Credit and debit cards – when are cards “of the same kind”?

Credit and debit cards – when are cards “of the same kind”?

Westpac Banking Corporation v Australian Securities and Investments Commission [2009] FCA 1506, Federal Court of Australia, Rares J, 15 December 2009

(a) Summary

Westpac Banking Corporation (Applicant) sought a declaration from the court that its conduct in substituting an existing debit card (Handycard) held by certain Westpac customers with a Westpac Debit MasterCard (Debit MasterCard) was not a contravention of the prohibition against issuing credit or debit cards set out in section 12DL(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).  The Applicant was prompted to seek this declaration as a result of an allegation of breach by ASIC, made on the basis that the Debit MasterCard is not “a card of the same kind” as the Handycard, a pre-condition to issuing a card under section 12DL(2).

Based on his construction of section 12DL of the ASIC Act, Justice Rares found that, despite the differences between the Handycard and the Debit MasterCard (including additional functionality of the Debit MasterCard), they were both debit cards within the meaning of section 12DL of the ASIC Act and therefore cards “of the same kind” for the purposes of section 12DL(2).  Accordingly, the Court declared that the Applicant had not breached section 12DL of the Act.

(b) Facts

The Applicant decided to substitute a new Debit MasterCard for the existing Handycard of approximately 900,000 of its customers.  The new cards provide the same functionality as the old Handycards, but have some differences in relation to operation and functionality, including:

  • the ability to be used on the MasterCard network, which is subject to different prescribed standards as those of the ATM and EFTPOS networks on which Handycards are used;
  • the application of different interchange fees where a customer accesses the MasterCard network rather than the EFTPOS network; and
  • the ability to be used in additional ways that a Handycard cannot, such as allowing a cardholder to access their account remotely without having to enter a PIN into an EFTPOS or ATM machine, for example, for transactions via telephone or internet.

ASIC asserted that these differences mean that the Debit MasterCard is not “a card of the same kind” as a Handycard, and therefore the Applicant was in breach of section 12DL of the ASIC Act by issuing the new cards.

In response, the Applicant applied to the Court for declarations that issuing a Debit MasterCard in the circumstances did not constitute a breach of section 12DL on the basis that regardless of the differences described above, the Handycard and the Debit MasterCard were both debit cards and therefore “of the same kind” for the purposes of the ASIC Act.

(c) Decision

(i) Construction of relevant legislation

Justice Rares’ decision focused on the construction and application of section 12DL of the ASIC Act.  In summary, section 12DL(1) prohibits a person from sending another person a credit or debit card (defined in subsection (5)) except in accordance with subsection (2), which provides that:

(2) A person may send the targeted person the card:
(a) in pursuance of a request in writing by the person (the liable person) who will be under a liability to the issuer of the card in respect of the use of the card; or
(b)  in renewal or replacement of, or in substitution for:
(i)  a card of the same kind previously sent to the targeted person in   pursuance of a request in writing by the liable person to the issuer of the previous card; or
(ii) a card of the same kind previously sent to the targeted person and used for a purpose for which it was intended to be used.

After making some general comments in relation to statutory interpretation, particularly of provisions such as section 12DL which impose strict criminal liability in the event of their contravention, Justice Rares considered in some detail the provisions of section 12DL(2)(b).

His Honour focused in particular on the meaning of the words “in substitution for” a card “of the same kind”, commenting that a substitute is not normally an exact replica of the existing item, and will often have different or improved characteristics, even though it will be able to take the place of the original it is substituting.  Similarly, he considered that the expression “of the same kind” in this context does not require that previous and later cards be absolutely identical.  In general, his Honour was of the view that whether a substitute or something more has been provided will be a question of fact based on the context and characteristics of the original and substitute.

His Honour then had to consider the qualifications to the three purposes (renewal, replacement and substitution) for which a new card may be sent under section 12DL(2)(b), those qualifications being that the card is one “of the same kind previously sent” and that the conditions in either subsection (2)(b)(i) or (2)(b)(ii) are present.  His Honour focused particular on qualification (ii), interpreting it to mean that if a customer has used the previous card appropriately, for “a purpose for which it was intended to be used”, that use will create a sufficient relationship with the issuer to justify sending a later card.  He emphasised that the use made of the previous card “does not have to exhaust or cover the range of functions or features of the card”, but that “one use or one method of use for the permitted purpose” is all that the subsection requires.

His Honour also noted that the definitions of each type of card in subsection 12DL(5) include a card “that may be used as [a card] referred to” in other parts of the definition, such as a debit card that may be used in a manner set out in the definition of a credit card.  Importantly, his Honour considered that this indicated that the uses to which a particular card may be put are different from the “kind” of card a particular card will be for the purposes of section 12DL(2)(b).

Justice Rares concluded his consideration of section 12DL by rejecting a number of specific arguments put forward by ASIC.  In particular, he rejected ASIC’s narrow construction of the words “a card of the same kind” based on earlier versions of section 12DL which had significantly different wording, as those earlier provisions have no counterparts in the present section 12DL, and the language of the present section 12DL was sufficiently clear without turning to such earlier versions for clarification.  He also rejected ASIC’s contention that differences in the number of complaints and reports of fraudulent use between the two cards proves that the cards are not “of the same kind”.  His Honour appeared to be of the view that the numbers provided in support of this contention were inconsequential and their probative value unclear.

(ii) Application to the Westpac cards

His Honour concluded that the defining characteristic of each “kind” of card for the purposes of section 12DL(2) is “the ability to use it for one particular purpose, whatever other functions or purposes it may have”, that characteristic being either (1) to obtain credit from the issuer for which the customer will be liable or (2) to obtain access to the customer’s own funds.  In this case, his Honour found that each of the Handycard and the Debit MasterCard are debit cards within the meaning of section 12DL(5), and that a person who receives a new Debit MasterCard will be able to use it at least for all of the purposes that her or she used the earlier Handycard.  He considered that the extra functionality of the Debit MasterCard, whether considered individually or together, does not change the nature of that card as a debit card.  Accordingly, the new Debit MasterCard was held to be a card of the same kind as the Handycard within the meaning of section 12DL(2) of the ASIC Act.

As a result of Justice Rares interpretation of section 12DL of the ASIC Act, the Court was prepared to declare that by sending a Debit MasterCard to its existing Handycard holders who had used their Handycard for a purpose for which it was intended to be used, the Applicant sent each such cardholder the Debit MasterCard in renewal or replacement of, or in substitution for, a card of the same kind previously sent to that customer within the meaning of section 12DL of the ASIC Act.

 

Co-authored by Charlotte Poole.

Published by SAI Global on behalf of Centre for Corporate Law and Securities Regulation, Faculty of Law, the University of Melbourne with the support of the Australian Securities and Investments Commission, the Australian Securities Exchange and the leading law firms.