Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No 3)

[2012] FCA 43

FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No 3) [2012] FCA 43

Citation:

Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No 3) [2012] FCA 43

Parties:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v AUSTRALIAN LENDING CENTRE PTY LTD, SYDNEY LENDING CENTRE PTY LTD, AMR INVESTMENTS PTY LTD and CHRISTOPHER JOHN RIOTTO

File number:

NSD 606 of 2010

Judge:

PERRAM J

Date of judgment:

3 February 2012

Catchwords:

CORPORATIONS – Unconscionable conduct – financial services – definition of financial product – whether offer of loan a financial product where no loan settled – business purpose declarations – whether loan for business purpose – knowledge of defendants – Australian Securities and Investments Commission Act 2001 (Cth) ss 12CA, 12CB

CORPORATIONS – Misleading and deceptive conduct – whether defendants mislead consumers through letters purporting to offer loan – whether defendants mislead lenders as to purpose of proposed or actual loans – Australian Securities and Investments Commission Act 2001 (Cth) ss 12DA, 12DB

Legislation:

Australian Securities and Investments Commission Act 2001 (Cth) ss 12BAA, 12BAB, 12CA, 12CB, 12CC, 12DA, 12DB
Consumer Credit (New South Wales) Act 1995 (NSW)
Consumer Credit (Queensland) Act1994 (QLD)
Consumer Credit Administration Act 1995 (NSW)

Federal Court of Australia Act 1976 (Cth) s 21
National Consumer Credit Protection Act 2009 (Cth)
Real Property Act 1900 (NSW)

Consumer Credit Code (NSW) s 11
Consumer Credit Regulation 1995 (QLD)

Cases cited:

Adeels Palace Pty Limited v Moubarak [2009] NSWCA 29 cited
AMP Services Ltd v Manning [2006] FCA 256 cited
Australian Competition and Consumer Commission v Allphones Retail Pty Ltd (No 2) (2009) 253 ALR 324 cited
Australian Competition and Consumer Commission v Goldy Motors Pty Ltd [2001] ATPR 41-801 cited
Australian Competition and Consumer Commission v Kaye [2004] FCA 1363 cited
Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356 cited
Blomley v Ryan (1956) 99 CLR 362 cited
Claremont Petroleum NL v Cummings (1992) 110 ALR 239 cited
Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 cited
El Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685 cited
Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 cited
Jones v Dunkel (1959) 101 CLR 298 cited
Mutual Life Insurance Company of New York v Hilton-Greene (1916) 241 US 613 cited
Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41 cited

GE Dal Pont, Law of Agency (Butterworths, 2001)
JD Heydon, Cross on Evidence (LexisNexis Butterworths, 8^th ed, 2010)

Date of hearing:

10-18 October 2011

Date of last submissions:

28 October 2011

Place:

Sydney

Division:

GENERAL DIVISION

Category:

Catchwords

Number of paragraphs:

287

Counsel for the Plaintiff:

Mr D L Cook

Solicitor for the Plaintiff:

Australian Securities and Investments Commission

Counsel for the Defendants:

Mr CR Newlinds SC, Ms S Mahmud

Solicitor for the Defendants:

S Moran & Co

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 606 of 2010

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff

AND:

AUSTRALIAN LENDING CENTRE PTY LTD
First Defendant

SYDNEY LENDING CENTRE PTY LTD
Second Defendant

AMR INVESTMENTS PTY LTD
Third Defendant

CHRISTOPHER JOHN RIOTTO
Fourth Defendant

JUDGE:	PERRAM J
DATE OF ORDER:	3 February 2012
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.The parties bring in short minutes of order giving effect to these reasons within 14 days. 

2.The defendants pay the plaintiff’s costs. 

3.The matter be listed for directions on 21 February 2012 to resolve any dispute about the form of orders.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 606 of 2010

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff

AND:

AUSTRALIAN LENDING CENTRE PTY LTD
First Defendant

SYDNEY LENDING CENTRE PTY LTD
Second Defendant

AMR INVESTMENTS PTY LTD
Third Defendant

CHRISTOPHER JOHN RIOTTO
Fourth Defendant

JUDGE:	PERRAM J
DATE:	3 February 2012
PLACE:	SYDNEY

REASONS FOR JUDGMENT

I.    Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[1]
II.    The evidence of the witnesses........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[15]
(a)    The evidence of Mrs Polimeni........ ........ ........ ........ ........ ........ ........ ........ .......	[16]
(b)    The evidence of Mr Polimeni........ ........ ........ ........ ........ ........ ........ ........ ........ .	[36]
(c)    The evidence of Ms James........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[38]
(d)    The evidence of Mr Alptekin........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[53]
(e)    The evidence of Mr Carnovale........ ........ ........ ........ ........ ........ ........ ........ .......	[66]
(f)    The evidence of Mr Hinds........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[71]
(g)    The evidence of Mr McIlwraith........ ........ ........ ........ ........ ........ ........ ........ .....	[83]
The first loan of $50,000........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[88]
The second loan of $11,000........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[91]
The third loan of $5,000........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[99]
(h)    The evidence of Ms Youssef........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[106]
(i)    The evidence of Mr Hundsdorfer........ ........ ........ ........ ........ ........ ........ ........ ...	[119]
(j)    The evidence of Ms Naidoo........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[120]
(k)    The evidence of Ms Amphone........ ........ ........ ........ ........ ........ ........ ........ ........	[131]
III.    Inferences and additional findings of fact........ ........ ........ ........ ........ ........ .....	[139]
(a)    The Polimenis........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[140]
(b)    Ms James........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[145]
(c)    The Alptekins........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[149]
(d)    Mr Hinds........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[150]
(e)    Mr McIlwraith........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[161]
IV.    ASIC’s case as to the Polimenis........ ........ ........ ........ ........ ........ ........ ........ ......	[174]
(a)    ‘Financial services’ and unadvanced loans........ ........ ........ ........ ........ ........ ..	[175]
(b)    Unconscionable conduct – special disadvantage and the business loan declaration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[181]
(c)    Unconscionable conduct – asset lending........ ........ ........ ........ ........ ........ .......	[195]
(d)    Unconscionable conduct – personal circumstances........ ........ ........ ........ .....	[196]
(e)    Misleading and deceptive conduct – whether loan offer misleading........ ...	[200]
(f)    Misleading and deceptive conduct – whether misleading behaviour towards lender........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[202]
V.    ASIC’s case as to Ms James........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[203]
(a)    Unconscionable conduct – special disadvantage and the business loan declaration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[203]
(b)    Unconscionable conduct – asset lending........ ........ ........ ........ ........ ........ ......	[204]
(c)    Unconscionable conduct – personal circumstances........ ........ ........ ........ .....	[220]
(d)    Misleading and deceptive conduct........ ........ ........ ........ ........ ........ ........ ........ .	[221]
VI.    ASIC’s case as to the Alptekins........ ........ ........ ........ ........ ........ ........ ........ .......	[222]
(a)     Unconscionable conduct – special disadvantage and the business loan declaration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[222]
(b)     Unconscionable conduct – asset lending........ ........ ........ ........ ........ ........ .....	[230]
(c)     Unconscionable conduct – personal circumstances........ ........ ........ ........ ....	[231]
(d)     Misleading and deceptive conduct........ ........ ........ ........ ........ ........ ........ ........	[234]
VII.    ASIC’s case as to Mr Hinds........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[237]
(a)     Unconscionable conduct – special disadvantage and the business loan declaration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[237]
(b)     Unconscionable conduct – asset lending........ ........ ........ ........ ........ ........ ....	[238]
(c)     Unconscionable conduct – personal circumstances........ ........ ........ ........ ...	[240]
(d)     Misleading and deceptive conduct........ ........ ........ ........ ........ ........ ........ .......	[242]
VIII.    ASIC’s case as to Mr McIlwraith........ ........ ........ ........ ........ ........ ........ ........	[244]
(a)    The second loan of $11,000........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[246]
(i)    Unconscionable conduct – special disadvantage and the business loan declaration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[247]
(ii)    Unconscionable conduct – asset lending........ ........ ........ ........ ........ ........ ....	[251]
(iii)    Unconscionable conduct – personal circumstances........ ........ ........ ........ ..	[252]
(b)    The third loan of $5,000........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[257]
(c)   Misleading and deceptive conduct........ ........ ........ ........ ........ ........ ........ ........ ..	[259]
IX.    Vicarious Liability........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[261]
X.    The position of Mr Riotto and AMR........ ........ ........ ........ ........ ........ ........ ........	[268]
XI.    Relief........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[270]
XII.    Orders........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[287]

I.    Introduction

1. This case is concerned with lending practices which the plaintiff (‘ASIC’) contends are ‘unconscionable’.  The first defendant, the Australian Lending Centre Pty Ltd (‘ALC’), is a lender which conducts business from premises at 107 Chandos Street in Haberfield, a suburb of Sydney.  Its business is the broking of loans to people who believe themselves to have difficulties in obtaining finance from traditional sources.  The second defendant, the Sydney Lending Centre Pty Ltd (‘SLC’), conducted the same business from the same premises until 2005 when SLC appears, for whatever reason, to have stopped trading.  Both companies have only one shareholder and director, Mr Christopher John Riotto, who is the fourth defendant.  The third defendant (‘AMR’) is another company under Mr Riotto’s control which, rather than engaging in finance broking as ALC and SLC do, extends finance.

2. To understand the nature of ASIC’s allegations it is necessary to grasp the operation of the former Consumer Credit Code (NSW) (‘the Code’). As the name suggests, that Code regulated consumer credit arrangements. In terms, the Code applied only to credit arrangements under which the debtor was a natural person resident in New South Wales and where the credit was ‘provided or intended to be provided wholly or predominantly for personal, domestic or household purposes’: s 6(1)(b). Once a credit contract had those features it became subject to a number of statutory impositions: by way of example only, the credit provider became obliged to inform the debtor of certain key terms of the credit arrangement before it was entered into: s 14; there was a prohibition on certain types of default interest: s 28; and on certain types of fees and charges: s 27. There was also an obligation to produce statements of account: s 31. More importantly, perhaps, s 66 allowed a debtor to apply to a creditor on the grounds of hardship for an alteration to the credit contract and s 70 permitted the Consumer Tenancy and Trading Tribunal (‘the CTTT’) to reopen ‘unjust’ transactions.

3. Obviously enough from both the lender’s and the borrower’s perspectives the designation of a loan as being ‘predominantly for personal, domestic or household purposes’, i.e. being a contract to which the Code applied, was an important matter. Section 11 created certain presumptions about this topic. Section 11(1) created a presumption that wherever a party to a credit contract claimed it was one to which the Code applied it would be presumed that this was so unless the contrary was established.

4. Section 11(1) was, however, accompanied by s 11(2) which provided that the debtor might execute a declaration in a prescribed form that the loan was to be applied ‘wholly or predominantly for business or investment purposes’. Where such a declaration was executed the credit was ‘presumed conclusively for the purposes of this Code not to be provided wholly or predominantly for personal, domestic or household purposes’. By itself, s 11(2) appeared to create a régime whereby a lender or borrower could conclusively provide for the Code’s non-application.

5. This appearance was incomplete, however, because of s 11(3). This section provided that a declaration under s 11(2) would be ‘ineffective’ if 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’. The true operation of s 11, as a whole, was therefore about onuses of proof: once a debtor claimed the Code applied it was for the lender to prove otherwise; it could do so using a declaration signed by the borrower under s 11(2); if such a declaration were signed, it would thereafter be for the borrower to prove that the lender knew or ought to have known that the loan was to be applied for purposes regulated by the Code.

6. ASIC’s principal argument in this case concerns what it alleges are unconscientious attempts by Mr Riotto’s companies to get borrowers to sign business purpose declarations under s 11(2) in respect of what it says were personal loans. Its secondary argument is that Mr Riotto’s companies engaged in a practice known as ‘asset lending’ which is the advance of a loan by a creditor to a person who it knows will default and thereafter simply relying upon on the security proffered. The third aspect of its case concerned the individual positions of various borrowers (for example, one of them had a degree of brain damage). In relation to all three of these cases, ASIC alleged that the conduct was unconscionable in equity so that it was entitled to declarations that the defendants had been involved in contraventions of s 12CA of the Australian Securities and Investments Commission Act2001 (Cth) (‘the ASIC Act’) which prohibits conduct in relation to financial services which is unconscionable within the meaning of the ‘unwritten law’. It also alleged that it was entitled to declarations that s 12CB had been infringed which prohibits conduct which is ‘in all the circumstances, unconscionable’.

7. Independently of its claims of unconscionability, ASIC also alleged that the defendants had engaged in misleading and deceptive conduct.  Two instances were put forward.  The first related to an offer of loan which each borrower was given by ALC or SLC which appeared to be an offer from an actual lender when, in fact, no lender had made any such offer.  The second related to instances in which ALC or SLC told certain lenders that the loans being sought were for business purposes when, according to ASIC, they were in truth personal loans.

8. In relation to one of the borrowers, Mr McIlwraith, ASIC also seeks compensation.  Mr McIlwraith, who is brain damaged, borrowed $16,000 in two instalments from AMR secured by a mortgage over his only asset, a block of land near Wauchope.  These loans were brokered by SLC.  The whole of Mr McIlwraith’s equity in that land was consumed by interest and then the property sold.  ASIC seeks to restore to him his lost equity in this property.

9. Apart from Mr McIlwraith there were four other loans or proposed loans.  The first relates to Mr and Mrs Polimeni.  ASIC submitted that this loan was to refinance substantial credit card debts in the order, initially, of $27,000.  The loan did not proceed but ALC nevertheless charged a brokerage fee of $2,800 and placed a caveat on Mr and Mrs Polimeni’s land to secure its payment.

10. The second concerns Ms James, single mother of three.  Her income came variously from part time work, Centrelink and family benefits.  Ms James had also encountered difficulties with her credit cards.  She wanted to refinance her home loan and pay the credit cards off.  A loan of $120,000 was proposed but did not proceed.  Ms James was subsequently charged a termination fee of $4,500 and a caveat was placed upon her home.

11. The third transaction concerns Mr and Mrs Alptekin who needed to pay their strata levies and fix their kitchen.  A loan of $5,000 was arranged by SLC with AMR and Mrs Alptekin’s signature procured on a business loan declaration.  The rate was 5% per month.  They defaulted and an attempt was made by AMR to enforce its security.  This was subsequently settled by private arrangement between AMR and Mr and Mrs Alptekin.

12. The fourth transaction concerns Mr Hinds, a pensioner wishing to fly to the Philippines who approached ALC for a loan to do so.  Ultimately he received an $8,000 loan secured by a mortgage over his unencumbered home.  He, too, signed a business loan declaration.  He defaulted but thereafter reached an accommodation with the lender.

1. The defendants’ basic defence was that all of the loans appeared to be for business purposes; that even if they were not, the advancing of these loans was to be seen as isolated examples of non-typical practice having only historical significance; that the borrowers were capable of understanding the business purpose declaration; in Mr McIlwraith’s case, that an issue estoppel arose out of some proceedings before the CTTT; that his brain damage was not obvious to others; that the loans would most likely have been advanced by others if not by ALC/SLC; that ASIC was pursing the proceedings for improper purposes; that there were, in two cases, no ‘financial services’ which enlivened this Court’s jurisdiction under the ASIC Act; that, if any improper conduct were established to have been committed by its staff, ALC/SLC were not to be seen as responsible for their misconduct which would have been outside the scope of their authority; that it had introduced new procedures which addressed ASIC’s concerns; that its loan offer document was not misleading because properly construed it did not offer a loan; and that it did not mislead any of its lenders because the loans were in fact business loans.

2. With one exception, all of the evidence in this case was given by oral testimony.  The defendants called no evidence.  ASIC called three former or current employees of ALC/SLC as well as each of the borrowers.  Significant issues of credit arose.  I turn first, then, to the evidence of the witnesses.

   II.    The evidence of the witnesses

3. In what follows, save where I indicate to the contrary, I accept the witnesses’ evidence.

   (a)    The evidence of Mrs Polimeni

4. Mrs Polimeni was employed as a packer on a production line in 2008 at the time giving rise to this aspect of the claim.  She left school at the end of Year 10.  To my observation she speaks fluent English although at home she generally speaks Italian.  Her husband, Mr Polimeni, is able to speak English although not to read it.  In 2008 she became very anxious about the family’s position in relation to its credit cards of which there were three – two issued by Citibank and one by AGSC.  In total, the amount owed on these cards was somewhere between $15,000 and $20,000.  She had fallen into arrears on these cards and was, as she put it, panicking about the consequences.

5. It was at that time she saw an advertisement in the newspaper for ALC.  That advertisement appeared as follows:

6. She responded to it by calling the number provided and spoke with a woman called Therese Griffiths.  This occurred in February 2008.  She discussed with Ms Griffiths not only the issue arising from the credit cards but also whether there might be a possibility of refinancing the mortgage on the family home.  At that time, the home loan was about $355,000 and Mrs Polimeni earned about $28,000 per annum.  Her husband, who worked as a rigger, earned about $73,000 per annum so that between them they had a combined annual pre-tax income of about $100,000.

7. Ms Griffiths asked Mrs Polimeni for payslips, the most recent statements available for the home loan and a copy of a rates notice from the Council.  She told Mrs Polimeni that she did not think that the loan would be a problem.

8. Very shortly after this discussion, Mrs Polimeni received through the post two letters from ALC both dated 7 February 2008 which arrived in the same envelope.  One was entitled ‘Terms of Engagement and Cost Agreement’.  On its face it purported to be a brokerage contract under which Mr and Mrs Polimeni retained ALC ‘to assist you in obtaining a loan in the above terms’.  On the first page of the letter there was disclosed a fee of $2,800 to be payable on settlement.  On the second page, there was disclosed a termination fee of $2,600 payable even if the loan were not ultimately advanced.  The face of the offer made clear, too, that what was now proposed was a loan of $27,000.  Plainly this did not include any further refinancing of the home loan.

9. Mrs Polimeni says that she then rang ALC and spoke with Ms Lili Amphone who told her that the home loan could not be refinanced at this time but that the credit card debt could be.  After one year, so she said, the issue of the home loan could then be revisited.  Mrs Polimeni says that she had rung Ms Amphone because she was very concerned about the size of the fees but Ms Amphone had told her not to worry about these fees since they would not be payable unless the loan proceeded.  For reasons I give below I reject Mrs Polimeni’s evidence to that effect.  She was not told that no fees would be payable if the loan did not proceed.

10. Mrs Polimeni gave detailed evidence about the extent to which she read the letter of retainer of 7 February 2008.  The letter disclosed a number of matters which she accepted she read and understood: the loan principal of $27,000; the interest rate of 16.5%; the loan term of one year; the monthly repayments of $371.25; and the security proffered being the family home at 315 Comleroy Road, Kurrajong.

11. She did not, however, accept that she had read other parts of the letter in which it was disclosed that the funds would be used ‘wholly or predominantly for business or investment purposes’; or where the purpose of the loan was said to be for a ‘business purpose’.  Nor, so she claimed, did she read those parts of the letter where the termination fee of $2,600 was disclosed; or those where it was said that ALC would be entitled to a charge over the property in respect of those fees which would, in turn, be protectable by a caveat. 

12. I accept her evidence that she did not read these parts of the letter but only because I do not think she cared about them.  Mrs Polimeni is a woman of limited education for whom the only matters which were of significance were the amounts of the loan, the interest rate and the monthly repayments and, more importantly, how those matters compared with the amounts due under the credit cards.  The rate of 16.5% was less than the credit card rate as were the proposed monthly repayments of $371.25.  She testified that she did not know the difference between a business loan and a personal loan which I accept.  Further, given that she did not know what the Code was it is difficult to see that the fact the loan was a ‘business loan’ was of the slightest relevance to her.  Mrs Polimeni was adamant that she would never have sought a business loan since she did not want one which evidence is a little difficult to reconcile with her evidence that she did not know what such a loan was.  Nevertheless, I accept the general thrust of her evidence that she simply did not read those parts of the letter.  This is most likely because they were of no relevance to her as she understood matters.

13. I also accept that for largely the same reasons she paid no attention to that part of the letter which read:

    In signing this letter you agree to the terms of our engagement and that you have satisfied yourself that the terms are appropriate and that you understand your obligations.  You also understand that by declaring that the loan is for business or investment purposes, you may lose your protection under the Consumer Credit Code.  We suggest that you obtain independent legal advice before signing this agreement.

    Would you please sign and return this letter to our office so that we may take further steps to proceed with your application.  We will be unable to take those steps until we receive this signed letter from you, together with any signed letter of offer which has also been issued to you.

14. Mrs Polimeni then showed this to Mr Polimeni and took him through it since he could not read English.  He raised a query with her which related to why the loan was for $27,000 when the credit card debts were only $20,000.  Mr Polimeni explained that this represented the interest which was to be paid upfront.  Mr and Mrs Polimeni then decided to sign the letter. 

15. It is then necessary to say something of the second letter of 7 February 2008.  This letter recorded that the Polimenis’ application for a loan had been successful subject only to a valuation of the property.  There then followed what appeared to be a terms sheet from an unidentified lender.  As a loan approval it is a puzzling document as it does not appear to emanate from a lender who could be a contracting party. 

16. In any event, the critical terms were identified ($27,000, 16.5% p.a, one year term and security, by way of second mortgage, on the Kurrajong property) which Mrs Polimeni accepted that she read.  It also contained a statement that the loan was a business loan which Mrs Polimeni also denied reading.  Again, my view is that she paid no attention to it because she did not regard it as being of any relevance to her. 

17. Mr and Mrs Polimeni also signed this ‘loan’ letter.  Both letters were then returned to ALC.  Subsequently ALC contacted Mrs Polimeni and told her it would be necessary for Mr Polimeni and herself to obtain independent advice from a solicitor before signing the loan documentation.  They went to see a Mr John Bennett.  Prior to seeing him they were provided with a package of documents for his review.  Included in this package were a draft loan agreement (on which the loan amount had increased to $35,000), a draft mortgage and a statutory declaration for both Mr and Mrs Polimeni relating to the status of certain encumbrances on the Kurrajong property (such as, for example, land tax).  The package did not include a business loan declaration.  Mr Bennett’s immediate advice to her was not to sign the documents until he had a look at them.  He suggested to her that she stall ALC until that had occurred.  She took this advice.  Subsequently Mr Bennett advised Mrs Polimeni that she ought not to sign the documents because the paying off of her credit cards was not a business loan.  Mrs Polimeni took this advice and did not proceed with the loan proposed by ALC.

18. It is not completely clear when this became known to ALC but on 13 March 2008 it wrote to Mrs Polimeni levying the fees and charges it said were due to it totalling $4,532.00.  This included a $2,800 brokerage fee (but not the $2,600 termination fee; this may be explained on the basis that ALC had, in fact, brokered a loan in approaching a private lender, Ginelle Pty Limited, and drawing up the loan documentation).  Not long afterwards, on 27 March 2008, ALC lodged a caveat on the Kurrajong property in apparent reliance upon the provision in the retainer charging the land with its fees and expressly authorising the lodging of a caveat.  The caveat was accepted by the Registrar-General on 1 April 2008.

19. In the meantime, Mr Bennett was seeking to refinance the Polimenis’ credit card debt and home loan through Westpac.  The presence of a caveat on the title prevented this occurring.  On 7 May 2008, Mr Bennett wrote to ALC on the Polimenis’ behalf tendering, without prejudice to their right to seek its recovery, the sum of $4,532 in return for a withdrawal of the caveat.   This occurred and the caveat was discharged.

20. Mr Bennett then set out about recovering the $4,532.  On 20 May 2008, the Polimenis commenced proceedings in the CTTT.  The allegations made included:  that the loan was not for the purpose stated by ALC (i.e., a business purpose); that Mr Polimeni did not fully understand the terms; that the payment of interest a year in advance was unconscionable; that the Polimenis were under extreme pressure; and that Mrs Polimeni had been told that no fees were payable if the loan did not proceed.  The matter was fixed for hearing on 11 July 2008 at which time it appears that Mr Bennett appeared and was successful on their behalf.  ALC was ordered to, and did in fact, repay the Polimenis the sum of $4,532.

21. Mr Newlinds SC, who with Ms Mahmud of counsel appeared for the defendants, pressed Mrs Polimeni about her conversation with Ms Griffiths in an endeavour to demonstrate that the idea that the loan was for business purposes might have come about through a misunderstanding.  The Kurrajong property is located in a rural area and Mr Newlinds SC sought to have Mrs Polimeni accept that within the Polimeni family the property was known as ‘the farm’ and that it was possible that that expression might have found its way into the conversation with Ms Griffiths.  Mrs Polimeni accepted that the property was a farm but she would not accept that she might have said such a thing to Ms Griffiths.  An attempt was made to persuade her to the contrary by suggesting that the loan proceeds had been used in part either to purchase a lawn mower or to repay earlier credit card debt relating to such a purchase.  But Mrs Polimeni did not accept this, claiming that the lawn mower was purchased much later.  Unassisted by more material about the purchase of any such mower I can see no reason to reject her evidence that she did not mention a farm to Ms Griffiths.

22. Mr Newlinds SC also put to Mrs Polimeni that Ms Amphone had not said that she did not need to worry about the fees if the loan did not proceed; rather, she suggested the fees would be paid out of the loan in the event that it did proceed so that Mrs Polimeni would not, in that circumstance, have to pay them.  This Mrs Polimeni denied.  There are some complexities about this.  Mrs Polimeni denied reading about the termination fee and it is difficult to understand why she would be asking Ms Amphone about a fee of which, ex hypothesi, she was ignorant.  Even accepting that she was only asking about the brokerage fee, which she accepts she saw, there is the further difficulty pointed to by Mr Newlinds SC that Mrs Polimeni’s version of events leaves unexplained how she thought that the fee due if the loan did proceed – $2,800 – would be paid.

23. Mrs Polimeni did not overlook this fee (indeed, she asked Ms Amphone about it) and she was, in my opinion, aware that it would need to be paid out of the loan proceeds.  It seems to me likely that she was told that that was how the fee would be paid; or that she read it.  But I do not accept, on balance, that she was told that no fees would be payable if the loan did not proceed.  Ms Amphone, whose evidence I discuss below, gave no evidence about this conversation one way or the other.  If Mrs Polimeni had not read that part of the retainer letter she had no reason to raise it with Ms Amphone; correspondingly Ms Amphone had no reason to raise such a matter with Mrs Polimeni if she had not mentioned it first.  I conclude that this was not said.

    (b)    The evidence of Mr Polimeni

24. Mr Polimeni gave evidence with the assistance of an Italian interpreter.  He arrived in Australia in 1986 and is married to Mrs Polimeni.  They have two children.  It was evident that he could understand English but was unable to speak it with much confidence.  Mr Polimeni is a rigger, a trade which he has plied all of his life (now in its 50^th year).  The evidence he gave placed Mrs Polimeni firmly in charge of the household finances.  It was she who paid the bills and it was she who, if it were necessary, explained English language documents to him.  He was aware in 2008 that there was a crisis in the family credit cards although his insight into the problem seemed less detailed that his wife’s.  It was Mrs Polimeni who had wanted to put all the credit cards onto ‘one card’ which I take to be a reference to the need to consolidate the three cards into a single loan.  He was aware that his wife had seen an advertisement but he could not remember the name of the company which placed the ad.  He agreed that his wife had explained the documents to him before he signed them at her request; he also assumed she had read them.  He also recalled visiting Mr Bennett with her.  In chief Mr Polimeni was very anxious to make clear that he had never understood the loan to be for business purposes.  My impression was that Mr Polimeni believed that this was an important thing for him to convey in his evidence and I am inclined to discount it somewhat in consequence.  Nevertheless, I do accept that Mr Polimeni did not understand the loan to be for business purposes.  As he said, he has never run a business having worked as a rigger from the time he arrived in Australia.  Indeed, I do not think that Mr Polimeni really understood the difference between a business and personal loan beyond understanding that they were, in some unarticulated way, different.  In the same vein, it is highly questionable whether Mr Polimeni understood the difference between a home loan and the mortgage by which it was secured.  In my observation Mr Polimeni treated these, perhaps unexceptionally, as being the same.

25. Mr Polimeni gave evidence that the Kurrajong premises were referred to within the family as ‘the farm’ which I accept.  Like his wife, however, he was unwilling to accept that a lawn mower had been bought at the time of the loan adhering to the proposition that the lawn mower was acquired much later.  I do not accept that what was conducted at Kurrajong was a business.  Mr Polimeni’s evidence was that he kept a couple of goats and cows on the land but this was not a business.  

    (c)    The evidence of Ms James

26. Ms James left high school in Year 10.  She holds a Certificate III in Nursing.  Although she was formerly married this is no longer the case.  She has three children.  It is of some importance for present purposes to know that Ms James suffers from bipolar disorder for which she has received treatment.  Her evidence was that it affected her memory ‘to a certain degree’.  In my opinion, Ms James’ memory was affected by her condition to some extent and in making the findings which follow I have kept that in mind.  Ms James can read, although my impression was that her reading skills were not of a high order.

27. In 2008 she was living with her three children at premises located at 22 Day Street, Lake Illawarra.  At that time she had, so it appears, ceased working as a nurse and was working as a waitress at an establishment called the ‘Vegie Patch Café’.  Towards the middle of 2008 Ms James appears to have suffered some sort of deterioration in her mental condition resulting ultimately in her hospitalisation.  It was not clear to me whether this was caused by her bipolar condition or by the stresses of working at the same time as raising three children or both.

28. Regardless of the reason, however, she appears to have lost her job and thereafter to have fallen behind in her credit card payments which at that time totalled about $13,000.  Her other significant obligation was a loan for $70,900 owing to Liberty Financial (‘Liberty’) which was due on her home.  Despite the astringency of those circumstances, her position was by no means hopeless for the property at 22 Day Street was worth about $280,000 so that her equity ($210,000) was high.

29. It is most likely, I think, that she first saw an advertisement for ALC at some time in July 2008.  She telephoned them to see if they could assist.  This was not her first dealing with them.  The loan from Liberty of $70,900 had been arranged by ALC apparently as part of a refinancing of an earlier loan from the Horizon Credit Union.  In any event, on this occasion what she sought was a $70,000 loan to refinance the Liberty loan and about $20,000 to pay off her credit card debts (although they appear to have been only at about the level of $13,000).  On this occasion, she spoke with a Ms Verushka Naidoo.  She does not recall telling her what her debt and asset position was but there was in evidence a statement of assets and liabilities prepared by ALC signed by Ms James so I infer that she did inform Ms Naidoo of these matters.

30. The loan proposed by ALC was for $120,000 and Ms James remembers Ms Naidoo explaining this to her on the basis that the additional $30,000 related to some form of costs.  She herself was clear that she only needed $90,000.  A retainer letter and loan offer were both issued by ALC on 23 July 2008.  As in the case of the Polimenis the loan offer is difficult to comprehend since no lender is identified.  The letters record, inter alia, that the loan was to be for business purposes but Ms James denied that she had any such purpose in mind.  Her only source of income was her employment (when working) and her various Centrelink entitlements.

1. The letters arrived on about 24 July 2008.  She read them albeit not thoroughly: ‘as well as I read them now’ was her precise answer and I infer from that that she intended to convey only a modest degree of attention.  She certainly saw the important matters such as the loan amount and the interest rate, but she was certain she did not see the reference to a business loan.

2. She does say that she was quickly contacted by ALC and urged to sign the documents otherwise she would not get the loan.  The proposed loan was for $120,000 at 13% fixed, interest only.  All of the interest repayments were prepaid.  The consequence was that for 12 months no payments would be due. 

3. Ms James thereafter signed the two letters and returned them.  I accept that she was led, or at least encouraged, to do so by telephone calls from ALC in which it was suggested she needed to hurry if she was not to lose the opportunity to get the loan.  This is because this is what the letter itself said (‘This letter of offer is open for acceptance for forty-eight (48) hours from the time you receive it.  The Lender reserves the right to withdraw this letter of offer prior to acceptance’) and because I accept this aspect of Ms James’ evidence.

4. After she signed the letters she received a bundle of 14 documents from a law firm called ‘Morabito Legal’ which were loan settlement documents.  She took those documents to her solicitor, a Mr Franke, who was unfortunately away and saw instead a Ms Young.  She executed each of them in her presence and she understood as she did so that she was going to get the loan.  She remained unaware that the loan was ostensibly for business purposes.  This is most likely the case because when she came to sign the form headed ‘Declaration of Purposes for which credit is provided’ which had been filled out to record that the loan was for business purposes, there only appeared the letters ‘N/A’.  It is likely that this was written by Ms Young.  In any event, the document was not signed.

5. At that point the chronology becomes a little unclear.  Ms James’ evidence was both that the documents were returned to ALC and also that her actual solicitor Mr Franke then saw them.  The latter is more likely, which I find.  Mr Franke told Ms James that what she had applied for was a business loan and, more importantly, that it was not interest free for a year but that at the end of the year the whole amount would be due.  This Ms James did not want and the transaction did not proceed.

6. What did proceed, however, was ALC’s claim for its termination fee of $4,500 together with its other expenses.  Under the retainer letter of 23 July 2008 Ms James had agreed not only to that fee but also to ALC’s entitlement to charge her land with its payment and thereafter to lodge a caveat.

7. On 27 August 2008, ALC demanded payment of $6,402 being the $4,500 together with a valuation fee of $420 and other fees of $900 (plus GST).  Ms James did not pay.  On 11 September 2008, Ms James received a notification from the Registrar-General of Titles that ALC had placed a caveat on her land.  She did not know what a caveat was ‘but did not like the look of it’.  Subsequently, she went to the library to look it up and liked the look of it even less.

8. What happened next is a little unclear.  Ms James sought to say that it was this requirement which had then forced her to sell her home.  But this is not what the documents bear out.  Instead, it appears that Ms James came into contact with the Consumer Credit Legal Centre (NSW) which made a complaint on her behalf to the Credit Ombudsman Service on or around 12 March 2009.  A settlement of that complaint was reached by an exchange of letters between the Consumer Credit Legal Centre and the solicitors acting for ALC.  The basic terms of this settlement were that ALC would accept $1,452 in lieu of the $6,402 claimed which would be paid on the settlement of the sale of 22 Day Street, Lake Illawarra at which time ALC would withdraw its caveat.  A régime of mutual releases was also agreed.  The sale appears to have settled on or about 7 April 2009 and the monies paid as agreed.  I do not detect in this arrangement that the property was sold to meet the agreed $1,452 still less the originally claimed $6,402.  Since ALC had no direct power to force a sale (holding only a charge) the more likely scenario is that Liberty exercised its rights or that Ms James decided to sell herself.

9. I do not accept that Ms James took the loan for business purposes.  It was put to her that she had planned to buy the Vegie Patch Café which she denied.  I accept her denial which is inherently plausible.  Nor do I accept, as was put to her, that she simply failed to read the retainer letter through a lack of diligence on her part.  To my observation Ms James wholly lacked the sophistication to understand a transaction of this kind beyond the most elemental aspects such as how much her weekly repayments were going to be.  I do not doubt that had she grasped that she was going to be charged a fee even if the loan were not drawn down she would not have signed any of the documents.  In the same vein, had she understood that the business/personal loan distinction might deprive her of rights under the Code I do not think that their execution would have proceeded.

10. But she did not understand any of these matters; not only because they were, in my opinion, well beyond her; but, even that aside, because the terms of the loan offer and the repeated calls to her to see if she had signed it created an atmosphere which, when combined with the financial stress under which she laboured, meant that from her perspective close reading was unnecessary.  From her perspective, the gravity of the situation demanded no less than that she sign regardless of its terms and her comparatively modest education and sophistication ensured that no wiser position would prevail.

    (d)    The evidence of Mr Alptekin

11. Mr Alptekin is 40 years old and married with three children.  He formerly worked as a project manager at Hutchinson Telecoms but was injured in a car accident in 2003.  Although this did not cause the immediate cessation of his employment the necessity to take time off for medical visits eventually led to his retrenchment. 

12. Before Mr Alptekin’s accident the Alptekins had bought an apartment in Mrs Alptekin’s name in 2002 at 6/29 Galloway Street, North Parramatta for about $208,000 in which they lived.  By June 2005 the amount owing on this apartment was about $200,000.  This amount had been advanced by the National Australia Bank (‘NAB’) secured by a first mortgage.  By this time Mr Alptekin was no longer working full time although he did have a part time job with IAG (formerly NRMA) which paid about $650 per fortnight.  Mrs Alptekin was not working but she was in receipt of the family tax benefit.  At that time she was suffering from physical and depressive issues arising from her having been run down at a pedestrian crossing.

13. There came upon them, perhaps unsurprisingly in those circumstances, something of a financial crisis.  Although it was possible to maintain the repayments to the NAB it was not possible to meet the strata levies due to the body corporate.  In due course, Mr Alptekin was contacted by a collection agent who, on being told by Mr Alptekin that he could not pay, put him in touch with Mr Riotto (who, at that time, was operating SLC).  Mr Alptekin contacted Mr Riotto and a meeting was arranged.  He was told to bring statements showing his Centrelink entitlements, council rates, water rates and strata fees.  I think it is likely that he was also told to bring his NAB statements.

14. Shortly afterwards Mr and Mrs Alptekin attended the offices of SLC at 107 Chandos Street.  Although the premises appear residential from their exterior their interior is laid out more like an office: there was a reception area, an office and boardroom.  In the office there was a photograph of Mr Riotto apparently jumping from a helicopter.

15. Mr and Mrs Alptekin were ushered into the office for a brief meeting with Mr Riotto who thereafter was replaced by a woman known as ‘Soula’ who I find is Ms Soula Lazaris.  Mr Alptekin did the talking.  He explained their predicament but also that he was expecting to receive a compensation payment in respect of his car accident.  Ms Lazaris indicated that SLC could help.  Mr Alptekin wanted to pay out the strata levies but in addition he also wanted to resolve an issue in the apartment’s kitchen which had been badly damaged by water and he thought an extra $800 would be handy.  To that end he requested a loan of $5,000. He handed Ms Lazaris the various financial statements he had brought with him from Centrelink, the body corporate, the council and the NAB.

16. During this process the Alptekin children had started drawing on a whiteboard and making noise.  It was therefore necessary for Mrs Alptekin to remove them outside so that Ms Lazaris could make herself heard.  The critical discussions took place, therefore, between Mr Alptekin and Ms Lazaris.

17. After Mr Alptekin had handed the documents to her she left the room to prepare the loan documents.  They were signed that day.  Although they were all in Mrs Alptekin’s name and ultimately signed by her it is clear that all of the discussions on the Alptekins’ side were conducted by Mr Alptekin.

18. The initial loan documents were brought to the boardroom where Mr Alptekin had by then been moved to.  What was offered was a $5,000 loan at 5% per month for three months.  The lender was not identified.  In addition, on signing a valuation fee of $420 was payable to the unidentified lender and a $990 fee to SLC.  The loan was to be secured by a caveat over the premises.  The letter by which SLC was engaged as broker made no mention of the loan being for a business purpose but the terms sheet from the unidentified lender did refer to it being for that purpose.

19. I am satisfied that at no time did Mr Alptekin ever seek a business loan.  His purpose was to pay his strata levies, redo the kitchen and have $800 left over.  He gave evidence that he read the documents in SLC’s boardroom for only fifteen minutes.  As I have already mentioned, the property was in Mrs Alptekin’s name and it was necessary, therefore, for her to be brought into the room.  Mr Alptekin explained the contract as best he could and the amount of the principal.  At the time that she signed, Mr Alptekin did not know that the loan was said to be for business purposes and I accept this.  Mr Alptekin impressed me as an honest man doing his best to give an accurate account of his recollections.  He was asked what he would have done had he noticed that the loan was said to be for business purposes.  His answer was that as long as he received the $5,000 he would have signed.  This is consistent with the perceived seriousness of the situation from his perspective.  I am satisfied also that he was not aware in any meaningful way of the significance of the distinction between business and personal loans.

20. The two initial documents signed were the retainer letter for SLC and the loan offer letter.  These were both dated 17 June 2005.  A further set of documents was then prepared which included an epitome mortgage.  It provided for a default rate of 8% per month (96% per annum) together with various fees which totalled over $2,000.  These too were dated 17 June 2005 and I understood from Mr Alptekin’s evidence that these were signed at the same time.

21. The loan was drawn down on 21 June 2005.  Of the $5,000 borrowed, $3,021 was available after fees and charges of which $2,100 was paid to the body corporate leaving $921.56 which Mr Alptekin said was used to repair the kitchen.  The first scheduled repayment of $250 was due on 21 July 2005 and this Mr Alptekin met.  Unfortunately, however, the anticipated compensation payment did not arrive and the second payment could not be made.  He then sought, and received, a temporary extension from SLC but thereafter contacted the Consumer Credit Legal Centre in Redfern.  Due to the default rate, the loan rapidly expanded and according to Mr Alptekin increased from $5,000 to $12,000 and then to $18,000.  I am not certain of the arithmetic of this but given the 8% monthly default rate some significant increase in the size of the loan may not be altogether surprising.

22. As a result of the actions of the Consumer Credit Legal Centre (which included a complaint to the Credit Ombudsman) an arrangement was reached with SLC on 21 September 2006 and a deed executed under which Mrs Alptekin agreed to pay $4,000 in return for a release of the caveat.

23. I have rejected above the proposition that the Alptekins’ loan was for business purposes.  For completeness, however, it should be noted that it was suggested to Mr Alptekin that he had set up a courier service in 2008 called ALP Couriers which he accepted was true.  A letter was then tendered which was dated 11 July 2008 which was a letter of retainer with ALC signed by Mrs Alptekin for a $10,000 loan ‘for business purposes’.  However, Mr Alptekin’s evidence was that by this time Mrs Alptekin had become psychotic and had been hospitalised at Cumberland Hospital.  Mr Alptekin denied any knowledge of the letter and I accept this evidence.  The only explanations seem to be that Mrs Alptekin signed it whilst in some kind of state or that it is a forgery.  Fortunately, I do not need to resolve that question.  It suffices to say instead that I am quite satisfied that the original loan was not for business purposes.  For completeness, it should be noted that the parties were in agreement that no significance was to be attached to the fact that Mrs Alptekin was not called as a witness by ASIC.

    (e)    The evidence of Mr Carnovale

24. Mr Carnovale is the sole director of Ginelle Pty Limited (‘Ginelle’).  He is 87 years of age and is married to his wife Nelle.  Ginelle is in the business of lending through solicitors on first mortgage.  Mr Carnovale’s involvement in this case springs from his identity – through Ginelle – as the source of the funds which were slated to be lent to Mr and Mrs Polimeni (but which did not ultimately go through).

25. Mr Carnovale was not initially aware of the difference for credit purposes between business and personal loans.  It seems, however, that at some stage in the past he became aware that lending on personal loans was attended by a significant risk that the capital advanced might not be recovered and that this was not, however, a problem with business loans.  Consequently he thereafter eschewed making personal loans and confined the business of Ginelle to business loans.

26. Mr Carnovale was introduced to Mr Riotto through a common acquaintance.  Mr Riotto rang Mr Carnovale, introduced himself as a broker and inquired whether Mr Carnovale might not be interested in making a loan on premises at Balgowlah.  Mr Carnovale thought that this transaction had occurred a number of years ago.  Subsequently, Mr Carnovale told Mr Riotto that he had funds available to lend and that Mr Riotto should let him know if there was anything available.  It is reasonably clear that Mr Carnovale dealt with Mr Riotto and SLC or ALC on multiple occasions.  Mr Carnovale visited the premises of ALC/SLC at 107 Chandos Street.  He confirmed, as several other witnesses did, that the premises were residential in appearance on the exterior.  But his evidence about the interior was that it was ‘very professional’; that there were a number of offices; several computers; and that there were five or six women at work.  Mr Carnovale was plainly impressed by the set-up.  He spoke during this visit with Mr Riotto who he said struck him as a ‘very nice gentleman’ and honest.  Mr Carnovale was quite sure that Mr Riotto was aware of his desire only to extend business, and not personal, loans.

27. On a day-to-day basis Mr Carnovale dealt not with Mr Riotto but instead with a woman called Helen Youssef who Mr Carnovale believed was Mr Riotto’s ‘right-hand person’.  He told Ms Youssef that he only wished to do business loans and that he needed the problems attending personal loans ‘like a hole in the head’.  I accept that ALC and SLC, through Mr Riotto and Ms Youssef, were well aware that Mr Carnovale – and Ginelle – only wished to extend business loans.

28. Mr Carnovale’s recollection of the failed Polimeni loan was, understandably, fairly limited for, as he observed, there was not much to remember about a transaction which failed to proceed.  It seems reasonably clear that Ms Therese Griffiths sent Mr Carnovale an email about the Polimeni loan on or about 15 February 2008.  It was to be a loan for $27,000 for one year at 16.5% secured by a second mortgage.  The documents sent through by Ms Griffiths included a valuation of the Kurrajong property at $800,000 which, when compared with the amount owing on the Polimenis’ home loan of $320,678, suggested abundant equity.  Mr Carnovale appears to have been happy to lend the money provided interest was paid in advance and this, so it seems, the Polimenis were willing to do if the loan was increased to $35,000.  The instruction to do that appears to have come from the Polimenis’ daughter or at least her email address.  In none of the materials passing between Mr and Mrs Carnovale and ALC is there any suggestion that what was proposed was a personal loan.  Mr Carnovale was not told the Polimeni loan was a personal loan and had that been said he would not have been willing to extend the funds.  I accept this.

    (f)    The evidence of Mr Hinds

29. Mr Hinds is presently 72 years old.  He is married with a wife who is 75 years old.  They own their own home which is situated at 33 Fowler Road, Merrylands, a suburb of Sydney which they purchased in 1960 or thereabouts.  Mr Hinds himself left high school in third year and has no tertiary or other qualifications.  On the other hand, I accept that Mr Hinds is reasonably articulate.  This is not only because of his role – explained more fully below – as an occasional speaker but also because of a lively correspondence he agreed he had conducted in the letter pages of several Sydney metropolitan newspapers including with the late Sir Frank Packer.  Mr Hinds spent his working life in clerical roles, but has also worked within the field of social work and in what he termed ‘library work’.  Upon his retirement he went on the pension but worked for the Uniting Church through its Parramatta Mission.  That involved working with the aged or the homeless.

30. The present issues concern a loan Mr Hinds obtained in March 2006 through ALC.  At that time Mr and Mrs Hinds were in receipt of pensions totalling around $400 each per fortnight.  In addition to this it seems that Mr Hinds gave speeches from time to time relating, inter alia, to self-worth for which he was sometimes, but not always, paid.  As he explained it, he welcomed payment but did not require it.  When he was paid it was usually about $70 or $80.  He gave such speeches perhaps once per month.

31. Mr Hinds testified that in 2006 he had found himself in financial difficulty.  His wife had been in hospital and he said he had incurred speeding fines in visiting her.  In addition, he had friends who were in trouble and needed his support.  More importantly, so he said, he needed to visit the Philippines where he proposed to speak together with the doing of other charitable works.  In order to achieve this he believed he needed about $4,000.  Later in these reasons I conclude that the reasons advanced by Mr Hinds for wanting this loan should not be accepted.

32. Mr Hinds’ links to the Philippines went back some way.  He had first visited them in 1999 as part of a teaching team from the Parramatta Mission following a difficult time in his life when his son had been sent to prison.  He felt that the Filipino people whom he had visited had been very good to him and he returned in 2005 when the opportunity arose.  In 2006 he had received another opportunity to return, to speak and also to provide support to the people he had met.

1. Mr Hinds’ evidence was that his financial position at that time was not good and that was why, when he saw an advertisement for ALC in the Daily Telegraph, he had telephoned them.  He had been attracted by the advertisement’s promise of ‘immediate approvals’ and ‘low interest rates’.

2. When he called he initially spoke with an employee named Hayley, whom I find to be Ms Hayley Sutherland.  Subsequently, however, Mr Hinds dealt with Ms Helen Youssef and told her that he needed a loan of $4,000 to travel to the Philippines and also to pay some bills.  I assume these bills were the speeding fines and troubled friends to which reference has already been made.  In any event, Mr Hinds was not able to recall whether he provided Ms Youssef with details of these bills although he was clear that he would have told her the size of his pension.  Ms Youssef apparently indicated a loan was possible.

3. On Thursday 9 March 2006 Mr Hinds received three documents from ALC.  These were: (a) a letter retaining ALC to raise a loan for $8,000 with a term of one year interest-only with the interest prepaid secured by the premises at 33 Fowler Street; (b) a letter appearing to be a loan approval from an undisclosed lender on the same terms; (c) a privacy declaration.  Both of the letters recorded the purpose of the loan as being for business purposes; in one case ‘strictly’ for such purposes.  Mr Hinds was adamant that he had not realised that the loan was for business purposes and that he had not told Ms Youssef the loan was for business purposes.  He said that he had no such business.  He explained the fact that both letters referred to the loan as being for business purposes on the basis that he had not read the fine print because of his lack of education.

4. Thereafter, according to Mr Hinds, Ms Youssef had sent him to see a solicitor, Mr Joseph Trimarchi.  Mr Trimarchi had presented him with a series of documents which included a mortgage and also a document entitled ‘Declaration of Purposes for which Credit is Provided’ which, if executed, had Mr Hinds declaring that the loan was ‘to be applied wholly or predominantly for business or investment purposes’.  Mr Hinds’ evidence in chief about this was that Mr Trimarchi had told him that the description of the loan as a business loan was necessary to get around the fact that Mrs Hinds was not a party to the loan agreement (I interpolate here that Mr Hinds’ evidence was that at this time his wife was in hospital and that the house was in both their names).  Mr Hinds also thought that Mr Trimarchi had also suggested that a reference to a caveat was for a similar purpose.  Mr Hinds thought that he had to sign the documents to get the loan:  ‘Well, I sign it or I don’t get the money’.  Mr Hinds then read the documents in Mr Trimarchi’s office before signing them although he said ‘not carefully’.  He did notice, however, that loan was for $8,000 not $4,000 as he had sought which left him ‘stunned’, but he did not object.  In the end, after the deduction of various fees and charges, an ‘Authority to Draw Funds’ indicated that he was to receive $3,934 which appears to have occurred on 17 March 2006 (less an additional amount paid to Mr Trimarchi of which, more below).  The meeting with Mr Trimarchi seems likely to have occurred two days before on 15 March 2006.  One explanation for the difference between what Mr Hinds wished to borrow and what he was lent springs from the fact that the loan was for 12 months at 12% per annum but that the interest was prepaid; another is to be found in the loan offer of 9 March 2006 and the retainer letter of the same date which provided between them for fees of $2,900.

5. Mr Hinds says that Mr Trimarchi was not his solicitor and that he was not retained by him.  Indeed it was Mr Hinds’ evidence that Mr Trimarchi was the solicitor for ALC.  There is in evidence a retainer letter signed by Mr Trimarchi dated 14 March 2006 (the day before the meeting) but this does not appear to have been signed by Mr Hinds.  On 10 April 2006 there appears to have been created two documents by Mr Trimarchi:  a letter of advice of that date, and a tax invoice for $330 but reduced to $0 on account of $330 already paid (the account was paid on settlement of the loan).  The letter of advice refers to the meeting having occurred on 15 March 2006, the day after the retainer letter.  ALC’s file for Mr Hinds for this loan was opened on 14 March 2006 so that the sequence appears to have been that Mr Hinds returned the signed loan offer and retainer on Tuesday 14 March 2006; that Mr Trimarchi opened his file the same day drafting a costs agreement of that date; that Mr Hinds saw Mr Trimarchi the following day, that is, Wednesday 15 March 2006; and that the net loan funds recorded in ALC’s file as being $3,604.25 were handed to Mr Hinds on Friday 17 March 2006.  

6. Ms Youssef gave evidence that ALC would provide the names of solicitors in the area who had acted for ALC clients in the past but that it never told its clients to see particular solicitors.  I see no reason not to accept that aspect of Ms Youssef’s evidence.  Apart from Mr Hinds’ oral testimony there is no other material which suggests that Mr Trimarchi’s retainer is other than what it appears to be.  I do not need to conclude that Mr Hinds’ evidence is knowingly false to arrive at that conclusion.  Given his lack of sophistication and his apparent failure to attend to the contents of documents it is possible in his mind that he was seeing Mr Trimarchi because ALC had sent him there and, viewed from that (inaccurate) perspective, he could have arrived at the erroneous view that Mr Trimarchi was acting for ALC.  I do not find that this misperception on Mr Hinds’ part about who Mr Trimarchi was retained by was fostered either by ALC or Mr Trimarchi.

7. I am disinclined also to accept Mr Hinds’ account of his discussion with Mr Trimarchi about the business loan declaration. The burden of Mr Hinds’ evidence was that Mr Trimarchi had said that the business loan declaration was necessary to overcome the fact that Mrs Hinds was not a signatory to the mortgage and this was also the end sought to be achieved by the caveat.  But this makes no sense.  The mortgage granted was a first mortgage and there was no need for any caveat.  Further, there was no evidence before me of any caveat (apart from that contemplated to service ALC’s fees under the retainer letter).  Quite apart from that, the explanation allegedly proffered by Mr Trimarchi makes no sense.  I do not accept that Mr Trimarchi said these things.

8. The effect of Mr Hinds having prepaid the interest was that he was not obliged to make any payments for 12 months but he was required to repay the whole of the $8,000 at the end of that time.  It is not entirely clear what happened at the end of that year but the terms of the mortgage are likely to have had the effect that the loan became an $8,000 loan at 14% per annum which required monthly payments of $93.33.  In any event, regardless of what the mortgage provided for (and its terms, particularly cl 4, are beset with difficulties) Mr Hinds testified that he started paying about $60 per week but fell by the way within 12 weeks or so.  Upon that occurring he was put in touch with the Consumer Credit Legal Centre and thereafter proceedings were commenced in the CTTT which were eventually settled on the terms of a deed of settlement dated 9 December 2009 with Mr Hinds agreeing to repay $5,000 by fortnightly repayments of $50.  Mr Hinds testified that he had been making these payments; further, that with the help of a relative he had also paid a lump sum of $2,000.  I accept this evidence.

   (g)    The evidence of Mr McIlwraith

9. Mr McIlwraith is 48 years old and lives in his mother’s house at Port Kembla.  When he was 16 years old he was involved in a serious car accident in which he suffered a cracked skull.  His brain tissue was cut into by about an inch and a three inch steel plate inserted into his skull.  The consequences of that accident have shaped Mr McIlwraith’s life.  His short term memory is defective and, as he put it, his long term memory is not the best either.  Unsurprisingly, these injuries have affected his employment prospects in respect of which he has been largely confined to cleaning jobs.  Presently, he works one day per week in a radiator store.  My impression of Mr McIlwraith was that he had limited capacity for abstract thought.  It was evident that he did not understand some of the questions which he was asked.  For example, he was cross-examined as to whether he had informed Mr Riotto of his mental difficulties and in the course of this he was shown an affidavit sworn by him in earlier proceedings before the CTTT.  That affidavit, Mr McIlwraith accepted, did not refer to him as having informed Mr Riotto of his mental difficulties.  The point of this cross-examination was to expose a conflict between Mr McIlwraith’s present testimony (to which I turn below) that he informed Mr Riotto of those difficulties and his earlier testimony, in which he made no reference to this having occured.  Although Mr McIlwraith eventually understood the question it was only after several false starts in which he appeared unable to distinguish between the concept of what he told Mr Riotto and the concept of what he told the CTTT that he told Mr Riotto.  The following exchange exemplified the problem:

   Mr Newlinds SC:        What I’m trying to say to you is that the fact that you didn’t write in this affidavit that you told Mr Riotto that you had a mental problem, suggests very strongly that in fact you didn’t tell Mr Riotto that you had a mental problem.  That’s the point I’m trying to make?  

   Mr McIlwraith:          Yes, all right.

   Mr Newlinds SC:        Right.  Now, do you want to comment on that point? 

   Mr McIlwraith:          There was quite a – there was an oral understanding between me and Mr Riotto that, number 1, I was on a disability pension, or Newstart at that time, I’m not sure, but somewhere in that – in the first loan – in the second loan, the $11,000 loan, that I went from Newstart over to disability, the disability pension.  And I sat right in front of him in my office with the scar in full view, outside of what we spoke about, it was plain, there for all to [see].

10. Further, I am bound to say, and with respect to Mr McIlwraith, the fact that he suffers from cognitive defects is reasonably apparent after a very short period of time.  The precise nature of the deficits may not be clear but the fact of the existence of some limitation plainly is.  The very visible and significant scar down his forehead does not naturally tend to allay concerns which might otherwise arise.  Others too have taken this view.  In 2007 a financial management order was made in respect of Mr McIlwraith’s affairs by the Guardianship Board of New South Wales for which Mr McIlwraith now expresses gratitude (‘They’ve got money in the bank, I can now at least afford to bury myself if it came to that’).

11. Many of Mr McIlwraith’s answers were discursive and confused.  At times there were emotive outbursts which proceeded from misperceptions both as to what the issues were and what was being put.  Despite these difficulties I did not form the impression that Mr McIlwraith was not trying to tell the truth; and, most often, with some patience he did eventually grasp what was being put to him.

12. Mr McIlwraith was married in around 1988 and lived with his wife in Canberra.  They purchased a house together using the proceeds of the insurance settlement arising from the car accident.  Mr McIlwraith says that he also maintained a recording studio in Canberra for which he needed to get an Australian Business Number (ABN).  He thought this had occurred about 25 years ago.  I cannot accept this evidence; not only because the system of registration involving ABNs did not become law until 1999 (A New Tax System (Australian Business Number) Act 1999 (Cth)) in preparation for the passage of the GST legislation (A New Tax System for Australians (Goods and Services Tax) Act 1999 (Cth)) but because Mr McIlwraith’s ABN history was placed in evidence and showed a registration from July 2000 and in respect of which there appeared never to have been any activity.

13. In any event, Mr and Mrs McIlwraith divorced and the house was sold.  He received half of the proceeds of sale and with them purchased a home to live in at Port Kembla in cash.  It was after this time that Mr McIlwraith entered into the first of the transactions involving SLC and Mr Riotto.  Because there are different issues arising with respect to each I will treat them separately.

    The first loan of $50,000

14. Mr McIlwraith testified that he had wanted to fix a few loose ends at the house at Port Kembla and had sought a $50,000 loan from SLC which he had become aware of because of a newspaper advertisement.  He telephoned and spoke with Mr Riotto at which time a meeting was arranged at SLC’s premises at Chandos Street.  Mr McIlwraith says that he told Mr Riotto what he wanted to do with the house; that he was in receipt of Centrelink benefits and that he had a degree of brain damage.  I accept this evidence.  Some of it was expressed in the form ‘I was aware that he knew’ but I do not think that Mr McIlwraith was attempting any more than to report what was said.  In any event, no objection was taken to the answer.  He also told Mr Riotto that he could not raise the money elsewhere.  Mr Riotto was not called to contradict any of this.  Fortunately, Mr Riotto was able to help and a loan of $50,000 was extended.

15. There was no dispute before me that this loan was handled as a personal loan.  The actual lender appears to have been the NAB; it is not clear whether there was a mortgage involved but given the circumstances it would be surprising if there were not.

16. Mr McIlwraith then appears to have decided to sell his home at Port Kembla and to move ‘up the country’.  This he did, purchasing a block of land on the Old Oxley Highway at Yarras which is near Wauchope on the midcoast of NSW.  A subsequent valuation report prepared in the lead up to a subsequent mortgagee sale described this land as 16.187 hectares of undulating land, 50% of which was covered with bush.  The land was zoned rural and did not permit the construction of a dwelling.  Mr McIlwraith intended to live there nevertheless and to that end built a little shanty out of a caravan.  It was without power apart from a 12 volt solar panel.  The pictures attached to the valuation report reveal a dwelling to which the description commodious does not readily attach.  It appears that Mr McIlwraith attempted to persuade the Hastings Council to erect a letterbox on the property which he appeared to believe would mean that the land was residential.  This appears, however, to have been in vain.  With that background it is then necessary to turn to the second loan.

    The second loan of $11,000

17. At this time Mr McIlwraith had a girlfriend whom he had met through an introduction agency.  She was Chinese by origin although Mr McIlwraith thought she had Japanese nationality.  When he met her she had told him that she had a permanent visa for Australia but at some later time it turned out that, in fact, she only held a student visa.  Further, it emerged that she was married to a man in Japan.  Although she had stayed with Mr McIlwraith at the property the relationship ended and she wanted to return to Japan.  Her ability to do so was limited, however, because, she left a satchel containing $4,000 at a McDonald’s restaurant.  I am not able to throw any more light on this perplexing evidence.  I am, however, satisfied that Mr McIlwraith genuinely believed it to be so, and that he decided to help her out.  Part of this help was to consist of paying her airfare back to Japan; and part of it to provide a residential bond so that she could have somewhere to stay.

18. After the relationship ended, Mr McIlwraith decided to sell the property and, as he said, move back to his mother’s home at Wollongong.  He approached a real estate agent to assist in its sale and they told him the property was worth between $150,000 and $170,000.  Mr McIlwraith determined that he needed about $10,000 which would be used to provide the ex-girlfriend with a plane ticket to Japan and the bond for a home and the balance would be used by him to do some things ‘to make the block sellable’.

19. Mr McIlwraith says that it was at this time that he contacted Mr Riotto again, once more by telephone as a result of which an appointment was made for a meeting.  He says he told him all of the above matters and that he needed a loan for $10,000.  He then went to SLC’s office at Chandos Street and met with Mr Riotto.  Mr McIlwraith had sought a loan of $10,000 but this, according to Mr McIlwraith, was elevated to $15,000 of which $4,000 was to be ‘in lieu, which would then safeguard me against foreclosure’.  Mr McIlwraith said that at that point during the meeting Mr Riotto had all of a sudden decided that the loan was to be a business loan and left the room.  Mr McIlwraith was clear that Mr Riotto knew that he was in receipt of Centrelink benefits and that he had not told him that the land was an investment property.

20. He was then presented by Mr Riotto, upon his return, with two documents: a letter of retainer for SLC as finance broker and a letter of offer from an unnamed financier for a loan for $11,000.  Under the retainer letter SLC agreed to procure the loan in return for a fee of $825 which would be payable even if the loan did not proceed.  The loan would be for six months at an interest rate of 5% per month.  Interest was payable monthly and, if not paid, capitalised.  Mr McIlwraith accepted that Mr Riotto told him it was a business loan; indeed, it was his evidence that the determination that the loan would be for business purposes was made by Mr Riotto.  I accept this evidence which Mr Riotto was not called to contradict.

21. There was a second set of documents which needed to be executed including a mortgage and a declaration of purpose for which the credit was to be provided.  Mr Riotto sent Mr McIlwraith around the corner to the chemist where a Justice of the Peace was available to witness the documents.  The two letters are dated 3 May 2005 and the mortgage document 5 May 2005 from which I infer that Mr McIlwraith must have visited SLC twice in two days.  Although Mr McIlwraith can recall only one visit I do not think his recollection is correct.  

22. I do not think there was any prospect that Mr McIlwraith understood any of the documents which he was asked to sign.  Having seen Mr McIlwraith in the witness box I also have no doubt that this would have been abundantly obvious to Mr Riotto who could not have failed to have understood at once Mr McIlwraith’s deficiencies.

23. After the payment of fees Mr McIlwraith received $9,243.50.  His evidence was that he used this money to tidy up the land probably by clearing it; repairing the fences; buying some corrugated iron to stop the leaking in the shanty; sending his former girlfriend back to Japan and also to live on.  I think it is likely that he also advanced the former girlfriend a bond.

24. At this time Mr McIlwraith continued his efforts to sell the land.  He maintained his postal address at his mother’s house but was living in his car on the land to be there in his efforts to sell it.  Mr McIlwraith accepted that he planned to repay the loan from the proceeds of the sale of the land and that he expected this to occur in a period of about three to six months.

    The third loan of $5,000

25. These efforts proved unsuccessful.  After about three months, on 31 August 2005, Mr McIlwraith again approached Mr Riotto for a further loan of $5,000.  Mr McIlwraith said that this was because he had run out of funds.  Under cross-examination it was put to him that the purpose of this further loan was to pay for advertising of the property.  His response on this occasion was that he could not recall his purpose although his earlier position was that he had run out of funds.  It is difficult to know what to make of this.  Since he was living in a car or at his mother’s house he had no accommodation costs.  His testimony was that he had never made any repayments on the loan.  He was in receipt of benefits of between $450-$550 per fortnight.  There was evidence that new real estate agents did advertise the property in the Acreage Review November edition but I do not think that it can have cost $5,000.  Further, the dates do not match.  The second loan of $5,000 was advanced in August or, at the latest, early September 2005, but the advertising in the Acreage Review was not placed until November.  It seems to me more likely that Mr McIlwraith was simply using money to supplement his Centrelink payments.  I do not accept, therefore, that he was intending to use the money for advertising. 

1. As in the case of Mrs Polimeni and Ms James there is a structural difficulty with ASIC’s case in relation to Mr Hinds albeit of a different kind. Mr Hinds did not sign the business loan declaration at the offices of ALC, as Mrs Alptekin had but, rather, six days later at the offices of the solicitor Mr Trimarchi. ASIC’s first case that it was unconscionable to procure Mr Hinds to give away his rights under the Code by getting him to sign the declaration encounters the factual problem that this did not occur. What ALC did was to give Mr Hinds the name of a solicitor who then advised – as I have accepted – Mr Hinds of the nature of the business loan declaration. Until such time as the business loan declaration was signed none of Mr Hinds’ rights under the Code were affected. I do however accept ASIC’s variant on this first argument; that is, it was unconscionable to get Mr Hinds to sign the brokerage contract and loan offer letter given the terms for the same reasons given in the case of Mrs Polimeni. In that regard, breaches of ss 12CA and 12CB are established.

   (b)      Unconscionable conduct – asset lending

2. I turn then to ASIC’s claim that it was unconscionable to arrange a loan to Mr Hinds of $8,000 because it was pure asset lending. This case was pursued against ALC as broker.  I have accepted above that, in principle, the advance of a loan secured by the borrower’s only asset is unconscionable when it is obvious to the lender that default is inevitable and that the security is to serve as the primary means by which the loan will be repaid.  In the case of Mr Hinds the cashflows are thus:  on the drawdown of the loan he received $3,604.25 which was on 17 March 2006.  One year later he was required to repay $8,000.  Whether it was Hayley Sutherland or Helen Youssef who took down Mr Hinds’ details, what was plainly recorded in ALC’s files was Mr Hinds’ income of $1,200 per month which is an annual income of $14,400 or a weekly income of just under $277.  The repayments would have needed to have been $154 ($8000/52).  This would have left Mr Hinds with $123 per week upon which to live.  The question then is whether Ms Youssef or Ms Sutherland knew that Mr Hinds had no prospects of repaying this loan.  Into that question must be injected the fact that Mr Hinds lived in an unencumbered house and had no accommodation outgoings beyond charges for council rates, electricity and, perhaps, gas utilities.  However, granted all these matters I do not think that Mr Hinds could have lived on such a modest sum nor do I think that Ms Youssef or Ms Sutherland would have thought that he could.  I have excluded from my assessment of that matter, in ALC’s favour, the disguising effect of the prepayment of the interest.

3. ALC submitted that it had a reasonable expectation that the loan would be repaid out of Mr Hinds’ earnings from his speaking engagement in the Philippines. I do not accept this. All that Mr Hinds told Ms Sutherland and/or Ms Youssef was that he hoped that he might be reimbursed for his expenses. But this was certainly not a given and, even if it had been, there is no way that a reimbursement of his airfare and other expenses would have approached $8,000. In those circumstances, I accept that this was a case of asset lending. Was it unconscionable for ALC to arrange such a loan? I think so; ASIC’s case against ALC is made good both under ss 12CA and 12CB.

   (c)      Unconscionable conduct – personal circumstances

4. ASIC’s third case was that Mr Hinds was of limited education, did not understand legal documents and desperately needed the money. These factual matters are not made good. As to the first matter Mr Hinds’ education might not have been expansive but he seemed reasonably astute. His understanding of legal documents has less relevance when Mr Trimarchi’s letter of advice is considered. As to the second matter Mr Hinds was very keen to go the Philippines but that is not the same as being in financial distress. In any event, I do not accept that Ms Sutherland or Ms Youssef had any reason to think that Mr Hinds suffered from a lack of education. Whilst I accept that ALC should be taken to have been aware of Mr Hinds’ enthusiasm to buy a ticket to the Philippines I do not accept that such enthusiasm amounted to a special disability. As a result, there has been no contravention of s 12CA or s 12CB.

5. It was submitted on ALC’s behalf that Mr Hinds would have raised the $8,000 from somewhere else even if ALC had declined to extend the loan.  The factual basis for this argument is that Mr Hinds had worked out that to get a short-term loan all one needed to do was to say it was for business purposes.  I accept that Mr Hinds had indeed worked that out by 14 June 2006 when he sent an email to Ms Youssef seeking a further loan which was expressed in terms indicating an understanding of the need for ALC to be told the loan was for business purposes.  I do not, however, accept that this was so when Mr Hinds was seeking the original $8,000 loan or even for some short period of time thereafter.  As a matter of fact, therefore, I do not accept that Mr Hinds would have been able to obtain the money at the relevant time from another lender unless that lender were willing to engage in the same kind of unconscionable conduct as ALC.

   (d)      Misleading and deceptive conduct

6. In relation to ASIC’s first case about misleading and deceptive conduct the conclusions about Mr Hinds should be the same as in the case of Mr and Mrs Alptekin:  the letter of loan offer was misleading because it suggested that an offer of a loan had been received when this was not so.

7. ASIC’s second misleading and deceptive conduct case involves different considerations.  Here the idea must be that ALC (through Ms Youssef) mislead AMR (through Mr Riotto) by suggesting to him that Mr Hinds’ loan was a business loan when in truth it was not.  If I were prepared to accept that Mr Riotto believed that the business loan declarations obtained by ALC in the course of its business indicated that the loan in question was a business loan then this argument would make sense.  If that were accepted it would mean that Ms Youssef’s communication to Mr Riotto could be reasonably expected to mislead.  But I do not think that Mr Riotto placed any faith in the business loan declarations generated by ALC.  I draw that conclusion because of Ms Amphone’s evidence as to the existence of this practice within ALC generally; more importantly, because of Mr Riotto’s personal involvement in that practice in the case of Mr and Mrs Alptekin and in the case of Mr McIlwraith. I do not, therefore, accept that this second misleading and deceptive conduct case is made out.

   VIII.    ASIC’s case as to Mr McIlwraith

8. The position of Mr McIlwraith is the most complicated in this litigation.  This is because he borrowed two amounts from AMR at different times.  It is also because those loans were the subject of proceedings in the CTTT in which that Tribunal made certain findings of fact.  ALC contends that those findings give rise to an issue estoppel.  In addition, ASIC seeks compensation on behalf of Mr McIlwraith.

9. There is no dispute about the first loan to Mr McIlwraith from the NAB.  It is useful then to begin with the second loan which was made to Mr McIlwraith of $11,000.

   (a)    The second loan of $11,000

10. This loan was not sought for predominantly personal, household or domestic purposes.  Rather the loan was sought for the four purposes to which I have made reference above viz, to tidy up the land, to send his ex-girlfriend back to Japan, to provide her with a bond and to live on.  Accordingly, I do not accept that the loan was one to which the Code applied.

    (i)    Unconscionable conduct – special disadvantage and the business loan declaration

11. ASIC’s first case turns on whether it was unconscionable for Mr Riotto to obtain Mr McIlwraith’s signature on the business loan declaration in circumstances where it was plain that Mr McIlwraith could not have understood the significance of that to which he was agreeing. 

12. Plainly Mr McIlwraith could not have understood the significance of the loan being designated for business purposes.  But against that it may be said that the loan was for business purposes.  Viewed that way, Mr McIlwraith’s non-comprehension may be seen as causally irrelevant; if he had understood what a business loan was he agreed that he would have agreed anyway.  Put another way, assuming the conduct to be unconscionable it caused Mr McIlwraith no loss – what caused loss, if loss there was, were the high interest rates.

13. I do not think this argument should be accepted for equity does not permit the stronger party to an unconscientious bargain to avoid the consequences of its exploitative behaviour by means of notions of causation.  ‘It does not appear to be essential in all cases that the party at a disadvantage should suffer loss or detriment by the bargain’: Blomley at 405 per Fullager J.

14. Accordingly I accept ASIC’s case in relation to the business loan declaration.  For the reasons I have given in the case of the Polimenis I also accept the second variant of this argument arising from the brokerage letter and loan offer letter.

    (ii)    Unconscionable conduct – asset lending

15. On the other hand, I do not think ASIC’s second case based upon asset lending is made good.  Both Mr Riotto and Mr McIlwraith understood that Mr McIlwraith was trying to sell the property.  Default was by no means inevitable.  Had the property been sold, as had been intended, the loan would have been easily repaid.

    (iii)    Unconscionable conduct – personal circumstances

16. ASIC’s third case – based upon Mr McIlwraith’s disability – should succeed.

17. Mr Riotto knew that Mr McIlwraith was suffering from significant mental impairment – he did not chance the witness box to suggest to the contrary – and he knew that Mr McIlwraith had no grasp of what the pieces of paper, which were to be witnessed at the chemist, implied. 

18. As a matter of equitable jurisprudence this was a canonical example of a special disability; it was the deliberate exploitation of mental infirmity. It reflects poorly on Mr Riotto. The case under s 12CA is, therefore, made out. Since I have not found any facts which are different to those found by the CTTT in the proceedings before it there is no need to inquire how the principles of issue estoppel might have operated in the present circumstances.

19. The question under s 12CB is whether this conduct is unconscionable; whether it has about it an air of moral turpitude; or a departure from acceptable norms of behaviour. At times the boundaries between robust commercial behaviour and unconscionable conduct may be indistinct. Where the facts which arise concern a loan to an obviously mentally disabled man, with no income beyond his disability pension, of $11,000 at 5% per month secured over his only asset the answer comes easily: this is reprehensible conduct. A breach of s 12CB is established.

20. ASIC also pursued a case based on s 12CC which proscribes conduct which is ‘in all the circumstances, unconscionable’ if the conduct is in connexion with the supply or possible supply of financial services. The content of the unconscionability contemplated by s 12CC is thus the same as that obtaining under s 12CB; the only difference is the connexion with the supply of financial services. I have no doubt that SLC’s services related to the provision of financial services. It follows that a breach of s 12CC by SLC is also established.

    (b)    The third loan of $5,000

21. So far as the third loan of $5,000 is concerned the analysis is different.  There is no evidence that Mr McIlwraith ever executed a business loan declaration for this loan so that for the reasons already given in relation to Mrs Polimeni and Ms James, there could be no unconscionable exploitation.  On the other hand, for the reasons given in the case of the Polimenis I accept that procuring Mr McIlwraith’s signature on the brokerage letter and loan offer letter was unconscionable.  Although only the first page of the brokerage letter is available, tendered as Exhibit 61, I find that it would have contained the critical provisions dealing with the charge and the right to lodge a caveat.  Each of the other brokerage letters which were in evidence contained these terms and I draw the conclusion they were standard terms which would have been included in the missing pages of Exhibit 61.  The contrary was not suggested.

22. As with the second loan of $11,000 I accept that both Mr McIlwraith and SLC had an anticipation that the property would be sold so that what is presented is not an example of asset lending. However, both of those conclusions are immaterial because, as with the second loan, it was entirely unconscionable – under ss 12CA, 12CB and 12CC – to extend this loan to Mr McIlwraith because Mr Riotto knew that he was obviously mentally impaired, and had no capacity to understand the import of what he was doing.

    (c)   Misleading and deceptive conduct

23. As a matter of formality ASIC’s pleaded case did not include a claim that SLC had engaged in misleading and deceptive conduct in relation to Mr McIlwraith.  Such a case was, however, conducted at trial by ASIC.  It is true that the various defendants frequently submitted that they were only meeting the pleaded case – and no other – nevertheless I conclude that this case was not only put by ASIC but defended by SLC on the same basis as in the case of the Alptekins.  Useful comparison may be made with Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356 at 374-375 [51]-[59] per the Court. In those circumstances, I regard the misleading and deceptive conduct arguments as having been run in Mr McIlwraith’s case.

24. They are, however, to be dealt with on the same basis as the Alptekins’ case.  The loan offer letter was misleading but SLC did not mislead AMR into thinking that the loan was a business loan because Mr Riotto was not misled by himself.

    IX.    Vicarious Liability

25. Insofar as ALC’s or SLC’s liability was said to arise from the actions of its employees they submitted that they should not be held vicariously liable for those actions. I do not think that vicarious liability is, however, the relevant concept. The present case involves no attempt to saddle ALC or SLC with a liability imposed by law on their employees. Rather, ASIC’s case is that ALC and SLC have themselves directly committed breaches of the ASIC Act.

26. The breaches alleged fall into four categories.  The first concerns claims that by offering to enter into a brokering contract on certain terms ALC/SLC engaged in breaches of the ASIC Act because they were aware that the relevant clients had not sought business loans. There is no doubt that letters on such terms were sent. The only question is whether ALC/SLC should be taken to have known that the loans were not for business purposes. I have already concluded that the relevant staff members did know these matters, except in the case of the second loan to Mr McIlwraith of $11,000. The critical question therefore is whether their knowledge is to be attributed to ALC/SLC and that turns on principles of agency law, not vicarious liability.

27. Those principles are relatively clear.  There is a presumption that knowledge which is imparted to an agent (like Ms Naidoo) by a third party (like Mr Hinds) is imputed to the principal.  Mr GE Dal Pont’s useful book Law of Agency (Butterworths, 2001) cites at [22.43] p 263 the United States Supreme Court’s decision in Mutual Life Insurance Company of New York v Hilton-Greene (1916) 241 US 613 at 622 per McReynolds J for that proposition. The knowledge which results in the principal is actual knowledge.

28. There are exceptions to this but none I think are pertinent to this case.  A principal is not fixed, for example, with knowledge of a kind that an agent had no duty to communicate to the principal:  El Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685 at 698 per Nourse LJ, 700 per Rose LJ and 703-4 per Hoffmann LJ. In this case, it goes without saying that ALC and SLC’s employees should have reported at once to them that the loans in question were not for business purposes.

29. The second class of breaches consists of those claims where it is said that ALC/SLC arranged loans knowing they were not business loans or where what was involved was asset lending.  Like the first class this turns on the knowledge of ALC/SLC staff.  In each case I have found the relevant staff members had the requisite knowledge, except in the case of the second loan to Mr McIlwraith of $11,000.  Because they were under a duty to inform ALC/SLC of the matter of which they knew, ALC/SLC also knew those matters.

30. The third class of breaches concerned the position of Mr McIlwraith, where it was said that it was unconscionable to lend money on such terms to an obviously impaired individual.  In that case, Mr Riotto was, as I have found, aware of Mr McIlwraith’s condition and this knowledge is plainly attributable to SLC.

31. The fourth class consists of the misleading letters.  These were sent on ALC or SLC’s letterhead.  I do not accept that ALC/SLC did not authorise their terms.

    X.    The position of Mr Riotto and AMR

32. ASIC also claimed in Mr McIlwraith’s case that AMR had engaged in unconscionable conduct by extending the loans in question.  Because Mr Riotto was both the directing mind of SLC, as broker, and AMR, as lender, I see no reason not to embrace the proposition that the advance of the two loans was unconscionable. My reasoning for that is the same as in the case of SLC except that it does not apply in relation to the brokerage letter (in which AMR is not implicated).

33. ASIC also claimed that Mr Riotto was a person who was involved in SLC and AMR’s contraventions with respect to Mr McIlwraith within the meaning of s 12GM of the ASIC Act. This involves an element of knowledge on Mr Riotto’s part but I am satisfied that he was fully aware that what he was doing to Mr McIlwraith was unconscionable. In that circumstance, the knowing involvement case is against him made good.

    XI.    Relief

34. ASIC submitted that it was entitled to obtain declaratory relief that ALC and SLC had engaged in contravention of ss 12CA, 12CB, 12DA and 12DB (and s 12CC for Mr McIlwraith). Whilst ASIC accepted that there was no longer any live dispute between the individuals concerned and Mr Riotto’s companies it nevertheless submitted that as the regulator of the ASIC Act it was entitled to have the Court make declarations.

35. The Court appears not to have an express power under the ASIC Act to declare, at the suit of ASIC, that provisions of that Act have been breached. But it does have a general power to make a binding declaration of right even where no consequential relief is claimed by virtue of s 21 of the Federal Court of Australia Act 1976 (Cth). The course of authority in this Court confirms that where a regulator seeks a declaration of a contravention of the statute it administers, it has standing to pursue that claim: cf. Australian Competition and Consumer Commission v Goldy Motors Pty Ltd [2001] ATPR 41-801 at 42,629-42,630 [30] per Carr J; Australian Competition and Consumer Commission v Kaye [2004] FCA 1363 at [199] per Kenny J.

36. Whether the power should be exercised is a different question. Against the making of these declarations it might be said that apart from Mr McIlwraith (in respect of whom ASIC also seeks compensation) there is presently no dispute between the persons to whom the loans were extended and ALC/SLC. So viewed, there is no controversy to which the proposed declarations may be seen as being apt to quell. But I do not think that this should be accepted. The declarations will fulfil the purpose of vindicating ASIC’s claim that ALC/SLC’s conduct did involve contraventions of the ASIC Act and this in turn is likely to provide clarity as to how comparable lending practices of the kind under consideration fit within that regulatory framework. I am satisfied in those circumstances that the making of declarations will not be moot and will serve a purpose with real utility.

1. The defendants submitted that the declarations should not, as a matter of discretion, be made because:  first, the real purpose of the declarations was to facilitate an attempt by ASIC to drive Mr Riotto out of business by cancelling his financial services licence; and secondly, the breaches which were disclosed related to historical practices which had now ceased in light of the introduction of new legislation.

2. I do not accept either of these arguments.  As to the first, there is no doubt that ASIC began its investigation into ALC/SLC more or less with the purpose which they now allege.  According to ASIC’s referral decision: ‘The objective will be to establish evidence of and seek declarations as to contraventions which will highlight the unlawful practices in this currently unregulated sector, which will ultimately be relevant to the eligibility of Mr Riotto and related entities for any licence under the new regime’. 

3. To understand what that implies it is necessary to say something of the National Consumer Credit Protection Act 2009 (Cth) which commenced on 1 April 2010 after all of the events with which this litigation is concerned had taken place.

4. Amongst the powers ASIC has under that Act is a power to issue a banning order against a person who has been involved in a contravention of a provision of ‘credit legislation’: s 80(1)(d). The expression ‘credit legislation’ includes Division 2 of Part 2 of the ASIC Act which contains ss 12CA, 12CB, 12CC, 12DA and 12DB. A declaration that Mr Riotto had been involved in a contravention of those provisions would permit ASIC to issue a banning order against him. Under s 81 a banning order would include an order prohibiting Mr Riotto ‘from engaging in any credit activities’. I accept therefore the submission that one potential – or even likely – consequence of declaring Mr Riotto to have been involved in such a contravention is precisely as is submitted on his behalf. I also accept that this was at least one of the purposes with which the antecedent investigation and present litigation was commenced; further, that this was an important reason and not an ancillary or incidental purpose.

5. Granted that that be so, I do not accept that there is anything inappropriate or improper about that purpose.  To the contrary, it is the kind of matter that a regulator such as ASIC might be expected to pursue.  An alternative form of the argument focussed not on the alleged impropriety of ASIC’s decision to investigate but instead on its alleged character as a shortcut.  On this view of things, ASIC could decide not to grant a licence to Mr Riotto but would be obliged to give Mr Riotto a hearing before doing so.  The current proceeding, with its end of seeking a declaration, was to be seen as a way of denying Mr Riotto procedural fairness. 

6. Section 55 of the National Consumer Credit Protection Act certainly provides for a hearing if a licence is not renewed. By contrast, if the Court were to declare Mr Riotto to have been involved in a contravention of credit legislation then ASIC’s decision on any banning order would be very straightforward. The argument did not, however, take the next step of explaining why it would be straightforward but an articulation of that reason reveals why the argument is unsound. A declaration about Mr Riotto’s conduct will create an estoppel binding ASIC and Mr Riotto. ASIC will be obliged to give Mr Riotto a hearing before making any decision about banning him (s 80(4)) but that hearing will necessarily proceed on the basis of whatever this Court has determined. There is, however, no unfairness of a procedural kind involved in that course. Mr Riotto will already have had the full benefit of a trial in this Court which of course involves many more entitlements as a matter of right in terms of procedural fairness (such as cross-examination) than any hearing conducted by ASIC. For that reason, far from reducing the degree of procedural fairness Mr Riotto would be afforded if ASIC simply decided to cancel Mr Riotto’s licence under s 55, the present proceedings give Mr Riotto full trial protections on the central issue which concerns him.

7. The second matter concerned the suggestion that the events in question had arisen historically and were to be seen as aberrations rather than systemic occurrences.  An allied submission was that a compliance manual had been prepared in light of the new legislation.  The evidence before me was that Mr Riotto was a hands-on manager.  I infer that Mr Riotto knows a good deal about the provenance of the manual and of the background not only to its preparation but also its accuracy.  The only evidence before me about the relationship between that manual and present practice is Ms Naidoo’s about which I am more than a little sceptical.  The one person who could throw light on this issue – as the apparent controlling mind of ALC/SLC – is Mr Riotto but he did not give evidence.  In a situation where I am already minded to reject the proposition that the manual meant that ALC/SLC would not engage in the impugned conduct in the future I may more confidently draw that inference in Mr Riotto’s absence and I do.

8. Largely for similar reasons I do not accept that the events disclosed in this litigation were instances of casual negligence by former employees.  I take as my lead the evidence of Ms Amphone that these practices were known to be taking place.  In order to dispel that impression I would need to hear from Mr Riotto; as it stands I accept Ms Amphone’s evidence on the extent of the practices.  It was submitted that ASIC had identified only five transactions and that this had to be seen in the context of the size of ALC/SLC’s operation.  At various points during the trial it was said that there were large numbers of transactions but no actual attempt to show precisely the number involved was undertaken.  Ms Youssef gave evidence whose effect was that about 7.5 loans per week were advanced.  A letter from ALC’s solicitors to the Mortgage Industry Association of Australia suggested there had been over 4,500 clients over a 12 year period.  This evidence is roughly consistent and suggests that there were between 375-390 loans per year.  Granted that that be so, it does not follow that these five transactions are to be seen as outliers.  To reach that conclusion I would need to know very much more than the defendants have revealed about their operations.

9. For those reasons I accept that ASIC is entitled to a declaration in respect of each contravention I have found.  I do not think that the form of the declaration in ASIC’s originating process is appropriate.  The over extensive use of defined terms in it means that the declarations are difficult to understand.  They will need to be unpacked into something clearer.

10. ASIC also sought an injunction restraining ALC/SLC from representing that a person had sought a loan which was wholly or predominantly for business or investment purposes when that person had sought a loan which was for personal, household or domestic purposes.  I am not persuaded that the existence of the new legislation means that Mr Riotto and his companies will not commit this conduct again.  I accept that the National Consumer Credit Protection Act makes the conduct herein a serious criminal offence.  Section 33(2) now imposes a criminal penalty of a fine of up to $11,000 or two years imprisonment for procuring borrowers to sign loan purpose declarations which are misleading in a material particular.  Generally speaking some caution must be exercised in issuing an injunction which closely tracks a criminal offence for the unconstrained penalty for contempt may exceed the prescribed penalty for the offence.  In this case, I do not accept that this provides a sufficient reason not to grant injunctive relief.  I will, therefore, grant such relief.

11. ASIC also sought compensation for Mr McIlwraith. Where a person consents in writing (s 12GM(3)(b)) ASIC may apply (s 12GM(2)(b)) for a compensation order ‘on behalf of such person’. The kind of order is disclosed in s 12GM(1); for the purposes of this case it will suffice if Mr McIlwraith has suffered loss or damage by the conduct of SLC or Mr Riotto and for that conduct to have been a breach of s 12CA, s 12CB or s 12CC.

12. AMR, through SLC, advanced Mr McIlwraith $16,000 in all.  However, ultimately the interest bill consumed the whole of the equity in his property.  SLC and Mr Riotto submitted that there had been a breach in the chain of causation when Mr McIlwraith had commenced proceedings against SLC in the CTTT which were ultimately unsuccessful.  I do not accept, however, that this has any effect on the issue of causation, still less constituting a break in that chain.  The immediate cause of the loss was SLC’s exercise of its power of sale which followed a presumably successful, if uncontested, possession proceeding in the Supreme Court.  Proceedings of that kind were the very thing likely to happen and well outside anything which might relieve SLC or Mr Riotto of liability.  The sale price for the property was $80,000 and it is this which Mr McIlwraith has lost.  On the other hand he obtained the benefit of the loan advances which on their face were $11,000 and $5,000 respectively.  Some care is required, however, in assessing these loans.  The $11,000 loan included interest prepaid at the rate of 5% per month for six months which was $3,300. In fact, after deduction of proper expenses Mr McIlwraith received only the sum of $9,243.50.  Whilst I consider that Mr McIlwraith should have to account for the benefit of the receipt of that money (but not the interest which he did not receive) he should not have to do so at the rate of 60% per annum.  Rather the benefit is to be assessed using the published rates issued by the National Australia Bank at the relevant times for an interest only in arrears home loan calculated on weekly rates over the life of the loan.  The same approach is to be taken to the third loan of $5,000. 

13. That amount is then to be set off against the sum of $80,000 and interest paid at court rates thereafter.  The order is to be against SLC, AMR and Mr Riotto jointly.

14. At the close of the trial ASIC applied for leave to amend its originating process and amended statement of claim to raise identical claims under the Competition and Consumer Act 2010 (Cth) (more correctly, under the former Trade Practices Act 1974 (Cth) as continued by that Act). The sole purpose of this amendment was to overcome the need for it to demonstrate that the defendants’ conduct was in relation to financial services within the meaning of ss 12CA, 12CB, 12DA and 12DB. Since I have concluded that the conduct does so relate there is no utility in resolving that debate which raises some issues of significance about the capacity of ASIC to enforce both the former Trade Practices Act and the Competition and Consumer Act. There being no utility in determining the issue I decline the amendment application. Had I arrived at a different view on the meaning of the expression ‘financial services’ I would have granted the amendment. The defendants did not suggest prejudice; their only point was that during an earlier application before Emmett J in which the adequacy of its pleading under the ASIC Act was in issue, ASIC had not suggested that it had a case under the Trade Practices Act. The transcript of that directions hearing was placed in evidence. Only pages 43, 49 and 50 were relevant. All three of these pages contain statements by the defendants’ counsel emphasising that the ASIC Act was concerned with financial services but the Trade Practices Act was not.  I do not detect in such material any basis for concluding that ASIC had either elected not to make a claim under the Trade Practices Act or otherwise somehow disabled itself from relief.

    XII.    Orders

15. The parties are to bring in short minutes of order giving effect to these reasons within 14 days.  The defendants must pay the plaintiff’s costs.  The matter will be listed for directions on 21 February 2012 to resolve any remaining dispute about the form of orders.

I certify that the preceding two hundred and eighty-seven (287) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.

Associate:

Dated:       3 February 2012

Schedule 1

Australian Securities and Investments Commission Act 2001 (Cth)

Subdivision C—Unconscionable conduct

12CAUnconscionable conduct within the meaning of the unwritten law of the States and Territories

(1)A person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.

(2)This section does not apply to conduct that is prohibited by section 12CB.

12CB   Unconscionable conduct

(1)A person must not, in trade or commerce, in connection with the supply or possible supply of financial services to a person, engage in conduct that is, in all the circumstances, unconscionable.

(2)Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened subsection (1) in connection with the supply or possible supply of services to a person (the consumer), the court may have regard to:

(a)the relative strengths of the bargaining positions of the supplier and the consumer; and

(b)whether, as a result of conduct engaged in by the supplier, the consumer 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 consumer was able to understand any documents relating to the supply or possible supply of the services; and

(d)whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the services; and

(e)the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent services from a person other than the supplier.

(3)A person is not taken for the purposes of this section to engage in unconscionable conduct in connection with the supply or possible supply of financial services to another person merely because the person:

(a)institutes legal proceedings in relation to that supply or possible supply; or

(b)refers a dispute or claim in relation to that supply or possible supply to arbitration.

(4)For the purpose of determining whether a person has contravened subsection (1) in connection with the supply or possible supply of financial services to another person:

(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.

(5)A reference in this section to financial services is a reference to financial services of a kind ordinarily acquired for personal, domestic or household use.

Subdivision D—Consumer protection

12DA  Misleading or deceptive conduct

(1)A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.

(1A)     Conduct:

(a)       that contravenes:

(i)section 670A of the Corporations Act (misleading or deceptive takeover document); or

(ii)section 728 of the Corporations Act (misleading or deceptive fundraising document); or

(b)in relation to a disclosure document or statement within the meaning of section 953A of the Corporations Act; or

(c)in relation to a disclosure document or statement within the meaning of section 1022A of the Corporations Act;

does not contravene subsection (1). For this purpose, conduct contravenes the provision even if the conduct does not constitute an offence, or does not lead to any liability, because of the availability of a defence.

(2)Nothing in sections 12DB to 12DN limits by implication the generality of subsection (1).

12DB  False or misleading representations

(1)A person must not, in trade or commerce, in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services:

(a)make a false or misleading representation that services are of a particular standard, quality, value or grade; or

(b)make a false or misleading representation that a particular person has agreed to acquire services; or

(c)make a false or misleading representation that purports to be a testimonial by any person relating to services; or

(d)make a false or misleading representation concerning:

(i)a testimonial by any person; or

(ii)a representation that purports to be such a testimonial;

relating to services; or

(e)make a false or misleading representation that services have sponsorship, approval, performance characteristics, uses or benefits; or

(f)make a false or misleading representation that the person making the representation has a sponsorship, approval or affiliation; or

(g)make a false or misleading representation with respect to the price of services; or

(h)make a false or misleading representation concerning the need for any services; or

(i)make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including an implied warranty under section 12ED); or

(j)make a false or misleading representation concerning a requirement to pay for a contractual right that:

(i)is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy (including an implied warranty under section 12ED); and

(ii)a person has under a law of the Commonwealth, a State or a Territory (other than an unwritten law).

Note:Failure to comply with this subsection is an offence (see section 12GB).

(1A)For the purposes of applying subsection (1) in relation to a proceeding concerning a representation of a kind referred to in paragraph (1)(c) or (d), the representation is taken to be misleading unless evidence is adduced to the contrary.

(1B)To avoid doubt, subsection (1A) does not:

(a)have the effect that, merely because such evidence to the contrary is adduced, the representation is not misleading; or

(b)have the effect of placing on any person an onus of proving that the representation is not misleading.

(2)      Conduct:

(a)       that contravenes:

(i)section 670A of the Corporations Act (misleading or deceptive takeover document); or

(ii)section 728 of the Corporations Act (misleading or deceptive fundraising document); or

(b)in relation to a disclosure document or statement within the meaning of section 953A of the Corporations Act; or

(c)in relation to a disclosure document or statement within the meaning of section 1022A of the Corporations Act;

does not contravene subsection (1). For this purpose, conduct contravenes the provision even if the conduct does not constitute an offence, or does not lead to any liability, because of the availability of a defence.

(3)An offence under subsection 12GB(1) relating to subsection (1) of this section is an offence of strict liability.

Note:   For strict liability, see section 6.1 of the Criminal Code.