NII and that the plaintiff company is a linked credit provider to NII. 3.5 I am aware that the Victorian Civil and Administrative Tribunal has already found that the plaintiff company is a linked credit provider to NII. A photocopy of the relevant case, Agussol v Australian Finance Direct Limited (VCAT 1560 of 6 August 2004) is attached to this affidavit and marked with the letter "B". 15 The letter referred to was in terms:- "As a disgruntled student with the above companies, which I believe are now in receivership, I have hereby cancelled my authority to direct debit my bank account. I enrolled in the Gold Plus Affiliate program in May 2003 by financing the $55,000 fee. $25,000 is directly debited by NII via Ezy Pay over 12 months and the balance $30,000 of this is financed through AFD over 48 monthly payments of $829.22 a/c No. 46828-800004. Please be advised that I have cancelled my authority to direct debit my bank account on the grounds that I have not received what I have payed for. Three months ago, Henry Kaye elevated all members of the 12 month Gold Plus Affiliate Program to his new 24 month Platinum Plus Program. To date, I have only completed 29% of the program but have payed off 32% of the fee. I have not used any of the six property trade opportunities that guarantee a minimum $15,000 gross profit each, nor have I yet used my free consultations with a tax accountant, solicitor and investment adviser, all valued at $7,500. I have also cancelled repayments for the $15,000 Investment Mastery program, which can no longer be completed. The 48 monthly payments of $419.19 were debited from my wife's account No. 214824 reference No. code 2148241. You should also be aware that my and my wife's accounts are frozen, pending a separation settlement order. There is talk that Henry Kaye may continue the affiliate program through some other vehicle. Should this be the case, I (and other affiliates) will be happy to continue with the program and the repayments, as long as the program delivers what we payed for, i.e. course content, property trades, consultations and money back guarantee etc. Until I receive written confirmation of this and the program is back on track, the direct debit payments will remain suspended. Sincere thanks for your understanding in this matter and please do not hesitate to call should you require any further details." 16 In a further affidavit of 28 November 2005 which was read, Mr Elderton had made some other statements. These included:- 5. The day after the information night, Miss Chernyak contacted me again and invited me to attend her NII office in Woolloomooloo. She said: "I can enrol me (sic) in an investment course which has been proven to be 100% successful in earning money for those enrolled, and which is approved by all regulatory authorities including the ASIC". 15. The credit application with AFD (signed by Mrs Elderton) was successful and I commenced the Investment Mastery course. 16. On or about April or May 2003, I completed the Theory component part of the Investment Mastery course and was waiting to commence the practical tuition field trips (which I never got to do) when Ms Chernyak contacted me and requested that I come to her office in Woolloomooloo for a meeting. 17. Miss Chernyak's supervisor, Marino Alvero, was also present at the meeting. They informed me that out of the many hundreds of Investment Mastery students in my class, I was one of the top 50 students and that the owner of NII, Henry Kaye, wanted to run a small elite class of 50 students to be trained up as " affiliates" and that I should welcome this opportunity. This two-year course became know as the Gold Plus Affiliates course. 18. I was told that the cost of the course was $55,000. I said that I thought that the cost was excessive. Their response to that was that it was an absolute money back guarantee and that I would make a large return on my investment within a number of months, which would more than adequately pay off the course cost. 20. Only on the basis that this second course was on a 100% money back guarantee and that I would have positive cash flow from property investments very quickly, I filled out the application form in my name. 21. The credit application was subsequently successful and I commenced the Gold Plus Affiliate course in May or June 2003. 22. In November 2003 NII was placed into receivership and all courses, including the "Gold Plus Affiliate" course, was terminated. 23. Immediately I was aware of the failure of the course I terminated my agreement with NII on the basis of negligence, false and fraudulent misrepresentation and/or a failure of consideration. Shortly thereafter I terminated the loan contract with the plaintiff company (see attachment "A" to this affidavit). 17 Objection was taken to paragraph 5 upon the ground that the only defences pleaded were that the debt claimed was not owed and that the loan agreement had been terminated, any representations were irrelevant to that and no claim of misrepresentation had been pleaded. Mr Emerson-Elliott responded by saying that the fraudulent inducement was the genesis of Mr Elderton's defence and sought leave to amend. There was argument on the topic, including reference to pre-trial directions hearings and assertions of prejudice. The argument then drifted off into other matters and the transcript seems to me to indicate that the topic of amendment was not pursued. However, in his reasons in the proceedings against Mr Elderton the magistrate observed that he had upheld the objection to any amendment, observing that directions and indulgences had previously been given to Mr Elderton and any amendment would prejudice the Plaintiff. His Honour went on to observe that even if an amendment had been allowed, for reasons given later, it would not have affected the result. 18 The second sentence of paragraph 18 was disallowed on the ground of form but Mr Elderton was given permission to adduce evidence in proper form on the topic. Such evidence was given. 19 To some extent the evidence in paragraphs 20 to 23, and more in paragraph 21 which was disallowed, was also the subject of objection. Such ruling as the magistrate made in relation to paragraphs 22 and 23 appears in the following extract from the transcript:- HIS HONOUR… Paragraph 22 well I think 22, there's various problems with it, but it may be admissible. I will hear you on this Mr White (counsel for AFD) but it may be admissible simply as part of the context which led to Mr Elderton sending his letter, but I don't really see it as having much more relevance than that. Do you want to say anything on that? WHITE: I don't wish to be heard your Honour. HIS HONOUR: Mr Emerson-Elliott? EMERSON-ELLIOTT: No. WHITE: I take it your Honour is proposing in formal terms to make a 136 order limiting the significance of that. HIS HONOUR: Yes, I'd simply see it as relevant only to the context in which Mr Elderton purported to terminate the contract. Paragraph 23, well that explains what he did and the basis on which he thought he was doing it and so on or he intended to terminate. I think that that's admissible in so far as it is relevant for that reason, but it probably doesn't have a great deal more relevance. 20 His Honour seems not at that stage or later to have formally made any order under s136 of the Evidence Act. Earlier, when objection was being taken to the first of a number of passages in the affidavit wherein Mr Elderton was recounting, in improper form, conversations with Ms Chernyak wherein she had made representations as to advantages to be gained from undertaking the courses offered by NII, there had been the following exchange:- HIS HONOUR: Mr White the other thing I must say looking at this cross claim troubles in this that -- WHITE: Yes your Honour. HIS HONOUR -- the Contracts Review Act is raised, now it is not particularised in any particular way. WHITE: No, well there is only one matter which is raised your Honour, I think it's … (not transcribable).. described, that is to say "the relevant unjustness arises from the allegation that the loan provided by my client was procured only as a tactic to overcome the first cross claimant's part .. (not transcribable)..-- HIS HONOUR: That's where Mr Chernyak's (?) conversations with Mr Elderton seem to have some bearing it seems to me. WHITE: Well certainly not that one in my submission. HIS HONOUR: But that's the start of them isn't it? She tells him how to make some money, He goes along and he raises the part 10 problem, she continues to offer invitations and so on and so on. WHITE: But there's no, if it's read, I mean your Honour the easy way around it because if your Honour wishes to decide in that fashion is to make an order under section 136 limiting the use to which the evidence can be put. So that if your Honour takes it as the introductory part of the conversation to give context to what happened next, I am happy with that. HIS HONOUR: Yes alright. WHITE: And then there is no sting if I can use that word attached to the unfounded and unpleaded allegation of misrepresentation. HIS HONOUR: I think that probably is the best way to get into this, Mr Emerson-Elliott, do you understand what has just been-- EMERSON-ELLIOTT: I do and I think the substance of the case as it unravels will become clear your Honour. HIS HONOUR: Well I think I was take that approach (sic) Haven't spent quite enough time on that particular objection, I will I will deal with it that way and thank you for your suggestion Mr White. Paragraph 6, "will convince me to unroll", I think I mean although it is something of a conclusion it's also a fact about his state of mind and I will make the same application under section 136. Paragraph 7 to the end-- 21 There was no cross-examination on paragraphs 22 or 23 of Mr Elderton's affidavit or the topics dealt with in them. The Magistrate's Reasons 22 In the proceedings against Mrs Elderton, the magistrate held, inter alia:- Mrs Elderton's contention based on the decision in Garcia v National Australia Bank Ltd was an application for relief and not an equitable defence and thus beyond the jurisdiction of the Local Court; That the contention should fail in any event because there was no evidence of equitable fraud on the part of AFD, that Mrs Elderton knew she was undertaking a loan repayable with interest, it defied belief that she did not know the size of the loan and, given that Mrs Elderton had the benefit of an indemnity from Mr Elderton who was the ultimate recipient of the loan, it was not unconscionable for AFD to seek to enforce its agreement with Mrs Elderton; The claim based on s7 of the Contract Review Act failed because it was Mr Elderton rather than AFD who procured Mrs Elderton's agreement to the loan, because there was not "undue influence, unfair pressure or unfair tactics" used against Mrs Elderton by AFD or NII or, to the knowledge of those organisations, by Mr Elderton, because the conditions of the contract did not go beyond what was necessary to protect the legitimate interests of AFD, and that it would be Mr Elderton rather than Mrs Elderton who benefited if s7 was applied; It was not shown that Mrs Elderton was Mr Elderton's agent and, even if she was, this fact was not disclosed to AFD. Mrs Elderton showed herself to be capable of understanding the loan document when cross-examined about it. There was a public interest in ensuring that contracting parties have a high degree of certainty in relation to their rights and obligations; Mrs Elderton could not succeed under s119 or s120 of the Consumer Credit Code because there were no damages suffered by her, and she was not the recipient of services provided by NII; and Mrs Elderton could not succeed under s125 of the Code because she was not the purchaser of goods or services, and the contract for the provision of services by NII was not discharged and, although NII had repudiated it, this was not frustration of the contract and there was no sufficient evidence of other termination of it. 23 In arriving at the conclusion that the contract was not discharged the magistrate held that it was not frustrated because there was no evidence of anything but NII's own conduct that provided a basis for its failure to comply with its obligations. In finding that there was not sufficient evidence of termination of the contract the magistrate remarked:- 16. Although in his statement to the Court he asserted that the contract with NII had been terminated, Mr Elderton provided no evidence of having done so. His assertion was, in fact, a legal conclusion based on a belief or opinion he held and nothing more. Nothing was presented to the court by way for example of a letter to NII or an account of a telephone conversation with an agent of NII or any other sort of communication with that body. 83. The only evidence tendered of some sort of expression to terminate the contract with NII was the letter by Mr Elderton to AFD. Nothing on the letter indicates that a copy was sent to NII or its representatives or that it ever received a copy from Mr Elderton or any other party so as to put it on notice of the contents of the letter. Mrs Elderton wrote no letters, leaving that aspect of the disaster to her husband to deal with. She presumably relied on him to take up the fight. 24 The letter was that which was annexed to the affidavit verifying the Defence in the proceedings against Mr Elderton and which I have quoted above. 25 In deciding in favour of AFD in the proceedings against Mr Elderton, the magistrate relied on similar findings to those I have quoted in the paragraph before last. In his reasons in these second proceedings His Honour also observed:- 36. Even if it is assumed (and I think that it is drawing a very long bow to do so) that there was some basis for Mr Elderton to consider that AFD was an intermediary of NII's and that it would communicate with NII the contents of the letter of 20 December, that letter could not, in my view, have caused NII to understand that Mr Elderton intended to terminate, discharge or rescind the contract but rather must have given it the impression that his intention was to hold it to its bargain. 26 In these second proceedings his Honour also held that the failure of proof of an election to terminate also meant that had an amendment to the Defence that Mr Elderton had sought been allowed, that further defence would also have failed. The Appeals 27 In proceedings 11176/06 in this Court, Mr and Mrs Elderton seek that the decision of the magistrate be set aside and that there be an order that "the amount of $7,545.69 plus interest, being monies advanced by the Appellant to the Respondent as 'repayments' on the loan to the Co-Appellant be paid to the Appellant". Summarised, the grounds of appeal in these proceedings, as set forth in the Amended Summons to Appeal filed on 29 August 2006, are as follows:- 1. The Magistrate was wrong in law in finding that the Court did not have jurisdiction to give Mrs Elderton the benefit of the equitable relief provided by the High Court decision in Garcia v National Australia Bank Ltd (1998) 194 CLR 393. 2. Alternatively, that leave be given to argue that if the Local Court did not have jurisdiction in that regard, the Supreme Court does and should exercise that jurisdiction now that the proceedings are in this Court. 3. The Magistrate's finding that Mrs Elderton did not qualify for relief under Section 7(1)(a) of the Contracts Review Act 1980 was against the burden of the evidence and should be reviewed by this Court. 4. The Magistrate's finding that there was "no or insufficient" evidence to show that Mrs Elderton was acting as an agent for Mr Elderton was against the burden of the evidence and leave to so argue should be given. 28 In proceedings 11177, Mr Elderton seeks:- 1. Leave to appeal against the decision of Magistrate Mr HC Dillon made on 10 February 2006 …; 2. If leave is given, that the decision be reversed and judgment entered for Mr Elderton; 3. Mr Elderton be relieved of any obligations towards AFD under the Contract of Loan the subject of the proceedings; 4. Repayment by AFD to Mr Elderton of $7,545.69, being monies previously paid by Mr Elderton to AFD under the loan agreement; and 5 Costs. 29 Summarised, the grounds of appeal in those proceedings, as appearing in an Amended Summons filed on 29 August 2006, are:- 1. That Mr Elderton should have leave to plead a defence based on the fact that AFD had not, prior to commencing enforcement action, served a notice under Section 80 of the Code. 2. That the Magistrate's refusal to allow Mr Elderton to amend so as to permit an argument based on misrepresentation and the Magistrate's decision to refuse to allow further evidence were contrary to the requirements of Part 6 of the Civil Procedure Act 2005. 3. That the Magistrate was wrong in finding that the sales contract with NII had not been rescinded or discharged and leave should be granted to permit Mr Elderton to adduce further evidence of a letter dated 16 December 2003 to the Administrator and Receiver of NII. 4. On a proper construction of Section 125 of the Code, it is open to Mr Elderton to rescind or discharge his contract with NII at any time prior to the hearing and thus qualify for protection under Section 125 of the Code, the purposes of which are best served by generous interpretation. Proceedings 11176 – Ground 1 The Magistrate was wrong in law in finding that the Court did not have jurisdiction to give Mrs Elderton the benefit of the equitable relief provided by the High Court decision in Garcia v National Australia Bank Ltd (1998) 194 CLR 393. 30 This challenge to the decision of the magistrate must fail because the first two of the reasons given by him for rejecting the defence based on Garcia v National Australia Bank Ltd are undoubtedly correct. At the cost of repetition these reasons were:- "Mrs Elderton's contention based on the decision in Garcia v National Australia Bank Ltd was an application for relief and not an equitable defence and thus beyond the jurisdiction of the Local Court; That the contention should fail in any event because there was no evidence of equitable fraud on the part of AFD, that Mrs Elderton knew she was undertaking a loan repayable with interest, it defied belief that she did not know the size of the loan …" Proceedings 11176 – Ground 2 Alternatively, that leave be given to argue that if the Local Court did not have jurisdiction in that regard, the Supreme Court does and should exercise that jurisdiction now that the proceedings are in this Court. 31 The second of the reasons advanced by the magistrate for rejecting the defence based on Garcia v National Australia Bank Ltd means that, even if it were appropriate for this Court in proceedings by way of appeal to entertain a claim based on that decision, the defence would still fail. Although Mrs Elderton may have been put upon in consequence of the matters the subject of Mr Elderton's misrepresentation claims – and these fail for reasons dealt with below – there is simply no basis for concluding that she did not fully understand the transaction into which she was entering. Accordingly this ground suffers the same fate as Ground 1. Proceedings 11176 – Ground 3 The Magistrate's finding that Mrs Elderton did not qualify for relief under Section 7(1)(a) of the Contracts Review Act 1980 was against the burden of the evidence and should be reviewed by this Court. 32 This ground also fails and, while I do not agree with all of the reasons advanced by the magistrate for rejecting the Contracts Review Act defence, I do agree with a number of them. 33 The only pleaded basis for Mrs Elderton's loan contract being unjust was that "it was made because (her) agreement to the loan was procured only as a tactic to overcome the First Cross-Claimant's Part X status". I see nothing in this circumstance to lead to the conclusion that the contract was unjust. A fortiori is this so when, as Mrs Elderton agreed, this was explained to her at the time and she understood that the money being borrowed was to pay for a course that was intended to result in Mr Elderton generating income for the family. 34 Furthermore, if one is not circumscribed by the pleadings, the magistrate's decision that the claim under the Contracts Review Act should not succeed is also well justified by his findings: firstly, that there was not "undue influence, unfair pressure or unfair tactics" used against Mrs Elderton by AFD or NII or, to the knowledge or those organisations, by Mr Elderton; secondly, that Mrs Elderton showed herself capable of understanding the loan document; thirdly, because the conditions of the contract did not go beyond what was necessary to protect the legitimate interests of AFD; and fourthly, because there was no evidence of any impropriety for which AFD could be regarded as responsible. (In respect of a number of these reasons I do not ignore the fact that evidence of representations by NII was sought to be led. I deal later with whether there was error in its rejection. However, the ground of appeal based on the Contracts Review Act, should be considered at least at this stage, upon the basis of the evidence that was admitted.) Proceedings 11176 – Ground 4 The Magistrate's finding that there was "no or insufficient" evidence to show that Mrs Elderton was acting as an agent for Mr Elderton was against the burden of the evidence and leave to so argue should be given. 35 The magistrate's finding that there was no or insufficient evidence that Mrs Elderton was acting as Mr Elderton's agent was also correct. She was asked to apply for the loan because AFD would not grant a loan to Mr Elderton. For Mrs Elderton to be simply acting as Mr Elderton's agent would defeat the obvious purpose of having her as the borrower. There was no evidence that any arrangement of agency was made known to AFD and it is impossible to infer from the circumstances that such a relationship existed. Proceedings 11177 – Ground 1 That Mr Elderton should have leave to plead a defence based on the fact that AFD had not, prior to commencing enforcement action, served a notice under Section 80 of the Code. 36 Section 80 of the Code provides in effect that, except in specified circumstances, a credit provider must not begin enforcement proceedings in relation to a credit contract unless, inter alia, the provider has given the debtor a notice complying with the section and allowing the debtor at least 30 days to remedy the default. The application for leave to rely on the point despite the fact that it was not taken below was founded in part on what Mr Emerson-Elliott described as a matter of "staggering proportions", viz. that he did not appreciate its significance, and in part on the contention that, even if AFD could commence proceedings again after serving a notice, Mr and Mrs Elderton would be saved a great deal of costs. 37 In response Mr White, counsel for AFD, relied on the fact that the point had not been taken below, that there were provisions of the Code, particularly ss6 and 11, the effect of which was that the Code did not apply to credit where the borrower had declared that it was predominantly for business or investment purposes, that there was some evidence of such a declaration and on the contention that further evidence could have been given to counter Mr Elderton's argument. In these latter respects, Mr White drew attention to a check-list that was in evidence before the magistrate and which indicated that, at least in relation to the loan to Mr Elderton, the topic of a "Business Declaration and Guarantee" had been addressed and the topic ticked. 38 Mr Emerson-Elliott was given the chance to respond further to this ground but did not do so. 39 The Appellant should not be allowed to rely on the ground. The point not having been taken below, it is not shown there was error there. Furthermore, given the indications that there is further evidence available to the Respondent, the admission of which would defeat the ground, I decline to allow the Appellants to adduce the further evidence they need to establish the ground. There was nothing to suggest that this further evidence was not available below. Given the nature of the evidence and the probability of prejudice if that evidence was allowed to be called without AFD calling such further evidence as it might wish, I do not regard the proffered reason for the evidence not being called below as a reasonable reason for admitting that evidence here. Proceedings 11177 – Ground 2 That the Magistrate's refusal to allow Mr Elderton to amend so as to permit an argument based on misrepresentation and the Magistrate's decision to refuse to allow further evidence were contrary to the requirements of Part 6 of the Civil Procedure Act 2005. 40 I have referred above to some of the events in the trial bearing on this ground. It should be added that in the course of opposing leave to amend being given, counsel for AFD, Mr White, asserted that "there have been opportunities expressly articulated by magistrates at previous call-overs for these pleadings to be amended and they have not been taken advantage of", he had not prepared his case to deal with statements in affidavits of a hearsay nature, he had not sought instructions from Ms Chernyak who was not an officer of AFD and that there was no point in allowing the amendment because of the absence of evidence of breach of the representations." Noone agreed or disagreed with so much of this assertion as referred to previous call-overs. 41 Discussion on the topic continued, including reference by a speaker, unidentified in the transcript but who, from the content of what was said, might be inferred to come from Mr Elderton's camp, to s118 of the Code and who also said, "I just don't see that there is any amendment required". Mr White then asserted that there had to that point been no suggestion that s118 applied and a little later seems to have diverted the discussion from the question of amendment by a suggestion that the magistrate admit evidence but limit its use pursuant to s136 of the Evidence Act. 42 There was no comprehensive statement of the history of the pre-trial proceedings in the Local Court provided to me although there are a number of references to it in the transcript of proceedings before Mr Dillon. At T10, the magistrate agreed with a statement to the effect that at the last review of the matter he had ruled that no further witness statements were to be put in. In his reasons in the proceedings against Mr Elderton the magistrate also remarked that:- "Clear directions (and indulgences) had previously been given to Mr Elderton to enable him to prepare his case and to get his pleadings and evidence in order. I therefore considered that the prejudice to the plaintiff in allowing Mr Elderton effectively to amend his defence to raise a new, complex issue which the plaintiff was unprepared to meet would be inappropriate." 43 The breadth of the affidavits served and relied on by Mr Emerson-Elliott clearly provided strong grounds why Mr Elderton should have been granted leave to amend his Defence or, at the least, rely on the matters dealt with in those affidavits, particularly in a court not of strict pleading. However, if as the magistrate found – and there is nothing before me to indicate that finding was wrong – Mr Elderton had been given notice to put his pleadings in order and, as was obvious, had not done so, and to do so at the hearing would have caused prejudice, then the magistrate was entitled to take the stance he did. Part 6 of the Civil Procedure Act does not speak to the contrary. Attention to the overriding purpose of the Act and Rules of facilitating the "just, quick and cheap resolution of the real issue" in proceedings sometimes requires that a choice be made between the concepts reflected in those terms. Although permitting amendments may increase the prospect of justice in respect of the real issue, they commonly come at a cost both in money and time. 44 This ground of appeal fails. Proceedings 11177 – Grounds 3 and 4 - Section 125 That the Magistrate was wrong in finding that the sales contract with NII had not been rescinded or discharged and leave should be granted to permit Mr Elderton to adduce further evidence of a letter dated 16 December 2003 to the Administrator and Receiver of NII. On a proper construction of Section 125 of the Code, it is open to Mr Elderton to rescind or discharge his contract with NII at any time prior to the hearing and thus qualify for protection under Section 125 of the Code, the purposes of which are best served by generous interpretation. 45 I have referred above to the magistrate's findings that Mr Elderton provided no evidence of having terminated any contract with NII and that the letter from Mr Elderton to AFD was insufficient to achieve this. While I agree with the second of these propositions, the first is wrong. Notwithstanding the limited use to which the magistrate indicated the paragraph could be put, paragraph 23 of Mr Elderton's affidavit of 28 November 2005 did constitute evidence in this regard and evidence which, as I have said, was unchallenged. As the magistrate said, paragraph 23 "explains what he did and the basis of which he thought he was doing it and so on or he intended to terminate". Against the background referred to in paragraph 22 of the affidavit of NII being placed in receivership and the courses it conducted ceasing, the statement that "immediately I was aware of the failure of the course I terminated my agreement with NII on the basis of negligence, false and fraudulent misrepresentation and/or a failure of consideration" carries a number of necessary, or at least probable, implications. One is that Mr Elderton did something. A second is that that something included communication with NII and, having regard to the second sentence in paragraph 23, separately from and earlier than the letter attachment "A" to the affidavit. A third is that the communication was to the effect that Mr Elderton's agreement with NII was terminated. It may be that one should infer also that the communication referred to the basis of the termination being "negligence, false and fraudulent misrepresentation and/or a failure of consideration" but I do not find it necessary to decide that. 46 Of course, none of those implications extend so far as to amount to a conclusion, or of themselves lead to the inference, that the contract was terminated but that is not to deny that in conjunction with other evidence they may have this result. The magistrate, in my view correctly, found at [74] of his reasons in Mrs Elderton's case, that "NII's failure to provide the very services it had contracted to provide struck at the heart of the contract and constituted a fundamental breach". Against that background, which applied to both courses undertaken, Mr Elderton's communication, carrying the implications I have found, was appropriate to terminate or rescind a contract in accordance with the general principles of contract law. 47 One question which arises is whether Mr Elderton's evidence in this regard is such as to enable a conclusion as to which contract (or contracts) with NII were terminated. Paragraph 23 of his affidavit refers to "my agreement" in the singular. Although logic provides a basis for arguing that in the circumstances referred to he would have sought to terminate both contracts, given the words used, I do not regard paragraph 23 as justifying a conclusion that he conveyed an election to terminate more than one agreement. The proper inference is also that he did elect to terminate the contract relating to the "Gold Plus Affiliate" course. That course was the one specifically referred to in the paragraphs immediately preceding paragraph 23. 48 Section 125 of the Consumer Credit Code, so far as is presently relevant, provides:- (1) If a sale contract is rescinded or discharged (whether under this code or any other law) and there is a tied loan contract or a tied continuing credit contract made with the purchaser by a linked credit provider of the supplier under the sale contract, the debtor is entitled - (a) In the case of a tied loan contract – to terminate the credit contract; or (b) In the case of a tied continuing credit contract, to be credited with the amount of credit in relation to the sale contract and the interest charges attributable to that amount. (3) If a tied loan contract is terminated under this Section, the credit provider is entitled to recover from the debtor any part of the amount of credit that has not been paid to the supplier and the debtor is entitled to recover from the credit provider any interest charges or other amounts paid by the debtor under the credit contract. 49 It is unnecessary that I set out the statutory definitions of the terms used in these statutory provisions. It is clear that the agreement between Mr Elderton and NII was a sale contract within them and that the agreement upon which AFD sued Mr Elderton was a tied loan contract. Upon the termination of his contract with NII Mr Elderton became entitled to terminate his contract with AFD. 50 Did he do so? The magistrate took the view that the letter of 20 December 2003 which I have quoted was not such an election, drawing attention to the penultimate paragraph which talks about Mr Elderton being "happy to continue with the program and the repayments" and the direct debit payments remaining "suspended". Furthermore, it is to be observed that the cancellations referred to in the letter are expressed to be of authority to debit Mr Elderton's bank account and of repayments, not of the loan agreements pursuant to which such debits or repayments were being made. 51 The totality of these elements of the letter of 20 December to AFD leads me to agree with the magistrate that the letter of 20 December was not such an unequivocal intimation of an intention to put an end to the credit contract as to amount to a termination of it. While the letter makes it clear that Mr Elderton was not willing in the circumstances then prevailing at the time it was sent to adhere to his obligation under the agreement, he did not state that he was putting that agreement at an end. 52 On the other hand, his Defence to the proceedings against him, either alone or in combination with the letter does amount to such an unequivocal intimation. Mr Elderton was saying that the loan contract was at an end. It may be conceded that literally in the relevant paragraph the Defence (merely) asserted that the agreement had been terminated by the letter and I have found this not to be so. Nevertheless, just as in Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537, where a summons claiming a contract had been terminated at a date earlier than the entitlement to terminate may have arisen was held to be sufficient evidence of an election to avoid the contract there under consideration – see pp 538, 547, 570, the Defence here amounted or contributed to a clear indication by Mr Elderton (of an election) that the loan contract was at an end. 53 Thus the circumstances contemplated by s125(1) are fulfilled. By virtue of sub-section (3), Mr Elderton is thus entitled to recover from AFD the amounts he has paid under the credit contract. 54 As has been said, in the amended summons in proceedings 11177/06, Mr Elderton has sought repayment by AFD of $7,545 described as monies previously paid under the loan agreement. However, there was no evidence that this was the amount that had been paid, the only evidence on the topic being contained in a witness statement of Michael Spencer, an employee of AFD, who detailed the amount paid as $5,804.54 being 7 payments of $829.22. 55 Furthermore, no claim for such relief had been made in the original proceedings. Given the powers of the Court under Part 50 Rule 16 of the Uniform Civil Procedure Rules, I do not regard this omission as fatal to the claim here. However, not only is there the difference in amounts to which I have referred but neither side sought to debate the topic. In these circumstances, I should make no orders without giving the parties an opportunity to consider the matter further. 56 Before I conclude these reasons, there are 2 further matters to which I should refer. One is that I was asked to permit the adducing of further evidence. In part this consisted of 2 letters, one from Mr Elderton to a firm Grant Thornton dated 16 December 2003 and the second a letter from Grant Thornton dated 18 January 2006 in which the author advised that he and another person had been appointed voluntary administrators of NII on 25 November 2003 and a month later as its liquidators. In part the further evidence was oral evidence from Mr Elderton. (At one stage Mr Emerson–Elliott seemed to want to call Mrs Elderton also but later seemed to abandon that idea – See T 8 and 9). 57 At one stage Mr Emerson-Elliott stated that the failure to tender the letter to NII was the result of him not appreciating that there were 2 similar letters, albeit with different addressees, and submitted that a litigant should not be disadvantaged by his representative's conduct. Later Mr Elderton said that an attempt had been made to adduce the letter to NII before the magistrate but this had been unsuccessful. To some degree inconsistently with his earlier statement, Mr Emerson-Elliott gave some support for what Mr Elderton had said but added that the transcript would be more reliable in this regard than his recollection. The transcript contains no indication that such an event had occurred. 58 At the hearing counsel for AFD opposed that admission of the further evidence. I dealt with the topic by admitting the letters conditionally, indicating that I would indicate my ruling as to their admission when delivering judgment and, in the case of the oral evidence, if I thought it should be admitted, I would make directions as to how the adducing of that evidence was to be effected. 59 The subject of the proposed oral evidence was said to be representations made to Mr Elderton by or on behalf of NII and inducement to enter into the contracts. Although AFD was apparently advised of the intention to seek to adduce the evidence, during the hearing Mr White said that he was not prepared to deal with it, inter alia upon the ground that the persons said to have made the representations may not have been employees of AFD. 60 The adducing of further evidence on appeal is unusual, particularly when that evidence was available at the time of trial. At least part of the philosophy behind this finds expression in Part 50 Rule 16 which provides that while the Court may receive further evidence, "where the appeal is from a judgment after a trial or hearing on the merits, the higher court may not receive further evidence except on special grounds". In this case it is clear that there was a trial or hearing on the merits. 61 I see no basis upon which further oral evidence from Mr Elderton should be permitted. That foreshadowed was not allowed below because of the state of the pleadings. I have already indicated that the magistrate was acting within the legitimate bounds of his discretion in refusing to allow these to be amended and permitting the evidence now would require as a corollary allowing such an amendment (or rejecting it on relevance grounds) and have the effect of nullifying my earlier conclusion. Granting leave would also require AFD to meet a misrepresentation case on appeal, a course which would involve interviewing witnesses, cross-examining, and presumably calling such witnesses, transforming the appeal out of all recognition. Nothing occurred below to justify such a course. 62 The correspondence is not significantly affected by such considerations. Counsel for AFD did not suggest that he was not in a position to deal with the letters or that there was any prejudice (going beyond their terms) in the letters' admission. However, in light of the conclusions at which I have come, it is unnecessary to decide whether the correspondence should be admitted. 63 The second of the further matters to be mentioned is that an annexure to the witness statement of AFD in the proceedings against Mr Elderton purports to contain a warranty by the latter that "the Amount of the Loan is provided to you wholly or predominantly for business or investment purposes", words which no doubt are directed to the issues arising from the terms of ss6 and 11 of the Code. However, the topic seems not to have been the subject of discussion before the magistrate; it was not the subject of debate before me and, given that in some circumstances such a warranty is of no significance, I have disregarded the warranty. 64 In matter 11176/06 the orders that seem appropriate are:- (i) Dismiss the summons; (ii) The Appellants are to pay the Respondent's costs in this Court. 65 In matter 11177/06 the orders that seem appropriate include:- (i) Grant leave to appeal; (ii) Quash the decision of Mr Dillon made on 10 February 2006; (iii) In lieu thereof, order that the Plaintiff's claim in Downing Centre Local Court proceedings 5583/05 be dismissed. (iv) The Respondent is to pay the Appellant's costs in this Court and the Local Court. 66 In order (iii) in the immediately preceding paragraph I have used the identification number that appears to be the one used in the Downing Centre Local Court. When initially commenced, apparently in the Kogarah Local Court the file number seems to have been 80277/04. 67 As has been said, the issue of whether there should be an order for the payment of money by AFD to Mr Elderton – see circa [54] above - is deferred. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.