Australian Finance and Leasing Limited v Phillips
[2009] VCC 627
•19 June 2009
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
BANKING AND FINANCE DIVISION
Case No. CI-09-01457
| AUSTRALIAN FINANCE AND LEASING LIMITED | Plaintiff |
| v | |
| IAN ANDREW PHILLIPS | Defendant |
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| JUDGE: | HER HONOUR JUDGE KENNEDY |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 5 June 2009 |
| DATE OF JUDGMENT: | 19 June 2009 |
| CASE MAY BE CITED AS: | Australian Finance and Leasing Limited v Phillips |
| MEDIUM NEUTRAL CITATION: | [2009] VCC 0627 |
REASONS FOR JUDGMENT
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Catchwords: Consumer Credit (Victoria) Code – whether Code applies by reason that credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes– whether declaration of purpose pursuant to s11 effective – whether alternatively section 6 applies
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr Pennel | McKinnon Jacobs Haughton & Irving Solicitors |
| For the Defendant | Mr Shirrefs | Eggleston Mitchell Lawyers |
| HER HONOUR: |
1 This is the return of a summons dated 8 May 2009 issued on behalf of the defendant for orders, inter alia, that the plaintiff’s proceeding be stayed generally and/or that there be judgment against the plaintiff.
2 Mr Shirrefs, who appeared as counsel for the defendant, submitted that by reason of the fact that the plaintiff had not served notices pursuant to s.80 of the Consumer (Victoria) Credit Code (“the Code”), that the proceeding was improperly constituted.
3 Mr Pennel, who appeared as counsel for the plaintiff, accepted that the relevant notice had not been given. However, his submission was that the Code did not apply to the credit contract, the subject of this proceeding.
4 The sole issue for determination by this Court is therefore whether or not the Code applied.
Background Chronology
5 By a writ and statement of claim filed 9 April, 2009, the Plaintiff is alleged to be the responsible entity of the IMMS Mortgage Fund (“the Fund) which is a managed investment scheme registered under Chapter 5C of the Corporations Act 2001.
6 The Defendant was alleged to be the registered proprietor of land situated at and known as 1133 Echuca-Mitiamo Road, Bamawm Extension (the “Echuca land”).
7 The plaintiff alleges that by loan agreement made between IMMS and the Defendant on or about 24 July 2007, IMMS agreed to lend, and the Defendant agreed to borrow, the sum of $731,000.00 for a term of twenty-four months (the “loan agreement”). The defendant has admitted that he executed a loan contract on or about 24 July 2007.
8 It was a term of the loan agreement that the security for the loan was to be a first registered mortgage over the Defendant’s Echuca land.
9 By two instruments of Mortgage dated 18 October 2007 (“the Mortgages”) and made between the Defendant and IMMS, the Defendant mortgaged all his estate and interest in the Echuca Land to IMMS to secure to it the repayment of all monies advanced to the defendant pursuant to the loan agreement.
10 The plaintiff alleges that the defendant has defaulted under the loan agreement and mortgages and claims possession and payment of $773,082.50.
Issues 11
Pursuant to s6(1)(b) the Code applies to the provision of credit if, when the credit contract is entered into, “the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes.”
12
Pursuant to s11(1) of the Code, in any proceedings 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 presumed.
13
Mr Pennel accepted that the presumption provided for in s.11(1) operated in the defendant’s favour given that it had claimed that the loan (which was accepted to be a “credit contract”) in this case was one to which the Code applied.
14
However, Mr Pennel relied on s.11(2) and submitted that the defendant had completed a declaration which meant the credit was “presumed conclusively” not to be provided wholly or predominantly for the requisite purpose.
15
Mr Shirrefs submitted that the declaration was defective in at least three ways, which I will outline.
16
Mr Pennel then submitted that even if he was wrong in terms of the declaration and the conclusive presumption did not operate, that the presumption in s11(1) was rebutted by reason that the Code applied by operation of s.6.
17 The case then turns on two issues:
(a) whether or not the declaration was effective; (b) if no, whether or not s.6 operated to displace the presumption. Whether declaration effective
18 Section 11(2)-(4) of the Code relates to presumptions as to the application of the Code as follows:.
“2. Credit is presumed conclusively for the purpose of this Code not to be provided wholly or predominantly for personal, domestic or household purposes if the debtor declares, before entering into the credit contract, that the credit is to be applied wholly or predominantly for business or investment purposes (or for both purposes).
3. However, such a declaration is ineffective for the purposes of this section if the credit provider (or any other relevant person who obtained the declaration from the debtor) knew, or had reason to believe, at the time the declaration was made that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes. For the purposes of this subsection, a relevant person is a person associated with the credit provider or a finance broker (or a person acting for a finance broker) through whom the credit was obtained.
4. 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.”
19 Regulation 10 of the Consumer Credit Regulation 1995 reads:
“(1) For the purposes of section 11 of the Code, the form of the declaration is as
follows –
‘I/We declare that the credit to be provided to me/us by the credit provider is to be applied wholly or predominantly for business or investment purposes (or for both purposes).’
(2) The declaration is to contain (immediately below the above words or, if the declaration is to be made by electronic communication, prominently displayed when (but not after the person signs) a warning in the following form –
IMPORTANT
You should not sign this declaration unless this loan is wholly or predominantly
for business or investment purposes.
By signing this declaration you may lose your protection under the Consumer
Credit Code.
(3) The declaration is to contain –
(a) the signature of each person making the declaration; and
(b) either the date on which the declaration is signed or the date on which it is
received by the credit provider.”
20 The loan application made by the defendant to IMMS dated 26 June 2007 was in evidence (annexed to an affidavit of Paul Scerri, the plaintiff’s loan manager, of 29 May 2009).
21 In a declaration included in that loan application, the defendant signed a declaration entitled “BUSINESS/INVESTMENT PURPOSE DECLARATION” which stated:
“I/We declare that the credit to be provided to me/us by the credit provider is to be applied wholly or predominantly for business or investment purposes (or for both purposes).”
22 The “important” box then appears immediately below this declaration and appears to contain the prescribed form of words.
23 As indicated already, Mr Shirrefs suggested that the declaration was defective:
(a) in terms of its form; (b)
in terms of the delay between the date of the loan application and the date of entry into the contract; and
(c) by operation of s.11(3). form
24 The reasons relied on by Mr Shirrefs for the defects in form were as follows:
(a) that the word “important” was in small letters and placed beside rather than above the accompanying words; (b) that the word “not” was not in bold; (c) that the word “lose” was not in bold. 25 Pursuant to s.11(4) the declaration under the section is to be “substantially” in the form required by the regulations. I am satisfied that the declaration in this case was “substantially” in the form required by the regulations.
26 It is true that there is some deviation from the prescribed form. However, I do not regard the absence of bold lettering as significant. Further, although there is some slight difference in the location of the word “important”- which word is not capitalised – the word has not been placed in a materially different position such as is likely to cause confusion to the debtor.
27 I am further satisfied that the case is distinguishable from the cases of Park Avenue Nominees Pty Ltd v Boon (On behalf of Weir) & Anor[1] and George Hraiki v Jean Dorothy Beljon.[2]
[1] [2001] NSWSC 700
[2] [2008] NSWSC 775
28 In the Park Avenue case, the word “important” was not placed directly below the relevant declaration but after an additional paragraph not stipulated in the prescribed form. This was seen to distort the warning’s effect since it was not “immediately below” the declaration.
29 This is distinguishable from the present case where the warning immediately follows the declaration as prescribed.
30 The present case is also distinguishable from the case of Beljon wherein the name of the credit provider was not inserted at all so that the declaration did not on its face apply to a specific transaction. This is again distinguishable from the present case where it is clearly apparent from the documentation that the transaction was entered into with IMMS.
31 I am therefore satisfied that the declaration is substantially in the form required by the regulations.
delay
32 The delay in this case appeared to be a delay of some 28 days between the declaration date (26 June) and the date of entry into the loan (24 July). Even taking the starting date as the date of the letter of National Farm Finance of Australia Ltd submitted as part of the loan application (21 June 2007), the delay is not significant (33 days).
33 More particularly, I am satisfied that the declaration does relate to the credit contract of 24 July. I do not regard the declaration as made too long before the contract was entered into as found by the Deputy President in the case of Whild v GE Mortgage Solutions Ltd & Anor (Credit)[3] (wherein the delay appeared to be of several months).
[3] [2008] VCAT 2396
34 Accordingly, I am satisfied that there is the requisite connection between the declaration and the execution of the loan contract in this case.
sub-section 11(3)
35 In order to examine whether or not the credit provider “knew or had reason to believe” at the time the declaration was made that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes it is important to examine the relevant loan documentation.
36 Pursuant to the loan application document, the address given as the residential address is different to that given as the security property, which is the Echuca property.
37 The “purpose of the loan” box also appears to have been crossed out under the heading “Residential properties.” Instead, the relevant box ticked appears to be under the heading “Commercial Properties” with the sub-heading box ticked entitled “Refinance-consolidation of existing loans”.
38 The declaration itself also appears at the end of this loan application on a page wherein contact details of the plaintiff’s solicitor and accountant are also included.
39 There was also correspondence from Mr Hastie of National Farm Finance of Australasia Pty Limited, dated 21 June 2007, submitted as part of the loan documentation. This states that the defendant was a separated dairy farmer who had been financed through the ANZ for a number of years. The bank had subsequently bankrupted the defendant’s former wife (who had “left the farm”) and had decided to exit the funding facility.
40 The letter suggests that the security property was being used as a “dry cow property” “supporting” 3 “operations” including commercial dairies at Nurmukah and at Cobden.
41 All of this material suggests a commercial purpose, namely that the funds were to be used to refinance a facility utilised for the defendant’s farming operations which operations were partly conducted at the security property.
42 There are further indicia supportive of a commercial purpose being:
• the sum sought ($780,000) is a significant amount of money; •
under the heading “exit strategy,” the defendant’s intention is said to be to subdivide” the security property over the next 12/24 months;
•
expected income from “the combined operations” is described in million dollar figures.
43 Mr Sherrifs suggested that the reference to the fact that “the property has now been ceded over to Mr Phillips” following family proceedings supported that the property was personal property. However, I do not accept this submission. Rather, this was equally consistent with the security property being used for a business purpose, with Mrs Philips having “left the [commercially run] farm.”
44 As such, I am satisfied that the plaintiff did not know or have reason to believe that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes.
45 In those circumstances, s11(3) does not operate.
46 It follows that the declaration is effective for the purposes of s11(2). Credit is thereby presumed “conclusively” for the purposes of the Code not to be provided for personal, domestic or household purposes and the Code does not apply.
47 On this basis the defendant’s summons should be dismissed.
Section 6
48 On the basis of my findings above, it is unnecessary to consider the operation of s.6. However, out of deference to counsels’ submissions, I will record my views.
49 I have already set out the terms of s6(1)(b).
50 Section 6(1)(b) speaks of credit intended to be “provided” rather than of credit, “obtained, used or applied.” The paragraph looks to the purpose for which credit was provided by the credit provider. The purpose for which credit was being provided by the credit provider is to be looked at from the point of view of a person in the shoes of the credit provider. What is relevant is what was known to the credit provider or its agents or what a credit provider in these circumstances ought reasonably to have known at the time of entering the contract.[4] The court should also consider the question in terms of the “substance of the transaction in the context of its performance” and on an “objective basis.”[5]
[4] Mummery v IMMS Financial Services Ltd [2002] VCAT 383
[5] Linkenholt Pty Ltd v Quirk [2000] VSC 166
51 Mr Sherrifs suggested that Mr Hastie, mortgage consultant, should have been alerted to ambiguity in the material. Mr Hastie filled out the loan application and negotiated the terms and conditions of the loan.
52 In paragraph 2 of an affidavit of the defendant dated 4 June 2009 he stated that Mr Hastie did not explain the documentation to him and did not inquire of him as to whether or not the loan was for business purposes or domestic purposes. Further that he explained to Mr Hastie that he purchased the property in 1995 at which time he obtained a loan from the Commonwealth bank to purchase the property. The security property consisted of a residence and vacant land. Over the years the loan was refinanced and he was seeking a loan to refinance the existing facility with the ANZ.
53 However, accepting that the defendant made these statements, in the context of all the loan documentation (as set out previously), there is nothing which would have alerted the lender or Mr Hastie to the fact that the purpose of the loan was other than for business.
54 I am thus satisfied that the presumption raised by the defendant by asserting that the Code applies has been displaced.
55 However, the defendant further relied on s6(5) and the affidavit of Mr Philips and suggested that the court should consider its application- which involved a subjective test- whenever the application of s6(1)(b) creates “uncertainty.”
56 Sub-section 6(5) provides that:
“(5) For the purposes of this section, the predominant purpose for which credit is
provided is –
(a) the purpose for which more than half of the credit is intended to be used;
or
(b) if the credit is intended to be used to obtain goods or services for the use for different purposes, the purpose for which the goods or services are intended to be most used.”
57 Firstly, I do not regard the application of s6(1)(b) as creating any “uncertainty.”
58 Secondly, I do not regard the statements in the affidavit of Mr Philips as sufficiently particularised to shed led light on the purpose for which the credit was intended to be used pursuant to s6(5).
59 Thus, Mr Philips also stated in his affidavit:
“I deny that the loan was predominantly used for business purposes. The loan funds were not being used for income producing purposes and I did reside at the security property.”
60 A simple “denial” is unhelpful. Moreover, it is unclear from this statement precisely when the defendant resided at the secured property as alleged. Moreover, the statement does not assist in examining the purpose for which “more than half” of the credit is intended to be used for the purposes of s6(1)(a) even if, which I do not accept, it is appropriate to artificially divide up the loan in this way.[6]
[6] And see Mummery v IMMS Financial Services Ltd [2002] VCAT 383 at [36]
61 I am also not convinced that the evidence of Mr Phillips in this regard should be considered in any event. The difference between s6(1)(b) as compared with s6(5) appears to be that s6(1)(b) concentrates attention on the purpose for which credit is “provided” whilst s6(5) concentrates on the purpose for which the credit is intended to be “used.” Although s6(5) may permit an examination from the borrower’s perspective, in each case, consistent with Linkenholt, the issue turns on an objective examination of the true purpose of the transaction. This to be preferred over permitting a person to claim the protection of the Code by later claiming what he or she subjectively intended to do with the finances.[7] I can discern nothing to suggest that the protection of the Code should be based on the subsequent attempts of either party to subjectively classify that purpose.
[7] Rafiqi v Wacai Investments Pty Ltd (1998) ASC 1550-024, cited in the Park Avenue case, above.
62 For reasons already given, in my view, the objective circumstances suggested that the funds were to be used to refinance a facility utilised for the defendant’s farming operations which operations were partly conducted at the security property.
63 It follows that, if I was wrong in my conclusion that the declaration is effective, I would nevertheless be satisfied that the credit provider rebutted the presumption otherwise applicable in this case pursuant to s6.
64 It follows that the Code does not apply.
Conclusion
65 The defendant’s summons should be dismissed.
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