New Zealand Credit Law Bulletin - Vol 3, No 10, Christmas 2003
A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe send a blank email to: nz-bulletin-join@mailman.hattaways.com
Plain language disclaimer:
This bulletin is not legal advice. Do not make decisions on legal matters based on a brief commentary. Instead, get professional legal advice.
In this issue:
- Couple uses Privacy Act to access information about bank's collection strategy
Was this a breach of the Privacy Act? - Paying a debt by instalment gets an ‘indulgence’ to avoid bankruptcy
In this case, a decent job and a summary instalment order was enough to save the debtor from bankruptcy - Shark attack
This case gives an insight into loan sharks (at least in Australia). It shows the Australian courts' approach to dubious "purpose of loan" declarations. Such declarations will become a feature of Ne - Update on recent clawback case
"What happened next" in a case we reported in the October bulletin.
1. Couple uses Privacy Act to access information about bank's collection strategy
Case Note 36631 [2003] NZPriCmr 14
A couple requested access to their bank file. The bank gave them some of the information but withheld other documents. After the couple asked the bank to review its decision, the bank released further information but continued to withhold material it regarded as a “trade secret”.
The couple complained to the Privacy Commissioner, who decided that the bank had breached information privacy principle 6. Principle 6 says that individuals have the right to access personal information held about them by a public or private sector agency. There are certain exceptions.
The bank withheld three documents under section 28 of the Privacy Act 1993. The first two documents related to the procedures the bank had decided to take to get the couple to pay the money owed to the bank. The other document was a “risk grade”, which was the bank’s assessment of the couple’s creditworthiness for loan purposes.
Section 28(1) allows an agency to withhold personal information if disclosure of the information would disclose a trade secret. Whether or not the information was a trade secret had to be decided by looking at the facts and circumstances of the case. In this case the steps the bank was going to follow were common knowledge within the finance industry and the Privacy Commissioner felt that it could not be considered a trade secret. The bank argued that the couple might be able to stop the bank recovering money if they knew in advance what avenues the bank might take to do so, but the commissioner did not agree.
S28 also allows information to be kept back if it would be likely to unreasonably prejudice the commercial position of the person who supplied or who is the subject of the information. The Commissioner concluded that there was no unreasonable commercial prejudice in this case even if some of the information was about the bank’s procedures. The exception only covers prejudice to the person who is the subject of the document, and in this case that was the couple, not the bank. The couple have supplied the information about themselves to the bank not the bank to itself.
The Commissioner found that the bank did not have a proper basis for withholding the documents and the decision to refuse access to the documents was an interference with their privacy. Once this decision was made the bank released all the documents.
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2. Paying a debt by instalment gets an ‘indulgence’ to avoid bankruptcy
Cherrie, ex parte Rimmer (10 September 2003, Auckland High Court, Master Lang)
Ms Rimmer and Mr Cherrie had a dispute in the family Court and Rimmer was awarded costs of $7,030. Cherrie still hadn’t paid it a couple of months later and Rimmer began the process of making him bankrupt. When it came to court, Cherrie asked the court to exercise its discretion and not make him bankrupt.
Cherrie had already obtained a summary instalment order, an agreement enforced by the court to pay a set amount by instalments, and he was to pay $400 per month to Rimmer. The first of these payments was due just after this case was heard. Cherrie was confident that he could continue making the $400 payments in the future.
The court must look at a number of factors including public interest and questions of commercial morality The judge was satisfied that, in this case, there were no issues that would greatly concern the public interest. It was important that the courts enforce court orders, such as for this debt, but there were ways to enforce it, other than a bankruptcy order.
There was no suggestion that Cherrie posed a threat to the business community so no real issues of commercial morality arose. He had a good job on a decent salary and he would not be likely to harm the business community in the future.
Cherrie’s assets were minimal; a car worth about $3000 and a timeshare, worth around $2500. Making Cherrie bankrupt would be somewhat pointless as the Official Assignee would either not bother, or would find hard, to sell the assets.
The judge found that the payment arrangement was preferable to an order of adjudication as it provided a realistic way to pay Rimmer without further cost to her.
The judge adjourned the proceedings on the condition that certain amounts were paid to Rimmer. If those payments were made as they were supposed to be he would adjourn the proceedings once more and if the payments continued to be made, he would dismiss the proceedings. However, if Mr Cherrie was to miss even one payment, Rimmer would be free to resume the bankruptcy proceedings and “[Cherrie] is in no doubt that an order of adjudication will be made.”
He finished by warning that “[Cherrie] has only avoided bankruptcy because the court has been prepared to exercise a discretion in his favour. That is something of an indulgence and not a matter he could necessarily have relied on before the hearing today.”
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3. Shark attack
State of Queensland v Ward & Anor [2002] QSC 171 , State of Queensland v Ward & Anor [2003] QCA 366
If you want a fascinating insight into the world of loan sharks, read the transcripts of the conversations recorded and put in evidence in this Australian case. This case also applies Australian law on the purpose of the loan - personal, domestic or household purposes, or business or investment purposes - and declarations in respect of purpose. Similar rules on the purpose of the loan will apply under the New Zealand Credit Contracts and Consumer Finance Act 2003 which largely comes into force on 1 April 2005.
As a youth in New Zealand, Timothy Ward supported himself by playing pool for money. He became known by his associates as “Shark”. He kept the nickname when he migrated to Australia and used it as the name of his company – Shark Financial Services Pty Ltd - a moneylending business on the Gold Coast.
>From 1996 to 2000 “Shark” (meaning both Ward and his company) lent to people who could not get credit elsewhere. Shark would lend a minimum of $500 to anyone, at interest rates of 156 % and 208 % per annum. Late payment fees could raise the interest rate to 360% per annum. Imprisoned borrowers (there were a few as a lot of his clientele were described as “drug dealers and hookers”) did not have to pay interest while serving their sentence but were expected to “fix things up” on their release.
Repayments had to be made on a weekly basis between Monday and Friday. If not made in this time, Shark would send around collectors. As the debtors had no collateral as security for the loan Shark considered “their body as collateral”. His “collectors” would threaten physical violence or in fact carry it out until the debtor found some means to pay Shark. Some people were given one warning, others weren't. Threats of violence and actual violence wre common practice regardless of sex and age and were directed not only at the borrower but also the borrower’s family and friends. If Shark could not contact a borrower, he considered them a “runner”. Runners were pursued by “the boys”.
After various complaints and a three month surveillance operation from August 1998 until October 1998, the State of Queensland sought to have Shark prohibited from lending money and fined for breaches of the Consumer Credit (Queensland) Act 1994 and the Consumer Credit (Queensland) Code.
Shark claimed that all his loans were made for business and investment purposes and therefore did not come under the Act or the Code. All borrowers signed a declaration under the Consumer Credit Code that the loan was for business or investment purposes.
The judge did not agree. He said that even though borrowers had signed documents that stated the loan was for the purpose of business or investment, they were signed “with a wink and a nod” and that the borrowers could do whatever they wanted with the money. The declarations are not conclusive evidence in a situation where the creditor knows or should know that they are not really being used for business or investment. Shark also boasted of having 400 clients that were involved in drug dealing and prostitution. The judge said that this did not come under the business exemption. We can expect New Zealand courts to take a similar approach under the New Zealand Credit Contracts and Consumer Finance Act 2003 when this aspect of the Act comes into force on 1 April 2005.
The judge prohibited Shark from providing consumer credit because he had provided it unfairly and repeatedly engaged in unjust conduct. He fined him on breach of 27 lenders contracts. Each breached contract received a fine of $10,000, the total being $270,000. Shark appealed the decision on the grounds that the penalties impose were too excessive. The Queensland Court of Appeal swiftly dismissed the appeal. The Court found that the penalties Ambrose J had imposed were totally justified.
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4. Update on recent clawback case
Readers may recall our October 2003 bulletin which, among other things, covered an attempt by liquidators to recover two paintings (Minem Finance Ltd and Murray Osmond v Parsons and Kenealy 16 July 2003, Master Faire, Hamilton, High Court M 164/01A). The liquidators failed to comply with the procedures in s292 of the Companies Act 1993.
Katherine Kenealy of Indepth Forensic Limited tells us that this was only a temporary setback. "I can advise that the matter to which your earlier bulletin referred has been settled. The Liquidators have received notice from Minem Finance Limited and Murray Osmond, that they accept that they have no valid claim to the item in question and have relinquished their claim to the painting in favour of the Liquidator."
