Howe v Westpac New Zealand Limited [2016] NZHC 2050 (31 August 2016)

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UNDER	the District Courts Act 1947
IN THE MATTER	of an appeal against a decision of the District Court at Auckland
BETWEEN	BESTY ANNE HOWE AND CHRISTOPHER SIMON ALAN HOWE Appellants
AND	WESTPAC NEW ZEALAND LIMITED Respondent

Hearing:	31 August 2016
Counsel:	EJ Grove for appellants BJ Upton and LN Moore for respondent
_Judgment:	_{31 August 2016}

This judgment was delivered by me on 31 August 2016 at 4:45 pm, pursuant to Rule 11.5 of the High Court Rules.

The appeal ..............................................................................................................[1] The facts .................................................................................................................[3] The District Court judgment ..................................................................................[7] Time for appeal ......................................................................................................[9] Approach on appeal..............................................................................................[10] The issues .............................................................................................................[12] Appellants’ submissions .......................................................................................[13] Respondent’s submissions....................................................................................[16] Is the deed a consumer credit contract? ...............................................................[18] Result....................................................................................................................[35] Judgment ..............................................................................................................[36]

[1] The appellants’ appeal a decision of Judge Bergseng in the District Court at Auckland. In his decision dated 6 May, 2016, the Judge held that the respondent was entitled to summary judgment, including costs on a solicitor/client basis.¹

[2] In his decision on quantum, dated 23 May 2016, the Judge entered judgment for $149,612.03.²

_{Howes under a loan contract. That loan was a “consumer
credit contract”. All}

[4] The Howes defaulted on the loan and the full loan balance became immediately due and payable. The deed at issue in this appeal was entered into as a result of that default under the loan. It contained terms that the Howes acknowledged an existing liability in the amount of $189,998 to Westpac as well as all interest and fees which may accrue in accordance with the terms of the loan agreement and agreed to repay the debt by way of:

(d) Such other further final payments as may be necessary to repay the debt in full on or before 30 June 2015.

[5] The deed provided that upon full repayment of the debt, Westpac would release the Howes from payment of the debt and that Westpac would forebear from issuing proceedings while the deed remained in force and was being complied with. If the Howes defaulted under the deed, Westpac was able to take enforcement action.

[6] The Howes defaulted on the deed and became liable to repay the debt, which they did not do. Westpac applied for summary judgment in the District Court for the amount outstanding under the deed. The Howes opposed summary judgment on the grounds that:

(b) As such, Westpac was required to disclose the cost of credit at the time the deed was entered into;

(d) Given Westpac’s failure to attend to disclosure it now has no right to recover the interest and costs sought by the proceeding, and furthermore, it has no right to apply the repayments made pursuant to the deed to the reduction of interest rather than principal.

[7] Judge Bergseng recognised that an application for summary judgment requires that the plaintiff satisfy the Court that the defendant has no defence to any cause of action in the statement of claim.³

(b) The right to defer payment of the debt, or to use the terms of the Act, the provision of credit was created by the loan and the loan agreement;

(d) There is no non-compliance with the disclosure regime of the Act in relation to the provision to credit;

(e) The deed acknowledges the debt. It provides a forbearance from suit while the appellants complied with the deed;

(f) The appellants failed to comply with the deed, thus entitling the Bank to take action; and

[9] This appeal was filed one day out of time as the deadline was erroneously calculated from the date that the judgment was received rather than the date that it was released. On 30 June 2016, Woodhouse J granted leave to appeal out of time.

[10] An appeal from a decision of the District Court proceeds by way of rehearing pursuant to High Court Rule 20.18.

[11] The Supreme Court has settled the proper approach to be taken on appeal. An appellate court must come to its own view on the merits. Elias CJ said in Austin, Nicols & Co Inc v Stichting Lodestar:⁵

Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment. If the appellate court’s opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ.29 In such circumstances it is an error for the High Court to defer to the lower Court’s assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.

(a) Was the Judge correct in determining that the deed was not a credit contract and, in particular, in determining that s 6(a) of the CCFA, when defining “credit” as including the grant of a right to “defer payment of a debt” did not encompass the grant of a right to defer

⁵Austin, Nicols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].

(b) Was the Judge correct in determining that the deed did not embody all of the loan terms and conditions and could not be read as a stand- alone document.⁶

[13] The appellants’ position is that the interpretation of s 6(a) taken by the Judge was contrary to the natural and ordinary meaning of the words, in particular, because that interpretation renders s 6(a) redundant as it would add nothing to the words in s 6(b). The appellants also submit that the interpretation taken is contrary to the scheme under the Act as a lender would be free to modify credit terms by way of a new contract without providing fresh disclosure.

[14] The appellants also submit that although there is no authority on this point in relation to the CCCFA, the Judge’s interpretation was inconsistent with the Court of Appeal’s treatment of a similar contract under the Credit Contracts Act 1992.

[15] The appellants submit that even if the deed is not a new credit contract, but a variation of the loan agreement, disclosure was still required pursuant to s 22.

[16] The respondent submits that s 6 is not intended to capture default debt compromises such as the deed. In particular, the respondent refers to Gault on Commercial Law, which it says supports its argument that there was no ‘credit’ as defined by s 6. The authors provide that:⁷

The important qualification is that the contract must provide credit, as defined in s 6 which borrows from the Australian consumer credit legislation. Three sorts of transaction are recognised by s 6 as providing credit, with the common theme being the debtor having a right to deferment of a payment obligation. The first is the right is to defer payment of a debt, in the sense of a presently owing obligation. This will arise whenever an advance of funds is made, property sold or services provided without an immediate obligation to pay. The second arises where the advance has yet to be made, but where the debtor has the right to incur a debt in the future and then defer payment. This has obvious applications to bank accounts and credit cards, where the creditor agrees to make advances from time to time,

⁷Thomas Gault Gault on Commercial Law (online looseleaf ed, Brookers) at [4C.2.01].

and the advances do not lead to an immediate obligation on the debtor to pay them back. Third is where the debtor has the right to purchase property or services and defer payment of part or all of the price. This is not so much about a sale, but an agreement to sell or a credit account, as a result of which the debtor has a future right to acquire property or services without having to pay immediately.

[17] The respondent also submits that the deed is not a stand-alone contract as it merely modified existing obligations under the loan. I take their position as being that the deed was a variation to the loan agreement, but disclosure was not required pursuant to s 22.

[18] For a contract to be a consumer credit contract it must first be a credit contract.⁸

[19] Pursuant to s 7 of the CCCFA, ‘credit contract’ is defined in the following

(1) In this Act, unless the context otherwise requires, credit contract means a contract under which credit is or may be provided.

(2) If, because of any contract or contracts (none of which by itself constitutes a credit contract) or any arrangement, there is a transaction that is in substance or effect a credit contract, the contract, contracts, or arrangement must, for the purposes of this Act, be treated as a credit contract made at the time when the contract, or the last of those contracts, or the arrangement, was made, as the case may be.

(b) the debtor enters into the contract primarily for personal, domestic, or household purposes; and

(i) the creditor, or one of the creditors, carries on a business of providing credit (whether or not the business is the creditor's only business or the creditor's principal business):

(ii) the creditor, or one of the creditors, makes a practice of providing credit in the course of a business carried on by the creditor:

(iii) the creditor, or one of the creditors, makes a practice of entering into credit contracts in the creditor's own name as creditor on behalf of, or as trustee or nominee for, any other person:

(iv) the contract results from an introduction of one party to another party by a paid adviser or broker.

In this Act, unless the context otherwise requires, credit is provided under a contract if a right is granted by a person to another person to—

[22] There is no authority that directly addresses this issue under the CCCFA. As noted by the Court of Appeal in Kain v Wynn Williams & Co:⁹

The legislative history of the CCCF Act does not assist in defining the term “credit”. The explanatory note to the Bill, the Select Committee report, the different versions of the Bill and the Hansard debates do not discuss the definition's genesis or purpose. The text of s 6 remained untouched (and without commentary) throughout the legislative process.

[23] The issue in that case was whether a sentence in an invoice stating that the client had 14 days to make payment was a contractual agreement to defer payment. The Court of Appeal held it was simply an indulgence granted subsequent to the contract being entered into and was not a credit contract.

[24] I reject the submissions for the appellants that ‘credit’ was provided under the deed as it granted them the right to ‘defer payment of the debt’, and that the District Court Judge’s interpretation means that subs (a) and (b) refer to identical situations which could not have been the legislative intention. The answer to this is discussed in Gault on Commercial Law.¹⁰Section 6(a) refers to a situation in which a debt is incurred but payment is deferred, whereas s 6(b) applies where there is a ‘right’ to incur a debt, but no debt is incurred at that time. This would refer to, for example, a credit card contract.

[25] I reject the appellants’ submission that the deed also comprised a standalone credit contract by operation of s 133 of the CCFA, because no disclosure was given by Westpac in relation to the deed as required by section 22 of the CCCFA.

The provision of credit as a result of a change to an existing credit contract, or a deferral of an amount payable under an existing credit contract, or a postponement relating to an existing credit contract, is not to be treated as creating a new credit contract for the purposes of this Act if the change, deferral, or postponement is made in accordance with this Act or the existing credit contract.

[27] The interpretation of this section is important in the analysis of this case. Unfortunately, it has not been addressed in detail in the parties’ submissions. The appellants appear to assume that “...in accordance with this Act or the existing credit contract” means that the change, deferral, or postponement was provided for or required by the Act or the existing loan.

[28] In contrast, the respondent appears to assume that the phrase means simply that the change, deferral, or postponement was not prohibited by or contrary to the

Act or the existing contract. There does not appear to be any case law on this section. The authors of Gault on Commercial Law provide the following:¹¹

Although s 133(1) applies to any credit contract, it is of most significance in relation to a consumer credit contract. Entry into such a contract attracts a fresh disclosure obligation. By s 133, if the parties instead agree to vary an existing credit contract, no new contract arises. Thus a mechanism is provided for making further advances or rescheduling payments without attracting an initial disclosure obligation, although change disclosure will still be needed.

The CCCFA operates to impose obligations on a creditor when a credit contract is entered into. If there is a change to an existing credit contract, or an amount payable under it is deferred, or there is a postponement of an obligation, it may have the effect of creating a new credit contract pursuant to the terms of the Act, with the attendant need for the creditor to satisfy its obligations all over again. To avoid this problem, the Act provides that these situations are not to be treated as creating a new credit contract, provided the change, deferral or postponement is made in accordance with the Act or the existing credit contract: s 133(1)

[30] The appellants also submit that the Judge’s finding is inconsistent with the Court of Appeal’s decision in Wood v Maree Finance Ltd, which was decided under the Credit Contracts Act 1981.¹³In that case Mr Wood took out six loans, totalling

$64,500. He did not meet his repayments. He then executed a document described as a deed of acknowledgment of debt and two instruments giving security over the book debts of his practices. The acknowledgment of debt consolidated the loans, provided a repayment schedule and a new (higher) interest rate. The Court held that the deed “... capitalises the unpaid cost of credit and creates a new and additional contract for repayment of the whole debt.”¹⁴

[31] In my view, this case is distinguishable. The new deed brought together several debts into one deed. Further, it provided a new and higher interest rate. Therefore, it seems that the debt and interest would accrue under the new deed rather

_{than the older loan agreements. The same cannot be said about the deed
in this case.}

¹²_{Commercial Law in New Zealand (online looseleaf ed,
LexisNexis) [22.12.2].}

[32] In my view, the District Court Judge was correct to determine that the deed was not a new credit contract as no credit was provided as defined by s 6. The interest continued to accrue under the loan agreement, therefore, it could not be said to have been completely replaced. The only alteration was to the date and amount of repayments. At most, if the deed was a variation of the terms of the loan agreement, s 22 would apply.

(1) Every creditor under a consumer credit contract must ensure that disclosure of the following information is made to every debtor under the contract if the parties to the contract agree to change the contract:

(b) any other information prescribed by regulations to be information that must be disclosed under this section.

(3) Disclosure is not required under this section in relation to a change that—

(a) reduces the obligations that the debtor would otherwise have, unless the obligations are reduced following an application under section 55; or

(b) extends the time for payment of any payment to be made under the contract, unless the time for payment is extended following an application under section 55; or

[34] In this case, the change fell under s22(3)(b) and disclosure was not required.

[35] The entry of summary judgment in this case was appropriate. The court was properly satisfied that there was no defence to the respondent’s claim.

[37] I reserve costs as counsel should be able to agree on same. Liability for costs is covered by cl 8.1 of the deed. In the event that there is disagreement, memoranda

_{in support, opposition and reply shall be filed and served at seven-day
intervals.}

High Court of New Zealand Decisions

Howe v Westpac New Zealand Limited [2016] NZHC 2050 (31 August 2016)