Dale v Nichols Constructions Pty Ltd
[2003] QDC 453
•12 December 2003
DISTRICT COURT OF QUEENSLAND
CITATION:
Dale v Nichols Constructions Pty Ltd [2003] QDC 453
PARTIES:
WENDY DALE
First Applicant
ROBERT NORMAN DALE
Second Applicant
v
NICHOLS CONSTRUCTIONS PTY LTD (ACN 010 763 505)
Respondent
and
BROADBENT RADICH SAMPSON LAWYERS
Third Party
FILE NO/S:
D868 of 2000
DIVISION:
PROCEEDING:
Originating application
ORIGINATING COURT:
District Court, Southport
DELIVERED ON:
12 December 2003
DELIVERED AT:
Brisbane
HEARING DATE:
10-13 September, 3-4 October 2002
JUDGE:
McGill DCJ
ORDER:
Declare that the transactions between the first applicant and the respondent in January 1998 in respect of a loan of $161,000 and in March 1998 in respect of a loan of $20,000, are both subject to the Consumer Credit Code.1.
Declare that:2.
in respect of the first credit contract, there were breaches of key requirements in that the provision for default interest was contrary to s 28(1), which was a breach of s 21(1)(c), and there was a failure to state the total interest payable under the contract, which was a breach of s 15(E);(a)
in respect of the second credit contract, there were breaches of key requirements in that the contract did not state the annual percentage rate of interest, the method of calculation of the interest charges payable under the contract, and the credit fees and charges that were or might become payable under the contract, in breach of s 15(C), (D) and (G);(b)
Order the respondent pay the first applicant $1,000 as a civil penalty in respect of the first credit contract, and $5,000 as a civil penalty in respect of the second contract.3.
Declare that the provisions of the first credit contract by which a higher rate of interest was payable unless the borrower was not in default under the contract imposed a liability prohibited by s 21(1) of the Code and were void to that extent.4.
The application for compensation or restitution for contraventions of the Code is refused.5.
The application for reopening the second credit contract under s 70 of the Code is refused.6.
The application for relief under the Trade Practices Act is refused.7.
Determinations of the amounts payable to discharge the loan contracts under s 77, orders on the third party proceeding, and orders for costs, to be made after further submissions.8.
CATCHWORDS:
CONSUMER CREDIT – Consumer Credit Code – whether transaction governed by Code – whether any and what breaches of code – remedy – amount required to pay out loans.
Consumer Credit Code ss 6(1)(b), (d), 11(2), 12(1), 21(1), 21(3), 23(1), 28, 70, 76, 80, 103, 107.
Baltic Shipping Company v Dillon (1991) 22 NSWLR 1 - cited
Best v Sutcliffe [1965] NZLR 750 - distinguished
Hungier v Grace (1972) 46 ALJR 492 - distinguished
Jonsson v Arkway Pty Ltd [2003] NSWSC 815 - followed
Linkenholt Pty Ltd v Quirk [2000] VSC 166 - considered
Linter Group Ltd v Goldberg (1992) 10 ACLC 739 - applied
Marshall & Brougham Pty Ltd v Commissioner of Taxation (1986) 45 SASR 571 - distinguished
Park Avenue Nominees Pty Ltd v Boon [2001] NSWSC 700 – not followed
Pertsinidis v Australian Central Credit Union Ltd (2001) 80 SASR 76 - applied
Rabone v Deane (1915) 20 CLR 636 - distinguished
Rafiqi v Wacal Investments Pty Ltd (1998) ASC #155-024 – not followed
Reid’s Brewery Co Ltd v Male [1891] 2 QB 1- cited
State of Queensland v Ward [2002] QSC 171 - considered
Swayne v Palm [1970] SASR 158 – distinguished
COUNSEL: M E Eliadis for the first applicant
E J Morzone for the respondent
D G Clothier for the third partySOLICITORS:
Clayton Utz for the first applicant
Hickey Lawyers for the respondent
Bartley & Associates for the third party
This is an application for relief under the Consumer Credit Code. The respondent made two loans to the first applicant, $161,000 in January 1998 and $20,000 on 20 March 1998. Both were for terms; the first loan was for 12 months, the second for three months. In neither case was the principal repaid at the expiration of the term, although substantial amounts have been paid at various times under the first loan. There is and has been some dispute between the parties as to the amount paid, and as to the amount currently owing.
The proceeding was commenced, probably incorrectly, by originating application filed 13 October 2000, at which time there were two applicants, Mr and Mrs Dale; however, Mr Dale was a bankrupt, and by the time the matter came to trial, relief was sought only by the first applicant, Mrs Dale. Both loans were arranged for the respondent by a firm of solicitors, and the respondent has taken third party proceedings against that firm seeking damages in the amount of any loss suffered by the respondent as a result of any breach of the solicitors’ duty to the respondent. Accordingly, a large number of issues of fact and law arise in this matter.
History of the loans
In the latter part of 1995 Mr and Mrs Dale located a house in a residential subdivision they were interested in purchasing. It had been a display home, and the garage was set up as an office (pp.17, 93), something which suited them as Mr Dale was attempting to set himself up in business as a motivational speaker and personal trainer. For that purpose he used a corporate vehicle, Speak Corporation Pty Ltd. However at that stage the business was in a preliminary state and had little income or trading record (p.18), and they were unable to obtain finance to purchase the house. In October 1995 they entered into a tenancy agreement with the vendor, Mr Roebuck: document 74.[1] Mr and Mrs Dale admitted that at times they had difficulty in paying the rent: p.46, p.225.
[1]Most of the documents put before me were included in a bundle of documents which became Exhibit 4. I shall refer to documents in Exhibit 4 in this way, ie as “document 74”. These documents are not in chronological order, and there is a good deal of duplication, particularly in volume 2. This has made the evidence particularly difficult to disentangle. Later in the trial there was a further bundle of documents tendered which became Exhibit 29; documents in this bundle will be identified as “Exhibit 29 document 1”. There are some other documents which are separate exhibits which will be referred to by their exhibit number.
There was a contract of sale of the property by Mr Roebuck to Speak Corporation Pty Ltd for $212,500 entered into on 24 May 1996 with completion due 1 July 1996 (document 70), but evidently that contract was not completed because there was a further contract dated 1 August 1996 for the sale of the same land to Mr and Mrs Dale. That was due for completion on 1 September 1996: document 71. Ultimately a contract dated 16 October 1996 to Mr and Mrs Dale (p.557, Exhibit 28) for $239,000 was settled, and a memorandum of transfer of the land to Mr and Mrs Dale (signed 25 October 1996 – document 21) was registered on 31 December 1996. It appears that settlement did not take place until December 1996, after Mr and Mrs Dale were able to obtain finance from a company Equity Investments Nominees Pty Ltd, which operated in conjunction with a solicitor’s practice.[2] This finance was arranged for Mr and Mrs Dale by a finance broker, Kelibber Finance. That firm obtained a signed statement from Mr Dale setting out some personal particulars[3] and advising that a loan was sought to purchase an investment property, although the house property they were purchasing to live in was identified as the property in question: document 36. Mr Dale said that he was advised by the finance broker to take this course in order to facilitate obtaining the loan[4], and that he simply signed the form which they later completed.[5] This document was sent to the solicitor (p.550)[6] who sent a letter of offer which was signed and returned: p.552.
[2]Turnbull, p.550. Prior attempts to obtain bank finance had failed: pp.32, 153.
[3]Document 36. The form overstated their assets: p.228.
[4]P.98, pp.227-8. That advice appears to have been accurate: p.559.
[5]I regard his explanation of how this occurred at p.230 as unsatisfactory.
[6]Apparently a valuation of the property at $230,000 (document 51) was sent with it: Exhibit 28, p.551. The solicitor said he relied on the statement document 36, although before the mortgage was signed he had documentation showing that the Dales were living in the property to be purchased: p.555.
On 13 December 1996 Mr and Mrs Dale signed a form of mortgage of the land to Equity Investments Nominees Pty Ltd, which was also signed by the mortgagee’s solicitor on 16 December 1996 (p.551), and lodged for registration the following day: document 23. It secured a loan of $160,000 due for repayment on 16 December 1997. Mr and Mrs Dale also signed (pp.148, 49) various other documents, including a declaration that the credit was to be provided for business investment purposes (document 24), and a statutory declaration that, inter alia, the loan was to purchase an investment property: document 28.[7] It is not disputed that both of these declarations were in this respect false. Mrs Dale said that she did not understand these forms, she just signed them because her husband had arranged things in this way: p.50. Mr Dale claimed he “skimmed” them, and assumed they were true and correct: p.231. I do not accept that he was unaware of the contents or effect of these declarations when he signed them. He said elsewhere that they were desperate, and this was the only way to get the loan: p.149.
[7]The other documents that were signed on this occasion were document 25 (answers to mortgagee’s requisitions on title), document 30 (trust account authority for the mortgagee’s solicitors costs), document 31 (a blank authority for the balance of the loan), document 32 (an undertaking on requisitions), document 34 (a document giving particulars of the loan) and document 33 (a declaration that the mortgagee’s solicitors were not acting for them). This last declaration was accurate; there was another solicitor who was acting for Mr and Mrs Dale in relation to this transaction (p.20 and see p.49, p.97), who gave a certificate to that effect on the same day: document 35. The documents were signed at the office of that solicitor: pp.48-9.
Their financial position remained precarious. In early 1997 there was default on this loan, and they were pressed by the mortgagee’s solicitor to pay: p.56, p.234, Exhibit 6. The mortgagee took proceedings to obtain possession of the property, which resulted in a default judgment against them for recovery of possession, on which a writ for possession was issued.[8] Apparently however they were not actually put out of possession, although this put pressure on them to repay the loan before the original term of that first loan expired in December 1997.
[8]Exhibit 29, documents 36, 37; see also pp.32, 56-7, 234-5.
In September 1997 Mr and Mrs Dale contacted another finance broker who promptly located another firm of solicitors able to organise a loan from a client.[9] That firm was the third party, which did quite a bit of this sort of thing (p.547), and the material came to Mr Reid, who was employed as a full time broker to receive applications for finance and to line up lenders with borrowers: p.401; p.453; p.547. He filled in a form[10] for the proposal and passed it on to an employed solicitor, Mr Bamberry (p.402), who on 6 October 1997 sent a letter addressed to Mrs Dale by fax, to the finance broker, for forwarding by her to Mrs Dale.[11]
[9]P.99. The finance broker sent a loan summary (document 44) and a copy of the valuation (document 51) to the third party on 1 October 1997: Exhibit 29, document 3. The loan summary gave a different street number for the residential address and the security (which used the lot number) and referred to an “ex-husband”, although Mr and Mrs Dale were then still married and had no intention of even separating: Mr Dale p.155, Mrs Dale p.45. It contained an exaggerated income for Mrs Dale: p.237.
[10]Document 53; Reid p.454. The form has (in my view correctly) identified the proposed transaction as one within the Consumer Credit Code. Although the form makes provision for this, Mr Reid said that such identification on this form was unusual (p.475) and it may well have been Mr Bamberry, or someone else, who circled “yes”.
[11]Dale p.240.
Because of the unfortunate state of the documentation in this case, it is not easy to ascertain exactly what was sent. The first five pages were the first five pages of document 9, viz the letter which is three pages, the acceptance form which is numbered 4 and the receipt which is unnumbered; this follows from the fax imprints at the top of these pages which are numbered consecutively 1 to 5. The receipt signed by Mrs Dale included a reference to a “Terms of Loan” document and an information statement. A copy of the Terms of Loan document with this fax marking (and another fax marking), is Exhibit 5 and shows that it was pages 6 and 7. Document 19, the pre-contractual statement,[12] was pages 8, 9 and 10. The certificate of debtors, which is part of document 9, was page 11.
[12]This is a document appropriate if the Code applies, and the Terms of Loan Exhibit 5 said that it applied. This is consistent with document 53.
I cannot identify the information statement referred to in the receipt signed by Mrs Dale. There is an information statement in evidence in Exhibit 20.[13] This was in the possession of the applicant at some stage, but there is no evidence that it was the one sent under cover of the letter document 9, and Mr Radich’s statement (p.489) that it was a one page document is to the contrary. There is no document to show that the information statement was actually provided; although Mrs Dale signed a receipt for one, it seems clear enough that she would have been willing to sign anything put in front of her, and I do not regard that as compelling evidence of the existence of the documents referred to in that receipt.
[13]The document was produced at p.490 where it is described as Exhibit 18; it is noted on p.491 that the exhibit numbers recorded in the transcript that day were wrong.
There is another document, Exhibit 19, which starts with a cover sheet from Statewide Loan Centre (Joyce Cooper) to Mr and Mrs Dale of 6 October 1997, apparently enclosing the documents which had been sent to Statewide by the third party, and a brokerage agreement (document 8). However Exhibit 19 is a facsimile, and what were sent through the fax were executed documents, so this is not the fax which was sent by Statewide to Mrs Dale for execution, although it does not seem to have on it any fax markings for any later transmissions. It has the markings for when the third party sent the fax to Statewide Loans, and a marking of 11 November 1997 at 1.42pm when Statewide Loans sent the fax to someone else. A clearer copy of the header sheet on Exhibit 19 appears as document 7 in Exhibit 4. Apparently the documents were faxed by Ms Cooper to Mr and Mrs Dale on 6 October 1997 (p.51), and on 11 November the documents were faxed again, as appears from the addition at the foot of document 7 (and, faintly, in Exhibit 19).[14] That would explain the fax markings of that date on Exhibit 19, but does not explain how it comes about that Exhibit 19 is a facsimile sent after execution.
[14]Apparently the delay in signing was because of some dispute over the broker’s fee: p.243.
The other abnormality about Exhibit 19 is that it includes the brokerage agreement, also executed by Mrs Dale on 11 November 1997, and also referred to in the header document 7 as having been sent both on 6 October and 11 November. That of course does not have any fax markings from the third party at the top of the page, nor does it have any fax markings relating to transmission by Statewide Loans on 11 November.
Unfortunately nobody appears to have taken any trouble to preserve original documents in the proper order in this matter, and, although there must have been a large number of copies of this documentation at one stage (every time a document is sent through a fax machine it is copied), it is now not possible clearly to identify what was sent by the third party to the broker on 6 October 1997, except that it included document 9, document 19 and Exhibit 5, or rather earlier versions of all of those copy documents. On 11 November 1997 Mrs Dale signed the brokerage agreement document 8, the acceptance form, the acknowledgement of receipt of documents, and the certificate of the debtors,[15] which were then returned to Statewide together with a cheque. The documents were then faxed by Statewide to the third party on 12 November 1997 (p.492) and the originals were posted (Exhibit 29, document 44), but the third party was unable to produce at the trial the documentation apparently returned by Statewide both by fax and by mail on 12 November 1997.
[15]See also p.52; these she said were not signed at the premises of the third party: p.62.
The proposal was for the loan to be made just to Mrs Dale because during 1997 Mr Dale became bankrupt: pp.94, 100.[16] He arranged for the trustee in bankruptcy to disclaim what had been his interest in the house[17] and they signed a transfer of title to the house to Mrs Dale: document 6(2). For that reason, all the documentation in relation to this loan (and the subsequent loan) related only to Mrs Dale, although it was still Mr Dale who was doing the organising, and carrying on any negotiations. Initially the proposal was that the loan amount be advanced by lenders other than the respondent,[18] but subsequently one of the proposed lenders withdrew,[19] and the third party then proposed that the whole amount of the loan be advanced by the respondent: Exhibit 2, para 15. Further documentation presumably to reflect this (or the increase in the fees charged: see document 58) was signed by Mrs Dale on 24 December 1997: documents 10, 11, 12.[20] Mr Nichols on behalf of the respondent signed its agreement for the loan on 12 January 1998: document 13. There was a further letter from the third party to Mrs Dale offering the loan on 16 January 1998 (document 4).
[16]The bankruptcy was subsequently annulled after he entered into an arrangement with his creditors: p.137. It was not his first bankruptcy: p.137. He had been bankrupt in 1993 (p.140) and there had been some delay in his discharge: p.140.
[17]Exhibit 29, document 40.
[18]Reid p.472-3
[19]Dale p.101, p.245, Mrs Dale p.33.
[20]See pp. 22, 57. Apparently this was signed at the third party’s office, with Mr Bamberry: p.402. The documents duplicate the three signed pages in document 9. I suspect that there would also have been a letter like document 9, but cannot identify it in the material. Document 12 refers to a terms of loan document, a pre-contractual statement, an information statement and a certificate of debtors; presumably the last is document 11. If any of the others were provided to her at this time, I cannot identify them in the material. Document 56 may be the first page of the pre-contractual statement, or may not.
It appears that further documentation, including in particular a mortgage, were signed by her dated 21 January 1998: document 15.[21] Apparently on that day the documentation was received by Mr and Mrs Dale, signed by Mrs Dale and taken by Mr Dale to the third party. The mortgage was in favour of the respondent and secured a loan of $161,000 for 12 months. It was signed on behalf of the third party by Mr Bamberry on 22 January 1998: document 15. An authorisation to disburse money dated 27 January 1997 (presumably in error for 1998) was provided by the respondent to the third party: document 16. It appears that the actual advance occurred on 28 January 1998.[22]
[21]See also documents 14, 38, 40, 41 and 42, and Exhibit 29, document 8 (which says the property is “owner occupied”). The mortgage was witnessed by a neighbour: p.248. I reject the evidence of Mr Dale (p.105 and p.249) that it was signed at the third party’s office; this was contrary to his affidavit Exhibit 2 para 18. Document 40 has something written by Mr Dale: p.251. He said that he was told to write this by Mr Bamberry or the loan would not go through. I do not accept that either.
[22]See Exhibit 16, p.449. The statement in the letter from the third party, Exhibit 15, that settlement occurred on 19 January, was wrong, but may have been the source of this date in the evidence of Mrs Dale (p.22) and Mr Dale, Exhibit 2 para 19. Settlement may have been held up waiting for the documents faxed by Dale on 27 January: document 6.
On 16 February 1998 the third party wrote to Mrs Dale enclosing an epitome of mortgage and an unsigned credit contract/loan agreement prepared to comply with the Consumer Credit Code, which she was asked to sign and return: Exhibit 15. She did not sign the credit contract. She and Mr Dale said that they attended that firm on 27 February 1998.[23] They said they spoke to Grant Reid, the employee who was involved in arranging private lending finance.[24] She claimed that she was asked by Mr Bamberry to sign an acceptance form and a declaration of purpose, because she was told by him that these documents were required and that it would jeopardise the whole loan if she did not sign: Exhibit 1, para 32.[25] She signed two documents dated that day: document 17, document 46. The latter is a declaration that the loan was for business purposes.
[23]Mr Dale Exhibit 2 para 25; Mrs Dale Exhibit 1 para 25; Mr Dale at one point claimed that they were called in to sign additional documents on 20 February 1998: p.255, but see p.256. There are no documents in evidence with this date.
[24]Mr Dale: Exhibit 2 para 25. Mr Reid denied that documents 17 and 46 were signed in his presence: p.465.
[25]See also Mr Dale p.259; Exhibit 2 para 29.
The declaration document 46 is a declaration for the purposes of the Consumer Credit Code that the credit “to be provided to me by the credit provider is to be applied wholly or predominantly for business or investment purposes (or for both purposes).” It does not on its face indicate whether it relates to the first loan or the second loan. The evidence of Mrs Dale in her affidavit Exhibit 1 was to the effect that the declaration related to the first loan, and the evidence of Mr Dale in Exhibit 2 was to the same effect. On the other hand, the respondent and the third party submitted that the declaration related to the second loan.
It appears from the fax imprints at the top of the page that the declaration form was page 6 of a fax sent by the third party on 27 February 1998 at 5.05pm, and document 17 was page 5 of that fax. That suggests that they were faxed by the third party to Mrs Dale under cover of the standard letter which is document 47.[26] Document 17 was also signed by her on 27 February 1998. Document 47 is equally lacking in details of the proposal to which it relates, but it supposedly enclosed a document headed “terms of loan”. Document 45 is such a document,[27] and refers to a proposed loan of $17,000 for six months; Mrs Dale said that this document was “possibly” enclosed with the letter of 27 February 1998: p.72. On all the evidence, I am prepared to draw the inference that it was.
[26]The third party was able to produce a file copy of this letter: Exhibit 17; p.450. It was a fax of eight pages.
[27]There is one inconsistency: Document 17 refers to an establishment fee of $1,500, as does document 48, but document 45 has an establishment fee of $500. Given the general level of care in preparation of documents in this matter, this does not exclude document 45 as the relevant Terms of Loan. The inconsistency is also present in Exhibit 17.
There is also the consideration that the third party could not seriously have been contemplating obtaining a business purpose declaration for the first loan at that stage. Apart from anything else, it had already obtained among other things a warranty by Mrs Dale that no one but the mortgagors would occupy the security property after settlement: document 14. There were a number of other documents prepared by the third party on the assumption that the Consumer Credit Code applied to the first loan,[28] and it appears clear that well before the first loan was made the third party certainly knew that the loan was for the purpose of paying out an earlier mortgage on the principal place of residence of Mr and Mrs Dale.
[28]Document 19, Document 53, Exhibit 5. Mr Radich conceded that the first loan was documented as a Consumer Credit Code transaction: p.488.
In all the circumstances I do not accept that the declaration signed by Mrs Dale on 27 February 1998 related to the first loan; it was signed in connection with a proposal for a further loan. On the same day Mr Dale had sent a fax to Mr Reid of the third party requesting a loan of $17,000 for developing his business: p.254, document 61. Mr Dale conceded (p.254, p.261) that he was initially seeking to borrow further money to develop the business, but Mrs Dale had another pressing financial obligation at this time. The money borrowed from Equity Investments Nominees Pty Ltd had not been sufficient to pay all of the money owing to the vendor of the house, and there was some part of the purchase price still outstanding: p.20, p.96. The loan from the respondent had only been sufficient to pay out the mortgage to Equity Investments Nominees Pty Ltd, and the vendor still had not been paid, and was pressing for payment. There were negotiations with him as a result of which he agreed to accept $15,000 in satisfaction of whatever the amount unpaid was, so long as it was paid promptly: Exhibit 2 para 32; p.106.[29] According to Mrs Dale she insisted that any money which was borrowed be used to pay off the vendor so that they would be secure in the home (p.25), and Mr Dale said that he accepted this: Exhibit 2 para 42. They both asserted in effect that there was some ambiguity initially about the purpose of the second loan, but eventually, and before it was made, they decided that it would be used to pay the vendor.[30] It is clear that it was in fact used to pay out the vendor: Documents 55, 60.
[29]The shortfall was originally about $50,000: p.20.
[30]The evidence of Mrs Dale at p.25 lines 45-57 suggests that for some time after this decision Mr Dale was not telling the respondent or the third party of the true purpose.
Mr Dale said that Mr Bamberry had suggested that he approach Mr Nichols directly in relation to the second loan; he even asserted that Mr Bamberry had coached him as to how he should approach Mr Nichols.[31] It is not disputed that in March 1998 a meeting took place between Mr Dale and Mr Nichols at Mr Nichols’ home, as a result of which Mr Nichols agreed to lend $15,000 for a period of three months with interest and other charges in the sum of $5,000. The loan was documented as one for $20,000 repayable in three months, but $5,000 was deducted immediately and paid by way of interest and costs, so in effect it was a loan of $15,000 in respect of which interest and other charges amounted to $5,000. It was common ground that these terms were negotiated on 11 March 1998. Mr Nichols said that he was told only that the loan was for the purposes of developing Mr Dale’s business;[32] Mr Dale asserted that, although he had spoken about his business, and shown Mr Nichols material relating to it, he had told him that the purpose of the loan was to discharge the obligation to the vendor: p.108, Exhibit 2 para 43.
[31]Mr Bamberry had no recollection of the former, and denied the latter: p.406. Mr Reid also denied he had done this: p.470. Mr Nichols said (p.286) he was initially phoned by Mr Bamberry about a proposed second loan, and he later suggested to Mr Bamberry that he have a talk with Mr Dale. That would be consistent with the suggestion of a meeting with Mr Nichols having come to Mr Dale from Mr Bamberry; it supports Mr Dale’s version in Exhibit 2 para 41. The “coaching” may have been no more than saying to tell Mr Nichols the truth: p.139 line 41. For Mr Bamberry to have said that is neither implausible nor inappropriate.
[32]Exhibit 3 para 15; p.287.
On 12 March Mr Bamberry sent to Mr Nichols a fax confirming his instructions to advance “a sum of money” to Mrs Dale: document 57. The documentation was signed by Mrs Dale on 20 March 1998; she signed a second mortgage (document 64),[33] a bill of sale (document 65) and an authority to disburse the loan by means of a payment to “M Roebuck”, the vendor of the house: document 60. Evidently a trust account cheque for $15,000 payable to M Roebuck was provided by the third party to Mr Dale on 20 March 1998[34] and he said, and there is no reason to doubt, that it was immediately handed over to Mr Roebuck.
[33]Witnessed by Mr Bamberry, although he had no recollection of doing so or of seeing her at any time that year: pp.403, 417, 424. He denied that he would have signed as a witness unless he had seen her sign. On the whole I think it more probable that she did sign at the third party’s office.
[34]See document 55, and Bamberry p.413.
Did the Consumer Credit Code apply?
Section 6(1) of the Code provides when it applies. There are four requirements:
(a) the debtor is a natural person ordinarily resident in this jurisdiction;
(b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes;
(c) a charge is or may be made for providing the credit; and
(d) the credit provider provides the credit in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider.
There is no doubt that (a) and (c) were satisfied in this case. On the face of it (b) was also satisfied, because the purpose of the first loan was to pay out another loan obtained for the purpose of purchasing the personal residence of Mr and Mrs Dale, and that is a personal, domestic or household purpose.[35] The second loan was used to pay the vendor part of the purchase price for that house, and that is also a personal, domestic or household purpose. In my opinion whether credit is provided for a particular purpose for the purposes of s 6(1) depends on the intention of the borrower at the time the credit is provided, and not the intention of the lender. I am satisfied that the actual intention of Mrs Dale in each case was sufficient to satisfy (b).
[35]The fact that they were operating their business – Speak Corporation – from the house (p.44) is in my opinion irrelevant. They ran the business from their home; they did not live at the office.
Purpose for which credit is provided
One of the issues which was raised in argument on behalf of the third party was what was involved in the concept of credit being provided for a particular purpose, and for the purposes of s 6(1)(b) of the Code. It was submitted on behalf of the third party that the provision invited attention to the purpose of the provision of the credit, not the purpose for which it is intended to be used. However, plainly the purpose referred to is not the purpose of the credit provider, but the purpose of the debtor. There would be no point in inserting the requirement that the credit be provided for personal, domestic or household purposes of the credit provider; such a requirement could never be satisfied by circumstances which also satisfied the requirement in s 6(1)(d). Obviously in all relevant cases the credit provider’s purpose in providing the credit will be a business purpose; paragraph (b) must therefore be concerned with the purpose of the debtor.
It follows from s 4 of the Code that the provision of credit may take the form of deferral of payment of a debt, or when “one person (the debtor) incurs a deferred debt to another (the credit provider)”: s 4(1)(b). When s 6(1)(b) speaks of the purpose for which credit is provided, in the case of credit falling within s 4(1)(b), that must mean the purpose for which the deferred debt was incurred. Where money is borrowed, the purpose for which the deferred debt, that is to say the obligation to repay the money in the future, is incurred, is to get the money now. But that in itself has neither a personal domestic or household connotation, nor a connotation which falls outside those categories. Obviously in order to ascertain the nature of the purpose, so as to categorise it, it is necessary to have regard to the intended use of the money: s 6(5).
Few people borrow money just to have the money; almost invariably, if money is borrowed it is borrowed because of an intention to use the borrowed money for some particular purpose. No doubt that was what the legislature assumed when formulating the test in paragraph (b). However, the paragraph is not framed by reference (relevantly) to the use to which the money is ultimately put; it is framed by reference to the purpose for which the credit is provided or intended to be provided [emphasis added]. It is a test which has to be applied by reference to the future; it depends on the purpose or the intended purpose of the borrower at some particular time. That in my opinion can only be a reference to the borrower’s intention at the relevant time as to the use to be made of the money when borrowed. The “intention” referred to in s 6(5) must in my opinion be the intention of the debtor.
Counsel for the third party referred to the decision of Rafiqi v Wacal Investments Pty Ltd (1998) ASC #155-024, where Brabazon DCJ said that the purpose has to be determined by reference to what purpose would have been apparent to a reasonable person standing in the shoes of the credit provider. With respect, I do not agree with that interpretation.[36] It seems to me that there are two reasons why such an interpretation is not correct: s 6(1)(b) is not expressed in terms of the apparent purpose of the debtor, or the credit provider’s understanding of the purpose of the debtor, it is expressed in terms of the purpose, and that is, on its natural meaning, the true purpose. The second is that an interpretation of s 6(1)(b) as referring to the purpose of the debtor, rather than what is known by the credit provider of the purpose of the debtor, fits more readily with the operation of s 11 of the Act. Perhaps a third reason is that, if s 6(1)(b) operated by reference to what the credit provider understood, it might be possible for a credit provider to avoid the operation of the Code merely by ensuring that it never became aware of the purpose for which the debtor was borrowing the money. If it never became aware (whether tested subjectively or objectively) of the debtor’s purpose, paragraph (b) would not, on that test, be satisfied.
[36]Rafiqi was not followed in Jonsson v Arkway Pty Ltd [2003] NSWSC 815 at [29].
If paragraph (b) is concerned with the debtor’s actual purpose, that is consistent with the structure of s 11. Section 11(1) starts from the presumption that the Code applies, that is, relevantly, that the credit was provided for one of the nominated purposes. However the credit provider is not thereby put in the position of being forced at a later stage to prove the true purpose of the borrower when entering into the transaction in order to escape the operation of the Code, the prospect of which concerned Brabazon DCJ.[37] Subsection (2) provides a mechanism by which a credit provider can protect itself from a debtor who might not be frank about the true purpose of the loan, which will be effective unless, pursuant to subsection (3), the credit provider has actual knowledge that the declaration given by the borrower is false. If the credit provider does not follow that precaution, the credit provider runs the risk that a court will find that the true intention of the borrower was that the money borrowed be used for personal, domestic or household purposes, regardless of what was apparent to the credit provider. It seems to me that once one takes into account s 11, the difficulty his Honour perceived in the operation of the statute by reference to the actual intention of the borrower disappears.
[37]His Honour at p.148,574 referred to “an intolerable burden on the credit provider”.
There is also the consideration that subsection 11(2), by requiring a declaration by the borrower, assumes that what is relevant is the borrower’s purpose in relation to the application of the credit. If the purpose was to be determined by reference to what was objectively apparent to the lender, there would be no need for a declaration as to the borrower’s true purpose. Indeed, the wording of subsection (3) is also more consistent with the proposition that the relevant issue is the true purpose of the borrower rather than what is objectively apparent as to the purpose of the borrower.
Counsel for the third party also referred to the decision of Master Harrison of the New South Wales Supreme Court in Park Avenue Nominees Pty Ltd v Boon [2001] NSWSC 700. In that case reference was made to the decision in Rafiqi, and Master Harrison appears to have accepted that that was the correct test. In that case the factual situation was unusual: a son had borrowed money for the purposes of running a cattle property, and subsequently his father had borrowed money for the purpose of refinancing the son’s debt. If the purpose of the refinancing transaction was to be determined by reference to the purpose of the original loan, it was a business purpose, namely the running of a cattle property. If the purpose was to be determined by reference to the motive of the father, it was the personal motive of providing assistance to his son. Master Harrison concluded that the evidence showed a reasonable person in the shoes of the credit provider would have understood that the predominant purpose for which the credit was provided was for running a cattle enterprise, although it appears that that conclusion was reached taking into account evidence directed to the understanding of the borrower (the father) as to what his son would do with the money rather than evidence as to the knowledge of the credit provider of that understanding. Be that as it may, I am not persuaded that that decision provides any justification for adhering to what I regard as an incorrect interpretation of the statute in Rafiqi.
Furthermore, making the statute operate by reference to the actual intention of the borrower does not mean that the test is subjective. “The state of a man’s mind is as much a fact as the state of his digestion.”[38] It is of course always a question of how that is proved, but every day in criminal courts the Crown sets out to prove beyond reasonable doubt the existence of some intention in the mind of the accused at some particular time, and from time to time succeeds. A good indication of the intended use of the money is what was actually done with the money once it had been borrowed: Linkenholt Pty Ltd v Quirk [2000] VSC 166 at [98] per Gillard J.[39] Of course, that is relevant because it throws light on the intention of the debtor at the relevant, earlier, time, and accordingly it is not conclusive. The debtor may change his mind. Money may be borrowed for one purpose, and then used for another.
[38]Edgington v Fitzmaurice (1885) 29 Ch D 459 at 483 per Bowen LJ. See also Everett v Griffiths [1924] 1 KB 941 at 961 per McCardie J.
[39]In Jonsson v Arkway Pty Ltd (supra) at [29] – [31] Shaw J followed Linkenholt. If his Honour was intending to say, however, that the use to which the money borrowed was put was conclusive, with respect, I do not agree.
Consider a young barrister who wants to buy a second hand set of the Commonwealth Law Reports, and ascertains that an elderly colleague is willing to sell a set for $2,000. The barrister then goes to a credit provider and borrows $2,000, having at that time the intention of using the money borrowed to purchase the set of reports. But after the loan transaction has been completed and he has funds available to him, he discovers that the elderly colleague has died, or changed his mind, or sold the books to someone else. He could just repay the money, but there would be some credit charges not refunded, which would be a waste. He decides instead to spend the money on the purchase of a second hand jet ski, for recreational purposes. In my opinion in those circumstances, although the money is ultimately used for a personal purpose, the purpose for which the credit was provided was not a personal, domestic or household purpose. The Code would not apply to that loan transaction.
The signed declaration
The respondent relies on s 11(2) of the Code, which presumes that credit is not to be provided wholly or predominantly for personal, domestic or household purposes if the debtor declares, before entering into the credit contract, that the credit is to be applied wholly or predominantly for business or investment purposes (or for both purposes). However, subsection (3) provides that such a declaration is ineffective if the credit provider, or any other person who obtained the declaration from the debtor, knew or had reason to believe, at the time the declaration was made, that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes.
There was no relevant declaration in relation to the first loan. Only one declaration was signed, and that was not before any credit contract for that loan was entered into, or indeed before the credit was provided. In relation to the second loan however the respondent and the third party relied on the declaration signed by Mrs Dale on 27 February 1998, document 46. It is not disputed that Mrs Dale signed this document, but it was submitted that it did not apply to the second loan. In my opinion this is correct, for two reasons:
(a) the document was signed in the context of a proposal for a loan different from that ultimately made as the second loan, and was therefore not a declaration in relation to the actual transaction between the parties;
(b) the declaration was signed too long before the parties entered into the credit contract for the second loan.
The declaration form was forwarded under cover of a letter which also included a document headed “Terms of Loan”: document 45. This differed from the second loan in terms of the amount lent, the term of the loan, the basis upon which the charge for credit was to be levied, and in some other less significant respects. I do not think that s 11(2) means that, so long as any declaration is signed before the credit contract is entered into, in whatever circumstances, the subsection will still operate; for the declaration to operate in relation to a particular credit contract, the declaration must relate to that contract. Whether or not the declaration relates to a contract will depend on all the relevant circumstances, but in my opinion here the differences are sufficient and sufficiently significant that this declaration should not be seen as relating to the contract for the second loan.
I think it is axiomatic that the declaration must relate to the particular transaction entered into for it to be effective. It could hardly have been the legislative intention that so long as any declaration was obtained, any loan subsequently made would be excluded from the Code. Presumably if a declaration is properly made in relation to one loan, it could not operate in relation to a subsequent loan by the same credit provider to the same borrower, even though that declaration would have been made before the subsequent load contract was made.
With regard to the timing of the declaration, the second loan was not made until 20 March 1998, and the documentation for it was not signed by Mrs Dale until then. In my opinion when s 11(2) of the Code speaks of the declaration “before entering into the credit contract” I do not think that it means at any time before entering into the credit contract. On the contrary, in my opinion it means just before entering into the credit contract. There are three reasons for this. First, if the declaration could be given at any time before the credit contract was entered into, this would in my opinion provide less protection to the consumer than a requirement that it be given just before the credit contract was entered into. At a later stage the consumer will have a clearer understanding of the purpose for which the loan is to be made, which may well be different from the purpose the consumer had in mind at an earlier time. I cannot see any advantage to the consumer in allowing an effective declaration to be made some time, perhaps some considerable time, before the credit contract is actually entered into. This is clearly consumer protection legislation, and it ought to be given an interpretation which is more beneficial to the consumer.
The second is that subsection (3) provides that the declaration is ineffective in certain circumstances where someone has knowledge or reason to believe certain things “at the time the declaration was made.” If the declaration were made some time before the credit contract was entered into, as long as the credit provider did not know at that time that the declaration was false, the credit provider would on the face of subsection (3) be entitled to continue to rely on the declaration even if the credit provider or the relevant person later came to know, prior to the time when the credit contract was made, that the declaration was false. In my opinion the consumer protection provided by the statute will be weakened if the declaration is not given just before the credit contract is entered into, because it is only in those circumstances that the knowledge of the credit provider or the relevant person at the time when the declaration is made will be most likely to be the same as the knowledge of the credit provider or relevant person at the time the contract is made. In my opinion the fact that the legislature has made subsection (3) operate by reference to the time when the declaration is made rather than the time when the credit contract is made indicates that the legislature contemplated that the declaration would be made just before the credit contract. The presence in the section of subsection (3) indicates that the legislature did not intend that subsection (2) could amount in effect to a statutory right in the borrower to waive the protection of the statute. There should not be any incentive to encourage credit providers to accept, let alone solicit, false declarations from borrowers under subsection (2).
The third reason is because I think that the situation is analogous to that considered in Linter Group Ltd v Goldberg (1992) 10 ACLC 739 at 755. Although that case concerned s 230(8) of the Companies Code, that was also a situation where the protection afforded by the statute would be most effective the closer the declaration was to the relevant date, in that case the date when a security was provided. In my opinion there are sufficient similarities between the statute and the circumstances then under consideration and the statute and circumstances in this case to make that decision persuasive.
It follows that in my opinion there was no relevant declaration in relation to the second loan. It is therefore unnecessary for me to consider whether subsection (3) applied. However, in case a different view may be taken elsewhere, I find that at the time the declaration was made neither the respondent nor any relevant person associated with the third party knew, or had reason to believe, that the credit was in fact to be applied for the purpose of paying out the vendor in relation to the purchase by Mr and Mrs Dale of their home. There was no evidence that this purpose was disclosed as early as 27 February 1998.[40] If my interpretation of s 11 is incorrect, and the declaration can be given at any time before the credit contract is made, it follows that the declaration was effective in relation to the second loan, and it was not covered by the Consumer Credit Code.
[40]I doubt if they had that purpose themselves at that time. Mr Dale p.254 line 32; p.261 line 53.
Business of providing credit
The fourth requirement referred to earlier was also controversial. The respondent company is a construction company, building houses and unit blocks on the Gold Coast.[41] The company does not lend money to purchasers of its homes or units.[42] However, from time to time when the company has funds available it lent money on security of a mortgage of land, usually as a result of an approach from the representative of the third party with a loan proposal: p.285, p.330. It was evidently sufficiently common for this to occur that the company received more proposals than it has funds available to meet, so most such proposals were rejected: p.332. It appears to follow from Mr Nichols’ evidence that money which was used as working capital for the business was, when not otherwise required, routinely lent out for interest.
[41]Exhibit 3, para 5; most of the balance of this paragraph is also taken from Exhibit 3.
[42]P.289, with the exception of part of the price of one unit, or two: p.311.
The business of the company is a large and profitable one. The profit and loss statements which are part of Exhibit 4 show that in 1998 the company made a net profit of over $1.5 million on a turnover of about $8.5 million; income included interest in the sum of $283,916.[43] As at 30 June 1998 there was $3,292,441 in money lent on 19 loans, including the two to Mrs Dale: document 189, p.320. For the year ended 30 June 1999 the profit was about $1.25 million, and the interest received was $383,165.[44] For the year ended 30 June 2000 operating profit was almost $3.9 million, and interest received had increased to almost $400,000. The money earned in this way was a small but not insignificant part of the respondent’s income. The purpose of this lending was to make a profit for the company: p.310.
[43]This included bank interest, but most was interest from loans: p.319, document 190.
[44]Almost all of this was on money lent other than to banks: document 207. There were 12 loans outstanding, totalling $1,967,996 on 30 June 1999: document 206.
The respondent did not advertise the availability of loans, or actively seek borrowers, but made the third party aware from time to time that applications for loans would be considered, regularly received them, and, at least at times, regularly made loans in response to them. Mr Nichols said that the loans were never for more than 12 months (p.373), so new loans must have been made fairly regularly.
There are copies of mortgage documents and other documents under tab D in Exhibit 4 which show lending by the respondent on 21 March 1997 as one of a number of lenders but providing 34/49ths of $600,000, on 1 April 1997 lending $50,000, on 8 August 1997 as one of four lending $600,000, on 28 August 1997 lending $28,500, on 30 October 1997 lending $170,000, on 28 November 1997 lending $40,000, on 5 December 1997 lending $68,000, on 18 December 1997 lending $126,000, on 23 December 1997 four transactions with the same borrower for $104,400, $109,200, $111,000 and $112,800, on 20 January 1998 one of a number of lenders but providing 27/62nds of $310,000, on 2 March 1998, lending $550,000, on 2 June 1998 lending $95,000, and on 23 June 1998 lending $280,000, as well as to Mrs Dale. A list at document 174, which shows relevant mortgages for loans by the respondent (p.312), indicates another mortgage advance on 3 July 1997, but does not state the amount. There were also a number of other later advances, but these I think are less relevant.
This pattern of repeated lending on a relatively large scale during this period illustrates the more generalised evidence about the lending being undertaken by the respondent.[45] Indeed, in the light of this material the respondent could hardly have claimed that it was otherwise.
[45]See for example Nichols p.325 line 15. I do not regard this answer as a conclusive admission.
It is not necessary for the purposes of the test in s 6(1) for the business of providing credit to be the only or principal business of the credit provider. But to satisfy the first limb of the definition the credit provider must be carrying on a business of providing credit. The first question therefore is whether that is satisfied.
What occurred here was more than occasional and disconnected loans. There was in my opinion some element of system, repetition and continuity. The system used by the respondent was that when it wanted to make loans it would advise the third party that it would accept proposals for such loans from the third party, and the third party forwarded such proposals. In effect the task of locating borrowers was handled for the respondent by the third party, but that does not I think mean that there was not a system. The system was to have the third party do this,[46] and it appears to have worked well. There were sufficient loans made for the overall impression to be one of repetition and continuity. I do not think that it matters that the respondent did not have a place of business; insofar as some office was required for dealing with borrowers, and indeed so far as dealing with borrowers was necessary, that was really part of the service provided by the third party. When assessing the nature of the respondent’s activities, I do not think that what was done for the respondent by the third party should be disregarded. I do not think that it matters that the respondent did not borrow money in order to re-lend it (p.370), because its working capital was sufficient to enable it to lend money to the extent that it wished.
[46]Mr Nichols contacted the third party after seeing a newspaper advertisement placed by it: p.285.
This in my opinion is not similar to cases where an individual provides occasional loans as a result of some personal relationship, or where money is lent as part of an overall investment program. I was referred to a number of authorities by counsel for the third party.[47] These in my opinion are however distinguishable, involving a different regime of lending which was in each case less businesslike than what the respondent was doing here. As well, these cases were decided under various moneylenders’ Acts, which generally operated by requiring a person carrying on the business of money lending to obtain a licence. This was enforced by imposing quite severe penalties on a person who ought to have been licensed but was not; except in Western Australia, no interest on the loans made by that person would be recoverable, and in all other states except Victoria, and in New Zealand, not even the principal was recoverable.[48] In such circumstances, it is unsurprising that courts would adopt a strict and narrow test of what amounted to carrying on the business of money lending for the purposes of such legislation, and would be astute to ensure that such dire consequences would not fall on any person who did not come clearly within the ambit of the statute.[49] That context must be borne steadily in mind when considering decisions under those Acts.
[47]Rabone v Deane (1915) 20 CLR 636 at 640; Best v Sutcliffe [1965] NZLR 750; Swayne v Palm [1970] SASR 158; Hungier v Grace (1972) 46 ALJR 492; Marshall & Brougham Pty Ltd v Commissioner of Taxation (1987) 45 SASR 571.
[48]Pannam “The Law of Moneylenders” (Law Book Co, 1965) p.201. At p.3 he suggested that the legislation, based on the English Act of 1900, uses a definition, ie “a person whose business is that of money lending”, which is “not so much a definition as a reformulation of the request for a definition.” See chapter 3 for a discussion of the effect of the decisions on this definition.
[49]This sometimes produced unsurprising decisions; see Lapin v Abigail (1930) 44 CLR 166 at 192-3 per Isaacs J, and the guarded conclusion of Dixon J at 200.
In Rabone v Deane (1915) 20 CLR 636 Griffiths CJ in dicta suggested that the investing of money on mortgages of real estate, although carried on systematically and on a large scale, could not be regarded as carrying on the business of a moneylender within the meaning of the Act: p.641. It is I think sufficient to say that I do not regard that comment as a good guide to the scope of s 6(1)(d) of the Consumer Credit Code.
In Best v Sutcliffe [1965] NZLR 750 the defendant lent money on 29 occasions on the security of mortgages on real estate, to persons referred to him by one of two solicitors, or his accountant. The trial judge accepted the passage from the third edition of Halsbury’s Laws of England (vol.27 p.18 para 27) in the following terms: “It is a question of fact in each case whether a person is carrying on the business of money lending. In order to establish that he is carrying on such a business it is not sufficient to prove that he has occasionally lent money at a remunerative rate of interest; it is necessary to prove some degree of system and continuity in his money lending transactions and something more than loans to friends or relatives. In considering whether a person is carrying on a business of money lending all loans made by him must be taken into account.” He also said at p.751 that if: “The lender had been lending money systematically and continually, that is prima facie evidence that the lender was carrying on the business of money lending.” He agreed that the defendant was lending money on a considerable scale and frequently, but said (pp.753-4): “The conception of a business, even the simplest one, connotes some form of continuing organisation and, generally, some specific place or places at which it is conducted. A man who is in business is usually active in seeking customers for his goods or services and, if he finds the demand for them greater than he can supply from his existing resources, he generally tries to increase those resources.” His Honour concluded that: “The picture which is conjured up is not one of a business of lending money but rather one of a series of haphazard and casual transactions. To apply the description ‘business’ to such a loose pattern of events would be to give the word a strained and unnatural meaning” (p.754).
Whatever may have been the position in New Zealand at the time of this decision, I do not consider that it is a necessary or even general feature of a business that it is conducted at some specific place or places now, or indeed at the time when the relevant events occurred. Insofar as some form of continuing organisation is required, the respondent was undoubtedly carrying on a business, the business of a construction company, and whatever form of continuing organisation it had for that business was also available for the business of lending money. Indeed, the fact that the lender is a company which is carrying on a business contributes to the overall conclusion that it was carrying on a business of providing credit.
Apart from that, I do not think that the organisation and system associated with the respondent’s activities should be considered without regard to the activities of the third party. The third party had a substantial organisation. Mr Reid was employed solely to consider applications for finance, and to line up suitable potential borrowers with potential lenders. The third party advertised for potential lenders, and the respondent made contact with it in response to an advertisement. The third party did not need actively to promote its activities to borrowers; on the evidence of Mr Reid (p.479) it had far more potential borrowers than it could accommodate, and most applications for loans were not successful. The respondent was taking advantage of the third party’s organisation, and I do not think that should be left out of the picture. There is certainly no suggestion that anything like that was occurring with the solicitors and the defendant in Best, or at least if it was, no regard was had to it by the court.
It is also I think significant to note the comments of the trial judge at pp.752-3: “This is the transaction which Mr Dugdale on behalf of the plaintiffs asks me to declare illegal, with the result that the plaintiffs would be entitled to have their property released from the mortgage given to the first defendant without paying any money at all. If, in fact, the first defendant is a moneylender, that is undoubtedly the result which must follow, and the fact that in those circumstances Parliament would have made legal what was morally dishonest is no concern of mine; but when the Court is invited to come to a conclusion, the results of which are so unjust and so contrary to the general feelings of right and wrong, it will naturally scrutinise the evidence upon which it is said it must come to that conclusion with anxious care.” There is nothing like that context here.
One matter which appears also to have been accepted by both sides is that (with one exception) all payments of principal and interest should be treated as having been made in respect of the first loan. There were a number of payments made to the third party which were deposited into the third party’s trust account and documented as being in respect of the second loan.[87] I was concerned that this amounted to an application by the third party on behalf of the respondent of these payments to this loan, in which case they ought now to be treated as payments of interest, or principal, in respect of that loan. Ultimately however in circumstances where both parties appear to be proceeding on the basis that all payments should be applied to the first loan, I am content to proceed on that basis also. The one exception was the disputed payment of $2,000 on 3 July 1998. the respondent submitted that if (which was disputed) it was made, it must have been in respect of the second loan. Since it does not fit the pattern of payments for the first loan, I accept this, and it will become the sole payment applicable to the second loan.
[87]See document 241: the payments were $5,000 on 27 April 1999 (document 240); $3,750 on 1 September 1999 (document 245); $4,000 on 12 October 1999 (document 243)..
Another matter where the schedules of both parties appear to be in error is a payment of $2,000 on 29 October 1999. Document 378 includes a diary note of 1 November recording a conversation with Mr Nichols about allowing Dale to retain the car as he paid $2,000 on Friday last. In 1999 the Friday before 1 November was 29 October. However, there is no reference to that payment in Exhibit 9. Mr Dale’s list document 326 gives a cheque number 175; however, document 270, the bank statements from 25 October to 7 November 1999 does not include cheque 175, although it does include cheques 170, 171, 172, 176 and 178. The next statement for that account, from 8 November to 21 November 1999, includes cheques 174, 177 and 179, but not 175. Document 233 is a receipt signed by Mr Nichols on 2 November 1999 for $1,900, and is noted “payment for 29.10.99 re voided cheque 000175.” That is consistent with the non-appearance of that cheque number in the bank statement. A diary note of 11 November 1999 refers to “only $1,900” being received from Mr Dale on 2 November 1999. Document 373 also refers to $1,900 being paid on 2 November, with a reference to a further payment of $2,100 tomorrow. That would be consistent with the payment in fact made on 16 November 1999 referred to in a letter signed by Mr Nichols (p.133) which is document 255. There is a reference to a payment having been made in a diary note document 238, but the amount is not set out. Mr Dale at p.133 claimed that he paid an extra $300 for Mr Nichols’ inconvenience, and the bank statement document 275 includes an entry for cheque 184 on 16 November 1999 in the sum of $2,400, as does document 326. The schedule handed up on behalf of the respondent during submissions refers to the payment on 16 November 1999 as to $2,400. I am therefore satisfied that $1,900 was paid on 2 November 1999, and $2,400 on 16 November 1999, but do not accept that there was any effective payment on 29 October 1999.
Comparing the list of payments claimed by the applicant in document 355, and the list acknowledged on behalf of the respondent in Exhibit 8, there are relatively few payments which are directly in dispute between the parties. The first is the alleged payment of $2,000 on 3 July 1998.[88] That is a somewhat puzzling payment, because it is the first payment of a round figure, and at the time it was made all of the monthly payments of about $1,476 being made on the first loan had been made. It was not a payment in advance of the payment due on 19 July, because that payment was also made. Nevertheless, there was a withdrawal of this amount on that day from a bank account shown in document 259, and the payment does have the support of the affidavit of Mr Jeremy sworn 24 September 1998, document 258.[89] This is admissible under s 92 of the Evidence Act, Mr Jeremy having since died: p.27. There is of course the consideration that by this time the second loan was overdue for repayment, and this could perhaps be seen as a part repayment by Mr Dale of whatever he could afford: p.177. Although the evidence was not very satisfactory, despite my wariness about the reliability of the evidence of Mr Dale, on the whole I think it more likely than not that this payment was made, and I have taken it into account in Annexure C.
[88]Mr Dale’s evidence of this is in Exhibit 2 para 64(b); pp.123-4; p.176, where he explained that the payment was in cash after two cheques totalling $2,000 had been provided earlier, but had not been cashed because of lack of funds. Copies of two cheques for $1,000, dated 3 July 1998, appear in document 333. Their existence provides some support for his account. Mr Nichols agreed that he received these cheques, and that they were not met on presentation: p.296. He denied however that he received $2,000 cash: pp. 296, 351.
[89]Obtained by Mr Dale to verify the payment: p.122.
The next disputed payment is the payment of $1,599 on 28 October 1998. That payment was made, but I am satisfied it was part of the sum of $5,000 paid in respect of legal costs for the action for possession, as referred to earlier, and therefore it is not properly brought to account as a payment of interest or principal. I have therefore not included it in Annexure A.
Document 355 claims a payment of $5,000 on 8 December 1998. This is not supported either by Mr Dale’s list document 326, or by Mr Nichols’ list Exhibit 9. Although there was a withdrawal of $5,000 on 7 December 1998 (document 261) I am not persuaded that all of this was paid to Mr Nichols the following day. I will not include this alleged payment in Annexure A.
Document 355 includes payments of $5,000 on both 27 April and 6 May. But the payment received by the respondent on 6 May was the payment made to the third party on 27 April, so this payment ought not to be counted twice. I will include the payment of 27 April 1999, but not the payment of 6 May. The payments of 20 May and 4 June included in document 355 were also disputed. For reasons as set out in a footnote in Annexure A, I accept that payments of $5,000 were made on each of 20 May and 7 June, and these two are included in Annexure A. There are no other payments disputed on the comparison of these two schedules.
In Annexure A I have calculated interest at 11 percent per annum on money outstanding on the first loan, with unpaid interest capitalised on 19th of each month. Accordingly the amount required to pay out the first loan as at 19 September 2002 was $116,144.28. This however will have to be brought up to date, something I cannot do until I have information about payments made since the trial. For this reason, I will circulate these reasons, and invite further submissions in this matter.
I have also calculated as Annexure B the consequences for the first loan if there was an entitlement to charge default interest at 16 percent per annum on money which was overdue for payment. Payments made were applied firstly in satisfaction of any amounts overdue, then in satisfaction of any interest accrued due or accruing, and finally in reduction of principal. On the basis of this calculation the payout figure as at 19 September 2002 would be $148,844.69. This finding is made as a precautionary finding, and also for the purposes of the third party claim. Again it needs to be brought up to date.
The position with the second loan is somewhat simpler, in view of the approach taken by both parties as treating all payments as credited to the first loan, except for the disputed payment of $2,000 on 3 July 1998. Interest at 20 percent per annum did not begin to accrue until 20 June 1998, following the failure to repay the $20,000 on that date. Interest on the loan up to 20 June 1998 had been prepaid. I have in Annexure C calculated the amount required to be paid, as at 20 December 2003, to pay out this loan at $53,602.58.
The third party claim
The respondent alleged against the third party in a statement of claim filed 18 February 2002, that the third party was retained by the respondent to attend to all the legal requirements including the preparation of necessary documents in respect of the two loan transactions, the subject of the applicant’s application. So much is admitted in the defence of the third party. The respondent alleged that if it had been aware that the Consumer Credit Code applied to either transaction, it would not have entered into that transaction but instead would have lent the money in some other remunerative transaction not covered by the Code. That allegation is not admitted by the third party. I am not persuaded that this is made out. I do not accept Mr Nichols’ evidence that he was told that the third party did not lend on transactions covered by the Code, and it is clear that documentation was provided to him prior to his agreeing by signing document 13 showing that the proposed loan was subject to the Consumer Credit Code. In these circumstances I do not accept that at this time Mr Nichols had any attitude towards Code loans.[90] It may well be that Mr Nichols with the benefit of hindsight would prefer not to have entered into any transaction which was governed by the Code, but that does not provide any cause of action against the third party.
[90]See Nichols pp.288, 307. He has since ceased all lending through the third party: p.288. Mr Radich denied that Mr Nichols refused to enter into transactions covered by the Code: pp.540-1
The alternative basis of the respondent’s claim is that there was a negligent failure properly to document the transactions in accordance with the requirements of the Code, so as to place the respondent in breach of those requirements, and the respondent has as a result suffered loss to the extent that the respondent is worse off than if the requirements of the Code had been satisfied. Mr Nichols said, and I accept, that he relied on the solicitor to do everything properly: p.309. That was reasonable enough.
There are two aspects to this. In one important respect the respondent is worse off than it would have been had the requirements of the Code been satisfied; for reasons given earlier, it has lost the opportunity to recover default interest on overdue money, because of a failure to include in the documentation a clause providing for default interest which was consistent with the requirements of the Code. Had such a clause been provided, there is no reason to think that the transaction would not have proceeded in the same way as it has, and the result would have been that the respondent would have been entitled to recover in respect of the first loan the amount calculated in Annexure B, rather than the amount calculated in Annexure A. As at 20 September 2002, the difference was $32,700.41. It will be necessary to re-calculate this amount after the figures in the two annexures are brought up to some appropriate date after the date on which judgment is given. This is a loss suffered by the respondent which would have been avoided had the contract been properly documented as required by the Consumer Credit Code.
Although Mr Radich expressed the opinion that the Code did not apply to the transaction because of the nature of the respondent (p.483), it was his practice in cases such as this to document the transaction as if the Code did apply to it, on a precautionary basis. In such circumstances, if it turns out that the Code does apply and there was a failure properly to document the transaction, in my opinion the solicitor was negligent. Indeed, it was conceded on behalf of the third party that if the loan was regulated by the Code and was not properly documented then the third party was responsible for that.
It was also submitted that the third party was not necessarily liable to indemnify the respondent in respect of any civil penalty imposed. That argument however was based on considerations of causation, rather than any public policy ground. It was pointed out that some of the matters in respect of which the penalty was sought related to the conduct of the respondent, or Mr Nichols personally, for which the third party should not be held responsible. I can see that in principle that could well be right, but the contraventions of key requirements that I have found, in respect of which a civil penalty has been imposed, were all deficiencies in documentation, for which the third party was responsible. Accordingly the third party is liable to indemnify the respondent for the total of the civil penalties, $6,000. As to the claim for an indemnity in respect of costs, I will deal with that in connection with the question of costs of the proceeding generally.
Conclusion
I will therefore make the following orders:
1. Declare that the transactions between the first applicant and the respondent in January 1998 in respect of a loan of $161,000 and in March 1998 in respect of a loan of $20,000, are both subject to the Consumer Credit Code.
2. Declare that:
(a) in respect of the first credit contract, there were breaches of key requirements in that the provision for default interest was contrary to s 28(1), which was a breach of s 21(1)(c), and there was a failure to state the total interest payable under the contract, which was a breach of s 15(E);
(b) in respect of the second credit contract, there were breaches of key requirements in that the contract did not state the annual percentage rate of interest, the method of calculation of the interest charges payable under the contract, and the credit fees and charges that were or might become payable under the contract, in breach of s 15(C), (D) and (G);
3. Order the respondent pay the first applicant $1,000 as a civil penalty in respect of the first credit contract, and $5,000 as a civil penalty in respect of the second contract.
4. Declare that the provisions of the first credit contract by which a higher rate of interest was payable unless the borrower was not in default under the contract imposed a liability prohibited by s 21(1) of the Code and were void to that extent.
5. The application for compensation or restitution for contraventions of the Code is refused.
6. The application for reopening the second credit contract under s 70 of the Code is refused.
7. The application for relief under the Trade Practices Act is refused.
I will make determinations pursuant to s 77 of the amount payable in order to discharge the first and second credit contracts. The amount required to discharge the second credit contract as at 20 December 2003 is $53,602.58. It will be necessary for further evidence and submissions to be received, and for further calculations to be undertaken in order to determine the amount required to pay out the first credit contract.
In respect of the third party proceedings, I will order that the third party pay to the respondent the difference between the amount required to pay out the first credit contract as determined, and the amount which would have been required to pay out the first credit contract had it included a provision for default interest which was consistent with s 28(2) of the Code, and provide an indemnity in respect of the total civil penalty of $6,000. The actual amount payable cannot be determined until Annexures A and B can be brought up to date.
I will circulate these reasons and invite further submissions in order to finalise the orders. I will also invite submissions in relation to costs, and to correct any errors of calculation.
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