Australian Finance Direct Limited v Director of Consumer Affairs Victoria [2007] HCATrans 390 (2 August 2007)

Last Updated: 6 August 2007

[2007] HCATrans 390

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M53 of 2007

B e t w e e n -

AUSTRALIAN FINANCE DIRECT LIMITED

Appellant

and

DIRECTOR OF CONSUMER AFFAIRS VICTORIA

Respondent

GLEESON CJ
GUMMOW J
KIRBY J
HAYNE J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 2 AUGUST 2007, AT 10.09 AM

Copyright in the High Court of Australia

MR A.C. ARCHIBALD, QC: May it please the Court, I appear with MR P.W. LITHGOW for the appellant. (instructed by Dibbs Abbott Stillman Lawyers)

MR D.J. O’CALLAGHAN, SC: If the Court pleases, I appear with MR J.A. REDWOOD for the respondent. (instructed by Consumer Affairs Victoria)

GLEESON CJ: Yes, Mr Archibald.

MR ARCHIBALD: To appreciate the operation of section 15(B) of the Code, which is the provision centrally raised in this appeal, it is convenient to commence a consideration of the Code at section 4. The Code provisions that are relevant to this appeal are set out following page 16 in our written submissions after the title page and I wished to go first to section 4(1). We are concerned with the Consumer Credit Code. Section 4(1) explains the concept of credit and:

For the purposes of this Code, credit is provided if under a contract –

(a) payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred; or

(b) one person (the debtor) incurs a deferred debt to another (the credit provider).

So the essential concept is there is a debt constituted by an advance or a loan and the burden of discharging that debt is deferred.

KIRBY J: I saw in the special leave application that there was reference to the importance of the Code. Could you just remind me where the Code operates in Australia?

MR ARCHIBALD: Yes, I am sorry, the Code itself is an annexure to the Queensland legislation. Each of the other States and Territories has adopted the content of that annexure by reference in their own legislation so that, subject to some minor and irrelevant differences, one has the content of the Queensland Code repeated throughout the nation.

KIRBY J: And the Territories too?

MR ARCHIBALD: Yes, yes.

KIRBY J: Mainland Territories? The mainland Territories?

MR ARCHIBALD: Yes, your Honour. So, although the facts of this case arise primarily in Victoria, I think some of the evidence indicated that there were some transactions in other States but no different feature emerges in the way in which the other States have adopted the Code compared to the way Victoria adopted the Code, which was faithful to the Queensland Code. So we have the notion of credit. Section 5 is the next section to which I would take the Court. Section 5 defines what a credit contract is:

a credit contract is a contract under which credit –

in the defined sense, section 4(1) –

is or may be provided, being the provision of credit to which the Code applies.

Section 6 tells one what is the provision of credit to which the Code applies, and so the provisions of section 6(1) stipulate that:

This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into –

four stated circumstances exist and all of those circumstances exist here. So the debtors are natural persons ordinarily resident in the particular jurisdiction; the credit is provided for personal, domestic or household purposes; a charge is made for providing the credit; and the credit provider provides credit in the course of a business. None of that has ever been controversial in this matter.

Then one goes back to section 4(2) to understand the content of the expression “amount of credit” which expression does appear in section 15(B) of the Code. The “amount of credit” is defined as “the amount of the debt actually deferred”. So it is picking up the content of the definition of “credit” and as to the amount of that credit is defining it as “the amount of the debt actually deferred” and then excludes certain items from it.

The result is that the amount of credit is essentially the principal of the credit that is provided, that is advanced by way of loan under the credit contract for one sees in section 4(2) that what is excluded is, firstly, interest charges under the contract and, secondly, certain fees or charges which are not incurred at the time at which the credit is first provided or the contract is made.

So they are the kinds of fees and charges that will occur, if at all, later in the life of the credit contract, such as, say, a cheque from the debtor is dishonoured. There will be a dishonour fee charged by the bank. That would be a fee that would be charged at that later point of time. It is excluded from the amount of credit and unused limit fees and other matters of that kind. So essentially, the amount of credit is the principal amount of the advance under the contract.

To see the embodiment of credit contracts, we would at this stage take the Court to the sample contracts which have been included in the appeal papers. There are two such sample contracts. The first is at page 162, the second is at page 165.

If one goes to the first contract, it is convenient to start with terms of the contract. The terms are set out page 163. One sees in the left-hand column on that page that the first clause relates to the loan.

GLEESON CJ: I am sorry, before you go to page 163, could I take you back to page 162.

MR ARCHIBALD: Yes, your Honour.

GLEESON CJ: In the left-hand column, eight-tenths of the way down the page you see it says “Amount payable to Supplier”, I cannot read the number.

MR ARCHIBALD: I think it is $15,340 being the same number that appears at point 3 on that page in the left-hand column as the “Amount of Loan” and the same number that appears at point 4 on the page, “Total amount of Credit”.

GLEESON CJ: Am I right in thinking that the issue in the present case concerns the contention that the amount paid to the supplier was not $15,340 but was $15,340 minus the holdback?

MR ARCHIBALD: Yes, I think the specific proposition in the case advanced by the Director is that there ought to have been disclosed the amount of the holdback as an amount paid to the credit provider and, therefore, two items should have appeared.

GLEESON CJ: But that is the allegedly untrue statement, that the amount of $15,340 was payable to the supplier?

MR ARCHIBALD: I think, more specifically, the allegedly untrue statement or the alleged failure to disclose is the failure to disclose that an amount, which is the amount of the holdback, was paid to the credit provider and the amount of the holdback and the circumstance that it was paid to the credit provider does not appear in the contract. It would follow that if it had appeared, consequentially at least, the item that your Honour the Chief Justice has drawn attention to would have to be altered.

GLEESON CJ: But the supplier never got $15,340. The supplier got either $15,340 less 10 per cent or $15,340 less 40 per cent?

MR ARCHIBALD: As a transmittal into the hands of the supplier, that is so, yes.

GLEESON CJ: And that is the bone of contention?

MR ARCHIBALD: Yes, it is. One is led to understand those numbers at page 162 by considering clause 1 at page 163 which says in respect of the loan that:

If we accept this contract –

“we” is the credit provider – if the credit provider accepts this contract, the credit provider –

will lend you –

that is the debtor –

the amount of credit you have offered to borrow. This amount is stated on the contract under “Total Amount of Credit” –

and that is the figure one sees at point 3 on page 162 in the left-hand column –

You authorise us to distribute the loan in the way set out under “Who we will pay your loan to” –

and that is the line at point 8 on the previous page that your Honour the Chief Justice drew attention to. Then there is a statement about the timing of that activity. So the central notion of clause 1 is that there is to be an advance and the advance is in the amount of credit which, in the language of the contract, is described as “Total amount of Credit”. Then the terms on page 163 deal with other features of the loan contract. Clause 2 deals with interest, that is to say, the obligation to pay interest. Clause 3 deals with how that interest is calculated. Clause 4 deals with repayments, so they are monthly repayments over the period of the contract. Clause 5 does not need to be mentioned. Clause 6 is referring to certain fees and charges of the kind that I mentioned a moment ago as being excluded under section 4(2) from the definition of “Total amount of Credit”. Clause 7 is about commissions. It deals with two cases; commissions paid by the credit provider or commissions paid to the credit provider. The clause says that:

A commission is payable by the company named under “Who we will pay your loan to” to us –

So that is saying the supplier is obliged to pay a commission to the credit provider and the name of the supplier is conveyed by reference to the table on page 162 and also in the second part of clause 7, but I think irrelevantly here, a commission is also payable by the credit provider to the supplier by reason of certain transactions. So that is a provision about commissions.

GLEESON CJ: Has it ever been argued in this case that the holdback was a commission?

MR ARCHIBALD: No. It was argued that the holdback was interest and should also have been disclosed as interest, but that point has fallen away. So on page 162 in the tabular form for which the regulations provide one has the items relevantly here “Amount of Loan”. There is provision for “Contract stamp duty” and an “Application Fee”, but none are incurred in this transaction. So the “Total Amount of Credit” is exactly equal to the amount of the loan. Then picking up the provisions of clause 1 at point 7 or point 8 there is identified “Who we will pay your loan to” and the supplier details are there. Those handwritten letters are “NII” which was one of the suppliers, National Investment Institute, and the amount payable is set out.

The contract at page 165 is really to the same effect but it does illustrate another feature that is relevant to this appeal. Looking at the financial table, a portion of the contract, on page 165, the language is not who we will pay your loan to but is the first item in the table “The amount of loan will be paid to”. Then there is reference to the supplier as a category of payee and the actual supplier’s initial letters are then inserted.

GLEESON CJ: Once again the argument there is that amount of $14,995 is overstated either by 10 per cent or 40 per cent?

MR ARCHIBALD: Yes. What this contract illustrates though is that there is another component to the amount of credit beyond the advance itself. One sees that at item 9. Here there was an establishment fee. So as part of the loan costs the debtor incurred an establishment fee to the credit provider. That was made part of the amount of credit but it is in addition to the amount of the loan, so item 9 shows that there is a $345 establishment fee. So it shows the amount being a portion of the amount of credit. It shows the person to whom it is payable. One gets that from the parenthetical phrase “(payable to Australian Finance Direct Limited)”. Then by adding the amount of the loan, item 1, and the establishment fee, item 9, one has the total amount of credit at item 10.

GLEESON CJ: But depending on exactly the meaning of those words “will be paid” it never was the case, was it, that $14,995 was paid to or was going to be paid to NII?

MR ARCHIBALD: That is correct.

GLEESON CJ: 10 per cent or 40 per cent of that amount was kept by - - -

MR ARCHIBALD: In fact retained, yes, as the holdback. What this contract does disclose is that an amount, which is a component of the amount of credit, was payable to the credit provider, namely, the establishment fee. The argument against us here is there ought also to have been identified as a separate amount payable to the credit provider the holdback amount. So those are the presently relevant features of the contracts.

One notices that section 12 of the Code requires that:

(1) A credit contract must be in the form of –

(a) a written contract document signed by the debtor and credit provider –

Section 15 requires that that contract document contain various matters, including the contentious aspect of section 15(B). So this is the section identifying what disclosures must be made by the contract document. I defer for the moment going to the detail of that. If one steps back to section 14, one sees that precontractual statements setting out the section 15 matters are to be given by the credit provider to the debtor before the contract is entered into. Under subsection (4):

The precontractual statement must contain the financial information –

and it is that really that generates the financial table format of the contract.
Then giving closer attention now to the elements of section 15, the first requirement for disclosure is the “Credit provider’s name”, that is (A). (B) requires disclosures in connection with the amount of credit and we say that picks up the defined concepts from section 4(2), the amount of credit, and section 4(1), credit itself. So what section 15(B) is stipulating is that:

(a) If the amount of credit to be provided is ascertainable –

as it is in the cases here, we have the precise dollar figures in the contracts, the contract document must contain a statement of:

(i) that amount; and –

(ii) the persons, bodies or agents (including the credit provider) to whom it –

so to whom the amount of credit –

is to be paid –

and where there is a plurality of amounts –

the amounts payable to each of them –

Here, as we have seen from clause 1 of the contract at page 163, there has been a stipulation for payment of the entirety; in that case of the amount of credit to the supplier and, in the case of the contract at page 165, a stipulation that the amount of the advance in the first place and the amount of the establishment fee in the second place be paid to the supplier and the credit provider respectively. (C) requires disclosure of the annual percentage rate or rates. None of the details of these provisions need be noticed. (D) deals with interest charges. (E) deals with the total amount of interest charges, (F) with repayments, (G) with certain of the fees and charges that we have seen something of already. (H) and (I) need not be noticed. (J) concerns the default rate. (K) concerns enforcement expenses. (L) will need to be given a little attention. (L) requires the contract document to contain a statement about associated mortgages or guarantees.

Under section 8, mortgages given in support of the credit contract are dealt with. They are called related mortgages. Under section 9 guarantees given in support of the credit contract are dealt with. Section 15(L) is requiring that in the event that such a mortgage or such a guarantee is taken a statement in the credit contract itself be made to that effect.

Subsection (M) deals with commissions. (M) is of some importance in the appeal because it is dealing with the case of “a commission to be paid by or to the credit provider” by reference to certain matters. In substance, a commission payable to the credit provider would be generated if the credit provider had introduced to the supplier a business ultimately financed by the contract. So if the supplier has some brochures in its retail outlets drawing attention to the seminars and the seminar opportunity is taken up by a consumer by reference to that then the credit provider would receive a commission in consequence. By reason of that circumstance, features of that commission would require to be stated in the credit contract.

So this is an example of a transaction extraneous to the credit contract. It is a transaction between the credit provider and the supplier and by express stipulation of section 15(M) the credit contract must contain:

(a) a statement of that fact; and

(b) the person by whom the commission is payable; and

(c) the person to whom the commission is payable –

namely, the credit provider, and the amount of the commission.

GUMMOW J: There is no provision, is there, Mr Archibald, in this Code of a general nature forbidding the making of misleading or deceptive statements in relation to the provision of credit?

MR ARCHIBALD: No.

GUMMOW J: That would be left to the fair trading section?

MR ARCHIBALD: Yes, or cognate provisions, yes. The way in which the Code itself deals with failures in respect of section 15 disclosure is found in section 102 of the Code, which we have provided in the bundle of sections made available to the Court. A section 15 disclosure is what is called as a defined expression “a key requirement” and if a key requirement is contravened, namely here a disclosure that does not conform to the requirements of section 15 - it may be because it is an omission, it may be because it is an inaccuracy – that would be a contravention of a key requirement and section 102 is engaged to provide to the Court - in the case of this matter, the Tribunal - to make declarations and, importantly, under section 102, to make penalty orders.

GUMMOW J: That is reflected in the procedure at page 5.

MR ARCHIBALD: Yes, it is. That is what the application is all about.

GLEESON CJ: That brings you back to section 15 which says:

The contract document must contain the following matters –

“Matters” means, I suppose, true information upon the following subjects.

MR ARCHIBALD: Yes. Lest I have misled the Court, there is a provision in the Code, section 144. We have not provided it in these materials to the Court, but section 144 does provide that:

A person must not make a false or misleading representation in relation to a matter that is material to entry into a credit contract or in attempting to induce another person to enter into a credit contract –

It is not an entirely general provision, but that provision is there and there are penalty provisions associated with that. But that has never been raised in the context with which we are concerned.

So, in the case of section 15(M), where a commission is payable by the supplier to the credit provider, discharge of the obligation to pay the commission could occur – need not inexorably occur, but could occur – by the credit provider and the supplier agreeing for administrative efficiency that the amount of the commission obligation of the supplier to the credit provider be offset against the payments that the credit provider would otherwise be making to the supplier. So there might be in connection with these commissions exactly the same kind of arrangement as was put in place in relation to the holdbacks. Rather than me paying you a check for the full amount of the loan or the advance and you at some stage providing a cheque to me for the holdback, we will simply net them off and I will pay you a net amount. That could equally be done with commissions, as it was done with holdbacks. In the event that such an arrangement was entered into in relation to commissions, disclosure would occur under section 15(M)(d). It would not occur under section 15(B). We say, by parity of reasoning, the holdback arrangement netting system does not fall within section 15(B).

Part of the submission we are making is that where there is a required disclosure in respect of matters which are external to the credit contract, including in particular where that discrete transaction brings in a party who is not a party to the credit contract, in the commission case it would bring in a supplier, for example, where the Code requires disclosure of elements of a transaction, it is outside the credit contract. It deals with the specific case and sets out, we say, comprehensively what it is to be disclosed and what it is to be disclosed. The commission provision is an example of that. A second example of that appears under section 15(N).

Commissions and insurance seem to have attracted problems and abuses in the industry over a long period of time. They were dealt with specifically under the predecessor legislation. They are singled out here also in the Credit Code for special treatment. So we have had the provision about commissions and now under (N) we have a provision in relation to insurance. So again we are now dealing with a transaction extraneous to the credit contract. Where the Code countenances disclosures of matters extraneous to the credit contract it deals with it expressly and explicitly. So section 15(N) takes the case of credit related insurance. So where an insurer takes out consumer credit insurance which insures the credit provider against default by the consumer under the credit contract, one has credit related insurance. Where there is such insurance, section 15(N) stipulates comprehensively in respect of that discrete transaction what is to be set out and disclosed in the credit contract.

GLEESON CJ: Is “commission” a defined term?

MR ARCHIBALD: Yes, it is. In Schedule 1 to the Code, which is at page 141 in the print, under Schedule 1, principal definitions, the fifth definition is “commission.”

GLEESON CJ: Why is not a holdback a commission? What is the difference? I do not want to sound too brutal about this, but what is the difference between a holdback and a kickback?

MR ARCHIBALD: Vast.

HAYNE J: Forensically vast, but in fact?

MR ARCHIBALD: It is really an antithesis of a kickback. The evidence shows, and we explain in paragraphs 7 and 8 of our written submissions what kickbacks are. They are, in substance, subsidies to the credit provider – I am sorry – holdbacks.

HAYNE J: Freud is alive and well, Mr Archibald.

MR ARCHIBALD: I think I know something about kickbacks, but I am not about to enunciate a comprehensive definition of them. The holdback is essentially a subsidy for interest or sometimes it has been expressed here as compensation to the credit provider in respect of interest. The holdback performs the function of leading the credit provider to take a step which, but for the holdback, it would not otherwise take in the course of its lending activities. So that if ordinarily for a consumer having a profile of X, the credit provider would charge an interest rate of, say, 15 per cent, in light of the holdback, the credit provider charges an interest rate of, say, 7.5 per cent. While there is no exactitude, it seems, involved in the quantification of the holdback, the general notion of the holdback is that because the credit provider has the advantage of the amount of the holdback, it will lend it 7.5 per cent rather than the 15 per cent to the particular debtor.

CRENNAN J: Then what happens when the whole loan is paid back?

MR ARCHIBALD: The holdback is always retained. The debtor will perform the debtor’s obligations under the contract but the contract has only ever required the debtor to pay interest of 7.5 per cent, never at 15 percent, but there is advantage, so the notion is, for everybody. The debtor has obtained finance and, indeed, on more advantageous terms than what would otherwise be the case and the seminar provider, the supplier, has in fact gained another client or customer attending the seminar and the credit provider has entered into its credit contract and has had it performed. The general notion is that it leads the credit provider to advance funds, to advance a loan to the consumer on more advantageous terms than would otherwise be the case.

The case that I have described so far is the standard holdback. Sometimes it is called an interest-free holdback for it seems, historically, there was a time at which holdbacks led to nil interest rate loans where the consumer had an interest-free loan, had to repay the principal but never had an interest component in there, but over time some positive interest rates were included in these transactions. That is the standard holdback. The high-risk holdback is the second category of holdback exposed on the evidence. The appellation is high risk.

The case in which high-risk holdbacks were generated were cases in which, in substance, the credit provider would ordinarily not lend to a consumer having the profile of consumer Y. The consumer was lacking sufficient income or sufficient net assets to warrant the loan being made, but in light of the high-risk holdback, which was a larger proportion than the standard holdback, the credit provider was encouraged to make and did make a credit contract with that consumer, and so again the transactions flowed.

GLEESON CJ: The seminar fees were the same according to whether you paid cash or credit?

MR ARCHIBALD: We say it is not entirely clear. The Director contends that there is some evidence, I think founded upon a single sheet which is found at page 184 of the appeal book that seminar fees differed in quantum according to whether cash was paid or the seminar fees were the subject of credit contracts. If one takes the table at page 184, the first two items in the column towards the middle of the table “Program Price” one sees the first item is a lesser price than the second item. One might seek to divine from the second column of the table headed “Event Description” that the first item – I have no idea what “IM” means – but “Full Programme PIF” may mean paid in full, which might be equivalent to cash. The second item, “Full Programme Finance”, might suggest that that is a case where a credit contract is involved.

True it is that if those are the explanations, if the content of the seminars was identical, it might seem that in this case there is a difference in price. We only saw this table after this problem arose, on our evidence. But whether those seminar programs are identical is a bit difficult to tell. The “Event Code” in the left-hand column is quite different. But there may be some indications that there was some differential pricing. We say that does not bear at all upon the cost of credit; it bears, if at all, upon the cost of the seminar services, the cost of the supply contract and, save in the particular respects, that the code addresses supply contracts, otherwise the content of supply contract is not the concern of the credit code; it is a credit code concerned with credit transactions. Other legislation deals with the supply of goods and services.

GLEESON CJ: It was the seminar provider who arranged the finance, as it were, I take it?

MR ARCHIBALD: I think the evidence probably shows that the seminar provider had forms made available by the credit provider and, according to instructions from the credit provider, completed the details, yes. But, so far as the supply contract, the supply transaction, is concerned, again that was entirely the province of the seminar provider and any issues arising under that contract, including whether the cost is inflated in some way beyond the level that would otherwise obtain by reason of the seminar provider being prepared to pay or allow the credit provider to retain or holdback, any issues of that kind that might arise are not the concern of and are not addressed by the Consumer Credit Code at all. So it is not part of the concern of section 15 or the functions of disclosure which are addressed by section 15 to expose and reveal to the debtor elements of the supply transaction, save in one respect that we will draw attention to in a moment.

GLEESON CJ: Does this legislation apply to the common case where you might have a large retail store which has within the group a financier and if you buy some goods from the retail store on credit you will in fact enter into a credit transaction with the finance arm of the retail group?

MR ARCHIBALD: Yes, for in that case very likely all the criteria established by section 6(1) would be satisfied. So the Code engages right across the spectrum with financing for consumer transactions. In our submission, what one sees from the structure of section 15 in the analysis so far is that section 15(A) through to section 15(K) is concerned uniquely with matters that arise in consequence of the credit contract itself and its concern is only with the credit contract and one gleans that from the character of the subject matters that are respectively dealt with.

Section 15(L) addresses related transactions outside the credit contract but between the parties to the credit contract in the primary operation. So these are mortgages given by the debtor to support the credit contract, so between the same two parties, the credit provider and the debtor, but some mortgages may be given by third parties, no doubt, associates of the debtor, and guarantees will be given by, no doubt, associates of the debtor. So the moment one steps beyond the matters that are uniquely the province of the credit contract itself and are entirely between the parties to the credit contract, section 15 makes express provision for it and section 15(L) does that.

So there can be cases under section 15(L) where the guarantee is given by a party other than the debtor, that will be the ordinary case, perhaps always the case. There will therefore be a transaction that is related to but separate to the credit contract and in such a case section 15 makes explicit provision for whether there is to be disclosure and for what is to be disclosed. Likewise with sections 15(M) and 15(N).

The legislature has taken two cases, and only two cases, in which there is to be disclosure in respect of transactions extraneous to the credit contract and between the credit provider and a third party not associated with a debtor. That is the commission case which will usually involve the credit provider and the supplier. The commissions can be both ways but they will arise out of transactions between those parties associated with the credit transaction but external from it. I am using the word “external” because it is used in some of the reasons for judgment. That is the commission case.

The insurance case will be where there is insurance - consumer related insurance taken out and in that case, again, where there are commissions associated with the insurance, section 15(N)(d) requires disclosure of the commissions.

HAYNE J: Is a distinction between internal/external, I do not want to fasten upon the particular choice of words, but is a distinction between matters internal to the credit contract and matters external to the credit contract a necessary and essential step in your argument?

MR ARCHIBALD: No, it is not. It is an important and relevant one, but it is not critical because our primary submission is that section 15(B) is concerned with components of the amount of credit. Section 15(B)(a)(ii) requires that there be disclosure of the person to whom “it is to be paid”, to whom the amount of credit is to be paid. That flows simply from the nature of what is occurring. It is buttressed by the provisions that I drew the Court’s attention to, clause 1 at page 163, but it flows from the definitions of the nature of the concept amount of credit and the stipulation that there is to be disclosure to whom the amount of credit is to be paid.

GLEESON CJ: If anybody.

MR ARCHIBALD: If anybody, yes.

GLEESON CJ: The problem here may be that the amount of credit is not being paid to anybody. An amount less than the amount of credit is being paid.

MR ARCHIBALD: One is looking at the concept of amount of credit and here the amount of credit we can see from the embodiment of the contracts at 162 and 165 is the amount of the loan only in the first case and in the second case the amount of loan and the establishment fee. In each case the contract sets out the entirety of the components of the amount of credit and accurately says to whom they are to be paid, that is, as a matter of obligation under the contract.

The one thing that is striking here is there is no suggestion whatsoever that by reason of the holdback mechanism there has been a failure by the credit provider to do what it was obliged contractually to do under the credit contract, namely, pay the whole of the amount of the loan to the supplier. Nobody suggests for a moment that by reason of the retention of the holdback component the credit provider has fallen into breach of its obligations to the debtor under the credit contract, the obligation flowing from clause 1 at page 163 being to pay the whole of the amount of loan to the supplier.

Nobody suggests on the one hand that the creditor provider is in breach of its obligations to the debtor nor commensurately is there any suggestion whatsoever that the debtor is in breach of its obligations to pay the full amount of the seminar fee to the supplier. That is to say, the whole of the amount of the seminar fee that was being financed has been taken to be discharged, has been accorded satisfaction by reason of the step taken by the creditor provider under clause 1 in respect of the disbursement to the supplier of the amount of the loan.

If by reason of extraneous transactions – extraneous to the credit contract – the supplier and the credit provider choose for their own administrative convenience to adopt a mechanism by where they will not proliferate the number of cheques passing or the number of electronic transfers passing through their bank accounts by some netting arrangement, then that is a matter that is not the concern of section 15(B) at all and upon analysis what has happened is that there has been a payment of the full amount of the loan to the supplier but because there were other financial arrangements between the supplier and the creditor provider by reason of their separate arrangements, they have chosen to have those respective obligations satisfied or discharged by a netting arrangement.

One sees what was happening in the appeal book at page 164 and, likewise for the other contract at 168, there would on any one day, here 17 December 2002, be a plurality of transactions. The total amount of the loans equalling the seminar fees on that day was $457,475 made up of about 20 or more credit contracts. In connection with those credit contracts there were standard holdbacks for all but one of them and a high-risk holdback for one of them and what at the end of the day the creditor provider, AFD, did, instead of paying either the separate contract amounts, the 20 or more amounts most of which were about $15,000, rather than paying 25 cheques adding up to $457,000 and the supplier paying 24 cheques adding up to $45,000 and a 25th cheque of $16,000, rather than generate all that paperwork and transaction costs within the bank, net payments were identified in the right-hand column and at the end of the day one payment of $395,000 was paid by the credit provider to the supplier.

Those processes involved that the credit provider abided by its obligations to the debtor to pay the full amount of the advance to the supplier, the debtor’s liability to the supplier was discharged in full in respect of the particular seminar fee and, as between the supplier and the credit provider, the holdback arrangements were effectuated by this netting-off system.

So one way of putting our argument is to say that the operation of section 15(B) is not engaged merely because the credit provider and the supplier chose to engage in this netting-off process. We say had they abstained from the efficient system which plainly commended itself to them as business persons, had they abstained from that, and had the credit provider in fact paid one cheque for $475,000 or 25 or 26 cheques referable to each credit contract, had it done that simply, it is unarguable that it would have complied with section 15(B). Had the supplier then paid 25 or 26 cheques for retention amount, for holdback amounts, or taken the aggregate of them and paid one cheque for the day’s holdbacks, there could be no argument that section 15(B) was engaged.

GLEESON CJ: Was it the supplier who arranged the transaction between the customer and the credit provider?

MR ARCHIBALD: The supplier engaged in the necessary paperwork. I think it needed to be confirmed or accepted by the credit provider.

GLEESON CJ: But it would be the same sort of thing that happens if you go into a large retail store and buy a tie on credit and find that you get the bill from the retail store’s finance arm?

MR ARCHIBALD: Somebody else, yes. You fill in all the paperwork at the retail site, you fill in the paperwork for your supply contract and you fill in the paperwork for your credit contract, they flow separately in due course, but the clerical aspect is done more or less simultaneously and at the one site. That is how it happens.

So if there had not been a netting-off process then we say plainly, we would urge unarguably, section 15(B) is not engaged and it is not engaged solely because the netting-off process was engaged in. It could have been done monthly or six monthly, whatever, in which case it would be clear, in our contention, that the flow of funds that is coming from the supplier to the credit provider is not a component of the amount of credit, is not even out of the amount of credit, in the sense of the funds which represent the loan advance, that payment would simply come from its general funds. It would be extraordinary if the operation of the disclosure provisions of the Act could be attracted only because the parties engaged in an efficient business payment arrangement rather than a laborious time-consuming and no doubt costly separation of functions and attention to individual amounts.

HAYNE J: What are the circumstances which you say engage the parenthetical in 15(B)(a)(ii) where the amount of credit to be provided is ascertainable and a part of that amount of credit is to be paid to the credit provider?

MR ARCHIBALD: Item 9 at page 165 exemplifies that, the establishment fee. The establishment fee is part of the amount of credit. It is payable under the contract. The words are “payable to Australian Finance Direct Limited” and under section 15(B) that requires disclosure, and there was disclosure.

Another example is where the instant credit contract is in fact refinancing an antecedent credit contract with the same credit provider in which case the outstanding debt under the first contract is refinanced. What happens mechanically is the old debt is repaid so the amount refinanced would be payable to Australian Finance Direct. That would probably be the totality of the advance and in that case the only payment that is made, to which section 15(B) applies, is to the credit provider and that would be disclosed. So those are the sorts of items that attract the parenthetical phrase.

GLEESON CJ: I understood you to say earlier, correct me if I am wrong, that in substance what is going on here is a subsidisation by the service provider of the interest rates earned by the credit provider.

MR ARCHIBALD: Yes.

KIRBY J: Why?

MR ARCHIBALD: Because it makes it easier for the consumer to obtain the finance that is required in order to discharge the seminar fee.

KIRBY J: Is it done out of the goodness of their heart?

MR ARCHIBALD: No, as the learned President said, the reason why the supplier is likely interested in providing that subsidy is that through that means the supplier gains more attendees for its seminars than would otherwise be the case.

GLEESON CJ: The attendees might not be worth powder and shot or not very creditworthy people anyway so you might have a bunch of students who could only borrow money at exorbitant rates of interest, or very high rates of interest. This way, as a result of the subsidising that is going on, a credit provider will lend them money at relatively modest rates of interest because the compensation for risk, which is interest, is being subsidised by the service provider.

MR ARCHIBALD: Yes, and the service provider is not altruistic or charitable in that. The service provider is having more seats at its seminars occupied and, therefore, it is marginal costs, probably zero, for the extra seats. As the learned President said, it is better to get in 90 per cent of an additional seminar fee than not get in any per cent of it.

GLEESON CJ: Why is not the subsidy an amount payable to the credit provider?

MR ARCHIBALD: It is an amount payable to the credit provider but by the supplier, by the seminar provider. There is an argument as to whether it is payable or simply there is an entitlement to retain. We say nothing turns on that but, on any view, the supplier, the seminar provider, concurred in the course of conduct in which the credit provider engaged by retaining the holdback amounts. As we have submitted, everybody accepts that, notwithstanding that the supplier received only 90 per cent of the seminar fee, the obligation of the debtor to the seminar provider was wholly discharged. Correspondingly, the obligation of the credit provider to pay 100 per cent of the amount of loan to the supplier, the obligation of the credit provider to the debtor, was entirely satisfied. So that points up the circumstance that what was occurring here was something by reason of an arrangement between the supplier and the credit provider, not part of the credit contract and, as the evidence showed, the consumer, the debtor, was entirely unaware of these holdback arrangements; did not know, we say did not need to know.

The Director says but all of this might have affected the cost of the seminar services, and to that we say it is plain that the Credit Code does not seek to deal with that point that is outside the credit transaction. If there is to be some disclosure requirement in respect of the cost of seminar services, the cost of supply of goods and services that needs to be dealt with by specific legislation. Either it is already there or it would need to be done by a detailed set of provisions within the Credit Code if it were going to be done because only particular examples are dealt with in section 15(B). It is clear from the pattern and scheme of the Credit Code that it does not capture items of the kind that are the subject of these arrangements between the credit provider and the supplier.

What one can see in section 15(B) itself, the very limited and specific extent to which the Credit Code touches upon the supply transaction. If one looks at section 15(B)(c) one sees there is a disclosure requirement in the case of or in respect of certain supply transactions, the sale of land or the sale of goods by instalments. So here uniquely the provisions of section 15 are addressing a supply transaction, but the only supply transactions that are addressed are those instalment transactions and only in the case in which the credit provider and the supplier are the same entity.

So taking the very limited case and taking the limited instance of a supply transaction for the sale of land or goods by instalments, in that event there is an obligation to disclose in the credit contract itself a description of the land and its price or the goods and their cash price. There the cash price concern might be thought to reflect an anxiety by the Code about a possible difference between the cash price and the finance price. But that is the entire limit of the case in which the Code and section 15(B) in particular addresses the supply transaction. The very presence of paragraph (c) addressing the very limited case of a supply transaction allows one more confidently, in our submission, to conclude that paragraph (a) is not addressing supply transactions in any respect.

So the summary submission is that section 15(A) to (K) is concerned with the credit contract only save in the very particular case I have just mentioned. Section 15(L) is concerned with the related mortgage or guarantee cases. Section 15(M) commission, section 15(N) insurance. So there is mapped out comprehensively within section 15 those cases in which disclosure is required beyond and in addition to matters that are uniquely the subject of the credit transaction and there is no room in that scheme or that pattern for disclosure under section 15(B) of the existence of a holdback.

So that what section 15(B) addresses is disclosure of the amount of credit. The holdback is not a component of the amount of credit. Indeed, to require disclosure in section 15(B) of the holdback would really lead to a need to contradict the provisions of the credit contract which stipulated for payment of the whole of the amount of loan to the supplier. If you are obliged to put in the holdback provision, you could not put in the 100 per cent of the amount of loan, as your Honour the Chief Justice I think was alluding to earlier. There would be a need to contradict the credit contract. That itself would be perverse. That is not disclosure, but effectively misstatement because, on the one hand, you have to misstate what the contract says and, on the other hand, you have to add in something that is outside the credit contract.

That would not elucidate or conduce to a full understanding by the debtor of what is occurring; it would confuse and mislead. Indeed, quite perversely, we say, all that would appear on the Director’s case, on the view adopted by the majority in the Court of Appeal, would be an amount shown as payable to the credit provider.

What the debtor would not be told was what that related to. The credit provider would simply state that fact in the contract. The debtor would not have disclosed to the debtor at all on this argument who the payer was, what the nature of the transaction was that gave rise to that item appearing in the contract. He would not tell you it was a holdback, would not tell you it has originated in an arrangement with the supplier. It would confuse or mislead the debtor rather than provide the full useful disclosure that elsewhere in section 15(B) one sees is the pattern of the Code.

Wherever these matters outside the credit contract are to be disclosed, full details are given, section 15(M). You have to say it is a commission. You have to say by whom the commission is payable. You have to say to whom it is paid and state the amount of it. All the details of insurance have to be given, name of the insurer, the kind of insurance, the amount payable, commissions and so on.

The pattern of the Code is, where you step outside the credit contract full disclosure, all material details, on the Director’s argument that would not occur at all in relation to the holdback revelation. You would not know it is a holdback, you are just told there is an item. The Commissioner says, well, at the very least it could put the debtor on a train of inquiry. It could allow the debtor to proceed upon a course of inquiry, a detective-type exercise. Justice Ashley concluded that it was not the function of disclosure to put the debtor on a train of inquiry. I think it is paragraph 124, page 308, line 25. In the middle of paragraph 24:

I accept that it is not a function of a credit contract to set a borrower on a train of enquiry –

So the very thing that the Director says might be encouraged here is contrary to the thesis adopted by one of the majority in the Court of Appeal. As we put in our reply submissions, it is a most improbable statutory scheme; tell the debtor just a little bit, tell the debtor there is a payment, tell the debtor enigmatically there is a payment to the credit provider but leave it there. Do not tell the debtor it is a holdback, just the fact that a payment and leave it to the debtor to try to find out. We say it is really inconceivable that such a statutory scheme would have been adopted here, the debtor being ill-equipped to make inquiries and unlikely to succeed even if inquiries were made, so the debtor would be none the wiser at the end of the day.

HAYNE J: Do you say that the only payments to a creditor provider caught by 15(B)(a)(ii) are payments to a credit provider under the credit contract?

MR ARCHIBALD: Yes.

HAYNE J: That may be contrasted, may it not, with payments to persons, bodies or agents other than the creditor provider which may be obligations which arise otherwise than under the credit contract?

MR ARCHIBALD: Not if one is speaking about what is payable to a person under section 15(B).

HAYNE J: I have in mind such outgoings as duties that State Governments at one time used to levy on credit arrangements.

MR ARCHIBALD: The likely way in which that would be dealt with would be that that amount, the revenue impost, would form part of the amount of credit. The credit provider would in fact discharge the burden but there would be payment to the credit provider by way of, so to speak, indemnity or reimbursements.

HAYNE J: That would be an amount to be disclosed, would it not, under 15(B)(a)(ii)?

MR ARCHIBALD: If that amount were being financed, that is to say if it was part of the amount of credit - - -

HAYNE J: We lend you $10,000, part of that will be paid to the revenue.

MR ARCHIBALD: Yes, but it would be a term of the credit contract that that amount be paid and be paid by the credit provider on behalf of the debtor to the revenue. If one looks at page 162, there is an item beneath “Amount of Loan”, “Contract stamp duty”. That would be exactly that item. It would be disclosed. The amount of it would be disclosed if it were incurred. There would be a need under the credit contract arrangements to work out whether that was to be paid direct by the debtor to the revenue, no doubt through the agency of the creditor provider, and therefore whether it would show up as paid to the revenue or whether the credit provider would discharge it of its own accord, assuming the primary responsibility for discharge, and then be reimbursed or indemnified by the debtor for the amount of that contract stamp duty. In that event, it would be shown as payable to the creditor provider.

One way or the other, it would be covered. It simply depends on which of the alternative mechanisms would arise but it is only ever disclosed if the amount of that contract stamp duty forms part of the amount of credit. That is to say, the debtor does not get the funds out of the debtors own pocket for it. It is part of the amount of credit, that is, it is part of the deferred debt. It is advanced. It is possible, of course, that there is a revenue impost and the debtor chooses to bear the burden of that out of its own pocket. It will never get into the credit contract and will never need to be disclosed.

HAYNE J: Why is the holdback amount not part of the amount of credit?

MR ARCHIBALD: Because, if one looks at page 165 for example, the amount of credit consists and consists only of two items; one the amount of the advance, $14,995, all of which by reason of the contractual provisions is to be paid to NII, and the establishment fee payable to Australian Finance Direct Limited, $345. One hundred per cent of the amount of credit is allocated by the contract. There is no room for alien items, for items that arise separately from these contractual provisions. As I indicated, our submission is that section 15(B) is concerned with payment of it, of the amount of credit. This is the amount of credit, those two items, in this case. In the case of 162 it is only one item, the amount of the loan, all of which goes to the supplier. You simply cannot include the holdback. Likewise, it cannot include the commission under section 15(M)(d). It is not part of the amount of credit.

Could we then make some submissions about the expression “under the contract”. There has been agitation below in the Court of Appeal and in the primary judge in the Supreme Court about the significance of the absence in section 15(B) of those words. The proposition is that for our argument to be sustained we have to notionally read those words into section 15(B). We say that is not the case at all. To the extent to which those words have a role to play, they play that role because they are embedded in the definitions of “credit” and “amount of credit”, which expression does appear within section 15(B). But, as the learned President observed in his reasons, there is a bit of inconsistency in section 15 as to whether the phrase is or is not included.

We say, largely if not entirely, where the phrase is not included it is explicable because the defined concepts which are within the other provisions themselves incorporate the concept of the subject matter being under the contract. They are, as I have sought to indicate from their nature and their descriptions, generally concerned uniquely with what happens under the credit contract. But to the extent to which there is any inconsistency in that usage, then that only tells one that whether the words are or are not present is not a sure guide to what it is that is being spoken of. So at the end of the day we say that while our explanation for the absence of those words from section 15(B) ought to be accepted, if that were not accepted the absence of those words would not be a matter upon which great weight could be accorded in any event.

The emphasis of our submissions about section 15(B) so far has really been on the expression “the amount of credit”. We would wish to say something briefly about the expressions “to be paid” and “payable” that are found within the paragraph. We say those expressions are reflecting obligations to make payment. They are not referring simply to the prospect that there will in fact be a transmittal of funds. “Payable” in particular carries with it the connotation that there is an obligation to pay. In dictionary meanings usually it is “falls due for payment”, “required to be paid”. So the presence of those words in section 15(B)(a)(ii) confirm what we otherwise seek to derive from the section, namely, that it is concerned with matters in respect of the credit contract and not matters that are not part of the amount of credit or otherwise part of the credit contract.

One does see confirmation, in our submission, of the usage of that expression in that fashion within this Code. If the Court would look at section 7(4). Section 7 is dealing with cases in which the Code does not apply. Section 7(4) is concerned with cases that are concerned with credit and debit facilities. In stating that the Code does not apply to cases in which the contract allows for both credit and debit facilities, the language adopted by the legislature is that the Code does not apply to those facilities:

to the extent that the contract or any amount payable or other matter arising out of it relates only to the debit facility.

From that we would seek to gain some support, namely, that the language there is plainly contemplating that the payability of the amount arises from the contract, that is, as a matter of contract obligation and that is consonant with the meaning that we would seek to ascribe to the cognate expressions in section 15(B).

If, contrary to our contention, section 15(B) were to apply to holdbacks it would seem inevitable that it should apply also to the commission case that I have identified. In that event, either section 15(B) renders section 15(M)(d) otiose or, even more peculiarly, it would give rise to double disclosure obligations. You would have to disclose it both under section 15(M) and under section 15(B) and you would end up disclosing amounts that add up to more than 100 per cent of the funds available and that, we say by way of rhetorical submission, could not have been the intention of the legislature.

May we make a few oral submissions in relation to the topic of truth in lending. Truth in lending is invoked, as we would understand it, certainly by Justice Neave in the Court of Appeal and the Director in written submissions before this Court, in aid of a submission that truth in lending conduces to a construction that would favour a requirement for disclosure of the holdback under section 15(B). We say, in fact, invocation of that concept leads to the contrary conclusion that it in fact buttresses the submissions we advance for the point is it is truth in lending, truth in respect of the lending transaction that is engaged by that policy consideration.

What the Director is concerned with and what the majority in the Court of Appeal were concerned with was really the cost of the seminar services and the seminar services are concerned, as we have submitted, with a discrete transaction, separate stream of considerations. It is correct to say that the province and concern of this Code is the lending transaction, the credit transaction, its concern is not the selling transaction. It is not truth in selling, it is truth in lending.

CRENNAN J: Is not truth in lending a notion that is all about allowing a consumer to make an informed choice about the costs of lending?

MR ARCHIBALD: About the costs of lending, exactly.

CRENNAN J: The cost of credit, yes.

MR ARCHIBALD: The cost of lending, not the cost of the seminar services. If one looks at section 14(3) of the Credit Code there is a concept referred to of the comparison rate. One finds the comparison rate down in the regulations, or we could provide it if the Court wish to have it, regulation 12 of the Consumer Credit Regulations. What is set out in regulation 12 is a formula by which one arrives at the comparison rate and what the formula does is really to levelise all credit transactions so an apples to apples comparison can be made. So you can go shopping around if you want to. You can ascertain the cost of lending.

It is the cost of lending not the cost of selling but, interestingly, under the somewhat – at least to the eyes of some lawyers – complicated formula set out in that regulation, no component of the formula would
require any understanding of the existence of a holdback. It simply looks at the amount of the credit and interest rates and things like that. It does not cope with or cater for things like commissions or holdbacks or anything else.

So that, yes, there is truth in lending, yes, there is an aid to debtors to identify the true cost of borrowing, to enable an apples to apples comparison, to enable shopping around, but that has nothing whatsoever to do with the question of the cost of the seminar services and what the true cost of those might be. That is a separate concern not touched upon by any part of the Credit Code and certainly not section 15.

So it is for those reasons that we submit that the appeal should be allowed. We submit that the holdback item is not one disclosure of which is called for or required by section 15(B) of the Code.

GLEESON CJ: Thank you, Mr Archibald. Yes, Mr O’Callaghan.

MR O’CALLAGHAN: If the Court pleases. In our respectful submission, AFD’s construction of section 15(B) of the Code is wrong because it ignores the fact that that provision is a precontractual disclosure provision and it does secondly seek to read into – that is to say, its construction seeks to read into the provision words that the provision does not contain and it is contrary to the truth in lending imperative of the Code.
In our respectful submission, section 15(B) applies to the facts in this case because AFD concealed from borrowers the fact that the amount of credit intended to be paid to NII or Capital, as the case may be, was less than the amount of credit stated on the face of the pre-disclosure statement or the contract.

GUMMOW J: Is that not something that is picked up by section 144? That complaint you have, would that not attract 144?

MR O’CALLAGHAN: It may attract section 144, your Honour. It is certainly a wide-ranging provision with a small penalty. The key requirements on the other hand, more specifically worded though they are, of course, are amenable to much more severe penalties. I think it is $500,000 per breach. The fact that another provision may be invoked, in our respectful submission, is not a reason that section 15(B) does not cover a holdback.

In this case we construe or urge upon the Court the construction of section 15(B) in this way, that AFD retained, that is to say, it paid to itself and never paid nor intended to pay to NII either 10 or 50 per cent, as the case may have been, of the amount of credit stipulated. It is 50, your Honour the Chief Justice, because the high-risk holdback was added in addition to the standard-risk holdback. Accordingly, the credit contract did not contain, firstly, an accurate statement – and the word “accurate” is important – of the amount payable out of the amount in credit to NII and, secondly, did not contain an accurate statement of the amount payable, that of the amount in credit to AFD.

In our submission, AFD’s case, like the reasoning of the learned President, misconstrues the fundamental nature of the precontractual disclosure provisions contained in section 15. All of its submissions proceed, we would say, on the false premise that section 15(B) must be interpreted on the assumption that the contractual terms between a credit provider and a borrower have already been agreed. Its case is founded on the unstated proposition that the seminar fee and hence the amount of credit is in some sense immutable and that the precontractual disclosure requirement in 15(B) merely means that a borrower needs to be told something that she, on their analysis, has already agreed to, that is to say, that a fixed sum be paid to NII. It is important to recognise, in our submission, the precontractual nature of the disclosure regime.

KIRBY J: Going back to Justice Crennan’s question earlier and the background of this code and how it came to be introduced, it had a background in the Molomby Report, did it not?

MR O’CALLAGHAN: Molomby was earlier, I believe, your Honour. That was the Credit Act.

KIRBY J: What was the background to this? I mean, in the end, if there is ambiguity in the legislation, one way of dealing with that is to seek to give effect to the overall policy and purpose of the legislation and that may be revealed in the antecedent documents, ministerial speeches or law reform reports or things of that kind.

MR O’CALLAGHAN: The second reading speeches flesh out the concept of truth in lending and do describe the - - -

KIRBY J: What about before that? I have a feeling, in recollection from my law reform days, that this went back to developments that were occurring in the 1960s and 1970s in the United States of America and were then picked up by Australian inquiries and given effect in dribs and drabs by legislation. The achievement of a national code is really a major achievement. What was the general principle behind it?

MR O’CALLAGHAN: It is certainly a major achievement, your Honour. One of the concerns with the Credit Act was that it was too punitive. I think that was a concern that certainly the creditor providers expressed, and that it was too specific. Has your Honour had a chance to read the second reading speeches of - - -

KIRBY J: No.

CRENNAN J: I was going to suggest, I think the developments have been canvassed by Justice Kirby when he was President of the New South Wales Court of Appeal in Canham and Others v Australian Guarantee Corporation Ltd (1993) 31 NSWLR 246 and there is a discussion of the developments commencing at 252.

MR O’CALLAGHAN: That is so, your Honour. That discussion commencing at page 252 entitled “Background to the reform of credit laws” stops, as I understand it, before this Code came into effect and does not touch upon this Code.

CRENNAN J: That just indicates that there was a Truth in Lending Act 1968 (US) which I think was probably what Justice Kirby was recalling.

MR O’CALLAGHAN: I would imagine so, your Honour, yes. At page 253 Justice Kirby said:

The philosophy of disclosure therefore runs through the reports which have accompanied and occasioned the reform of consumer credit legislation in Australia. The obligation of disclosure did not begin with the Truth in Lending Act in the United States. There were provisions in earlier hire purchase legislation and moneylenders Acts to require disclosure to debtors of the amount of interest and charges –

and your Honour cites some cases –

But disclosure and truth in lending was the very linchpin of the new Credit Act. To discourage non-disclosure, whether deliberate or accidental, drastic consequences were provided by s 42.

We would say likewise disclosure is the linchpin of the Code. Certainly the provisions differ for any number of reasons but disclosure lies at the very heart of the Code. Certainly Mrs Wade in her second reading speech said so, Mr Burns in Queensland said so.

GUMMOW J: Disclosure of what? It just becomes a slogan otherwise. Disclosure of what?

MR O’CALLAGHAN: Of any number of things, your Honour.

KIRBY J: Is the essence of a disclosure of things that burden the customer, burden their pocket?

MR O’CALLAGHAN: Yes, your Honour.

CRENNAN J: It is a disclosure of matters which will inform consumers so that they can make an informed choice amongst credit providers by being able to understand the nature and the respective costs of credit.

MR O’CALLAGHAN: Exactly, your Honour. Section 14, which is a provision that my learned friend only obliquely referred to later, is important because it makes abundantly clear that section 15, as well as describing the contents of the contract, governs the contracts of what a borrower must be told before he or she enters into the contacts.

CRENNAN J: How would a holdback relate to the costs of credit?

MR O’CALLAGHAN: Your Honour, in this case AFD finetuned the amount of the holdback with great precision in order to effectively achieve an interest rate of 24 per cent. That was the rate at which it normally lent its money. It no doubt thought more difficult to sell a 24 per cent interest rate to consumers of NII. The facial rate of the contract was reduced to 14 per cent and the holdback was there to compensate for it. I do not think that is disputed. Does that answer your Honour’s question?

To get back to Justice Gummow’s question, section 14 provides that:

(1) A credit provider must not enter into a credit contract unless the credit provider has given the debtor –

and debtor includes a prospective debtor. That is in Schedule 1 –

(a) a precontractual statement setting out the matters required by section 15 to be included in the contract document . . .

(2) Those statements must be given –

(a) before the contract is entered into; or

(b) before the debtor makes an offer to enter into the contract;

whichever first occurs.

HAYNE J: What exactly is this temporal point that you make? The information that has to be given under section 14 is surely information of what the position would be if you the borrower were to make the contract that we are proffering. Does that not simply tip you back into section 15 and the question of construction? What further mileage do you get from this temporal point that you have led with?

MR O’CALLAGHAN: The mileage, your Honour, relates to what truth in lending means.

HAYNE J: It is not a statutory expression in this statute, is it?

MR O’CALLAGHAN: It is just not used in the statute, your Honour.

GUMMOW J: It is not used in the statute.

MR O’CALLAGHAN: It is not used in the statute, but it was a phrase used in the second reading speeches.

HAYNE J: Much beloved of politicians, but we have to grapple with the legislation.

MR O’CALLAGHAN: I understand that, your Honour.

GUMMOW J: You can say that the truth in lending is reflected in the terms of section 144 in a broad sense.

MR O’CALLAGHAN: It is certainly reflected in it, your Honour, but again we would say not to the exclusion of the proper construction of section 15(B). Armed with the information, your Honour, before a borrower or prospective borrower is to decide whether or not to proceed with the contract, the purpose of the pre-disclosure is to enable that person to do any number of different things, as Justice Crennan said, to approach another credit provider, to see whether in this case the supplier could conceivably accept cash at a much lower rate. There are any number of different things armed with information that a borrower is supplied with, or prospective borrower is supplied with, that would enable the borrower to take action other than entering into the contract. If he or she wishes to do so, well, that is a matter for that person. This is something that your Honour in Canham’s Case addressed in the context of insurance.

KIRBY J: It is a species of a large movement which works on a principle that the free market operates on informed choices and therefore that you have to try and make sure that there is candour, transparency and the knowledge that is necessary. I mean, this runs through the Trade Practices Act and the predecessor federal Act and Insurance Contracts Act and lots of other statutes.

MR O’CALLAGHAN: Yes, and it runs through this Code too, as it did through the Credit Act, your Honour. In Canham’s Case at 254 your Honour Justice Kirby said:

The ultimate theory behind the philosophy of truth in lending in our credit legislation is that disclosure of critical elements in the consumer contract will help to ensure honesty and integrity in the relationship (where one party is normally disadvantaged or even vulnerable); promote informed choices by consumers; and allow the market for financial services to operate effectively.

We would say those general considerations apply equally here.

GUMMOW J: Why is the holdback critical? I am not saying you are not right, but why is it critical? You have quoted to us the word “critical”.

MR O’CALLAGHAN: Holdback is critical or may be critical to a particular borrower if disclosed because, even if it is the bare disclosure that AFD refers to, a borrower or prospective borrower knows on the face of the precontractual disclosure document that a very large sum of money is, in fact, not destined for the supplier at all, contrary to what these documents the Court has seen this morning. It is just not true that $15,000 is paid to the supplier. In some cases, rounding off the figures, it is only $7,500 and if that is not critical, your Honour, then what is, I would say rhetorically. It may send a prospective borrower off on any number of different chains of inquiry that may or may not cause them to pause and reconsider their decision, whether to obtain finance elsewhere, whether to offer NII cash. But that is why it is critical, we would say.

GLEESON CJ: How does this legislation operate in relation to ordinary credit card transactions?

MR O’CALLAGHAN: Your Honour, I do not know, standing here, what its potential - - -

GLEESON CJ: You know that sometimes providers of goods or services require you to pay an extra 2 per cent or an extra 3 per cent depending on which credit card you are using.

MR O’CALLAGHAN: Yes, your Honour. A couple of them are higher than others. That, as I understand it - - -

GLEESON CJ: Which reflects the fact that, from the point of view of the provider of goods or services, it is more expensive for them, or to put it another way, they receive less, ultimately, if their customer uses one particular kind of credit card as compared with another particular kind of credit card, which rather suggests that the user of one particular kind of credit card strikes a harder bargain with providers of goods or services than some others.

MR O’CALLAGHAN: That may be the case, your Honour, but the question is, what disclosures are required in that regard?

GLEESON CJ: That is why I am interested to know how this Act operates in relation to that situation.

MR O’CALLAGHAN: I will have to ask someone more familiar with the credit card aspects, your Honour. The Director does not suggest that this practice is, at least on the facts of this case, illegal or that AFD cannot continue to conduct its business in this particular way, but we say it must tell the borrower first. It is not going to stop them doing business. It just, we would say, requires them to be frank about what they are doing.

GUMMOW J: Granted all of this, how do you make the words of section 15 work as you have to make them work?

MR O’CALLAGHAN: Your Honour, the amount of credit, if I may round the figures, taking the sum of $15,000, the amount that a putative borrower may agree to pay for the seminar. So that matter must be contained in the contract document and the persons, including in this case AFD, to whom that amount is to be paid, have to be identified and those persons are in this case, one, NII and, two, AFD, and having identified those persons, the amounts payable to them must be identified.

GUMMOW J: Mr Archibald emphasises that it is “the” amount of credit and “it” is to be paid. You have to splinter it, I think.

MR O’CALLAGHAN: “It” of course, your Honour, can only relate to the amount of credit and we would agree that the amount of credit is splintered, just as it is with establishment fees.

GLEESON CJ: The expression “amount of credit” simply means the amount of the deferred debt, does it not?

MR O’CALLAGHAN: That is how it is defined, your Honour, yes.

GLEESON CJ: In other words, looking at it from the point of view of the debtor, it is the amount that the debtor is going to be liable to pay that is not payable immediately.

MR O’CALLAGHAN: Yes, your Honour.

GLEESON CJ: In the case with which we are concerned the deferred debt, that is, the debt you are given time to pay.

MR O’CALLAGHAN: That is so, your Honour.

GLEESON CJ: The question is, where is the amount of the debt going, to whom is it going?

MR O’CALLAGHAN: It is the question of the destination of the debt that is crucial to 15(B)(a)(ii). Where is it going? The answer is simple. Half of it in a high-risk case is destined for NII and half of it is destined always to be retained by AFD.

GLEESON CJ: I think your opponents expressed it in their written submissions in paragraph 30 by saying that what the section requires is that:

Thus each borrower was fully and accurately informed of . . .

(b) the details of the persons to whom AFD as credit provider was required by the borrower to pay the advance and the amounts payable to each such person, thus enabling the debtor to see readily, or a court or tribunal to determine readily, whether there had been any failure on the part of the credit provider to abide by its obligation to the debtor in that respect.

MR O’CALLAGHAN: Yes, your Honour. What AFD seeks to do is to reduce section 15(B) to a provision that does no more than oblige AFD to disclose to a prospective borrower an amount and then in a contract, if one is completed, to promise to pay that amount such that if they do not, the borrower could force them to.

GLEESON CJ: The statute does not say it is none of the borrower’s business where this money is going. On the contrary, the statute requires the lender to tell the borrower, or the creditor to tell the borrower, where the money is going.

MR O’CALLAGHAN: We would say, yes, your Honour, and they did not do so.

GLEESON CJ: Requiring the credit provider to tell the borrower the use that is being made of the amount of the credit provided is, in its nature, is it not, requiring the credit provider to tell the borrower something that is extraneous to the contract of credit?

MR O’CALLAGHAN: We would say that it is not extraneous, your Honour. It is not extraneous at all.

GUMMOW J: It is not necessarily a hostile question if you think about it.

HAYNE J: Not all gifts are offered by the Greeks, you know?

GUMMOW J: We do not sit here to poison you always.

MR O’CALLAGHAN: I am sorry if anything in my facial expression suggested that I thought it was a hostile question.

GUMMOW J: The vice is in the word perhaps “extraneous” in the arguments that are against you.

GLEESON CJ: The arguments against you seem to assume that it is none of the borrower’s business what is happening to the money.

MR O’CALLAGHAN: Their argument does assume it is none of the borrower’s business.

KIRBY J: Why is it part of the borrower’s business given the language and purposes of the Code?

MR O’CALLAGHAN: Because, in our respectful submission, it would be entirely inconsistent with the principal purpose of an Act to promote truth in lending to - - -

KIRBY J: It is suggested to you that that is a slogan and that it does not really resolve it. I am not so sure that that is a rebutter of what you are saying because I see this as a legislation which is a species of a series which have been gathered together under this so-called slogan. But leave the slogan aside, it is still the settled jurisprudence of this Court over the last 10, 15 years, certainly 10 years since Project Blue Sky and so on, that we look not just to the language but to the language as effecting the imputed purpose of the Parliament involved.

MR O’CALLAGHAN: Yes, your Honour.

KIRBY J: Given that background, given that that is the way the Court conventionally now approaches these problems, why, to effect the purpose of the statute, is it part of the consumer’s business?

MR O’CALLAGHAN: Because, your Honour, armed with truthful information a consumer may choose to do any number of different things. It is part of the consumer’s business to know, we would say, or to have disclosed to him or her the fact that a supplier is actually prepared to accept 50 per cent less than they are led to believe, the cost of the course in this case, is. That, we would say, self-evidently must be of concern a matter for a prospective borrower.

HAYNE J: It seems to me your argument ultimately, Mr O’Callaghan, can come down to two propositions, or maybe it is one proposition. Section 4 identifies the obvious fact that A borrows money from B. A borrows an amount of money from B and 15(B)(a) says A is to be told where the money borrowed is going, start, middle, end and they were not. Now, you can embroider it perhaps in a number of ways. Mr Archibald seeks to deal with it by saying, “Well, all we have to tell you is what you the borrower require us the lender to do with the money”. The expression in 15(B)(a)(ii) is at least consonant with “tell us where the money is going.”

MR O’CALLAGHAN: In our submission, it would be a strange construction of a key requirement of the Code that all it does is that, your Honour.

HAYNE J: I thought I was putting your argument at its highest, Mr O’Callaghan. Perhaps I am not.

GUMMOW J: What do you say about Mr Archibald’s points that to accept that construction brings with it a whole lot of other problems as to how the system then would work, namely, that there would not be in truth any disclosure beyond the identity of the extra recipient?

MR O’CALLAGHAN: Your Honour, I think in their written submissions this is referred to as a bare disclosure.

GUMMOW J: Yes.

MR O’CALLAGHAN: In our respectful submission, that submission really does not bear scrutiny. A bare disclosure it is said, that up to half of the amount of credit, half of the amount of the course, is actually never destined for the supplier but is at all times to be retained by the credit provider is hardly something that one imagines most relatively informed borrowers would dismiss with a wave of the hand. The credit provider may choose to call it a holdback or they may just choose to call it an amount payable to itself, but the disclosure is there and it sets a consumer, or may set a consumer, on a course of inquiry. Now,

I know my learned friend referred to what Justice Ashley said about the chain of inquiry not being appropriate but, in our submission, inquiry is important and disclosure of that bare assumption would lead a borrower to a chain of inquiry, which is the very sort of thing that Justice Kirby, quoting from the report of the Australian Law Reform Commission in Canham’s Case at 254, identified in the context of insurance. Your Honour will recall that case quoting from the report:

the client is not necessarily interested solely in the cost of the insurance. He may also be interested in the broker-related component of that cost. Armed with that knowledge, he might, in appropriate cases, consider whether to:

•	Approach the insurer for direct purchase at a reduced cost
•	Seek rebate from the broker of a part of his commission
•	Seek a total rebate of the commission and either employ the broker on a fee for services basis . . .
•	Employ a different broker or an insurance consultant.

I know that is in the insurance context, not in 15(B) of the Code, but it is indicative of the fact that the Credit Act like the Code must be construed - - -

KIRBY J: The theory, whether it is actually true, would depend on what economists say, but the theory is the transparency of the components helps to make the market work better and that that is in the interests of consumers.

MR O’CALLAGHAN: Yes, indeed, your Honour. If there is anything that is lacking in transparency, in our submission, it is the pre-disclosure contracts which assert on their face that $15,000 was to be paid to NII when everybody but the borrower knew that it was not.

KIRBY J: It smacks a little of the same attitude that freedom of information that we saw in Kimmon’s Case, the man who knows best.

GUMMOW J: You have the President’s judgment against you, where do you say error is disclosed in his approach to this? What do you say is wrong in Justice Maxwell’s judgment?

MR O’CALLAGHAN: Any number of things, your Honour. If I could take firstly page 281 of the appeal book. There the learned President says, at paragraph 25:

In my opinion, s.15(B) of the Code did not require the credit contract to state that the amount of the holdback was “to be paid” to N. The Code is concerned with the content of the agreement between the lender and the borrower. What C requested A to do, and what A agreed to do, was to pay the seminar fee to N. As I have already said, that was [the borrower’s] sole concern – to ensure that the fee debt to N was discharged in full.

Under the credit contract, the full amount of the seminar fee was payable to N.

In our submission, it is clear that was Justice Maxwell was directing his attention to there, we would say, mistakenly is to the state of affairs that prevailed after the terms of the credit contract have been agreed upon otherwise his Honour would not have used the expression the “sole concern” of the borrower was “to ensure that the fee debt to N was discharged in full” because prior to entering into a contract, for reasons I have attempted to explain, the borrower may be, should be, concerned about any number of different things.

We also say that the learned President mistakenly asked or characterised the crucial question in the case. At 284 of the appeal book at paragraph 35, his Honour says:

As senior counsel for AFD submitted, s.15(B) requires the contract to name the person(s) to whom the credit provider is required to pay the loan funds. The question is: what are the payment obligations of the credit provider under the credit contract? The answer to that question supplies the particulars required by s.15(B). It is that obligation, and the relevant payee(s), which must be disclosed –

We have attempted to explain in our written submissions, we submit, that the question and answer are both misconceived because that is not what 15(B) says to begin with. The phrases “under the contract” and “payment obligations” do not appear but, in any event, the question wrongly assumes the existence of a loan contract instead of focusing on precontractual disclosure because the question that the learned President poses really admits of no other answer than that the disclosure obligations were coterminous with the payment obligations provided for in the contract. We say, for reasons we have set out in our written submission, that that is a fundamental error in his Honour’s approach to the questions.

I do not think I got around to answering the question about “extraneous” and that is my fault, no doubt, but the question was put to me that, why is not the AFD extraneous argument a good one? It is not good for these reasons. The proposition that is put that a holdback is wholly extraneous to this contract involves two conclusions, or it does in AFD’s written submissions. Firstly, that the holdbacks were incurred or borne by NII and then it said they were discrete and extraneous.

In our submission, the notion that the holdbacks were incurred or borne by NII is just another way of saying that they were legally enforceable by AFD against NII. In our respectful submission, that cannot be the case because it is inconsistent with the Tribunal’s unambiguous factual finding at appeal book 209 that no clear understanding, arrangement or agreement existed, contractually or otherwise, under which NII incurred a legally enforceable obligation to pay the holdbacks to AFD.

GLEESON CJ: Is a possible point of view that this was not a borrowing under which the borrower could put the money in his or her pocket and walk away and do with it what the borrower wished? This was a borrowing for a specific purpose and by way of a particular mechanism. It was a borrowing in which the amount borrowed was to be applied to enable the borrower to attend a seminar and not otherwise. The borrower never got the money.

MR O’CALLAGHAN: That is absolutely the case, your Honour.

GLEESON CJ: Consequently, a possible point of view is that the arrangements between the supplier and the credit provider were not extraneous to the arrangements between the credit provider and the borrower but they were all part and parcel of the one transaction.

MR O’CALLAGHAN: They were very much part and parcel of the one transaction, your Honour. That is a matter, we would say, of inevitable reality on the facts of this case. It is, we would submit, artificial and unrealistic in the extreme to say that the holdbacks were discrete or extraneous. At appeal book 253 Justice Kaye notes that the holdbacks:

had the purpose of subsidising the rate of interest payable, or substituting for a higher rate of interest which would otherwise have been paid, by the borrower to AFD . . . the holdback was a concession which enabled the lender to make the loan at a lower nominal rate to the borrower . . . on repayment of the loan.

Justice Neave notes at 329:

As the hold back fee increased, the amount of interest which the borrower was charged was reduced. Arithmetically the two rates usually added to 24%.

In essence, as Justice Kaye said at 241:

the higher the rate of interest, the lower was the rate of holdback. Arithmetically, the interest rate and the holdback rate added up to 24%.

As his Honour also says at 228:

Generally there was a correlation between the holdback as a percentage of the amount loaned on the one hand, and the standard interest rate charged by AFD.

His Honour goes on to make the same point. It is for those reasons too, Chief Justice, that one cannot sensibly regard a holdback as discrete or extraneous. The fact of the matter is that the borrower, the customer of NII, would never have been granted the credit without the holdbacks because these were folks that AFD did not normally lend to. What could be more fundamental to that arrangement than the holdback?

CRENNAN J: But the trouble is, is it not, that that 10 per cent upfront, which is what it is really, a proleptic payment of interest, is met by the supplier not by the borrower? Is that not the problem with the argument?

MR O’CALLAGHAN: No, your Honour, the borrower is obliged to repay, with interest, the $15,000. The borrower has to repay the holdback. That is another important reason that it is not extraneous. In effecting the monthly payments the borrower is doing precisely that, repaying the holdback. That is why AFD had the internal mechanism that they did with their accounts, for drawing down the amounts from the suspense accounts each month to top up the difference between the 14 per cent and the 24. That is effectively what they did, as the passages that I have just read help explain. At all times AFD was seeking to secure and did secure an effective interest rate of 24 per cent. The holdbacks permitted them to enter into contracts that had a facial rate of 14 per cent.

CRENNAN J: The borrower is not paying the extra 10 per cent on top of the amount lent because the supplier is effectively paying it, if we adopt that analysis of yours that it is, in effect, an extra 10 per cent of interest upfront. It is not being added as an extra component which would have to be disclosed to the borrower, it is actually being met by the supplier, for whatever reason.

MR O’CALLAGHAN: Your Honour, the supplier in this case agreed – take a high-risk holdback case rounding off the figures – to accept $7,500 for the course and not the $15,000 for the course and the borrower repays $15,000 plus interest.

GLEESON CJ: No, $15,340 including interest. Go to page 162. The total amount of money that the borrower is up for is $15,340, is it not?

MR O’CALLAGHAN: No, it is $20,000, your Honour.

GLEESON CJ: $20,121? That is $15,340 plus $4,781.12, is that right?

MR O’CALLAGHAN: Yes, your Honour.

GLEESON CJ: Why does the sum at the top, $15,340, say “Total loan and interest”? If there are separate interest charges of $4,781.12, why does the first item say “Total loan and interest”?

MR O’CALLAGHAN: I do not know, your Honour.

GLEESON CJ: Is that a mistake?

MR O’CALLAGHAN: It may be, your Honour.

GUMMOW J: There is a slippage in the printing, is there?

MR O’CALLAGHAN: The contract at 165 does not contain the same - - -

GLEESON CJ: Is it the case – and the slippage in the printing possibility seems to me at the moment I must say to be right – that the financial table is intended to give all the relevant information including the total of loan and interest but what the borrower is ultimately going to have to pay, including interest, is $20,121.12?

MR O’CALLAGHAN: Yes, your Honour, because that is 48 repayments at whatever the amount is.

GLEESON CJ: A component of that amount of $20,121.12 is $15,340.

MR O’CALLAGHAN: Yes, your Honour.

GLEESON CJ: In the case of a high-risk loan, of that $15,340, about half is going to the seminar providers and about half is going to the credit provider. But the holdback is $7,600-odd, whatever it is, is that right?

MR O’CALLAGHAN: Yes, your Honour.

GLEESON CJ: But the holdback is part of the $20,121.12, is it not?

MR O’CALLAGHAN: Yes, your Honour.

GLEESON CJ: So, in that sense, the borrower is the person out of whose pocket the holdback is going to come.

MR O’CALLAGHAN: Yes, your Honour.

GLEESON CJ: All of the $20,121.12 is going to come out of the pocket of the borrower.

MR O’CALLAGHAN: Absolutely.

GLEESON CJ: The purpose of section 15(B) is to tell the borrower where it is going?

MR O’CALLAGHAN: Yes, your Honour, that is our case.

HAYNE J: What do we get by embroidering it, Mr O’Callaghan, other than finding a hole?

MR O’CALLAGHAN: I shall not embroider much longer, your Honour, if embroidering is what I am doing. The affidavit of Mr McDonald is important because of something my learned friend said. At page 173 of the appeal book that affidavit appears and Mr McDonald says that the cost of the courses ranged between $16,000-odd and almost $5,000 and he produces the single-page document that my learned friend took the Court to at 184 of the appeal book and that is a copy document entitled NII Price List. Mr McDonald says that:

I believe that the letters “PIF” mean “Paid In Full.”

In the last sentence of paragraph 5 he says that:

It appears from that exhibit that course fees were discounted for those customers who paid in full at the outset as opposed to those who obtained finance for the fees.

My learned friend said something to the effect that – I may be misquoting him – the document was something that AFD at that particular time was not aware of but it was something that was put before the learned Deputy President and AFD had every opportunity to respond to it. But what it shows on its face is that, with respect to some of the programs, if a customer did pay in full, PIF, the program price was less, a case of an IM full program. Instead of a finance cost of $15,690, the program price was $13,995. So there is, my learned friend said, some evidence but that is the evidence that the cash price was lower, at least with respect to some of the courses.

In their written submissions the AFD relies on Laroque’s Case and North Sydney Investment as cases supporting the proposition that there was a set-off of mutual obligations in this case, but for reasons we have explained in detail in our written submissions and which have never been responded to, we say those cases have no application here. One principal reason is that in both those cases there was an independent agreement for a set-off to occur, whereas, of course, here there is no evidence of any arrangement or understanding between AFD and NII about the holdbacks, let alone that a set-off was agreed.

GLEESON CJ: You are not setting out to prove that some money has been embezzled, are you?

MR O’CALLAGHAN: No, your Honour.

GLEESON CJ: No, so you can probably live with the proposition that they were contractually entitled to do what they did?

MR O’CALLAGHAN: Yes, your Honour, at the end of the day, yes. The appellant, although it sought to make much of the notion of the words “under the contract” at special leave stage, I think it is fair to say seeks to downplay the significance of reading that phrase into section 15(B) but, in our submission, it is necessary that one reads those words into 15(B) to get to the result that my learned friend would urge upon you. At every turn Justice Maxwell, for example, needs to insert those words in order to make good his case.

We would say a number of things about why one ought not read words into section 15(B), the phrase “under the contract” where they do not appear. Firstly, that it is used in other provisions in section 15 but not in section 15(B). The phrase “under the contract” was included in analogous provisions in the Credit Act. That is section 36 with the definition of the “amount financed” contained in Schedule 4. That phrase was included but was excluded from the analogous provision and we say that is something that goes to the construction for which we contend because, as Stevens’ Case says, it is an important canon of statutory construction that the text of a statutory provision must be evaluated by reference to the state of the law when the statute was enacted.

We also say that the notion that the credit provider can pay to itself part of the amount of credit is important. That was an expression not found in the comparative provision in the Credit Act but it is another textual indicator. It is important, too, for reasons that are explained in the Project Blue Sky Case and in Kelly v The Queen to remember that the task of statutory construction commences with section 15(B), not with section 4. Another reason that section 15(B) does not have the expression “under the contract” in it, we would say, is that when it operates as a precontractual disclosure provision there is at that point in time no contract.

If I could say a little about the purpose of the Code and it will only be a little. Justice Kirby in Canham’s Case discussed the ultimate theory behind the philosophy in truth and lending. I have read from that case already. We say the same disclosure philosophy applies to this code. Mr Burns in the second reading speech in the Queensland Legislative Assembly said that, at 8830:

One of the key elements of the Consumer Credit Code is to ensure that there is truth in lending. This means that a consumer can make an informed choice between credit providers as to the nature of the credit being offered, as well as the comparative costs between credit providers.

Mrs Wade in her second reading speech – Mrs Wade was then Attorney-General – said:

A fundamental principle of the code is that there should be the least possible restrictions on the nature and amount of fees and charges which can be imposed provided that all such fees and charges are adequately disclosed. It is proposed to have regulations requiring the significant financial details to be set out in tabular form in the front section of a pre-disclosure statement which must be given to a debtor before a contract is entered into. The objective is to ensure that before any contract is entered into, the prime financial information is presented in a simple form so that the borrower can assess the true costs of any proposed credit transaction and make meaningful comparisons with competing products on offer.

KIRBY J: You have supplied us with the second reading speeches, have you?

MR O’CALLAGHAN: We have, your Honour, yes. Later on in the second reading speech - - -

KIRBY J: Is there a respected text on this statute that is available? Is there any commentary in scholarly writing about the problems now before the Court? There are quite a few academics who work in this area.

MR O’CALLAGHAN: There are, but to elevate them to the status that your Honour suggests they might have, I do not think would be accurate.

KIRBY J: Has there been any discussion of this case in any of the law reviews?

MR O’CALLAGHAN: I have read one, your Honour. I do not know its provenance. It was a partner of a law firm in Melbourne or Sydney had written something about - - -

KIRBY J: I know Melbourne and Sydney think that they are the only law schools worth worrying about, but there is a whole nation out there and lots of people scribbling away.

MR O’CALLAGHAN: I know. There have certainly been - - -

KIRBY J: I am just telling you, I am going to look for those things. However, if you want to - - -

MR O’CALLAGHAN: We can certainly provide your Honour with them to the extent that they exist. There is a somewhat outdated book that pretends to be an annotated code, but there has been very little decided about the Code, your Honour, and therefore few annotations to it. There is a 1999 book of Mr Duggan and Mrs Lanyon, Consumer Credit Law - - -

KIRBY J: Professor Duggan now. He has a Chair in Canada.

MR O’CALLAGHAN: He does. I beg your pardon.

KIRBY J: Anyway, 1999 would be a bit far in the past.

MR O’CALLAGHAN: Butterworths. That is referred to by Justice Neave at footnote 68. It is a red covered book, your Honour.

KIRBY J: Yes, thank you.

MR O’CALLAGHAN: That is in addition to the annotated code. Finally, we do press clause 7 of Schedule 2 of the Code. They are important words:

the interpretation that will best achieve the purpose or object of this Code is to be preferred to any other interpretation.

For reasons which I trust I have gone some way to explain we would say that the Director’s interpretation is that to be preferred because it is the honest interpretation.

KIRBY J: Also, I suppose, because in the past it has been known that enterprises for their own financial benefit or award or interest have not always had a coalescence of form and reality in documents.

MR O’CALLAGHAN: If ever there were a document, your Honour, that did not have the coalescence of form and reality it is the two contracts that the Court has been taken to today because, as I have said probably too many times - - -

KIRBY J: I think I have seen worse.

MR O’CALLAGHAN: I have said perhaps too many times, it is simply not true that NII was ever to be paid that amount and everybody knew it except the borrower. Unless I can be of any further assistance.

GLEESON CJ: Thank you, Mr O’Callaghan. Yes, Mr Archibald.

MR ARCHIBALD: If the Court pleases, five points as to the temporal matter raised by my friend. We are concerned with section 15 which on any view is the contract phase but, in any event, section 14, the precontractual phase, is an immediately proximate anticipation of the contract and reflects what would become part of the contract upon entry into it. So that exposes no different question and arises centrally under section 15 where the assumption is there is a contract. As to the concepts behind the policy of the Code and its relationship with truth in lending, the second reading speeches, in our submission, confirm that the concern and the only concern of the Code is the lending transaction.

HAYNE J: As to that, Mr Archibald, A wishes to agree to borrow money from B. Must B tell A to whom the money when lent will be disbursed?

MR ARCHIBALD: No, the question is not what use will be made of the funds by those entitled to it. That is to misunderstand the role and function of section 15(B). What section 15(B) addresses is not, as we put in our submissions in-chief, the bare concept of transmittal of funds, what is, so to speak, the physical or electronic flow of funds. The concern of section 15(B) is where are the funds to go conformably with the provisions of the contract? Part of the function of the disclosure is to set out in simple form clear, simple, readable, comprehensible form, what is otherwise ordained by the elements of the agreement that is reached.

GLEESON CJ: Since this is money that the borrower is liable to repay and since the borrower is never getting his or her hands on the money personally, then is not the borrower interested in how the money is going to be disbursed for the benefit of the borrower?

MR ARCHIBALD: No, the sole concern of the borrower is to ensure that the liability the borrower has incurred for the seminar fee is fully discharged. There is no reason why these contracts could not be formulated in a way which had the entirety of the amount of credit going to and being disbursed to the borrower and then the borrower on paying those funds to the seminar provider. There is no reason why it could not be done that way. No doubt for purposes of efficiency and to avoid circumstances where the funds might not end up going - - -

GLEESON CJ: There is a reason it could not have been done. First of all, there is no holdback involved.

MR ARCHIBALD: No, there still would be a holdback. It would be exactly the same because the whole credit transaction has come about, in most cases, because the seminar provider agrees to the holdback amount.

GLEESON CJ: But the credit provider was never prepared to provide a loan to the borrower for the purpose of doing anything other than spending it on attending a seminar. The lender was not going to lend this money to the borrower and give the borrower the choice of going and buying a new car.

MR O’CALLAGHAN: The reason the borrower applies for the loan is because the borrower is committing itself, himself, herself, to the seminar services contract and needs to meet the liability. That provides the occasion for applying for the credit facility. When the credit facility is obtained the way the funds are directed to flow under the credit contract ensures that there is satisfaction of that liability. What the Code is not concerned with is what those who are entitled to the flow of funds, as ordained under the credit contract, choose to do with those funds.

It would be entirely consonant with these arrangements for 100 per cent of the amount of the loan to be paid to the supplier and for the supplier then, as we illustrated in our submissions in-chief, to make a payment of the holdback amount back to the credit provider and, if that were done, the flow of funds, the physical flow of funds, the transmittal would precisely reflect what the contract ordained. It is no part of the concern of the Code to insist upon disclosure of what those entitled to the funds do with the funds or direct others to do with the funds.

A good example was given below of the case in which the supplier is assumed to have pressing creditors and the supplier gives to the credit provider a direction not to transmit the funds to the supplier but to transmit them to the pressing creditors, the creditors arising in circumstances entirely unrelated to any of the credit transactions, say a landlord, or whatever. It was common ground that in those circumstances such a direction coming from the supplier to the credit provider, in fact, to make a disbursement to the supplier’s creditors would not require to be disclosed under section 15(B).

GLEESON CJ: In that case the whole of the money would be being applied for the benefit of the supplier.

MR ARCHIBALD: Yes, and here we say there is no different position at all in the case of the holdback. There is no concern of section 15(B) to require disclosure of what it is that the supplier, being the party entitled to 100 per cent of the amount of the loan, chooses to instruct or direct the credit provider to do with those funds or, if not in the form of an affirmative direction, at least to concur in and accept what is done. That is the step which is the holdback step and that is the step which is not the province of or concern of section 15(B).

GLEESON CJ: Why did you say the supplier was entitled to 100 per cent of the amount of the loan?

MR ARCHIBALD: Because the credit contract stipulates that the amount of the loan, that is, 100 per cent will be paid by the credit provider to the supplier. That is clause 1 on page 163 and it is the relevant part of the table on page 162. Why that physical flow of funds does not occur is exclusively because the party entitled to that flow of funds, the supplier, chooses to accede to or instruct that a different course of actual payment occur, different flow of funds, and that is outside section 15(B). It is outside the Code altogether.

GLEESON CJ: There is not any suggestion here, is there, that on a true legal analysis the supplier made a gift to the credit provider?

MR ARCHIBALD: No, I do not think that is the case, although I have to say there is a phrase in Justice Ashley’s reasons, I think, which postulates that that is what has happened. I do not think it was ever argued and plainly, as I said earlier, there is no charitable altruistic conduct by these parties. There is a state of affairs in which the findings are holdback arrangements were in place between the supplier and the credit provider. Their effectuation seems not to have been the subject of explicit or formal provisions between those parties, but what was happening and why it was happening is explained amply by the subsidy notion. The effect is the supplier is paying a subsidy in respect of interest.

CRENNAN J: What do you say, Mr Archibald, about Mr O’Callaghan’s argument it is not really a subsidy, it is a way of charging 24 per cent interest instead of 10 per cent – or 14 per cent I should say.

MR ARCHIBALD: All the findings from the tribunal, first instance in the Supreme Court and the Court of Appeal all find that it is a subsidy or compensation. It is exactly that and that was the evidence. I think Mr Gray’s affidavit pages 12 and 14 of the appeal book indicate that that is the position. There is a document which I will give the Court a reference to, the AFD lending policy pages 188 to 189 of the appeal book, cast it in that character. I have dealt with two of the points.

The third point was the reading speeches and the like. They all show that the exclusive concern is the lending transaction only. For example, paragraph 123 at appeal book page 308, line 13 is an extract of one of the reading speeches putting the matter in that framework and the same passage emphasising that part of these disclosure provisions are not, so to speak, revealing truths that are not already known, or capable of being known by the borrower, but it is to set it out in simple, easily comprehensible and manageable form. The setting out of the amount of credit in where those moneys are, as a matter of contract, required to go, contract as between the debtor and the credit provider, is part of the function not of conveying something not otherwise knowable by the debtor, but to have it laid out in easy, simple, comprehensible fashion.

As to credit cards, they are the subject of the Credit Code for they are consumer finance. There is the concept of the credit contract and there is another concept of a continuing credit contract. The continuing credit contract is effectively a revolving facility where you borrow something, you pay a bit back, you can borrow more, a bit like an overdraft, and credit cards are continuing credit contracts. Because a lot of the disclosure provisions are concerned with what is ascertainable, many of the disclosures made for the type of contract this case is concerned with do not attach in the case of a credit card facility, because you do not know what the total amounts borrowed are, et cetera. So the same provisions apply but because of the unascertainability of various matters, ultimately there is a lesser level of disclosure that is capable of being given.

The reason, or one of the reasons I think, why retailers add a different premium is not so much concerned with bargaining strength but the Reserve Bank has regulated some credit cards and not certain other credit cards. The Reserve Bank regulation has cut the fees that are charged amongst those involved in credit cards and that means that they have to charge more, I think – or they can charge less to retailers but those not regulated are not in the same position. I will not name names for cards but the brands where retailers have to pay more are the non-regulated cards and the other ones are the regulated cards and I think it is largely that that throws up those disparities not matters bearing upon the Code. So that is the credit card position.

On the extraneous point, the last point, is the holdback extraneous, it is, in our submission, in the sense explained by the President at paragraphs 30 and 31 of his reasons at page 283 of the appeal book. That is to say, of course they are interrelated and associated but to observe that there is that association does not make the supply contract or the holdback arrangements part of the credit contract, though they are plainly associated in point of fact but not combined as a matter of analysis and the relationship is not such as to bring the supply contract into the province or concern of the Credit Code, “but for” is not enough. If the Court pleases.

GLEESON CJ: Thank you, Mr Archibald. We will reserve our decision in this matter and we will adjourn until 9.30 tomorrow in Sydney and 9.30 tomorrow in Melbourne.

AT 12.45 PM THE MATTER WAS ADJOURNED