APPLICANTS: Barry John Taylor & Pauline Lynette Taylor

RESPONDENT: Third Szable Holdings Pty Ltd & Secretary to the Department of Justice

[1] I reserved my decision on this application and I am now in a position to be able to hand it down. It is that the proceeding, that is the substantive proceeding is struck out. I now give my reasons.

[2] Barry and Pauline Taylor have applied to the Victorian Civil and Administrative Tribunal, which I call VCAT, for declarations under s.102 of the Consumer Credit (Victoria) Code which I call the code. The respondent I call in these reasons Third Szable. It is alleged that Third Szable has breached key requirements of the code in connection with the credit contract.

[3] The applicants ask the Tribunal to impose civil penalties for those breaches. In brief, the alleged breaches relate to failure to provide pre-contractual information which the code requires a credit provider to provide, and failure to include in the credit contract information required by the code as to certain matters such as repayments, interest charges and their calculation and commission.

[4] The Taylors also say that the contract breached the code by imposing on the debtors obligations prohibited by the code, this part of the claim relates to establishment and procuration fees and legal costs in respect of a loan transaction which Third Szable says in fact that are owed to Third Szable and which Third Szable is currently attempting to recover from the Taylors in proceedings before the Magistrates' Court.

[5] In the alternative the Taylors ask for declarations under s.72 of the Code that the establishment and procuration fees are unconscionable. They also seek various consequential and ancillary orders.

[6] Third Szable now applies under s.75 of the Victorian Civil and Administrative Tribunal Act 1998, which I call the VCAT Act, to have these claims struck out or dismissed.

[7] It applies on all the grounds mentioned in that section, namely that the proceeding is vexatious, frivolous, misconceived, lacks substance or is an abuse of process. The argument which is at the heart of this application is that the code is inapplicable to this case. To grant the application Third Szable would need to satisfy the Tribunal that the case is manifestly hopeless or untenable. It must be remembered that this is an application for the summary termination of a proceeding before the hearing of evidence and that if granted the litigants will be deprived of the chance to have their case heard in the ordinary course. (See Rabel v State Electricity Commission of Victoria (1998) 1VR102 and Norman v Australian Red Cross Society, a decision of this Tribunal dated 27 November 1998).

[8] I first summarise the material before me. I then deal with the relevant law. Finally I apply that law to that material. The parties have filed submissions and affidavit material including various exhibits. A summary of that material is this.

[9] On 24 August 1999 Pauline Taylor executed a contract of sale for a property at 2 Wannon Court, Toorak. The purchaser under that contract was named as Pauline Taylor and/or Nominee. The purchase price was $850,000. The date for the payment of the balance of purchase money excluding the deposit was 18 November 1999.

[10] On 31 August 1999 Andrew White, a director of National Mortgage Services Pty Ltd, which I call NMS, a finance broker, received a loan enquiry from Jim Sukroo concerning the purchase of the Wannon Court property.

[11] Sukroo was a loan introducer who was paid by NMS a percentage of the commission paid to NMS by borrowers who engage it to represent them. There is an affidavit from Mr White in the material before me. It states that Sukroo told him the loan was to purchase an investment property, that the inquiry was made on behalf of Pauline and Barry Taylor, that the loan amount sought was $750,000 and that the Taylors were at the time uncertain as to whether the property should be put in the name of Barry Taylor, Pauline Taylor or a company.

[12] Sukroo asked for the loan application to be in the name of Pauline Taylor for the time being.

[13] I note at this point, of course, for the purpose of this proceeding, there was no cross-examination of the deponents of the various affidavits in the material before me. Nor was cross-examination requested. In the material before me there's an affidavit from Steve Chaplin, a friend of the Taylors, who says that he participated in conversations between the Taylors and Sukroo where it was made clear that the Taylors were purchasing the Wannon Court property with the intention to live there when in Melbourne. There is no dispute that Pauline Taylor also owns a property at Noosa in which she and her husband live when in Queensland.

[14] I return to my summary. On 2 September 1999 after some unsuccessful discussions with other solicitors, Mr White contacted Mr Leggo, a partner in the solicitors firm Trumble Szanto and a director of Third Szable, who said that Third Szable would consider the application if details were put into writing. There's an affidavit from Mr Leggo in the material before me in which he states that Mr White told him what Mr Sukroo had told Mr White about the purchase of an investment property.

[15] Third Szable had a policy known to Mr White at the time of these negotiations not to provide loans to which the code would apply. As a condition of offering a loan Third Szable asked potential borrowers to complete and sign a declaration as to the purpose of the loan. By letter dated 2 September 1999 Mr White confirmed to Mr Leggo details of the loan sought and that the security was to be the Wannon Court property and the property at Noosa.

[16] On the same day Mr Leggo wrote to Mr White setting out the terms on which Third Szable would consider providing finance. The letter related to Pauline Taylor only. It required the borrower to complete, sign and return the letter to Third Szable. Attached to the letter was a form of declaration, that also was required to be completed, signed and returned. The letter in addition refers to the payment of establishment and procuration fees and legal costs and disbursements to Third Szable.

[17] The letter required the payment of an up front fee of $3,000 before the matter could proceed. On 10 September 1999 according to Mr White's affidavit, Mr White met Sukroo and the Taylors at a yacht club at Albert Park. He had by this time sent to Sukroo Mr Leggo's letter and its enclosures and an engagement authority under which Pauline Taylor appointed NMS to be her representatives in obtaining an appropriate loan offer.

[18] Mr White was handed the engagement authority on 10 September 1999 signed by Pauline Taylor. At Sukroo's direction Mr White filled in the declaration enclosed in the letter from Leggo indicating that the borrower was to be Pauline Taylor, that the loan was to be $750,000 and that the security for it was to be the re-financing of one property and also an investment property.

[19] On 17 September 1999 there was delivered to Trumble Szantos who are the solicitors for Third Szable and of which Mr Leggo was a partner, a letter of offer signed by Barry Taylor, the declaration also signed by him and a cheque from Lucre Holdings Pty Ltd for the up front fee of $3,000.

[20] It is not clear from the material before me whether the deliverer of these documents was Mr White or Mr Sukroo but certainly it appears from the material that they were delivered. Shortly after this and before October 27 1999, (again the date is not clear from the material before me), Mr Leggo sent to Pauline Taylor a loan agreement, mortgages of the Noosa and Wannon Court properties, a memorandum of Trumble Szantos' costs and disbursements and other documentation associated with the loan. The loan agreement showed Pauline Taylor as borrower.

[21] On 27 October 1999 Anthony Peterson, solicitor for Pauline Taylor contacted Mr Leggo to tell him that the loan was not to proceed. It's clear that Mr White had already contacted Mr Peterson to tell him this. On 1 November 1999 there was sent to Trumble Szantos a letter signed by Pauline Taylor revoking the authority which had been previously given to NMS.

[22] It is clear from the material before me that the purchase of the Wannon Court property was ultimately completed by a company, Wannon Court Pty Ltd of which Barry Taylor and Anthony Peterson were directors. That company was trustee of a family trust under which Barry and Pauline Taylor were the major beneficiaries. Some of the funds which ultimately went into the purchase of that property were eventually obtained from another lender under a loan to Wannon Court Pty Ltd, secured by a mortgage over the Wannon Court property from Wannon Court Pty Ltd to the eventual lender.

[23] After the cancellation of the relevant authority to NMS and after the negotiation of another loan with a different lender there were various documents completed concerning the completion of the sale and purchase. In the statutory declaration made for the purposes of the Stamps Act 1958 which Pauline Taylor completed in relation to the Wannon Court property some time before that declaration was received by the then lenders solicitor, O'Donohue & Company, on

17 November 1999, Pauline Taylor declares that she executed the contract of sale under which she was shown as purchaser and/or nominee, after initiating the incorporation of Wannon Court Pty Ltd and that that company was intended to be the transferee of that property. In the mortgage valuation certificate relating to the new loan, signed by one of the directors of Wannon Court Pty Ltd, Anthony Peterson, there is a declaration that the property is an investment property occupied by tenants. The date of that signature appears to be 16 November 1999.

[24] In the application for the new loan, stamped as received by O'Donohue & Company on 12 November 1999 the directors of Wannon Court Pty Ltd, Anthony Peterson and Barry Taylor declare that the loan is to be applied wholly or predominantly for business or investment purposes. In the application for insurance over the Wannon Court property which was received by O'Donohue & Company on or about 16 November 1999 Barry Taylor declares that the property is a private residential one and is occupied by tenants.

[25] The documentation associated with the title to the Wannon Court property shows that some months after the company had become its registered proprietor Pauline Taylor on 23 May 2000 lodged a caveat claiming an estate in fee simple arising under a constructive trust and that this caveat was withdrawn with effect from 6 December 2000.

[26] Finally, the material before me includes an affidavit sworn by Barry Taylor's solicitor, Anthony Peterson, dated 10 April 2001, which relates to the proceedings in the Magistrate's Court by Third Szable against the Taylors. That affidavit, amongst other things, states that Barry Taylor currently resides in Queensland.

[27] There are a number of factual issues which are in dispute here. Examples of these are whether the Taylors are in fact and at the relevant time, were intending to purchase the Wannon Court property to live in, whether at the time the declaration was signed in relation to the first loan it was signed by Barry Taylor alone as loan applicant, or whether it was signed by Barry Taylor on behalf of Pauline Taylor as the sole loan applicant or whether it was signed by Barry Taylor on his own behalf and on behalf of his wife as joint loan applicants.

[28] None of the makers of the affidavits in the material before me were called to give evidence or were cross-examined. None of the parties required this. This is a strike out application. Because of this and because the affidavit evidence has not been tested I'm not prepared, as Third Szable asked me to do to draw inferences from the affidavit material of a kind which would involve me in an assessment of the relative probative value of that material, especially where in some cases one affidavit asserts what another denies.

[29] These disputes are matters for a full hearing where oral evidence could be given and tested for cross-examination. This being a strike out application I take the Taylors case at its highest and assume that they would be able to prove the facts that they assert. But in my view I can take into account assertions in Third Szable's affidavit material which are not denied or contradicted in the affidavit material or the submissions filed on behalf of the Taylors.

[30] I now summarise the relevant law. Section 4 of the Code defines when credit is provided. There's no dispute between the parties that this case relates to the provision of credit. Section 5 defines "credit contract" as a contract -

"under which credit is or may be provided, being the provision of credit to which this Code applies."

[31] Section 6 is headed "Provision of credit to which this Code applies". As far as relevant to this case, s.6(1) provides -

"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 -

(a) the debtor is a natural person ordinarily resident in this jurisdiction; and

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

"For the purposes of this section, investment by the debtor is not a personal, domestic or household purpose."

"For the purposes of this section, the predominate purpose for which credit is provided is -

(a) the purpose for which more than half the credit is intended to be used; or (b) if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used."

[33] The effect of s.11(1) as applicable to this case is this. In this proceeding the Taylors claim that the code applies. s.11(1) then presumes that it does apply unless the contrary is established. The onus is on Third Szable to displace this presumption. Since this is a strike out application, if the application is to be granted Third Szable would need to satisfy me not just that there is a dispute about whether this presumption is displaced, but that it is so clear that the presumption is displaced that the Taylor's case is manifestly hopeless.

[34] Section 11 goes on itself to provide for a situation in which the presumption is displaced. This is done by providing for a conclusive presumption that credit is not to be provided for personal, domestic or household purposes. The presumption arises from the making of a declaration. Section 11(2) provides-

"credit is presumed conclusively for the purpose 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)."

[35] Section 11(3) and (4) then specify two circumstances in which such a declaration is ineffective, that is, when the declaration cannot found the conclusive presumption that the credit is provided for purposes which will take it out of the operation of the code. These are 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. (See s.11(3)).

[36] The effect of s.11(4) is that a declaration is ineffective if it is not substantially in the form required by the regulations.

[37] Section 11(3) defines a relevant person as, among other things, "A person associated with a credit provider or a finance broker (or a person acting for a finance broker), through whom the credit was obtained."

[38] A number of other provisions of the code supplement or qualify the operation of these main provisions.

[39] Section 164 permits a document, for example a declaration under s.11(2) - (4), to be signed by a person other than the person required by the code to sign it, if the other person signs by or under the authority of the person required to sign it.

[40] Section 176 deals with matters related to agency. In particular, s.176(5) provides that for the purposes of the code, a credit provider is not taken to know or have reason to believe something because, among other things, an agent of the credit provider does so, unless the knowledge or reason to believe that thing, is acquired by the agent acting in that capacity and in connection with the transaction concerned.

[41] Under clause 1.(2) of schedule 1 of the code, a person is, among other things, "Associated with a credit provider for the purposes of the code, if the person is the credit provider's agent acting in that capacity."

[42] Clause 11 of schedule 2 deals with the extent of compliance with prescribed forms which the code will regard as sufficient compliance for its purposes.

[43] I now consider the submissions made for the parties. Third Szable says that the code does not apply because whoever is the true applicant for the loan, whether it is either or both of the Taylors, the credit was not provided or was not be provided wholly or predominantly for personal, domestic or household purposes. It says this for three reasons.

[44] First, it says that the declaration, which was enclosed in the letter of 2 September 1999 and signed by Barry Taylor, was effective to found a presumption, a conclusive presumption, that the loan was wholly or predominantly for business or investment purposes.

[45] Second, it says that even if the declaration is ineffective to found that presumption, there is such compelling evidence that the loan was provided wholly or predominantly or was to be provided, wholly or predominantly for business or investment purposes, that I should dismiss the Taylors' case as manifestly hopeless.

[46] Third, it says that even if the Taylors intended to and did, use the Wannon Court property as a private home, Third Szable, as credit provider or proposed credit provider at the time the contract was proposed to be entered into, believed and had no reason to believe otherwise, that the loan was to be provided wholly or predominantly for business or investment purposes.

[47] The Taylors make contrary submissions in relation to each of these three arguments. I deal with each in turn.

[48] I first deal with the declaration. It is argued for the Taylors that this declaration is ineffective for the purposes of s.11 of the code because it's not made by Pauline Turner, the applicant for the loan, or with her authority; because a relevant person, Mr Sukroo, knew that the property was to be used by the Taylors as a residence and was purchased for this purpose, and because the declaration is not substantially in accordance with the applicable provisions of Consumer Credit (Victoria) Regulations, which prescribe requirements for the form and content for such declarations.

[49] I note from the material, that the first two matters are in dispute between the parties and that the third was not fully argued before me. For the purpose of this proceeding I take the Taylors' case at it's highest and assume that they will be able to establish that the declaration is ineffective for the purpose of s.11 of the code because it did not substantially comply with the relevant provisions of the regulations.

[50] But even if the declaration is ineffective to found a conclusive presumption that the loan was wholly and predominantly for business or investment purposes, this does not mean, in my view, that it cannot be used as evidence, with the other available evidence, as to the purpose for which the loan was to be provided.

[51] I do not accept then, Third Szable's first argument. Its second argument relates to the purpose for which the Taylors were to purchase the Wannon Court property. Third Szable asked me to make inferences, based on the fact that the contract mentions a named purchaser and then includes the words, "and or nominee", based on the subsequent declarations and documents made at the time of the eventual completion of the purchase and also based on the caveat that was first lodged and then withdrawn.

[52] I am not prepared, on this strike out application and on the material before me, to make these inferences. The material may simply be consistent with showing that the Taylors were uncertain at the outset, as to whether a company or an individual should be the eventual registered proprietor of the property and eventually decided on a company at a much later stage.

[53] I'm not prepared to say that a loan obtained by a person to purchase a property in which that person proposes to reside with her husband, irrespective of who is the eventual registered proprietor, is not a loan wholly or predominantly for personal, domestic or household purposes. The purposes here are the purposes of Pauline Taylor, not the purposes of the company, because at that stage, the company was not the loan applicant.

[54] It follows that I do not accept the submission of Third Szable that, because a company purchases a property, that property must necessarily be purchased for investment purposes. I note that this dispute between the parties about whether the Taylors in fact intended to reside at the property. For the purposes of this proceeding I take the Taylors' case at its highest and assume that they would be able to prove that they did intend to reside there and purchased the property for that purpose.

[55] The third argument of Third Szable is that as far as it knew or ought to have known, the loan was to be provided for investment purposes, that the presumption that the code applies is therefore displaced and that the code does not apply.

[56] I accept this submission. There is nothing in the material before me to indicate that at the time it offered to consider Pauline Taylor's loan application, or indeed up to the time when the Taylors decided not to proceed with the loan from Third Szable, Third Szable knew or had reason to believe that the loan was provided for any other purpose, except to purchase an investment property.

[57] There's nothing in the material to suggest that NMS was Third Szable's agent or Sukroo was Third Szable's agent, or that any knowledge of Sukroo's about the purpose of the loan, should be imputed to Third Szable.

[58] There's nothing in the material to suggest that anything was said or done, which would have lead Mr Leggo, as director to Third Szable or as its solicitor or agent, to be put on notice or inquiry that there was some other undeclared purpose for which the loan was being sought.

[59] The question is, whose knowledge is relevant for the purposes of the Code? The credit provider's or the debtor's or both? Section 6(1)(b) of the code uses the words, "The credit is provided or intended to be provided" for specified purposes. Credit is not of course, provided by the debtor. It is provided by the credit provider. While what the debtor tells the credit provider is clearly relevant, as also is what the credit provider knows from other sources or ought to have known from reasonable enquiry, the knowledge of the credit provider is clearly relevant.

[60] I note that parliament does not speak of the purpose for which credit is obtained. It speaks of the purpose for which credit is provided. I note also that when parliament speaks of the use to which their debtor is to put the credit provided, it uses different words. So where, in s.6(5), parliament is resolving difficulties which may arise where credit is used for more than one purpose or where the money borrowed is used to obtain goods or services that are used for different purposes, parliament chooses the word "used" in this situation.

[61] Again, in s 11(2) which deals with the declaration, Parliament speaks of the declaration stating the purpose for which credit is to be "applied". Clearly, parliament did intend that the use of credit would be relevant in certain situations. The use of the credit is a matter, of course, for the debtor rather than for the credit provider. So under s.6(5) where the question is, whether credit is being used for more than one purpose or the goods which are being obtained from the money borrowed, are to be used for more than one purpose, it is the debtor who will know of this use. That is clearly relevant.

[62] Again, under s.11(2) the declaration which founds the conclusive presumption that the credit is provided wholly and predominantly for business or investment purposes, is that of the debtor. But the conclusive presumption can be displaced by knowledge of a person other than the debtor, namely, knowledge of the credit provider, the person associated with the credit provider, or a finance broker. The knowledge of the credit provider as to the purpose for which the credit is provided and the knowledge of the debtor as to the use to which the credit is put, are both, in my view, relevant matters under s.6(1)(b).

[63] However I do not consider that the code intended to apply where a credit provider, at the time of an offer to consider a loan application, did not know and had no reason to suspect that the loan was not to be provided for investment purposes. On this basis, I consider that Third Szable has clearly established that the code does not apply, so clearly, that the Taylors' case is manifestly hopeless.

[64] I am not however, satisfied that the proceedings should be dismissed altogether. I am not satisfied that the matters that I've raised are not curable by amendment. On this basis, I have struck out rather than dismissed the proceeding.