Assetline (Australia) Pty Ltd v Ballantyne Industries Pty Ltd
[2017] VCC 158
•8 March 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BANKING AND FINANCE LIST
Case No. CI-15-03860
| ASSETLINE (AUSTRALIA) PTY LTD | Plaintiff |
| V | |
| BALLANTYNE INDUSTRIES PTY LTD | First Defendant |
| and | |
| ROBERT M. BALLANTYNE | Second Defendant |
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20, 21, 22 February 2017 | |
DATE OF JUDGMENT: | 8 March 2017 | |
CASE MAY BE CITED AS: | Assetline (Australia) Pty Ltd v Ballantyne Industries Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 158 | |
REASONS FOR JUDGMENT
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Subject: Loan contract
Catchwords: Loan agreement; purpose of loan; disclosure; unconscionability; adequacy of legal advice; asset lending; applicability of Credit Codes
Legislation Cited: National Credit Code; National Consumer Credit Protection Act 2009; Australian Securities and Investments Commission Act 2001; Australian Consumer Law; Consumer Credit (Victoria) Act 1995; s57(1) Supreme Court Act 1986; Transfer of Land Act 1958
Cases Cited:Secure Funding v Moon [2012] QSC 244; Perpetual Trustees Australia Ltd v Schmidt [2010] VSC 67; Louth v Diprose (1992) 175 CLR 621; PSAL Ltd v Kellas-Sharpe [2012] QSC 31; Provident Capital Ltd v Papa (2013) 84 NSWLR 231
Judgment: 1. Within 14 days of this day the plaintiff must bring in short Minutes to give effect to these reasons. 2. Costs reserved.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C Salpigtidis | Summer Lawyers Pty Ltd |
| For the First Defendant | No appearance | Not Applicable |
| For the Second Defendant | Mr R M Ballantyne, in person |
HIS HONOUR:
Background
1 Mr Ballantyne was the principal of Ballantyne Corporation Pty Ltd which, for approximately three years prior to 2014, conducted Megumi Japanese Restaurant in Frankston. Mr Ballantyne said he was unable to negotiate an extension of the lease for the restaurant. He conceded that, at the time, his company, Ballantyne Corporation Pty Ltd, was in arrears of its obligations to pay outgoings on the property. On or about 3 December 2014, Ballantyne Corporation was evicted from the restaurant premises.
2 Mr Ballantyne was in urgent need of finance. According to his brother, Mr Paul Ballantyne, none of the banks would touch him. (T239-L4) Mr Robert Ballantyne said that he was ─
“… talking to a friend … Robert Dennis, about – I wanted to get a loan, because I’m getting behind on all my mortgage payments, and I wasn’t sure what I was going to do. And I didn’t want to lose my house, and he said, well, he knows an accountant who may know somebody. And that was the accountant which I – I think I met once.” (T172, L18-23)
3 A referral was made to Mr Neil Pinney at a brokerage known as One Stop Finance Solutions Pty Ltd (“One Stop Finance”). According to an affidavit sworn by Mr Pinney, Mr Ballantyne said:
“I operate a Japanese restaurant in Frankston. My lease has expired and the landlord is evicting me so that he can sell the property as a development site. I urgently need a loan to help me relocate the restaurant.” (Plaintiff’s Court Book (“PCB”) 225)
4 Mr Pinney said that Mr Ballantyne told him that he would service the loan by getting the restaurant up and running again and the loan could be serviced “when I regain my cash flow”. Mr Ballantyne said that he owned two properties in Mornington which were both subject to mortgages. One property was his house, the other was an investment property. He said that he owned a car worth perhaps $20,000. He valued his house at $395,000 and the unit at $295,000. According to Mr Pinney, Mr Ballantyne said he owed $136,000 on his house and $200,000 on the unit. Asked about credit cards, according to Mr Pinney, Mr Ballantyne said he had just one on which he owed some $25,000. (PCB 226) Mr Pinney suggested that an application be made for an urgent loan from a private financier with security in the form of a caveat. He said he warned Mr Ballantyne that this was expensive but was the quickest way to obtain short-term finance. Thereafter, Mr Ballantyne should apply to a private lender that is willing to take a second mortgage. This would take longer and would pay out the caveat loan at a cheaper rate “and allow you to get your business up and running again and regain cash flow over a 12 month period”. (PCB 226) Mr Pinney offered to email application documents to Mr Ballantyne, who replied “I’m not very good with emails”, so Mr Pinney mailed the application documents to Mr Ballantyne’s home in Mornington.
5 Mr Pinney said he had a follow-up conversation with Mr Ballantyne on 8 December 2014, of which he took a lengthy diary note. (PCB 385) According to this diary note, some $50,000 would be enough, according to Mr Ballantyne, to acquire kitchen appliances, including a fan oven, and to relocate the business. The borrowing company was to be Ballantyne Corporation Pty Ltd, of which Mr Ballantyne was the sole director. According to the note, the turnover for the Japanese restaurant was $6,000 to $8,000 per week, though only $2,000 to $3,000 per week was disclosed in Business Activity Statements filed with the Commissioner of Taxation. Mr Pinney concluded that a caveat loan of $25,000 would be sufficient to get the business relaunched with a month’s rent and a bond payable, and the longer term loan should be for $50,000.
6 Mr Ballantyne’s evidence as to the two conversations which Mr Pinney said took place between them on 3 and 8 December was somewhat uncertain. As to the conversation said to have occurred on 3 December, Mr Ballantyne said “I think it was later than that, because I had no idea who he was until after.” (T187, L7-8) In particular, Mr Ballantyne denied telling Mr Pinney on 8 December, or, it would seem, on any other day, that he sought a loan of $50,000 which would be sufficient to buy kitchen appliances such as an oven and a fan. (T189, L13-30) As to the conversation recorded, or purportedly recorded, in Mr Pinney’s diary note, Mr Ballantyne said “I remember another conversation that I had with him, but not this one.” (T190, L9-10) He seemed to admit what was recorded in the diary note as to turnover in cash and as recorded in the Business Activity Statements (Ibid L14-24). Mr Ballantyne stressed that, once expenses were met, no surplus was available. Mr Ballantyne agreed that he probably told Mr Pinney that he sought finance for a bond and a month’s rent of $3,000 odd. (Ibid L28‑30) Therefore, said Mr Ballantyne, most of the diary note was a fiction. (T191, L9) According to Mr Ballantyne, the Assetline loan “wasn’t for the business”. (T193, L4) He conceded that a second loan, which ultimately did not proceed and which is referred to below, “was for a business” (Ibid L5)
7 According to Mr Pinney’s affidavit:
“Between 3 December and 23 December 2014 Mr Ballantyne returned both the application forms [viz a loan application on One Stop Finance’s stationery and one on the stationery at Assetline] completed by him to OSF.”
8 These documents all appear to be signed by Mr Ballantyne in the appropriate places. I did not understand him to deny or refuse to admit the genuineness of any of those signatures. The One Stop Finance application was in the name of “Robert Mark Ballantyne”. Attached to it was a statement of assets and liabilities in accordance with what Mr Pinney records that he was told in his first conversation with Mr Ballantyne on or about 3 December. In particular, the amount owing on the mortgage for Mr Ballantyne’s house was $136,000 and some $200,000 was owing on the mortgage against his unit. These properties were given an unencumbered value of $395,000 and $295,000 respectively. Somewhat confusingly, “credit cards” were shown as an asset valued at $50,000, with a liability identified as “credit cards” $25,000. Mr Ballantyne disclosed a total of $365,000 worth of liabilities. The Assetline application form included a number of different sections. Section A referred to “Individuals”, Section B referred to “Companies/Trusts”, Section C referred to “Advisors (sic) Details”, Section D referred to “Details of Loan Required”, and Section E referred to “Security Offered for the Loan”. In Section B of the Assetline application, the company or trust referred to Ballantyne Corp Pty Ltd, Section D is blank and Section E referred to Mr Ballantyne’s house in Mornington, giving it an estimated value of $395,000. Section F is described as “Personal Financial Statements for Robert Mark Ballantyne”. It disclosed two mortgages to Westpac Banking Corporation (“Westpac”), one with a payment of $800 per month and the other with a payment of $950 per month. In the asset column, the house in Mornington and the unit were disclosed with no values ascribed to them, and motor vehicles and personal effects were valued at $20,000 and $50,000 respectively. There was said to be $1,000 cash in the bank. Two credit cards were referred to, one with a limit of $13,000 and the other with a limit of $14,000, with monthly payment liabilities of $295 and $330 respectively. (PCB 237-41)
9 Mr Pinney stated in his affidavit that he passed on the completed application documents to Mr Peter Forni, a director and principal of One Stop Finance, and he passed on a letter of offer from Assetline to lend $50,000 to Ballantyne Corporation and Mr Ballantyne. When the offer, or “indicative letter of offer” as it described itself, (PCB 243) was returned by Mr Ballantyne, there were a number of manuscript amendments. The term of the loan was amended from three months plus an option for a further three months to one month on each occasion. The loan amount was amended from $50,000 to $75,000. The acceptable rate of payment per month, which was shown as 5 per cent month, was amended to read 4 per cent. The “normal” [viz default] interest rate remained as printed at 10 per cent per month. There were to be some $1,500 in legal fees. (PCB 224)
10 Mr Pinney said that on 28 October, Mr Forni told him that Assetline had agreed to lend $75,000 and the loan documents would be ready for Mr Ballantyne to meet with his solicitor on 29 January 2015. (PCB 227)
11 Mr Ballantyne said that he signed loan documents “in late January 2015” at the office of a solicitor named Tony Zita “which I believed was at 412 Bell Street in Pascoe Vale South”. (PCB 249) He said he —
“… went there with [his] brother Paul, because Neil Pinney had told me I needed to sign the documents quickly. Neil Pinney was also there. He said it would only be a short term loan. Mr Zita said he was in a rush and had to go. He said the documents were just normal loan documents. He and Neil Pinney did not go through the documents with me or explain their contents and effect to me.” (PCB 249-50)
12 Mr Raphaely is the director of Assetline. He swore an affidavit dated 3 March 2016 describing the loan transaction between his company and Mr Ballantyne and his company. He said that Assetline offered to lend to Ballantyne Corporation Pty Ltd and was at the time unaware of that company having been deregistered on 11 April 2014, a fact which emerged when Summer Lawyers, acting for Assetline, carried out a company search of Ballantyne Corporation on 26 January 2015 at 14:4 (PCB 106) which disclosed the deregistration. Summer Lawyers sent an email to Assetline advising of the deregistration on 26 January 2015. The practitioner involved said “We need further instructions from you as to a new borrowing entity”. Ballantyne Industries was incorporated on 27 January 2015, apparently on the application of Mr Pinney. (PCB 361-2) Its registered office was shown as Mr Ballantyne’s residence in Mornington and Mr Ballantyne was shown as director, secretary and sole shareholder. (PCB 115-116)
13 On 28 January 2015, Mr Pinney said he called Mr Ballantyne to find out if he had a solicitor arranged to provide independent legal advice. This was a requirement of the loan offer from Assetline. Mr Ballantyne said he did not have a solicitor and Mr Pinney recommended Mr Anthony Zita of Portfolio Law, which had its office in the same building as One Stop Finance. The following day, Mr Ballantyne came to the offices of One Stop Finance and Mr Pinney showed him into the offices of Portfolio Law. (PCB 228) Mr Ballantyne was accompanied by his brother.
14 The logic of Mr Ballantyne’s defence, to which I will turn in greater detail later, was that he was rushed into the transaction without independent legal advice. Logically, therefore, this would entail a denial that Mr Zita provided him with independent legal advice. Ultimately, however, he accepted that, whilst there had been no previous relationship between him and Mr Zita, there was some form of retainer for Mr Zita’s services by Mr Ballantyne and Ballantyne Industries.
15 Mr Zita was called as a witness by Assetline. I informed Mr Ballantyne that he could claim client legal privilege for what transpired in the meeting which he had with Mr Zita on or about 29 January, but that a claim of privilege would be prejudicial to any assertion he and his company might make that they had not received advice from a solicitor retained by them. (T133) Mr Ballantyne said, “I didn’t employ him as such, but I did in the end because I was told to use him.” (Ibid L20-21) Mr Ballantyne did ultimately claim privilege. In the reasons which I gave at T145-150, I ruled that in the circumstances the privilege that would otherwise attach to the consultation between Mr Zita and Mr Ballantyne was waived.
16 Mr Zita said that he received by email a set of loan transaction documents from Summer Lawyers, the solicitors to Assetline, on the evening of 28 January. According to the email header, this was at 5.50pm. The documents are with the covering email (PCB 119 and following, T151, L18-21) He said that the documents were signed by Mr Ballantyne in his presence. (T151-154) Amongst the documents which Mr Ballantyne signed on this occasion was a Statutory Declaration as to Affordability of Income. (PCB 329) It was said to be made under the Oaths Act 1990, presumably a New South Wales statute. Paragraph 3 of the declaration referred to Mr Ballantyne receiving “an annual income of approximately $80,000”. Mr Zita agreed that he inserted the figure $80,000 in his own handwriting, the amount having been left blank. He said he did this on the basis of what Mr Ballantyne told him in the course of the meeting. He assured me that the figure was inserted in the declaration before the declaration was signed by Mr Ballantyne. (T153, L23-T154, L14) Another document signed in the course of the meeting was a “Declaration of Purposes for which Credit is Provided” said to be under s11 of the Consumer Credit Code and Regulation 10 of the Consumer Credit Regulations. The declaration made by Mr Ballantyne on behalf of Ballantyne Industries stated:
“I declare that the credit to be provided to me by Assetline (Australia) Pty Ltd … is to be applied wholly or predominantly for business or investment purposes …”
The document included a box with a block letter bolded heading “Important”, stating:
“You should not sign this declaration unless the loan is wholly or predominantly for business or investment purposes.
By signing this declaration you may lose your protection under the Consumer Credit Code.”
As to this document, Mr Zita said:
“Well, the advice I provided was that it’s not a loan. It’s governed by the Credit, Consumer Credit Code. It’s a commercial loan and therefore there aren’t as many requirements or restrictions in relation to loans that are not covered by the Consumer Credit Code.” (T153, L13-18)
17 On Mr Zita’s recollection, he met with the Messrs Ballantyne in a small conference room. (T157, L2) The Ballantynes —
“… explained to me the urgency of it all because they … need to acquire or move into a new shop – new premises to run their business because I asked them why they needed the funds because I noticed the obviously very high interest rate applicable in this transaction and I said, ‘Why are you committing yourself to this sort of interest rate?’ And they said ‘Look, it’s only for a short term. We need it urgently to move into our new premises and it will be refinanced in the very near future’. And we spoke about Japanese food and about me going down there [to their Japanese restaurant] and all that sort of stuff as well.” (Ibid L8-20)
I asked what advice Mr Zita gave to Mr Ballantyne “in his capacity as borrower or guarantor”. He replied:
“The advice I give guarantors is, in this particular case, that the lender is taking real estate property as security. Should there be a default and action is taken by the vendor, [sic] they have the right to sell the property and in the event that there’s a shortfall once the property is sold, then they’ll look to you as the guarantor to make up any shortfall, should that be the case.” (T157, L30-T158, L7)
18 Mr Zita said that Mr Ballantyne and his brother had no questions, acknowledged that they understood the documents and were happy to sign. (T158, L13-16) The meeting, according to Mr Zita, took about half an hour. (T159, L16) According to email records, the executed documents were emailed from Portfolio Law’s office at 3.55pm on 29 January, the first group, and 4.40pm, the second group. (PCB 363-4)
19 On 2 February 2015, Mr Zita wrote a letter to Mr Ballantyne (PCB 386) including a tax invoice for professional fees, $385 inclusive of goods and services tax, stating:
“We … enclose a copy of the Certificate that was signed by Mr Zita of this office. The Certificate confirms the advice that we provided in conference that are signing mortgage documents and security documents whereby you agree to make interest payments and repayment the principle [sic]. You should be aware that this is a very expensive loan and should you default in any way then the expenses will be substantial and penalty interest rates will also apply.”
20 The Ballantyne brothers gave a rather different account of the conference with Mr Zita.
21 The second defendant, Mr Robert Ballantyne, said that Mr Zita had to leave at five o’clock for another appointment. (T220, L25-T221, L3) Mr Paul Ballantyne said that he became involved solely to provide transport for his brother who was not familiar with the Melbourne streets. (T238, L24-30) According to Mr Paul Ballantyne, he and his brother were rushing to a deadline at five o’clock. (T239, L6-7) According to Mr Paul Ballantyne, even although he had to take time to park his car at a supermarket car park, he and his brother were sitting at the solicitors’ reception “for quite a while”. (Ibid L9-11) Once the conference began, according to Mr Paul Ballantyne:
“… he [that is, Mr Zita] explained the whole set-up of what it’s all about. But he didn’t give any details of what the repayments were or anything like that. So he said, ‘Look, Mark, I will get you to start signing this’. So he got Mark to sign every page and go through the whole system like that. Before Mark had even lifted his pen up he was flicking over the next page. He was so quick at doing it that Mark didn’t have much time to read it. So anyway finally he signed it all. It was as quick as that. Before we knew it we were on our way home.” (T239, L30-T240, L8)
Mr Pinney was in the room at the start and then he left. (T240, L10-14)
Amongst the documents executed by Mr Robert Ballantyne on behalf of himself and Ballantyne Industries was a direction as to cheques. This provided for payment from the $75,000 loan of:
application fee – $1,000
establishment fee – $3,750
retained interest – $3,375
The following were payable to Summer Lawyers:
legal fee – $1,500
disbursements – $500
The following fees were payable to One Stop Finance, the broker:
brokerage – $3,300
This left some $61,575 available to the borrower (Ballantyne Industries). Mr Ballantyne inserted his personal account particulars at National Australia Bank (PCB 327) as the destination for the balance of the loan funds.
22 Mr Zita said that Mr Ballantyne attended upon him the following month, namely, February 2015, to sign documentation for a further loan advance, this time, as other evidence disclosed, by a lender, according to Mr Pinney, associated with a law firm known as “Hayes Law”. (T104, L26-27) At the first meeting, Mr Zita said that Mr Pinney had stated that “…we’d be refinancing in a very short term. He already had the process underway.” (T164, L21-22) According to Mr Zita, Mr Pinney said this because he, Mr Zita, “queried the interest rate”. (Ibid) Mr Ballantyne said he could not be sure that he signed the documents on 29 January, but he could not confidently nominate any other date as the true date on which the signatures took place. (T220, L14-18) When Mr Paul Ballantyne was taken to the emails despatching executed documents at 3.55pm and 4.40pm respectively, he did not resile from his view that he and his brother arrived at Mr Zita’s office at or shortly after 5.00pm. He suggested that the emails might be forged. (T253, L30)
23 Mr Ballantyne denied any second meeting with Mr Zita. He said, “The only documents I signed in Zita’s office were all about Assetline.” (T207, L20-22) He said that on the day he signed the Assetline documents, he asked if there was anything else to sign and he signed a single piece of paper separate from the Assetline document. (T208, L17-22) He produced that document which is self-evidently part of a larger document. It bears Mr Ballantyne’s signature and the date 19 February 2015 in what appears to be his handwriting. Under the heading “Acknowledgement”, the words appear “I confirm my requirements for the loan of $110,000.00 on the terms and conditions outlined above”. (PCB 391) Mr Ballantyne was eventually prepared to concede that he signed this single page on 19 February. (T209, L20) Mr Ballantyne agreed that the Hayes Law loan did not proceed “when they found out about the $150,000 loan”. (T236, L28-31) He insisted nevertheless that he had told Neil Pinney about it.
24 Following settlement, Summer Lawyers wrote to Westpac seeking production of the Certificate of Title to enable registration of the second mortgage over Mr Ballantyne’s residence in Mornington. This led to a requirement by Westpac for Assetline to execute a priority letter giving Westpac priority for $493,783, which appears to include a $150,000 additional loan account that Mr Ballantyne says he disclosed to One Stop Finance and Assetline but which they deny was disclosed to them. With the Hayes Law loan finance proposal blocked, there has been no means for Mr Ballantyne and his company to refinance the Assetline loan facility.
The present proceeding
25 Solicitors acting for Assetline filed the Writ commencing the present proceeding dated 13 August 2015 against Ballantyne Industries and Mr Ballantyne. In addition to the registered second mortgage over Mr Ballantyne’s residence, Assetline lodged a caveat claiming an interest as chargee in Mr Ballantyne’s unit. Mr Ballantyne says he has since sold that unit and the entire proceeds were taken by Westpac. Because Assetline sought relief by way of judicial sale of the unit, it necessarily joined Westpac, being the registered mortgagee on title. With the unit now sold, no relief is sought by or affecting Westpac and no judicial sale is sought. Assetline sought judgment initially for $91,625 and interest, specific performance and judicial sale relative to the unit and relief relative to the house, including possession.
26 Mr Ballantyne represented himself at trial. He was initially represented by John D Crump, solicitor and conveyancer, who filed a defence and counterclaim on his behalf drawn by a member of counsel acting, as I understand it, on a pro bono basis. The defence included certain formal admissions, but asserted that, as at 1 January 2015, Mr Ballantyne —
(i)was 62 years of age;
(ii)was unemployed and had no income;
(iii)was on a disability pension;
(iv)was uneducated, leaving school at age 16, not completing Years 11 and 12 and went to work as an apprentice cook;
(v)had worked in several jobs as a cook, kitchen hand and other unskilled positions;
(vi)had limited understanding and comprehension of legal documents and principles and did not understand their nature, content or practical effects;
(vii)personally owed $84,000 to personal creditors and was in financial difficulty, and he had to cash in $10,000 from his superannuation policy;
(viii)was the registered proprietor of the property which had been mortgaged to Westpac over which he owed $488,000 to the bank; and
(ix)was not in a position and did not have capacity to pay the interest and/or repayments on a loan of $75,000 or to meet any mortgage or loan repayments in relation to any new loan.
27 It was said, further, that Ballantyne Industries “had no interest and it was not in a financial position and did not have the capacity to pay interest and/or loan repayments on a loan of $75,000 or to meet any mortgage or loan repayments in relation to any new loan”. It was argued, further, that One Stop Finance was acting as agent for Assetline. Assetline, it was said, knew or ought to have known by reason of its relationship with One Stop Finance “or otherwise ought to have known by reason of making reasonable and proper inquiries of [One Stop Finance or Mr Ballantyne] the circumstances affecting both Mr Ballantyne and his company”. When he signed the documents, it was said Mr Ballantyne did not understand them or their effect, and Ballantyne Industries had no capacity to meet the loan agreement repayments. The finance documents, it was said, constituted a credit contract to which the National Credit Code, established by Schedule 1 of the National Consumer Credit Protection Act 2009, applied. Assetline, it was said, knew, or ought reasonably to have known by reason of enquiries, that the finance was to be applied “wholly or predominantly for personal, domestic or household purpose to repay [Mr Ballantyne’s] personal debt, pay living expenses, pay the expenses and fees in setting up the loan and making loan payments. Mr Ballantyne relied on s13 of the Code.
28 According to the Particulars which were added to the Defence and Counterclaim: Mr Ballantyne was born on 14 March 1953 [his evidence at trial was that he was born in 1954], went to primary school and high school, then left school at the age of 16. He worked in low skilled positions, had personal debts at the relevant time of $84,000, and resided in his residence in Mornington which he had inherited from his mother. His brother resided in the unit property, also in Mornington.
29 The loan agreements and securities were, it says, “unenforceable or void” because Mr Ballantyne “was at a disability and special disadvantage” by reason of his age, his unemployment and lack of income, his status as a disability pensioner, his leaving school at the age of 16 and working in unskilled positions, his limited understanding and comprehension of legal documents and principles, his personal debt of $84,000 and financial difficulties, the fact that his residence was already mortgaged to Westpac and therefore had limited equity and the fact that neither he nor Ballantyne Industries had the capacity to pay the interest or principal off the $75,000 loan. It was said he did not understand the terms of the loan agreement or its consequences and had not completed his secondary education. All of these matters, it was said, were known or ought to have been known to the plaintiff, Assetline. The interest rates provided in the agreement, 108 per cent or 54 per cent at the lower rate, for which Mr Ballantyne was sought to be liable as guarantor were:
(i)extortionate;
(ii)extravagant;
(iii)excessive;
(iv)unjust; and
(v)unconscionable.
Therefore, it was unconscionable for Assetline to procure and accept Mr Ballantyne’s execution of the loan document.
30 Accordingly, it was said, the loan documents were void and of no effect and Mr Ballantyne is entitled to have them “declared null and void and expunged from the Certificates of Title for the properties”. Next, it was said, in light of the defendants’ circumstances and Mr Ballantyne’s unequal bargaining position, as compared to Assetline, with Assetline knowing that Mr Ballantyne was under financial duress, Mr Ballantyne had no alternative but to accept the terms of finance “regardless of the terms or their oppressive nature”. The interest rates were said to be “extortionate, exorbitant and extravagant” and Assetline was said to be “not prepared to negotiate the terms or amount of the interest and it took unconscientious advantage of the defendants in charging these extravagant interest rates”. Therefore, the defence stated, Assetline engaged in unconscionable conduct in general and, in particular, in breach of s12CB of the Australian Securities and Investments Commission Act 2001 and engaged in unconscionable conduct in contravention of s20 or 21 of the Australian Consumer Law. Accordingly, the finance documents were either void or unenforceable against Mr Ballantyne by reason of Assetline’s unconscionable conduct in the various respects alleged.
31 Next, it was said that by entering into the loan transaction documents, Assetline contravened s32A of the National Credit Code by entering into a credit contract with interest provisions where the annual cost exceeded 48 per cent. It was said, further, that Mr Ballantyne was at a disadvantage, was under financial distress, did not have an opportunity to negotiate terms, had no alternative but to accept and was subject to interest provisions “which were unreasonably difficult to cope with and not reasonably necessary for the protection of the legitimate interests of the party” and so on. As a result, the terms were unjust pursuant to s76 of the Code, or, alternatively, unfair, pursuant to s12BF of the Australian Securities and Investment Code, and Mr Ballantyne sought that the transaction be reopened and that the documents be declared void or unenforceable. Mr Ballantyne admitted receiving $61,190 and no more “for the purpose of paying personal expenses and debts”.
32 By way of counterclaim, Mr Ballantyne sought orders that the loan documents be declared void or unenforceable and that he be held entitled to relief under s12CB of the Australian Securities and Investment Commission Act 2001 with the loan documents being declared void, pursuant to ss12GD and 12GM of the Australian Securities and Investment Commission Act 2001. He sought orders that the loan documents be declared void and unenforceable, pursuant to ss232 and 243 of the Australian Consumer Law. He sought relief under the same provisions of the Australian Securities and Investment Commission Act 2001 on the basis that the financing documents were “unfair”. He sought relief under s76 of the National Credit Code on the basis of the loan documents being “unjust”. He sought a determination that the charge, guarantee and mortgage be held unenforceable because of breach of s39 of the Consumer Credit (Victoria) Act 1995 and a determination that the mortgage was void by reason of breach of s40 of the same Act. By way of prayer for relief to the counterclaim, Mr Ballantyne sought a raft of orders which, in substance, entailed holding the loan documentation to be invalid and unenforceable, pursuant to general equitable principles and the various statutes referred to in the defence and counterclaim.
33 Assetline’s defence to counterclaim consisted principally of denials and non-admissions. At the close of the trial, by leave, Mr Salpigtidis, counsel for the plaintiff, filed an amended defence to counterclaim which raised explicitly the matters which Assetline pursued at trial in response to the counterclaim.
34 This defence stated that the National Credit Code did not apply to the transaction – first, because the borrower was a corporation and not an individual, and, secondly, because the advance was made for business and not personal purposes. Further, it said that One Stop Finance, the broker, was not its agent. It said that the defendants had obtained legal advice as to their obligations. As to the application of the Consumer Credit (Victoria) Act 1995, it said that these provisions applied only to credit transactions regulated by the National Credit Code which the present transaction was not and, accordingly, the provisions of the Consumer Credit (Victoria) Act were inapplicable.
Conclusions
35 In the National Credit Code, a credit contract bears a defined meaning in accordance with s4:
“For the purposes of this Code, a credit contract is a contract under which credit is or may be provided, being the provision of credit to which this Code applies.”
The key criterion for the application of the definition of credit contract is that the provision of credit must be one to which the Code applies. Section 5 is headed “Provision of credit to which this code applies”. Sub-section (1) provides inter alia:
“This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of precontractual obligations) is proposed to be entered into:
(a)the debtor is a natural person or a strata corporation; and
(b)the credit is provided or intended to be provided wholly or predominantly:
(i) for personal, domestic or household purposes; or
(ii) to purchase, renovate or improve residential property for investment purposes; or
(iii) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and
…”
36 It will be noted that for the Code to apply to a provision of credit, the debtor must be a natural person AND the credit is provided wholly or predominantly for personal, domestic or household purposes in accordance with the slightly expanded concept set out in paragraph (b) of the sub-section.
37 The narrative above shows that the credit in the present case was provided to a corporation, Ballantyne Industries Pty Ltd, and not a natural person. For this reason alone, the Code does not apply to the provision of credit here.
38 In addition, I conclude that this credit should be found not to have been provided for personal, domestic or household purposes in accordance with s5(1)(b) of the National Credit Code. The application of this criterion is elaborated upon by s13 of the Code which provides inter alia:
“Presumptions relating to application of Code
(1)In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established.
(2)It is presumed for the purposes of this Code that credit is not provided or intended to be provided under a contract wholly or predominantly for any or all of the following purposes (a Code purpose ):
(a) for personal, domestic or household purposes;
(b) to purchase, renovate or improve residential property for investment purposes;
(c) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes;
if the debtor declares, before entering the contract, that the credit is to be applied wholly or predominantly for a purpose that is not a Code purpose, unless the contrary is established.
(3)However, the declaration is ineffective if, when the declaration was made, the credit provider or a person (the prescribed person ) of a kind prescribed by the regulations:
(a) knew, or had reason to believe; or
(b) would have known, or had reason to believe, if the credit provider or prescribed person had made reasonable inquiries about the purpose for which the credit was provided, or intended to be provided, under the contract;
that the credit was in fact to be applied wholly or predominantly for a Code purpose.
(4)If the declaration is ineffective under subsection (3), paragraph 5(1)(b) is taken to be satisfied in relation to the contract.
(5)A declaration under this section is to be substantially in the form (if any) required by the regulations and is ineffective for the purposes of this section if it is not.
…”
39 As part of the documents executed at Mr Zita’s office on 29 January 2015, there was a declaration of the type referred to in s13(2). (PCB 328) If it matters, there were earlier declarations to similar effect signed by Mr Ballantyne as part of the application process. It cannot be said that Assetline knew that the declaration was incorrect or had reason to believe it was incorrect or would have known it was incorrect if it had made reasonable inquiries. The suggestion that the loan was being taken out for a business purpose was plausible in the circumstances where, as Mr Ballantyne himself conceded, he was seeking to re-establish a restaurant business which would provide him with an income.
40 His evidence on this point was not entirely consistent. In one instance, which I quote above, he said that, whilst he did intend to re-establish a restaurant business, his plan was to use the “second” loan at the lower interest rate to do this. Given that this second loan would largely be taken up with retiring the Assetline loan, the distinction which he drew between the purpose of the first and second loan was unconvincing. Mr Ballantyne agreed that he telephoned the office of the Credit Ombudsman’s Service in Bondi Junction, New South Wales and made a complaint over the telephone which those at the Ombudsman’s Office reduced to writing. (PCB 379-380) Under the heading “Summary”, that document attributes the following to Mr Ballantyne:
“i borrowed 75000.00 short term to try and get a business going, Assetline only paid me 61000.00 they kept 14000.00 and i had to pay interest monthly, of 3375.00, the business did not go through so had no money after paying my mortgages …”
41 He agreed that this was what he told the Ombudsman’s Office. (T233, L28‑T234, L5) This statement which was made relatively close to the events, namely on 29 March 2015, is likely to be more reliable and less self-serving than the account which Mr Ballantyne gave in his evidence in this proceeding, where he was threatened with eviction from his residence. Mr Salpigtidis asked: “But the intention was to get a business up and going to reinstate your cash flow?” and Mr Ballantyne replied, “Yes.” Mr Salpigtidis said, “Because Megumi Restaurant had been evicted; correct?” Answer: “Yes.” (T234, L9‑11)
42 Therefore, the intention of Mr Ballantyne and his company at the time was a business purpose. It seems that in practice what happened was that the $61,000 received by Ballantyne Industries and directed by it into Mr Ballantyne’s personal account was in fact used to bring the three mortgage loans charged on his house and unit back up to date. (T235, L19-20) That the business purpose was in fact the purpose for which the loan was sought and made is supported by the references in the diary note produced by the broker, Mr Pinney, as to his telephone conversation with Mr Ballantyne on 8 December 2014 (PCB 385) which mentions Ballantyne Corporation and mentions an amount of $50,000 for the acquisition of kitchen appliances such an oven and fan, and refers to outlays such as a month’s rent and a bond.
43 It follows that the various provisions in the National Credit Code relied in Mr Ballantyne’s defence and counterclaim and the provisions in the Consumer Credit (Victoria) Act have no application. As to the latter statute, s38AA defines “credit contract”, which is the expression used in the two sections limiting interest rates, namely s39 and s40 by stating that the expression “has the same meaning as in the National Credit Code.” Further inquiry by Assetline, aside, perhaps, from some sort of “third degree”, would have disclosed plausible circumstances in which Mr Ballantyne, it seems, had a genuine intention of re-establishing the restaurant business previously carried on by the now deregistered Ballantyne Corporation.
Australian Securities and Investments Commission Act 2001
44 Exception 12BF provides as follows:
“Unfair terms of consumer contracts and small business contracts
(1) A term of a consumer contract or small business contract is void if:
(a)the term is unfair; and
(b)the contract is a standard form contract; and
(c)the contract is:
(i)a financial product; or
(ii)a contract for the supply, or possible supply, of services that are financial services.
(2) The contract continues to bind the parties if it is capable of operating without the unfair term.
(3) A consumer contract is a contract at least one of the parties to which is an individual whose acquisition of what is supplied under the contract is wholly or predominantly an acquisition for personal, domestic or household use or consumption.
(4) A contract is a small business contract if:
(a)at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons; and
(b)either of the following applies:
(i)the upfront price payable under the contract does not exceed $300,000;
(ii)the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000.
(5) In counting the persons employed by a business for the purposes of paragraph (4)(a), a casual employee is not to be counted unless he or she is employed by the business on a regular and systematic basis.
(6) For the purposes of subsection (4) and despite subsection 12BI(3), in working out the upfront price payable under a contract under which credit is or is to be provided, disregard any interest payable under the contract.”
45 It will be seen that this section applies only where one of the parties is an individual whose acquisition of what is supplied under the contract is wholly or predominantly an acquisition for personal, domestic or household use or consumption. The elaborations which we find in the National Credit Code are not to be found here, so it is not clear, in circumstances where the finance provided was in fact used for a personal purpose, that the section does not apply. However, the parties to the contract whereby creditors granted and acquired were Assetline and Ballantyne Industries. Mr Ballantyne is an individual but it was not he who acquired the finance. Section 12BF, therefore, can have no application and I put it to one side.
46 The other section relied on is s12CB of the statute. That section provides as follows:
“Unconscionable conduct in connection with financial services
(1) A person must not, in trade or commerce, in connection with:
(a)the supply or possible supply of financial services to a person (other than a listed public company); or
(b) the acquisition or possible acquisition of financial services from a person (other than a listed public company);
engage in conduct that is, in all the circumstances, unconscionable.
(2) This section does not apply to conduct that is engaged in only because the person engaging in the conduct:
(a)institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or
(b refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition.
(3) For the purpose of determining whether a person has contravened subsection (1):
(a)the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b)the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.
(4) It is the intention of the Parliament that:
(a)this section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct; and
(b)this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and
(c)in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of:
(i)the terms of the contract; and
(ii) the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.
(5) In this section:
listed public company has the same meaning as it has in the Income Tax Assessment Act 1997.”
47 Also relevant is s12CC of the same Act which sets out the things which a court may have regard to for the purposes of applying s12CB.
“(1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 12CB in connection with the supply or possible supply of financial services to a person (the service recipient), the court may have regard to:
(a)the relative strengths of the bargaining positions of the supplier and the service recipient; and
(b)whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c)whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; and
(d)whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and
(e)the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and
(f)`the extent to which the supplier’s conduct towards the service recipient was consistent with the supplier’s conduct in similar transactions between the supplier and other like service recipients; and
(g)if the supplier is a corporation—the requirements of any applicable industry code (see subsection (3)); and
(h)the requirements of any other industry code (see subsection (3)), if the service recipient acted on the reasonable belief that the supplier would comply with that code; and
(i)the extent to which the supplier unreasonably failed to disclose to the service recipient:
(i)any intended conduct of the supplier that might affect the interests of the service recipient; and
(ii) any risks to the service recipient arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the service recipient); and
(j)if there is a contract between the supplier and the service recipient for the supply of the financial services:
(i)the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the service recipient; and
(ii)the terms and conditions of the contract; and
(iii)the conduct of the supplier and the service recipient in complying with the terms and conditions of the contract; and
(iv) any conduct that the supplier or the service recipient engaged in, in connection with their commercial relationship, after they entered into the contract; and
(k)without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the service recipient for the supply of the financial services; and
(l)the extent to which the supplier and the service recipient acted in good faith.
(2) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the acquirer) has contravened section 12CB in connection with the acquisition or possible acquisition of financial services from a person (the supplier), the court may have regard to:
(a)the relative strengths of the bargaining positions of the acquirer and the supplier; and
(b)whether, as a result of conduct engaged in by the acquirer, the supplier was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the acquirer; and
(c)whether the supplier was able to understand any documents relating to the acquisition or possible acquisition of the financial services; and
(d)whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the supplier or a person acting on behalf of the supplier by the acquirer or a person acting on behalf of the acquirer in relation to the acquisition or possible acquisition of the financial services; and
(e)the amount for which, and the circumstances in which, the supplier could have supplied identical or equivalent financial services to a person other than the acquirer; and
(f)the extent to which the acquirer’s conduct towards the supplier was consistent with the acquirer’s conduct in similar transactions between the acquirer and other like suppliers; and
(g)the requirements of any applicable industry code (see subsection (3)); and
(h)the requirements of any other industry code (see subsection (3)), if the supplier acted on the reasonable belief that the acquirer would comply with that code; and
(i)the extent to which the acquirer unreasonably failed to disclose to the supplier:
(i)any intended conduct of the acquirer that might affect the interests of the supplier; and
(ii) any risks to the supplier arising from the acquirer’s intended conduct (being risks that the acquirer should have foreseen would not be apparent to the supplier); and
(j)if there is a contract between the acquirer and the supplier for the acquisition of the financial services:
(i)the extent to which the acquirer was willing to negotiate the terms and conditions of the contract with the supplier; and
(ii)the terms and conditions of the contract; and
(iii)the conduct of the acquirer and the supplier in complying with the terms and conditions of the contract; and
(iv)any conduct that the acquirer or the supplier engaged in, in connection with their commercial relationship, after they entered into the contract; and
(k)without limiting paragraph (j), whether the acquirer has a contractual right to vary unilaterally a term or condition of a contract between the acquirer and the supplier for the acquisition of the financial services;
(l)the extent to which the acquirer and the supplier acted in good faith.
(3) In this section:
applicable industry code, in relation to a corporation, has the same meaning as it has in subsection 51ACA(1) of the Competition and Consumer Act 2010.
industry code has the same meaning as it has in subsection 51ACA(1) of the Competition and Consumer Act 2010.”
48 Sub-section 2 deals with putative contraventions of s12CB by the acquirer of a financial service. In the present case, the acquirer was Ballantyne Industries and there is no allegation of unconscionable conduct by it. Sub-section (2) can therefore be put to one side.
49 Concentrating on sub-s(1), the paragraphs which appear to be engaged by Mr Ballantyne’s defence and counterclaim are paragraphs (a), (b), (c), (e) and (j).
50 It may be accepted with respect to paragraph (a) that there is a great disproportion between the bargaining positions of Mr Ballantyne and his company on the one hand and Assetline on the other. Mr Ballantyne was in a very weak position with his company deregistered, his business, or perhaps the deregistered company’s business, destroyed by eviction and so forth. According to Mr Ballantyne’s brother as noted above, the banks would not touch Mr Ballantyne. He said that he was on a disability support pension; but neither Mr Pinney nor Mr Raphaely agreed that Mr Ballantyne had made this known to them. Mr Ballantyne could only say that everybody knew it. According to Mr Ballantyne, he was granted the disability support pension approximately one month before the eviction from the Frankston premises.
51 On the final day of the trial, he produced what he said was his disability support pensioner card. The card is expressed to expire on 31 March 2019 and stated to have started `on 24 June 2013’, which seems significantly earlier than Mr Ballantyne’s account would have led us to believe. The card has the letters “DSP”. On the reverse side, it is designated “Pensioner Concession Card” issued by the Australian Government Department of Human Services. No document has been produced which is indicative of either the broker, One Stop Finance, or Assetline being aware of Mr Ballantyne’s pensioner status. It is plain that Mr Ballantyne was highly motivated to raise finance. Disclosure of his status as a pensioner would have been inimical to the achievement of that object.
52 As I describe below, Mr Ballantyne seems deliberately to have understated his liabilities. It seems plausible, therefore, to accept the evidence of Assetline and the broker, namely Mr Raphaely and Mr Pinney, that they were never told of Mr Ballantyne’ pensioner status. In those circumstances, whilst the existence of Mr Ballantyne’s disability support pension is generally relevant to the issue of unconscionability, it is not of central significance given that he did not disclose it to either his finance broker or Assetline.
53 Again, Mr Ballantyne’s debts and the mortgage burden upon his real estate were significantly higher than those on the basis of which the loan approval was granted. Mr Ballantyne suggested that he had made the truth known to Mr Pinney but Mr Pinney, for his own purposes, presumably to enable his brokerage to earn a commission, had simply suppressed that information. Given that the misrepresentations and understatements are to be found in statements of assets and liabilities which were posted to Mr Ballantyne and were prepared by him, apparently in the comfort of his own home without the exercise of any inappropriate influence upon him by the broker or Assetline, it is difficult to regard Assetline and the brokers’ ignorance as to the true extent of Mr Ballantyne’s indebtedness as being other than the result of his deliberate misleading and deceptive conduct.
54 As Peter Lyons J remarked in Secure Funding v Moon [2012] QSC 244 [44]:
“It would be remarkable if a lender owed a duty to a borrower to investigate an untrue statement about the borrower’s income, for which statement the borrower was dishonestly responsible.”
55 Again, J Forrest J remarked in Perpetual Trustees Australia Ltd v Schmidt [2010] VSC 67 [173]:
“The law, however, does not recognise any duty upon a lender to assess the capacity of a borrower to repay a loan, or to ascertain the viability of a loan or to verify the details provided in loan applications. Nor is a lender under any duty to provide either a borrower or third party with commercial advice, although once such advice is tendered, the financier may assume a duty of care.”
56 I turn next to paragraph (c). Mr Ballantyne’s case was that everything was done in a rush. He paid little attention to the Assetline loan because it was a short-term loan which he expected very quickly to be superseded by a new loan at a lower interest rate. Nevertheless, as the evidence indicates, he was aware of the interest rate and of the amount advanced and negotiated modifications in both of these respects. He also made modifications to the indicative letter as to the term of the loan. The documents include large slabs of legalese but the circumstances in which Mr Ballantyne and his company found themselves on 29 January necessarily had impressed upon both of them the salient feature of a mortgage: the ability of the creditor when payments are in arrears to move to eject and sell up the mortgagor. It was this very threat upon Mr Ballantyne’s preferred account of events that motivated him to enter into this transaction with Assetline.
57 As to paragraph (e), there was no evidence as to interest rates generally. Mr Ballantyne’s case was to the effect that he agreed to a very high interest rate in the belief and he and his company would shortly refinance the loan at a much lower rate. What that rate might have been was not disclosed.
58 As to paragraph (j), there was a willingness on the part of the lender, Assetline, to modify at least to some extent the interest which it was claiming. It was willing to negotiate, as appears below, no doubt within the realms of its standard loan valuation ratio, the amount of the principal sum and agree to a proposed increase in the amount borrowed.
59 I do not accept Mr Ballantyne’s educational history as being indicative of serious disadvantage on his part in entering into this transaction. He had, on the evidence, conducted his own restaurant enterprise and served as the director of the proprietary company. It was common in the 1960’s for a large percentage of young people to leave school after what is now described as Year 10. They were not for that reason regarded as disadvantaged in business affairs.
60 As to the equitable jurisdiction, Mr Salpigtidis, for Assetline, relied upon the decision of the High Court in Louth v Diprose (1992) 175 CLR 621. In that case, a man of modest means funded the purchase of a house for a woman with whom he was infatuated but who, according to the headnote in the Commonwealth Law Report was “largely indifferent to him”. When they fell out, the man sought to recover the house and the High Court upheld the decision in his favour in the Supreme Court of South Australia. Deane J said:
“It has long been established that the jurisdiction of courts of equity to relieve against unconscionable dealing extends generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party to the transaction with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that special disability was sufficiently evident to the other party to make it prima facie unfair or "unconscionable" that that other party procure, accept or retain the benefit of, the disadvantaged party's assent to the impugned transaction in the circumstances in which he or she procured or accepted it.” (1992) 175 CLR 621, 637)
61 Dawson, Gaudron and McHugh JJ concurred in his Honour’s reasoning (1992) 175 CLR 621, 643. Mr Salpigtidis submitted, correctly as it seems to me, that many, if not all, of the disabilities under which Mr Ballantyne was said to labour were not evident to Assetline or One Stop Finance, in particular, the extent of the monies owed to Westpac on the mortgage of Mr Ballantyne’s house and the extent of his personal indebtedness relative to credit cards ($84,000 as against a disclosed figure of $25,000). Nor, upon the findings that I have made, did he disclose his status as a disability support pensioner. Mr Ballantyne presented to the broker and to Assetline as an established businessman who had suffered some major commercial reverses but had a plan to relaunch his company’s restaurant business and the real estate equity to support the necessary borrowing.
62 Once again, subject to the issues relative to the interest rate charged, there was no unconscionable conduct on Assetline’s part contrary to the unwritten law.
63 As to the Australian Consumer Law, the matters in s22 which might form the basis of a finding of statutory unconscionability, the same considerations apply to them as applied to the corresponding list in the Australian Securities and Investments Commission Act. Again, subject to the interest rate issue, I find no statutory unconscionability.
64 I now turn to the issue of the interest rate charged. As explained, no reliance has been placed upon the default rate under the finance arrangements or any entitlement to capitalise interest, so these matters may be put to one side.
65 The schedule to the Deed of Charge sets the non-default rate at some 54 per cent. (PCB 320), (a reduction from 60% per annum in the indicative letter of offer). When one considers the interest rates offered by banks to depositors today and in recent years, this figure seems shockingly high. I recently received an offer from a bank to renew a term deposit at a rate of interest of less than 2 per cent per annum. Yet, where the Consumer Credit (Victoria) Act 1995 and the National Credit Code do not apply, as I have already held, according to s57(1) of the Supreme Court Act 1986: “There is no limit to the interest which a person may lawfully contract to pay.” In the case of regulated loan transactions under the National Credit Code in Victoria, a maximum of 48 per cent per annum is imposed by s40 of the Consumer Credit (Victoria) Act 1995. The rate charged here is above that limit, but since Parliament has, on the face of it, deliberately left this class of loan transaction unregulated as to interest rates, the mere fact that the rate exceeds the maximum stipulated for consumer loans is not, without more, an indication of unconscionability.
66 In PSAL Ltd v Kellas-Sharpe [2012] QSC 31, Applegarth J considered a mortgage loan arrangement which provided for interest in the case of default at the rate of 7.5 per cent per month, with a lower rate of 4 per cent per month which would convert to an annual rate of 48 per cent per annum. His Honour concluded that the lower rate “was reasonable to cover PSAL’s costs of funds and overheads”. [2012] QSC 31, [102]
67 Had the present plaintiff been seeking to rely upon the higher or default rate of 108 per cent and an unlimited right to capitalise, I would have been persuaded that, in the circumstances, the language in the defence counterclaim alleging interest rates which were excessive, exorbitant, extortionate and so forth were justified. In the present case, there was no evidence as to Assetline’s cost of funds. The present loan was for a very short time period, as initially agreed. It provided Mr Ballantyne and his companies with an early and short-term bridging loan pending a refinance, which was, upon the evidence, actually approved by a new lender at a much more modest interest rate (though the more modest interest rate was not actually disclosed by the evidence). With some hesitation, I am prepared to accept that contracting for interest at the rate of 54 per cent simply was, in the circumstances, not unconscionable.
Asset lending
68 In Provident Capital Ltd v Papa (2013) 84 NSWLR 231, the New South Wales Court of Appeal dealt with what is described as `low doc lending’, a characterisation of the present transaction Mr Raphaely, the director of Assetline, was happy to accept for this transaction. (T126, L29-30) He said:
“… there’s always a trade-off … between getting a full suite of documents and taking a long time to grant an approval, and being able to mobilise funds within a short period of time in the December-January period.” (T126, L30-T127, L3)
69 Macfarlan JA, after reviewing the New South Wales authorities on the subject, said of this type of lending:
“It is apparent from these authorities that it can be relevant in the determination of whether a contract is unjust, and whether relief should be granted against a financier, under the Contracts Review Act that the financier has shown no interest in the borrower's ability to service the loan. However the significance of that fact must be assessed in the context of all the circumstances surrounding the loan. In my opinion, of particular significance will be the financier's knowledge of the borrower's circumstances, the purpose of the loan and whether the borrower has obtained independent legal advice. Public interest does not necessarily require so-called asset lending to be proscribed, or even deterred. It may advance the interests of the parties to many transactions, and facilitate commerce generally, for financiers to be able to lend on a ‘low doc’ basis without requiring the expenditure of time and effort in ascertaining and verifying the ability of borrowers to service loans. In any event, that exercise will often be difficult. For example if Provident had sought to undertake it in the present case, it would have had to make a difficult business judgment about the viability and prospects of the gymnasium business, a topic about which even well-informed minds could undoubtedly have differed. Financiers should not be required to make such assessments if they do not wish to do so. If, instead, a financier is satisfied that a borrower is able to make the decision for him or herself or has received appropriate advice, the public interest reflected in the Contracts Review Act will ordinarily have been satisfied.” (84 NSWLR 231, paragraph 113)
70 In a number of instances in New South Wales, lending of this sort has been held “unjust” with the result that the loan agreements and securities have been held, wholly or in part, unenforceable. In his oral presentation to the Court, Mr Ballantyne summed up the case which he made as being that it was irresponsible for Assetline to make the loan in the circumstances having regard to his lack of capacity to repay the loan. Mr Ballantyne, without reference to the New South Wales authorities, sought to invoke the principle.
71 Mr Salpigtidis, for Assetline, submitted that, in the circumstances, the pejorative characterisation of “asset lending”, viz the making of loans in circumstances where the only reasonable expectation of recovery could be by way of enforcement of the security taken, ought not be applied to this transaction. He stressed, first, that the extent of Mr Ballantyne’s disabilities, as director of a borrower company and guarantor, were not known to Assetline or One Stop Finance because of Mr Ballantyne’s own lack of candour. It was reasonable in the circumstances, as I understood his submission, for Assetline to have confidence that it would see its loan repaid within the short term stipulated, namely three months, with repayment in April 2015, or perhaps even earlier. Therefore, the stigma of “asset lending” should not be visited upon this transaction. I accept that submission.
72 In addition, the New South Wales cases in which “asset lending” has come to grief have been cases reliant upon the New South Wales Contracts Review Act which has no application or equivalent in Victoria. The authorities say that the concept of “unjust” in that statute is wider than the concept of “unconscionable” in the Australian Securities and Investments Commission Act or the Australian Consumer Law.
Later events
73 Both Mr Ballantyne and his brother gave evidence that, at some stage, a person described as “the plaintiff’s representative”, who, it appeared, was Mr Forni of One Stop Finance, had demanded that Mr Ballantyne sell both his properties. He told me that he sold his unit and that the entire proceeds were taken by Westpac. Mr Forni allegedly told Mr Paul Ballantyne that he should buy both properties from his brother using a loan from Assetline and Mr Forni, or Mr Forni and a colleague, said “We can make up some false payslips to get you the loan”. Mr Paul Ballantyne said that he was shown false payslips which had been lodged with Westpac by Mr Forni to obtain a loan approval from Westpac. (PCB 251; T244, L12-T246, L10) These things were denied by Mr Raphaely on behalf of Assetline, at least insofar as they touched upon Assetline. Mr Forni did not give evidence and no questions were put to Mr Pinney about these matters when he gave evidence.
74 It is difficult to see how these events, if they occurred, could bear on the present dispute. Mr Ballantyne’s contention is that the making of the Assetline loan to him was unconscionable. What happened after the loan was made is not directly relevant to that issue except insofar as it could shed light upon the events prior to and contemporaneous with the making of the loan. The narration would suggest that Mr Forni of One Stop Finance was acting as an enforcement agent for Assetline. Neither in the affidavit nor in the evidence given by Mr Paul Ballantyne or Mr Ballantyne himself is there an explanation as to how Mr Forni came to be at Mr Ballantyne’s house or to have the conversations. It may be that he came at the behest of Assetline. It may be that Mr Ballantyne invited him in an attempt to raise more finance or advise the situation in which Mr Ballantyne found himself. In any event, as Mr Salpigtidis correctly said, if this evidence tended to show that One Stop Finance was acting as agent for Assetline, the fact that it may have been acting at the enforcement stage is not proved but that One Stop Finance was the agent for Assetline at the time the loan was being made. Insofar as Mr Forni is described as telling Mr Ballantyne “you could lose everything” and warning that Assetline might sell him up, there would be no impropriety in these statements, warnings or, indeed, threats being given by Assetline or anyone acting for Assetline. They seem to entail no more than an assertion of a legal right, which the Transfer of Land Act 1958 would appear to give a mortgagee upon default by a mortgagor. The use of forged material to obtain finance is clearly both a civil and a criminal wrong, but no such finance was in fact raised and no relief is sought in the defence and counterclaim relative to this matter. It seems that the evidence about the forged payslips, or allegedly forged payslips, could be no more than tendency evidence against Assetline, if one accepted that what Mr Forni of One Stop Finance did could be attributed to Assetline.
75 In all the circumstances, given the lack of detail and confusion in this evidence, I do not believe that it can be probative in the present dispute. In his affidavit, Mr Ballantyne has Mr Forni proposing to use forged payslips to obtain a loan from Assetline. In his viva voce evidence, Mr Ballantyne’s brother says that Mr Forni used forged payslips to obtain a loan approval from Westpac. The allegation in Mr Ballantyne’s affidavit that Mr Forni was suggesting that forged payslips be given to Assetline would indicate that Assetline was not a party to the fraud, or attempted fraud.
The role of One Stop Finance
76 Mr Salpigtidis on behalf of the plaintiff, submitted that One Stop Finance, in its role as finance broker, was Mr Ballantyne’s agent and not the agent of Assetline. He drew attention to the acknowledgments to that effect in the One Stop Finance application form (PCB 234), Assetline’s Indicative Letter of Offer (PCB 350-352) and Clause 258 of the Memorandum of Common Provisions forming part of the mortgage executed on 29 January. (PCB 287) He said the effect of Mr Pinney’s evidence was that One Stop Finance was acting as agent for Mr Ballantyne rather than for Assetline.
77 Mr Salpigtidis also noted that One Stop Finance had arranged what was intended to be “a takeout” loan with another lender, namely, Hayes Law. (PCB 228)
78 Next, he took me to the decision of Peter Lyons J in Secure Funding Pty Ltd v Moon [2012] QSC 244 where, at [42], the trial judge said:
“In general, a finance broker, even if paid commission by a lender, is the agent of the borrower, and not the lender.”
79 I accept this contention. Whether or not at a later stage, One Stop Finance acted as agent for Assetline need not be determined. Upon the evidence, I accept that One Stop Finance was the agent of Mr Ballantyne and his company and not of Assetline at the time that the loan was entered into. In any event, even if that were not true, upon the evidence One Stop Finance was as much kept in the dark as to the true situation of Mr Ballantyne as was Assetline.
80 The documents posted to Mr Ballantyne before Christmas completed by him in his own handwriting and returned to One Stop Finance should have elicited his status as a disability support pensioner. The existence of a further mortgage indebtedness of $150,000 to Westpac and the much larger credit card debt which existed beyond the $25,000 was not disclosed. The obvious inference to draw is that these matters were deliberately concealed by Mr Ballantyne to facilitate him and his company in obtaining finance.
Legal advice
81 Again, I should record that I prefer the evidence as to what occurred on 29 January 2015 at the offices of Portfolio Law given by Mr Zita, to the account given by the Ballantyne brothers. Mr Zita presented as an impressive witness giving a plausible account of events. If the Ballantyne brothers’ account were to be accepted, it would have Mr Zita being derelict in his professional duties both to Mr Ballantyne and his company and to the lender to whom he certified having explained the documents.
82 The documents executed were bulky and contained a large volume of legal boilerplate. I can readily accept the Ballantyne brothers’ account that they were not taken through the documents page by page. Mr Zita said the consultation lasted for 30 minutes and a page by page analysis would simply have been impossible within that time. Nevertheless, the salient points could be conveyed in a relatively small number of words. Mr Zita said that he remarked upon the high interest rate which is what one would expect a solicitor to do in the circumstances. Given that Mr Ballantyne had already been engaged in bargaining on this point, there is no reason to think that he would not have understood that explanation or that he did not understand the situation even before it was given.
83 Again, it would take only a very few words to convey, as Mr Zita described it, that one who gives a guarantee mortgage runs the risk, if the debt is not repaid, of being evicted and having one’s property sold up by the mortgagee.
84 There are two schedules which were signed by Mr Ballantyne headed “Acknowledgment of Legal Advice” – on the one hand directed to Ballantyne Industries as borrower, and on the other hand to him as guarantor. (PCB 330 & 331) These documents convey, in a few sentences, the salient features of the relevant securities.
85 Whether one believes that Mr Ballantyne, in signing the acknowledgment, read those very few sentences or not, the fact that the important elements of the securities can be conveyed in so short a compass indicates that the task of a solicitor in providing an explanation as to the most important elements of the document did not demand any lengthy consultation or page by page analysis. Even Mr Paul Ballantyne described Mr Zita explaining “the whole set-up of what it’s all about” (supra, [21]) which seems at odds with the rest of his evidence.
86 I accept Mr Zita’s evidence that such an explanation was given. Needless to say, it was a matter for Mr Ballantyne as to whether he chose to pay attention to it or not.
Default
87 Mr Salpigtidis took me to the relevant provisions in the security documents to make good his contention that Mr Ballantyne was in default of his obligations as guarantor and that, in the circumstances, Assetline was entitled as mortgagee to possession of the relevant premises.
88 Whilst the documents were lengthy and comprised large quantities of boilerplate, the identification of the salient obligations by reference to the documents themselves was not immediately evident. For instance, as Mr Salpigtidis conceded, there was nowhere in the documents a covenant on the part of the mortgagor to pay the principal sum under the mortgage. In the days when the forms of instrument for registration under the Transfer of Land Act consisted of what were known as “narrative” forms scheduled to the statute, the Thirteenth Schedule included, as its first covenant by the mortgagor:
“To pay to the mortgagee or his transferee the principal sum … on the ………… day of …………… …”
89 This was and is the most fundamental obligation of a mortgagor under a mortgage.
90 Mr Salpigtidis, however, drew attention to s75 of the Transfer of Land Act, which provides inter alia:
“In every such mortgage there shall be implied covenants and powers—
(a) that the mortgagor will pay the principal money therein mentioned on the day therein appointed, and will so long as the principal money or any part thereof remains unpaid pay interest thereon or on so much thereof as for the time being remains unpaid at the rate and on the days and in the manner therein specified;
…”
91 Interest was expressed to be payable monthly in advance. (PCB 320) Clauses 249-251 (PCB 286) and Clause 216(p) (PCB 277) state failure to make an interest payment constitutes an “Event of Default”. Clauses 323 and 324 of the Memorandum of Provisions (PCB 298) grant Assetline the right to possession of the mortgage loan upon and after the occurrence of an Event of Default.
92 Both principal and interest are in arrears. There is a liability to indemnify under clauses 237 and following.
93 I accept the submission made by Mr Salpigtidis that Assetline has made good its claim for possession and for the recovery of principal and interest.
Orders
94 Mr Raphaely, in accordance with clause 294 of the Memorandum of Common Provisions, certified the amount owing as at 21 February at $139,125.00. I was told that this calculation was made by reference solely to the lower interest rate and did not include any capitalisation of interest. Further, it was said that it gave credit to Ballantyne Industries and Mr Ballantyne for payment of a total of $20,000 on account of interest.
95 I will direct the plaintiff to bring in short Minutes to give effect to these reasons and to include an amount in the judgment calculated according to the principles I have just described.
Costs
96 I have heard no argument as to costs and so I will reserve them.
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