FEDERAL COURT OF AUSTRALIA

Lynch v Cash Converters Personal Finance Pty Ltd [2016] FCA 1536

ORDERS

THE COURT ORDERS THAT:

1.    Leave be granted to the respondents to file a further amended defence in the form contained in exhibit “JLB-1” to the affidavit of Jason Betts sworn 9 November 2016, except for the proposed amendments to paras 20(d), the particulars to 20(e), 22A, 22B, 25(d), the particulars to 25(e), 27A, 53A(b) and 53A(c) of the proposed further amended defence.

2.    The respondents’ pay the applicant’s costs thrown away by reason of the amendments to the amended defence, including the costs of the application for leave to file the further amended defence.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

GLEESON J:

1    By interlocutory application filed 9 November 2016, the respondents (“Cash Converters”) seek leave to file a further amended defence pursuant to r 16.53 of the Federal Court Rules 2011 (“Rules”).

2    In support of the application, Cash Converters relied on two affidavits of Jason Betts, a partner of Herbert Smith Freehills (“HSF”), sworn 9 and 18 November 2016. HSF are the solicitors for Cash Converters. The proposed further amended defence is at p 1 of exhibit “JLB-1” to Mr Betts’ 9 November 2016 affidavit.

3    In opposition, the applicant (“Mr Lynch”) relied on three affidavits of Miranda Nagy, a principal of Maurice Blackburn Pty Ltd (“Maurice Blackburn”), solicitors for Mr Lynch.

4    Mr Lynch consented to some of the proposed amendments and leave will be granted to file a further amended defence incorporating those amendments.

5    There are contested amendments, concerning the facts about documents, prepared or generated by Cash Converters systems, provided to the Mr Lynch or intended to be provided to the Mr Lynch. The contested amendments are contained in the proposed further amended defence at paras 16(d), 20(d) and 25(d) and the particulars to paras 16(e), 20(e) and 25(e); and paras 12(a)(ii)(3), 17A, 17B, 22A, 27A and 53A.

Mr Lynch’s claim

6    By an originating application filed on 31 July 2015 and an amended statement of claim filed on 21 December 2015, Mr Lynch seeks various declaratory and other relief for himself and in a representative capacity, including:

(1)    an order for recovery of brokerage fees paid and interest on those fees pursuant to s 21(2) of the Consumer Credit (Queensland) Code (“Qld Credit Code”) or s 32(3) of the Credit (Commonwealth Powers) Act 2010 (Qld) (“Qld Credit Act”);

(2)    an order that Cash Converters pay an amount as a civil penalty pursuant to s 102(2) of the Qld Credit Code;

(3)    alternatively to (1) and (2) above, statutory compensation pursuant to s 12GF(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”).

7    Mr Lynch claims that Cash Converters contravened s 32(1) of the Qld Credit Act and s 21(1) of the Qld Credit Code because, he alleges, each credit contract pursuant to which Mr Lynch obtained a loan styled as a personal loan contained a provision for the payment of a brokerage fee, the effect of which was to cause the annual percentage rate under the credit contract to exceed the statutory cap. Accordingly, one of the key issues in the case is whether the brokerage fee was payable under each “credit contract” between Mr Lynch and Cash Converters. That issue requires determination of what is each “credit contract”.

8    Mr Lynch also claims that Cash Converters engaged in unconscionable conduct in breach of s 12CB(1) of the ASIC Act.

9    On 12 February 2016, Cash Converters filed an amended defence.

Amended statement of claim and amended defence

10    Mr Lynch’s case, as articulated in the amended statement of claim, pleads three loans, made respectively in about August 2010, June 2012 and October 2012. For each loan, the facts pleaded concerning the loan are similar (but not identical).

11    Paragraph 12 of the amended statement of claim pleads, in summary, that the respondents had an administration software system which generated various documents including, relevantly, from on or after 1 April 2010, documents entitled “Credit Proposal”.

12    Paragraph 12(a)(ii)(2) of the amended defence admits, relevantly, that there was a system which, in relation to loans styled as personal loans, enabled the generation of documents including documents entitled, from on or after 1 April 2010, “Credit Proposal”.

First loan

13    For the first loan, para 15 of the amended statement of claim alleges that on 26 August 2010, Mr Lynch signed a document referred to as the “First Lynch Appointment of Broker”. Cash Converters admit para 15.

14    Paragraph 16 of the amended statement of claim alleges that the “First Lynch Appointment of Broker” had specified terms. In answer, para 16 of the amended defence makes admissions and says:

d.    … that the applicant was provided with the following documents at or around the same time as he signed the First Lynch Appointment of Broker:

…

iv.    Credit Assistance Consumer Acknowledgment;

v.    Quote for Providing Credit Assistance;

vi.    Credit Guide for Bak Property Pty Ltd;

vii.    Credit Proposal.

15    The documents listed in para 16(d)(iv) to (vii) are included in the particulars to para 16(e) of the amended defence.

16    Paragraph 17A of the amended statement of claim pleads:

On a date which Mr Lynch cannot presently particularise, the Mon-e System generated a ‘Credit Proposal’ in respect of the First Lynch Credit Contract which, among other things:

(a)    identified the ‘Licensee’ as ‘Cash Converters Goodna’;

(b)    nominated a ‘Credit Provider’;

(c)    identified the ‘Consumer’ as Mr Lynch;

(d)    stated that the ‘total amount of fees and charges taken from the credit’ would be $210.00 and the ‘method’ of calculating these fees and charges had been ‘35% of the net credit amount’;

Particulars

Paragraph 16(d)(vii) of the respondents’ defence filed on 19 October 2015 and the documents provided by the respondents as being referred to in that defence.

17    Paragraph 17A of the amended defence pleads:

In answer to paragraph 17A, the respondents deny that paragraph and say that on or around 26 August 2010, a credit proposal was prepared in respect of the First Lynch Loan that addressed the matters pleaded in paragraphs 17A(a) – 17A(d) of the Amended Statement of Claim and say that the credit proposal was generated from the Safrock System and not the Mon-e System.

18    Paragraph 17B of the amended statement of claim pleads:

Bak and Safrock intended that the Credit Proposal be provided to Mr Lynch at the same time that he signed the First Lynch Appointment of Broker.

Particulars

(a)    Paragraph 16(d)(vii) of the respondent’s defence filed on 19 October 2015.

(b)    CC International’s Response to the Commonwealth Government Green Paper on Consumer Credit Reform – Phase II’ dated August 2010 at pages 6 and 10 which stated the recovery of 35% of the principal loaned in Queensland and certain other states by means of various fees and charges.

(c)     CC International’s Annual Report for the year ended 30 June 2008 at page 10 which stated in relation to ‘cash advances’ given through the Cash Converters franchise network in Australia that the fee charged for providing the advance was 35% of the principal advanced which compensated the franchisee/lender for the high risk nature of the loan.

(d)    The 16 September 2009 KPMG ‘Independent expert report & Financial services guide’ on CC International, at pages 22 and 23 which stated the recovery of 35% of the amount loaned by means of ‘charges’. The report was published to shareholders as an annexure to a Notice of General Meeting dated 18 September 2009.

19    In the amended defence, para 17B is admitted.

20    Paragraph 53A of the amended statement of claim pleads:

Group Members with credit contracts dated on or after 1 April 2010 were provided with, or were intended to be provided with, the ‘Credit Proposal’ document listed in paragraph 12(b), by the Qld Franchisee, Qld Franchisee Broker, or wholly owned entity of CC International to whom they paid a fee styled as a ‘broker’s’ fee or a ‘brokerage’ fee.

21    In the amended defence, para 53A is admitted.

Second loan

22    For the second loan, para 19 of the statement of claim alleges that on 1 June 2012, Mr Lynch signed a document referred to as the “Second Lynch Appointment of Broker”, which had certain terms. Cash Converters admit para 19.

23    Paragraph 20 of the amended statement of claim alleges that the “Second Lynch Appointment of Broker” had certain terms, in addition to the terms pleaded in para 19. In answer to para 20, para 20 of the amended defence makes admissions and says:

d.    … that the applicant was provided with the following documents at the same time as he signed the Second Lynch Appointment of Broker:

…

vi.    Credit Guide for Cash Converters Inala;

vii.    Credit Proposal; …

24    The documents listed in paras 20(d)(vi) and (vii) are included in the particulars to para 20(e) of the amended defence.

25    Paragraph 22A of the amended statement of claim pleads:

On a date which Mr Lynch cannot presently particularise, the Mon-e System generated a ‘Credit Proposal’ in respect of the Second Lynch Credit Contract which, among other things:

(a)    identified the ‘Licensee’ as ‘Cash Converters Inala’;

(b)    nominated the ‘Credit Provider’ as CC Personal Finance;

(c)    identified the ‘Consumer’ as Mr Lynch;

(d)    stated that the ‘total amount of fees and charges taken from the credit’ would be $210.00 and the ‘method’ of calculating these fees and charges had been ‘35% of the net credit amount’;

Particulars

Paragraph 20(d)(vii) of the respondents’ defence filed on 19 October 2015 and the documents provided by the respondents as being referred to in that defence.

26    Paragraph 22A of the amended defence pleads:

In answer to paragraph 22A, the respondents deny that paragraph and say that on or around 1 June 2012, a credit proposal was prepared in respect of the First Lynch Loan [sic] that addressed the matters pleaded in paragraphs 22A(a) – 22A(d) of the Amended Statement of Claim and say that the credit proposal was generated from the Safrock System and not the Mon-e System.

27    Paragraph 22B of the amended statement of claim pleads:

Cash Converters Inala and CC Personal Finance intended that the Credit Proposal be provided to Mr Lynch at the same time that he signed the Second Lynch Appointment of Broker.

Particulars

(a)    Paragraph 20(d)(vii) of the respondent’s defence filed on 19 October 2015.

(b)    The applicant repeats particulars (b) to (d) to paragraph 17B above.

28    In the amended defence, para 22B is admitted.

Third loan

29    For the third loan, para 24 of the statement of claim alleges that on 27 October 2012, Mr Lynch signed a document referred to as the “Third Lynch Appointment of Broker”, which had certain terms. Cash Converters admit para 24.

30    Paragraph 25 of the amended statement of claim alleges that the “Third Lynch Appointment of Broker” had certain terms. In answer to para 25, para 25 of the amended defence makes admissions and says:

d.    … that the applicant was provided with the following documents at the same time as he signed the Third Lynch Appointment of Broker:

…

vi.    Credit Guide for Bak Property Ltd;

vii.    Credit Proposal; …

31    The documents listed in paras 25(d)(vi) and (vii) are included in the particulars to para 25(e) of the amended defence.

32    Paragraph 27A of the amended statement of claim pleads:

On a date which Mr Lynch cannot presently particularise, the Mon-e System generated a ‘Credit Proposal’ in respect of the Third Lynch Credit Contract which, among other things:

(a)    identified the ‘Licensee’ as ‘Cash Converters Goodna’;

(b)    nominated the ‘Credit Provider’ as CC Personal Finance;

(c)    identified the ‘Consumer’ as Mr Lynch;

(d)    stated that the ‘total amount of fees and charges taken from the credit’ would be $210.00 and the ‘method’ of calculating these fees and charges had been ‘35% of the net credit amount’;

Particulars

Paragraph 25(d)(vii) of the respondents’ defence filed on 19 October 2015 and the documents provided by the respondents as being referred to in that defence.

33    Paragraph 27A of the amended defence pleads:

In answer to paragraph 27A, the respondents deny that paragraph and say that on or around 27 October 2012, a credit proposal was prepared in respect of the First Lynch Loan [sic] that addressed the matters pleaded in paragraphs 27A(a) – 27A(d) of the Amended Statement of Claim and say that the credit proposal was generated from the Safrock System and not the Mon-e System.

34    Paragraph 27B of the amended statement of claim pleads:

Cash Converters Goodna and CC Personal Finance intended that the Credit Proposal be provided to Mr Lynch at the same time that he signed the Third Lynch Appointment of Broker.

Particulars

(a)    Paragraph 25(d)(vii) of the respondent’s defence filed on 19 October 2015.

(b)    The applicant repeats particulars (b) to (d) to paragraph 17B above.

35    In the amended defence, para 27B is admitted.

Contested amendments to defence

36    Cash Converters seek to amend paragraph 12(a)(ii)(2) of the amended defence to delete the words “after 1 April 2010” and insert the words “around 3 October 2011”.

First loan

37    Cash Converters seeks to:

(1)    delete the references to the four documents in paras 16(d)(iv) to (vii) of the amended defence and the references to those documents in the particulars to para 16 (e);

(2)    amend paras 17A and 17B of the amended defence to deny paras 17A and 17B of the amended statement of claim.

Second loan

38    Cash Converters seeks to:

(1)    delete the references to the two documents in paras 20(d)(vi) and (vii) of the amended defence and the references to those documents in the particulars to para 20(e);

(2)    amend para 22A of the amended defence to say that:

[O]n or around 1 June 2012, the Safrock System enabled the generation of a document entitled “Credit Proposal” but otherwise do not know and cannot admit that paragraph.

39    The admission in para 22B of the amended defence is maintained but, as Mr Sheahan SC, senior counsel for Mr Lynch, observed, it would be deprived of any content if the amendment to para 22A is allowed because it is an admission that Cash Converters intended to provide a document entitled “Credit Proposal” without any admission as to the content of the document.

Third loan

40    As for the second loan, Cash Converters seeks to:

(1)    delete the references to the two documents in paras 25(d)(vi) and (vii) of the amended defence and the references to those documents in the particulars to para 25(e);

(2)    amend para 27A of the amended defence to say that:

[O]n or around 27 October 2012, the Safrock System enabled the generation of a document entitled “Credit Proposal” but otherwise do not know and cannot admit that paragraph.

41    Again, the admission in para 27B of the amended defence is maintained.

Group members

42    Cash Converters seeks to replace its admission of para 53A of the statement of claim with the following:

In answer to paragraph 53A, the respondents:

(a)    say that before on or around 3 October 2011, Group Members were not provided with a “Credit Proposal” document;

(b)    say that on or around 3 October 2011, the Safrock System enabled the generation of a “Credit Proposal” document and that after this time, Group Members were intended to be provided with that document; and

(c)    otherwise do not know and cannot admit paragraph 53A.

Explanation for contested amendments

43    Mr Bett’s evidence was that all of the amendments are sought to be made as a result of investigations carried out by Cash Converters in response to matters raised by Maurice Blackburn in this proceeding and in related proceedings in this Court (“McKenzie proceeding”). The investigations included an examination of the circumstances in which documents were produced by Cash Converters pursuant to statutory requests made under the Consumer Credit (Qld) Act 1994 (Qld) including the Qld Credit Code and the National Consumer Protection Act 2009 (Cth) (“National Consumer Protection Act”) including the National Credit Code (“statutory requests”).

44    As is explained by Mr Betts:

(1)    Cash Converters’ loan documentation is generated from a platform known as the “Safrock system” (defined at para 12 of the amended defence). The Safrock system contains a package of loan documentation provided to borrowers based on standard form template documents, which are populated with information specific to the borrower.

(2)    The standard package of documentation generated from the Safrock system was changed on or about 3 October 2011 as a result of legislative amendments. After that date, the following new forms of documents, among others, formed part of the standard package of documentation generated from the system:

(a)    Credit Assistance Consumer Acknowledgment;

(b)    Credit Proposal;

(c)    Quote for Providing Credit Assistance; and

(d)    Credit Guides.

(3)    The Safrock system has an “auto generation” feature. The effect of the “auto generation” feature is as follows:

(a)    it allows for the template documents on the system to be “pulled up” and populated based on the unique loan reference or loan application reference relating to a borrower’s particular loan. This occurs at the time that the system is interrogated for the purpose of producing documents pertaining to that borrower;

(b)    this means that when the interrogation occurs, the documentation generated by the Safrock system is based on the versions of the template documents that exist in the system at the time of the interrogation, as opposed to the versions of those documents in the form that existed at the time of the loan. Accordingly, the documentation produced reflects data as at the time of the interrogation;

(c)    when interrogated to identify the documentation for a particular borrower, the system will present the form of template document as though it were part of the borrower’s documents produced at the time of the loan;

(d)    Accordingly, any production of template documents in respect of a particular borrower may:

(i)    include documents that did not exist at the time of the loan; and/or

(ii)    may not be an accurate reflection of the form of document provided to the customer at the time of the loan.

(4)    As a result, it is not possible for Cash Converters to identify with certainty what form of documents were provided to Mr Lynch at the time of his loans unless:

(a)    loan documents were signed by him and uploaded to the Safrock system by the operator scanning the signed documents and saving them to the system; or

(b)    the unsigned documents were saved on the Safrock system as a PDF at the time of the loan. From 2010, the system automatically saved some documents but these did not include the documents referred to in (2) above.

45    At or around the time the statutory requests were made, Mr Peter Wessels (then Cash Converter’s National Manager – Personal Finance), was the officer of Cash Converters responsible for production of the documents pursuant to the requests. Those documents included the following and were relied upon in formulating the amended defence:

(1)    in relation to the first loan: Credit Assistance Consumer Acknowledgment, Quote for Providing Credit Assistance, Credit Guide for Bak Property Pty Ltd and Credit Proposal (referred to in para 16(d) of the amended defence);

(2)    in relation to the second loan: Credit Guide for Cash Converters Inala and Credit Proposal (referred to in para 20(d) of the amended defence); and

(3)    in relation to the third loan: Credit Guide for Bak Property Pty Ltd and Credit Proposal (referred to in para 25(d) of the amended defence).

46    Mr Betts’ evidence, based on information and belief from Mr Martyn Kelly, Cash Converter’s IT Manager – Personal Finance, is that due to the “auto generation” feature of the Safrock system, the documents identified in para 43 above were erroneously produced by Cash Converters in response to the statutory requests and relied upon to prepare the amended defence.

47    Mr Wessels left Cash Converter’s employment in January 2016. In his 18 November 2016 affidavit, Mr Betts gave evidence of conversations with Mr Wessels which revealed that Mr Wessels was aware (at or around the time that some documents were produced by the respondents in response to statutory requests) that (a) the Safrock system is dynamic and has an “auto generation feature” similar to that described above; and (b) signed loan documents are ordinarily uploaded to the Safrock system.

48    After speaking with Mr Wessels, Mr Betts formed the view that, in order to determine precisely how auto-generated documents were produced to Mr Lynch pursuant to his statutory requests, Cash Converters would need to conduct a further extensive forensic investigation.

49    Cash Converters first raised the issue of the auto generation feature in the Safrock system with Mr Lynch’s lawyers in August 2016, and subsequently confirmed that errors had occurred in the document production process, following investigations conducted in September and early October 2016.

50    On behalf of Cash Converters, Mr Betts gave the following evidence:

The amendments are not driven by a strategic goal. They are necessary to ensure that the factual position is properly recorded in the pleadings and to ensure that the Court is not mislead as to the respondents’ position on those matters.

Mr Betts added:

If the applicant does not accept the factual position advanced in the proposed amended defence, it is obviously open to the applicant to advance evidence to the contrary in the usual way.

31 October 2016 letter from HSF to Maurice Blackburn

51    By this letter, HSF sought to explain the erroneous auto generation of documents from the Safrock system. In relation to documents produced in answer to statutory requests, apart from documents bearing a date prior to 3 October 2011, the letter said:

We are instructed that … in each case a document of this kind was in fact provided to your clients at the time of their loans, but the precise form of the document (and its precise content) may have varied from the form/content of the document produced in response to the Statutory Requests (and accordingly the accuracy of the documents cannot be verified).

52    In relation to documents produced on discovery in this proceeding in answer to the category “all Credit Documents for any loan entered into by Mr Lynch with any Cash Converters Company, Qld Franchisee or Qld Franchisee Broker, prior to the conclusion of the Interest Rate Cap Period”, the letter said:

With respect to documents falling within Part 2, Category 2, a document of this kind was in fact provided to Mr Lynch at the time of his loans, but the precise form of the document (and its precise content) may have varied from the form/content of the document produced. Accordingly, while strictly the documents are capable of being treated as produced in error, we are content to proceed on the basis that the documents are treated as discovered material subject to the explanation of their source and status set out in this letter.

Relevant legal principles

53    Rule 16.53 of the Rules provides that unless r 16.51 applies, a party must apply to the Court for leave to amend a pleading. Cash Converters’ application for leave to amend does not fall within the scope of r 16.51 of the Rules.

54    The question of whether leave to amend should be granted is a matter for the Court’s discretion. The powers of the Court are broad and consideration of the question must be undertaken in accordance with the overarching purpose set out in s 37M(1) of the Federal Court Act 1976 (Cth): Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm), in the matter of Tamaya Resources Limited (in liq) [2015] FCA 1098 (“Tamaya”) at [125].

55    The principles applicable to applications for leave to amend are well established and include the following:

(1)    the starting point is “that all amendments should be made and allowed that are necessary to ensure the real questions in controversy between the parties are decided”: Oswal v Apache Corporation (No 3) [2014] FCA 835 at [5];

(2)    an amendment will “ordinarily be allowed provided it can be done without harm to the other party which cannot be compensated by an award of costs or an adjournment”: S.P.I. Spirits (Cyprus) Ltd v Diageo Australia Ltd (No. 4) [2007] FCA 1035 (“S.P.I. Spirits”) at [14];

(3)    leave should be granted unless the proposed amendment “is so obviously futile that it would be struck out if it had appeared in the original pleading or would cause substantial injustice which cannot be compensated for in the manner” indicated above: S.P.I. Spirits at [17];

(4)    the allowance of an amendment before the commencement of a trial “stands in a very different position from amendment towards the end of a trial”: S.P.I. Spirits at [18]; and

(5)    relevant matters the Court may consider include the nature and importance of the amendment to the party applying for it and the prejudice caused by the amendment: Tamaya at [127].

56    In Australian Competition and Consumer Commission v Construction, Forestry Mining and Energy Union [2007] FCA 1390 at [4], Finn J considered the principles governing the grant of leave to withdraw an admission and referred, with approval, the following statement of Debelle J in Centrestate Exports Pty Ltd v Amarantos Shipping Co Ltd [2005] SASC 158 at [32]:

The overriding consideration is the interests of justice. The Court will not lightly permit a party to withdraw an admission where the other party has acted to its detriment on the admission or is otherwise prejudiced by the withdrawal. It is plainly necessary to have regard to all relevant factors including the nature and importance of the admission, the circumstances in which the admission was made, whether the admission was made deliberately or inadvertently, the reason given for the application to withdraw, the detriment or prejudice which might be caused to the other party and the stage which the proceedings have reached, and whether the admission is contrary to the facts. The list of relevant factors affecting the Court’s decision will plainly vary from case to case.

57    In NT Power v Power and Water Authority [1999] FCA 1184 at [2], Mansfield J expressed the view that generally speaking, the withdrawal of an admission in pleadings will require an explanation for the making of the admission, if necessary based upon evidence of a solid and substantial character.

58    Rule 16.01 of the Rules provides relevantly:

A pleading must:

(a)    state the name of the person who prepared the pleading; and

(b)    include a statement by the person that the person prepared the pleading; and

(c)    if prepared by a lawyer – include a certificate signed by the lawyer that any factual and legal material available to the lawyer provides a proper basis for:

(i)    each allegation in the pleading; and

(ii)    each denial in the pleading; and

(iii)    each non-admission in the pleading.

Cash Converter’s submissions

59    Cash Converters submitted that the contested amendments correct the factual position with respect to the documents that were in fact provided to Mr Lynch at the time of each of his loans and are therefore necessary to enable the Court to determine the question of what comprised the “credit contract” for each of the three loans.

60    More particularly, it was argued that the effect of the contested amendments is to amend the pleadings so as to reflect the correct factual position as follows:

(1)    in relation to the first loan, the documents referred to in para 16(d) of the amended defence did not exist at the time of that loan (those kinds of documents being created on or after 3 October 2011). Accordingly, leave should be granted to enable consequential pleading amendments to reflect that fact. The relevant amendments are the amendments to para 16(d) and the particulars to para 16(e); the amendments to paras 17A and 17B; and insofar as the Group Members are concerned, the amendments to para 53A(a);

(2)    in relation to the second and third loans, although the Safrock system enabled the generation of the documents referred to in paras 20(d) and 25(d) of the amended defence at the time of the loans, it is not possible for Cash Converters to say, as is pleaded in those paragraphs, that Mr Lynch was in fact provided with those documents or the precise form of those documents. Accordingly, leave should be granted to enable consequential pleading amendments to be made to reflect those facts. Of the contested amendments, these are: the amendments to paras 20(d) and 25(d) and the particulars to paras 20(e) and 25(e); the amendments to paras 22A and 27A; and insofar as the Group Members are concerned, the amendments to paras 53A(b) and 53A(c).

61    In further support of its application, Cash Converters relies on the following matters:

(1)    the proceeding is at an early stage. Discovery has been completed but no orders have been made for service of evidence and a trial date has not been set;

(2)    they have agreed to pay Mr Lynch’s costs thrown away by reason of the amendments;

(3)    the amendments will not cause any prejudice to Mr Lynch which cannot be cured by payment of his costs thrown away. To the extent that Mr Lynch argues that he will be prejudiced by the contested amendments because “the fact and content of each respective Credit Proposal document is a significant plank” of his case, any such submission ought to be rejected. That is because, as noted above, the effect of the contested amendments is to reflect the correct factual position by:

(a)    stating that in relation to the first loan, the Credit Proposal document was not in existence; and

(b)    clarifying that, in relation to the second and third loans, the Safrock System enabled the generation of the Credit Proposal document but the respondents do not know and cannot admit that Mr Lynch was in fact provided with that document. Moreover, as is clear from paras 22B and 27B of the further amended defence (which are admissions in respect of which the respondents do not seek leave to amend), the respondents intended to provide the Credit Proposal document to Mr Lynch at the same time that he signed the relevant Appointment of Broker document – in other words, Mr Lynch is entitled to continue to rely on the Credit Proposal document as part of his case even if the contested amendments are made.

62    Cash Converters rejected Mr Lynch’s criticisms of the sufficiency of their explanation for the contested amendments. According to Cash Converters, the relevant question is whether Cash Converters should be permitted to amend their defences in circumstances where certain facts currently pleaded can no longer be supported due to matters that have come to light through investigations recently undertaken by them.

Mr Lynch’s submissions

63    Mr Lynch declined to consent to the proposed amendments, which he characterised as withdrawals of admissions, for the following reasons:

(a)    [Cash Converters] have refused his request to explain when they first became aware of the potential for the Safrock system to generate false documents – absent which [Cash Converters’] delay, and the occasion for the need for amendment, are not explained: cf Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at [103], [108], [131];

(b)    [Cash Converters] have refused his request to have an officer of [Cash Converters] provide evidence on oath to explain the basis upon which the admissions came to be made, in particular, in the unusual circumstances where they were made in two separate pleadings and where the documents upon which the admissions were based were provided to Mr Lynch as authentic documents by three law firms acting for [Cash Converters] on four separate occasions including in discovery;

(c)    [Cash Converters] have not explained why, with respect to the [second and third loans], the admissions need to be withdrawn (even accepting the potential for the Safrock System to generate false documents) in circumstances where the contemporaneous evidence overwhelmingly supports the conclusion that the documents were in the form pleaded by both parties in the current pleadings; and

(d)    he is prejudiced by the withdrawal of the admissions as he has relied upon them and, they materially favoured his case. In contrast [Cash Converters] do not assert any prejudice if they are refused leave. On the contrary – [Cash Converters] presumably considered the allegations to be helpful to them.

64    Mr Lynch’s submissions drew attention to the fact that paras 17A, 17B, 22A, 22B, 27A, 27B and 53A of his amended statement of claim were added as a result of the positive allegations made by Cash Converters in its defence. Mr Lynch noted, and it was not disputed that, in addition to the references to the credit proposal documents in the defence and the amended defence, the documents have been provided by Cash Converters in response to certain requests and in discovery, in May 2015, October 2015, December 2015 and February 2016.

65    Thus, Mr Lynch contends, there was no relevant controversy about the credit proposals prior to the proposed further amended defence: cf Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 at [82] to [84].

66    Mr Lynch complained, and it was not disputed that, if the amendments are allowed, they are likely to necessitate further discovery from Cash Converters.

67    Mr Lynch argued that the explanation for the contested amendments is inadequate for the following reasons:

(1)    first, Cash Converters had ongoing statutory obligations to produce authentic documents to their customers or former customers (ss 113, 114, 120 121, and 132 of the National Consumer Credit Protection Act 2004 (Cth) and s 185 of the National Credit Code). The capacity of the Safrock system to store and generate accurate documents was an important matter for Cash Converters in order to comply with their statutory obligations. Absent cogent evidence, it is implausible that Cash Converters were not aware of the way their own system performed prior to filing the defence and the amended defence.

(2)    secondly, Cash Converters’ explanation fails to identify what steps were taken in respect of the provision to Mr Lynch of documents relating to his loans (in May 2015, October 2015, and December 2015) and subsequently on discovery. There was, and is, no description of what was done, when it was done nor an indication as to whether and if so how it was that the persons concerned were not aware of the features of the system about which Cash Converters have recently instructed HSF.

(3)    thirdly, there is no explanation at all for Cash Converters’ decisions to plead credit proposals in the defence and amended defence, when persons informed of the features and performance of their own system must have had reason to doubt the correctness of those pleas.

(4)    by letter dated 8 November 2016, Maurice Blackburn explained, consistently with Tamaya, that the evidence should be given by Cash Converters and not HSF:

With respect to all of these matters, an explanation from an officer of your clients is appropriate. We do not accept that it is appropriate that the explanation should be given by Mr Betts. We have no doubt that your firm is acting consistently with its instructions and there is no doubt about Mr Betts’ professionalism, honesty and integrity. We regret to say that we do not have the same confidence in your clients.

Despite this explanation, Cash Converters has chosen not to provide evidence from an officer of Cash Converters.

68    In relation to the second and third loans, Mr Lynch referred to HSF’s 31 October 2016 letter, noting that, even if the Safrock system did not generate credit proposals until after 3 October 2011, it does not explain the withdrawal of admissions with respect to the credit proposals for second and third loans which were entered into after that date. Mr Lynch argued that Cash Converters plainly have available to them records that disclose the template documents at the relevant time, and the kinds of data included in those documents. Further, he noted that the Credit Assistance Consumer Acknowledgments for each of the second and third loans are signed by Mr Lynch. By his signature Mr Lynch acknowledges receipt of a “Credit Proposal”.

Consideration

Nature of contested amendments

69    Cash Converters disputed Mr Lynch’s characterisation of the contested amendments as withdrawals of admissions, except for the amendments proposed at paras 17B and 53A.

70    To the extent that the contested amendments are not withdrawals of admissions, they are withdrawals of positive allegations made in Cash Converters’ defence about matters within Cash Converters knowledge.

71    In my view, there is no relevant distinction concerning the nature of the contested amendments. In each case, it is necessary for Cash Converters to explain the circumstances in which the allegations and admissions were previously made and whether the results of Cash Converters recent investigations warrant the withdrawal of those allegations and admissions.

First loan amendments

72    I accept Mr Betts’ evidence that the documents referred to in para 16(d) of the amended defence did not exist at the time of the first loan. The contested amendments in relation to the first loan seek to correct a mistake revealed by the recent investigations as to the documents created concerning the first loan.

73    Mr Sheahan SC submitted that these conclusions are not sufficient to warrant a grant of leave to make the contested amendments in relation to the first loan. Mr Sheahan SC argued that it is not self-evidently wrong to hold Cash Converters to what they have pleaded even if it might not be true. Mr Sheahan SC submitted that Cash Converters have identified no prejudice if they are held to the existing pleading. On the other hand, Mr Lynch loses a significant argument in support of his case.

74    By stipulating general requirements of a pleading, r 16.01 supports a conclusion that, generally, leave to amend should be granted to permit a party to withdraw allegations and admissions where it turns out that the pleading could not properly be supported by a certificate of the kind described in r 16.01(c). That is, as a general proposition, where it turns out that the factual and legal material available does not provide a proper basis for the allegations and admissions in a pleading leave should be granted to permit amendments so that the pleading has a proper factual and legal basis.

75    I do not accept that Mr Lynch will suffer relevant prejudice if Cash Converters are not held to their existing case on the first loan. He will lose the opportunity to have his case decided on a basis (admittedly originally propounded by Cash Converters) now found to be factually in error in a material respect. I do not accept that this prejudice outweighs the desirability, in the interests of justice, of granting the amendments to enable the case to proceed on the basis of a further amended defence that contains only factual and legal material for which there is a proper basis.

Second and third loan amendments

76    Cash Converters contend that, as a result of its investigations, and while it accepts that the Safrock system enabled the generation of the documents referred to in paras 20(d) and 25(d) of the amended defence at the time of the loans, it is not possible for Cash Converters to say, as is pleaded in those paragraphs, that Mr Lynch was in fact provided with those documents or the precise form of those documents.

77    They next argue that, where there is no record of the form or content of the Credit Proposal documents provided to Mr Lynch at the time of the second and third loans, it would be misleading for Cash Converters to say that those documents were in fact provided.

78    However, as Mr Sheahan SC noted, Cash Converters acknowledged, in HSF’s 31 October 2016 letter, that documents of the relevant kind were in fact provided although Cash Converters is not able to establish, from its systems, the precise form of the documents provided. Cash Converters did not identify any material difference between any of the range of documents of the relevant kind that might have been provided or any basis for a conclusion that the relevant credit proposals did not address the matters pleaded in paras 22A and 27A of the amended statement of claim.

79    In those circumstances, it is significant that there is no evidence that the amended defence was filed on instructions based solely on the generation of the relevant documents. Rather, the evidence (on information and belief from Mr Kelly) is that Cash Converters erroneously produced the documents and relied on them “for the purposes of the Amended Defence”. The evidence does not state that Mr Kelly approved the amended defence on the basis of those documents without more.

80    In those circumstances, and having regard to HSF’s 31 October 2016 letter, I do not accept the submission that it would be misleading for Cash Converters to continue to allege, by its defence, that Mr Lynch was provided with documents described as “Credit Guide” and “Credit Proposal” at the time that he signed the Second Lynch Appointment of Broker and the Third Lynch Appointment of Broker. To the contrary, those allegations appears to conform with the position as described in HSF’s 31 October 2016 letter. Similarly, paras 20(d), 22A, 22B, 25(d), 27A and 27B of the amended defence appear to conform with the position as described in that letter.

81    It follows that I am not satisfied that Cash Converters should be permitted to make the contested amendments concerning the second and third loans.

Associate:

Dated:    19 December 2016