Bahadori & 2 Ors v Permanent Mortgages & 3 Ors

Bahadori & 2 Ors v Permanent Mortgages & 3 Ors - [2007] NSWSC 79 - NSWSC 2007 case summary — Zoe

[17]

Grounds of Appeal 2 The grounds of appeal are that (1) the Tribunal erred in concluding that (a) the letters of 13 November 2002 from Messrs R L Kremnizier to the plaintiff's finance broker Super City Finance, advising that finance in the form of loan advances of $338,000 and $52,000 respectively had been approved; and (b) acceptance of those offers had been made by the plaintiffs on 13 November 2002 by the signing of those letters; (2) the Tribunal erred in concluding that there were no credit until the mortgages of 28 November 2002 were settled; (3) the Tribunal erred in concluding that s 11(3) of the Consumer Credit Code (the Code) requires an objective test in determining the purpose of the loan; and that the relevant test is what a reasonable person standing in the shoes of a credit provider would have understood to be the predominant purpose for which credit was provided; (4) the Tribunal erred in finding that when determining the purpose of the provision of the credit in s 11(3) of the Code, it was not appropriate to consider what the money was used for and it was not important to look at the substance of the transaction in the context of its performance; (5) the Tribunal erred in concluding that the business purpose declarations of 15 November 2002 complied with the form required in regulation 10 of the Consumer Credit (New South Wales) Regulations; (6) the Tribunal erred in failing to consider that in making the business purpose declarations as statutory declarations pursuant to the Oaths Act 1900 the business purpose declarations were given a whole new effect; that is to say, a borrower would be discouraged from submitting that s.11(3) of the Code applies because in order to do so the borrower would have to admit to making a false declaration under Oaths Act 1900; (7) the Tribunal erred in concluding that it did not have jurisdiction to hear the application under the Code. The plaintiffs contend that the Tribunal should have found that the credit contracts and related mortgages the subject of the proceedings, were credit contracts and mortgages to which the Code applied and, accordingly, that the Tribunal had jurisdiction to hear the application before it. 3 The issue before the Tribunal was whether it had jurisdiction to hear the matter. Senior Member Durie held that the credit contracts into which the Applicants entered are not within the Consumer Credit Code 1995 and that therefore this Tribunal does not have jurisdiction to hear these applications under that Code. 4 These grounds can be reduced to four. They are firstly, were the declarations made "before entering into the contract" for the purposes of section 11(2) of the Code?; secondly, did the credit providers know or have reason to believe within the meaning of section 11(3) at the time the Declarations were made that the credit was in fact being applied wholly or predominantly for personal, domestic or household purposes; thirdly, even if the Declarations were ineffective, was the credit "provided or intended to be provided wholly or predominantly for personal, domestic or household purposes" within the meaning of section 6(1)(b) of the Code, such that the Code applied, and lastly, were the declarations substantially in compliance with the Credit Code Regulations at Clause 10.

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(2) Did the credit providers know or have reason to believe within the meaning of section 11(3) at the time the Declarations were made that the credit was in fact being applied wholly or predominantly for personal, domestic or household purposes? 22 The borrowers' submission amounted to this. Had Kremnizer & Co analysed all of the documents provided to them and in particular, the statement of assets and liabilities provided on 24 December 2002, it had "at the very least reason to believe at the time the declarations were made that the credit was in fact to be applied wholly or predominantly for personal, domestic and household purposes even if they did not have actual knowledge or actual belief as to that matter." 23 By the 24 December 2002, the borrowers had signed prior documents that were furnished to the Kremnizer letters that stipulated that the loan was for investment or business purposes. It was common ground that the borrowers had not read the documents they signed. 24 The Tribunal Member stated: "dd. What then did either of the credit providers in this case know, or what did they have reason to believe. At the hearing, Mt Titterton argued that the definition of credit provider should be read widely so as to include a further company called La Trobe Home Finance Pty Limited. That company appears to have acted as agent for the mortgagees in the negotiations leading up to the credit contracts, and as manager of the mortgages after then. Mr Titterton argued that any knowledge which La Trobe had was also knowledge of the mortgagees. He may well be correct in his arguments as to the effects of the definition, but when I turn to the facts of the case, I can see no difference. ee. The evidence before me as to knowledge was that whilst the Applicants may well have told both Super City (their broker and agent) and their solicitor that the purpose of the loans was personal, all that the credit providers were told was that the purpose was investment. There is no evidence that the purpose made known to Super City was ever made known to the mortgagees. I accept the evidence from each of the Applicants that they did not write the word "investment" on any of the loan applications, and that they do not know in whose writing the word appears. To a lay eye, there appears to have been at least two scribes. However, there is no evidence that any of the handwriting appearing on the loan applications and other documents was added after signature by the applicants.

[44]

(3) Was the credit " provided or intended to be provided wholly or predominantly for personal, domestic or household purposes " within the meaning of section 6(1)(b) of the Code, such that the Code applied? 27 The borrowers submitted that in the event that the declarations were ineffective, the issue arises as to whether the credit contract falls within s 6. The only sub-section of s 6 that was in controversy was subsection (1)(b), namely whether the credit provided by the defendants to the plaintiffs was provided, or intended to be provided, wholly or predominantly for personal, domestic or household purposes. 28 The answer to this question depends of whether Park Avenue Pty Limited v Boon [2001] NSWSC 700 or the decision of Shaw J in Jonsson v Arkway Pty Limited (2003) 56 NSWLR 451 is considered correct and binding. There are two divergent views. Park Avenue followed a Queensland District Court decision of Rafiqi & Anor v Wacal Investments Pty Limited (1998) ASC 155-024. Jonsson followed a decision of the Supreme Court of Victoria, Linkenholt Pty Ltd v Quirk [2000] VSC 166. The Senior Tribunal Member preferred the Park Avenue line of reasoning. In one sense, it is unnecessary for me to determine this issue. My comments on this topic are obiter dicta. However, due to the conflict on this issue, I shall state my views. 29 The borrowers submitted that the Senior Tribunal Member was bound to follow Jonsson. The lenders submitted that Shaw J's statements in Jonsson were obiter dicta, and that the reasoning in Park Avenue is correct. As I had the delegated authority of a Judge to hear Park Avenue any appeal was to the Court of Appeal and therefore both decisions are equal in terms of precedent. 30 In Jonsson, Shaw J was called upon to decide the question of whether the jurisdictional provision in s 6 of the Code that applies to credit provided for "personal, domestic or household purposes". In dispute was the interpretation of s 6(1)(b) of the Code. Shaw J held that the jurisdictional provisions of the Code applied to credit obtained for the purpose of providing a home for the borrower's parents as beneficiaries under a family trust. 31 In Jonsson Shaw J stated:

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bb. In my opinion, I should follow the decision of Master Harrison. The remarks of Shaw J were obiter, and (with respect) do not appear to have been made after consideration of the proper meaning of what Gillard J said. Further, they are not directed to the question of what is the substance and the reality of a transaction (para 30). In a case like this, the debtors may well take the view that the substance and reality of a transaction is that the purpose to which they intend to apply the money is personal - the refinancing of a mortgage over their house where the money originally borrowed was for a purely personal reason. The mortgagees may take the position that the loans were for an investment purpose as that was the notification to them on the loan applications and on the declarations under s.11 (2). …I respectfully agree with the Master's reasoning and that of His Honour Judge Brabazon in Rafiqi. As the decision of Master Harrison was on appeal from the Fair Trading Tribunal I consider it to be binding on me in any event, and I shall follow it. " 35 It is my view that reasoning of Shaw J at [28] to [31] in Jonsson was ratio decidendi and for purposes of comity it should be the test applied to the interpretation of s 6(1)(b) of the Code. Having said that, I have some reservations with the Jonsson approach. 36 There are five possible ways in which s 6(1)(b) could be interpreted. Firstly, objectively from the viewpoint of the lender at the time the contract is entered into; secondly objectively from the viewpoint of the borrower at the time that the contract is entered into; thirdly, by the objective facts known to both parties at the time of entering into the contract; fourthly, on the subjective knowledge of either the lender or borrower; and finally on the test in Jonsson of the actual use of the funds. 37 The first approach was adopted in Park Avenue and in Rafiqi. This approach requires an objective test as to what a reasonable person standing in the shoes of the credit provider would have understood to be the predominant purpose for which the credit is provided. This reflects the phrasing of s 6(1)(b) which seems to suggest through the express words "provision of credit" that the section be interpreted from the viewpoint of the lender. 38 The second approach has been contemplated in a more recent decision of the Queensland District Court, Dale v Nicholls Constructions Pty Limited [2003] QDC 453. The Senior Tribunal Member considered Dale, when he stated: "Mr Titterton referred me to a more recent decision of the Queensland District Court, that of His Honour Judge McGill in Dale v Nicholls Constructions Pty Limited [2003] QDC 453. The relevant passages are at paragraphs 24 and following. His Honour concluded that the test as stated in Rafiqi and Park Avenue Nominees was incorrect, and it appears that His Honour was of the opinion that the purpose was to be ascertained from the application of the money. With great respect to His Honour, I find his reasoning difficult to follow; there appear to me to be real inconsistencies between what is said internally within paragraphs 27, 28 and 29 of the judgment, and also between the approach His Honour appears to espouse there and what he says in paragraph 32." 39 McGill J in Dale accepts in part what Shaw J said in Jonsson. McGill J agrees that what is actually done with the money once it is borrowed could be an indication on the intended use of the money. His Honour's example in paragraph 32 does not adopt this test wholly, but instead looks to the actual intention of the borrower but says that the test is an objective one. A reasonable person in the shoes of the borrower would always believe that they are receiving the money for the purpose for which they are actually borrowing it (except if they are being dishonest). If that is so, the objective outcome would always be the same as the actual one. 40 The third approach would be to consider the objective facts known to both parties as to what the purpose for the provision of credit was, at the time in which the credit is entered into, or proposed to be entered into. Such an approach is similar to that used in the interpretation of a contract where the implied term is ambiguous - Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981) 149 CLR 337, per Stephen J at 352. The fourth possible approach, to undertake a subjective test, can be disregarded as it cannot, in my view, be what is required in s 6(1). 41 As previously stated, the interpretation of Shaw J in Jonsson v Arkway Pty Ltd was the ratio decidendi of that case and for the purposes of comity that test should be applied. The reservation I have is that if one considers what the money was used for in order to determine the purpose of the provision of the credit and in doing so considers the substance of the transaction in the context of its performance, it may involve facts that occurred after the transaction was entered into, and rather than looking at it from the credit provider it looks at the reality of the transaction. This course of reasoning seems to go beyond what s 6(1)(b) contemplates. Factors which occur after the transaction was entered into, should not in my view, be considered. As a matter of statutory construction, to read these words and give them their ordinary and natural meaning, the section requires that the intended purpose of the legislation be discerned from the time the contract is entered into, or proposed to be entered into. This reasoning in Jonsson goes beyond what s 6(1)(b) contemplates.

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