[2005] VCAT 1755

Pursuant to the Consumer Credit (Victoria) Code ("the Code") and Sections 80 and 109 of the Victorian Civil and Administrative Tribunal Act 1998, this Tribunal orders:

The transaction which gave rise to the Credit Contract and Mortgage entered into between the Applicant and Dominic Maisano and the Respondent is reopened in relation to the Applicant, and the Credit Contract and Mortgage are set aside in relation to the Applicant.

The default notice under Section 80 of the Code is of no effect in relation to the Applicant.

The Applicant's costs in relation to the application are reserved. The Applicant has liberty to apply for those costs on reasonable notice to the Respondent and this Tribunal.

The 1st Respondent's costs in relation to the application are reserved. The 1st Respondent has liberty to apply for those costs on reasonable notice to the other parties and this Tribunal.

I am in a position to deliver my decision on this matter. My decision is that Ms Maisano is successful. The transaction to which she was a party is reopened and the contract and mortgage are set aside insofar as they relate to her. The default notice is to be of no effect in relation to her.

As to the second application, No. M64 of 2005, which is the application to repossess her car, that application is dismissed. I now give my reasons.

In March 2005 Car & Home Finance Pty Ltd (which I call "the Company") applied to VCAT for an order under s.92 of the Consumer Credit (Victoria) Code ("the Code") authorising it to enter residential premises to take possession of a 2001 Nissan Pulsar sedan (which I call "the car"). The respondents to that application were Dominic and Rosa Maisano.

Ultimately the Tribunal adjourned proceedings on that application pending the making by Ms Maisano of an application to reopen the transaction which led to the relevant credit contract and mortgage. Ms Maisano made that application in April 2005. It names the Company as respondent. It seeks orders under s.71 of the Code and in the alternative orders under ss.50(4) and 51(2) of the Code and s.158 of the Fair Trading Act 1999. In relation to this I take the particulars of application as they were amended at hearing. I call the application by Ms Maisano the "reopening application", and I call the application by the Company the "repossession application".

On 9 May 2005 the Tribunal directed that both applications were to be heard together. I heard them on 5 and 6 July 2005.

I first deal briefly with the law and I then make findings. Finally I apply the law to the facts as I have found them.

I first deal with the law. Section 70 of the Code is headed "The court may reopen unjust transactions". It relevantly provides -

"(1) Power to reopen unjust transactions. The Court may, if satisfied on the application of a debtor, mortgagor or guarantor that, in the circumstances relating to the relevant credit contract, mortgage or guarantee at the time it was entered into or changed (whether or not by agreement), the contract, mortgage or guarantee or change was unjust, reopen the transaction that gave rise to the contract, mortgage or guarantee or change.

(2) Matters to be considered by Court. In determining whether a term of a particular credit contract, mortgage or guarantee is unjust in the circumstances relating to it at the time it was entered into or changed, the Court is to have regard to the public interest and to all the circumstances of the case and may have regard to the following--

(a) the consequences of compliance, or noncompliance, with all or any of the provisions of the contract, mortgage or guarantee;

(c) whether or not, at the time the contract, mortgage or guarantee was entered into or changed, its provisions were the subject of negotiation;

(d) whether or not it was reasonably practicable for the applicant to negotiate for the alteration of, or to reject, any of the provisions of the contract, mortgage or guarantee or the change;

(e) whether or not any of the provisions of the contract, mortgage or guarantee impose conditions that are unreasonably difficult to comply with, or not reasonably necessary for the protection of the legitimate interests of a party to the contract, mortgage or guarantee;

(f) whether or not the debtor, mortgagor or guarantor, or a person who represented the debtor, mortgagor or guarantor, was reasonably able to protect the interests of the debtor, mortgagor or guarantor because of his or her age or physical or mental condition;

(g) the form of the contract, mortgage or guarantee and the intelligibility of the language in which it is expressed;

(h) whether or not, and if so when, independent legal or other expert advice was obtained by the debtor, mortgagor or guarantor;

(i) the extent to which the provisions of the contract, mortgage or guarantee or change and their legal and practical effect were accurately explained to the debtor, mortgagor or guarantor and whether or not the debtor, mortgagor or guarantor understood those provisions and their effect;

(j) whether the credit provider or any other person exerted or used unfair pressure, undue influence or unfair tactics on the debtor, mortgagor or guarantor and, if so, the nature and extent of that unfair pressure, undue influence or unfair tactics;

(k) whether the credit provider took measures to ensure that the debtor, mortgagor or guarantor understood the nature and implications of the transaction and, if so, the adequacy of those measures;

(l) whether at the time the contract, mortgage or guarantee was entered into or changed, the credit provider knew, or could have ascertained by reasonable inquiry of the debtor at the time, that the debtor could not pay in accordance with its terms or not without substantial hardship;

(m) 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;

(n) 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;

Sections 70(3) to 70(6) are not relevant to this case. Section 70(7) provides-

"Meaning of unjust. In this section, "unjust" includes unconscionable, harsh or oppressive.".

9. Because of the conclusions I have reached it is unnecessary for me to deal with ss.50 and 51 of the Code which relate to guarantees, or s.158 of the Fair Trading Act 1999 which, among other things, relates to the orders which the Tribunal may make where a person has engaged in unconscionable conduct in breach of the Fair Trading Act.

10 It is rightly submitted for the Company that s.70 is concerned with contract, mortgage or guarantee being unjust. Relevantly here the contract must be unjust in the circumstances relating to it at the time it was entered into. We are not concerned with a change in the contract. As the authorities point out, injustice in this context can either encompass injustice in the terms of the document itself or injustice in the party's conduct at the time the document was entered into, which in fact makes the terms of the contract, mortgage or guarantee unjust. "Unjust" in this context has a much broader meaning than unconscionable although it includes unconscionability. This is plain from the long list of factors which the Tribunal may take into account and which is set out in s.70(2).

11 I now come to the evidence and my findings. There are a number of difficulties in evaluating the evidence. The evidence was given by Dominic Maisano and Ms Maisano, and for the Company by Mr Leeworthy, it's director and the principal manager. There were some internal inconsistencies in the evidence of all three. The recollections of all three were clear as to some events and vague as to others. In my view Ms Maisano exaggerated her lack of knowledge of the English language although I have something to say about that later. Having said this I found the three witnesses for the most part to be reliable and truthful. Where I preferred the evidence of one to another it is because it seemed to me that on particular points their recollections were clearer and their evidence more consistent than the other witnesses.

12 I now come to my findings. The Company is a credit provider within the meaning of the Code employing a number of employees and managed by its director Mr Leeworthy. About 60 per cent of its business involved lending on the security of mortgages overr cars. Mr Leeworthy himself deals with most of the loans and loan documentation is prepared by his staff.

13 Rosa Maisano was born in Italy in 1943. She migrated to Australia in 1963. She has two sons both of whom were born in Australia after she came here. Her younger son is Dominic. Ms Maisano has had no schooling. She can sign her name, can recognise numbers and at least some letters including those in her name, but cannot otherwise read or write either Italian or English. She speaks the Calabrese dialect and can speak broken English. On this matter I prefer her son Dominic's evidence to her own. However, I accept that her understanding of the spoken English is to say the least very meagre and rudimentary. I accept her evidence that she must get the help of others to read even her mail.

14 Since she came to Australia she has worked as a machinist for 12 months only and then for the rest of her time here has looked after her children or her sick husband. Although at one time she was cosignatory to a loan which she and her husband obtained to buy a house, I am satisfied that she has no experience of business and little understanding of the nature of loans and mortgages. She gave evidence to this Tribunal through an interpreter. She rents her home from the Ministry of Housing and has no other assets, at least at the time relevant to this case in 2002. She is a pensioner and in October 2002, the relevant time here, would have been 59 years old. In 2002 her son Dominic lived at her home with her for three days each week.

15 On 17 October 2002 Dominic rang Car & Home Finance and spoke to Mr Leeworthy. Dominic had read a newspaper advertisement about the loans which the Company could offer. He asked Mr Leeworthy about getting a loan. Mr Leeworthy explained that the Company did not make unsecured loans and asked whether Dominic had a car. Dominic said that he did not but that his mother did and he could use that as security. Mr Leeworthy told Dominic that his mother would have to be a co-borrower and that the loan application could be completed over the phone at that time. There is dispute in the evidence whether Rosa Maisano took any part in this conversation. On this point I prefer Mr Leeworthy's evidence.

16 I find that Dominic then, on the phone, gave Mr Leeworthy details such as names and addresses for the loan application which was being filled in. I find that Rosa Maisano was at the other end of the phone but up to a certain point took no part in the conversation. Dominic then provided Mr Leeworthy with his date of birth and licence number at the time. I accept Mr Leeworthy's evidence that he then spoke to Rosa Maisano and asked for permission to do a credit check in relation to her. The only thing she said to him was "yes". There is no evidence that this conversation was translated to her in Italian. Mr Leeworthy spoke English. I find that given Ms Maisano's, rudimentary knowledge of English and broken English, she would not have understood what Mr Leeworthy was asking her.

17 About an hour later Mr Leeworthy telephoned Dominic and told him that the loan was approved. Mr Leeworthy asked Dominic to come with his mother to the company's office the next day. Mr Leeworthy told him that he must bring the car which was to be the security for the loan and his mother's driving licence and insurance policy for the car. Dominic never explained to his mother that she was to be a co-borrower of the loan or that her car was to be security for the loan. He told his mother that he was getting a loan and needed her support and signature. She said that she did not want any trouble and he said not to worry that it would be all right. He told his mother only that she was to drive to his place of work and pick him up and then they were to go to the offices of a finance company from which he was getting the loan.

18 On 18 October 2002 Rosa Maisano picked up Dominic from work in her car and Dominic drove them both to the company's office. I accept Rosa Maisano's evidence that her drivers licence and the insurance policy were in the car.

19 At the company's office Mr Leeworthy introduced himself to Dominic and his mother. Mr Leeworthy, according to his company's usual practice, had prepared in advance documents for Dominic and his mother to sign.

20 The witnesses gave differing estimates of the length of time for which this meeting lasted. On this point I prefer Dominic's evidence because it, in my view, reflects what the witnesses said about what happened at the meeting. I accept that the meeting lasted about ten minutes. Mr Leeworthy sat at his desk opposite to Dominic and his mother. He placed one copy of the front page of the financial table of the contract which was to be signed in front of Dominic and his mother, facing them. He used his finger to point to parts of the contract which he explained to them in English. He mentioned such things as the amount of credit, interest, total of repayments, the amount and frequency of repayments and the interest rate. I accept that he said that the car was to be security for the loan. As he explained these things he looked up from time to time and each time he did Dominic and his mother appeared to be looking at the contract. He asked Dominic and his mother if they understood what he explained and Dominic said "yes".

21 He then also placed a document on the table headed "Things you must know". This was placed on his desk at the same time as the front page of the financial table of the contract. The Consumer Credit (Victoria) Regulations require that before a debtor signs or enters into a contract, this statement must be provided.

22 On the evidence I find that Mr Leeworthy did now draw this statement to the attention of either Dominic or his mother and did not explain the contents to them. I accept that neither Dominic nor his mother were aware that the statement had been placed before them and that neither read it.

23 Mr Leeworthy then left the office for about five minutes, telling Dominic and his mother to read the contract and ask him any questions when he returned. Mr Leeworthy then obtained photocopies of the drivers licence and insurance policy for the car and a recent pay slip of Dominic's. On the evidence I find that Rosa Maisano had handed him her licence but that Dominic had handed him the pay slip and insurance policy. At this time Mr Leeworthy also obtained a cheque prepared by his secretarial staff, made out in favour of Rosa Maisano for cash. I accept it was the company's practice to make out a cheque in favour of the owner of the security for the relevant loan.

24 Mr Leeworthy returned to his office. I accept his evidence that neither Dominic nor his mother asked him any questions. Mr Leeworthy then pointed to the place for their signatures and they signed the front page and financial table of the contract.

25 Mr Leeworthy then placed on his desk the document headed "Car and Home Finance terms and conditions", a document some eight pages long. With his finger he pointed to those conditions which related to the obligation of the borrowers to keep the car insured, which provided for a fee to be payable if the borrowers terminated the contract early, and which provided that if the borrowers wished to sell the car they must first pay out the loan. He explained these conditions again in English. He did not explain to the borrowers the rest of the conditions. In particular he did not explain the clauses relating to the calculation of interest, the goods mortgage over the car, default and the Company's powers in the event of default, and the clauses relating to the joint and several liability of the co-borrowers.

26 I accept Mr Leeworthy's evidence that he asked both Dominic and his mother if they wish to read the terms and conditions and Dominic said that they did not. Mr Leeworthy's evidence is unclear about whether Ms Maisano indicated that she did not want to read those terms and conditions. I am not satisfied that she gave any indication one way or the other. Mr Leeworthy pointed to where Dominic and his mother were to sign the terms and conditions and they then signed them. At the time of signing the terms and conditions Rosa Maisano also signed a declaration that she was the legal and registered owner of the car.

27 After Dominic and Rosa Maisano signed the terms and conditions the three, including Mr Leeworthy, left the office and went outside - Rosa Maisano to smoke a cigarette and Dominic and Mr Leeworthy to inspect and start the car and look at the speedometer. All then returned to the office and Mr Leeworthy gave to each an envelope which contained a signed copy of the contract and a pay-in book.

28 I find that Mr Leeworthy did not ask whether Dominic and Rosa Maisano needed an opportunity to seek independent or other independent expert advice or give them such an opportunity. I find that although Dominic understood the nature of the contract he signed, Rosa Maisano did not. She did not understand that she signed as co-borrower or that she mortgaged her car as security for the loan. The only words she said at the meeting were "yes" and "fine".

29 I accept Mr Leeworthy's evidence that by her appearance he knew that she was European and also believed her to be a housewife without experience in business. I find that Rosa Maisano could not read any of the documents which she signed, that all the provisions were not explained to her and even those that were explained were explained in English, a language of which she had only a rudimentary knowledge and spoke brokenly. I accept Mr Leeworthy's evidence that he did not know that Ms Maisano could not read or speak English. I am satisfied that by reasonable enquiry at the meeting he could easily have discovered this and that given her lack of response at the meeting, and the fact that he believed her to be of European origin and that she had little experience in business he ought to have made more enquiries to satisfy himself that she understood the documents and the conditions of the contract and ought to have explained those documents fully to her. I accept Rosa Maisano's evidence that, had she known that she was a borrower under the contract and that her car was to be security for the loan, she would not have signed the loan documentation.

30 At the end of the meeting Dominic told Mr Leeworthy that the cheque was to be cashed immediately. Dominic and his mother then went to the company's bank . Ms Maisano produced her drivers licence to the teller and I accept her evidence that she did not understand why she did so. The teller gave cash in return for the cheque. There is insufficient evidence for me to find to whom he gave the money. I accept Ms Maisano's evidence that her son to the cash out of the bank with him. She has not benefited at all from the money that was lent to her. She has not used any of the loan money.

31 I accept the evidence of Dominic and Ms Maisano that the loan repayments were made by Dominic. There is no doubt that not long after the loan was taken out, the repayments became irregular and eventually default notices were sent to Rosa and Dominic Maisano dated 18 January 2005. These notices were under s.80 of the Code.

32 Rosa Maisano gave evidence that her sister-in-law at one time paid $1200 to the company when a man came to her door saying that the car was to be repossessed because the loan over it had not been paid. There is insufficient evidence to find exactly when this occurred although I accept that it did occur. I accept Rosa Maisano's evidence that this was the first time she understood that her son was not repaying the loan which she thought was his own and that somehow her car was under threat of being taken away because of this non-payment.

33 I now apply the law to the facts as I have found them. I am satisfied that in the circumstances relating to this contract and mortgage at the time they were entered into, as I have found those circumstances to be, the contract and mortgage were unjust as they related to Rosa Maisano and the transaction which gave rise to them should be reopened. I briefly say something about the factors listed in s.70(2) of the Code.

34 No aspect of the public interest was pointed to by either party.

35 The consequences of Rosa Maisano's non-compliance with the contract and mortgage are that if no orders were made to reopen the transaction her car, her sole asset, would be taken and sold by the Company.

36 Ms Maisano had no bargaining power in relation to the loan transaction and no opportunity to negotiate the terms of the relevant contract or mortgage because she neither understood those terms, nor that she was entering into that contract and mortgage. Because of her lack of English she was not reasonably able to protect her interests.

37 Her son did not protect her interests. Rather he misled and deceived her of the nature of what she was doing.

38 After being given the loan documentation Ms Maisano was given no opportunity to seek independent advice and did not do so. The Credit Provider did not adequately explain all of the provisions of the contract and mortgage and their legal and practical effect to her in English, let alone in the language she could understand, and did not take adequate measures to ensure that she understood the nature and implications of the transactions.

39 I note that the fairness of the terms of the contract and mortgage itself were not in question in this case.

40 There is insufficient evidence on which I could be satisfied that the credit provider knew at the time the contract and mortgage were entered into, or could have ascertained by reasonable enquiry of the debtors, that Rosa Maisano was unable to repay the loan. The loan application showed Dominic and Rosa Maisano's residential address to be the same. I accept that Dominic in fact lived with her at least for half a week each week at the relevant time. I do not consider it unreasonable for Mr Leeworthy to assume that the loan was a family arrangement.

41 Section 71 of the Code gives the Tribunal broad powers to grant relief if it finds the contract, mortgage or guarantee to be unjust and reopens the transaction. They include reopening an account, relieving the debtor from payment of an amount in excess of the amount which the Tribunal considers in the circumstances is reasonably payable, setting aside. Revising or altering any agreement or mortgage given in any transaction and also the power to make ancillary or consequential orders.

42 Under s.71 of the Code I have ordered that the contract and mortgage be set aside in relation to Ms Maisano and have made consequential orders concerning the default notice issues in relation to her.

43 In the alternative Ms Maisano claims that the contract she signed was a guarantee and she alleges breaches of ss.50 and 51 of the Code which relate to guarantees. I am not prepared to find that as far as it relate to her this was a contract of guarantee. On its face Ms Maisano was co-borrower. I am satisfied it was the intention of the Credit provider and Dominic Maisano that she was to be a co-borrower. The terms of the contract reflect this intention.

44 An alternative claim was also made under the Fair Trading Act. In view of my conclusions concerning the application of the Code it is unnecessary for me to deal with this claim.

45 In light of my findings and orders it must follow that the company's repossession application is dismissed. The purpose of that application was solely to obtain an order authorising the company to take possession of the goods mortgaged under the mortgage relating to the credit contract, that is Ms Maisano's car. The contract and mortgage are set aside so far as they relate to her so that those repossession orders cannot be made.

46 Finally, I would encourage the company to revise it's procedures in relation to pre-contractual matters and the entering into credit contracts with debtors in the light of my findings. Particular attention should be paid to the time allowed to clients to read the contract before they sign; the adequacy of the explanation given by the company of the contract conditions; the opportunities given to clients to take independent advice before signing contracts; and reasonable enquiries to find out whether a client would have particular difficulty in understanding a contract because of some special reason such as age, disability, lack of proficiency in written or spoken English and so on. Also, in my view, the company ought not to have obtained Ms Maisano's signature on the front page and financial table of the contract before she had been given an opportunity to read and have explained to her the contract conditions. After all these were part of the contract.