ROBINSON v BUDGET LOANS LIMITED HC WN CIV 2011-485-002527

ROBINSON v BUDGET LOANS LIMITED HC WN CIV 2011-485-002527 [1 June 2012]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV 2011-485-002527[2012] NZHC 1206BETWEEN KIRK DAVID ROBINSONAppellantAND BUDGET LOANS LIMITEDRespondentHearing: 3 May 2012Counsel: W D Bevan for AppellantA R Davie for RespondentJudgment: 1 June 2012RESERVED JUDGMENT OF THE HON JUSTICE KÓSIntroduction[1] Two motor vehicles are repossessed by a creditor. The post-possession notices, which the creditor must provide under the Credit (Repossession) Act 1997, state almost identical amounts to reinstate (i.e. resume) or to settle (i.e. pay off) eachof the loan contracts. That is because the debtor's defaults have triggered anacceleration clause. As a result the whole amount due under each contract is now payable. Is it lawful to include the entire accelerated amount in the notices as the amount required to reinstate? If not, does that make the notices void, so that the subsequent sales of the cars are also unlawful? And does it matter that the notices included a value range, rather than a specific figure, as the price at which the debtor could introduce a cash buyer for the cars?[2] A District Court Judge dismissed the debtor's complaints about the post- possession notices and gave judgment for the creditor on its claims under the loancontracts.1 The Judge also dismissed the debtor's claim that the creditor had acted oppressively or unreasonably in terms of the Credit Contracts and Consumer Finance Act 2003.[3] The debtor now appeals to this Court. The specific issues for consideration are set out at [14]. But first I will sketch the background to the appeal. I am able to draw directly on the account given by Judge Walker in his judgment.Background[4] The debtor, Mr Robinson, entered into a consumer credit contract (loan 8804) with Budget Loans Limited (Budget) on 3 October 2007. A Mitsubishi Diamante car (the Mitsubishi) was used as security. Later, on 5 February 2008, he entered into another consumer credit contract (loan 8920) with Cynotech Securities Limited. A Suzuki Swift car (the Suzuki) was used as security. The Cynotech contract was assigned to Budget on 2 September 2010.[5] Both loan contracts provided that the lender was entitled to accelerate the loan (that is, require the unpaid balance of the loan to be paid to the lender forthwith) if the borrower breached the agreement.[6] Mr Robinson was regularly in arrears in relation to both loans. Nearly all payments were made late. Mr Robinson made only six out of 102 payments on time. Some were up to 60 days late. I note that there were some extenuating circumstances relating to Mr and Mrs Robinson's employment. It was clear from the evidence that Budget had been extremely patient with Mr Robinson. That continued even after he had defaulted on late payment arrangements. However, patience eventually ran out. On 9 April 2010 Budget sent immediate demands and pre- possession notices to Mr Robinson.[7] Mr Robinson did not remedy the default. Rather, he challenged the validity of the pre-possession notices and sought relief in the Disputes Tribunal under the1 Budget Loans Limited v Robinson [2012] DCR 219.Credit (Repossession) Act 1997 (Act).2 Referee Smallbone issued a decision on 5 October 2010 dismissing the application. The decision noted Mr Robinson's "abysmal late payments history". On the evidence I have seen, that description is justified.[8] The vehicles securing the loans were eventually repossessed on 18 November 2010. Budget issued post-possession notices (in respect of both loans) on 25 November 2010, in accordance with the Act. The post-possession notices stated that in order to reinstate (i.e. resume) the loans Mr Robinson was required to pay the entire accelerated balance of the loans: $9,234 for loan 8804 and $13,120 for loan 8920. The amounts required to settle (i.e. pay off) the contracts were just $50 higherthan reinstatement in each case. The difference was a $50 "settlement fee".Otherwise the amounts were the same.[9] The Act also provides that post-possession notices must state the creditor'sestimate of the value of the goods repossessed, to facilitate the debtor's right to introduce a cash buyer in accordance with s 30. The post-possession notices in this case provided ranges: $1,500–$2,000 for the Mitsubishi and $8,000–$9,000 for the Suzuki.[10] Mr Robinson did not pay the reinstatement amounts specified in the post- possession notices. The Suzuki was sold at auction on 17 February 2011, generating net proceeds of $9,353. The Mitsubishi was sold at auction on 21 February 2011, generating net proceeds of $1,353. Budget credited these amounts to Mr Robinson'saccount. On 1 March 2011 it issued post sale notices claiming the balance on both loans, amounting to $14,015.[11] Substantial penalty interest and default fees have accrued as a result of Mr Robinson's arrears. As a result the amount paid and still owing on the loans is now well in excess of double the amount initially advanced.[12] On 27 September 2010 Budget claimed $16,669 from Mr Robinson in District Court proceedings. Mr Robinson defended on the basis that Budget was not2 Section 13.entitled to accelerate the loan balances, because that would contravene the right to reinstate under the Act,3 and was acting oppressively (for which relief should be granted). He counterclaimed for relief under the Act and compensation of $6,500.[13] In a reserved decision dated 4 November 2011 Judge Walker gave judgment for Budget on claim and counterclaim.Issues for determination[14] The parties are agreed that the same issues arise on this appeal as arose before Judge Walker. They are five in number:(a) Issue 1: Does the failure to exclude amounts payable under an acceleration clause from the reinstatement estimate in a post- possession notice render the notice so defective as to be void?(b) Issue 2: Does the provision of a range of figures in relation to the estimate of the value of the goods repossessed in a post-possession notice render the notice so defective as to be void?(c) Issue 3: If either of the above is answered in the affirmative, is the consequence that Budget must be regarded as having sold the vehicles without notice?(d) Issue 4: Does Budget's acceleration of the loans amount to exercisinga contractually conferred power in an oppressive manner for the purpose of the Credit Contracts and Consumer Finance Act 2003 (CCCFA)?(e) Issue 5: Are the default fees and penalty interest amounts incurred by Mr Robinson unreasonable for the purpose of the CCCFA?3 Section 28.Issue 1: Does the failure to exclude amounts payable under an acceleration clause from the reinstatement estimate in a post-possession notice render the notice so defective as to be void?[15] The Act prescribes three steps before secured goods may be repossessed and sold, where a debtor is in default. First, a pre-possession notice (in the form prescribed in schedule 1 of the Act) must be served on the debtor.4 The notice mustspecify the nature of the default and require the debtor to remedy the default withinthe period prescribed in the notice. The prescribed period must be at least 15 daysafter the notice has been served.5 A debtor served with a pre-possession notice mayapply for relief to a Disputes Tribunal or District Court.6 Secondly, secured goodsmay be repossessed if the debtor does not pay the arrears within the prescribedperiod (or has not obtained a court or tribunal order by way of relief in themeantime). Thirdly, the creditor must serve a post-possession notice (in the formprescribed in schedule 2 of the Act) on the debtor7 within 21 days of takingpossession.8 A creditor must then wait before selling or disposing of the goods: 15days must pass after service of the post-possession notice.9 Before that point thedebtor may reinstate the agreement. I will return to that right, as it is central toMr Robinson's complaint.[16] This issue concerns the third step. It concerns what may be stated in the schedule 2 post-possession notice about reinstatement. That notice must state thatthe debtor is entitled to get back their goods "if, within 15 days, you either reinstateor settle the agreement." It then specifies what each of those terms means. We areconcerned with the first. It must state that:Reinstate means to resume the agreement by paying the arrears of instalments owing (plus costs) and remedying other breaches of the agreement.4 And any guarantor: section 8.5 Section 9.6 Sections 12, 13, 39 and 40. As we have seen, Mr Robinson exercised that right unsuccesfully in2010: see [7] above.7 Again, and any guarantor.8 Sections 20 and 21.9 Section 23.The notice must also set out "the creditor's estimate of the amount you must pay toreinstate the agreement".[17] Here the two notices did that. But, as noted earlier, the amount included inthe estimates for "arrears of instalments" included the full accelerated balance of theloan. Was that lawful?[18] Section 28 of the Act provides:28 Debtor's right to reinstate agreement(1) The debtor may, at any time after the creditor has taken possessionof the consumer goods and at any time before the creditor sells oragrees to sell the consumer goods in accordance with this Act,reinstate the agreement by—(a) paying to the creditor the amount required to reinstate theagreement or, where the agreement secures theperformance of an obligation other than the payment ofmoney, performing any accrued obligations; and(b) remedying any default in so far as it is capable of beingremedied.(2) In this section,—(a) the amount required to reinstate the agreement meansthe aggregate of—(i) any amounts which have fallen due for paymentunder the security agreement and have not beenpaid, including, without limitation, interest andother charges, but excluding, where the agreementprovides that the total advance falls due forpayment immediately on the debtor's default, thatpart of the advance which would not have fallendue but for that provision; and(ii) the reasonable costs and expenses of the creditorof and incidental to taking possession of, holding,storing, repairing, maintaining, valuing, andpreparing for the sale of, the consumer goods andof returning them to the order of the debtor; and(iii) the costs reasonably and actually incurred by thecreditor in doing any act, matter, or thingnecessary to remedy any default by the debtor:(my emphasis added)Judge Walker held that the effect of that provision was to preclude the inclusion of amounts payable only because of acceleration in the reinstatement estimate in a post- possession notice.[19] Mr Andrew Davie, counsel for Budget, argues that the Judge was wrong to do so in this case. That is because the agreements provided a discretion to accelerate, so that they did not fall due for payment immediately on default. Here the creditor exercised that discretion to accelerate.[20] I do not accept that argument. Sections 28 and 31, and schedule 2, clearly intend to distinguish between reinstatement (without acceleration) and settlement (which requires payment of the whole of the balance of the advance, plus the other reinstatement costs). Mr Davie's argument would diminish the distinction intendedby Parliament.10 In the present case the estimates given in the notices of the amounts required to reinstate or to settle were virtually identical.11 Given the purpose of the provision, in its context, the exclusion prescribed in s 28(2)(a)(i) applies where the agreement automatically accrues the total advance or where it creates a power to do so and the creditor has exercised that power.[21] Here the creditor had exercised that power. The estimates expressed in the notices were, in consequence, wrong. Does that render the post-possession notices void? In UDC Finance Ltd v Hunt12 Judge Harvey held that erroneous estimates of value did not invalidate a notice provided, amongst other considerations, that they were genuine and bona fide. That case concerned the Hire Purchase Act 1971. Judge Walker followed that decision in the present case.[22] An erroneous schedule 2 post-possession notice is irregular. But there is no basis in statute or common law to treat such a notice as void automatically. Whether or not it is invalid as against a particular debtor will involve a more faceted enquiry than simply whether or not the error was deliberate. In the context of this Act the enquiry should be focused on the debtor rather than the creditor. I would ask myself10 See Law Commission Review of the Credit (Repossession) Act 1997 (NZLC R124, 2012) at[3.87].11 See [8] above.12 UDC Finance Ltd v Hunt [1992] DCR 542.these questions. First, how substantial was the error? (A very small error in an estimate is unlikely to invalidate the notice. But, even so, the next question is the more important one.) Secondly, how material was the error? Sub-questions would include: was the debtor misled in fact? In particular, did the debtor know that he or she could challenge the estimate and tender the correct sum? (The right to reinstatein s 28 overrides the creditor's estimate expressed in the notice.) Is it reasonablypossible that the debtor could actually have reinstated the agreement in that event? (If the situation is academic in either case, the error may not be a material one.) Thirdly and lastly, was the error genuine and bona fide? (Deliberate deception of the debtor should invalidate the notice in any event.) It may be that the current Law Commission review of the Act will result in further reform of this area, but these are the considerations I think most germane.[23] Mr Bill Bevan, counsel for Mr Robinson, reflecting the approach taken inUDC Finance, argued that Budget's estimates were deliberately erroneous and calculated to prevent Mr Robinson from reinstating the contracts. He points to an email that he had sent Budget on 8 October 2010. This was immediately after the Disputes Tribunal decision referred to earlier, service of the District Court proceedings and some five weeks before the vehicles were in fact repossessed. The email put the ability to accelerate the loans in issue. And it said that the ability toaccelerate would "defeat the remedies found in s 29 of the [Act]" – meaning no doubt s 28. A subsequent email from Mr Bevan to Budget the same afternoon expressly referred to s 28(2)(a)(i) as preventing acceleration of the whole loan. It also said that if Budget repossessed, that provision meant Mr Robinson could reinstate without paying the accelerated amounts.[24] In fact, subject only to the remaining issues for consideration in this judgment, there is no doubt that the contracts permitted Budget to accelerate the amounts due. Equally, however, Mr Robinson had the right to reinstate without paying the accelerated amounts.[25] The evidence does not enable a conclusion that the errors in the notices were deliberate deception on the part of Budget. First, the second 8 October 2010 email was not entirely correct in its legal analysis of the situation. It was wrong in sayingthat s 28 prevented acceleration. But it was right in saying that it meant that Mr Robinson could reinstate without paying the accelerated amounts. Secondly, the allegation of deliberate deception was not put to Budget's witness at the DistrictCourt hearing. And that necessarily is the end of that contention.[26] I return now to the more important question identified in [22] above – themateriality of the error. I am satisfied that Budget's erroneous estimate was not material. The 8 October 2010 emails, discussed at [23] above, establish: (1) Mr Robinson had a solicitor acting for him throughout the relevant period; (2) that solicitor had identified the fact that s 28(2)(a)(i) meant that any post-possession notice based on the accelerated amounts would be in error; and (3) the solicitor had also identified, again correctly, that Mr Robinson would have the right under that provision to reinstate without paying the accelerated amounts.[27] It follows that the debtor here was well aware of his rights under s 28(2)(a)(i), and aware that the notices were (1) erroneous and (2) inconclusive as to what must be paid to reinstate. The debtor could not simply treat the notices as void in these circumstances. Unless he then exercised his right to reinstate by tendering the correct amount to reinstate, and that right was wrongly denied him by the creditor, there is no basis for the Court now to intervene.[28] The answer to Issue 1 is "Not in this case".Issue 2: Does the provision of a range of figures in relation to the estimate of the value of the goods repossessed in a post-possession notice render the notice so defective as to be void?[29] As noted earlier13 post-possession notices must state the creditor's estimate ofthe value of the goods repossessed, to facilitate the debtor's right to introduce a cashbuyer.14 Such notices in fact contain three separate estimates: the amount toreinstate, the amount to settle and (in the "notes" within the notice) "the creditor'sestimate of the value of the goods". Section 30(1) provides:13 At [9].14 A right conferred under s 30.30 Debtor's right to introduce buyer(1) The debtor may, at any time after the creditor has taken possession of the consumer goods and at any time before the creditor sells or agrees to sell the consumer goods in accordance with this Act, require the creditor to sell the consumer goods to any person introduced by the debtor who is prepared to purchase the consumer goods for cash at a price not less than the estimated value of the consumer goods set out in the post-possession notice served on the debtor.[30] The post-possession notices in this case provided ranges: $1,500–$2,000 for the Mitsubishi and $8,000–$9,000 for the Suzuki. These were the figures given toBudget's manager, Ms Armstrong, by the auctioneers. Ms Armstrong gave evidence in the District Court. She was asked whether, if Mr Robinson had turned up with the bottom-of-range sum of $8,000 for the Suzuki, he would have been allowed to redeeem it. Ms Armstrong agreed that he would have.[31] Judge Walker held that the inclusion of a narrow band or range of values did not invalidate the notice. He said:15In this case the range of value was conservative. The vehicles actually sold at the top of the range and beyond. In my view the use of a range of values did not render the Post-Possession Notices so defective as to be void.[32] Mr Bevan argued that s 30 requires a specific value to be stated. He said thatto permit a range would impose an unreasonable burden on consumers to "argue"with creditors over the right to purchase at the bottom of the range.[33] I do not accept the appellant's argument. Section 30 requires an estimatedvalue to be expressed in the notice. The purchaser (or his or her nominated cash buyer) is entitled to buy at a price not less than that value. If a creditor inserts a value range – a practice not to be encouraged – the effect of s 30 is that a price offered at the bottom of the stated range must be accepted. In any event, it is clear from the evidence of Ms Armstrong that Budget acknowledged that obligation in this case. Mr Robinson did not test the water by producing a buyer at $8,000, so there has been no denial of his s 30 rights.15 Budget Loans Ltd v Robinson [2012] DCR 219 at [30].[34] The answer to Issue 2 is "No".Issue 3: If either of the above is answered in the affirmative, is the consequence that Budget must be regarded as having sold the vehicles without notice?[35] Given the negative answers to the first two issues, Issue 3 falls away.Issue 4: Does Budget's acceleration of the loans amount to exercising acontractually conferred power in an oppressive manner for the purpose of the CCCFA?[36] Issues 4 and 5 occupied considerably less time in the argument of the appeal because Mr Robinson was in no position evidentially to be able to answer the fundamental point relied upon by the Judge in giving negative answers to both issues: the lack of supporting evidence.[37] As to Issue 4, oppressive conduct is conduct that is "harsh, unjustlyburdensome, unconscionable or in breach of reasonable standards of commercialpractice."16 The argument in this appeal focused on the words "in breach of reasonable standards of commercial practice." In Greenbank New Zealand Limited v Haas17 the Court of Appeal said that evidence will almost always be needed to establish what reasonable standards of commercial practice are. It is seldomappropriate to proceed on an "intuitive or impressionistic" basis.18 In this case there was no such evidence. The Court can however take judicial notice of the fact that acceleration clauses in lending contracts are not exceptional. They are not per se oppressive.[38] Mr Bevan argued that I could nonetheless find oppression in the absence of direct evidence because of the deliberate decision by Budget to issue post-possession notices in breach of s 28 of the Act. I do not agree. There are two objections to this submission. The first is that I have not found deliberate deception by the creditor. The second is that oppression must always look not only to the conduct of the creditor, but also to the impact of that conduct on the debtor. In this case16 Credit Contracts and Consumer Finance Act 2003, s 118.17 In Greenbank NZ Limited v Haas [2000] 3 NZLR 341 (CA).18 At [25].Mr Robinson was legally represented at the relevant time and perfectly well aware of his right to reinstate by payment of a figure other than that stated in the notices.[39] The answer to Issue 4 is "No".Issue 5: Are the default fees and penalty interest amounts incurred by Mr Robinson unreasonable for the purpose of the CCCFA?[40] The same answer must be given in relation to Issue 5. The extent of Mr Robinson's repeated defaults and delays in payment will have been causative atleast in part (but significantly so) of the penalties that he has incurred. As the Judge noted, neither party provided evidence of how the fees charged compared with reasonable standards of commercial practice in the circumstances of this case.[41] Mr Bevan argued that the creditor should bear the onus of proof as to reasonableness, but that submission is quite misconceived and finds no warrant in the statute. It is the debtor's claim. The debtor must make it out with sufficientevidence to establish that it is more likely than not that the default fees and penalty interest are unreasonable. He or she can only avoid calling such evidence if it is so obvious as to go without saying that the amounts are unreasonable.[42] The onus lying on Mr Robinson to prove unreasonableness in that manner was not discharged in the District Court. It cannot be improved upon on appeal, when the same evidence is again before me.[43] The answer to Issue 5 is "No".Conclusion[44] Despite Mr Bevan's thoughtful submissions this is in the end a clear case. The appeal is dismissed.[45] The respondent will have costs. If parties cannot agree these, memoranda may be filed. I encourage agreement.[46] I thank counsel for their submissions.Stephen Kós JSolicitors:Kapimana Legal Services Limited, Porirua for AppellantTreadwells, Wellington for Respondent