Federal Court won’t budge on MyBudget Class Action

MyBudget is an Australian company based in the financial services industry.  The company focuses on providing “budget management services” to its clients.  These services are directed at persons having trouble managing their financial affairs. 

The services include:

• creating a budget and long-term financial plan tailored to each client; and
• holding funds on behalf of a client in a bank account into which the client’s income is deposited, and from which the client and the client’s creditors are paid in accordance with the agreed budget plan.

A class action was commenced in the Federal Court of Australia by MyBudget clients in relation to this second service in the case of Turner v MyBudget Pty Limited [2018] FCA 1407.

The Contract

After an initial consultation, clients of MyBudget would be provided with and sign a letter of engagement, which included the budget plan (Letter of Engagement) and a document entitled “Terms of Service Agreement” (Service Agreement).  Both parties accepted that both the Letter of Engagement and Service Agreement formed part of the contract.The Service Agreement contained an interest term (Interest Term) which stated:

• Client funds are held in an interest bearing account arranged by MyBudget.  Interest is not payable to clients on funds held by MyBudget.  Credit interest on client funds will be applied by MyBudget in its discretion to pay bank fees on the account.

Other clauses of the contract included:

• the client authorising MyBudget to administer the client’s financial affairs in accordance with their budget plan and with the terms and conditions set out in the Service Agreement; and
• the Fees to be paid by the client to MyBudget, which were an Establishment Fee (of $2,140.00) and an Account Administration Fee (of $34.50 per week).  Under this fee term, it also stated that MyBudget would absorb all bank fees and postage for any cheques associated with the Services.

The Class Action

MyBudget became the subject of a class action in relation to the Interest Term.  Mr Turner was the representative of a larger group, the members of which:

• had entered into standard form service agreements with MyBudget upon terms which included the Interest Term; and
• had not received the interest earned on funds deposited by them into accounts maintained by MyBudget.

Mr Turner’s case was that MyBudget obtained an unauthorised benefit from its relationship with Mr Turner and the other group members by expropriating interest, using accrued interest for its own purposes, and failing to account to Mr Turner and the group members for the interest which had accrued.

Mr Turner argued that:

• MyBudget acted in breach of trust and in breach of its fiduciary duty not to obtain an unauthorised profit because MyBudget has taken and used interest earned on his funds for its own purposes; and
• MyBudget has engaged in unconscionable conduct, or, alternatively, the Interest Term was void as an unfair term.

Mr Turner submitted that the conduct alleged was contrary to section 21 of the Australian Consumer Law (ACL), which prohibits unconscionable conduct.  In the alternative, if, on a proper construction of the contractual documentation, the Interest Term permitted MyBudget to take interest and use it for its own purposes, the Interest Term was an unfair term of a standard form contract and was void by operation of section 23 of the ACL. 

The Arguments

Mr Turner argued that there were no words in the Interest Term which revealed an intention, or had the legal effect, that interest earned on client funds would become the property of MyBudget.  He focused on the word “discretion” in the last sentence of the Interest Term, stating that if MyBudget was the beneficial owner of the interest on client funds, the “discretion” to pay bank fees on the account would be unnecessary.

In response, MyBudget asserted that the Interest Term authorised MyBudget to take and use interest earned on client funds for its own purposes, and therefore there was no breach of trust or breach of fiduciary duty.  MyBudget also contended that the Interest Term was not an unfair term. 

MyBudget contended that the contract was straightforward: it provided that the client pays an up-front fee, a monthly Account Administration Fee, and some specific fees for certain services.  It then provided that MyBudget was to absorb all bank fees incurred in providing the services and no interest was payable to the client.  The third sentence merely confirmed that MyBudget, which had a discretion in relation to interest in light of the second sentence, may use that discretion to pay bank fees on the account.  MyBudget also noted that the interest earned was negligible, and the bank account fees (which MyBudget paid on behalf of the client), were often more than the interest earned.

Construction of the Interest Term

The Court upheld the construction of the Interest Term advanced by MyBudget.  By seeking assistance from MyBudget to manage their financial affairs in accordance with the agreed budget, the client provided MyBudget with the requisite authority to do so.  The contract made clear that no bank fees at all were to be chargeable to the client, and no interest was payable to the client.  This result was held to make sense, by reference to the text, context and purpose of the contract as a whole.

Other Claims

As the Court decided that MyBudget’s construction was correct, the breach of trust, fiduciary duty and statutory unconscionability cases were not made out.  In relation to the ‘unfair term’ claim, the Court held that the Interest Term:

• would not cause a significant imbalance in the parties’ rights and obligations arising under the contract;
• was a practical provision which removed the necessity for MyBudget to perform complicated and costly accounting processes; and
• was sufficiently transparent and was reasonably necessary in order to protect the legitimate interests of MyBudget for the pragmatic relationship to net off bank fees and interest to be put in place.

Whilst Justice Lee made some scathing comments about the overall subjective fairness of the bargain between a corporation charging substantial fees to a person vexed by financial difficulty, he was satisfied in this case that the challenge to the Interest Term should fail, and the class action was dismissed.  He noted that given the nature of this case, it was not a case where costs should automatically follow the event.  In a subsequent decision Justice Lee ordered that each party should bear their own costs.¹

Lavan comment

In this case, the Court was faced with allegations that MyBudget breached its equitable obligations, engaged in unconscionable conduct in both the equitable and statutory sense, and that the Interest Term was void as it was an unfair term by operation of section 23 of the ACL.

Whilst MyBudget was successful in defending these allegations, this is an important reminder that how the words of the contract are construed may not be the only issue which affects the enforceability of a contract.  It is imperative when drafting contracts that parties remember that other claims might arise, even if the words are perfectly clear, especially in circumstances where there is an inequality of bargaining power between the parties such as in the use of standard form contracts.

If you require assistance or advice in ensuring your contracts are safe from being successfully challenged, or if you have had your clients challenge your contracts and need advice, do not hesitate to contact the Litigation and Dispute Resolution Team at Lavan.