Commonwealth Bank of Australia v Chapman
[2010] VCC 441
•21 May 2010
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
BANKING & FINANCE CASES DIVISION
Case No. CI-09-04858
| COMMONWEALTH BANK OF AUSTRALIA | Plaintiff |
| ABN 48 123 123 124 | |
| v | |
| ALEXANDRA CHAPMAN | Defendant |
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| JUDGE: | HER HONOUR JUDGE KENNEDY |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 29 & 30 April and 3 May 2010 |
| DATE OF JUDGMENT: | 21 May 2010 |
| CASE MAY BE CITED AS: | Commonwealth Bank of Australia v Chapman |
| MEDIUM NEUTRAL CITATION: | [2010] VCC 0441 |
REASONS FOR JUDGMENT
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Catchwords: Banking - claim on home loan and “Viridian line of credit” loan - claim for possession pursuant to mortgage - whether compliance with ss80 and 85 of the Consumer Credit (Victoria) Code - whether compliance with s76 of the Transfer of Land Act 1958- whether Code applied to the line of credit in any event
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr. A. M. Sergi | Gadens Lawyers |
| For the Defendant | Mr. G. R. McCormick | Goldsmiths Lawyers |
| HER HONOUR: |
1 The Commonwealth bank seeks an amount of $1,203,673.28 plus interest pursuant to a Home Loan facility and also an amount of $511,165.02 plus interest pursuant to a “Viridian Line of Credit.” It also seeks possession of a property at 106 Devonshire Lane Mount Macedon, Victoria 3441 pursuant to a mortgage granted on 1 October 2008.
2 A background to this matter, based on a chronology of agreed facts prepared by the parties, appears below.
Background
3 Ms Chapman has been the registered proprietor of all that piece of land more particularly described in Certificate of Title Volume 01633 Folio 561 and being the land more commonly known as 106 Devonshire Lane, Mount Macedon, Victoria, 3441 (“the property) since about late 2007 at which time Ms Chapman granted a mortgage to St George Bank Limited.
4 In about September 2008, Ms Chapman approached officers at the Commonwealth bank’s North Melbourne Branch seeking finance of $1,600,000.
5 The Bank and Ms Chapman entered into an agreement on 27 September 2008 for the provision of a facility called a “Viridan Line of Credit” (the VLOC) for a principal amount of $490,000.
6 The Bank and Ms Chapman also entered into an agreement on 27 September 2008 for the provision of a “Complete Home Loan” for a principal amount of $1,110,000.
7 There was no business purposes declaration obtained pursuant to s.11(2) of the Consumer Credit (Victoria) Code (the Code) in relation to either facility.
8 The home loan was fully drawn down on 1 October 2008.
9 On 1 October 2008 Ms Chapman also executed a mortgage over the property in favour of the (Commonwealth) bank.
10 Ms Chapman made progressive draws on the VLOC on and from 1 October 2008.
11 On 26 March 2009, the bank sent a letter of demand to Ms Chapman regarding the home loan.
12 On 1 April 2009, the bank sent a letter of demand to Ms Chapman regarding the VLOC.
13 The bank, by way of its solicitors, Gadens Lawyers, sent a notice dated 22 May 2009 to Ms Chapman pursuant to s.76 of the Transfer of Land Act 1958 (TLA) regarding the Home loan.
14 Gadens lawyers were empowered to sign the s.76 Notice as duly authorised agents of the plaintiff pursuant to clause A26.5 of the Memorandum of Common Provisions which formed part of the mortgage (MCP).
15 The bank sent a further letter dated 27 May 2009 to Ms Chapman regarding the VLOC.
16 The bank sent a further demand dated 10 June 2009 to Ms Chapman regarding the VLOC.
[1] There was no dispute filed in relation to a notice of admit dated 14 April 2010
[2] Defendant’s Amended Defence dated 16 April 2010 at paragraph 23
[3] Defendant’s Amended Defence dated 16 April 2010 at paragraph 19
Issues 17
Ms Chapman generally admitted the matters giving rise to the bank’s causes of action[1] and took no issue with the quantum claimed pursuant to a certificate of amounts secured by the mortgage under clause A25 of the MCP.
18
Moreover, at the commencement of closing submissions, Counsel for Ms Chapman abandoned the defence pleaded in paragraph 21 of her Amended Defence dated 16 April, which was based on alleged representations made by a bank officer, Mr Michie. This meant that the oral evidence of Mr Michie, and a former bank officer, Mr Tabbone, as well as much of Ms Chapman’s oral evidence became irrelevant; the case largely turning on the documentary evidence.
19
Nevertheless, Ms Chapman claimed that the bank had not complied with ss80 and 85 of the Code and had also failed to comply with s76 of the TLA.
20
In particular it was alleged that no notice pursuant to s80 had been served by the bank with respect to the accelerated payment amount alleged to be due pursuant to the home loan and the mortgage[2] although Ms Chapman did accept that there was a valid s76 notice in respect of the home loan.
21
Further, that the notice of 10 June did not comply with s80(3) or s85(1)(b) of the Code and that there was no notice pursuant to s76 of the TLA in respect of the VLOC[3].
22
As will be seen from the pleading, an issue initially also arose as to whether the demand of 10 June needed to comply with s85. However, Counsel for Ms Chapman ultimately conceded in reply that there was no need for compliance with s85 given the VLOC facility was an “on demand” facility pursuant to s84(1) and, accordingly, does not contain an “acceleration clause” for the purposes of s85.
23
This was a proper concession in my view. Thus, pursuant to clause 3.2 of Part D of the Usual Terms and Conditions (UTC) (incorporated into the VLOC), the debit balance was to be repaid when the bank “demanded it.” This meant that the total amount outstanding was repayable “on demand” pursuant to s84(2)(a).
In relation to the Home Loan 24
The bank accepted that the Code applied to the Home Loan and said that ss80 and 85 were complied with by reason of the letter of 26 March.
25
Accordingly, the only issue in relation to the Home Loan was whether the letter of demand of 26 March 2009 complies with s80 and s85 of the Code.
In relation to the Viridian Line of Credit: 26 In relation to VLOC the bank denied that the Code applied. 27
However, if the Code applied, it said that the demand of 10 June complied with s80 of the Code.
28 It also claimed that the demand of 10 June complied with s76(2) of the TLA. 29 The issues in dispute were therefore as follows: (a) whether the Code applies to the VLOC loan; (b) whether the demand of 10 June complies with s80 of the Code; and (c) whether there has been compliance with s76 of the TLA by reason of the
demand of 10 June.30
Given I have ultimately found that there has been compliance with the Code I will first consider the issues on the basis that the Code applies to both the home loan and the VLOC.
31
There was a further issue as to whether the facilities should be considered separately or together in determining whether the Code applies, which I will also comment on, below. However, Counsel for Ms Chapman fairly accepted that the analysis of whether there is compliance with the Code would be the same regardless of whether the facilities were treated together or separately (in both cases, it would be necessary to examine the individual demands relied upon by the bank).
Whether compliance on presumption that Code applies
Home Loan
Whether letter of demand of 26 March complies with s80.
Provisions of the Code
32 Sections 80(1) – (3A) of the Code read:
“80 Requirements to be met before credit provider can enforce credit
contract or mortgage against defaulting debtor or mortgagor
(1) Enforcement of credit contract. A credit provider must not begin enforcement proceedings against a debtor in relation to a credit contract unless the debtor is in default under the credit contract and –
(a) the credit provider has given the debtor, and any guarantor, a default notice, complying with this section, allowing the debtor a period of at least 30 days from the date of the notice to remedy the default; and
(b) the default has not been remedied within that period.
Maximum penalty- 50 penalty units.
(2) Enforcement of mortgage. A credit provider must not begin enforcement proceedings against a mortgagor to recover payment of money due or take possession of, sell, appoint a receiver for or foreclose in relation to property subject to a mortgage, unless the mortgagor is in default under the mortgage and-
(a) the credit provider has given the mortgagor a default notice, complying with this section, allowing the mortgagor a period of at least 30 days from the date of the notice to remedy the default; and
(b) the default has not been remedied within that period.
Maximum penalty- 50 penalty units.
…(3) Default notice requirements. A default notice must specify the default and the action necessary to remedy it and that a subsequent default of the same kind that occurs during the period specified in the default notice for remedying the original default may be the subject of enforcement proceedings without further notice if it is not remedied within the period.
(3A) Combined notices. Default notices that may be given under subsections (1) and (2) may be combined in one document if given to a person who is both a debtor and a mortgagor.”
33 Section 85(1) of the Code provides that an “acceleration clause” is to operate only if the debtor or mortgagor is in default under the credit contract or mortgage and a default notice has been given under s80 which has not been remedied (unless the credit provider believes on reasonable grounds that the default is not capable of being remedied) and contains an additional statement:
…(b) ...of the manner in which the liabilities of the debtor or mortgagor under the contract or mortgage would be affected by the operation of the acceleration clause and also of the amount required to pay out the contract (as accelerated)…” (s85(1)(b))
34 An “acceleration clause” is defined in s84(1) as a term that provides that on the occurrence or non-occurrence of a particular event the credit provider becomes entitled to immediate payment of all or part of an amount under the contract that would not otherwise be immediately payable and includes where the credit provider has a discretion to require repayment (s84(1)(b)).
35 There was no dispute that both the home loan and mortgage contained an acceleration clause.
36 The home loan was constituted by a Consumer Credit Contract Schedule and the UTC. Clause 9.1 of Part A of the UTC defined various defaults while clause 9.3 provided that if a debtor was in default which was not fixed within the time allowed by any notice then “we may decide, without further notice, that all money owing by you under the Contract is due and payable immediately” (clause 9.3(d)) and “we may sue you for payment of the money you owe us” (clause 9.3(e)).
37 Under clause A22.5(a) of the MCP which formed part of the mortgage, after the bank had given a notice and the debtor did not within the time allowed in the notice remedy the default, the bank was not required to give another notice and may “decide, without further notice to you, that the Amount Owing
is due and payable immediately.”
Letter of 26 March38 The letter of 26 March reads:
“…Dear Ms Chapman
Name: Alexandra Chapman Loan Number: 726237808 Mortgage over Property at: 106 Devonshire Lane Mount Macedon VIC 3441
You are in default of your Home Loan contract and mortgage because of a
failure to make the required payments under your contract.
You have failed to make payments totalling $10861.01. You must pay this
amount.
If after 38 days from the date of this notice you do not pay us this amount, we:
(a) will be entitled to exercise our rights under the contract to accelerate payment of the outstanding balance of your loan. That is, instead of having to pay us normal payments required under the contract, you will have to pay us the whole amount you owe us on the loan account;
(b) may commence legal proceedings against you for the recovery of the
outstanding balance on your loan account; and
(c) may take possession of and sell property mortgaged to us as security for
the loan.
(d) may report the overdue payments to credit reporting agencies.
At the date of this notice, the amount required to pay out the contract (as accelerated) is $1125683.96. Until that amount is paid it increases with interest and any other amount we may debit to your account under the contract.
If you pay the amount demanded by this notice and then fail to make another payment which falls due within the period allowed for payment in this notice, we can exercise the rights noted above against you without further notice to you under the Consumer Credit Code…”
Whether there is compliance with the Code
39 Counsel for Ms Chapman accepted that the 26 March letter is compliant with the Code but only for the amount of $10,861.01
40 This was a fair submission since, pursuant to s80(3), the default notice:
(a) specifies the default as a failure to make required payments under the
contract;
(b) specifies the action necessary to remedy the default which is to pay an
amount of $10,861.01;(c) specifies that a subsequent default of the same kind occurring within the time for compliance (i.e. missing a payment) may be the subject of enforcement proceedings[4] without further notice.
[4] Defined in Schedule 1 to be court proceedings seeking possession or the recovery of money
41 Pursuant to ss80(1) and (2) a period of 38 days is given to remedy the default, being more than the requisite 30 days.
42 Finally, pursuant to s85(1)(b), the default notice contains an additional statement of the manner in which the liabilities of Ms Chapman would be affected by the acceleration clause in part (a) of the letter and also describes the amount required to pay out the contract as accelerated, being $1,125,683.96.
43 The notice also meets the purpose of protecting debtors from precipitate legal action and gives Ms Chapman the chance to remedy the default.
44 However, Counsel suggested that the “combination” of both s80 and 85 required that a second default notice be served for the accelerated amount.
45 He was unable to point to any authority in support of this proposition but cited the Annotated Consumer Credit Code 1999 by McGill & Willmott at page 602 which states:
“However, it may be the case that an additional notice of default is required to establish that the failure to comply with the demand for the accelerated amount is itself a default in respect of which the credit provider may bring enforcement proceedings.”
46 In my view, a natural reading of the provisions is that only one default notice is necessary in the case of an acceleration clause, subject to the proviso that the default notice must contain the additional statement required by s85(1)(b). The debtor is given proper notice in such a case of the potential application of an acceleration clause and the purpose and object of the Code is achieved[5] without the need for further notices.
[5] Schedule 2 clause 7
47 Moreover, section 80 only requires a default notice where there is a “default.” The essence of the contractual arrangements in this case were that the accelerated amount could be called for without any further notice. There was no suggestion that any further default was necessary in such circumstances; all that is required is a failure to fix a pre-existing default and an internal decision to require full payment.
48 There is simply no call for the operation of s80 in such circumstances wherein no further “default” existed. Indeed such a notice may serve to confuse a debtor in circumstances where she has already been clearly advised that the bank may take enforcement proceedings for the full amount at the expiry of the 38 days without further notice if she fails to pay the specified amount.
49 I therefore find that the letter of 26 March complies with the Code.
Viridian Line of Credit
Whether demand of 10 June complies with s80 of the Code
50 The letter of 10 June read:
“…Dear Ms Chapman
Name: Alexandra Chapman Viridian Account number: 3158010283731
Mortgage over property at: 106 Devonshire Lane MOUNT MACEDON VIC 3441
You are in default of your Viridian Account contract and mortgage because of a failure to make the required payments of $4768.27 being the amount due and owing on the account in accordance with the letter of demand dated 1 April 2009.
At the date of this notice, the amount required to pay out your account (as
accelerated) is $502053.03. Until that amount is paid, it increases with accrued
interest and any other amount we may debit to your account under the contract.If after 38 days from the date of this notice you do not pay us $502053.03, we:
(a) may commence legal proceedings against you for the recovery of the
outstanding balance on your loan account; and
(b) may take possession of and sell property mortgaged to us as security for the
loan.
(c) may report the overdue payments to credit reporting agencies.
(d) will incorporate the Bank’s default rate on the balance outstanding, which is
charged at a rate equal to 2% above the interest applying to the Loan.
As this could prove embarrassing to you, it would be in your best interests to
make suitable arrangements for the repayment of your indebtedness to us…”
51 The letter appears to meet the requirements of s80 of the Code. More particularly, in terms of s80(3):
(a) it specifies the default as a failure to make the required payments of $4768.29 being an amount owing in accordance with the letter of demand of 1 April;
(b) it specifies the action necessary to remedy the default being payment of
the full accelerated amount of $50,2053.03[6]; and(c) it does not need to spell out the consequences of any subsequent default of the same kind given the entire amount has already been called up pursuant to the bank’s rights to accelerate.
[6] The bank was entitled to ask for this amount immediately under clause 9.3(d) of Part A of the UTC
52 Further, pursuant to s80(1) and (2) a period of 38 days is specified, being more than the requisite 30 days.
53 The correspondence, hence, brings to the attention of Ms Chapman what she needs to do and gives her an opportunity to remedy the default.
54 As indicated already, Counsel ultimately conceded that the notice did not need to comply with section 85 given that it only applied to “acceleration clauses” under s84. Given the VLOC was an on demand facility it does not contain an “acceleration clause” as defined under s84(1).
55 Counsel however maintained that the suggestion at the end of the letter that the outcomes “could prove embarrassing” was “an effective qualification on the previous paragraphs” and was not to the effect that Ms Chapman may be subject to enforcement proceedings “without further notice.”
56 I do not accept that the suggestion that the steps “could prove embarrassing” constituted any “qualification” on the previous paragraphs which clearly gave notice of enforcement proceedings as required by s80. Thus a natural reading of the 10 June letter was that proceedings could commence and possession could be taken immediately (i.e without notice) following the expiry of 38 days without payment.
57 Further, although the notice is expressed in somewhat different terms to the correspondence of 26 March, there is no need to include the extra statement required by s85(1)(b) given the VLOC was not covered by s85. Ms Chapman had also already been put on clear notice of the bank’s request for the $4768.27 in the earlier demand of 1 April.
58 I therefore accept that the notice of 10 June is compliant with s80 of the Code.
Whether the demand of 10 June complied with s76 of the TLA
59 Section 76(1) and (2) of the TLA read:
“76 Procedure in case of default in payment of moneys secured
(1) If default is made in payment of the principal sum interest or annuity secured or any part thereof or in the performance or observance of any covenant express or implied in any such mortgage or charge and continues for one month or such other period as is therein expressly fixed, the mortgagee or annuitant may serve on the mortgagor or grantor of the annuity and such other persons as appear by the Register to be affected notice in writing to pay the money owing or to perform and observe the covenants (as the case may be).
(2) Where money secured by any such mortgage is made payable on demand a demand in writing pursuant to the mortgage shall for the purposes of this Act be equivalent to serving the notice aforesaid.
60 Counsel submitted that the letter of 10 June did not comply with s76 and invited comparison with the s76 notice of 22 May served in respect of the home loan. In particular it does not:
(a) identify the mortgage;
(b) contain any reference to s76 or s77.
61 Counsel further referred to evidence of Mr Tabone which suggested that a s76 notice was usually sent by lawyers.
62 However, because the VLOC was an “on demand” facility s76(2) only requires a “demand in writing” and any comparison with the demand served in relation to the home loan is unhelpful.
63 The demand of 10 June clearly defines the mortgage with reference to the Mt Macedon property.
64 I also do not view reference to s76 or s77 as necessary; the notice clearly spells out the consequences of default as including that the bank might take possession of the property.
65 I am further comforted in this view by the decision of Bunbury Foods Pty Ltd v National Bank of Australasia & Anor [7] which determined that it is not essential to the validity of a notice calling up a debt that it correctly state the amount of the debt; what is relevant is whether the debtor has been allowed a reasonable opportunity to meet the demand.
[7] (1984) 153 CLR 491; see also cases cited at [19.9] of Fisher & Lightwood, Law of Mortgage 2nd ed
66 In my view Ms Chapman was given a reasonable opportunity through the service of the 10 June demand in this case. This is particularly so when consideration is also given to the previous demand of 1 April.
67 I am satisfied that the letter of 10 June complies with s76(2).
Whether Code applied to VLOC
68 Given the above circumstances it is unnecessary to consider whether the Code applies to the VLOC facility. Even if it does apply, the bank has complied with the provisions relied upon by Ms Chapman.
69 However, in deference to Counsel, I will also summarise my views as to whether the Code applies to the VLOC facility in any event.
70 In the absence of a certificate under s11(2), given that Ms Chapman claimed that the VLOC facility was a credit contract to which the Code applies, it is presumed to apply under s11(1) unless the contrary is established.
71 In terms of whether the “contrary” is established, section 6 provides for the circumstances in which the Code applies to the provision of credit such that “if when the credit contract was entered into” certain conditions are met.
72 The significant condition is s6(1)(b) that is “the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes”; the bank generally accepting that the other conditions were met.
73 However, the bank relied on section 6(4) that for the purposes of section 6, “investment by the debtor is not a personal, domestic or household purpose” and submitted that, when consideration was given to the documentation executed at the time of the grant of the VLOC facility, it was apparent that the credit was provided or intended to be provided for the purposes of investment.
74 As was stated by Muir J in Shakespeare Haney Securities Ltd v Crawford[8], in determining the relevant purpose it is the purpose of the borrower not the lender:
“Plainly ‘the purpose” for which credit is provided or intended to be provided has nothing to do with the lender’s general commercial purposes: the reference is to the use to which the credit is to be put. In the great majority of transactions there would be no difficulty in determining the relevant purpose by reference to the terms of the application for credit and of the approval. If the borrower requests credit for a stated purpose and the lender approves the request and makes the loan, there should be no difficulty in concluding that the purpose for which the loan was made was the purpose for which it was requested.”
[8] [2009] QCA 85 at [31], with whom Mullins and Douglas JJ agreed; this passage is also cited by Beach J in Brott v Shrambrandt [2009] VSC 467 at [71]
75 In this case the lending officer, Ms Sagdic, gave evidence that she recorded information she received from Ms Chapman’s agent, Mr Katsiouras, on 23 or 24 September.[9] Further, that she recorded this information in the bank’s “Commsee System” for the VLOC under the entry “Loan purpose” as:
[9] The fact that he was an agent is accepted in paragraph 2 of the Agreed Facts
• Alterations and additions to dwelling of $100,000; and • Personal Investment of $390,000. 76 There was no suggestion that this information was incorrectly recorded and Counsel did not suggest that I should reject this contemporaneous evidence. Further, although Ms Chapman tried to suggest at one point that she “didn’t tell [her agent] anything” about the purpose of the loan, this was not a plausible claim. There is no reason for her agent to manufacture a purpose “out of the air,” particularly when the purpose stated was consistent with Ms Chapman’s own evidence that she generated income from her shares.
77 Under re-examination Ms Sagdic also said that Mr Katsiouras told her that the “personal investment” was to “buy shares and invest” and that he used the words “buying shares.”
78 The loan documentation created at the time of the giving of the loans in September 2008 therefore suggests that, although $100,000 was to be provided for renovations, more than half of the credit to be provided pursuant to the VLOC was intended to be used for personal investment pursuant to s6(5)(a). It would follow that, pursuant to s6(4), the Code would not apply.
79 Ms Chapman however raised a number of issues as follows:
(a) that the Home Loan and the VLOC should be considered to be a single provision of credit such that more than half of the credit was intended to be for personal use pursuant to s6(5)(a);
(b) that the relevant date for consideration should be 1 October when the
mortgage was executed;(c) that a particular construction of “investment” was warranted; and
(d) that reliance should be placed on some indicia that suggested that the
bank itself saw the Code as applying.80 Accordingly, I will briefly record my views in relation to each of these matters.
Whether single provision of credit
81 In support of his contention that there was a single provision of credit, Counsel for Ms Chapman referred to 13(4)(a) of Schedule 2 which provides that the singular includes the plural. Schedule 1 also defines a contract to include a “series or combination of contracts, or contracts and arrangements”.
82 However, the loans were set up separately and there was no suggestion that this was done on some artificial basis[10]. Moreover:
[10] And see Australian Finance Direct Ltd v Director of Consumer Affairs Victoria [2006] VSCA 245 at [165]-[171] per Neave JA
• the amounts of each of these loans were different; •
the terms and conditions were also different: for example, while the Home Loan provides for specified payments on a monthly basis, there are no fixed payments in respect of the VLOC[11]; the reference interest rates in each case are also different[12];
•
although the Home Loan was payable over the course of 30 years, the VLOC is simply payable on demand[13]; and
•
finally, the purpose of each loan was also different with the home loan taken to refinance a pre-existing St George facility; and the VLOC primarily for personal investment (as already indicated).
[11] See item E of the UTC in each case
[12] See item C of the UTC in each case
[13] See item E of the UTC in each case
83 I am therefore not satisfied that there was a single provision of credit in this case pursuant to s6(1). Instead the credit was provided pursuant to two separate and discrete loan contracts.
84 The decisions cited by Counsel also do not assist Ms Chapman:
[14] [2008] VCAT 2396
[15] [2009] VSC 556
• the Deputy President in Whild v GE Mortgage Solutions Ltd[14] regarded the relevant loans as two separate and discrete transactions ([74]) even in circumstances where the attached conditions were the same; • in ANZ Ltd v Smith & Ors[15], Mukhtar AsJ found there to be two independent credit contracts, highlighting, as in this case, that it would have been open for the bank to bring separate proceedings in relation to each loan. 85 In my view then, it is appropriate to treat the facilities as separate transactions for the purposes of the examination of the purpose test in s6(1)(b) of the Code.
Relevant date
86 Extensive time was spent in this case in attempts to analyse precisely what the VLOC facility was used for in its operation subsequent to entry into the contract. Indeed Ms Chapman was extensively cross-examined on this issue.
87 Such subsequent evidence included evidence of what occurred at settlement on 1 October 2008 wherein it was realised that a substantial further amount of $234,267.80 would need to be utilised to pay out two St George facilities. The evidence suggested that this was not known to the bank at the time of the making of the VLOC loan, nor was it appreciated by Ms Chapman.[16]
[16] As is apparent from her email of 1 October to Ms Sagdic
88 In my view section 6(1) clearly directs attention to the date “when the contract is entered into.” Although some evidence of the operation of the facility may shed light on this question, a detailed analysis is uncalled for, particularly since the Code concentrates on precontractual disclosure as well as matters that must be in the contract document (see e.g. ss14 and 15). The question of the application of the Code should not be determined by reference to subsequent events in such circumstances. This is particularly the case where those events are not anticipated by the parties at the time of entry into the contract, as was the present case.
89 There was some concern raised by both parties about the meaning of His Honour Justice Gillard’s comments in Linkenholt Pty Ltd v Thomas William Quirk[17] to the effect that “it is appropriate to consider what the money was used for in order to determine the purpose of the provision of the credit.”[18]
[17] [2000] VSC 166
[18] Ibid at [98]
90 However, a close examination of that case reveals that His Honour was actually concentrating attention on what the credit was “used for” at the time of entry into the contract which was the “substitution” of an earlier loan agreement which itself was for business purposes. There is no suggestion in that case that attention should be focused on the subsequent course of any loan.
91 Ms Chapman however focused on the date of the mortgage on 1 October 2008 by which time it was appreciated, in particular, that VLOC funds would need to be utilised to repay two St George loans. The essence of the submission was that clause A4.1 of the MCP obliged the mortgagor to pay the “amount owing”. Because this amount was defined as all money which was owed under a Secured Agreement “and this mortgage” it followed that the mortgage was a credit contract in its own right and that 1 October become the relevant date for consideration of the purpose test in s6(1)(b).
92 However, even if the mortgage is regarded as a credit contract in its own right, the credit in this case was clearly provided under s6(1) pursuant to the specific provisions of the home loan and the VLOC. This is consistent with the structure of the loan documentation which set up different loans with different terms and conditions, as indicated already.[19]
[19] And note that item K of each contract specifically provided that a registered mortgage would be taken over the Mt Macedon property as security for that contract
93 The Code also applies to the mortgage insofar as it secures obligations under a credit contract pursuant to the provisions of s8 and no separate analysis of the purpose of the mortgage is called for.
94 It follows that it is the date of 27 September, 2008 that is the appropriate date for consideration of the purpose test in s6(1)(b).
“Investment” and “investing”
95 Ms Chapman also sought to make a distinction between “investment” and “investing” and suggested that some distinction should be drawn between an investment of money which is dependent on the efforts of others (which is an investment) and use by a person of money which does not depend on the efforts of others (which is not an investment).
96 Firstly, there is nothing in the Code to support such a distinction and nothing to suggest it would “best achieve” its purposes (clause 7 of Schedule 2) to apply such a distinction.
97 Indeed s11(2) actually distinguishes between a “business” and “investment which suggests that the concept of investment is not necessarily dependent on some business enterprise.
98 Moreover, given s6(4) actually excludes “investment” activities from “personal, domestic or household purposes” this suggests that investment purposes may otherwise come within the scope of “personal, domestic or household” and are not necessarily concerned with business activity.[20]
[20] And see Shakespeare Haney Securities Ltd v Crawford at [47]
99 The cases cited also do not assist Ms Chapman:
[21] [1983] 1 Qd R 151
[22] [2008] UKPC 19
[23] Ibid at [21]
• the decision of Munna Beach Apartments Pty Ltd v Kennedy[21] was concerned with an entirely different context, namely the meaning of the term “investment contract” in the Companies Act. Moreover, the contract of sale in that case did not contemplate any return to the purchasers of their money but rather the acquisition of land to be used for occupation. This is readily distinguishable from the present case wherein Ms Chapman agreed she was acquiring the shares to earn income; • the case of Dominicia Social Security Board v Nature Island Company Ltd & Anor[22] also does not assist Ms Chapman since it suggests that the natural meaning of the word “investment” is the acquisition of an asset to be held as a source of income.[23] 100 The provisions of the Code do not suggest some narrow construction of the concept of “investment” such that it necessarily involves the efforts of others.
Bank’s views
101 Counsel also sought to rely on indicia which indicated that the Bank saw the Code as applying to VLOC.
102 However, in terms of the matters raised in Counsel’s submissions[24]:
[24] Outline of Defendant’s submissions dated 3 May 2010 at paragraph 23
•
although Ms Sadgic did at one point suggest that loans for business purposes could not be made by VLOC, she also said that the VLOC facility could be provided for a “mixed purpose”;
•
the distinction Ms Sadgic made between “personal investment” and “business investment” (such that a truck driver’s purchase of shares would be “personal” and not “business” investment) does not assist since the bank does not need to show that the investment was business related;
•
the absence of a s11(2) certificate does not of itself resolve the question as to the applicability of s6. It simply means that the Code applies unless the contrary is established; and
•
the contract headings (“credit contract schedule”) also do not resolve the question posed by s6.
103 None of the matters cited substitute for the fact that the credit was requested for a stated purpose in this case. Whether an objective or subjective approach is taken[25], the purpose of “investment” which was specifically given by the debtor in this case is excluded from the operation of the Code by s6(4).
Summary
[25] This debate is referred to by Beach J in Brott v Shtrambrandt & Ors [2009] VSC 467 at [72]
104 I am satisfied that the VLOC facility should be examined separately from the home loan at the time the facility was entered into on 27 September.
105 The provisions of the Code also do not suggest some narrow construction should be given to the concept of “investment” such that it necessarily involves the efforts of others.
106 I am further satisfied that, although there may be some indicia which could suggest the Code applies, that indicia has little probative force when compared to the explicit statement of the loan purpose “for investment” provided in this case.
107 It follows that, if it was necessary to determine, in my view the Code does not apply to the VLOC facility by the operation of s6(4).
Conclusion
108 The bank has met the relevant requirements of ss80 and 85 in the Code, presuming that the Code applies to both the VLOC facility and the Home loan.
109 The bank has also met the requirements of s76 of the TLA.
110 It is unnecessary to determine whether the Code actually applies to the VLOC facility in these circumstances. However, if it was necessary, in my view the Code does not so apply by reason of s6(4).
111 The plaintiff is therefore entitled to an order for possession of the land described in Certificate of Title Volume 01633 Folio 561 and being the land more commonly known as 106 Devonshire Lane, Mount Macedon Victoria 3441.
112 The defendant is to pay the plaintiff the amount of $1,203,673.28 together with interest from 28 April 2010 at the rate of 7.110% being $232.95 per day in respect of the Home Loan facility.
113 The defendant is also to pay the plaintiff the sum of $511,165.02 together with interest from 28 April 2010 at the rate of 7.210% being $100.95 per day in respect of the VLOC facility.
114 The plaintiff’s summons for summary judgment dated 2 March 2010 (made returnable at the trial) will be struck out.
115 I will hear further from the parties on the question of costs.
and A22.5(a) of the MCP
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