Mr P Bingham of counsel instructed by Consumer Action Law Centre

(given orally at the hearing and subsequently revised)

1 Andon and Donica Zaparenkov have brought an application before the tribunal against Perpetual Trustees Victoria Limited ("Perpetual") in which they seek to have various loans reopened pursuant to section 70 of the Consumer Credit (Victoria) Code ("the Code"). Perpetual submits that the tribunal does not have jurisdiction to hear and determine the application. As a consequence Perpetual seeks an order of the tribunal pursuant to section 75 of the Victorian Civil and Administrative Tribunal Act 1998 that the application be summarily dismissed as misconceived.

2 In June 2002 the Zaparenkovs entered into a loan agreement with Perpetual whereby it was agreed that Perpetual would advance $95,000 to the Zaparenkovs secured by their home at 52 Candover Street, Geelong. Subsequently two further loans were made by Perpetual to the Zaparenkovs which were once again secured by the same property. After all three loans were advanced the total owing was $260,000. The Zaparenkovs defaulted under the loan. As a consequence Perpetual brought proceedings in the Supreme Court of Victoria seeking possession of the property secured by the loans. In that action the Zaparenkovs have lodged a defence; this defence essentially contends that the loans ought not be enforced because they were made in unconscionable circumstances. In any event, as a consequence of the filing of a defence, the present position is that the Supreme Court action is yet to be determined.

3 This brings me to the second application that is made today by Perpetual, which is an application that if its first application fails, the tribunal should order that the tribunal proceeding be stayed pending the determination of the Supreme Court proceeding.

4 Section 70 of the Code allows the tribunal to reopen a credit transaction which, at the time it was entered into, was unjust. This is a broad power; and is more favourable to a debtor than the position that confronts a debtor seeking to rely upon a defence of unconscionable conduct pursuant to the principles of equity.

5 The power to exercise jurisdiction under section 70 of the Code is vested only in VCAT. This means that the Zaparenkovs cannot rely upon section 70 in the Supreme Court proceeding: in order to rely upon that section they must bring a proceeding before VCAT.

6 In order to bring a proceeding before VCAT, the proceeding must be one to which the Code applies. VCAT does not have some general jurisdiction in relation to all credit matters.

7 Section 6(1) of the Code provides, in substance, that the Code applies to the provision of credit if, when the credit contract is entered into, inter alia, the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes. By reason of section 6(4) of the Code, investment by the debtor is not a personal domestic or household purpose.

8 Section 11 of the Code sets out important presumptions in relation to the application of the Code. The first presumption is in section 11(1) of the Code. It provides, in substance, that in proceedings where a party claims that a credit arrangement is one to which the Code applies, this is presumed to be such unless the contrary is established. An important exception to this presumption is set out in section 11(2) of the Code. This provides, again in substance, that credit is presumed conclusively for the purposes of the 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 these purposes). It is then provided as a further qualification to that provision that a declaration is required to be substantially in the form required by the regulations and is ineffective for the purposes of the section if it is not. Then there is a further qualification set out in section 11(3) of the Code. Essentially this provides that a declaration covered by section 11(2) is ineffective if the credit provider, or some other relevant person who obtained a 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.

9 In this case, in respect of all three loans, a declaration was signed by the Zaparenkovs to the effect that the credit was to be applied wholly or predominantly for business or investment purposes. The fact that these documents exist, and were signed, is relied upon by Perpetual in support of its application that the proceeding be summarily dismissed. It says that in the face of these documents the Zaparenkovs' case that the Code applies to these loans is hopeless; and in such circumstances the application should be dismissed summarily as the tribunal does not have jurisdiction.

10 The first response offered by the Zaparenkovs relies upon section 11(4). They say that the declaration was not substantially in the form required by the regulations. The relevant regulation (which is Regulation 10 of the Consumer Credit Regulations) sets out not only the wording of the declaration but also details as to a warning that ought be given to persons about to sign such a declaration.

11 The declarations are different in the case of the third loan to the first two loans. In the case of the third loan the declaration is dated 11 October 2004. This declaration does not contain a warning in a box in the form prescribed in Regulation 10. It does not have certain words in bold type as is the case with Regulation 10. And the order of the information is different than that specified in Regulation 10. These variations might not be critical; it could still be the case that this declaration is substantially in the form required by the regulations. In support of such a contention, reliance could be placed on the decision of Acting Justice Patten in Permanent Mortgages Pty Ltd v Cook[1] and the analysis of Justice Gibbs in Equipment Investments Pty Ltd v M J Dowthwaite & Co.[2] However such a contention would not be unanswerable, as there is also authority to the contrary: in particular I refer to the decision of Deputy President McKenzie in Paulis v Perpetual Trustees Australia Limited.[3] For my part, even looking at the matter without guidance from authority, I do not think it could be said that the Zaparenkovs' case is so hopeless or misconceived that, when considered in the context of the appropriate test under section 75 of the VCAT Act, it is appropriate that it be summarily dismissed. In this context it is important to note that the hurdle which must be overcome to succeed in an application to summarily dismiss a proceeding is a high one: see, for example, the decision of the Court of Appeal in Rabel v Eastern Energy.[4]

12 Thus part of the claim that has been brought may be within jurisdiction and ought not be summarily dismissed. That is not only relevant in itself, but is also influential as to what approach the tribunal ought take in relation to the other aspects of the claim. Certainly it would be open to summarily strike out other parts of the claim; but the convenience of adopting that course is nowhere near as significant as if the tribunal was satisfied that the whole of the claim ought be summarily dismissed. This is because, even if this was the only aspect of the claim that was one that the tribunal had jurisdiction to deal with, it would still be necessary to deal with it; and, for reasons that I will advance subsequently, deal with it before the proceeding in the Supreme Court.

13 In any event the Zaparenkovs have advanced arguments in relation to the declarations of purpose in relation to the first two loans that, although less persuasive, just clear the hurdle in relation to whether the claims are meritorious or hopeless. More accurately could I say that Perpetual just fails to clear the hurdle of showing that these claims are hopeless. These arguments turn not on words that are specified in the regulations as to the content of a declaration of purpose, but, rather, upon additional words which it is said might confuse a person in deciding what they are declaring.

14 Having regard to my views on the expression of the declarations, it is strictly speaking unnecessary to deal with the claims in relation to section 11(3). But when I do consider those matters I am also not satisfied that Perpetual has shown that the Zaparenkovs' case is hopeless; that is, it has not shown that the Zaparenkovs could not establish that the finance broker had reason to believe at the time the declarations were made that the funds were to be wholly or predominantly for personal, domestic or household purposes. In making this finding I rely upon not only the affidavits of the Zaparenkovs but also upon the content of the declarations of purpose and the associated check lists. The check lists refer to the occupation of the Zaparenkovs and the nature of the proposed use of the loan. I am not to be taken as concluding that the Zaparenkovs have satisfied the tribunal that this is a matter under the Code; but I am satisfied that it has not been shown that their case in that regard is hopeless.

15 Because I may well hear this case when it comes before the tribunal it is undesirable that I say much more about the facts. Any findings would be tentative and only for the purposes of determining the present application, but could undesirably have the effect of suggesting that the tribunal has already formed views on the substance of the matters themselves as opposed to whether they meet or do not meet certain threshold tests.

16 I now turn to the question of whether the proceeding before the tribunal should be stayed. As a matter of logic I think that it makes much more sense for a VCAT proceeding to be heard and determined first. The public interest ventilated in the Code is to protect vulnerable consumers in relation to credit matters in certain circumstances. In doing this the Code provides a more generous test to debtors than would be the test applied in the Supreme Court pursuant to equitable principles relating to unconscionability. What follows from this is that if the VCAT proceeding succeeds then it is likely to mean the end of the Supreme Court proceeding. On the other hand if the VCAT proceeding fails it is difficult to see how the Zaparenkovs could have any credible defence based on unconscionability in the Supreme Court proceeding. Further the consequence sought in the Supreme Court proceeding is final in nature, being the possession and probable sale of the Zaparenkovs' home. For these reasons it makes far more sense for the tribunal proceeding to take place first. I might add that there are also reasons concerning the comparative timeliness and the comparative cost of the two systems which would generally make it preferable for the tribunal proceeding to go first. So I am not persuaded that an order should be made staying the tribunal proceeding.

[1] [2006] NSW SC 1104.

[2] (1969) 16 FLR 23.

[3] [2006] VCAT 2039.

[4] [1999] VSCA 103; [1999] 3 VR 45.