Proper construction – the meaning of “for” within the context of section 6(5) of the National Credit Code

In the matter of Australian Securities and Investments Commission v BHF Solutions Pty Ltd [2022] FCAFC 108, the Court considered whether one or more of the fees charged by the Second Respondent could be considered “a charge that is or may be made for providing the credit” within the meaning of s 6(5) of the National Credit Code (Code), such that the Code did not apply to the credit provided.

Background

The proceeding concerned lending arrangements devised by the First Respondent, BHF Solutions Pty Ltd (BHFS) and the Second Respondent, Cigno Pty Ltd (Cigno). The structure of the arrangements was that Cigno would market to consumers, process and assess loan applications and manage collections, while BHFS would advance the loan to the consumer.

By way of a request made through Cigno, BHFS advanced a loan to a consumer. In the course of her dealings, the consumer agreed to a standard services agreement with Cigno in which Cigno agreed to facilitate all enquiries, payments and the management of the loan, in exchange for the consumer paying certain fees. The fees, which included a “Financial Supply Fee”, were only charged once the consumer obtained the loan from BHFS.

ASIC alleged that both Respondents breached s 29 of the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) by engaging in credit activities without holding an Australian Credit Licence. The central issue was whether, in the context of the loan to the particular consumer and BHFS’ business more generally, BHFS provided credit to which the Code applied.

The Respondents sought to rely on s 6(5) of the Code to argue that the Code did not apply on the basis that the fees charged, in particular the Financial Supply Fee, were only imposed for the credit application services and not for the provision of credit. This was accepted by the trial judge who held that the fees were charged pursuant to the standard services agreement (and not for the credit); therefore, the Code did not apply and the Respondents had not contravened s 29 of the NCCP Act.

This case, being ASIC’s appeal from the trial judge’s decision, concerned the proper construction of the Code and the meaning of the phrase “charge that is or may be made for providing credit” in s 6(5) of the Code.

Considerations

Where multiple interpretations of a provision of an Act are available, s 15AA of the Acts Interpretation Act 1901 (Cth) requires that an approach which would best achieve the purpose or object of an Act be preferred.

Justice O’Bryan noted that in the context of s 6(5) of the Code, there are at least two possible meanings of the preposition “for”:

1. “in consideration of” or “in return for” – the charge is made in consideration of or in return for the provision of credit. This may be “conceived in a strict contractual sense”, whether the charge is the contractual consideration for the credit, or in a “practical commercial sense, asking whether the provision of credit is the benefit received in return for the charge”; or
2. “by reason of” or “because of” – the charge is made by reason of the provision of credit in the sense that the charge is only imposed if the credit is provided.

Noting that the Code could be characterised as “remedial legislation”, his Honour considered a broad construction of the expression “charge … made for providing the credit” to be preferred.

This approach was consistent with previous cases which his Honour had regard to, in which the preposition “for” within the meaning of the phrase was found to indicate a “casual connection” and involve a “notion of exchange” in that the charge was imposed as a consequence of/made in exchange for the credit provided.

Conclusion

His Honour concluded that the expression “charge … made for providing the credit” within the context of s 5(1)(c) and 6(5) “should be construed as a charge that is made in exchange for, on account of or by reason of the provision of credit”.

Having regard to the following “relevant facts”, his Honour found that the Financial Supply fee in particular was a charge made for providing the BHFS credit and was ultimately imposed in exchange for credit:

1. the services supplied by Cigno (receipt, assessment and processing of loan applications) were directed to the provision of credit;
2. from the loan applicant’s perspective, the services provided by Cigno only had value if the application was approved and credit was provided;
3. the Financial Supply Fee was only charged if credit was provided;
4. the Financial Supply Fee varied depending on the amount of credit provided (calculated as a percentage of the loan amount).

The appeal was allowed.

Of note, his Honour chose to focus upon the Financial Supply Fee only because, if that fee satisfied the statutory language, s 6(5) of the Code would not apply regardless of the other fees imposed.

Key takeaway 

The overarching purpose of the National Credit Code is to protect consumers from unfair lending practices. Courts will look to construe its provisions broadly in order to ensure that consumers are given the full effect of the “remedial” nature of the legislation.

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Authored by:

Fidelis McGarrigan, Partner
Hannah Tsavalas, Solicitor