COMMERCE COMMISSION v SPORTZONE MOTORCYCLES LIMITED (in liquidation) [2013] NZHC 2531

COMMERCE COMMISSION v SPORTZONE MOTORCYCLES LIMITED (in liquidation) [2013] NZHC 2531 [27 September 2013]JUDGMENT RE-ISSUED IN ACCORDANCE WITH ORDER PROHIBITINGPUBLICATION OF FIGURES IN PARAGRAPHS [11](C) AND [99] OF THEJUDGMENT. FILE NOT TO BE SEARCHED WITHOUT THE LEAVE OF AJUDGE; PARTIES TO BE NOTIFIED OF ANY APPLICATION FORACCESS TO THE COURT FILE TO ENABLE THE COURT TO RECEIVESUBMISSIONS ON COMMERCIALLY SENSITIVE CONTENT.IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2010-409-000026[2013] NZHC 2531UNDER the Credit Contracts and ConsumerFinance Act 2003 and the Fair Trading Act1986BETWEEN COMMERCE COMMISSIONPlaintiffAND SPORTZONE MOTORCYCLESLIMITED (in liquidation)First DefendantMOTOR TRADE FINANCES LIMITEDSecond DefendantMTF SECURITIES LIMITEDThird DefendantHearing: 12 - 16, 19 - 23 and 27 November 2012Appearances: SJ Mills QC, KC Francis and IS Auld for PlaintiffIJ Thain and OV Collette-Moxon for DefendantsJudgment: 27 September 2013JUDGMENT OF TOOGOOD JThis judgment was delivered by me on Friday, 27 September 2013 at 11amPursuant to Rule 11.5 High Court RulesRegistrar/Deputy RegistrarTable of ContentsPara NoIntroduction [1]Factual background [6]The contractual arrangements [10]The statutory framework [14]Pleadings [21]Plaintiff's submissions [22]Defendants' submissions [26]Statutory interpretation the essence of the case [29]Consideration of the statutory wording [31]Establishment fees – s 42(1) CCCFA [33]Other credit fees and default fees – s 44 CCCFA [40]Is there a distinction between "in connection with" and "related to"? [44]A general statement of approach based on the statutory wording [46]The relevant statutory purposes [53]Is the purpose of ss 41, 42 and 44 primarily to avoid the chargingof fees in the nature of interest? [57]Summary of statutory purposes [63]Reasonableness requires a closely relevant connection between thecost claimed and the particular transaction [64]Applying the principles in practice [68]The variable costs approach [72]Alternative accounting approach not valid [77]The application of the variable cost/closely relevant approach [83]Findings related to the causes of action alleging breach of s 41 [88]Further observations on the approach to s 41 – draft guidelines [91]Fifth cause of action – breach of s 17 CCCFA [98]Sixth cause of action – s 9, Fair Trading Act 1986 [103]Result [106]Introduction[1] The Credit Contract and Consumer Finance Act 2003 ("the CCCFA") is animportant piece of consumer protection legislation, the relevant part of which, for the purposes of this case, regulates credit fees and default fees for consumer credit contracts. In the exercise of its statutory role and functions under the CCCFA as public watchdog, the Commerce Commission has issued this proceeding about fees charged to the purchasers of motorcycles on credit, in addition to interest payments due under the credit contracts into which they entered.[2] Although the evidence, the legal arguments and the outcome are focused upon the terms of particular credit contracts entered into by the first defendant as a motorcycle retailer, the case has important ramifications for borrowers and lenders in the wider consumer finance market.[3] The express statutory purposes of the CCCFA do not include placing limits on the cost of consumer finance. Subject to rules regarding the calculating of interest, designed to prevent oppression, the CCCFA contains no limits on interest rates. Further, it permits lenders to charge fees to cover their associated costs with the financing arrangements, including the costs of establishing a credit contract, maintaining an account, and addressing the consequences of default by a borrower. In general terms, the only limitation on fees charged by lenders under a consumer credit contract is that the arrangements must not provide for a credit fee or a default fee that is unreasonable. Reasonableness, in general terms, is determined by the extent to which the fee goes no further than entitling the borrower to recover its costs in connection with or related to the particular matter to which the fee relates.[4] The real issue in this case is the extent to which a borrower may recover, by the imposition of a fee or fees, general overheads which are not directly or closely related to the particular activity concerned, such as the setting up and processing of an application for credit. It is not disputed that, to the extent that such overheads may not be recoverable by way of a fee, a borrower is not inhibited from setting an interest rate which achieves that purpose, covers the cost of funds, and provides the borrower with a reasonable profit.[5] The following particular issues require determination:(a) How do the wording of the relevant statutory provisions and the statutory purposes of the legislative scheme influence the interpretation of the CCCFA?(b) In light of the purposes of the CCCFA, when determining the reasonableness of a fee, what is the required nexus between a cost and a fee before that cost can be included in an establishment, default or"other" credit fee? More specifically:(i) What does "in connection with" mean in the context of s 42?(ii) What does "in relation to" mean in the context of s 44?(c) Applying the answers to those questions, were any of the defendants'fees unreasonable?(d) Did the defendants have an obligation to disclose their credit check fees under s 17 of the CCCFA?(e) Do the terms "establishment fee" and "account maintenance fee" asused by the defendants amount to a breach of s 9 of the Fair Trading Act 1986?Factual background[6] The Commerce Commission ("the Commission") is responsible forpromoting compliance under the CCCFA.1[7] The first defendant, Sportzone, was in the business of new and used motorcycle sales, services and repairs. It appears to have been a victim of the Christchurch earthquakes and is now in liquidation. This case concerns fees charged1 Credit Contract and Consumer Finance Act 2003, s 111(1).by Sportzone in connection with credit contracts entered into during 2006, 2007 and 2008 with the purchasers of motorcycles who borrowed part of the purchase price.[8] The second defendant, Motor Trade Finances Limited ("MTF"), provides financial services to associated dealers. Sportzone was one of MTF's associated dealers. The third defendant, MTF Securities Ltd, provided finance to its associated company MTF by purchasing loans from MTF which were then securitised and sold as debt securities.[9] On 13 July 2004, MTF entered into an agreement with Sportzone which permitted Sportzone to write credit contracts to provide finance to purchasers of vehicles. Under this agreement, Sportzone was allowed to provide intending purchasers of motorcycles with finance by entering into conditional purchase agreements with purchasers for periods of one to five years, with Sportzone taking a security in the motorcycles to secure the payments under the conditional purchase agreements.The contractual arrangements[10] Between 26 May 2005 and 16 July 2008 the borrowers entered conditional purchase agreements for the purchase of motorcycles which named Sportzone as the lender. In order to fund the loans, Sportzone simultaneously borrowed from MTF a sum equal to the total advance made under the loans. The MTF loans were funded by MTF through short term bank facilities and by selling them to MTF Securities. As security for repayment of the MTF loans, Sportzone assigned the loans and its security interest in them to MTF. MTF then sold the loans and its security interest in them to MTF Securities. The terms of the credit contracts required the borrowers to make the payments due on the loans to MTF Securities. Payment to MTF Securities of the amounts due under the loans discharged the obligations of Sportzone to pay equivalent amounts under the MTF loans.[11] The loans provided for the payment of a number of credit fees. They included:(a) an establishment fee of $200 charged by Sportzone;(b) an establishment fee of $190 charged by MTF;(c) as part of the establishment fee charged by MTF and Sportzone, a fee of [withheld from publication] plus GST charged by Baycorp for a credit check and a portion of the cost of a Land Transport Safety Authority charge for a motor vehicle check, the cost of which ranged from [withheld from publication] per borrower;(d) a monthly account maintenance fee of $5 charged by Sportzone;(e) a monthly account maintenance fee of $3 charged by MTF to Sportzone and by Sportzone to the borrower;(f) a full prepayment administration fee of $50 charged by MTF to borrowers who fully prepaid their loans before the date on which the last payment was due; and(g) a fee of $5 charged by MTF and described in the loans as a "PPSR Financing Statement Registration Fee".[12] The loans also provided for the payment of a number of default fees:(a) A prepossession fee of $50 charged by MTF to the borrowers in arrears for 12 days. This fee was increased to $80 for loans advanced after 2 February 2007.(b) A $70 repossession fee charged by MTF to borrowers in arrears for 34 days. This fee was increased to $80 for loans advanced after 2 February 2007.[13] In August 2006 the Commission began investigations into Sportzone and theother defendants following receipt of a complaint. The Commission's investigationidentified evidence which raised significant concerns regarding the defendants'general approach to compliance with the CCCFA. This case is the culmination of that investigation.The statutory framework[14] This case is concerned with the interpretation of Part 2, subpart 6 of the CCCFA which regulates the reasonableness of credit fees or default fees in consumer credit contracts.[15] Section 41(1) of the CCCFA provides that a consumer credit contract must not provide for a credit fee or a default fee that is unreasonable. Whether a fee is unreasonable is to be determined by reference to ss 42 to 44.[16] "Credit fees" and "default fees" are defined in s 5 of the Act:credit fees means fees or charges payable by the debtor under a credit contract, or payable by the debtor to, or for the benefit of, the creditor in connection with a credit contract (including any insurance premiums payable if the creditor requires the debtor to obtain insurance cover from a particular insurer); but does not include the following:(a) interest charges:(b) a charge for an optional service:(c) a default fee or a default interest charge:(d) government charges, duties, taxes, or levies...default fees means fees or charges payable on a breach of a credit contract by a debtor or on the enforcement of a credit contract by a creditor; but does not include default interest charges[17] Section 42 of the CCCFA deals with establishment fees. The term"establishment fees" is defined in s 5:establishment fees means the fees or charges payable under the credit contract that relate to the costs incurred by the creditor in connection with the application for credit, processing and considering that application, documenting the contract, and advancing the credit; but does not include any fee or charge to the extent that it is a charge for an optional service[18] Section 42 provides mandatory but not necessarily exclusive criteria for determining whether establishment fees are unreasonable:42 Establishment feesIn determining whether an establishment fee is unreasonable, the Court must have regard to—(a) whether the amount of the fee is equal to or less than the creditor's reasonable costs in connection with the application for credit, processing and considering that application, documenting the consumer credit contract, and advancing the credit; or(b) whether the amount of the fee is equal to or less than the creditor's average reasonable costs of the matters referred to in paragraph (a) for the appropriate class of consumer credit contract.[19] Section 43 is not directly in issue in this case but it provides some relevant context. The section deals with prepayment fees, being fees which are charged for early repayments under credit contracts. The focus of the section is on a creditor'sreasonable costs as well as a reasonable estimate of any loss. Section 43 providesthat a fee will be unreasonable "if, and only if" it exceeds a reasonable estimate ofloss.[20] Section 44 provides mandatory but not necessarily exclusive criteria fordetermining whether "other" credit fees2 and default fees3 are unreasonable:44 Other credit fees and default fee(1) In determining whether a credit fee or a default fee is unreasonable, the Court must have regard to,—(a) in relation to the matter giving rise to the fee, whether the fee reasonably compensates the creditor for the following:(i) any cost incurred by the creditor (including the cost of providing a service to the debtor if the fee relates to the provision of a service):(ii) a reasonable estimate of any loss incurred by the creditor as a result of the debtor's acts or omissions; and(b) reasonable standards of commercial practice.2 "Other credit fees" means credit fees as defined in s 5, other than establishment fees which areaddressed in s 42.3 See [16] above.(2) This section does not apply to—(a) establishment fees; or(b) a fee or charge payable on a part prepayment under a consumer credit contract; or(c) a fee or charge payable on a full prepayment of a consumer credit contract (unless the fee relates to administrative costs).Pleadings[21] It is against this legislative background that the Commission brought these proceedings. It claims:(a) the establishment fees charged by Sportzone and MTF were unreasonable;(b) the maintenance fees charged by Sportzone and MTF were unreasonable;(c) the prepossession fees charged by MTF, or alternatively MTF Securities, were unreasonable;(d) the repossession fees charged by MTF and MTF Securities were unreasonable;(e) Sportzone and MTF did not properly disclose the credit check fees under s 17 of the CCCFA; and(f) the use of the terms "establishment fee" and "account maintenancefee" used by Sportzone and MTF amount to misleading and deceptiveconduct under s 9 of the Fair Trading Act 1986.Plaintiff's submissions[22] The Commission argues that the defendants' fees were unreasonable becausethe establishment fees included costs which were not incurred in sufficient connection with the particular transaction, and the other credit fees and default feeswere not sufficiently related to the activities for which the fees were charged. For example, the Sportzone establishment fee included costs the Commission says could not lawfully be recovered by such a fee because they were not related to theborrowers' applications for credit, the processing and considering of applications forcredit, documenting the consumer credit by the lenders, and advancing the credit to the borrowers. Instead, the fees were intended to recover fixed cost items such as premises rent, telephone and electricity charges, training costs, insurance and rates. Similarly, the MTF account maintenance fee included costs which were unrelated toactivities such as administering the MTF loans and maintaining the borrowers' loanaccounts. Instead, they were intended to recover costs incurred in respect of system development, area managers and IT production.[23] The Commission submits that in order to establish that the recovery of a costcan be included in any credit fee as being a cost incurred "in connection with" (s 42) or "in relation to" (s 44) matters giving rise to the fee, a cost must be incurred inrelation to a particular loan to an individual borrower. That is, the required connection is to the individual debtor against whom the cost is being charged and that connection must be clearly identified. While a creditor might be able to average its costs for a particular activity, the starting point is the identification of the costs incurred in relation to the specific activity and the specific debtor against which the fee is charged.[24] As to the recoverability of costs, the Commission argues that other less direct costs can only be recovered as fees if the required connection can be made with the particular category of fee. If no such connection can be made, the cost becomes a general overhead of the business which can be recovered through interest.[25] The Fair Trading Act claim is based on the defendants allegedly incorrectly representing that the fees charged were recovering only costs that related to those fee categories as defined in the CCCFA.Defendants' submissions[26] The defendants argue that their fees were reasonable and were set out with proper regard to the actual costs of relevant activities. In determining the reasonableness of fees, the defendants argue that ss 42 and 44 require the Court tohave regard to "fee versus cost" comparisons. For each comparison, the relevantcosts are all creditors' actual reasonable costs "in connection with" or "in relation to"the relevant matters giving rise to the fee. Because the matters giving rise to the fee are not the use of the money, such costs will not include the value of the use; that is, the time value of the money. Therefore, the defendants say, when seen in thiscontext, the phrases "in connection with" and "in relation to" do not need to be readmore narrowly. The defendants also say that as regards each fee, the Court is not required to consider only the result of the "fee versus costs" comparison. Sections42 and 44 require the Court to have regard to certain matters, but not exclusively.[27] As to the Fair Trading Act claim, the defendants say the only representationswere that the "establishment fee" is the fee being charged for establishing the loan, and the "account maintenance fee" is the fee charged for maintaining the borrower'sloan account. The defendants deny these are misrepresentations or, if they were, that any losses have been incurred as a result.[28] As to the disclosure claim, the defendants say they were under no obligation to state the method of calculating the fees or providing a breakdown of them.Statutory interpretation the essence of the case[29] The central question is essentially one of statutory interpretation: are theexpressions "in connection with" in s 42(a) of the CCCFA, and "in relation to" ins 44(1)(a), to be read narrowly so as to limit costs recoverable by fees to variable costs and some directly-related fixed costs determined by reference to the activities involved in a particular transaction? Or should those provisions be applied broadly so that any direct or indirect costs having some beneficial relationship with the particular activity concerned, whether they are variable costs or fixed costs associated with the business of lending, are recoverable by fees?[30] The view of the second defendant, a finance company, is that the legislation permits it to recover all of its costs by way of fees and to make its reasonable profits from the margin between the cost of acquiring funds for lending and the interest rate charged to the borrower.Consideration of the statutory wording[31] Section 5(1) of the Interpretation Act 1999 provides that the meaning of an enactment must be ascertained from its text and in the light of its purpose. I turn to look at the text.[32] It is evident from s 41(1) of the CCCFA that the central inquiry to be undertaken in respect of the fees imposed by the defendants which have been challenged by the Commission is whether a fee under consideration is unreasonable.Establishment fees – s 42(1) CCCFA[33] In determining whether an establishment fee is unreasonable, s 42(1) directs the Court to assess in respect of the credit contract in question how the fee chargedcompares to the creditor's actual and reasonable costs in connection with the fouridentified steps undertaken by the creditor in the transaction.4 Where it is appropriate to do so, the Court may, instead of looking at the actual costs inconnection with a particular transaction, assess the creditor's average reasonablecosts in undertaking the four steps described in respect of the appropriate class of credit contract.5[34] As I have indicated, the principal contest between the parties to this case isthe degree of connection required between the creditor's costs and the activity forwhich the fee is charged.[35] Two features of the inquiry under s 42 should be noted. First, the use of the definite article in referring to "the application for credit" reinforces the inference to be drawn from the use of the term "an" establishment fee at the beginning of the4 Credit Contract and Consumer Finance Act 2003, s 42(a).5 Ibid, s 42(b).section, that the Court's inquiry is directed not to whether the lender's fees in generalare reasonable, but whether an establishment fee charged in a particular transaction is unreasonable. This is implied also by the definite article directing the Court toconsider "the amount of the fee".[36] Further, the three chronological steps following the application for credit arereferable to the particular transaction; namely, processing and considering "that"application, documenting "the" consumer credit contract, and advancing "the" credit.[37] The second notable feature of the inquiry is that it is process oriented. What must be assessed is the reasonableness of the costs in connection with the four chronologically-listed steps taken when a credit application is made and granted. That implies that it may not be reasonable to charge an establishment fee which recovers costs which are remote from individual transactions and are connected more closely with the general overheads of the business; that is, costs not directly attributable to the four steps. Even where an average reasonable costs approach is taken under s 42(b), the question remains how the fee charged for the particulartransaction compares to the creditor's average reasonable cost for each of the foursteps identified in the paragraph.[38] As the focus of the section is on the particular transaction in question, the costs to be considered must be those related to the credit transaction and not to thesale and purchase transaction in general. To illustrate by reference to Sportzone'sbusiness of selling motorcycles, business costs related to the overall business of motorcycle sales, which are incurred irrespective of whether a sale is for cash or on credit, must be disregarded. I do not understand the defendants to argue otherwise, but there is more scope for disagreement in respect of the establishment fees charged by the finance company MTF in relation to costs connected with the overall business of lending.[39] The inquiry under s 42 must involve making a determination of reasonableness in a particular case, rather than in general, because of the nature of the remedies for any breach of the obligation under s 41 which are necessarily fact or transaction specific: see, for example, applications under s 93 for the exercise of theCourt's general power to make orders under s 94(1)(b) for compensation for loss ordamage.Other credit fees and default fees – s 44 CCCFA[40] An analysis of the provisions of s 44 indicates that an inquiry into unreasonableness in respect of a credit fee other than an establishment fee, or a default fee, is also transaction specific. This is so, first, because the purpose of the inquiry is likely to be in the context of a claim for a remedy of the type just discussed and second, because of the wording of the section.[41] As in s 42, the use of the definite article in s 44(1)(a) points to a particular fee charged in a particular transaction. The matter giving rise to the fee is the recovery purpose for which the fee is charged. In the present case, for example, the matters giving rise to the credit fees and default fees in question are the administration andmaintenance of the loans and the borrowers' accounts in question; the cost of theborrower falling into arrears in terms of scheduled payments of principal andinterest; and costs related to the borrower's default, including fees charged fornotifying the borrower of an intention to repossess the subject vehicle (pre- possession fees) and fees charged for the cost of actually repossessing the vehicle.[42] The reference in s 44(1)(a)(ii) to a reasonable estimate of any loss incurred by the creditor as a result of the debtor's acts or omissions also focuses attention on a particular event or fee activity. In interpreting the phrase "reasonable estimate of the creditor's loss" arising from a part prepayment,6 Asher J said in Commerce Commission v Avanti Finance7 that he interpreted the phrase as meaning an estimate that, on an objective informed analysis at the time the credit contract is entered into, will do no more than compensate the creditor for the actual losses it could expect to sustain in the event of prepayment. An estimate of loss calculation will be unreasonable if it will result in a creditor recovering significantly more than its actual loss arising from the particular prepayment.6 Credit Contracts and Consumer Finance Act 2003, s 43(1).7 Commerce Commission v Avanti Finance (2009) 9 NZBLC 102,662 (HC) at [31].[43] The Court is required under s 44(1)(b) to have regard to reasonable standards of commercial practice. This requirement does not shift the inquiry away from a consideration of the particular fee charged in a particular case; it indicates that theCourt's inquiry as to reasonableness in the particular case will be informed by what is regarded as reasonable in general commercial practice.Is there a distinction between "in connection with" and "related to"?[44] Mr Mills QC suggested that the differing language and tighter restrictions on establishment fees evident in the legislative history indicate that the expression "in connection with" in s 42(a) contemplates a closer nexus between the cost and theactivity is required than is necessary under s 44(1)(a) where the question is whether the fee reasonably compensates the creditor "in relation to" the matter giving rise tothe fee. Although he did not say so, it is implicit in that submission that the Commission may argue that the test of reasonableness under s 42 is more onerous than the test under s 44. If that is what was intended, I am not persuaded it is right. The differing language appears to me to have been used because of the different structure of the sections and the way in which the inquiries into the nexus are to be conducted.[45] In my view, the expression "in connection with" (s 42(a)), "arising from"(s 43(1) and (2)), and "in relation to" (s 44(1)(a)) merely reflect the nature of theparticular inquiry under the respective sections of the CCCFA without altering the standard of reasonableness in s 41.A general statement of approach based on the statutory wording[46] The Commission's contention is that because the wording of ss 41, 42 and 44focuses attention on particular transactions the determination of what is reasonable confines the justification to costs which are directly or closely connected with (in relation to establishment fees) and related to (in connection with other credit fees and default fees) the loan application and the processing of it and the administration of the particular loan.[47] The defendants argue by reference to what they say is the plain meaning ofthe expression "in connection with" and "in relation to" that the absence of any qualification to the word "costs" requires the Court to give the expressions theirordinary broad meaning. Thus, anything which is connected with or related to the activity or matter for which the fee is charged will fall within the category of costs to be taken into account in determining the reasonableness of the recovery.[48] For the defendants, Mr Thain referred to the observation by Hardie Boys J inStrachan v Marriott8 that the expression "in connection with" may signify no morethan a relationship between one thing and another and that the expression did not necessarily require that it be a causal relationship. Mr Thain also acknowledged, however, that the Judge went on to cite the following passage in Hatfield v Health Insurance Commission:9Expressions such as "relating to", "in relation to", "in connection with", and "in respect of" are commonly found in legislation but invariably raise problems of statutory interpretation. They are terms which fluctuate in operation from statute to statute ... The terms may have a very wide operation but they do not usually carry the widest possible ambit, for they are subject to the context in which they are used, to the words with which they are associated, and to the object or purpose of the statutory provision in which they appear.[49] As Mr Thain submitted, that observation may be no more than a re-statement of s 5(1) of the Interpretation Act.[50] Mr Mills referred to the similar views of Savage J in Yurjevich v Commissioner of Inland Revenue10 where the High Court was required to determinewhether costs were incurred "in connection with" the calculation or determination ofa taxpayer's income, so as to be deductible for income tax purposes. The taxpayer'sclaim was for a deduction for travel expenses on trips taken to discuss his tax affairswith his relatives. Savage J acknowledged that the expression required some link orconnection between the expenditure and the preparation, institution or presentationof the objection to the Commissioner's assessment. In the Court's view, it would nothave been meant by Parliament to include in the meaning of the expression a link or8 Strachan v Marriott [1995] 3 NZLR 272 (CA) at [279]–[280].9 Hatfield v Health Insurance Commission (1987) 15 FCR 487 at 491.10 Yurjevich v Commissioner of Inland Revenue (1991) 13 NZTC 8,185; (1991) 16 TRNZ 188 (HC).connection that was not sufficiently closely related to some aspect of the objection itself in the context of the income tax legislation. Savage J said:11There must, it seems to me, be a link or connection which is sufficiently close and relevant to the preparation institution or presentation of theobjection that it can reasonably be said that the expenditure was incurred inconnection with it.It does not seem to me that it is possible to postulate any test more precise than that which I have just given. I think that each case must be considered in the light of its own particular circumstances, and a practical and common sense judgment made in each instance.[51] The Court concluded that claiming for the expense of travelling to see relatives to discuss a tax assessment merely because the judgment of the relativeswas valued by the taxpayer was "too remote" and "not sufficiently relevant" to be considered in the context of the legislation to be "in connection with" the objectionto the assessment.[52] The textual analysis of ss 41, 42 and 44 suggests that a similar approach is required in the present case. What is a reasonable recovery of costs by a fee charged for a particular activity or matter will depend on the extent to which the cost is reasonably referable to the activity or matter in question. I turn to consider the statutory purposes.The relevant statutory purposes[53] The purposes of the CCCFA as set out in s 3, so far as is relevant, are as follows:3 PurposesThe purposes of this Act are—(a) to protect the interests of consumers in connection with credit contracts, consumer leases, and buy-back transactions of land; and(b) to provide for the disclosure of adequate information to consumers under consumer credit contracts and consumer leases—(i) to enable consumers to distinguish between competing credit arrangements or competing lease arrangements; and11 At 8,189.(ii) to enable consumers to become informed of the terms of consumer credit contracts or consumer leases before they become irrevocably committed to them; and(iii) to enable consumers to monitor the performance of consumer credit contracts or consumer leases; and(c) to provide rules about interest charges, fees, and payments in relation to consumer credit contracts;....[54] The first stated purpose is to protect the interests of consumers in connectionwith credit contracts; this fundamental purpose must be taken into account in theinterpretation of specific sections.12 Consistently with the purpose of consumerprotection, a key objective of the legislation is to provide what Hammond Jdescribed in Bartle v GE Custodians,13 as "truth in lending", which is not merelyrestricted to obvious features such as interest rates but extends to what thetransaction in its fundamentals is really all about.[55] Second, the ends which the provision of adequate information serves are toenable consumers to distinguish between credit contracts, or make what Priestley J inCommerce Commission v Bluestone Mortgages14 referred to as an "apples for applescomparison" between competing offers of credit; to enable creditors to be adequatelyinformed of credit terms before being committed to them;15 and to enable consumersto monitor the performance of the credit contract.[56] I accept also the submission of Mr Mills QC on behalf of the Commissionthat the third express statutory purpose of providing rules about interest charges,fees, and payments in relation to consumer credit contracts16 has the objective ofdefining and confining the circumstances in which fees can be charged. It is alsointended to regulate the levels of fees, as distinguished from interest, and to avoidcharging additional interest disguised as fees.12 Commerce Commission v Avanti Finance, above n 7 at [28].13 Bartle v GE Custodians Ltd [2010] NZCA 174, [2010] 3 NZLR 601 at [50].14 Commerce Commission v Bluestone Mortgages (NZ) Ltd HC Auckland CIV-2009-409-617, 21 October 2010.15 King v Norfolk Nominees Ltd [2012] NZCA 190 at [40].16 Credit Contracts and Consumer Finance Act 2003, s 3(c).Is the purpose of ss 41, 42 and 44 primarily to avoid the charging of fees in the nature of interest?[57] While not disregarding the provisions of s 3 of the CCCFA, Mr Thain argues for the defendants that the actual purpose of the rules about fees contained in ss 41, 42 and 44 of the CCCFA is to deal with a concern that lenders could otherwise use fees to avoid the limits on interest charges in ss 38 and 39. Those sections prohibit lenders from charging interest in advance and require lenders to calculate interest by applying a rate solely to the amount outstanding at the relevant time. In this regard, Mr Thain referred to observations in the Ministry of Consumer Affairs' initial briefing paper to the Commerce Select Committee in May 200317 and a Cabinet Committee Review Paper18 as indicating that officials considered it necessary to place substantive restrictions on fees because creditors might otherwise be tempted to avoid restrictions on charging interest by imposing fees which are in the nature of interest charges.[58] The defendants submit that a charge in the nature of interest is one which compensates and rewards the lender for the fact that it does not have the use of its money as distinct from a charge for other services provided or activities carried out by the lender in relation to making or managing the loan or dealing with defaults. They contend, therefore, a narrower purpose for ss 41, 42 and 44; namely, to restrict the ability of creditors to recover in fees amounts which are in fact compensation for providing the borrower with the use of the money lent over the time for which it is lent. On that basis, Mr Thain submits, it is unnecessary to do more than apply thewords "in connection with" and "in relation to" in their ordinary broad sense so as todistinguish the costs recovery from interest.[59] I acknowledge the validity of Mr Thain's argument that one objective of thecredit law reform represented by the CCCFA was to promote "pricing flexibility for lenders",19 and that it was recognised that restrictions on fees inhibit that flexibility.2017 Ministry of Consumer Affairs Consumer Credit Bill: Initial briefing to the Commerce Select Committee (1 May 2003) at p 10.18 Cabinet Finance, Infrastructure and Environment Committee Consumer Credit Law Review: Paper 1: Proposals for Reform (29 June 2001) FIN(01) 91 at [39].19 Ibid, at [21].20 Ministry of Consumer Affairs Consumer Credit Law Review Part 3: Transparency in Consumer Credit: Interest, Fees and Disclosure (April 2000) at Part 7.4.7 (p 41) and 9.2.4 (p 55).As a result, the option of prohibiting the charging of fees was rejected because itwould have reduced the scope for innovation and differentiated products in thelending market.21 As I understand the defendants' case, those propositions supportthe argument that it is reasonable to include in the fees charged the cost ofdeveloping such products.[60] Mr Thain did not dispute that, in promoting the CCCFA as a replacement forthe Hire Purchase Act 1971 and the Credit Contracts Act 1981, the Ministry ofConsumer Affairs was concerned to promote transparency in the arrangements forthe provision of consumer credit. The Ministry's third consultation document, datedApril 2000, dealt specifically with that topic.22 Mr Thain submitted that because theobjective of enabling consumers to distinguish between competing creditarrangements is placed in s 3 as one of the objectives of disclosure of adequateinformation, it is not necessary to interpret the rules about interest charges, fees, andpayments referred to in s 3(c) with the objective of transparency in mind.[61] I note, however, that in introducing the Consumer Credit Bill in 2003, theHon Judith Tizard, Minister of Consumer Affairs, summarised the purposes of theBill as being to protect the interests of consumers in respect of credit contracts, toenable consumers to become informed at the time of entering a contract andthroughout its duration, and to "provide transparent rules for charging interest andfees and calculating balances".23 The Minister also referred to enforcement by theCommission as being an important aspect of the Bill because it would give furtherprotection against unethical behaviour, particularly in respect of unsophisticatedborrowers.24[62] Although enforcement is not identified in s 3 as one of the purposes of theCCCFA, the importance of enforcement, as indicated by the Minister's comment inmoving the introduction of the Bill, may be inferred by the role of the Commissionunder the legislation which includes taking prosecutions in relation to breaches25 and21 Ibid, at Part 9.1.1.22 Ministry of Consumer Affairs Consumer Credit Law Review Part 3: Transparency in Consumer Credit: Interest, Fees and Disclosure, above n 20.23 Consumer Credit Bill (18 February 2003) 606 NZPD 3511.24 Ibid at 3511–3512.25 Credit Contracts and Consumer Finance Act 2003, s 111(2)(b).taking civil proceedings under the Act, including proceedings under Part 5 to re-open oppressive credit contracts.26 If the statutory obligations of lenders are to have any meaning and a beneficial impact on lending behavior, they must be capable of being readily understood and applied. Transparency and ease of expression will assist enforcement.Summary of statutory purposes[63] In summary, therefore, I consider that the statutory purposes for the provisions I am required to interpret in this case are:(a) consumer protection;(b) the provision of adequate information;(c) identifying the circumstances in which fees can be charged, and the levels of them; and(d) assisting the enforcement of lender obligations.Reasonableness requires a closely relevant connection between the cost claimed and the particular transaction[64] The defendants argue that narrowing the scope of the expressions "in connection with" and "relevant to" in the manner sought by the Commission requires the Court to rewrite the statute so that it refers to costs closely or directly connected with or related to the matter or activity in question.[65] I am not persuaded that it is necessary to read words into the statute in order to give effect to which I consider to be the meaning provided by the text in the light of the relevant statutory purposes. The overriding consideration is that of reasonableness contained in s 41. Reasonableness is to be judged from the view of an informed objective bystander considering whether it is reasonable for the particular borrower to meet the costs which the lender seeks to recover by the fees26 Ibid, ss 111(2)(c) and 120.charged. That exercise is not assisted by a test which, in effect, permits a creditor to justify any fee on the basis that it is simply recovering an actual business cost incurred by the creditor, other than the cost of the funds advanced, no matter how remote the cost may be from the transaction in which the fee is charged.[66] Bearing in mind the statutory purposes identified and the focus of the statutory wording upon particular transactions, it is appropriate to adopt the test fromYurjevich.27 To be reasonable, the cost the creditor seeks to recover must be sufficiently close and relevant to the establishment of the particular loan, to the administration and maintenance of the particular loan, or to the actual consequences of the particular default, such that it can reasonably be said that the cost was incurred in connection with or in relation to the relevant matter.[67] Applied to this case, that approach does not allow the imposition of fees to recover costs which are not closely relevant to the particular transaction but which are merely referable to the general business of selling motorcycles or of lending money. Taking that view does not mean that general business overheads are not recoverable. For Sportzone as the seller of the motorcycles, general overheads which may not be recovered by fees in a credit transaction are recoverable in the purchase price. For the finance company, the general overheads for the business of lending are recoverable in interest.Applying the principles in practice[68] While the principle that "in connection with" and "related to" should begiven a narrow construction rather than a broader one is capable of relatively straight-forward expression, it is less easy to define or prescribe how the principle is to be applied to specific cases. There is no bright line test and at the margins it will be a matter for judgment in the particular circumstances whether there is a sufficiently close and relevant connection or relationship between the fee matter and the cost claimed in respect of it. Context will assist to resolve marginal cases and the concept of reasonableness is sufficiently flexible to allow practical application.27 Above, n 10.[69] In Wood v Universal Fur Co Ltd,28 Davison CJ was required to consider a dispute which concerned a seller's claim to recovery of his selling costs in respect ofa layby sale.29 After reviewing a number of accounting texts and their treatment of selling and other operating expenditure, the Court noted the contrast between selling costs (both fixed and variable) with general overheads. It determined that selling costs were to be ascertained on the basis of the costs of several specific items connected to the sale and did not include general overheads.[70] The evidence adduced by the parties in this case included an extensivediscussion of accounting principles and the suitability of applying them to theassessment of reasonableness which the Court is required by s 41 to undertake.Evidence was also called from economists intended to support the parties'contentions on accounting issues by reference to the economic consequences. As tothe latter, I was assisted by the evidence to understand the discussion about statutorypurpose; but if the approach which I consider to be required by the text and purposesof the CCCFA has unintended economic or market consequences, that will be amatter for the relevant government ministries to address.[71] The Commission's proposition is that the principles of management or costaccounting provide practical guidance to lenders, the Commission in its enforcementrole, and a court charged with determining whether a fee is reasonable. In simpleterms, it is proposed, principally through the views of Professor Robert Bowman,that the appropriate accounting approach in determining the reasonableness of feescharged under the CCCFA is to assess the fees against the variable costs of theactivity giving rise to the fee. For example, Professor Bowman asserts anestablishment fee should be assessed against the variable costs incurred inestablishling a consumer credit contract, whereas fixed costs are incurredirrespective of the fee-related activities and should not be recoverable.28 Wood v Universal Fur Co Ltd [1985] 1 NZLR 640 (HC).29 Under s 9(1)(a) of the Layby Sales Act 1971.The variable costs approach[72] To understand the basis of Professor Bowman's proposition, it is necessary tounderstand the meaning of the accountancy terms direct and indirect costs, and fixedand variable costs. These are two alternative accounting approaches to partitioningcosts and virtually any cost related to the productive activity of a company can becategorised as one or other of the descriptions within a pair. In this case the termscan be applied to a range of tasks undertaken by the defendants. Although takenfrom the accounting approach in relation to manufactured product, the term "costobject" can be used to refer to such activities as the establishment and maintenanceof a loan and I accept Professor Bowman's proposition that the concept is helpful inthe present context.[73] The distinctions between fixed or variable costs and between direct orindirect costs are in both cases drawn on their relationship with a cost object.Professor Bowman explained the distinction in these terms:(a) Direct costs are costs that are easily identified as relating to a costobject within an organisation.(b) Indirect costs are costs that relate to a productive activity of acompany but cannot be readily identified with a particular cost object.(c) Fixed costs are costs that are independent of the volume of a costobject (the output).(d) Variable costs are costs that change in proportion to the volume of acost object.[74] In the context of fees governed by the CCCFA, Professor Bowman considers that the appropriate accounting approach is to assess the fees charged against the variable costs of the activity giving rise to the fee. For example, an establishment fee should be assessed against the variable costs incurred in establishing a consumercredit contract. Fixed costs are incurred irrespective of the fee-related activities, and should not be recoverable.[75] The finance company MTF has allocated virtually all of its companyoverheads to the fees. In Professor Bowman's opinion this is not a reasonable practice and is not based upon an analysis of variable costs. He argues that MTF has justified its fees by reference to costs that are fixed and are not affected by consumer lending, and overhead costs that are not in connection with the activities giving rise to each fee. He observes that Sportzone also has attempted to justify its fees by reference to a number of costs that are not in connection with the activity in question. He concludes that in relation to all of the fees in issue, the fee income of MTF and Sportzone significantly exceeds their reasonable costs in connection with the relevant activities for which the fees are charged.[76] Put succinctly, Professor Bowman's opinion is that the language of ss 41-44 of the CCCFA suggests that only variable costs, whether direct or indirect, may be recoverable through fees. From an accounting perspective, the wording of the CCCFA does not support the recovery of fixed costs, whether direct or indirect, through fees.Alternative accounting approach not valid[77] One of the criticisms of Professor Bowman's suggested approach made bythe defendants' experts is that all costs are variable in the long run, in the sense thatdetermining whether a cost is variable or fixed may depend on the period of timeover which the cost is to be assessed. The defendants' expert, Professor David Lontsuggests that the assessment of similar costs as either fixed or variable will varybased on a number of factors. He says the absence of accounting standards orguidance from the CCCFA means that arbitrary allocations could occur routinely. Ifthe legislation contained an accounting standard or guidance requiring a percentageapportionment of a cost in a certain way (for example, allocating a managingdirector's salary to several cost centres in proportion to the percentage of time spentin relation to each relevant activity or matter), then a business would have aframework to support the cost accounting system for allocating costs as either fixed or variable.[78] In Professor Lont's view, given the breadth of the expressions costs "inconnection with" and costs "in relation to" a cost object (the activities or mattersgiving rise to the various fees), it is open to a business considering those concepts torecognise that the role of managing director is necessary for the business to exist andtrade and that, unless the business exists and trades, it cannot establish loans. Inother words, he says, there is a beneficial relationship between the role of managingdirector and the establishment and maintenance of the loan arrangements enteredinto by the business.[79] Taking that approach, Professor Lont considers that it is reasonable to holdthat a managing director's costs are related to establishing and maintaining loans justas much as to any of the other activities of the business. That in turn justifies theapplication of a "full cost absorption" model when allocating costs to fees, includingboth variable costs and fixed costs that will be incurred regardless of the number ofloans written. In Professor Lont's view, there is nothing in the wording of theCCCFA to indicate that, when assessing whether a relationship between costs andone of the specified activities or matters is reasonable, only a "cause and effect"relationship such as that implicit in Professor Bowman's proposition will besufficient.[80] Adopting a full cost absorption approach allows both cause and effectrelationships and beneficial relationships to justify the imposition of the fee; fixedcosts such as rent or costs associated with the provision of computer technology areconnected with or related to the activity or matter as there is a benefit providedwhich allows the service to be performed. On Professor Lont's analysis, thisapproach might, however, require different proportions of a fixed cost to be allocatedto different activities such as loan establishment, account maintenance, and defaultor arrears recovery.[81] Evidence was given on behalf of the defendants by Mr John Kensington, asenior and experienced practising chartered accountant. Mr Kensington's approach,like that of Professor Lont, is based on a view that the broad wording of the CCCFA, taken at face value, permits the cost absorption approach to recovery adopted by the defendants. Undertaking his analysis from that starting point, but doing so with the objectivity and independence required of an expert witness, Mr Kensington acknowledged that in a number of cases, the defendants had allocated costs to some activities incorrectly. He accepted, for example, that the Sportzone establishment feerecovered more than Sportzone's reasonable cost of establishment activities in the2006 and 2007 years because Sportzone had inappropriately assumed that all of its overheads were related to the establishment process and could be recovered through the establishment fee. Nevertheless, to take another example, Mr Kensingtonconsidered it appropriate to allocate most of the costs of MTF's managing director toestablishment fees on the basis that the primary role of a managing director would be securing new business. Mr Kensington acknowledged that a small part of themanaging director's time would be involved in pre-possession and repossession activities justifying an allocation of a maximum of five per cent of the managing director costs to default fees with the remainder being allocated to establishment, account maintenance and settlement fees.[82] That approach cannot be justified by what I have determined to be the properinquiry. Despite Professor Lont's careful and comprehensive analysis and discussionof the accounting principles, and Mr Kensington's support for it, I am unable toaccept the fundamental proposition that the CCCFA permits the defendants torecover through fees all costs which can be demonstrated to have some beneficialrelationship with the matter or activity in question, no matter how tenuous. Taken toits logical conclusion, the full cost absorption approach redefines the concept ofreasonableness in terms of merely identifying a beneficial connection between thecost and the cost object and ensuring that a rational allocation of overheads betweencost objects is made. While that approach may be open on the meaning of theexpressions "in connection with" and "related to" taken in isolation from text andpurpose, the reasonableness standard under the CCCFA is not to be determined fromthe point of view of a reasonable accountant advising management as to theappropriate allocations of costs for management purposes. To the extent that anaccounting method provides a tool for meeting the purposes of the CCCFA, it mustassist the application of the close relevance test described at [66] above which Iconsider to be required by the statutory wording considered in the context of the statutory purposes.The application of the variable cost/closely relevant approach[83] That indicates that the variable cost approach advocated by ProfessorBowman, or a variation of it, will be the most effective. The approach is supportedby a forensic accountant called by the plaintiff, Mr John Cregten. Mr Cregten'sexhaustive analysis of the defendant's financial information and other materialprovided during the Commission's investigation enabled me to understand morefully the implications of the different views of legislative intent. It is evident alsothat Mr Cregten's thorough analysis has persuaded the defendants that, if theCommission's approach to the central issue is favoured by the Court, they cannotrealistically take issue with his conclusion that the fees charged were unreasonable interms of the statute. Nor do they dispute most of the amounts by which he assessesthe borrowers have been overcharged. Where Mr Cregten has quite properlysuggested a range of fees which he would regard as reasonable for any activity ormatter, the Commission is content to take the higher figure as that which should beapplied.[84] Mr Cregten's calculations are based on the variable costs analysis advocatedby Professor Bowman, but with a less academic approach predicated on his closeanalysis of what was actually done by the defendants in the relevant years. Ifprovided with the relevant information by the defendants, Mr Cregten might beinclined to allow into the category of costs properly recoverable by fees some fixedcosts which would not be allowed by Professor Bowman.[85] The Commission also called evidence of an approach similar to the closerelevance test from an accountant and former chief executive officer and director ofSouthern Cross Building Society, Mr Robert Smith. While the Southern Crossbusinesses in which he was involved undertook a variety of residential, commercialand rural property lending, and were therefore of a different nature from consumerfinancing for motor vehicles, it was nevertheless one of Mr Smith's responsibilitiesto put in place processes which ensured that Southern Cross' consumer lending feeswere compliant with the CCCFA. In assessing appropriate establishment fees for CCCFA lending, Mr Smith established the following process which, in my view, provides general guidance to the close relevance approach which the Act calls for whatever the nature of the lending activity.[86] First, the employer should assess the time taken by the responsible employeeor employees to consider, process and document each loan. Plainly an averagingapproach to the assessment would be appropriate for the purpose of setting fees eventhough individual cases might involve more or less time than the average. Second,an allocation of the employer's total cost of remuneration (including salary and otherbenefits) should be undertaken. Third, allocating the total cost of remuneration tothe time taken to establish the loan would provide an indicative range for the fee.[87] In an appropriate case, it might be reasonable to add other variable costshaving a causal link to the establishment of the loan, and fixed direct costs other thanemployee remuneration which may include IT costs properly referable to theestablishment activities.Findings related to the causes of action alleging breach of s 41[88] The acceptance of the Commission's approach to the application of ss 41, 42and 44 as advocated by Professor Bowman, Mr Cregten and Mr Smith means thatfindings that the disputed fees charged by the defendants were unreasonable unders 41 are inevitable. Subject to one reservation, Mr Cregten's assessment of what feeswould have been reasonable on a principled approach can form the basis for theorders sought by the Commission under s 94(1)(b) of the CCCFA that the defendantsshould pay to the borrowers the difference between the fees actually paid and thesums properly payable in accordance with Mr Cregten's analysis. That means that,without more, the amounts which the Court would order to be paid are the loweramounts in the ranges identified by Mr Cregten and replicated in the third amendedstatement of claim dated 18 February 2011.[89] The matter is not entirely as straight-forward as that, however, because ofconcessions made by Mr Cregten and Mr Smith in the course of their evidencewhich suggests that some at least of the fixed costs or overheads which Mr Cregtendisallowed in his written brief might reasonably be included as elements of a reasonable cost recovery. While some aspects of what were relatively minor shifts in position might be attributable to more informed consideration in the course of the trial, the principle areas of uncertainty may be attributable to the lack of information provided by the defendants.[90] For these reasons, I propose to accept the invitation of Mr Mills in closing toreserve for discussion by the parties and, if necessary, further consideration by theCourt upon receiving further submissions, the making of precise orders as torecovery.Further observations on the approach to s 41 – draft guidelines[91] I am mindful, however, that these issues have not previously been consideredby the Court and that the Commission and the financial services industry have aninterest in the findings. It is appropriate, therefore, to comment on the draftguidelines dated May 2010 which the Commission circulated for public information.It is not for the Court to rewrite the guidelines but some brief observations may behelpful.[92] I am satisfied from the exchanges between counsel and Mr Cregten,Mr Smith, Mr Kensington and Professor Lont that some modification of the morerigid approach to fixed costs recovery taken by Professor Bowman may beappropriate in respect of establishment fees, provided a sufficiently close andrelevant connection with the four establishment activities identified in s 42 can beproved. In assessing the reasonableness of establishment fees, the recovery of anyportion of fixed cost items such depreciation, premises costs, IT costs, head officefunctions, and return on capital/cost of capital, would require a strict application ofthe close relevance test. This is particularly important given the impact which theaddition of an establishment fee has on the total cost of the transaction to theborrower, including on the liability to pay interest.[93] A similar view may be taken of fixed costs identified in connection with othercredit fees and default fees. In respect of those items, the added consideration ofreasonable standards of commercial practice in s 44(1)(b) applies.[94] While it is inevitably the case in enforcement proceedings that theCommission will carry the burden of proving unreasonableness on the balance ofprobabilities, the evidential onus of disproving unreasonableness which might beestablished prima facie is likely to fall on the lender which is in possession of all ofthe relevant information.[95] To deal briefly with a point which Mr Kensington sought to make about thelevel of default fees, I would not consider the test of close relevance to be satisfied inrespect of any part of a default fee which was imposed for the purpose of deterringdefaults. Quite apart from it being questionable whether the imposition of such acomponent met the test of compliance with reasonable standards of commercialpractice, it would fail to meet the test of a cost incurred or loss incurred unders 44(1)(a).[96] Looking at the guidelines, I note that under the heading, "Meaning of'reasonably compensates'" in relation to credit fees, the draft guidelines contain thefollowing statement:A key question that arises will be the meaning of the word "any" in the phrase "any cost incurred", and whether that is to be construed as embracingany cost actually incurred, no matter how remote from the loan. TheCommission's current view is that the fee must be causally connected to the cost incurred, and satisfy common law standards of remoteness – it must be a cost proximate to the provision of the credit. The Commission would be unlikely to regard a cost as reasonable if it were not a cost within the reasonable contemplation of the parties to the loan.[97] While it will be a matter for the Commission to consider what if any changesto that paragraph are required in the light of this judgment, and the formulation ofthe appropriate test, I observe that asserting a requirement for a fee to be "causallyconnected" to the cost sought to be recovered may be misleading, particularly inrelation to the recovery of reasonable portions of fixed costs. A causal connection islikely to establish a sufficiently close relevance to justify inclusion in the calculationof the fee, but the notion of causation is not a necessary element.Fifth cause of action – breach of s 17 CCCFA[98] I turn to consider briefly the fifth cause of action against the first and seconddefendants alleging a breach of s 17 of the CCCFA. This claim did not attract muchattention in the course of the hearing but it is a matter on which some guidance, atleast, is sought by way of a declaration.[99] The Commission has proved that the credit contracts included, as part of theestablishment fee charged by Sportzone and MTF, a fee of [withheld frompublication] plus GST charged by Baycorp for a credit check and a portion of thecost of a Land Transport Safety Authority charge for a vehicle check conductedthrough the Motochek service operated by Land Transport New Zealand, the cost ofwhich ranged between [withheld from publication] per borrower.[100] Section 17 of the CCCFA requires every creditor under a consumer creditcontract to ensure that disclosure of as much of the key information set out inschedule one as is applicable to the contract is made to every debtor before thecontract is made or within five working days. The information required by scheduleone to be disclosed includes a description of the credit fees and charges payableunder the contract. These credit check fees were not separately disclosed to theborrowers either before the contract was made or within five working days of theday on which the contract was made.[101] Section 45 provides for the passing on to a debtor of third party fees paid by acreditor such as the payments to Baycorp and Land Transport New Zealand. Theamount which the debtor is required to be paid must not exceed the actual amountpayable by the creditor.30 It is submitted for the Commission that it is implicit in thecreditor's obligations regarding passing on that the nature and fact of the chargebeing passed on must be disclosed under s 17.[102] I accept the submission on behalf of the defendants, however, that in thecircumstances of this case the Baycorp and Motochek fee were included as part ofthe establishment fees which were disclosed, and that no further identification of the30 Section 45(1).nature of the fee is required. I agree with Mr Thain's argument that the Baycorp andMotochek charges are recoverable as closely relevant components of the costs of thedefendant in establishing a loan. As such, disclosure of the amount of theestablishment fee is sufficient. To hold otherwise would mean that every third partycost which the lender sought to recover would have to be identified. I do not thinkthe object of transparency requires such an obligation to be imposed.Sixth cause of action – s 9, Fair Trading Act 1986[103] The sixth cause of action against Sportzone and MTF alleges a breach of s 9of the Fair Trading Act in that it is claimed that the defendants engaged in misleadingand deceptive conduct. The conduct alleged is that by using the descriptions"establishment fee" and "account maintenance fee" in documents provided to theborrower the lender represented that the fees concerned amounted to the recovery ofcosts incurred in establishing and maintaining the borrower's account. It is arguedthat, in view of the finding that the fees charged were not reasonable and includedthe purported recovery of costs not lawfully recoverable as credit fees, therepresentations were misleading and deceptive or likely to mislead or deceive theborrowers.[104] Mr Thain responded to this claim comprehensively but I am satisfied that theclaim is misconceived and can be dismissed without detailed analysis, for tworeasons. First, I am not persuaded that the description "establishment fee" or"account maintenance fee" amounts to a representation other than that a fee of acertain amount for the establishment or maintenance of the loan was included in theborrower's cost of the transaction. A finding long after the event that some part ofthe fees disclosed was not properly charged in terms of the CCCFA does notestablish that the borrower is likely to have been misled or deceived at the time ofentering into the contract.[105] Second, there is no evidence that any borrower suffered or was likely tosuffer loss or damage by the representation that the lender was seeking to recovercosts in establishing and maintaining the loan account.Result[106] In accordance with the indication at [90], I reserve for discussion by theparties and, if necessary, further consideration by the Court upon receiving furthersubmissions, the making of precise orders as to recovery under s 94(1)(b).[107] I dismiss the Commission's application for a declaration that there was abreach of s 17 of the Act.[108] I dismiss the Commission's claim under the Fair Trading Act.[109] Costs are reserved.........................................Toogood J