[1] I am now in a position to hand down my decision on this Application and it is that Ms Neuendorf's Application is dismissed, and I give my reasons.

[2] Ms Neuendorf has applied to this Tribunal for relief under ss.70 and 71 and 102 of the Consumer Credit (Victoria) Code ('the Code'). She asks the Tribunal to re-open the transaction which led to a loan agreement and mortgage between her and Rengay Nominees Pty Ltd ('Rengay'), which is the first respondent. She asks the Tribunal to set aside that mortgage and agreement and to relieve her from liability under them.

[3] The applicant says that some time after she executed the agreement of mortgage, they were varied so that among other things the lender under the agreement and the mortgagee under the mortgage became the second respondent, Rennick & Gaynor Mortgages Ltd, ('Rennick & Gaynor Mortgages').

[4] She asks the Tribunal to order Rennick & Gaynor Mortgages to take the steps necessary to discharge the mortgage. She also asks the Tribunal to order both respondents to pay a civil penalty consisting of all interest charges payable under the agreement and mortgage from the date they were made.

[5] The first main issue in this proceeding is whether or not the Code applies to the agreement and mortgage. The parties have requested and the Tribunal has agreed that this matter should be heard and determined before the other issues involved in the proceeding. This is not a hearing under s.75 of the Victorian Civil and Administrative Tribunal Act 1998 ('the VCAT Act'). It is the hearing and determination of the first substantive issue raised in the proceeding.

[6] I first make findings of fact. I then deal with the relevant law. Finally, I apply that law to the facts of this case.

[7] I have before me an affidavit from Ms Neuendorf, with various exhibits. The respondents did not cross-examine Ms Neuendorf. I also have an affidavit from Mr Rush, the only witness for the respondents. That affidavit also includes a number of exhibits. Mr Rush also gave oral evidence and was cross-examined on behalf of the applicant. Mr Rush is a partner of Rennick & Gaynor solicitors and a director of both respondent companies.

[8] At some time before 1996, Ms Neuendorf obtained from the Commonwealth Bank of Australia, a loan of $15,000 which she used to pay debts which she says in her affidavit, were debts incurred by her husband who, after his divorce from Ms Neuendorf, returned to Germany. Her affidavit does not specify how or when these debts were incurred.

[9] In 1996, having experienced difficulty in repayments under this loan, Ms Neuendorf obtained from Bailey O'Neill & Associates Pty Ltd ('Bailey O'Neill'), a loan of $27,000 secured by First Mortgage, over her property 9 Arthur Street, Greensborough, ('the Arthur Street property').

[10] This loan was primarily used to pay out the Commonwealth Bank loan and to pay fees and costs incidental to that loan and the new loan.

[11] In 1997, having again experienced difficulty in making repayments under this loan, Ms Neuendorf contacted Peter Fishley of Fishley Financial Services Pty Ltd, with a view to re-financing the Bailey O'Neill loan. She says she met with Mr Fishley three or four times over a period of a month and once was asked to drive with him to the offices of C A Italia & Associates, solicitors, so that she could sign a declaration concerning the loan which eventually was made to her through Rengay.

[12] She says that she signed this declaration but does not recall being given an explanation before signing the security documentation or any other documentation connected with the loan, of the nature and purpose of that documentation. In particular she says that the declaration under the Code, which she signed, was not explained to her before she signed it.

[13] She says that it was her understanding that the declaration was a formality, that she signed where instructed and that the process of signing the declaration and security documentation took about ten minutes.

[14] She says that at all times she made it clear to, "the parties involved in the transaction" (but she does not specify who these were) that she was taking the loan predominantly to pay out the Bailey O'Neill loan. The remainder of the loan money was used to pay rates owing on the Arthur Street property and incidental costs associated with the re-financing. She says that she does not recall whether anyone involved in the transaction asked her what was the purpose of the Bailey O'Neill loan.

[15] The disbursement orders for the Rengay loan, in the material before me, show that of the $45,000 advance more than $31,000 was paid to discharge the Bailey O'Neill loan. There is some dispute between the parties about the use of the remainder of the loan but there is no dispute that some of the remainder of the loan was used to pay rates owing on the Arthur Street property and some was used to pay the cost of the loan transaction.

[16] The history of Rengay's involvement in this transaction is this. Rengay was incorporated in 1996 and operated as a contributory mortgage company for the firm of Rennick & Gaynor solicitors. Rennick & Gaynor Mortgages is the responsible entity for the Rennick & Gaynor Mortgage Fund and the administration of the Rennick & Gaynor Mortgage portfolio was transferred to that company on 1 July 2000.

[17] On 1 May 1997, the firm of McDuff Thomson & Associates, ('McDuff Thomson'), whose letterhead describes the firm as finance intermediaries and mortgage consultants, wrote to Rennick & Gaynor solicitors requesting that finance be arranged for Ms Neuendorf. The finance requested was $45,000 to be secured by First Mortgage over Ms Neuendorf's Arthur Street property.

[18] The letter describes what is sought as "residential finance". It states that the current mortgagee is Bailey O'Neill and that Ms Neuendorf wishes to re-finance the current loan to effect repairs to her home and to cover costs. The letter states that any additional information required will be provided as, "this application differs markedly from my usual submission".

[19] Mr Rush gave evidence, which I accept, that from the letter he drew no conclusion about the purpose of the loan. He regarded the matter as open at that time. He also said, and I accept his evidence, that at the time (although he later learned that his understanding had been incorrect) he understood that Bailey O'Neill only made loans not subject to the Code, that is, not for personal, domestic or household purposes.

[20] Rennick & Gaynor, on behalf of their client Rengay, at first offered to lend Ms Neuendorf $42,000. But after negotiation there was later a new offer to lend her the amount originally requested, that is $45,000. This second letter of offer was dated 14 May 1997 and was sent to Ms Neuendorf care of McDuff Thomson.

[21] The offer, after setting out the amount of the loan, the interest rate and when interest was payable, the term of the loan and various other details concerning fees, costs and insurance, stated that the offer was subject to a number of conditions. These conditions concerned security documentation, compliance with requisitions as to insurance, payment of rates, valuation and the circumstances in which the lender might withdraw from the transaction.

[22] Condition seven which is on the second page of the letter of offer states -

"the loan must be wholly or predominantly for business or investment purposes and not subject to the provisions of the Credit Code. A statutory declaration will be required to this effect."

[23] Mr Rush gave evidence, which I accept, that this offer reflected Rengay's usual lending practice. This was, to provide short term, interest only loans which were not regulated by the Code, that is, which were for business or investment purposes.

[24] He said that although inquiries were primarily made concerning the asset security and inquiries concerning the purposes alone, were at a lower level, Rengay would not lend if credit were requested for personal, domestic or household purposes.

[25] He said that the condition in the letter of offer and a statutory declaration with a certificate from a solicitor who witnessed the signing of the declaration, that advice as to its consequences had been given to the borrower before signing, were regarded as sufficient protection for the lender.

[26] The letter of offer included a statement to be signed by the borrower, agreeing to be bound by the terms and conditions of the offer.

[27] On 16 May 1997, McDuff Thomson returned to Rennick & Gaynor a copy of this letter of offer signed by Ms Neuendorf.

[28] On 26 May 1997, Rennick & Gaynor sent to Ms Neuendorf's solicitor, C A Italia & Associates, the relevant security documentation and a declaration under the code.

[29] On 27 May 1997, Mr Italia wrote to Rennick & Gaynor enclosing the security documentation and the declaration signed by Ms Neuendorf.

[30] The declaration is headed, "DECLARATION UNDER THE CONSUMER CREDIT CODE", it then has a box in which there are two asterisks in bold type. Within the box is the statement-

"**You should NOT sign this declaration unless this loan is wholly or predominantly for business or investment purposes. By signing this declaration you may LOSE your protection under the Consumer Credit Code".

There follows details of the mortgagee/mortgagor and security. Ms Neuendorf then solemnly and sincerely declares that

"the credit to be provided to me by Rengay Nominees Pty Ltd" (and the ACN number is stated) "is to be provided wholly or predominantly for business or investment purposes (or for both purposes)".

The declaration then contains the words required to be included in statutory declarations, by the Evidence Act 1958 by which the declarant acknowledges that the declaration is made in the knowledge that those making a false declaration are liable to penalties for perjury.

[31] Ms Neuendorf's signature on the declaration is witnessed by the solicitor Mr Italia and he certifies that he has given Ms Neuendorf,

"legal advice as to the consequences of making the above declaration".

[32] Mr Rush's evidence, which I accept, is that Mr Italia was engaged independently of Rennick & Gaynor, and Rengay, to be Ms Neuendorf's solicitor and that neither he, Rennick & Gaynor, nor Rengay knew that the loan was for other than business or investment purposes.

[33] I accept his evidence that the letters I have just mentioned were the only communications between Ms Neuendorf and Rennick & Gaynor, or Rengay, before the loan was entered into. Settlement of the loan occurred on 30 May 1997.

[34] I now come to the law. For the purpose of this part of the proceeding the only issue is as to the purpose of the loan and whether that purpose takes the loan out of the operation of The Code. This is the only basis on which the respondents, at this time, argue that The Code does not apply.

[35] I now set out the relevant provisions of the Code, as in force at the time of this transaction.

"This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of pre-contractual obligations) is proposed to be entered into -

(b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes...".

[37] Section 6(4) makes it clear that investment by the debtor is not a personal, domestic or household purpose.

[38] Section 6(5) among other things, deals with the predominant purpose for which credit is provided, if it is intended to be used for more than one purpose. It relevantly provides - "For the purposes of this section, the predominant purpose for which credit is provided is -

(a) the purpose for which more than half of the credit is intended to be used..."

"11(1) In any proceedings (whether brought under this 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.

11(2) Credit is presumed to conclusively, for the purposes of this Code, 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).

11(3) However, such a declaration is ineffective for the purposes of this section if the credit provider (or any other relevant 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...

11(4) A declaration under this section is to be substantially in the form (if any) required by the regulations and is ineffective for the purposes of this section if it is not".

"The effect of that section so far as relevant is this. The conduct of a credit provider's officer, agent or employee, if acting within the actual or ostensible scope of his or her authority, is imputed to the credit provider. For the purposes of The Code, a credit provider is not taken to know or have reason to believe something because its officer, agent or employee knows or has reason to believe that thing, unless the knowledge or reason to believe that thing is acquired in that capacity and in connection with the transaction concerned".

[41] Regulation 10(1) and (2), of the Consumer Credit (Victoria) Regulations ('the Regulations') provide -

"(1) For the purposes of section 11 of the Code, the form of the declaration is as follows-

'I/we declare that the credit to be provided to me/us by the credit provider, is to be applied wholly or predominantly for business or investment purposes (or for both purposes).'.

(2) The declaration is to contain (immediately below the above words) a warning in the following form -

You should not sign this declaration unless this loan is wholly or predominantly for business or investment purposes.

By signing this declaration you may lose your protection under the Consumer Credit Code".

[42] Regulation 10(3) requires the declaration to contain the signature of the person making it and the date on which it is signed or received by the credit provider.

[43] In my view, the combined effect of these provisions is this. Ms Neuendorf, in effect, asserts in her application that the Code applies. Section 11(1) then means that it is presumed to apply to this case unless the respondents establish otherwise.

[44] The Code will not apply if the respondents establish that the credit was not provided wholly or predominantly for personal, domestic or household purposes. One of the ways they can do this is by satisfying the Tribunal that the debtor has, before entering into the credit contract, signed a declaration substantially in the form required by regulation 10 of the Regulations.

[45] If they satisfy the Tribunal that a declaration substantially in this form, has been signed by the debtor before entering into the credit contract, they need do no more, because credit will be conclusively presumed not to be provided wholly or predominantly for personal, domestic or household purposes and consequently the Code will not apply.

[46] It is not for the debtor to show that the declaration is ineffective because it is not substantially in the form required by the Regulations. It is for the credit provider to show that it is a declaration of the kind mentioned in s11, that is, a declaration substantially in the form required by the Regulations.

[47] The declaration will also be ineffective if at the time it was made, the credit provider or person who obtained it knew or had reason to believe that the credit was to be applied wholly or predominantly for personal, domestic and household purposes.

[48] Here, it is the party claiming that the declaration is ineffective, who must establish that this is so. It is not for the credit provider to establish that the declaration is not ineffective on this ground.

[49] This, in my view, is the consequence of the significant difference in wording between s11(3) and (4) of the Code.

[50] If the Tribunal finds the declaration to be ineffective, this means that it is ineffective to found the conclusive presumption that credit is not provided wholly or predominantly for personal, domestic or household purposes. It does not mean that it is ineffective for every purpose or that it cannot be used together with other evidence, as evidence of the purpose for which credit is provided. In other words, the declaration can be used, together with other evidence, to displace the presumption that the Code applies. Which derives from the claim made by a party, that the Code applies.

[51] This is not, as the applicant argued, to allow an ineffective declaration which could not have been used to found the conclusive presumption that credit was provided for a purpose which made the Code inapplicable, to be used indirectly to make the Code inapplicable. It is simply to use the declaration as evidence which together with other evidence, the Tribunal may take into account to determine whether the presumption that the Code applies is displaced.

[52] The matters that made the declaration ineffective are also evidence which the Tribunal may take into account. If for example the Tribunal finds that the declaration is ineffective because a credit provider knew or had reason to believe that the credit was wholly or predominantly for personal, domestic or household purposes, then the Tribunal would no doubt not be satisfied that the presumption that the Code applied, was displaced.

[53] Similarly, if the Tribunal was satisfied that there was some gross departure from the form of the declaration required by the regulations, such as a failure to include any warning at all in the declaration, it might then give little weight to the statement of the purpose contained in the declaration because the credit provider presumably knows that this declaration does not contain the warning, having prepared it, and because the debtor might not have understood the meaning or consequences of the declaration when signed, particularly in the circumstances where the credit provider may have made no other inquiry as to the purpose of the loan.

[54] If the declaration is ineffective, it is then for the credit provider to displace the presumption that the Code applies and if the credit provider wishes to do this, the credit provider may argue that s6(1)(b) does not apply and that the loan was not wholly or predominantly for personal, domestic or household purposes.

[55] There are a number of authorities for the proposition that what is relevant here is what a reasonable person in the shoes of the credit provider, would have understood to be the purpose for which credit is to be provided at the time when the credit contract is entered into.

[56] The cases point out that in s6(1)(b), the word 'provided' is used rather than 'obtained', 'used' or 'applied'. I do not accept the respondent's submission that if a debtor accepts an offer of credit and the offer states that the credit is provided for business or investment purposes, and that offer is subject to a condition that the debtor must sign a statutory declaration to this effect and if the debtor signs that statutory declaration, this must be determinative in the terms of the Code, that the credit is provided for those purposes.

[57] The Code could easily have provided to this effect but did not. S11(3) clearly contemplates a situation where whatever the debtor may have agreed in the contract was the purpose of the loan, the credit provider knew or had reason to believe that the loan was for a different purpose. It is, in my view, the Code and not the contract which governs this matter.

[58] The effect of s6(5)(a) of the Code is that where more than half the credit is intended to be used for a given purpose, but the rest is intended to be used for some other purpose or purposes, the predominant purpose for which the credit is provided is the purpose for which more than half of it is intended to be used.

[59] The words, 'intended to be used' in this paragraph should be contrasted with words such as those used in s11(3) which speaks of 'in fact to be applied'. In my view, s6(5)(a) looks to what a reasonable person, in the shoes of the credit provider would have understood to be the purpose for which the debtor intended to use the credit. This makes s6(5) consistent in my view, with s6(1)(b).

[60] (As to ss 6 and 11 generally, see Park Avenue Nominees Pty Ltd v. Boon [2001] NSWSC 700; (2001) ASC 155-052. Taylor v. Third Szable Holdings Pty Ltd [2001] VCAT 1841; (2001) ASC 155-050 and Raffiqi v. Wacal Investments Pty Ltd (1998) ASC 155-024).

[61] I have expressed these views after taking into account the extensive and very helpful submissions made by the parties. I now apply the law as I have stated it, to the facts of this case.

[62] It is first said for Ms Neuendorf, that the declaration she signed was ineffective to found the conclusive presumption under s11(2) of the Code because the credit provider Rengay or Peter Fishley or Mr Italia, who obtained the declaration, knew or had reason to believe that the loan was wholly or predominantly for personal, domestic or household purposes. The respondents argue that the declaration is not ineffective on this ground.

[63] I find that Ms Neuendorf intended to use more than half of the money leant under the Rengay Loan, to re-finance the Bailey O'Neill loan and that she did this. She used the Bailey O'Neill loan mainly to re-finance the Commonwealth Bank loan. She used the Commonwealth Bank loan to repay debts incurred by her husband.

[64] There is no evidence before me as to the nature of these debts, whether they were of a business or private nature. But irrespective of this, I am satisfied that Rengay and its officer Mr Rush, who represented Rengay during this transaction, and also Mr Italia, neither knew nor had any reason to believe that the loan was for other than business or investment purposes.

[65] Mr Rush and Rengay relied, and in my view were entitled to rely on Ms Neuendorf's statement in the signed letter of offer and in the statutory declaration that the loan was for business or investment purposes. Mr Rush believed at the time that the Bailey O'Neill loan, which was re-financed by the Rengay loan, was for business purposes because that was the only kind of lending Bailey O'Neill engaged in.

[66] Mr Italia did not give evidence before this Tribunal and the only thing which, according to Ms Neuendorf's affidavit, she can recall telling him, assuming that she regarded him as a party involved in the transaction, is that the Rengay loan was to re-finance the Bailey O'Neill loan. There is no evidence that she told Mr Italia anything more about the purpose of the Rengay loan.

[67] Although Ms Neuendorf states in her affidavit that the nature of the declaration was not explained to her, Mr Italia signed a certificate that it was. Given that there are a number of matters which Ms Neuendorf says in her affidavit she does not recall, I'm not prepared to find, on her evidence, that Mr Italia signed a false certificate.

[68] I'm not satisfied that Mr Fishley was a person who obtained the declaration from Ms Neuendorf. There is not enough evidence before me about his role in this transaction to support such a finding.

[69] The declaration was not then, ineffective under s11(3) of the Code.

[70] It is next argued for Ms Neuendorf that the declaration was ineffective under s11(4) of the Code because it was not substantially in the form required by the Regulations. The respondents make a contrary submission. I accept the submission made for Ms Neuendorf.

[71] The declaration which Ms Neuendorf signed contains some minor departures from the form required by regulation 10. For example, some words which are in the form in bold type, were included in the declaration in bold type and capitals. Again, the form uses the words 'credit provider', while the declaration used the credit provider's name, 'Rengay'. If these were the only departures from the form, they would not be, in my view, a substantial departure from the form, in the Regulations.

[72] Nor, in my view, did the declaration signed by Ms Neuendorf, substantial depart from the form in the Regulations because it was a statutory declaration and ended with the words which end all statutory declarations, rather than a bare declaration which the form contemplates.

[73] The declaration is expressed to be made in the knowledge that there are penalties for perjury if it is false and because of this expression, one could expect the person who makes it would approach it carefully and seriously and with proper inquiry as to the consequences of signing it. The credit provider who receives such a declaration is, in the absence of other knowledge, entitled to rely on its truth.

[74] It is not inconsistent with the purpose of the declaration in the form in the Regulations, or of the Code, to regard the fact that this is a statutory declaration rather than a bare declaration, as not being a substantial departure from the form of the declaration in the Regulations.

[75] The declaration also contains the warning at the top of the declaration, immediately under the heading, and not immediately after the part of the declaration which states the purpose of the loan as does the form in the Regulations.

[76] The warning did not have, at its beginning, as it does in the Regulations, the word "important" in capital letters but rather was preceded by two asterisks. This is a departure, in my view, which is enough to make the declaration not substantially in the form required by the regulations.

[77] The location or the placement of the warning immediately after the statement of the purpose of the loan, is critical because it is between the statement of the purpose of the loan and the place for signature. The word "IMPORTANT" will draw the eye of the reader to the warning. The purpose of the warning is to alert the borrower to the fact that if he or she signs the declaration, he or she made lose the Code's protection.

[78] A warning preceded by two asterisks albeit in bold type, instead of by the word "IMPORTANT" is, in my view, unlikely to arrest the attention of the reader with the same force. If it is located at the top of the declaration rather than after the statement of the purpose of the loan, it is in my view, likely that the reader may overlook the heading and the warning and read only the statement of purpose and then sign.

[79] It has often been said that the objective of the Code is to promote truth in lending, that is, true disclosure, and so, to help a debtor to make an informed choice about entering into credit contract. The warning is designed to promote this objective by encouraging the debtor to make a truthful declaration and alert the debtor that by signing the declaration, the debtor may lose the Code's protection.

[80] In my view, the placement of the warning in a position where the maker of the declaration is most likely to read it, and read it in conjunction with the statement of the purpose of the loan, which the declaration contains, and the inclusion of the word "IMPORTANT" to make the reader aware of the warning's seriousness, are essential to the form. The change of the location of the warning and the omission of the word "IMPORTANT" before the warning mean that this declaration departs substantially from the form in the Regulations.

[81] I find that the declaration is therefore ineffective under s11(4) to found the conclusive presumption under s11(2) of the Code.

[82] Has the credit provider then satisfied me that s6(1)(b) of the Code does not apply? On the evidence before me, it has. Rengay's director, Mr Rush's knowledge, must be imputed to Rengay under s.176 of the Code. I accept Mr Rush's evidence that he believed that the loan was for business or investment purposes. On the basis of the signed letter of offer, which stated this and the statement to this effect in the statutory declaration, which Ms Neuendorf signed and to which was attached Mr Italia's certificate that she had signed the declaration after receiving legal advice as to its consequences and on the basis that it was Mr Rush's understanding at the time of this transaction, that the loan was to re-finance a business or investment loan from Bailey O'Neill, there was no reason for him to believe that this was other than a business or investment loan. This is what a reasonable person, in the shoes of Rengay would have understood the purpose of the loan to be.

[83] Any knowledge of Mr Italia as to the purpose of the loan cannot, under s.176 of the Code, be imputed to Rengay because he was not Rengay's agent, employee or officer. In any event, I have already said that I am not satisfied that Mr Italia knew or believed that the loan was other than for business or investment purposes.

[84] My conclusion is that s6(1)(b) of the Code is not satisfied. Therefore the Code does not apply in this case. On this basis, I would dismiss the proceeding.