Australian Capital Providers P/L v Wakelin & Anor [2009] QSC 167

SUPREME COURT OF QUEENSLAND CITATION: Australian Capital Providers P/L v Wakelin & Anor [2009] QSC 167 PARTIES: AUSTRALIAN CAPITAL PROVIDERS PTY LTD (ACN 123 825 632) (plaintiff) v LEE ANTHONY WAKELIN (first defendant) RHONDA KATE WAKELIN (second defendant) FILE NO/S: 9599 of 2008 DIVISION: Trial Division PROCEEDING: Trial ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 19 June 2009 DELIVERED AT: Brisbane HEARING DATE: 9 and 10 June 2009 JUDGE: Dutney J ORDER: 1. I give judgment for the plaintiff on the claim against the first defendant pursuant to the deed of loan and against the second defendant pursuant to the guarantee in the sum of $745,566.29. The claim is otherwise dismissed. 2. On the counterclaim, I order that the deed of loan be varied by substituting a rate of 4% per month for the rate of 11% per month and 7% per month respectively referred to in paragraph 2 of the deed of loan dated 31 March 2008 and 4% per month for the rate of 15% per month in paragraph 3 of the deed of loan dated 31 March 2008. The counterclaim is otherwise dismissed. CATCHWORDS: CONSUMER CREDIT-CREDIT PROTECTION- GENERAL-OPERATION OF CREDIT LEGISLATION- INTERPRETATIONS AND DEFINTIONS –LOAN CONTRACT -Whether finance was for domestic or commercial purpose- Whether declaration meet the requirements of the Consumer Credit Regulation-Where plaintiff cannot rely upon provisions of the mortgage in order to claim possession-Whether default notice was required under the Consumer Credit Code -- 1 of 26 -- 2 CONTRACTS-GENERAL CONTRACUTAL PRINCIPLES- HARSH AND UNCONSCIONABLE CONTRACTS AND STATUTORY REMEDIES -Whether credit contract unjust – Where interest rate considered excessive and varied by the court Consumer Credit Code (Qld), s 6, s 11, s 70, s 80, s 102(2), s 107 Consumer Credit (Queensland) Act 1994 Consumer Credit Regulation 1995, s 10 Credit Act 1987 (Qld) Property Law Act 1974 (Qld), s 84 Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1967) 118 CLR 429 COUNSEL: I Erskin for the plaintiff L Wakelin for first and second defendants SOLICITORS: Q5 Law for the plaintiff L Wakelin for first and second defendants Introduction [1] The plaintiff carries on business both as a finance broker and as a short term lender. It is a private company, the principal of which is Mr McQuoid. [2] In December 2007 Mr McQuoid was contacted by accountants who told him that he had a client who needed short term capital funding for his business. [3] Although the client was not identified in the December phone call, it was the first defendant, Mr Wakelin. [4] Mr and Mrs Wakelin had a loan with Liberty Finance which had been in arrears since March 2007. Liberty Secure Funding Ltd (“Liberty”) had taken action in relation to the default. -- 2 of 26 -- 3 [5] In late January 2008 Liberty obtained a judgment for the debt and the request for finance was expanded to include sufficient to pay out that loan in full. [6] Ultimately, at the end of March, Australian Capital Providers provided a loan to Mr Wakelin in the amount of $557,705.94 which included funds to pay out Liberty, a small amount of additional capital and interest for the term of the loan. The term of the loan was four months. Mrs Wakelin guaranteed the loan. The loan was not repaid at the expiration of the term The claim [7] Australian Capital Providers commenced these proceedings to recover the outstanding debt and possession of the property provided by way of security under the attornment clause in the mortgage. [8] The facts concerning the granting of the loan and the term of the loan are in dispute and will need to be considered in more detail later. [9] The defendants resist the plaintiff’s claim by alleging that the loan was one to which the provisions of the Consumer Credit Code (Qld) (“the Code”) apply and those provisions have not been complied with. The defendants further allege that they entered into the loan in reliance upon representations made by Mr McQuoid on behalf of the plaintiff to the effect that the funds would be used to pay out the Liberty loan prior to any judgment being entered against the Wakelins and on the further representation that prior to the expiry of the plaintiff’s loan the plaintiff would refinance that loan through a more traditional lender at a competitive market interest rate on standard terms and conditions. At trial, Mr Wakelin added a further -- 3 of 26 -- 4 representation. This was that the refinance of the plaintiff’s loan would be provided without the necessity of his providing any additional information to the takeout financier at all. [10] In addition to the above, it was alleged that the plaintiff’s loan was harsh and unconscionable in that it provided for the payment of an interest rate of 11% per month (annualised to 132%) reducible to 7% per month (annualised at 84%) if the borrower was not in default. The loan also provides for interest at 15% per month to be paid in any judgment. [11] By way of counterclaims, the defendants seek a civil penalty against the plaintiff pursuant to s 102(2) of the Code and an order that that amount be set off against the amount due to the plaintiff under the loan agreement. The defendants further seek compensation pursuant to s 107 of the Code in an amount quantified by Mr Wakelin at $250,000 which the defendants also seek to set off against the loan amount. Declarations are sought in addition that the interest rates are void or unenforceable as constituting a penalty and a declaration that the plaintiff has no right to recover possession of the property. The facts [12] Cameron Finlay is a member of Arnold and Finlay Accountants and Planners Pty Ltd. Mr Finlay was at all material times the accountant for Mr Wakelin. He also knew Mr McQuoid. -- 4 of 26 -- 5 [13] It appeared from the evidence that most, if not all, dealings between the plaintiff and the defendants prior to the making of the subject loan were conducted through the medium of Mr Finlay. [14] It is common ground that Mr Finlay first contacted Mr McQuoid in December 2007. Mr Finlay was not called as a witness and consequently the only version of that conversation is that given by Mr McQuoid. Mr McQuoid said that in that initial conversation Mr Finlay did not reveal the name of his client. Mr Finlay merely asked if Mr McQuoid would be able to do a loan for one of his clients early in the New Year. Mr McQuoid indicated that he would be prepared to look at it. [15] There was no further communication between Mr McQuoid and anybody on behalf of the defendants until January 2008. In January 2008 Mr Finlay again spoke to Mr McQuoid in relation to a loan. At that stage Mr Finlay said that his client was Mr Wakelin who was involved with Big House Mortgage Company. Mr Finlay told Mr McQuoid that Big House Mortgage Company was doing investment loans overseas and in Australia. He told Mr McQuoid that Mr Wakelin was looking for some short term funding capital for his business. [16] On 24 January 2008, a form containing information relevant to a finance application completed in handwriting was sent by facsimile from Mr Finlay’s office to the plaintiff. Relevantly, the purpose of the loan was described as “pay arrears loan and working capital $60,000 plus costs plus interest one month”.1 The application was made by Mr and Mrs Wakelin. [17] The term of the facility then sought was 60 days. -- 5 of 26 -- 6 [18] The reason for the application was said to be a delay in the receipt by Mr Wakelin of $100,000 in fees from Malaysia expected in February 2008 and a profit of $120,000 from the United States to be received over the forthcoming 12 months. A further reason was that superannuation to be released to Mrs Wakelin on compassionate grounds was not going to be available until towards the end of February 2008. [19] Interestingly, Mr Wakelin disclosed his income in the preceding two years as being $15,000 in 2005/6 and $8,000 in 2006/7. His wife, the second defendant, was employed as a teacher on a salary of around $70,000 per annum. [20] No clear picture emerged from the evidence in relation to what Mr Wakelin actually did by way of occupation. He described his occupation at the time of his being sworn as a witness as writing prospectuses for and advising people raising funds through prospectus or private placements. Later in his evidence he talked about earning an income from the provision of construction finance. As best as I could make out from this scanty evidence, it appears that Mr Wakelin is himself involved in the sourcing of finance for borrowers, predominantly offshore. [21] This seems to me to have some relevance when considering Mr Wakelin’s evidence. Mr Wakelin’s oral evidence was almost entirely inconsistent with the contemporaneous documents. [22] In his role as a broker, Mr McQuoid set about finding finance as requested by Mr Finlay on behalf of the defendants. A valuation of the defendants’ home which was 1 See Ex 2. -- 6 of 26 -- 7 offered as security was obtained from WPB Property Group. The inspection for that valuation was carried out on 25 January 2008. The property was valued at $695,000. [23] On 8 February 2008, Mr Wakelin signed a letter appointing Mr McQuoid of ACP Holdings Pty Ltd as his finance broker. A further loan application form was sent by Mr McQuoid to Mr Finlay and subsequently returned completed in handwriting and signed by Mr and Mrs Wakelin on 24 February 2008. In the completed form, Mr and Mrs Wakelin claimed to have had a surplus of assets over liabilities of more than $2.4 million. [24] About the time the second loan application document was returned, Mr McQuoid learnt that Liberty had in fact obtained default judgment on its claim against the Wakelins. That judgment was apparently entered on 24 January 2008. As a result of learning of the judgment Mr McQuoid told Mr Finlay that it would be difficult to arrange the funding of $60,000 sought because it could only be secured by a second mortgage in circumstances where the first mortgagee had already obtained judgment. As a result of this the application for finance changed to include sufficient money to pay out the Liberty loan in full. [25] On 28 February 2008 an indicative offer of finance from DTA Capital in an amount of $495,000 was provided to the defendants. The finance was for a term of 12 months secured by first mortgage at an interest rate of 15% per annum. The costs associated with that loan amounted to $1,500, a valuation fee of $229.20 and $2,000 in legal costs. [26] In order to proceed with the loan DTA Capital required, among other things, to see the preceding 12 months of the defendants’ loan statements. -- 7 of 26 -- 8 [27] DTA Capital appears to have been satisfied with the information provided and on 10 March 2008 the defendants signed an acceptance of the offer. DTA Capital was aware of the judgment in favour of Liberty as appears from the letter dated 27 March 2008 from its solicitors to Mr Finlay. Ultimately the defendants rejected the finance. According to Mr McQuoid their stated reason for withdrawal was dissatisfaction with the interest rate. Threats of legal action by DTA Capital followed but they came to nothing. [28] Following the rejection of the DTA Capital loan, the first defendant agreed to borrow $554,926.61 from the plaintiff. A deed of loan was entered into dated 31 March 2008. The term of the loan was for four months until 2 August 2008 and the interest was as I have previously indicated. Clause 12 of the loan deed provides: “It is agreed that the borrower does not execute this indenture as a result of or by reason of any promise, representation or statement of any kind given by the lender whether in answer to any inquiry by or on behalf of the borrower.” [29] The deed of loan was varied on 8 April 2008 to include a further advance of $2,779.33 bringing the total loan amount to $557,705.94. [30] At the time of executing the deed of loan on 31 March 2008 Mr Wakelin also signed a separate short document in these terms: “I hereby acknowledge and declare that the Loan taken out by me on 31st March 2008 is for the purposes of business and commercial use only and is not for personal use or needs. I acknowledge that the provisions of the Credit Act do not apply to this Loan. I further acknowledge that I have been given the opportunity to obtain independent legal advice in respect of the document signed by me and I have of my own free will chosen not to take such legal advice. -- 8 of 26 -- 9 I acknowledge that on the date of repayment of the Loan (2nd August 2008) I will be liable to pay to Australian Capital Providers Pty Ltd the sum of $554,926.61 plus any further costs and unpaid interest. I further acknowledge that you will endeavour to refinance this advance in total on or before 2 nd August 2008 but that you have made no promises, representations or guarantees regarding the availability of finance or the amount of any finance that might be made available to me at that time or any time in the future.” A deed of guarantee and indemnity was signed by the second defendant and the defendants jointly consulted Mary Atallah, a solicitor for the purpose of having the documents explained to them. Ms Atallah did not give evidence. A mortgage was given over the defendants’ home to secure the advance. [31] Notwithstanding the terms of the document signed by him, Mr Wakelin gave evidence that the Liberty loan secured on his house had been obtained for the purpose of purchasing the house and included two subsequent additional amounts which had also been used for domestic purposes. Apart from his oral evidence, however, no additional evidence or documents were produced to support this assertion. [32] Mrs Wakelin did not give evidence. [33] Other evidence that precedes the plaintiff’s loan and which is relevant to the purpose of the loan comes from some handwritten notes taken from Mr Finlay’s file. They purport to be notes of a conversation held with Mr McQuoid on 8 February 2008. The notes record that the parties to the conversation were aware of the judgment obtained by Liberty against the defendants. The notes also record the following: “. Has forms from new financier but has to know details of a/c as must be no arrears at time of application. . Will lend on 1st mortgage from ACP and advance extra funds for business purposes. Financier requires 3 mths clear payments -- 9 of 26 -- 10 on account and can give such clearance at the end of the 3 mths.” [34] It appears from exhibits 18 and 19 that the financier to whom the note refers was New Capital Finance. Exhibit 18 is the completed application for finance which again contains a signed declaration that the credit to be provided would be applied wholly or predominantly for business or investment purposes. [35] In the copy of the loan application tendered in court which came from Mr Finlay’s file the declaration has been signed by Mr and Mrs Wakelin but crossed out. Mr Wakelin gave evidence that he had not crossed out the declaration and assumes that was done at some time by Mr Finlay. There was no evidence as to when that might have been done. [36] It appears that about the time the plaintiff’s loan was due for repayment, Mr McQuoid had succeeded in obtaining conditional approval for a loan to pay out Australian Capital Providers. Exhibit 15 is a conditional approval from Resimac Limited for a loan of $600,000 at 12% interest for a term of 30 years. That loan never proceeded. I am satisfied that the reason it did not proceed was that Mr Wakelin was unable to satisfy the lender that he had any capacity to service the debt that would be created. The repayments on the loan would amount to $6,171.68 per month. I note that Mr and Mrs Wakelin as joint applicants for the loan each signed a declaration that the loan was required wholly or predominantly for business purposes. [37] It should be noted that despite the optimism expressed in the first document completed for the plaintiff by the defendants that $100,000 was expected from Malaysia in February 2008 and a further $120,000 from the United States over 12 -- 10 of 26 -- 11 months, Mr Wakelin’s actual income up to August 2008 appears to be limited to an amount of $27,000 which was deposited on 22 November 2007. The only other significant deposit was $10,000 borrowed from the plaintiff as part of its loan. 2 [38] A notice of default pursuant to s 84 of the Property Law Act 1974 (Qld) was served on the defendants on 15 August 2008. On 23 September 2008 Mr Finlay wrote to Mr McQuoid in response to the default notice in these terms: “I understand that a default notice was issued by you on 15 August 2008. However, this should not have been issued to the client because you gave a clear undertaking when you took over the loan from Liberty that you would refinance the loan at the end of the 4 month period. You advised that the refinance would be done without additional documentation or information, and you advised that a financier would do the loan as long as a satisfactory 4 month period could be shown, in this case by ACP. At the time the loan expired with ACP you were overseas. Since that time you have requested further information from Mr Wakelin and I understand this was supplied to you in a timely fashion. The only document missing is the digital trust deed and you were advised that this may have been lost in storm damage, although we supplied you with documents linking the Wakelin trust to digital. You were also aware that his income is earned in the US and no document could be produced in the last 6 months that shows the income received in Australia. He has relied on your undertaking to him and to me that the loan would have been organised before the end of the term of the ACP loan and so refinanced and taken over at the end of the agreed 4 months. He considers that ACP and yourself are responsible for the failure to refinance and he should not be responsible for costs and delays. You have advised that you have an approval from Challenger. Please advise by 5pm today when this loan will settle.” [39] The other relevant piece of correspondence is a letter from Mr McQuoid to Mr Wakelin dated 1 August 2008 in which he wrote as follows: 2 See Ex 27. -- 11 of 26 -- 12 “I refer to this matter and my current attempts to assist with your refinance. As you know, we currently have a Loan Application in the process with a mortgage manager. The Lender is still assessing whether to proceed and is waiting on a number of items from you to reach their decision. The provision of this information is critical to ensuring that we can have the Loan Application processed in the quickest manner possible. To date I have requested these items from you on numerous occasions and they still have not been provided. This is extremely problematic as you are not assisting with the refinance process and this stands to disadvantage both of us. As such, I am no longer confident that you are committed to driving this refinance and I must withdraw from acting for you in this regard. From here on forward you will need to manage the refinance yourself or additionally appoint a Broker. I am still willing to assist you or your Broker where required and can be contacted any time. I will provide all information that I have on the current application so that you or your Broker are fully aware of what has occurred in this application to date. I apologise for not being able to complete this application, but unfortunately I have lost confidence in your commitment to this process. Should you have any further queries in relation to this matter, please do not hesitate to contact the writer.” [40] Having considered the evidence placed before me, I am satisfied that by the time the first defendant was identified by Mr Finlay as his client Liberty had already obtained, or was within a few days of obtaining, judgment on the existing loan secured on the defendants’ house. I do not accept that any representation was made by Mr McQuoid that the loan would be refinanced prior to judgment being entered. I am satisfied that Mr McQuoid made genuine efforts to obtain finance for the first defendant prior to the advance which is the subject of this action. It seems to me that the most likely explanation for Mr Wakelin’s rejection of the finance offer which was obtained is that he was unable to service the loan and therefore needed to -- 12 of 26 -- 13 borrow an amount which would include capitalised interest until such time as money he hoped might become available from overseas in fact became available. [41] I accept Mr McQuoid’s evidence that at no time was he ever informed that the loan he was refinancing was a loan obtained for domestic purposes. I accept that the only information which he had concerning that loan was that which was contained in the application documents completed by or on behalf of the defendants. I also accept that the only information provided to Mr McQuoid concerning the defendants’ income was that contained in the application documents. On the basis of that information, the loan sought was serviceable. In fact, the information provided was not accurate and Mr Wakelin’s income fell well short of that which he predicted. [42] At the time the plaintiff’s loan was provided, I accept Mr Wakelin was in a desperate position. Liberty was about to take possession of his home preparatory to a sale to satisfy its judgment debt. Lacking the capacity to service an alternative loan, Mr Wakelin had little option but to accept the short term finance offered by the plaintiff notwithstanding the high interest rate. The finance offer from Mr McQuoid had two perceived benefits for the defendants. Because the interest was capitalised, there was no need to make repayments during the term of the loan. Mr Wakelin also believed that the short term loan would enable him to provide evidence to a prospective takeout financier that he had not been in default of payments due under the loan during the preceding four months. It seems surprising to me that in fact this would have been of much assistance because no payment was required to be made in that period. -- 13 of 26 -- 14 [43] I do not accept Mr Wakelin’s evidence that he was unaware of the content of the letter he signed on 31 March 2008 declaring that the loan was for business and commercial use only and acknowledging that no promise or representation had been made to him regarding the availability of finance. The fact that the document is so short and separate from the other papers makes it unlikely that he would not have been aware of the nature of the document he was signing. Having regard to the fact that Mr Wakelin was at all times represented by and usually dealing through his accountant and had the documents explained to him by a solicitor, I have difficulty in accepting that he was unaware of what he was doing. [44] In consequence, I do not accept that Mr McQuoid made a promise to obtain finance. If such a promise had been made, Mr Finlay would have immediately recognised that the document signed on 31 March 2008 was inconsistent with it. It seems to me more likely any representations made in that respect were to the effect that Mr McQuoid was optimistic that finance could be obtained and he would seek to achieve that. In fact, I am satisfied that but for Mr Wakelin’s inability to provide evidence of a capacity to service the loan, Mr McQuoid would have succeeded in obtaining finance sufficient to repay the plaintiff’s loan at the expiration of the term. The Consumer Credit Code [45] Section 6(1) of the Code relevantly provides: “(1) 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 precontractual obligations) is proposed to be entered into - (a) the debtor is a natural person ordinarily resident in this jurisdiction …; and -- 14 of 26 -- 15 (b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes; and …” [46] Section 11 of the Code so far as is relevant provides as follows: “(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. (2) Credit is presumed 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). (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. For the purposes of this subsection, a relevant person is a person associated with the credit provider or a finance broker (or a person acting for a finance broker) through whom the credit was obtained. (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.” [47] The form is to be found in s 10 of the Consumer Credit Regulation 1995 (“the Regulations”): “10 Declaration of purposes for which credit provided (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 or, if the declaration is to be made by electronic -- 15 of 26 -- 16 communication, prominently displayed when (but not after) the person signs) a warning in the following form – (3) The declaration is to contain – (a) the signature of each person making the declaration; and (b) either the date on which the declaration is signed or the date on which it is received by the credit provider.” [48] In my view the credit referred to in s 11(2) of the Code is the credit provided under the credit contract in issue. In this particular case, although a declaration substantially in the form required by s 10 of the Regulations was signed on 20 March 2008,3 that declaration does not relate to the credit provided pursuant to the deed of loan entered into with the plaintiff. The only declaration signed in relation to the deed of loan entered into with the plaintiff is that which I have earlier set out.4 That declaration does not substantially meet the requirements of s 10 of the Regulations in that it does not contain the warning required by s 10(2). [49] It seems to me, therefore, that the plaintiff is unable to rely on s 11 of the Code to avoid the operation of that Code. Hence, it is necessary to determine what in fact the original loan by Liberty was for. The only evidence in relation to this is the evidence of the first defendant. [50] Mr Wakelin gave evidence that he purchased the property in 1999 for $350,000. He contributed $114,000 in equity.5 In the result the amount borrowed from Liberty would appear to be $236,000. I indicated during the trial that a copy of a title search would be useful as showing whether the Liberty mortgage was contemporaneous with the purchase of the house or came later. 6 If the two corresponded, the logical 3 Ex 15, 2 nd last page. 4 Ex 1, item 3. 5 Transcript p 1–78. 6 Transcript p 1-58. -- 16 of 26 -- 17 inference would be that the loan was used to buy the house. There would be no such inference if the mortgage came later. Despite indicating that he had such a document, counsel for the plaintiff chose not to tender it. I infer from this that it was not helpful to the plaintiff’s case. [51] The mortgage was subsequently increased on two occasions. Apart from Mr Wakelin’s very general statements that all borrowings related to the house, there is no evidence as to the purposes of those increases. Notwithstanding this, these increases seem to me to be immaterial having regard to s 6(5) of the Code because the $236,000 borrowed to purchase the house as a place of residence exceeds 50% of the payout figure nine years later. Because obviously domestic expenditure exceeds 50% of the total, the predominant purposes is deemed to be domestic. If the Liberty loan was predominantly for domestic purposes I consider that a similar purpose must attach to a loan insofar as its purpose is to pay out that loan. At 7% per month, the component of the loan representing prepaid interest was a little less than $162,000. The original loan of $236,000 still represented more than 50% of the balance even though some of that balance was working capital provided by the plaintiff. [52] In any case, in the absence of a declaration which can be relied upon, s 11(1) of the Code places the onus upon the plaintiff to establish that the credit contract and related documents are not ones to which the Code applies. [53] While I am satisfied that Mr Wakelin deliberately misled Mr McQuoid in relation to the purpose of the loan in order to obtain finance which he could not otherwise obtain, I am not satisfied that the original advance from Liberty was not a housing -- 17 of 26 -- 18 loan. In the circumstances, I conclude that the deed of loan and related documents were documents to which the Code applies. [54] Having reached that conclusion, it is conceded by the plaintiff that it has not complied with the Code in relation to the advance.7 [55] It is necessary to consider the consequences of the loan from the plaintiff to the first defendant being subject to the Code separately in relation to the mortgage and the deed of loan. The mortgage [56] Relevantly, clause 26 of the mortgage provides as follows: “Notwithstanding anything to the contrary contained or implied herein this mortgage shall not secure the payment of any moneys or the performance of any obligations by the mortgagor under or in respect of any ‘regulated contract’ or ‘regulated mortgage’ as defined in the Consumer Credit (Qld) Act 1994 or any comparable legislation now or hereafter proclaimed in any other state or territory of the Commonwealth of Australia.” [57] The terms “regulated contract” and “regulated mortgage” referred to in clause 26 are not defined in the Consumer Credit (Queensland) Act 1994. They are defined terms for the purposes of the Credit Act 1987 (Qld). Under that Act a regulated contract means regulated credit sale contract, regulated loan contract or regulated continuing credit contract. A regulated loan contract is a loan contract to which Part 3 of the Act applies. A regulated mortgage is a mortgage to which Part 4 applies. The loan agreement between the plaintiff and the first defendant is not a regulated 7 Transcript, p 2-10. -- 18 of 26 -- 19 contract under the Credit Act because it is for an amount exceeding $40,000.8 The mortgage is not a regulated mortgage because it does not secure an amount owing under a regulated contract. [58] The consequence of the mortgage securing an amount owing under a regulated contract would be that the mortgage itself would be subject to non consensual variation by the court and restrictions on enforcement pursuant to Part 5 of the Credit Act. The concern of the commercial lender that its ability to rely upon its security might be affected because it also secures an amount due under a regulated contract is understandable and clause 26 appears to me to be designed to avoid the difficulty this presents. Despite difficulty with its wording, the court should be astute to give a meaning to the clause if that is possible. 9 If attention is concentrated on the perceived mischief to which the clause is directed, it seems to me that I should construe clause 26 to mean that the mortgage does not secure the payment of any moneys or the performance of any obligations by the mortgagor under a loan contract or mortgage which is subject to regulation by the court under s 70 of the Code. 10 Thus, it seems to me that I should construe the clause so that the mortgage does not secure this loan which I have found to be subject to the Code. [59] The consequence of this construction is that the mortgage is not available as security for any amount presently owing by the defendants to the plaintiff and consequently the plaintiff cannot rely upon the provisions of the mortgage in order to claim possession. 8 See s 32(2). 9 See Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1967) 118 CLR 429. 10 See the submission at transcript p 2-11. -- 19 of 26 -- 20 The Loan [60] Section 80 of the Code prohibits a credit provider from beginning enforcement proceedings against a debtor in relation to a credit contract until notice of default has been given to the debtor and any guarantor and the default has continued for the period of at least 30 days from the date of notice. In this case, a notice of exercise of power of sale under s 84 of the Property Law Act 1974 (Qld) was given to the defendants identifying default in repayment of the principal due on 2 August 2008 and allowing a period of 30 days notice within which to remedy that default. That was not, however, in my view, sufficient notice to satisfy the requirements of s 80(4) of the Code, which requires, inter alia, that the notice state that a subsequent default of the same kind that occurs during the period specified in the default notice for remedying the original default may be the subject of enforcement without further notice. [61] A creditor can be excused from giving a notice in certain circumstances. Section 80(4) of the Code provides: “(4) When default notice not required. A credit provider is not required to give a default notice or to wait until the period specified in the default notice has elapsed, before beginning enforcement proceedings, if – (a) the credit provider believes on reasonable grounds that it was induced by fraud on the part of the debtor or mortgagor to enter into the credit contract or mortgage; or …” [62] In this case, I am satisfied that the plaintiff was induced to give the loan by reason of the false declaration concerning the purpose for which the loan was sought as well as the information conveyed in the body of the various applications indicating -- 20 of 26 -- 21 that the loan was a commercial loan and that the first defendant had the capacity to repay it, at least by being able to service a takeout loan at the expiration of the four month term. [63] As I have already found, these representations were false and must have been known to have been false by Mr Wakelin at the time they were made. Indeed, they assumed gravitas by reason of their being transmitted from Mr Wakelin to the plaintiff through the medium of Mr Finlay. I am satisfied therefore that the plaintiff and Mr McQuoid had reasonable grounds to believe that they were induced by fraud on the part of the debtor to enter into the credit contract. Mr McQuoid in fact believed this. I am satisfied that Mr McQuoid relied upon the false information provided. I am satisfied that he did not induce Mr Wakelin at any stage to falsify the information he was submitting. On the evidence, there appears to have been no relevant conversation between Mr Wakelin and Mr McQuoid prior to the making of the loan. [64] In the circumstances, I am satisfied that notice under the Consumer Credit (Queensland) Act was not required before commencing proceedings to enforce the credit contract. [65] Having determined that the credit contract can be enforced, the question arises as to whether it should be enforced according to its terms or varied. [66] Section 70 of the Code authorises the court to vary the credit contract if the court is of the view that it was unjust at the time it was entered into. A number of matters which the court might take into account in making such a determination are set out in subsection (2). -- 21 of 26 -- 22 [67] In determining whether to grant relief, the court is entitled to have regard to the conduct of the parties to the proceedings in relation to the contract since it was entered into. 11 [68] In this case, I have had regard to the following matters. The making of the loan was, in the first instance, induced by the false declarations and statements made by Mr Wakelin to Mr McQuoid. The loan was granted in circumstances where the existing mortgagee was at the point of taking possession of the mortgaged premises and evicting the defendants from their home. The finance offered by the plaintiff was not the only finance available to the defendants. They could, had they wished, have accepted finance from DTA Capital at the relatively unremarkable interest rate of 15%. Even if Mr Wakelin thought the interest rate too high, a second refinance after a year or two of compliance with the DTA loan would still be cheaper than four months’ interest on the plaintiff’s loan. Another option open to the defendants according to Mr Wakelin’s evidence was that the solicitors for Liberty had indicated to him that if the arrears were paid and interest paid a month in advance then, notwithstanding the judgment, Liberty would have taken no action on their loan. As indicated, however, Mr Wakelin did not have the capacity to pay any loan and rather than sell his house and downsize to something he could afford, he appears to have adopted the action of borrowing at a high interest rate so that he could capitalise the interest. [69] Having regard to the above and to Mr Wakelin’s background in finance, the fact that he was independently advised by a solicitor in relation to the transaction and the fact that throughout the transaction he was assisted by Mr Finlay, his accountant, I 11 Consumer Credit Code s 70(5). -- 22 of 26 -- 23 conclude that Mr Wakelin made a deliberate and conscious choice to borrow the money offered by Mr McQuoid on the terms on which it was offered having assessed the various options and risks. [70] I am not satisfied that there is any aspect of the loan made by the plaintiff about which the plaintiff was not properly informed. [71] In his oral evidence Mr Wakelin tried to suggest that the plaintiff was a predatory lender taking advantage of his financial destitution in order to strip him of his assets. Apart from referring to the high interest rate, no real attempt was made to make out this allegation and on the basis of the evidence before me, I disregard it. [72] The only matter which causes me concern in relation to the transaction is the interest rate. The interest rate until 2 August 2008 was annualised at 84%. The default rate was 132%. Since 31 July 2008 the maximum interest rate chargeable on a loan to which the Code applies has been 48%.12 By Regulation 5 the maximum interest rate does not apply to credit contracts entered after 31 July 2008 unless the interest rate changed after that date. [73] Despite the absence of any maximum interest rate at the time the credit contract was entered into, the transaction as structured was intended to be a short term secured loan. Mr Wakelin was a high risk borrower which justifies a high interest rate and the short term of the loan would also ordinarily justify a higher than usual interest rate. Nonetheless, the loan was secured and the security offered was adequate. In those circumstances, an interest rate of 132% or even 84% appears to me to exceed what is justifiable. A fortiori, an interest rate of 15% per month on any judgment -- 23 of 26 -- 24 amount is also excessive. Whether lawful or not at the time the contract was entered into, this Court ought not rubber stamp that which is plainly excessive. Accordingly, I am of the view that the transaction was unjust to the extent that the interest rate payable exceeded the maximum percentage rate now payable on consumer credit contracts and I order that the contract be varied by reducing the interest rate chargeable in all cases to a rate of 4% per month. Damages [74] A claim was made for damages in the sum of $250,000. Compensation is payable under the Code13 but only where a debtor or guarantor can demonstrate loss arising from a contravention of the Code. The amount of the compensation cannot exceed the amount of the loss. In this case, despite my specifically directing his attention to the matter, Mr Wakelin was unable to identify any loss which he had suffered or give any indication of what amounts or even the nature of the amounts that he sought to include in his claim for $250,000. In the circumstances, I am not satisfied that he has established any claim to compensation in any amount. Civil penalty [75] By way of counterclaim, the defendants sought the imposition of a civil penalty on the plaintiff and the setting off of that civil penalty against the amount otherwise owing under the credit contract. [76] For reasons I have already set out, I am of the view that the conduct of the defendants in relation to the obtaining of this loan was such as to lead the plaintiff to 12 See Consumer Credit (Qld) Special Provisions Regulation 2008, s 3. -- 24 of 26 -- 25 reasonably believe that the Code had no application. Any contravention of the Code was thus inadvertent and, in my view, this is not an appropriate case in which to make a penalty order. Misleading or deceptive conduct [77] Insofar as the claim for misrepresentation or misleading or deceptive conduct is concerned, I am not satisfied that the representations relied on were in fact made by Mr McQuoid and insofar as they related to the obtaining of a loan to replace the short term facility offered by the plaintiff, the plaintiff did in fact obtain such finance which fell through solely because the defendants were unable to service the loan offered. Unconscionable conduct [78] For reasons already give, the conduct of the plaintiff was not unconscionable and the order I propose in relation to the interest rate removed any element of unjustness in relation to the contract. Decision [79] For the reasons I have given, I propose to order that the claim for possession pursuant to the mortgage be dismissed but give judgment for the plaintiff against the defendants for the amount owing under the credit contract as varied to reduce the interest rate payable to 4% per month. 13 See s 107. -- 25 of 26 -- 26 [80] There is no provision in the loan contract for the compounding of interest. I therefore propose to award simple interest only. [81] At the 7% agreed as the non default rate, interest payable on the loan from its commencement to the date repayment was due amounted to $161,757.66. At the reduced rate of 4% interest payable over that period would amount to $92,432.95. The daily interest rate on $577,705 at 4% per month is $759.72. Since the $161,757.66 was included in the loan amount, the prepaid interest at the reduced rate of 4% would mean that the interest was paid for a further 91 days or until 2 November 2008. [82] Since that time and pursuant to an order of White J of 19 February 2009 the defendants have paid a total of $31,697.73. Interest from 2 November 2008 until 19 June 2009 at $759.72 per day, a total of 289 days, totals $219,559.08. After deducting the amount paid, the unpaid interest totals $187,861.35. Added to the principal sum of $557,704.94, this totals $745,566.29. [83] I give judgment for the plaintiff on the claim against the first defendant pursuant to the deed of loan and against the second defendant pursuant to the guarantee in the sum of $745,566.29. The claim is otherwise dismissed. [84] On the counterclaim, I order that the deed of loan be varied by substituting a rate of 4% per month for the rate of 11% per month and 7% per month respectively referred to in paragraph 2 of the deed of loan dated 31 March 2008 and 4% per month for the rate of 15% per month in paragraph 3 of the deed of loan dated 31 March 2008. The counterclaim is otherwise dismissed. -- 26 of 26 --