The meaning of the word “defeat” as in “to defeat the property rights of another” was defined in Stewart v Stewart (2003) to be “a reduction in the relationship property pool”. Earlier cases had given a more limited meaning to the word defeat.

The remedies a court may utilise include compensating the disenfranchised partner from the assets of their partner (either from their separate or relationship property), or from the trust. The New Zealand Property Relationship Act 1976 (PRA) enables the courts to deal with fraudulent conveyances of matrimonial or domestic partnership property. When the aggrieved partner cannot be compensated from the property of their partner, the trust is often tapped as a source of compensation. The court may require the trustees to pay the disenfranchised partner from the income of the trust. The court may make orders against the person who received the property if they received it without valuable consideration and in good faith.
PRA s44(3) allows the court to make further orders as it deems fit.

The trustee can defend their position and the trust res by showing that they received the trust property in good faith and have altered their position in reliance of having an indefeasible interest in the property or other interest in the property so that the court will find it inequitable to divest them of the assets.

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Are you Covered?

The new Credit Contracts and Consumer Finance Act 2003 (“the Act”) came fully into force on 1 April this year replacing the old Credit Contracts Act 1981 and the Hire Purchase Act 1971 and amalgamating all consumer credit laws thereby bringing with it major changes in the way credit is to be provided to consumers – Are you covered?

As the name suggests, the Act offers greater protection to consumer credit contracts, consumer leases and buy-back transactions and little protection to business transactions or credit contracts for business purposes. It also encourages and promotes competition amongst lenders.

What does this mean for the ordinary credit consumer? This means any loan entered into after 1 April 2005 for personal, domestic or household purposes by an individual person would be covered by the Act. But, loans or hire purchase agreements entered into before 1 April 2005 will not be covered by the Act – they will however, still be covered by the old Credit Contracts Act 1981 or the Hire Purchase Act 1971, as if these statutes had not been repealed.

For lenders, this means that all loans offered to consumers after 1 April 2005 for personal, domestic or household purposes will have to fully comply with the requirements of the Act. However, some lenders may have opted to apply the new Act to all their credit contracts whether before or after 1 April 2005.

Accordingly, loans taken out in the name of the Family Trusts or Companies including Loss Attributing Qualifying Companies – LAQCs will not be treated as consumer loans and therefore will not be given consumer protection under the Act. As such, many may start thinking of taking out loans under their individual names so as to receive full consumer protection under the Act but use the credit for business purposes. However, the Act requires anyone taking out a loan to sign a Declaration stating the purpose of the loan. If the primary purpose of the loan is for business or investment purposes then the loan will not be treated as a consumer loan and therefore will not receive the full consumer protection provided by the Act.

What sorts of consumer protection are provided by the Act?

The Act regulates the charging of fees – for example, lenders can now only charge credit-related fees and fees that are reasonable. Therefore, the lender cannot charge you fees that are not in connection with the loan itself, unnecessary or unreasonable – such as, placing conditions of alternative insurance when the loan that can be secured by existing insurance policies or charging of fees that is more or less equivalent to the loan amount.

The Act also regulates the charging of interest by limiting the amount that can be charged, how it is to be calculated – limiting the methods of calculation and how it is to be charged and; regulates the amount the lender may charge as the lender’s loss arising from early repayment of the loan thereby abolishing the ‘Rule of 78’ which used to be used by the lenders to calculate their loss from early repayment of the loan.

The Act encourages transparency in terms of what the lender charges – for example, the lenders will have to provide you a breakdown or all components of the total credit fees charged such as the brokerage or establishment fee or the credit-related insurance fee.
The Act also encourages a more detailed supply of information to the consumer both before the loan is entered into and also during the term of the loan thus, promoting the “let the buyer beware” consumer principle. For example, the Initial Disclosure Statement (this is usually attached to the loan document providing details of the loan) must include amongst other things, details of the amount lent and its component parts including unpaid balance and cash price, the method of calculation of interest and the method of calculation of the early repayment amount.

Perhaps the most important of all protections offered under the Act is that that the Act has been given more teeth – so as to speak – in comparison with the old Credit Contracts Act 1981 in terms of enforcing and policing the Act. As a result, the Commerce Commission has been appointed as the watchdog and has been tasked with promoting the compliance of the Act. The Commerce Commission has also been given significant powers under the Act such as powers to bring prosecutions against lenders for not complying with the requirements of the Act and powers to bring court proceedings on behalf of credit consumers. This means that financially desperate and vulnerable credit consumers who are swayed into entering unreasonable or oppressive loans may now ask the Commerce Commission to challenge these loans on their behalf in Court and as such, not being burdened with the worry of paying the legal bills themselves.

Accordingly, for the lenders this means that they will have measures, procedures or systems put in place to ensure full compliance with the Act. For lenders who have compliance programmes put in place need to be least worried about breaching the Act because the Court will consider whether the lender has in place an appropriate compliance programme in determining whether the breach was due to a reasonable mistake made by the lender.

The Act brings with it a lot of changes to the ways in which credit has been traditionally provided. Hence, both credit consumers and lenders need to be aware of these changes and put them into practice.