Supreme Court New South Wales Medium Neutral Citation: Integrated Securities No 3 Pty Ltd v Creatrix Web Development & Online Marketing Solutions Pty Ltd [2021] NSWSC 596 Hearing dates: 6 and 7 April 2021 Date of orders: 2 June 2021 Decision date: 19 May 2021 Jurisdiction: Equity - Real Property List Before: Rein J Decision: See [122] Catchwords: CONSUMER LAW — Consumer credit — National Credit Code — Application — Application for a loan by an individual yet issued to a company owned and controlled by the individual — Loan agreement entered into by the company as borrower — Mortgage given by the individual applicant's de facto wife to the lender to secure the amount loaned pursuant to the loan agreement — Guarantees given by the individual applicant and the individual applicant's de facto wife pursuant to the loan agreement — Whether the individual applicant and his de facto wife are "debtors" under the National Credit Code so as to enliven its provisions — Whether the individual applicant and his de facto wife have incurred primary liabilities to pay or repay a deferred debt — Held: individual applicant and his de facto wife are "debtors" within the meaning of the National Credit Code as they have incurred primary liabilities to pay or repay a deferred debt pursuant to the loan agreement — Loan agreement set aside CONTRACTS — Construction — Interpretation —Issue of whether, on the terms of the loan agreement, the individual applicant and his de facto wife have incurred primary liabilities to pay or repay a deferred debt — Loan agreement to be given a businesslike interpretation, yet also to be interpreted in light of the presumption mandated by s 13(1) of the National Credit Code — Onus on the Plaintiff to prove that the loan agreement is one to which the National Credit Code does not apply — Held: pursuant to the terms of the loan agreement, the individual applicant and his de facto wife have incurred primary liabilities to pay or repay a deferred debt — Alternatively, the Plaintiff has not discharged its onus of establishing that the National Credit Code does not apply to the loan agreement CONSUMER LAW — Unconscionable conduct — In connection with goods or services — Unconscionability under the Australian Securities and Investments Commission Act 2001 (Cth) — Asset-based lending — Failure by lender to obtain financial statements of the borrower — Attempt by lender to preclude the operation of the National Credit Code — Interest rates applicable under the loan agreement exceptionally high — Substantial fees payable upfront — Lack of financial advice — Held: the conduct of the lender was, in the circumstances, unconscionable — Loan agreement set aside to prevent or reduce loss or damage pursuant to s 12GM(1) of the Australian Securities and Investments Commission Act 2001 (Cth) Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth) Civil Procedure Act 2005 (NSW) Consumer Credit Code (NSW) National Consumer Credit Protection Act 2009 (Cth) National Consumer Credit Protection Regulations 2010 (Cth) National Credit Code Real Property Act 1900 (NSW) Cases Cited: ACCC v Quantum Housing Group Pty Ltd [2021] FCAFC 40 APS Satellite Pty Ltd (formerly known as "SkyMesh Pty Ltd") v Ipstar Australia Pty Ltd [2016] NSWSC 1898 Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1 Bahadori v Permanent Mortgages Pty Ltd (2008) 72 NSWLR 44 Commercial Funds Pty Ltd v Fraval [2020] VCC 1787 Devon v Thirteenth Kaysan Pty Ltd [2016] FCA 357 Director of Consumer Affairs (Vic) v Scully (No 3) [2012] VSC 444 Edmund-Jones Pty Ltd v Australian Women's Hockey Association Inc [1999] NSWSC 1014 Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640 Equititrust Ltd v SLJM [2010] NSWSC 1059 Geeveekay Pty Ltd v Director of Consumer Affairs Victoria (2008) 19 VR 512 Gooley v NSW Rural Assistance Authority [2020] NSWCA 156 Hawkins v Bank of China (1992) 26 NSWLR 562 Ippin Textiles Pty Ltd v Winau Aust Pty Ltd [2021] NSWCA 9 Jams 2 Pty Ltd v Stubbings [2020] VSCA 200 Jams 2 Pty Ltd v Stubbings (No 3) [2019] VSC 150 Jowitt v Callaghan (1938) 38 SR (NSW) 512 Kay v KRM (Vic) Pty Ltd; Classic Bet (NSW) Pty Ltd v Kay & Ors [2020] NSWCA 92 Kenxue Pty Ltd ATF The Susan Investment Trust v Westpro Finance Pty Ltd [2020] NSWSC 1146 KRM (Vic) Pty Ltd v Classicbet Pty Ltd [2019] NSWSC 1773 Lakeman v Mountstephen (1874) LR 7 HL 17 Nicola Properties Pty Ltd v Vie De L'eau Pty Ltd [2020] VSC 728 Ozzy Loans Pty Ltd v New Concept Pty Ltd & Zhong [2012] NSWSC 814 Paciocco v Australia & New Zealand Banking Group Ltd [2015] FCAFC 50 Perpetual Trustee Company Limited v Albert and Rose Khoshaba [2006] NSWCA 41; (2005) 14 BPR 26,639 Perpetual Trustees Australia Ltd v Schmidt [2010] VSC 67 Rafiqi & Thomas v Wacal Investments Pty Ltd (1998) ASC 155-024 Re Golden Key Ltd [2009] EWCA Civ 636 Stubbings v Jams 2 Pty Ltd [2021] HCATrans 23 Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 Violet Home Loans Pty Ltd v Schmidt [2013] VSCA 56 Winau Aust Pty Ltd & Ors v LCC Property Development Pty Limited & Ors [2020] NSWSC 434 Zhu v Treasurer (NSW) (2004) 218 CLR 530 Texts Cited: Nil Category: Principal judgment Parties: Integrated Securities No 3 Pty Ltd (Plaintiff/First Cross-Defendant) Creatrix Web Development & Online Marketing Solutions Pty Ltd (First Defendant/First Cross-Claimant) Milijana Pejkic (Second Defendant/Second Cross-Defendant) Cai Valerio (Third Defendant/Third Cross-Claimant) Westpac Banking Corporation (Fourth Defendant) David James Cacciola (Second Cross-Defendant) Representation: Counsel: A Djurdjevic (Plaintiff//Cross-Defendants) P Horobin (First-Third Defendants/Cross-Claimants) Solicitors: Summer Lawyers (Plaintiff/Cross-Defendants) Cordato Partners Lawyers (First-Third Defendants/Cross-Claimants) File Number(s): 2019/00243908 Publication restriction: Nil Judgment 1. The Plaintiff ("Integrated") loaned money to the First Defendant ("Creatrix") pursuant to a loan agreement dated 26 February 2018 ("the Loan Agreement") to which the Second and Third Defendants ("Ms Pejkic" and "Mr Valerio" respectively) are parties. The amount loaned was initially $530,000 but approximately six months later, a further amount of $93,295.46 was lent by Integrated pursuant to a Deed of Variation. Mr A Djurdjevic of Counsel appeared for Integrated and Mr David Cacciola ("Mr Cacciola"), the sole director and shareholder of Integrated. Mr P Horobin of Counsel appeared for the Defendants. 2. There is no dispute that the money lent by the Plaintiff has not been repaid. By the terms of the Loan Agreement interest has accrued at a default rate of 4.5% per month, compounding monthly, which is an annual interest rate of 69.588% (the non-default rate being 3% per month, which is an annual interest rate of 36%). 3. The Loan Agreement included an agreement by Ms Pejkic to give Integrated a mortgage over a property owned by her. That mortgage document signed by Ms Pejkic (see CB 304-305) was never registered. Another mortgage is registered on the title and that is an earlier mortgage granted by Ms Pejkic to RAMS. Ms Pejkic and Mr Valerio are also described in a schedule to the Loan Agreement as "Guarantors". Whilst the Loan Agreement is sometimes referred to as "the Mortgage", I shall, in these reasons, refer to it as the Loan Agreement. 4. Creatrix is a company all the shares in which are owned by Mr Valerio. He is also its sole director and secretary. Creatrix conducts a design and development business with an emphasis on marketing. 5. Mr Valerio and Ms Pejkic are de facto partners. They bought a property in Ms Pejkic's name with funds supplied by Bankwest and resided (and continue to reside) at that property, which is located in Yowie Bay, NSW ("the Property"). In 2014, they decided to demolish the existing house on the Property and build a duplex with the intention of subdividing the Property, renting one half of the duplex and residing in the other half. 6. For the purpose of the proposed demolition and new construction of the duplex and refinancing of the existing loan, Ms Pejkic and Mr Valerio obtained a loan of $2,380,000 from RAMS. As costs escalated, and following the departure of the builder from the site, Mr Valerio and Ms Pejkic sought an additional loan or refinancing from RAMS but RAMS was not prepared to lend any further amount, Mr Valerio and Ms Pejkic having failed to meet repayments due under the RAMS loan. 7. Mr Valerio and Ms Pejkic sought assistance from a mortgage broker called Tim Haynes of Highland Financial Services. An application was made through Mr Haynes to National Commercial Funding Pty Ltd ("NCF"). Mr Haynes enquired whether Mr Valerio (and Ms Pejkic) could utilise a company as borrower and Creatrix was proposed by Mr Valerio as the borrower. NCF declined to lend any money to Creatrix and Mr Haynes then mentioned the possibility of another lender controlled by Mr Cacciola. Mr Haynes and Mr Cacciola were friends of longstanding. 8. On 30 January 2018, Mr Haynes lodged an application signed by Mr Valerio with Credit Solutions Group Pty Ltd (another company owned and controlled by Mr Cacciola) ("Credit Solutions") completed by Mr Valerio as "Borrower" (see CB 258-259) and on 31 January 2018 Integrated, through Mr Cacciola, indicated approval for the requested loan, but the loan was to be made to Creatrix: see CB 275-276. The funds sought were paid on or about 26 February 2018, save that a significant portion of the monies lent went to Integrated and Credit Solutions as prepaid interest, fees and charges. In fact, of the $530,000 lent, only $410,384.45 was actually received into the bank account of Creatrix. In about August 2018, Mr Valerio sought additional funds of $30,000 from Integrated (see CB 72) and a loan of $93,295.46 was approved, which was effected via a Deed of Variation of the Loan Agreement, dated 24 August 2018. Of the $93,295.46 loaned, only $30,000 was actually advanced to the Defendants; prepaid interest (including additional accrued interest for the first loan), fees and charges again having been deducted from the monies advanced. Thus, the Defendants were required to pay $93,000 for a further loan of $30,000 even without the application of default interest. The $30,000 actually paid out was paid into the account of Mr Valerio and Ms Pejkic, rather than Creatrix's account. 9. In or around November 2018, the Defendants completed the construction of the duplex. One half of the duplex ("Lot B") subsequently sold for $1,900,000. Mr Valerio, Ms Pejkic and their children reside in the other half of the duplex ("Lot A"). Save for minor miscellaneous disbursements, the entire proceeds of sale of Lot B was paid to RAMS. The debt to RAMS was accordingly reduced but it is still owed approximately $1,000,000. If Lot A yields a similar amount to Lot B on sale, there is a strong likelihood that there will be nothing left for Ms Pejkic and Mr Valerio, and now given the passage of time and the extremely high default rate of interest on the Integrated loans, there is a strong possibility that the proceeds of sale will not even be sufficient to pay out the entire debt of Integrated. 10. There is no dispute that, subject to the two defences put forward by the Defendants, Integrated is entitled to judgment against each of them for $1,061,523.48, plus further interest. Nor is there any dispute, again subject to determination of the two defences, that Integrated is entitled to sell Lot A and after payment to RAMS of the balance of its debt, retain such of the proceeds as will satisfy the Integrated debt. 11. I have referred to two defences advanced by the Defendants. The first is that the Defendants assert that the Loan Agreement is should be declared void by the National Credit Code ("the Code") which has been enshrined in legislation by the National Consumer Credit Protection Act 2009 (Cth) ("the NCCP Act"). The second defence is a claim that the Loan Agreement was obtained by, and amounts to, unconscionable conduct on the part of Integrated and Mr Cacciola. I shall deal with these two matters separately, but first, reference needs to be made to the undisputed fact that Mr Cacciola was made, in 2014, the subject of a ban by the Australian Securities and Investments Commission ("ASIC") pursuant to s 80 of the NCCP Act. The notice relating to the ban is found at CB 104 and states: "ASIC has banned Mr David James Cacciola of the Gold Coast, Queensland, from engaging in credit activities for nine years following an ASIC investigation." 1. It is accepted by the Defendants that the ban on Mr Cacciola is relevant only to credit activities that are covered by the Code. The Code and the NCCP Act 1. The relevant provisions of the Code are: "3 Meaning of credit and amount of credit (1) For the purposes of this Code, credit is provided if under a contract: (a) payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred; or (b) one person (the debtor) incurs a deferred debt to another (the credit provider). … 4 Meaning of credit contract For the purposes of this Code, a credit contract is a contract under which credit is or may be provided, being the provision of credit to which this Code applies. 5 Provision of credit to which this Code applies (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 or a strata corporation; and (b) the credit is provided or intended to be provided wholly or predominantly: (i) for personal, domestic or household purposes; or (ii) to purchase, renovate or improve residential property for investment purposes; or (iii) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and (c) a charge is or may be made for providing the credit; and (d) the credit provider provides the credit in the course of a business of providing credit carried on in this jurisdiction or as part of or incidentally to any other business of the credit provider carried on in this jurisdiction. … 7 Mortgages to which this Code applies (1) This Code applies to a mortgage if: (a) it secures obligations under a credit contract or a related guarantee; and (b) the mortgagor is a natural person or a strata corporation. … 8 Guarantees to which this Code applies (1) This Code applies to a guarantee if: (a) it guarantees obligations under a credit contract; and (b) the guarantor is a natural person or a strata corporation. … 13 Presumptions relating to application of Code (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) It is presumed for the purposes of this Code that credit is not provided or intended to be provided under a contract wholly or predominantly for any or all of the following purposes (a Code purpose): (a) for personal, domestic or household purposes; (b) to purchase, renovate or improve residential property for investment purposes; (c) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; if the debtor declares, before entering the contract, that the credit is to be applied wholly or predominantly for a purpose that is not a Code purpose, unless the contrary is established. (3) However, the declaration is ineffective if, when the declaration was made, the credit provider or a person (the prescribed person) of a kind prescribed by the regulations: (a) knew, or had reason to believe; or (b) would have known, or had reason to believe, if the credit provider or prescribed person had made reasonable inquiries about the purpose for which the credit was provided, or intended to be provided, under the contract; that the credit was in fact to be applied wholly or predominantly for a Code purpose. (4) If the declaration is ineffective under subsection (3), paragraph 5(1)(b) is taken to be satisfied in relation to the contract. (5) 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. (6) A person commits an offence if: (a) the person engages in conduct; and (b) the conduct induces a debtor to make a declaration under this section that is false or misleading in a material particular; and (c) the declaration is false or misleading in a material particular. Criminal penalty: 2 years imprisonment. (7) Strict liability applies to paragraph (6)(c). Note: For strict liability, see section 6.1 of the Criminal Code. … 16 Precontractual disclosure (1) A credit provider must not enter into a credit contract unless the credit provider has given the debtor: (a) a precontractual statement setting out the matters required by section 17 to be included in the contract document; and (b) an information statement in the form required by the regulations of the debtor's statutory rights and statutory obligations. (2) Those statements must be given: (a) before the contract is entered into; or (b) before the debtor makes an offer to enter into the contract; whichever first occurs. … (4) The precontractual statement must contain the financial information specified by the regulations in the form prescribed by the regulations. … 204 Principal definitions (1) In this Code: … debtor means a person (other than a guarantor) who is liable to pay for (or to repay) credit, and includes a prospective debtor." 1. Section 17 of the Code is also relevant, as it imposes significant requirements on a credit contract covered by the Code including, for example, a requirement for clear statements of the charges, fees and interest rates, and warnings required by the regulations made under the Code. 2. The relevant provisions of the NCCP Act are: "29 Prohibition on engaging in credit activities without a licence Prohibition on engaging in credit activities without a licence (1) A person must not engage in a credit activity if the person does not hold a licence authorising the person to engage in the credit activity. Civil penalty: 5,000 penalty units. Offence (2) A person commits an offence if: (a) the person is subject to a requirement under subsection (1); and (b) the person engages in conduct; and (c) the conduct contravenes the requirement. Criminal penalty: 2 years imprisonment. … 80 ASIC's power to make a banning order Making a banning order (1) ASIC may, in writing, make one or more orders (banning orders) against a person: (a) if ASIC suspends or cancels a licence of the person; or (b) if the person becomes insolvent; or (c) for a natural person—if the person is convicted of fraud; or (d) if the person has: (i) contravened any credit legislation; or (ii) been involved in a contravention of a provision of any credit legislation by another person; or (e) if ASIC has reason to believe that the person is likely to: (i) contravene any credit legislation; or (ii) be involved in a contravention of a provision of any credit legislation by another person; or (f) if ASIC has reason to believe that the person is not a fit and proper person to: (i) engage in one or more credit activities; or (ii) perform one or more functions as an officer (within the meaning of the Corporations Act 2001) of another person who engages in credit activities; or (iii) control another person who engages in credit activities; or (fa) if ASIC has reason to believe that the person is not adequately trained, or is not competent, to: (i) engage in one or more credit activities; or (ii) perform one or more functions as an officer (within the meaning of the Corporations Act 2001) of another person who engages in credit activities; or (iii) control another person who engages in credit activities; or (fb) if the person has, at least twice, been linked to a refusal or failure to give effect to a determination made by AFCA (as defined in section 910C of the Corporations Act 2001) relating to a complaint that relates to: (i) credit activities; or (ii) a financial services business (within the meaning of the Corporations Act 2001); or (fc) if subsection (3) applies to the person in relation to 2 or more corporations; or (g) if a prescribed State or Territory order is in force against the person; or (h) in any other circumstances prescribed by the regulations. … 81 What a banning order prohibits (1) A banning order made against a person may specify that the person is prohibited from doing one or more of the following: (a) engaging in any credit activities; (b) engaging in specified credit activities in specified circumstances or capacities; (c) controlling, whether alone or in concert with one or more other entities (as defined by section 64A of the Corporations Act 2001), another person who engages in credit activities; (d) performing any function involved in the engaging in of credit activities (including as an officer (within the meaning of the Corporations Act 2001), manager, employee, contractor or in some other capacity); (e) performing specified functions involved in the engaging in of credit activities. … 82 Effect of banning orders Requirement not to engage in conduct contrary to banning order (1) A person must not engage in conduct that is contrary to a banning order that is in force against the person. Civil penalty: 5,000 penalty units. Offence (2) A person commits an offence if: (a) the person is subject to a requirement under subsection (1); and (b) the person engages in conduct; and (c) the conduct contravenes the requirement. Criminal penalty: 5 years imprisonment. Note: A person against whom a banning order is in force cannot be granted a licence authorising the person to engage in a credit activity to which the banning order applies (see subsection 40(1)). … 180 Orders in relation to unlawful credit activities Court may make orders in relation to unlawful credit activities (1) If: (a) a person (the defendant) engages in a credit activity in relation to another person (the plaintiff); and (b) the engaging in the activity contravenes any of the following: (i) section 29 (which requires the holding of a licence); (ii) section 124A (which prohibits the provision of credit assistance in relation to short‑term credit contracts); (iii) section 133CA (which prohibits credit providers from entering into short‑term credit contracts etc.); the court may make such order as the court considers appropriate against the defendant: (c) to prevent the defendant from profiting from the plaintiff by engaging in that activity; or (d) to compensate the plaintiff, in whole or in part, for any loss or damage suffered as a result of the defendant engaging in that activity; or (e) to prevent or reduce the loss or damage suffered, or likely to be suffered, by the plaintiff as a result of the defendant engaging in that activity. Note: An order may be made under this subsection whether or not a declaration of contravention has been made under section 166. (2) Without limiting subsection (1), examples of orders the court may make include: (a) an order declaring the whole or any part of a contract, deed or arrangement made between the defendant and the plaintiff to be void and, if the court considers it appropriate, to have been void from the time it was entered or at all times on and after a specified day before the order is made; and (b) an order varying such a contract, deed or arrangement in such manner as is specified in the order and, if the court considers it appropriate, declaring the contract, deed or arrangement to have had effect as so varied on and after a specified day before the order is made; and (c) an order refusing to enforce any or all of the terms of such a contract, deed or arrangement; and (d) an order directing the defendant to refund money or return property to the plaintiff; and (e) an order directing the defendant to pay to the plaintiff the amount of loss or damage the plaintiff suffered; and (f) an order directing the defendant, at the defendant's own expense, to supply specified services to the plaintiff." 1. The Defendants contend that: 1. Mr Valerio and Ms Pejkic were seeking a loan for themselves (which was to be in Mr Valerio's name only) and not Creatrix but that Integrated approved a loan to Creatrix in order to avoid the consequences of the Code (and the NCCP Act). 2. The Loan Agreement, whilst it specifies that Creatrix is the borrower, provides that Ms Pejkic and Mr Valerio are not only "guarantors" but also "debtors", and that Ms Pejkic is also a mortgagor, and that thereby, the Loan Agreement is a credit contract to which the Code applies. 3. Mr Cacciola did not tell Mr Valerio and Ms Pejkic (or Creatrix) that if Creatrix was the borrower, the Code would not apply and that the requirements of the Code were not met. 1. There is a factual issue concerning both [16(1)] and [16(3)] above. Integrated contends that the application was made by Creatrix. Mr Valerio and Ms Pejkic claim that the application was made by Mr Valerio. In relation to [16(3)] above, Mr Valerio in his Affidavit (see paragraph 39) claims that Mr Cacciola told him that the loan would have to be made to Creatrix because Mr Valerio did not have enough income to meet the loan. Mr Cacciola in his Affidavit claimed that he told Mr Valerio (at CB 89): "My company only provides loans to other companies for short term periods, which are non-coded facilities. This is to ensure that the company is able to obtain money quickly and be able to proceed for its projects. As such, all funds from the facility are directly transferred into the borrower's bank account. Due to the market we operate in, the interest rates will be higher than the rates offered by a bank." 1. The issue which is encapsulated in [16(2)] raises a number of sub-issues with which I shall deal below. 2. Integrated does not dispute that if the Loan Agreement is a credit contract within the meaning of the Code, it held no licence (and nor did Mr Cacciola) permitting it to enter the Loan Agreement and, on that assumption, that it would have breached the Code and the ASIC ban by arranging the transaction. Integrated asserts, however, that the borrower and also therefore the debtor under the Loan Agreement was Creatrix, and since Creatrix was the borrower and it is a corporation and not a natural person or strata corporation, the Loan Agreement is not a credit contract to which the Code applies. 3. The Defendants accept that under the Loan Agreement, Creatrix is named as the borrower, but they assert that the Loan Agreement is nevertheless one caught by the Code because, by its terms, Ms Pejkic and Mr Valerio were defined as "Debtors" in the Loan Agreement and there was imposed on them obligations which went beyond obligations of a guarantor and mortgagor. The reference to guarantors is important because guarantors are, by the definition in s 204 of the Code, excluded from the definition of "debtor" for the purposes of the Code. The defendants also rely on the express provision in s 13(1) of the Code that where a party in proceedings "claims that a credit contract, mortgage or guarantee is one to which [the] Code applies, it is presumed to be such unless the contrary is established". 4. As I have noted, the Defendants also assert that Integrated engaged in unconscionable conduct within the meaning of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) ("ASIC Act"). There was no dispute by Integrated and Mr Cacciola that they provided financial services to Creatrix, Ms Pejkic and Mr Valerio in connection with the Loan Agreement for the purpose of the ASIC Act. However, they deny any conduct on their part that amounts to unconscionable conduct within the meaning of s 12CB or the general law, which general law is imported into the section by subsection 12CB(4)(a). I shall deal with the "unconscionability claim" separately to the Code issue. Credibility of Witnesses Mr Cacciola 1. I did not find Mr Cacciola to be an impressive witness and there were a number of matters which undermined his credibility: 1. He asserted that financial documents relating to Creatrix were provided to him and that "we went through the company financials to see if it could service the debt if it went into default for two to three months because that's what normally happens on these type of transactions" (see T27.18-20), that he did conduct due diligence (T26.44-47), and that he had information about Creatrix (T28.41-44) but, in fact, he had no financial documents in respect of Creatrix: see T29.34-35, T30.20-40, T31.31 and T36.40. 2. He had asserted that inquiries were made about Creatrix's financial circumstances but then said he could not confirm whether those inquiries actually took place: T32.8. There is no evidence of any inquiries having been made. 3. He asserted, notwithstanding [22(1)], that he assessed that Mr Valerio could meet the loan repayments because his income (inferentially from Creatrix) was stated to be approximately $330,000 per annum (see T30.6-18 and T31.20-27), but at T41.45-48 he said: "The company was - we've always needed someone to be able to service the debt, we don't do loans to people that can't at least pay some of the interest so they don't default, so that's the main reason why we use the companies. If this was a standalone house for a client, we wouldn't do it." 1. He avoided answering the question as to the importance of the value of the land: T32.20-T33.10, T33.40-42. 2. In his Affidavit of 29 March 2021, he sets out a conversation with Mr Valerio in which Mr Valerio asked him why the loan had to be to a company, in which, on his version, he told Mr Valerio that Integrated "only provides loans to other companies for short term periods, which are non-coded facilities": see CB 89. Mr Horobin put to him that the supposed response to Mr Valerio's question was a recent invention designed to deal with Mr Valerio's version of that conversation in his Affidavit in October 2020. Mr Cacciola's explanation for its late inclusion was (at T39.45-47): "No, it's 'cause we'd lost our server, and it didn't have any data." The answer made no sense at all and although Mr Cacciola persisted with it, at T40.42-45, he agreed that he did not need access to a server to respond to Mr Valerio's assertion. The version of the conversation which is found in his Affidavit is inconsistent with paragraph 29(e) of Integrated's Defence to the Cross-Claim and inconsistent with what he agreed had been said at T46.45-T47.2. 1. He was asked questions about the importance of the mortgage and seemed reluctant to provide a direct answer: T47.45-T48.45. 2. He professed ignorance of matters pertaining to the loan (see T27.35-42 and T31.45-T32.11) although he is the only deponent for the Plaintiff/Cross-Defendants. 1. Mr Valerio's version of the conversation on the 12th of February, to which Mr Cacciola was responding, is found at paragraph 39 of Mr Valerio's Affidavit and I will set it out in full: "Mr Cacciola: Hi Cai. I've got a couple of questions for you. Me: OK. Mr Cacciola: How long do you think it will take to finish the project? Is $400K going to be enough? What is the situation with RAMS? Me: Maybe we need $500k? I don't know if Tim told you but at the moment, I'm doing all the work myself. The builder we had walked off the job last October and I still haven't found anyone yet. RAMS won't let us draw down anymore funds until we have got a new builder on board, that's why we need the money. It's probably going to take 3 to 6 months to finish the build. We're going to live in one side of the duplex; when it is subdivided, we will move into 37A and we're selling the other side which is going to be 37B to pay back this loan. We'll concentrate on finishing 37B but, we still need to finish 37A to a certain standard in order to get the Occupation Certificate for the whole duplex before the land can be subdivided. Mr Cacciola: OK. I understand. Thanks Cai. Me: I need the money urgently in order to finish 37B. I have been behind with my payments to RAMS for months, so RAMS arrears are also increasing because I have been working on the build not on my business. Why is the business the borrower? The business has got nothing to do with the duplex. Me and Mili are living in one side with our family and we are selling the other side.to [sic] pay the arrears to RAMS and pay you back. Mr Cacciola: The borrower has to be your company because that is the way that the loan has to be set up. You and Mili cannot service the loan on your incomes we need to put the company as borrower because it is servicing the loan. We need Mlli as the guarantor so that if the company cannot repay the loan; we have the Property as security that we can sell and get the money back." 1. As Mr Horobin conceded, however, there were some admissions in Mr Cacciola's cross-examination which are of some significance and reduced the area of factual dispute: 1. That he knew that neither Integrated nor Credit Solutions could provide credit if that credit constituted credit activities within the meaning of the Code: T26.13-14. 2. That he knew that RAMS had refused to extend further credit to Mr Valerio and Ms Pejkic: T26.49-T27.1. 3. That he knew that NCF had refused to provide funding to the Defendants: T27.3-6. 4. There is the following evidence (at T32.15-24): "Q. You knew at the time that the application was made and the letter of offer was sent, was that the purpose of the loan was to allow Kai and Millie to complete the duplex development on their property, didn't you? A. Yes. Q. And that the reason you were content to offer the loan to Kai and Millie through Creatrix was because you felt that the land was sufficiently valuable that you could realise the loan and any interest if the property was sold, that's correct, isn't it? A. That's correct, yes." 1. The following (at T46.45-T47.2): "Q. So in truth when Kai asked you this on 12 February 2018, "Why is it in the name of the company", you said "The borrower has to be your company because that is the way that the loan has to be set up", didn't you? A. That's correct. Q. You said "You and Millie cannot service the loan on your incomes, we need to put the company as borrower because it is servicing the loan"? A. Correct." 1. I approach Mr Cacciola's evidence with considerable caution unless it involves an admission on behalf of himself and/or his companies. Ms Pejkic 1. Ms Pejkic was not subject to any cross-examination. I therefore accept her evidence. Mr Valerio 1. Mr Valerio was cross-examined. I do not think that he was shown to have been an untruthful witness. He appeared to me overall to be honest in his answers although at times confused as Mr Horobin contended, and there were aspects which I shall detail which induce some caution. Mr Horobin submitted that Mr Valerio failed "to recognise what was being asked of him, or just poor attention to it" (see T109.5-6) on the topic of his conversation with Mr Cacciola on 12 February 2018, which was a topic on which his evidence diverged from that of Mr Cacciola. 2. I take into account that the part of the conversation as put to him by Mr Djurdjevic was not put in the precise terms of Mr Valerio's Affidavit so that literally, his denial of having asked the question in the terms as put to him at T67.31-36 was not inaccurate. Mr Djurdjevic did not explore the discrepancy and did not put to Mr Valerio that his version of the conversation as recorded in his Affidavit was false or incorrect. 3. I should refer to one further factual matter on which Mr Valerio was cross-examined. In support of the application to NCF (to which reference was made in [7] above) Mr Valerio signed a document in which he declared that the purpose of the loan was to "Finish off construction of Duplex Build": see CB 225. On CB 227, as part of that application to NCF, he and Ms Pejkic signed a declaration that "the credit to be provided to the applicant by the credit provider will be applied wholly or predominately for business or investment purposes (or for both purposes)". 4. It was put to Mr Valerio that the purpose of the loan sought from NCF was the same purpose as was sought from Integrated (put at T62.13-21, i.e. to finish off construction of the duplex build) and he agreed that it was to finish the construction of the duplex build: at T62.23-24. It was also put to Mr Valerio that he had signed a document for the application to NCF and that the purpose of the loan from NCF was in truth "predominately for investment purposes other than investment in residential property or business purposes" (see T64) and he said this was not for a business purpose but then said he was not saying that what he had said to NCF was untrue. There was thus an inconsistency in his evidence that was not explored with him and there was no challenge to his evidence to which I refer at the end of [32] below or to Ms Pejkic's evidence that there was no joint venture with Creatrix. I should also note that there were draft minutes which Integrated required Creatrix to complete and sign (and which Mr Valerio did complete and sign) as part of the documentation required by Integrated (see CB 360), which included a statement in the terms detailed at [42(8)] below. 5. Although potentially relevant to Mr Valerio's credibility, these aspects do not assist the Defendants because Mr Cacciola was well aware that the loan was sought by Mr Valerio and Ms Pejkic to enable them to complete the duplex, sell half to repay their debt and keep the other half as their residence and no declaration complying with regulation 68 of the National Consumer Credit Protection Regulations 2010 (Cth) ("NCCP Regulations") was sought or obtained by Integrated from the Defendants. 6. Where the evidence of Mr Valerio differs from that of Mr Cacciola and notwithstanding that fact that Mr Valerio was willing to complete documents that falsely gave the impression that Creatrix had an interest in the duplex development and the matters to which I have referred, I prefer the evidence of Mr Valerio and I am not persuaded that Mr Cacciola told Mr Valerio that the loan would be "non-coded". I am strengthened in this conclusion by Mr Cacciola's concession at T46.45-48 as to the reason he gave Mr Valerio (which was the same as deposed to by Mr Valerio) and in any event, I should note that Integrated and Mr Cacciola in their Defence to the Cross-Claim admitted that they had not told the Defendants that the Code would not apply: see [29(e)] of the Defence to the Cross-Claim. I also find on the basis of Mr Valerio's evidence that he told Mr Cacciola that he needed up to $500,000 to finish the building work and that Creatrix "has got nothing to do with the duplex. Me and Mili are living in one side with our family and we are selling the other side to pay the arrears to RAMS and to pay you back": see CB 70. Was the Loan Agreement a "Credit Contract"? 1. The first issue is whether the Loan Agreement (see CB 307-374) was a credit contract within the meaning of the Code. The borrower named in the Loan Agreement is Creatrix. As it is not an individual, the Code would appear to have no application. The Defendants, however, contend that the Loan Agreement made Mr Valerio and Ms Pejkic "Debtors" and that by the terms of the Loan Agreement, they were "persons liable to pay (or to repay) credit", or alternatively, that Ms Pejkic was such a person. 2. Schedule A to the Loan Agreement (which, for present purposes, is identical to the table found in the Substitute Schedule to the Deed of Variation dated 24 August 2018, which replaces Schedule A: see CB 395-397) contains the following relevant extracts: Borrower(s) Creatrix Web Development & Online Marketing Solutions Pty Ltd ACN 605 255 945 Debtor(s) Creatrix Web Development & Online Marketing Solutions Pty Ltd ACN 605 255 945, Cai Valerio and Milijana Pejkic Guarantor Cai Valerio and Milijana Pejkic Mortgagor(s) Means the Debtor(s) 1. The following definitions are found in the Loan Agreement: "1.1 Definitions In the Mortgage, unless the context otherwise requires: … "Borrower" means the person named in Schedule A as the borrower; … "Debtor" means the Borrower and/or the Mortgagor as the case may be: (a) where the Borrower and the Mortgagor are the same person the expression means both the Borrower and the Mortgagor; (b) when the Borrower and the Mortgagor consists of more than one person, the liability of those persons under this Guarantee shall be joint and several; … "Guarantor" means the Person or Persons named in Schedule A as the guarantor and being the Person that has provided a Guarantee to the Lender; … "Mortgagor" means the person named in Schedule A as the Mortgagor; … "Principal Amount" means the amount stipulated in Schedule A as the principal amount advanced by the Lender to the Debtor, the repayment of which is secured by this Mortgage and, if no amount is specified in Schedule A as the "Principal Amount", that expression shall mean any amount advanced by the Lender to the Debtor, or to any other person at the Debtor's direction, on any transaction or any amount advanced, whether directly or indirectly associated with the grant of this Mortgage; … "Secured Money" means the aggregate of all monies which the Debtor is, or at any time may become, actually or contingently liable to pay to the Lender for any reason or on any account whatsoever and includes, without limitation: (a) the Principal Amount; (b) any Interest; (c) any Outstanding Interest; (d) any Fees; (e) any Costs and Expenses; (f) any money paid by the Lender to any other Person as a result of the exercise by it of any right or power under this Mortgage including but not limited to any amount paid in accordance with clauses 4.7, 6.3 and 18.3(h); (g) any amount the Debtor has agreed to meet or pay in accordance with clause 7.2(b); (h) any money deemed by the Lender, on reasonable grounds, as necessary for it to retain so as to provide: (i) adequate security for the Lender's rights to be indemnified in accordance with the provisions of this Mortgage; or (ii) for the Lender's Legal Fees in connection with the enforcement of any indemnity under this Mortgage; and (i) any money due to the Lender as a result of the operation of the indemnities in clause 23." 1. The following definitions of the Deed of Variation, which are found in a table at clause 1.1 of that document, are also relevant: Lender Integrated Securities No 3 Pty Ltd ACN 601 689 810 Each of the following: Debtor (a) Borrower; (b) Mortgagor; and (c) Guarantor. Borrower Creatrix Web Developments & Online Marketing Solutions Pty Ltd ACN 605 225 945 Mortgagor Milijana Pejkic Guarantor Milijana Pejkic & Cai Valerio 1. It will be observed that Schedule A (set out at [34] above) refers to Mr Valerio, Ms Pejkic and Creatrix as "Debtor(s)", but unlike "Borrower", "Debtor" is not, in the body of the Loan Agreement, defined by reference to the Schedule. 2. "Debtor" is defined in clause 1.1 of the Loan Agreement as "the Borrower and/or the Mortgagor as the case may be…". Thus, the "Debtor", at least pursuant to clause 1.1 of the Loan Agreement, does not include a "Guarantor". 3. The following clause is of critical importance: "3. Debtor's covenants to pay and perform Obligations 3.1 The Debtor covenants that the Debtor: (a) shall pay the Secured Money (or any part thereof) to the Lender: (i) in accordance with the terms of this Mortgage and by the end of the Term; or (ii) if no time for payment is specified, immediately on demand by the Lender; and (b) shall perform, observe and comply with all of the Obligations at all times and at its own cost." 1. The following clauses are also of potential relevance: "4. Nature of this Mortgage 4.1 This Mortgage is a deed and the Debtor acknowledges that: (a) this Mortgage has been executed as a deed; and (b) it shall not contend: (i) in any court of law; (ii) in any tribunal; or (iii) to any Government Authority - that this Mortgage is not a deed or that it has not been executed as a deed. 4.2 The Lender's rights under this Mortgage and all of the obligations shall continue until the Lender provides a discharge of this Mortgage. 4.3 Even if the Lender provides a discharge of this Mortgage the Lender's rights under the Mortgage continue until the Lender gives the Debtor an unconditional release in writing from the Obligations including the Indemnities. … 8. Debtor's Representations and Warranties 8.1 The Debtor warrants, covenants and represents to the Lender that the matters in clauses 8.2 to 8.27 below are true and correct, and as appropriate, will remain true and correct at all times until: (a) the payment in full of the Secured Money; (b) the discharge of this Mortgage: or (c) the discharge and release of the Debtor by the Lender as to its Obligations under this Mortgage – whichever is the later event. … 28. The Guarantee 28.1 The provisions of this clause 28 apply when a person executes this Memorandum as a Guarantor. 28.2 The Guarantor hereby covenants, represents and acknowledges to the Lender that each of the matters in clause 28.3 below, are true and correct, and, as appropriate, will remain true and correct at all times until: (a) the payment in full of the Secured Money to the Lender; (b) the discharge of this Mortgage; or (c) the discharge and release of the Debtor by the Lender as to its Obligations to the Lender – whichever of the events in paragraphs (a) to (c) above is the later. 28.3 The Guarantor (a) enters into this Guarantee because it has a desire that the Lender advance the Principal Amount to the Borrower, under this Mortgage; … 28.5 The Guarantor agrees to guarantee to the Lender and indemnify the Lender as to: (a) the payment by the Debtor of the Secured Money (or any part thereof) in accordance with the terms of this Mortgage; (b) the performance and compliance by the Debtor with all of the Obligations. 28.6 The Guarantor agrees that if the Debtor fails, refuses or neglects to: (a) pay the Secured Money (or any part thereof) to the Lender; or (b) meet any of the Obligations – the Lender may demand that the Guarantor pay to the Lender: (i) the amount that the Debtor fails to pay to the Lender; and/or (ii) any amount that will result in the Lender being fully Indemnified for the Debtor's failure to meet any of the Obligations." 1. As a commercial document, the Loan Agreement must be given "a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'" and one that avoids "it 'making commercial nonsense or working commercial inconvenience'": see Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640 at [35] per French CJ, Hayne, Crennan and Kiefel JJ (as her Honour then was) ("Electricity Generation"), quoting Re Golden Key Ltd [2009] EWCA Civ 636 at [28] per Arden LJ ("Re Golden Key") and Zhu v Treasurer (NSW) (2004) 218 CLR 530 at [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ ("Zhu"). 2. I note the following matters: 1. There is, in this case, unlike Electricity Generation, Re Golden Key and Zhu, an important additional element to be taken into account; namely, the statutory presumption that is mandated by s 13(1) of the Code – i.e. that the credit contract is one to which the Code applies "unless the contrary is established". 2. Although a declaration of the kind referred to in s 13(2) of the Code introduces its own presumption in relation to the purpose for which credit is provided or intended to be provided, any such declaration is required to be in the form specified by regulation 68 of the NCCP Regulations, which form includes a warning in the terms specified (an example of which is found in the NCF form at CB 241): see regulation 68 of the NCCP Regulations. Integrated did not assert that it had obtained a declaration compliant with s 13(2) and it did not advance any argument based on s 13(2) of the Code. 3. The consequence of [42(1)] and [42(2)] is that Integrated bears the onus of persuading the Court that the Loan Agreement is not a credit contract to which the Code applies: see Ozzy Loans Pty Ltd v New Concept Pty Ltd & Zhong [2012] NSWSC 814 at [39]-[41] per S G Campbell J; see also Bahadori v Permanent Mortgages Pty Ltd (2008) 72 NSWLR 44 [183] ("Bahadori") per Tobias JA (with whom Giles and Campbell JJA agreed) viz-a-viz the Consumer Credit Code (NSW) ("Consumer Credit Code"), and this includes the presumption that the credit to which the contract relates was intended to be provided was for a purpose specified in s 6(1)(b) of that Code: see Bahadori at [183]. 4. Normally, when money is lent by a lender, the party to whom the money is lent – the borrower – is the person (or entity) with the primary obligation to repay the debt. The guarantor, if there is one, has only a secondary obligation to pay the debt if the borrower defaults and the mortgagor provides security that can be called on if the debt is not repaid. If the property to be given as security is owned by the borrower or the guarantor, then the borrower and guarantor may incur two different species of obligations. 5. Whilst a borrower can give a mortgage in support of a loan (and often does) there can be no sense in which a borrower can be both a debtor and a guarantor of the same debt. Indeed, the very nature of a guarantee, subject of course to the specific terms of the contract of guarantee, is that one person or entity has agreed to answer for the debt or default of a third party who is, or will become, liable to the person to whom the guarantee has been proffered. In Jowitt v Callaghan (1938) 38 SR (NSW) 512 ("Jowitt"), Jordan CJ appositely explained the nature of a guarantee thus (at 516-7): "A contract of guarantee or suretyship is a contract between two persons which is intended by them to secure the performance of the obligation of a third person to one of them. The existence, present or future, of the obligation of a third person, and an intention in the parties to the contract to secure the performance of that obligation, are essential features of a contract of guarantee." 1. The provisions of the Loan Agreement which the Court is called on to construe in this case are found in a document entitled "Mortgage Common Provisions" prepared by Summer Lawyers, the solicitors for Integrated. These common provisions, referred to as "MCP", have been considered in a number of cases and it appears that the terms of the Loan Agreement in this case are identical or very similar to the MCP considered in some of those other cases. I shall make reference to those other decisions below, but it should be noted that in some of those cases, the presumption to which I have referred has not been relied on, and the arguments put by those resisting lenders' claims include arguments that are not raised here. In two of those cases, Winau Aust Pty Ltd & Ors v LCC Property Development Pty Limited & Ors [2020] NSWSC 434 ("Winau") and Nicola Properties Pty Ltd v Vie De L'eau Pty Ltd [2020] VSC 728 ("Nicola Properties"), the Code, or an earlier version of it, did not feature at all. 2. The purpose of this loan, according to Mr Cacciola's and Mr Valerio's (and Ms Pejkic's) evidence, was to enable Mr Valerio and Ms Pejkic to complete the duplex construction and, Mr Valerio accepted, to sell one half of the duplex to pay off the debt owed to RAMS. 3. There is in evidence a minute of meeting and resolution of directors of Creatrix (at CB 360) in which the directors of Creatrix state that: "The reason why the Borrower has sought the advance from the Lender is: joint venture with Milijana Pejkic for profit of development of 37 Attunga Road Yowie Bay." There was no joint venture with Ms Pejkic for profit of development of the Property (see Ms Pejkic's Affidavit at [19]) and Mr Valerio told Mr Cacciola in his conversation of 12 February 2018 that Creatrix had nothing to do with the duplex. 1. By clause 3.1, "the Debtor" covenanted to "pay the Secured Money… to the Lender in accordance with the terms of this Mortgage" and to pay any amount due to be paid under this Mortgage. Secured Money is the "aggregate of all monies which the Debtor is, or at any time may become, actually or contingently liable to pay to the Lender": clause 1.1 of the Loan Agreement. 2. Thus, the Debtor is obliged, by clause 3.1 of the Loan Agreement, to pay monies due under the terms of "this Mortgage". It will be observed that neither the definition of Secured Money nor the person on whom the obligations to pay imposed by clause 3.1 is expressly stated to be "the Borrower". 3. On the application form (see CB 252) Mr Valerio is shown as the applicant (and see CB 258) and on CB 259 he is shown as the "Borrower". The document at CB 256 filled out for Creatrix by Mr Valerio does have filled in "01" next to the question "which applicant are you" but "01" is also used on documents for Mr Valerio: see CB 254, 257, 258. 4. Most of the documents annexed to or signed at the same time as the Loan Agreement, other than Schedule A, only refer to Creatrix as the "Debtor" (see, eg, CB 353, 355, 356, 359) but CB 366 and 367 describes Mr Valerio as "Debtor" and CB 372 and 373 similarly describe Ms Pejkic as "Debtor". 1. The Court is required to determine: 1. whether Mr Valerio and Ms Pejkic are "Debtors" under the Loan Agreement for the purpose of clause 3.1; and 2. whether, if the answer to (1) is yes, the consequence is that the Loan Agreement is a credit contract to which the Code applies in respect of Mr Valerio and Ms Pejkic. 1. I note that I have received helpful written submissions from Mr Djurdjevic (Plaintiff's Closing Submissions, which I shall refer to as "PCS") and from Mr Horobin (Defendants' Closing Submissions, which I shall refer to as "DCS"), both supplemented by oral submissions. 2. In relation to the definition of Debtor referred to in [35], the words "and/or" and "as the case may be" have been utilised. These are words that have been the subject of previous consideration in various cases, including in KRM (Vic) Pty Ltd v Classicbet Pty Ltd [2019] NSWSC 1773 ("KRM (Vic) v Classicbet") and the Court of Appeal's decision in Kay v KRM (Vic) Pty Ltd; Classic Bet (NSW) Pty Ltd v Kay & Ors [2020] NSWCA 92. I received helpful additional written submissions from both Mr Djurdjevic and Mr Horobin in relation to these cases, but I do not think that it is necessary to devote time to that issue because the two alternative cases for "Debtor" within the Loan Agreement are set out within the definition of that term. The first case clearly does not apply because the Borrower and the Mortgagor are not the same person. The second case appears not to proffer a definition, so much as an indication that the obligations of the Guarantors are to be joint and several. Mr Djurdjevic in the PCS (at paragraph 76) accepted that neither sub paragraph of the definition was relevant here. 3. It follows, in my view, that the definition within clause 1.1 provides no assistance in determining to whom the word "Debtor" is intended to refer whenever it appears in the Loan Agreement. Schedule A does provide a definition of "Debtor(s)" and it does not include the phrases "and/or" or "as the case may be", nor is it qualified by "unless the context otherwise requires". 4. Clause 3 of the Loan Agreement imposes on the "Debtor" a primary obligation to pay the Secured Money. Integrated contends that in clause 3, the "Debtor" should be read as imposing an obligation only on the Borrower, Creatrix, principally because, in effect, it ought to be assumed that only the Borrower would ever be liable to repay the debt and this, it was contended, is supported by an examination of clauses 1.1 and 28 of the Loan Agreement. Integrated does refer to authority which appears to provide support for that approach, and I will deal with those cases below. 5. There have been several cases in which wording identical or very similar to that used in the Loan Agreement has been considered. In Winau, Kunc J had to consider whether mortgages given to lenders were effective to enable the lenders to sell the properties the subject of the mortgages. A person purporting to act as a director of the mortgagor (a Mr Chan) had applied for a $4,000,000 loan and had the proceeds paid into an account that he controlled. The registered owner of the property (183 Eastwood Pty Ltd) had no involvement or knowledge of Mr Chan's activities. Kunc J held that as the monies advanced had not in fact been advanced to 183 Eastwood Pty Ltd ("Eastwood"), the mortgages, although effective by virtue of registration, did not secure those monies. One of the grounds advanced by the mortgagees was that the Loan Agreement named Mr Chan as guarantor and was signed by him as guarantor, and that the definition of debtor included Mr Chan. Since he had received the funds, it was contended he was liable to repay them and the mortgage covered that liability even though the named mortgagor was not, in truth, a party to the Loan Agreement. 6. Kunc J noted that the words "in the Mortgage, unless the context otherwise requires" are "generally to be understood as a strong contractual indication that the definition is to be applied in almost all circumstances": Winau at [127], citing Sir K Lewison, D Hughes "The Interpretation of Contracts in Australia", Law Book Co, 2012, 199-200. His Honour pointed out that "the collocation of 'and/or' and 'as the case may be' makes it clear that what 'Debtor' means in any particular clause of the mortgage depends upon its context… [the] meaning is 'X or Y or both'": Winau at [128], quoting Edmund-Jones Pty Ltd v Australian Women's Hockey Association Inc [1999] NSWSC 1014 at [211]-[214] per Santow J. His Honour held that neither of the subparagraphs (a) or (b) were relevant to the case before him because the borrower and the mortgagor were not the same person and (b) did not apply because Mr Chan was the only guarantor. It will be observed that in Winau, Schedule A described as the "Debtor" the company and Mr Chan. Schedule A defined "Mortgagor(s)" to be the Company and Mr Chan: see Winau at [79]. 7. Having concluded that the definition of "Debtor" in clause 1 was irrelevant, Kunc J then went on to consider which of the three possible meanings of "Debtor" could be derived from the context, i.e.: the company, Mr Chan or both the company and Mr Chan. His Honour rejected Mr Chan as the "Debtor" saying (at [132]): "All of the evidence points to only one conclusion in that regard, being that the Mortgages are intended to give effect to an entirely familiar and unremarkable transaction: a loan by a lender to a borrower company secured by, first, mortgages over the company's land, and, second, a guarantee by the company's (purported) director." His Honour regarded cl 28.3 of the loan agreement, which dealt with the guarantee, as confirming that approach. 1. Although Kunc J regarded the definition contained in clause 1.1 as having no application to the case before him, his Honour still regarded the words "unless the context otherwise requires" and "and/or… as the case may be" as having significance, and at [126]-[128] and [131]-[132], he appears to have taken the view that Schedule A had little or no significance in determining to whom it was intended "Debtor" referred. 2. The mortgagees appealed and the Court of Appeal's decision is reported as Ippin Textiles Pty Ltd v Winau Aust Pty Ltd [2021] NSWCA 9 ("Ippin"). The principal judgment is that of Macfarlan JA with whom Leeming and Brereton JJA concurred, Leeming JA elaborating on one aspect of the appeal. 3. On the appeal, the Court became aware of a fact which was "not immediately apparent from the appeal books or the reasons of the primary judge"; namely, that the unredacted form of Schedule A (on which Kunc J was, in part, basing his views) had not been registered (see [11]-[14] per Macfarlan JA and [55]-[59] per Leeming JA) and the redacted form of Schedule A, which had been registered, had relevant definitions that were different to those in the unredacted form. Given that the mortgage was a forgery, which only obtained force because of the indefeasibility provisions of the Real Property Act 1900 (NSW), the Court of Appeal rejected the position that the mortgagees could rely on the unredacted unregistered form of Schedule A – indeed, the MCP had a special condition which specifically provided that if the unredacted form of Schedule A was void, voidable or unenforceable for any reason, then "this Redacted Schedule A replaces Schedule A": see Ippin at [13] per Macfarlan JA. Macfarlan JA said (at [30]-[32]): "30. Moreover, again contrary to the Mortgagees' submissions, it does not avail the Mortgagees that WBC was arguably Mr Chan's agent to receive the money from them or that it can be inferred that, via the bank account, the money was in fact received by Mr Chan. The Mortgagees contended that the mortgage secured not only liabilities of the third respondent, but any liabilities of Mr Chan to the Mortgagees. Although, as they correctly submitted, Mr Chan is liable to reimburse to the Mortgagees the money he obtained from them by fraud, the Mortgagees' contention cannot be sustained if attention is confined, as it must be, to the registered mortgage and the unredacted, unregistered Schedule A is disregarded. The provisions referred to in [17] above, as expanded by the definitions of various terms used in them, refer variously to liabilities of the "Debtor" and the "Borrower". The "Debtor" definition refers to the Borrower "and/or" the Mortgagor. Taking into account only the redacted form of Schedule A, which identified the Mortgagor as the third respondent, each of these terms refers to the third respondent, and not to anyone else such as Mr Chan. 31. The Mortgagees however relied on the unredacted, unregistered Schedule A to argue for a different result. In that document, "Debtor(s)" is defined to include both the third respondent and Mr Chan. Moreover, the execution clause on that document describes Mr Chan as the "Debtor" and "Mortgagor", as well as the "Guarantor". 32. The unredacted Schedule A did not however form part of the contract between the Mortgagees and the third respondent which was given efficacy by the mortgage's registration. Even if the registered mortgage could properly be regarded as embracing an unregistered document incorporated by reference, the Mortgagees' submissions would still not succeed as the "Special Condition" quoted at [13] above, contained in the registered Schedule A (see [11] above), specifically excludes the unredacted Schedule A from the ambit of the mortgage in circumstances such as occurred. It indicates that the redacted version of Schedule A is to be treated as Schedule A to the mortgage if the unredacted version of Schedule A (referred to simply as "Schedule A") was for any reason "wholly or partly void, voidable or unenforceable". Consistently with my conclusions above, the unredacted Schedule A was void because the "Borrower/Debtor/Mortgagor" identified in it and by whom it was purported to be executed (that is, the third respondent), gave no authority to Mr Chan to execute it on its behalf." 1. After discussing the authorities, his Honour said (at [45]): "It is correct, as I have said, that by reason of registration of the mortgage the Mortgagees held an interest by way of security in the Lands, notwithstanding that the mortgage was procured by fraud. The critical question in the present case, as stated in the Separate Question, is however what, if anything, is secured under that mortgage. The advance that it was intended to secure not having been made, and no other liability of the third respondent to the Mortgagees having been proved, it secures nothing." 1. Leeming JA said (at [77]): "I return then to the remaining questions of construction. They resolve to this: does the estate or interest enjoyed by the Mortgagees by reason of statute extend to Mr Chan's personal liability to repay, at law or in equity, the stolen funds? The "Secured Money" was defined in the memorandum of common provisions to mean "the aggregate of all monies which the Debtor is, or at any time may become, actually or contingently liable to pay to the Lender for any reason or on any account whatsoever". Those words prima facie extend to the Debtor's personal liability at common law and in equity. They were given greater prominence in the Mortgagees' submissions supplied after the appeal was heard. But the memorandum of common provisions defined the "Debtor" as, relevantly, the "Borrower", which was "the Person named in schedule A as the Borrower". The only way in which Mr Chan entered the picture was through Unredacted Schedule A, and that document is not available. Redacted Schedule A named 183 Eastwood as the Borrower, but that company owed nothing to the Mortgagees." 1. The Court of Appeal concluded, therefore, that there were no monies owing by Eastwood under the mortgage and that the mortgage did not, in terms, secure any debt of Mr Chan, with the consequence that the appeal should be dismissed. 2. It will be observed that in Ippin the Court regarded the only relevant definitions as those in the redacted Schedule A and there the mortgagor was defined as Eastwood, the debtor was defined as Eastwood, the borrower was defined as Eastwood and the guarantor was defined as Mr Chan. This was in contrast to the unredacted Schedule A where "the Debtor" was defined as Eastwood and Mr Chan, and the execution page showed Mr Chan as "the Guarantor/Debtor/Mortgagor". 3. The Court of Appeal approached the matter on the basis that because the definition of Debtor in the redacted Schedule A did not include anyone other than Eastwood, there was no scope for "debtor" having a wider meaning than Eastwood. The Court of Appeal expressed no view on whether or not Kunc J's interpretation of the MCP, including the unredacted Schedule A, was correct, but clearly the Court regarded the contents of the redacted Schedule to have considerable importance. 4. The circumstances of the present case are quite different to those in Winau which his Honour described as involving "an entirely familiar and unremarkable transaction": Winau at [132] per Kunc J. In Winau, what was falsely presented by Mr Chan was a proposed loan to a corporate borrower which owned properties over which it was prepared to grant a mortgage, and which was to be guaranteed by a director of the company. There was no suggestion, on what Mr Chan had presented to the lenders, that the real purpose of the loan was for his own purposes. 5. In the present case: 1. Ms Pejkic owned the land and lives there with Mr Valerio – they wanted, by the time of the application to Integrated, to complete the construction of the duplex that had been commenced, sell half to pay off a significant proportion of the debt to RAMS they had incurred and retain and reside in the other half. 2. Creatrix, which was not proposed by Mr Valerio to be the borrower, had no involvement whatsoever in the project and did not have any interest in the Property or its development. 3. The only statement of assets and liabilities provided with the application submitted to Credit Solutions were those of Mr Valerio and Ms Pejkic. No financial documents of any kind relating to Creatrix were provided to or sought by Integrated or Credit Solutions in order to approve the application and none were sought after approval. 4. It is quite surprising that a loan would be made to a corporate borrower without any investigation of its financial position and even more so when it did not own the property that was the subject of the work to be done and security to be provided. 5. On the pleadings, Integrated and Mr Cacciola have accepted that they did not obtain any information regarding Creatrix's "ability to service" the loans: see paragraph 44(a) of the Cross-Claim and paragraph 29(a) of the Defence to the Cross-Claim. 6. There was no obvious reason for Creatrix to be involved in the transaction at all other than as a means of Integrated lending in a fashion that would preclude the operation of the Code, and I infer that was the reason for the decision by Integrated to lend to Creatrix rather than Mr Valerio and Ms Pejkic. Mr Cacciola did seek to explain the requirement that Creatrix be involved was because the inference to be drawn from Mr Valerio's statement of assets and liabilities was that he was drawing the stated income from the company (see T34 and T46.45-T47.3) but it is difficult to accept that was the reason for requiring Creatrix to be the borrower when it was asserted to Mr Valerio that Mr Valerio and Ms Pejkic could not service the loan from their incomes and yet no information about Creatrix's financial position was obtained or sought by Integrated. 7. Integrated and Credit Solutions were aware that Mr Valerio's application for further funds to complete the construction had been rejected by RAMS and NCF: see T26.49-T27.01 and T27.03-T27.06. 8. Integrated and Credit Solutions carried out no due diligence other than viewing valuation reports (T29.34-35, T30.10-T33.48), and the only one in evidence is that provided by the Defendants showing a prospective valuation on completion of the duplex of $3,700,000. 1. The present transaction was not, in my view, "an entirely familiar and unremarkable transaction" to use Kunc J's words in Winau and I, therefore, would not regard Kunc J's conclusion in that case as relevant to the present case. 2. Another point of distinction is that in the present case, unlike Winau, the Defendants have pleaded that the Code applies thus enlivening the presumption that the Code applies. That is not a matter that Kunc J (or the Court of Appeal) was called upon to consider. 3. In Jams 2 Pty Ltd v Stubbings (No 3) [2019] VSC 150 ("Jams 2 v Stubbings"), Mr Stubbings needed finance in connection with the purchase of land. Jams 2 Pty Ltd ("Jams 2"), the lender, would only lend to companies as it wished to avoid the application of the Code: see Jams 2 v Stubbings at [10]. A shell company, Victorian Boat Clinic Pty Ltd ("VBC"), was established with Mr Stubbings as its sole shareholder and director. VBC had no assets and no income. The loan was arranged through an intermediary and an accountant was retained to advise Mr Stubbings on the loan (at the institution of Jams 2). The loan contract had terms that were identical or similar to those in question here. 4. Jams 2 sued Mr Stubbings on the loan debt and pursuant to the mortgages given over the properties involved in the transaction. The trial judge, Robson J, held that the Code did not apply to the transaction but found that Jams 2 had engaged in unconscionable conduct in large measure because the loan transaction was very improvident from Mr Stubbings point of view and he was a person with limited education, no acumen and the lender had, through its agent, made sure that it was not aware of the details of Mr Stubbings' situation and the uncommerciality of the transaction. Robson J said (at [16]): "In reality there were no circumstances in which the plan could work. VBC had no assets at all. It was a mere shell. Under the loans arranged with AJ Lawyers, VBC was contractually prevented from repaying the loans for a period of six months. Further, after commissions and expenses, paying off the CBA and financing the purchase of the Fingal property, only about $6,000 was left. This was insufficient to do renovations or pay interest as had been planned." 1. His Honour rejected claims against the intermediary based on alleged misleading and deceptive conduct and upheld the claim against the accountant. The lender appealed in relation to the unconscionability finding. There was no cross-appeal to the Victorian Court of Appeal by Mr Stubbings. The Victorian Court of Appeal set aside the judgment against the lender. Special leave to appeal has been granted to Mr Stubbings by the High Court: see Stubbings v Jams 2 Pty Ltd [2021] HCATrans 23. 2. On the issue of whether or not the Code applied: 1. Robson J considers this at [226]-[246]. At [232], his Honour said: "There is no doubt, however, that the loan was made to VBC and that the mortgage was given solely as security for the guarantee provided by Mr Stubbings. There is no suggestion that the loan was a sham and was in fact made to Mr Stubbings. All but approximately $6,000 of the loan moneys were expended to or for the benefit of Mr Stubbings in the purchase of the Fingal property and the discharge of the loans he owed to the CBA." 1. Mr Stubbings had signed an acknowledgement that the loan and mortgage were not provided for a Code purpose. 2. A deed of 30 September 2015 contained covenants and an agreement that the purpose of the loan was "not for personal, domestic or household purposes" and not "to purchase, renovate, or improve the residential property for investment purposes": see [243]. 3. His Honour noted the reliance of the lender on Equititrust Ltd v SLJM [2010] NSWSC 1059 ("Equititrust"), in which Gzell J had held that guarantors of a loan to a corporation were not debtors within the meaning of the Consumer Credit Code. 4. His Honour concluded (at [245]-[246]): "245. As stated above, the mortgage provides that it also operated as a loan agreement between the plaintiffs and Mr Stubbings. In my opinion, when construed in the light of the other loan and security documents executed as part of the package of loan documents, it is, and would be construed as no more than a guarantee. In my opinion, the mortgage given by Mr Stubbings is not governed by the Code. 246. I find that the guarantee and mortgage given as security by Mr Stubbings were not governed by the Code." 1. It appears that there was no reliance on the presumption required by s 13(1) of the Code and since Mr Stubbings had signed an acknowledgement that the loan and mortgage were not provided for a Code purpose that provides an explanation why that was so. Robson J's conclusion at [66(5)] above was that although the mortgage provided that it also operated as a loan agreement between the plaintiffs and Mr Stubbings, taken with other documents, it should be construed as a guarantee. 2. On the issue of unconscionability, his Honour made reference to Perpetual Trustees Australia Ltd v Schmidt [2010] VSC 67, Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, Director of Consumer Affairs (Vic) v Scully (No 3) [2012] VSC 444 and the issue of "asset-based" lending – i.e. lending that is not based on the ability of the borrower to repay without recourse to the security provided. 3. In Commercial Funds Pty Ltd v Fraval [2020] VCC 1787 ("Commercial Funds"), Judge Woodward was concerned with an application by the lender seeking to strike out the mortgagor/guarantor's defence and cross-claim and had to consider a transaction in which terms identical or very similar to those in question here were utilised by a lender who, like Integrated, was not prepared to lend to an individual as borrower but only a corporate entity, Rofin Australia Consortium Pty Ltd ("Rofin"). Mr Fraval was the sole director and secretary of Rofin. Mr and Mrs Fraval owned a property in Warrandyte South that had become Mrs Fraval's sole domestic residence since 2009. 4. Mr Fraval was the applicant for a loan of $325,000 for a two-month term. The stated purpose of the loan was to "[p]urchase [a] hotel": at [14]. A letter of offer was sent naming Rofin as the borrower and Mr and Mrs Fraval as "Guarantor/Mortgagor". The total amount loaned was $378,000 (the increase accommodated a loan establishment fee and prepaid interest, with a 4% per month rate and 10% per month default rate). A broking firm, Arbitrans Accounting, was the intermediary. 5. A solicitor was retained by Mrs Fraval to advise and provide a certificate or advice in relation to the transaction. Mr Fraval and Rofin had a separate solicitor for the same purpose. There were many documents executed by Mr and Mrs Fraval and Rofin. His Honour noted that, importantly, the MCP schedule provided that the "Borrower" was Rofin, "Guarantor 1" was Mr Fraval, "Guarantor 2" was Mrs Fraval and "Mortgagor(s)" was "Borrowers and Guarantor(s)": see Commercial Funds at [26]. His Honour then said, at [27]: "Thus, there can be no doubt that Rofin is the "Borrower" and Mrs Fraval is a "Guarantor", within the meaning of those terms as defined in the MCP. Further, each of Rofin and Mrs Fraval is a "Mortgagor" under those definitions." 1. Mrs Fraval's resistance to the lender's claim was based on three matters: 1. that the loan agreement was a credit contract within the meaning of the Code and unenforceable because the annual percentage rate was in excess of 48% per annum; 2. the loan agreement was unconscionable; and 3. provision for interest at 10% per month constituted a penalty. 1. I will focus on the first issue at present – the second issue is very much fact dependent and the third issue has not been advanced in the present case. 2. Turning to the reasoning in Commercial Funding, and acknowledging its detail and depth, I will draw out some key features of his Honour's approach: 1. his Honour accepted "that primary liability for the repayment of the loan and interest" was imposed not only on the "Borrower" as defined in the MCP, but also on the "Guarantors" as defined in the MCP: see Commercial Funds at [42]. 2. However, adopting the composite definition of "Debtor" in the MCP does not, by itself, constitute Mrs Fraval as a "debtor" for the purposes of the Code: see Commercial Funds at [43]. 3. His Honour thought that the difference between the loans in Devon v Thirteenth Kaysan Pty Ltd [2016] FCA 357 ("Devon v Thirteenth Kaysan"), Jams 2 v Stubbings and Equititrust were "more apparent than real": Commercial Funds at [60]. At [61]-[62], his Honour said: "61. The suite of documents executed by Rofin and Mr and Mrs Fraval in this case are pro-forma documents structured to cover a range of different lending arrangements. In some cases, there will be a single borrower and mortgagor, and in others (such as the present) there will be a borrower, who is also a mortgagor, and other security providers. The documents are structured so that those other security providers are made liable as guarantors for the borrower, with their mortgage supporting the guarantee. 62. This is no more apparent than from the definition of "Debtor" in the MCP itself, where it provides (emphasis added) that "Debtor" means "the Borrower and/or Mortgagor as the case may be: 'where the Borrower and the Mortgagor are the same person the expression means both the Borrower and the Mortgagor'; 'where the Borrower and the Mortgagor consists of more than one person, the liability of those persons under this Guarantee shall be joint and several'." (emphasis in original) 1. At [63], his Honour continued: "More fundamentally, however, the suite of documents clearly recognise that there is a "Borrower", a "Guarantor" and a "Mortgagor", all as defined in the MCP. And there can be no doubt having regard to the clear terms of MCP Schedule A, that the "Borrower" is Rofin, that Mr and Mrs Fraval are each a "Guarantor" and that all three are also a "Mortgagor". In my view, the definition of "Debtor" (and the obligations imposed under the MCP by the use of that defined term) does not alter the status of Mrs Fraval as a "Guarantor" and "Morgagor" [sic] – the terms are not mutually exclusive. On the contrary, as explained above, "Debtor" is clearly a composite definition designed to ensure that the payment obligations imposed on all parties to the MCP, operate as a primary liability." (emphasis added) 1. As Judge Woodward noted, in Jams 2 v Stubbings, there was no analysis of whether a person who is a guarantor can also be described as a person who "incurs a deferred debt to another" within the meaning of s 3(1)(b) of the Code. Judge Woodward did point out that Robson J in Jams 2 v Stubbings "appeared to assume that once the immediate recipient of the loan funds was shown to be neither a natural person nor a strata corporation, the Code was excluded by reason of s5(1)(a) of the Code": Commercial Funds at [65]. 2. Judge Woodward accepted that the nature of the primary liability created under the MCP by operation of the definition of "Debtor" in the MCP was more comprehensive than under the documents in Jams 2 v Stubbings. 3. His Honour thought the issues identified in [74(5)] and [74(6)] above would preclude summary dismissal, but he then saw as critical the definition of debtor in s 204 of the Code and the fact that the purpose of the loan was not a purpose within the meaning of s 5(1)(b) of the Code. This was because the loan was to assist Rofin to buy the Lake Bolac Hotel business, which was not a purpose caught by the Code: Commercial Funds at [96]. If that is the ratio of the case, then there is no reason to doubt its correctness. 4. His Honour held that Mrs Fraval was not a debtor within the meaning of s 204 of the Code. He examined the four arguments advanced on behalf of Mrs Fraval to assert that she was. His Honour rejected all four arguments. The first argument advanced is not relevant here. 5. The second argument was that clause 28.5 (which provided that the Guarantor agreed to guarantee and indemnify the payment by the "Debtor" of the "Secured Money", and the performance and compliance by the "Debtor" with all of the obligations under the MCP) should be disregarded because Mrs Fraval was not only a guarantor, but was also defined as a "Debtor". Mrs Fraval contended that because of this and reliance on clause 28.19 indicated that clause 28 was not intended to apply to her with the consequence that she was not a "Guarantor" under the MCP or for the purposes of "debtor" in s 204 of the Code. His Honour rejected that argument relying on general principles of construction and said (at [76]): "I am satisfied that clause 28.5 should be construed as providing that each "Guarantor" guarantees the obligations of each other, "Debtor" which, in this case, is Rofin as a Borrower and Mortgagor and Mrs Fraval as a Mortgagor. Beginning with the designation of Mrs Fraval as "Guarantor 2" in MCP Schedule A, the entire scheme of the Warrandyte Mortgage (incorporating, among other things, the MCP and MCP Schedule A) is to constitute Mr and Mrs Fraval as guarantors of Rofin's liabilities. To read clause 28 as not applying to Mrs Fraval simply because she is encompassed within the composite definition of "Debtor", flies in the face of that scheme and produces commercial nonsense when regard is had to the Warrandyte Mortgage as a whole." 1. The third argument was that s 209(2) and s 3 of the Code, together, displace the definition of debtor in s 204. His Honour rejected this argument because it assumes that the legislature intended to set up two alternative (and inconsistent) definitions. His Honour held that "debtor" "for the purposes of the Code is a person who incurs a deferred debt other than in their capacity as a guarantor": see Commercial Funds v Fraval [80]. At [80] his Honour said: "80. To my mind, the term 'debtor' as used in s3 of the Code is primarily deployed to inform the meaning and concept of 'credit', rather than posit a self-contained definition of the term. In any event, on no view does it constitute an alternative to the definition in s204. On the contrary, the two are complimentary. The term 'debtor' in s3(1)(b) (and, indeed, throughout the Code) can mean both a person who incurs a deferred debt, and at the same time mean a person other than a guarantor. In other words, reading the provisions together, a 'debtor' for the purposes of the Code is a person who incurs a deferred debt other than in their capacity as a guarantor." 1. The fourth argument was that since Mrs Fraval is not a party to the loan agreement only in the capacity as guarantor, as contemplated by s 204, she had incurred a deferred debt as a "debtor" and s 204 only operated to exclude a person who is a party to the credit contract only as a guarantor not if they are both a guarantor and a debtor. His Honour said of this argument that it was in substance only a slight variation on the third argument and said (at [82]): "The inclusion of the words '(other than a guarantor)' in the definition of debtor in s204, clearly implies that a guarantor would otherwise be caught by the definition. That is, the legislature contemplated that a guarantor does generally incur a deferred debt, and thus would be caught by term as used in s3(1)(b), in the absence of the exclusion in s204." 1. With respect to his Honour, I agree that "debtor" for the purposes of the Code is a person who incurs a debt other than in their capacity as a "guarantor" but I am not able to accept his Honour's conclusions in relation to the fourth argument. His Honour accepted in relation to the second argument that "Debtor" was a composite definition with the consequence that Mrs Fraval could be both a debtor and a guarantor and that "debtor" for the purposes of the Code "is a person who incurs a deferred debt other than in their capacity as a guarantor": Commercial Funds v Fraval [80]. 2. His Honour's reasoning proceeds on the basis that: 1. the legislature contemplated that a guarantor "does generally incur a deferred debt"; 2. the legislature was intending to exclude from the operation of the Code a person who was both a guarantor of someone else's debt (see Commercial Funds at [76]) and had a primary liability (see Commercial Funds at [80]); and 3. semble, the legislature was intending to exclude from the Code's operation a guarantor who also had a primary liability. 1. In relation to [76(1)], whilst there are occasions where entry into a guarantee involves incurring a debt: see Hawkins v Bank of China (1992) 26 NSWLR 562 at 568 per Gleeson CJ, his Honour said in the same passage: "Nor would it normally, and apart from some special context, be said that a person who gives a guarantee in respect of a debt incurred by another thereupon himself incurs a debt, at least if the principal debtor is apparently solvent and not in default." I am inclined to the view that the legislature was recognising only that a guarantee could be a deferred debt rather than impliedly treating all guarantees as involving a deferred debt but whether or not that is correct, I do not accept the proposition that the legislature can be taken to have extended the ambit of exclusion from protective legislation by excluding protection for persons who have incurred a primary debt but also happen to be guarantors. In my view, s 204 should be taken to exclude from the purview of the Code persons whose only liability is a guarantor, not persons who are also debtors. 1. Ironically perhaps, it is Integrated that contends that a person cannot be a guarantor of his or her own debt. Mr Djurdjevic relied on Lakeman v Mountstephen (1874) LR 7 HL 17 at 24-25 ("Lakeman"). Lakeman concerned the question of whether a promise given by Mr Lakeman, chairman of the local board of health, was to himself pay an amount for work to be undertaken by the sewerage contractor or to be liable as a guarantor of the debt of the board. Whilst I do not think that Lakeman supports the proposition for which it is here advanced, the passage from Jowitt quoted at [42(6)] above does provide support. The consequence then might be that although the Loan Agreement describes Mr Valerio and Ms Pejkic as "Guarantors" that nomenclature is inaccurate and they are not "Guarantors" within the meaning of the Code. I note that Judge Woodward regarded clause 28 as meaning that the guarantor was guarantor of each other debtor: see Commercial Funds at [76]. Another approach is to regard the Loan Agreement as imposing obligations on Ms Pejkic and Mr Valerio as both guarantors in the true sense and as debtors. If that is the correct interpretation, then insofar as they owe obligations qua guarantor, that would not infringe the Code but insofar as they owe obligations as debtors, the Code is attracted and entry into the Loan Agreement involves a breach of the Code. I do not accept Integrated's contention that Ms Pejkic and Mr Valerio could not be debtors because they are guarantors (see PCS [50]-[59]), it is rather similar to the contention in Commercial Funds that Mrs Fraval could not be a guarantor because she was a debtor. 2. Mr Djurdjevic propounded as an alternative argument that subclause 28.6 does not make sense if Ms Pejkic and Mr Valerio fall within the definition of Debtor and Debtor must mean the Borrower. Since Debtor includes "Borrower", a liability as guarantor for the obligations of the Borrower can remain even if that person is not liable as a guarantor of his or her own debt. Further, although generally speaking, a term in one clause should be given the same interpretation throughout a contract, this may be a case in which the term "Debtor" needs to be construed differently in clause 28 to that for clause 3. It does not justify adopting the definition that gives clause 28 meaning in clause 3 where there is no inherent difficulty of interpretation. Also, if the approach taken to construction of clause 28 in Commercial Funds is adopted, there would be no need to resort to a bifurcated interpretation of the word "Debtor". 3. In Devon v Thirteenth Kaysan, another summary judgment case, Davies J held that the loan contract was not one caught by the Code. The argument that the Code applied was based, in part, on the assertion that the interposition of a corporation was really a "sham, pretence or absolutely unnecessary": at [13]. Davies J rejected the "sham" argument and her Honour also rejected the claim that the Code applied because the loan was made to a corporation (see [22]) and the mortgage was security for that loan. There was no reliance on a definition in the loan agreement which made individuals primarily liable for the debt along with the borrower. There is nothing to indicate that the terms of the document were similar to those utilised by Integrated here. 4. In Nicola Properties, which did concern the MCP, Derham AsJ had to consider various matters not relevant to the present case but his Honour did say in respect of the MCP (at [31]): "… (b) 'Debtor' was defined to mean the Borrower and/or the Mortgagor as the case may be and where (as here) the Borrower and the Mortgagor are the same person the expression means both the Borrower and the Mortgagor. However, Schedule A to the Mortgage provides that the Mortgagor means both the Borrower and the Guarantor, so that a reference to the Debtor includes Paglia. … (e) 'Guarantor' was defined to mean Paglia." 1. His Honour clearly regarded the terms of Schedule A as important and I think his Honour adopted an approach similar to that which I think should be taken here. 2. In Equititrust, Gzell J held that the loan contract in that case was not caught by the Consumer Credit Code (which preceded the Code), because the loan was made to a corporation (not a strata corporation), not an individual: see Equititrust at [71]-[73]. Mr and Mrs Hakim, who claimed that the Consumer Credit Code applied, were not, therefore, "debtors", although the loaned funds were needed to enable Mr and Mrs Hakim to complete the purchase of a property. A declaration had been signed by them which stated that the credit was "to be provided wholly or predominantly for business or investment purposes or for both purposes": see Equititrust at [12]. The loan application by the Hakims stated that "if required the Trustee company SLJM Pty Ltd will be the applicant herein" and that the Hakims could guarantee the loan: see Equititrust at [4]. 3. No argument was advanced that the Hakims were primarily liable as debtors, rather, the contention was that the transaction was a sham, a contention which Gzell J rejected. I do not regard Equititrust as having any bearing on the present case. 4. There are a number of reasons why I am unable to accept the proposition that Debtor should be read as excluding Ms Pejkic and Mr Valerio: 1. Schedule A in the original document defines "Debtor(s)" to include all three and it does so in an unqualified way. Neither the introductory words of clause 1.1 "unless the context otherwise requires" nor "and/or" nor "as the case may be" apply to Schedule A; 2. the definitions in the Deed of Variation are similarly clear; 3. there is nothing surprising in a lender seeking to improve its rights against the other parties to a transaction by ensuring that as many parties as possible are primarily liable; 4. there is no obvious reason why "Borrower" was not utilised in the definition of Secured Money in clause 1.1 if it was intended that only the Borrower would be primarily liable. I accept that Creatrix is defined as the "Borrower", but it is also defined as one of the "Debtors". It is Integrated, by the wording of the Loan Agreement and its Schedule, that has expanded "Debtor" from the borrower to include others who would not normally have a primary liability; and 5. I have noted at [51] above that whilst Kunc J regarded the definition in clause 1.1 as having no application to the case before him, his Honour still regarded the words "unless the context otherwise requires" and "and/or… as the case may be" as having significance, and at [126]-[128] and [131]-[132], he appeared to minimise the importance of Schedule A notwithstanding that if the definition in clause 1.1 had no application Schedule A was really all that was available to enable "Debtor" used in clause 3 to be interpreted. Once it is recognised that Schedule A defined "Debtor(s)" as all of Creatrix, Mr Valerio and Ms Pejkic, there is, in my view, no reason why that term, as used in clause 3, should be read to exclude any one of them. As I have already mentioned, Judge Woodward accepted the "composite" quality of the term: Commercial Funds at [42] and [63]. 1. Whilst I acknowledge that Winau, Jams 2 and Commercial Funds offer some support for the contentions of Integrated, I remain of the view that there is no reason not to regard Ms Pejkic and Mr Valerio as having undertaken a primary liability to repay the debt (i.e. the money lent to Creatrix pursuant to the Loan Agreement and later pursuant to the Deed of Variation) and hence, that the Code applies to the Loan Agreement. The fact that any liability they have as guarantors, in the true meaning of that word, does not attract the Code, does not produce the result that their primary obligation to repay the monies borrowed is not caught by the Code, for reasons I have endeavoured to explain in [77]-[79] above. 2. I therefore conclude that Ms Pejkic and Mr Valerio are included within the term "Debtors" under the Loan Agreement. 3. If, contrary to the view I have expressed, the position is ambiguous, then Integrated has not discharged the onus of establishing that Ms Pejkic and Mr Valerio are not included in the definition of Debtor for the purpose of clause 3 of the Loan Agreement. 4. If I am correct in my conclusion that by the Loan Agreement, Ms Pejkic and Mr Valerio accepted a primary obligation to pay the secured debt, then the question which then needs to be addressed is whether they are persons who meet the criteria of "[are liable to pay] a debt owed by one person (the debtor) to another (the credit provider)" or have they, by the Loan Agreement, incurred a deferred debt to another. A "deferred debt" is a present debt "payable in the future": see Rafiqi & Thomas v Wacal Investments Pty Ltd (1998) ASC 155-024; Geeveekay Pty Ltd v Director of Consumer Affairs Victoria (2008) 19 VR 512 at [87] per Bell J. No argument was advanced by Integrated raising an issue in relation to the requirement of a "deferred debt". 5. On the interpretation of the Loan Agreement accepted above, Ms Pejkic and Mr Valerio have incurred a deferred debt and they have been made liable to pay the Secured Monies as defined. It follows that the Loan Agreement was entered into in breach of the Code and the Court has open to it the remedies set out in s 180 of the NCCP Act. Conclusion Re the Code 1. I conclude that Integrated has entered into a credit contract which infringes the Code. 2. The Defendants by their Cross-Claim seek, in relation to the Code, an order that the Loan Agreement and Deed of Variation are void or alternatively, an order setting aside the mortgage and varying the terms of the Loan Agreement and Deed of Variation to provide that Mr Valerio and Ms Pejkic are not parties to those agreements and that Creatrix is not liable to pay any interest, fees or charges of any kind under the Loan Agreement or Deed of Variation. 3. There was raised in the Defendants' oral submissions an alternative submission; namely, that the Loan Agreement could remain as against Creatrix but set aside viz-a-viz Ms Pejkic and Mr Valerio, with Creatrix to repay the principal of $440,384.45 plus interest at the rate specified in s 100 of the Civil Procedure Act 2005 (NSW) ("CPA"). 4. On my findings, the Loan Agreement should never have been entered into. Section 180 of the NCCP Act gives to the Court wide powers and there is a regulatory aspect to credit contracts caught by the Code. I do not think that it would be appropriate to deprive Integrated of the $440,384.45 actually advanced and I accept as appropriate the Defendants' concession that interest at the Court rate should be paid. In my view, all three Defendants should be required to repay the $440,384.45 plus interest at the Court rate but no more than that. I will return to the form of orders after I have dealt with the unconscionable conduct case. Unconscionable Conduct 1. In considering the issue of unconscionable conduct, I shall assume, contrary to my conclusion set out earlier, that the Code does not apply. 2. The relevant provisions of the ASIC Act are: "12CA Unconscionable conduct within the meaning of the unwritten law of the States and Territories (1) A person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. (2) This section does not apply to conduct that is prohibited by section 12CB. 12CB Unconscionable conduct in connection with financial services (1) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of financial services to a person; or (b) the acquisition or possible acquisition of financial services from a person; engage in conduct that is, in all the circumstances, unconscionable. (2) This section does not apply to conduct that is engaged in only because the person engaging in the conduct: (a) institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or (b) refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition. (3) For the purpose of determining whether a person has contravened subsection (1): (a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and (b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section. (4) It is the intention of the Parliament that: (a) this section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct; and (b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and (c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of: (i) the terms of the contract; and (ii) the manner in which and the extent to which the contract is carried out; and is not limited to consideration of the circumstances relating to formation of the contract. 12CC Matters the court may have regard to for the purposes of section 12CB (1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 12CB in connection with the supply or possible supply of financial services to a person (the service recipient), the court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the service recipient; and (b) whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and (e) the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and (f) the extent to which the supplier's conduct towards the service recipient was consistent with the supplier's conduct in similar transactions between the supplier and other like service recipients; and (g) if the supplier is a corporation—the requirements of any applicable industry code (see subsection (3)); and (h) the requirements of any other industry code (see subsection (3)), if the service recipient acted on the reasonable belief that the supplier would comply with that code; and (i) the extent to which the supplier unreasonably failed to disclose to the service recipient: (i) any intended conduct of the supplier that might affect the interests of the service recipient; and (ii) any risks to the service recipient arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the service recipient); and (j) if there is a contract between the supplier and the service recipient for the supply of the financial services: (i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the service recipient; and (ii) the terms and conditions of the contract; and (iii) the conduct of the supplier and the service recipient in complying with the terms and conditions of the contract; and (iv) any conduct that the supplier or the service recipient engaged in, in connection with their commercial relationship, after they entered into the contract; and (k) without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the service recipient for the supply of the financial services; and (l) the extent to which the supplier and the service recipient acted in good faith. … (3) In this section: applicable industry code, in relation to a corporation, has the same meaning as it has in subsection 51ACA(1) of the Competition and Consumer Act 2010. industry code has the same meaning as it has in subsection 51ACA(1) of the Competition and Consumer Act 2010. … 12GM Other orders (1) Without limiting the generality of section 12GD, if, in a proceeding instituted under, or for an offence against, this Division, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division, the Court may, whether or not it grants an injunction under section 12GD or makes an order under section 12GF, 12GFA, 12GLA or 12GLB, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (7) of this section) if the Court considers that the order or orders concerned will compensate the first‑mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage." 1. There was no dispute between Counsel as to the principles applicable in relation to this aspect of the case. Those principles, which I have taken from the PCS, are: 1. In Gooley v NSW Rural Assistance Authority [2020] NSWCA 156 ("Gooley"), Meagher JA (with whom Macfarlan and White JJA agreed) said (at [36]): "The proscription in s 12CB(1) is of conduct that assessed objectively may be characterised as "unconscionable" thus applying a normative standard of conscience against which the conduct complained of it to be measured. That standard is informed by the values and norms recognized by the terms and context of the legislation, and especially the considerations identified in s 12CC: Paccioco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 at [296] (Allsop CJ). Those values and norms include honesty, the absence of trickery or sharp practice, fairness when dealing with customers, and the protection of those who are vulnerable to victimisation, unconscientious conduct, or exploitation. At the same time that standard is not confined to describing conduct that is remediable by a court exercising jurisdiction in equity. The content and application of that normative standard is most recently addressed in Australian Securities and Investments Commission v Kobelt [2019] HCA 18; (2019) 93 ALJR 743 at [14], [15] (Kiefel CJ and Bell J), [84], [87] (Gageler J), [118], [120] (Keane J), [144], [153] (Nettle and Gordon JJ) and [295] (Edelman J). To the extent there are differences of substance in these expositions of that standard and how its content is informed and determined in particular circumstances, they are not material to the outcome of this appeal." 1. The Court may (not must) take into account each of the considerations identified in s 12CC to the extent that those considerations are applicable in the circumstances: ACCC v Quantum Housing Group Pty Ltd [2021] FCAFC 40 at [55] and [56] per curiam ("ACCC v Quantum Housing Group"), citing with approval Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1 at [87] per Gageler J ("ASIC v Kobelt"), who cited with approval Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 at [23] and [41] per curiam. 2. The conduct to be characterised as unconscionable must involve conduct that falls "so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience": ASIC v Kobelt at [92] per Gageler J. 3. The general law of unconscionability has a significant part to play in considering whether conduct is unconscionable under s 12CB(1): ASIC v Kobelt at [144] per Nettle and Gordon JJ; see also ACCC v Quantum Housing Group at [66] and [67], quoting ASIC v Kobelt at [144] and Paciocco v Australia & New Zealand Banking Group Ltd [2015] FCAFC 50 at [283] per Allsop CJ. 4. The standard of conduct expected of a person in a commercial context is not that of a fiduciary and a contracting party is not required to subordinate its intention to those of the other party: Kenxue Pty Ltd ATF The Susan Investment Trust v Westpro Finance Pty Ltd [2020] NSWSC 1146 at [116]; see also APS Satellite Pty Ltd (formerly known as "SkyMesh Pty Ltd") v Ipstar Australia Pty Ltd [2016] NSWSC 1898 at [127]. 5. An allegation of unconscionability is a serious allegation and the relevant standards of conduct required should be recognised: ACCC v Quantum Housing Group at [88] and [91]. 6. It is not necessary to show predatory conduct: ACCC v Quantum Housing Group at [91]. 1. In ASIC v Kobelt, the majority (Kiefel CJ, Bell (in a joint judgment with Kiefel CJ), Gageler and Keane JJ (in separate judgments)) held that the conduct in question did not infringe s 12CB whereas the minority comprising Nettle, Gordon (in a joint judgment) and Edelman JJ (in a separate judgment) held that it did. Gagler J drew attention to the difference between s 12CA which linked "unconscionable conduct" to the meaning of "the unwritten law" and s 12CB (dealing with financial services) which was not so limited, saying "[s]ection 12CB of the ASIC Act does something more": ASIC v Kobelt at [83] per Gageler J. What that something more is reflected the divergence of opinion between the majority and the minority, but it can be seen that the Chief Justice and Bell J regarded the determinative factor in dismissing the appeal "the absence of unconscientious advantage obtained by Mr Kobelt from the supply of credit to his Anangu customers": ASIC v Kobelt at [19]. Justice Gageler J based his decision to dismiss the appeal on this (at [111]) and Keane J (at [118]-[121]) in dismissing the appeal certainly regarded it as an essential characteristic of a finding of unconscionability within the meaning of s 12CB. 2. Whilst it is not necessary for the borrowers to establish that they were vulnerable in the sense of being uneducated, illiterate, mentally incapacitated or that they were the subject of undue influence or the like, the borrowers must establish, having regard to all the circumstances of the matter, that the lender has taken unconscientious advantage of them, having regard to their position, for example of weakness or vulnerability. 3. There are some factual matters relevant to the question of unconscionability which are not in dispute: 1. The loan was intended to be a short-term loan of 6 months in duration. 2. The purpose of the loan was to assist Mr Valerio and Ms Pejkic with their construction of the duplex on the Property and the sale of one half of the duplex to occur after completion of construction. 3. Each of the Defendants received legal advice from Mr Bruce Rexstraw, a solicitor independent of Integrated. Importantly, he signed a certificate that he had advised the Defendants of the nature and effect of the Loan Agreement: CB 356, 363, 369. 4. Mr Valerio signed, on behalf of Creatrix, a Debtor's Advice Declaration in which he confirmed that he had executed "this Mortgage" voluntarily and without undue influence or pressure from any third party and that he had obtained independent legal advice: CB 355. 5. Mr Valerio knew the interest rate to be paid under the proposed loan was to be very high and he gave evidence that he had been warned by Mr Rexstraw that he was "doing a deal with the devil": CB 71; T69.10-12. 6. Neither Mr Valerio nor Ms Pejkic claim to suffer from any special disability or vulnerability, although it seems that they found the Integrated forms confusing (see CB 260-261 and CB 271) and left it to Mr Haynes to complete the documents for them (and see paragraph 33 of Mr Valerio's Affidavit at CB 69). 7. The loan application did not include any financial statement for Creatrix, and the only assets listed were those of Mr Valerio and Ms Pejkic. 8. Relevantly, clause 9 of the letter of offer from Credit Solutions dated 31 January 2018 reads: "The loan to value ratio for the loan is determined on a forced sale basis and we are under no obligation to loan any money which exceeds the loan to value ratio." 1. I make the following further factual findings relevant to this aspect of the case: 1. The application to Integrated (via Credit Solutions) was by Mr Valerio and Ms Pejkic. 2. The assets and liabilities that were disclosed were those of Mr Valerio and Ms Pejkic. Mr Cacciola's assertion (T27.18-50) that he went through Creatrix's financials to see if it could service the debt if it went into default for 2 or 3 months was not supported by the evidence. 3. As at December 2017, Mr Valerio and Ms Pejkic owed RAMS $2,627,000 and Mr Valerio told Mr Haynes that in his conversation in December 2017 and there is no suggestion that this was not passed onto Mr Cacciola by Mr Haynes. 4. Mr Valerio and Ms Pejkic were conscious that the cost of completion of the duplex was closer to $500,000 than $400,000 (see CB 66) and Mr Cacciola was aware of that estimate. 5. The Property had a current market gross realisation value as if complete (as at 16 November 2017) of $3,700,000. 6. Mr Valerio and Ms Pejkic had combined assets including motor vehicles, home and contents, and savings said by them in the application to Credit Solutions to have a value of $560,000. 7. Mr Valerio and Ms Pejkic had liabilities (excluding the RAMS loan and its repayment) in the approximate amount of $65,000. 8. Mr Valerio had an income of $334,736 from Creatrix (as disclosed in the application). 9. Interest on the loan of $530,000 for 6 months at the non-default rate was $88,080.90 (of which $50,315.55 had been prepaid). 10. Interest on the further amount loaned of $93,295.46 for 4 months at the non-default rate was prepaid in the amount of $11,195.46 and Integrated required the Defendants to pay a further $47,000 on account of interest accrued on the amount loaned pursuant to the Loan Agreement. 1. There is a factual dispute as to whether Mr Cacciola informed Mr Valerio of the reason that the loan was to be made to Creatrix, which I have dealt with earlier and as I have noted, on the pleadings, it is admitted by Integrated that it did not inform Mr Valerio, Ms Pejkic or Creatrix of the loan to Creatrix falling outside the Code. I also think there is force in Mr Horobin's point that even if Mr Cacciola did say "non-coded", it would not have been obvious as to what was meant. Mr Cacciola's answer to that was that Mr Haynes had told Mr Valerio what that meant, but there is no evidence of that occurring – rather, there is evidence of Mr Haynes asking Mr Valerio in the context of the application to NCF "if he had a company" that could act as the borrower. It was not suggested to Mr Valerio in cross-examination that he knew what "non-coded" meant either as a phrase or for the purposes of the transaction. I am satisfied that neither Mr Valerio nor Ms Pejkic appreciated that the Loan Agreement would not be caught by the Code. 2. Whilst I have concluded that the Defendants were not made aware of the fact that by virtue of a loan to Creatrix, rather than to Mr Valerio and Ms Pejkic, the Loan Agreement would not be a credit contract covered by the Code (assuming, and contrary to my findings in relation to the Defendants' argument based on the Code, that conclusion is correct), Mr Valerio's evidence was that he had no understanding of the significance of that fact or of what difference it would have made to entry into the Loan Agreement. Rather, it seems, on the balance of probabilities, that even if Mr Valerio had been aware that the loan was not caught by the Code, he would have proceeded with it because, as he admitted in his oral evidence, he felt he had no choice: T69.6-70.3. It is clear that Mr Valerio saw himself and Ms Pejkic as being in a desperate situation – he had tried unsuccessfully to complete the building work himself, he had been unable to earn income for Creatrix, he and Ms Pejkic could not meet payments to RAMS and they could not complete the building work without the further injection of up to $500,000 of funds. 3. First, I need to determine whether "asset lending" was involved here and then to determine whether other aspects of the matter point to unconscionable conduct on the part of Integrated. 4. "Asset lending" has been described as lending "without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default": Perpetual Trustee Company Limited v Albert and Rose Khoshaba [2006] NSWCA 41; (2005) 14 BPR 26,639 at [128] per Basten JA, which was quoted with seeming approval in Gooley at [35] per Meagher JA in the following terms: "BankWest's conduct in making the Dyraaba loan was also alleged to constitute unconscionable conduct in contravention of ASIC Act, s 12CB. Specifically it was said to be an example of "asset lending" being lending "without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default". In such a case the lender is taken to be indifferent to the inevitable liquidation of the borrower's assets provided that their value assures that there is no risk of loss to the lender: see Perpetual Company v Khoshaba [2006] NSWCA 41; 14 BPR 26,369 at [128] (Basten JA)." 1. Basten JA did state (at [128]) that "asset lending" of itself was insufficient to render the lender's conduct unconscionable. 2. In Violet Home Loans Pty Ltd v Schmidt [2013] VSCA 56, which has since been affirmed in Jams 2 Pty Ltd v Stubbings [2020] VSCA 200 (at [93] per Beach, Kyrou and Hargrave JJA), Warren CJ, Cavanough and Ferguson AJJA (as her Honour then was) said (at [59]): "little is to be gained by a close factual analysis of the myriad of cases that have considered whether particular conduct was unconscionable. Whilst there are sometimes factual similarities between the cases, inevitably there are differences. Similarly, we do not find it of assistance to consider whether conduct is unconscionable simply because of the type of lending that is involved, for example, asset based lending. Rather, the task requires a more synthesised approach which takes into account all of the facts relevant to the impugned conduct and determines whether, in all the circumstances, that particular conduct is unconscionable." 1. Although it might seem that there is a tension between the approach taken by Basten JA (and the Court of Appeal in Gooley) there is in fact agreement that asset lending is, on its own, insufficient. 2. The critical question in relation to asset lending in this claim is: did Mr Cacciola have a legitimate basis for thinking that Mr Valerio (including Ms Pejkic and Creatrix) had the means to repay the $530,000 and then the further $93,295.46 in addition to meeting his debt to RAMS, without both sides of the duplex having to be sold? 3. At the time that Integrated decided to advance funds to Creatrix the financial position of Creatrix was, I have found, unknown to Mr Cacciola, and Mr Valerio and Ms Pejkic together had assets totalling $4,260,000. This figure is made up as follows: 1. the Property – valued at $3,700,000 on the basis of a current market gross realisation value as if complete and $3,350,000 on the basis of a forced sale value (both as at 16 November 2017); and 2. personal property and other miscellaneous assets – estimated by Mr Valerio at $560,000. 1. Mr Valerio and Ms Pejkic had debts totalling $3,222,000 which amount was made up of: 1. the loan from RAMS – $2,627,000; 2. the amount loaned by Integrated pursuant to the Loan Agreement – $530,000; 3. credit card liabilities - $65,000, and, certainly prior to their entry into the Loan Agreement, they had been unable to meet their existing liabilities to RAMS. Mr Cacciola told Mr Valerio that he and Ms Pejkic did not have enough income to meet the obligations under the proposed Integrated loan. 1. Since it was Mr Valerio's hope that he could retain half the duplex and, assuming, as seems to be accepted, that the two halves were equal in value, he would only have received close to $1,850,000 from the sale of half the duplex. Mr Valerio was nevertheless confident, at the time of his entry into the Loan Agreement, that the duplex construction could be completed and Lot B sold within six months: see T72.6. 2. Mr Valerio was not only overly optimistic as to how quickly he could complete the construction work, sell Lot B and receive the proceeds of that sale, he seems not to have appreciated that even if he could complete the whole process in six months, sale of Lot B would only reduce the RAMS debt and not stave off sale of Lot A unless RAMS was prepared to refinance, a refinancing that would have had to see RAMS not only refinancing its existing debt remaining after sale of Lot B and payment of costs of sale (such as advertising, agents fees and legal costs) (i.e. $800,000 plus the unpaid interest from January 2018 until the sale of Lot B in, say, August 2018) but also, the full amount of the Integrated debt of $530,000 (i.e. before the additional refinance with Integrated) plus further interest. Given that Mr Valerio and Ms Pejkic would only have Lot A as security (valued at $1,850,000 as at 16 November 2017) and that they would be repaying a minimum of $530,000 plus interest to Integrated to be added to the remaining RAMS debt, the prospect of refinancing with RAMS not only the balance of its existing debt, but also the Integrated debt, was minimal. If there was no realistic prospect of RAMS or an alternative mainstream bank refinancing, or even only a limited prospect, the likely consequence was, therefore, default under the Loan Agreement, following which interest at the default rate would have commenced accruing on the Integrated debt. 3. It must be noted that the foregoing analysis takes Mr Valerio and Ms Pejkic's financial position at its highest – that is, the analysis assumes that Mr Valerio and Ms Pejkic would have sold (and received the proceeds from the sale of) Lot B within 6 months and further, that they would not incur additional liabilities. 4. As matters transpired, the situation was far worse. Following settlement of the sale of Lot B on 31 May 2019, the RAMS debt was reduced to $1,008,450.11: see CB 450. By 24 June 2019, the Integrated debt was $825,147.11, a significant amount of interest having accrued on the principal amounts loaned: see CB 457. Thus, by the time that the proceeds of sale of Lot B were received and paid to RAMS, Mr Valerio and Ms Pejkic had liabilities in excess of $1,800,000, which encumbered an asset (Lot A) the value of which was approximately $1,900,000. There was no prospect of Mr Valerio and Ms Pejkic refinancing with RAMS to discharge the Integrated debt (as Mr Cacciola agreed at T49.19-37); the only realistic outcome being to sell Lot A to discharge both the RAMS and Integrated debts. 5. When this material is added to the findings I have made earlier concerning the lack of material concerning the financial position of Creatrix and the focus on the sale of the duplex when completed, I am not satisfied that Integrated had a genuine basis to conclude that Mr Valerio and Ms Pejkic could pay back the loans from Integrated without sale of the whole of the asset that they were borrowing to protect (i.e. Lot A) and see also my further comments at [118(7)] below. Thus, the claim of "asset lending" is made out. 6. I accept that there are aspects of the matter which point to an absence of unconscionability; namely: 1. the fact that Integrated required the Defendants to obtain legal advice which they did obtain and that the Defendants were able to negotiate some minor alteration of the terms of the Loan Agreement: see CB 287 and 292; 2. the fact that they were warned by the solicitor who gave them advice that they were doing "a deal with the devil"; 3. that they suffered from no cognitive or physical impairments; 4. that no pressure was applied by Integrated to force them into the loan; and 5. that any commercial lender would be keen to see the risk of non-payment without recourse to security reflected in a higher than usual interest rate. 1. However, I regard as most significant the fact that this was asset lending by Integrated and that there were the following additional matters: 1. the purpose of the loan was to finish building the duplex – there was no joint venture between Ms Pejkic and Creatrix to make a profit from the duplex: Affidavit of Milijana Pejkic at [19]. Creatrix had no genuine connection with the duplex project and no proprietary interest in the Property, and yet was required by Integrated to become a borrower; 2. that the involvement of Creatrix was required by Integrated to avoid the Defendants obtaining protection from the Code and to permit Integrated to enter into the transaction; 3. that Mr Valerio and Ms Pejkic were in a desperate situation since they were unable to meet their commitment to RAMS and could not complete construction of the duplex without further funds: see T68.28-T69.38. Mr Rexstraw recognised this when he said words to the effect "[y]ou are doing a deal with the devil… but if you are as desperate as you say you are, you will probably need to agree to their terms": CB 71. Mr Valerio believed that he and Ms Pejkic could avoid paying $15,900 per month by completing the build by August 2018, and he was prepared to execute a document on behalf of Creatrix that did not reflect the true position. He also did not take into account, it seems, that it would take time to sell Lot B, that the proceeds of Lot B would be insufficient to pay off the RAMS debt and that to repay the Integrated debt he could only avoid sale of Lot A by obtaining RAMS's agreement to expand the debt to include what was required to repay Integrated; 4. the Defendants appear not to have appreciated that the incurring of further debt to Integrated would not assist them to retain half the duplex but would potentially remove any prospect of them recovering even some portion of the proceeds of sale; 5. that the interest rates, even at the non-default rate, were exceptionally high; 6. that the terms of acceptance of the Loan Agreement and Deed of Variation required them to pay a significant portion of interest up front (in excess of $100,000). They also required payment of very substantial fees; namely, a total of $73,700. Whilst the total loan was expressed as $530,000 and $93,295.46 (i.e. $623,295.45), all that was made available to the Defendants was $440,384.45 (i.e. not even enough to meet the projected $500,000 for anticipated further building costs); 7. they had no financial advice as to the benefits and disadvantages of the transaction. Indeed, Integrated did not require (or recommend) the Defendants obtain financial advice concerning the loan, and the Defendants did not obtain such advice. There is no evidence before the Court that had such advice been sought, it would have recommended the expenditure of $623,295.45 to obtain, in real terms, a loan of $440,384.45 even on the non-default rate of interest, and the complete erosion of any equity in the Property, should there be a delay in sale as the RAMS loan debt continued to mount and the Integrated default rate kicked in. This is all in a context where the prospect of Mr Valerio and Ms Pejkic being able to obtain refinancing of the balance of their debt after payment out of the proceeds of sale of Lot B to RAMS and of the Integrated loan, would appear to be slim and unrealistic; and 8. they were, I find, in a desperate situation of their own making but nevertheless thereby vulnerable. 1. In relation to [118(2)] I think it is important to bear in mind that the legislature has endeavoured to ensure that people are protected from highly disadvantageous loans and in doing so it has been recognised that corporations engaged in business are not in need of the protection bestowed by the Code. It is clear that Integrated and other lenders engaged in lending on onerous terms are very much aware of the loophole that seemingly permits them to escape the operation of the Code – i.e. the ability to insist on the introduction of a company as the borrower even where, as in Jams 2 v Stubbings and here, for example, there really is no existing business or venture of the corporation for which the loan is sought. If I am wrong in my conclusion that the Code applies, then the loophole is effective and in my view, the use of it is a relevant additional factor to be taken into account in considering whether the behaviour of Integrated and Mr Cacciola is unacceptable commercial behaviour. 2. I conclude that Integrated and Mr Cacciola have engaged in unconscionable conduct and the orders that I regard as appropriate to prevent the loss to the Defendants as a result of the unconscionable conduct are set out in [122] below. Further Matter 1. In [119] above, I make reference to the requirement of the interposition of a corporation by lenders such as Integrated who lend at extremely high interest rates as a mechanism to avoid the effect of the Code. I think ASIC's attention should be drawn to this potential means of avoiding the Code for consideration by its relevant officers as to whether steps should be taken to seek to have the legislation extended to cases where a company borrows for no purpose genuinely connected to its normal business. I will therefore direct the Equity Registrar to forward a copy of these reasons to ASIC. An additional reason for doing so is that on my findings it may need to consider whether Mr Cacciola has by his conduct breached the s 80 ban imposed upon him by ASIC and take whatever action it deems fit should it conclude that he has done so. Conclusion 1. The orders that I propose to make are: 1. the Loan Agreement, Deed of Variation and mortgage given by the Second Defendant over the Property be set aside; and 2. the Defendants to repay to the Plaintiff the amount actually received of $440,384.45 with interest to accrue as follows: 3. on the amount of $410,384.45, from 26 February 2018, such interest to be calculated at the rate of interest prescribed by section 100 of the Civil Procedure Act 2005 (NSW); and 4. on the amount of $30,000, from 24 August 2018, such interest to be calculated at the rate of interest prescribed by section 100 of the Civil Procedure Act 2005 (NSW). 1. The Defendants should prepare a proposed form of orders, including calculations, reflecting the conclusions in [122] and I will hear the parties on whether any consequential orders need to be made and on the issue of costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 June 2021