Zhou v Haider
[2024] ACTMC 7
•7 May 2024
MAGISTRATES COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Zhou v Haider |
Citation: | [2024] ACTMC 7 |
Hearing Date: | 27 February 2024 |
Decision Date: | 7 May 2024 |
Before: | Magistrate Lawton |
Decision: | See orders set out in [75]. |
Catchwords: | CIVIL LAW – HEARING – Decision – Liquidated Debt – Loan Agreement – Application of National Credit Code |
Legislation Cited: | Court Procedure Rules 2006 (ACT) National Consumer Credit Protection Act (2009) (Cth) National Credit Code |
Cases Cited: | Avery v Saree Holdings [2012] NSWC 463 Commissioner for Fair Trading v Haider (Occupational Discipline) [2023] ACAT 40 (26 July 2023) Federal Commissioner for Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 335 Lauvan Pty Ltd v Bega [2018] NSWSC 154 Mills v Commissioner of Taxation (2012) 250 CLR 171 Saafin Construction Pty Ltd v Mad Financial and Investment Ventures Pty Ltd [2021] VSC 489 Shakespeare Haney Securities Limited v Crawford [2009] QCA 85 Williams v ATM & CPA Projects Pty Ltd [2015] NSWSC 703 |
Parties: | Yuanjie Zhou ( Plaintiff) Nicholas Shahzad Haider (First Defendant) Jenna Clare Fitch (Second Defendant) Julie Theresa Fitch (Third Defendant) |
Representation: | Counsel Brodie Buckland ( Plaintiff) No appearance by the First Defendant Rory Markham (Second and Third Defendants) |
| Solicitors Accuro Maxwell ( Plaintiff) No appearance by the First Defendant Adero Law (Second and Third Defendants) | |
File Number: | CS 9 of 2023 |
MAGISTRATE LAWTON:
Introduction
This matter concerns a claim for a liquated debt stemming from a loan agreement between the Plaintiff and the Second and Third defendants.
This matter came before me for hearing on 27 February 2024 where the Plaintiff, his wife Ms Zhao, and both the Second and Third defendants gave evidence in relation to these proceedings.
The Plaintiff presently sues on one agreement, being the second loan agreement.
The amount claimed by the Plaintiff is $161,600.00 comprised of the following:
a.The repayment of a sum of $80,000, purportedly being the principal owing under the second loan agreement;
b.A further $81,600 being the interest accrued and owing under the loan agreement, continuing at $223.56 per day; and
c.Costs on an indemnity basis.
The fundamental issue in this matter concerns whether the Plaintiff conducted a business of providing credit or conducted a business incidental to which credit was provided per s 5 of the National Credit Code (‘the Code’), and by extension a ‘credit activity’ within the meaning of s 6 of the National Consumer Credit Protection Act (2009) (Cth).
In circumstances where the Plaintiff is found to have not been conducting a business of providing credit or conducted a business incidental to which credit was provided in per s 5 of the Code, the loan agreement is enforceable, and judgement should be issued against the second and third defendants.
On the contrary, should the Plaintiff be found to have been conducted a business of providing credit or conducted a business incidental to which credit was provided pursuant s 5 of the Code, the loan agreements are deemed unenforceable, and judgement should be issued in favour of the defendants by reference to s 77 of the Code and s 180 of the National Consumer Credit Protection Act.
Background
The First Loan Agreement – 8 April 2021
On 8 April 2021, the Plaintiff entered into a loan agreement (“the First Loan Agreement”) with all three defendants whereby the Plaintiff would loan them the sum of $100,000.
The agreement arose from discussions between the Plaintiff and the first Defendant for the purpose of renovation works at the Stirling Property.
10.This was a 6-month loan comprising of the Principal Sum, compounding interest on the outstanding balance of the Principal Sum calculated at 7.5% per month (lower rate) or 8.5% per month (higher rate), due on 8 September 2021.
11.Following the due date of 8 September 2021, any amount of the Principal Sum remaining would be subject to the higher rate, compounding monthly. The liability for the Third Defendant was limited to her interest in the mortgaged property being 1% interest.
12.It is noted that the Second and Third Defendant were not privy to the substantive details of the loan agreement. The First Defendant conducted all negotiations with the Plaintiff.
13.However, the loan agreement was drafted by competent lawyers who were aware of the operation of the National Credit Code. By virtue of clause 3 of the Loan Agreements, the parties had agreed to the effects of where the Consumer Credit Code applies. This can be considered as an admission that the parties recognised the Court’s discretion to determine the enforceability of the loan agreements pursuant to s 77 of the National Credit Code and s 180 of the National Consumer Credit Protection Act.
14.The Defendants made repayments in the sum of $7,500 and $8,500 on 23 June 2021 and 5 August 2021 respectively.
15.Interest continued to accrue between the period of 8 April 2021 and 17 February 2022 and as of 17 February 2022, the interest accrued was $68,394.52.
16.The parties agreed the full amount outstanding as of 4 February 2022 was $170,000.
The Second Loan Agreement – 17 February 2022
17.On 17 February 2022, the Plaintiff entered into another loan agreement (“the Second Loan Agreement”) with all three defendants.
18.The Second Loan Agreement included the Principal in the First Loan Agreement as well as any interest accrued, essentially extinguishing the First Loan Agreement.
19.On 18 February 2022, a payment in the sum of $90,000 was made to the Plaintiff. As a result of this repayment the amount owing would be $80,000.
20.The Plaintiff demanded the repayment of the loan, but the Defendants failed to repay the principal. The Plaintiff lodged a caveat pursuant to special condition 1 of the Loan Agreement on the Stirling property.
21.On 10 November 2022, the mortgagee in possession of the Stirling property arranged for sale of the property and on 2 December 2022, advised that the proceeds of sale were insufficient to pay for the debts outstanding.
22.Thus, as of the date of the claim, the whole of the principal plus interest remains outstanding.
The First Defendant’s absence
23.The First Defendant did appear on two occasions in July and August 2023 before the Deputy Registrar in the preliminary stages of the matter.
24.The First Defendant did not appear at the hearing before me. I was advised by the parties that did appear that he was aware of the proceedings and ‘could appear if required’.
25.I discussed with the parties at the hearing that the First Defendant has been the subject of criminal and disciplinary proceedings in respect to his conduct as a real estate agent – see Commissioner for Fair Trading v Haider (Occupational Discipline) [2023] ACAT 40 (26 July 2023).
26.In that matter Senior Member Prof T Foley dealt with 6 complaints against the First Defendant.
27.The Senior Member publicly reprimanded the First Defendant, fined him $5,000.00 and disqualified him from applying for a real estate agent’s licence for 10 years.
28.In his consideration of the penalties to impose by reference to relevant authorities, the Senior Member noted at [57] “…I can find none that have the same level of combined seriousness constituted by dishonest dealing with up to $400,000, over a period in excess of three years and where at least $250,000 remains outstanding.”
29.Although I did not explicitly state it during the hearing, I considered it appropriate to proceed with the hearing in the absence of the First Defendant as permitted by r 1505 of the Court Procedure Rules 2006 (ACT)
Evidence and Findings
Application of The Code
30.This matter turns on whether the Code applies per s 5. It must be determined whether the second loan agreement can be established to be a credit contract and thus whether the Code applies.
31.Per s 13 of the Code there is a rebuttable presumption in favour of the Defendants which provides that in any proceedings (whether brought under The Code or not) in which a party claims that a credit contract, mortgage, or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established.
32.In accordance with s 35 of the Code, the burden is on the lender to establish that the code did not apply, which in this case is the Plaintiff.
33.Pursuant to s 5(1), the Code applies to the provision of credit if, when the credit contract is entered into:
a.the debtor is a natural person or a strata corporation; and
b.the credit is provided or intended to be provided wholly or predominantly:
i.for personal, domestic or household purposes; or
ii.to purchase, renovate or improve residential property for investment purposes; or
iii.to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and
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 carried on in this jurisdiction or as part of or incidentally to any other business of the credit provider carried on in this jurisdiction.
34.It is undisputed in this matter that the loan agreement that the debtors were natural persons.
35.Further it is undisputed that the credit is provided wholly or predominantly under s 5(1)(b)(ii). The Loan Agreements state that the purpose of the loans was to complete renovations for sale and business purposes which would fall under s 5(1)(b)(ii) accordingly. I consider the second Loan Agreement would also fall within s 5(1)(b)(iii) in that involved a refinance of credit provided under the first Loan Agreement.
36.The question I must turn my mind to is whether s 5(1)(d) is satisfied.
37.In Lauvan Pty Ltd v Bega (‘Lauvan’) [2018] NSWSC 154 it is asserted that s 5(1)(d) of the Code has three limbs to consider in determining whether the particular credit to which the Code purports to apply is:
a.In the course of a business providing credit carried on by the credit provider;
b.As part of another business carried on by the credit provider; or
c.Incidentally to another business.
38.The Plaintiff has submitted that the loan agreement is not a credit contract per s 5(1)(d) as there is no overlap between the Plaintiffs business activities and the loan agreement. The Plaintiff has argued that the Defendants have conflated the Plaintiffs business activities generally with the provision of credit in this case.
39.The authorities, namely Lauvan, provide that whether a person carries on a business is question of fact and therefore ‘in the course of a business carried on’ should be given a similar meaning to ‘carrying on a business’ which the NSWSC held to require ‘repetition and continuity of the activities which carry on the business’ in Williams v ATM & CPA Projects Pty Ltd [2015] NSWSC 703. In Shakespeare Haney Securities Limited v Crawford [2009] QCA 85, Muir JA endorsed that even a one-off transaction or venture may be held to be of business character, in citing Federal Commissioner for Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 335.
40.I accept the Plaintiff’s submission that the Loan Agreements had no connection with his painting and steel business, as the evidence of Plaintiff and his wife was indicative that there was not a connection.
41.However, that is not the end of the matter. It is notable that the loans furnished by the Plaintiff were provided by him personally, not by either of his businesses, being the steel fabrication and painting businesses (noting his third company has not yet commenced trading).
42.The Plaintiff’s Affidavit establishes that he is an experienced businessman, operating three businesses related to the construction of properties.
43.The evidence is also clear that the Plaintiff, personally, engages in the repeated purchasing and selling of properties with a view to making profit. In other words, he conducts a business of purchasing properties for investment purposes. When taken to each of the properties he has purchased over the period both before and after the dealings in respect to which the hearing related, he acknowledged that nearly all were for investment purposes (see transcript pages 32-33).
44.Perhaps the clearest example of this is the Plaintiff’s purchase of 27 Colebatch St in Curtin. He, together with the other directors of one of his businesses, in their personal capacity, purchased the property, carried out some minor gardening upon it, and then sold it some months later for a profit of some $340,000 over its purchase price.
45.Further, the Plaintiff has, in his affidavit evidence, deposed that he had retained the First Defendant for the purposes of purchase and sale of property. The Plaintiff’s wife corroborated this evidence and is also an experienced mortgage broker, with her own business.
46.The Plaintiff would be readily able to identify properties with prospects of turning a profit and the entering into this loan agreement was in fact carrying out business activities as it was on this very basis that the First Defendant had offered to sell the Stirling Property to him. That was the very nature of the relationship between the Plaintiff and the First Defendant.
47.I also note the further evidence of the Second Defendant in respect to the relationship between the Plaintiff and the First Defendant (paragraph 25 of her Affidavit), in which the First Defendant said to her words to the effect of “Don’t worry about the repayment of the loan, I just have to find [the Plaintiff] blocks [of land]”.
48.Thus, I find the Plaintiff personally conducted a business of purchasing investment properties.
49.The legislation does not define ‘incidental’ however Gleesan JA considered the words ‘incidentally to’ in s 5(1)(d) to be taken as an expression of wide import meaning there must be some connection between the conduct and another business of the credit provider and the particular loan in question in Lauvan.
50.This is therefore a question of degree as endorsed by Gaegler J (agreed with by French CJ, Hayne, Kiefel and Bell JJ) in Mills v Commissioner of Taxation (2012) 250 CLR 171.
51.In Saafin Construction Pty Ltd v Mad Financial and Investment Ventures Pty Ltd [2021] VSC 489, Riordan J considered that the ordinary definition of the word incidentally is ‘happening or likely to happen in fortuitous or subordinate conjunction with something else’.
52.In that case His Honour considered that the loan agreement was connected with and in subordinate connection with the creditors brokerage business as the creditor had, in the course of other commercial dealings, made the loan agreement.
53.In the current proceedings, the Plaintiff had previous related commercial dealings with the First Defendant which provided the basis for the offer to sell the Stirling property. As submitted by the Second and Third defendants, the First Defendant was aware the Plaintiff was in the business of purchasing and selling properties for profit. He would not have known this but for the existing commercial relationship.
54.Even in the case of isolated loans, which the Plaintiff effectively argues this one is, the Court in Avery v Saree Holdings [2012] NSWC 463 has concluded that The Code does apply even where the loan was incidental to business.
55.I find the requisite degree of connection as endorsed by the relevant authorities apparent. The Plaintiff was acquiring a business asset, in the form of a credit contract, derived from a Principal asset, being the Stirling property. The Plaintiff would ordinarily buy and sell properties in the course of his investment property business, highlighting the requisite degree of connection.
56.On the evidence, the Plaintiff was lending to the Defendants personal capital that would usually be used in the course of business, being buying and selling properties. The Plaintiffs conduct, although he was investing in an asset, was of close connection to the Plaintiffs business notwithstanding the fact that the capital was not immediately required.
57.However, I find that the transaction was incidental to another business of the credit provider carried on in this jurisdiction per s 5(1)(d), being his personal investment property business. As noted previously, I consider the second Loan Agreement would also fall within s 5(1)(b)(iii) of the Code.
58.For completeness, I consider that the nature of the two loans, being short term, and with the intention of returning the Plaintiff a generous profit, would satisfy the criteria of having a commercial aspect to them such that in any case they would attract the application of the Code even though being of a ‘one-off’ nature. That is, I consider the Plaintiff was a credit provider under the Code for these two transactions.
59.Accordingly, the first and second loan agreements are declared to be credit contracts to which The Code applies pursuant to s 5.
Relief for the Defendants
60.Accordingly, I must turn my mind to the question of relief for the Defendants given the Loan Agreement is held to be a credit contract.
61.S 180 of the National Consumer Credit Protection Act (2009) (Cth) provides the Court wide powers for making of orders.
62.The second and third defendant seek relief under s 77 of The Code. Namely, the second and third defendant seek that:
a.The first and second loan agreements are set aside;
b.That a declaration is issued that the Defendants have paid $2807.70 in excess to the principal and any court interest accrued; and,
c.That the Plaintiff is to pay the defendants costs.
63.This requires that I be satisfied that the circumstances relating to the credit contract were unjust at the time it was entered into before that power arises pursuant to s 76(1) of the Code.
64.As outlined in s 76(2) of the Code, I must have regard to a range of different matters in determining whether unjust circumstances existed and therefore whether an unjust transaction can be opened. This is a matter for which the defendants much satisfy the transaction is unjust before I can exercise any powers pursuant to s 77 of the Code.
65.The Defendants assert that per s 76(2) the court is to have regard to the public interest and to all the circumstances of the case and may have regard to further matters indicative of an unjust transaction.
66.The Defendants have pointed me in the direction of a range of indicia to determine whether the transaction was unjust.
67.Namely, s 76(2)(o) which provides that I should have consideration of the terms of other comparable transactions involving other credit providers and, if the injustice is alleged to result from excessive interest charges, the annual percentage rate or rates payable in comparable cases. This is starkly evident on the evidence that the Code would in essence not permit the rate at which the current transaction is subject to.
68.Next, s 76(2)(m) provides that the Court must have reference to whether the terms of the transaction or the conduct of the credit provider is justified in the light of the risks undertaken by the credit provider. The Third Defendant, Ms Julie Fitch, only had a 1 percent interest under the first loan yet consequently had complete joint and several exposure under the second loan agreement. This is hardly justifiable given the her 1% interest.
69.Next, s 76(2)(h) provides that I must have regard to whether, and if so when, independent legal or other expert advice was obtained by the debtor, mortgagor or guarantor.
70.The Plaintiff submits in this case that significance may be placed on the reliance or lack of investigation by the Second and Third defendants to legal representatives.
71.It is important at this stage to note the behaviour of the First Defendant. He was the controlling party in respect to negotiations with the Plaintiff. He essentially told the Second and Third Defendants what to do. It was in his interest that they not be aware of their rights and liabilities under the Code.
72.Further the legal representatives for the Second and Third defendants were deprived of the disclosures which would have given them notice that the Code applied which would have likely changed the advice given to the Second and Third defendants.
73.I find that by reference to the public interest, to all the circumstances of the case and with regard to the matters indicative of an unjust transaction, that the loan agreement in dispute was an unjust transaction. I therefore may reopen the transaction as provided in s 76(1).
74.Per s 77(c) of the Code, I may set aside either wholly or in part or revise or alter an agreement made or mortgage given in connection with the transaction.
Orders
75.Accordingly, the Plaintiff’s claim is dismissed, and I make the following orders:
1.Pursuant to s 77(c) of The Code, the first and second loan agreements are set aside;
2.A declaration that the Defendants have paid $2807.70 in excess to the principal and any court interest accrued; and
3.The Plaintiff is to pay the defendants costs.
4.The parties are given 28 days to relist the matter in respect to any further order in respect to order 3.
| I certify that the preceding seventy-five [75] numbered paragraphs are a true copy of the Reasons for Decision of His Honour Magistrate Lawton. Associate: Pia Beohm Date: 7 May 2024 |
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