District Court New South Wales Medium Neutral Citation: King v Nguyen [2021] NSWDC 495 Hearing dates: 15, 16 September 2021 Date of orders: 22 September 2021 Decision date: 22 September 2021 Jurisdiction: Civil Before: Gibson DCJ Decision: Order: (1) Judgment for the plaintiff for $156,711.60. (2) Costs reserved, with liberty to apply. (3) Exhibits retained until further order. Catchwords: Contracts – National Credit Code – loan sought for, and used for, business purposes – whether the National Credit Code applied notwithstanding the obtaining and using of the loan for business purposes Legislation Cited: Civil Procedure Act 2005 (NSW) s 22 National Consumer Credit Protection Act 2009 (Cth) ss 4, 5, 13, 17(3) – (6), 17(9), 18(8), 32AA(2) and 180 National Consumer Credit Protection Regulation 2010 (Cth) r 68 Cases Cited: Bank of Queensland v Dutta [2010] NSWSC 574 Integrated Securities No 3 Pty Ltd v Creatrix Web Development & Online Marketing Solutions Pty Ltd [2021] NSWSC 596 Lauvan Pty Limited & Anor v Bega & Ors [2018] NSWSC 154 Lewis v Condon; Condon v Lewis [2013] NSWCA 204 Pearl Marin Shipping A/B v Pietro Cingolani SAS, The General Valdes [1981] 1 Lloyd's Rep 170 Perpetual Trustees Victoria Limited V Bianka Monas [2011] NSWSC 57 Sapphire (SA) Pty Ltd (trading as River City Grain) v Barry Smith Grains Pty Ltd (in liq) [2011] NSWSC 1451 Shakespeare Haney Securities Limited v Crawford [2009] QCA 85 Muir JA Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Category: Principal judgment Parties: Plaintiff: Trevor William King Defendant: Chi Thanh Nguyen Representation: Counsel: Plaintiff: Mr J Doyle Solicitors: Plaintiff: Hegarty Legal Defendant: Nguyen & Co Solicitors File Number(s): 2020/00270664 Judgment The plaintiff's claim 1. The plaintiff, by statement of claim filed on 17 September 2020, brings proceedings for breach of contract for recovery of the balance of the principal and interest owing under the express terms of a written loan agreement between the plaintiff and defendant on 9 August 2018. The circumstances in which that transaction was entered into are set out in more detail below. 2. The loan agreement consisted of two documents. The first of these is a typed loan agreement prepared by the plaintiff, the text of which is set out in full below. The second is a handwritten summary setting out terms of the loan which are not specified in the loan agreement. Both were signed by the parties at the same time. The net effect of the two documents is that the plaintiff loaned the defendant the sum of $95,000, with that amount to be paid as follows: 1. $76,900 advanced to the plaintiff by payment into his nominated bank account; 2. $17,100 withheld by the plaintiff as prepayment of interest for the three month period of the loan; and 3. $1,000 legal fees. 1. The three-month loan fell due on 9 November 2018. On that date, the plaintiff agreed to extend the term of the loan agreement until 9 February 2019 and the parties signed a second agreement identical to the first typed agreement. In each of these typed agreements, the plaintiff signed his name just under a statement in the loan agreement, in bold type, which said: "The Borrower confirms "The Loan" is for Business Purposes". 1. The defendant paid $5,000 to the plaintiff on 14 February 2019 and a further $75,000 during July 2019. The plaintiff and his wife went to the defendant's home on three occasions in relation to the outstanding monies. The plaintiff and his wife learned that the defendant had sold his home and that the amount for which it sold was less than the mortgage. The plaintiff then commenced these proceedings. The pleadings and issues 1. The statement of claim seeks recovery of the principal and interest, which total $155,136 as at 9 September 2021. 2. The defence asserts that the credit provided for was for personal and not business use. Paragraphs 9 – 12 set out: "9. The defendant says the plaintiff did not provide the defendant with a proper business purpose declaration prior to or at the signing of the loan agreement. 10 The defendant says the plaintiff knew or had reason to believe that the credit was for personal purposes. 11 The defendant says the plaintiff did not make reasonable inquiries about the purpose of the loan. 12 The defendant says the National Credit Code applies to the loan agreement." 1. The parties agree that the central issue in the proceedings is whether the National Consumer Credit Protection Act 2009 (Cth) ("the Code") applies to the loan agreement. The parties differ, however, as to how this legislation should be analysed: 1. The plaintiff says that the question is whether the defendant is bound by the statement recited in the loan agreement that the borrower confirmed the loan was for business purposes, the truth of which statement was self-evident from the manner in which the defendant disbursed the sum, and from admissions he made at the end of the cross-examination that the loan was because he was "desperate" because of his business problems. 2. The defendant in his evidence initially attempted to deny that he told the plaintiff that the loan was for business purposes or that he used it for such purposes. Faced with overwhelming evidence to the contrary, he relies upon Bank of Queensland v Dutta [2010] NSWSC 574 ("Dutta') to argue that even where the lender has lied to the borrower, the Code will apply. However, the defendant goes much further than Dutta, arguing that merely asserting the Code applied is sufficient to activate the onus under s 13(1) even for non-Code loans and that, even where there is clear evidence that the loan was used for non-Code purposes, failure to include the words set out in the box contained in regulation 68 of National Consumer Credit Protection Regulation 2010 (Cth) meant that s 13(5) could not be satisfied and the Code therefore applied. The defendant additionally argued that the loan agreement breached the provisions of ss 17(3) – (6), 17(9), 18(8) and 32AA(2) of the Code. The result was that the plaintiff in fact owed the defendant money (a sum calculated at $23,904.93; none of this is pleaded and there is no cross-claim). The evidence 1. The plaintiff relied upon his affidavit sworn on 25 May 2021 and that of his wife sworn on the same date, as well as bank statements produced by the defendant. 2. The defendant relied upon his own affidavit affirmed on 8 June 2021 The defendant seeks a loan 1. Jessica King, the plaintiff's wife, is a business consultant and is the director and shareholder of a company, J T King Finance Pty Ltd. She provides business advice and loans for business purposes only, and is known in the Vietnamese community for her business activities. In her affidavit, she sets out that the defendant telephoned her and that they had a conversation in Vietnamese as follows: "Mr Nguyen Hi. My name is Chi Thanh Nguyen. One of my friends gave me your phone number. I need money for my business, can I come and see you? Me Ok. Do you own a house at all. Mr Nguyen Yes. Me How much is your house worth? How much do you owe the bank? Mr Nguyen: The house is worth around $1.4million. I owe the bank around 70% of that. Me Ok. I will need to do some checks on your property. Can you please send me a copy of your driver's licence, and the Council rate notice in respect of the house you own so I can check Mr Nguyen Yes I will give you those documents." 1. Mrs King made inquiries and spoke to the defendant as follows: "Me Hi Thanh. I have done some searches on your property. I want to ask some questions. What is the loan for and how much do you want to borrow. Mr Nguyen I need money for construction business to buy materials. I only get paid when I complete the work and my cashflow is stuck right now. If I get this money to buy equipment I will be able to finish the job and get paid for my jobs. Then I can pay you back. What is the maximum I can borrow? Around $150,000 would be good Me There is a caveat on your property to Thi My Bui and David Huynh. What is the caveat about? Mr Nguyen That caveat has been lodged over my house by one of customers. It is only for $10,000. They have lodged it because I couldn't finish a job for them so they lodged a caveat to make sure that I finished the job Me I can see that you owe Latrobe $1.08 million and your house is worth $1.4 million. The maximum I can lend is $95,000 but we take out of that $17,100 for three months interest. The interest will be 6% per month, are you ok with this? Mr Nguyen Yes, that is ok Me We will also take out $1,000 for legal fees, meaning that we will transfer to your account $76,900 Mr Nguyen OK Me Alright, I will make an appointment with my lawyer and let you know the time." 1. The defendant denied these conversations, giving a variety of alternatives. First, he said that he told Mrs King that he wanted to borrow about $100,000 "to repair my house" (affidavit, paragraph 3). He claimed, in paragraph 2 of that affidavit, that the small front house on his property "was in urgent need of repair" and that he needed this sum to make the house "habitable". This paints a picture of prospective repair work, but the defendant denied this during cross-examination, claiming that the large payments in cash made within days of the loan moneys being received was for work that had already been done. In re-examination, the defendant gave a third version of these conversation, asserting that he had not referred to whether the renovation work had been already done or needed to be done in the future, and had merely used the word "renovations". 2. Mrs King arranged for her husband, Trevor King, to loan the money. Mr King's unchallenged evidence is that he is not in the business of loaning money, having only ever lent money to a personal friend or friends before, but was prepared to make a loan to the defendant on this occasion. 3. On 9 August 2018, the defendant went to Mrs King's office in Fairfield and met with the plaintiff. The defendant then had a conversation with her in Vietnamese: "Me This loan deed will be between you and Trevor. Can you check your details on the loan agreement to check everything is right Mr Nguyen Yes everything is correct." 1. After the loan agreement was executed, Mrs King asked the defendant to check the figures set out in the handwritten document and to sign this document as well: "Me As we discussed on the phone I have written on this sheet how the money is split. The loan is for $95,000. We will take $17,100 as prepayment of 6% interest for the three months of the loan. We will also take out $1,000 for our lawyer's fees. The balance of $76,900 will be paid to your ANZ account. Can you please confirm that is your bank account details Mr Nguyen Yes, that's correct. That is my bank account Me If everything is ok can you please sign the bottom of this paper that you agree Mr Nguyen Ok." 1. Mr King, who had prepared the Deed of Loan, handed it to the defendant and said: "Me: Mr Nguyen, you have told us that this loan is for a business purpose. If that is correct, you will need to sign here." 1. At this time, he was pointing at point C at the bottom of the first page of the loan agreement. The defendant replied "Yes, that's right, it is for my business." He then signed next to point C on the first page of the Deed of Loan and Mr King initialled the bottom of the page. The contents of the loan agreement documentation 1. The deed of loan made on 9 August 2018 (CB 27-31) was as follows: "This Deed of Loan Agreement is made on Thursday, 9 August 2018 Parties: Between (Lender) TREVOR WILLIAM KING 91 BOSSLEY ROAD, BOSSLEY PARK NSW 2176 And (Borrower) CHI THANH NGUYEN Of 21 AMAROO STREET, BONNYRIGG NSW 2177 Whereas: A. The Borrower has requested of the Lender and the Lender agreed to lend to the Borrower an amount of $95,000.00 Ninety Five Thousand Dollars Only The Loan B. The parties have agreed to enter into this agreement on Thursday, 9 August 2018 In accordance with the following terms and conditions: C. The Borrower confirms the Loan is for Business Purposes. CHI THANH NGUYEN This Deed Of Agreement Witnesses And Hereby Agrees As Follows 1. Now This Deed Witnesseth that in pursuant of the said agreement and consideration the Borrower Doth Hereby borrow the sum of $95,000.00 Loan term: 3 months, from Thursday, 9 August 2018 2. The borrower will and agrees to repay to the Lender $95,000.00 Prior to or, on Friday, 9 November 2018 3. The Borrower has agreed for the Lender to lodge a caveat on the property of: 48 Orange Grove Road, CABRAMATTA NSW 2166 Being Lot 18 DP 30217 to protect the Lender's interests for this loan. 4. The Borrower covenants with the Lender to repay to the Lender within the period of the term of the whole loan, any and all other monies payable under this agreement. 5. Failure to pay all other monies payable by the borrowers at the end of the term will attract an ongoing interest rate of 6% per month on all monies payable and, due. 6. This agreement will be deemed effective from the date of this agreement , Thursday 9 August 2018 7. The borrower shall pay all legal costs and disbursements of and incidental to the Negotiation, Preparation, Completion and signing of this agreement. 8 Independent Advice 8.1 Each party warrants that prior to entering into this agreement they have read the terms of this agreement. 8.2 That they have or have not received independent legal and financial advice as to the nature, effect and, extend of this agreement and particularly any tax implications arising from any transactions referred to herein. 8.3 Neither Party made any promise, representation, inducement or has been or is party to any conduct material to the entry of any of them into this agreement other than as set out in this agreement. 9 Confidentiality The terms of this Deed are confidential to the parties and will not be disclosed directly or indirectly in whole or in part, by any of the parties other than; to enforce this Deed or the terms or Orders made in the Proceedings; As required by law; or To any of the parties' insurers, legal advisers or auditors and, in each case on a confidential basis. General 10 Interpretation In this Deed, unless the context requires otherwise: The singular includes the plural and vice versa; Headings are used for convenience only and, do not effect the interpretation of this Deed; The word "person" includes a nature person and any body or entity whether incorporated or not. The borrower acknowledges that the purpose of this Deed of Loan is "Business Purpose". The borrower is aware that a caveat will be placed on the property' 48 Orange Grove Road, Cabramatta NSW 2166 Lot 18 DP 30217 The Borrower is aware that failure to honour this agreement in its entirety will result in the lender initiating legal proceedings through a court of law and, will claim legal costs against the borrower. 11 Entire Deed This Deed contains the entire understanding between the parties concerning the subject matter of the Deed and supersedes all prior communications between the parties. Each party acknowledges that , except as expressly state in this Deed, that party has not relied on any representation, warranty or undertaking of any kind made by or on behalf of the other party in relation to the subject matter of this Deed. The provisions of this Deed shall remain in full force and effect and, are binding upon the parties after completion. 12 Severability If any provision of this Deed is or, becomes wholly or partly invalid or unenforceable then; From the date of the invalidity or unenforceability: If the offending provision can be read down to make it valid and enforceable without materially changing it's effect, it must be read down to the extent necessary to achieve that result. Otherwise, the offending provision must be severed from this Deed and the remaining provisions will operat as if the severed provision had not been included. 13 Successors and assigns This Deed binds and benefits the parties and their respective successors and permitted assigns. 14 Counterparts If this Deed consists of a number of counterparts, each is an original and, all of the counterparts together constitute the same documents. 15 Governing Laws and Jurisdiction This Deed is governed by and must be construed in accordance with the laws of the State of New South Wales. The parties submit to the non-exclusive jurisdiction of the Courts of that State and the Commonwealth of Australia in respect of all matters or things arising out of this Deed. 16 Variation This Deed may only be varied or replaced by a Deed duly executed by the parties. 17 Withdrawal of Caveat The Caveat lodged by the lender against the Borrower's property being; 48 Orange Grove Road, Cabramatta NSW 2166 Lot 18 DP 30217 Will be withdrawn only upon receipt of all monies owed to the Lender in this agreement, including but, not limited to any accrued interest or outstanding fees or charges. Executed as a Deed by Signed by the Lender in the presence of Witness signature Trevor William King Name of Witness (Lender) Address of Witness Date Signed by the Borrower in the presence of Witness signature Chi Thanh Nguyen Name of Witness (Lender) Address of Witness Date 1. The defendant also signed a certificate stating that he had not obtained legal advice. 2. The text of the handwritten document (CB 32) was as follows: Chi Thanh Nguyen Loan 95,000 6% - 17,000 - 1,000 76,900 Transfer to ANZ Account BSB: [redacted] ACC:[redacted] Lender Borrower Signature Signature Jessica King Chi Thanh Nguyen 1. Mr King then said (affidavit, paragraph 12): "Me Do you understand that this is a loan which is a business loan with interest of 6% per month. You have three months to pay back the money. If you fail to do so it will result in an ongoing interest rate of 6% on all monies outstanding. Do you also understand we will placing a caveat over your property at 48 Orange Grove, Cabramatta Mr Nguyen Yes, I understand." 1. The loan was extended for a further three months on 9 November 2018. Once again, the defendant signed his name beside the words that the loan was for business purposes. When payment was not made, Mrs King telephoned the defendant, who said: "Mr Nguyen I am still struggling with my business. Can I get an extension of the loan for another three months. I will definitely pay after this three month term." 1. A further inquiry was made by her some months afterwards, and the defendant said (paragraph 15 of her affidavit): "Mr Nguyen I've just spent on my money in a new business. I don't have any money to pay you right now." 1. In June 2019 Mrs King had a conversation with the defendant in which she again asked for the money (paragraph 16 of her affidavit) to which the defendant replied: "Mr Nguyen I am owed a lot of money by other people. Because they haven't paid me I can't pay you. Once they pay me I will be able to pay you. I just need more time." 1. Mrs King and her husband discovered that the defendant had sold his home for less than the amount in the mortgage. In response to text messages, the defendant said he had no money to pay the plaintiff. 2. The first issue is to identify the documents consisting of the loan agreement. What documents constituted the loan agreement? 1. The parties signed two documents: a typed loan agreement (the same document being signed twice, as the loan was extended) and a handwritten note confirming the interest rate and how the money borrowed was to be distributed, and the defendant left Mrs King's office with both documents in his possession. Did the handwritten document, which contained terms not set out in the loan agreement, constitute part of that agreement, or was it a separate document? If it was separate, was it a collateral agreement or a document of no legal import? 2. Whether one document is separate from another is a question to be approached by construction of the documents and evidence of the intention of the parties: Sapphire (SA) Pty Ltd (trading as River City Grain) v Barry Smith Grains Pty Ltd (in liq) [2011] NSWSC 1451 at [75], citing Pearl Marin Shipping A/B v Pietro Cingolani SAS, The General Valdes [1981] 1 Lloyd's Rep 170 ("Pearl Marin"). 3. In Pearl Marin, an umpire posted the Award that he had made to the parties in the same envelope as another document, headed 'Reasons for Award'. The document headed 'Reasons for Award' contained, on the face of it, an error of law and the question arose whether that document (and its error) therefore formed part of the Award. 4. The critical question was the intention of the author of the documents. The Court held that reasons for the Award were incorporated into the Award. Despite the fact that there was no reference to the reasons in the Award, the absence of a disclaimer to the contrary and the fact of their being issued together meant that the umpire intended to invite the parties to read the documents together. 5. Applying those principles to the facts in this case, and to the statements to this effect by the plaintiff in his affidavit, I am satisfied that the plaintiff intended the terms in the handwritten agreement to form part of the contract. 6. If I have erred in this finding, I would regard the contents of the handwritten note as a collateral contract. Was the loan sought for business purposes? 1. The defendant's claim that the loan was not sought for, and not used for, business purposes flies in the face of all the evidence. I particularly note: 1. The defendant twice signed his name next to a statement that the loan was to be provided for "business purposes" (CB:27 & 68) and acknowledged that he had read the whole of the agreement, including these words (T59, 61, 63). For the defendant's evidence to be accepted, I would have to find that he lied when signing his name next to the recital of the loan agreement and that the plaintiff was aware of this lie, the effect of which was to make the loan agreement a sham potentially involving the parties in an offence under the Code. 2. The defendant's explanation in his affidavit of requiring these funds for future home repairs to make his house "habitable" was not supported by any evidence of a Development Application, evidence of the engaging of tradesmen or of payments to them (even in cash). His affidavit did not attach any evidence of such work being carried out. The explanation proffered by his solicitor from the bar table was that documentation had been lost when the plaintiff's home was sold, but electronic records such as emails or photographs of the work, or even a description of what these works were, could still have been provided. It was unclear what the work even was; the defendant variously referred to a granny flat, kitchen renovations and living in one property while renovating the other. Faced with the lack of evidence in his bank statements of any payments to tradesmen, the plaintiff then asserted (T 56) that the work had already been done prior to the loan being taken out, although that raised even more evidentiary problems, in that documentation would have been even easier to obtain. 3. The erratic drawings of the loan moneys recorded in the defendant's bank statements record one direct payment of $25,000 to someone he says was a friend to whom he owed money and three withdrawals of amounts at or under $10,000 at three different branches of the ANZ bank. Nearly all the money was gone within two days for these transactions. The plaintiff did not tell the court to whom the cash payments were made. This is not consistent with borrowing the money to fund repair costs, past or future. 4. The defendant was a director of multiple companies (CB: 18, 35 – 37) operating a carpentry and renovation business which he acknowledged was in financial difficulties (T 48). One of his customers had already put a caveat on his home for unfinished work and he acknowledged the pressing debt of $25,000 to repay a friend who had loaned him that sum for business purposes. 5. The defendant effectively admitted at the end of the cross-examination that he had borrowed the funds because he was "desperate" for money because of his business problems (T 66). 1. The defendant's admissions were as follows: "Q. The reason that you signed these documents is because happy with it or not you understood that you borrowing $95,000 from these lenders but you were going to pay 6% per month on that loan and that the reason why you would receive $76,000 was because of the matters set out in the handwritten calculation that I had taken you to and that you understood and agreed with all of that, that's right, isn't it? A. Yes. Q. You also told the Kings that the purpose of the loan was business purposes because you knew that you needed to tell them that in order to get the loan; that's right, isn't it? A. Yeah. Q. In fact, it was true, wasn't it, that— A. I was desperate. Q. --you were desperate? Right. A. Yeah. Q. I can understand that, but it is nonetheless what happened, isn't it? A. Yeah. I wish that it never happened. Q. I think that's more of an honest description of what's happened, so thank you for that." (T 66) 1. Despite making these admissions in cross-examination, the defendant dishonestly, in my view, then attempted, in re-examination, to repeat his earlier claims about telling Mrs King he required the money for renovations, although this time asserting he had not told her whether the loan was for past or future renovations, an even more implausible explanation: "Q. When you say the purpose of the loan to Jessica— A. Yeah. Q. --did you say it was for the renovation before or after the loan? Or you didn't say anything, just renovation? A. Yes. Q. So you didn't specify whether it was for renovation already done or renovation that would be done? A. No." (T 67) 1. The defendant was helped into these answers by the leading questions put to him by his solicitor, which must seriously detract from their plausibility and his credibility as a witness. I regard the defendant as an unreliable and untruthful witness whose evidence should not be accepted on any issue unless corroborated by reliable evidence. 2. By contrast, the plaintiff and his wife gave consistent and unshaken evidence about the transactions. Mrs King, who spoke to the defendant in Vietnamese, stated that the defendant said the loan was for temporary cash-flow problems with his business. The plaintiff's affidavit (at paragraph 11) sets out that he told the defendant he understood the loan was for the defendant's business purposes and the defendant has not responded to this evidence in his affidavit in reply. The plaintiff also stated in his affidavit (at paragraph 16) that he would not have provided the loan if he thought it was to be provided for a purpose other than the defendant's business. He was not cross-examined about this evidence. 3. The defendant's evidence concerning the handwritten document was similarly untruthful. Contrary to what is set out in his affidavit, the defendant conceded in cross-examination that he understood the sums set out in the handwritten document resulting in the mathematical totally of the $76,900 with which he was to be provided, that he had agreed to this and that he had signed the handwritten document as a result, although he was "not happy" (T 66) that he did not receive the whole $95,000. He agreed that, by signing the document, he was agreeing to its terms. 4. The defendant's admitted "desperate" (T 66) need to get funds to pay the debts of his business was what led him to borrow this sum at a high interest rate, as opposed to a loan at lower rates available to borrowers offering lower rates to those whose reliable income stream makes them less of a credit risk. However, that does not mean that the defendant did not understand or agree to the loan, or that the high interest rate should be seen as some form of unfairness or penalty warranting application of the Code. 5. The real question is not whether the defendant lied to the plaintiff and his wife about the proposed use of the funds. This is because the legislation must be approached on the basis that the legislation should not be approached "from a different point of view dependent upon whether the borrower tells the truth to the lender" (Dutta at [124]). The question is whether, notwithstanding the loan agreement otherwise falling outside the Code, the mere fact of lying about its purpose is sufficient to trigger the presumption and whether, if the protection of a Regulation 68 certificate has not been deployed by the borrower, this displaces any inquiry into the facts of the case. The National Credit Code 1. Mr Doyle submits that the Code does not apply because: 1. The plaintiff was not in the business of providing loans. There is no evidence that the plaintiff concocted a sham loan transaction to avoid the Code: Lewis v Condon; Condon v Lewis [2013] NSWCA 204 at [62] – [83]. 2. The evidence that the defendant told the plaintiff and his wife that the loans were for business purposes is not merely strong evidence but appears to be acknowledged as correct by reason of the defendant's admissions in cross-examination and reliance upon Dutta (where the borrower dishonestly misled the lender as to the purpose of the loan). 3. The Recital of the loan agreement providing that the loan is for business purposes has the defendant's signature next to it (CB:27 & 68). The importance of signed documents in commerce is underscored by the observations of the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [42]. 4. Whether approached subjectively or objectively (Dutta at [117]), the evidence of the manner in which the loan monies were in fact used clearly points to non-Code purposes, namely to carry on the defendant's business. 5. The borrowed sum was paid into the defendant's business account and the defendant clearly was in business, both at the time the loan was entered into and subsequently. He was carrying on that business at all relevant times, in circumstances where he acknowledged, in his conversations and text messages with Mrs King, that he had been using all his money (including this loan) for his business. 6. The plaintiff's evidence was that he would never have lent the money to the defendant if he had thought the purpose of the loan was for anything other than the defendant's business. 1. Mr Nguyen, for the defendant, submits that, as the onus lies on the lender, all the borrower has to do is to assert that the Code applies and, in the absence of a declaration conformable with that set out in Regulation 68, whatever the purpose of the loan or other relevant bars (such as the lender not being in the business of borrowing), the loan is in breach of the Code. 2. Sections 4 and 5 of the Code provide: "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. (2) If this Code applies to the provision of credit (and to the credit contract and related matters): (a) this Code applies in relation to all transactions or acts under the contract whether or not they take place in this jurisdiction; and (b) this Code continues to apply even though the credit provider ceases to carry on a business in this jurisdiction. (3) For the purposes of this section, investment by the debtor is not a personal, domestic or household purpose. (4) For the purposes of this section, the predominant purpose for which credit is provided is: (a) the purpose for which more than half of the credit is intended to be used; or (b) if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used." 1. The requirements of section 5(1) of the Code are cumulative: Lauvan Pty Limited & Anor v Bega & Ors [2018] NSWSC 154. 2. The first dispute between the parties in these proceedings is to whether section 5(1)(b) is satisfied in respect of loan provided for by the Loan Agreement. 3. Section 13 of the Code provides: 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). 1. Gleeson JA in Lauvan Pty Limited & Anor v Bega & Ors [2018] NSWSC 154 sets out that the Court must look for the "substance and reality" of the loan transaction, and may take into account the actual use to which the funds were put (at [251] – [254]. In Shakespeare Haney Securities Limited v Crawford [2009] QCA 85 Muir JA (Mullins and Douglas JJ agreeing) stated (at [31]) in relation to s 6(1)(b) of the Queensland Consumer Credit Code that "If the borrower requests credit for a stated purpose and the lender approves the request and makes the loan, there should be no difficulty in concluding that the purpose for which the loan was made was the purpose for which it was requested." The question is, as Gleeson J explains in Lauvan at [256], whether the use for which the credit was provided was, as intended, a commercial purpose and not a personal, domestic or household purpose. 2. While there is a contest in the authorities as to whether the an objective or subjective inquiry is necessary, as was the case in Lauvan, this issue does not arise here, because the same outcome would result in either case. The subjective intention of the loan is clearly and expressly stated in the recitals, and signed as true by the defendant. The objective intention is demonstrated by the evidence which so clearly shows that the loan funds were immediately drawn down and used in a manner which is impossible to reconcile with any intention to use them for home renovations as claimed by the defendant. The evidence is overwhelming. 3. Mr Nguyen's argument is, however, that even if I accept that the loan was stated to have been sought for a commercial purpose (which he appears, from his failure to submit to the contrary, to have conceded), the transaction is nevertheless caught by the Code because all loans, Code or non-Code, must contain the wording in Regulation 68 in order to rebut the presumption where a borrower asserts, even in a non-Code purpose loan such as the present, that the loan is one governed by the Code. 4. This argument is the reverse of what occurred in Integrated Securities No 3 Pty Ltd v Creatrix Web Development & Online Marketing Solutions Pty Ltd [2021] NSWSC 596 ("Creatrix"). The circumstances in that case were that the owners of a house needed a loan to complete renovations and applied to a lender which did not offer National Credit Code compliant loans. There were two ways that the lender could get around the Code: one was to lend to a company associated with the owners (loans to corporations falling outside the Code) and the other was to have the borrower sign a business purposes declaration. The lender used the first of these, and a company associated with the owners entered into the loan agreement on their behalf. It should be noted, however, that one of the owners signed a business purpose declaration for a loan application with another lender that said "the credit to be provided to the applicant by the credit provider will be applied wholly or predominantly for business or investment purposes (or both purposes" (at [29] – [30]). 5. Rein J noted that the owners had not in fact signed a business purposes declaration complying with Regulation 68. If Mr Nguyen's interpretation of s 13(2) and Regulation 68 were correct, that would be all his Honour would have had to do, as the "sudden death" situation would have been the absence of the Regulation 68 notice. However, his Honour went on to find that the onus lying on the borrower was not discharged because the lender knew that the loan was made to purchase, renovate or improve residential property, a purpose which was subject to the Code (at [42], [60]). 6. Mr Nguyen does not refer to this decision, relying upon the observations of Davies J in Dutta at [124] – [125] that the provisions of the Code apply to honest and dishonest borrowers alike. 7. In Dutta, the borrower signed two business proposal declarations which were defective in form but in fact used the loan for Code purposes. Davies J held that the deceptive conduct of the borrower was irrelevant; the test was not what the lender believed at the time the funds were lent, but what the funds were actually used for by the debtor. The Code affords protection to lenders, and if lenders did not take advantage of the protections (such as a declaration conformable with Regulation 68), they then run the risk that the presumption will apply. As the lender could not prove that the funds were used for a non-Code purpose, it did apply. 8. However, what Davies J did not say was that the mere absence of the relevant documentation was sufficient for the Code to apply, no matter what the evidence or the existence of other barriers to the Code applying (such as the sum in question, the length of the loan and/or whether the lender was in the business of lending). There still had to be a factual inquiry. What the failure to include the Regulation 68 certificate does is to expose the lender to the risk that "it cannot prove that the funds were used" for non-Code purposes (at [125]). 9. The unfairness of the defendant's construction of the Regulation 68 certificate to borrowers as well as to lenders is clear. If the inclusion of the certificate is sufficient to end any argument, then an opportunistic lender would simply insert this provision into all its loans and the Code would be defeated on a summary basis, regardless of whether the transaction was for a non-Code purpose or not. The presumption arising when a Regulation 68 certificate is included in a contract is one which may be rebutted by evidence, and the same entitlement to rely upon evidence to rebut the presumption, in the form of evidence of actual use of the loan, may still be led. In arriving at this conclusion, I have taken into account the observations of Hoeben J in Perpetual Trustees Victoria Limited V Bianka Monas [2011] NSWSC 57 at [17] – [27], where his Honour warned against an overly strict and technical construction of the legislation seeking to penalise the lender for "the smallest mistake" (at [27]). 10. In the present case, there can be no doubt whatever that the loan was used by the defendant for business purposes. Accordingly the plaintiff has discharged the onus of proof falling upon him to establish that the loan was for non-Code purposes. 11. The other arguments raised by the defendant concerning the asserted inadequacies of the loan agreement (failure to comply with s 17.4, 17.5, 17.6, 17.8, s 29 and s 32A(1)) are dependent upon my accepting the argument that the plaintiff cannot and/or has not discharged the onus of proof of establishing that the loan is not for Code purposes. They also depend upon my finding that the handwritten document does not form part of the contract (which I have found it does). Those arguments must accordingly also fail. Quantum issues 1. The plaintiff seeks the sum of $156,711.60., consisting of $155,136 and $1,575.60 (interest for the period from 9 to 22 September 2021, the date of this judgment). That is the sum that I award. 2. In the event that I have erred in my finding that the plaintiff has discharged the onus of establishing that the loan is not subject to the Code, I make alternate findings as to what sum (if any) would be payable by the defendant to the plaintiff and/or by the plaintiff to the defendant. 3. Mr Nguyen submits that the invalidity of the contract means that the plaintiff should effectively give the defendant an interest-free loan. He calculates that sum as follows: Date Particulars Amount 9/8/2018 The Plaintiff lent the defendant $76,900 for a contracted amount of $95,000 as set out in the Loan Agreement $18,100.00 9/8/2018 Interests claimed from date of loan to 14/9/2021 $2,704.93 20/7/2019 Amount of payment over the amount of loan (80,000-76,900) $3,100.00 $23,904.93 1. I note the failure to plead any such claim in the defence, or to set out any such entitlement in the form of a cross-claim conformably with s 22 of the Civil Procedure Act 2005 (NSW). However, I do not need to do more than note (with some dissatisfaction) these deficiencies, as Mr Nguyen's submission is inconsistent with the approach taken by Rein J in Creatrix. Rein J noted that s 180 of the Code "gives the Court wide powers and there is a regulatory aspect to credit contracts caught by the Code" (at [94]). His Honour did not think it appropriate to deprive the lender of the principal advanced, and additionally considered that interest at the Court rate should be applied (at [94]). 2. Mr Doyle submitted that, if there was a failure to comply with the Code, the Court would take into account the circumstances surrounding the loan, including the fact that the plaintiff was a private individual who was not in the business of lending money (itself a ground for the Code not to apply) and the dishonesty of the defendant in lying not only to the plaintiff but also to the Court. In those circumstances, he submitted, a sum for interest at the lower rate of 48% should be awarded. 3. The exercise of the Court's wide powers in circumstances such as the present would be compelling. Accordingly, if I had accepted the defendant's argument that the loan is regulated by the Code, I would have directed that the sum to be repaid would include interest at this lower rate. Costs 1. The parties did not address me on costs and I have accordingly reserved them, with liberty to apply. Order: 1. Judgment for the plaintiff for $156,711.60. 2. Costs reserved, with liberty to apply. 3. Exhibits retained until further order. ********** 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: 22 September 2021